Consolidated Financial
and Business Results
FY 06 ( Ended March 2007)

Faith, Inc.
May 15, 200711

NoticeThis
Thisdocument
documentand
anditsits supporting
supportingdocuments
documentscontaincontain
forecasts
forecastsof
ofour
our company’s
company’sfuture
futureperformance.
performance.These
These
are
areestimatesestimatesby
bythethemanagement
managementof
ofFaithFaithbased
basedononcurrently
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information.There
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risksandanduncertainties
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performancemay
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significantly fromfrom thethe forecast.
forecast.

22

Agenda1. Consolidated Financial Results ended FY 06◆Highlights of Consolidated Financial Results◆Highlights of Business Development during FY 06◆Results of Content Distribution Business during FY 06◆Results of Electronic Payment Business during FY 06◆Results Consolidated by Segments◆Challenges for Growth and Development
2. Growth Strategy of Faith Group◆Promotion of Group Management◆Aggregation and Optimum Allocation of Management Resources in Growth Area forGroup Management◇Reorganization of Overseas Business◇Enhancement of Distribution Platform Creation Functions by Aggregation ofTechnology Resources within the Group◆Creation of New Market for Video Distribution
Provision of NFRM, a new platform to be adopted by computers and mobile phones◆Acceleration of New Market Creation for Contents Distribution◇Acceleration of Market Creation by Cooperation with Leading Partners◇ Realization of Group Synergy Management by the Group- Creation of Next-Generation Music Services- Development of Movie Contents and Distribution Market- Acceleration of Market Creation by Expanding User Reach- Expansion and Acceleration of Fee-based PC Service which Provides Payment
Platform
3. Forecasts for the Business Results FY 07◆Highlights of Forecasts for the Business Results◆Forecasts for the Segmental Results◆Realization of Long-term High Growth Balancing Sales and Profit via Group Synergy◆Acceleration of Growth Leveraging Strong Relationship with Business Partners
33Consolidated Financial Results
FY 06

44

Highlights of Consolidated Financial Result•Achieved continued high growth in net sales with the growth of the group companies thoughtie-ups and acquisitions.
•EBITDA and operating profit decreased due to up-front investment and decline in sales of ringtone
distribution solution.
・Net profit/loss is in the red due to depletion and amortization of goodwill to achieve the reorganizationof overseas business, loss from the valuation of investment securities, and registration of extraordinary
Net Sales: billion yen
loss to prepare for more profitable growth.
Unit: millions of yen

Profit: billion yen
6

45
40

5
35
4

30
25

3
20
2

15
10

1
5
0

0
Mar04

Mar05

Mar06

Mar07

-15
EBITDA

Operating Profit

Net Income

Extraordinary loss
MBO of MVNO
Reevaluation of TakeNet
Loss from investment
securities valuation
Depletion of GoodPoint

6,277
1,760
2,641
449
308
363

-5
-10

Net Sales

Unit: millions of yen

Extraordinary Profit
3,713
Digiplug
2,337
Faith Communications
1,044
Accrued retirement benefitsdirectors and statutory auditors 151

Loss on disposal of fixed assets-1-2

Amortization of goodwill
2,626(Year on year increased
1,911）
GIGA Networks Inc.
1,771
TakeNet424
Others432

MVNO Operating Profit△1,832（Year on year decrease of
1,126）The U.S. company cannot
aggregate P/L with Japan, so
there is no tax-saving effect on aconsolidated basis.

