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Nexon Reports Fourth Quarter and Fiscal Year 2012 Financial Results

  Nexon Reports Fourth Quarter and Fiscal Year 2012 Financial Results

Business Wire

TOKYO -- February 13, 2013

NEXON Co., Ltd. (“Nexon”) (3659.TO), a worldwide leader in free-to-play online
games, today announced financial results for its fourth quarter and fiscal
year ended December 31, 2012. Fourth quarter revenues grew by 39% and
operating income increased 5% year-over-year, both exceeding the Company’s
outlook. Full year revenues grew 24% year-over-year, and full year operating
income grew 25%.

“2012 was a pivotal year of transformation for Nexon, during which we
completed several transactions that have reshaped our business model as our
dynamic industry continues to evolve. We invested for growth in our PC
business and in the important – and rapidly growing – mobile arena, while
maintaining our strategic and operational focus and delivering another year of
solid growth,” said Seungwoo Choi, President and Chief Executive Officer of
Nexon. “We enhanced our mobile business through the successful acquisitions of
inBlue and gloops, positioning Nexon as the leading third-party mobile game
developer globally. Since acquiring these companies, both have outperformed
our expectations and each is set to deliver a strong 2013 lineup for the
domestic and international markets. Importantly, through our recent alliance,
DeNA is running strong marketing promotions for our games on the Mobage
platform. We expect continued strength in our PC business over 2013 as we
begin to realize the returns from the large publishing deals we signed in
2012.”

“Longer term, we expect to see continued convergence between the PC and mobile
devices. As a content creator, this trend presents significant opportunities
for Nexon and increases the number of ways consumers can enjoy our games,”
continued Mr. Choi. “These industry trends, coupled with the groundwork we
have laid, position Nexon well to deliver growth and value to our
shareholders.”

Fourth Quarter Fiscal 2012 Financial Highlights

  *Total consolidated revenues were ¥30,937 million, an increase of 39% over
    the fourth quarter of 2011 (or 30% on a constant currency basis).
  *Operating income was ¥9,778 million, a 5% increase from the fourth quarter
    of 2011. Operating income margin was 31.6%, as a result of the addition of
    significant new mobile revenues at lower margins, increased marketing
    expenses, amortization expenses from our gloops acquisition and changes in
    the geographic mix shift as the increase in Japan mobile revenues caused
    our higher-margin China business to decrease as a percentage of total
    revenue.
  *Net loss for the quarter was ¥94 million, below the Company’s outlook, due
    to a write-down related to Nexon’s investment in JC Entertainment.
    Additionally, tax expenses were higher than expected due to a new
    interpretation of Korean tax regulation. Write-downs were also taken on
    smaller impairments of IP and goodwill of minority investment
    subsidiaries.
  *Adjusted net income ^ 1 for the quarter was ¥1,033 million.
  *Basic earnings per share were a loss of ¥0.22. Adjusted earnings per share
    were ¥2.38.

Footnote:
     Adjusted net income is a non-GAAP measure that excludes the non-cash
     amortization of goodwill related to our acquisitions (and negative
     goodwill in the case of acquisitions occurring before April 1, 2010),
^1  which is required under Japanese GAAP. We provide this information to
     investors for the purpose of comparing our net income with that of
     companies that do not amortize goodwill or negative goodwill associated
     with acquisitions in their financial results, including those reporting
     in accordance with U.S. GAAP.

                                                 
Revenue by Region^1,4
(Millions of yen)
                                                              
                            Q4 2012         Q4 2012           YoY % Change
               Q4
               2011         (As-            (Constant         As-            Constant
                                                                          Currency^3
                            Reported)       Currency^3)       Reported
                                                                             
China          ¥            ¥ 11,074        ¥ 9,862           34    %        19     %
               8,281
Korea          7,224        7,057           6,340             -2    %        -12    %
Japan          3,687        10,037          10,037            172   %        172    %
North          1,407        1,117           1,036             -21   %        -26    %
America
Europe
and            1,590        1,651           1,534             4     %        -4     %
Others^2
Nexon          22,190       30,937          28,811            39    %        30     %
Total
                                                                             
FX
Rate^5
100            7.23         7.10            7.23
KRW/JPY
CNY/JPY        12.34        12.64           12.34
USD/JPY        79.84        79.82           79.84
                                                                             

Footnotes:
     The above table presents a breakdown of our revenue based on the region
^1  in which revenues originate. It is not a presentation of our revenues
     according to Nexon entities.
^2   Others consists of United Kingdom, other Asian countries, and South
     American countries.
^3   Constant currency percent change is the growth rate had the currency rate
     not changed from Q4 2011.
^4   Revenues are Nexon Group’s consolidated revenues, which include gloops’
     revenue.
     Constant currency is calculated differently under Japanese GAAP compared
     to U.S. GAAP. Instead of fixing the exchange rate at the end of each
     quarter, we apply one of the approved methods under Japanese GAAP and
^5   take the cumulative average from the beginning of the year. For example,
     the Q2 rate is the average from the beginning of year through Q2. Also,
     when converting currency for China revenue, Tencent pays Nexon Korea in
     USD, which is converted to KRW in Nexon Korea’s books and then converted
     to JPY for reporting purposes.
     

Fourth Quarter Actual Results versus Outlook

The following table shows Nexon’s results relative to the Company’s outlook.
In future disclosures, Nexon intends to present its revenues in two
categories: mobile revenues and PC revenues.

