ValueCommerce : Q4 TSE Filings(437KB)pdf

This filing was originally prepared and published by the Company in Japanese as it contained timely disclosure information to be submitted to the Tokyo Stock Exchange (1st section). The English translation is for your reference only. To the extent there is any discrepancy between this English translation and the original Japanese filing, the Japanese filing will prevail. The following financial information was prepared in accordance with generally accepted accounting principles in Japan (JGAAP).

Financial Results (Consolidated) for Fiscal Year of 2019

		January 29, 2020
Corporate Name:	ValueCommerce Co., Ltd.	Listed: TSE 1st section
Ticker Symbol:	2491	URL: https://www.valuecommerce.com/en/
Representative:	Representative Director, President and CEO	(Name) Jin Kagawa
Contact person:	Director of the Board, CFO	(Name) Masatomo Endo

	TEL: [phone]
Scheduled date of commencement of dividend payment:	March 9, 2020
Scheduled date of ordinary shareholders' meeting:	March 25, 2020
Scheduled date of filing the securities report:	March 26, 2020
Results supplementary materials to be created:	Yes
An explanatory presentation to investors:	Yes

(Amounts less than one million yen rounded down)

1. Consolidated Operating Results for the Fiscal Year Ended Dec. 31 2019 (Jan. 1 to Dec. 31, 2019)

(1) Consolidated Operating Results			(Percentage figures refer to comparisons with the previous fiscal year)
								Net income
	Revenue		Operating income	Ordinary income		attributable to owners
								of the parent
	Million Yen	%	Million Yen	%	Million Yen		%	Million Yen		%
FY2019	25,694	23.7	4,966	32.3	4,988		31.5	3,345		28.4
FY2018	20,764	22.9	3,755	68.9	3,793		68.1	2,604		157.8

(Note) Comprehensive income:	Year ended December 31, 2019:	3,372 million yen, 30.3%
		Year ended December 31, 2018:	2,587 million yen, 139.3%
			Diluted EPS			ROA
		Basic EPS		ROE	(Ratio of ordinary	Operating profit
		(Diluted Earnings
	(Earnings per share)	(Return on Equity)	income to total	margin
	per share)
					assets)
		Yen	Yen		%	%	%
FY2019		103.57	103.47		32.4	30.5	19.3
FY2018		80.78	80.62		32.4	28.8	18.1

(Reference) Equity in earnings/loss of an affiliate:

Year ended December 31, 2019:	-
Year ended December 31, 2018:	-31 million yen

(2) Consolidated Financial Positions

	Total assets	Net worth	Equity ratio	Book-value per share
	Million Yen	Million Yen	%	Yen
As of December 31, 2019	18,011	11,491	63.8	355.60
As of December 31, 2018	14,706	9,145	62.1	283.02
(Reference) Owners' equity:	As of December 31, 2019:	11,485 million yen
	As of December 31, 2018:	9,137 million yen

(Note) Starting from the consolidated fiscal year under review, "Partial amendment of accounting standards about accounting for income taxes (Corporate Accounting Standards No.28, February 16, 2018)" has been applied. Figures as of December 31, 2018 have been

prepared/analyzed retrospectively based on the new calculation method.

(3) Consolidated Cash Flows

	Operating cash flows	Investing cash flows	Financing cash flows	Ending cash balance
	Million Yen	Million Yen	Million Yen	Million Yen
FY2019	4,041	-3,135	-1,021	7,862
FY2018	2,756	627	-407	7,978

2. Dividends

	Dividend per share					Total dividend	Payout ratio		Dividend on
								Equity (DOE)
	Q1	Q2	Q3	Q4	Total		amount	(Consolidated)
			(Consolidated)
	Yen	Yen	Yen	Yen	Yen		Million Yen	%	%
FY2018	－	7.00	－	18.00	25.00	806	30.9	10.0
FY2019	－	14.00	－	19.00	33.00	1,065	31.9	10.3
FY2020 (Forecast)	－	16.00	－	18.00	34.00			30.5

3. Consolidated Operating Forecast for the Fiscal Year Ended Dec. 31, 2020 (Jan. 1 to Dec. 31, 2020)

(Percentage figures refer to comparisons with the previous fiscal year)

								Net income		Basic EPS
	Revenue		Operating income	Ordinary income	attributable to owners	(Earnings
								of the parent		per share)
	Million Yen		%	Million Yen	%	Million Yen	%	Million Yen		%	Yen
H1(cumulative) FY2020	14,300		16.1	2,550	7.5	2,550	7.0	1,670		5.1	51.70
FY2020	30,000		16.8	5,500	10.7	5,500	10.3	3,600		7.6	111.45

• Notes

1. Significant changes in scope of consolidation during this year: No
2. Changes in accounting policies and accounting estimates, retrospective restatement

1.	Changes in accounting policies due to amendment of accounting standards, etc.	:	No
2.	Changes in accounting policies other than 1.	:	No
3.	Changes in accounting estimates	:	No
4.	Retrospective restatement	:	No

(3) Number of issued shares (Common stock)
		as of	as of
		December 31, 2019	December 31, 2018
1.	Common stock (including treasury stock)	34,471,000 shares	34,471,000 shares
2.	Treasury stock	2,170,779 shares	2,185,700 shares
3.	Average number of shares issued	32,296,168 shares	32,244,336 shares

(Reference)

1. Non-Consolidated Operating Results for the Fiscal Year Ended Dec. 31 2019 (Jan. 1 to Dec. 31, 2019)

(1) Non-Consolidated Operating Results

(Percentage figures refer to comparisons with the previous fiscal year)

