COMPANY RESEARCH AND ANALYSIS REPORT

LTS, Inc.
6560
Tokyo Stock Exchange First Section

9-Sept.-2020
FISCO Ltd. Analyst

Yuzuru SatoFISCO Ltd.
http://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Summary of the 1Q FY12/20 results............................................................................................................

01

2. FY12/20 results outlook...............................................................................................................................

02

3. Medium-term results targets........................................................................................................................

02■Company overview--------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Company history. . ........................................................................................................................................

03

2. Business description. . ..................................................................................................................................

05■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 08
1. 1Q FY12/20 results summary. . ............... ......................................................................................................

08

2. Financial position and management indicators. ...........................................................................................

11■Business outlook-------------------------------------------------------------------------------------------------------------------------------------------------------- 12
1. Impact of and response to the novel coronavirus. .......................................................................................

12

2. FY12/20 results outlook...............................................................................................................................

14

3. The medium-term results targets........... ......................................................................................................

18

4. Image of medium- to long-term growth.......................................................................................................

21■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 23

We encourage readers to review our complete legal statement on “Disclaimer” page.

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/█ SummaryBenefiting from the growth of corporate DX investment, the outlook
is for results’ high growth to continue
LTS, Inc. <6560> (hereafter, also “the Company”) utilizes business process management (BPM) * 1 and advanced
technologies such as robotics (RPA*2) and AI*3, to provide support services, including for corporate transformations,workstyle reforms, and digital transformations (DX*4).
*1	Abbreviation of business process management. The management of business processes within a company.
*2	A bbreviation of robotic process automation. A term expressing the automation of work using robots, which mainly
undertake white-collar work in back-office operations.
*3	Abbreviation of artificial intelligence. It refers to the attempt to artificially realize intelligence equivalent to that of humans,such as of computers, or the series of basic technologies for this.
*4	Abbreviation of digital transformation. It is a concept advocated by Professor Erik Stolterman of Umea University of
Sweden in 2004, that “the spread of IT will change every aspect of people’s lives for the better.” It refers to value creation
through new products, services and new business models and the establishment of competitive advantages throughutilizing digital technologies, IoT, AI (artificial intelligence), big data, and analytics.

Also, the subsidiary Assign Navi, Inc. conducts a platform business to match IT human resources and projects. The
Company has actively conducted M&A for growth since FY12/19, making a subsidiary of software development
company WAKUTO, Inc., in September 2019, following which it made a subsidiary of IoToI Japan Inc., which
supports business creation (including introducing solution-provider companies) by utilizing IoT, in January 2020. In
July 2020, the Company’s listing was upgraded from the Tokyo Stock Exchange (TSE) Mothers market to the TSEFirst Section.
1. Summary of the 1Q FY12/20 results
In the 1Q FY12/20 consolidated results, sales and profits increased by double digits, with net sales rising 59.6%
year-on-year (YoY) to ¥1,373mn and operating profit growing 38.2% to ¥160mn, and the Company made a smooth
start to the fiscal year. It actively worked on measures for the DX of management, mainly for large companies, andresults were strong in the professional services business, which includes digital utilization services. In the platformbusiness as well, sales and profits grew from the increase in IT consultant referral projects, which have a high unit
price, and the results in both businesses were new record highs on a quarterly basis. Sales and profits grew by
double digits, including from the effects of the addition of the results of WAKUTO, which entered the scope of
consolidation from 4Q FY12/19.

We encourage readers to review our complete legal statement on “Disclaimer” page.

01 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Summary

2. FY12/20 results outlook
The outlook for the FY12/20 consolidated results is for new record highs, with net sales to increase 31.9% YoY
to ¥5,000mn and operating profit to rise 30.0% to ¥400mn. The rates of progress in the 1Q for the full fiscal year
results forecasts were 27.5% for net sales and 40.1% for operating profit, exceeding the average rates of progress
for the last 3 years (24.1% for net sales and 31.8% for operating profit). Going forward, the Company’s forecasts
seem fully achievable if economic activities do not slow down due to a second wave of the novel coronavirus. It is
progressing its operations in a remote working environment without any problems, so the impact of the coronavirus
on results is thought to be minimal. In the professional services business, 35% of net sales are provided by businessprocess management, which is recurring-type revenue, while for project orders also, results are expected to growsteadily from the 2Q onwards as DX-related orders are solid. Meanwhile, in the platform business, a new service,
CS Clip, which is a service to match business companies and DX companies, is scheduled to be released in July
2020, while from August, the plan is to review one part of the Assign Navi earnings model. So earnings are expected
to grow even more due to these measures.
3. Medium-term results targets
At the present time, the Company’s results targets are net sales of ¥8,000mn and operating profit of ¥1,200mn in
FY12/23. It intends to achieve them through the organic growth of its existing businesses, so they do not incorporate
the effects of new M&A. Looking at the four-year average annual growth rates with the FY12/19 results as the starting
point, high growth is expected, of 20.5% for net sales and 40.5% for operating profit. For the professional services
business, the Company is focusing on increasing orders for comprehensive support services for DX projects throughsecuring engineer human resources, including by the M&A conducted in FY12/19, and net sales will increase fromthe FY12/20 forecast of ¥4,800mn to in the region of ¥7bn. Conversely, the platform business is benefiting fromthe growth in demand for and the increased mobility of IT human resources, and also the increase in demand in
the DX field, so the target is for net sales to rise from the FY12/20 forecast of ¥280mn to in a range of ¥700mn to¥1bn. In the long term as well, the Company is targeting increasing the scale of sales to tens of billions of yen andgrowing to be a consulting firm that conducts its business globally through actively progressing the M&A strategy
and business development in the Asia market
Key Points
A consulting firm providing corporate digital utilization services support and conducting business process
management• The impact of the novel coronavirus is minimal and the outlook for FY12/20 is again for high growth from theactive investment in DX• Excluding the effects of M&A, is targeting net sales of ¥8,000mn and operating profit of ¥1,200mn in FY12/23•

We encourage readers to review our complete legal statement on “Disclaimer” page.

02 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

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Source: prepared by FISCO from the Company’s financial results and securities registration statement█ Company overview
A consulting firm providing corporate digital utilization services
support and conducting business process management
1. Company history
The Company is a consulting firm founded in 2002 by five members who met in an IT venture company, centered on
President and CEO Hiroaki Kabashima. It lacked a sales network in the five to six years after its foundation, so forcustomer acquisition it obtained referrals from major overseas companies and also invited people with experienceas CIO (Chief Information Officer) in major companies to serve as advisers, and in this way it acquired customers
through utilizing a network of contacts.
An opportunity to further expand business scale was provided when the Company joining the Japan Users
Association of Information Systems* in 2011. In this Association, the Company has been able to improve the qualityof its consulting services and build a network of the CIO/CTO (the highest-level technology officers) in each of themember companies through engaging in a variety of surveys and research activities on the theme of management
and IT. It is progressing customer acquisition in this situation.
*	Established in 1962 with the aims of promoting the improved utilization of IT and contributing to the development of theindustrial economy, including through conducting surveys and research on the advanced use of IT (including management
reforms) in industrial activities, awareness-raising and introductions of such IT, and collecting and providing information.
As of July 2020, 4,157 companies were corporate members (including associate members).