55

Highlights of Business Development during FY 06①● Acquired business rights of Giga Networks, No. 2 company in i-Content
Distribution
Service（Domestic）

Mode ringtones with roughly 3 million paying members, at 12
billion yen.
● Strengthened alliance with Yoshimoto Kogyo. Giga Network
increases capital through third-party distribution. Shareholder
composition after capital increase:
Faith: 95.4% Yoshimoto Kogyo: 4.6%
● Established Brave Inc., a joint-investment company by FaithGroup, Taito, and Square Enix, involved in production & digital
distribution of audio/visual software.
● Brave acquired Rightsscale, Inc., involved in digital distributionof music to PC/mobile content providers including iTunes.
● Established Desperado Inc., a joint venture with Amuse Group,etc., involved in production & digital distribution of movies.
● Reached agreement with CROSSWARP Inc., and moved into
the performance-based marketing business for online games
market.
● Formed alliance with Voice-Bank, Inc., top provider of audio
blogs in high-growth field of game & blogs.
● Experienced losses in both sales and profit (non-consolidated)
due to decline in demand for ringtones distribution solutions.
66

Highlights of Business Development during FY 06 ②

Content
Distribution
Service(Overseas)● Sold off content distribution service business of Moderati(US) to Bellrock Media Group.
● Sold off Digiplug (France).
● One-time amortization of goodwill for TakeNET (Brazil).
● Promoted collaboration in content distribution service in
China with Yoshimoto Kogyo through capital and businesstie-up with ROJAM.

Distribution
Platform
Technology
and License● Technology Development Prize awarded by the AcousticalSociety of Japan.
● Formed alliance with InterVideo, Inc. and launchedcollaborative marketing for the provision of licenses andrelated solutions in Japan and Europe.
● Launched eKartoon, a mobile electronic book business, incooperation with Sharp Corporation. Pioneered in the mobile
comic market in US and Europe.
● Established Faith.biz, which will develop a new distribution
platform, aiming to pioneer the market and expand business(May 1).
● Launched demonstration testing of the new content
distribution service using Near Field Rights Management TM(NFRM) authentication technology in cooperation with Intel
Corporation and Yoshimoto Kogyo.

77

Highlights of Business Development during FY 06 ③

Electronic
Payment● Launched WebMoney sales at 7-Eleven (bill receipt atconvenience stores).
● Launched exchange service with Rakuten Super Point.
● Provided electronic money issuance and settlement system
to HMV Japan.
● Collaborated with Family Mart, famima.com, and Label Gate
in launching sales of “WebMoney for mora”, a prepaid emoney settlement service exclusively for the mora music
download service.

● Launched trial operation in the Los Angeles area (USA) for
MVNO“Voce.”● Expanded trial operations to the San Francisco and Las
Vegas areas.
● Spun off MVNO business through a management buy-out.

88

FY 06 Financial Result
for the Content Distribution Service
Operating profit decrease due to decline of ringtone distribution solution.
Net sales and EBITDA increase with the purchase of GIGA Networks, Inc.
Recorded increase in profit for two consecutive years in real terms.
Profit : million yen

Net sales : million yen

18,0006,000

16,0005,000
14,00012,0004,000

Acquisition of GIGA
Networks, Inc.
EBITDA 2,618 million
yen
Decrease in profit of
the polyphonic ringtone
solutionon a non-consolidated
basis.
About 10 billion yen

3,000

GIGA Networks, Inc.
Amortization of
goodwill
1,771 million yen

2,000

Net Sales in license
Business
2,277(△930)million yen

10,000
8,000
6,000
4,000
1,000
2,000
0

0
FY Mar 2004
Service Business

FY Mar 2005

FY Mar 2006

License Buisness

Putting priority on thehighly-profitable royalty
type contracts among
the technology
licensing business( Decrease in the low
profitable development
contracts.)

FY Mar 2007

EBITDA

Operating Profit99

FY 06 Financial Result
for the Electronic Payment BusinessAlong with the expansion in the online game market, a high share in electronicmoney payment was maintained and resulted in increase of the amount ofsettlement, leading to significant increase of net sales and net profit.
Net Sales : billion yen

Profit : million yen

24

600

21

550
500

18

450
400

15

350
300

12

250

9

200

6

150
100

3

50

0
-3

0
FY Mar 2004

FY Mar 2005

FY Mar 2006

FY Mar 2007

-6

-50
-100
-150

Net Sales

EBITDA

Operating Profit

1010

FY 06 Financial Result (by segment)
All of segments except licensing business contributed to an increase in sales.
EBITDA except MVNO business was the second largest increase.
(Unit : Million)
FY Mar2004