	Revenue		Operating income	Ordinary income		Net income
	Million Yen		%	Million Yen		%	Million Yen		%	Million Yen		%
FY2019	25,253		21.6	5,172		34.4	5,195		32.5	3,552		11.7
FY2018	20,764		22.9	3,849		67.7	3,921		68.9	3,181		809.9
	Basic EPS		Diluted EPS
	(Earnings per share)	(Earnings per share diluted)
			Yen			Yen
FY2019			109.98			109.87
FY2018			98.66			98.46

(2) Non-Consolidated Financial Position

	Total assets	Net worth	Equity ratio	Book-value per share
	Million Yen	Million Yen	%	Yen
As of December 31, 2019	17,621	11,437	64.9	353.91
As of December 31, 2018	14,440	8,884	61.5	274.92
(Reference) Owners' equity:	As of December 31, 2019:	11,431 million yen
	As of December 31, 2018:	8,875 million yen

2. Forecast of Non-Consolidated Operating Results for the Fiscal Year Ended Dec. 31, 2020 (Jan. 1 to Dec. 31, 2020) (Percentage figures refer to comparisons with the previous fiscal year)

											Basic EPS
	Revenue		Operating income	Ordinary income	Net income		(Earnings
											per share)
	Million Yen		%	Million Yen	%	Million Yen	%	Million Yen		%	Yen
H1(cumulative) FY2020	13,000		5.6	2,620	7.9	2,640	8.2	1,800		9.4	55.73
FY2020	27,400		8.5	5,600	8.3	5,660	8.9	3,880		9.2	120.12

* Audit

This filing is not subject to the audit procedures under the Financial Instruments and Exchange Act.

• Note on proper use of the earnings outlook and other special notes (Note on description about outlook in the future)
  This filing contains an earnings outlook and other forward-looking statements. They are based on information currently available to the Company and on certain assumptions we deem reasonable. They are not intended to constitute the Company's guarantee that the outlook and statements will be realized. The actual results may differ materially from those described in this filing due to various factors. For the assumptions for the earnings outlook and notes on use of the earnings forecast, please refer to "(1) Qualitative Information about Analysis of Operating Results" in "1. Qualitative Information Concerning Consolidated Business Results" on page 2 of the Accompanying Materials.
  (Method to reach supplementary materials and contents of explanatory presentation)
  The company schedules to hold an explanatory presentation to investors on January 29, 2020. The supplementary materials on financial results will be posted on the Company's website soon after the presentation meeting.

1. Qualitative Information Concerning Consolidated Business Results

(1) Analysis of Operating Results

During the consolidated fiscal year under review, the Japanese economy overall, employment environment improved and consumer spending recovered while solid corporate earnings. Though there were partial hurried purchase regarding consumption trend right before consumption tax hike, its effect was small and reaction of decrease was also small.

In marketing domain the Company belongs, competition among commerce business operators is intense according to e-commerce market expansion. Thus the demand of effective marketing solution increases.

In this environment, the Group focus on providing marketing solution from customer attraction to retention to maximize commerce business operators' performance, "Gross Merchandise Value (GMV)".

For the consolidated fiscal year under review, revenue was JPY 25,694,601 thousand (up 23.7% Y/Y). This was attributable to 1; good performance in "STORE's R∞ (R Eight)", CRM tool for stores in online mall operated by Yahoo! Shopping, "Storematch", pay-per-click advertising, and "Affiliate Marketing", pay-per-performance advertising and 2; Dynatech inc. have consolidated on September 27, 2019 and its revenue have accounted from the fourth quarter of the consolidated fiscal year.

Selling, general and administrative expenses was JPY 3,857,059 thousand (up 22.6% Y/Y) due to expenses such as 1; increased recruiting and system introduction for operational optimization and 2; selling, general and administrative expenses of Dynatech inc. and amortization of goodwill according to acquisition of its share.

Operating income was JPY 4,966,944 thousand (up 32.3% Y/Y) due to growth driven by existing services.

Ordinary income was JPY 4,988,359 thousand (up 31.5% Y/Y) due to recognizing operating gains on investment in partnership of JPY 12,389 thousand under non-operating income.

Net income attributable to owners of the parent was JPY 3,345,026 thousand (up 28.4 % Y/Y) due to the recording of income taxes of JPY 1,561,941 thousand.

Also, the Company announced that the meeting of its Board of Directors held on November 27, 2019 resolved to acquire all shares of B- SLASH Corporation, new company to be incorporated as incorporation type company split by Commerce21 Corporation. Consolidating B- SLASH Corporation, we focus for strengthing sales promotion services for stores on commerce business operators' EC site such as online shopping mall operated by Yahoo Japan Corporation.

Segment performance was as follows:

(i) Marketing Solution Business

Marketing Solution Business provides solutions of customer attraction to commerce providers' EC site. Main service is "Affiliate Marketing", pay-per-performance advertising.

Commerce business operators' conversion (purchase/application) expanded due to proposal based on ad-technologies and marketing data in "Affiliate Marketing".

Also, as a main engagement of product planning and development, the Company developed "MyLinkBox" and starts providing in June 2019. "MyLinkBox" is a new feature that media operator can easily create parts to introduce products/services on affiliate administration page.

As a result, this segment attained revenue of JPY 17,040,314 thousand (up 10.8% Y/Y) and segment operating income of JPY 2,884,503 thousand (up 8.2% Y/Y).

