COMPANY RESEARCH AND ANALYSIS REPORTKADOKAWA CORPORATION
9468
Tokyo Stock Exchange First Section

25-Dec.-2020
FISCO Ltd. Analyst

Yuzuru SatoFISCO Ltd.
https://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. 1H FY3/21 results........................................................................................................................................

01

2. FY3/21 outlook...................................... ......................................................................................................

01

3. Medium-Term Management Strategy. . .........................................................................................................

02■Business overview---------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Publication business.............................. ......................................................................................................

03

2. Video business. . ...........................................................................................................................................

04

3. Game business...................................... ......................................................................................................

04

4. Web Services business.......................... ......................................................................................................

04

5. Others..........................................................................................................................................................

06■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 06
1. Overview of the 1H FY3/21 results. . .............................................................................................................

06

2. Trends by business segment. . ......................................................................................................................

08

3. Financial condition and management indicators. .........................................................................................

11■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 13
1. FY3/21 outlook...................................... ......................................................................................................

13

2. Outlook by business segment. . ....................................................................................................................

14■Medium-Term Management Strategy----------------------------------------------------------------------------------------------------- 17
1. Current business environment and future direction. .....................................................................................

17

2. Fundamental strategy and changes in the business environment. ...............................................................

17

3. Numerical management targets and business strategy................................................................................

19■SDGs initiatives------------------------------------------------------------------------------------------------------------------------------------------------------------ 24■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 24■Information security measures--------------------------------------------------------------------------------------------------------------------- 25

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/█ Summary
The Company will invest management resources in books,
animation, games, and the education businesses, and aims for¥16,000mn in operating income in FY3/23
KADOKAWA CORPORATION <9468> (hereinafter, also “the Company”) is a comprehensive entertainment company
that operates Publication, Video and Game, Web Services, Education and other businesses globally and has an
operating holding company format with various group companies, including DWANGO Co., Ltd., which runs one ofJapan’s largest video services niconico, game developers FromSoftware, Inc. and Spike Chunsoft Co., Ltd.
1. 1H FY3/21 results
In 1H FY3/21 consolidated results, while revenue fell 2.9% YoY to ¥97,553mn, operating income increased 22.8%
YoY to ¥7,847mn, setting a new record high for a half-year basis. Due to the impact of COVID-19, the Video businessand Web Services business accounted for approximately ¥4,300mn and ¥1,800mn of the decline in revenue,
respectively. On the other hand, the increase in operating income was driven by the significant increase in profit in
the Publication business based on the acceleration of growth in the high-profit-margin e-books segment, continued
strong performance for both new and existing games in the Game business, and an improvement in the Company’s
overall operating efficiency attributable to the digital transformation (DX).
2. FY3/21 outlook
In terms of the outlook for FY3/21, the Company is forecasting revenue to increase 1.6% YoY to ¥208,000mn, andoperating income to grow 29.8% YoY to ¥10,500mn, as the Company forecasts revenue to increase for the firsttime in two years and expects a new record high in operating income. While the third wave of COVID-19 is settingin, the Company believes that the four growth businesses (books, animation, games, and education) will continue
to perform strongly without any negative impacts from the pandemic, and that these segments will drive results. 1H
operating income was 74.7% of the full-year forecast, but the factors for smaller profit in 2H include the increase indepreciation as well as start-up fees for Tokorozawa Sakura Town, which celebrated its Grand Opening in November
2020, as well as an expected increase in costs in the Web Services business, including investment targeting a
recovery in sales for niconico Douga services. However, the Company believes that there is a possibility for operating
income to exceed its forecast depending on the sales of “Cyberpunk 2077” and other titles the Company has highhopes for, in the Game business.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION

25-Dec.-2020

9468 Tokyo Stock Exchange First Section

https://ir.kadokawa.co.jp/global/

Summary

3. Medium-Term Management Strategy
In the Company’s medium-term management strategy covering the period through FY3/23, the Company laid out
its strategy for accelerating growth by promoting a global/media mix strategy and through DX, based on its IP
creation capabilities, IP rollout power, and its IP experience power. The Company’s numerical management targets
for FY3/23 are revenue of ¥240bn and operating income of ¥16bn. The Company will aim to achieve these targets
by investing management resources in its four businesses positioned as growth businesses (books, animation,
game, education). In books, the Company will expand earnings by promoting growth in e-books as well as throughmanufacturing and distribution reforms. In animation and games, the Company will employ a media mix strategy for
its own IP as well as capture the Publishing business. In the education business (EdTech), the number of students
continues to increase at N High School (KADOGAWA DWANGO Campus), which offers an educational systemprovided by DWANGO, while in April 2021 the S High School will be established and the Company will begin offeringan educational system utilizing VR technology. The number of students enrolled in N High School was 15,000 as of
October 2020, representing a 50% increase from April 2019. Going forward, the Company expects this business toenjoy strong growth, as it believes the number of students will increase and it will provide new added-value throughthe use of VR courses.
Key Points
1H FY3/21 operating income was a record high on a six-month basis amid the COVID-19 pandemic.
The four growth businesses (books, animation, games, education) are driving earnings• The Company is aiming for operating income of ¥16bn in FY3/23 based on a three-pronged approach of
expanding the scale of core businesses, practicing ESG/SDG-conscious management, and enhancing earnings
power
•
•

Results trends
Revenue (left)（¥mn）

Operating income (right)

300,000（¥mn）
12,00010,500250,000

10,000205,717

206,785

208,605

204,653

208,000

200,000
150,000

8,000
8,087

8,419

6,000

100,000

4,000

3,144

50,000

2,000

2,707

0

0
FY3/17

FY3/18

FY3/19FY3/20FY3/21 (E)Source: Prepared by FISCO from the Company’s financial results

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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KADOKAWA CORPORATION

25-Dec.-2020

9468 Tokyo Stock Exchange First Section

https://ir.kadokawa.co.jp/global/█ Business overview
A comprehensive entertainment company group developing fourmain businesses; Publishing, Video, Game, and Web Services
The Company is a comprehensive entertainment corporate group that operates both in Japan and overseas, withfour main businesses: the Publication business, the Video business, the Game business, and the Web Services
business. The breakdown of 1H FY3/21 revenue by segment shows the Publication business at a majority with59.5%, Video business at 13.1%, Web Services business at 10.7%, Game business at 8.2%, and Others (education,CDs, goods, and other merchandising, and inbound-related business) at 8.4%. The operating loss in the Others
business was covered by operating income in the four main businesses, particularly the Publication business. While
Publication business is currently the primary source of sales and profits, the Company hopes to increase sales andimprove profitability in the Video and Game businesses with a media mix strategy utilizing its own IP and achieve
renewed growth in Web Services business, which restored profitability in FY3/20, by building the fan communityand developing and providing new services.