We encourage readers to review our complete legal statement on “Disclaimer” page.

03 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Company overview

In 2008, Key Pride, Inc. (currently Assign Navi, Inc.) was established as a consolidated subsidiary to refer and provide
the core human resources to progress corporate transformation projects, thereby expanding the Group’s businessscope to outside of consulting. In 2014, this subsidiary launched Assign Navi, which is an online platform service
to match IT engineers active in companies and as freelancers with companies searching for IT human resources. In
addition, in 2016 it began providing Consultant Job, which is a project-referral service for IT consultants, an M&A
support service specializing in the IT industry, and a data analyst training support service for individual membersof Assign Navi.
In December 2017, the Company was listed on the TSE Mothers market (its listing was upgraded to the TSEFirst Section market in July 2020), and it has been utilizing the funds acquired in the listing to invest in humanresources, M&A, and other elements to expand its business. For M&A, it made subsidiaries of WAKUTO, a softwaredevelopment company, in September 2019, and of IoToI Japan, which provides IoT business-creation support
consulting, in January 2020. Also, in July 2019 it established FPT CONSULTING JAPAN CO., LTD. as a joint venturewith FPT Japan Holdings Co., Ltd., which is a group company of FPT Corporation, Vietnam’s largest ICT company.
Company history
Date

Main events

March 2002

LT Solutions, Inc. was established in Nanpeidai, Shibuya Ward, Tokyo (changed company name to LTS, Inc., in April 2008)

April 2003

Fully fledged launch of professional services in the reforms-support area to support workplace reforms at customer sites (sincethen, has expanded the areas to personnel and organization consulting, IT consulting, and business consulting)March 2008

Through a new-establishment corporate split, established Key Pride, Inc., as a consolidated subsidiary to refer and supply corehuman resources to progress corporate transformation projects (changed company name to Assign Navi, Inc., in April 2014)

January 2009

Fully fledged launch of services for the IT upstream area and business process management /process implementation

January 2011

Established the Overseas Business Promotion Office and increased ability to respond to overseas projects, and also started
preparations for business development in China and the Asia region

March 2013

Established consolidated subsidiary LTS ASIA CO., LIMITED in the Hong Kong Special Administrative Region of the People's
Republic of China

April 2013

Started data analytics support

July 2014

Consolidated subsidiary Assign Navi started providing the Assign Navi platform service, which became able to introduce
companies, individuals, and products in the IT industry quickly and at low cost

January 2016

Assign Navi, Inc. launched a project referral service for consultants

May 2016

Assign Navi, Inc. launched an M&A support service specializing in the IT industry

July 2016

Launch of data analyst training support for Assign Navi members

November 2016

Started providing RPA (Robotic Process Automation) and AI services

December 2017

Listed on the Tokyo Stock Exchange Mothers market

August 2018

Assign Navi, Inc. launched Consultant Job, a projects referral and consultation service for freelance consultants

August 2018

Launched the Digital Shift Accelerator Program, a capital and business alliance with a technology start-up company

July 2019

Established FPT CONSULTING JAPAN CO., LTD., as a joint venture with FTP Japan Holdings Co., Ltd. (investment ratio 20%, anequity-method affiliate)

September 2019

Made a consolidated subsidiary of WAKUTO, Inc. (investment ratio 100%)January 2020

Made a consolidated subsidiary of IoToI Japan, Inc. (investment ratio 75%)

July 2020

Listing upgraded to the TSE First Section market

Source: prepared by FISCO from the Company’s website

Status of affiliated companies
Company name

Investment ratio

Description of main business

Consolidated subsidiary
Assign Navi, Inc.

100.0%

Platform business

LTS ASIA CO., LIMITED

100.0%

Professional services business

WAKUTO, Inc.

100.0%

Professional services business

IoToI Japan, Inc.

75.0%

Professional services business

20.0%

Professional services business

Equity-method affiliate
FPT CONSULTING JAPAN CO., LTD.

Source: prepared by FISCO from the Company’s securities report, etc.

We encourage readers to review our complete legal statement on “Disclaimer” page.

04 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Company overview

Developing the professional services business and the platformbusiness
2. Business description
The Company Group provides consulting services to reform and grow the businesses of customer companies
through business process management, which is the method to support the “implementation of reforms” that are
essential for a company to grow. The Group consists of the Company, four consolidated subsidiaries, and one
equity-method affiliate, and it discloses information on two business segments, the professional services businessand the platform business. Looking at the percentages of net sales in FY12/19, the professional services businessprovided more than 90% of the total. But going forward, in addition to growing this business, the Company’s strategy
is to accelerate earnings growth by developing the platform business, which has a high marginal profit ratio.

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Source: prepared by FISCO from the Company’s financial results and securities registration statement(1) Professional services business
The professional services business provides three services; long-term, support-type business process management, project-type consulting, and digital utilization services. In the percentages of total net sales in FY12/19,
business process management provided 35%, consulting 47%, and digital utilization services 18%. This businessbuilds relationships with customers through project support and enters into contracts with them on the unit ofyears, which in turn leads to business process management, a recurring-type business.

We encourage readers to review our complete legal statement on “Disclaimer” page.

05 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Company overview

Features of the professional services business

Source: the Company’s financial briefing materials

Business process management is a service to support customer companies’ business structures as businessprocesses, from making visible and analyzing the processes through to creating, implementing and fixing in place
optimization methods. Currently, the Company’s customers range from major companies in the automotive andfinancial industries through to venture companies, and they are mainly companies conducting advanced management through IT. For each type of customer, it has more than 10 years of experience of conducting transactions.
Consulting services are services to support customer companies as they build a growth strategy, develop businessand conduct management reforms, of business and organizational reforms. Taking the position of the customer,
they encompass customer operations support after the introduction of a new business from the planning andconception stages, through IT platform construction and establishment and operations support to the humanresources training required by customer companies. Also, digital utilization services provide support to improvebusiness efficiency and business optimization through formulating methods of utilizing research and technologies
that are tailored to customers’ businesses. They are utilized to reform companies’ workstyle reforms and to
implement DX, to improve the value chain through analysis, including by using IoT and marketing data, and to
introduce AI, RPA, and other technologies.
Frequently, these project-type services are provided while collaborating as necessary with overseas consulting
firms and development companies, such as of ERP, AI and RPA tools, and the Company plans the projects
from the position of the customer. In many cases, customer companies lack IT literacy or related aspects, so
the Company plays the role of filling-in the literacy gap between customers and consulting firms/IT-tool vendors
to maximize the effects of projects to introduce IT. Therefore, it is building collaborative relationships with these
consulting firms and tool vendors, rather than competitive relationships.

We encourage readers to review our complete legal statement on “Disclaimer” page.

