COMPANY RESEARCH AND ANALYSIS REPORTScala, Inc.
4845
Tokyo Stock Exchange Prime Market

24-Apr.-2024
FISCO Ltd. Analyst

Yuzuru SatoFISCO Ltd.
https://www.fisco.co.jp

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Overview of 1H FY6/24 results. . ...................................................................................................................

01

2. Outlook for FY6/24.. .....................................................................................................................................

01

3. Medium term business plan.........................................................................................................................

02■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. History................................................... ......................................................................................................

03

2. Business description. . ..................................................................................................................................

05

3. Vision..................................................... ......................................................................................................

09■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 10
1. Overview of 1H FY6/24 results. . ...................................................................................................................

10

2. Trends by business segment. . ......................................................................................................................

11

3. Financial condition and business indicators.................................................................................................

20■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 21
1. Outlook for FY6/24.. .....................................................................................................................................

21

2. Medium term business plan.........................................................................................................................

22■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/■ Summary
Implement business structure reforms in FY6/24, with the aim ofachieving a V-shaped earnings recovery in FY6/25
Scala, Inc. <4845> (hereinafter, “the Company”) adopted the Group vision: “Scala makes the world where valuable
things come springing up,” and is working to contribute to society by becoming a “platform for human growth
focusing on providing growth opportunities” based on digital transformation (DX). Its Group companies engage inthe DX Business, HR & Education Business, EC (e-commerce) Business, Financial Related Business, and Incubation
Business, and the Company uses M&A to expand its business domain and create synergies as one of its growthstrategies.
1. Overview of 1H FY6/24 results
In continuing operations* in 1H FY6/24 (July – December 2023), revenue decreased 10.1% year on year (YoY) to¥5,694mn and operating loss was ¥237mn (profit of ¥136mn in the same period of the previous fiscal year). This
performance mainly reflected large decreases in certain revenue and profit items. Specifically, revenue in the mainstay
DX Business decreased 21.6% to ¥2,949mn due to a reduction in the scale of certain existing projects caused bychanges in the market environment, in addition to the temporary suspension of a large-scale development project
for a certain customer for customer-related reasons, along with the end of the Go To Travel Campaign, which
contributed to earnings in the same period of the previous fiscal year, and the scale-down of the government’s
nationwide travel discount program. These factors were also responsible for a decrease of 62.5% in profit before
the allocation of Company-wide costs to ¥199mn. In addition, results were hampered by a drop in profit in the HR& Education Business and Financial Related Business due to upfront investment outlays.
*	Consolidated subsidiaries Connect Agency Inc. and J-Phoenix Research Inc. were both classified as discontinued operations in 4Q FY6/23. The transfers of all shares of Connect Agency Inc. and J-Phoenix Research Inc. were completed in
4Q FY6/23 and 1Q FY6/24, respectively. Year-on-year comparisons of revenue and operating profit are presented basedon continuing operations, excluding these discontinued operations.

2. Outlook for FY6/24
Following a decline in business performance, the Company began large-scale business structure reforms in January2024 and expects to recognize related expenses. Therefore, the Company has set its outlook for FY6/24 asundetermined. In terms of cost-cutting measures, the Company will reorganize unprofitable operations and reduce
the associated fixed costs, as well as cut fixed costs such as office expenses, system usage fees, and expert remuneration. The Company expects cost increases of up to ¥1.0bn to ¥1.5bn at the operating profit and profit before
tax levels, due to the accrual of one-time expenses associated with fixed cost reductions and fees associated withbusiness reorganization. It also expects accounting losses of up to ¥2.0 to 3.0bn at the profit attributable to ownersof parent level, reflecting impairment losses on goodwill and fixed assets, loss on sale of shares, and unrealized
losses on other assets in connection with business reorganization. Accordingly, the Company can be expected torecord losses of around several billion yen for FY6/24. However, in terms of the positive effects of these businessstructure reforms, for operating profit in FY6/25, the Company expects a positive impact of around ¥0.2bn annuallyfrom business reorganization and a positive impact of approximately ¥0.6bn annually from fixed cost reduction. For
the foreseeable future, the Company intends to concentrate its sales and development systems on its mainstay DX
Business in order to reestablish its growth trajectory.

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Summary

3. Medium term business plan
Positioning the three years leading up to FY6/26 as a period for “building a foundation for solid growth,” the Company
intends to continue implementing measures to solve regional and social issues through public-private co-creation.
By capturing demand for system development projects that arise during the process, the Company aims to expand
its business results with the DX Business serving as a growth driver. The Company has already begun to receive
orders from municipalities for systems such as the Facility Reservation System linked with a digital ID and thefrailty* prevention and management system. With this emerging track record, the Company is expected to grow in
the future. Furthermore, in the HR & Education Business, the Company aims to expand business with the launchof two new services: mid-career job change support and career education for students. In the Financial Related
Business, the Company aims to achieve profitability in FY6/26 through growth in sales of pet insurance products
and improved business efficiency, while setting its sights on entering areas other than pet insurance in the future.
Following the completion of business structure reforms in FY6/25 and thereafter, the Company expects to achieve a
V-shaped recovery in business results through these and other measures. Regarding the shareholder return policy,
the Company will continue with its traditional approach, focusing on stable and consistent dividend payments, andaim for a consistent increase in dividends. Dividends per share for FY6/24 are projected to increase by ¥0.5 YoY to¥37.5, marking the 15th consecutive year of dividend increases.
*	“Frailty” is a concept proposed by the Japan Geriatrics Society in 2014 to describe a condition that falls somewhere
between good health and requiring nursing care (a condition requiring support in daily life). Many elderly people are thought
to progress from good health to sarcopenia, a state in which muscle strength weakens, and then to frailty, a state in which
their general capacity to perform everyday functions declines, eventually leading to the need for nursing care.

Key Points
1H FY6/24 saw higher sales and profits due to favorable performance in the EC Business and HR & Education
Business• Although earnings declined in the mainstay DX Business, new co-creation-type projects have gradually started
to produce results• The outlook for FY6/24 results has been revised to undetermined, due to the implementation of large-scalebusiness reforms• Strengthening development and sales systems to restore profitability in the DX Business, with the aim ofachieving a V-shaped recovery in FY6/25 and beyond•

Results trends(¥mn)

Revenue (left)

Operating profit (right)(¥mn)

16,000900

12,000

600
413

8,000

259

227

300

12,644
4,000

7,624

9,569

8,712

0

-191
0

-300

FY6/20FY6/21

FY6/22

FY6/23

Note: IFRS, continuing operations basis
Source: Prepared by FISCO from the Company’s financial results

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/■ Company profile
An IT development and services company that is expanding its
business areas through an M&A strategy
1. History
The Company was founded in December 1991 with an initial start as a sales distributor of database systems. It
realized significant growth in 1999 by inheriting support services, including customers, for the Model 204* mainframe
database management system license from MITSUI KNOWLEDGE INDUSTRY CO., LTD.
*	Database management system (DBMS) that was developed by US-based Computer Corporation of America and Sirius
Software (now, Rocket Software). Customers were large companies in Japan such as the Bank of Japan <8301> andTokyo Electric Power Company Holdings, Inc. <9501>. Demand ceased due to changes in the market environment, andthe service was ended in the fall of 2016.