Composition of revenue and operating income (loss) bybusiness segment (1H FY3/21)
Publication
100%
80%
60%

Video

Game

8.4%
10.7%
8.2%

Web Services

Others

15.0%

13.1%

34.7%
10.4%

40%
59.5%

57.9%

20%
0%

-18.0%-20%
Revenue

Operating income (loss)

Source: Prepared by FISCO from the Company’s financial results

1. Publication businessIn this business, which is KADOKAWA’s main business, the Company publishes and sells paper-based books,
separate volumes, light novels, and comics, as well as e-books and magazines. A wealth of title archives (110,000
paper-based books and 60,000 e-books) is a driving force of the KADOKAWA Group’s growth. In addition tomagazines including “The Television” (TV information), “Famitsu” (game information), and “Lettuce Club” (lifestyle
information) and mooks (magazine-style books) in this business, the Company also produces custom media as well
as selling advertisements on the Internet.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Business overview

For sales of paper books, the Company has strength in developing works through its media mix strategy, and it
continuously publishes new titles at a rate of 5,000 a year. The Company has worked on optimizing production andshipments based on marketing results from many years and utilization of digital technology. Its book return rate in
1H FY3/21 was in the 30% range, which is lower than the industry average.
Conversely, in e-books, the Company sells its own and other companies’ works on BOOK☆WALKER, which is its
directly managed e-books distribution platform, and also on the e-book stores of other companies, like Amazon<AMZN> and Rakuten, Inc. <4755>. For e-magazines, it provides and manages content in collaboration with NTT
DoCoMo, Inc. <9437> for d magazine, which is an all-you-can-read magazine service. In 1H FY3/21, sales of
e-books and e-magazines as a percentage of overall sales of books and magazines increased to just under 50%,
as annualized growth in the segment remained above 10%, which is a high level.
2. Video business
The Video business includes planning, production, and distribution of movies; sales of package software; sales of
copyrights to overseas versions of anime; and video distribution. In addition, Kadokawa Daiei Studio Co., Ltd. andGlovision Inc. are developing the studio business. The Company is focusing on creating video from the Group IP
generated in the Publication and Game businesses and on producing and distributing live-action films and anime
titles.
3. Game businessIn the Game business, KADOKAWA CORPORATION, FromSoftware, Inc., Spike Chunsoft Co., Ltd., and KADOKAWAGAMES, LTD. carry out the planning, development, and sales of packaged game software, network games, and app
games. Previous hit titles include “DARK SOULS,” “Bloodborne,” “SEKIRO: SHADOWS DIE TWICE” (FromSoftware),“GOD WARS” (KADOKAWA GAMES), “Kenka Bancho,” “Danganronpa,” and “ARK: Survival Evolved” (Spike
Chunsoft).
4. Web Services business
DWANGO handles the Web Services business and mainly operates a portal business (running the niconico video
services, etc.). It also implements live business that plans and manages various events as niconico advertising andpromotion as well as mobile business (music distribution service for mobile phones).
The Company provides various services on its mainstay portal business, including the niconico Douga, niconico
Live, and niconico Channel. Sales include revenue from monthly fees (¥550/month) obtained from niconico premium
members, which enables them to watch videos and live broadcasts comfortably; advertising revenue, such as
from website banners and video; and revenue from points used to watch pay-to-view videos. As of September 30,
2020, the number of valid members*1 was 83 million people, while 1.59 million of these were premium members(down 120,000 people from September 30, 2019), as the downward trend since 2017 continues. However, since
March 2020, the number of premium members started showing a net increase on a month-over-month basis insome months. The usage conditions from July to September 2020 were that MAU (monthly active users), including
non-log-in unique users (UU)*2, was 20 million people.
*1	Number of members obtained by subtracting cancellations and unauthorized IDs from ID issuance volume.
*2	From the end of February 2018, it became possible to view without logging-in.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Business overview

On the other hand, the niconico Channel is a platform where companies, organizations, and users can distributevideo and live broadcasts. At the end of September 2020, it had a total of 9,553 channels (up 593 cannels from
September 30, 2019), 1,783 monthly-fees channels (up 228 channels), and 1,240,000 monthly fee-paying registeredmembers (up 160,000 people), and all of the indicators continue to increase. A growing number of companies
and individuals are engaging in business using SNS video, and communications network quality has substantially
improved with the version upgrade in 2018. We think the ability to view high-quality video smoothly even on asmartphone is helping increase the number of fee-paying registered members.

Volume trends in niconico monthly fee -paying registered members andpremium members
niconico Channel fee-paying registered member volume (left)
niconico premium member volume (left)
niconico channel volume (monthly paid) (right)(thousand)

1,783

3,600

1,555

3,200
2,800

510 560 600 590 610

2,400

1,600
1,400

640
660

2,000

（ch）
1,800

680

760

840 910

1,010
950

1,140
1,200
1,230
1,240
1,080
1,170
1,000

1,600

800
2,430
2,560
2,280
2,070
600
1,940
1,800
1,710
2,560
2,520
2,360
1,630
2,140
1,590 400
2,000
800
1,750
1,660
1,880
1,610
400
200

1,200

0

0
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
FY3/17

FY3/18

FY3/19FY3/20FY3/21

Source: Prepared by FISCO from the Company’s results briefing materials

The live business plans and manages live events, such as niconico Chokaigi*1, Tokaigi*2, and Animelo Summer
Live*3. While the Company had planned joint niconico Chokaigi and Tokaigi events in April 2020, it revised theevent to a niconico Internet Chokaigi (April 12–19) in an online-only format because of COVID-19 impact. Total
attendees (Internet) rose sharply to about 16.38mn people partly due to extending the event period from two daysin the previous year to eight days. Also, Animelo Summer Live was canceled and instead Animelo Summer Night in
Billboard Live was streamed online. In addition, at the Heresta Studio (Ikebukuro) which opened in November 2019,the site conducted live performances by virtual characters based on the concept of “merging the real and virtualworlds,” and offers wide-ranging contents including anime and game-related stage events.
*1	The largest niconico event held at Makuhari Messe with the concept of “recreating all of niconico onsite.” All the participating users are “lead actors” in the various events that integrate the Internet and the real world. niconico Chokaigi 2019was held on April 27–28, 2019, with approximately 168,000 visitors to the venue and approximately 6.66 million online
visitors.
*2	Japan’s largest “user participation” game event that features games from analogue to digital and old and new games
from the East and West. Tokaigi 2019, which was held at Makuhari Messe on January 26 and 27, 2019, was the firstevent jointly held with Japan Amusement Expo 2019 and the eSPORTS International Challenge Cup. It had approximately
84,000 site visitors and a total of 4.59 million online visitors, and it is contributing to the expansion of the Japanese games
market and the e-sports market.
*3	This is the world’s largest Anison live event held during August to September each year. It attracted 84,000 visitors overthree days in 2019, an all-time high.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Business overview

The mobile business operates dwango.jp, which distributes single songs, ring tones, and so forth, as well as animelo
mix, which distributes digital contents. The mobile business still generates a decent level of profit margin, despite
the continuing downward trend in the number of members due to changes in the market environment in the music
distribution business.
5. Others
The Others business is comprised of businesses including the education business, the MD business and theinbound-related business. The education business is centered on Vantan Inc., which operates multiple schools
focused on creative fields, and DWANGO Co., Ltd., which provides educational systems characterized by interactivity
from the integration of the online and real worlds, to schools including N High School (KADOGAWA DWANGOCampus), an online-based, distance-learning high school. In the MD business, Chara-Ani Corporation engages in
the planning and sales of character goods and idol music CDs and DVDs.

