COMPANY RESEARCH AND ANALYSIS REPORTAOI TYO Holdings Inc.
3975
Tokyo Stock Exchange First Section

5-Jun.-2018
FISCO Ltd. Analyst

Ikuo Shibata

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

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

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. Business overview................................. ......................................................................................................

02

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

05■Management integration------------------------------------------------------------------------------------------------------------------------------------- 06
1. Background........................................... ......................................................................................................

06

2. Objective. . .............................................. ......................................................................................................

06

3. Anticipated effects.......................................................................................................................................

06■Financial highlights-------------------------------------------------------------------------------------------------------------------------------------------------- 07■Activity results-------------------------------------------------------------------------------------------------------------------------------------------------------------- 09
1. Mainstay business conditions and primary initiatives...................................................................................

09

2. Progress with the integration effect. . ...... ......................................................................................................

10■Business performance outlook-------------------------------------------------------------------------------------------------------------------- 11■Growth strategy----------------------------------------------------------------------------------------------------------------------------------------------------------- 13
1. Solutions Business.. .....................................................................................................................................

14

2. Overseas Business......................................................................................................................................

14■Shareholder return---------------------------------------------------------------------------------------------------------------------------------------------------- 15

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html██SummaryIn the first fiscal year following the integration,
both sales and profits increased more than forecast
In addition to the improvement in profitability,
performance was aided by the slow start in the shift to printless
AOI TYO Holdings Inc. <3975> is a joint holding company established through the management integration of
AOI Pro. Inc. and TYO Inc. AOI TYO Group mainly plans and creates TV commercials and also handles Solutions
Business that includes direct transactions with advertisers, online videos and other digital contents. It holds a top
share in TV commercial production through the management integration of the two leading industry firms.
The decision to proceed with management integration took into account the lack of prospects for major growth inconventional TV commercial production as well as likely expansion of business scope related to advertising, including
methodology and structural changes. It comes against a backdrop of diversification of media (primarily throughthe Internet) and devices (smartphones, tablets, and others) and major shifts in industry landscape with advancesin technology innovations, such as communications speed, data analysis, VR*1, and AR*2. This integration aims torealize economies of scale and create synergies and also accelerate the pace of new value creation and businessexpansion through consolidation and effective utilization of business resources.
*1 VR (virtual reality) refers to the technologies and methods to realize various types of experiences, including in virtual worlds,
portraying something like the real world that goes beyond time and space.
*2 AR (augmented reality) refers to the technologies and methods to realize an augmented reality by adding some other information to
the information that people can perceive in the real world.

In FY12/17, net sales increased 8.5% YoY*1 to ¥70,473mn, while operating income increased 35.0% to ¥4,619mn,
both of which were much higher than initial forecasts. The Advertising Video Production Business performed
solidly, while the Solutions Business, positioned as a growth area, saw significant growth. The major increase inoperating income was the result of higher net sales as well as the improvement in profitability in the Advertising
Video Production Business. The combination of the improvement in profitability and the slow start in the shift
to printless*2 led to profits in particular being much higher than the forecast. With respect to progress with the
integration effect, positive results were achieved in relation to proactive investment in growth areas, improvements
in business efficiency, and other areas.
*1 Previous-year results use combined amounts for consolidated results of AOI Pro. and TYO on a calendar-year basis (pro forma;
12-month basis).
*2 TV commercial materials have traditionally been copied to a memory media (printed) for delivery to various broadcast media andsales and profits from such copies were booked. AOI TYO Group expects decline in printing sales due to the transition to online
data submissions. This transition began in October 2017, but thus far the pace has been slow.

For FY12/18, AOI TYO Group’s net sales are forecast to decline 0.7% YoY to ¥70,000mn, while operating income
is expected to fall 17.7% YoY to 3,800mn, as earnings are projected to temporarily decrease in conjunction with
the impact of the shift to printless and upfront investment in growth areas. The expectation for a drop in net sales
is primarily due to a decline in sales in the Advertising Video Production Business caused by the acceleration of theshift to printless and efforts to address work style reforms (controlling orders received). Meanwhile, the Solutions
Business, which is a growing field, and the Overseas Business, which pursues M&A, are expected to grow. In terms
of profits, a decline in operating income is expected due to upfront investment in growth areas as well as the factthat profitability improvement will not be as large as in the previous fiscal year, and thus the impacts of the shift toprintless will not be completely covered by profitability improvements.