(ii) EC Solution Business

EC Solution Business provides solutions of sales promotion on commerce providers' EC site. Main services are "STORE's R∞", CRM tool for stores in online shopping mall operated by Yahoo Japan Corporation, and "Storematch", pay-per-click advertising.

During the consolidated fiscal year under review, some engagements contributed to increase revenue such as 1; some business measures to promote service use of stores by collaborating with Yahoo Japan Corporation, and 2; expansion of ad distribution space in the preceding consolidated fiscal year. Also the Company starts providing "STORE's R∞" for stores in "PayPay mall" in October 2019.

The Company acquired all shares of Dynatech inc. on September 27, 2019 and Dynatech has become a 100% consolidated subsidiary of the Company. Its profit and loss and amortization of goodwill according to acquisition of its share are accounted from the fourth quarter of consolidated fiscal year.

As a result, this segment attained revenue of JPY 8,654,286 thousand (up 60.5% Y/Y) and segment operating income of JPY 3,395,969 thousand (up 40.1% Y/Y).

Regarding the outlook for the next fiscal year, domestic economy in 2020 is expected to remain on a slow recovery despite the temporaly possibility of consumer spending drop by consumption tax hike.

In e-commerce market, it is expected to continue to grow steadily and increase the marketing solution demand.

In this environment, the Group continue to focus on providing marketing solution from customer attraction to retention to maximize commerce business operators' performance, "Gross Merchandise Value (GMV)".

- 1 -

As a result of the above, for the consolidated earnings outlook for the next fiscal year, the Group forecasts revenues of JPY 30,000 million (up 16.8% Y/Y), operating income of JPY 5,500 million (up 10.7% Y/Y), ordinary income of JPY 5,500 million (up 10.3% Y/Y), and net income attributable to owners of the parent of JPY 3,600 million (up 7.6% Y/Y).

(Note) The forecasts and other forward-looking statements contained in this report are based on information currently available to management, and various factors may cause actual results to differ materially from these estimates.

1. Analysis of Financial Positions

1. The status of assets, liabilities and net assets (Assets)

Total assets at the end of the consolidated fiscal year under review amounted to JPY 18,011,572 thousand, an increase of JPY 3,305,069 thousand from the end of the preceding consolidated fiscal year.

Current assets amounted to JPY 13,472,525 thousand, an increase of JPY 809,076 thousand from the end of the preceding consolidated fiscal year. This was mainly due to an increase in notes and accounts receivable-trade of JPY740,835 thousand.

Noncurrent assets amounted to JPY 4,539,047 thousand, an increase of JPY 2,495,992 thousand from the end of the preceding consolidated fiscal year. This was mainly due to an increase in software of JPY 293,309 thousand, software in progress of JPY 941,725 thousand and goodwill of JPY 1,096,408 thousand.

(Liabilities)

Total liabilities at the end of the consolidated fiscal year under review amounted to JPY 6,519,652 thousand, an increase of JPY 959,044 thousand from the end of the preceding consolidated fiscal year.

Current liabilities amounted to JPY 6,437,645 thousand, an increase of JPY 952,380 thousand from the end of the preceding consolidated fiscal year. This was mainly due to an increase in accounts payable-other of JPY 475,597 thousand and income taxes payable of JPY 242,958 thousand.

Noncurrent liabilities amounted to JPY 82,006 thousand, an increase of JPY 6,663 thousand from the end of the preceding consolidated fiscal year.

(Net assets)

Total net assets at the end of the consolidated fiscal year under review amounted to JPY 11,491,920 thousand, an increase of JPY 2,346,025 thousand from the end of the preceding consolidated fiscal year. This was mainly due to an increase in net income attributable to owners of the parent of JPY 3,345,026 thousand despite a decrease in retained earnings of JPY 1,033,333 thousand as a result of a dividend of surplus.

Starting from the consolidated fiscal year under review, "Partial amendment of accounting standards about accounting for income taxes (Corporate Accounting Standards No.28, February 16, 2018)" has been applied. Figures of consolidated financial positions for the end of the preceding consolidated fiscal year have been prepared/analyzed retrospectively based on the new calculation method.

- 2 -

2. Cash Flows

At the end of the consolidated fiscal year under review, the balance of cash and cash equivalents stood at JPY 7,862,912 thousand, a decrease of JPY 115,142 thousand from the end of the preceding consolidated fiscal year.

The cash flows during the consolidated fiscal year under review and their causes are as follows.

(Operating Cash Flows)

Net cash provided by operating activities amounted to JPY 4,041,227 thousand (compared to net cash provided of JPY 2,756,637 thousand in the preceding fiscal year), mainly due to income before income taxes of JPY 4,906,967 thousand. Positive factors include depreciation of JPY 298,783 thousand, amortization of goodwill of JPY 175,966 thousand and an increase in accounts payable-other of JPY 245,672 thousand. Negative factors include and an increase in accounts receivable-trade of JPY 367,774 thousand and income taxes paid of JPY 1,372,646 thousand.

(Investing Cash Flows)

Net cash used in investing activities amounted to JPY 3,135,057 thousand (compared to net cash provided of JPY 627,155 thousand in the preceding fiscal year), mainly due to purchase of intangible assets of JPY 424,608 thousand and payment of acquisition of subsidiaries' shares resulting in change in scope of consolidation of JPY 2,640,918 thousand.