█ Results trends
1H FY3/21 operating income was a record high on a six-month basis
amid the COVID-19 pandemic
1. Overview of the 1H FY3/21 results
In 1H FY3/21 consolidated results, revenue fell 2.9% YoY to ¥97,553mn, operating income increased 22.8% YoY
to ¥7,847mn, ordinary income rose 19.6% YoY to ¥8,140mn, and profit attributable to owners of parent declined
16.1% to ¥5,206mn. Operating income was a new record high for a half-year basis. Despite the decline in revenue
due to the impact of COVID-19, the increase in operating income was driven by the acceleration of growth in
the high-profit-margin e-books segment, strong performance in the Game and education businesses, and an
improvement in the operating efficiency while maintaining a high teleworking ratio (approximately 70%) due to theongoing promotion of DX.
1H FY3/21 consolidated results(¥mn)
1H FY3/20
Results

1H FY3/21% of revenue

Results% of revenue

Amount ofchangeYoY

Revenue

100,439-

97,553--2.9%-2,886

Cost of sales

67,574

67.3%

62,125

63.7%

-8.1%

-5,449

SG&A expenses

26,476

26.4%

27,580

28.3%

4.2%

1,104

Operating income

6,389

6.4%

7,847

8.0%

22.8%

1,457

Ordinary income

6,805

6.8%

8,140

8.3%

19.6%

1,335

Extraordinary income/loss

1,768

1.8%

-451

-

-

-2,219Profit (loss) attributable toowners of parent

6,202

6.2%

5,206

5.3%

-16.1%-996

Source: Prepared by FISCO from the Company’s financial results

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Results trends

Change in results by business segment (YoY)
（¥mn）
5,000

Revenue

Operating income

3,925
4,000

3,000
2,000

1,372

724 915

1,000

759※

0
-290

-382

-1,000-917-962-2,000-1,447-2,298-3,000-2,828-4,000Publication

Video

Game

Web Services

OthersEliminations/
Corporate* In conjunction with the integration of KADOKAWA CORPORATION into the KADOKAWA CORPORATION holding company
in July 2019, for the 3-month period (April – June 2020), there was a cost transfer from the Corporate/Eliminations segment
to business segments of approximately ¥300mn (of this, approximately ¥200mn to the Publication segment). As a result,
there was an actual increase in profit of approximately ¥459mn.
Source: Prepared by FISCO from the Company’s results briefing materials

Looking at the business segments, growth in the Publication business and the Game business made up for the
decline in the Video business and the Web Services business which suffered large impacts from COVID-19. Looking
at the amount of the negative impact of COVID-19 on revenue, in the Video business there was a minus ¥4.3bn
impact due to the closure of movie theaters in conjunction with the government’s emergency declaration and theseat restrictions put in place after the emergency declaration was lifted. Meanwhile, in the Web Services business,there was a minus ¥1.8bn impact due to the cancelation of live events such as niconico Chogikai and Animelo
Summer Live.
In 1H FY3/20, the Company posted extraordinary income including ¥1,604mn for gain on sales of non-current assetsand ¥585mn in settlement received, while in 1H FY3/21 the Company posted ¥434mn in business restructuring
expenses.* As a result, profit attributable to owners of parent declined YoY.
*	The Company booked losses in conjunction with the withdrawal from unprofitable businesses, and penalties associatedwith the termination of lease agreements due to the COVID-19 pandemic.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Results trends

Acceleration in growth in e-books and strong performance centeredon repeat titles in games
2. Trends by business segment
Results by business segment(¥mn)
1H FY3/20

1H FY3/21

Percentage change YoY

Amount change YoY

Revenue

OperatingincomeRevenue

OperatingincomeRevenue

OperatingincomeRevenue

OperatingincomeConsolidated total

100,4396,389

97,553

7,847

-2.9%

22.8%

-2,886

1,457

Publication

56,204

3,308

60,129

4,680

7.0%

41.5%

3,925

1,372

Video

16,0601,760

13,232842-17.6%-52.1%-2,828

-917

Game

7,576

1,888

8,301

2,804

9.6%

48.5%

724

915

Web Services

13,1591,591

10,861

1,209-17.5%-24.0%-2,298-382

Others9,489-1,167

8,527-1,457-10.1%

-

-962

-290

Eliminations/Corporate-2,050-992-3,498-232---1,447759* In conjunction with the integration of KADOKAWA CORPORATION into KADOKAWA CORPORATION holding company in July 2019, for the 3-month
period (April – June 2020), there was a cost transfer from the Corporate/Eliminations segment to business segments of approximately ¥300mn (ofthis, approximately ¥200mn to the Publication segment).
Source: Prepared by FISCO from the Company’s results briefing materials(1) Publication business
The Publication business performed well, with revenue increasing 7.0% YoY to ¥60,129mn, and operating income
growing 41.5% to ¥4,680mn. In 1Q (April – June 2020), approximately ¥300mn of costs were transferred fromthe Corporate/Eliminations segment to business segments (allocated proportionally to the share of sales). This
had the effect of increasing costs in the Publication segment by approximately ¥200mn. As a result, the increasein operating income on real basis was even higher than the reported amount.
Revenue of e-books and e-magazines increased by ¥4,868mn, or a 30% YoY increase. There was a further
acceleration of the market growth, which had already been growing due to the fact that COVID-19 was making
people refrain from going out. Revenue in 1Q was 23% higher than the same quarter of the previous year,
but this revenue growth increased to 37% YoY in 2Q. Looking at sales by sales channel, the ratio of sales via
BOOK☆WALKER was approximately 20%, with revenue increasing 29% YoY. Meanwhile, sales through Amazon
and other external sites increased by 49% YoY, and accounted for approximately 60% of revenue. The remaining
sales were through d Magazine, a service operated in collaboration with NTT DoCoMo. In addition, both thenumber of members increased and average monthly spend per member grew.
In printed books, in continuation from 1Q, sales increased in 2Q due to strong sales at suburban stores ande-commerce bookstores. Titles that sold well included “Delicious in Dungeon, Vol. 9” (comic), “Sword Art Online(24) Unital Ring III” (light novel), “Aokute Itakute Moroi” (paperback edition), and Animal Crossing: New Horizons– The Complete Guide (regular book).
In terms of profits, in addition to strong sales of e-books and e-magazines, which have high profit margins, profits
were aided by an improvement in return rates from bookstores. Profits were also buoyed by licensing resulting
from turning IP into products and games.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Results trends

