Financial Results Presentation
for the Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year)

Focus Systems Corporation(Securities Code: 4662)

Table of Contents

Financial Results for the Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year) p. 3
Projections for the Fiscal Year Ending March 2019 (43rd Business Year) p. 23

Supplementary Information: Current Topics p. 25

Supplementary Information: Company Outline p. 30

2

Financial Results for the Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year)3

Highlights － Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year)

Financial Results✓

Second-quarter net sales post historic high✓Project expansion and acquisition of new projects boast revenues and income in all segments

Operations✓ Advancing partnerships
・Concluded collaborative cooperation agreement with Kasama City, Ibaraki Prefecture,
relating to the application of unmanned aerial vehicles p. 28
・Cooperative development for FRONTEO, Inc.’s AI-driven patent research and analysis p. 29
4

Summary － Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year)✓

Favorable performance from steady business expansion in a favorable operating environment(Unit: Million yen)）

Year-on-year change
FY 03/2018
1Q Results

FY 03/2018
2Q Results

FY 03/2018
3Q Results

FY 03/2018
Full-Year
Results

FY 03/2019
1Q Results

FY 03/2019
2Q Results

Amount

Ratio

4,244

8,827

13,793

19,327

4,904

10,107

1,280

14.5%

Operating income

38

227

661

1,025

288

621

394

173.6%

Ordinary income

36

229

655

1,019

288

619

389

170.0%Net income

33

183

462

719

189

405

222

121.2%Net sales5Progress Status － Second Quarter of the Fiscal Year Ending March 2019✓

Sales and income both continue to develop favorably from the first quarter(Unit: Million yen)）

51%

Sales revenues

4,904

Operating income

288

332

Progress rate

58%

1,080

Ordinary income

288

331

Progress rate

58%

1,060

Net income

189

216

Progress rate

58%

700

5,203

Progress rate

1Q

20,0002Q

6Changes in Net sales(Unit: Million yen)）

1Q

2Q

3Q

FY endPlan

20,00016,000Progress rate

12,000

51%

8,000

4,000

0
FY 03/2014

FY 03/2015

FY 03/2016

FY 03/2017

FY 03/2018

FY 03/2019

7

Changes in Operating Income(Unit: Million yen)）

1Q

2Q

3Q

FY end

Plan

1200

1000

800

Progress rate

58%
600

400

200

0
FY 03/2014

FY 03/2015

FY 03/2016

FY 03/2017

FY 03/2018

FY 03/2019

8

Changes in Ordinary Income

1Q(Unit: Million yen)）

2Q

3Q

FY end

Plan

1200

1000

800

Progress rate

58%
600

400

200

0
FY 03/2014

FY 03/2015

FY 03/2016

FY 03/2017

FY 03/2018

FY 03/2019

9

Changes in Net Income(Unit: Million yen)）

1Q

2Q

3Q

FY end

Plan

800
700
600
500

Progress rate

58%
400
300
200
100
0
FY 03/2014

FY 03/2015

FY 03/2016

FY 03/2017

FY 03/2018

FY 03/201910

Segment Information Summary － Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year)(Unit: Thousand yen)

Reportable segments

Public sectorbusiness

Net sales

Segment income

Private sectorbusiness

Securityequipment
business

Total

Adjustment
amountIncomestatement
amount for
the quarter

3,077,990

6,496,748

533,112

10,107,851―

10,107,851

493,910801,958

63,624

1,359,494(737,949)

621,544

Note 1: The adjustment amount of －737,949,000 yen applied to segment income represents,
for the most part, general administrative expenses (company overheads) that are not attributable to reportable segments.
Note 2: Segment earnings are adjusted to the operating income stated in the quarterly statement of income.

11

Overview by Segment (1) － Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year)

Public Sector

End users are government agencies and local governments.
Operations span the range from project design, manufacture, and testing through to the maintenance andrunning of systems after implementation.
Supporting society in various settings such as financial systems, trading systems, air traffic control systems,
welfare and nursing care systems, and social insurance systems.
(Unit: Million yen)）(Unit: Million yen)）

3,500

Net sales

Segment income

3,000
2,500

Year-onyearchange

2,000
1,500
1,000

5.7％

Year-onyearchange

21.0％

550
500
450
400
350
300
250
200

✓

Business as a whole has shown a rising trend.

✓

Profitability has improved thanks to the stricter stance adopted in decisionmaking meetings for received orders
12

Overview by Segment (2) － Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year)End users are mostly companies in the private sector.
In partnerships with IBM Japan, Oki Electric Industry, Softbank, ITS Intect, and others, operations span therange from system development and platform building through to the running and maintenance of systems for adiversity of private sector businesses.
Operations cover various types of systems such as business applications, communications control systems,
IoT-related systems, and A-related systems.

