T Gaia : Full version of Consolidated Financial Results for the Third Quarter of Fiscal Year Ending March 31, 2020

Consolidated Financial Results for the Third Quarter of Fiscal Year Ending March 31, 2020

(Nine Months Ended December 31, 2019) (Based on J-GAAP)

			February 6, 2020
Company name:	T-Gaia Corp.	Listing:	Tokyo Stock Exchange, First Section
Stock code:	3738	URL:	https://www.t-gaia.co.jp/
Representative:	Nobutaka Kanaji, President & CEO
Contact:	Tomoyuki Shioya, Managing Officer & General Manager of Corporate Planning & Strategy Dept.
	Tel: [phone]
Scheduled date of filing Securities Report: February 7, 2020

Scheduled commencement date of dividend payout: -

Financial results supplementary explanation documents: Yes

Financial results presentation: None

(All amounts are rounded down to the nearest million yen)

1. Consolidated Financial Results for the Third Quarter of Fiscal Year Ending March 31, 2020 (April 1, 2019 -Dec. 31, 2019)

(1) Consolidated results of operations (nine months)									(Percentages represent year-over-year changes)
			Net sales				Operating profit				Ordinary profit			Profit attributable to
											owners of the parent
			Million yen			%	Million yen		%		Million yen		%		Million yen		%
3Q FY 2020		354,957			(5.8)	9,388			(13.3)			13,797		(8.4)			9,291			(8.5)
3Q FY 2019		376,800			(6.0)	10,834			8.5			15,068		50.0			10,156			53.2
(Note) Comprehensive income (million yen):	3Q FY 2020: 9,319 / (8.0%)	3Q FY 2019: 10,139 / 54.9%
			Earnings per share			Diluted earnings
								per share
					Yen						Yen
3Q FY 2020		166.72							-
3Q FY 2019		182.25							-
(2) Consolidated financial position
			Total assets					Net assets				Equity ratio
					Million yen					Million yen							%
3Q FY 2020				174,783						51,830							29.6
FY 2019				178,994						46,745							26.1
Reference: Shareholders' equity (million yen):			3Q FY 2020: 51,816			3Q FY 2019: 46,730
2. Dividends
								Annual dividends
			1Q-end		Interim		3Q-end	Year-end		Annual
			Yen				Yen		Yen				Yen					Yen
FY 2019		-		36.50		-				38.50				75.00
FY 2020		-		37.50
FY 2020														37.50				75.00
(forecasts)
Note: Revisions to the dividend forecast in the current quarter: None
3. Consolidated forecasts for the Fiscal Year Ending March 31, 2020 (April 1, 2019 - March 31, 2020)
																				(Percentages represent year-over-year changes)
			Net sales				Operating profit	Ordinary profit	Profit attributable to		Earnings per
						owners of parent			share
		Million yen		%		Million yen		%	Million yen		%	Million yen	%			Yen
Full year		432,000		(18.0)				13,100		(14.8)	18.500		(10.2)	12,400	(10.4)		222.51
Note: Revisions to the financial forecast in the current quarter: None

Notes

1. Changes in significant subsidiaries during the consolidated period (nine months) under review (changes in subsidiaries accompanying change in the scope of consolidation): None
2. Changes in accounting procedures specific to creation of quarterly consolidated financial statements: None
3. Changes in accounting principles, estimates and restatement
4. 1. Changes in accounting principles caused by revision of accounting standards: None
   2. Changes in accounting principles other than those mentioned above: None
   3. Changes in accounting estimates: None
   4. Restatement: None
5. Number of shares issued and outstanding (shares of common stock)

1. Number of shares outstanding (including treasury stock) at end of period
2. Number of treasury stock at end of period
3. Average number of shares outstanding during the period (nine months)

3Q FY 2020	56,074,000 shares	FY 2019	79,074,000 shares
3Q FY 2020	341,827 shares	FY 2019	23,345,828 shares
3Q FY 2020	55,730,602 shares	3Q FY 2019	55,728,186 shares

• The summary of business results is not subject to audit.
• Cautionary statement with respect to forward-looking statements
  (Disclaimer on forward-looking statements)
  These materials contain forward-looking information including earnings projections based on information currently available to the Company and certain assumptions considered reasonable in the judgment of the Company. Nothing contained in these materials is meant to suggest that the Company promises to attain the said projections. Moreover, due to various factors, actual results may materially differ from projections.

(Concerning financial results supplementary explanatory documents and financial results presentation)

Financial results supplementary explanatory documents will be posted in Japanese on February 6, 2020.