(Financing Cash Flows)

Net cash used in financing activities amounted to JPY 1,021,135 thousand (compared to net cash used of JPY 407,624 thousand in the preceding fiscal year), mainly due to cash dividends paid of JPY 1,027,558 thousand.

Cash flow indicators

	FY2015	FY2016	FY2017	FY2018	FY2019
Shareholders' equity ratio (%)	61.2	61.3	59.5	62.1	63.8
Shareholders' equity ratio based on market prices (%)	165.7	107.0	205.4	269.1	420.4

(Notes) 1. The formulas for the indicators above are as follows. Shareholders' equity ratio: Shareholders' equity/Total assets

Shareholders' equity ratio based on market prices: Market capitalization/Total assets

1. Market capitalization is calculated by multiplying the share price at the end of the period by the number of shares issued and outstanding at the end of the period, after the deduction of treasury stock.
2. The cash flow to debt ratio and interest coverage ratio has been omitted since there has been no interest-bearing debt or interest payment.
3. All indicators are calculated based on consolidated figures.

2. Basic Policy to Select the Accounting Principle

The Company is going to adapt JGAAP to prepare the consolidated financial statements for the moment considering consolidated financial statements' period comparability and inter-company comparability.

Regards to adaption of International accounting standards (IFRS), the Company are going to corresponds appropriately considering several situation inside/outside Japan.

- 3 -

3. Earnings Results for the Fiscal Year Ended December 31, 2019

1. Consolidated Balance Sheet

			(Thousand yen)
		As of	As of
		December 31, 2018	December 31, 2019
(Assets)
Current assets
Cash and deposits	7,978,055	7,862,912
Notes and accounts receivable- trade	3,550,095	4,290,931
Accounts receivable- other	1,059,346	1,172,858
Other current assets	89,300	161,466
Allowance for doubtful accounts	-13,348	-15,642
Current assets in total	12,663,448	13,472,525
Noncurrent assets
Property, plant and equipment
Buildings and accompanying facilities	231,888	268,170
Accumulated depreciation	-41,955	-83,246
Buildings and accompanying facilities, net	189,933	184,923
Tools, instruments and fixtures	277,415	510,444
Accumulated depreciation	-175,264	-353,862
Tools, instruments and fixtures, net	102,150	156,582
Leased assets	－	9,014
Accumulated depreciation	－	-1,282
Leased assets, net	－	7,731
Property, plant and equipment in total	292,083	349,237
Intangible assets
Software	553,722	847,031
Software in progress	68,813	1,010,539
Goodwill	224,695	1,321,103
Other intangible assets	11,169	11,010
Intangible assets in total	858,401	3,189,685
Investments and other assets
Investment securities	490,638	544,822
Guarantee deposits	243,455	311,369
Deferred tax assets	136,691	119,299
Other investments	21,785	25,626
Allowance for doubtful accounts	－	-993
Investments and other assets in total	892,569	1,000,124
Noncurrent assets in total	2,043,054	4,539,047
Total assets		14,706,503	18,011,572

- 4 -

			(Thousand yen)
		As of	As of
		December 31, 2018	December 31, 2019
(Liabilities)
Current liabilities
Accounts payable- trade	2,566,017	2,622,733
Accounts payable- other	1,803,002	2,278,599
Income taxes payable	820,947	1,063,905
Provision for bonuses	－	19,075
Other current liabilities	295,298	453,330
Current liabilities in total	5,485,264	6,437,645
Noncurrent liabilities
Other noncurrent liabilities	75,343	82,006
Noncurrent liabilities in total	75,343	82,006
Liabilities in total	5,560,607	6,519,652
(Net assets)
Shareholders' equity
Capital stock	1,728,266	1,728,266
Capital surplus	1,157,284	1,162,922
Retained earnings	6,664,609	8,976,301
Treasury stock	-533,656	-530,161
Shareholders' equity in total	9,016,504	11,337,329
Accumulated other comprehensive income
Valuation difference on available-for-sale securities	120,941	148,497
Accumulated other comprehensive income in total	120,941	148,497
Subscription rights to shares	8,448	6,093
Net assets in total	9,145,895	11,491,920
Liabilities and net assets		14,706,503	18,011,572

- 5 -

(2) Consolidated Statement of Income and Comprehensive Income

		(Thousand yen)
	Year ended	Year ended
	December 31, 2018	December 31, 2019
	(Jan. 1 to Dec. 31, 2018)	(Jan. 1 to Dec. 31, 2019)
Revenue	20,764,976	25,694,601
Cost of revenue	13,862,949	16,870,597
Gross profit	6,902,026	8,824,003
Selling, general and administrative expenses	3,146,426	3,857,059
Operating income	3,755,600	4,966,944
Non-operating income
Operating gains on investment in partnership	51,988	12,389
Gain on non-refundable commissions for publishers	3,640	9,107
Others	15,475	3,502
Non-operating income in total	71,105	24,998
Non-operating expenses
Equity in losses of an affiliate	31,699	－
Foreign exchange losses	1,077	1,394
Others	308	2,189
Non-operating expenses in total	33,085	3,583
Ordinary income	3,793,621	4,988,359
Extraordinary income
Gain on sales of shares of an affiliate	12,743	－
Gain on sales of investment securities	45,398	－
Extraordinary income in total	58,141	－
Extraordinary losses
Impairment losses	26,522	38,432
Expense on corresponding system failure	－	42,959
Others	503	－
Extraordinary losses in total	27,026	81,391
Income before income taxes	3,824,735	4,906,967
Income taxes- current	1,222,145	1,534,266
Income taxes- deferred	-2,209	27,675
Income tax in total	1,219,936	1,561,941
Net income	2,604,799	3,345,026
(Break Down)
Net income attributable to owners of the parent	2,604,799	3,345,026
Net income attributable to non-controlling interests	－	－
Other comprehensive income
Valuation difference on available-for-sale securities	-17,657	27,555
Foreign currency translation adjustment	338	－
Other comprehensive income in total	-17,318	27,555
Comprehensive income	2,587,481	3,372,581
(Break Down)
Comprehensive income attributable to
Comprehensive income attributable to owners of the parent	2,587,481	3,372,581
Comprehensive income attributable to non-controlling interests	－	－