FY Mar2005

14,671Year-onyearchangeYear-onyearchange23,628

8,957

61.0%

10,29911,5501,251Service Business

8,951

9,166

License Business

Net Sales
Content-distribution
Services

FY Mar2006

Year-onyearchangeYear-onyearchange30,040

6,412

27.1%

12.1%

14,040

2,490

215

2.4%

10,832FY Mar2007

Year-onyearchangeYear-onyearchange44,152

14,112

46.9%

21.5%

18,521

4,481

31.9%

1,666

18.1%

16,243

5,411

49.9%

1,348

2,384

1,036

76.8%

3,207

823

34.5%

2,277

▲ 930

-29.0%

Electronic Payment
Business

4,084

11,7247,640

187.0%

15,106

3,382

28.8%

22,650

7,544

49.9%

MVNO Business

－

－

－

－

－

－

24

24
▲ 235

0

－

5,728

4,712 ▲ 1,015-17.8%

4,630

▲ 82

-1.8%

4,395

Content-distribution
Services
Electronic Payment
Business

5,628

4,729

▲ 899

-16.0%

5,033

304

6.4%

5,630

597 2294.1%

42

▲ 19

▲ 62 -145.6%

235

254

－

581

345 -193.3%

MVNO Business

－

－

－

EBITDA-12.7%

－

▲ 622

－

－

▲ 1,687 ▲ 1,065

－

5,115

4,017 ▲ 1,098-21.5%

3,391

▲ 626

-15.6%

1,060 ▲ 2,331-68.8%

Content-distribution
Services
Electronic Payment
Business

5,133

4,152

▲ 981

-19.2%

4,029

▲ 123

-3.0%

2,609 ▲ 1,420-35.3%

▲ 30

▲ 136

▲ 106

－

119

255

－

MVNO Business

－

－

－

－

▲ 706

－

－

Recurring profit

5,013

4,047

▲ 966

-19.3%

3,455

▲ 592

-14.7%Net Income

2,700

316 ▲ 2,384-88.3%

1,438

1,122

355.1% ▲ 1,883 ▲ 3,321

Operating Profit

473

354

▲ 1,832 ▲ 1,126853 ▲ 2,602

295.3%－-75.3%ー11
11Challenges for Growthz Reinforcement of expressions of group synergy throughthe promotion of group managementz

Realization of continued high growth in profits inaddition to sales
Accelerate the development of multiple revenue streams to cover thecontraction and profit declines in highly profitable ringtone-related businessz Development of the pillar for next-generation of
distribution platform technology to supplement reduced
contribution to earnings growth from synthesizer
technology
z Execution of investments with high returns utilizing
improved financial flexibility
 Reinforcement and promotion of partnerships with leading partners in eachfield Investments focused on growth fields in which the Faith Group canleverage its strengths
1212Growth Strategy of Faith Group13
13

Promotion of group management
Putting Faith in the center, which creates new solution, the group evolves
around it to realize a stream from content creation to consumer service.
Demonstrating new business among the group companies, then expanding
the result to the strategic alliances with partners outside the group.
Content Creation
Expansion of its contents thoughcreation and production by itself or
collaboration with Faith group

Distribution Platform

Development and provision of new distribution
technology or solution
Expansion of user reach（Numbers of direct/ indirect end users:
now exceeds 10 million ）Contents creation

Distribution Platform

Electronic paymentbusiness

Contents distribution

WEB SITE

14
14

Intensive and Optimum Distributionof Resources in the Growing Field
for Group Management

15
15Restructuring Overseas Business ①【Before reorganization】

Faith, Inc.

Contents distribution

MVNO

Any Music Limited

TakeNET
Curupira S.A.

Faith
Technologies S.A.S

Faith
Communications,
Inc.

Digiplug S.A.S.

