COMPANY RESEARCH AND ANALYSIS REPORTScala, Inc.
4845
Tokyo Stock Exchange First Section

10-Apr.-2019
FISCO Ltd. Analyst

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

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. FY6/19 1H results exceeded the Company forecasts. .................................................................................

01

2. The FY6/19 full year results forecasts have been upwardly revised. ............................................................

01

3. Synergies with Leoconnect, Connect Agency are expected. .......................................................................

02

4. Will continue to increase dividends, assuming earnings growth. .................................................................

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

03

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

05

3. The Company’s strengths...................... ......................................................................................................

08■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 08
1. Summary of FY6/19 1H results.............. ......................................................................................................

08

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

10

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

13■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 14
1. Outlook for FY6/19.. .....................................................................................................................................

14

2. Outlook by business....................................................................................................................................

15■Future direction----------------------------------------------------------------------------------------------------------------------------------------------------------- 18■Shareholder return policy --------------------------------------------------------------------------------------------------------------------------------- 19■Information security measure------------------------------------------------------------------------------------------------------------------------ 20

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/██Summary
Earnings growth potential has further increased from the effects of
M&A
Scala, Inc. <4845> (hereafter, also “the Company”) is a leading provider of website search services, FAQ services,and other services for corporate websites. It continues to develop its businesses and achieve sustainable growth,
centered on SaaS/ASP*1 services, which are a business model with recurring (stock-type) income. It also actively
conducts M&A to expand its business area, and in July 2016, it made a subsidiary of Softbrain Co., Ltd. <4779>,
which is a major sales support software company. It also made subsidiaries of plube Co., Ltd., an EC website
management company, in August 2017; of Leoconnect, Inc., which provides customer support consulting to callcenters operated by the HIKARI TSUSHIN <9435> Group, in March 2018; and of Connect Agency Inc., which
provides a Cloud PBX service*2, in November 2018. The Company has adopted International Financial ReportingStandards (IFRS) accounting.
*1	Service that supplies application software functionality to customers over a network*2	An IP phone service with a service design that generates call fees every second. Compared to the usual, three-minutefees, this service offers a costs benefit for companies that make a lot of calls that last a very short time, such as outboundcalls.

1. FY6/19 1H results exceeded the Company forecasts
In the FY6/19 1H consolidated results, sales revenue increased 43.6% year on year (YoY) to ¥8,405mn and operating
profit rose 38.1% to ¥1,135mn, and both results were above the Company forecasts (sales revenue of ¥7,850mn
and operating profit of ¥900mn). This was because, while progress was made as forecast in the mainstay SaaS/ASP business, results at the subsidiaries, of Softbrain and plube, grew more than expected. Looking at the YoY
comparison also, higher sales and profits were achieved in all the business segments, with operating profit growing
particularly significantly in the SFA business, rising 47.5% to ¥516mn, which contributed 53% of the increase inprofits. This was mainly due to the strong sales of e-Sales Manager, which is a tool to improve sales productivity.
Also, the results of Leoconnect, which was made a subsidiary in the 2H of the previous fiscal year, added ¥1,340mn
to net sales and ¥26mn to operating profit.
2. The FY6/19 full year results forecasts have been upwardly revised
For the FY6/19 full year consolidated results, both Company forecasts have been upwardly revised, to sales revenue
to increase 29.4% YoY to ¥16,600mn and operating profit to rise to 29.3% (the previous forecasts were sales revenueof ¥16,200mn and operating profit of ¥1,880mn). This was mainly because the 1H results were above forecast.
Operating profit is expected to decrease slightly in the 2H compared to in the 1H, but this is because the results of
the Softbrain Group will be reflected. However, the strong impression is that these forecasts are conservative, andmoreover synergies with Leoconnect and Connect Agency are expected from the 2H onward. So at FISCO, we
think there is still room for the full fiscal year results to further increase above the forecasts.

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

Summary

3. Synergies with Leoconnect, Connect Agency are expected
From FY6/19 2H onwards, synergies are expected with Leoconnect and Connect Agency, which were recently madeinto subsidiaries. Leoconnect provides consulting with the aim of improving the quality of call center services, while
Connect Agency provides a Cloud PBX service to companies and call centers making outbound calls, and bothhave as customers the HIKARI TSUSHIN Group and its agencies. Together with these subsidiaries, the Company
provides sales proposals to the HIKARI TSUSHIN Group and other customers of its own products, such as i-ask.
When including its agencies, the HIKARI TSUSHIN Group contains thousands of companies throughout the entire
country, so there is huge potential to grow earnings through acquiring these prospective customers.
4. Will continue to increase dividends, assuming earnings growth
The Company’s basic dividend policy is to stably and continuously pay dividends while retaining the internal reserves
necessary to strengthen its financial structure and to develop its businesses in the future. In FY6/19, it plans to
pay a dividend per share of ¥24, up ¥4 YoY, for the 10th consecutive fiscal year of higher dividends. It also aims tocontinue to increase the dividend in the future alongside the growth in earnings.
Key Points
In the FY6/19 1H results, sales and profits increased by double digits and exceeded the Company forecasts
Collaborating with Leoconnect and Connect Agency to acquire as customers the thousands of companies
related to the HIKARI TSUSHIN Group• Newly established a subsidiary to conduct the planning and development of new businesses and services, andgoing forward also, is targeting double-digit growth while aiming to strengthen the service lineup•• 㻾㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻔¥㼙㼚㻕㻿㼍㼘㼑㼟㻌㼞㼑㼢㼑㼚㼡㼑㻌㻔㼘㼑㼒㼠㻕㻔¥㼙㼚㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕㻝㻤㻘㻜㻜㻜

