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Account Closing Review

Consolidated Performance for the Fiscal Year Ended March 31, 2017

(Units: millions of yen)

  Current period
results
Prior period
results
Year-on-year
comparison (%)
Net sales 242,314 224,605 7.9
Gross profit 42,902 40,373 6.3
Selling, General & Administrative Expenses 34,822 30,648 13.6
Operating income 8,080 9,725 -16.9
Ordinary income 6,742 8,870 -24.0
Profit attributable to owners of parent 7,156 7,587 -5.7%

* As a result of revisions to the accounting standards for business combinations, the former quarterly net income has been changed to quarterly net income “attributable to shareholders of the parent company” since the fiscal year ended March 2016

Qualitative Information Regarding Consolidated Operating Results

Overall, the Japanese economy in the current consolidated fiscal year has remained in a moderate recovery trend with continued improvement in the employment and income environment, although some sluggishness has been seen in personal consumption. On the other hand, there are concerns such as an increase of uncertainties in overseas economies, including the United Kingdom EU withdrawal problem, the change of administrations in the United States, and an economic slowdown in the emerging countries and resource-rich countries of Asia, as well as the impact of foreign exchange fluctuations on corporate earnings, all of which result in an uncertain outlook for conditions going forward.

In the environment surrounding the services offered by our group, there is expanding demand for outsourcing services related to advances such as improved efficiency, enhanced cost competitiveness and sales expansion for businesses, against a backdrop that includes a declining labor force, the globalization of businesses, and the popularization of smart devices and SNS. Under these circumstances, our Group has actively expanded services focused on operations such as contact center, back office, design development, digital marketing and EC, and this has led to an increase in orders.

On the other hand, we have endeavored to create new services and strengthen our service systems, as well as making upfront investments for future growth.

In terms of initiatives to create new services, we have integrated digital marketing, EC (E-commerce) and contact center services as services to support improvement of the customer experience, and we have concentrated on creating services that are unique to our group by exploiting technologies such as messenger applications and AI focused on LINE.

Specifically, we have started offering “Messenger Application EC Service for Dynamic Talk,” a service that delivers messages for recommended products tailored to each customer, and we have begun sales of communication platforms for entertainment and events that link LINE’s Chatbot, electronic tickets and EC. In addition, we have started offering “Robotics Marketing for Pepper,” which utilizes customer service data obtained through robots with Omni-channel, as well as DECode, which is a unique DMP service that uses AI to analyze communication data such as advertisements and chatting. Beyond that, in collaboration with SmartNews we have started offering the chat ad menu “DECAds,” which improves engagement with prospective users who have been guided from an advertisement to chatting.

In terms of efforts to strengthen our service systems, we have actively promoted the expansion and increase of operation bases in Japan and overseas, as well as the formation of alliances with strong companies. In particular, at the BPO Center Kumamoto, which provides BPO services focused on tasks such as ordering services and sales back office operations for the food industry in Japan, roughly 240 workstations have been added, thereby expanding the center to a scale of approximately 930 workstations. Overseas, in order to expand and strengthen contact center and digital marketing services for Vietnam’s domestic market, we have established the “Ho Chi Minh Center No. 2,” which is our fourth operation base in Vietnam. Also with regard to alliance strategies, we have formed a capital and business alliance with Reply, Inc. in the United States, which provides bot construction and operations management platforms, and we are also collaborating with SECOM Trust Systems Co., Ltd. for the purpose of enhancing document storage operations in back office services that optimize various indirect operations within businesses.

In recent years with the progress of digital technology, the points of contact between companies and consumers have diversified, and the influence of consumers has become stronger. Furthermore, new players centered on cutting edge digital technology have emerged, and the boundaries of the industry have become ambiguous. In response to these changes in the business environment, our group will offer new services that utilize digital technology in order to support innovative changes at client companies.

One area involves services that promote improvement of the customer experience by eliminating the boundaries between marketing, sales and support for the diversifying points of contact between companies and consumers. We will continue to improve by learning from others in order to be recognized as the one and only partner who can promote improved customer loyalty together with increased sales and profit, as we integrate our knowledge of communication with consumers and digital technology cultivated over many years with our global service network. Another area involves services that support digitization of business processes within client companies in order to respond to the digitization of markets and consumers. We will create simple business processes together with client companies and support their operation through innovations that include automation with digital technology and the utilization of digital platforms.

Our group aims to be a “Global Digital Transformation Partner” that supports innovative changes at client companies by seamlessly connecting these two service areas.

The classifications of reporting segments have been changed starting from the first quarter consolidated accounting period, and the following year-on-year comparisons are based on the revised figures for segment classifications after changing the figures for the same period of the previous year.

Business Conditions by Segment Category

1. Parent company

As a result of factors such as increased demand for outsourcing services at our company, sales volume reached ¥193.535 billion resulting in a revenue increase of 8.1% compared with the same period last year, and segment profits came in at ¥8.389 billion resulting in an earnings decline of 2.5% compared with the same period last year, due to factors including higher start-up costs for new projects.

2. Domestic subsidiaries

With respect to affiliated companies in Japan in the previous second quarter consolidated accounting period, sales volume was ¥18.756 billion resulting in a revenue decline of 3.5% compared with the same period of the prior year due to the impact of merging some subsidiaries (absorption-type mergers with our company as the surviving entity) and excluding them from the scope of consolidation. Additionally, segment profits were ¥457 million resulting in an earnings decline of 46.0% compared with the same period of the prior year. The main reason for this result was the impact of increased start-up costs for new business at newly consolidated subsidiaries.

3. Overseas subsidiaries

With respect to affiliated companies overseas, orders for services in China were favorable and sales volume reached ¥36.411billion, resulting in earnings growth of 16.5% compared with the same period of the prior year. On the other hand, with regard to profit and loss, there was a segment loss of ¥764 million (there was segment profit of ¥227 million in the same period of the prior year) due to an increase in temporary surplus personnel costs related to the completion of some large-scale projects in South Korea, up-front investments in Europe and other factors.

* Note that segment profit is based on operating income in the consolidated income statement.

Net sales per segment for Consolidated Performance for the Fiscal Year Ended March 31, 2017

Business Conditions by Segment Category

* Note: Elimination of inter-segment transactions of ¥6,388 million is not included.

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