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Summary

AOI TYO Group envisions longer-term growth driven by Solutions Business and Overseas Business (China andSoutheast Asia). In the existing mainstay Advertising Video Production Business, meanwhile, it targets steady growthby promoting heightened emphasis on profitability and efficiency and a lean organization that adapts to a printlessmodel. The outlook sets FY12/21 goals of at least 12% in ROE and ¥8bn EBITDA (based on 17.0% average growthover three years with FY12/18 target of ¥5bn as the starting point).
We think the Solutions Business field, which AOI TYO Group aims to expand, offers a market with large potential.
We also expect AOI TYO Group’s experience and knowhow cultivated in video production to provide a differentiating
factor and see a large advantage from its credibility (brand strength) and financial clout. Improvements started
to be seen in profitability and other areas, but we will be particularly focusing on new value creation, such as
VR technology and data utilization, in the context of specific results obtained from management integration andaggressive investments in growth fields.
Key Points
Joint holding company established through the management integration of AOI Pro. and TYO and holds a top
share in TV commercial production• In FY12/17, the first fiscal year following the integration, both sales and profits increased more than expected• In addition to the improvement in profitability, performance was aided by the slow start in the shift to printless• The outlook for FY12/18 is for performance to temporarily decline, due to factors including the acceleration of
the shift to printless and upfront investment• The Solutions Business and the Overseas Business will be drivers of earnings growth over the medium to longterm•██Company profile
Joint holding company establishedthrough the management integration of AOI Pro.
and TYO and holds a top share in TV commercial production
1. Business overview
AOI TYO Holdings is a joint holding company that owns AOI Pro. and TYO. AOI TYO Group plans and creates TVcommercials and also handles solutions business that includes direct transactions with advertisers, online videos
and other digital contents. It was founded in January 2017 through management integration of two leading industry
firms and holds a top share in TV commercial production*.
* The industry’s three major firms controlled a combined 30-40% share with Tohokushinsha Film Corporation <2329> as the leader
and then AOI Pro. and TYO for many years. This management integration moved AOI TYO Group into the top position.

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Company profile

AOI TYO Group has Advertising Business and Video-related Business segments and five sub-segments (Advertising
Video Production, Other Production, Solutions, Overseas, and Video-Related). While the conventional mainstay
Advertising Video Production Business generates approximately 70% of overall sales, Solutions Business, a growtharea, has been expanding substantially recently and is attracting attention as a growth driver.
Sales mix by customer in FY12/17 was well balanced with 24.5% to the Dentsu Group, 27.2% to the HakuhodoGroup, 26.0% in direct transactions, and 22.2% to others. Direct transactions have been a TYO strength and is still
growing after the management integration in correlation with the Solutions Business.

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㻞㻚㻝㻑㻿㼛㼘㼡㼠㼕㼛㼚㼟㻌㻮㼡㼟㼕㼚㼑㼟㼟㻝㻝㻚㻡㻑㻻㼠㼔㼑㼞㻌㻼㼞㼛㼐㼡㼏㼠㼕㼛㼚㻌㻮㼡㼟㼕㼚㼑㼟㼟
㻝㻞㻚㻠㻑㻭㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻌㼂㼕㼐㼑㼛㻌㻼㼞㼛㼐㼡㼏㼠㼕㼛㼚㻌㻮㼡㼟㼕㼚㼑㼟㼟㻣㻜㻚㻜㻑

Source: Prepared by FISCO from the Company’s results briefing materials㻿㼍㼘㼑㼟㻌㼞㼍㼠㼕㼛㻌㼎㼥㻌㼏㼡㼟㼠㼛㼙㼑㼞㻌㻔㻲㼅㻝㻞㻛㻝㻣㻌㼞㼑㼟㼡㼘㼠㻕㻻㼠㼔㼑㼞㼟
㻞㻞㻚㻞㻑㻰㼕㼞㼑㼏㼠㻌
㼠㼞㼍㼚㼟㼍㼏㼠㼕㼛㼚㼟㻞㻢㻚㻜㻑㻰㼑㼚㼠㼟㼡㻌㻳㼞㼛㼡㼜㻞㻠㻚㻡㻑㻴㼍㼗㼡㼔㼛㼐㼛㻌㻳㼞㼛㼡㼜㻞㻣㻚㻞㻑

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

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Company profile

Below we review each of these business areas.
(1) Advertising Video Production BusinessThis business plans and produces TV commercials and other advertising videos. It was also the primary segment
at AOI Pro. and TYO and holds a top share now thanks to integration of the two leading firms. Both companies
have created many excellent TV commercials amid continuation of a robust orders environment. However, thisbusiness is confronting concerns about decline in profitability due to changes in media value amid advances by theInternet and other technologies and the printless shift. It needs earnings structure reforms and improved efficiency.
(2) Other Production Business
Production business besides advertising videos includes movies and dramas, event planning and production,
web production, and sales promotional material production.
(3) Solutions BusinessThis business provides measures for problem solving for customers. While it currently is roughly equal to resultsfrom TYO Offering Management Business Unit*1 and AOI Pro.’s subsidiary Quark tokyo Inc.*2, it also contains
SOOTH Inc.*3, which was established as a growth area on February 1, 2018.
*1 Renamed from TYO General Business Division Headquarters, the division supplies one-stop solutions mainly through multi-faceted
media activities via direct transactions with advertisers.
*2 Provides PDCA solutions for online content strategy formulation, planning, production, data analysis, and media distri­bution,centered on videos.
*3 This company seeks to evolve into a business that greatly expands the future of content production by engaging in planning andproduction of contents such as VR that incorporate the latest technologies, consulting that utilizes the accumulation of knowledge
including emotion data obtained especially by dramatically evolving devices and AI, both of which were started by the AOI Pro.
Experience Design Department, and turning the experiences cultivated through these into services.

