Digital Arts Inc. (2326)

FY03/17 Consolidated Financial Results
For Fiscal Year Ended March 31, 2017
（April 1, 2016 through March 31, 2017)

Reference Slides
May 9, 2017

Copyright © 2015 Digital Arts Inc.

FY03/17 Financial Results Reference Slides

KEY FINANCIAL POINTS

2

Copyright © 2017 Digital Arts Inc.

Key Financial Points① Dramatic increase in demands related to Local Government Security
Cloud and Local Government Security Enhancement initiatives
 Sales for i-FILTER series and m-FILTER series, the main offerings for the Public Sector,
increased as a result of Ministry of Internal Affair and Communications guidance tofundamentally strengthen local government security where each prefectural andmunicipality government executed plans to enhance cyber security.

② Successfully closed large new sales with government agency
 Closed i-FILTER sales with large-scale governmental agency requiring a solution to stop multifaceted, sophisticated, and advanced targeted attacks.

③ Increase in FinalCode sales FinalCode 5 met stringent file security requirements by enterprises handling large volumesof customer data, which led to surge in sales.
 Steady deployment of FinalCode Limited Edition for Local Government, a special edition thatresponds to needs specific to prefectural, city and local municipality governments.

④ Steady business in consulting opportunities
 Increasing awareness on data security boosted orders received by Digital Arts Consulting,Inc., a subsidiary of the Group, which contributed to the Group’s overall sales growth.
3Copyright © 2017 Digital Arts Inc.

FY03/17 Financial Results Reference Slides

CONSOLIDATED RESULTSHIGHLIGHTS

4Copyright © 2017 Digital Arts Inc.

FY03/17 Highlights (Consolidated)
Consolidated
Net SalesOperatingIncomeOrdinaryIncome

Net Income
Attributable toOwners of Parent¥ 5,058 million（YoY +¥1,058 million／+26.4％）

Dramatic increase due mainly to large sales related to Local
Government Security Cloud initiatives in the public sector.

¥ 1,824 million（YoY+¥817 million／+81.2％）

Personnel expenses due to increase in Japan headcount were absorbed
by growth of net sales, resulting in substantial increase in profit.

¥ 1,811 million（YoY+¥816 million／+82.2％）

Rise in operating income as a result of dramatic increase indomestic sales led to substantial YoY increase in ordinary income.

¥ 1,125 million（YoY+¥579 million／+106.1％）

Rise in operating income as a result of dramatic increase indomestic sales led to substantial YoY increase in net income.
5Copyright © 2017 Digital Arts Inc.

FY03/17 Summary
Consolidated Results(million yen)

FY03/16

FY03/17

YoY

FY03/17
Forecast*

Net Sales

4,000

5,058

+26.4%

Gross Profit

3,074

4,051

+31.8%―

Selling, General andAdministration
Expense

2,067

2,227+7.7%―

Operating Income

1,006

1,824

+81.2%

1,700

OrdinaryIncome9941,811+82.2%

1,700

Net Income

545

1,125+106.1%

1,050

ROE

12.4%

23.０%

―

―

Dividend per Share

15 yen24 yen―24 yenAttributable to Owners ofParent

5,000* FY03/17 Forecast announced on March 23, 2017
6Copyright © 2017 Digital Arts Inc.

FY03/17 Summary
Non-Consolidated Results(million yen)

FY03/16

FY03/17

YoY

FY03/17
Forecast*

Net Sales

4,018

5,104+27.0%

Gross Profit

3,123

4,028+28.9%―

Selling, General and
Administration
Expense

1,788

1,960+9.6%―

Operating Income

1,335

2,067+54.9%―

OrdinaryIncome

1,328

2,056

+54.8%

1,950

Net Income

840

1,339

+59.3%

1,300

18.0%

24.8%

―

―――

Attributable to Owners ofParent

ROE
Dividend per Share

――

5,000

* FY03/17 Forecast announced on March 23, 20177

Copyright © 2017 Digital Arts Inc.

Contributing Factors to Net Sales

i‐FILTER
SeriesSales

m-FILTER
SeriesFinalCode

Sales

93

Sales

Others78316569
YoY
JPY + 1,058 million

4,000

5,058

Consolidated
Net Sales
FY03/16

Consolidated
Net Sales
FY03/178

Copyright © 2017 Digital Arts Inc.

Contributing Factors to Operating Income
SalesDomesticPersonnelExpense△173Ad & PromoExpense(incl. events fordomestic partners)△38Others

1,058

YoY
JPY + 817 million
1,006

Consolidated
Operating Income
FY03/16

1,006
1,824

Consolidated
Operating Income
FY03/17
9

Copyright © 2017 Digital Arts Inc.