06 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Company overview

Services menu in the professional services business
Service description% of sales(FY12/19)

Business process
management

35%

Making visible and improving business processes, utilizing BPO/SS*1, implementing advanced businessprocesses
Business process operations support and IT operations support, business analyst training

Consulting

47%

Business consulting(building a growth strategy, business development, investigating M&A, PMI*2, constructing a managementfoundation)
IT consulting(formulating basic IT concepts; systems planning and selection; introducing, fixing in place, and operating IT
systems from the customer’s perspective)
Personnel and organizational consulting(workstyle reforms, resource and cost management, organizational reforms, human resources training)

Digital utilization
services

18%

Conducting technologies research, formulating digital business concepts, utilizing data analytics and AI, cloud
integration
RPA, customer-channel reforms, digital marketing, technology-utilization human resources training

Services menu

*1 BPO (Business Process Outsourcing)/SS (Shared Service): BPO refers to the outsourcing to external companies of a part of a company’s own
operations. SS is a management method that aims to improve efficiency by consolidating into another company (or another division) operations
shared between companies (or divisions).
*2 PMI (Post Merger Integration): the integration process after the completion of an M&A.
Source: prepared by FISCO from interviews and the Company’s securities report(2) The platform business
The platform business, which is conducted by the subsidiary Assign Navi, consists of the Assign Navi platform
service, which solves the problems facing customer companies by matching technologies companies, whichhave the methods to resolve problems but lack opportunities for projects to fully utilize their in-house IT humanresources as they are unable to meet customer companies, with customer companies that lack the IT humanresources to enable them to fully utilize their abundant IT investment. This business also includes Consultant Job,
which is a projects referral service for freelance IT consultants. In the percentages of net sales in FY12/19, Assign
Navi provided approximately 40% and Consultant Job around 60%.
As of March 2020, Assign Navi had registered a total of 8,771 companies and individuals as members (including
non-fee-paying members), comprised of 3,728 companies as corporate members and 5,043 individual members,
and member numbers continue to trend upward. It is said that among IT companies in Japan, around 5,000 to
8,000 companies are members, and its name recognition is high as a website for human resources and projectreferrals for medium-sized and SME IT companies. The sales forms are annual membership fees from fee-paying
members* and participation fees for the exchange-meeting events and training services held and provided by
Assign Navi. In the case of a non-fee-paying member, should a project be ordered, the Company collects a projectlisting fee and a contract fee from the ordering company at the time that the contract is entered into. Currently,
over two hundred companies are fee-paying members.
*	In the standard plan, the joining fee is ¥100,000 and the annual membership fee is ¥300,000. Members can list projects
and use the scout mail and various types of services (utilization support, company referrals, and safe transactions), while
they also receive discounts on the various events. In addition, in the case of entering-into a contract from a project order,
the contract fees become non-fee-paying.

Consultant Job is a referral service for freelance IT consultant for projects with high unit prices, of from ¥1.6mn
to ¥1.9mn a month. For sales, it uses a results-based remuneration model, of collecting contracting fees fromthe ordering company at the time that the project-referral contract is entered-into. The ordering parties are major
consulting firms and major SIers, and this service utilizes the network that the Company has cultivated over many
years. There are many other matching services for IT human resources, but there are few services that specialize
in IT consultants with high unit prices, and this is a growth area.

We encourage readers to review our complete legal statement on “Disclaimer” page.

07 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Company overview

The Company is also a member of Assign Navi, and should it lack resources when providing services to its
professional services business customers, it supplements them by using this service.

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Source: prepared by FISCO from the Company’s financial results█ Results trends
Made a smooth start in 1Q FY12/20, with sales and profits increasing
significantly
1. 1Q FY12/20 results summary
In the 1Q FY12/20 consolidated results, net sales increased 59.6% YoY to ¥1,373mn, operating profit rose 38.2%
to ¥160mn, ordinary profit grew 32.2% to ¥153mn, and profit attributable to owners of parent climbed 32.7% to¥101mn. So the Company made a smooth start to the fiscal year, with sales and profits increasing by double digits
for new record highs on a quarterly basis.
Customer companies have become increasingly cost conscious due to the deterioration of business confidence, but
their interest in implementing DX for management is rising. Against this backdrop, companies have been responding
to the changing market environment, including by introducing AI/RPA tools and digital marketing methods that utilize
big data, with the aim of improving business efficiency. Therefore, strategic IT investment to improve competitiveness
continues to trend strongly. In the Company also, results are steadily increasing against the backdrop of the growth ofthe professional services business, centered on the digital utilization services field, and also as the platform businessis benefiting from the lack of IT human resources.

We encourage readers to review our complete legal statement on “Disclaimer” page.

08 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.

9-Sept.-2020

6560 Tokyo Stock Exchange First Section

https://lt-s.jp/en/ir/

Results trends

The Company made a subsidiary of WAKUTO in September 2019, and this was factor behind the higher sales andprofits. But even on excluding this factor, sales and profits grew by double digits. Also, the effect on the consolidated
results of IoToI Japan, which was made a subsidiary in January 2020, was minimal. The operating profit margin fell
1.8 percentage points (pp) from 11.7% in the same period in the previous fiscal year, but this was mainly because
the gross profit margin declined 6.2pp due to WAKUTO being made a subsidiary. The results of WAKUTO itself
were solid. The business model for the outsourcing business is for business expansion, so it contributed greatly
to the increase in sales. However, its gross profit margin is low compared to that of the Company on a standalone
basis, so it was a factor pushing down the profit margin. On the other hand, SG&A expenses increased 35.6%
YoY, mainly personnel expenses, but the SG&A expenses ratio fell 4.3pp due to the effects of the higher sales.
Following WAKUTO and IoToI Japan being made subsidiaries, amortization of goodwill of ¥5mn was recorded
in SG&A expenses. Therefore, EBITDA (operating profit before depreciation and amortization) increased 41.6%
YoY to ¥171mn. The main reason why non-operating expenses worsened slightly YoY was the recording of anequity-method investment loss of ¥8mn. This was because the equity-method affiliate FPT CONSULTING JAPANis progressing upfront investment in human resources, including to recruit IT consultants.
1Q FY12/20 consolidated results(unit:¥mn)
1Q FY12/19
Result1Q FY12/20

Sales ratio

ResultSales ratio

YoY

Net sales

860

-

1,373

-

59.6%

Gross profit

364

42.4%

497

36.2%

36.4%

SG&A expenses

248

28.9%

337

24.6%

35.6%

Operating profit

116

13.5%

160

11.7%

38.2%

Ordinary profit

115

13.5%

153

11.2%

32.2%

Profit attributable toowners of parent

76

8.9%

101

7.4%

32.7%

EBITDA

121

14.1%

171

12.5%

41.6%

Note: EBITDA = operating profit + depreciation + amortization of goodwill
Source: prepared by FISCO from the Company’s financial results and financial briefing materials㻽㼡㼍㼞㼠㼑㼞㼘㼥㻌㼞㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕
(¥mn)

(¥mn)
㻝㻘㻡㻜㻜

㻝㻘㻟㻣㻟

㻞㻜㻜

㻝㻘㻞㻣㻢
㻝㻘㻞㻜㻜

㻝㻢㻜

㻥㻜㻜
㻢㻜㻜

㻤㻞㻜

㻣㻣㻟
㻡㻡㻤

㻡㻣㻜

㻢㻞㻟

㻢㻡㻢

㻢㻡㻡

㻤㻢㻜
㻣㻟㻥

㻤㻤㻟

㻡㻜

㻡㻤
㻠㻟

㻝㻽

㻞㻽

㻣㻝
㻡㻝

㻟㻽

㻲㼅㻝㻞㻛㻝㻣

㻠㻽

㻠㻜

㻠㻟

㻟㻝

㻜

㻤㻜

㻥㻤

㻣㻢
㻟㻜㻜

㻝㻞㻜

㻣㻣㻜

㻝㻝㻢

㻥㻥

㻝㻢㻜

㻞㻝
㻝㻽

㻞㻽

㻟㻽

㻠㻽

㻲㼅㻝㻞㻛㻝㻤

㻝㻽

㻞㻽

㻜
㻟㻽

㻲㼅㻝㻞㻛㻝㻥

㻠㻽

㻝㻽
㻲㼅
㻝㻞㻛㻞㻜

Source: prepared by FISCO from the Company’s financial
 briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

09 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.

