*The share price is the closing price on August 1. The number of shares issued was obtained by subtracting the number of treasury shares from the number of outstanding shares as of the end of the latest quarter.
*ROE and BPS are the values as of the end of the previous term.

 

*The forecasted values were not provided by the company.
*It adopted consolidated accounting from FY ended December 2015. From FY ended December 2016, net income is profit attributable to owners of the parent. Hereinafter the same shall apply.
*In October 2016, it implemented a 2-to-1 stock split. In July 2017, it implemented a 2-to-1 stock split. EPS in FY ended December 2016 are retroactively adjusted.

This report outlines Mobile Factory's financial results for the first half of the FY ending December 2018 and its earnings estimates for the term ending December 2018.

 

 

 

 

The Company's two main pillars are the Social Apps Service led by location-based games and the Contents Service that provides contents such as ringtones. The Contents Service, for which the Company has over 10 years of experience, is a stable profit source, and the Social Apps Service, for which the Company has established its unique style, is the driving force of its growth. The Group consists of Mobile Factory and two 100% subsidiaries: G1 Dash, Inc., which carries out the operation of "Station Memories!" and "Eki Dash" series, and Bit Factory, Inc. which manages blockchain services. Its management philosophy is "To make the people of the world happy through the things we create." The brand message is "Take your experiences with you". 【Business contents】 Business contents are the Social Apps Service led by location-based games and the Contents Service that provides contents such as ringtones. While the Social Apps Service offers free-to-play games but charges money for in-game items, the Contents Service charges a monthly flat-rate fee (there are some exceptions). As for the sales composition in the FY ended December 2017, social application services made up 65.5% and content services accounted for 34.5%. Social Apps Service The Company operates its business with a focus on "Station Memories!" and the "Eki Dash" series, which are location-based games, (the Company terminated the service of Rekishito Connect in September 2018) and distributes games through SNS platforms (GREE, Mobage, and Colopl, etc.) and through application markets (Apple Store, Google Play, etc.). The "Eki Dash" series, which was released in March 2011, has 3 elements: a competition element in which the players compete to seize nearby stations, a life-log element in which the locations that the players actually visited are logged, and a collection element in which the players collect seized stations, train lines and titles. "Station Memories!" released in June 2014 still has the fun of capturing and collecting stations from the "Eki Dash" series and also has the enjoyment of raising original characters. Part of the illustration and scenario development is outsourced, but system development is carried out internally. Contents Service For the Contents Service, the Company mainly offers contents such as stamp images and ringtones through services operated by communication carriers. For ringtones provision, it has "Newest Songs Unlimited Downloads" as own-company model and "RecoChoku Melody" in partnership with RecoChoku Co., Ltd. as OEM model targeting smartphones and feature phones. Users can download unlimited ringtones from 100 yen (excluding tax) to 300 yen (excluding tax) per month. One of the Company's strengths is high-quality sound developed internally as well as its system and know-how to add the sound from dramas, movies or TV commercials while they are still popular. The creation of ringtones' sound sources and development and operation of websites are managed internally (there are some exceptions). Other than ringtones, it offers an all-you-can-get service for stickers and melodies at a fixed rate. Since the launch of the service in May 2004, it has gained over 10 years of experience. By incorporating effective advertisement methods by the moment, it has been increasing users. Although the number of fee-paying members is on the decrease, the profitability is still high, because products are, in principle, developed internally and the profit of the remaining players is high. However, the Company is focusing on investing management resources in social application services and blockchain related services.

 

 

(1) Consolidated Business Results for 2Q (April to June) Sales and operating income increased 37.7% and 74.0%, respectively, from the previous quarter, and quarterly operating income marked a record high. Thanks to "Station Memories!" which changed the distribution source to increase the sales, social application services drove the increase in sales and while the sales of content services decreased, "StaMelo: Stamp & Melody Torihodai" grew in line with expectations. While the careful examination of the effectiveness of a promotion for "Station Memories!" decreased advertising expenses, DAU (the number of users of the service per day) marked a record high. Additionally, the improvement measures for billing designed based on the results in the first quarter generated good results. At the end of March 2018, "Station Memories!" (iOS/ Android) changed its distribution source from Fuji Games to the 100% subsidiary G1 Dash, Inc. Due to this, the revenue calculation method changed from the net amount calculation (sales - platform handling charges) by distribution under other companies' names (OEM) to the total price calculation (calculation of sales and cost of sales of the platforms handling charges) by the distribution under this company's name. Until the end of March 2018, the net price of "Station Memories!" (iOS/Android), Smart Novel (Android), and RecoChoku Melody (ringtone) was calculated, however from April onward, due to a change in distribution source, the total price of revenue related to "Station Memories!" is posted. (2) Consolidated Business Results for 1H Sales increased 16.1% year-on-year and operating income decreased 6.1% year-on-year. Sales were 1,369 million yen, up 16.1% year-on-year. With "Station Memories!" as the driving force, the sales of location-based games increased 35.3% year-on-year. In the second quarter, in addition to the record high DAU (the number of users of the service per day) thanks to the "Station Memories!" 4th anniversary campaign, the improvement measures for billing generated good results. Additionally, the native version of the "Eki Dash" series performed well. On the other hand, the sales of content services decreased 7.9% year-on-year, due to the decline in the number of paying members for each ringtone melody service operated by the Company. Despite this, the content services performed as expected. Operating income was 372 million yen, down 6.1% year-on-year. After the change of the distribution source of "Station Memories!" (iOS/ Android) from Fuji Game Co Ltd to the Company's 100% subsidiary G1 Dash, Inc. in March 2018, gross profit margin decreased while SGA, including advertisement expenses, augmented. (3) Financial Condition and Cash Flow The total assets as of the end of the first half were 2,314 million yen, down 245 million yen from the end of the previous term. Cash & deposits and net assets decreased due to the purchase of treasury shares. Equity ratio was 82.9%. (In the previous term, it was 86.9%)