(4) Overseas Business
The Overseas Business operates sites in China and Southeast Asia (Thailand, Vietnam, Singapore, Indonesia,
Malaysia, and India) and seeks to expand transactions with local companies, including Japanese affiliates. BothAOI Pro. and TYO have been actively engaged in many regions, and this segment is positioned as a growth driver.
AOI TYO Group has also been actively engaging in M&A. In October 2017, AOI TYO Group purchased minority
shares of VIEWFINDER MEDIA JOINT STOCK COMPANY (hereinafter, “VF MEDIA”), a leading video production
company in Vietnam, a group company (equity-method affiliate). Following this, in March 2018, AOI TYO Groupacquired majority shares of RESERVE TANK SDN. BHD. (hereinafter, “Reserve Tank”), the parent company ofleading Malaysian TV commercial production companies DIRECTORS THINK TANK SDN. BHD., THE TANKERS
SDN. BHD., and DIRECTORS THINK TANK PTE. LTD. (Singapore), a consolidated subsidiary.
(5) Video-related BusinessThis business covers activities besides advertising, including photo studios for general consumers* and music
video production.
* Operated by AOI Pro.’s subsidiary Hollyhock Inc. This business started with the first store at Tokyo Midtown in Roppongi and has
been adding other sites. It currently has four stores.

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Company profile

2. History(1) AOI Pro.
AOI Pro. goes back to Aoi Advertising Promotion Inc., which was established in 1963 to produce TV commercials,
in Tokyo’s Minato Ward. It solidified a business base as a video production company focused on TV commercials.
In 1990, it listed shares on JASDAQ, taking the lead in this industry, with the aim of making further advances andstrengthening social credibility.
It subsequently created numerous videos that attracted substantial interest, fueling healthy growth and listed on
the Second Section of the Tokyo Stock Exchange in 1998 and on the First Section in 2000. It established a firm
position as one of the major TV commercial production companies.
In September 2011, meanwhile, it launched an overseas site to handle TV commercial production in Indonesia. In
October 2014, it added nakamino Co., Ltd.*, which specializes in online video platform effect measurement andoperation, to the group (equity-method affiliate) through a capital alliance with the aim of full-fledged ramp-up ofvideo contents marketing, a new growth area. These initiatives gave it an edge versus peers in building operations
to address diversifying media, growing demand for online videos and other digital contents, and entry by Japanesecompanies into the fast-growing Asian region.
* It turned this entity into a consolidated subsidiary at the end of December 2015 through an injection of additional capital andchanged the company name to Quark tokyo Inc. in April 2016.

(2) TYO
TYO was established as a TV commercial production company in April 1982 in Roppongi, Minato Ward,
Tokyo. It was the last of the three major commercial production companies to be established. Hiroaki Yoshida(Representative Director of AOI TYO Holdings), together with four other commercial creators, established thecompany with the dream of “Creating an Ideal Company of Creators, by Creators, for Creators.”
The company listed on JASDAQ in 2002. It expanded business by leveraging its creative capabilities of having
been involved in the production of numerous TV commercials that left an impression with consumers, notably one
promoting travel to Kyoto for Central Japan Railway Company (JR Central) <9022>. Upon changing to the TSE
Second Section in October 2013, its listing was reassigned to the First Section in January 2014.
TYO has been involved in various types of content production, including TV commercials, online videos, digitalcontents and events. Its strength is providing optimal, one-stop solutions for advertisers’ advertising promotions
and promotional activities. It led the industry* with a sales structure and accumulation of knowledge in dealing
directly with advertisers and has focused on building long-term relationships with advertisers, expanding projectsizes and capturing sales promotion expenses. Furthermore, it has been actively engaged in overseas expansion.
* Since starting direct transactions with advertisers in July 2003, the current TYO Offering Management Business Unit has taken
charge of the entire group’s direct transactions with advertisers.

