In conclusion, we have not lost goodwill in either the first half or the full year. In other words, in both the first half and the full year, operating income from M&A target companies > amortization of goodwill from M&A target companies.

Next, I would like to explain the reasons for the year-on-year decrease in profit, although we did not lose goodwill in the first half of the year.

First, due to the seasonal nature of the GENDA group, sales are more heavily weighted toward the second half of the year (August through January), when consecutive holidays and farewell parties are more frequent than in the first half (February through July). On the other hand, amortization of goodwill is expensed on a straight-line basis.

While All.Net usage fees begin to rise, “sales are seasonal, being lower in the first half and higher in the second half,” while “goodwill amortization expenses are always recorded in the same amount in both the first and second half (ultimately, every day of every month),” and if only the first half is taken out, operating income, a profit indicator after goodwill amortization, does not appear to be beating back the cost increase.

On the other hand, if we take only the first half of the year, even after taking into account the increased cost of All.net usage fees, EBITDA is expected to increase significantly from the previous year, even after deducting the impact of amortization of goodwill. GENDA uses EBITDA as an indicator to judge the health of the actual business.

Above all, the company plans to increase operating income after amortization of goodwill by 30% from 5.3 billion yen to 7.0 billion yen for the full year as planned (EBITDA after deducting goodwill amortization is expected to increase by 60%).

Although GENDA tries to avoid “full year” operating income reductions due to goodwill amortization as much as possible, goodwill amortization does not affect the decision-making process in the first place, and “whether the first half of the year is a goodwill loss” is even less relevant to decision-making.

Goodwill is likely to occur when there is a large difference between an asset that has been depreciated on its book value over time (e.g., a karaoke or amusement arcade) and an asset that is generating ample cash flow each year in the future.

At GENDA, we determine the amount of capital to be invested in an M&A transaction based solely on the total amount of cash flow that we expect to recover in the future. In other words, we thoroughly adhere to the basic principle of investment, which is to invest capital and recover more than the amount of capital invested.

This is essentially the same concept that applies to capital investment in the core business, which is the same act of making a capital investment and earning cash flow over and above that through the business. However, in today’s entertainment industry, GENDA has experienced discontinuous growth over the past six years due to the outstanding efficiency of capital investment in mergers and acquisitions (it has succeeded in increasing the amount of money invested to far more than it has invested).