- 6 -

(3) Consolidated Statements of Changes in Net Assets

Fiscal Year ended December 31, 2018 (Jan. 1 to Dec. 31, 2018)

					(Thousand Yen)
		Shareholders' equity
	Capital stock	Capital surplus	Retained	Treasury		Shareholders'
	earnings	stock		equity in total
Balance at the beginning of year	1,728,266	1,123,448	4,510,892	-555,407		6,807,199
Changes of items during the period
Cash dividends			-451,082			-451,082
Net income attributable to owners of			2,604,799			2,604,799
the parent
Acquisition of treasury stock				-215		-215
Disposition of treasury stock		33,836		21,967		55,803
Net changes of items other than
shareholders' equity
Total changes of items during the period	－	33,836	2,153,716	21,751		2,209,304
Balance at the end of year	1,728,266	1,157,284	6,664,609	-533,656		9,016,504
	Accumulated other comprehensive income	Subscription
	Valuation difference	Foreign currency	Accumulated other		Net assets in
	rights to
	on available-for-sale	translation	comprehensive		total
	shares
	securities	adjustment	income in total
Balance at the beginning of year	138,599	-338	138,260	22,739		6,968,199
Changes of items during the period
Cash dividends						-451,082
Net income attributable to owners of						2,604,799
the parent
Acquisition of treasury stock						-215
Disposition of treasury stock				-14,133		41,670
Net changes of items other than	-17,657	338	-17,318	-157		-17,475
shareholders' equity
Total changes of items during the period	-17,657	338	-17,318	-14,290		2,177,695
Balance at the end of year	120,941	－	120,941	8,448		9,145,895

Fiscal Year ended December 31, 2019 (Jan. 1 to Dec. 31, 2019)

					(Thousand Yen)
		Shareholders' equity
	Capital stock	Capital surplus	Retained	Treasury		Shareholders'
	earnings	stock		equity in total
Balance at the beginning of year	1,728,266	1,157,284	6,664,609	-533,656		9,016,504
Changes of items during the period
Cash dividends			-1,033,333			-1,033,333
Net income attributable to owners of			3,345,026			3,345,026
the parent
Acquisition of treasury stock				-168		-168
Disposition of treasury stock		5,637		3,662		9,300
Net changes of items other than
shareholders' equity
Total changes of items during the period	－	5,637	2,311,692	3,494		2,320,825
Balance at the end of year	1,728,266	1,162,922	8,976,301	-530,161		11,337,329
	Accumulated other comprehensive
	income	Subscription	Net assets in
	Valuation difference	Accumulated other
	rights to shares	total
	on available-for-sale	comprehensive
	securities	income in total
Balance at the beginning of year	120,941	120,941	8,448	9,145,895
Changes of items during the period
Cash dividends				-1,033,333
Net income attributable to owners of				3,345,026
the parent
Acquisition of treasury stock				-168
Disposition of treasury stock			-2,355	6,945
Net changes of items other than	27,555	27,555	－	27,555
shareholders' equity
Total changes of items during the period	27,555	27,555	-2,355	2,346,025
Balance at the end of year	148,497	148,497	6,093	11,491,920

- 7 -

(4) Consolidated Statement of Cash Flow

			(Thousand Yen)
		Year ended	Year ended
		December 31, 2018	December 31, 2019
		(Jan. 1 to Dec. 31, 2018)	(Jan. 1 to Dec. 31, 2019)
Operating cash flows
Income before income taxes	3,824,735	4,906,967
Depreciation and Amortization	239,721	298,783
Amortization of goodwill	112,347	175,966
Increase (decrease) in allowance for doubtful accounts	11,727	-4,063
Dividend received	-1,665	－
Interest income received	-91	-144
Interest expenses	－	389
Foreign exchange losses (gains)	964	177
Equity in losses (earnings) of an affiliate	31,699	－
Operating losses (gains) on investment in partnership	-51,988	-12,389
Losses (gains) on sales of investment securities	-45,398	－
Losses (gains) on sales of shares of an affiliate	-12,743	－
Impairment losses	26,522	38,432
Decrease (increase) in note and accounts receivable- trade	-930,100	-367,774
Increase (decrease) in accounts payable- trade	653,736	-28,979
Decrease (increase) in accounts receivable- other	-40,683	-73,711
Increase (decrease) in accounts payable-other	74,951	245,672
Increase (decrease) in guaranteed deposit received	-68,177	－
Others, net	-113,523	234,793
Subtotal	3,712,035	5,414,118
Interest and dividends income received	3,847	144
Interest expense paid	－	-389
Income taxes paid	-959,244	-1,372,646
Operating cash flows	2,756,637	4,041,227
Investing cash flows
Purchase of property, plant and equipment	-43,887	-77,452
Purchase of intangible assets	-248,034	-424,608
Purchase of investment securities	-50,082	-33,090
Proceeds from sales of investment securities	161,615	－
Proceeds from sales of shares of an affiliate	675,324	－
Proceeds from distribution of investment in partnership	131,919	41,011
Proceeds from collection in guarantee deposits	300	－
Payment of acquisition of subsidiaries' share resulting in change in	－	-2,640,918
scope of consolidation
Investing cash flows	627,155	-3,135,057
Financing cash flows
Proceeds from disposal of treasury stock	41,670	6,945
Purchase of treasury stock	-215	-168
Cash dividends paid	-449,078	-1,027,558
Others	－	-353
Financing cash flows	-407,624	-1,021,135
Effect of exchange rate change on cash and cash equivalents	-625	-177
Net increase (decrease) in cash and cash equivalents	2,975,543	-115,142
Beginning balance of cash and cash equivalents	5,002,511	7,978,055
Ending balance of cash and cash equivalents		7,978,055	7,862,912