*English version of Financial results supplementary explanatory documents will be posted on the English site for Investors of T-Gaia Corporation within days.

*English Account title is based on Account List available at website of Financial Service Agency.

T-Gaia Corporation (3738) / Consolidated Financial Results for the Third Quarter of Fiscal Year Ending March 31, 2020 (Nine Months Ended December 31, 2019) (Based on J-GAAP)

Attachment: Table of Contents

1. Qualitative Information Concerning the Third Quarter Financial Results ..............................................	2
(1)	Explanation of operating performance............................................................................................	2
(2)	Explanation of financial position ....................................................................................................	3
(3)	Explanation of forward-looking information including the consolidated financial forecasts .........	3
2. Quarterly Consolidated Financial Statements and Notes ........................................................................	4
(1)	Quarterly consolidated balance sheets ............................................................................................	4
(2)	Quarterly consolidated statements of income and
	Quarterly consolidated statements of comprehensive income ........................................................	5
	Quarterly consolidated statements of income
	Consolidated third quarter period .............................................................................................	5
	Quarterly consolidated statements of comprehensive income
	Consolidated third quarter period .............................................................................................	5
(3)	Notes to quarterly consolidated financial statements......................................................................	6
	(Notes on the going-concern assumption) ......................................................................................	6
	(Notes on significant changes in shareholders' equity)...................................................................	6
	(Segment information)....................................................................................................................	6
	(Significant subsequent events) ......................................................................................................	6

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T-Gaia Corporation (3738) / Consolidated Financial Results for the Third Quarter of Fiscal Year Ending March 31, 2020 (Nine Months Ended December 31, 2019) (Based on J-GAAP)

1. Qualitative Information Concerning the Third Quarter Financial Results

1. Explanation of operating performance

The Japanese economy in the period under review (April - December 2019), though attended by continued weakness in exports and increased weakness centered on manufacturing, remained on a moderate recovery path with improving conditions surrounding employment and household incomes fueled by the government's economic policies and the sustained expansionary monetary policy of the Bank of Japan. However, uncertainty surrounding the further outlook persists in light of factors such as the impact of the US- China trade dispute on the global economy.

In the market for mobile phone handsets, which forms the core business field of the Group (the Company and its consolidated subsidiaries and equity-method affiliates), revised rate plans were released and provided by telecommunications carriers in preparation for the Revised Telecommunications Business Act (hereinafter referred to as "Revised Act") taking effect in October 2019. Under the Revised Act, mobile phone handset prices and communication fees were completely separated and discounts on mobile phone handset prices were regulated from October, blunting price competition between telecommunications carriers. On the other hand, telecommunications carriers have been focusing even more on maintaining and expanding their customer bases over the long term through efforts such as supplementing their service offerings with enhanced point schemes and service contents and joining smartphone-based payment systems. Furthermore, telecommunications carriers have been focusing on the switch to 4G (4th generation mobile communications systems) with the end of service of 3G (3rd generation mobile communications systems), and the shift of users from 3G to 4G is accelerating. In addition, significant changes in the competitive environment are expected, such as the scheduled full-scale launch of the Mobile Network Operator (MNO) service by Rakuten Mobile, Inc. and the commencement of 5G (5th generation mobile communications systems) service.

In this business environment, sales of mobile handsets, etc. since October decreased significantly due to the following factors. As a result, sales of mobile handsets, etc., at the Group posted 2,747,000 units in the period under review, and although this was a decline compared with the same year-earlier period, it is generally at the level forecasted at the start of the fiscal year.

1. Consumers held back with purchases due to the mobile phone handset prices seeming more expensive as a result of the changes in rate plans and sales methods along with the establishment of a limit on discounts on mobile phone handset prices as the Revised Act came into effect.
2. Consumers held back with purchases in expectation of the scheduled full-scale launch of the Mobile Network Operator

(MNO) service by Rakuten Mobile, Inc. and commencement of 5G service in spring of 2020.

(iii)A backlash to the last-minute spike in purchases made ahead of changes in rate plans and sales methods and ahead of the consumption tax rate increase.

Furthermore, SG&A expenses significantly increased from the year-earlier period as the effects from the consolidated subsidiary QUO CARD Co., Ltd. performing marketing promotions as scheduled for "QUO Card Pay," which started its service in March 2019.

As a result, consolidated business results for the period under review marked net sales of 354,957 million yen (-5.8% compared with the year-earlier period), with operating profit of 9,388 million yen (-13.3%). Ordinary profit marked 13,797 million yen (- 8.4%) including 4,375 million yen (+5.2%) in income from hoarded cards recognized in non-operating income. Profit attributable to owners of parent posted 9,291 million yen (-8.5%).

