Cube : FY2018 Investor Meeting transcription

V-cube, Inc.

Financial Results Briefing for the Fiscal Year Ending December 2018

February 14, 2019

Event Summary

[Company Name]

V-cube, Inc.

[Event Type]

Earnings Announcement

[Event Name]

Financial Results Briefing for the Fiscal Year Ending December 2018

[Fiscal Period]

FY2018 Annual

[Date]

[Number of Pages]

February 14, 2019 27

[Time]

[Venue]

[Venue Size]

[Participants]

[Number of Speakers]

16:00 - 16:38

(Total: 38 minutes, Presentation: 35 minutes, Q&A: 3 minutes)

2

Naoaki Mashita Nariyoshi OkawaRepresentative Director, President, CEO Director, CFO

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Presentation

Moderator: From now on, we will hold a briefing on our financial results for the fiscal year ended December 31, 2018, for V-cube, Inc. First of all, I would like to introduce attendees from the Company to you. President and CEO, Naoaki Mashita. Director and CFO, Nariyoshi Okawa. These two attendees.

As you have been informed in advance, we are also distributing live information through our service V-CUBE seminar in order to improve the convenience of our stakeholders. As for live distribution, we take care not to show the appearance of the attendees, but we would appreciate your understanding in advance.

We would also like to receive questions from those who attend the V-CUBE Seminar. For the attendees at the V-CUBE seminar, please use the chat section of the V-CUBE seminar screen and write questions as needed, also during explanations. We'll answer them later.

Then, we'll move on the explanation. President Mashita, please.

Mashita: Nice to meet you. Now, we will commence the financial results briefing for the fiscal year ended December 31, 2018. Thank you very much for coming while you are busy. I would like to use the materials to explain to you three points today, the results for 2018, the outlook for 2019, and the related business updates.

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This is a summary. I told you that we implemented structural reforms in 2017 and will make 2018 a year of a V-shaped recovery. I think we were able to achieve a V-shaped recovery in 2018 as promised. Net sales were significantly higher than the previous year and the initial forecast, partly because the electronic smart board business itself was better than expected.

Similarly, to what I just mentioned, operating income has also been greatly affected by the structural reforms, and we have achieved profitability. We sold our electronic smart board service and were able to record this extraordinary gain. As a result, we were able to return to profitability in terms of net income attributable to owners of the parent, and we were able to realize positive free cash flow.

As I will explain in detail later, the forecast for 2019 is expected to decline by about 1.5 billion yen, as it will be affected by the sale of the electronic smart board business.

We plan to change the revenue recognition standard this time. This change in the revenue recognition standard is mandatory in 2021, also for Japanese GAAP. We will change the revenue standard this fiscal year to conform to this standard. As I will explain in more detail later, the impact is that the recording of sales will be delayed. This is affected only in a single fiscal year, but sales will be delayed this year.

In addition, we were able to make a V-shaped recovery in fiscal 2018, so we intend to commence dividend payments for 2019, and we would like to provide guidance on this matter later. The Visual Communication Business has been the only segment in the past, but we have thoroughly reviewed the current situation and started disclosing information in a three-segment manner.

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Here, I would like to explain our results for 2018. On page 5, net sales increased by about 1.3 billion yen to 7.96 billion yen, partly because the performance of the electronic smart board, which I mentioned earlier, was much higher than expected. This is the result of FY2018.

Since electronic smart board business is centered on hardware, they do not contribute significantly to profits. The cost of sales increased by 840 million yen, and gross profit increased by 480 million yen to about 3.4 billion yen. Selling, general and administrative (SG&A) expenses improved substantially. As a result, operating income was 345 million yen, an improvement of 900 million yen from the previous year.

As I mentioned earlier, extraordinary gains were recorded as a result of the sale of the electronic smart board business. Finally, net income attributable to owners of the parent was 456 million yen, which has been slightly affected by a partial impairment loss based on the valuation of the assets held by iStudy. It resulted in an improvement of about 3.5 billion yen from the previous year.

In the following page, you see quarterly sales and operating income. Overall, performance has been increasing.

However, the Cloud had good performance in the second quarter affected by the fact that it is often booked in the second quarter due to the impact of the revenue recognition standards, which I will introduce later.

The Appliance performs well usually in the third quarter, because many schools introduce it in the summer vacation.

In 2018, the introduction of appliances to schools was very advanced in the fourth quarter, and Appliance recorded 789 million yen in the fourth quarter. I think this was special for 2018. However, regarding Appliance,

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