Consolidated Net Sales Trend（million yen）

Continue to mark RECORD HIGH sales

5,058（126%）

4,000
3,402
2,906
2,707（107%）

2,190
1,700
1,387

1,852（118%）

2,306

3,027（118%）（112%）（104%）（117%）（105%）（109%）（123%）（100%）

FY 03/07

FY 03/08

FY 03/09

FY 03/10FY 03/11

FY 03/12

FY 03/13

FY 03/14

FY 03/15

FY 03/16

FY 03/17※ Percentages indicate YoY net sales

10Copyright © 2017 Digital Arts Inc.

Consolidated Net Sales Trend (by Quarter)（million yen）

Exceeded YoY net sales in ALL QUARTERS

1,540

1,503（123%）（133%）

1,253

1,077

831

（113%）

（97%）

650

643

（114%）（103%）

1Q

2Q

3Q

673

FY ended March 2014

1Q

811

（114%）（113%）（119%）（111%）（103%）

4Q（135%）

916

803

715（106%）

1,098（121%）（119%）

937

902（116%）

1,131

2Q

3Q

4Q

1Q

FY ended March 20152Q

3Q

4Q

FY ended March 2016

※ Percentages indicate YoY net sales

111Q

2Q

3Q

4Q

FY ended March 2017
Current FYCopyright © 2017 Digital Arts Inc.

COS and SG&A
■COS and SG&A increased due to personnel expense increase in Japan.
Overseas investment remained within period start forecast.
（million yen）

FY03/16
Cost of Sales

FY03/17

926

1,007

YoY Growth

Key Factors＋81
Increase in development
and consulting
headcount in JapanLabor

373

443＋69Depreciation

288

293＋4

Transfer to other accounts
Misc production cost263

270+62,0672,227+159

1,115

1,183+68

Includes personnel
expenses in Japan(+104M)

Publicity271

309+38

Events in Japan (＋14M)
Partner incentive
program (＋28M)

Others

680

733

+53

Increase in tax expenses
due to increased tax rate(＋28M)

Selling, General and
Administrative Expenses
Personnel Expenses

12

Copyright © 2017 Digital Arts Inc.

Cost of Sales (by Quarter)
Increase in development personnel cost due to reinforcement in
new product development（million yen）

283

Pesonnel

Depreciation

226
201

（128%）

219

Other Accounts & Misc.

229

228

（118%） （113%）

238（105%）（93%）

224（102%）（120%）

264（123%）22772

211（96%）645652595448

4460

6770

85

80

9694

939493

93

96

101

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

6878
78
70

FY ended March 2014

71

64

109
82

（100%）

6577
67

244（110%）

6554

79

（113%）

（99%）

（93%）

（113%）

240（114%）

222

265

256

FY ended March 2015

7213

69

67

86

87

90

1Q

2Q

3Q

109

103

112

106

4Q

1Q

2Q

3Q

FY ended March 2016

※ Percentages indicate YoY cost of sales

72

72

121

4Q

FY ending March 2017
Current FY
Copyright © 2017 Digital Arts Inc.

Selling, General and Administrative Expenses(by Quarter)

SG&A increased due to increase in domestic personnel expenses
Labor

Publicity

Others586

Overseas（125%）

488

482

92

408

365（109%）（95%） （108%）

343

356

363

123

133

172

56

31393732

34180

194

188

182

189

197

205

212

219

208

221

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

FY ended March 2015

4Q

FY ended March 2016

※ Percentages indicate YoY cost of sales

14

166

176

56
83

59

241

257

243

1Q

2Q

3Q

51

39273

FY ended March 2014（103%）

148

130

2788

154

80
61

498

72
164

149

67
4068

151
161

（108%）

49（106%）（100%）

158
13073（111%）

（96%）

149

1Q

71

58394

396596556（114%）（123%） （133%）

431

214576（148%） （113%）

510（111%）（million yen）

285

4Q

FY ending March 2017
Current FY
Copyright © 2017 Digital Arts Inc.

FY03/17 Financial Results Reference Slides

BY MARKET

15

Copyright © 2017 Digital Arts Inc.

Summary: Net Sales by Market

 +26.4% YoY growth in consolidated sales (Prev FY: +17.6% YoY)
 Enterprise Sector resulted in a modest +14.9% YoY (Prev FY: +17.9% YoY) while
Public Sector’s +49.9% YoY growth (Prev FY: +24.4 YoY) led overall performance.
 Consumer Sector held firm despite steep decline in domestic consumer PC
shipments.
Consolidated
Net Sales

Net sales: ¥ 5,058 million （ ¥ +1,058 million ／ +26.4％ YoY ）Enterprise

Net sales:¥ 2,573 million （ ¥ + 333 million ／+14.9％ YoY ）PublicNet sales:¥ 2,125 million （ ¥ + 707 million ／+49.9％ YoY ）Consumer

Net sales:¥359 million （ ¥16+17 million ／ + 5.0％ YoY ）Copyright © 2017 Digital Arts Inc.

