COMPANY RESEARCH AND ANALYSIS REPORT

Cross Marketing Group Inc.
3675
TSE Mothers

16-Oct.-2017
FISCO Ltd. Analyst

Kimiteru Miyata

FISCO Ltd.
http://www.fisco.co.jp

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. Business overview................................. ......................................................................................................

02

2. History................................................... ......................................................................................................

03

3. Industry environment............................. ......................................................................................................

03

4. Research business................................. ......................................................................................................

04

5. IT solutions business and other businesses.................................................................................................

06■Business model----------------------------------------------------------------------------------------------------------------------------------------------------------- 07
1. Earnings structure........................................................................................................................................

07

2. Strengths and weaknesses..........................................................................................................................

08

3. Turning points........................................ ......................................................................................................

09■Business trends----------------------------------------------------------------------------------------------------------------------------------------------------------- 10
1. 1H FY12/17 results................................ ......................................................................................................

10

2. Fiscal situation....................................... ......................................................................................................

13

3. FY12/17 outlook.. ................................... ......................................................................................................

14■Medium-term management plan----------------------------------------------------------------------------------------------------------------- 15
1. Medium-term management plan approach. .................................................................................................

15

2. Review of the FY12/15-17 medium-term management plan. .......................................................................

16■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/██SummaryLikely shortfall in FY12/17 due to a special factor, though still
possesses robust growth potential with healthy core business andadvances in building the business foundation
Cross Marketing Group Inc. <3675> can trace its roots to Cross Marketing Inc., an online research company thatwas founded in April 2003. In May 2006, Cross Marketing entered into a capital and business alliance with EC Navi(currently VOYAGE GROUP, Inc. <3688>). In October 2008, Cross Marketing listed its shares on the Mothers sectionof the Tokyo Stock Exchange and subsequently broadened the business foundation. It was the latest arrival in themarketing research industry at the time of its founding, but is now one of the top players in the industry. In 2013,
a decade after the company's establishment, Cross Marketing converted to a holding company, Cross MarketingGroup, in what it refers to as its second founding. The Group has accelerated business expansion with the aim of
becoming Asia’s No.1 marketing group. While it is likely to miss goals in the current medium-term management plan
mainly due to one-time factors, its core business is healthy and development of operations to support a presenceas Asia’s No.1 firm is steadily advancing. These results should become increasingly apparent.
The Group had originally projected FY12/17 earnings of ¥17,350mn in revenue (+8.6% YoY) and ¥1,382mn inordinary profit (+9.1%) driven by upbeat trends in domestic research and IT solutions business. However, it lowered
the ordinary profit target to ¥1,071mn (-15.5%) at the 2Q FY12/17 announcement. The downward revision primarily
stemmed from ¥264mn in amortization of goodwill and a ¥216mn impairment loss related to the additional payment
contract for share acquisition because of stronger-than-anticipated earnings at Kadence International BusinessResearch Pte. Ltd. (hereafter Kadence), which it acquired in 2014.
We expect the Group to miss goals from the medium-term business plan of ¥17,985mn in revenue and ¥1,500mn inordinary profit for FY12/17 because of the downward revision. Nevertheless, core business is upbeat and the Groupis aggressively expanding in targeted business fields and areas and building a foundation to support a position as
Asia’s No.1 player. We hence think it can sustain robust growth potential.
The Group revised its dividend policy from “incrementally raising consolidated dividend payout ratio with a goalof 20%” to “targeting the dividend at a payout ratio of about 15%” in light of its vibrant capital demand, business
investment plan, and other factors in FY12/16. While the dividend payout ratio is likely to increase to 50.6% in
FY12/17 because of an anticipated net loss, the Group intends to keep the dividend at the period-start estimate of¥6.5 because the reason for the loss (Kadence) is a one-time factor.
Key Points
Major marketing research firm rapidly expanding from online research to marketing solutions
Targeted growth driven by M&A and overseas initiatives, but lowered FY12/17 forecast due to a one-time factor;
core business remains healthy• Steadily building a foundation as Asia’s No.1 marketing group and likely to sustain double-digit growth••

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01 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

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Source: Prepared by FISCO from the Company's financial results██Company profile
Aggressively broadening business fields and areas with online
research at the core
1. Business overview
The Group’s business areas are research, IT solutions, and other businesses. In research, it handles the full rangeof marketing research, including offline research, with emphasis on core online research. It offers a one-stop service
for all types of surveys, including quantitative and qualitative surveys and online and offline surveys. In IT solutions,it plans, develops, and operates mobile systems and dispatches engineers. In other businesses, it conducts web/mobile marketing, UI and UX consulting, and other web marketing as well as promotion business related to marketing
assistance. The Group has substantially broadened business scope from marketing research to marketing solutions
with online research at the core.
The Group is proactively expanding into new geographical markets with the aim of becoming Asia’s No.1 marketinggroup. At the end of FY12/16, the Group was made up of 5 affiliate companies and 29 group companies including
6 companies in the domestic research business, 19 companies in the overseas research business, 3 companies
in the IT solutions business, and one in the other businesses segment. With facilities in Japan and more than 20
offices in 10 other countries in Europe, the Americas, and Asia, it has 758 employees in Japan and 656 overseas.