- 8 -

(5)Notes to Consolidated Financial Statement (Notes on the Going Concern Premise)

Not applicable.

(Significant Items Regarding Preparation of Consolidated Financial Statements)
1. Scope of consolidation
(1) Number of consolidated subsidiaries:	2
Name of consolidated subsidiaries:	Dynatech inc.
	DIGIMIHO Co., Ltd.
For the consolidated fiscal year under review, the Company acquired 100% shares of Dynatech inc. and its scope is
included in the consolidated fiscal year.
(2) Names of non-consolidated subsidiaries
Number of non-consolidated subsidiaries:	1
Name of non-consolidated subsidiaries:	HOTEL CONCIERGE Inc.

(Reason of excluding from scope of consolidation)

Total assets, revenues, net income (amount proportional to the percentage of its equity) and retained earnings (amount proportional to the percentage of its equity) of non-consolidated subsidiary has no significant effect on consolidated financial statement.

2. Application of the equity method
(1) Number of affiliated companies accounted for under the equity method:	Not applicable.

1. Non-consolidatedsubsidiaries not accounted for under the equity method: HOTEL CONCIERGE Inc. (Reason of excluding from scope of equity method)
   Net income (amount proportional to the percentage of its equity) and retained earnings (amount proportional to the percentage of its equity) of non-consolidated subsidiaries has no significant effect on consolidated financial statement in total even it is excluded.

3. Fiscal year, etc. for consolidated subsidiaries

Fiscal year-end of Dynatech inc. is March 31. Consolidated financial statement are prepared based on provisional closing executed as of consolidated closing date, December 31, 2019. The fiscal year-end of consolidated subsidiary other than Dynatech inc. coincides with the consolidated closing date.

4. Accounting policies

1. Valuation basis or method of significant asset Investment securities
   Other investment securities With observable market price
2. 
   Apply market method based on market price as of the last day of fiscal consolidated year Without observable market price
   The investment in limited partnership and investment in that kind of investment are valued by the equity percentage of partnership of the latest financial statement of the investment.
3. Depreciation method of significant depreciable assets
   A. Property, plant and equipment (except leased assets)

Computed by the declining balance-method. Buildings and accompanying facilities that were acquired on April 1, 2016 or later are computed by the straight-line method.

Major useful lives are as follows.

Tools, instruments and fixtures: 4 - 20 years

Buildings and accompanying facilities: 10 - 15 years

1. Intangible assets (except leased assets) Computed by the straight-line method.
   Amortization of software for internal use is determined over the estimated useful life (within 5 years).
2. Leased assets

Applies the straight-line method using the lease term as the useful life and a residual value of zero.

(3) Accounting standard for significant reserves

1. Allowance for doubtful accounts

Allowance for doubtful accounts is provided at possible losses from uncollectable receivables based on the actual rate of losses from bad debts for ordinary receivables, and on estimated recoverability for specific doubtful receivables.

B. Provision for bonuses

Provision for bonuses is accounted only the amount which should be included in this consolidated fiscal year out of total bonuses expected.

(4) Standard for translation of significant foreign currency assets and liabilities

Foreign currency receivables and payables are translated into Japanese yen using the spot rate on the date of the consolidated balance sheet. The differences arising from the translation are stated as income/loss.

(5) Definition of cash and cash equivalents in the Consolidated Statement of Cash Flow

Cash and cash equivalents shown in the Consolidated Statement of Cash Flow refers to cash on hand, bank deposits that can be withdrawn whenever necessary, and short-term investments that may be easily converted to cash and carry a minimal risk of fluctuation in value, with maturities of no more than three months from acquisition date.

1. Amortization method of goodwill and its period Computed by the straight-line method with 5 years.
2. Other significant items regarding preparation of consolidated financial statements Accounting procedure for consumption taxes
   Consumption taxes and local consumption taxes are accounted by the tax-exclusion method.
3. • 9 -

(Segment Information)

a. Segment Information

1. Overview of reporting segments

The reporting segments of the Company are components of the Company for which separate financial information is available. These segments are periodically evaluated by the Board of Directors for the purpose of determining the allocation of the Company's managerial resources and evaluating its business performance.

The Company plans comprehensive strategy and develops business activities based on service provided. Accordingly, the Company composes business segments with a service unit and regards Marketing Solution Business and EC Solution Business as reporting segments.

Marketing Solution Business provides solutions of customer attraction to general commerce providers' EC site. Main service is "Affiliate Marketing", pay-per-performance advertising.