Sales Trend by Market
Public sector led the Group’s performance by leveraging on solutions
that satisfy the level of security demanded by the Ministry of internal
Affairs and Communications’ guidelines in strengthening local
government security
Enterprise

Public（million yen）

5,058
（126%）

359

Consumer

4,000（118%）

3,402
2,707

2,906（107%）

2,190
1,700
1,387（123%）（100%）

229

183

689

1,852（118%）（109%）

290

257
886

2,306（105%）

FY 03/07

782

FY 03/08

280

260
997

318（112%）（104%）

362
1,418

361
1,140

1,152

1,028671

923

1,013

FY 03/09

FY 03/10

2,125

840

630

573（117%）

3,027342

1,205

FY 03/11

1,429

1,436

FY 03/12

FY 03/13

1,637

FY 03/14

1,899

FY 03/15

2,240

FY 03/16

2,573

FY 03/17※ Percentage indicates YoY net sales

17Copyright © 2017 Digital Arts Inc.

Quarterly Net Sales by Market
Public Sector, notably large civil service deals (2Q) anddeals related to local municipality cloud security (2Q-4Q)
led the Group’s overall business performanceEnterprise

Public

1,131

1,077

831

937

650

85（114%）

101643（103%）

319

94

278

79673（103%）

85715

313（119%）89（111%）4023311Q

426

2Q

3803493Q

4Q

FY ended March 2014

1Q

403

799

602

80

（114%）

89（113%）

498

427

78
296

89
259

216

444

409

2Q

3Q

833

756

665
529

916
811

256

207

214

216

90

1,098
（135%）

80

803

105

84

93

97

（113%）（97%）（106%）（119%）（123%）（133%）（116%）（121%）

1,540

1,503

1,253

Consumer902（million yen）

457

4Q

1Q

FY ended March 2015

552

2Q

530

473

3Q

4Q

FY ended March 2016

1Q

619

590

2Q

3Q

4Q

FY ended March 2017
Current FY※ Percentage indicates YoY net sales

18

Copyright © 2017 Digital Arts Inc.

FY03/17 Financial Results Reference Slides

ENTERPRISE SECTOR

19Copyright © 2017 Digital Arts Inc.

Enterprise Sector
 Robust sales in mainstay i-FILTER series and FinalCode.
 Successful turnaround for m-FILTER series in 2H for stable year-to-date growth.
 Amid a series of incidents with large-scale leak of customer information, sales
for FinalCode 5 surged leveraging enterprise-wide advanced file security,
responding to needs of corporations handling large volume of customer data.

SeriesSeries+ 9.2 ％
+ 8.3 ％
+ 97.7 ％20Copyright © 2017 Digital Arts Inc.

FY03/17 Financial Results Reference Slides

PUBLIC SECTOR

21Copyright © 2017 Digital Arts Inc.

Public Sector
 i-FILTER series and m-FILTER series, two main offerings in the Public Sector,
soared as prefectural and local government executed plans to enhance cybersecurity under the Ministry of Internal Affairs and Communications’ guidelines
on fundamental strengthening of local government security.
 Robust implementation of FinalCode Limited Edition for Local Government,
providing simple functions that public organizations want.

SeriesSeries+ 33.6 ％+ 189.6 ％+ 47.8 ％22Copyright © 2017 Digital Arts Inc.

FY03/17 Financial Results Reference Slides

CONSUMER SECTOR

23Copyright © 2017 Digital Arts Inc.

Consumer Sector
 Continued to partner with mobile and MVNO operators to expand sales andcollaboration of i-FILTER (Consumer) for Smartphones.
 PC version of i-FILTER (Consumer) held firm due to OEM-driven sales androbust shipments of multi-year packaged products, despite declines in thenumber of domestic consumer PC shipments.
 Sales expanded for i-FILTER (Consumer) for Multi-Device, which can be used onmultiple OS with a single serial ID.
PC

5.5 ％+Game Console/TV－ 13.0 ％Mobile Device+15.8 ％

24

Copyright © 2017 Digital Arts Inc.

FY03/17 Financial Results Reference Slides

FY03/18 FORECAST

25Copyright © 2017 Digital Arts Inc.

FY03/18 Forecast
Consolidated Forecast

 Japan: anticipate continuous and stable growth with the launch of an
innovative new product, making an entry into a new market.
 Overseas: conservative guidance at beginning of year.
FY 03/17
Actual

FY 03/18
Forecast（million yen）

GrowthRate

Net sales

5,058

5,600

10.7 %

Gross Profit

4,051

4,450

9.8 %Selling, General and
Administration Expense

2,227

2,450

10.0 %

Operating Income

1,824

2,000

9.6 %

Ordinary Income

1,811

2,000

10.4 %Net Income

1,125

1,240

10.2 %

24 yen28 yenAttributable to Owners of Parent

Dividends per Share26―Copyright © 2017 Digital Arts Inc.

