Financial Resultsfor Fiscal Year
Ended December 31, 2017
February 5, 2018
SIOS Corporation(Stock Code: 3744 on the Second Section of Tokyo Stock Exchange)© SIOS Corporation All rights Reserved.

Table of Contents
Ⅰ Summary of Business Results for FY 2017
Ⅱ Key Medium-Term Strategic Initiatives
and Progress Achieved in FY 2017
Ⅲ Key Initiatives for FY 2018
Ⅳ Medium-Term Sales and Profit Plan, andBusiness Forecasts for FY 2018
© SIOS Corporation All rights Reserved.

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Ⅰ

Summary of Business Resultsfor FY 2017

© SIOS Corporation All rights Reserved.

3

Consolidated Financial Results for FY 2017
（In millions of yen）

FY 2016
Results

FY 2017
ResultsNet sales

12,080Gross profit

4,367

Operating profit

474

Ordinary profit

Change% Change+390+3.2%+19+0.4%-153-32.4%

389

-63

-16.3%

Profit (loss)
attributable toowners of parent

12,470
4,386
320
326

254

(587)

-841

－EBITDA

653

497

-156

-23.9%*EBITDA: Operating profit + Depreciation + Amortization of goodwill© SIOS Corporation All rights Reserved.

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Consolidated Net Sales over the Past 5 Fiscal Years

Record sales achieved in FY 2017

（In millions of yen）

14,00012,08012,0009,362

10,0008,000

12,470

6,565

7,349

6,000
4,000
2,00002013

2014

2015

© SIOS Corporation All rights Reserved.

2016

2017
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Consolidated Operating Profit andR&D Spending over the Past 5 Fiscal Years Operating profit for FY 2017 declined by 153 million yen
from the previous year.
 R&D spending has remained at a high level.
800
700
600
500
400
300
200
100
0-100-200648（In millions of yen）

R&D spending

502

311

227

588

474

320

2016

2017

55

OperatingOperatingprofit
income20135532014△111(111)
2015© SIOS Corporation All rights Reserved.

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Consolidated EBITDA over the Past 5 Fiscal Years
EBITDA for FY 2017 down by 156 million yen
from the year before（In millions of yen）

700
600653497

2016

2017

500400300

297
115

2001000(100)

2013

2014

△45(45)2015© SIOS Corporation All rights Reserved.

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Impairment Loss on Goodwill and Others for Profit Cube
Background

Plan

Changing business environments forced PCI tounderperform substantially against its business plan
formulated when the Company acquired it.

Results
2016

2017

2018

Operating profit of Profit Cube
When the Company acquired Profit Cube Inc.
(PCI) in September 2015, we did not anticipate
that the Bank of Japan would implement a
negative interest-rate policy, which would
affect the business of financial institutions, theprimary clients of PCI.
Financial institutions have been postponing
capital investments.

Based on PCI’s business performance in recent
months, the Group recognized an impairment loss
on the goodwill and assets related to customers
that the Company had recorded for PCI at the timeof acquisition.

Recognized impairment loss
Type of assets

AmountGoodwill

667 million yen

Assets related tocustomers

133 million yen© SIOS Corporation All rights Reserved.

8Consolidated Balance SheetsAs of December 31, 2016

Current assets
3,615

Property, plantand equipment
193
Intangible assets
971
Investment andother assets 475（In millions of yen）

As of December 31, 2017

Total liabilities
3,608
Current assets
4,141

Total net assets
1,647

Investment andother assets 476

Total liabilities
3,772

Total net assets
1,076 Property, plant and equipment 169
 Intangible assets 61

 Current assets: An increase of 455 million yen in cash and deposits
 Intangible assets: A decrease of 752 million yen in goodwill© SIOS Corporation All rights Reserved.

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Analysis of Consolidated Cash Flows
(26)

1,793

（In millions of yen）

(109)

640

Cash and cash
equivalents asof December
31, 2016

Cash flows fromoperatingactivities

Cash flows frominvestingactivities

Cash flows fromfinancing
activities(49)

Effect of change
in exchange rateon cash andcash equivalents

2,249

Cash and cash
equivalents asof December
31, 2017

 The SIOS Group had sufficient cash and cash equivalents as ofDecember 31, 2017, thanks to substantial net cash provided byoperating activities.
© SIOS Corporation All rights Reserved.