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html██Management integration
Aims to tackle changes in the business environment andbuild a competitive, advanced business model
As discussed above, AOI TYO Holdings is a joint holding company established in January 2017 through the
management integration of AOI Pro. and TYO. This management integration of two major TV commercial production
companies has the following background, objectives, and anticipated effects.
1. BackgroundIn the background to the management integration is the diversification of media and devices (such as smartphones
and tablets) focused on the Internet, and in addition, the major changes to the industry environment, including
communication speeds and data analysis, and also the progress being made in technological innovations, suchas VR and AR. In this environment, major growth in TV commercial production, which has been the mainstay up
to the present time, is unlikely, but advertising-related business areas will expand, with accompanying changes totheir methods and structures. Based on this sort of awareness of the business environment, the companies judgedthat integration was to grow in the medium to long term to expand market share, strengthen negotiation power,
and maintain robust capital strength. They also want to build a competitive and advanced business model by newly
forming a group to lead the industry and concentrating and effectively utilizing management resources.
2. Objectives
The management integration seeks to create new sensations worldwide by pursuing an advanced business model
ahead of changes in the environment and merging creativity cultivated from many years of advertising video production with the latest technologies and diverse data.
3. Anticipated effects(1) Strengthening the advertising video production operations
In the Advertising Video Production Business, which is the core operations, AOI TYO Group is pursuing integration
effects in the areas of brand competitiveness, operational efficiency, new technological developments, and costcompetitiveness. In other words, while on the one hand it is aiming to maximize sales opportunities by preserving
the previous competitive relations between the brands, on the other hand it intends to improve operational
efficiency through the sharing of personnel and business streamlining measures, and also to promote costcompetitiveness by joint procurement and mutual utilization of the filming equipment rental departments.
(2) Promoting strategic business areas
AOI TYO Holdings is aiming to collaborate TYO’s direct transactions with advertisers, which it had been working
on strategically, with the video content marketing that AOI Pro. has been focusing on in the same way. Specifically,
TYO’s strength is in direct transactions with advertisers, for which it has established a sales system and accu­
mulated expertise, but it needs to be also able to provide the solutions that advertisers require for the web andonline video. Conversely, AOI Pro.’s strength is in video content marketing and it is able to provide solutions in
the online video market, which will continue to expand, but it also needs the sales capabilities necessary fordirect transactions with advertisers. It is considered that the two companies will be able to generate synergies bymutually utilizing each other’s respective strengths.

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Management integration(3) Accelerating the development of the Overseas Business
For the Overseas Business, AOI Pro. has been developing its video production business while TYO has been
pursuing M&A with advertising companies, so there are no overlapping functions. Furthermore, from the fact that
their policies, of expanding clients from Japanese companies to local companies located overseas, are consistent,
they are aiming to accelerate their Asia strategy through the mutual use of both companies’ bases.
Locations of overseas bases

Source: Company materials

In addition, it will become possible to efficiently allocate both companies’ management resources in growth fields,
based on a shared management strategy, through utilizing the joint holding company system. It is considered thatin addition to increasing the management agility and efficiency, this will increase their risk tolerance and enhancetheir ability to adapt to changes to the industry.

██Financial highlights
In AOI TYO Group’s first fiscal year,
both sales and profits increased more than forecast
In addition to the improvement in profitability,
performance was aided by the slow start in the shift to printless
In the results for FY12/17, the first year after the management integration, net sales increased 8.5% YoY* to¥70,473mn, operating income increased 35.0% to ¥4,619mn, ordinary income rose 48.3% to ¥4,394mn, andprofit attributable to owners of parent rose 154.0% to ¥2,781mn, for a significant increase in sales and profits andabove the initial forecast.
* Previous-year results use combined amounts for consolidated results of AOI Pro. and TYO on a calendar-year basis (pro forma;
12-month basis).

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Financial highlights

Net sales increased in all businesses. The Advertising Video Production Business saw solid sales in particular,
while the Solutions Business, positioned as a growth area, saw a large increase in sales. In terms of net sales bycustomer, there was significant growth in direct transactions with advertisers in conjunction with the expansion of
the solutions business.
Meanwhile, in terms of profits, although there was a large increase in SG&A expenses due to costs associated with
the integration and other factors, AOI TYO Group achieved a significant increase in operating income as a result of
the increase in sales and improved profitability in the Advertising Video Production Business. The operating income
margin grew considerably to 6.6% (versus 5.3% in previous fiscal year). Furthermore, one factor behind the big
increase in final profit (profit attributable to owners of parent) was the tax losses (decline in tax expenses) associatedwith the reorganization of group businesses.
AOI TYO Holdings achieved earnings growth exceeding forecasts due to the fact that it had already made progresson profitability improvements in advance of the shift to printless which began in October 2017, but relatively little
progress was actually made in the shift to printless. The overlapping of these two positive factors led to profit inparticular being much higher than the forecast.
Regarding the financial situation, total assets are ¥59,737mn, and shareholders’ equity is ¥24,675mn. We are notconcerned about the stability of the financial base given the robust 41.3% equity ratio and 164.2% current ratio.
Additionally, interest-bearing debt is ¥16,238mn, resulting in a low D/E ratio of 0.64. Meanwhile, ROE, indicating
capital efficiency, is a high 11.3%, but one must keep in mind the fact that there was a positive impact from theaforementioned special factors (the delay in the shift to printless and tax effect accounting). Of the total assets,
goodwill (an intangible asset)* is ¥4,106mn, or 6.9% of total assets.
* Approximately ¥4,000mn of goodwill was posted in conjunction with the integration (at the time of integration), and this is scheduled
to be amortized over 20 years (¥200mn per year).

