Financial Resultsfor Fiscal Year
Ended December 31, 2018
February 5, 2019
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 2018
Ⅱ Key Medium-Term Strategic Initiatives
and Progress Achieved in FY 2018
Ⅲ Medium-Term Business Plan for FY 20192021, and Business Forecasts for FY 2019

© SIOS Corporation All rights Reserved.

2

Ⅰ

Summary of Business Resultsfor FY 2018

© SIOS Corporation All rights Reserved.

3

Consolidated Financial Results for FY 2018
（In millions of yen）

FY 2017
Results

FY 2018
Results

Net sales

12,470Gross profit

4,386

Operating profit

320

Ordinary profit

Change% Change

+329

+2.6%

-176

+4.0%

-30

-9.4%

326

12,799
4,210
290
310

-15

-4.8%

Profit (loss)
attributable toowners of parent

(587)

225

813

－

EBITDA

497-121-24.5%

ROIC

10.1%

375
8.7%

－

－

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

4

Consolidated Net Sales over the Past 5 Fiscal Years

Record sales achieved in FY 2018
（In millions of yen）

12,080 12,470

14,00012,000

9,362

10,0008,000

12,799

7,349

6,000
4,000
2,000
0
2014

2015

2016

© SIOS Corporation All rights Reserved.

2017

2018
5

Consolidated Operating Profit, EBITDA, and R&D
Spending over the Past 5 Fiscal Years Operating profit for FY 2018 declined by 29 million yen
from the previous year.
 EBITDA was down by 121 million yen YoY.
(Millions of yen)

700
600
500
400
300
200
100
0
(100)
(200)

R&D spending 648

553

502

588

653

551

497

474
320
55

290

375

115

2014

(111) (45)

2017

2016

2015
Operating profit

EBITDA© SIOS Corporation All rights Reserved.

2018

R&D spending
6

Consolidated Balance Sheets（In millions of yen）

Total liabilities
Current assets
3,772
4,141
(including(including cash interest-bearing
and deposits ofdebts of2,379)
862)

Investment andother assets 476

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

As of December 31, 2017


Current assets
4,450(including cash
and deposits of
2,138)

Investment andother assets 596

Total liabilities
3,998(includinginterest-bearing
debts of 729)

Total net assets
1,359

 Property, plant and equipment 221
 Intangible assets
89

As of December 31, 2018

Current assets ：Accounts receivable increased by 235 million yen
Current liabilities：An decrease of 133 million yen in long term loan payable
Net assets：Increase by 282 million yen© SIOS Corporation All rights Reserved.

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Analysis of Consolidated Cash Flows

2,249

78

（In millions of yen）

△184

△127
△6

Cash and cash
equivalents asof December
31, 2017

Cash flows fromoperatingactivities

Cash flows frominvestingactivities

Cash flows fromfinancing
activities© SIOS Corporation All rights Reserved.

Effect of change
in exchange rateon cash andcash equivalents

2,008

Cash and cash
equivalents asof December
31, 2018

8

YoY Changes in Cash Flows(Millions of yen)
Cash flows fromoperating activities

Cash flows from investing
activities

Cash flows fromfinancing activities

Amount of YoY changes

Increase of 78

Decrease of 184

Decrease of 127

Breakdown

Increases• 284 in profit before
income taxes• 215 in advancereceived• 30 in income resulting frommerger• 6 resulting from otherfactors

Decreases• 224 resulting fromincreased tradereceivables• 107 resulting fromincreased inventory(primarily work inprogress)• 90 resulting from otherfactors• 89 resulting from purchaseof property, plant andequipment*• 50 resulting from purchaseof intangible assets• 70 resulting from purchaseof long-term investment
securities• 5 resulting from otherfactors• 133 resulting fromrepayments of longterm loans payable

Other
Decrease of 6

• 6 resulting
from foreignexchangeloss* Reflecting acquisition of assets
to open R&D center at the
University of South Carolina in
the United States andreclassification of leased assets
into property, plant andequipment in accordance withchanges in U.S. accounting
standards© SIOS Corporation All rights Reserved.

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Cash Flows from Operating Activities and Advances Received

Cash flows from operating activities sustained by ample
advances received(Millions of yen)

641
401
271
152

2014

312
215

169
81

2015

2016

CF from operating activities

124

2017

78

2018

Increase in advances received© SIOS Corporation All rights Reserved.

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Free Cash Flows
R&D projects and investing activities funded by a stable levelof cash flows(Millions of yen)

1,500
1,000

500
0
(500)
(1,000)

2011

2012

2013

2016

2014

2018

CF from operations – R&D
spending(1,500)(2,000)2017
R&D spending2015

CF from investing activities
Free cash flows© SIOS Corporation All rights Reserved.