                                                                                          
Q4 2012 Actual Results versus Outlook
(Millions of yen, except per share data)
                                                                                                       
                Q4 2012                             Q4 2012
                                                                     Q4 2012                           Q4
               Nexon ^  Outlook                    Nexon                                              2012
                                                                     gloops Outlook
                (excluding gloops)                  (excluding                                         gloops
                                                    gloops)
                                                                              
Revenues        ¥21,263       ~       ¥24,000       ¥24,492          ¥6,200       ~       ¥6,700       ¥6,445
Operating       5,580         ~       8,102         8,613            1,500        ~       1,800        1,910
income
Net
income          3,188         ~       5,099         (400     )       900          ~       1,080        1,013
(loss)
Adjusted
net             3,597         ~       5,507         74               900          ~       1,080        1,013
income
                                                                                                       
Basic EPS       7.34          ~       11.74         (0.92    )       2.07         ~       2.49         2.33
(LPS)
Adjusted        8.28          ~       12.68         0.17             2.07         ~       2.49         2.33
EPS
                                                                                                       

Fiscal Year 2012 Financial Highlights

  *Total consolidated revenues were ¥108,448 million, an increase of 24% over
    the prior fiscal year.
  *Operating income was ¥47,874 million, an increase of 25% over the prior
    fiscal year. Operating income margin was 44.1%, slightly higher than the
    43.7% in 2011.
  *Net income for the year declined 1% over the prior fiscal year to ¥25,401
    million.
  *Adjusted net income for the year was ¥27,711 million, up 2% over the prior
    fiscal year.
  *Basic earnings per share were ¥58.71. Adjusted earnings per share were
    ¥64.05.

First Quarter 2013 Business Outlook

In an effort to provide shareholders with more precise information, Nexon
plans to provide a quarterly outlook rather than a full year outlook beginning
in the first quarter of 2013. The Company will continue to provide additional
detail and commentary regarding longer-term trends in its quarterly
shareholder letter and other investor communications.

Nexon expects Q1 2013 revenue in the range of \28.5 billion to \30.3 billion
for PC and \7.4 billion to \8.1 billion for mobile. Management expects the PC
business will benefit from Nexon’s content update schedule, which will be more
evenly weighted between Q1 and Q3 than it was in 2012. Nexon’s mobile
business, which consists of gloops, inBlue and other studios, will benefit
from a solid lineup of marketing initiatives, particularly on the Mobage
platform through our recently announced alliance with DeNA. Further detail
regarding Nexon’s Q1 2013 outlook is provided in management’s letter to
shareholders, which is available on the Company’s investor relations website.

                                       
Business Outlook
(Millions of yen, except per share data)
                                                 
                    Q1 2011       Q1 2012       Q1 2013
                                                                
Revenues             ¥             ¥             ¥35,965       ~       ¥38,519
                     20,809        30,377
PC                   20,666        30,151        28,553        ~       30,345
Mobile               143           225           7,411         ~       8,174
Operating            9,340         17,384        12,330        ~       14,378
income
Net income           7,586         12,377        7,840         ~       9,318
Adjusted net         7,968         12,738        8,923                 10,401
income
                                                                       
Earnings per
share^2:
Basic EPS            21.50         28.82         18.00         ~       21.39
Adjusted EPS         22.58         29.66         20.49         ~       23.88
                                                                       
FX Rate
Assumptions^3
100KRW/JPY           7.37          7.03          7.94                  7.94
CNY/JPY              12.52         12.55         13.34                 13.34
USD/JPY              82.34         79.28         85.08                 85.08
                                                                       

Footnote:
^1  Adjusted to reflect the 1:100 stock splits that occurred on July 21,
     2011.
     Based on the assumptions above, every one Japanese yen move against the
^2   U.S. dollar would have an impact of 0.32 billion yen on revenue and 0.15
     billion yen on operating income for the three months ending March 31,
     2013.
     

Conference Call and Webcast

Nexon management will host a conference call in English on February 13, 2013
at 10:30 p.m. Japan Standard Time (JST) / 8:30 a.m. Eastern Standard Time
(EST) for analysts and investors to discuss Nexon’s financial results and
outlook. The call can be accessed via live audio webcast on Nexon’s Investor
Relations website at http://ir.nexon.co.jp/en/.

A transcript of the conference call will also be available on Nexon’s Investor
Relations website a few days after the live webcast.

Shareholder Letter and Financial Statements

Please visit the Investor Relations section of Nexon’s website at
http://ir.nexon.co.jp/en/ to view management’s fourth quarter letter to
shareholders and financial statements.

About NEXON Co., Ltd.  http://company.nexon.co.jp/

NEXON Co., Ltd. (“Nexon”) (3659.TO) is a worldwide leader in free-to-play
online games. Founded in Korea in 1994, Nexon developed one of the world's
first graphics-based massively multiplayer online games. Nexon also pioneered
the concept of microtransactions and the free-to-play business model, setting
a new standard in which play is free, and users have the option to purchase
in-game items to enhance their experience. Nexon currently services more than
60 online games in more than 100 countries and since its founding, Nexon has
generated more than 1.3 billion player registrations. The Company is
headquartered in Tokyo, Japan and its shares are listed on the Tokyo Stock
Exchange.

Contact:

NEXON Co., Ltd.
Owen Mahoney, +813-3-3523-7910
Chief Financial Officer