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Account Closing Review

Consolidated Performance for the 3rd Quarter of the Period Ending March 2018

(Units: millions of yen)

  Current period
results
Prior period
results
Year-on-year
comparison (%)
Net sales 194,848 177,446 9.8
Gross profit 34,282 31,363 9.3
Selling, General & Administrative Expenses 30,025 25,447 18.0
Operating income 4,256 5,916 -28.1
Ordinary income 3,694 5,768 -36.0
Profit attributable to owners of parent 1,422 6,272 -77.3

* 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

The Japanese economy in the third quarter consolidated year-to-date period has been in a moderate recovery trend, including continued improvement in corporate profits as well as the employment and income environments, with indications such as capital investment and personal consumption also moving into a recovery. Meanwhile, overseas, although the Chinese economy is also continuing to pick up, in addition to the strong U.S. and European economies, there are concerns about an economic downturn due to growing uncertainties in overseas economies. These include the policy trends of the U.S. administration and the geopolitical risks concerning the situation with North Korea, 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 that lead to advances such as improved operational efficiency, enhanced cost competitiveness and sales expansion, against a backdrop that includes a declining labor force, the globalization of businesses, and the popularization of smart devices and SNS. Against this setting, our group has actively expanded BPO services focused on operations such as DEC services that integrate digital marketing, EC and contact centers, along with back office and design development, and this has led to an increase in orders. In addition, profitability improved for large-scale projects in stand-alone services where costs were ahead in the second quarter consolidated year-to-date period, and the profitability of the group as a whole has remained on an improving trend.

On the other hand, we have endeavored to create new services and to strengthen our service systems, while also making upfront investments for future growth. In an effort to create new services, within the DEC services area we have continued to expand the functions and service lineup for the “DECAds (R)” Series, which we are focusing on as one of our main services. In addition, the “LINE to Call” and “Call to LINE” functions of “LINE Customer Connect,” a corporate customer support service provided by LINE Corporation, have been implemented on our proprietary cloud-type contact center platform “Contact-Link (R),” and we have begun offering hybrid phone and chat customer support via “LINE.” Furthermore, we have also focused on services that utilize digital technology centered on AI. Specifically, we will continue to support the development of AI and machine learning projects for client companies by establishing a specialized Annotation Center as a secure environment for high quality and efficient creation of the large amounts of teaching data that are indispensable for AI and machine learning. In addition, we have developed our own AI / machine learning experience-based training curriculum called “Data Science Experience Program.” This program provides resources such as training for basic knowledge of AI and learning data generation methods, as well as practical experience in machine learning using actual data with the “DataRobot” machine learning automation platform. Furthermore, we have begun full-scale utilization of AI and speech recognition for quality improvement and operational streamlining at our contact centers, and we will shorten the time required for customer service operations with features such as “fully automatic assessment” of response quality monitoring, and automatic answering and response support. On the other hand, in the BPO services area, we will continue focusing on the development and delivery of our “Digital BPO (R) Services,” which comprise a hybrid that combines the latest technology with the operational excellence that we have cultivated since our founding. In this way, we will contribute to productivity improvements for client companies by simultaneously achieving a speed up of business operations and a reduction of man-hours.

In an effort to strengthen our service systems, we have focused mainly on expanding our service bases with a view to increased demand and strengthening of our recruiting system for human resources. Regarding expansion of our service bases, we have newly established “MCM Center Sapporo Sosei” in Sapporo City, a contact center for up to 500 people with 285 workstations, and a 50 person suburban contact center in the Tokyo metropolitan area as an office where housewives, the parenting generation and local residents can work comfortably. In addition, as the demand for BPO services in the construction industry has expanded, we have newly established the BPO service base “BPO Center Sapporo Kitaguchi,” which specializes in the construction industry. In regard to strengthening of our recruitment system for human resources, we have developed the “work it!xCLOUD” outsourcing platform that flexibly supports a variety of working styles, and we have built a system capable of providing services through partners such as former employees and individual business owners. In addition, we have newly established our own recruiting bases, “Work it! Plaza Sendai” and “Work it! Plaza Omiya,” which are furnished with functions related to recruitment of human resources.

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 ¥151.348 billion, resulting in a revenue increase of 6.2% compared with the same period last year. With regard to segment profit, in the third quarter consolidated accounting period (October to December 2017) we moved to an increase in earnings compared with the same period last year. However, for the cumulative period earnings dipped to ¥4.146 billion, resulting in an earnings decline of 30.8% compared with the same period last year, due to the impact of factors such as upfront investments aiming for future growth that were implemented in the first half.

2. Domestic subsidiaries

With respect to affiliated companies in Japan, due to an increase in orders at some subsidiaries sales volume reached ¥13.766 billion, resulting in a revenue increase of 0.6% compared with the same period last year. However, due to factors such as increased start-up costs for new businesses, segment profits were ¥160 million, resulting in an earnings decline of 39.3% compared with the same period last year.

3. Overseas subsidiaries

With respect to affiliated companies overseas, orders for services in China and Korea were favorable and sales volume reached ¥35.749 billion, resulting in earnings growth of 38.2% compared with the same period last year. With regard to profit and loss on the other hand, the business results of some subsidiaries recovered, but there was a segment loss of ¥61 million (there was a segment loss of ¥347 million in the same period last year), due to factors such as continuing upfront investments in Europe.

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

Net sales per segment for Consolidated Performance for the 3rd Quarter of the Period Ending March 2018

Business Conditions by Segment Category

* Note: Elimination of inter-segment transactions of ¥6,016 million is not included.

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