Financial Statements
Year ended March 31, 2020

SMS CO., LTD.
Sumitomo Fudosan Shibakoen Tower,
2-11-1, Shibakoen, Minato-ku,
Tokyo, 105-0011, Japan

Consolidated Balance Sheets
SMS CO., LTD. and Its Consolidated Subsidiaries
As of March 31, 2019 and 2020
(Millions of yen)
As of March 31, 2019
AssetsCurrent assets
Cash and deposits
Accounts receivable - trade
Merchandise and finished goods
Work in process
Supplies
Accounts receivable - otherPrepaid expenses
Other
Allowance for doubtful accounts
Total current assets

As of March 31, 2020

10,703
4,323
1
13
36
4,478
634
46
(114)

11,091
5,213
–
14
30
6,183
664
18
(113)

20,123

23,102

Non-current assets
Property, plant and equipment
Buildings
Accumulated depreciation

459
(276)

626
(291)

Buildings, net

183

335

749
(498)

806
(545)

Tools, furniture and fixtures, net

251

261

Machinery, equipment and vehicles
Accumulated depreciation

42
(30)

37
(17)

12

20

Right-of-use assets
Accumulated depreciation

–
–

481
(91)

Right-of-use assets, net

–

389

447

1,006

Intangible assets
Goodwill
SoftwareTrademark rights
Customer-related assets
Other

10,574
1,174
9,246
2,088
0

10,148
1,637
9,126
1,825
0

Total intangible assets

23,08322,738Tools, furniture and fixtures
Accumulated depreciation

Machinery, equipment and vehicles, net

Total property, plant and equipment

Investments and other assets
Investment securities
Deferred tax assets
Lease and guarantee deposits
Other

*

Total investments and other assets
Total non-current assets
Total assets

－

1

－

2,048
855
880
30

*

2,225
873
1,039
11

3,814

4,149

27,34427,89347,46750,996

(Millions of yen)
As of March 31, 2019
Liabilities
Current liabilities
Accounts payable - trade
Current portion of long-term loans payable
Accounts payable - otherAccrued expenses
Income taxes payable
Accrued consumption taxes
Advances received
Deposits received
Provision for bonuses
Provision for refund
Lease obligations
Other

As of March 31, 2020

353
2,487
6,064
529
623
435
583
78
481
227
–
24

314
2,487
7,711
451
534
536
725
84
600
242
112
30

Total current liabilities

11,891

13,831

Non-current liabilities
Long-term loans payable
Net defined benefit liability
Deferred tax liabilities
Lease obligations
Other

17,632
311
2,078
–
13

15,144
354
1,994
260
11

Total non-current liabilities

20,037

17,766

Total liabilities

31,92831,597

Net assets
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares

2,208
13
14,971
(0)

2,246
51
19,079(0)

17,193

21,376

Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Foreign currency translation adjustments

0(1,834)0(2,149)Total accumulated other comprehensive income(1,833)(2,149)Total shareholders’ equity

Subscription rights to shares
Total net assets
Total liabilities and net assets
See the accompanying Notes to Consolidated Financial Statements.

－

2

－

179

171

15,53919,39847,46750,996

Consolidated Statements of Income
SMS CO., LTD. and Its Consolidated Subsidiaries
Fiscal years ended March 31, 2019 and 2020
(Millions of yen)
Fiscal year ended
March 31, 2019
Net sales
Cost of sales

Fiscal year ended
March 31, 2020

30,836
3,535

Gross profit

35,1404,048

27,301

Selling, general and administrative expenses*1

Operating income
Non-operating income
Interest income
Share of profit of entities accounted for using equity method
Other
Total non-operating income
Non-operating expenses
Foreign exchange losses
Interest expenses
Arrangement fee
OtherTotal non-operating expenses
Ordinary income
Extraordinary income
Gain on sale of non-current assets
Gain on sale of shares of subsidiaries and associates
Gain on sale of businesses*2

Total extraordinary income

22,55831,091
*1

4,743

4,935

11
1,352
66

24
1,486
62

1,430

1,573

51
66
46
30

43
102
–
6

194

152

5,979

6,355

1
6
–

1
–
55

*2

8

Extraordinary losses
Loss on sale and retirement of non-current assets
Loss on valuation of investment securities
Loss on business withdrawal
Loss on cancellation of events
Other

*3
*4
*5

Total extraordinary losses

26,156

165
4
233
–
49

57
*3
*4
*5

23
–
–
13
–

453

37

Profit before income taxes

5,534

6,375

Income taxes – current
Income taxes – deferred

1,564
(221)

1,702
(87)

Total income taxes

1,342

1,615

Profit

4,191

4,760

Profit attributable to non-controlling interests
Profit attributable to owners of parent
See the accompanying Notes to Consolidated Financial Statements.

－

3

－

(25)

–

4,216

4,760

Consolidated Statements of Comprehensive Income
SMS CO., LTD. and Its Consolidated Subsidiaries
Fiscal years ended March 31, 2019 and 2020
(Millions of yen)
Fiscal year ended
March 31, 2019
ProfitOther comprehensive income
Valuation difference on available-for-sale securities
Foreign currency translation adjustments
Share of other comprehensive income of entities accounted
for using equity method
Total other comprehensive income (loss)*

Fiscal year ended
March 31, 2020
4,191

4,760

0
(399)

(0)
(310)

(3)

(4)

(402)

*

(315)

Comprehensive income

3,788

4,444

Comprehensive income attributable to:
Owners of parent
Non-controlling interests

3,806
(17)

4,444
–

See the accompanying Notes to Consolidated Financial Statements.

－

4

－

Consolidated Statements of Changes in Net Assets
SMS CO., LTD. and Its Consolidated Subsidiaries
Fiscal years ended March 31, 2019 and 2020
(Millions of yen)
Shareholders' equity
Capital stock
Balance at April 1, 2018

Capital surplus

Retained earnings

Total shareholders'equityTreasury shares

2,167

3,965

14,545(0)

20,677Issuance of new shares

41

41

－

－

82

Dividends of surplus

－

－

(564)

－

(564)

Profit attributable to ownersof parent

－

－

4,216

－

4,216

Change in ownership interestof parent due to transactions
with non-controlling interests－(3,992)(3,225)－(7,218)Purchase of treasury shares

－

－

－

(0)

(0)

－

－

－

－

－

41

(3,951)426(0)(3,484)2,208

13

14,971(0)

17,193

Changes of items during period

Net changes of items otherthan shareholders' equity
Total changes of items during
periodBalance at March 31, 2019

Accumulated other comprehensive income
Valuation
Total accumulated Subscription rights
Foreign currency
difference onotherto shares
translation
available-for-salecomprehensive
adjustments
securities
incomeBalance at April 1, 2018

Non-controllinginterests

Total net assets

0(1,423)(1,423)

135

4,252

23,641

Issuance of new shares

－

－

－

－

－

82

Dividends of surplus

－

－

－

－

－

(564)

Profit attributable to ownersof parent

－

－

－

－

－

4,216

Change in ownership interestof parent due to transactions
with non-controlling interests

－

－

－

－

－

(7,218)Purchase of treasury shares

－

－

－

－

－

(0)

0

(410)

(410)

44

(4,252)(4,618)

0

(410)

(410)

44

(4,252)(8,102)0(1,834)(1,833)179－

15,539Changes of items during period

Net changes of items otherthan shareholders' equity
Total changes of items during
periodBalance at March 31, 2019

－

5

－

(Millions of yen)
Shareholders' equity
Capital stock

Capital surplus

Retained earnings

Total shareholders'equityTreasury shares

2,208

13

14,971(0)

17,193Issuance of new shares

37

37

－

－

75

Dividends of surplus

－

－

(652)

－

(652)

Profit attributable to ownersof parent

－

－

4,760

－

4,760

Change in ownership interestof parent due to transactions
with non-controlling interests

－

－

－

－

－

Purchase of treasury shares

－

－

－

(0)

(0)

－

－

－

－

－

37

37

4,107

(0)

4,183

2,246

51

19,079(0)

21,376

Balance at April 1, 2019
Changes of items during period

Net changes of items otherthan shareholders' equity
Total changes of items during
periodBalance at March 31, 2020

Accumulated other comprehensive income
Valuation
Total accumulated Subscription rights
Foreign currency
difference onotherto shares
translation
available-for-salecomprehensive
adjustments
securities
incomeBalance at April 1, 2019Non-controllinginterests

Total net assets

15,5390(1,834)(1,833)179－

Issuance of new shares

－

－

－

－

－

75

Dividends of surplus

－

－

－

－

－

(652)

Profit attributable to ownersof parent

－

－

－

－

－

4,760

Change in ownership interestof parent due to transactions
with non-controlling interests

－

－

－

－

－

－

Purchase of treasury shares

－

－

－

－

－

(0)

(0)

(315)

(315)

(7)

－

(323)

(0)

(315)

(315)

(7)

－

3,859

0

(2,149)(2,149)171－

19,398Changes of items during period

Net changes of items otherthan shareholders' equity
Total changes of items during
periodBalance at March 31, 2020

See the accompanying Notes to Consolidated Financial Statements.

－

6

－

Consolidated Statements of Cash FlowsSMS CO., LTD. and Its Consolidated Subsidiaries
Fiscal years ended March 31, 2019 and 2020
(Millions of yen)
Fiscal year ended
March 31, 2019
Cash flows from operating activities
Profit before income taxes
Depreciation
Amortization of goodwill
Loss (gain) on sale and retirement of non-current assets
Loss (gain) on valuation of investment securities

Fiscal year ended
March 31, 2020
5,534
1,061
807
163
4
71
233
–

6,375
1,211
809
21
–
(10)
–
(55)

Share-based remuneration expenses
Loss on withdrawal from business
Loss (gain) on sale of businesses
Share of (profit) loss of entities accounted for using equity
methodIncrease (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for bonuses
Increase (decrease) in provision for refund
Increase (decrease) in net defined benefit liability
Foreign exchange losses (gains)
Interest expenses
Decrease (increase) in notes and accounts receivable - trade
Increase (decrease) in accrued consumption taxes
Decrease (increase) in accounts receivable - other
Decrease (increase) in prepaid expenses
Increase (decrease) in advances received
Increase (decrease) in accounts payable - other
Other, net

(334)

(179)

(109)
39
74
150
51
66
(34)
28
(1,004)
(64)
(581)
993
73

(0)
121
14
43
43
102
(910)
101
(1,626)
(30)
176
1,647
(308)

Subtotal

7,225

7,547

Interest and dividend income received
Interest expenses paid
Income taxes paid

11
(62)
(2,018)27(102)(1,880)Net cash provided by (used in) operating activities

5,156

5,591

(1,047)
982
(216)
(731)
–
–

(729)
916
(419)
(1,186)
(5)
57

(23)

(762)

(29)

1

(1,066)(2,127)(Continued)

Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Purchase of intangible assets
Payments for acquisition of businesses
Proceeds from sale of businesses
Purchase of shares of subsidiaries resulting in change inscope of consolidation
Other, net
Net cash provided by (used in) investing activities

－

7

－

(Millions of yen)
Fiscal year ended
March 31, 2019
Cash flows from financing activities
Proceeds from long-term loans payable
Repayments of long-term loans payable
Repayments of lease obligations
Proceeds from issuance of share acquisition rights
Proceeds from issuance of shares resulting from exerciseof share acquisition rights
Cash dividends paid
Payments from changes in ownership interests in
subsidiaries that do not result in change in scope of
consolidation
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
See the accompanying Notes to Consolidated Financial Statements.

－

8

－

Fiscal year ended
March 31, 2020

10,953(1,941)–
4–(2,488)
(78)
8

50

70

(557)

(644)

(11,453)

–

(0)

(0)

(2,943)(3,132)

(24)

270

1,122

602

8,768

9,890

* 9,890* 10,493

Notes to Consolidated Financial Statements(Significant matters forming the basis for the preparation of consolidated financial statements)
1. Matters related to the scope of consolidation
Number of consolidated subsidiaries: 43
Names of major consolidated subsidiaries
SMS Career CO., LTD.
SENIOR MARKETING SYSTEM ASIA PTE. LTD.
Medica Asia (Holdco) Limited
MIMS Pte. Ltd.
MIMS (Shanghai) Ltd.
KIMS Limited
Medica Asia Australia (Holdco) Pty Ltd
MIMS Australia Pty Ltd
MIMS (NZ) Limited and otherFor the fiscal year ended March 31, 2020, CCM International Limited and three other companies were included in thescope of consolidation due to acquisition of shares or establishment of new companies.
2. Application of equity method(1) Number of affiliates accounted for using equity method: 3Name of major affiliate
M3 Career, Inc.
3. Fiscal year of consolidated subsidiaries
The fiscal year-end of SMS Career CO., LTD., SMS Support Service CO., LTD., SMS Financial Service CO., LTD., Zweig
Co., Ltd., WorkAmbitions Co., Ltd., and WILLONE Co., Ltd. is March 31, which is the same as the Company’s fiscal year-end.
The fiscal year-end of consolidated subsidiaries other than those above is December 31. Since the difference in fiscal yearends is not more than three months, financial statements as of December 31 are used in preparing the consolidated financial
statements. For significant transactions that occurred in the period from their fiscal year-end to the Company’s fiscal year-end,
necessary adjustments have been made upon consolidation.
4. Matters related to the accounting policies(1) Basis and method of valuation of significant assets
a. Securities
Available-for-sale securities
Available-for-sale securities without a determinable market value are stated at cost determined by the moving-averagemethod.
b. Inventories
Merchandise and finished goods, work in process and supplies
Inventories are mainly measured at cost determined by the weighted-average method. (The amounts on the consolidatedbalance sheets are calculated using a method of writing down the book value due to decreased profitability.)(2) Depreciation and amortization method of significant depreciable assets
a. Property, plant and equipment
Property, plant and equipment is depreciated using the declining-balance method. Buildings and accompanying fixturesand structures acquired on or after April 1, 2016 are depreciated using the straight-line method.
Major useful lives are as follows:
Buildings
6 to 15 years
Tools, furniture and fixtures
3 to 9 years
Machinery, equipment and vehicles
2 to 5 years

－

9

－

b. Intangible assets
Intangible assets are amortized using the straight-line method.
Major useful lives are as follows:
SoftwareEstimated period of internal use (within 5 years)
Trademark rights
Not amortized
Customer-related assets
12 yearsc. Right-of-use assets
Right-of-use assets are depreciated using the straight-line method.
(3) Basis of significant allowances and provisions
a. Allowance for doubtful accounts
For normal trade receivables, allowance for doubtful accounts is provided at an amount determined based on thehistorical experience of bad debt. For certain receivables such as doubtful receivables, uncollectible amounts areindividually estimated.
b. Provision for bonuses
Provision for bonuses is provided for the payment of employees’ bonuses based on the estimate of future payments
attributed to the fiscal year.
c. Provision for refund
In order to meet refund payments due to applicants’ resignation based on the refund clause stipulated in job placement
contracts between the Company and clients, provision for refund is provided at an amount estimated based on historicalexperience.
(4) Methods for significant hedge accounting
a. Hedge accounting method
Deferral hedge accounting is applied. For interest rate swaps, special accounting treatment is applied if the criteria for
special accounting treatment are met. For currency swaps, the allocation method is applied if the criteria for the allocation
method are met.
b. Hedging instruments and hedged items
Hedging instruments:
Interest rate swaps and currency swaps
Hedged items:
Long-term loans payable and associated interest denominated in foreign currencies
c. Hedge policy
As a policy, the Company uses interest rate swaps and currency swaps in order to mitigate and avoid interest rate
fluctuation risk and foreign exchange fluctuation risk.
d. Method of evaluating hedge effectivenessHedge effectiveness is evaluated by comparing the total changes in values of hedging instruments and hedged items forthe periods from the commencement of hedge contracts to the evaluation dates. For interest rate swaps which meet thecriteria for special accounting treatment, the evaluation of hedge effectiveness is omitted.
(5) Accounting treatments for retirement benefit
a. The method of attributing expected benefit to periods
The straight-line method is used as the method of attributing expected benefit to periods through the fiscal year-end in
calculating the projected benefit obligations.
b. The method of recognizing actuarial gain or loss
Actuarial gain or loss is charged to income in the fiscal year when such gain or loss is incurred.
(6) Basis of translation of significant assets and liabilities denominated in foreign currencies into Japanese yen
All monetary assets and liabilities denominated in foreign currencies are translated into yen at the exchange rates
prevailing as of the fiscal year-end, and resulting gains and losses are included in income.
Assets and liabilities of overseas consolidated subsidiaries are translated into yen at the year-end exchange rates, andincome and expenses are translated into yen at average exchange rates during the year. Differences arising from thetranslations are included in “Foreign currency translation adjustments” and “Non-controlling interests” under net assets.
(7) Amortization of goodwill – method and period of amortization
Goodwill is amortized over its effective period, not exceeding 20 years, on a straight-line basis.

－

10

－

(8) Cash and cash equivalents in consolidated statements of cash flows
The Company considers cash on hand, readily available deposits, and all easily convertible short-term instruments with amaturity of three months or less when purchased that are exposed to insignificant risk of changes in value to be cash andcash equivalents.
(9) Other significant matters for preparation of consolidated financial statementsa. Accounting treatment of consumption taxes
Consumption taxes are accounted for by the tax-excluded method.
b. Consolidated taxation system
The Company and certain consolidated subsidiaries have applied the consolidated taxation system, with the Company
being a parent company under the system.
c. Tax effect accounting for the transition from the consolidated taxation system to the group tax sharing system
In accordance with the Act for Partial Revision of the Income Tax Act, etc. (Act No. 8 of 2020, hereinafter the “Act”)
promulgated in March 2020, the consolidated taxation system was revised and a shift is made to the group tax sharing
system, which will be effective for fiscal years beginning on or after April 1, 2022.
In accordance with paragraph 3 of “Practical Solution on the Treatment of Tax Effect Accounting for the Transition fromthe Consolidated Taxation System to the Group Tax Sharing System” (Practical Issue Task Force (“PITF”) No. 39, March
31, 2020), as to the provisions in which the separate taxation system was revised, the Company and certain consolidated
subsidiaries apply the tax provisions in effect prior to the Act in calculating deferred tax assets and liabilities instead of theprovisions prescribed in paragraph 44 of “Implementation Guidance on Tax Effect Accounting” (Accounting Standards
Board of Japan (“ASBJ”) Guidance No. 28, February 16, 2018).
(Changes in accounting policies)
Certain overseas consolidated subsidiaries adopting International Financial Reporting Standards (“IFRSs”) have applied IFRS 16“Leases” (IFRS 16, January 13, 2016) from the fiscal year ended March 31, 2020. Thus, in principle, all leases as a lessee arerecognized on the consolidated balance sheets as assets and liabilities.
In applying IFRS 16, the Company has taken the transitional approach of recognizing the cumulative effect of the application ofthis standard at the date of initial application.
As a result, the Company recognized ¥389 million of right-of-use assets (net) under property, plant and equipment, ¥112 millionof lease obligations under current liabilities and ¥260 million of lease obligations under non-current liabilities on the consolidatedbalance sheets.
The impact of this change on profit or loss for the fiscal year ended March 31, 2020 is immaterial.

(Accounting standards and guidance issued but not yet applied)
1. Accounting standard for revenue recognition
・ “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020)
・ “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, March 31, 2020)(1) Overview
The above comprehensive accounting standard and guidance relate to revenue recognition. Revenues are recognized using
the following 5-step model.
Step 1: Identify the contract with a customer
Step 2: Identify performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation(2) Scheduled date of application
The Company plans to apply the aforementioned standard and guidance from the beginning of the fiscal year ending
March 31, 2022.
(3) Effect of application
The effect of application of the aforementioned standard and guidance on the Company’s consolidated financial
statements is under evaluation.

－

11

－

2. Accounting standard for disclosure of accounting estimates・ “Accounting Standard for Disclosure of Accounting Estimates” (ASBJ Statement No. 31, March 31, 2020)(1) Overview
The purpose of this accounting standard is to disclose information that contributes to the understanding of users of thefinancial statements regarding accounting estimates recorded in the current fiscal year that entail the risk of having amaterial effect on the financial statements in the following year.
(2) Scheduled date of application
The Company plans to apply the aforementioned standard from the end of the fiscal year ending March 31, 2021.
(Additional information)
1. Accounting estimates regarding the impact of the COVID-19 pandemic
Based on the most recent information available at time of the preparation of the financial statements, the Company estimated therecoverability of deferred tax assets and impairment of intangible assets including goodwill under the assumption that the impact of
the COVID-19 pandemic on economic activities would be contained by September 2020.
2. Practical solution on transactions granting employees and others stock acquisition rights, which involve considerations, withvesting conditions
The Company adopted “Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which
Involve Considerations, with Vesting Conditions” (PITF No. 36, January 12, 2018) on and after April 1, 2018. Accordingly, theCompany accounts for transactions granting employees and others stock acquisition rights, which involve considerations, withvesting conditions in accordance with “Accounting Standard for Share-based Payment and its Implementation Guidance” (ASBJ
Statement No. 8, December 27, 2005).
Regarding the application of PITF No. 36, the Company follows the transitional treatment as stipulated in Paragraph 10 (3) of PITF
No. 36 and continues to apply the previous accounting treatment for transactions granting employees and others stock acquisitionrights before the date of the application of PITF No. 36.
(Consolidated balance sheets)* Investment in non-consolidated subsidiaries and affiliates included in investment securities is as follows:(Millions of yen)
As of March 31, 2019
Investment securities (shares)

As of March 31, 2020

2,038

2,215

(Consolidated statements of income)*1 Major items and amounts included in selling, general and administrative expenses are as follows:
Fiscal year ended
March 31, 2019
Salaries and allowance
Advertising expenses
Amortization of goodwill
Depreciation
Business consignment expenses
Legal welfare expenses
Rents
Provision for bonuses
Retirement benefit expenses
Provision of allowance for doubtful accounts

7,871
4,106
807
1,061
2,545
1,246
1,284
389
95
39

(Millions of yen)
Fiscal year ended
March 31, 2020
9,860
4,714
809
1,211
2,543
1,478
1,458
521
98
34

*2 Gain on sale of businesses is as follows:
Fiscal year ended March 31, 2020
The gain recognized under extraordinary income is due to transfer of an educational business by WILLONE Co., Ltd., a
－

12

－

consolidated subsidiary of the Company.
*3 Loss on sale and retirement of non-current assets is as follows:(Millions of yen)
Fiscal year ended
March 31, 2020

Fiscal year ended
March 31, 2019
Buildings
Tools, furniture and fixtures
Machinery, equipment and vehicles
Software
Total

0
0
8
155

8
4
–
11

165

23

*4 Loss on business withdrawal is as follows:
The breakdown of loss on business withdrawal under extraordinary losses for the fiscal year ended March 2019 is as follows:(Millions of yen)
Loss on withdrawal of overseas subsidiary’s business (Note)

135

Loss on withdrawal of publishing business
Other

55
43

Total
233
(Note) It mainly includes ¥125 million of loss on software impairment in connection with the liquidation of SENIOR
MARKETING SYSTEM SDN.BHD.
*5 Loss on cancellation of events is as follows:
For the fiscal year ended March 31, 2020, loss on cancellation of events is the loss incurred by the Company as a result ofcanceling recruitment events hosted by the Company due to the COVID-19 pandemic.
(Consolidated statements of comprehensive income)* Reclassification adjustments and tax effects in connection with other comprehensive income
Fiscal year ended
March 31, 2019

(Millions of yen)
Fiscal year ended
March 31, 2020

Valuation difference on available-for-sale securities:
Amount arising during the year

0(0)

Reclassification adjustments––

Amount before tax effects

0(0)

Tax effects(0)0Valuation difference on available-for-sale securities

0(0)Amount arising during the year

(412)

(310)

Reclassification adjustments

12

–

(399)

(310)

Amount arising during the year

(3)

(4)

Reclassification adjustments––

Share of other comprehensive income of entities
accounted for using equity method

(3)

(4)

Total other comprehensive income (loss)

(402)

(315)

Foreign currency translation adjustments:

Foreign currency translation adjustments
Share of other comprehensive income of entities
accounted for using equity method:

－

13

－

(Consolidated statements of changes in net assets)
Fiscal year ended March 31, 2019
1. Matters regarding class and number of issued shares and class and number of treasury shares(Shares)Number of shares at
beginning of the year

Increase

Number of shares at
end of the year

Decrease

Issued shares:
Common stock(Notes 1 and 2)
Total

43,421,000

43,577,800–

86,998,800

43,421,000

43,577,800–

86,998,800

155

217

–

372

155

217

–

372

Treasury shares:
Common stock(Notes 1 and 3)
Total(Notes) 1. The Company implemented a 2-for-1 stock split effective July 1, 2018.
2. Increase in issued shares (43,577,800 shares) is due to the stock split (43,421,000 shares) and the exercise ofsubscription rights to shares (156,800 shares).
3. Increase in treasury shares (217 shares) is due to the stock split (155 shares) and the acquisition of treasury shares (62shares).
2. Matters regarding subscription rights to sharesClassification

The
Company(Parent
company)

Number of shares subject to subscription rights to shares (shares)

Description of subscription
rights to sharesClass of sharessubject to
subscription
rights to shares

August 2011 No.7
Stock Option (Note 1)

Common
stock

6,400

6,400

12,800––July 2012 No.8 Stock
Option (Note 1)

Commonstock

14,40014,40028,800––July 2013 No.9 Stock
Option (Note 1)

Commonstock

57,60057,600115,200––

July 2014 No.10 Stock
Option (Note 1)

Commonstock

200,000

200,000–

400,000

114

July 2016 No.11 Stock
Option (Note 1)

Commonstock

18,00018,000–36,00018

July 2016 No.12 Stock
Option (Note 1)

Commonstock

204,000

204,000–

408,000

1

May 2017 No.13 Stock
Option (Note 1)

Commonstock

158,000

158,000–

316,000

2

July 2018
No.14 Stock Option

Commonstock–

180,000–

180,000

43–

658,400

838,400

156,800

1,340,000

179

Total

Beginning of theyear

Increase

Decrease

End of the year

Balance at endof the year
(Millions ofyen)(Notes) 1. The Company implemented a 2-for-1 stock split effective July 1, 2018.
2. The stock options above are exercisable in the following schedule: No.10 Stock Option on July 17, 2021; No.11 Stock
Option on July 20, 2019; No.12 Stock Option on July 1, 2019; No.13 Stock Option on July 1, 2020, and No.14 Stock
Option on July 1, 2021.
3. Decreases are due to the exercise of subscription rights to shares.

－

14

－

3. Matters regarding dividends(1) Dividend payment
Resolution
Ordinary General
Meeting of
Shareholders heldon June 21, 2018
(Note)Class

Dividend amount(Millions of yen)

Dividend per share
(Yen)

564

13

Common stock

Record date

Effective date

March 31, 2018

June 22, 2018

The Company implemented a 2-for-1 stock split effective July 1, 2018. The dividend per share above is the amount
before the stock split. The dividend per share reflecting the stock split is ¥6.5.

(2) Of the dividends whose record date belongs to the fiscal year ended March 31, 2019, the dividends whose effective date falls
in the fiscal year ending March 31, 2020
Dividend
Dividend
Resolution
Class
Resource
amountper share
Record date
Effective date(Millions of yen)
(Yen)
Ordinary General
Meeting of
Shareholders heldon June 19, 2019

Commonstock

Retainedearnings

652

7.5

March 31, 2019

June 20, 2019

4. Matters regarding significant changes in the amount of shareholders’ equity
None to report.
Fiscal year ended March 31, 2020
1. Matters regarding class and number of issued shares and class and number of treasury shares(Shares)Number of shares at
beginning of the year

Increase

Number of shares at
end of the year

Decrease

Issued shares:
Common stock(Note 1)
Total

86,998,800

58,800–87,057,600

86,998,800

58,800–87,057,600

372

73

–

445

372

73

–

445

Treasury shares:
Common stock(Note 2)
Total

(Notes) 1. Increase in issued shares (58,800 shares) is due to the exercise of subscription rights to shares.
2. Increase in treasury shares (73 shares) is due to the acquisition of treasury shares.

－

15

－

2. Matters regarding subscription rights to sharesClassification

The
Company(Parent
company)

Number of shares subject to subscription rights to shares (shares)

Description of subscription
rights to sharesClass of sharessubject to
subscription
rights to shares

July 2014
No.10 Stock Option

Commonstock

400,000––

400,000

138

July 2016
No.11 Stock Option

Commonstock

36,000–9,800

26,20014

July 2016
No.12 Stock Option

Commonstock

408,000–

253,000

155,000

0

May 2017
No.13 Stock Option

Commonstock

316,000––

316,000

2

July 2018
No.14 Stock Option

Commonstock

180,000––

180,000

4

August 2019No.15 Stock Option

Commonstock–

254,000–

254,000

10–

1,340,000

254,000

262,800

1,331,200

171

Total

Beginning of theyear

Increase

Decrease

End of the year

Balance at endof the year
(Millions ofyen)(Notes) 1. The stock options above are exercisable in the following schedule: No.10 Stock Option on July 17, 2021; No.11 Stock
Option on July 20, 2019; No.12 Stock Option on July 1, 2019; No.13 Stock Option on July 1, 2020, No.14 Stock
Option on July 1, 2021, and No.15 Stock Option on July 1, 2022.
2. Decreases are due to the exercise and the expiration of subscription rights to shares.
3. Matters regarding dividends(1) Dividend payment
Resolution
Ordinary General
Meeting of
Shareholders heldon June 19, 2019Class

Dividend amount(Millions of yen)

Dividend per share
(Yen)

652

7.5

Common stock

Record date

Effective date

March 31, 2019

June 20, 2019(2) Of the dividends whose record date belongs to the fiscal year ended March 31, 2020, the dividend whose effective date falls
in the fiscal year ending March 31, 2021.
Dividend
Dividend
Resolution
Class
Resource
amountper share
Record date
Effective date(Millions of yen)
(Yen)
Ordinary General
Meeting of
Shareholders heldon June 19, 2020

Commonstock

Retainedearnings739

8.5

March 31, 2020

June 22, 2020

(Consolidated statements of cash flows)* Reconciliation of cash and cash equivalents in the consolidated statements of cash flows to accounts and amounts in theaccompanying consolidated balance sheets(Millions of yen)
Fiscal year ended
Fiscal year ended
March 31, 2019
March 31, 2020
Cash and deposits

10,703

11,091Time deposits with maturity in excess of three months

(812)

(598)

Cash and cash equivalents

9,890

10,493－16－

(Leases)(As a lessee)
1. Finance leases
Finance leases that do not transfer ownership(1) Details of leased assets
Property, plant and equipment
Certain overseas consolidated subsidiaries have applied IFRS 16 “Leases” from the beginning of the fiscal year ended
March 31, 2020. As a result of the application of IFRS 16, the Company has recognized amounts such as office rents of theconsolidated subsidiaries as right-of-use assets.
(2) Depreciation method of leased assets
The depreciation method of leased assets is stated in “Significant matters forming the basis for the preparation of
consolidated financial statements, 4. Matters related to the accounting policies, (2) Depreciation and amortization method ofsignificant depreciable assets.”
2. Operating leases
Disclosure is omitted due to immateriality.
(Financial instruments)
1. Status of financial instruments(1) Policy on financial instruments
As a policy, the Company generally operates its business using funds provided by operating activities, and invests temporary
surplus funds in very safe financial instruments. The Company does not enter into financial transactions for trading or
speculative purposes.
(2) Types of financial instruments, related risk and risk management
Accounts receivable - trade and accounts receivable - other are exposed to the credit risk of customers; however, the risk islimited because most of these receivables are due within two months. In accordance with the Company’s credit management
policy, the Company manages such risk by monitoring due dates and outstanding balances by customer and evaluating their
credit status.
Accounts payable - other and income taxes payable have payment due dates within one year, in general. Current liabilities
including these payables are exposed to liquidity risk at time of settlement. However, the Company avoids such risk byreviewing the cash management plan on a monthly basis.
Long-term loans payable are primarily for share acquisitions related to M&A transactions. The Company manages interest
rate fluctuation risk and the foreign exchange fluctuation risk of each contract by using derivative transactions such as interest
rate swaps and currency swaps as hedging instruments, except for those of some syndicated loans payable.
(3) Supplemental information regarding fair value of financial instruments
The fair value of financial instruments is based on their market prices, if available. Where there is no market price available,
fair value is reasonably estimated. As the estimation of fair value incorporates variable factors, the fair value may vary whendifferent assumptions are applied.
2. Matters regarding fair value of financial instruments
The carrying amount, fair value and the difference between them are as follows. Financial instruments for which fair value isextremely difficult to estimate are excluded from the following table (See Note 2 below).

－

17

－

As of March 31, 2019
(Millions of yen)
Carrying amount

Fair value

Difference(1) Cash and deposits

10,703

10,703–(2) Accounts receivable - trade

4,323

4,323

–

(114)

(114)

–

4,209

4,209

–

4,478

4,478

–

19,391

19,391–(4) Long-term loans payable (*2)

20,12020,090(29)(5) Accounts payable - other

6,064

6,064

–

(6) Income taxes payable

623

623

–

Total liabilities

26,80926,779

(29)

–

–

–

Allowance for doubtful accounts (*1)(3) Accounts receivable - otherTotal assets

Derivative transactions(*1) The amount is presented as allowance for doubtful accounts receivable - trade.
(*2) The amount includes current portion of long-term loans payable.
As of March 31, 2020
(Millions of yen)
Carrying amount

Fair value

Difference(1) Cash and deposits

11,091

11,091–(2) Accounts receivable - trade

5,213

5,213

–

(113)

(113)

–

5,099

5,099

–

6,183

6,183

–

22,374

22,374–(4) Long-term loans payable (*2)

17,632

17,644

11(5) Accounts payable - other

7,711

7,711

–

(6) Income taxes payable

534

534

–

Total liabilities

25,87825,890

11

–

–

–

Allowance for doubtful accounts (*1)(3) Accounts receivable - otherTotal assets

Derivative transactions(*1) The amount is presented as allowance for doubtful accounts receivable - trade.
(*2) The amount includes current portion of long-term loans payable.
(Notes) 1. Measurement method of fair value of financial instruments and information on securities
Assets(1) Cash and deposits, (2) Accounts receivable - trade, (3) Accounts receivable - other
Since these items are settled in a short period of time, their carrying amount approximates fair value. Since it isextremely difficult to estimate credit risk of each receivable, the Company estimates the fair value of accounts
receivable - trade by deducting allowance for doubtful receivables from the carrying amount, considering thatallowance for doubtful accounts approximates the amount of credit risk.
－

18

－

Liabilities(4) Long-term loans payable (including current portion)
For loans payable whose interest is fixed rate or fixed using interest rate swaps, the fair value is calculated bydiscounting the total of principal and interest classified by the remaining period to the maturity using an assumed
interest rate applicable to a similar type of new borrowings. For loans payable with variable interest rate, the fairvalue is measured in the same manner as those with fixed interest rate using TIBOR as of the balance sheet date.
(5) Accounts payable - other, (6) Income taxes payable
Since these items are settled in a short period of time, their carrying amount approximates fair value.
Derivative transactions
Interest rate swaps under the special accounting treatment and currency swaps under the allocation method areaccounted for as an integral component of long-term loans payable designated as hedged items. Thus, their fair value
is included in those of the loans payable.
2. Financial instruments whose fair value is extremely difficult to determineClassification(Millions of yen)

As of March 31, 2019

As of March 31, 2020

Investment securities
Unlisted shares

2,048

2,225

These securities are not included in the table above, as there were no market prices available and it is extremely
difficult to determine the fair value.

3. Maturity analysis for financial assets and securities with contractual maturities
As of March 31, 2019
(Millions of yen)Due in one year or
less

Due after one year
through five years

Due after five years
through ten years

Due after ten years

Cash and deposits

10,662–––

Accounts receivable - trade

4,323

–

–

–

Accounts receivable - other

4,478

–

–

–

Total

19,464–––As of March 31, 2020
(Millions of yen)Due in one year or
less

Due after one year
through five years

Due after five years
through ten years

Due after ten years

Cash and deposits

11,035–––

Accounts receivable - trade

5,213

–

–

–

Accounts receivable - other

6,183

–

–

–

Total

22,432

–

–

–

－

19

－

4. Maturity analysis for bonds, long-term loans payable, leases payable and other interest-bearing debts and other interestbearing debts
As of March 31, 2019
(Millions of yen)Due in one
year or lessDue after
one yearthrough
two years

Due after
two years
throughthree years

Due after
three years
throughfour years

Due after
four years
throughfive years

Short-term loans payable
Long-term loans payable

–
2,487

–
2,487

–
2,487

–
2,394

–
2,301

–
7,961

Total

2,487

2,487

2,487

2,394

2,301

7,961

Due in one
year or lessDue after
one yearthrough
two years

Due after
two years
throughthree years

Due after
three years
throughfour years

Due after
four years
throughfive years

Short-term loans payable
Long-term loans payable

–
2,487

–
2,487

–
2,394

–
2,301

–
2,301

–
5,660

Total

2,487

2,487

2,394

2,301

2,301

5,660

Due after
five years

As of March 31, 2020
(Millions of yen)
Due after
five years(Securities)
1. Impairment of securities
Fiscal year ended March 31, 2019
The disclosure is omitted due to immateriality.
Fiscal year ended March 31, 2020
None to report.
2. Available-for-sale securities sold during the fiscal year
Fiscal year ended March 31, 2019
None to report.
Fiscal year ended March 31, 2020
None to report.

(Derivative transactions)
1. Derivatives transactions for which hedge accounting has not been applied
None to report.
2. Derivatives transactions for which hedge accounting has been applied(1) Currency-related
As of March 31, 2019
Hedge accounting
methodTransaction
Currency swaps

Allocation method

Receive: U.S. dollar/
Pay: Yen

Main hedged
itemLong-termloans payable

Contract amountContract amount over one year
12,012

7,807(Millions of yen)
Fair value(Note)(Note) Currency swaps under the allocation method are accounted for as an integral component of long-term loans payable
designated as hedged items. Thus, their fair value is included in those of the loans payable.

－

20

－

As of March 31, 2020
Hedge accounting
methodTransaction
Currency swaps

Allocation method

Receive: U.S. dollar/
Pay: Yen

Main hedged
itemLong-termloans payable

Contract amountContract amount over one year
12,012

6,606(Millions of yen)
Fair value(Note)(Note) Currency swaps under the allocation method are accounted for as an integral component of long-term loans payable
designated as hedged items. Thus, their fair value is included in those of the loans payable.
(2) Interest rate-related
As of March 31, 2019
(Millions of yen)
Hedge accounting
methodSpecial accounting
treatment

Transaction
Interest rate swaps
Receive: Floating /Pay: FixedMain hedged
itemLong-termloans payable

Contract amount

12,012Contract
amount over
one year
7,807

Fair value(Note)(Note) Interest rate swaps under special accounting treatment are accounted for as an integral component of long-term loans
payable designated as hedged items. Thus, their fair value is included in those of the loans payable.

As of March 31, 2020
(Millions of yen)
Hedge accounting
methodSpecial accounting
treatment

Transaction
Interest rate swaps
Receive: Floating /Pay: FixedMain hedged
itemLong-termloans payable

Contract amount

12,012Contract
amount over
one year
6,606

Fair value(Note)(Note) Interest rate swaps under special accounting treatment are accounted for as an integral component of long-term loans
payable designated as hedged items. Thus, their fair value is included in those of the loans payable.

－

21

－

(Retirement benefit)
1. Summary of retirement benefit plans
The Group has only a lump-sum payment plan.
2. Defined benefit plan
(1) Reconciliation between beginning balance and ending balance of projected benefit obligations
Fiscal year ended
March 31, 2019
Balance at beginning of the year

(Millions of yen)
Fiscal year ended
March 31, 2020

160

311

Service cost

82

69

Interest cost

0

2

Actuarial gain or loss

1226

Retirement benefits paid

(39)

(22)

Other

94

(32)

311

354

Balance at end of the year

(2) Reconciliation between the ending balance of projected benefit obligations and net defined benefit liability recorded on the
consolidated balance sheets(Millions of yen)
As of March 31, 2019

As of March 31, 2020

Unfunded retirement benefit obligations

311

354

Net defined benefit liability

311

354

(3) The components of retirement benefit expenses and their amounts(Millions of yen)
Fiscal year ended
March 31, 2019

Fiscal year ended
March 31, 2020

Service cost

82

69

Interest cost02

Amortization of actuarial gain or loss

12

26

Total retirement benefit expenses

95

98(4) The major assumptions used for the actuarial calculation (weighted average)
As of March 31, 2019

As of March 31, 2020

0.1%

1.0%

Discount rate

－

22

－

(Stock options)
1. The amount of costs incurred for the stock option plans and the account recorded are as follows:(Millions of yen)

Share-based compensation expenses included in general andadministrative expenses

Fiscal year ended
March 31, 2019

Fiscal year ended
March 31, 2020

71

(10)

2. Outline, number and status of changes in number of stock options(1) Outline of stock options
No.10 Stock Option

No.11 Stock Option

No.12 Stock Option

Position and number ofgrantees
Number of options granted(Notes 1 and 2)

1 director

3 directors

3 directors, 40 employees

400,000 shares

36,000 shares

412,000 shares

Date of grant

July 17, 2014

August 9, 2016

August 9, 2016

The grantee shall be in theposition of director of theCompany. This shall not
apply in cases where thegrantee resigned the position
due to expiration of the termof office or other legitimate
reasons.
Other terms and conditions
shall be stipulated in thecontract for allotment ofsubscription rights to shares.

The grantee shall be in theposition of director of theCompany. This shall not
apply in cases where thegrantee resigned the position
due to expiration of the termof office or other legitimate
reasons.
Other terms and conditions
shall be stipulated in thecontract for allotment ofsubscription rights to shares.

Only when EBITDA for the
fiscal year ended March 31,
2019 (Note 3) exceeds (a),(b), or (c) stated below,
subscription rights to sharesshall become exercisable. Of
the subscription rights allottedto each grantee, the numberof rights which become
exercisable (“exercisable
ratio”) shall be determined asfollows:(a) EBITDA exceeds ¥4,977
million: exercisable ratio is
10%(b) EBITDA exceeds ¥6,462
million: exercisable ratio is50%(c) EBITDA exceeds ¥8,216
million: exercisable ratio is
100%

Vesting condition

Other terms and conditions
shall be stipulated in thecontract for allotment ofsubscription rights to shares.
Service period

July 17, 2014 –July 16, 2021

August 9, 2016 –July 19, 2019–

Exercise period

July 17, 2021 –July 16, 2024

July 20, 2019 –July 19, 2026

July 1, 2019 –June 30, 2024

－

23

－

Position and number ofgrantees
Number of options granted(Notes 1 and 2)
Date of grantVesting condition

No.13 Stock Option

No.14 Stock Option

No.15 Stock Option

2 directors, 44 employees

2 directors, 45 employees

2 directors, 64 employees

318,000 shares

180,000 shares

254,000 shares

June 19, 2017

August 7, 2018

September 3, 2019

Only when operating income Only when EBITDA for thefor the fiscal year ending
fiscal year ending March 31,
March 31, 2020 exceeds (a),2021 (Note 4) exceeds (a),(b), or (c) stated below,(b), or (c) stated below,
subscription rights to shares
subscription rights to sharesshall become exercisable. Of shall become exercisable. Of
the subscription rights allotted the subscription rights allottedto each grantee, the number
to each grantee, the numberof rights which becomeof rights which become
exercisable (“exercisable
exercisable (“exercisable
ratio”) shall be determined as ratio”) shall be determined asfollows:
follows:(a) Operating income exceeds (a) EBITDA exceeds ¥7,670¥4,853 million: exercisable
million: exercisable ratio isratio is 10%10%(b) Operating income exceeds (b) EBITDA exceeds ¥8,764¥6,301 million: exercisable
million: exercisable ratio isratio is 50%50%(c) Operating income exceeds (c) EBITDA exceeds ¥9,958¥8,011 million: exercisable
million: exercisable ratio isratio is 100%
100%

Only when actual operating
income for the fiscal year
ending March 31, 2022 (Note5) exceeds (a), (b), or (c)stated below, subscription
rights to shares shall become
exercisable. Of thesubscription rights allotted toeach grantee, the number ofrights which become
exercisable (“exercisable
ratio”) shall be determined asfollows:(a) Actual operating income
exceeds ¥6,408 million:
exercisable ratio is 10%(b) Actual operating income
exceeds ¥7,322 million:
exercisable ratio is 70%(c) Actual operating income
exceeds ¥8,319 million:
exercisable ratio is 100%

Other terms and conditions
shall be stipulated in thecontract for allotment ofsubscription rights to shares.

Other terms and conditions
shall be stipulated in thecontract for allotment ofsubscription rights to shares.

Service period

–

–

–

Exercise period

July 1, 2020 –June 30, 2025

July 1, 2021 –June 30, 2026

July 1, 2022 –June 30, 2027

(Notes)Other terms and conditions
shall be stipulated in thecontract for allotment ofsubscription rights to shares.

1. It is converted and stated as number of shares.
2. The Company implemented a 2-for-1 stock split effective January 1, 2015. In addition, the Company implemented
another 2-for-1 stock split effective July 1, 2018. The number of shares above represents those after these stock splits.
3. EBITDA is calculated by adding the amounts of depreciation and amortization of goodwill on the Consolidated
Statements of Cash Flows to the amount of operating income on the Consolidated Statements of Income for the fiscal
year ended March 31, 2019.
4. EBITDA is calculated by adding the amounts of depreciation and amortization of goodwill on the Consolidated
Statements of Cash Flows, and the amount of share-based remuneration expenses described in Notes to Consolidated
Financial Statements to the amount of operating income on the Consolidated Statements of Income for the fiscal year
ending March 31, 2021.
5. Actual operating income is calculated by adding the amount of share-based remuneration expenses stated in Notes toConsolidated Financial Statements to the amount of operating income on the Consolidated Statements of Income
contained in the Annual Securities Report for the fiscal year ending March 31, 2022.

－

24

－

(2) Number and status of changes in number of stock options
The following tables are based on the stock options that existed for the fiscal year ended March 31, 2020. The number ofstock options is converted and stated as the number of shares.
a. Number of stock options(Shares)
No.10 Stock Option

No.11 Stock Option

No.12 Stock Option

400,000

36,000408,000

Granted–––Forfeited––

204,000

Vested–36,000204,000

400,000––

Outstanding at March 31, 2019

–

–

–

Vested–36,000204,000

Increase due to stock split

–

–

–

Exercised

–

9,800

49,000Forfeited–––

Outstanding at March 31, 2020–

26,200155,000

No.13 Stock Option

No.14 Stock Option

No.15 Stock Option

316,000

180,000–

Granted

––254,000

Forfeited–––

Vested–––316,000

180,000

254,000

Outstanding at March 31, 2019

–

–

–

Vested–––Increase due to stock split

–

–

–

Exercised–––

Forfeited–––

Outstanding at March 31, 2020

–

–

–

Non-vested:
Outstanding at March 31, 2019

Outstanding at March 31, 2020
Vested:Non-vested:
Outstanding at March 31, 2019

Outstanding at March 31, 2020
Vested:－25－

b. Price information of stock options(Yen)

No.10 Stock Option

No.11 Stock Option

No.12 Stock Option

736

1,205

1,190

–

2,381

2,647

422

569

3

No.13 Stock Option

No.14 Stock Option

No.15 Stock Option

1,528

1,978

2,544

Average market price of the stockat the time of exercise

–

–

–

Fair unit value (date of grant)

8

969

792

Exercise price
Average market price of the stockat the time of exercise
Fair unit value (date of grant)

Exercise price(Note) The Company implemented a 2-for-1 stock split effective January 1, 2015. In addition, the Company implemented another 2for-1 stock split effective July 1, 2018. The number of shares above represents those after these stock splits.
3. Methods to estimate fair values of stock options
The methods to estimate fair values of No. 15 Stock Option granted for the fiscal year ended March 31, 2020 are as follows:
No.15 Stock Option
a. Valuation techniqueBlack-Scholes Modelb. Major assumptions and estimation method
No.15 Stock Option
Volatility of stock price (Note 1)

40.96%

Estimated remaining period to maturity (Note 2)

5.33 years

Estimated dividend (Note 3)¥7.5 per share

Risk-free interest rate (Note 4)(0.368)%(Notes) 1. The volatility of stock price is estimated based on the actual stock prices from May 7, 2014 to September 3, 2019.
2. Since it is difficult to make reliable estimates due to insufficient historical data, the remaining period was
calculated based on the assumption that the rights were exercised in the middle of each exercise period.
3. An amount of the actual dividend for the fiscal year ended March 31, 2019 is used for the assumption.
4. This rate is the yield of Japanese government bonds maturing on December 20, 2024 as of the date of valuation.
4. Method of estimating number of stock options vested
Since it is difficult to reasonably estimate the number of stock options that will expire in the future, only the number of options
that has been forfeited is reflected.

－

26

－

(Tax-effect accounting)
1. Major components of deferred tax assets and deferred tax liabilities(Millions of yen)

As of March 31, 2019
Deferred tax assets:
Enterprise tax payable
Provision for bonuses
Provision for refund
Legal welfare expenses payable
Allowance for doubtful accounts
Excess depreciation and amortization
Provision for retirement benefits
Incidental costs of share acquisition
Loss carryforward
Other
Subtotal
Valuation allowance
Total deferred tax assets
Offset by deferred tax liabilities
Deferred tax assets, net
Deferred tax liabilities:
Customer-related assets
Valuation difference on available-for-sale securities
Other
Total deferred tax liabilities
Offset by deferred tax assets
Deferred tax liabilities, net

As of March 31, 2020

79
119
81
14
24
205
64
142
585
186
1,504
(640)
864
(9)
855

52
140
74
17
20
221
74
149
688
143
1,583
(703)
880
(7)
873

2,078
0
9
2,087
(9)
2,078

1,994
0
6
2,001
(7)
1,994

2. Reconciliation between the statutory tax rate and the effective tax rate reflected in the consolidated statements of income
As of March 31, 2019

As of March 31, 2020

30.62%

30.62%(4.01)%(3.68)%

5.77%

4.98%

(7.48)%(7.14)%(0.63)%
24.26%

0.56%
25.34%

Statutory tax rate
Special corporation tax credit granted upon increase insalary and bonus payments
Amortization of goodwill and other
Share of profit/loss of entities accounted for using
equity method
Other
Effective tax rate

－

27

－

(Asset retirement obligations)Fiscal year ended March 31, 2019
The Group has obligations to restore assets to their original state on leaving the properties based on real estate lease contracts foroffice spaces, which are asset retirement obligations. Instead of recognizing asset retirement obligations, the Group reasonably
estimates the amounts which would not be recoverable at the end of the lease periods and recognizes expenses for the year byamortizing the amounts of lease deposits over the expected periods of use.
The total amount of restoration costs is estimated to be ¥191 million, of which the amount recognized as expenses for the fiscal
year ended March 31, 2019 is ¥34 million.
Fiscal year ended March 31, 2020
The Group has obligations to restore assets to their original state on leaving the properties based on real estate lease contracts foroffice spaces, which are asset retirement obligations. Instead of recognizing asset retirement obligations, the Group reasonably
estimates the amounts which would not be recoverable at the end of the lease periods and recognizes expenses for the year byamortizing the amounts of lease deposits over the expected periods of use.
The total amount of restoration costs is estimated to be ¥232 million, of which the amount recognized as expenses for the fiscal
year ended March 31, 2020 is ¥35 million.
(Segment information and other)【Segment information】
Overview of reportable segments
The Company and its consolidated subsidiaries consist of a single business, which aims to build information infrastructure
suitable for the aging society, and operations incidental thereto.
Accordingly, there is no segment information to be disclosed and as such the disclosure is omitted.
【Related information】
Fiscalyear ended
31,and2019
1. Informationby March
products
services
The Company and its consolidated subsidiaries consist of a single business, which aims to build information infrastructure
suitable for the aging society, and operations incidental thereto. Accordingly, there is no segment information to be disclosed andas such the disclosure is omitted.
2. Information by geographical areas(1) Net sales(Millions of yen)
Japan

Other
25,372

Total
5,464

30,836(Note) The amount of net sales is classified by country and region based on customers’ location.
(2) Property, plant and equipment(Millions of yen)
Japan

Other
322

Total
125

447

3. