Financial Results Briefing for Fiscal Year Ended March 2022 (Online)
Nintendo Co., Ltd.
Q & A Summary
1
Date: Tuesday, May 10, 2022
Attendees: Shuntaro Furukawa (Representative Director and President)
Hajime Murakami (Executive Officer)
The following are the main questions and answers from the financial results briefing. Please
note that portions of this content have been edited or revised to improve readability.
If you quote from this Q&A, please
include a citation or link to this file.
Q1 Regarding the financial forecast for the current fiscal year (ending March 2023), what is the
reasoning behind the year-on-year decline in software unit sales? Also, how did you determine
the assumed exchange rates, as they differ substantially from current market rates? If possible,
please explain Nintendo’s sensitivity to changes in exchange rates and how much of an impact
a 1-yen shift against the U.S. dollar or euro will make on sales and profits.
A1 Shuntaro Furukawa (Representative Director and President):
The financial forecast for the current fiscal year takes into account the present manufacturing
and sales environments, and the following three explanations are the key points.
The first point is the hardware sales units forecast for this fiscal year. As the global shortage
of semiconductors and other parts continues, we are still experiencing difficulties in the
procurement of necessary components. There remain uncertainties within our plans for
hardware production. Considering this production situation, we decided to set our hardware
sales units forecast at 21 million, which is a decrease of about 2 million units year-on-year.
The second point is the software sales units forecast. Upon comprehensively accounting for
factors such as new Nintendo titles scheduled to be released this fiscal year, demand for
evergreen titles released during previous fiscal years, and new titles scheduled to be released
by other software publishers, we decided to set our forecasted unit sales at 210 million, which
is a decrease about 20 million units year-on-year. It is difficult to make an accurate forecast
since, at the beginning of the year, we cannot predict other software publishers’ product
release schedules, and because the overall scale of software sales has grown considerably.
However, we believe that we will be able to continue sales in the 200-million-unit range.
The third point is that we must account for the balance in supply and demand of components
such as semiconductors, as well as the situation regarding logistics. The financial forecast for
the current fiscal year anticipates a rise in manufacturing costs (due to an increase in the price
of components such as semiconductors) and a substantial rise in the cost of shipping due to a
supply-demand imbalance surrounding the transportation industry, affecting the
transportation of hardware produced in preparation for the holiday season.
The assumed exchange rates for this fiscal year are 1 U.S. dollar = 115 yen and 1 euro =125
yen. Taking into consideration the recent sharp fluctuations in exchange rates, we have decided
to pay attention to not only the current market rates, but also long-term rate fluctuations
among other economic factors when determining the assumed exchange rates.
Regarding the impact of changes in exchange rates on our financial statements, because we
do not disclose our yearly sales forecast figures in foreign denominations, we are unable to
provide a figure as to how much of an impact it could have on our current forecast. If we take
Financial Results Briefing for Fiscal Year Ended March 2022 (Online)
Nintendo Co., Ltd.
Q & A Summary
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the previous fiscal year as an example, sales in foreign denominations were 6.3 billion U.S.
dollars and 3.1 billion euros, so the impact of a 1-yen shift in exchange rates would amount to
6.3 billion yen and 3.1 billion yen, respectively.
Gross profit is impacted by purchase costs in foreign denominations. Purchases made in U.S.
dollars totaled 5.8 billion U.S. dollars during the previous fiscal year. While we do make
purchases in euros, they are not in large amounts. Furthermore, because a portion of purchases
will remain as part of inventory, not all purchases will impact profits and losses during the same
fiscal year.
In terms of SG&A, the effects of changes in exchange rates will mainly impact expense
calculations of our foreign subsidiaries. If the yen depreciates, expenses will increase, thus
negatively impacting our profitability.
Foreign exchange gains and losses within non-operating profits or losses are mainly affected
by the revaluation of foreign-currency denominated assets and liabilities owned by Nintendo
Co., Ltd. Again, if we use the previous fiscal year as an example, our net current assets* in
foreign denominations were 3.1 billion U.S. dollars and 0.6 billion euros. If we do not account
for fluctuations in net current assets over the fiscal year, we can estimate that a 1-yen shift in
exchange rates will result in around 3.1 billion yen and 0.6 billion yen, respectively, in foreign
exchange gains or losses.
*Net current assets = cash + accounts receivable – accounts payable – loans payable to
subsidiaries and affiliated companies
Q2 Please tell us about the initial sales status of Nintendo Switch Sports, released on April 29,
including the sales situation by region as well as its contribution to Nintendo Switch Online.
A2 Furukawa:
Nintendo Switch Sports is off to a very good start in every region. With this title, players can
experience sports through intuitive controls using the Joy-Con controllers, and since it is
approachable even for those who do not usually play video games, we believe it has the
potential to broaden the range of consumers.
Also, Nintendo Switch Sports is a title that becomes more appealing when you play it online,
and even those who do not usually play games online can easily participate and enjoy online
matches with it. For example, you can team up with a family member to compete online with
other players. On its initial release, the game has mainly been purchased by consumers who
already own a Nintendo Switch system. In Japan, it is being picked up by consumers from a
wide range of age groups. In Europe and North America, consumers in their mid-20s who have
experienced Wii Sports and Wii Sports Resort are the main demographic. We are planning to
release Splatoon 3 in the current fiscal year, which can also be enjoyed online. We would like
to promote these titles throughout the year and communicate the fun of online gameplay to
consumers, including those who may become new hardware purchasers.
Financial Results Briefing for Fiscal Year Ended March 2022 (Online)
Nintendo Co., Ltd.
Q & A Summary
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Q3 Please tell me about the attachment and retention rates for Nintendo Switch Online. Has the
newly added access to Mario Kart 8 Deluxe – Booster Course Pass at no additional cost started
in March had any impact on Nintendo Switch Online + Expansion Pack such as an increase in
the number of subscribers? The pricing of Nintendo Switch Online + Expansion Pack is
favorable (in comparison to the unit price of each individual piece of add-on content); are you
planning on making add-on content a regular part of the subscription service?
A3 Furukawa:
An updated number of Nintendo Switch Online members will not be announced today. Last
year, we disclosed there were 32 million subscribers as of September 2021. Since then, the
number of subscribers has steadily increased alongside sales of hardware units. Since not all
consumers renew their subscriptions after the expiration of their membership periods, we think
it is important to continuously make the service more compelling through the addition of titles
that utilize online gameplay and improvements to the service itself.
In March of this year, we added a new “Missions & Rewards” feature to Nintendo Switch
Online. By completing missions (such as “Play Software That Supports Online Play” or “Play
Game Trials Software”), players can earn My Nintendo Platinum Points, which can then be
redeemed for rewards such as “icon elements.” Furthermore, Nintendo Switch Online +
Expansion pack (started in October 2021) now offers access to Mario Kart 8 Deluxe – Booster
Course Pass (released in March) at no additional cost. We will continue to expand upon the
service and deliver various content throughout the year.
The number of Nintendo Switch Online + Expansion Pack members is steadily increasing,
and its share among the overall Nintendo Switch Online subscriber-base is gradually
expanding. By region, the ratio is especially high in the United States. When we first started
Nintendo Switch Online + Expansion Pack, the majority of subscribers were those who
migrated from the original Nintendo Switch Online membership plans. However, we began to
see an increase in new subscribers late last year, caused mainly by the introduction of popular
Nintendo 64 titles and add-on content for Mario Kart 8 Deluxe and Animal Crossing: New
Horizons.
Whether or not we offer future add-on content as part of Nintendo Switch Online +
Expansion Pack will depend on the user-friendliness of the overall experience and the
compatibility of each piece of software. Each title will be distributed in a way that best fits its
characteristics.
Q4 The upcoming software titles for the current fiscal year have already been announced to some
extent, and I think one of the major differences from past platforms is that a rich lineup of new
software is still being added to your library, even in the sixth year of Nintendo Switch. Can you
explain the reasons for such a difference? Also, I think that a next-generation game system will
be launched at some point in the future. Historically, newly launched platforms did not always
Financial Results Briefing for Fiscal Year Ended March 2022 (Online)
Nintendo Co., Ltd.
Q & A Summary
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have a smooth transition from prior generations. Please tell us your thoughts on how you plan
to maneuver to the next generation of hardware.