In 2000, the Company determined that it needed to change its business structure to continue growing amid themigration of corporate information systems from mainframes to client/servers, and started expanding its businessthrough M&A by utilizing funds obtained from its IPO in 2001. It widely developed its own SaaS/ASP services, which
are its recurring-income earnings model and steadily increased earnings.
As measures toward building a value co-creation platform promoted as a medium-term target starting in 2019, theCompany established Scala Partners, Inc. in July of the same year, and then went on to expand its business activities
even further by proactively conducting M&As. These M&As included making wholly owned subsidiaries of J-Phoenix
Research Inc., which provides management consulting and IR support, in October, Grit Group Holdings Co., Ltd.,
which provides HR & Education Business, in April 2020, EGG CO., LTD., an IT system developer, in February 2022,
and Nihon Pet Small-amount Short-term Insurance Company, which offers small-amount short-term insurance, in
April 2022. (The Company sold all shares of J-Phoenix Research Inc. in August 2023.)
To conduct more flexible management, the Company switched to a holding company organization in 2004, and in
FY6/16, changed its accounting standards to IFRS to disclose its results. The Company moved its listing from theTSE First Section to the TSE Prime Market in line with the TSE’s transition to new market segments in April 2022.

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Company profile

Company History
Date
December 1991
January 1999

Major event
Founded Database Communications (now, Scala, Inc.)
Formed sales distribution contracts for the Japanese market with US-based Computer Corporation of America and Sirius andstarted Model 204 support

May 2001

Listed on the Osaka Securities Exchange’s NASDAQ Japan market (now, TSE JASDAQ (Standard))

April 2003

Acquired Interscience’s patent management software (product name: PatentManager) with the aim of entering the intellectual
property system field

October 2003

Acquired Dbecs Co., Ltd. (now, Scala Communications, Inc.) as a subsidiary to enter the CRM field

April 2004

Acquired Vodamedia Inc. (now, Scala Communications, Inc.) as a subsidiary with the aim of entering the IVR (interactive voice
response) field

September 2004

Renamed as Fusion Partners Co. in the transition to a holding company structure and established Database Communications(now, Scala Services Inc.) as a new company and transferred its business

June 2006
November 2010

Merged subsidiaries Vodamedia and Dbecs and changed the company name to Digi-Ana Communications Inc. (now, Scala
Communications Inc.)
Acquired NewsWatch Inc. (now, Scala Communications, Inc.) as a subsidiary

April 2012

Merged subsidiaries Digi-Ana Communications and NewsWatch (now, Scala Communications Inc.)

May 2014

Listing transferred to the TSE Second Section

December 2014

Shares elevated to the TSE First Section

November 2015

Acquired TriAx Corp. (now, Scala Communications, Inc.) as a subsidiary

January 2016
July 2016

Renamed subsidiary Database Communications as PAREL, Inc.
Acquired SOFTBRAIN Co., Ltd. as a subsidiary

December 2016

Changed trade name to Scala, Inc.

December 2016

Merged the subsidiaries Digi-Ana Communications and TriAx Corp. and changed the trade name to Scala Communications Inc.

August 2017

Acquired plube Co., Ltd. (now, Scala PLAYce, Inc.) as a subsidiary

March 2018

Acquired Leoconnect, Inc. as a subsidiary

October 2018

Acquired Connect Agency Inc. as a subsidiary

November 2018

Established Scala Next, Inc. (now, Scala Communications, Inc.)

December 2018

Established the Scala Next, Inc., (now, Scala Communications, Inc.) Mandalay branch (Myanmar)

July 2019
October 2019
November 2019

Established Scala Partners Inc.
Made a subsidiary of J-Phoenix Research Inc.
Established SCL Capital LLC.

April 2020

Made a subsidiary of Grit Group Holdings Co., Ltd.

June 2020

Invested in MyanCare, a health-tech company in Myanmar that provides remote medical services

August 2020

Established Scala Ace Co., Ltd. as a joint venture with ACE Data Systems Ltd., a major IT company in Myanmar (ownership ratio:
35%)

September 2020

Established Social Studio Inc. as a joint venture with Branding Technology Inc. in order to promote DX to the national and local
governments (ownership ratio: 51%)

November 2020

Developed the reverse public offering proposal service called Gyaku Propo specializing in SDGs for companies’ new businessdevelopment

March 2021

Excluded SOFTBRAIN Co., Ltd. from the scope of consolidation due to the transfer its shares

June 2021

Established Scala Truva, Inc.

August 2021

Made a subsidiary of readytowork Co., Ltd.

November 2021

Established SOCIALX, INC.

February 2022

Made a subsidiary of EGG CO., LTD.

March 2022

Made a subsidiary of Broncos20 Co., Ltd.

April 2022

Moved its listing to the TSE Prime Market in line with the TSE’s transition to new market segments
Made a subsidiary of Nihon Pet Small-amount Short-term Insurance Company

June 2023

Sold Connect Agency Inc. to Adjustone, Inc.

August 2023

Sold J-Phoenix Research Inc.

Source: Prepared by FISCO from the Company’s website and press releases

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Company profile

Engaged in five business segments: the DX Business, HR &Education Business, EC Business, Financial Related Business, andIncubation Business
2. Business description
The Company has organized its business segments into five segments— DX Business, HR & Education Business,
EC Business, Financial Related Business, and Incubation Business —and discloses information on them. Since 1Q
FY6/24, the existing IT/AI/IoT/DX Business and Customer Support Business have been combined to form the DX
Business. In addition, the Company renamed the Insurance Business as the Financial Related Business and the
Incubation & Investment Business as the Incubation Business.
On looking at the Group companies responsible for each business segment as of December 31, 2023, the DX
Business is comprised of six companies, centered on Scala Communications, Inc., which mainly provides SaaS/ASP services. Of these, EGG CO., LTD., which became a subsidiary in 2022, is a pioneer that developed the firstcore system accompanying the start of the Furusato Nozei taxation system*, and its strengths include its networkof many local governments (it has a track record of introducing the system to more than 680, or a third, of local
governments in Japan). Moreover, Leoconnect, Inc., which became a subsidiary in 2018, conducts a customer
support consulting business (call center operations, etc.).
*	System that enables local government workers to simply and accurately manage donor information and thank-you gifts
and create various related documents.

The HR & Education Business has a total of four companies, namely the three companies* of Athlete Planning,Inc., which became a subsidiary in 2020, Sports Stories, Inc., and FourHands, Inc., as well as Broncos20 Co.,
Ltd. which was made a subsidiary by Sports Stories in 2022. In addition, the EC Business is conducted by Scala
PLAYce, Inc., which was made a subsidiary in 2017, while the Financial Related Business is conducted by Nihon
Pet Small-amount Short-term Insurance Company, which was made a subsidiary in 2022. The Incubation Businessincludes Scala Partners, Inc., SOCIALX, INC., SCL Capital LLC, and the SCSV-1 Investment Limited Partnership,
as well as the Company itself as the holding company.
*	These three companies were placed under the umbrella of Grit Group Holdings Co., Ltd., which was made a subsidiaryof the Company in 2020, but currently exist as the Company’s subsidiaries. Grit Group Holdings was liquidated at the endof June 2022.

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

Scala, Inc.

24-Apr.-2024

4845 Tokyo Stock Exchange Prime Market

https://scalagrp.jp/en/ir/

Company profile

Group companies by business segment and business content
Business segment

Group company

Main business

Scala Communications, Inc.

Provision of SaaS/ASP services, offshore development

Scala Service, Inc.

Provision of SaaS/ASP services, call center service

readytowork Co., Ltd.

Development of SaaS/ASP services, offshore development

Retool, Inc.

Planning, development, and sales of cloud activity management tools

EGG CO., LTD.

Systems development, maintenance, and network construction

Leoconnect, Inc.

Customer support consulting (call center operations, etc.)

Athlete Planning, Inc.

HR recruiting (new graduate recruiting, mid-career recruiting) support, etc.

FourHands, Inc.

Infant education, community development support, etc.

Sports Stories, Inc.