MBO (Sellout)

Sellout
Moderati, Inc

Sellout

Platform Technology【After reorganization】

Faith, Inc.

Contents Distribution

Platform technology

Any Music
LimitedTakeNET
Curupira S.A.

Faith Technologies
S.A.S

FaithWest Inc.

China

South America

EuropesU. S. A.

*Focus on development and provision of distribution platform technology

16
16

Restructuring Overseas Business ②
Restructuring overseas business in aiming for a “V-shaped
recovery” in business performance(billion yen)

Sale of Contents Distribution Businesses in U.S.A. and Europe
z Transfer of the contents distribution business division of U.S.A.
subsidiary to Bellrock Media Group
Business transfer of the contents distribution services divisionof the U.S.A. subsidiary Moderati, Inc. to a corporation under theumbrella of the Bellrock Media, Inc.
z Sale of European contents distribution solutions businesssubsidiary to outside the Faith group
Sale of the European contents distribution solutions businesssubsidiary Digiplug, outside of the group

Mar 08Net Sales
Special profit

△2.5
＋10

Mar 07
Special profit+2.3

Mar 08Net Sales△1.1(billion yen)

Segregation and independence through MBO of MVNO business＊＊An operating loss of 1.8 billion yen in March 2007
MBO of MVNO subsidiary Faith Communications, Inc., by Masato
Nakanishi, CEO of Faith Communications, Inc., and Former Senior
Managing Director of Faith. (sale and unconsolidation of all stock held)

Mar 07
Special loss

△0.7

Mar 08Operating profit+1.8

Note: A special loss of 2.6 billion yen was posted for Mar 07 due to a business reassessment of the SouthAmerican content distribution subsidiary TakeNET. Operation profit recover 0.4 billion yen due toexpired of amortization of goodwill.

17
17

By having converged technology resources as a group company, thegroup strengthens the function of establishing the distribution platform-Establishment of FaithBiz, and the acceleration of the market development-

Goals for the NewlyEstablished Company

From technology development to designand commercialization・ Facilitation of distribution platform
development and its
commercialization
・ Enhancing the efficiency of thegroup management by
convergence of technology
Main Business of Faith.Biz
resources

・Development of new distribution
platform technologies
・NFRM authentication system
・Video distribution system
・EC system
・Image & voice recognition
system・Provision of the solutions
to the group companies
and other companies

Faith.Biz, Inc.

Business Expansion
Perspective
・Creation of group synergy
・Planning and proposals of the
new products and businesses
・Commercialization of
distribution platform businessSpin-off company which specializes the businessand recourse of development technology within
the Faith Group.
18
18

Creation of new Video Distribution Market-Provision of distribution platform integrating the
PC and mobile phone through NFRM-

19
19

Creation of a new video distribution system-Independent distribution service which can cooperate with all
types of infrastructure and terminal equipment -CompanyA

Music Contents

Video Contents

CompactMIDI*
FormatRights authentication
by mobile phonewith NFRM

Company
B

CompanyC

Company
DStandardization of ringtone
distribution system

TV

PC

Game
machineCar navigation
systemCreation of new standard and system
For video distribution

Distribution platform involving terminal software, server, and content’s
copyrights and rights business model as same as ring tone distribution.
*CompactMIDI：Music data (MIDI) format invented by Faith for network distribution for mobile phone and other equipment.

20
20

A New Video Distribution System: NFRM
Search video contents thoughmobile phone

Watch the video on the bigscreen

Purchase viewing rights throughmobile phone

Hold your mobile phone over
PC or TV

21
21

New unified rule of video distribution connects
user and digital contents
Flow of Digital Content
Infrastructure

Payment

TV Broadcast

TV

ＢＳ/ＣＳ

ＰＣ

MobileDigital TV

ＵＭＤ

Internet

MobilePhone

MobileService

Game
Machine

ＷｉＭａｘ

Car
Navigation

User

Content Holder

Purchaseof
RightsDigital Devices

Distribution Platform

Etc.