FY12/17 financial highlights(¥mn)
FY12/16

FY12/17

ChangeResultRatio

ResultRatio

FY12/17

Changerate

Initialforecast

Ratio

Achievement rate

64,928100.0%

70,473100.0%

5,545

8.5%

65,000100.0%

108.4%

Advertising Video Production
Business

48,75075.1%

49,339

70.0%

589

1.2%

-

-

-

Other Production Business

8,608

13.3%

8,773

12.4%

165

1.9%

-

-

-

Solutions Business

3,610

5.6%

8,071

11.5%

4,461

123.6%---

Overseas Business

2,558

3.9%

2,842

4.0%

284

11.1%

-

-

-

Video-related Business

1,401

2.2%

1,446

2.1%

45

3.2%

-

-

-

Cost of sales--

56,788

80.6%

-

-

-

-

-

SG&A expenses

-

-

9,065

12.9%

-

-

-

-

-

Operating income

3,422

5.3%

4,619

6.6%

1,197

35.0%

3,500

5.4%

132.0%

Ordinary income

2,963

4.6%

4,394

6.2%

1,431

48.3%

3,200

4.9%

137.3%

Profit attributable to owners ofparent

1,095

1.7%

2,781

3.9%

1,686

154.0%

1,400

2.2%

198.7%EBITDA

4,389

6.8%

5,755

8.2%

1,366

31.1%

4,630

7.1%

124.3%

Dentsu Group

18,56628.6%

17,29924.5%-1,267-6.8%

Hakuhodo Group

18,81429.0%

19,182

27.2%

368

2.0%

Direct transactions

14,89122.9%

18,357

26.0%

3,466

23.3%

Other

12,65819.5%

15,635

22.2%

2,977

23.5%

Achievement rate

Sales ratio by customer

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

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Financial highlights

Financial position as of the end of December 2017 (financial ratio)(¥mn)
As of the end of
December 2017

Comment

41,503Current assets
Cash and deposits

12,573

Notes and accounts receivable – trade

17,813Work in process

3,629Electronically recorded monetary claims

6,208
18,234Non-current assets
Property, plant and equipment

7,679

Intangible assets

5,269

Investments and other assets

5,285

Total assets

59,737

Current liabilities

25,275

Accounts payable – trade

7,341

Short-term loans payable

12,772

Advances received

758

Non-current liabilities

8,756

Goodwill ¥4,106mn

3,465Long-term loans payable

3,501

Long-term deposits received
Total liabilities

34,031

Net assets

25,70624,186

Shareholders’ equity
Equity ratio

41.3%

Current ratio

164.2%
0.64 times

D/E ratio

Source: Prepared by FISCO from the Company’s results briefing materials██Activity results
Significant outcome from the improvement in profitability andaggressive investment in growth areas
1. Mainstay business conditions and primary initiatives(1) Advertising Video Production Business
Advertising Video Production Business sales were firm, rising by 1.2% YoY to ¥49,339mn amid a flat (or declining)
trend in the TV commercial and other conventional media advertising production market. A key point is that theestablishment of an operational management framework with a heightened emphasis on profitability (stricter review
and selection from the orders stage, rigorous production cost management, etc.) contributed to an effective profit
margin* of 33.4% (vs. 31.2% in the previous year), despite the modest growth in net sales. This contributed greatly
to overall profit. Although printing sales declined 9.6% YoY to ¥2,654mn, this resulted in operating performanceexceeding forecasts due to the sluggish start in the shift to printless, which began in October 2017.
* Effective profit is the value obtained by subtracting external spending and production costs from net sales.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Activity results(2) Solutions BusinessNet sales in the Solutions Business, which is an area of focus as a growth field, rose significantly by 123.6%
YoY to ¥8,071mn. This included a large 108.6% YoY increase in TYO General Business Division Headquarters’(currently TYO Offering Management Business Unit) sales to ¥5,577mn, and a significant 234.6% YoY increasein sales by AOI Pro.’s subsidiary Quark tokyo to ¥2,416mn. The former benefitted from large project orders fromnew advertisers in direct transactions with advertisers, a core area, as well as growth in projects from existing
advertisers. The latter started ramping up project orders in the second year of full-fledged operations. Directtransactions with large companies, in particular, are growing as a result of efforts including the differentiation of
production capabilities, which is a strength, amid the increase in demand for PDCA video contents marketing.
Furthermore, a specialized team* dedicated to new marketing strategies was established, and in December 2017
this team launched the vertical video media Q16GiRL. The first content project was a collaboration with LotteCo., Ltd.’s Fit’s chewing gum.
* A specialized team that develops optimal marketing strategies for clients needing new marketing communication with a focus
on millennials (the generation born from 1980 to 2000), while providing creative direction and production. Millennials overlap withthe digital native generation, a generation for which communication through social media and other methods is well entrenched.
Millennials tend to value experiences, as well as being understood and respected by others, more than material possessions,and have a strong affinity for the sharing economy, in which places and possessions are shared among people. This generation is
attracting a lot of attention for the influence it has on society and consumption.