A4 Furukawa:
We have already announced some software titles that will be released through next spring.
Unlike in the past, even though Nintendo Switch has gone through five years since its launch,
there is still a rich lineup of new titles to be released. The biggest reason for this is that, thanks
to the smooth launch of Nintendo Switch itself, we have been able to concentrate our
development resources on one platform. On the other hand, looking back on past experiences
of generational change such as the change from the Wii and Nintendo DS eras, we recognize
that one of our tasks is ensuring the transition to future generations of hardware is as smooth
as possible. To that end, we are focusing on building long-term relationships with our
consumers (through Nintendo Accounts). While continuing to release new Nintendo Switch
software for consumers to enjoy, we aim to maintain relationships across hardware generations
through services that utilize Nintendo Accounts and by providing opportunities for them to
experience our IP through other non-gaming channels.
Q5 When compared to the forecasted 5% year-on-year decrease in net sales for the current fiscal
year, the decline in the hardware and software unit sales forecast looks to be out of proportion.
It seems improbable that you would be able to achieve 1.6 trillion yen in net sales unless an
extremely large portion of your sales comes from Nintendo Switch - OLED Model. In what ratio
do you expect to sell each of the Nintendo Switch models? Also, I believe you used railways to
transport products to Europe in the previous fiscal year, but this option is likely unavailable due
to the current situation in Ukraine. Have you considered any alternative means of
transportation?
A5 Furukawa:
We have been able to maintain high demand for Nintendo Switch - OLED Model so far, and
because it will contribute to the entire fiscal term in this fiscal year, we believe this model will
represent a larger portion of hardware sales. Out of sell-through figures for the previous fiscal
year, about 25% of overall hardware purchases were made by those who already owned a
Nintendo Switch system. About 30% of Nintendo Switch Lite unit sales were repeat purchases
(demand for additional Nintendo Switch systems after the first) and 40% of Nintendo Switch -
OLED Model unit sales were repeat or replacement purchases. In order to achieve our
forecasted sales of 21 million units, it will be essential to maximize demand among both first-
time and repeat purchasers. Furthermore, we believe the proportion of Nintendo Switch - OLED
Model sales will grow along with the increase in demand for multiple systems.
You are correct in your assumption regarding railway transportation of products to Europe.
One of the challenges for the current fiscal year is that, when we take our current production
environment into consideration, it is very difficult to plan the transportation of products not
only to Europe but also to other regions. Normally, we would build up our inventory during
the summer and transport our products by ship early, so they arrive in time for the peak holiday
Financial Results Briefing for Fiscal Year Ended March 2022 (Online)
Nintendo Co., Ltd.
Q & A Summary
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season. However, when looking at the current fiscal year, we believe that we need to utilize
other means of transportation including air more than usual, and we are planning based on
that assumption.
Q6 Out of the cash utilization plan of up to 450 billion yen announced during last year’s Corporate
Management Policy Briefing, how much is incorporated into the consolidated financial forecast
for the current fiscal year?
A6 Furukawa:
We do not disclose specific details regarding how much progress we have made in the
utilization of cash on hand. However, we previously announced our plan to acquire Kyoto city-
owned land adjacent to Nintendo headquarters this fiscal year. In this area, we will build
Corporate Headquarters Development Center, Building No. 2 (tentative name), which will
accommodate our future needs in the expansion and reinforcement of research and
development. Aside from this example, there are various preparations underway in both
gaming and non-gaming fields.
Q7 DeNA Co., Ltd. (DeNA) announced a sale of their shares in Nintendo and commented that “the
companies will move to the next stage of enhancing their relationship.” Are there plans to move
beyond the existing collaborations, namely those of development and operation of mobile
applications and support for Nintendo’s online businesses, or will it be an extension of your current
relationship?
A7 Furukawa:
This does not affect our cooperative relationship. DeNA and Nintendo have built a strong
relationship based on trust, and we have been working collaboratively in the development and
operation of mobile applications and online services centered around Nintendo Accounts. We
plan to continue making progress in our collaborations. While we are unable to make any
further disclosures from our side, we would like to say that during the past seven years, both
companies have learned many things through our collaborations, and we would like to
continue to further strengthen our cooperative relationship in the business between the two
companies.
End