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Open System Infrastructure BusinessNet sales

6,834 million yen, up 8.5％ year on year

Segment profit

143 million yen, down 20.7% year on year

（In millions of yen）

Net sales

6,834

6,300

Net salesJapan Increased sales of LifeKeeper＊, one of our core products Increased sales of OSS* support services and related

Up 8.5%products
 Increased sales of software products sourced from Red Hat,
Inc.*
Overseas

Down
20.7%

 Achieved a substantial increase in net sales in the Americas

180143

Segment profit
FY 2016

FY 2017

Segment profit A decline in gross profit ratio of products sold andstepped-up advertising spending resulted in adecrease in segment profit.
Note: See the Glossary on Page 34 for descriptions of terms with an asterisk.

© SIOS Corporation All rights Reserved.

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Application BusinessNet sales

5,636 million yen, down 2.5% year on year

Segment profit

177 million yen, down 39.6％ year on year

（In millions of yen）

Net sales

5,636

5,779

 Increased sales of software applications for MFPs*
 Increased revenue from providing support for systemdevelopment and implementation

Down
2.5%

 Lost substantial sales of software applications for financial
institutions due to a delay in receiving orders from customers

Segment profit

Down
39.6％

177293

A decline in segment profit resulted from:
Weak sales of high-margin software applications forfinancial institutions

Segment profit
FY 2016

Net salesFY 2017

Slimmer profit margin on large projects to support
system implementation© SIOS Corporation All rights Reserved.

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ⅡKey Medium-Term Strategic
Initiatives and Progress
Achieved in FY 2017

© SIOS Corporation All rights Reserved.

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3 Key Medium-Term Strategic Initiatives

1Expand into new businesssegments including Fintech

2

Continue to invest in researchand development3

Become more competitive incore businesses© SIOS Corporation All rights Reserved.

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(i) Expanding into new business segments including Fintech

Patents obtainedon technologies incorporated intoa profit-management system
for financial institutions© SIOS Corporation All rights Reserved.

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(i) Expanding into new business segments
including Fintech
Profit Cube obtained patents on proprietary technologies
incorporated into its profit-management system for financial
institutions in May and November 2017
Data stored bymerged banksIndustry data

Customerdata

Credit data

Store data

Subsidiarydata

Area data

Personal
attributedata

AnalysisBased on:●Industries●Business sizes●Business areas

A variety of data financial
institutions have accumulatedon business firms

Financial
institutions
can make thebest use of
theiraccumulateddata.

 The patented system enables financial
institutions to analyze profitability more
flexibly than previous systems do.
 The system enables financial institutions tomanage their profitability based on theircustomers’ industries, business sizes, andareas.
➡Financial institutions can make the bestuse of a variety of data they haveaccumulated.
 With an expanded patent portfolio
comprising the two newly acquired patents
and the one acquired in March 2016, the IP
value of our proprietary profit-management
system has become more robust.

© SIOS Corporation All rights Reserved.

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(ii) Continuing to invest in research and development

SIOS Coati, a public-cloud-based
service, rolled out
SIOS iQ received internationalrecognition for innovation© SIOS Corporation All rights Reserved.

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(ii) Continuing to invest in research and development
SIOS Technology rolled out SIOS Coati, a public-cloud-based
service, in February 2017
Protected system

Operation-monitoring tool

Automatic monitoring and disasterrecovery reduce operation costs
 Automatically tracks fluctuating server instances➡Continuously monitors a system regardless of its
configuration on AWS＊

Failuredetection andrecovery

Informationexchange

Failure report
Failure alert

Corporate system operator

 Detects a system failure and automatically
returns the system to its normal state Provides detailed failure reports to assist
corporate users in identifying root causes offailures and implementing preventive measures
Eases the workload of corporate system
operators and reduces the cost of operating asystem hosted on a public cloud© SIOS Corporation All rights Reserved.

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(ii) Continuing to invest in research and development
SIOS iQ received international recognition for demonstrating
technological innovation

VMworld 2017, an annualinternational conference
hosted by VMware

SIOS iQ was among theBest of Show finalists.