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

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/██Company profile
The corporate cloud service in the CRM field is its core businessand it is expanding business domain 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.
*	Developed by US-based Computer Corporation of America and Sirius Software (now, Rocket Software). Major customers
were large companies in Japan like as Bank of Japan <8301> and Tokyo Electric Power Company Holdings, Inc. <9501>.
Demand for it ceased due to changes in the market environment, and the 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 small-scale open servers, and it started expanding its
business through M&As utilizing funds obtained from its IPO in 2001. It began with the purchase of PatentManager,a patent management software business from Interscience in 2003, and then acquired Dbecs Co., Ltd. with theaim of entering the CRM field, Vodamedia Inc. with the goal of entering the IVR field, the news distribution service
provider NewsWatch Inc., the website developer TriAx Corp., and other firms in the Internet domain as subsidiaries
one after another. The Company is steadily expanding its SaaS/ASP business, which is a business model withrecurring income, as its core operations and bolstering its recruitment of system engineers to enhance its own
service development capabilities.
Recently, the Company made subsidiaries of Softbrain (ownership ratio based on voting rights as of the end ofJune 2018: 50.2%), a major sales support software company, in July 2016; plube (ownership ratio: 100.0%), an
EC website management company that conducts trading of battle game trading cards, in August 2017 in order toenter the EC business; and Leoconnect (ownership ratio: 66.0%), which uses 24 call centers to provide customer
support consulting for the brands and products of the HIKARI TSUSHIN Group, in March 2018, and Connect Agency,
which provides a cloud PBX service to companies and call centers making outbound calls for such customers as
the HIKARI TSUSHIN Group, in November 2018.
To conduct more flexible management, the Company switched to a holding company organization in 2004 andcurrently has 12 consolidated subsidiaries. In FY6/16, it changed its accounting standards to IFRS to disclose its
results.

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03 20

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

Company profile

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
April 2004
September 2004
June 2006
November 2010

Acquired Dbecs Co., Ltd. as a subsidiary to enter the CRM field
Acquired Vodamedia Inc. as a subsidiary with the aim of entering the IVR (interactive voice response) field
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 businessMerged subsidiaries Vodamedia and Dbecs and changed the company name to Digi-Ana Communications Inc. (now, Scala
Communications Inc.)
Acquired NewsWatch 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. 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. as a subsidiary

March 2018

Acquired Leoconnect, Inc. as a subsidiary

November 2018

Acquired Connect Agency Inc. as a subsidiary

November 2018

Established Scala Next, Inc.

December 2018

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

Source: Prepared by FISCO from the Company’s website

Main affiliates
Consolidated subsidiary

Ownership ratio(%)

Main business

Scala Communications Inc.

100.0

SaaS/ASP services and software development, sales, and maintenance

Scala Next

100.0

Development and operations of services for the SaaS/ASP services the Scala Group provides,
as well as planning and development of new businesses

Scala Services Inc.

100.0

Solution services for business processes relating to communication between corporations andindividuals

plube Co., Ltd.

100.0

EC site management

Softbrain Co., Ltd.

50.2

Development, sales, and consulting service to support the introduction of sales support software

Leoconnect, Inc.

66.0

Customer support consulting relating to call center management

Connect Agency

51.0

Cloud PBX service

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

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04 20

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

Company profile

Holds the leading share in the domestic market, including for i-search(an internal website search service) and i-ask (an FAQ service)
2. Business description
The Company divides and discloses information on its businesses into its 4 mainstay businesses: The SaaS/ASP
business, which provides IT services that contribute to improving operational efficiency in the corporate CRM area;
the Softbrain Group’s SFA business (sales innovation business); the field marketing business; and Leoconnect’s customer support business, and also the other businesses (Softbrain’s systems development and publishing businessand plube’s EC business). In FY6/19 1H, the percentages of total sales by business were 21.9% from the SaaS/ASP business, 28.8% from the SFA business, 23.3% from the field marketing business, 16.0% from the customer
support business, and 10.0% from the other businesses. In the percentages of segment profit to total profit, the
SaaS/ASP business provided 27.9%, the SFA business 45.5%, and the field marketing business 12.5%, so these3 businesses provided approximately 85.9% of the total.

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㻝㻜㻜㻚㻜㻑

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㻤㻜㻚㻜㻑

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Source: Prepared by FISCO from the Company's financial results(1) SaaS/ASP business
The Company provides SaaS/ASP services as its core business. The main services are the i-search website searchservice, i-ask FAQ service, IVR service, and news distribution service.
The i-search service was launched in 2007, and it currently holds the leading market share at around 15% withmore than 400 customers, particularly large enterprises. While the Company has over 10 competitors, its i-searchservice offers better visibility by displaying images in search results and provides effective guidance to users. The
average usage fee per month is ¥100,000-150,000.
The Company launched the i-ask service around 2008 and it is used by about 200 companies, mainly in thefinancial and insurance industries. This service lets users resolve issues on their own by listing frequently asked
questions and related answers on their corporate sites. It helps to lower costs by reducing accesses to call centersand can improve customer satisfaction. The Company holds a roughly 15% market share, ranked second after
OKWAVE <3808>. The average usage fee per month is ¥200,000-300,000.

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

Company profile

IVR is a system for voice-based automated responses at corporate phone help desks, and the Company’s service
stands out for being provided in the SaaS format. Companies previously incurred large investment costs for IVR,
including the need to install a PBX (private branch exchange) system. However, the SaaS format enables them toaccess the service inexpensively and use it during limited periods, such as campaigns.
Other than these businesses, the Company also provides various other services, including a news distribution
service for corporations, and a service for the planning, development, production, maintenance, and managementof websites according to customer needs, and one of its features is that it has a rich service lineup and it does
not rely upon a specific service. It also includes the Cloud PBX service provided by Connect Agency, which wasmade a subsidiary in October 2018.
It also develops systems and provides services related to IoT and big data as customized development projects.
Examples of this are Smiling Road, a safe-driving assistance service (for corporations)*1 sold by Sompo Japan
Nipponkoa Insurance, and Portable Smiling Road, a smartphone app (for individuals)*2. In these services, bigdata, such as driving-related data sent from the users’ dashboard cameras, is received by the server of Scala
Communications and is operated and managed by the web system developed by the Company.
*1	A service that contributes to the promotion of continuous safe driving and accident prevention. It does so by using a
website or smartphone app to provide various functions to facilitate safe driving, for example, processing of driving datacollected from dashboard cameras utilizing IoT technologies, providing safe diving analysis for drivers and administrators,
granting points to drivers rated highly in the driving evaluation system, and enabling them to apply for prizes.
*2	A service that contributes to the promotion of safe driving and accident prevention. It does so by using a smartphone app
to provide various functions for “peace of mind,” reporting accidents with a single push of a button should the driver bein an accident, and for “safety,” being useful for accident prevention including through driving analysis and the provisionof information in real time, and GPS for “convenience.”