9-Sept.-2020

6560 Tokyo Stock Exchange First Section

https://lt-s.jp/en/ir/

Results trends(1) Professional services businessIn the professional services business, net sales increased 60.1% YoY to ¥1,326mn and operating profit rose
20.2% to ¥136mn. An increasing number of companies are utilizing IT to implement DT for management, andin this situation, results were strong for digital utilization services. Results also trended favorably for businessprocess management and conventional-type consulting services. WAKUTO being made a subsidiary was also afactor behind the higher sales and profits.
In the professional services business, a seasonal factor is that profits tend to be concentrated in the 1Q and the
3Q. This is because in the 2Q, the Company incurs training costs for more than 20 new employees, including
new graduates and mid-career hires, while it also allocates excellent consultants within the Company to serve aslecturers, and as an effect of this, its sales capabilities tend to fall temporarily. Also, in the 4Q, although it depends
on the progress made for results, if it has excess capacity it allocates time for the consultants to improve theirskills, including the consultants themselves writing journal papers and participating in overseas global technology
conferences. As a result, costs related to this increase. But looking for a different viewpoint, it can be said that
4Q profits are to a certain extent in a controllable state from the intention of management.

㻽㼡㼍㼞㼠㼑㼞㼘㼥㻌㼞㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼜㼞㼛㼒㼑㼟㼟㼕㼛㼚㼍㼘㻌㼟㼑㼞㼢㼕㼏㼑㼟㻌㼎㼡㼟㼕㼚㼑㼟㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕(¥mn)

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

(¥mn)

㻝㻘㻡㻜㻜
㻝㻘㻞㻠㻟

㻝㻝㻟

㻝㻘㻞㻜㻜

㻝㻟㻢

㻥㻡
㻥㻜㻜

㻣㻠㻜

㻢㻜㻜

㻡㻞㻜

㻟㻜㻜

㻠㻥

㻡㻟㻝

㻡㻤㻡

㻢㻞㻟

㻢㻞㻞

㻣㻤㻡

㻣㻜㻢

㻤㻞㻤

㻤㻠㻤

㻠㻤

㻝㻞㻜

㻤㻤
㻢㻜

㻣㻠

㻡㻠

㻝㻡㻜

㻥㻜

㻣㻠㻢

㻣㻟

㻟㻤

㻝㻘㻟㻞㻣

㻟㻜

㻠㻞

㻟㻡

㻟㻜

㻜

㻜

㻝㻽

㻞㻽

㻟㻽

㻠㻽

㻝㻽

㻞㻽

㻲㼅㻝㻞㻛㻝㻣

㻟㻽㻠㻽㻲㼅㻝㻞㻛㻝㻤

㻝㻽

㻞㻽

㻟㻽

㻲㼅㻝㻞㻛㻝㻥

㻠㻽

㻝㻽
㻲㼅
㻝㻞㻛㻞㻜

Source: prepared by FISCO from the Company’s financial briefing materials(2) Platform businessIn the platform business, net sales increased 46.4% YoY to ¥58mn and operating profit rose 947.6% to ¥23mn.
At the end of March 2020, the number of Assign Navi members had increased by 396 on the end of the previous
fiscal period to 8,771 members, as the total of corporate and individual members, and the number continues
to steadily grow. The matching service from Consultant Job performed particularly well. Due to the growth ofresults-based remuneration services, the profit margin also increased greatly, from 5.6% in the same period in
the previous fiscal year to 40.1%.
However, in the Company it seems that the sense is that earnings should have grown even more. This is because
due to the impact of the novel coronavirus pandemic, in March 2020 the number of Assign Navi users increased
quickly and doubled, but despite this, sales growth remained limited. Therefore, it plans to review some of thefunctions for non-fee-paying members from August 2020.

We encourage readers to review our complete legal statement on “Disclaimer” page.

10 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.

9-Sept.-2020

6560 Tokyo Stock Exchange First Section

https://lt-s.jp/en/ir/

Results trends㻽㼡㼍㼞㼠㼑㼞㼘㼥㻌㼞㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼜㼘㼍㼠㼒㼛㼞㼙㻌㼎㼡㼟㼕㼚㼑㼟㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕(¥mn)

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

(¥mn)
㻞㻠

㻣㻜
㻢㻜

㻡㻜

㻞㻜

㻝㻜
㻝

㻡

㻠

㻝

㻞

㻞

㻟

㻝

㻟㻜

㻝㻜

㻞

㻙㻞

㻠㻜

㻜
㻙㻝㻟

㻟㻜

㻞㻜

㻡㻥
㻠㻝

㻠㻞

㻠㻝

㻟㻥

㻟㻤

㻟㻤

㻟㻤

㻟㻤

㻠㻜

㻠㻠

㻠㻠

㻙㻝㻜

㻙㻞㻜

㻟㻞

㻝㻜

㻙㻟㻜

㻜

㻙㻠㻜
㻝㻽

㻞㻽

㻟㻽

㻲㼅㻝㻞㻛㻝㻣

㻠㻽

㻝㻽

㻞㻽

㻟㻽

㻠㻽

㻲㼅㻝㻞㻛㻝㻤

㻝㻽

㻞㻽

㻟㻽

㻲㼅㻝㻞㻛㻝㻥

㻠㻽

㻝㻽
㻲㼅
㻝㻞㻛㻞㻜

Source: prepared by FISCO from the Company’s financial briefing materialsThe equity ratio is sound at more than 50%, and has used borrowing
to raise funds for growth, including for M&A
2. Financial position and management indicators
At the end of 1Q FY12/20, total assets were up ¥95mn on the end of the previous fiscal year to ¥2,547mn. In current
assets, accounts receivable increased ¥98mn, while in non-current assets, goodwill rose ¥15mn.
Total liabilities were up ¥94mn on the end of the previous fiscal year to ¥998mn. There were increases in interest-bearing debt and the provision for bonuses of ¥42mn and ¥43mn, respectively. Also, net assets rose ¥0mn to¥1,504mn, remaining unchanged YoY. Retained earnings increased ¥101mn due the recording of profit attributableto owners of parent, but on the other hand, ¥111mn was spent to acquire treasury shares (a decrease factor). Also,
following IoToI Japan being made a subsidiary (investment ratio 75.0%), non-controlling interests of ¥10mn wasrecorded.
Looking at the management indicators, the equity ratio is 58.6% and the interest-bearing debt ratio is 8.8%, so
the Company’s financial position can be judged to be sound. That said, retained earnings are still low at the levelof ¥725mn, so going forward the policy is to grow earnings while aiming to supplement growth investment andinternal reserves. Therefore, in April 2020 the Company newly conducted long-term borrowing of ¥800mn, while
it has also concluded a commitment line agreement with a financial institution for ¥200mn. It plans to allocate thefunds raised to business growth in the medium- to long-term, including for M&A, with aims including expanding its
business areas and securing excellent human resources.

