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Rakuten Reports Consolidated Financial Results (IFRS) for the Six Months Ended June 30, 2014

Rakuten, Inc. (TOKYO:4755) today announced consolidated financial reports (IFRS) for the six months ended June 30, 2014. The Rakuten Group achieved revenue of ¥276,602 million, a 14.8% year-on-year increase, in the first half of the current fiscal year. Operating income decreased 5.9% year on year to ¥44,776 million, due to continued advance investments in Internet Services and the impact of a slowdown in the stock market on the securities business, and net income attributable to owners of the parent company amounted to ¥23,086 million, down 9.9% compared to the same period of the previous year.

Qualitative Information, Financial Statements, etc.

1. Qualitative Information Concerning Consolidated Business Results

(1) Business Results for the Second Quarter of the Fiscal Year Ending December 31, 2014

In the world economy during the first half of the current fiscal year (January 1, 2014 to June 30, 2014), an improvement trend continued despite the impact of reduced monetary easing by the U.S. and signs of uncertainty regarding the economic outlook in emerging nations. The Japanese economy continued on a moderate recovery track, underpinned by the effect of monetary and financial measures, despite signs of weakening seen in some areas due to the rebound following last-minute demand associated with the consumption tax hike.

Meanwhile, according to the most recent White Paper on Information and Communications released by the Ministry of Internal Affairs and Communications (*), information and communications technology (ICT) such as Internet and mobile phones is spreading rapidly in emerging nations and newly developing regions as well. The number of Internet users worldwide continues to rise, climbing from 1.02 billion globally in 2005 to 2.92 billion in 2014. The expansion of the ICT market, which continues to show solid growth throughout the world, is considered to be a paradigm shift, and it is believed that this market will take on even greater importance in the future.

Under such an environment, the Rakuten Group further strengthened its promotion of its growth strategy. Specifically, in the first quarter of the current fiscal year, we acquired VIBER MEDIA LTD. (hereinafter “Viber”), which operates a mobile messaging service and VoIP service on a global scale, and made it a wholly owned subsidiary. We believe that Viber’s wide customer base will complement the Group’s digital strategy, while firming up our platform for global expansion of Internet Services and Internet Finance services. In addition, in Internet Services, the Rakuten Group enhanced its services for smart devices (smartphones and tablet devices), and promoted Rakuten Ichiba’s B2B2C marketplace model to the world mainly through large-scale sales events such as the Rakuten Super Sale, while in Internet Finance, the membership base for Rakuten Card expanded further. Through these measures, the Rakuten ecosystem continues to show solid expansion and growth.

(2) Segment Information

Business results for each segment are as follows:

Internet Services

In the Internet Services segment during the first half of the current fiscal year, Rakuten actively worked on strengthening its services for smart devices, promoting personalized marketing which utilizes big data, and executing large-scale sales events such as the Rakuten Super Sale among other initiatives in its core Rakuten Ichiba service. As a result of these initiatives, the number of unique buyers and number of orders performed strongly. Rakuten’s domestic e-commerce gross merchandise sales (transaction value) were favorable. In Travel services, demand was strong among corporate customers and for car rental and inbound services.

In its overseas ventures, Rakuten focused on developing its marketplace-model services. Consequently, gross merchandise sales for these services have grown and are contributing to the expansion of operations. With regard to advance investments in future growth fields, management focuses on ROI while strictly controlling costs.

As a result, revenue for the segment rose to ¥165,949 million, a 16.9% year-on-year increase. While profit from existing businesses continue to grow steadily, segment profit declined 17.5% year on year to ¥22,714 million, reflecting ongoing advance investments in future growth fields.

(Millions of yen)

    Six months ended

June 30, 2013

  Six months ended

June 30, 2014

  Amount Change

YoY

  % Change

YoY

Segment Revenue 141,915 165,949 24,034 16.9%
Segment Profit   27,547   22,714   (4,833)   (17.5)%

Internet Finance

In the Internet Finance segment during the first half of the current fiscal year, in credit card and related services, shopping transaction value, accompanying an increase in Rakuten Card membership, rose 43.0% over the same period of the previous year. Moreover, solid growth in revolving balances resulted in a rise in income including commission income, and notable growth continues in profit. In securities services, revenue and profit declined compared to the same period of the previous fiscal year when extremely high domestic stock trading value was recorded due to the effect of stock market conditions. However, the balance of investment trusts, which provide stable income, grew steadily. In banking services, solid growth in loan balances led to increased interest income from loans.

As a result of the above, the Internet Finance segment recorded ¥111,143 million in revenue, a 13.6% year-on-year increase, while segment profit decreased 4.2% year on year to ¥20,675 million.

(Millions of yen)

    Six months ended

June 30, 2013

  Six months ended

June 30, 2014

  Amount Change

YoY

  % Change

YoY

Segment Revenue 97,866 111,143 13,277 13.6%
Segment Profit   21,582   20,675   (907)   (4.2)%

Others

In the Others segment during the first half of the current fiscal year, operating profit remained strong in telecommunications services due to the growth of communication services for smartphones such as Rakuten Denwa, and cloud services. In the professional sports division, sponsor sales and sales of related goods were robust.

In addition, the Group acquired Viber, and made it a consolidated subsidiary at the end of the first quarter of the current fiscal year.

As a result, revenue for the segment was ¥21,451 million, a 33.4% year-on-year increase, while segment profit was ¥2,078 million, a 27.5% year-on-year increase.