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02 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Company profile

2. History
The Group can trace its roots to Cross Marketing Inc., an online research company that was founded in April 2003
by Miki Igarashi, the current representative director, president and CEO. In May 2006, Cross Marketing enteredinto a capital and business alliance with EC Navi (currently VOYAGE GROUP, Inc.: the operator of ad platform andpoint media businesses). In March 2007, it entered in capital and business alliances with Dentsu Research Inc.
(currently DENTSU MACROMILL INSIGHT, INC.) and Research Panel, Inc. In October 2008, Cross Marketing listed
its shares on the Mothers section of the Tokyo Stock Exchange and subsequently broadened business from online
research to marketing research and marketing solutions. In February 2011, it formed alliance with Rakuten Research,
Inc. and others to jointly develop a monitor database. In August 2011, it acquired Index Inc.’s mobile solutions
business (currently the IT solutions business). In 2013, a decade after the company's establishment, Cross Marketing
converted to a holding company, Cross Marketing Group, in what it refers to as its second founding. The Group isaccelerating M&A and new business and overseas initiatives with the aim of becoming Asia’s No.1 marketing group.

Major player in the marketing research industry with stable growth
3. Industry environment
Market research is broadly divided into online research and offline research depending on whether it is conductedon the Internet or in the real world. The methods are also separated into panel research and ad hoc research. Panel
research collects data from a fixed target group over an extended amount of time periodically and in defined locations. The household survey of 9,000 households conducted by the Ministry of Internal Affairs and Communications
is a good example. Ad hoc research, in contrast, is one-off research that designs a questionnaire and other materials
each time for a region or target group to fulfill a purpose. While both approaches require considerable time andeffort, ad hoc research must be customized in each case and is even more laborious. The market research industry
in Japan is steadily growing with increased and more diversified consumption, though offline research has been flatand online research is driving the growth.
Online research expanded along with growing utilization of the Internet from 2000. Key differences with offline
research are the short number of days in which survey results can be obtained, easier processing of response data
because it is already digitalized, lower costs for printing, mailing, and survey staff, reduction of response gifts, ability
to conduct surveys of a few hundred thousand people in a short period, and ability to survey rare targets. Online
research excels in speed, cost, and scale, and these attributes have rapidly driven usage.
Three major firms dominate the marketing research industry – Macromill Inc. <3978> (whose fiscal year ends inJune), INTAGE HOLDINGS Inc. <4326> (whose fiscal year ends in March), and Cross Marketing Group (whose
fiscal year ends in December). Sales in the most recent fiscal years for these firms were ¥35,514mn, ¥31,433mn,
and ¥15,959mn respectively.

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03 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Company profile

Growing offline business too by leveraging strength in mainstay
online research
4. Research business(1) Research business
The Group’s research business posted ¥13,372mn in revenue (+3.6% YoY) and ¥2,256mn in operating profit(-5.0%) in FY12/16. Revenue consisted of ¥9,213mn from Japan (+10.5%) and ¥4,160mn from overseas (-8.9%),
putting the domestic and overseas ratios at 7:3.
Marketing research conducted by the Group adheres to the following steps – 1) speak to the client about thesurvey background and purpose and prepare the method to achieve the survey goal, 2) support survey form
planning and design and confirm the survey form’s purpose, 3) handle fieldwork in the various processes toimprove quality, 4) implement suitable planning and conduct compilation and analysis, 5) prepare a report withdetailed analysis of the survey results, and 6) conduct discussions to lead action for solutions.
Mainstay online research service consists of the following detailed flow. First, 1) receive a research request fromthe client and develop a questionnaire program that reflects plan content. Host the materials on the questionnaire
server. In the survey itself, 2) conduct advance screening to extract registered monitors suited to giving responses,
3) request e-mail distribution of questionnaire notification to affiliate Research Panel Inc. and Research Panelnotifies registered monitors and recruits questionnaire respondents from registered monitors, and 4) pay an honorarium (operating company points) to registered monitors who respond to the questionnaire via Research Paneland the questionnaire survey finishes after collecting required sample volume. 5) Data cleaning is implemented
with a system check and then visual checking by dedicated staff to remove contradictory or improper replies. Afterthe survey, 6) results are compiled and delivered to the customer and various statistical analysis reports may be
prepared if requested by the client. Finally, 7) pay Research Panel for use of its registered monitors.
Main services in the research businessResearch
type
Quantitative
research

Qualitative
research

OthersResearch method

Service content

Online research

Original questionnaire program that meets customer needs is created on the Internet and registered monitors
fill out the questionnaire

Mailing research

Questionnaires are mailed to research participants and then collected. Results are compiled and analyzed.

Phone research

Research staff interview research participants by phone and questionnaire results are compiled and analyzed

CLT research

Research participants gather at a designated venue for questionnaire and interview surveys. Results arecompiled and analyzed. People walking in the area by the venue are selected as participants in some cases.

Mobile research

Original questionnaire program that meets customer needs is created on the mobile Internet and registeredmonitors fill out the questionnaire

Home use test

Send products to the research participant’s home to obtain product evaluation in a questionnaire after test
use or tasting. Involve product delivery, questionnaire collection, and compilation and analysis of results.