We encourage readers to review our complete legal statement on “Disclaimer” page.

11 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.

9-Sept.-2020

6560 Tokyo Stock Exchange First Section

https://lt-s.jp/en/ir/

Results trends

Consolidated balance sheet(unit:¥mn)
FY12/17

FY12/18

FY12/19

FY12/20 1Q

Change

1,622

1,766

2,161

2,242

80

1,147

1,283

1,385

1,382

-2

83

125

290

305

14
15

Current assets(cash and deposits)
Non-current assets(goodwill)

-

-

83

98

Total assets

1,706

1,892

2,451

2,547

95

605

515

894

998

104

Current liabilities
Non-current liabilities

51

30

54

44

-9

Total liabilities

657

546

948

1,043

94

79

51

88

130

42

1,049

1,346

1,503

1,504

0

Equity ratio

61.5%

71.1%

61.3%

58.6%

-2.7ptInterest-bearing debt ratio

7.6%

3.8%

5.9%

8.8%

2.9pt

ROA

13.2%

15.0%

13.7%

ROE

15.3%

15.4%

14.2%

Operating profit margin

7.7%

9.0%

8.1%

(Interest-bearing debt)
Total net assets
Management Indicators(stability)(profitability)

Source: prepared by FISCO from the Company’s financial results█ Business outlook
The impact of the novel coronavirus is minimal and the outlook
for FY12/20 is for the high growth to continue from the active
investment in DX
1. Impact of and response to the novel coronavirus(1) Business management conditions
The novel coronavirus pandemic had practically no impact on results up to the 2Q FY12/20, and rather, it appears
that the Company’s productivity actually improved in a remote working environment. Looking at its responses
in this environment, in February 2020 it established the Response Headquarters and employees began working
from home, in principle. Also, up to March, on the one hand it moved online sales discussions, recruitment, andthe provision of services and worked to enhance the remote working environment, while on the other hand it
suspended domestic and overseas business trips and long-distance travel.
Also, from April onwards the Company has conducted new employee training online for the 19 new graduate
employees, while it is also conducting measures including moving online contract and ordering procedures andsupporting the introduction of remote working at existing customers. The reason why the Company has beenable to smoothly transition to a remote working environment is that, when it conducted a project on the theme ofworkstyle reforms around 2015, it researched and analyzed the introduction of remote working as one businessprocess, so it has been able to utilize its experience from that time.

We encourage readers to review our complete legal statement on “Disclaimer” page.

12 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Business outlook(2) Impact on the FY12/20 results
As previously stated, the Company made an excellent start to FY12/20 in 1Q. From April onwards also, postponements and losses of projects have been limited, and it is receiving inquiries for DX support from existingand new customers. In addition, a factor supporting the professional services business is that business process
management, which provides recurring-type revenue, contributes 35% of net sales. This service encompasses
aspects like project planning and management and is a support service that makes it possible to quickly perceive
customers’ investment policies and to ascertain trends in customers.
Conversely, the Company’s policy for organizational management is for the time being, to keep down non-essential
and non-urgent expenses, and to implement it flexibility while observing how results trend.
(3) Impact on business growth in the medium term
For the professional services business, new living styles and social styles will be required in the post-coronavirus
period, and in this situation, companies will aim to maintain and improve their competitiveness. It seems thatinvestment in DX will be essential for this, so opportunities for growth are expected to increase for the Company,
which has expertise in this field. In particular, it has greatly strengthened its structure in the digital utilization
services field, because in September 2019 it made a subsidiary of WAKUTO and in July it established FPT
CONSULTING JAPAN as a joint venture, so its ability to accept orders has increased and growth may accelerate.
An anticipated negative impact is the concern that orders from customer companies will decrease due to theirdeterioration of earnings. But as its response to this, the Company is aiming to strengthen and enhance its
customer base, mainly by acquiring new customers, while supporting customer companies, and it is thought that
this will cover for any negative aspect.
In the platform business, the positive factors include that holding exhibitions continues to be suspended, so it ispossible that demand for online matching will further increase. In July 2020, the Company plans to release CS Clip(a matching service for business companies and DX companies) as a new service, while from August, it intends toreview one part of the Assign Navi earnings model. Business companies’ interest in implementing DX is rising, but
exhibitions remain suspended, and in this situation, CS Clip is attracting attention as an effective tool to search
for the optimal DX companies. The various real seminars and training services provided by the subsidiary Assign
Navi have been postponed, but the effect of this on results will be minimal.
Other than the above, it is possible that due to the economic downturn, opportunities for M&A will increase andthe degree of difficulty to recruit excellent human resources will lower, while the Company has already completed
the fund raising that will enable it to respond flexibly to M&A opportunities. A negative factor is that its businessdevelopment in Asia may be delayed by the prolonging of restrictions on overseas travel.

We encourage readers to review our complete legal statement on “Disclaimer” page.

13 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Business outlook

The impact of and the responses to the novel coronavirus
Impact (anticipated)
Professional services
business

Platform business

Shared factors

Response

Positive factor

Expansion of the Companies’ DX demand(digitalization of work, business-process reforms,
creation of new businesses and the utilization ofadvanced technologies to realize these aspects,
etc.)

Constitutes a major growth opportunity for theCompany, which has a track record of results foradvanced companies / advanced themes, and it will
accelerate comprehensive support for companies’ DX
based on the structure built in FY12/19.

NegativefactorThere is the concern that among its existingcustomers, some are facing severe businessenvironments.

Will keep a close watch on these customer
companies while supporting them. Is aiming tostrengthen and enhance the customer base.

Positive factor

It is currently exceedingly difficult to hold exhibitions,etc., and in this situation, demand for online
matching is increasing.

Will review the earnings model of Assign Navi, theuse of which has been rapidly increasing since March
2020.
Will release and develop CS Clip (matching ofbusiness companies and DX companies) at an early
stage

NegativefactorDemand from companies to utilize freelance
consultants will decline in the short term.

For Consultant Job, is preparing for the demandrecovery period and focusing on enhancing themembers base.

Positive factor

Increased opportunities for M&A. Lower degree ofdifficulty to recruit excellent human resources.

Is actively strengthening the Group structure.
Therefore, has already built a financial foundation.
(April 2020, additional borrowing of ¥800mn,
established a commitment line of ¥200mn)

NegativefactorRestrictions on overseas travel may be prolonged.

Will steadily advance business development in Asia
from a medium-term perspective.