© SIOS Corporation All rights Reserved.

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(iii) Becoming more competitive in core businesses

LifeKeeper for Linux v9.2 released© SIOS Corporation All rights Reserved.

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(iii) Becoming more competitive in core businesses
LifeKeeper for Linux v9.2 released in October 2017
Example ofconfiguration

On-premise* environmentAWS Direct ConnectAWS
VPCPrimarysystem

BackupsystemRedundant integrated system-management
servers to ensure high availability

Feature enhancements
 Greater compatibility with AWS
 Now working with HCI Now working with SAP
Respond to a trend in which more
and more business firms have been
migrating their mission-criticalsystems to cloud environments© SIOS Corporation All rights Reserved.

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Ⅲ

Key Initiatives for FY 2018

© SIOS Corporation All rights Reserved.

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3 Key Medium-Term Strategic Initiatives

1

Expand into new businesssegments including Fintech

2

Continue to invest in researchand development3

Become more competitive incore businesses© SIOS Corporation All rights Reserved.

23

Profit Cube(i) Expanding into new business segments
including Fintech(ii) Continuing to invest in researchand development(iii) Becoming morecompetitive in core businesses

Establish a new business model
Assist financial institutions in meeting regulatory guidelines, such as the newSupervisory Approaches, imposed by the Japanese Financial Services Agency
Take advantage of business opportunities offered by financial institutions’ stepped up efforts to ensure
the transparency of their business, to make their operations more efficient and effective, and toadhere to the proposed IRRBB* framework

Offer cloud-based services
Achieve a more steady revenue stream by shifting from a transactional business model to a recurringrevenue business model that offers cloud-based services to financial institutions looking to migrate their
mission-critical systems to cloud environments

Add feature enhancements to existing software products
Incorporate AI technologies into existing software products© SIOS Corporation All rights Reserved.

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Paperless Fax Solution(i) Expanding into new business segments
including Fintech(ii) Continuing to invest in researchand development(iii) Becoming more competitivein core businesses

A cloud-based document-management solution assists business firms
in implementing more flexible working arrangements for employees
Easy FaxDocuments
received via fax

 Converts a document
received via fax into a
digital form, and renames
and stores it in an
automatically created folder
 Documents can be stored in acloud environment➡Can be accessed by employees
working away from the office© SIOS Corporation All rights Reserved.

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LifeKeeper ＋ SIOS iQ(i) Expanding into new business segments
including Fintech(ii) Continuing to invest in researchand development(iii) Becoming more competitivein core businesses

Incorporate SIOS iQ’s machine-learning capabilities into
LifeKeeper to assist business firms in migrating their mission-criticalsystems to cloud environments
LifeKeeper + SIOS iQ

SIOS iQ
Take LifeKeeper’s already well-received failure-prevention andcost-saving solutions to a yet higher level© SIOS Corporation All rights Reserved.

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Ⅳ

Medium-Term Sales andProfit Plan, andBusiness Forecasts for FY 2018

© SIOS Corporation All rights Reserved.

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Mission Statement of the SIOS Group

Make the impossible possible
for the people of the world
SIOS operates its businesses
to pursue the three aspects of a better society

Creativeenvironment

Fulfilling life

Sustainable &connectedsociety

SIOS lays the foundation step by step to fulfil its mission© SIOS Corporation All rights Reserved.

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Medium-Term Sales and Profit Plan
Over the next three years, we will lay the groundwork forfuture growth and strive to achieve net sales of 15.5billion yen and EBITDA of 1.1 billion yen in FY 2020

Net
sales

（In billions of yen）

6.5

7.3

12.0

12.4

FY 2013
Results

FY 2014
Results

1,100

9.3
650

700490290
12013.0

14.2

15.5

420

（In millions of yen）

EBITDA(40)FY 2015
Results

FY 2016
Results

FY 2017
Results© SIOS Corporation All rights Reserved.