Description of the SaaS/ASP business services
Type

Product name

Description

i-search

Site internal search engine

i-linkcheck

Link-loss detection system

i-print

Site print service

i-linkplus

Related link display servicei-ask

FAQ system

i-catalog

Product site management system

i-learninge-learning service

i-flow

Progress management and approval system

LaCoonWeb system building platform

i-entry

Comprehensive questionnaire CRM service

dbecs

High-performance web mailer

i-assist

Web chatbot system

i-livechat

Web chat system

i-giftDigital gift service

SaaS-type IVR

24-hour, 365-day automated voice response

Cloud PBX service

IP phone service

Corporate news

Corporate news Monitoring important business information

PatentManager6

Latest patent management system

GripManager

Contract operations management system

Site operations business

FresheyeSearch portal site

IoT, Big Data

Safe driving analysis

Processing and management of Big Data

Site assistance service

CMS service

CRM service

Telephone-system service
News distribution service
Data management

Source: Prepared by FISCO from the Company's business briefing materials

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

Company profile(2) Softbrain Group’s businesses
The Softbrain Group’s businesses can be divided into the SFA business, field marketing business, and otherbusinesses. The SFA business is mainly the development and sales of e-Sales Manager, which is SFA/CRM
software, but also includes a consulting service to solve sales issues, skills training, and a service to support the
introduction of smart devices into companies. e-Sales Manager has an excellent reputation as being No. 1 forusability. It is the industry-leading product from domestic SFA vendors, and has been introduced by a total ofmore than 5,000 companies.
The field marketing business is mainly for consumer goods manufacturers, and involves conducting field activities,
market research, and other activities in stores utilizing registered staff, who are mainly housewives aged in their 30s
to 50s. As of the end of December 2018, the Company has approximately 90,000 registered staff nationwide whocover more than 160,000 stores, including convenience stores and drugstores, and it is deploying this businesson the largest scale within Japan. Recently, field activities have expanded to encompass the B-to-B domain andnot just B-to-C.
The systems development business and publishing business are included in the other businesses segment.
But even for both businesses combined, in the last few years their annual sales have trended around ¥700mn
to ¥800mn and operating profit has been in the range of tens of millions of yen, so their impact on earnings is
negligible.
(3) Customer support businessThis is the business of Leoconnect, which was made a subsidiary in March 2018. It provides consulting services
for the management of the inbound call centers (24 centers nationwide), from accepting enquiries about customer
companies’ services and products through to the follow-ups after the responses. For the time being, its strategy is
to improve the productivity of its customers, including the HIKARI TSUSHIN Group and its agencies, by introducing
its services, such as i-livechat and i-assist, into call centers, and also to collaborate with the other companies in
the Group to expand sales of various IT services to existing customers. In addition, as the second stage, it intends
to progress the acquisition of customers outside of the HIKARI TSUSHIN Group.
(4) Other businesses
The other businesses include Softbrain’s systems development business and the publishing business. They
also include plube’s EC business, which manages “yuyu-tei,” an EC website to buy and sell battle-type tradingcards. The site has a high name recognition in the game industry and is influential to the extent that it is used asa reference indicator for the pricing of used cards, and many of the purchases on it are made by overseas users.

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

Company profile

Aims to differentiate itself from competitors by increasing
convenience through developments from the customer’s perspective
and providing a rich service menu
3. The Company’s strengths
One of the Company’s strengths in the SaaS/ASP business is that it develops services from the customer’s perspective. It handles most of its business as direct sales and 80% of sales revenue is from direct salesforces. It improves
service functions and develops new services by listening closely to customer needs and feeding this informationback to its development team, and its development policy is to meet 100% of customer requests. The Company
developed its core i-search and i-ask services thanks to this approach of meeting customer requests and its services
are characterized specially by their ease of use, and this has also enabled it to make smooth progress in expanding
sales to new customers.
Another strength is that its extensive lineup of services developed in this manner differentiates it from its competitors.
While many competitors offer SaaS/ASP services for corporate websites, most of these companies only supply
standalone services and few can provide multiple services as the Company does. The ability to propose multiple
services enables it to meet diverse customer needs, and this cross-selling helps to raise the average price per
customer and customer satisfaction. It has a track record of transactions with over 1,000 companies, including
400 listed companies.
The features of the SaaS/ASP business are that monthly billing revenue accounts for approximately 70% of sales
revenue and its recurring income business model, in which monthly revenue is accumulated in accordance with thenumber of service contracts. The Company’s basic policy is to avoid usage-based billing as much as possible andto provide services only from fixed monthly billing. Also, the main services are maintaining a high level of profitability,with the gross profit margins at around 80% (the margin is lower for the news distribution service, at around 70%,
because of the costs of purchasing content). A reason for this is that the Company initially develops services
customized to customer needs, and then develops them horizontally as general services, which enables it to keep
development costs down.

██Results trends
In the FY6/19 1H results, sales and profits increased by double digits
and exceeded the Company forecasts
1. Summary of FY6/19 1H results
In the FY6/19 1H consolidated results, sales revenue increased 43.6% YoY to ¥8,405mn, operating profit rose
38.1% to ¥1,135mn, pretax profit grew 38.0% to ¥1,126mn, and net income attributable to owners of the parent
increased 23.1% to ¥458mn. So sales and profits increased by double digits, and moreover every result exceeded
the Company forecasts that were upwardly revised at the time of the Q1 results announcement. The main reason for
the increases compared to the Company forecasts was that the results of Softbrain, Leoconnect, and plube were
better than initially forecast. The operating margin declined 0.5 of a percentage point (PP), but this was due to theaddition of the customer support business, which has a low profit margin.

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

Scala, Inc.