Source: prepared by FISCO from the Company’s financial briefing materials

The outlook for FY12/20 is for the high growth to continue and forresults to once again be new record highs
2. FY12/20 results outlook
The outlook for the FY12/20 results is that net sales will increase 31.9% to ¥5,000mn, operating profit will rise 30.0%
to ¥400mn, ordinary profit will grow 17.4% to ¥350mn, and profit attributable to owners of parent will climb 19.0%
to ¥240mn. The Company has not changed its initial forecasts, which are for new record highs, with net sales toincrease for the ninth consecutive period and every profit item to increase for the fourth consecutive period.
The rates of progress in the 1Q for the full fiscal year results forecasts were 27.5% for net sales and 40.1% foroperating profit, exceeding the average rates of progress for the last three years, of 24.1% for net sales and 31.8%
for operating profit. As previously stated, the impact of the novel coronavirus has been limited and steady progresshas been made from the 2Q as well. So at FISCO, we think that the forecasts are achievable as long as economic
activities do not further cool down due to a second wave of the novel coronavirus.
FY12/20 consolidated results outlook(unit:¥mn)
FY12/19
ResultFY12/20

Sales ratio

Company
forecast

Sales ratio

YoY

1Q rate ofprogress

Average rate ofprogress from
FY12/17 to FY12/19

3,790

-

5,000

-

31.9%

27.5%

24.1%

Operating profit

307

8.1%

400

8.0%

30.0%

40.1%

31.8%

Ordinary profit

298

7.9%

350

7.0%

17.4%

43.8%

36.2%

Profit attributable toowners of parent

201

5.3%

240

4.8%

19.0%

42.3%

35.6%

EBITDA

335

8.9%

440

8.8%

31.1%

39.0%

Net sales

Note: EBITDA = operating profit + depreciation + amortization of goodwill
Source: prepared by FISCO from the Company’s financial results and financial briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

14 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Business outlook

Looking at the factors causing operating profit to change, costs-increase factors are personnel expenses of ¥650mn,
recruitment expenses of ¥91mn, outsourcing expenses of ¥590mn, and amortization of goodwill of ¥13mn (WAKUTO
only), but these increases will be absorbed by the effects of the higher sales. Around 40% of the increase in personnel
expenses is due to the increase from the full fiscal year contribution of WAKUTO, and most of the remainder isfrom the Company’s salary revisions and the rise in the number of personnel. Also, the majority of the increase inoutsourcing expenses is from WAKUTO. WAKUTO has approximately 50 employees, most of who are engineers,
while IoToI Japan has two consultants and two indirect staff.
Factors causing operating profit to change in FY12/20

Source: the Company’s financial briefing materials(1) Professional services businessIn the professional services business, the outlook is that net sales will increase 30.9% YoY to ¥4,800mn andoperating profit will rise 12.2% to ¥350mn. Net sales will be greatly affected by the full fiscal year contribution of
WAKUTO. But due to the investment in human resources, including salary revisions, and office-related investment,
the profit growth rate is expected to be slightly sluggish compared to in the previous fiscal period.

We encourage readers to review our complete legal statement on “Disclaimer” page.

15 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Business outlook㻾㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼜㼞㼛㼒㼑㼟㼟㼕㼛㼚㼍㼘㻌㼟㼑㼞㼢㼕㼏㼑㼟㻌㼎㼡㼟㼕㼚㼑㼟㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕(¥mn)

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

(¥mn)

㻢㻘㻜㻜㻜

㻠㻞㻜
㻟㻡㻜

㻡㻘㻜㻜㻜

㻟㻡㻜

㻟㻝㻝
㻞㻡㻥

㻠㻘㻜㻜㻜
㻟㻘㻜㻜㻜

㻞㻤㻜
㻞㻝㻜

㻝㻣㻟
㻠㻘㻤㻜㻜

㻞㻘㻜㻜㻜

㻝㻠㻜

㻟㻘㻢㻢㻣
㻞㻘㻞㻢㻜

㻝㻘㻜㻜㻜

㻞㻘㻤㻡㻡
㻣㻜

㻜

㻜
㻲㼅㻝㻞㻛㻝㻣

㻲㼅㻝㻞㻛㻝㻤

㻲㼅㻝㻞㻛㻝㻥

㻲㼅㻝㻞㻛㻞㻜㻌㻔㻱㻕

Source: prepared by FISCO from the Company’s financial results and financial briefing materials



Looking at the FY12/20 priority policies, for the customer base the Company’s policies are to further strengthen
its relationship building with its main customers (advanced digital companies) and also to work to acquire newcustomers (companies at the stages of prior to or during full digital utilization). Also, for its human resourcesand organizational foundation, it is aiming to increase the total number of employees in the Group at a pace ofapproximately 50 employees a year. Its policy is to increase employees while maintaining around the same ratioof consultants to engineers. In the last few years, the number of consultants has remained around the samelevel, and this is one management issue for the Company. However, the number of employees is expected toincrease, as it is implementing a new personnel system to improve its recruitment capabilities and to enhance its
educational measures.
In the consulting industry, the consultant turnover rate is high, in a range of 15% to 19%, but in the Company’scase, it is at the low level of 5% to 8%. In overseas major consulting companies, in many cases the criteria forevaluating consultants is only results, but the Company regularly evaluates them not only based on results, butalso on what kind of value they were able to provide to customer companies and have they been able to return
this value to within the Company. It has also established an environment enabling each individual consultant toimprove their skills. It seems that these efforts have led to the low turnover rate within the Company. There arecases of consultants who left the Company to join an overseas consulting company subsequently rejoining theCompany. For consulting companies, human resources are their most important asset to achieve growth, andwe shall be paying attention to developments in this area in the future.

We encourage readers to review our complete legal statement on “Disclaimer” page.

16 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Business outlook㻽㼡㼍㼞㼠㼑㼞㼘㼥㻌㼠㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼚㼡㼙㼎㼑㼞㻌㼛㼒㻌㻳㼞㼛㼡㼜㻌㼑㼙㼜㼘㼛㼥㼑㼑㼟㻯㼛㼚㼟㼡㼘㼠㼍㼚㼠㼟㻔㼑㼙㼜㼘㼛㼥㼑㼑㼟㻕㻱㼚㼓㼕㼚㼑㼑㼞㼟㻯㼛㼞㼜㼛㼞㼍㼠㼑㻿㼍㼘㼑㼟㻛㼎㼡㼟㼕㼚㼑㼟㼟㻌㼜㼛㼟㼕㼠㼕㼛㼚㼟

㻟㻜㻜
㻞㻞㻣

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㻞㻥

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㻞㻣

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㻤
㻞㻣

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㻞㻡

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㻝㻟㻝

㻞㻽

㻟㻽

㻠㻽

㻝㻽

㻡㻥

㻝㻜㻤

㻜

㻝㻽

㻲㼅㻝㻞㻛㻝㻣

㻝㻽㻲㼅㻝㻞㻛㻝㻤

㻲㼅㻝㻞㻛㻝㻥

㻲㼅㻝㻞㻛㻞㻜Note: consultants include data scientists
Source: prepared by FISCO from the Company’s financial briefing materials(2) Platform businessIn the platform business, the forecasts are for major increases in sales and profits, with net sales to rise 73.4%
YoY to ¥280mn and operating profit of ¥50mn (compared to a loss of ¥4mn in the previous period). For net sales,
contributions are expected from the growth of Consultant Job, and also from the review of services for Assign Navinon-fee-paying members and from CS Clip, which is a new service scheduled to be released in July 2020. For
profits, although investment in new services will increase, this will be covered by the higher sales, so the forecast
is that this business will be profitable for the first time in two fiscal periods.