Focus group interview

Gather at group (normally 5-8 people) and conduct an interview of research participants by a moderator in apanel discussion format

In-depth interview

One-to-one interview of research participants by a moderator

Home visit

Visit research participants at home or work to conduct questionnaires and interviews

Shop along

Accompany research participants on shopping trips to conduct questionnaires and interviews

Eye-tracking survey

Measure “view movement” by research participants using a special eye-tracking system

Overseas survey

Surveys in 85 countries – mainly developed countries (US and Europe), BRICS, Southeast Asia, and Oceania

ID – POS data

Various types of research using ID-attached POS data at supermarkets, drugstores, and convenience storesSource: Prepared by FISCO from the Company's securities report

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04 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Company profile(2) Registered monitors
Quality and quantity of registered monitors is the most important factor for the Group’s business. For quantity, it
has a very large number of active registered monitors at 1.44mn people. Monitor registration by VOYAGE GROUP
encourages members of EC Navi, VOYAGE GROUP’s comprehensive online shopping site, to register at Research
Panel. In addition, the Group has an agreement with Credit Saison Co., Ltd. wherein Credit Saison members whowish to participate in surveys are recruited through a service operated by Research Panel called Eikyufumetsu
Research. Registered monitors are recruited from VOYAGE GROUP, Credit Saison, and other membership sites
and managed by affiliated Research Panel. The Group has also built a network for mutual use of registeredmonitors with other online research firms. This arrangement provides access to 2.31mn active registered monitors.
The Group’s accessible active registered monitors hence amount to 3.75mn people, an extremely large number.
For quality, Research Panel annually updates member registered information to ensure data reliability and constantly keeps the latest information on basic attributes related to registered monitors. It also checks the content
of survey responses for individual registered monitors and actively manages the quality of registered monitors,
such as eliminating registration in the case of inappropriate responses. Additionally, it extracts registered monitors
for specific features, such as consumer goods ownership and assets, and places them in categories (car owner,
mobile phone owner, asset owner, etc.). This method facilitates highly accurate and effective surveys without
having to define survey conditions each time. Skepticism about reliability in the industry’s early years has almost
entirely disappeared now thanks to cumulative efforts with these measures.
(3) Coverage ranges from online research to marketing research
The Group steadily broadened business scope from Internet to offline research leveraging online researchknowhow and infrastructure explained above. Offline research offers quantitative surveys using questionnaires
and interviews with research participants gathered at a venue and qualitative surveys via interviews of research
participants in a panel discussion format. Furthermore, the Group supplies various research services that combine
IT technology with existing survey methods. These capabilities have enabled it to build an extensive track record
in a broad range of industries, including food products, beverages, cosmetics, pharmaceuticals, automotive,
research firms, advertising and mass media, financial and insurance services, wholesale and retail, and services.
The Group can also accommodate various themes, such as consumer activity, concept tests, product evaluation,
packaging tests, advertising effect measurement, advertising evaluation, usage patterns, commercial zones andareas, brand evaluation, and customer satisfaction (CS).
Industry examples
Industry

ExamplesFood and soft drink manufacturers

Concept acceptability survey for a new flavor, new product tasting evaluation survey

Chemicals, textiles, pharmaceuticals,
and cosmetics manufacturers

Fashion brand recognition survey, skincare cosmetic naming survey

Automakers

Automotive purchasing behavior survey and customer satisfaction benchmark survey

Financial, insurance, and securities

Credit card usage survey and website usability survey

Research companies and institutions

Worker awareness survey, senior PC usage survey

Advertising agencies

New product notification commercial effect measurement survey, media contact questionnaire survey

Source: Prepared by FISCO from the Company's securities report

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05 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Company profile

Few companies offer integrated service through marketing solutions
5. IT solutions business and other businesses(1) IT solutions business
The IT solutions business booked ¥1,907mn in net sales (+11.9% YoY) and ¥175mn in operating profit (-8.8%) in
FY12/16. The Group delivers one-stop service of all functions required in mobile and smartphone services frommarketing to planning, development, operation, and promotion. Specifically, it handles website construction,
smartphone app development, tool and package provision, surveys and analysis, operation outsourcing, construction and operation of infrastructure and server, web promotions, and security measures.
The Group has experience building and operating systems for financial institution apps and settlement and point
management that require robust performance, large-scale systems with a million members, and other systems. It
also conducts development to support the latest features in steadily advancing mobile equipment. Furthermore,
it is capable of linking a smooth PDCA cycle to results aided by research and analysis that leverages the strengthof having a marketing research company in the group.
Main services in the IT solutions business
Service

Content

Website (PC /smartphone) construction

Services ranging from site strategy proposals to system development, site design, andmaintenance and operation

Smartphone app development

Planning and development of iPhone and Android native apps supporting a broad array of
applications from entertainment to business

Tool and package supply

Provision of various tools and packages to support web strategies that meet customer needs

Research and analysis

Hypothesis assessment and improvement proposals based on website research and analysis
that aims to contribute to enhanced customer KPI

Operation outsourcing

Consignments of website operations, such as content updates, email magazine distribution,user support, and site inspection

Infrastructure and server construction and operation

Construction, operation, and hosting of an infrastructure environment that supports largescale, concentrated access

Web promotion

Provision of optimal promotion measures for purpose (customer draw and member
acquisition) and platform attributes

Security measures

Comprehensive security measures for site operation, such as personal information protection
and site vulnerability checks

Source: Prepared by FISCO from the Company's securities report(2) Other businesses
Other businesses reported ¥690mn in revenue (+172.4% YoY) and ¥74mn in operating profit (vs. a ¥56mn
operating loss) in FY12/16. This segment covers web marketing business and promotions business. Web marketing service analyzes web and smartphone site UI/UX utilizing the USERDRIVE site analysis tool that provides
visualization through bitmap images and video of activity by users visiting the website and offers consulting for
improvements. Promotions business delivers promotions and other marketing assistance services.