Results by business segment for the period under review are described below.

				(Millions of yen)
	Mobile	Enterprise	Payment Services
	Telecommunications	Business and Other	Total
	Solutions Business
	Business		Business
Net sales	293,898	21,301	39,758	354,957
(8.6%)	9.7%	10.9%	(5.8%)
Profit attributable to	5,212	1,349	2,729	9,291
owners of parent	(9.0%)	21.0%	(17.6%)	(8.5%)
Supplementary information	7,680	1,936	(227)	9,388
- Operating profit (loss)	(9.4%)	19.6%	―	(13.3%)

Note: Percentages of year on year change.

[Mobile Telecommunications Business]

In the mobile telecommunications business, although sales of mobile handsets, etc. dipped below the year-earlier result as explained above, it was generally at the level forecasted at the start of the fiscal year.

The Company pushed ahead with increasing profitability of sales outlets through investment in premises and human resources, in particular, relocating and refurbishing carrier shops, and hiring and training new employees. Moreover, the Company has been proactive in offering instructional classes of smartphones to local customers to expand the role of carrier shops from not only one of the sales channels but also to a regional ICT centers, so that it will sustain local customers' attention.

Due to the effect of the decrease in sales of mobile handsets, net sales marked 293,898 million yen (-8.6% compared with the year-earlier period), with profit attributable to owners of parent of 5,212 million yen (-9.0%).

[Enterprise Solution Business]

In mobile solutions for corporate clients' business, thanks to the companies' aggressive ICT investments, the Company proactively offered propositions for the introduction and application of business efficiency-enhancing smart devices, which reflected in higher sales of mobile handsets, etc. compared with the year-earlier period. In cooperation with group companies,

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T-Gaia Corporation (3738) / Consolidated Financial Results for the Third Quarter of Fiscal Year Ending March 31, 2020 (Nine Months Ended December 31, 2019) (Based on J-GAAP)

the Company has been strengthening its Life Cycle Management operations revolving around device life cycle management spanning the width from procurement, propositions, and introduction support for smart devices including PCs, to environment building, maintenance, operations, and updating services. In addition, the Company works to expand its customer to stores and offices through steps such as the equity investments in venture companies providing IoT supported solutions for streamlining its operations to deal with labor shortages.

In products related to fixed-line telecommunications, the division has been working to strengthen its sales capabilities by seeking to identify new partner companies and nurturing existing resale wholesalers for the Company's own "TG Hikari" fiber- optics access service. Moreover, the Company has been proactive in improving the quality of support for resale wholesalers and customers and streamlining business operations by introducing systems. The cumulative number of corporate client lines has been steadily increasing.

As a result, net sales marked 21,301 million yen (+9.7% compared with the year-earlier period), with profit attributable to owners of parent of 1,349 million yen (+21.0%).

In addition to the above efforts, the Company invested in a US company providing edge solutions in order to enter the area of edge computing, which is a market that is expected to expand in future.

[Payment Service Business and Other Business]

In the payment service business, the gross sales increased from the year-earlier period as the effects from the restructuring of existing sales channels such as convenience stores had ceased, and trading in gift card merchandise with major sales channels was started in the second quarter of the previous fiscal year.

In the overseas payment service business, gift card and house card business in Singapore have been steady.

At consolidated subsidiary QUO CARD Co., Ltd., issuance of QUO Card increased from the year-earlier period. In addition, QUO CARD Co., Ltd. implemented various campaigns to increase the issuance of the digital version of QUO Card "QUO Card Pay," which started its service in March 2019. Operating profit decreased due to significantly higher SG&A expenses caused by the promotional campaigns and growth in member stores.

In addition, the number of stores increased and sales performed well in the wholesale of Apple accessories to SEVEN- ELEVEN JAPAN CO., LTD., which began in the first quarter of the current fiscal year.

As a result, net sales marked 39,758 million yen (+10.9% compared with the year-earlier period), with profit attributable to owners of parent of 2,729 million yen (-17.6%).

In addition to the initiatives mentioned above, the Company invested in a company providing a multi-QR code payment gateway in November 2019 to further expand business. In future, the multi-QR code payment gateway provided by the portfolio company will be widely promoted and operated not only in Japan, but also overseas centered on Asia.