㻾㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼜㼘㼍㼠㼒㼛㼞㼙㻌㼎㼡㼟㼕㼚㼑㼟㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕(¥mn)

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

㻠㻜㻜

(¥mn)
㻡㻜

㻟㻜㻜

㻞㻜㻜

㻢㻜

㻠㻜

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㻲㼅㻝㻞㻛㻝㻥

㻲㼅㻝㻞㻛㻞㻜㻌㻔㻱㻕

Source: prepared by FISCO from the Company’s financial results and financial briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

17 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Business outlook

The CS Clip service will be provided in a model that combines monthly fixed fees for DX companies and resultsbased commission according to the number of inquiries. If looking at the companies involved in DX, there are many
companies providing tools like AI/RPA, and the situation is that it is difficult to select the most appropriate products
and services. To eliminate this concern, this service collects and makes visible judgments and evaluations on DX
companies’ products and services to enable companies to select the optimal products and services. This service
will be free of charge when it is initially launched, with the aim of making it a fee-based service from the spring ofnext year onwards. The Company anticipates around 50 to 100 DX companies will register as members, rising to
500 companies to 1,000 companies after one year. It plans to announce an annual net sales target in the future.
Measures for the platform business

Source: the Company’s financial briefing materials

Excluding the effects of M&A, is targeting net sales of ¥8,000mn andoperating profit of ¥1,200mn in FY12/23
3. The medium-term results targets
At the present time, the Company’s results targets are net sales of ¥8,000mn and operating profit of ¥1,200mn in
FY12/23. It intends to achieve them through the organic growth of its existing businesses, so they do not incorporate
the effects of new M&A. Looking at the four-year average annual growth rates with the FY12/19 results as thestarting point, high growth is expected, of 20.5% for net sales and 40.5% for operating profit. When consideringthat investment in DX will become even more active in the future, at FISCO we think that these medium-term results
targets are fully achievable.
Results targets(unit:¥mn)
FY12/19 results

FY12/20 forecasts

FY12/23 targets

CAGR (FY12/19 to
FY12/23)

3,790

5,000

8,000

20.5%

Operating profit

307

400

1,200

40.5%

Operating profit margin

8.1%

8.0%

15.0%

Net sales

Source: prepared by FISCO from the Company’s financial briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

18 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Business outlook(1) Professional services business
For the FY12/23 results in the professional services business, the targets are net sales of around ¥7bn and an
operating profit margin of 15%. Companies’ measures to implement DX are expected to become more activein the future, and in this situation, the Company’s strategy is to expand its comprehensive support services for
DX projects by using its business foundation for digital utilization services that it built up to FY12/19 (making a
subsidiary of WAKUTO and establishing FPT CONSULTING JAPAN), and further investing in human resources.
Comprehensive support services for DX projects

Source: the Company’s financial briefing materials

Since the past in the digital utilization services field, the Company has mainly provided consulting services,
including strategy planning, digital and data utilization support, and building business processes, and it has
outsourced most of the development and introduction of the various IT systems, such as ERP and AI tools,
to external vendors (in which the relevant outsourced part is a separate contract from the ordered contract).
But currently, by making a subsidiary of WAKUTO and establishing FPT CONSULTING JAPAN, it is building a
structure to include within the Group development resources, thereby incorporating into the Group those parts
that it previously outsourced. Its strategy is to actively develop these parts as comprehensive support services.
In the professional services business, the percentage of sales provided by digital utilization services is 18%, but
this percentage is forecast to rise in the medium-term.
WAKUTO has ongoing development projects for its existing customers, so currently only a few of its engineers
are participating in the Company’s projects, but the policy is to transfer these resources in stages. Alongside this,profitability is expected to improve. This is because when comparing these existing projects and the Company’s
projects, the order unit price per engineer rises (depending on the project, in some cases a rise of more than 1.6
times). Obtaining orders for comprehensive services, from consulting through to the development and introductionof IT systems, is considered to be a factor behind collecting significant added-value revenue.
WAKUTO’s operating profit margin before it was made a subsidiary trended at around the 1% level*. But in 1Q
FY12/20, its net sales were more than ¥300mn and operating profit was ¥24mn, so the operating profit margin
improved to around the 7% to 8% level. It seems that one factor behind this is that the Company’s projects havestarted to contribute to sales. Going forward, if the percentage of sales from the Company’s projects increases,
its profitability is expected to further improve.
*	The FY3/19 results were net sales of ¥1,126mn and operating profit of ¥18mn. After it was made a subsidiary, the fiscal
period changed to ending in December.

We encourage readers to review our complete legal statement on “Disclaimer” page.

19 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Business outlook

For IT systems development, there have been cases of unprofitable projects due to project postponements andother reasons. But at FISCO, we consider that the risk of this is low in the Company’s case. This is because
the reason why unprofitable projects occur is often because the requirement definitions are changed during thedevelopment period and the development schedule is delayed, and in many cases, a project is started without
having fully confirmed these elements through meetings with the customer company. But in the Company’s case,customer companies participate in the project from the conception and formulation stages, and it fully ascertains
the effects that the customer companies want to achieve from introducing the IT system. Therefore, we think thatthe likelihood of this sort of mismatch occurring is extremely low.
FPT CONSULTING JAPAN, which was established as a joint venture with FPT Japan in July 2019, is currently
recruiting mid-career consultants, while it is also aiming for a lineup of around 20 employees, including by targeting
engineers looking to change careers. Sales are being conducted respectively by the Company and FPT Japan,
and the plan is to utilize their development projects, centered on DX projects. If it makes steady progress, it isforecast to become profitable and to contribute to earnings in the form of equity-method investment income in
FY12/21. This joint venture is targeting increasing its personnel structure to around 100 to 200 employees inthree years’ time and building a structure that can take on large-scale DX projects (on a scale of billions of yen
per project). Going forward, the Company plans to maintain its investment ratio at 20%.
Also, through the collaboration with IoToI Japan, which was made a subsidiary in January 2020, the Company
is strengthening its consulting services for IoT business creation. IoToI Japan employs two consultants with highlevels of consulting expertise specializing in the initial phase of IoT business development, and in just two years
since its foundation, it has established a track record of supporting the IoT business development of a numberof major companies. By making IoToI Japan a member of the Group, the plan is that IoToI Japan will provide
companies that are considering developing an IoT-related business with support in the initial phase, and then after
they have decided to create a fully-fledged business, the Company will provide them with comprehensive support,
from formulating a strategy through to developing and introducing the IT infrastructure and building the businessprocesses. But even if at the stage of the initial phase, the customer company changes its mind and decides not
to create a business, this can still lead to referrals to undertake projects through the Assign Navi platform. IoToI
Japan is currently progressing projects ordered by a major chemical manufacturer and a major consumer goods
manufacturer. If it makes steady progress with these projects, the plan is for their specific content to be clarified
by FY12/21, at which time orders for projects with the Company are expected.
The target for the operating profit margin in the professional services business in FY12/23 is 15%, and at FISCO,
we think that achieving this is fully possible. Looking at the current earnings structure of this business, the grossprofit margin is approximately 40%, the SG&A expenses ratio is around 30%, and the operating profit margin isapproximately 10%. We think it is achievable because going forward, the outlook is that the gross profit margin
will be kept in the 40% range (50% for project-type services), and if the scale of sales increases, the SG&A
expenses ratio will decrease to around 25%. Approximately 85% of this business’ net sales are provided byexisting customers and their group companies. In the future, the Company is aiming to further spread the use ofdigital utilization services centered on these existing customers, and its strategy is to grow the scale of sales byraising the sales unit price per customer. For new customer acquisition as well, referral projects are generated
within the CIO/CTO network that it has already built, so another of the Company’s strengths can be said to bethat it incurs hardly any customer-acquisition costs.