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06 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/██Business model
Positive stance of business field and area expansion responsible forlow profit margin
1. Earnings structure
In the income breakdown, survey form and other material production and researchers who handle proposals andanalysis are booked as production costs, and sales and headquarters (common areas) come under SG&A expenses.
The Group can boost sales and gross profit by raising productivity with an effective balance of skills and people inproduction and accumulation of knowhow and human resources in researchers. For sales, meanwhile, having more
staff lifts orders. Indirect costs should be tailored to the corporate scale.
Comparison of recent operating margins among major industry firms shows Macromill at 19.2%, INTAGE at 8.9%,
and Cross Marketing Group at 8.4%. Macromill is highly efficient because of the large percentage of online research.
INTAGE has lower profit margin than Macromill because it mainly conducts offline and panel research. Cross
Marketing Group, meanwhile, should generate operating margin close to Macromill because it started as an online
research specialist, but is actually around the INTAGE level. We attribute lower margin to shrinkage in the online
research ratio of overall business due to broadening of scope to cover from the full range of marketing research tomarketing solutions and modest cost build-up because of overlapping functions amid rapid advances in M&A, newbusiness development, and overseas initiatives in recent years. While the former change is unavoidable, it might
be the right timing to assess operations and pursue synergies and profits for the latter. We believe the Group hasa similar view.
Looking at financial indicators, ROA and ROE, which depict asset profitability, have been improving since the bottom
in FY12/14. While ROE recovered in this period (five fiscal years), the same is not true for ROA. ROE benefited fromleverage. ROA, however, has not recovered in terms of operating margin and total asset turnover. Lack of reboundin these values stems from heavy SG&A expenses and insufficient sales relative to increase in goodwill and otherfixed costs. The Group does not require immediate reforms or improvements because of its robust stability andexcess income. However, it might be better to take a more cautious stance toward forward-looking investmentsthat involve fixed costs and other spending.

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07 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Business model

Financial indicators(%, times, ¥mn)
FY12/12FY12/13

FY12/14

FY12/15

FY12/16

18.7

20.4

8.9

13.8

13.5

2. Operating margin

10.2

11.5

6.5

8.3

8.4

3. Total asset turnover rate

1.8

1.8

1.4

1.7

1.6

16.5

19.6

9.6

17.6

20.5

2. Net margin

5.7

7.0

3.0

3.8

5.2

3. Total asset turnover rate

1.8

1.8

1.4

1.7

1.6

4. Leverage

1.6

1.6

2.3

2.8

2.4

3-1. Net margin

5.7

7.0

3.0

3.8

5.2

2. Gross margin

36.8

40.2

31.2

42.5

40.9

3. SG&A expenses ratio

26.6

28.6

31.2

34.2

32.5

4. Operating margin

10.2

11.5

6.5

8.3

8.4

5. Financial income ratio

0.0

-0.0

-0.1

-0.1

-0.2

6. Pretax margin

10.6

11.8

6.2

7.7

8.7

7. Tax rate

45.2

39.2

40.0

50.0

41.0
1.60

1-1. ROA

2-1. ROE

1.84

1.77

1.37

1.67

2. Financial asset turnover rate

2.23

2.23

2.12

2.57

2.27

3. Investment asset turnover rate

129.92100.36

35.09

43.41

45.82

4. Equipment asset turnover rate

11.40

9.37

4.36

5.33

6.24

23.1

15.6

29.4

82.5

7.5

2. Operating profit growth

27.3

30.8

-27.5

134.3

8.9

3. Total asset growth

9.1

29.9

96.2

26.7

-0.4

4. Shareholders’ equity growth

10.4

23.8

7.1

40.4

19.8

64.7

61.6

33.6

37.3

44.8

2. Quick assets ratio

193.1

152.2

73.8

131.5

150.0

3. Current ratio

207.8

172.4

95.9

157.0

177.4

4. Fixed ratio

52.1

62.0

140.1

95.5

75.9

5. Interest-bearing debt reliance

4.2

3.4

33.9

28.5

24.2

6. Turnover difference funds

-518

-796

-902

-1,945-2,188

7. Net working capital

559

880

1,282

2,250

2,580

8. Surplus liquidity

962

779

1,407

2,384

2,160

9. Net cash

831

645

-1,264

-453

-245

168.2

344.0

77.8

47.0

40.5

4-1. Gross capital turnover rate

6-1. Sales growth7-1. Shareholders’ equity ratio

10. Interest coverage ratio

Note: A sset profitability is calculated by dividing assets by the period-end average. Equipment assets = fixed assets, Financial assets =Total assets – inventory assets – equipment assets
Source: Prepared by FISCO from the Company's financial results

Strengths are online research quality and integrated services
through marketing solutions
2. Strengths and weaknesses
Key features of the Group’s research are support operations in which sales staff, researchers, directors, and others
who interact with customers resolve issues in a unified manner, screen development that takes into accountlightening response burden and distribution settings for suitable target selection, high quality with highly accurate
data cleaning, quick response with screen formulation, distribution, and data delivery using a high-performancequestionnaire system, top-level registered monitor numbers for Japan, and surveys that address rare groups (rather
than just basic attributes).

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

08 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Business model

While services do not vary much among competitors, we think above-mentioned features plus experience of
researchers to provide suitable proposals and designs to issues and proposals of total marketing solutions usinggroup IT solution functions offer differentiation to customers.
Weaknesses (or challenges), meanwhile, are difficulty improving profit margin because of growth in labor-intensive
services with the increase in offline research, positioning as a newcomer (partly due to the TSE Mothers listing), andespecially low overseas recognition. We expect progress in dealing with domestic issues over time. On the overseas
front, the Group aims to raise recognition through brand integration to Kadence, which was acquired in 2014.