22
22

Participants of “NFRM” testing service(As of March, 2007)
NFRM Distribution
Platform Provision

PC Platform Provision

Video contents
Distribution
infrastructure
Provision

Mobile site
Operation

Contents Provider

Contents providers have been increasing

23
23

Acceleration of Market Creation
for New Contents Distribution-Collaboration with Leading Partners-Realization of Group Synergy throughthe Group Management24
24

Acceleration of market creation through collaboration
with leading partners– Strengthen relationships through capital tie-ups with Intel andYoshimoto Kogyo -Fandango
ROJAM

YOSHIMOTO KOGYOGroup

GIGA Networks
MVP
MEDIA COMPLEX

Faith Group

Bellrock Media
Moderati

Intel Group25
25

Producing Next-Generation Music Business-Setup of Brave and Buyout of Rightsscale-Music Content
Creation and Production

From Creation and Productionof Music to Distribution

Digital DistributionFor
For PC
Mobile Phone
・270 labels
・15,000 songs

Planning and promotion of
New Distribution Strategy

Brave, Inc：

・Promotion using mobile phones
・Tie-up with other services such as EC
・New distribution model such as NFRM

Joint venture by Taito Corp.
and Square Enix Co., Ltd.

Rightsscale USA, Inc.：
Subsidized prominent aggregator
26
26

Exploration of New Distribution Market forVideo Contents-Production and Digital Distribution of Video Contents
by DesperadoFilm and Video Business・Film production
・Advertisement anddistribution of films
・New distribution
strategies
・TV distribution
・Music video creation

Advertisement:“ABDUCTION The Megumi
Yokota Story”“The Last King of Scotland”

Advertisement and distribution:“LOVEDEATH”

Production and investment：“Little DJ”

Rental：“My Date With Drew”

From Video Content Creation and
Production to Distribution

Content Investment
Business・Commission charge foradministrative
Planning and Promotion of New
underwriting
Video Distribution Strategies
・Profit sharing
・Distribution and promotion
using mobile phones
・Tie-up with other services
such as EC
・Developing new distribution
model using NFRM

Desperado, Inc. :Joint venture with Amuse Group27
27

Acceleration of Market Development by Expansion of User Reach-Buyout of Giga Networks-

Purpose of the Buyout

From Ringtone Distribution
to Video Distribution

・ Acquisition of its 3 million
paying members and the new
approach to them・ Expansion of scale merit Business and Capital Strategy
and reinforcement of・ Reinforcement of the partnershipcompetitive standing
with Yoshimoto Kogyo (holds 4.6% ofshares)・ Reinforcement of video distribution
business through the partnership inand out of the group
・ Acquiring MVP and MC・ Mutual enclosure of thesubscribers with a company Direction of business expansion
・ To be a "Mega-site" for total
under SNSentertainment content
・ Concentration on the reinforcementof charged video distribution service
MVP, Inc.:・ Development of distribution to PC
Video creation for broadcasting and distribution,and other consumer electronics using
and procurement of distribution rights
NFRM

Media Complex Co. Ltd.
Video distribution service for PC targeting senior
28
28

User Reach: End users who are able to access directly or indirectly.

Expansion and Acceleration of PC-Paid service Market
through the Provision of Payment Platform

Features of WebMoney

From Issuance of Electronic Money of Its Own Brand
to the Provision of Settlement Platform on B2B Basis・ Convenience・ Anonymity
・ Usable in small amount・ Prepaid, meaning no riskof outstanding balance

Improvement of Market Shareand Convenience・ High share in online game market
contribute to the significantly increaseof electronic settlement
・ Significant increase of the
WebMoney member stores andBusiness Expansion Perspective
distributors
・ Expansion of the share of WebMoney
settlement to the wider audience otherthan the online game market
・ Acceleration of the provision of
settlement platform on B2B basis

WebMoney Corporation:
Users' approval rating No.1**The best recognized electronic money for online use in 2006 in the survey by MyVoice Communications, Inc.
Ref. P43 & P44 for more info about WebMoney.