11

Open System Infrastructure BusinessNet sales

7,231 million yen, up 5.8% YoY

Segment income

115 million yen, down 19.3% YoY(Millions of yen)

Net sales
5,007

5,541

6,300

6,834

7,231

Net salesJapan LifeKeeper* sales were up slightly.
 Revenue from OSS* support services maintained momentum ofgrowth.
 Software products sourced from Red Hat, Inc.* achieved steady
growth of sales.

2014

2015

2016

2017

2018

Segment income
180

Segment income
143

115

(37)
2014

2015

(165)

2016

Overseas LifeKeeper sales declined.

2017

 A decline in gross profit ratio of products sold and an increase in
expenses associated with releasing an upgraded version of SIOS Coati*
resulted in a decrease in segment income.

2018
Note: See the Glossary on Page 29 for descriptions of terms with an asterisk.
© SIOS Corporation All rights Reserved.

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Application BusinessNet sales

5,568 million yen, down 1.2% YoY

Segment income

174 million yen, down 1.4% YoY(Millions of yen)

Net sales

5,779

5,636

5,568

3,820

Net sales



2,342



2014

2015

2016

2017

2018

2014

177

174

2017

2018

53
2015

2016

Segment income
Segment income293
93

Sales of software applications for MFPs* were down YoY in the firsthalf of FY 2018 and up in the second half.
Revenue from providing support for system development andimplementation declined.
Gluegent series* achieved a solid sales increase.

Segment income declined partly due to an increase in expenses
associated with new businesses and partly due to a delay in an
on-going project to provide support for system development andimplementation to a financial institution, both of which more thanoffset the absence of an impairment loss of 100 million yen, which
had been recognized in the previous fiscal year on goodwill andassets related to customers for Profit Cube Inc., a consolidated
subsidiary of the Company.

© SIOS Corporation All rights Reserved.

13

Background to Frequent Revisions of Business Forecasts
Revenue forecasts went up and down for projects to develop andimplement management support systems for financial institutions.
Issue

Volatile nature of business, affected significantly by our ability to close
deals on and complete large projects for corporate clients on time

Proposedsolution

Change the structure of business by shifting to cloud-based systems andlaunching a subscription-based business model
110

Forecast revised
upwardOperating profit(Millions of yen)

Forecast revised
downward

-72

2016

2017
© SIOS Corporation All rights Reserved.

2018
14

Ⅱ

Key Medium-Term Strategic
Initiatives and Progress
Achieved in FY 2018

© SIOS Corporation All rights Reserved.

15

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.

16

1. Expand into New Business Segments including Fintech
2. Continue to Invest in Research and Development
We continued to invest to step up R&D and productdevelopment efforts.
Released an upgraded version of SIOS Coati based on the latest
serverless architecture, which provides automatic disaster recovery inpublic cloud environments

Started to offer the free-address-allocation system Office Darts to
expand the offerings of solutions to facilitate flexible working
arrangements in the workplace, in addition to the alreadyavailable Willysm, an employee-motivation management system

Opened an R&D center at the University of South
Caroline in the United States to jointly research AI
technologies
Provided SIOS iQ forjoint research projects© SIOS Corporation All rights Reserved.

17

3. Become More Competitive in Core Businesses
We acquired ThirdWare Inc. and added its DRBD software to our
lineup of business-continuity solutions
Data redundancy via shared disk

 DRBD (Distributed Replicated Block Device) is ansoftware application for:• Achieving system storage redundancy• Providing network-based data redundancy

Activeserver User benefits• Provides highly reliable data redundancy inmultiple-disk deployments
Active• Enables the use of general-purpose
serverhardware• Boasts more than 10 years of a solid trackrecord of use• Supports large-capacity disks

Standbyserver

A storage failure could
cause catastrophic
disruption.

StandbyserverData redundancy
via DRBD

It is extremely unlikely that two storage
devices will fail at the same time.

© SIOS Corporation All rights Reserved.

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3. Become More Competitive in Core Businesses
After sales of our core products plunged in the second quarter of FY 2018,
we drove their sales back to growth in the second half by working closelywith our distribution partners.

Sales of Software Applications for MFPs
Sales

We worked closelywith our distribution
partners to bringsales back to
growth.

Sales fell sharply.

2013

2014

2015

2016

2017

© SIOS Corporation All rights Reserved.

2018
19

Ⅲ

Medium-Term Business Plan
for FY 2019-2021, and Business
Forecasts for FY 2019

© SIOS Corporation All rights Reserved.

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Primary Objective and Management Metrics Establishedin Medium-Term Business Plan for FY 2019-2021(1) Primary Management Objective
Under the mission of making the impossible possible for the people of theworld, the SIOS Group works toward achieving its primary management
objective of pursuing innovative solutions to resolve issues affecting
people and to contribute to a better society.
(2) Management Metrics
The Group uses EBITDA and ROIC as its key management metrics tocontinue to generate positive cash flow. Positive cash flow enables theGroup to invest in the three driving forces for our growth—people,
research and development, and a corporate culture that fosters
innovation—and to return profit to our shareholders and stakeholders.
Through these efforts, the Group works toward achieving its primary
５億円
management objective.
Note: The Company has defined the Group’s primary management objective andmanagement metrics in line with its mission.
© SIOS Corporation All rights Reserved.