FY03/18 Forecast
Non-Consolidated Forecast

 Japan: anticipate continuous and stable growth with the launch of an
innovative new product, making an entry into a new market.
（million yen）

FY 03/17
ActualFY 03/18
Forecast

GrowthRate

Net Sales

5,1045,550

8.7 %Gross Profit

4,0284,450

10.5 %

Selling, General and
Administration Expense

1,960

2,100

7.1 %

Operating Income

2,067

2,350

13.7 %

Ordinary Income

2,056

2,350

14.3 %Net Income

1,339

1,621

21.1 %

27Copyright © 2017 Digital Arts Inc.

FY03/18 Return to Shareholder■ Dividend Distribution
Digital Arts plans to return profit to its shareholders as follows:
Projected dividend payout ratio for the period ending March 2018 :
31.2% of consolidated net income of the current period
The amount of annual dividends for the period ending March 2018:
Estimated at 28.00 yen per shareDividends per share (in yen)InterimFiscal year-end

AnnualConsolidated
Payout Ratio

FY 03/17

10.00

14.00

24.00

29.7％

FY 03/18 (Forecast)

14.00

14.00

28.00

31.2％

28

Copyright © 2017 Digital Arts Inc.

FY03/17 Financial Results Reference Slides

FY03/18 INITIATIVES

29

Copyright © 2017 Digital Arts Inc.

FY03/18 Initiatives■ Enterprise and Public Sectors
i-FILTER Series / m-FILTER Series

Leverage internal dev team to offer protection against enterprise data loss andmake a full-fledge entry into the external threat market• Next release of i-FILTER and m-FILTER, when installed together, realize endpoint protection
against targeted attacks.
• Offer stronger security in two key areas: computer virus and data loss via internet, andmalware attached to email messages.
• A solution to cut excess multi-layer defense and training/education cost.

Respond to national plans to place Wi-Fi in all public elementary and middle
schools• Ministry of Internal Affairs and Communications plans to place Wi-Fi in over 30,000 publicschools and community centers nationwide by 2020 as a measure for disaster prevention.
• Several billion yen budgeted for FY2017: budget includes Wi-Fi router, tablet devices, andrelated software.

30

Copyright © 2017 Digital Arts Inc.

FY03/18 Initiatives■ Enterprise and Public Sectors
FinalCode (Japan)
Enterprise Sector: Anticipate growing demand in light of legal reforms• FinalCode satisfies the requirements by the Electronic Books Maintenance Act toelectronically store accounting books in a form that prevents data manipulation.
• Could lessen reporting obligation required by the Amended Private Information Protection
Law in an event of personal data security breach.

Public Sector: Strong increase in FinalCode demand• Anticipate FinalCode installations to accelerate due to heightened security awarenessacross the sector by Local Government Security Cloud and Strengthening of Local
Government Security initiatives.

31

Copyright © 2017 Digital Arts Inc.

FY03/18 Initiatives■ Overseas
FinalCode (Overseas)
FinalCode, Inc. leads to drive and close sales in overseas market• U.S. subsidiary, FinalCode, Inc., takes the lead in driving aggressive sales to close deals andincrease exposure in the overseas market.
• Awareness for file security is very high on a global scale, leading to more opportunities
from governmental agencies and enterprises.
• Quickly close visible deals in order to recoup overseas investment at an early stage.

32

Copyright © 2017 Digital Arts Inc.

Forward Looking Statements

All statements herein, other than historical facts, contain forward-looking statements and are based on
DA’s current plans, strategies and financial forecasts. These forward-looking statements are based upon
management’s current assumptions and beliefs in light of the information currently available to it,
however environmental changes and other important factors could cause actual results to differ

materially from those expressed in our forward-looking statements. All statements herein are notintended to express DA’s commitment to fulfill any forward-looking statements. Updated information, ifapplicable, will be disclosed in a timely manner.
All numerical indications in this statement, unless noted, are rounded to the nearest million yen.

・ DIGITAL ARTS, ZBRAIN, /i-FILTER/i-FILTER EndPoint Controller, m-FILTER/m-FILTER MailFilter/m-FILTER Archive/m-FILTER
Anti-Spam/m-FILTER File Scan, and D-SPA are registered trademarks of Digital Arts Inc.
・ FinalCode is a registered trademark of Digital Arts Group.
・ Other corporate and product names are trademarks or registered trademarks of those companies.

33

Copyright © 2017 Digital Arts Inc.

‐ For internet convenience, safety and security ‐Copyright © 2015 Digital Arts Inc.