29
29

FY 2007 Financial Projections

30
30

Sales & Earnings Projections
Net sales continue to increase widely. Electric money and other groupcompany’s business expansions cover shrinkage of ringtone businessand overseas reorganization. Profit also drastically increase through MBO
of MVNO and expansion of group businessProfit：Billion Yen

Net Sales：Billion Yen

6.0

60

5.0

50

4.0

40

3.0

30

2.0

20

1.0

10

0.0

0
FY Mar 04 FY Mar 05

Mar 06

Mar 07-1.0-2.0
Net Sales

EBITDA

Operating Profit

Net Profit 500 (Year- year Change (+58)
Electric Payment Business+82
Desperado+10
GIGA Networks+4
Overseas reorganization△36
Ringtone relation△10(Year-year Change +8)
EBITDA 52+16
MBO of MVNO Business+1
Electric Payment Business△10
Ringtone relation

Operating Profit 21 ( Year-year Change +10)
Separation of MVNO business +18
Electronic payment business +1△10
Ring tone relations

Profit of the year 13 (Year-year change +31)
Mar 08(Projection) -10 Profit from sellout of USA
contents distribution business +10
Special loss from overseas-20 reorganization of previous year +33
Profit from sell-off of Digiplug △23

Net Income

3131

FY 07 Financial Projections by Segment
Sales and profit of contents distribution business will decrease due to shrinkage of ringtone andup-front investment for new market development even though we make strategic moves for market
creation.
Electronic money business continuously increase its sales and profit to a large extent.
MBO of MVNO business contribute to increase in group profit.
(million yen)
FY Mar FY Mar FY Mar FY Mar FY Mar
Year-onYear-on2005
2006
2003
2004
2007
year
year
changechange14,671

23,62830,04044,152 50,000

5,847

13.2%

10,29911,55014,04018,521 16,100 ▲ 2,421-13.1%

Service Business

8,951

9,166

10,832

16,243 14,100 ▲ 2,143-13.2%

License Business

Net Sales
Content-distribution
Services

1,348

2,384

3,207

2,277

2,000

▲ 277

-12.2%

Electronic Payment
Business

4,084

11,724

15,10622,650 30,900

8,249

36.4%

MVNO Business

－

－

5,728

Content-distribution
Services
Electronic Payment
Business
MVNO Business－－▲ 24 -100.0%

4,395

5,200

805

18.3%

5,033

5,630

4,400 ▲ 1,230-21.9%

235

581

700

119

20.4%

－

▲ 622 ▲ 1,687

0

1,687

－

5,115

4,017

3,391

1,060

2,100

1,039

98.0%

Content-distribution
Services
Electronic Payment
Business

5,133

4,152

4,029

2,609

1,400 ▲ 1,209-46.4%

▲ 30

▲ 136

119

473

600

126

26.7%

MVNO Business－－▲ 706 ▲ 1,832

0

1,832

－

Recurring profit

5,013

4,047

3,455

853

1,700

846

99.1%

Net Income

2,700

316

1,438 ▲ 1,883

1,300

3,183

－

EBITDA

Operating Profit

0

24

4,712

4,630

5,628

4,729

42

▲ 19

32
32

Aim for sustained high growth having balanceof sales and profit through group synergy
Investment sector to be emphasized ：Business development of distribution platform
Contents creation, production and distribution service in Japan

Development of contents and needs for user
by producing music and video creation
Improvement of convenience for user andcontent holder by stepping up distribution platform
Increased support of charging system
by users and service providers
Enhancement of distribution channel,
expansion of user-reachExpansion of all group companies
Increase of group synergy＝ Total growth of group33
33

Acceleration of growth with closer linkage with business partners
Putting distribution platform of Faith group in the core, accelerate businessexpansion and profit growth through creation and distribution of contents.

Services of partners【Ref. P43-P45 for more info . of companies】
Contents creation

Distribution
PlatformContents Distribution

Electronic Payment

Web Site Operation

34
34