Publishing business quarterly results

Source: The Company’s results briefing materials(2) Video business
The Video business booked ¥13,232mn in revenue (-17.6% YoY) and ¥842mn in operating income (-52.1%). The
decline in revenue was caused by the closure of movie theaters and restrictions on the number of seats used after
reopening, resulting in a decline in movie distribution sales, and sales of Movieticket, an electronic ticket service formovie theaters, along with other factors. Meanwhile, since the start of 2Q FY3/21 (July – September), the studiobusiness, animation creation, and international rights sales recovered to the level of the year-earlier period. Ininternational rights sales, titles distributed in North America and China, such as “Re:ZERO -Starting Life in Another
World-,” and “DECA-DANCE,” contributed to revenue. Also, licensing revenue in conjunction with collaboration
with online games distributed by other providers using the Company’s IP continued to contribute to profits.
In terms of profits, profit declined by double digits due to the decline in revenue, but looking only at 2Q, profit
increased 38.0% YoY to ¥1,104mn in conjunction with the recovery of the creation business and the licensing
business. This marked the highest profit level since FY3/18.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Results trends

Video business quarterly results
Revenue (left)（¥mn）
10,0008,000

Operating income (right)

9,738
8,483
7,302

8,439
7,536

7,029

7,411 7,428

8,032 8,028

8,727

（¥mn）
2,000

9,328
7,638
5,593 1,104

6,000
804

804

959

913

800

4,000
275

2,000

653

1,600
1,200
800

313

400
340

39
0

0
-210

1Q

2Q

3Q

4Q

-261

-290

-2,0001Q

FY3/182Q

3Q

4Q

FY3/191Q

2Q

3Q

FY3/20

4Q

1Q

-400

2Q

FY3/21

Source: Prepared by FISCO from the fact sheet(3) Game business
The Game business revenue increased 9.6% YoY to ¥8,301mn, and operating income grew 48.5% YoY to¥2,804mn. The increase in revenue was due to the strong performance of “Pokémon Mystery Dungeon: Rescue
Team DX” released in March by Spike Chunsoft, as well as strong repeat sales of “SEKIRO: SHADOWS DIE
TWICE” and the “DARK SOULS” series by From Software.
(4) Web Services business
The Web Services business reported ¥10,861mn in revenue (-17.5% YoY) and ¥1,209mn in operating income(-24.0% YoY). The number of nicinico premium members declined (down 120,000 people YoY as of September
30, 2020), leading to a decline in revenue in the portal business, and sales in the live concert business fell dueto the cancellation of key live events such as the niconico Chokaigi and Animelo Summer Live and the shift toholding them online. This had a negative ¥1,800mn impact on revenue.
Although there was a decline in profit due to the revenue drop in the portal business, the profit margin only fellslightly from 12.1% in the year-earlier period to 11.1%, as the impact on profit in the live concert business wasminor.
(5) Others
The Others business reported ¥8,527mn in revenue (-10.1% YoY) and a ¥1,457mn operating loss (vs. a ¥1,167mn
loss in the same period in the previous fiscal year).
The education business reported revenue of ¥4,337mn (+16.3% YoY). This increase was due to the steadyincrease in the number of students for both Vantan, the creative field school, and N High School, the online-based
distance-learning high school. In particular, N High School has been growing rapidly, as the school has 15,803
students as of October 2020, which is more than 50% more than the 10,339 students as of April 2019. Meanwhile,
the MD business saw a decline in sales, reflecting a delay in launching sales of idol music CDs and the cancellationof events amid the COVID-19 pandemic. In terms of profit, profit increased in the education business, but theoverall loss widened due to the weak performance in the MD business and the struggles in the inbound-related
business.

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10 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION

25-Dec.-2020

9468 Tokyo Stock Exchange First Section

https://ir.kadokawa.co.jp/global/

Results trends

Education business revenue (quarterly)
（¥mn）
2,500

2,000

2,278

1,936
1,792

1,781

2,059

2,021
1,794 1,835

1,555 1,559 1,577

1,501 1,551 1,542
1,500

1,000

500

0
1Q

2Q

3Q

FY3/18

4Q

1Q

2Q

3Q

FY3/19

4Q

1Q

2Q

3Q

FY3/204Q

1Q

2Q

FY3/21

Source: Prepared by FISCO from the Company’s fact sheet

Tokorozawa Sakura Town had grand opening in November 2020, theCompany expects to recover investment amount in approximately
11 years
3. Financial condition and management indicators
Looking at financial conditions at the end of 1H FY3/21, total assets have decreased by ¥1,822mn from the endof previous fiscal year to ¥241,173mn. Breaking this down, there was a ¥13,870mn decrease in current assets
and a ¥12,048mn increase in non-current assets. Looking at the main change factors, in current assets, cash
and deposits declined ¥13,882mn due to the construction of Tokorozawa Sakura Town* and the acquisition ofsome non-current assets, while notes and accounts receivable - trade declined ¥3,086mn. In non-current assets,
property, plant and equipment increased ¥8,597mn and intangible fixed assets increased ¥532mn, while investment
securities increased ¥5,526mn due to a rise in the market value of shares held. On the other hand, deferred tax
assets declined ¥2,580mn.
*	This is the centerpiece site of the COOL JAPAN FOREST Vision (Joint project between the Company and Tokorozawa city),
which aims to generate cutting-edge culture and industry in a location with rich greenery and disseminate them to the world.
It includes a book manufacturing and logistics plant, new office space, event space, an anime hotel, shops, restaurants,
and commercial facilities operated by the Company, and Kadokawa Musashino Museum, a cultural multifaceted facility,
managed and operated by Kadokawa Culture Promotion Foundation. The total budget is ¥39.5bn.

Total liabilities declined ¥9,069 from the end of previous fiscal year, to ¥126,551mn. In current liabilities, notes
and accounts payable - trade declined ¥3,366mn, advances received fell ¥2,302mn, and provision for sales
returns declined ¥1,218mn. Also, interest-bearing debt increased ¥47mn to ¥65,571. The repayment deadline for¥10,000mn booked in non-current liabilities as long-term borrowings is now less than a year away, so this amount
was moved to current liabilities.