Exercise education, sports school operation, etc.

Broncos20 Co., Ltd.

Basketball club team management

EC Business

Scala PLAYce, Inc.

Management of an EC site for the buying and selling of battle-type trading
cards

Financial Related BusinessNihon Pet Small-amount Short-term
Insurance Company

Small-amount short-term insurance

Scala, Inc.

Investment business

Scala Partners, Inc.

Innovation, incubation, investment

SOCIALX, INC.

Planning and operation of the Gyaku Propo public-private co-creation
platform

SCL Capital LLC

Investment fund management

SCSV-1 Investment Limited Partnership

Investment fundDX Business

HR & Education Business

Incubation BusinessNote: As of the end of December 2023
Source: Prepared by FISCO from the Company’s results briefing materials

Looking at the composition of revenue by business segment in 1H FY6/24, the DX Business contributed the majority
share of 51.8%, followed by 20.0% for the EC Business, 15.4% for the HR & Education Business, 10.7% for the
Financial Related Business and 2.2% for the Incubation Business.

Composition by business segment (1H FY6/24)
2.2%

10.7%
DX Business
HR & Education Business
EC Business

20.0%
51.8%

Financial Related
Business
Incubation Business

15.4%

Source: Prepared by FISCO from the Company’s financial results

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Company profile(1) DX Business
The DX Business comprises the development and supply of various types of IT services, including SaaS/ASP
services (i-series), such as inquiries via the Internet and telephone, information searches, and applications, alongwith contract development of various IT systems and the customer support business. SaaS/ASP services act asa stable revenue base by providing a recurring-income business model.
In the past few years, in order to accelerate the creation of new businesses and new services and to redefine
its existing business, the Company has been actively advancing collaborations with partners that are experts
in related technologies in various industries. To give an example, it has been developing, among other things, apublic facility reservation system using digital IDs in partnership with xID Inc. and next-generation digital healthcare
services through co-creation with a pharmaceutical company and a non-life insurance company and has been
advancing initiatives to create services.
Going forward, the Company’s strategy is to accelerate growth by participating in many co-creation development
projects that will lead to solutions for social issues, while for SaaS/ASP services as well, it is projected that there
will be an increase in cases where it provides these services as one development project menu. The fees for
SaaS/ASP services are around ¥100,000 per month, but in the case of co-creation projects, fees are more than
¥2mn per month and it becomes a large-scale, recurring-income business. Lead times from the order to the startof service provision are becoming longer, which means it takes time to realize a profit, but operating efficiency isimproving, so overall profitability is expected to increase as co-creation projects increase.
In addition, the customer support business, which is conducted by Leoconnect, provides consulting services
for the management of inbound call centers, from the receipt of inquiries about customer companies’ services
and products through to the follow-up after responding to inquiries, and its main customers include the HIKARITSUSHIN <9435> Group and its agencies. Earnings have remained sluggish over the past few years, and arecovery is likely to require considerable time. Therefore, this business may need to be reorganized.
Description of the DX Business services
Type
Information searches

Content management

Content delivery

Various types ofreception
Inquiry management
Data management
IoT, big data

Product name

Description

i-search

Internal search engine for websites

GEAR-S

API-based website construction tooli-ask

FAQ system

i-catalog

Product site management system

i-linkcheck

Link check services

i-linkplus

Service for displaying links to related pages

i-giftDigital gift service

FresheyeTM

Search portal site

Corporate news services

News distribution service for corporations

SaaS-type IVR

24-hour, 365-day automated voice response

Campaign website construction

Campaign website construction and reception

i-assist

Web chatbot system

i-livechat

Web chat system

PatentManager6

Latest patent management system

GripManager

Contract operations management system

Safe driving analysis

Processing and management of big data

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

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Company profile(2) HR & Education BusinessIn the HR & Education Business, just under 60% of sales come from the HR business and little over 40% of sales
come from the education business. In the HR business, Athlete Planning provides services including a comprehensive employment support system for physical education students, a job hunt support service specifically forfemale students, and a second career support service for professional athletes. The source of earnings is fromthe planning and management of corporate joint briefing meetings to recruit new graduates (including holding
events online). This service starts selling exhibition booths to companies in June every year for events scheduled
to be held from December to March of the following year.
In the education business, FourHands provides educational services with high added value targeting infants toelementary school students. Its services include the Minna no Hoikuen nursery schools, Universal Kids international
combination day care centers and preschool, UK Academy for cultivating an international sensibility among schoolchildren, and Largo KIDS daycare services, such as after-school activities specializing in exercise. Also, Sports
Stories provides sports classes, including the Fine’z baseball schools for children, the BEAUT soccer school, theDunkers basketball schools and Ballschule schools. A feature of these businesses is that they emphasize not only
athletic ability, but also growth of noncognitive skills. Broncos20, which was made a subsidiary by Sports Stories
in March 2022, manages the Saitama Broncos, which belong to the third division of the B.LEAGUE professional
basketball league. Broncos20 also conducts a variety of activities under the Broncos brand, such as organizing
basketball schools and managing fan club websites, as well as dispatching coaches for club activities in schools.
(3) EC BusinessIn the EC Business, Scala PLAYce buys and sells trading cards for battle-type games, and operates Card Shop
- Yuyu-Tei, a reuse EC site with the functions of a capture site. The site has high name recognition in the gaming
industry and is influential to the extent that it is used as a reference indicator for the pricing of used cards, andit has established itself as the industry’s No. 1 EC shop in the purchase and sale of trading cards. From FY6/20,
it also started purchases from overseas users and the transaction circulation value has continued to grow at a
double-digit annual rate.
(4) Financial Related Business
The Financial Related Business is conducted by Nihon Pet Small-amount Short-term Insurance Company, which
was made a subsidiary in April 2022. It provides the Inu to Neko no Hoken (Insurance for Dogs and Cats) insurance
for pets, which features a lineup of insurance products with unique features, such as a 90% reimbursement rate.
For the future, it also plans to expand its business from pet insurance into various pet-related adjacent services.
It is also considering developing a service in the future to support the transfer of risks facing companies, local
governments and others by data analysis and risk analysis that use AI, developed as an optimal risk transfer
technology.
(5) Incubation Business
The Incubation Business consists of business investment conducted by the Company, regional revitalization-related services in collaboration with local governments, and services to facilitate M&As that support operations. It
also includes new business development by Scala Partners, and regional revitalization-related services centeredon the management of the Komforta Workation website to introduce workation facilities. In addition, it includes the
Gyaku Propo public sector-private sector co-creation platform provided by SOCIALX; investments which is a value
co-creation engagement fund managed by SCL Capital; and improvements in value relating to other investments.

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Company profile

Gyaku Propo is a service private-sector companies, such as large or startup companies, can use when theywant to speedily implement measures, such as ascertaining demand trends and verifying hypotheses, for a new
business that solves social issues. In a conventional public offering proposal, a company aiming to win a projectproduces and submits a project plan to a soliciting local government with a budget, and a third party evaluatesand selects a winner. Conversely, in Gyaku Propo, a company openly solicits local governments who may wantto participate in the theme for solving social issues that the company plans while shouldering the costs itself.
Local governments can participate by preparing and submitting proposal documents, such as demonstration
experiments, in accordance with the theme. As multiple local governments may be selected, companies can also
conduct many demonstration experiments. Budgets for the projects will be paid to selected local governmentsby companies participating in the public offering in the form of “donations.” While SOCIALX receives little revenue
directly from Gyaku Propo, it has received orders for system development projects utilizing Gyaku Propo, and has
positioned it as a tool for expanding public-private co-creating projects because it also increases opportunities
for receiving orders for projects such as DX support from matched local governments.