Turning points – Alliance with VOYAGE, Mothers listing, andconversion to a holding company
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㻳㻾㻻㼁㻼㻌

㼀㻿㻱㻌㻹㼛㼠㼔㼑㼞㼟㻌㼘㼕㼟㼠㼕㼚㼓

㻯㼛㼚㼢㼑㼞㼟㼕㼛㼚㻌㼠㼛㻌㼍㻌㼔㼛㼘㼐㼕㼚㼓㻌㼏㼛㼙㼜㼍㼚㼥

㻝㻘㻞㻜㻜
㻝㻘㻜㻜㻜
㻤㻜㻜
㻢㻜㻜
㻠㻜㻜

㻲㼛㼡㼚㼐㼕㼚㼓㻌

㻟㻘㻜㻜㻜

㻞㻜㻜

㻜

㻜

Source: Prepared by FISCO from the Company's materials

Cross Marketing was founded relatively late in 2003 and was viewed as the latest arrival in the online researchindustry at the time. However, it has successfully grown into a company that leads the marketing research industry.
The first turning point was the business and capital alliance with VOYAGE GROUP (then EC Navi) in 2006. Cross
Marketing invested in Research Panel, which was part of VOYAGE GROUP, and thereby obtained access to its large
monitor base of 700,000 people (at the time). This event served as a catalyst for alliances with top-class researchfirms Dentsu Research (currently DENTSU MACROMILL INSIGHT) and Research Panel and significant expansion ofbusiness scope. Dentsu Research was a peer, but lacked an online research capability then and wanted to utilize theGroup’s services in a complementary manner. This relationship brought “indirect sales.” The Group relied on “indirect
sales” as an important growth driver in the initial phase amid limited interest from other firms in such business.

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

09 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Business model

The TSE Mothers IPO listing in 2008 was the second major turning point. Cross Marketing received requests for awide range of research after obtaining funds and increased recognition through the listing. It aggressively pursued“direct sales” after the IPO in part because of the small scale of the online research market. Rapid expansion ofbusiness scope required retention of multifaceted, diverse, and a large number of monitors and customization ofresearch designs. For the former, Cross Marketing arranged business alliances with peers that possessed large-scalemonitor groups, such as Rakuten Research and NetMile Incorporated, and secured access to industry-leading
monitor volume via mutual utilization of monitors. This enabled Cross Marketing to handle surveys requiring verylarge sample volume and rare surveys, fueling further growth. For the latter, it developed pyxis2, which facilitatescreation and customization of questionnaire screens without expert knowledge, and built an operation center at aremote site to control costs. These efforts reduced costs and provided customers with easy-to-use tools.
The third turning point was the switch to a holding company in 2013. M&A and overseas initiatives accelerated under
this format. However, while this was an important step in broadening business scope, it also added more factorsthat affect earnings, such as forex impact. Newcomer firms, particularly in the IT industry, accumulate subsidiaries
via M&A and other activities in some cases. This raises issues related to retaining the subsidiary or absorbing itinternally as well as management structures and governance. But this turning point was vital in order to achieve
breakthroughs for the next growth phase. While Cross Marketing has successfully dealt with various matters at
each of the turning points thus far, the main challenge is improving business efficiency and establishing effective
management operations and governance in response to the increase in subsidiaries.

██Business trends
Kadence extraordinary costs and losses weighed on 1H FY12/17
results
1. 1H FY12/17 results
The Group reported 1H FY12/17 results with ¥8,141mn in revenue (+11.5% YoY), ¥411mn in operating profit (-4.1%),¥340mn in ordinary profit (-7.8%), and a ¥184mn net loss attributable to owners of parent (vs. a ¥141mn profit in
the previous year). We think core business was generally upbeat.
The research business posted ¥6,916mn in net sales (+12.8%) and ¥1,041mn in operating profit (+8.5%). Revenue
breakdown indicates ¥4,448mn (+3.1%) in domestic research and ¥2,468mn (+36.0%) in overseas research.
Domestic sales remained healthy primarily at mainstay Cross Marketing. Overseas growth leaders were the UK
operation that booked a major order as well as upbeat trends at operations in the US and Indonesia. Operating
profit strengthened on improved productivity in Japan and higher sales in overseas business. Also, Shopper’s Eye
Inc., which was added to consolidated results in 3Q FY12/16, is fully contributing to income in FY12/17.
The IT solutions business booked ¥1,011mn in revenue (+1.0% YoY) and ¥65mn in operating profit (+24.6%).
Aggressive sales efforts at Cross Propworks Inc., an outsourcing services firm, Cross J Tech Inc., an engineer
dispatching services firm, and Cross Communication Inc., a mobile website services firm, steadily increased orders.
This segment generated higher operating profit even with ramp-up of hiring aimed at growth over the medium term.

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

10 17

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

Cross Marketing Group Inc.

16-Oct.-2017

3675 TSE Mothers

https://www.cm-group.co.jp/en/

Business trends

Other businesses reported ¥297mn in revenue (+4.5% YoY) and ¥32mn in operating profit (+122%). D&M, Inc., whichhandles promotions business, continued upbeat growth with enhanced recruitment of new customers. UNCOVER
TRUTH Inc., which runs the web marketing business from 3Q FY12/16, changed from being a consolidated subsidiary to an equity-method affiliate.
1H FY12/17 results(¥mn)
FY12/16

FY12/17

1H

Ratio

Progress

1H

Ratio

ChangeProgress

Revenue

7,299

100.0%

45.7%

8,141

100.0%

11.5%

46.9%

Gross profit

2,907

39.8%

44.5%

3,394

41.7%

16.7%

-

SG&A

2,479

34.0%

47.7%

2,982

36.6%

20.3%

-

Operating profit

429

5.9%

32.0%

411

5.0%

-4.1%

35.7%

Ordinary profit

369

5.0%

29.1%

340

4.2%

-7.8%

31.7%

Net profit attributable toowners of parent

141

1.9%

16.8%

-184

-2.3%

-

-73.4%(Ratio)ChangeSource: Prepared by FISCO from the Company's financial results