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11 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Results trends

Net assets increased by ¥7,246mn from the end of previous fiscal year to ¥114,621mn. Retained earnings increased¥3,318mn due to factors including ¥1,888mn of dividend payments and the booking of ¥5,206mn in profit attributable to owners of parent. In addition, valuation difference on available-for-sale securities increased ¥4,054mn due
to the increase in the aggregate market value of shares held.
In management indicators, the Company’s equity ratio, which reflects soundness, climbed by 3.4pp from the end of
previous fiscal year to 46.7%, and the D/E ratio (interest-bearing debt/capital) declined by 0.04pp to 0.58x, as thefinancial condition of the Company improved a bit. Net cash (cash and deposits – interest-bearing debt) declined
from positive ¥9.3bn at the end of FY3/20 to minus ¥4.5bn, mainly due to the increase in construction cost outlays
for Tokorozawa Sakura Town, but based on the fact that large investment has already peaked, net cash is expected
to improve from FY3/22 onward.
Consolidated balance sheet(¥mn)
FY3/18

FY3/19FY3/201H FY3/21

Change155,312

148,975

143,919

130,049-13,870

85,96273,59774,88060,998-13,882

Non-current assets

84,56991,096

99,076111,124

12,048

Total assets

239,881240,072

242,995

241,173-1,822Current liabilities

74,26665,32565,176

66,034858

Non-current liabilities

56,487

71,33570,44460,517-9,927

Total liabilities

130,753

136,660

135,620

126,551-9,06965,39965,51865,52465,571

47

109,128

103,411

107,375

114,621

7,246

Current assets(Cash and deposits)(Interest-bearing debt)
Net assets

Source: Prepared by FISCO from the Company’s financial results

Management indicators(¥mn)
FY3/18

FY3/19FY3/201H FY3/21

Current ratio

209.1%

228.1%

220.8%

196.9%

Equity ratio

44.7%

42.2%

43.3%

46.7%

D/E ratio

0.61

0.63

0.62

0.58

Financial soundness

Source: Prepared by FISCO from the Company’s financial results

The amount of capital investment in FY3/21 on a cash basis is forecast to be ¥19bn. Tokorozawa Sakura Town had
its grand opening in November 2020, and this concluded the large investments. From FY3/22 onward, the amountof capital investment is expected to be much lower than the level in FY3/21. Depreciation related to Tokorozawa
Sakura Town is expected to be ¥1.2bn in FY3/21, and ¥2.3 in FY3/22 and beyond. As a result, FY3/22 depreciation
is expected to be approximately ¥1.1bn higher than the ¥4.4bn of depreciation forecast for FY3/21.

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12 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Results trends

Trends in capital investment and depreciation expenses
Capital investments

Depreciation expenses（¥mn）
19,00020,00015,381
15,00013,98013,463

10,000
6,369
4,787

5,000

4,400
1,930

0
FY3/19FY3/20FY3/21
1H

FY3/21 (E)Source: Prepared by FISCO from the Company’s results briefing materials█ Outlook
Expecting record high operating income in FY3/21, driven by thegrowth businesses amid the COVID-19 pandemic
1. FY3/21 outlook
In terms of the consolidated results outlook for FY3/21, the Company is forecasting revenue to increase 1.6%
YoY to ¥208,000mn, operating income to grow 29.8% YoY to ¥10,500mn, ordinary income to increase 25.2% to¥11,000mn, and profit attributable to owners of parent to decline 9.9% to ¥7,300mn. Profit attributable to ownersof parent will decline due to the non-recurrence of the extraordinary profit on gains on sales of non-current assets
posted in FY3/20, but the Company is forecasting record high operating income.
FY3/21 results outlook(¥mn)
FY3/20Results

FY3/21% of revenue

Forecast% of revenue

YoY

Progress rate
through 1H

204,653-

208,000

-

1.6%

46.9%

Operating income

8,087

4.0%

10,500

5.0%

29.8%

74.7%

Ordinary income

8,787

4.3%

11,000

5.3%

25.2%

74.0%

Profit (loss) attributable toowners of parent

8,098

4.0%

7,300

3.5%

-9.9%

71.3%

EBITDA

12,9486.3%

15,000

7.2%

15.8%

65.4%

Profit per share (¥)

130.12

Revenue

118.52

Source: Prepared by FISCO from the Company’s financial results

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13 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION

25-Dec.-2020

9468 Tokyo Stock Exchange First Section

https://ir.kadokawa.co.jp/global/

Outlook

While the third wave of COVID-19 is setting in, the Company believes that the four growth businesses (books,
animation, games, and education) will continue to perform strongly in 2H and drive overall results. In terms of costs,
the opening of the new Tokorozawa office and the 70% teleworking rate system are expected to reduce office rental
costs.
The progress rate through 1H compared to full-year FY3/21 forecasts are 46.9% for revenue, and 74.7% foroperating income. Factors include the increase in depreciation costs in 2H (+¥540mn versus 1H), the plans for
aggressive investment in order to realize earnings growth in the Web Services business, and the expectations forincreased costs in the Game business. However, we believe that these forecasts are conservative overall, and we
think that the Company has a good chance of achieving its forecasts.

The four growth businesses (books, animation, games, education)
are driving earnings
2. Outlook by business segment
Results outlook by business segment(¥mn)
FY3/20FY3/21Results

Forecast

Forecast
Progress rate through 1H

YoY

Revenue

OperatingincomeRevenue

OperatingincomeRevenue

OperatingincomeRevenue

OperatingincomeConsolidated total

204,653

8,087

208,000

10,500

1.6%

29.8%

46.9%

74.7%

Publication

117,303

6,248

127,500

8,300

8.7%

32.8%

47.2%

56.4%

Video

34,1162,122

30,0002,200-12.1%

3.6%

44.1%

38.3%

Game

14,237

1,278

16,000

3,100

12.4%

142.4%

51.9%

90.5%

Web Services

24,7392,788

20,9001,400-15.5%-49.8%

52.0%

86.4%

Others19,497-2,58321,700-3,600

11.3%

-

39.3%

-

Eliminations/Corporate-5,240-1,768-8,100

-900

-

-

-

-

* In conjunction with the integration of KADOKAWA CORPORATION into KADOKAWA CORPORATION holding company in July 2019, for thethree-month period (April – June 2020), there was a cost transfer from the Corporate/Eliminations segment to business segments of approximately¥300mn (of this, approximately ¥200mn to the Publication segment).
Source: Prepared by FISCO from the Company’s results briefing materials(1) Publication businessIn the Publication business, the Company expects revenue to increase 8.7% YoY to ¥127,500mn, and operating
income to increase 32.8% to ¥8,300mn. In the high-growth area of e-books and e-magazines, the Company will
aggressively incorporate content into story sales and subscription services (all-you-can-read) services, to growthe profit base even further.
In printed books, in light novels, the Company plans to add many influential IP, including “The Intuition of Haruhi
Suzumiya,” a very popular series with more than 20 million copies in print, which will get its first new novel in 9.5
years (released November 2020), and “The Irregular at Magic High School: Magian Company,” the sequel to “TheIrregular of Magic High School,” which has more than 15 million copies in print (released October 2020). With
these and other IP, the Company expects revenue to increase in 2H FY3/21.