Aiming for the pinnacle of social contribution by providing value for“society” and “the lives of individuals” based on DX
3. Vision
The Company has set the theme of its Group Vision as “Scala makes the world where valuable things comespringing up.” The Company will promote a cycle of identifying value and people that recognize it, then deliver it withthe appropriate form, method, and timing, while creating new value and technologies that surpass existing value.
Towards realizing this Group Vision, the Group has formulated “VISION 2030” (realizing a society where people canlive in their own way at all times, indefinitely) to describe the direction that it should take. The Group has positioned“being a platform for human growth focusing on providing growth opportunities” as the theme of its medium- tolong-term strategy.
By promoting the solution of issues by DX using the Company’s IT/AI/IoT and investment for solving issues, theCompany will provide opportunities for all to grow and participate. When individuals grow, those around them who
empathize and co-create with them will grow in turn. Through the cycle of empathy and co-creation, a cycle of social
development is formed. The Company aims to contribute to society and increase its corporate value by continuing
to provide various kinds of value for society and the lives of individuals.

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

Scala, Inc.

24-Apr.-2024

4845 Tokyo Stock Exchange Prime Market

https://scalagrp.jp/en/ir/

Company profile

Providing value for society and for the lives of individuals based on DX

Source: The Company’s results briefing materials■ Results trends
In the 1H FY6/24 results, revenue decreased due to a downturn in
the DX Business, leading to an operating loss
1. Overview of 1H FY6/24 results
In the 1H FY6/24 consolidated results (continuing operations basis), revenue decreased 10.1% YoY to ¥5,694mn,
operating loss amounted to ¥237mn (a profit of ¥136mn in the same period of the previous fiscal year), loss before
tax amounted to ¥253mn (a profit of ¥116mn), and loss attributable to owners of parent amounted to ¥246mn (aprofit of ¥90mn).
1H FY6/24 consolidated results (consolidated, IFRS, continuing operations)(¥mn)
1H FY6/23

1H FY6/24

YoY

Resultsvs. revenue

Resultsvs. revenue% change

ChangeRevenue

6,336

-

5,694

-

-10.1%-642

Cost of sales

3,810

60.1%

3,413

59.9%

-10.4%-397

SG&A expenses

2,393

37.8%

2,508

44.1%

4.8%

115

3

0.1%

-9

-0.2%

-

-12

Operating profit

136

2.1%

-237

-4.2%

-

-373

Profit before tax

116

1.8%

-253

-4.4%

-

-370

Profit attributable to owners of parent

90

1.4%

-246

-4.3%

-

-336

Other income/expenses

Note: Other income/expenses include(s) gain/loss on securities related to investment business
Source: Prepared by FISCO from the Company’s financial results

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10 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Results trends

Revenue decreased, weighed down by a significant YoY decline of ¥810mn in revenue in the mainstay DX Business,
although revenue increased in the HR & Education Business, EC Business and Incubation Business. Meanwhile,the EC Business was the only segment in which operating profit increased. The DX Business posted a ¥329mn
decrease in operating profit, and the HR & Education Business, Financial Related Business, and Incubation Business,
etc. also posted either declines in operating profit (or larger operating loss) due to increases in upfront investment
outlays such as development and marketing costs for new services and products. The Company does not disclose
its forecasts for 1H results. However, it looks like results in the DX Business were lower than forecast. This was
mostly because of the effects of temporarily suspending a new development project for a certain customer forcustomer-related reasons.
Results by business segment(¥mn)
1H FY6/24
Results% change

Change

3,759

2,949

-21.6%-810

Operating profit

200

-128

-

-329

Revenue

811

874

7.8%

63

Operating profit

105

86

-18.2%-19
103

RevenueDX Business
HR & Education Business

1,035

1,138

10.0%

Operating profit

136

147

8.3%

11

Revenue

632

606

-4.1%

-26

Operating profit

-83

-126

-

-42

Revenue

95

123

30.4%

28

-122

-127

-

-5

Revenue

EC Business
Financial Related Business
Incubation BusinessYoY

1H FY6/23
Results

Operating profit

Source: Prepared by FISCO from the Company’s financial results

Although earnings declined in the mainstay DX Business, newco-creation-type projects have gradually started to produce results
2. Trends by business segment(1) DX BusinessIn the DX Business, revenue decreased 21.6% YoY to ¥2,949mn and operating loss was ¥128mn (a profit of¥200mn in the same period of the previous fiscal year). But when based on the non-GAAP indicator, operating
profit before the allocation of Company-wide costs fell sharply by 62.5% to ¥199mn. In terms of results foreach major company, Scala Communications, Inc. posted revenue of ¥1,600mn, a decrease of 16.6% YoY, andoperating loss of ¥140mn (profit of ¥72mn in the same period of the previous fiscal year), while EGG CO., LTD.
posted revenue of ¥658mn, a decrease of 46.9%, and operating profit of ¥65mn, a decrease of 62.8%. These
results indicate a significant drop in performance for both of the two major companies in this segment.

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11 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Results trends

Of these companies, EGG CO., LTD. saw decreases both in revenue and profit, although it made some progresson winning over projects supported by the Digital Garden City National Fund (frailty prevention project, etc.).
These decreases were mostly due to the end of the Go To Travel campaign, which had contributed to earnings
in the same period of the previous fiscal year, along with the downsizing of nationwide travel support projects.
Another factor was that EGG CO., LTD. accelerated the recording of development costs for a local government
project scheduled for delivery in 3Q. However, these negative factors were anticipated at the beginning of the
fiscal year, so progress was in line with the Company’s forecasts. On the other hand, Scala Communications,Inc.’s downturn in business performance was mainly caused by the temporary suspension of a new development
project for a major insurance company for customer-related reasons, resulting in a contraction in sales and a
decline in earnings. While steady progress is being made in obtaining new customers, it was insufficient to offset
the consequences of the negative factors.
Results by subsidiary(¥mn)
1H FY6/24
Results% change

Change

1,918

1,600

-16.6%

-317

72

-140

-

-213

1,239

658

-46.9%-581

Operating profit

176

65

-62.8%-110

Revenue

601

689

14.7%

88

Operating profit

-48

-53

-

-4

Revenue

Scala Communications, Inc.

Operating profit
Revenue

EGG CO., LTD.
OthersYoY

1H FY6/23
Results

Note: O thers represents the aggregated amount of consolidation adjustments with companies other than Scala Communications, Inc. and EGG CO.,LTD. in this segment.
Source: Prepared by FISCO from the Company’s results briefing materials

Looking by type of revenue, revenue from monthly billing for SaaS/ASP services such as “i-series” increased bya steady 4.3% YoY to ¥1,362mn, due to the acquisition of new customers, while revenue from usage-based
billing decreased 16.1% to ¥1,070mn and temporary revenue fell 56.1% to ¥516mn, representing a large decline
in both figures.