FY12/17 revenue by business segment
(¥mn)
1Q

FY12/16(Ratio)FY12/17

Research

3,310

85.4%

3,772

87.4%

IT solutions

498

12.8%

484

11.2%

-2.6%

Other

137

3.5%

159

3.7%

16.5%

Adjustment
Total
2Q

13.9%

-70

-1.8%

-101

-2.4%

45.8%

3,875

100.0%

4,314

100.0%

11.3%

FY12/16(Ratio)FY12/17(Ratio)(Change rate)

Research

2,825

82.5%

3,261

85.2%

IT solutions

504

14.7%

527

13.8%

4.5%

Other

150

4.4%

166

4.3%

10.3%

Adjustment
Total

15.4%

-55

-1.6%

-127

-3.3%

128.9%

3,424

100.0%

3,827

100.0%

11.8%

Source: Prepared by FISCO from the Company's financial results and other materials

FY12/17 profit by business segment
(¥mn)
1Q

FY12/16(Margin)

FY12/17(Margin)ChangeResearch

582

17.6%

871

23.1%

49.7%

IT solutions

29

5.8%

28

5.9%

-2.1%

Other

24

17.8%

31

19.4%

27.2%

Adjustment

-276

-

-342

-

24.1%

Total

359

9.3%

588

13.6%

63.7%

FY12/16(Margin)

FY12/17(Margin)ChangeResearch

2Q

378

13.4%

170

5.2%

-55.0%

IT solutions

23

4.6%

37

7.0%

57.8%

Other

-10

-6.6%

1

0.7%

-112.0%Adjustment

-322

-

-385

-

19.6%

70

2.0%

-177

-4.6%

-

Total

Source: Prepared by FISCO from the Company's financial results and other materials

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

11 17

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

Cross Marketing Group Inc.

16-Oct.-2017

3675 TSE Mothers

https://www.cm-group.co.jp/en/

Business trends

While core business is generally upbeat, the Group missed targets of ¥8,307mn in revenue, ¥566mn in operating
profit, ¥557mn in ordinary profit, and ¥311mn in net profit attributable to owners of parent.
The main reason for the shortfall was an extra payment based on an earn-out clause in the purchase contract for
Kadence shares. This contract linked the final purchase price to earnings for three fiscal years (FY6/15-17). The
Group made an initial payment of $14mn and agreed to an extra amount tied to subsequent earnings that could
be as low as zero and up to $15mn. Recent recovery in economic conditions and enhanced sales activities fueled
robust earnings in Kadence’s third year with the Group, and this resulted in an extra payment of $10mn. We think
there might have been some room for negotiation, but the Group appears to have given priority to management
speed. The contract included this special clause to prevent a mismatch of a confident seller seeking a high price(former Kadence owner) and a buyer interested in an attractive price considering risk (Cross Marketing Group).
Strong earnings improvement in Kadence’s third year forced retroactive recalculation of the share purchase becauseof the impact of the additional payment. Extra amortization of goodwill occurred for each period since the purchase,and the Group allocated goodwill collectively for the three years totaling ¥264mn in FY12/17. Impairment losses,
meanwhile, stem from goodwill for sites that booked impairment losses during the same period (Indonesia andVietnam). The Group booked ¥216mn in extraordinary losses to cover the full value of additional impairment losses
in FY12/17.

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㻷㼍㼐㼑㼚㼏㼑㻌㻳㼞㼛㼡㼜㻌㼞㼑㼟㼡㼘㼠㼟㻌㻔㻐㻌㼠㼔㼛㼡㼟㼍㼚㼐㻕㻌㻿㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕㻔㻐㻌㼠㼔㼛㼡㼟㼍㼚㼐㻕㻌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㻞㻘㻜㻜㻜

㻢㻘㻜㻜㻜
㻡㻘㻝㻝㻞

㻟㻡㻘㻜㻜㻜

㻡㻘㻜㻜㻜㻞㻤㻘㻜㻜㻜

㻠㻘㻜㻜㻜㻞㻝㻘㻜㻜㻜

㻞㻘㻠㻤㻠
㻞㻘㻝㻢㻠

㻝㻠㻘㻜㻜㻜

㻞㻥㻘㻡㻞㻜

㻞㻣㻘㻣㻟㻣
㻞㻣㻘㻟㻡㻝

㻟㻘㻜㻜㻜㻟㻡㻘㻡㻢㻟
㻞㻘㻜㻜㻜㻟㻜㻘㻠㻠㻢

㻤㻠㻟

㻣㻘㻜㻜㻜

㻝㻘㻜㻜㻜

㻟㻡㻟

㻜

㻜
㻲㼅㻢㻛㻝㻟

㻲㼅㻢㻛㻝㻠

㻲㼅㻢㻛㻝㻡

㻲㼅㻢㻛㻝㻢

㻲㼅㻢㻛㻝㻣

Source: Prepared by FISCO from the Company's results briefing materials

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

12 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Business trends

Contract content and background to the extra charges

Source: The Company's results briefing materials

Compared to 1H forecast, domestic research missed by ¥523mn in revenue and ¥253mn in gross profit becauseof delayed budget utilization at some major customers, while overseas research overshot by ¥379mn in sales and¥142mn in gross profit thanks to a large deal in the UK and more improvement than expected in Indonesian and
Vietnamese businesses. IT solutions posted upbeat orders, but encountered shortfalls of ¥82mn in sales becauseof delays in some deliveries to 2H or later, similar to domestic research. Combined gross profit for IT solutions andother businesses missed by ¥36mn. Nevertheless, cost control provided ¥211mn in savings and operating profit
totaled ¥631mn, beating the period-start target (¥566mn) by ¥65mn.
Actual operating profit, however, was ¥411mn, missing by ¥155mn, owing to ¥220mn in amortization of goodwill forthe extra acquisition payment. Furthermore, net income missed the period-start target (¥311mn profit) by ¥495mn ata ¥184mn loss because of the ¥216mn in impairment losses from the extra payment and ¥62mn in new impairment
losses due to weakness at Kadence Hong Kong.