Private Sector(Unit: Million yen)）

Net sales
Year-onyearchange

19.4％

7,000
6,000
5,000
4,000
3,000
2,000
1,000

(Unit: Million yen)）Segment income
Year-onyearchange

69.2％

1000
800
600
400
200
0

✓

Business reflects the favorable effects of expanding projects in system building forcore customers and new project acquisitions.

✓

Stepped-up project control contributed to income growth.

13

Overview by Segment (2) － Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year)

Security Equipment

The segment caters to a broad customer base across the public and private sectors.
Offerings address a diversity of customer needs spanning the range from security breach prevention measures(encryption technology and electronic watermarks) through to ex-post measures (digital forensics and cyber security).
The security equipment business collaborates with numerous overseas partners and emphasizes theacquisition of growth technologies and the fostering of specialists.

(Unit: Million yen)）

Net sales
Year-onyearchange

12.1％

600
550
500
450
400
350
300
250
200

(Unit: Million yen)）Segment income
Year-onyearchange

30.9％

90
80
70
60
50
40
30
20
10
0

✓

Strong contributions to sales and income growth came from favorable sales of products
especially in the digital forensics field for public agencies.

✓

Sales of the company’s encryption products posted solid growth this quarter year on year.

14Balance Sheets － Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year)(Unit: Million yen)

Second Quarter of the Previous Fiscal Year

Second Quarter of theCurrent Fiscal Year

Current assets

9,759

9,873

Non-current assets

7,061

7,631

3,506

3,486

151

120

3,403

4,024

16,82017,504Current liabilities

4,459

4,396

Non-current liabilities

3,160

3,337

Total liabilities

7,619

7,733

Capital stock

2,905

2,905

Capital surplus

2,138

2,138

Retained earnings

2,615

2,780

Treasury stock

(359)

(359)

1,898

2,303

2

2

9,201

9,770

16,82017,504

AssetsProperty, plant, and equipment
Intangible assets
Investments and other assets
Total assets

Increase in work in progress

Increase in fair value-based
investment securities

Liabilities

Increase in corporate bonds
Increase in deferred tax liabilities

Net assets

Valuation difference on availablefor-sale securities
Share acquisition rights
Total net assets
Total liabilities and net assets•

Unrealized gains on investment
securities

Starting with the first quarter of the fiscal year ending March 2019, the Company applies the Partially Revised Tax Effect Accounting Standard(Business Accounting Standard No. 28 of February 16, 2018), etc., with deferred tax liabilities now presented in non-current liabilities.

15

Net Income Increase / Decrease Analysis－ Second Quarter of the Fiscal Year Ending March 2019 (43rd Business Year)(Unit: Million yen)）・Increase in personnel expenses
・Increase in taxes and public dues

428

Decrease due to the absence of the following:・ Surrender value of insurance
・ Gain on sales of investment securities▲33▲4
Increase in selling, general
Change in non-operating
andincome / expenditureadministrative expenses▲50
Change inspecial gains /losses▲117
Increase inincome taxes,
etc.

Increase ingross margin
・Increase in income taxes
due to higher income

SecondQuarter of
the Current
Fiscal Year
SecondQuarter of thePrevious
Fiscal YearNet income
183

222
Increase

Net income

405

16

Ratios of Labor Cost and Subcontracting Expenses(Unit: Million yen)）

22,00020,00018,00016,00014,00012,00056%

10,000
8,000

57%

54%
51%

46%

45%

44%

49%

54%

55%

56%

46%

54%

50%

52%

6,000
4,000
2,000

50%

48%

46%

44%

43%

0

Labor cost

Subcontracting expenses

Net sales

17Cash Flows － Second Quarter of the Fiscal Year Ending March 2019
(43rd Business Year)(Unit: Million yen）

Cash flows from operating activities

First half ofthe previous
fiscal year

First half ofthe current
fiscal year

244

582

Cash flows from investing activities

92

(73)

Cash flows from financing activities

194

(27)

Net increase in cash and cash equivalents

531

481

Cash and cash equivalents at beginning of
period

3,447

4,683

Cash and cash equivalents at the end of
the period

3,979

5,165

Increased 337 million yen in the same period of theprevious fiscal year. This was due to businessexpansion and improved profitability.

Decreased 116 million yen due to expenditures forthe provisioning of insurance funds and theacquisition of property, plant, and equipment, etc.,
although there was income from the collection ofloans.
Decreased 221 million yen due to a reduction ininterest-bearing debt and a rise in dividend payments
as a result of an increase in per-share dividends anda higher number of shareholders due to the exerciseof stock warrants.