EC Solution Business provides solutions of sales promotion on general commerce providers' EC site. Main services are "STORE's R∞", CRM tool for stores in online shopping mall operated by Yahoo Japan Corporation, and "Storematch", pay-per-click advertising.

Also, Dynatech inc., who develops and provides information system for accommodation facilities, has become a 100% consolidated subsidiary of the Company on September 27, 2019. The deemed acquisition date is September 30, 2019 and its profit and loss statement is consolidated from the fourth quarter of consolidated fiscal year.

2. Methods of calculating revenues, profit/loss, assets, liabilities and other items by reporting segment

The accounting methods applied to reporting segments are the same as those described in "Significant Items Regarding Preparation of Consolidated Financial Statements."

The profit of the reporting segments is based on operating income.

Inter-segment revenue is based on actual market value.

3. Information on the amount of sales, profit/loss, assets, liabilities and other items by reporting segment For the fiscal year ended Dec. 31 of 2018 (Jan. 1 to Dec. 31, 2018)

										(Thousand yen)
				Reporting segment			Adjustment	Amount on
		Marketing	EC Solution			consolidated financial
		Total	(Note 1)
		Solution Business	Business	statements (Note 2)
Revenue
Revenue to clients		15,374,544		5,390,431		20,764,976		－		20,764,976
Inter-segment revenue		－		－		－		－		－
Total revenue		15,374,544		5,390,431		20,764,976		－		20,764,976
Segment operating income/loss		2,666,767		2,423,623		5,090,391		-1,334,791		3,755,600
Segment assets		3,987,006		1,481,593		5,468,599		9,237,903		14,706,503
Other items
Depreciation and amortization		86,243		95,000		181,244		58,476		239,721
Amortization of Goodwill		－		112,347		112,347		－		112,347
Increase in property, plant and		308,529		151,641		460,171		51,773		511,945
equipment and intangible assets

(Note) 1. Adjustments are as follows.

1. The adjustment to segment operating income of JPY -1,334,791 thousand is corporate expenses not allocated to any reporting segment.
2. The adjustment to segment assets of JPY 9,237,903 thousand is corporate assets not allocated to any reporting segment.
3. The adjustment to depreciation and amortization of JPY 58,476 thousand is corporate expenses not attributable to any reporting segment.
4. The adjustment to increase in property, plant and equipment and intangible assets of JPY 51,773 thousand is increase in corporate assets not attributable to any reporting segment.

2. Segment operating income/loss is adjusted to operating income in the consolidated financial statement.

- 10 -

For the fiscal year ended Dec. 31 of 2019 (Jan. 1 to Dec. 31, 2019)

									(Thousand yen)
			Reporting segment			Adjustment	Amount on
		Marketing	EC Solution			consolidated financial
		Total	(Note 1)
		Solution Business	Business	statements (Note 2)
Revenue
Revenue to clients		17,040,314	8,654,286		25,694,601		－		25,694,601
Inter-segment revenue		－	－		－		－		－
Total revenue		17,040,314	8,654,286		25,694,601		－		25,694,601
Segment operating income/loss		2,884,503	3,395,969		6,280,472		-1,313,528		4,966,944
Segment assets		3,914,994	5,524,300		9,439,295		8,572,277		18,011,572
Other items
Depreciation and amortization		85,340	131,978		217,318		81,465		298,783
Amortization of Goodwill		－	175,966		175,966		－		175,966
Increase in property, plant and		314,024	3,166,355		3,480,379		84,460		3,564,840
equipment and intangible assets

(Note) 1. Adjustments are as follows.

1. 1. The adjustment to segment operating income of JPY -1,313,528 thousand is corporate expenses not allocated to any reporting segment.
   2. The adjustment to segment assets of JPY 8,572,277 thousand is corporate assets not allocated to any reporting segment.
   3. The adjustment to depreciation and amortization of JPY 81,465 thousand is corporate expenses not attributable to any reporting segment.
   4. The adjustment to increase in property, plant and equipment and intangible assets of JPY 84,460 thousand is increase in corporate assets not attributable to any reporting segment.
2. Segment operating income/loss is adjusted to operating income in the consolidated financial statement.
3. Dynatech inc. has become a 100% consolidated subsidiary of ValueCommerce on September 27, 2019 and included in EC Solution Business. The deemed acquisition date is September 30, 2019 and its profit and loss is consolidated from the fourth quarter of consolidated fiscal year.

1. Related information
   For the fiscal year ended Dec. 31 of 2018 (Jan. 1 to Dec. 31, 2018)
   1. Information by product and service

Information is omitted as similar information is disclosed in segment information.

2. Information by region

(1) Sales

Information is omitted as sales to external customer in Japan exceed 90% of sales stated in the consolidated statement of income and comprehensive income.

(2) Property, plant and equipment

Information is omitted as the amount of property, plant and equipment in Japan exceed 90% of the amount of property, plant and equipment stated in the consolidated balance sheet.

3. Information of major customers

		(Thousand yen)
Name of customer	Sales	Relevant segment
Yahoo Japan Corporation	3,247,875	Marketing Solution Business, EC Solution Business
CyberAgent, Inc.	2,257,321	Marketing Solution Business

For the year ended Dec. 31 of FY 2019 (Jan. 1 to Dec. 31, 2019) 1. Information by product and service

Information is omitted as similar information is disclosed in segment information.

2. Information by region

1. Sales

Information is omitted as sales to external customer in Japan exceed 90% of sales stated in the consolidated statement of income and comprehensive income.