 

 

In the short term, they aim to be the domestic industry leader in location-based games while endeavoring to develop blockchain related business for mid to long-term growth. As for location-based games, while attaching importance to the increase of new users and user retention rate, they will continue promotions, with "Station Memories!" as the driving force, and the Company will also continue various collaborations and interactive events. In addition, the Company will continue to engage in regional revitalization. They will attach importance to the stable operation of the "Eki Dash" series. Within blockchain related business, the Company will put effort into expanding the number of users of Uniqys Kit, a decentralized application development kit developed by the Company, and "Quragé" (mentioned later), a DApps (DApps: Decentralized Applications) browser application mounted with a wallet feature. On the other hand, in the mid/long term, they will maintain the stable growth of O2O (online to offline) through collaborations with municipalities and railway business operators and "location-based games" in the field of regional revitalization and the stable growth of contents, and they will also focus on the development and operation of "Uniqys Network (mentioned later)" in the blockchain related business. Uniqys Project Aiming for the spread of decentralized applications (DApps:Decentralized Applications), the Company is planning to develop the "Uniqys Network," which will include "Quragé," a service for mobile users to easily use DApps, and "Uniqys Kit," a service for developers to easily develop DApps. On July 25, 2018, the Company released the Android version of "Quragé," a service for mobile users, and on the same day, the Company released the preview version of "Uniqys Kit," a service for developers. The Company plans to release the iOS version of "Quragé" within the year and is also continuing to develop "Uniqys Kit" with the official release scheduled in 2019. The Company hopes to spread DApps to many users and developers through "Uniqys Network," which actualizes the era of decentralized DApps. What is DApps? DApps is an application that uses the blockchain, which is the core technology for cryptocurrency, and can be operated and managed without a centralized operator. Most DApps were developed on the Ethereum platform (Ethereum was created as a platform for developing applications). The features of DApps are as follows: 1) The application is an open source, operation is automatic, and management is not by a centralized body. 2) Application data and records are based on the blockchain. 3) It has encrypted tokens, which can be distributed openly, and when using the application these tokens are used. Cryptocurrency is also one of DApps. "Uniqys Network" is a world created by "Uniqys Kit" and "Quragé." "Quragé" is a browser application for mobile devices, especially for DApps. "Quragé" has browsing and wallet features and can use various DApps such as "Quragé Magazine," which is provided by the Company's group. On the other hand, "Uniqys Kit" is a toolkit that supports application development within the "Uniqys Network." (A support tool with which developers can easily develop DApps). Like general web applications, it is possible to develop DApps with easy program languages. Additionally, the Company is looking into the provision and distribution of unique tokens that could be used in DApps in the "Uniqys Network." Domestically, although the details of the implementation schedule and scheme are still to be decided, discussions with the regulatory authorities regarding the treatment of the unique tokens under the law are already taking place. Outside Japan, the Company plans to distribute the unique tokens after checking local regulations.

 

 

Presently, the number of applications based on Ethereum is only about 1,000, but the Company says that there is a possibility that it will grow 100 to 200 times in two or three years. The Company thinks that within this growing market, "Uniqys Network," which has contact with both users and developers, will create great value. Although it seems that an investment period of roughly two years will be necessary, the company plans to invest while believing its potential. Considering the increasing risk in the gaming business, it is advisable to allocate managerial resources into fields aside from games, and once business is on track, the Company will be able to expect stable sales and the profit structure will also change. We would like to pay attention to the progress of the Uniqys Project.

 

 

 

◎ Corporate Governance ReportUpdated on March 28, 2018 The Group companies recognize that establishing the corporate ethics based on legal compliance is the highest priority in order to respond to trust and expectations from the customers, shareholders and entire society and maximize the corporate value. To achieve it, the Company will strengthen risk management and supervision functions and elevate soundness and transparency of the management to contribute to development of the economic society. <Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)> 【Principle 4-11-③】 We are making efforts to improve the function of the Board of Directors based on the opinion of directors and auditors, including outside ones, however, the Company has not yet carried out analysis and evaluation regarding the effectiveness of the Board of Directors. In the future, the Company will discuss the analysis and evaluation of the effectiveness of the Board of Directors and the disclosure of the results. <Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)> 【Principle 1-4】 The Company may hold shares of other listed companies as strategic shareholdings, if it determines that they will contribute to maintaining or improving their corporate value such as strengthening partnerships. At this point, the Company does not hold any shares of other listed companies. 【Principle 1-7】 The Company examines if the transactions are rational or not, before it engages in transaction with related parties. Furthermore, with a focus on the appropriateness of the transaction conditions compared with the other transactions, the Company makes it a requirement to obtain an approval for the transaction at a Board of Directors meeting. 【Principle 3-1】 (1) The Company's corporate philosophy is disclosed on our company website and in securities reports, notices of convocation, financial results briefings, etc. (2) The Company's basic policy on corporate governance is stated in the Corporate Governance Report. (3) The remuneration of directors is decided by the Board of Directors, within the total remuneration range is determined at the General Meeting of Shareholders. (4) When appointing directors and auditors, candidates are nominated after considering their knowledge, experience, and ability, as well as the person as a whole. (5) The reasons for appointing candidates for directors and auditors are stated in the notice of convocation. Tokyo Stock Exchange Corporate Governance Information Service: http://www2.tse.or.jp/tseHpFront/CGK010010Action.do?Show=Show