Performance Analysis

For fiscal year ended December 31,2016

Sales
12,080 million yen
(up 29% yoy)
operating income
474 million yen
(operating loss of 111 million yen in the same period of the previous fiscal year)
EBITDA
653 million yen
(negative of 45 million yen in the same period of the previous fiscal year)
* EBITDA (operating income + depreciation + amortization of goodwill)

The Group achieved a 29.0% year-on-year increase in net sales to 12,080 million yen in the consolidated fiscal year ended December 31, 2016, thanks in part to a 13.7% increase in net sales of the Company resulting from efforts to become more competitive in its core businesses and in part due to the addition of sales by Keyport Solutions, Inc. (KPS) and Profit Cube Inc. (PCI), both of which the Company had 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 resulting from efforts to become more competitive in its core businesses, which comprise sales of LifeKeeper and software applications for MFPs as well as 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 474 million yen for the consolidated fiscal year ended December 31, 2016, compared with an operating loss of 111 million yen in the previous fiscal year, and an ordinary income of 389 million yen, compared with an ordinary loss of 137 million yen a year earlier. The Group also posted for the year a net income of 254 million yen attributable to owners of the parent company, more than offsetting expenses incurred related to a retrospective adjustment of 139 million yen recognized as an extraordinary loss in the April-June quarter of 2016, compared with a net loss of 186 million yen attributable to owners of the parent company the year before. The Group’s key management metrics EBITDA, which is the sum of operating income, depreciation and amortization, and amortization of goodwill, stood at 653 million yen, compared with a negative of 45 million yen a year earlier.

Sales

Open system infra segment

Open system infra segment

The Group increased sales of LifeKeeper in Japan, Asia/Oceania, Europe, and the Americas. Red Hat Enterprise Linux9 and other products sourced from Red Hat, Inc. also enjoyed robust sales, buoyed by stepped up sales and marketing activities. Support services for OSS and OSS-related products achieved solid sales growth as well. As a result, net sales in this segment amounted to 6,300 million yen, up 13.7% year on year with a segment income of 180 million yen, compared with a segment loss of 165 million yen in 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 had acquired in the previous fiscal year. The increase in net sales also resulted from the provision of software applications for MFPs and support services for system implementation to a growing number of corporate customers. As a result, net sales in this segment soared 51.3% year on year to 5,779 million yen with a segment income of 239 million yen, up 451.8% from a year earlier.

Operating Income

Open system infra segment

Open system infra segment

Strong sales in existing businesses more than offset continued R&D investments in SIOS iQ, our machine learning-based IT analytics software, and this segment returned to profitability with a segment income of 180 million yen for the year, as opposed to a segment loss of 165 million yen in the previous fiscal year.

Application segment

Web application segment

An increase in gross margin as a result of a surge in net sales more than offset higher personnel costs resulting from the acquisitions of KPS and PCI, and the segment income for the year jumped 451.8% year on year to 293 million yen.

Analysis of Balance Sheets

Analysis of Balance Sheets

(1)Assets

Current assets amounted to 3,615 million yen as of December 31, 2016, down 7.3% from the end of the previous fiscal year, reflecting a decrease of 282 million yen in cash and deposits, a decrease of 58 million yen in work in progress, an increase of 45 million yen in deferred tax assets, and an increase of 21 million yen in advance payments.
Fixed assets were down 5.8% to 1,640 million yen, reflecting a decrease of 85 million yen in goodwill.
As a result, total assets decreased 6.8% to 5,256 million yen for the year.

(2)Liabilities

Current liabilities amounted to 2,541 million yen as of December 31, 2016, down 11.5% from the end of the previous fiscal year, reflecting a decrease of 100 million yen in accounts payable and a decrease of 240 million yen in short-term loans payable.
Fixed liabilities were down 21.3% to 1,066 million yen, reflecting a decrease of 161 million yen in long-term loans payable and a decrease of 100 million yen in long-term deposits received.
As a result, total liabilities were down 14.7% to 3,608 million yen for the year.

(3)Net assets

Total assets amounted to 1,647 million yen as of December 31, 2016, up 16.5% from the end of the previous fiscal year, reflecting a net income of 254 million yen attributable to owners of the parent company posted for the year.

Analysis of Cash Flow

Analysis of Cash Flow

The balance of cash and cash equivalents (hereinafter "cash") amounted to 1,793 million yen as of December 31, 2016, a decrease of 251 million yen from the end of the previous fiscal year.
Cash flows broken down by segment for the consolidated fiscal year ended December 31, 2016 were as follows:

Cash flows from operating activities

Net cash provided by operating activities amounted to 311 million yen for the year, compared with 168 million yen in net cash provided in the previous fiscal year. This reflected a net income of 225 million yen before income taxes, a decrease of 100 million yen in accounts payable-trade, depreciation and amortization of 93 million yen, amortization of goodwill of 85 million yen, an increase of 81 million yen in advances received, an investment loss of 65 million yen from application of equity methods, and a decrease of 58 million yen in accrued consumption taxes.

Cash flows from investing activities

Net cash used for investing activities amounted to 123 million yen for the year, compared with 996 million yen in net cash used in the previous fiscal year. This reflected proceeds of 292 million yen from the withdrawal of time deposits, the payment of 261 million yen into time deposits, the payment of 86 million yen for acquisition of tangible fixed assets, and the payment of 49 million yen for guarantee deposits.

Cash flows from financing activities

Net cash used for financing activities amounted to 414 million yen for the year, compared with 988 million yen in net cash provided in the previous fiscal year. This reflected the repayment of 213 million yen of short-term loans payable and the repayment of 181 million yen of long-term loans payable.

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