Breakdown of revenue and operating profit in the DX Business(quarterly)
(¥mn)
2,500

Monthly billing revenue
Temporary revenue
2 , 095

2,000
1,500
1,000

1 , 663

1 , 939
1 , 579

706

694

471

1 , 524

1 , 424

423

242

274

728

585

464

505

565

645

661

659

691

677

684

65

135

184

-37

-93

-35

2Q

3Q

4Q

1Q

2Q

61

500
0

Usage-based billing revenue
Operating profit

-500
1Q

FY6/23

FY6/24

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

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12 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Results trends

The status of projects that are expected to become large projects, such as the co-creation projects that theCompany has been focusing on in the past few years, is as follows.
a) Facility Reservation System linked with a digital ID
By 1H FY6/24, the Company has received orders from three local governments for the Facility Reservation
System linked with a digital ID, which Scala Communications, Inc. developed in collaboration with its partnerxID Inc. In January 2024, Kyotango City in Kyoto Prefecture began operating one of these systems. The system
was introduced to enhance resident services by allowing online user registration for facilities via links with the My
Number Card. It also accepts credit cards and ID payment for online payments. The Company aims to receive
orders from 37 local governments by the end of FY6/24. With an average unit price per order of ¥5.70mn*, themajority of revenue will be recorded as temporary revenue when implementation support is provided. However,
because the system generates monthly billing revenue and related income, if the number of local governmentsthat implement it grows, the system will contribute as a source of recurring revenue.
*	Average unit price = (Temporary revenue + monthly revenue generated in the current fiscal year) ÷ number of revenue-generating months in the current fiscal year

Facility Reservation System linked with the My Number Card

Kyotango becomes the first city in the Kinki region to begin operating a
Facility Reservation System linked with the My Number Card

Source: The Company’s websiteb) Livestock DX
In livestock DX, eG Plus, a system for utilizing data from genomic test results of dairy cattle, was jointly developedby Scala Communications, Inc. and Elite Genomics Co., Ltd. The system went into service in January 2023, andoperations began smoothly. The technology is linked with the system of Neogen Corporation, the largest genomic
testing company in the U.S., and is available as a smartphone app that allows users to view genomic test resultsfor dairy cattle in Japanese and perform various analyses. It enables users to efficiently enhance dairy cattle
through genomic analysis, and is widely used in Europe and the U.S. There has previously been no system inJapan that allows for easy genomic testing and analysis, so this system will be developed to help with dairy farmmanagement in the country. The Company recognized development fees as temporary revenue in FY6/23. It also
records a usage fee as revenue based on the number of tests (¥500 per test). In 1H FY6/24, the average monthly
number of tests was 976, resulting in revenue of around ¥3mn, which is still small. However, the Company shouldbe able to develop the system horizontally, and as a result, it is projected to become a source of steady earnings.

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13 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Results trends

In addition, in January 2023 the Company began providing U-Medical Support, a comprehensive medical treatment support tool with functions including remote treatment, electronic medical records and generating instruction
documents, jointly developed with desamis Co., Ltd. and Mitsui Sumitomo Insurance Company, Limited. The
cows’ health condition is grasped through U-motion®*1, a cow behavior monitoring system developed by desamis.
When a change in the cow’s condition is observed but a veterinarian is unable to attend on-site, dairy farmers canuse the U-Medical Support smartphone app to contact a veterinarian and request remote treatment. Therefore,
the use of U-Medical Support is expected to be effective in preventing further deterioration. As a further benefit,
the system also helps reduce the workload of veterinarians. There are around 1.37mn dairy cows in Japan, andU-motion® is used for around 100,000 of them. The deployment of U-Medical Support is progressing steadily
through desamis. With U-Medical Support, a fixed proportion of monthly usage fees* 2 paid by veterinarians isrecorded as the Company’s sales, so the contribution to results immediately after its launch has been minimal, but
the service is expected to contribute as a stable source of revenue as the number of facilities using it increases andthrough horizontal development. The Company will continue to work on developing new functions for U-Medical
Support, such as a chat function that allows dairy farmers to share information with one another, and a bulletinboard function that serves as a community hub for veterinarians, with the aim of increasing widespread adoptionof this tool.
*1	A service that grasps a cow’s health condition in real time by recording its primary actions, including rumination, movement, lying down and standing up, 24 hours a day, 365 days a year through a sensor attached to its neck.
*2	Monthly fees are ¥20,000 per account and ¥50,000 per business establishment, but dairy farmers can use the service forfree. It is possible that rates will change as functions are added. Incidentally, Japan has around 4,000 veterinary facilities
involved in treating livestock.

U-Medical Support

Source: The Company’s website

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14 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Results trendsc) Frailty prevention project for local governments
By 1H FY6/24, the Company had secured orders from three local governments*1 for ASTER II, an early frailty
detection system developed and provided by EGG CO., LTD., as a project supported by the Digital Garden City
National Fund, and it aims to win three more orders in 2H FY6/24. Using the local government’s official LINE
account as a starting point, the system enables individuals to use their My Number for personal authentication andto conduct frailty assessment checks on their smartphones. The system is designed to prevent frailty by gathering
assessment results in the local government’s administration system and directing staff to provide intervention andguidance based on the assessment results. The system’s implementation is expected to contain the increase in
the number of caregivers for those in need of nursing care while also boosting health and lowering the nursing
care cost burden. The average unit price per system*2 is ¥23.45mn. Although a high share of temporary revenue
is generated when deploying the system, the business model also allows the Company to receive monthly fees.
Therefore, an increase in the number of local governments deploying the system will create a steady stream of
earnings.
*1	Orders were received from Taka Town, Hyogo Prefecture, and Hino Town, Tottori Prefecture in FY22 and from Yonago
City, Tottori Prefecture in FY23.
*2	Average unit price = (Temporary revenue + monthly revenue generated in the current fiscal year) ÷ number of revenue-generating months in the current fiscal year

In addition, as a new system, the Company is currently developing a solution that automatically collects frailty
assessment data, as well as various other types of data from the Kokuho Database (KDB), core nursing caresystem, and other sources, uses AI to perform predictive analysis and detect individuals with a high risk of frailty,
and automatically notifies local government staff. The Company plans to release the new system sometime within
FY6/24. As the number of people requiring nursing care continues to increase as Japan becomes a super aging
society, widespread adoption of this system is expected as a solution to reduce social insurance expenditures.
Schematic diagram of ASTER II for LINE
Smart Post
Receive individual notifications fromlocal government

Identify individuals, disseminate
information by category
ASTER II Local Government
Management System

Resident(elderly people)
People withsmartphones and My
Number Cards

Data
communications
and acquisition
with assured
personalauthenticity

Local government’s
official accountPeople withsmartphones but without
My Number Cards

People without
smartphones andMy Number Cards

Online checking
functions
ASTER II for LINE
- Frailty check- Assessment results- Advice based on
assessment- Existing businessinformation byassessment- Confirmation of
medical checkup data

Check without
personal
verification(limitedfunctionality)

Datasharing
Personal healthinformationxID- Four basic personal
attributes (name, gender,
date of birth, address)
Health app- Point award function
My Number Portal API- Lifestyle health checkup
information- Health checkups for theelderly aged 75 and over
- Health checkups

Integration with external
systems (REST)

Check frailty with ASTER II
using tablets and otherdevices as before

My Number
Portal API

Source: The Company’s website

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15 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Results trends(2) HR & Education Business
The HR & Education Business posted an increase in revenue and decrease in profits, with revenue increasing
7.8% YoY to ¥874mn, while operating profit decreased 18.2% to ¥86mn and operating profit before allocationof Company-wide costs based on the non-GAAP indicator decreased 14.3% to ¥115mn. Of these amounts,
Athlete Planning, Inc.’s recruitment support services saw a 5.6% increase in revenue to ¥487mn, but an 11.1%
drop in operating profit to ¥126mn. Revenue increased as a result of an increased need for companies to exhibit
at recruitment events in response to the trend of bringing forward the job-hunting process. (The number of
events increased by 4 to 39, while the number of companies exhibiting increased by 63 to 659.) Meanwhile,on the profit front, upfront investment outlays (mainly increased personnel costs) in new businesses like the
mid-career job change support business and the career education business for students reduced profits. The
Company believes that these new businesses can be monetized early on because they allow it to leverage its
current business networks and expertise. The mid-career job change support business has already started. In
the future, the Company aims for this business to generate nearly the same amount of revenue as new graduate
job-hunting support services. On the other hand, in the career education business for students, the Company
is currently considering whether to provide this service independently or to supply education content alone toeducation-related companies. The business will be started once a definitive direction has been established.
Meanwhile, revenue of other subsidiaries carrying out the daycare and education services business, among otheroperations, increased 10.8% to ¥387mn, while the operating loss was ¥39mn (a loss of ¥36mn in the same periodof the previous fiscal year). The daycare services Universal Kids Shinagawa (directly managed), which was opened
in April 2023, Universal Kids Bangkok (program provision only, under another company’s management), andGlobal Education Center, a program for school-aged children that specializes in English language education, allcontributed to revenue. Broncos20 Co., Ltd. launched a fan club website for the Saitama Broncos, a professional
basketball team, which led to a steady increase in membership. However, on the profit front, a slight loss remained
due to start-up costs for new sites and an increase in the basketball team’s running costs.
Results by subsidiary(¥mn)