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14 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Outlook

The Company expects operating income to increase due to the increase in revenue as well as cost reductions
due to an improvement in the return rate for printed books. Since dedicated order placement terminal integrations
with bookstores will help improve the return rate to be lower than the return rate at other stores, the Company
plans to increase the number of stores using such terminals in 2020.

Change in return rates at stores with dedicated order placement
terminals and stores without such terminals
Return rate – Stores with dedicated order placement terminals
Return rate – Average for books
40%

37%

35%

33%

38%
34%

32%

33%

30%

25%

31%

31%

2017

2018

28%

29%

20%
15%

10%
5%
0%
2015

2016

2019 (E)

Source: Prepared by FISCO from the Company’s results briefing materials(2) Video businessIn the Video business, the Company is forecasting revenue to decline 12.1% YoY to ¥30,000mn, and operating
income to increase 3.6% to ¥2,200mn. Although box office revenue will decline in 2H FY3/21 due to ongoingseat restrictions at movie theaters, the Company is expecting an expansion of the highly-profitable animation
business and an increase in licensing revenue for online games distributed to other providers using the Company’s
IP. For 2H, IP expectations include the theater animation “Josse, the Tiger and the Fish” (due to be released on
December 25, 2020) and TV animation “Love Live! Nijigasaki High School Idol Club” (started being broadcast in
October 2020).
(3) Game businessIn the Game business, the Company is forecasting revenue to increase 12.4% YoY to ¥16,000mn, and operating
income to increase 142.4% YoY to ¥3,100mn. In terms of influential titles in 2H FY3/21, Spike Chunsoft will release“Cyberpunk 2077”*1 localized for Japan (due to be released December 10, 2020), and “Re: Zero – Starting Life in
Another World – The Prophecy of the Throne,”*2 based on a very popular original light novel (due to be releasedon January 28, 2021).
*1	Developed by CD PROJEKT RED from Poland. An open world-style RPG set in a future world. The platform is compatible
with PS4/Xbox One/PC. Also compatible with free upgrade to PS5 version expected in the future.
*2	A tactical adventure game developed in an original story fully supervised by the original author. Platforms are PS4/Nintendo
Switch/Steam.

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15 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Outlook

Looking at operating income on a six-month basis, the Company expects operating income to decline from¥2,804mn in 1H to ¥296mn in 2H. This is because, in addition to the fact that sales of high-profit repeat products
were strong in 1H, the Company is expecting an increase in costs in 2H. However, at FISCO we feel that there
is a strong possibility that game sales will increase in 2H as well, and believe that there is a solid possibility that
results in the Game business could exceed the Company’s forecast.
(4) Web Services businessIn the Web Services business, the Company forecasts revenue to decrease 15.5% YoY to ¥20,900mn, andoperating income to decline 49.8% to ¥1,400mn. In the portal business, although the decline in the number ofniconico premium members is leveling off, revenue is expected to continue to decline. Also, in the live concert
business, in-person events continue to be shifted to online events, so the Company expects revenue to decline
in 2H FY3/21.
In terms of operating profit, the Company expects operating profit to decline from ¥1,209mn in 1H to ¥191mn
in 2H. This decline in operating profit is expected due to aggressive investment aimed at increasing premium
membership and expanding various niconico services in the portal business with the goal of recovering to a
growth phase. Specifically, the Company aims to increase the number of premium members by acquiring attractive
content available only to premium members, investing in development to improve UI functions, and investingpromotion costs. In addition, on niconico Channel, the Company will expand content using KADOKAWA Group’s
IP to approximately 40 channels and improve customers’ LTV.
(5) Others
The Company expects revenue in Others to increase 11.3% YoY to ¥21,700mn, but is forecasting an operating
loss of ¥3,600mn (compared to a loss of ¥2,583mn in FY3/20). The expected increase in revenue is due tothe continued growth of the education business backed by the increase in the number of students, as well as
new businesses in conjunction with the opening of Tokorozawa Sakura Town (hotel business, events business,
restaurant/bar business, etc.)
The widening of the operating loss will be due to the increase in up-front investment associated with the openingof Tokorozawa Sakura Town, while the education business is expected to see an increase in profit. Also, theCompany plans to individually examine unprofitable businesses, and decide whether to withdraw from them orwork to rebuild them.

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16 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/█ Medium-Term Management Strategy
Group’s content business to enter new growth phase through“DX × ABW”
1. Current business environment and future direction
As corporate activities and the living environment change drastically due to COVID-19, companies need to comeup with growth strategies compatible with the era of the new normal. As mentioned above, the strengths of
KADOGAWA Group, such as IP creation and deployment capabilities, are considered to be the driving force forbusiness performance growth from April 2020. KADOGAWA Group is aiming to enter a new growth phase by further
promoting the content business’s “DX × ABW*.”*	ABW (Activity Based Working) is an approach that selects the space, desk, and other details in accordance with the work
content. It refers to flexible selection of locations for work, such as a quiet room for tasks requiring concentration and asofa for meetings.

The Company’s plan for future initiatives are as follows.
a) W ith 5,000 + α newly published book titles/year, and continuing to produce original game/anime IPs (= basecontent), the Company will build a foundation for multi-dimensional and stable business growth.
b) Increase the room for business growth through direct deployment of the original IP by the Company, as well
as by taking in the Publishing business which has plenty of room to grow.
c) Raise the level of both the business and management infrastructure by advancing DX.
d) Expedite the expansion of the real (physical) business eyeing the end of the COVID-19 pandemic.
e) View the value of ABW/ABT (Activity Based Teams) in the real workplace in a fresh light and promote ABW/ABT.

Globally deploy rich and diverse IP through media mix strategy,
combine live and digital to maximize IP value
2. Fundamental strategy and changes in the business environment(1) Fundamental strategy
The Company aims to integrate creation, rollout, and experiences for IP, its strength, and pursue global rollout
under a media mix strategy as its fundamental strategy to realize growth. For example, it aims to offer attractive IP
in animated video and game formats, deploy these contents globally, and strengthen collaboration with overseas
platform operators (including co-creation of contents). In addition, by having people experience the world viewsof IP at live events, goods development, and the fan community online, the Company aims to expand contact
points with customers, and by promoting DX initiatives, the Company’s strategy aims to accelerate the speed ofrollout and maximize the value of IP.