In the same month, the Company also invested in a US company with a platform for mobile e-sports tournaments to engage in the "e-sports" business gaining attention as content utilizing 5G. Business is expected to expand due to the combination of the portfolio company's platform for mobile e-sports tournaments with the nationwide sales network, device sales know-how and gift card/digital code sales that are the strengths of the Group.

(2) Explanation of financial position (Assets)

Consolidated current assets at the end of the period under review were 155,325 million yen, which was 4,161 million yen lower than at the end of the previous fiscal year. This was mainly due to a 5,180 million yen increase in guarantee deposits and a 11,773 million yen decrease in notes and accounts receivable - trade. Non-current assets were 19,458 million yen, which was 49 million yen lower than at the end of the previous fiscal year.

As a result, consolidated total assets posted 174,783 million yen, which was 4,210 million yen lower than at the end of the previous fiscal year.

(Liabilities)

Consolidated current liabilities at the end of the period under review were 120,455 million yen, which was 9,290 million yen lower than at the end of the previous fiscal year. This was mainly due to a 6,077 million yen decrease in income taxes payable. Non-current liabilities were 2,498 million yen, which was 5 million yen lower than at the end of the previous fiscal year.

As a result, consolidated total liabilities posted 122,953 million yen, which was 9,295 million yen lower than at the end of the previous fiscal year.

(Net assets)

Consolidated net assets at the end of the period under review were 51,830 million yen, which was 5,085 million yen higher than at the end of the previous fiscal year. This was mainly due to 9,291 million yen recognized in profit attributable to owners of parent and 4,235 million yen in payment of dividends of surplus.

(3) Explanation of forward-looking information including the consolidated financial forecasts

The earnings estimation for the full year to March 2020 released on April 25, 2019, remain intact.

Nine months (April - December 2019) net sales represent 82.2 percent of the full-year estimate released on April 25, 2019, with percentages for operating profit, ordinary profit, and profit attributable to owners of parent at 71.7 percent, 74.6 percent, and 74.9 percent, respectively.

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T-Gaia Corporation (3738) / Consolidated Financial Results for the Third Quarter of Fiscal Year Ending March 31, 2020 (Nine Months Ended December 31, 2019) (Based on J-GAAP)

2. Quarterly Consolidated Financial Statements and Notes

1. Quarterly consolidated balance sheet

			(Millions of yen)
		FY 2019	3Q FY 2020
		(As of March 31, 2019)	(As of December 31, 2019)
Assets
Current assets
Cash and deposits	27,672	30,351
Notes and accounts receivable - trade	24,600	12,827
Merchandise	32,531	27,168
Supplies	98	67
Accounts receivable - other	13,178	16,361
Guarantee deposits	60,050	65,230
Other	1,434	3,418
Allowance for doubtful accounts	(78)	(101)
Total current assets	159,486	155,325
Non-current assets
Property, plant and equipment	3,679	3,298
Intangible assets
Goodwill	1,874	1,535
Other	1,632	2,077
Total intangible assets	3,507	3,613
Investments and other assets	12,321	12,547
Total non-current assets	19,508	19,458
Total assets	178,994	174,783
Liabilities
Current liabilities
Accounts payable - trade	9,941	7,116
Current portion of long-term loans payable	4,616	1,145
Accounts payable - other	17,881	18,453
Income taxes payable	6,166	89
Provision for bonuses	2,363	1,338
Allowance for early subscription cancellations	20	―
Card deposits	87,668	90,877
Other	1,087	1,433
Total current liabilities	129,745	120,455
Non-current liabilities
Years of service gratuity reserve provisions	125	99
Net defined benefit liability	369	354
Asset retirement obligations	1,594	1,674
Other	414	369
Total non-current liabilities	2,503	2,498
Total liabilities	132,249	122,953
Net assets
Shareholders' equity
Capital stock	3,154	3,154
Capital surplus	5,177	5,177
Retained earnings	59,688	43,540
Treasury shares	(21,526)	(315)
Total shareholders' equity	46,493	51,557
Accumulated other comprehensive income
Valuation difference on available-for-sale securities	230	241
Foreign currency translation adjustment	6	17
Total accumulated other comprehensive income	237	259
Non-controlling interests	14	13
Total net assets	46,745	51,830
Total liabilities and net assets		178,994	174,783

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T-Gaia Corporation (3738) / Consolidated Financial Results for the Third Quarter of Fiscal Year Ending March 31, 2020 (Nine Months Ended December 31, 2019) (Based on J-GAAP)

1. Quarterly consolidated statements of income and Quarterly consolidated statements of comprehensive income
   (Quarterly consolidated statements of income) (Consolidated third quarter period)