Also, on February 1, 2018, the business activities started by the AOI Pro. Experience Design Department werespun off into a newly-founded company SOOTH Inc. Up until now, progress has been made on: 1) Planning andproduction of content that incorporates the newest technologies, such as VR, AR and MR; and 2) Accumulatingknowledge including new data and emotion data. Going forward, SOOTH Inc. will aim to: 3) Develop an integrated
marketing business (provide comprehensive solutions for marketing stages from brand strategy development
to effect measurement and analysis); and 4) Create a high value-added business through data applications.
This move can be seen as proof that AOI TYO Group is confident about future business growth. Significant
contributions to earnings will be a medium- to long-term issue, but the company has considerable potential,
including the scope of applications.
(3) Overseas Business
Sales in the Overseas Business generally grew as forecast, increasing 11.1% YoY to ¥2,842mn. In October 2017,
AOI TYO Group added VF MEDIA, Vietnam’s largest video production company, to the group as an equity-method
affiliate*. VF MEDIA is highly trusted by both clients and advertising companies in Vietnam based on its size andexperience. By working with VF MEDIA, AOI TYO Group aims to further grow its business in Vietnam, where theadvertising market is growing. Also, in March 2018, AOI TYO Group turned Reserve Tank, with leading Malaysian
TV commercial production companies under its umbrella (known as DTT group), into consolidated subsidiaries.
This group receives a lot of orders for projects not only in Malaysia, but also in Indonesia, China, and otherneighboring countries with large advertising markets. Through this move, AOI TYO Group aims to further expand
its business in the Southeast Asian market.
* AOI TYO Group acquired 36% of the stock of VF INVESTMENT JOINT STOCK COMPANY, the holding company of VIEWFINDERMEDIA JOINT STOCK COMPANY, turning both companies into Group companies.

2. Progress with the integration effectAiming to quickly realize the integration effect, AOI TYO Group has worked to reorganize the corporate division,is aggressively investing in growth areas, and is reducing external spending, among other initiatives. In addition
to seeing positive results in investment in growth areas (particularly VR-related and venture investment, etc.) and
improved business efficiency, the following initiatives are being implemented.

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Activity results(1) Group business reorganization
With the objective of restructuring AOI TYO Group’s businesses in conjunction with changes in the businessenvironment, since November 2017 AOI TYO Group has divested from subsidiaries TYO Animations, REAL-T,
and Business Architects, as well as consolidated the lighting equipment rental business, which is expected tosee a stable increase in demand, thereby strengthening the business.
(2) Consolidation of the corporate division
In January 2018, the functions of the administrative divisions of AOI Pro. and TYO were consolidated.
(3) Relocation of head offices, office merger
In March 2018, the head offices moved from Shirokane to Osaki in conjunction with the consolidation of thecorporate division functions, and TYO’s head office (Meguro) was sold in order to optimize assets.
(4) Venture investment
The Ad Hack Ventures*1 fund targeting venture companies was launched in August 2017. This fund invests inventure companies that are in stages with relatively high exit (IPO, etc.) probabilities and which have ongoingadvertising needs. The fund is expected to have total assets under management of ¥1.8bn (several hundred
million yen per deal). So far, the fund has invested a total of just over ¥700mn in three companies*2 with strong
growth potential.
*1 Established jointly by TYO and FIELD MANAGEMENT.
*2 Logbar Inc. (develops and sells “ili,” the world’s first wearable voice translation device), every, Inc. (provides “DELISH KITCHEN,”
one of Japan’s largest video recipe sites, and other contents), and Sumally (provides “Sumally Pocket,” a cloud storage service).

In addition, in January 2018, AOI TYO Group invested $5mn in SPIRAL VENTURES ASIA FUND I, managed bySingapore-based Spiral Ventures Pte. Ltd. The investment is positioned as a part of the growth strategy for boththe Solutions Business and the Overseas Business. By building relationships with Asian venture companies withhigh growth potential in the early stages, and by developing cooperative frameworks with investee companies,AOI TYO Holdings aims to further expand its presence in overseas markets. Also, through this process, AOI
TYO Group anticipates business expansion utilizing AOI TYO Group’s knowledge and experience in the fields ofadvertising and video production.

██Business performance outlook
For FY12/18, AOI TYO Group is forecasting a decline in profits
The shift to printless, upfront investments,and other factors will result in a temporary decline in earnings
For FY12/18, AOI TYO Group’s net sales are forecast to decline 0.7% YoY to ¥70,000mn, operating income isexpected to fall 17.7% YoY to 3,800mn, ordinary income is projected to decline 15.8% YoY to ¥3,700mn, and profit
attributable to owners of parent is expected to fall 17.3% YoY to ¥2,300mn. Earnings are expected to temporarily
decline due to the impact of the shift to printless and upfront investment in growth areas.