21

Scenario to Achieve Management Metrics
Raise the levelof customer
satisfaction

Release new
products andservices

Enhanceexisting
products andservices

Increase sales and gross profit
Optimize SG&A expenses

Carry out M&A

Reduce the
cash conversion
cycle

Maintain good
relationships
withstakeholders

Reduce interestbearing debts

Achieve greater EBITDA and ROIC
Generate positive cash flow
Invest in people, researchand development, and acorporate culture that
fosters innovation

Return profit toshareholders andstakeholders© SIOS Corporation All rights Reserved.

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Consolidated R&D Spending
Consolidated R&D spending

720 million yen

648
553

502

Focused fields

588

AI

551

Cloud-based
services

Fintech
2014

2015

2016
Results

2017

2018

2019
Plan

© SIOS Corporation All rights Reserved.

23

Invest in People
Invest to Establish a Corporate Culture that Fosters Innovation
SIOS Value Awards recognize
high-performing employees

Expanded use of telework
Cloud-based SIOS
products are a big
help for teleworkers

CSR programs

Workshops for repurposing plastic
shopping bags and scrap wood

Online store oforganic products© SIOS Corporation All rights Reserved.

Software applications for
MFPs that help reduce theamount of office printing
and reduce CO2 emissions

24Medium-Term Business Plan for FY 2019-2021
We will make our business foundations more solid over the next
three years and work toward achieving EBITDA of 550 million
yen and ROIC* of 15%.
(Millions of yen)

2015

2016

2017

2018

2019

2020

2021

EBITDA

-45

653

497

375

300

450

550

ROIC

-2.5%

11.2%

10.1%

8.7%

6.4%

11.1%

15.0%

* ROIC = Operating income x (1 – Effective tax rate**) / (Interest-bearing debts + Shareholders’ equity)** 35% used for calculation

５億円© SIOS Corporation All rights Reserved.

25

Consolidated Business Forecasts for FY 2019
• Achieve net sales of 13.2 billion yen to mark the ninth consecutive year of
growth• Increase R&D spending to aid medium- and long-term business growth（In millions of yen）

FY 2018
Results

FY 2019
Forecasts

12,799

＋400

3.1%

△90

△31.2%△100△32.4%

Change% Change

Operating profit

290

Ordinary profit

310

13,200200
210Profit (loss)
attributable toowners of parent

225

140

△85

△38.0%EBITDA

375△75△20.2%

ROIC

8.7%

300
6.4%

-

-

Net sales© SIOS Corporation All rights Reserved.

26

Cash Dividends for FY 2018 and FY 2019
Cash dividends
planned for fiscal
year ended
December 31, 2018

As announced on February 5, 2018, the Company will not pay any
year-end cash dividends for FY 2018 due to reduced net assets as aresult of having posted an extraordinary loss for FY 2017.

Cash dividends
projected for fiscal
year ending
December 31, 2019

Based on the most current business forecast for FY 2019, theCompany plans to pay a year-end dividend of 5.00 yen per share for
FY 2019, to be funded by projected net profit for the year anddividends received from subsidiaries.

Annual cash
dividends per
share

22nd term

23rd term

Fiscal year ended
December 31, 2018
(Planned)

Fiscal year ending
December 31, 2019
(Projected)

0.00 yen

5.00 yen© SIOS Corporation. All rights Reserved.

27

About SIOS Corporation

SIOS is Innovative Open Solutions
Listed on the Second Section of the Tokyo Stock Exchange, SIOS Corporation is a holding company

that manages subsidiaries having a wealth of expertise and assets in open source software, including
Linux, AI and cloud technologies, and Fintech.
Under the mission of making the impossible possible for the people of the world, the SIOS Grouppursues innovative solutions to resolve issues affecting people and to contribute 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

440 on a consolidated basis (as of December 31, 2018)

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.

28

Glossary
Page

Term

Description

12

LifeKeeper

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

12

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.

12

Software products sourced
from Red Hat, Inc.

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

12

SIOS Coati

Cloud-based service for automatic system failure detection andrecovery.

13

Software applications for
multifunction printers (MFPs)

13

Gluegent series

14

Subscription
business model

16

FintechAn emerging technology for facilitating innovations in the financial sector.

18

DRBD

Software that duplicates server's hard disk to another server in real timethrough the network.

A 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.
Service of subsidiary Gluegent. "Gluegent Gate" which manages ID in thecloud, "Gluegent Apps group scheduler" etc. which added teamcalendar schedule management function etc to Google Calendar etc.
We support business efficiency by using enterprise cloud.

In the SaaS service etc. provided in the cloud,Business model that charges according to usage period.

© SIOS Corporation All rights Reserved.

29

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.

30