Kadence-related additional depreciation costs and impairment
losses affect the fiscal situation too
2. Fiscal situation
Looking at the fiscal situation in 2Q FY12/17, the Group reported ¥10,142mn in total assets (+¥210mn vs.
end-FY12/16) with ¥6,238mn in current assets (-¥319mn), which mainly consisted of ¥2,714mn in cash anddeposits and ¥2,603mn in notes and accounts receivable-trade, and ¥3,904mn in non-current assets (+¥529mn),
which primarily included ¥277mn in property, plant and equipment, ¥224mn in software, ¥2,206mn in goodwill,and ¥548mn in deposits. While goodwill increased ¥502mn versus end-FY12/16, the source was the additional
payment for Kadence. Cash and deposits rose by ¥554mn owing to expansion of operating cash flow on upbeat
core business.

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13 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Business trends

In liabilities, current liabilities totaled ¥4,426mn (+¥729mn), which mainly consists of ¥1,241mn in accounts payable– trade and ¥1,448mn in unpaid amounts, and non-current liabilities stood at ¥1,549mn (-¥213mn), which primarily
covers ¥1,298mn in long-term loans payable and ¥118mn in asset disposal debts. The Group reduced short-termand long-term loans by ¥422mn because of repayments supported by robust operating cash flow. The ¥989mn risein unpaid amounts occurred due to not having made the Kadence-related extra payment as of end-2Q.
Net assets declined ¥307mn to ¥4,167mn based on these changes. Legal retained earnings dropped ¥243mn to¥3,066mn as a result of the ¥184mn net loss attributable to owners of parent in 2Q FY12/17.
Simplified balance sheet(¥mn)
FY12/16

FY12/17 1H

Change

6,557

6,238

Cash and deposits

2,160

2,714

554

Notes and accounts receivable-trade

3,386

2,603

-782

3,375

3,904

529

457

440

-17

1,703

2,206

502

227

182

-45

Total assets

9,932

10,142210

Current liabilities

3,697

4,426

729

1,198

1,241

43

895

686

-209

Unpaid amounts

459

1,448

989

Non-current liabilities

1,762

1,549

-213
-213

Current assets

Non-current assets
Property, plant and equipment
Goodwill
Affiliate company shares

Accounts payable – trade
Short-term payable and other short-term borrowings

-319

1,510

1,298

Total liabilities

5,459

5,976

517

Net assets

4,474

4,167

-307

3,309

3,066

-243

Long-term loans payable

Legal retained earnings
Source: Prepared by FISCO from the Company's financial results

2H FY12/17 as the timing to restart growth
3. FY12/17 outlook
For FY12/17, the Group expects ¥17,350mn in revenue (+8.6% YoY), ¥1,151mn in operating profit (-14.2%),¥1,071mn in ordinary profit (-15.5%), and ¥251mn in net profit attributable to owners of parent (-70.0%). By segment,
it forecasts revenue at ¥9,890mn in domestic research (+7.3%), ¥4,715mn in overseas research (+13.3%), ¥2,055mn
in IT solutions, and ¥690mn in other businesses (+0.1%).
While the Group retained the FY12/17 revenue target, it lowered operating profit by ¥249mn, ordinary profit by¥311mn, and net profit by ¥574mn. These adjustment factors in delayed income until 2H or later because of slower
budget utilization at some major customers in 1H, advances in hiring that had been behind schedule, and the extra
payment for the Kadence purchase.

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

14 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Business trends

The new outlook adopts targets that require some effort given 1H momentum. However, we think the Group iscapable of reaching updated guidance in light of upbeat trends in research and IT solutions, OP from actual businessexceeding forecast in 1H, the prospect of improved gross margin due to higher productivity in domestic researchand gross profit from increased revenue in overseas research, and the absence of deals with a possibility of extra
payments along the lines of Kadence. We will be looking for progress toward the next phase of growth.
Forecasts for FY12/17(¥mn)
FY12/16
ResultRatio tosales

Revenue

15,969100.0%

Operating profit

1,342

8.4%

Ordinary profit

1,267
837

Net profit

FY12/17
Forecast

Ratio to
sales

7.5%

17,350100.0%

8.6%

8.9%

1,151

6.6%

-14.2%

7.9%

6.9%

1,071

6.2%

-15.5%

5.2%

49.8%

251

1.4%

-70.0%

Change rate

Change rate

Source: Prepared by FISCO from the Company's financial results

Segment forecasts for FY12/17(¥mn)
FY12/16
Results

Ratio tosales

Research

13,37283.7%

IT solutions

1,907

11.9%

Other

690

4.3%

Total

15,969100.0%

FY12/17
Forecast

Ratio to
sales

3.6%

14,605

84.2%

9.2%

11.9%

2,055

11.8%

7.8%

172.4%

690

4.0%

0.1%

7.5%

17,350100.0%

8.6%

Change rate

Change rate

Source: Prepared by FISCO from the Company's materials██Medium-term management plan
Aiming to become the No.1 marketing group in Asia with aggressive
expansion and high value-added services
1. Medium-term management plan approach
Since its founding, the Group has developed various marketing research services with the aim of giving customers
information needed to make decisions. It continues to bolster mainstay marketing research and is also pursuing
opportunities in mobile and smartphone fields, the promotions field, and overseas markets (particularly Asia).
The Group is currently implementing a medium-term business plan that seeks to aggressively expand businessfields and areas aimed at further broadening its scope. It is accelerating various initiatives as a group because of
the prospect of steady implementation leading to new value creation for the group.