Athlete Planning, Inc.
OthersYoY

1H FY6/23
Results

1H FY6/24
Results% change

Revenue

461

487

5.6%

25

Operating profit

142

126

-11.1%-15

Revenue

349

387

10.8%

37

Operating profit

-36

-39

-

-3

ChangeNote: O thers represents the aggregated amount of consolidation adjustments with companies other than Athlete Planning, Inc. in this segment.
Source: Prepared by FISCO from the Company’s results briefing materials

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16 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Results trends(3) EC Business
Revenue in the EC Business, which is carried out by Scala PLAYce, Inc., increased 10.0% to ¥1,138mn, operating
profit rose 8.3% to ¥147mn, and operating profit before the allocation of Company-wide costs based on the
non-GAAP indicator increased 6.7% to ¥179mn, as both revenue and profits continued to increase, setting newrecord highs. With the market scale for trading cards expanding every year, the Company worked to implement
digital marketing initiatives such as Search Engine Optimization (SEO) and improve usability by enhancing userinterface and user experience (UI/UX). It also saw a steady increase in the member users of an Android app
released in May 2023, and it completely redesigned the EC website Card Shop – Yuyu-Tei in September 2023.
These and other measures met with success, leading to an increase in revenue. KPIs also followed a solid trend.
As of December 31, 2023, membership had increased 23.5% to 265,000, inventories had increased 32.0% to¥323mn, monthly pageviews in December had increased 22.0% to 9,138,000, and unique users had increased
39.1% to 655,000. However, revenue and operating profit have both decelerated, with revenue increasing 1.0%
to ¥556mn and operating profit decreasing 11.1% to ¥63mn for 2Q alone. Performance trends in 3Q and beyond
will need to be monitored closely.

Trends in quarterly results in the EC Business
Revenue (left)(¥mn)

Operating profit (right)

800

(¥mn)
120

104
84

600
65

90

75

70

63

400

200

60
485

550

594

508

582

556
30

0

0
1Q

2Q

3Q

4Q

FY6/23

1Q

2Q
FY6/24

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

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17 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Results trends(4) Financial Related BusinessIn the Financial Related Business, which is carried out by Nihon Pet Small-amount Short-term Insurance Company,
revenue decreased 4.1% YoY to ¥606mn, the operating loss was ¥126mn (a loss of ¥83mn in the same period of
the previous fiscal year) and the operating loss before allocation of Company-wide costs based on the non-GAAP
indicator was ¥108mn (a loss of ¥65mn in the same period of the previous fiscal year). Losses continued to berecorded due to upfront investments in strengthening marketing and developing new products to strengthen
earning capabilities. However, the number of insurance policies has resumed an upward trend, albeit gradually,rising to 27,781 in December 2023 after hitting bottom at 27,703 in July 2023. In addition, efforts to review sales
agencies*1 and tighten payment standards have led to an improvement in the insurance loss ratio* 2. These andother efforts undertaken since Nihon Pet Small-amount Short-term Insurance Company became a subsidiary havestarted to deliver benefits, and it is thought that progress is being made toward strengthening the managementbase for monetization. If the number of policies continues to increase in the future, reported losses are expected
to persist for some time due to an increase in the accumulation of policy reserves. Nonetheless, the Company
aims for this segment to be profitable in FY6/26.
*1	The Company is working to eliminate agencies with poor sales efficiency (agencies with low policy continuation rates)
and acquire new agencies (including online agencies).
*2	The insurance loss ratio (claims paid divided by premium income) decreased from 77.7% in FY6/22 to 67.9% in FY6/23.
Similarly, the expense ratio (operating expenses divided by premium income) decreased from 112.8% to 100.8%.

Trends in quarterly results in the Financial Related Business
Revenue (left)

(¥mn)
350

317

315

Operating profit (right)

(¥mn)
0

308

303

303

303

300

-15

250

-30

200
-42

-45

-38

-40

150

-60

-62

-63

100
-75

50

-75
-90

0

-105
1Q

2Q

3Q

4Q

FY6/23

1Q

2Q
FY6/24

Source: Prepared by FISCO from the Company’s results briefing materials(5) Incubation BusinessIn the Incubation Business, revenue grew 30.4% YoY to ¥123mn, operating loss was ¥127mn (a loss of ¥122mn
in the same period of the previous fiscal year), and operating loss before allocation of Company-wide costs basedon the non-GAAP indicator was ¥125mn (a loss of ¥119mn).

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18 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Results trends

Results by subsidiary(¥mn)

SOCIALX, INC.
Scala Partners Inc.
OthersYoY

1H FY6/23
Results

1H FY6/24
Results% change

ChangeRevenue

33

50

50.1%

16

Operating profit

8

13

49.5%

4

Revenue

41

85

107.3%

44

Operating profit

-18

-10

-

7

Revenue

20

-11

-

-32

-112

-130

-

-17

Operating profit

Note: O thers represents the aggregated amount of consolidation adjustments with companies other than SOCIALX, INC. and Scala
Partners Inc. in this segment.
Source: Prepared by FISCO from the Company’s results briefing materials

Looking at each company, SOCIALX, INC., which conducts business activities such as the operation of the
Gyaku Propo public-private co-creation platform, saw steady growth, with revenue increasing 50.1% to ¥50mn
and operating profit increasing 49.5% to ¥13mn. Gyaku Propo matching numbers steadily increased. In addition,
SOCIALX, INC. became a selected entity of the Startup Support and Development Project by Diverse Entities(TOKYO SUTEAM)*, in response to a public call by the Tokyo Metropolitan Government, and it launched the
Public-Private Co-creation Acceleration Program SOCIALX Acceleration in November 2023. SOCIALX, INC. will
use this program to nurture entrepreneurs who are committed to solving social issues. SOCIALX, INC. will help
startups improve their abilities to present proposals to investors by providing perspectives and approaches tosolving social issues, as well as offer opportunities for horizontal service development. In the first public call forcandidates, SOCIALX, INC. received entries from 70 companies and chose 15 as finalists. The final selection
meeting to determine the winners among the finalists will take place in May 2024.
*	The Tokyo Metropolitan Government issued an open call for and chose “selected entities,” which are business enterprisesthat will support startups in collaboration with the Tokyo Metropolitan Government. The selected entities will provide avaried range of support to startups and those seeking to start businesses over a 1.5-year period, leveraging their ideas,
networks, fields, and other strengths, in collaboration with the Tokyo Metropolitan Government and other selected entities.
The Tokyo Metropolitan Government will pay a contractual fee based on the results of the selected entities’ activities. The
amount of the contractual fee will be determined based on an evaluation by an Evaluation Committee comprised of outside
experts. This evaluation will be centered on fulfillment of KPIs set by the selected entities and the success of the project
as a whole.