We encourage readers to review our complete legal statement on “Disclaimer” page.

20 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Business outlook(2) Platform business
For the FY12/23 results in the platform business, the Company is aiming for net sales of ¥700mn to ¥1bn andan operating profit margin of more than 30%. Implementing DX for management will be an important issue in the
post-coronavirus environment, so demand for IT investment and IT human resources is forecast to continue totrend strongly. In addition to the continuing growth of existing services such as Assign Navi and Consultant Job,
growth is expected for CS Clip, a new service. As this is a business model with a high marginal profit ratio, if thescale of sales increases, then the profit margin will also rise.

In addition to organic growth, is aiming for dramatic growth throughprogressing M&A and business development in the Asia market
4. Image of medium- to long-term growth
In order to strengthen growth from FY12/24 onwards, during FY12/20 the Company plans to formulate a new
medium-term management plan (FY12/21 to FY12/24). Toward growth from FY12/24 onwards, it will increase thepace of recruiting employees (depending on the pros and cons and feasibility of this), give shape to the M&A strategy,
and consolidate the investment plan for Asia business development and office relocations.
Also, as the image of long-term sales growth up to FY12/30, the Company is targeting growing to become aJapanese consulting firm that conducts business globally. It will achieve this by continuing to realize double-digit
annual organic growth in the existing businesses and expanding the scale of sales to tens of billions of yen throughprogressing M&A and business development for the Asia market.
Looking at the scale of the consulting market by country, it is worth ¥10tn in the United States and ¥1tn in Germany,but only ¥400bn in Japan. In terms of the reason for this this, it is said to be an effect of the fact the Europe andthe US have job-type employment, whereas Japan has membership-type employment. Job-type employment is anapproach of allocating people according to the work, and the aim of companies in Europe and the US is to createbusinesses with high growth opportunities while utilizing consulting companies, or to grow while utilizing M&A. On
the other hand, membership-type employment is an approach of recruiting the people in advance and then allocating
the work, and it is adopted by many Japanese companies that are premised on a lifetime employment system.
Problems with membership-type employment are that it is difficult to carry out bold management reforms if there aresurplus personnel, and that it takes time. Therefore, the awareness that consulting services are one part of growthinvestment is weak in Japan, which is a factor behind its market scale being small compared to in Europe and theUS. However, the novel coronavirus pandemic has once again highlighted the problems with membership-type
employment, and the situation is that it has been re-recognized that implementing DX for management is absolutely
essential in order to solve these problems. Therefore, while DX investment had previously only been conducted bycompanies conducting advanced management, going forward, it is expected to be taken on by many companies
that are aiming to maintain or improve their competitiveness. In order for companies to optimally progress theimplementation of DX for management, it is thought that they will need to use a consulting company with highIT literacy and expertise in business process management, like the Company. Therefore, it seems that growth
opportunities in Japan will increase in the future.

We encourage readers to review our complete legal statement on “Disclaimer” page.

21 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/

Business outlook

In order to steadily capture growth opportunities, it is necessary to supplement insufficient resources through M&A.
Going forward, the Company’s policy is to consider the main targets for M&A with the aim of securing engineers. As
the M&A method, the sequence is that it first builds a collaborative relationship, then it enters into negotiations at thestage at which it judges there to be no problems, and then makes the company in question a subsidiary. Therefore,
the risk of loss through an M&A is low. Also, the subsidiary Assign Navi provides an M&A intermediary service, so
the Company is able to acquire M&A information. In addition, CS Clip collects data, including on evaluations andjudgments of DX companies, which enables it to search within the Group for high quality M&A projects. It is thoughtthat these will be positive factors for progressing the M&A strategy in the future.
The Company’s strategy is to progress business development in Asia through its collaboration with FPT, which is
Vietnam’s largest IT development company. The FPT Group in Vietnam has approximately 35,000 engineers, and
it is one of the leading IT companies in Asia, if excluding the major companies in China and India. It mainly focuseson dispatches of engineers, and around 50% of its customers are Japanese companies. The Company has set out
a business strategy of developing in Asia the same business model as in Japan and expanding its businesses bycombining FPT’s development resources with the Company’s consultancy services. For the consultant unit price, inthe manager class it is already the same level in Asia as in Japan (¥2.5mn to ¥3mn a month), so it seems it will befully able to compete in terms of cost competitiveness. It has already started one project in collaboration with FPT,
and in the future, the aim is to grow the overseas business while accumulating success case studies.
Medium- to long-term growth image

Source: the Company’s financial briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

22 23

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

LTS, Inc.
6560 Tokyo Stock Exchange First Section

9-Sept.-2020
https://lt-s.jp/en/ir/█ Shareholder return policy
Plans to clarify its approach for returns to shareholders at the timeof the FY12/20 results announcement
The Company is currently in a growth process, so it considers that aiming to supplement internal reserves whilestabilizing the management base and conducting investment towards business growth and improving businessefficiency will increase its enterprise value, which in turn will lead to the maximization of returns to shareholders.
Therefore, for the time being it is prioritizing securing internal reserves and its basic policy is not to pay a dividend.
However, it plans to investigate dividend payments in the future at the stage when results have grown to a certain
scale and it has secured financial stability. Discussions are currently being progressed within the Company on theapproach to take for returns to shareholders, and it intends to once again clarify this approach at the time of the
FY12/20 results announcement.

We encourage readers to review our complete legal statement on “Disclaimer” page.

23 23

Disclaimer
FISCO Ltd. (“FISCO”) offer stock price and index information for use under the approval of theTokyo Stock Exchange, the Osaka Stock Exchange and Nikkei Inc.
This report is provided solely for the purpose of offering information, and is not a solicitationof investment nor any other act or action.
FISCO prepared and published this report based on information which it considered reliable;
however, FISCO does not warrant the accuracy, completeness, fitness nor reliability of thecontents of this report or the said information.
The issuers’ securities, currencies, commodities, securities and other financial instruments
mentioned in this report may increase or decrease in value or lose their value due to influence
from corporate activities, economic policies, world affairs and other factors. This report does
not make any promises regarding any future outcomes. If you use this report or any information
mentioned herein, regardless of the purpose therefor, such use shall be made based on yourjudgment and responsibility, and FISCO shall not be liable for any damage incurred by you asa result of such use, irrespective of the reason.
This report has been prepared at the request of the company subject hereto based on theprovision of information by such company through telephone interviews and the like. However,
the hypotheses, conclusions and all other contents contained herein are based on analysis
by FISCO. The contents of this report are as of the time of the preparation hereof, and are
subject to change without notice. FISCO is not obligated to update this report.
The intellectual property rights, including the copyrights to the main text hereof, the data
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◾ For inquiry, please contact: ◾

FISCO Ltd.
5-11-9 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (Financial information Dept.)
Email: support@fisco.co.jp