Cash and cash equivalents were 1,186 million yen
higher compared with the same period of the previous
fiscal year.

18

Improvement in Cash Flows: Reduction in Net Interest-bearing Debt◆

Progress made in reducing net interest-bearing debt and further improvements
continue even after achieving zero debt

(Unit: 100 million yen)

70

60

50

40

4.2 billion yen
30

20

10

0
Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Sep.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018
Interest-bearing debt

Balance of cash and deposit19Changes in Share Price and Dividend(Unit: Yen)

1,400
October 1, 2015
Two-for-one stock split

1,200
1,000
800
600
400
200
Apr. 2013

Apr. 2014

Apr. 2015

Apr. 2016

Apr. 2017

Apr. 2018

Mar. 2013

Mar. 2014

Mar. 2015

Mar. 2016

Mar. 2017

Mar. 2018

Net income per share

17.02 yen

32.91 yen42.81 yen

53.36 yen

39.83 yen51.21 yen

Dividend per share

7.5 yen

10.0 yen

12.5 yen

16.0 yen

12.5 yen

16.0 yen

Dividend pay-out ratio

44.1％

30.4％

29.2％

30.0％

31.4％

31.2％

*The Company implemented a two-for-one split of its common shares with October 1, 2015, as the effective date.
Accordingly, figures before the split have been converted in accordance with the number of shares after the split.

20

Shareholder Composition and Number of Shares Owned(Number of shares)

Two-for-one stock split

16,000,000

Assigned to Tokyo
Stock Exchange,
First Section

14,000,000

Introduceda shareholder
benefitprogram(Number of persons)

8,000
7,000

12,000,000

6,000

10,000,000

5,000

Listing changed
to Tokyo Stock
Exchange,
Second Section

8,000,000

4,000

6,000,000

3,000

4,000,000

2,000

2,000,000

1,000

0

0
Mar. 2010 Mar. 2011 Mar. 2012 Mar. 2013 Mar. 2014 Mar. 2015 Mar. 2016 Mar. 2017 Mar. 2018 Sep. 2018
Individuals, others
Foreign corporations, individuals
Number of shareholders

Securities firms
Brokerage firms

Other domestic corporations
Government and Local public bodies

21Changes in the Number of Employees & Turnover Rate✓✓✓

In 2016, the number of employees topped 1,000 and has continued on an ascending trend.
The employee turnover rate has been consistently below the average for the
IT industry, which is known for its high personnel turnover.
The Company promotes employment of persons with disabilities and meets thestatutory 2.2% employment ratio.

(Number of persons)

(%)
20

1,200

18

1,100

16
1,000

14
12

900

10
800

8
6

700

4
600

2

500

0
2009

2010

2011

2012

2013

Number of employees

2014

2015

2016

2017

2018

Employee turnover ratio of the Company

Industry-wide employee turnover ratio*Turnover rate of IT industry refers to the summary report on “Survey on Employment Trends” announced by the Ministry of Health,Labour and Welfare. Turnover ratio in 2018 is not shown as it has not yet been announced.

22

Projections
for the Fiscal Year Ending March 2019 (43rd Business Year)23

Projections － Fiscal Year Ending March 2019 (43rd Business Year)✓Strategizing for business expansion through human investment,
new product and service development, M&A, and equity-based cooperative alliances.
(Unit: Million yen)

FY 03/2018
Results

FY 03/2019
Projections

Net sales

19,32720,000

3.5%

Operating income

1,025

1,080

5.3%

Ordinary income

1,019

1,060

4.0%

719

700

-2.7%

Net income

Year-onyearchangeExtraordinary income of ¥58 million arose due tosurrender of insurance and the like in accordancewith the retirement of directors. No extraordinary
income projected for the next fiscal year.