Moreover, as part of initiatives set forth in the Cooperation Agreement on Regional Circular Coexistence toward
Realizing a Decarbonized Society, the Company is developing a business for the utilization of social credits by local
governments through public-private co-creation with Itami City, Hannan City, and Iinan Town. In addition, under
the program to promote public-private co-creation projects in Kyushu, which is co-hosted by the Kyushu Bureau
of Economy, Trade and Industry and the Kyushu Open Innovation Center, the Company continued to take steps
to establish a public-private co-creation economy, such as organizing workshops. Although these efforts have
only a negligible direct impact on business results, they may lead to the Company receiving orders for systemdevelopment projects that are needed for business development and grow into large projects.
Scala Partners, Inc. provides workation services* for corporations and new business development. At this company, revenue increased 107.3% YoY to ¥85mn, and operating loss was ¥10mn (a loss of ¥18mn in the same
period of the previous fiscal year). The main drivers of revenue growth were an increase in the number of local
governments with whom it collaborates or supports, as well as a doubling in the number of corporations that use
its services to 40. Turning to the profit front, the segment continued to post a small operating loss, owing primarily
to cost increases associated with new business development.
*	A service to provide experiences that connect regions and people through preferred worksites and new work, which mainly
entails managing the Komforta Workation website that introduces workation facilities.

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19 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Results trends

The equity ratio is expected to temporarily decline due to theimplementation of business structure reforms
3. Financial condition and business indicators
Looking at the financial condition at the end of 1H FY6/24, total assets were down ¥664mn compared to the endof the previous fiscal year to ¥17,652mn. In current assets, there was an increase in inventories of ¥109mn, anddecreases in cash and cash equivalents of ¥75mn and income taxes refund receivable of ¥135mn. In non-current
assets, there were decreases in property, plant and equipment of ¥56mn, right-of-use assets of ¥250mn, and otherfinancial assets (non-current) of ¥107mn.
Total liabilities decreased ¥30mn from the end of the previous fiscal year to ¥10,196mn. Interest-bearing debt
increased by ¥334mn, while there were decreases in lease liabilities of ¥271mn and income taxes payable of ¥75mn.
Total equity declined ¥633mn to ¥7,455mn. This decrease was mainly due to loss attributable to owners of parentof ¥246mn in addition to outlays of ¥323mn for dividend payments.
Looking at business indicators, the Company’s financial position deteriorated slightly, with the ratio of equity
attributable to owners of parent decreasing from 42.8% at the end of the previous fiscal year to 40.8%, while theinterest-bearing debt ratio increased from 76.6% at the end of the previous fiscal year to 87.9%. However, net cash
(cash and deposits minus interest bearing debt) has remained positive, and financial soundness is considered to be
maintained. With the start of large-scale business structure reforms in January 2024, the Company is expected to
streamline its balance sheet, including impairment loss on goodwill, and the ratio of equity attributable to ownersof parent, among other indicators, is projected to decrease further by the end of FY6/24. However, beginning in
FY6/25, these indicators are expected to start improving due to the positive effects of business structure reforms.
Consolidated statement of financial position (IFRS) and business indicators(¥mn)
Current assets(Cash and cash equivalents)
Non-current assets

FY6/21

FY6/22

FY6/23

1H FY6/24

Change12,991

12,03010,28010,070

-210

9,809

9,625

7,740

7,664

-75

7,338

8,786

8,035

7,581

-453

(Goodwill)

1,949

2,356

1,990

1,990

0

Total assets

20,33020,816

18,316

17,652-664

Total liabilities

9,859

11,810

10,227

10,196

-30

5,973

6,951

6,002

6,336

334

10,470

9,006

8,089

7,455

-633

10,162

8,687

7,832

7,206

-625

308

318

257

248

-8

Equity attributable to owners of parent ratio

50.0%

41.7%

42.8%

40.8%

-2.0ptInterest-bearing debt ratio

58.8%

80.0%

76.6%

87.9%

11.3ptNet cash

3,835

2,674

1,737

1,327

-409

(Interest-bearing debt)
Total equity(Equity attributable to owners of parent)(Non-controlling interests)
Business indicators(Stability)

Source: Prepared by FISCO from the Company’s financial results

We encourage readers to review our complete legal statement on “Disclaimer” page.

20 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/■ Outlook
The outlook for FY6/24 results has been revised to undetermined,
due to the implementation of large-scale business reforms
1. Outlook for FY6/24
In its outlook for FY6/24 consolidated results, the Company had previously expected increases in revenue andprofits in its initial forecasts. However, as previously stated, earnings in the mainstay DX Business fell drastically, andwhile other businesses are performing steadily, overall progress has been slower than initially anticipated. In lightof these conditions, the Company decided that it needed to conduct a thorough cost review and further businessreorganization, as well as focus heavily on turning around the DX Business. Based on this decision, the Company
began large-scale business structure reforms in January 2024, and expects to record a temporary large increasein costs. Therefore, the Company has set its outlook for FY6/24 results as undetermined until its forecasts may befirmed up to a certain extent.
FY6/24 consolidated results forecast (IFRS)(¥mn)
FY6/23 results

FY6/24
Initial forecasts

Current forecasts

12,644

12,800Undetermined

Operating profit

259

650

Undetermined

Profit before tax

233

620

Undetermined

Profit attributable to owners of parent

-218

420

Undetermined-12.62

24.24

Undetermined

Revenue

Earnings per share (¥)

Source: Prepared by FISCO from the Company’s financial results

The specific details of business structure reforms are as follows. The Company will reduce fixed costs such as rent bydownsizing Head Office space, as well as system usage fees and expert remuneration. Furthermore, it will reorganize
unprofitable operations (including the sale of subsidiaries) and reduce the associated fixed costs by the end of
FY6/24. The Company anticipates combined cost increases of up to ¥1.0bn to ¥1.5bn at the operating profit andprofit before tax levels. These costs will include temporary costs incurred as a result of the aforementioned measures(for example, lease agreement penalties) and fees related to business reorganization (for example, consulting fees).
Moreover, the business reorganization will result in impairment losses on goodwill and non-current assets, loss onsale of shares, and loss on valuation of other assets. Non-cash accounting losses of up to ¥2.0bn to ¥3.0bn are
expected to arise at the levels of profit and profit attributable to owners of parent.
On the other hand, as the positive effects of business structure reforms, in FY6/25, the Company expects a positive
impact on profits of approximately ¥0.2bn annually from business reorganization and approximately ¥0.6bn annuallyfrom fixed cost reduction. As its top priority, the Company will make every effort to strengthen the DX Business’
profitability and return it to a growth trajectory by concentrating development and sales resources in the DX Business,
which has so far been its mainstay business and has maintained high profitability. The Company plans to disclose
the progress it is making with business structure reforms by the end of March 2024.

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21 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

OutlookThe business strategies for each business segment are as follows. In the DX Business, the Company will continue
to focus on winning orders for large projects, such as public-private co-creation projects. In the HR & Education
Business, the Company aims to expand business by developing newly launched businesses such as the mid-career
job change support business and the career education business for students. In the EC Business, the Company’s
priorities are to increase inflow numbers to EC sites by continuously improving SEO as a measure to increase
circulation value; to continuously renew EC sites by means such as improving UI/UX to increase members withhigh loyalty; and to strengthen trade-ins to enhance the product lineup. Moreover, the Company has introduced an
AI-based image recognition system to increase delivery work efficiency and reduce costs and test operations havebegun. If the benefits of this initiative materialize, profitability is expected to improve. In the Incubation Business,
the Company will continue to focus on public-private co-creation projects such as Gyaku Propo. In addition, theCompany has frozen all new investments in the fund-based investment business, with the intention of managing
existing investment projects until they reach maturity.