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17 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Medium-Term Management Strategy

KADOKAWA Group’s fundamental strategy – Global/media mix

Source: The Company’s results briefing materials(2) Changes in the business environment
Due to the COVID-19 pandemic, there has been a delay in the experience-based business and face-to-faceservices. However, on the other hand, the market environment has changed significantly since the spring of 2020,
including an increase in demand for IP via the Internet, and the Company has been successful in capturing IP
demand by responding to flexibly to changes with upfront investment in ABW and DX.
In terms of negative impacts, in addition to the aforementioned cancellation or postponement of live events andthe postponement of broadcasts and releases of video works, there has been a delay in the manufacturing anddistribution reform project being advanced at the new Tokorozawa plant. Due to delays in the arrival of overseas
engineers needed to build the production lines and the collection of product and technical information fromoverseas, full-scale operation at the plant may be delayed by about one year.
On the other hand, in terms of positive impacts, online events attracted a record-high number of attendees(17.74mn visitors to niconico Internet Chogikai), sales of e-books grew 38% YoY (January – August 2020) andoverseas monthly sales exceeded ¥100mn, video subscription sales grew, and the number of games sold surged
along with a general increase in IP demand mainly online. Many of these positive aspects are not temporary
phenomena, but rather it is believed that that the phenomena that should have arrived several years from now
arrived ahead of schedule, and at FISCO we believe that the basic trend will not change even in the era of the
new normal in the future.

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18 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Medium-Term Management Strategy

The Company is aiming for operating income of ¥16bn in FY3/23
based on a three-pronged approach of expanding the scale of corebusinesses, practicing ESG/SDG-conscious management, andenhancing earnings power
3. Numerical management targets and business strategy
In terms of numerical management targets for FY3/23, the Company is targeting revenue of ¥240bn, operating
income of ¥16bn, and EBITDA of ¥25bn. The revenue amount is the same as the initially-announced amount, but
the Company has increased the operating income target by ¥1bn, likely based on the outlook for strong results in
FY3/21. The Company looks to achieve these targets by expanding the scale of its core businesses, practicing ESG/
SDG-conscious management, and enhancing earnings power, and over the medium to long term the Company
aims to achieve sustainable growth enhance its corporate value.
Management numerical goals(¥bn)
FY23/3

FY3/20Results

Initial target

2,046

2,400

2,400

5.5%

80

150

160

25.5%

EBITDA

129

-

250

23.4%

EBITDA margin

6.3%

-

10.4%

Revenue
Operating income

Revised target

Annualized average
growth rate

Source: Prepared by FISCO from the Company’s results briefing materials(1) Aggressive investment in growth businesses
The Company has announced its plan to invest management resources in the four growth businesses (books,
animation, games, education) and accelerate their growth in order to achieve its targets. The Company expects
total revenue in these four businesses to increase by ¥25bn over the three years that started in FY3/20. This
would account for approximately 70% of the entire increase in revenue for the Company. Similarly, the Company
forecasts operating income from these four businesses to increase by a total of ¥8bn, which is the same as thecompanywide increase over a three-year period.
Aggressive investment in growth businesses

Source: The Company’s results briefing materials

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19 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Medium-Term Management Strategy

In the books business, the Company aims for revenue growth based on an increase in the number of new
publications (strengthen online title development, increase Born Digital titles*) and measures to bolster sales of
e-books (capture diverse needs including all-you-can-read service and story selling) and reduce the return rateby expanding the cooperative system with partnering bookstores.
*	On the Company’s Kakuyomu novel submission site, in FY3/20 there were 122 submissions that were turned into books, aswell as some submissions turned into dramas and animations. This activity is expected to pick up even more momentum,
partially due to the Company’s introduction in October 2019of a program to return advertisement expenses to authors.

In the animation business, the Company will expand earnings through a number of efforts, including increasing
the number of new works, increasing profits from licensing (overseas sales and licensed sales based on commercialization as games, etc.), collaboration with overseas distributors (co-produce major titles), and increasing
the longevity of hit IP. In particular, Japanese animation are popular overseas, and there seems to be significant
room for growth through licensing revenue.
In the Game business, the Company will maintain the individuality of each of the Group companies and enhancetheir ability to create content, as well as bolster earnings power by enhancing license sales and through thefull-fledged development of KADOKAWA Publishing, and enter the UGC/indie game market*, thereby seeking
additional growth. The Company has been selling the game creation tool “RPG Maker” series for the UGC/indie
game market for 30 years, and has sold a total of 3.5 million units mainly to overseas users. In order to further
strengthen this business, in September 2020 the Company established Gotcha Gotcha Games Inc. through astock split. Going forward, the Company will aim to secure stable earnings through the sale of its abundant games
as well as by offering a new service using a subscription model. Also, the Company plans to develop business ona global scale, with an eye towards business tie-ups with partners in Japan and overseas.
*	Games developed by individuals or a small number of developers.

In the education business, the Company will bolster the initiatives in the Dwango EdTech business. Specifically,in conjunction with the increase in the number of students in N High School, KADOGAWA DWANGO Campus
plans to establish “S High School” in April 2021. From April 2021, N High School and S High School will startoffering a premium version of the general academic course using VR technology, and DWANGO will provide
the VR education system. With the continued increase in the number of students, the Company expects a highgrowth rate going forward.

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20 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Medium-Term Management Strategy

Number of students in N High School(People)15,80316,00014,00012,00010,33910,000
8,000

6,549

6,000
3,868
4,000
2,000

1,482

0
April 2016

April 2017

April 2018

April 2019

October 2020

Source: Prepared by FISCO from the Company’s results briefing materials(2) Further evolution of work style
With the opening of the Tokorozawa office, the Company will shift to a new work style with ABT,* in which the officeevolves into a co-creation space and merges with teleworking. The upgrading of infrastructure is also resulting
in improved operational efficiency. In editing operations, paper proofreading is the last hurdle for teleworking, but
by resolving technical issues such as PDF proofreading and tablet color proofing, the Company aims to realize
100% teleworking for editing by FY3/23.
*	As of March 2020, the Company had made the decision to return approximately 16,528 m2 of office space, but with theincrease in teleworking due to COVID-19, the Company plans to return more office space and warehouses by FY3/23.

(3) Agile manufacturing and sales systems
By having the book production line operate in earnest in the Tokorozawa plant, the Company will shift fromforecast-based production to on-demand production, this will improve the net shipment rate and reduce the return
rate through a high-speed order reception and shipping cycle, and the Company aims to reform manufacturing
and distribution in the books business. This system will cover the replicas of publications (comics, paperbackbooks, etc.), excluding hardcover books which is approximately 25% of all products. According to the Company’s
estimates, it will be possible to reduce costs by approximately 10% on a net shipment count basis, so it is being
seen as an initiative that will lead to an improvement in profitability. As noted above, full-scale operation is expected
to start about one year later than initially planned due to the impacts of COVID-19.
(4) Strengthen data marketing
The Company is building a marketing automation base that will be shared among the Group. Specifically, theCompany will build a data management platform that integrates customer data held by each group company,
which will lead to improved advertising accuracy and improved services. Furthermore, by constructing its originalmachine learning system, the Company will work to improve the efficiency of marketing costs by optimizing
advertisements and automating cross-selling promotion, and to improve the LTV of the entire Group.