10-Apr.-20194845 Tokyo Stock Exchange First Section

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

Results trends

Sales revenue increased by double digits YoY in all the business segments. Even when looking on an existing
business basis after excluding the customer support business, which was added in the 2H of the previous fiscal
year, and Connect Agency, which was made a subsidiary in FY6/19 Q2, sales revenue still increased 19%. Operating
profit also increased in all the business segments. Among them, the SFA business played the driving role behindthe earnings growth, contributing 53% of the total increase in profits. On an existing business basis, is seems thatthe operating profit increase rate was an increase of 39%.
FY6/19 1H consolidated results(¥mn)
FY6/18 1H
Results

FY6/19 1H% of sales

Forecast(announced in
November 2018)

Results% of sales

YoY

vs forecast

Sales revenue

5,854

-

7,850

8,405

-

43.6%

7.1%

Operating profit

822

14.0%

900

1,135

13.5%

38.1%

26.2%

Pretax profit

815

13.9%

890

1,126

13.4%

38.0%

26.5%

Net income attributable toowners of the parent

372

6.4%

400

458

5.5%

23.1%

14.6%

Source: Prepared by FISCO from the Company's financial results㻺㼑㼠㻌㼟㼍㼘㼑㼟 㼎㼥㻌㼎㼡㼟㼕㼚㼑㼟㼟㻌㼟㼑㼓㼙㼑㼚㼠㻺㼑㼠㻌㼕㼚㼏㼛㼙㼑㻌㼎㼥㻌㼎㼡㼟㼕㼚㼑㼟㼟㻌㼟㼑㼓㼙㼑㼚㼠㻲㼅㻢㻛㻝㻤㻌㻝㻴
㻔¥㼙㼚㻕
㻟㻘㻜㻜㻜
㻞㻘㻡㻜㻜
㻞㻘㻜㻜㻜
㻝㻘㻡㻜㻜

㻡㻝㻢

㻞㻘㻠㻞㻟

㻞㻘㻜㻠㻜
㻝㻘㻤㻠㻠
㻝㻘㻢㻜㻞

㻲㼅㻢㻛㻝㻥㻌㻝㻴
㻔¥㼙㼚㻕
㻢㻜㻜
㻡㻜㻜

㻝㻘㻥㻡㻢
㻝㻘㻢㻞㻢

㻠㻜㻜
㻝㻘㻟㻠㻜

㻟㻝㻣
㻞㻥㻤

㻟㻡㻜

㻟㻜㻜
㻤㻠㻜

㻝㻘㻜㻜㻜

㻞㻜㻜

㻡㻤㻠
㻡㻜㻜

㻝㻜㻜

㻜

㻜

㻝㻠㻝
㻝㻝㻤

㻝㻟㻟
㻞㻢

㻡㻠

Source: Prepared by FISCO from the Company's financial results

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

09 20

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

Scala, Inc.

10-Apr.-20194845 Tokyo Stock Exchange First Section

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

Results trends

In the SaaS/ASP business, monthly sales are steadily increasing andsynergies with Leoconnect are also starting to appear
2. Trends by business segment(1) SaaS/ASP businessIn the SaaS/ASP business, sales revenue increased 15.1% YoY to ¥1,844mn and operating profit rose 6.0% to¥317mn, which were new record highs for a 1H. Looking by type of sales revenue, monthly billing increased 9.6%
to ¥1,080mn due to the penetration of cross sales among existing customers and the progress made in acquiring
new customers, while usage-based billing rose 117.7% to ¥172mn, including due to the addition of Connect
Agency’s sales. One-time sales revenue grew 9.7% ¥589mn, including from the contribution of the provision ofa systems development and management application to Sompo Japan Nipponkoa Insurance, which provides
products to LINE Hoken. The reason for the decline in the profit margin was a reaction to the fact that there
were highly profitable, large-scale development projects in the same period in the previous fiscal year, and after
excluding this factor, it was unchanged YoY. Connect Agency contributed two months of results, of November
and December 2018, adding net sales of more than ¥100mn and seems to have been a slightly positive factor
for profits also.

 㼎㼡㼟㼕㼚㼑㼟㼟㻌㼞㼑㼟㼡㼘㼠㼟㻿㼍㼍㻿㻛㻭㻿㻼
㻿㼍㼘㼑㼟㻌㻔㼙㼛㼚㼠㼔㼘㼥㻕㻌㻔㼘㼑㼒㼠㻕㻿㼍㼘㼑㼟㻌㻔㼛㼚㼑㻙㼠㼕㼙㼑㻕㻌㻔㼘㼑㼒㼠㻕

㻔¥㼙㼚㻕

㻞㻘㻜㻜㻜

Sales (usage-based (left)㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

㻟㻡㻜

㻟㻝㻣

㻞㻥㻤

㻝㻣㻞

㻝㻘㻢㻜㻜

㻞㻤㻜

㻣㻥
㻣㻣

㻝㻘㻞㻜㻜

㻔¥㼙㼚㻕

㻡㻤㻥

㻡㻟㻣

㻞㻝㻜

㻟㻟㻠

㻤㻜㻜

㻝㻟㻥

㻝㻠㻜

㻥㻜㻠

㻥㻤㻡

㻝㻘㻜㻤㻜

㻲㼅㻢㻛㻝㻣㻌㻝㻴㻲㼅㻢㻛㻝㻤㻌㻝㻴㻲㼅㻢㻛㻝㻥㻌㻝㻴

㻠㻜㻜

㻣㻜

㻜

㻜

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

Sales by service(¥mn)
FY6/17 1H

FY6/18 1H

FY6/19 1H

YoY

YoY (%)

i-search

191

221

251

30

13.6%

i-ask

175

204

259

55

27.0%

Web services

185

206

396

190

92.2%

Services related to IoT/big data

137

320

161

-159

-49.7%

Telephone system service

131

135

165

30

22.2%

News distribution

206

210

233

23

11.0%

Other

288

303

267

-36

-11.9%

Total

1,317

1,602

1,735

133

8.3%

Note: Does not include Connect Agency’s sales
Source: Prepared by FISCO from the Company's results briefing materials and interviews

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

10 20

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

Results trends

The main new customers for SaaS/ASP business services
Type

Product name

Description

Customers

Site assistance service

i-search

Site internal search engine

QVC Japan, Inc., NISHIMATSUYA CHAIN Co., Ltd.,
Haluene Co., Ltd.

CMS servicei-ask

FAQ system

ORIX Credit Corporation, SymEnergy Inc.,
E.design Insurance Co.,Ltd., Haluene Co., Ltd., Hi-Bit Inc.

i-assist

Virtual assistance

The Nishi-Nippon City Bank, Ltd., Daiwa Securities Co. Ltd.,Hi-Bit Inc.

i-livechat

Web chat system

Sony Assurance Inc.

i-giftDigital gift service

MONEY PARTNERS CO., LTD

SaaS-type IVR

Automated voice response service R-bies, INC.

CRM service

Telephone system service

Note: Red text indicates collaborative projects with Leoconnect.
Source: Prepared by FISCO from the Company's financial results and website

By service, sales revenue trended strongly for both mainstay services, up 13.6% YoY to ¥251mn for i-searchand up 27.0% to ¥259mn for i-ask. Also, the new i-gift service (a store visit-type product exchange digital giftservice)*1, which was released in 2017, was newly introduced by Money Partners Co., Ltd. (Money Partners Group<8732>); i-assist (a web chatbot system)*2, was introduced by the Nishi-Nippon City Bank, Ltd. (Nishi-Nippon
Financial Holdings <7189>) and Daiwa Securities Co., Ltd. (Daiwa Securities Group Head Office <8601>); andi-livechat (a Web chat system)*3 and the SMS distribution management service were newly introduced by Sony
Assurance Inc., an existing customer. So the Company is steadily accumulating results for these advanced
services as well. Synergies are also starting to appear through joint proposals with Leoconnect, such as theintroductions of i-search and i-ask into Haluene Co., Ltd., and i-ask and i-assist into Hi-Bit. Going forward also,
further introductions into companies in the HIKARI TSUSHIN Group are expected.
*1	i-gift is a digital gift service in which companies conducting sales promotion campaigns for new products or gifts cansend customers an SMS or email (electronic message with an ID, such as a QR code) that can be presented at stores toreceive a product. As the billing system is a combination of usage-based billing according to the number of IDs issued
and fixed monthly billing, the greater the number of IDs issued, the more the Company’s sales revenue will increase.
*2	i-assist is a chatbot system that utilizes AI.
*3	i-livechat is a web chat service that enables site operators, such as in a customer support center, to guide users in solving
problems they may face and addressing their questions or concerns through real-time chat. By linking and checking
users’ i-search and i-ask history, site operators are able to respond while confirming content on the chat response screen.
i-livechat is a service that contributes to improving customer satisfaction. It is anticipated that it will be introduced mainly
at corporate call centers.

(2) SFA businessIn the SFA business, sales revenue increased 18.7% YoY to ¥2,423mn and operating profit rose 47.5% to ¥516mn,
which were new record highs for a 1H. Sales of e-Sales Manager, which is sales-support software that contributes
to improved productivity in sales departments, were strong, particularly of the Cloud version. Sales of consulting,training, and other services also trended favorably. In the context of the increase in companies reforming ways
of working, demand is growing for SFA tools that contribute to improved sales productivity, and among them,e-Sales Manager has been evaluated as being No.1 for ease of use, and its sales are strong. The profit margin
also rose by 4.1 PP YoY to 21.3%, as the effects of the higher sales of e-Sales Manager absorbed the increases
in personnel costs and development costs.

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

11 20

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

Scala, Inc.

10-Apr.-20194845 Tokyo Stock Exchange First Section

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

Results trends㻿㻲㻭㻌㼎㼡㼟㼕㼚㼑㼟㼟㻌㼞㼑㼟㼡㼘㼠㼟㻿㼍㼘㼑㼟㻌㼞㼑㼢㼑㼚㼡㼑㻌㻔㼘㼑㼒㼠㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕
㻔¥㼙㼚㻕

㻔¥㼙㼚㻕
㻟㻘㻜㻜㻜
㻞㻘㻡㻜㻜

㻡㻝㻢

㻢㻜㻜
㻡㻜㻜

㻠㻠㻡
㻟㻡㻜

㻞㻘㻜㻜㻜

㻠㻜㻜

㻝㻘㻡㻜㻜

㻟㻜㻜
㻞㻘㻠㻞㻟

㻝㻘㻜㻜㻜

㻞㻘㻜㻠㻜

㻝㻘㻥㻝㻥

㻞㻜㻜

㻡㻜㻜

㻝㻜㻜

㻜

㻜

㻲㼅㻢㻛㻝㻣㻌㻝㻴㻲㼅㻢㻛㻝㻤㻌㻝㻴㻲㼅㻢㻛㻝㻥㻌㻝㻴

Source: Prepared by FISCO from the Company's results briefing materials(3) Field marketing businessIn the field marketing business, sales revenue increased 20.3% YoY to ¥1,956mn, and operating profit rose
19.6% to ¥141mn, for higher sales and profits for the first time in 2 years. The main reasons for the higher sales
and profits were that orders for spot projects, such as store construction, which had slumped in the same period
in the previous fiscal year, recovered due to the change to the sales organization structure and from the effects
of focusing on new customer acquisition. It was also because lump sum contract projects for field activities forexisting customers performed well. In addition, in the efforts to develop new markets, orders for field-activity
services in the B-to-B field (sales services for hotels and transport companies) have started to increase.

㻲㼕㼑㼘㼐㻌㼙㼍㼞㼗㼑㼠㼕㼚㼓㻌㼎㼡㼟㼕㼚㼑㼟㼟㻌㼞㼑㼟㼡㼘㼠㼟㻿㼍㼘㼑㼟㻌㼞㼑㼢㼑㼚㼡㼑㻌㻔㼘㼑㼒㼠㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

㻔¥㼙㼚㻕
㻞㻘㻡㻜㻜

㻔¥㼙㼚㻕
㻝㻠㻝

㻝㻟㻢

㻝㻡㻜

㻝㻝㻤
㻞㻘㻜㻜㻜

㻝㻞㻜

㻝㻘㻡㻜㻜

㻥㻜

㻝㻘㻜㻜㻜

㻝㻘㻥㻡㻢
㻝㻘㻢㻞㻤

㻢㻜

㻝㻘㻢㻞㻢

㻡㻜㻜

㻟㻜

㻜

㻜

㻲㼅㻢㻛㻝㻣㻌㻝㻴㻲㼅㻢㻛㻝㻤㻌㻝㻴㻲㼅㻢㻛㻝㻥㻌㻝㻴

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

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

12 20

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

Scala, Inc.

10-Apr.-20194845 Tokyo Stock Exchange First Section

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

Results trends(4) Customer support businessIn addition to the outsourcing of customer support consulting operations for various companies in the HIKARITSUSHIN Group, a track record of orders and introductions through joint proposals of SaaS/ASP services isstarting to appear. Sales revenue was ¥1,340mn and operating profit was ¥26mn, and although the profit margin
is still low, at around 2%, in the future it is expected to gradually improve from the introductions of SaaS/ASP
services.
(5) Other businesses
In other businesses, sales revenue increased 43.7% YoY to ¥840mn and operating profit rose 146.2% to ¥133mn.
Looking at the breakdown of sales revenue, in the systems development and publishing business, it rose 18.7% to¥426mn. Also, in the EC business of plube, which became a consolidated subsidiary in August 2017, sales werestrong of battle game trading cards, particularly Pokémon cards, and sales revenue increased significantly, up
83% YoY. In terms of the change factors, it seems that the increase in profits in plube’s EC business contributed.

㻻㼠㼔㼑㼞㻌㼎㼡㼟㼕㼚㼑㼟㼟㼑㼟㻓㻌㼞㼑㼟㼡㼘㼠㼟㻿㼍㼘㼑㼟㻌㻔㼜㼘㼡㼎㼑㻕㻌㻔㼘㼑㼒㼠㻕㻿㼍㼘㼑㼟㻌㻔㼟㼥㼟㼠㼑㼙㼟㻌㼐㼑㼢㼑㼘㼛㼜㼙㼑㼚㼠㻌㼍㼚㼐㻌㼜㼡㼎㼘㼕㼟㼔㼕㼚㼓㻕㻌㻔㼘㼑㼒㼠㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕

㻔¥㼙㼚㻕
㻝㻘㻜㻜㻜

㻝㻟㻟

㻤㻜㻜

㻔¥㼙㼚㻕
㻝㻡㻜

㻝㻞㻜
㻠㻝㻟

㻢㻜㻜

㻥㻜

㻞㻞㻡
㻠㻜㻜

㻢㻜

㻡㻠
㻠㻞㻜

㻞㻜㻜

㻟㻡㻥

㻠㻞㻢

㻟㻜

㻥
㻜

㻜
㻲㼅㻢㻛㻝㻣㻌㻝㻴㻲㼅㻢㻛㻝㻤㻌㻝㻴㻲㼅㻢㻛㻝㻥㻌㻝㻴

Source: Prepared by FISCO from the Company's results briefing materialsInterest-bearing debt increased, but is maintaining a net cash
equilibrium
3. Financial condition and business indicators
Looking at the financial condition at the end of FY6/19 Q2, total assets were up ¥2,022mn on the end of the previous
fiscal year to ¥18,256mn. Breaking down the main change factors, in current assets, cash and cash equivalents
increased ¥1,092mn and operating receivables and other receivables rose ¥458mn, while in non-current assets,
goodwill increased ¥404mn.
Total liabilities increased ¥1,427mn from the end of the previous fiscal year to ¥9,015mn. The main factor wasinterest-bearing debt increased by ¥1,271mn. Total equity increased ¥595mn from the end of the previous fiscal
year to ¥9,240mn, with the main factors being the recording of net income attributable to owners of the parent of¥458mn, net income attributable to non-controlling interests of ¥297mn, and dividend payments of ¥169mn.

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

13 20

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

Scala, Inc.

10-Apr.-20194845 Tokyo Stock Exchange First Section

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

Results trends

Looking at the business indicators, the equity ratio declined by 2.9 PP, from 39.7% at the end of the previous fiscal
year to 36.8%. Mainly due to the increase in interest bearing debt, the interest-bearing debt ratio rose from 74.3%
at the end of the previous fiscal year to 90.3%. But since net cash (cash and cash equivalents – interest-bearingdebt) is being kept at the equilibrium level, it can be judged that the Company is maintaining its financial soundness.
However, goodwill accounts for approximately 34% (¥6,192mn) of total assets, and it is necessary to be awarethat there is the risk that its financial condition could worsen should the earnings of Softbrain, which provides the
majority of this goodwill, deteriorate due to it requiring impairment treatment. But currently Softbrain’s results aretrending stably, and at FISCO, we think the possibility of this risk materializing is extremely low. The Company has
expressed its intention to gradually reduce the level of interest-bearing debt in the future if it does not require funds,
such as for M&A.
Consolidated balance sheet(¥mn)
End-FY6/16

End-FY6/17

End-FY6/18

5,470

7,167

8,120

9,676

1,555

5,060

4,999

4,950

6,042

1,092

4,160

7,774

8,112

8,580

467

(Goodwill)

477

5,684

5,787

6,192

404

Total assets

9,631

14,941

16,233

18,256

2,022

Total liabilities

5,720

7,021

7,587

9,015

1,427

3,300

4,768

4,793

6,064

1,271

3,910

7,919

8,645

9,240

595

-

1,934

2,196

2,522

326

Equity ratio (shareholders’ equity ÷ total assets)

40.6%

40.1%

39.7%

36.8%

-2.9ptInterest-bearing debt ratio(interest-bearing debt ÷ shareholders’ equity)

84.4%

79.7%

74.3%

90.3%

16.0pt

ROE

28.1%

60.4%

11.4%

ROA

18.2%

30.4%

9.9%

Operating margin

22.9%

35.4%

12.1%

Current assets(Cash and cash equivalents)
Non-current assets(Interest-bearing debt)
Total equity(attributable to non-controlling interests)

End-FY6/19 1H

ChangeIndicators(Stability)(Profitability)

Note: Based on IFRS
Source: Prepared by FISCO from the Company's financial results██Outlook
Remains room for the FY6/19 results to further increase above theforecasts
1. Outlook for FY6/19
The forecasts for the FY6/19 consolidated results are for double-digit increases in sales and profits, with sales
revenue to increase 29.4% YoY to ¥16,600mn, operating profit to rise 29.3% to ¥2,000mn, pretax profit to grow
29.6% to ¥1,990mn, and net income attributable to owners of the parent to increase 25.9% to ¥890mn. All of the
net sales and profits forecasts have been upwardly revised from the Company’s previously announced forecasts.
The main reason for this is that results up to Q2 were above forecast.

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

14 20

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

OutlookAt the end of Q2, the rates of progress toward achieving the full fiscal year forecasts were 50.6% for net sales and56.8% for operating profit. The 2H operating profit forecast is ¥864mn, which is less than the 1H result of ¥1,135mn.
But this is from the effect of Softbrain’s FY12/19 Q2 (January to June, 2019) operating profit forecast of ¥470mn(up 1.9%YoY) being reduced from the FY12/18 2H result of ¥772mn. The operating profit forecast after excluding
the results of the Softbrain Group is ¥395mn, which is a further increase on the result of ¥363mn in the 1H. The
Softbrain Group’s results forecasts are based on the values in the medium-term management plan announced in
January 2018, and when considering the fact that Softbrain’s FY12/18 results were above forecast and the current
ordering environment, it is highly possible that its FY6/19 2H results will also exceed the forecasts. In the SaaS/ASP
business as well, at FISCO we think it is highly likely that the FY6/19 results will exceed the Company forecasts fromthe expected synergies with Leoconnect and Connect Agency.
Outlook for FY6/19 consolidated earnings(¥mn)
FY6/18Results

FY6/19YoY

Company
forecast

Revisedforecast

YoY

Progress rate
up to 1H

Sales revenue

12,82920.3%

16,20016,600

29.4%

50.6%

Operating profit

1,546

11.3%

1,880

2,000

29.3%

56.8%

Pretax profit

1,535

11.1%

1,870

1,990

29.6%

59.6%

707

28.0%

840

890

25.9%

51.5%

49.65

52.59

Net income attributable to owners of
the parent
Earnings per share (¥)

41.88* Comparisons with non-GAAP indicators
Source: Prepared by FISCO from the Company's financial results

Collaborating with Leoconnect and Connect Agency to acquire ascustomers the thousands of HIKARI TSUSHIN Group companies andrelated companies
2. Outlook by business(1) SaaS/ASP businessIn the SaaS/ASP business, sales are forecast to increase around 20% YoY. The Company will continue to workon cross sales for the i-series and on acquiring new customers toward accumulating monthly billing. For one-timesales also, in Q3, new development projects for Sompo Japan Nipponkoa Insurance are expected to contribute.
The addition of Connect Agency’s Cloud PBX service will also be a factor behind the higher sales and profits. The
profit margin will be somewhat low as management costs up to FY6/19 Q3 will double, but it is expected to risefrom Q4 onwards, as this issue will be resolved by that time.
In particular, there are expectations for synergies with Leoconnect and Connect Agency from the 2H onwards.
Leoconnect provides consulting services toward improving service quality at call centers, mainly for inbound calls,
while Connect Agency provides a Cloud PBX service for companies that conduct sales and call centers making
outbound calls. In both cases, the customers are companies in the HIKARI TSUSHIN Group and its agencies.
The products that the Company provides to these customers include i-livechat, i-assist, IVR, and i-ask, andthe number of customers introducing these services is expected to increase from joint proposals. As previously
explained, a track record of joint proposals with Leoconnect is already starting to appear. The Company has one
permanent sales staff already positioned in Leoconnect, and the responsible director also allocates half a week
to joint-proposal projects.

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

15 20

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

OutlookMeasures for the future

Source: The Company's results briefing materials

The sales method was previously a style of proposing individual products while interviewing the other party about
their needs. But the Company’s new strategy is to effectively grow earnings by introducing a package-sales
method, of creating a package of several of its leading services. It will first progress sales activities for thecustomers of Leoconnect and Connect Agency, and as there are 200 to 300 companies in the HIKARI TSUSHINGroup, and moreover thousands of companies nationwide when also including the companies in which it has
not invested, such as its agencies, these will be the Company’s promising potential customers. For Leoconnect,
which provides consulting mainly to inbound-calls call centers, the introduction of i-ask and i-assist will reduce
the number of calls, making it difficult for it to grow sales. But conversely, it is thought that the introduction ofthese services will enable it to provide high value-added services, which will improve its profitability. The FY6/19
1H operating profit margin was 2.0% and this is a low-profitability business, but the average profit margin in thecustomer support industry is around 10%, so in the future it seems fully possible that it will be raised to aroundthe 10% level. Also, looking at the Group as a whole, as sales are growing of the i-series, which has a high profit
margin, overall profitability is expected to improve through synergies.
Another topic is that demand, such as for translation services for websites’ FAQ pages and for multilingual callcenter services for foreigners, is expected to increase as inbound measures for companies in advance of the Tokyo
Olympics. In the multilingual call centers, the Company has a business collaboration with Inbound Tech, which has
a top-class track record domestically, and it is utilizing its resources to provide high quality services. The numberof foreign visitors to Japan exceeded 30 million in 2018, and this number is projected to further increase up to
the Tokyo Olympics in 2020. As there are many companies, even major ones, that still did not have a multilingual
FAQ page, this service is attracting increasing attention, which will lead to an increase in sales in the future.

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

16 20

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

Outlook(2) SFA businessIn the SFA business, net sales are forecast to increase by 15% to 20%, mainly due to the continued strong salesof e-Sales Manager. The 2H results are forecast to decline slightly compared to the Company’s 1H profit level
because Softbrain’s FY12/19 Q2 results forecasts are somewhat conservative, but in the short term, earnings may
fluctuate depending on the timing of deliveries of on-premises projects. However, improving productivity at sales
sites has become a management issue for companies, so in the medium term, the annual double-digit increases
in sales and profits are expected to continue.
Regarding Softbrain’s e-Sales Manager, e-Sales Manager Remix MS, which is a self-serve version intended for
SMEs, has been introduced to expand customer groups. It is also developing industry-specific products. While
their contribution to earnings is still in the future, they are attracting attention as measures that will lead to growthin the future.
(3) Field marketing businessIn the field marketing business, net sales are expected to increase by around 15% to 20% YoY, mainly because
orders for spot projects continued to be strong in the 1H. Consumer goods manufacturers are outsourcing
their sales promotions operations due to a shortage of human resources. This shortage of human resources isparticularly serious in regional cities and other such places, and this would seem to be providing beneficial for theCompany, which has built a network of approximately 90,000 field staff across the country.
As a medium-term growth strategy, the Company is starting field operations for B-to-B, and it is also collecting
consumer receipt information and adding additional information, such as the purchase reason, to create a
database, and developing a POB (Pont of Buy) business to sell to companies. Currently, POS information data is
in widespread use, but as additional data, for example on the purchase reason and consumer attributes, is still
unclear, the Company is acquiring contracts to add this additional information. In addition, it intends to raise-up
the number of data collectors to the leading level in the industry through collaborations with companies with manymembers due to small numbers of data, with the aim of generating profits in two to three years’ time.
(4) Customer support businessIn the customer support business, the outlook is for sales revenue of around ¥2.6bn. In FY6/18, the amount was¥856mn for a four-month period. Also, the aim is for operating profit of around ¥60mn. As previously stated, it ispossible that sales will slow down due to the reduction in the number of incoming calls following the introductionof IT services, but profitability is expected to rise from FY6/20 onwards. Further, in the event that there is excess
capacity for operators due to the reduction in the number of incoming calls, it will be possible to allocate thiscapacity to efforts to acquire customers from outside of the HIKARI TSUSHIN Group.
(5) Other businesses
In the other businesses, even within Softbrain, the systems development business and publishing business are
not considered to be businesses to be actively expanded, and their results are expected to remain at the samelevel as in the previous fiscal year. On the other hand, the outlook for the EC business in FY6/19 is for double-digit
growth in sales and profits from the strong sales of battle-type trading cards.

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17 20

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/██Future direction
Newly established a subsidiary to conduct planning anddevelopment of new businesses and services, and going forwardalso, is targeting double-digit growth while aiming to strengthen theservice lineup
In terms of its direction for the future, the Company plans to develop a wide range of businesses in the CRM area,
which supports communication between corporations and individuals, with the aim of providing the necessary
information and goods on the correct timing based on IT services. In addition to the sustainable and stable growthof the existing SaaS/ASP business, its plan is to target double-digit growth by enhancing the synergies with thecustomer support business acquired through M&A.
The Company established Scala Next, Inc., in November 2018. It has three purposes in establishing it: to conduct
the planning and development of new businesses and services, including not only existing IT services for companies,
but also services for consumers; to conduct the planning and development of new businesses overseas without
excluding any possibilities in terms of the areas to develop a business in and the business content; and to conduct
offshore development and management operations for the IT services provided by the Company Group. Of these,
in December 2018 it established a branch in Myanmar as an offshore development base, and it is scheduled tostart operations in half a year to one year.
By separating into a different company the planning and development functions for new businesses, it is thoughtthat the Company intends to speed-up these functions compared to in the past, to strengthen the services lineup,
and to improve the profit margin. For M&A also, it will continue to not focus solely on 100% investment and will
investigate a proposal if synergies can be expected from it. The targets for M&A are companies with expertise andtechnologies for developing new services, companies with a customer base that will lead to an expansion of market
share for the existing services, companies with a full service lineup and technologies and expertise that the Company
does not possess that will contribute to the evolution of its existing services and to its improved competiveness,and companies that have many excellent engineers who will strengthen its development capabilities. The Company
plans to announce a medium-term management plan in August 2019, and it is thought that the specific strategies
for the future will be clarified at that time, so we will be paying attention to its content.

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

18 20

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

Scala, Inc.
4845 Tokyo Stock Exchange First Section

10-Apr.-2019https://scalagrp.jp/en/ir/

Future direction

Future direction

Source: The Company's results briefing materials██Shareholder return policy
Plans to increase the FY6/19 dividend per share by ¥4 YoY to ¥24, forthe 10th consecutive fiscal year of higher dividends
The Company’s basic policy on returning profits to shareholders is to stably and continuously pay a dividend while
also retaining the internal reserves necessary to strengthen its financial structure and develop its businesses in
the future. The standard for the consolidated dividend payout ratio is around 50%, and in FY6/19, the Company
plans to increase the dividend per share by ¥4.0 YoY to ¥24.0 (dividend payout ratio, 45.6%). This will be the 10thconsecutive fiscal year of higher dividends, and it is also expected to continue to increase the dividend in the future,
if earnings continue to grow.

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

19 20

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

Scala, Inc.

10-Apr.-20194845 Tokyo Stock Exchange First Section

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

Shareholder return policy㻰㼕㼢㼕㼐㼑㼚㼐㻌 㼜㼑㼞㻌㼟㼔㼍㼞㼑㻔¥㻕㻰㼕㼢㼕㼐㼑㼚㼐

㻯㼛㼙㼙㼑㼙㼛㼞㼍㼠㼕㼢㼑㻌㼐㼕㼢㼕㼐㼑㼚㼐

㻟㻜㻚㻜
㻞㻠㻚㻜㻌

㻞㻡㻚㻜

㻞㻜㻚㻜㻌
㻝㻤㻚㻜㻌

㻞㻜㻚㻜
㻝㻡㻚㻜

㻝㻜㻚㻜

㻝㻠㻚㻜㻌
㻝㻞㻚㻜㻌
㻞㻠㻚㻜

㻞㻚㻜
㻝㻤㻚㻜

㻞㻜㻚㻜

㻝㻠㻚㻜
㻡㻚㻜

㻝㻜㻚㻜

㻜㻚㻜
㻲㼅㻢㻛㻝㻡

㻲㼅㻢㻛㻝㻢

㻲㼅㻢㻛㻝㻣

㻲㼅㻢㻛㻝㻤

㻲㼅㻢㻛㻝㻥㻌㻱

Source: Prepared by FISCO from the Company's financial results██Information security measure
The Company’s mainstay business is SaaS/ASP services that utilize the Internet, so information security is one of its
most important management issues. In terms of specific measures, all Group companies have been and continue
to work to acquire ISO/IEC27001 certification, which is the international standard for information security, and to
implement information security measures incorporating a global-standard third-party perspective. They also strive
to thoroughly manage the information assets owned by the Group based on an internal management system. Theyuse in-house servers and some private clouds for the information system, while also constructing backup systems.

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

20 20

Disclaimer
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This report was prepared at the request of its subject company using information provided
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this report are subject to change without prior notice.
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