Both the sales of the last fiscal year and the year before have
dropped to a level of 600 billion yen, but around the year 2000,
sufficient profit was made even at a similar level of sales. You have
suffered operating losses in the recent two fiscal years, but I
believe you could have made the same level of profit as before if your
cost structures had been equal. If high costs were the reason,
shouldn’t you have carried out corporate restructuring?
Your question was why Nintendo suffered operating losses in its 72nd and 73rd fiscal terms, despite the fact that Nintendo was able to earn enough profits in the past with the same level of sales.
Regarding this question, there is one aspect that is very easy to understand. This table shows changes in sales in foreign currencies. Please look at the top colored row (the fiscal year ended March 31, 2007) and the bottom two rows showing the latest two periods with operating losses (the fiscal years ended March 31, 2012 and 2013). The second column from the left shows U.S. dollar-denominated sales and “2.8B” means 2.8 billion dollars. The figures in the bottom two rows (for the most recent two fiscal years) are 2.9 and 2.6 billion dollars respectively. Then I would like you to compare the exchange rate of the top row with that of the lowest ones. Yen-denominated sales are calculated by multiplying these sales figures such as 2.8 and 2.9 billion dollars by these exchange rates. Therefore, you will understand even if the scale of our businesse in the United States is the same, the yen-denominated sales shrink because of the appreciation of the yen against the dollar. Nintendo mainly carries out development in Japan, so almost all development costs are incurred here. Nintendo purchases component parts in dollars as much as possible in order to enjoy the benefits of a weak dollar. However, appreciation of the yen against the dollar generally negatively affects Nintendo’s financial results. Euro-denominated sales figures on the right are 1.7 billion euros for the fiscal year ended March 31, 2007, 2.0 billion euros for the fiscal year ended March 31, 2012 and 1.5 billion euros for the fiscal year ended March 31, 2013. With respect to the rightmost exchange rates of the euro, the business environment in recent years was totally different from that in the fiscal year ended March 31, 2007 when the exchange rate was 150 yen per euro. I would like you to understand that the influence of exchange rates is the main aspect of this matter. Regarding U.S. dollars, as I mentioned earlier on, the influence can be offset to some degree with dollar-based purchases. Concerning the euro, on the other hand, even though we have attempted to increase the number of partners who receive payments in euros, the number is still very low.
One more difference from that time is Nintendo’s head-count. The manpower required for increasingly complex and advanced product development has totally changed from that of the past. Hence, the number of employees has increased and higher costs have been incurred. In addition, due to development of more elaborate software titles than before, for example, costs associated with localizing titles in English or other languages have risen.
Regarding why we have not reduced the number of the personnel, it is true that our business has its ups and downs every few years, and of course, our ideal situation is to make a profit even in the low periods, return these profits to investors and maintain a high share price. I believe we should continue working toward this ideal. If we reduce the number of employees for better short-term financial results, however, employee morale will decrease, and I sincerely doubt employees who fear that they may be laid off will be able to develop software titles that could impress people around the world. I believe we can become profitable with the current business structure in consideration of exchange rate trends and popularization of our platforms in the future. We should of course cut unnecessary costs and pursue efficient business operations. I also know that some employers publicize their restructuring plan to improve their financial performance by letting a number of their employees go, but at Nintendo, employees make valuable contributions in their respective fields, so I believe that laying off a group of employees will not help to strengthen Nintendo’s business in the long run. Our current policy is to achieve favorable results by continuously cutting unnecessary expenses and increasing business efficiency.