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

15 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/

Medium-term management plan

In domestic research, it is targeting steady growth through utilization of the latest technologies mainly in core online
research. It is building operations to deliver one-stop access to all services related to marketing research andpursuing provision of higher value-added services, such as comprehensive proposals and planning, as a marketing
research partner. In overseas research, it is assembling a network that covers all of Asia and promoting support foroverseas initiatives by Japanese and US/European global firms.
In IT solutions, it hopes to realize steady growth in existing businesses and invest in new services. It is boostingdevelopment, production, and operation of application and pursuing aggressive sales efforts to new and existingcustomers amid the market’s shift to smartphones. In other businesses, D&M aims to provide cutting-edge marketing
services that utilize consumer data.
The Group aims to become Asia’s No.1 marketing group with comprehensive capabilities in all businesses and theKadence acquisition in November 2014.

Likely to miss goals from the current medium-term plan, thoughcontent is positive
2. Review of the FY12/15-17 medium-term management plan
The medium-term business plan announced in 2014 called for ¥17,895mn in revenue and ¥1,500mn in ordinary profit
in FY12/17. However, the Group already started final-year FY12/17 with targets below these levels at ¥17,350mn
in revenue and ¥1,400mn in ordinary profit and then further reduced ordinary profit to ¥1,071mn because of theoccurrence during this fiscal year of special amortization of goodwill and impairment related to Kadence.
Profit from actual business, meanwhile, should be very close to the medium-term plan goal. We think this is progresson track with the plan. Furthermore, the Group is aggressively expanding its business fields and areas and building
the foundation to become Asia’s No.1 firm as it intended. These aspects indicate that main business growth iscontinuing.
Some concerns exist as well. One is overly rapid expansion via M&A deals and new business and overseas initiatives
during the turning point of conversion to a holding company in 2013. Given this situation, we will be looking for
improved efficiency by raising productivity by reorganizing overlap while still broadening scope in Japan. Meanwhile,the impact on the overseas business from the extra payment to purchase Kadence shares in 2Q FY12/17 wasenough to create a negative surprise for investors. However, earnings have improved in this business and the issue
that hurt overall earnings was simply the contract. The fundamentals picture is positive. The Group needs to continue
the upbeat trend and executives are tightening the grip on this operation.
Domestic businesses are healthy and still have room for better productivity. Kadence profits are rising in overseas
markets. The Group is making advances in marketing solutions and establishment of a base to become Asia’s No.1
firm. We believe the Group can continue to pursue double-digit growth over the medium term in light of these trends.

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

16 17

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

Cross Marketing Group Inc.
3675 TSE Mothers

16-Oct.-2017https://www.cm-group.co.jp/en/██Shareholder return policy
The Group revised its dividend policy from “incrementally raising consolidated dividend payout ratio with a goal of20%” to “targeting the dividend at a payout ratio of about 15%” of business profit excluding extraordinary income/loss in light of its vibrant capital demand, business investment plan, and other factors in FY12/16. This policy resulted
in a dividend reduction in FY12/16. While the dividend payout ratio is likely to increase to 50.6% in FY12/17, theGroup intends to keep the dividend at the period-start estimate of ¥6.5 (¥3.25 interim dividend) because the reason
for the loss (extra payment from the contract with Kadence) is a one-time factor and actual business earnings beatthe period-start view. The Group does not have a shareholder gift program.

㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㼍㼚㼐㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛
（㻑）

㻔¥㻕

㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㻔㼘㼑㼒㼠㻕㻝㻤㻚㻜㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻕

㻢㻜㻚㻜

㻡㻜㻚㻢

㻝㻡㻚㻜

㻡㻜㻚㻜

㻝㻞㻚㻜

㻠㻜㻚㻜

㻟㻟㻚㻝

㻥㻚㻜

㻟㻜㻚㻜
㻝㻥㻚㻡

㻢㻚㻜

㻝㻞㻚㻢

㻝㻟㻚㻡

㻟㻚㻜
㻞㻚㻝

㻟㻚㻟

㻲㼅㻝㻞㻛㻝㻞

㻲㼅㻝㻞㻛㻝㻟

㻞㻜㻚㻜

㻝㻞㻚㻤
㻢㻚㻜

㻡㻚㻡

㻲㼅㻝㻞㻛㻝㻡

㻲㼅㻝㻞㻛㻝㻢

㻠㻚㻡

㻢㻚㻡

㻜㻚㻜

㻝㻜㻚㻜
㻜㻚㻜

㻲㼅㻝㻞㻛㻝㻠

㻲㼅㻝㻞㻛㻝㻣㻌㻱* The Group conducted a 2-for-1 stock split on February 18, 2013, and a 3-for-1 stock split on June 1, 2014. Dividends per
share for prior years are adjusted for these stock splits retrospectively.
Source: Prepared by FISCO from the Company's financial results

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

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Disclaimer
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