Performance Analysis

For the six month period ended June 30,2016

Sales
6,238 million yen
(up 42% yoy)
operating income
330 million yen
(operating loss of 55 million yen in the same period of the previous fiscal year)
EBITDA
417 million yen
(negative of 21 million yen in the same period of the previous fiscal year)
* EBITDA (operating income + depreciation + amortization of goodwill)

In the six months ended June 30, 2016, the SIOS Group's net sales soared by 42.0% year on year to 6,238 million yen, bolstered by the addition of sales by Keyport Solutions, Inc. (KPS) and Profit Cube Inc. (PCI), both of which the Company acquired in the previous fiscal year.
In addition to an increased gross margin resulting from the addition of sales by KPS and PCI, the Group enjoyed a year-on-year increase in operating income from existing businesses, which comprise LifeKeeper, software applications for multifunction printers, and support services for system implementation, as we delivered these products and services to a growing number of corporate customers. As a result, the Group posted an operating income of 330 million yen for the first half of FY 2016, compared with an operating loss of 55 million yen in the same period of the previous fiscal year, and an ordinary income of 292 million yen, compared with an operating loss of 38 million yen in the same period of the previous year. The Group also posted a net income of 88 million yen attributable to owners of the parent company, including the recognition of expenses related to a retrospective adjustment of 139 million yen as extraordinary loss, compared with a net loss of 59 million yen in the same period of the previous fiscal year. The Group’s key management indicator EBITDA, which is the sum of operating income, depreciation, and amortization of goodwill, stood at 417 million yen, compared with a negative of 21 million yen in the same period of the previous fiscal year.

Sales

Open system infra segment

Open system infra segment

The Group increased sales of LifeKeeper in Japan, the Americas, Europe, and Asia/Oceania. Red Hat Enterprise Linux and other products offered by Red Hat, Inc. also enjoyed robust sales, buoyed by stepped up sales and marketing efforts. Support services for OSS and OSS-related products also achieved solid sales growth. As a result, net sales in this segment amounted to 3,203 million yen, up 18.1% year on year, with a segment income of 81 million yen, compared with a loss of 88 million yen in the same period of the previous fiscal year.

Application Segment

Application Segment

Net sales in this segment increased substantially due to the addition of sales by KPS and PCI, both of which the Company acquired in the previous fiscal year. The increase in sales also resulted from the delivery of software applications for multifunction printers and support services for system implementation to a growing number of corporate customers. As a result, net sales in this segment soared 80.7% year on year to 3,034 million yen.

Operating Income

Open system infra segment

Open system infra segment

Operating income amounted to 81 million yen, compared with a loss of 88 million yen in the same period of the previous fiscal year. The segment returned to profitability, buoyed by strong sales in existing businesses.

application segment

Web application segment

The income in this segment surged 658.7% year on year to 249 million yen, with an increased gross profit gained from a sales increase more than offsetting an increase in personnel costs and rents resulting from the addition of the two consolidated subsidiaries mentioned earlier.

R&D Expense

R&D Expense

For the current fiscal year, we will continue to actively invest in machine learning technology with the aim of expanding the functions of SIOS iQ released July 2015 and starting to offer new products and services in new areas including Fintech. We will also continuously invest in strengthening the functions of our core product LifeKeeper, a software product for the MFP Gluegent series, and PCI’s software products for financial institutions. And, the planned R&D expenses are 880 million yen in total (up 35.8% from the previous consolidated fiscal year)

Analysis of Balance Sheets

Analysis of Balance Sheets

(1)Assets

Current assets amounted to 3,927 million yen as of June 30, 2016, up 0.7% from the end of the previous fiscal year, mainly due to an increase of 66 million yen in advance payments and a decrease of 46 million yen in notes and accounts receivable-trade.
Fixed assets amounted to 1,670 million yen, down 4.1% from the end of the previous fiscal year, mainly due to a decrease of 57 million yen in investment securities.
As a result, total assets amounted to 5,597 million yen, down 0.8% from the end of the previous fiscal year.

(2)Liabilities

Current liabilities amounted to 3,063 million yen as of June 30, 2016, up 6.6% from the end of the previous fiscal year, mainly due to an increase of 295 million yen in advance received and a decrease of 240 million yen in short-term loans payable.
Fixed liabilities amounted to 1,141 million yen, down 15.8% from the end of the previous fiscal year, mainly due to a decrease of 96 million yen in long-term loans payable and a decrease of 93 million yen in long-term deposits received.
As a result, total liabilities amounted to 4,204 million yen, down 0.6% from the end of the previous fiscal year.

(3)Net assets

Total net assets amounted to 1,392 million yen, down 1.5% from the end of the previous fiscal year, mainly due to a net income of 88 million yen attributable to owners of the parent company posted for the six months ended June 30, 2016, and a decrease of 80 million yen in foreign currency translation adjustment.

Analysis of Cash Flow

Analysis of Cash Flow

As of June 30, 2016, the balance of cash and cash equivalents (hereinafter“cash”) amounted to 2,118 million yen, an increase of 72 million yen from the end of the previous fiscal year.
For the six months ended June 30, 2016, cash flows by segment were as follows:

Cash flow from operating activities

Net cash provided by operating activities amounted to 636 million yen, compared with a gain of 110 million yen in the same period of the previous fiscal year, mainly due to net income of 152 million yen before income taxes, depreciation and amortization of 44 million yen, an increase of 356 million yen in advance received, an increase of 114 million yen in notes and accounts payable-other, and a decrease of 51 million yen in notes and accounts payable-trade.

Cash flow from investing activities

Net cash used in investing activities amounted to 55 million yen, compared with the use of 41 million yen in the same period of the previous fiscal year, mainly due to proceeds of 160 million yen from withdrawal of time deposits, payment of 131 million yen into time deposits, and payment of 49 million yen for guarantee deposits.

Cash flow from financing activities

Net cash used in financing activities amounted to 376 million yen, compared with the use of 42 million yen in the same period of the previous fiscal year, mainly due to a decrease if 240 million yen in short-term loans payable and a decrease of 117 million yen in long-term loans payable.

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