Information Services International Dentsu : Presentation Material of Financial Results for the Second Quarter of FY2020 (ending December 31, 2020)

PRESENTATION MATERIAL OF FINANCIAL RESULTS

FOR THE SECOND QUARTER OF FY2020 (FROM JANUARY 1, 2020 TO JUNE 30, 2020)

July 30, 2020

Information Services International-Dentsu, Ltd.

Note: This English translation is solely for reference purposes and not a legally definitive translation of the original Japanese text.

In the event a difference arises regarding the meaning herein, the original Japanese version will prevail as the official authoritative version.

COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.

Financial results

for the second quarter of FY2020

COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.

1

1. Consolidated Results for the 2Q of FY2020

Year on year

Vs. initial forecast

Interim dividends

Net sales and all profits items achieved record highs for the second consecutive fiscal year for the first half.

Mainly sales in Business Solutions segment and Communication IT segment exceeded than forecasts. (Revisions to forecasts were announced on July 16, 2020.)

Implemented ¥43 per share in line with initial forecast (year on year ¥8 increase)（Unit : Million yen）

			YoY			Vs. initial forecast
	2Q of FY2020			(announced on February 10, 2020)
	(cumulative)	2Q of FY2019	Variance	% change	Forecast	Variance	% change
		(cumulative)
Net sales	55,020	49,185	+5,835	+11.9	52,300	+2,720	+5.2
Gross profit	19,163	16,232	+2,931	+18.1	17,749	+1,414	+8.0
Profit margin	34.8%	33.0%	+1.8p	-	33.9%	+0.9p	-
Selling, general and	12,192	11,027	+1,165	+10.6	12,449	-257	-2.1
administrative expenses
Operating income	6,971	5,204	+1,767	+33.9	5,300	+1,671	+31.5
Operating margin	12.7%	10.6%	+2.1p	-	10.1%	+2.6p	-
Ordinary income	6,862	5,152	+1,710	+33.2	5,164	+1,698	+32.9
Profit attributable to	4,512	3,412	+1,100	+32.2	3,450	+1,062	+30.8
owners of parent
Average number of	2,959	2,849	+110	+3.9	3,002	-43	-1.4
employees during the period
COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.						2

2-1. Factors for Increase/Decrease in Operating Income (YoY)

(Unit : 100 million yen)

Impact of increase in gross

Increase in SG&A

profit margin

+10.1

expenses -11.6

Effect of Increase

in sales

Operating

 Elimination of unprofitable

YoY

+19.2

income

+17.7

projects

aprx.6.0

 Increase in gross profit

69.7

margin mainly from software

Operating

products

aprx.4.0

income

52.0

Increases mainly in R&D and

personnel expenses

2Q of FY2019	2Q of FY2020
(cumulative)	(cumulative)
result	result

COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.

3

2-2. Factors for Increase/Decrease in Operating Income (vs. initial forecast)

(Unit : 100 million yen)

Decrease in SG&A

expenses

+2.5

Vs. initial

Impact of increase in gross

forecast

profit margin

+5.0

Effect of

Increase

+16.7

in sales

+9.2

 Increase in gross profit margin

Operating

mainly from software products

aprx.3.0

income

 Reversal of provision for loss

53.0

on orders received

aprx.2.0

Decrease mainly in outsourcing

and travel expenses

2Q of FY2020

(cumulative)

initial forecast

COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.

Operating

income

69.7

2Q of FY2020

(cumulative)

result

4

3. Net Sales and Operating Income by Reportable Segment

（Unit : Million yen）

Reportable segment

2Q of

YoY

Vs. initial forecast

FY2020

Variance

% change

Overview

Variance

% change

(cumulative)

Net sale

12,224

-16

-0.1

Net sales were at the same level as in 1H of

-33

-0.3

Operating

-

-

Financial

866

+159

+22.5

FY19 due to a steady increase for

income

Solutions

government-affiliated financial institutions

%

7.1

+1.3p

-

and business companies. Profits increased

due to the elimination of unprofitable projects.

-

-

employees

719

+27

+3.9

Net sale

10,885

+1,313

+13.7

Net sales increased due to an expansion of

+1,001

+10.1

Operating

licensing sales and installation of SAP

-

-

Business

1,720

+501

+41.1

solutions in addition to software developed in-

income

Solutions

house such as POSITIVE, Ci*X and STRAVIS.

%

15.8

+3.1p

-

Despite an increase in R&D investment, profits

564

+29

+5.4

increased due to the effects of higher sales

-

-

employees

and improved profitability.