(Millions of yen)

    Six months ended

June 30, 2013

  Six months ended

June 30, 2014

  Amount Change

YoY

  % Change

YoY

Segment Revenue 16,082 21,451 5,369 33.4%
Segment Profit   1,630   2,078   448   27.5%

*Source: 2014 Report on the Current Status of Information and Communications (Ministry of Internal Affairs and Communications)

2. Qualitative Information about Consolidated Business Forecasts

The outlook for each segment for the current fiscal year is as follows.

Internet Services

Strong growth in revenue is expected for Rakuten Ichiba and Travel services, and corresponding growth in profit is expected. Although it is possible that the growth rate in the second half of the fiscal year ending December 31, 2014 will be relatively moderate compared to the second half of the fiscal year ended December 31, 2013, where the first victory sale of the Tohoku Rakuten Golden Eagles baseball team in the Nippon Series had considerable effect, the upward trend in gross transaction value is expected to maintain its strong momentum amid market expansion, enhancements to Rakuten Group services, and other factors. Meanwhile, Rakuten plans to make strategic advance investments while emphasizing ROI in new businesses such as contents services and logistics services which are just emerging and where medium- to long-term profit growth is expected.

Internet Finance

In credit card and related services, revenue growth is expected to be high, on a level with that of the fiscal year ended December 31, 2013. Even taking into consideration the rise in marketing costs associated with capturing new members, profit is expected to surpass that of the fiscal year ended December 31, 2013. In banking services, robust profit is expected following an increase in assets. Meanwhile, it is difficult to make a forecast for securities services due to the substantial impact of stock market conditions.

Others

Stable profit growth is expected in telecommunications services. In the professional sports division, earnings such as ticket revenue and sponsor revenue may be affected by the performance of the Rakuten Eagles. As for Viber, the industry as a whole is in a period of notably high rapid growth, and it is difficult to estimate its future revenue as of this time.

 

3. Matters regarding summary information (Others)

 

(1) Changes in significant subsidiaries during the current period

No items to report.

(2) Outline of changes in accounting policies and accounting estimates

(Changes in accounting policies as required under IFRS)

Apart from the cases stated as follows, significant accounting policies adopted by the Rakuten Group in this summary of consolidated financial statements for the six months ended June 30, 2014 basically remain the same as those adopted in the consolidated financial statements for the previous fiscal year. In addition, income tax expense for the six months ended June 30, 2014 is calculated based upon estimated annual effective tax rate.

Impact from the adoption of the new accounting standards

The Rakuten Group adopted the following accounting standards from the first quarter of the current fiscal year.

 
IFRS   Newly established or revised contents
IAS 32  

Financial instruments:
presentation
(Amended Dec. 2011)

Clarification of the meaning of requirements of possession of current rights which are legally enforceable and clarification of offsetting criteria regarding settlement systems which apply gross settlement mechanisms that are not carried out simultaneously under existing IAS 32
IAS 36  

Impairment of assets
(Amended May 2013)

  Clarification of the guidelines on disclosures of a recoverable amount of cash-generating units, which include important goodwill and intangible assets with indefinite useful lives

These standards have been adopted in accordance with their respective transitional provisions, and the adoption of above standards has no significant impact on the consolidated financial statements for the six months ended June 30, 2014.

 

Notes

(1) Changes in significant subsidiaries during the current period

Changes in specified subsidiaries resulting in change in scope of consolidation: No

New - (Company name - ) Excluded - (Company name - )
(2) Changes in accounting policies and changes in accounting estimates
1. Changes in accounting policies as required under IFRS: Yes
2. Changes in accounting policies due to other reasons: No
3. Changes in accounting estimates: No
(3) Number of shares issued (Common stock)
1. Total number of shares issued at the end of the period (including treasury stocks)
1,327,257,300 shares (As of June 30, 2014)
1,323,863,100 shares (As of December 31, 2013)
2. Number of treasury stocks at the end of the period
6,033,339 shares (As of June 30, 2014)
6,033,466 shares (As of December 31, 2013)
3. Average number of shares during the period (cumulative from the beginning of the period)
1,319,600,834 shares (Six months ended June 30, 2014)
1,315,045,254 shares (Six months ended June 30, 2013)

Indication regarding execution of quarterly review procedures

  • This quarterly financial report is not intended for the quarterly review based on the Financial Instruments and Exchange Act. At the time of disclosure of this quarterly financial results report, the review procedures for quarterly consolidated financial statements in accordance with the Financial Instruments and Exchange Act are not completed.

Explanation about the appropriate use of earnings forecasts, and other special matters

  • Consolidated forecasts for the year ending December 31, 2014 are based on information that is available at the time of writing, but a number of known and unknown factors could cause actual results to differ from the projections.

The above information was originally prepared and published by the Company in Japanese as it contains timely disclosure materials to be submitted to the Tokyo Stock Exchange. This English summary translation is for your convenience only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version. The following financial information was prepared in accordance with International Financial Reporting Standards (“IFRS”).

*The full report is available at:
http://global.rakuten.com/corp/investors/documents/pdf/14Q2tanshin_E.pdf

About Rakuten
Rakuten, Inc. (4755:Tokyo), is one of the world's leading Internet service companies. We provide a variety of products and services for consumers and businesses, with a focus on e-commerce, finance, and digital content. In both 2012 and 2013, Rakuten was ranked among the world’s ‘Top 10 Most Innovative Companies’ in Forbes magazine’s annual list. Rakuten is expanding worldwide and currently operates throughout Asia, Europe, the Americas and Oceania. Founded in 1997, Rakuten is headquartered in Tokyo, with over 11,000 employees and partner staff worldwide. For more information: http://global.rakuten.com/corp/.

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