Strengthening development and sales systems to restore
profitability in the DX Business, with the aim of achieving a V-shaped
recovery in FY6/25 and beyond
2. Medium term business plan
(1) Overview of the medium term business planThis plan was announced in August 2023 as a three-year medium-term business plan that will run through FY6/26.
The next three years are positioned as a period for “building a foundation for solid growth and redefining uniquevalue,” with FY6/26 targets of ¥15.5bn in revenue and ¥2.0bn in operating profit. However, as previously stated,
the Company has unveiled a policy of carrying out business structure reforms and reorganizing unprofitablebusinesses. Accordingly, we at FISCO believe that the aforementioned numerical management targets will need
to be revised going forward.
That said, there has been no change in the Company’s basic policy. The Company’s medium-term strategy has
three points: 1) place “provision of opportunities that lead to human growth” at the center of the social value
created by the Group and provide various services, 2) giving consideration to human capital management, create
systems and measures to enable people within the Group also to reach their full potential, 3) the Group will serve
as a platform for human growth, realizing both social and corporate value by circulating management resources
and knowledge.
(2) Scala Group platforms
The Company has classified the Scala Group platforms (hereinafter, “PF”) into three levels: Meta PF, Co-creation
PF, and Foundation PF. The platforms serve as spaces to create interaction that solves social issues. The
Company’s strategy is to provide optimal services for solving social issues by creating organic links between
PFs and engaging in co-creation with partners based on the details of each social issue. The Meta PF forms ajunction point with partners and other PFs by gathering social issues through Gyaku Propo and other means andtranslating them into projects. By visualizing the process leading to value creation for observers in and outside
the Company, the platform will create a cycle that draws in even more people and social issues, transforming
social issues into growth opportunities. In terms of the status of progress on current measures, the Meta PF canbe evaluated as progressing steadily on various fronts, including being chosen as a selected entity of TOKYOSUTEAM, as well as Gyaku Propo.

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22 24

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

Scala, Inc.
4845 Tokyo Stock Exchange Prime Market

24-Apr.-2024
https://scalagrp.jp/en/ir/

Outlook

The Co-Creation PF is a platform for creating value for society through co-creation with individual businesses within
the Group or partners in order to solve issues that have been translated into projects. As growth opportunities
provided through the platform, the Company will develop services in three areas: expansion of individual potential(liberal arts), physical and mental health (wellness), and environmental enhancement (empowerment). Specificservices include daycare and services for school-aged children, and a frailty detection and prevention system. In
the liberal arts field, the Company launched two new services (the mid-career job change support business andcareer education business for students). Looking ahead, the Company plans to create a variety of services thatprovide human growth opportunities, both independently and by leveraging the knowledge of partners. These
include a Personal Health Record (PHR) management service, services to support those balancing both childcare
and work, and services that support the physical and mental development of parents and children through dietand exercise.
The Foundation PF comprises the Company’s existing businesses, such as the DX Business, the HR & Education
Business, the Financial Related Business, and the EC Business. In some cases, issues are solved directly by eachbusiness, in some cases they are solved by linking data of the functions of each business, and in some cases
this PF might function as a part of the Co-Creation PF. Although progress has been slow, the Company positions
value creation generated through co-creation by these PFs and partners as the Group’s unique value and intends
to strengthen future initiatives as a differentiation strategy.
(3) Strengthening the business management foundation
One of the key measures is to strengthen the business management foundation. Specifically, the Company has
identified four points to address: rebuild the structure of business cooperation, promote the shared division andincrease their capabilities, systems that enable participation by diverse human resources, and enhance monitoring.
a) Rebuild the structure of business cooperation
The Company will begin by narrowing its focus to specific priority services and enhancing existing profitablebusinesses. It will also increase the profit margin by efficiently capturing management resources (low-cost structure that naturally draws together people, physical equipment, money, and information), and diversify risks bystrengthening collaboration with co-creation partners.
b) Promote the shared division and increase their capabilities
The Company will strive to allocate Group management resources even more effectively by supporting the entire
Group’s monetizing capability. This will be achieved by establishing a shared division within the Head Office in
FY6/24, organizing marketing, survey/analysis, and development teams within the division, thereby enabling theshared division to support feasibility studies of new business plans. In terms of specific actions, the shared division
has begun undertaking marketing and branding reforms in B2C businesses.
c) Systems that revitalize diverse human resources
The Company will help to clarify the future prospects for individuals by providing diverse growth opportunities
and flexible options. It has started considering the overall framework, such as by clarifying the current options
and available experiences, as well as future growth opportunities, and organizing systems that will promote
revitalization of internal personnel. By introducing such systems, the Company plans to eliminate human resource
shortages and realize an increase in productivity, and develop active human resources for the future.
d) Enhance monitoring
The Company will thoroughly implement various measures to address issues identified through monitoring(including decisions to change strategy or downsize/withdraw from businesses based on business aggregationassessment), paving the way for increased corporate value.

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23 24

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

Scala, Inc.

24-Apr.-2024

4845 Tokyo Stock Exchange Prime Market

https://scalagrp.jp/en/ir/

Outlook(4) Image of platform growth
In the Company’s image for revenue growth of the three PFs, the Foundation PF comprising existing businesses
is to account for the majority of revenues up to FY6/26, but from FY6/27 onward, the Company believes that thegrowth of the Co-Creation PF will accelerate. As an indicative image of the composition of revenues in FY6/30,
the Foundation PF will account for 60%, the Co-Creation PF 35%, and the Meta PF 5%.

■ Shareholder return policy
Proactive about returns to shareholders, and planning to pay higher
dividends for the 15th consecutive period in FY6/24
The Company’s basic shareholder return policy is to stably and continuously pay dividends and it aims to continually
increase dividends under this policy. Although the Company expects to record a loss due to the implementation ofbusiness structure reforms in FY6/24, it will maintain its outlook for a dividend per share of ¥37.5, a ¥0.5 increase
YoY, as initially forecast, because the dividends will be funded by profits generated from past investments. From
FY6/25 onward, the Company intends to pay dividends based on profits generated in each fiscal year. To sustain
the current dividend level, the Company may need to target an operating profit of roughly ¥1.0bn. Over the medium
term, the Company will continue to increase its dividends while working to grow profits so that the dividend payout
ratio will be below 50%. The Company will also consider acquiring treasury shares as appropriate in order to improve
capital efficiency and implement a flexible capital policy in response to its business environment.

Dividend per share
(¥)
40.0
35.0

30.0
25.0
20.0
15.0

34.0

36.0

37.0

37.5

FY6/21

FY6/22

FY6/23

FY6/24 E

28.0

10.0
5.0
0.0
FY6/20Source: Prepared by FISCO from the Company’s financial results

We encourage readers to review our complete legal statement on “Disclaimer” page.

24 24

Disclaimer
FISCO Ltd. (“FISCO”) offer stock price and index information for use under the approval of theTokyo Stock Exchange, the Osaka Stock Exchange and Nikkei Inc.
This report is provided solely for the purpose of offering information, and is not a solicitationof investment nor any other act or action.
FISCO prepared and published this report based on information which it considered reliable;
however, FISCO does not warrant the accuracy, completeness, fitness nor reliability of thecontents of this report or the said information.
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mentioned in this report may increase or decrease in value or lose their value due to influence
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This report has been prepared at the request of the company subject hereto based on theprovision of information by such company through telephone interviews and the like. However,
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◾ For inquiry, please contact: ◾

FISCO Ltd.
5-13-3 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (IR Consulting Business Division)
Email: support@fisco.co.jp