FY 2018Plan

FY 2019Plan

FY 2020
Plan29

Consolidated R&D Spending
Consolidated R&D spending

648
502

Focused fields

720 million yen
553

588

AI
Cloud-basedservices

311

Fintech2013

2014

2015
Results

2016

2017

2018
Plan© SIOS Corporation All rights Reserved.

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Consolidated Business Forecasts for FY 2018
 Achieve net sales of 13 billion yen to mark the eighth consecutive
year of growth Drive greater efficiency in business operations to achieve anoperating profit of 330 million yen, even with an increase in R&D
spending to ensure medium- and long-term business growth
FY 2017
Results

FY 2018
Forecasts

12,470（In millions of yen）

Change% Change

+530

+4.2%

+10+2.8%+4+1.1%

Operating profit

320

Ordinary profit

326

Profit (loss)
attributable toowners of parent

13,000330330(587)

260

+847

－EBITDA

497420-77-15.6%

Net sales© SIOS Corporation All rights Reserved.

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Cash Dividends
Proposed dividends for FY 2017
As announced on December 22, 2017, the Company will not pay any year-end
cash dividends for FY 2017 as a result of having posted a loss for the year.
We will strive to make our financial foundation more solid by achieving mediumand long-term profit growth to resume dividend payment as soon as possible.

Annual cash
dividends
per share

21st term

21st term

Fiscal year ending
December 31, 2017(Forecast)Fiscal year ended
December 31, 2017
(Proposed)

5.00 yen

0.00 yen© SIOS Corporation All rights Reserved.

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About SIOS Corporation

SIOS is Innovative Open Solutions
SIOS Corporation has been focused on commercializing open-source software based
primarily on Linux, and marketing and providing support for software products
developed in-house. To broaden our offerings into new segments, we recently
launched products and services that leverage such emerging technologies as artificial
intelligence, Fintech, and cloud computing.
We are committed to pursuing innovative software solutions to remain in the global
IT arena as an influential player that continues to create greater value andcontribute to a better society.
Headquarters
CapitalEstablished

SIOS Building, 2-12-3 Minami Azabu Minato-ku, Tokyo, Japan
1,481 million yen
May 23, 1997

No. of employees

470 on a consolidated basis (as of December 31, 2017)

Main consolidated
subsidiaries

Japan:
SIOS Technology, Inc.
Gluegent, Inc.
Keyport Solutions, Inc.
Profit Cube Inc.

U.S.A.:
SIOS Technology Corp.

© SIOS Corporation All rights Reserved.

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GlossaryPage

Term

11

LifeKeeper

Description
A failover software product that automatically switches a failed
primary server to a backup server.

11

Open-source software (OSS)

Software whose source code, which is the fundamental component of
the program, is made available for free and can be used, modified,and redistributed.

11

Software products sourced
from Red Hat, Inc.

Open-source software products developed by Red Hat, Inc., aprovider of open-source solutions.

12

Software applications for
multifunction printers (MFPs)

14

FintechA multifunction printer (MFP) is a piece of office equipment thatincorporates print, scan, copy, and fax capabilities into one unit. The
Group develops, markets, and updates document management
software applications, such as Quick Scan and Speedoc, that run on
an MFP.
An emerging technology for facilitating innovations in the financial
sector.

18

CloudService that enables computing over the Internet.

18

AWS (Amazon Web Services)

21
24

On-premise
IRRBB

Cloud-based services provided by Amazon.com, Inc.
Implementing and operating an information system with enablinghardware installed on the premises of an operating business firm. A
concept opposite to cloud solutions.
Interest Rate Risk in the Banking Book. The Japanese Financial Services
Agency plans to impose tighter regulation on financial institutions’adherence to the IRRBB framework.

© SIOS Corporation All rights Reserved.

34

Cautionary Statement
Forward-looking statements about the Company’s business outlook contained in thisdocument reflect management’s assumptions and judgments made on the basis ofavailable information, and may include risks and uncertainties. We caution that significant
risks and uncertainties could cause actual performance to differ materially from what is
discussed in the forward-looking statements. Significant risks and uncertainties that might
affect our performance include, but are not limited to, the economic environment andmarket conditions in which we operate.

For inquiries about this document
Call the IR Section of SIOS Corporation on 03-6401-5111 (+81-3-6401-5111 from outside Japan)

or fill in and send an online inquiry form available at:https://lp.sios.jp/MRK_Inquiry_SIOS_english.html© SIOS Corporation All rights Reserved.

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