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http://www.fisco.co.jp

AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Business performance outlook

The expectation for a drop in revenue is primarily due to a decline in sales in the Advertising Video Production
Business caused by the impact of the shift to printless (a pickup in pace is expected from around April 2018) as wellas addressing work style reforms (controlling orders received). Elsewhere, a decline in sales in the Other Production
Business is expected, mainly due to the reorganization of group businesses. Meanwhile, sales in the Solutions
Business, which is a growing field, and the Overseas Business, which promotes M&A, are expected to grow.
In terms of profits, operating income is expected to decline by approximately ¥800mn. This is due to the fact thatprofitability improvement will be smaller than in the previous fiscal year, and thus the impacts of the shift to printless(a roughly ¥900mn decline in operating income) will not be completely covered by profitability improvements, alongwith upfront investments in growth areas (R&D-related personnel expenses, system costs, etc.) and other factors.
Meanwhile, a gain on transfer of approximately ¥334mn in association with the sale of TYO’s head office will be
posted as extraordinary income.
FY12/18 forecast(¥mn)
FY12/17

FY12/18

ChangeResultRatio

Forecast

Ratio

Amount% change

70,473100.0%

70,000100.0%

-473

-0.7%

Advertising Video Production
Business

49,33970.0%

45,30064.7%-4,039-8.2%

Other Production Business

8,773

12.4%

7,900

11.3%

-873

-10.0%

Solutions Business

8,071

11.5%

11,200

16.0%

3,129

38.8%

Overseas Business

2,842

4.0%

4,500

6.4%

1,658

58.3%

Video-related Business

1,446

2.1%

1,100

1.6%

-346

-23.9%

Cost of sales

56,788

80.6%

-

-

-

-

SG&A expenses

9,065

12.9%

-

-

-

-

Operating income

4,619

6.6%

3,800

5.4%

-819

-17.7%

Ordinary income

4,394

6.2%

3,700

5.3%

-694

-15.8%

Profit attributable to owners ofparent

2,781

3.9%

2,300

3.3%

-481

-17.3%EBITDA

5,755

8.2%

5,000

7.1%

-755

-13.1%

ROE

11.3%-2.5pt-Net sales

8.8%

Source: Prepared from the Company's results briefing materials

The earnings forecasts for the main businesses as well as assumptions behind the forecasts are discussed below.
(1) Advertising Video Production BusinessIn the Advertising Video Production Business, net sales are expected to decline 8.2% YoY to ¥45,300mn. It must
be noted that the approximately ¥4,000mn decline in sales includes the impacts of the shift to printless and thetransfer to the Solutions Business. Other factors for the decline in net sales are the impact of profitability-oriented
operational management and addressing the work style reforms (order control).

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Business performance outlook(2) Solutions BusinessIn the Solutions Business, net sales are expected to increase 38.8% YoY to ¥11,200mn. Of this, the TYO General
Business Division Headquarters’ net sales are forecast to increase 43.4% YoY to ¥8,000mn (this includes transfersfrom the Advertising Video Production Business), while Quark tokyo’s net sales are expected to increase 11.8%
YoY to ¥2,700mn. The relatively modest growth in net sales for Quark tokyo compared to the previous year is
the result of prioritizing the buildup of the framework targeting future business growth (adding personnel working
on data analysis, etc.).
(3) Overseas BusinessIn the Overseas Business, net sales are forecast to increase 58.3% YoY to ¥4,500mn. In addition to businessgrowth in Southeast Asia, DTT group, which were acquired as consolidated subsidiaries in March 2018, is
expected to contribute to sales.
We think that AOI TYO Group has reasonably reflected adverse factors into its net sales forecast, while its
assumptions for positive factors are well grounded. Therefore, we feel that AOI TYO Group’s net sales forecasts
are sufficiently achievable. As with the previous year, it should be noted that the timing and pace of the shift toprintless will have an impact on operating performance. Meanwhile, AOI TYO Group’s profit forecasts reflect
strategic decisions (aggressive upfront investments, etc.), and we believe that how funds are used and theunderlying objectives (anticipated effects) should be the focus of attention, rather than exploring the possibility of
the forecasted figures being achieved.

██Growth strategy
Longer-term growth drivers are the Solutions Business andOverseas Business supplying new value
AOI TYO Group depicts a longer-term growth image with Solutions Business (including related production business)
and Overseas Business (China and Southeast Asia) driving stronger performance. In the existing mainstay Advertising
Video Production Business, meanwhile, it targets steady growth by promoting heightened emphasis on profitability
and efficiency and a lean organization that adapts to a printless model. The outlook sets FY12/21 goals of at least
12% in ROE and ¥8bn EBITDA (based on 17.0% average growth over three years with FY12/18 target of ¥5bn as
the starting point).
We attribute use of EBITDA as the goal to emphasis on earnings growth and the prospect of M&A activities (since
EBITDA does not count amortization of goodwill). AOI TYO Group aims to realize EBITDA growth by investing
aggressively in projects likely to deliver profitability exceeding the cost of shareholders’ equity and also improveshareholder returns (dividend payout ratio) and capital efficiency (ROE).

