Rakuten Reports Consolidated Financial Results for the Fiscal Year Ended December 31, 2012

Rakuten Reports Consolidated Financial Results for the Fiscal Year Ended December 31, 2012

TOKYO--(BUSINESS WIRE)-- Rakuten, Inc. (JASDAQ:4755) today announced consolidated financial reports for the fiscal year ended December 31, 2012. The Rakuten Group, for the fiscal year ended December 31, 2012 achieved solid growth with consolidated net sales of ¥443,474 million (up 16.7% year on year), operating profit of ¥72,259 million (up 2.1% year on year), and ordinary profit of ¥71,514 million (up 4.8% year on year). All three results are record highs. On the other hand, there was an extraordinary loss recorded of ¥28,571 million, including the loss from the restructuring of overseas businesses and impairment of goodwill. This was mainly attributable to a loss from business restructuring in Play.com (U.K.) due to the organizational restructuring carried out against changes in local regulations, and the recording of an impairment of goodwill in Buy.com (U.S.) due to income plan falling below initial forecasts, as a result of prioritizing a switch in the business model so as to raise mid-term competitiveness. As a result of these factors, current net income amounted to ¥19,413 million (compared with a net loss of ¥2,287 million in the previous fiscal year).

Qualitative Information Concerning Consolidated Business Results

(1) Business Results for the Fiscal Year Ended December 31, 2012

In the world economy during the fiscal year ended December 31, 2012, the prolonged European debt crisis and slowdown in growth in newly developing regions led to heightening uncertainty for the world outlook. In the Japanese economy, although personal consumption generally remained strong, the deterioration in the overseas economy and other factors saw it weaken from the middle of the year. Despite recent signs of a prevailing recovery in the domestic and overseas economy, there continues to be aspects of these trends that require close watch.

Meanwhile, the worldwide spread of the Internet and the developing shift in social foundations across the world means that the Internet continues to be a major engine for worldwide economic growth, as documented in a recent White Paper on Information and Communications (*1). The Internet shopping market, with the rapid spread of smartphone and tablet devices, coupled with the accompanying changes in consumer lifestyles, is likely to see continuous growth.

Under such environment, Rakuten seeks to vigorously drive forward its growth strategy even further, by actively taking Rakuten Ichiba's B2B2C marketplace model to the world while also enhancing services for smartphone and tablet devices. In addition, we also aim to improve delivery quality, from measures such as reinforcing our logistics infrastructure. In the Internet Finance business segment, we are aggressively promoting the business centering on Rakuten Card, which has notable synergies with Internet Services.

(2) Segment Information

Business results for each segment are as follows.

< Internet Services >

In the Internet Services segment for the fiscal year ended December 31, 2012, Rakuten worked on enhancing its product lineup, strengthening services for smartphone and tablet devices, improving next-day delivery services, and running large-scale sales events called 'Rakuten Super Sale', among other initiatives in its core 'Rakuten Ichiba' service. In addition to the success of these initiatives, the expanding use of e-commerce in daily consumption saw the number of unique buyers and order numbers perform strongly, with the domestic e-commerce gross merchandise sales rising by 15.3% over the previous fiscal year, as the segment continues to maintain a high level of growth.

In Travel services, we added a 12.9% year on year increase to gross transaction value. Dynamic Packages had solid sales and upgraded its single payment service for corporate hotel reservations in pursuit of a more diversified earnings base.

In its overseas ventures, despite posting an extraordinary loss, Rakuten is promoting the expansion of its business model overseas by focusing on marketplace-model services while also actively implementing initiatives including points programs that have proven successful in Japan. During the first quarter, Rakuten made the Canadian-based Kobo Inc., a worldwide operator of e-books where the market in enjoying continuous high sales growth, into a consolidated subsidiary.

As a result, net sales for the segment rose to ¥285,814 million, a 25.0% year-on-year increase, while segment operating income was down 10.6% year on year to ¥58,639 million due to our continued advance investments, mainly in overseas businesses.

< Internet Finance >

For the Internet Finance segment for the fiscal year ended December 31, 2012, in credit card and related services, the shopping transaction value accompanying an increase in credit card membership rose 36.0% over the previous fiscal year. Also, a solid rise in the revolving shopping balance resulted in a rise in commission income and subsequent notable growth in profit.

Banking services benefited from its effective marketing programs to Rakuten members and solid growth in loan balances to achieve increased interest income from loans. In securities services, activation of the domestic market from the fourth quarter has been generating a huge increase in current domestic stock transaction payments. In its aim to further enhance financial services, from the fourth quarter, Rakuten has made AIRIO Life Insurance Co., Ltd. (*2) a consolidated subsidiary.

As a result of the above, the Internet Finance segment recorded ¥156,430 million in net sales (10.8% increase over the previous fiscal year). Segment operating profit was ¥23,714 million (compared to a segment operating profit of ¥12,970 million in the previous fiscal year) which was an 82.8% growth in income over the previous fiscal year, due to a ¥4,264 million allowance in the previous fiscal year, for loss on interest repayment taken in advance of the re-organization of the credit card business.