We encourage readers to review our complete legal statement on “Disclaimer” page.

21 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Medium-Term Management Strategy(5) Bolster IP deployment capabilities
The Company is working to build its global marketing strategy and enhance its risk management system in orderto capture the increasing global IP needs. In particular, IP such as animation and games are being received welloverseas, and the Company can expect an increase in licensing revenue, an expansion of cross-border EC, andan expansion of the distribution platforms. In addition, the Company plans to focus on local IP development.
In terms of the marketing strategy, the Company will deploy a business field x region matrix strategy, and interms of development, the Company will transition from a product-out type of development to a market-in styleof development with an emphasis on user perspective. In terms of risk management, the Company will first figureout the risks in each region (legal, cultural), and upgrade the risk management system for each risk.
(6) Tokorozawa Project investment recovery plan and effect on improving profit
As a part of the Tokorozawa Project, in August 2020 the Company opened a new office, and opened a new
business base in November 2020. The total investment amount for the Tokorozawa Project is expected tobe ¥39.5bn, which is slightly less than the initial projection of ¥39.9bn. However, impacted by the COVID-19
pandemic, the timing of full-scale operations for the digital manufacturing and distribution plant has been delayed,so the investment recovery plan (if starting with 2H FY3/21) is expected to lengthen from the initial forecast of
9.9 years to 11.6 years.
In addition, under the assumption that full-scale operation will start from FY3/24, total EBITDA for the 10 years
through FY3/33 is estimated to be ¥28.3bn for the digital manufacturing and distribution plant, ¥7.6bn for new
businesses, and ¥10.3bn for economic effects of the office/ABW promotion effects. The impact on profit by theoperation of the digital manufacturing and distribution plant in the Publication and book business will be minus¥200mn in FY3/21 and minus ¥400mn in FY3/22 as a result of up-front depreciation, but the plant is expected
to have an impact of positive ¥1,100mn in FY3/25 when the plant is fully operational (depreciation is expected tobe ¥700mn in FY3/21, and ¥1,400mn in subsequent fiscal years.) As a result, the Company expects profitability
in the Publication and books business to improve from no later than FY3/25.
Positioning of the Tokorozawa Project

Source: The Company’s results briefing materials

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22 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/

Medium-Term Management Strategy(7) Revision to organizational structure aimed at speeding up management decisions
In October 2020, the Company made significant changes to its organizational structure in order to accelerate
the speed of management decisions by transferring decision-making authority in each business. Specifically,
the positions of Deputy President, Senior Managing Executive Officer and Managing Executive Officer wereabolished, and integrated into the position of Executive Officer. Additionally, manufacturing and distribution, sales
and advertising, rights, and overseas were established as independent groups as strategic organizations. By
subdividing the organizational structure into six business groups and seven function groups and assigning COs,
the Company will be better equipped to develop businesses quickly with the aim of accelerating future growth.
Change in execution framework

Source: The Company’s results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

23 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/█ SDGs initiatives
The Company also pursues management practices that factor in SDGs. SDGs is the acronym for Sustainable
Development Goals that consist of 17 development goals needed to realize a sustainable society adopted at theUnited Nations Summit in 2015. Themes cover a wide range of issues that include poverty, health, education,energy, and the environment. The Company’s SDGs-related efforts are consistent with the Company’s management
philosophy of “Continuity and Change.”
In terms of the Company’s initiatives considering sustainability in existing businesses, two examples are curbing
paper resource consumption through manufacturing/distribution reforms (reduce waste and consumption offorest/water resources), and expanding the initiatives of N High School, where students can learn online (provide
educational opportunities, eliminate the chain of poverty). New initiatives include enlisting women and people
with overseas backgrounds as directors (promoting leadership by women and equal opportunity) and opening
Tokorozawa Sakura Town with the new Tokorozawa office and cultural facilities (giving consideration to diverse work
styles, local economies, and the natural environment). The Company plans to define priority issues during FY3/21
and then promote achievements in these areas.

█ Shareholder return policy
Plans to pay a FY3/21 dividend of ¥30.0 per share, the same as in
FY3/20, and considering further expanding the shareholder gift
program
The Company’s basic policy is to continuously distribute profits to shareholders while at the same time bolsteringinternal reserves to strengthen the corporate structure on the assumption of business longevity and to prepare
for unforeseen situations and future business expansion. In addition, the Company will continue to execute sharebuybacks, as necessary. In terms of the per share dividend for FY3/21, the Company is expecting solid operating
results, so it plans to pay a dividend of ¥30.0 per share (dividend payout ratio of 25.3%), the same amount as thedividend in the previous fiscal year.
The Company’s shareholder gift program covers shareholders who own 100 or more shares for at least a year* 1.
Qualified shareholders select one of the gift items from a catalog* 2. The program offers additional gifts to shareholders for three years or longer (recorded in the shareholder register at least seven straight times under the same
shareholder number) as a long-term special incentive. The Company is also considering enhancing the shareholder
gift program.
*1	For example, the requirement for shareholders to receive the shareholder gift as of March 31, 2021, is to, at a minimum,
have their shares recorded in the shareholder registry under the same shareholder number at the end of March 2020,
September 2020, and March 2021.
*2	Choices for shareholder gifts at the end of FY3/20: books (three books), a DVD or BD (one), movie advanced ticket giftcards (two cards), BOOK☆WALKER gift card (two gift cards), Kadogawa paperback/light novel all-you-can-read cardthat can be used at BOOK☆WALKER (three months’ worth), Kadogawa Shinjigen – revised edition (one copy), Animalium(one copy), and a Terebichan cushion (one).

We encourage readers to review our complete legal statement on “Disclaimer” page.

24 25

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

KADOKAWA CORPORATION
9468 Tokyo Stock Exchange First Section

25-Dec.-2020
https://ir.kadokawa.co.jp/global/█ Information security measures
The Company is developing web services as one of its main services, and to ensure information security, it is
implementing sufficient information security measures, including protecting personal information and conducting
employee training. It implements various measures, both for software and hardware, to prevent unauthorized accessof the in-Company network. In addition, it has established internal regulations for organizational, human, physical,
and technical safety measures, and it is implementing and managing the necessary and appropriate measures.
Also, to protect personal information, it has established a privacy policy and is working to ensure compliance with
it. Moreover, when the handling of personal information is outsourced, the Company conducts the necessary andappropriate monitoring of the relevant outsourcer.

We encourage readers to review our complete legal statement on “Disclaimer” page.

25 25

Disclaimer
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FISCO Ltd.
5-11-9 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (Financial information Dept.)
Email: support@fisco.co.jp