(2) Property, plant and equipment

Information is omitted as the amount of property, plant and equipment in Japan exceed 90% of the amount of property, plant and equipment stated in the consolidated balance sheet.

3. Information of major customers

		(Thousand yen)
Name of customer	Sales	Relevant segment
Yahoo Japan Corporation	4,121,048	Marketing Solution Business, EC Solution Business
GMO Commerce, Inc.	3,308,818	EC Solution Business

- 11 -

c. Information regarding impairment loss of noncurrent assets by reporting segment For the fiscal year ended December 31, 2018 (Jan. 1 to Dec. 31, 2018)

				(Thousand yen)
	Marketing Solution	EC Solution Business	Adjustment	Total
	Business
Impairment loss	14,107	12,415	－	26,522

For the fiscal year ended December 31, 2019 (Jan. 1 to Dec. 31, 2019)

					(Thousand yen)
		Marketing Solution	EC Solution Business	Adjustment	Total
		Business
	Impairment loss	27,445	10,986	－	38,432
d. Information regarding amortization of goodwill and unamortized balance by reporting segment
For the fiscal year ended December 31, 2018 (Jan. 1 to Dec. 31, 2018)
					(Thousand yen)
		Marketing Solution	EC Solution Business	Adjustment	Total
		Business
	Amortization	－	112,347	－	112,347
	Unamortized balance	－	224,695	－	224,695

For the fiscal year ended December 31, 2019 (Jan. 1 to Dec. 31, 2019)

				(Thousand yen)
	Marketing Solution	EC Solution Business	Adjustment	Total
	Business
Amortization	－	175,966	－	175,966
Unamortized balance	－	1,321,103	－	1,321,103

e. Information regarding gain on negative goodwill by reporting segment For the fiscal year ended December 31, 2018 (Jan. 1 to Dec. 31, 2018)

Not applicable.

For the fiscal year ended December 31, 2019 (Jan. 1 to Dec. 31, 2019)

Not applicable.

(Per Share Information)

Year ended December 31, 2018		Year ended December 31, 2019
(Jan. 1 to Dec. 31, 2018)		(Jan. 1 to Dec. 31, 2019)
Book-value per share	JPY	283.02	Book-value per share	JPY	355.60
Earnings per share	JPY	80.78	Earnings per share	JPY	103.57
Diluted earnings per share	JPY	80.62	Diluted earnings per share	JPY	103.47

(Note) The calculation basis for earnings per share and diluted earnings per share is as follows.

		Year ended December 31,	Year ended December 31,
		2018	2019
		(Jan. 1 to Dec. 31, 2018)	(Jan. 1 to Dec. 31, 2019)
Earnings per share
Net income attributable to owners of the parent	thousand yen	2,604,799	3,345,026
Amount not attributed to common shareholders	thousand yen	－	－
Net income attributable to owners of the parent	thousand yen	2,604,799	3,345,026
relating to common stock
Average number of shares during the year	shares	32,244,336	32,296,168
Diluted earnings per share
Adjustment to Net income attributable to owners	thousand yen	－	－
of the parent
Number of increase in common shares	shares	66,102	33,107
(of which, subscription rights to shares, etc.)		(66,102)	(33,107)
Description of the possible diluted shares not		―	―
included in the calculation of earnings per share
diluted due to their non-dilutive effect

- 12 -

(Significant subsequent events)

The Company announces that it has resolved to take over all shares of yet to be established B-SLASH Corporation from Yahoo Japan Corporation. B-SLASH will be a new company which Yahoo Japan's fully owned subsidiary Commerce21 Corporation plans to establish by implementing an incorporation type company split of its apps market business, with Commerce21 delivering all shares of B- SLASH it acquires as consideration of that split, to Yahoo Japan as dividends of surplus. Yahoo Japan will then turn these shares over to the Company. The Company acquired 100% shares of B-SLASH and consolidated it on January 24, 2020.

1.Overview of Business Merger
(1)	Names and business scope of acquired company
	Names of acquired enterprise	B-SLASH Corporation
	Business scope	Apps Market Business (APM Business) for stores on Yahoo!Shopping
(2)	Main reason of business merger

The Company believes that closely linking B-SLASH, a company skilled at developing Yahoo! Shopping services for stores, and the Company will raise the Company's corporate value.

(3) Date of business merger

January 1, 2020 (Deemed acquisition date)

January 24, 2020 (Transfer of shares)

(4) Business merger form

Acquisition of shares in consideration of cash

1. Names after business merger B-SLASH Corporation
2. Voting rights ownership percentage 100%
3. Main basis to be decided the acquired company

The Company acquired 100% voting rights by acquisition of shares in consideration of cash.

2. Acquisition cost and its detail
	Consideration of acquisition	Cash	800,000 thousand yen
	Acquisition cost		800,000 thousand yen

3. Amount of goodwill, reason, amortization method and its period

1. Amount of goodwill 480,507 thousand yen
   Amount of goodwill is temporarily calculated as distribution of acquisition costs have not completed.
2. Reason

Generated from excess earning of future expectation according to business development.

(3) Amortization method and its period

Computed by the straight-line method with 5 years.

4. Details of assets and liabilities as of date of business merger

Current assets	363,535	thousand yen
Noncurrent assets	64,470	thousand yen
Total assets	428,006	thousand yen
Current liabilities	108,514	thousand yen
Noncurrent liabilities	－	thousand yen
Liabilities in total	108,514	thousand yen

- 13 -