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html

Growth strategy

1. Solutions Business
It aims to expand orders from new and existing advertisers in direct transactions with advertisers, which it has
already been handling. Also, it hopes to provide the general public with new experiences by developing andproducing contents that incorporate the latest technologies, such as VR, AR, MR, IoT, and AI. It also seeks toaccumulate knowledge, including new data and emotion data obtained from these experiences, for applicationin the integrated marketing business (supplying solutions that integrate from brand strategy formulation to effectmeasurement and analysis). Furthermore, it intends to make advances to high value-added businesses utilizing data(such as DMP and strategic consulting). The approach seeks to foster a solutions-proposal business model andshift to knowledge-intensive business while harnessing experiences, knowledge, networks, and other resourcesfrom past Advertising Video Production Business. To achieve this, it will focus on reinforcement of operations andpersonnel (communication designers, data specialists, and others), including external people. Additionally, it will
pursue aggressive investments to gather and accumulate data, integrate with external data, and develop and build
schemes for effect measuring and analysis and IT services.
2. Overseas Business
AOI TYO Group plans to continue bolstering sites in China and Southeast Asia that the two companies pursued thus
far. In Southeast Asia, it plans to strengthen production capabilities and expand business via M&A. Additionally, it
intends to leverage collaboration and mutual utilization of human networks and resources.
We do not see the EBITDA goal (¥8bn) as an easy level in light of decline in profitability from the printless shift andburden from investments in new growth areas amid slim prospect of growth in demand for mainstay TV commercial
production (Advertising Video Production Business). Nevertheless, we think the “experience design” business field,
which AOI TYO Group aims to expand through promotion of a solutions-type business model, offers a market withlarge potential. We also expect AOI TYO Group’s experience and knowhow cultivated in video production to provide
a differentiating factor and see a large advantage from its credibility (brand strength) and financial clout (especially for
expansion of business with clients having a nationwide reach and investment strategy including M&A). Improvements
started to be seen in profitability and other areas, but we will be particularly focusing on new value creation (suchas VR content and data utilization) in the context of specific results obtained from management integration andaggressive investments in growth fields.

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AOI TYO Holdings Inc.
3975 Tokyo Stock Exchange First Section

5-Jun.-2018
http://aoityo.com/en/ir.html██Shareholder returns
Aiming for at least 30% consolidated payout ratio
AOI TYO Holdings has presented a dividend policy of targeting at least 30% consolidated dividend payout ratio
and dividend hikes accompanying a higher effective profit level. Furthermore, it is adopting DOE (dividend on equity
ratio) as an indicator (with a goal of 4% in FY12/21) and seeks to raise this value from the standpoint of supplying
a continuous and steady dividend.
For FY12/17, the annual dividend was ¥30 per share (including a ¥10 commemorative dividend), which was ¥2 higher
than the initial forecast due to the stronger-than-forecast operating results. The consolidated dividend payout ratio
was 25.6%, but the actual payout ratio after deducting the impact of the decline in taxes paid, primarily due to thereorganization of group businesses (a transient, special factor) was 30.5%, securing the 30% level.
For FY12/18, AOI TYO Holdings expects to pay an ordinary dividend of ¥30 per share (interim dividend = ¥8 pershare, fiscal year-end dividend = ¥22 per share). This dividend would result in a payout ratio of 31.4% and DOE of
2.8%. The final dividend amount would be the same as the previous year, but it can be viewed as a dividend increase
if one excludes the commemorative dividend, and we see AOI TYO Holdings as maintaining a high dividend level.
Concerning share buybacks during the period from May 16, 2017 through May 15, 2018*1, buybacks were suspended in conjunction with the adoption of an earnings-linked stock compensation system in February 2018* 2.
AOI TYO Holdings bought back a cumulative total of 261,400 shares through February 27, 2018 (total purchaseamount of ¥289,631,200).
*1 The initial plan was to purchase 400,000 shares (upper limit), ¥400mn in total purchase amount (upper limit).
*2 The purchase of AOI TYO Holdings’ own shares was discontinued in order to avoid infringement of insider trading regulations.

Furthermore, it provides benefits to shareholders listed or registered in the shareholder register as of June 30 (withownership of 500 or more shares) with an original QUO card* and original photo collection with a photo shooting(40 people selected from applicants in a lottery).
* ¥3,000 for 500 or more shares, ¥5,000 for 1,000 or more shares, and ¥10,000 for 2,000 or more shares.

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