FY 03/2018
Results

FY 03/2019
Projections

Annual per-share
dividend

16.00 yen

15.00 yen

Dividend payout
ratio

31.2％

32.2％

Increased from projected 12.50 yen

Improved dividend payout ratio24Supplementary Information: Current Topics

25

Topics (1)

May
28,
2018

Establishment of new joint venture company VRaiB Inc., together with JPPVR
for creating new fields of application for VR and AI technologies

Using the latest technologies such as VR, JPPVR has experience in system development of eSports andVR-experience machines as well as high image-quality VR video distribution.
✓ VRaiB will utilize various state-of-the-art technologies to solve issues of concern to industry and society.
✓26

Topics (2)June 27,
2018✓

Working toward deregulation with a view to promoting the industrial
application of drones

Aiming for deregulation with a view to expanding the usage of drones based on the combined knowledge,
experience, and resources of the Company and the Drone Pilot Association

27

Topics (3)

Nov.
2,
2018
✓

Concluded collaborative cooperation agreement with Kasama City,
Ibaraki Prefecture, relating to the application of unmanned
aerial vehicles

Contributing to community revitalization and improved services for citizens through the utilization of drones and other devices

Content of the collaboration
Promotion of regional
industry
Studies and research on fields ofapplication for
unmanned aerial vehicles
Diffusion, awareness, and application of unmanned
aerial vehicles
Regional safety, security, and disaster mitigation measures
Community revitalization and improvements of services for
citizens that can be promoted by the application of otheradvanced information and communication technologies
At the signing ceremony (from left to right)
Focus Systems: President Keiichi Mori
Drone Pilots Association: President Kazuo Kobayashi
Kasama City, Ibaraki Prefecture: Mayor Nobuyuki Yamaguchi

28Topics (4)Nov. 5,2018

Cooperation in the development of FRONTEO, Inc.’s"artificial intelligence-based patent search and analysis systems"✓ The Company plans to continue its involvement in the development of certain product groups of FRONTEO, Inc.
✓ The Company plans to further expand AI-related operations with a view to investment in areas such as humanresources development

The Company intends to support FRONTEO, based on the Company's wealth of web application
development technology
Human resources of the Company with AI skills
Holders of Official
Qualificationsof the Japan Deep
Learning
Association

Data Analysts

Python*Experienced
Developers* Program language used in fields such as AI and data analysis

29Supplementary Information: Company Outline

30

Corporate Data

Name

Focus Systems Corporation

Line of business

Software development and IT services

Head office

2-7-8 Higashi Gotanda, Focus Gotanda Bldg., Shinagawa-ku, Tokyo

Business offices

Tokyo, Osaka, Nagoya

Capital2,905 million yen

Exchange listings

Tokyo Stock Exchange, First Section (Securities Code: 4662)

Employees

1,116 (as of March 31, 2018)1977

Focus Systems Corporation established for the purpose of software development

1978

Starts doing business with Oki Electric Industry Co., Ltd., and initiates software development work on electronic switchboards

1988

Starts doing business with Nippon Telegraph and Telephone Corporation (now NTT DATA Corporation) and begins providing
services for the development of systems for government and other public agencies

1996

OTC share registration with the Japan Securities Dealers Association (now Tokyo Stock Exchange JASDAQ Standard)

1997

Commences business with IBM Japan, Ltd. and begins system operation/maintenance and infrastructure technology support
business

1999

Starts information security business

2004

Starts selling products for digital forensics, a new field of information security

2015

Exchange listing changed to Tokyo Stock Exchange, Second Section

2016

Listing designation changed to Tokyo Stock Exchange, First Section

31

Operations

Triple FOCUS

1st FOCUS
System Integration
The Company provides
comprehensive system integration
at information system introduction,
spanning the range frominformation system planning anddevelopment consistent withcustomers' business purposes
through to the running of systems.

2nd FOCUS

3rd FOCUS

IT Services

Information Security

The Company provides practicalapplications of cutting-edge IT
technology, support forcustomers' business systems, IT
environment optimization andproblem solutions, andimprovement in value available
from IT application.

The Company provides
customers with information risk
control through information
security technologies such as
digital forensics, encryption, anddigital watermarks.

32

Business Fields

33Company Group Overview

Customers
Order receipt

Order receipt

Delivery

Delivery

Focus Systems Corporation
Public sector businessPrivate sectorbusiness

Security equipment
business

Product procurement
INTELLIGENT NETWORK OF SOLUTION CO.,LTD.
Head office: Kumamoto City, Kumamoto Prefecture
Business lines: Software development
1. Business applications
2. Web applications
3. Group ware
4. Industrial control
5. Software package products(Inos is in charge of C4 Backup/400 development.)

Affiliated company (as of September 2018)
Company name
INTELLIGENT NETWORKOF SOLUTION CO.,LTD.

Sales （thousand yen）

Equity (%)
20.0

563,020

Ordinary income（thousand yen）
59,624

Net income（thousand yen）
54,22534

Work Mode Reform

Work–Life Balance
Systems for
shortened working daysor reduced working hours･･･ Systems for helping employees reconcile work duties with child care or elder care.
Employees can choose shortened working days (3 days a week) or reduced
working hours (choice of 5 hours or 6 hours per day).
* Child care up to the 3rd elementary school year; caregiving until no longer needed.
Kurumin (child rearing support)
recognition

Usage rate of systems for shortened
working days or reduced working hours

Reinstatement rate of employees
after child care leave

77％

100％

* As of March 31, 2018

Job return system(Re-employment system)･･･ Re-employment is possible within 10 years of resignation due to a life event(marriage, child birth, or child rearing) or for career advancement (overseas study
or change of employer).