Net sale

15,531

+391

+2.6

Despite delays in consulting services due to

-326

-2.1

Operating

the impact of the COVID-19, net sales

-

-

Manufacturing

1,257

-94

-7.0

increased due to a steady increase of

income

Solutions

licensing sales and installation of PLM and

%

8.1

-0.8p

-

CAE, particularly for the automotive industry.

647

+18

+2.9

Profits decreased mainly due to a decrease in

-

-

employees

sales of highly profitable consulting services.

Net sale

16,378

+4,147

+33.9

In addition to steady growth in large-scale

+2,078

+14.5

Communication

Operating

3,126

+1,200

+62.3

system upgrade project in Dentsu Group's

-

-

income

core system field, the expansion of

IT

%

19.1

+3.4p

-

businesses supporting digital transformation

through collaboration with Dentsu Group

employees

453

+31

+7.2

resulted in higher net sales and profits.

-

-

* POSITIVE : human capital management

solution STRAVIS

: consolidated accounting solution

Ci*X : financial solution system PLM: product lifecycle management

CAE : computer aided engineering

COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.

* Employees : average umber of employees during the period

5

4. Consolidated Net Sales by Service Category

								（Unit : Million yen）
							YoY	Vs. initial forecast
	Service category		2Q of
		FY2020		Variance	% change	Overview	Variance	% change
			(cumulative)
	Consulting Services		3,019		-578	-16.1	Decrease in Manufacturing Solutions and	-327	-9.8
			Communication IT segments
	Custom System		14,995		+1,083	+7.8	Expansion of Communication IT and	+143	+1.0
	Development			Business Solutions segments
	In-house Software		10,124		+1,741	+20.8	Expansion of POSITIVE, Ci*X, STRAVIS and	+1,043	+11.5
			iPLAss
	Third-party Software		16,699		+1,986	+13.5	Expansion of Salesforce Solutions, PLM,	+1,077	+6.9
			CAE and SAP solution
	Outsourcing, Operation		6,090		+1,477	+32.0	Expansion of Communication IT segment	+1,302	+27.2
	and Maintenance Services
	IT Equipment Sales		4,090		+125	+3.2	Almost same level as in 1H of FY19	-517	-11.2
	and Others
								* iPLAss : marketing platform
	COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.				6

5. Consolidated Net Sales by Industry

						（Unit : Million yen）
	Industry		2Q of FY2020 (cumulative)		YoY
		Net Sales	Composition Ratio (%)	Variance	% change

	Banks	9,813	17.8		+257	+2.7
	Other financial	2,128	3.9		-761	-26.3
	institutions
	Financial	11,942	21.7		-504	-4.1
	Transportation	8,368	15.2		+903	+12.1
	equipment
	Electric appliances	4,607	8.4		-69	-1.5
	Precision instruments
	Machinery	3,389	6.2		-69	-2.0
	Others products	4,078	7.4		+114	+2.9
	Manufacturing	20,443	37.2		+879	+4.5
	Services and public offices	18,555	33.7		+4,863	+35.5
	Distributions and others	4,082	7.4		+597	+17.1
Sales to the Dentsu Group
	Dentsu Group Inc. and
	14,464	26.3		+4,057	+39.0
	it's subsidiaries
		* As reviewed some of our customers' industries, we used reclassified figures for comparison in the same period of the previous fiscal year.
COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.				7

6. Orders received and Order backlog

• Large orders for IT equipment in Communication IT

								（Unit : Million yen）
		Orders received		Order backlog
		2Q of FY2020			YoY (%)	2Q of FY2020		YoY (%)
		(cumulative)			(cumulative)
	Total	63,894			+13.7	41,376		+7.6
	Financial Solutions	12,130			+1.4	8,444		-25.2
Reportable	Business Solutions	10,921			-3.2	7,403		+1.4
Segments	Manufacturing Solutions	17,553			-2.1	12,748		-2.0
	Communication IT	23,289			+54.8	12,780		+86.3
	Consulting Services	2,882			-17.5	708		-11.3
	Custom System	14,965			+4.9	8,448		-17.4
	Development
Service	In-house Software	10,449			+6.2	7,020		+15.9
Categories	Third-party Software	21,055			+16.4	15,839		+9.4
	Outsourcing, Operation	7,967			+18.0	3,384		-6.6
	and Maintenance Services
	IT Equipment Sales	6,573			+74.1	5,974		+82.6
	and Others
COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.						8

7. Consolidated Balance Sheets

							（Unit : Million yen）
			As of		As of	Variance	Main Factors for Increase/Decrease
			June 30,		December 31,
			2020		2019
	Total current Assets		78,078		69,728	+8,350	Increase in advance payments - trade (+4,902)
			Increase in notes and accounts receivable (+2,526)
							Increase in deposits paid (+1,964)
	Total non-Current Assets		18,916		17,576	+1,340	Increase in intangible leased assets (+869)
			In investment securities (+391)
							Increase in software (+161)
	Total assets		96,994		87,305	+9,689
	Total current liabilities		35,465		29,456	+6,009	Increase in advances received (+5,046)
			Increase in notes and accounts payable - trade (+925)
	Total non-current liabilities		3,555		2,966	+589	Increase in long-term lease obligations (+421)
	Total liabilities		39,020		32,423	+6,597
	Total net assets		57,973		54,882	+3,090	Increases in Retained earnings（+3,144）
	Total liabilities and net		96,994		87,305	+9,689
	assets

COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.

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6. Consolidated Statements of Cash Flows

					（Unit : Million yen）
					YoY
		2Q of FY2020
		(cumulative)		Main Factors	2Q of FY2019		Variance
					(cumulative)
				Net Income before income taxes (6,743)
Cash flows from operating activities		5,154		Increase in advances received (5,072)	5,797		-643
		Increase in advance payments (-4,910)
				Increase in notes and accounts payable - trade (-2,566)
Cash flows from investing activities		-1,850		Purchase of shares of subsidiaries and associates (-813)	-2,731		+881
		Purchase of intangible assets (-813)
				Purchase of property, plant and equipment (-138)
Cash flows from financing activities		-1,961		Cash dividends paid (-1,368)	-1,587		-374
		Repayments of lease obligations (-587）
Effect of exchange rate change on		-73			-93		+20
cash and cash equivalents
Net increase (decrease) in cash and		1,270			1,385		-115
cash equivalents
Cash and cash equivalents at the		36,981			33,620		+3,361
beginning of period
Cash and cash equivalents at the end		38,251			35,006		+3,245
of period
COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.				10

Forecast

Explanation regarding the appropriate use of forecasts of business results

Forecast figures are projections based on information available at the

time of release, and are not intended as a guarantee that the Company will achieve these targets. Actual results may differ significantly from the forecasts as a result of changes in the business environment and other factors.

COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.

11

Forecast for FY2020

Despite favorable performance in the first half, we have left our forecast unchanged from the forecast announced on February 10, 2020, due to the uncertainty of future performance resulting from factors such as the impact of the spread of the COVID-19.

					（Unit : Million yen）		(Reference)
					YoY			Progress in
		FY2020						2Q of FY2020
			FY2019	Variance	% change		(cumulative)
					forecast
Net sales		105,000		100,679	+4,321	+4.3		52.4%
Operating income		10,500		10,075	+425	+4.2		66.4%
Profit margin		10.0%		10.0%	－	－		－
Ordinary income		10,217		9,648	+569	+5.9		67.2%
Profit attributable to owners		6,911		6,226	+685	+11.0		65.3%
of parent
COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.				12

Net Sales Forecast by Business Segment

（Unit : Million yen） (Reference)

					YoY			Progress in
		FY2020						2Q of FY2020
			FY2019	Variance	% change		(cumulative)
					forecast
Financial Solutions		25,611		24,622	+989	+4.0		47.7%
Business Solutions		20,057		19,289	+768	+4.0		54.3%
Manufacturing Solutions		31,410		30,027	+1,383	+4.6		49.4%
Communication IT		27,920		26,739	+1,181	+4.4		58.7%
Total		105,000		100,679	+4,321	+4.3		52.4%

COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.

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Net Sales Forecast by Service Category

					（Unit : Million yen）
					YoY
		FY2020		FY2019	Variance	% change
Consulting Services		6,589		6,819	-230	-3.4
Custom System Development		29,798		29,153	+645	+2.2
In-house Software		18,824		17,126	+1,698	+9.9
Third-party Software		31,694		29,945	+1,749	+5.8
Outsourcing, Operation		9,701		9,524	+177	+1.9
and Maintenance Services
IT Equipment Sales		8,390		8,110	+280	+3.5
and Others
Total		105,000		100,679	+4,321	+4.3

COPYRIGHT INFORMATION SERVICES INTERNATIONAL-DENTSU,LTD.

(Reference)

Progress in

2Q of FY2020

(cumulative)

forecast

45.8%

50.3%

53.8%

52.7%

62.8%

48.7%

52.4%

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