< Others >

During the fiscal year ended December 31, 2012, operating profit in the Others segment firmed up, despite lower telecommunications sales stemming from the shift to a new business model emphasizing new, high-growth ventures such as cloud services, while moving away from a traditional landline operator providing bypass services. The professional sports division lifted net sales through year-on-year revenue increases in both advertising and tickets.

As a result of the above, net sales for the segment were ¥33,269 million, a 2.6% year-on-year decrease, while segment operating profit grew 38.8% year on year to ¥1,585 million.

(3) Outlook for the Coming Year

In the year ending December 31, 2013, we anticipate further expansion in the use of our services in Japan including e-commerce and travel, resulting in continued high growth. In financial services, although there will be a certain degree of impact from financial conditions, we anticipate a continuous growth in earnings created from synergies within the Rakuten Group. Aiming for an early return in income, Rakuten will continue to make strategic allocations of corporate resources and active investments in high-growth areas such as e-books, in order to generate more mid-to-long-term income opportunities.

While making these forward-looking investments, Rakuten intends to surpass its current financial results in the fiscal year ending December 31, 2013.

Rakuten, Inc. and its group companies are also involved in the securities business and other finance-related business activities, with the result that their business performance is affected by financial market trends and other factors. For these reasons, it is impossible to predict financial results, and no forecasts are included in this report.

(4) Changes in Accounting Policy

(a) Changes in Recognition Timing of the Reserve for Points

The former accounting procedure for the Rakuten Super Points program treated regular points by recognizing a reserve for points at an amount corresponding to the balance of points available for customer use at the end of the period and treated limited-time points as an expense in the period used. Under the new policy, the projected value of points granted for both regular and limited-time points will be recognized in the reserve for points at the time of transaction.

Points granted and used have both grown recently as point programs play an increasingly important role each year as marketing tools. In response to these conditions, the Rakuten Group has constructed a point campaign management system and developed an internal management structure in order to gain timely understanding of campaign effects. In the first quarter accounting period, we have been able to promptly calculate the estimated value of granted points from campaigns at the time of generation for both regular and limited-time points. We are thus able to gauge and to manage the point balances in the important Rakuten Super Points marketing tool. At the same time, we have adopted a uniform accounting procedure for the Rakuten Super Points program. This method accounts for points in the reserve for points by using the projected value of point grants, and recognition timing will be based on the transaction that caused the points to be generated.

The change in accounting policy is applied retroactively, and quarterly and annual financial statements for the previous year are presented after retrospective application.

As a result, the amounts for operating profit and ordinary profit for the previous fiscal year are each ¥554 million lower and loss before income taxes and minority interests for it is ¥554 million larger than before retrospective application, and the reserve for points at the end of the previous fiscal year is ¥5,290 million higher. In addition, reflecting the cumulative effect in net assets at the beginning of the previous fiscal year reduces retained earnings at that time by ¥2,812 million.

(b) Application of the Accounting Standard for Net Income per Share

Starting in the first quarter of the current fiscal year, we are applying the Accounting Standard for Earnings per Share (Accounting Standards Board of Japan [ASBJ], Statement No. 2, revised June 30, 2010) and the Guidance on Accounting Standard for Earnings per Share (ASBJ Guidance No. 4, revised June 30, 2010).

According to this change, the calculation of diluted net income per share for stock options whose right to exercise is established after a fixed period of work service sets the value of receipts on the assumption that funds are paid in when rights are exercised and has changed to a method that includes the future service-related portion furnished by the company.

For the stock split conducted during the fiscal year ended December 31, 2012, net income per share and net income per diluted share were calculated under the assumption that the stock split took effect at the start of the previous fiscal year.

(c) Application of the Accounting Standards for Accounting Changes and Error Corrections

As a result of accounting changes and corrections to prior period errors after the beginning of the first quarter financial reporting period, we have applied the Accounting Standards for Accounting Changes and Error Corrections (ASBJ Statement No. 24, December 4, 2009) and the Guidance on Accounting Standards for Accounting Changes and Error Corrections (ASBJ Guidance No. 24, December 4, 2009).

(5) Other

The above information was originally prepared and published by the Company in Japanese as it contains timely disclosure materials to be submitted to the Osaka Securities Exchange. This English summary translation is for your convenience only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version. The following financial information was prepared in accordance with generally accepted accounting principles in Japan.

*The full report is available at:
http://global.rakuten.com/corp/investors/documents/pdf/12Q4tanshin_e.pdf

About Rakuten

Rakuten, Inc. (JASDAQ:4755), is one of the world's leading Internet service companies, providing a variety of consumer- and business-focused services including e-commerce, eBooks & eReading, travel, banking, securities, credit card, insurance, e-money, portal and media, online marketing and professional sports. Selected by Forbes as 7th among the World's Most Innovative Companies of 2012, Rakuten is expanding globally and currently has operations throughout the Americas, Europe, Asia and Oceania. Founded in 1997, Rakuten is headquartered in Tokyo, with over 10,000 employees and partner staff worldwide. For more information, visit http://global.rakuten.com/corp/.

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