Workday with fixed
end-of-work time･･･ Each week on Wednesday work ends at a fixed time. Overtime is reduced.

35

Work Mode ReformDiversity
Job creation･･･ In 2015 the Company initiated the production of vegetables by hydroponic cultivation, aiming at creating
new fields of employment for persons with disabilities. An in-house magazine with employment
information for persons with disabilities is issued at regular intervals.
Currently, the Company is also promoting the development of clerical work areas for them.

Informationexchange forfemale employees･･･ Addressing young women, this meeting serves to communicate information on work methods
and support for career advancement.

L-Star (Female employee career promotion)
In April 2016, the Company received the top-ranking
recognition out of three recognition levels for its efforts
at career promotion for female employees.

36

Health Management

Support for club activities･･･ To promote the health of employees, the Company supports club activities.
Currently around 100 employees are enrolled in 8 types of club activities.

Health maintenance seminars ･･･ To mitigate lifestyle habits and to prevent obesity, the Company sponsors seminars dedicated to
specific topics such as dietary improvements and the prevention and improvement of sleep apnea syndrome.

Online programs for
smoking cessation･･･ The Company introduced a quit-smoking program combining online hospital visits and smoking cessationprescriptions. Medical consultation is available via PC, smartphone or tablet. The Company supports employees
making efforts to quit smoking.

37Company Mascot

Mascot Character "Fukue-san"To promote a sense of familiarity with Focus
Systems and the world of information systems,
Fukue-san serves as the conduit for various
kinds of information dissemination revolving
around business, company performance, andemployees.

The Company's original manga"Forensic Detective"

The content serves to help a wide range ofstakeholders gain a deeper understandingof the field of digital forensics, which
accounts for a growing share of the salesof the Company.
All episodes are available in the web magazine.
http://magazine.focus-s.com/category/comic/forensic/

38

Changes in Non-consolidated Financial Results (Full Year)
Fiscal year, ended March

2014

2015

2016

2017

2018

Net sales（1,000 yen）

14,146,242

15,081,738

16,482,792

17,846,896

19,327,344

Operating income（1,000 yen）

887,789

940,310953,356

743,538

1,025,541

Ordinary income (1,000 yen）

849,751

897,205

950,301

731,3311,019,522

Net income（1,000 yen）

455,647

592,742

738,841

551,571

719,2432,905,422

2,905,422

2,905,422

2,905,422

2,905,422

8,146

8,146

16,292

16,292

16,292

Net assets（1,000 yen）

5,029,600

6,769,094

7,415,953

7,258,918

9,201,228

Total assets（1,000 yen）

11,837,231

14,340,827

14,936,873

14,567,320

16,820,805

Net assets per share（ yen）※1

726.46977.72535.58524.24611.34

Dividend per share（ yen）※1

20.00

25.00

16.00

12.50

16.00

Net income per share（ yen）※1

65.81

85.61

53.36

39.83

51.21

Equity ratio（％）

42.5

47.2

49.6

49.8

54.7

Return on equity（％）

9.2

10.0

10.4

7.5

8.7

Payout ratio（％）

30.4

29.2

30.0

31.4

31.2

Number of employees

941

962

1,024

1,073

1,116

Stock price – high ( yen）※1

858

1,210

888

634

1,350

Stock price - low（ yen）※1

442

540

340

412

503

Capital（1,000 yen）
Total number of shares issued andoutstanding（1,000 shares）※1※２

Note 1: The Company implemented a two-for-one split of its common shares with October 1, 2015, as the effective date. Accordingly, figures before the split have been converted in accordancewith the number of shares after the split.
Note 2: "Total assets (in thousand yen)" and "Equity ratio (%)" have been restated to apply for the Partially Revised Tax Effect Accounting Standard (Business Accounting Standard No. 28 of
February 16, 2018), etc.

39

Focus Systems sincerely requests
the continued guidance andsupport of all stakeholders.

This document is based on information available as of November 9, 2018, and on assumptions
as of the same date concerning uncertain factors affecting future financial results.
Actual financial results may materially differ from projections due to various factors in the future.
Consequently, the Company offers no warranty for the certainty of the Group’s businessprojections.
40