			(Millions of yen)
		3Q FY 2019	3Q FY 2020
		(from April 1, 2018 to	(from April 1, 2019 to
		December 31, 2018)	December 31, 2019)
Net sales	376,800	354,957
Cost of sales	326,099	305,157
Gross profit	50,701	49,799
Selling, general and administrative expenses	39,866	40,410
Operating profit	10,834	9,388
Non-operating income
Interest income	1	3
Dividend income	7	8
Share of profit of entities accounted for using equity	22	―
method
Income from hoarded cards	4,157	4,375
Other	72	51
Total non-operating income	4,261	4,438
Non-operating expenses
Interest expenses	12	3
Store lease termination penalties	11	4
Share of loss of entities accounted for using equity	―	17
method
Other	4	3
Total non-operating expenses	27	29
Ordinary profit	15,068	13,797
Extraordinary income
Gain on sales of non-current assets	8	8
Gain on sales of shares of subsidiaries and associates	12	29
Total extraordinary income	20	37
Extraordinary losses
Loss on sales of non-current assets	14	―
Loss on retirement of non-current assets	34	37
Total extraordinary losses	48	37
Profit before income taxes	15,040	13,797
Income taxes - current	6,016	3,529
Income taxes - deferred	(1,136)	971
Total income taxes	4,879	4,500
Profit	10,161	9,297
Profit attributable to non-controlling interests	5	5
Profit attributable to owners of parent		10,156	9,291
(Quarterly consolidated statements of comprehensive income)
(Consolidated third quarter period)
			(Millions of yen)
		3Q FY 2019	3Q FY 2020
		(from April 1, 2018 to	(from April 1, 2019 to
		December 31, 2018)	December 31, 2019)
Profit	10,161	9,297
Other comprehensive income

Valuation difference on available-for-sale securities

Remeasurements of defined benefit plans, net of tax

Share of other comprehensive income of entities accounted for using equity method

(22)	11
2	―
(0)	10

Total other comprehensive income

Comprehensive income

Comprehensive income attributable to

Comprehensive income attributable to owners of parent

Comprehensive income attributable to non- controlling interests

(21)	22
10,139	9,319
10,134	9,313
5	5

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T-Gaia Corporation (3738) / Consolidated Financial Results for the Third Quarter of Fiscal Year Ending March 31, 2020 (Nine Months Ended December 31, 2019) (Based on J-GAAP)

1. Notes to quarterly consolidated financial statements
   (Notes on the going-concern assumption)
   Not applicable.
   (Notes on significant changes in shareholders' equity)
   By resolution of the Board of Directors' meeting held on April 25, 2019, dated May 24, 2019, the Company canceled 23,000,000 shares of treasury shares. As a result, in the period under review, retained earnings and treasury shares decreased 21,208 million yen respectively.
   (Segment information)
   Segment information
   I 3Q FY 2019 (from April 1, 2018 to December 31, 2018)
   1. Information by reportable segment on net sales and income/loss amounts

				(Millions of yen)
	Mobile	Enterprise	Payment Service
	Telecommunications	Solutions	Business and Other		Total
	Business	Business	Business
Net sales	321,543	19,415	35,841		376,800
Segment income
(Profit attributable to	5,729	1,115	3,311		10,156
owners of parent)

2. Total income or loss of reportable segments, difference to income or loss reported in the quarterly consolidated statements of income for the period under review, and main items responsible for the

difference (Matters concerning difference adjustment)

The aggregate total amount of segment earnings matches the amount of profit attributable to owners of parent stated on the quarterly consolidated statements of income.

3. Matters concerning the impairment loss from non-current assets or goodwill of reportable segments Not applicable.

1. 3Q FY 2020 (from April 1, 2019 to December 31, 2019)

1. Information by reportable segment on net sales and income/loss amounts

(Millions of yen)

	Mobile	Enterprise	Payment Service
	Telecommunications	Solutions	Business and Other	Total
	Business	Business	Business
Net sales	293,898	21,301	39,758	354,957
Segment income
(Profit attributable to	5,212	1,349	2,729	9,291
owners of parent)

2. Total income or loss of reportable segments, difference to income or loss reported in the quarterly consolidated statements of income for the period under review, and main items responsible for the difference (Matters concerning difference adjustment)

The aggregate total amount of segment earnings matches the amount of profit attributable to owners of parent stated on the quarterly consolidated statements of income.

3. Matters concerning the impairment loss from non-current assets or goodwill of reportable segments

Not applicable.

(Significant subsequent events)

Not applicable.

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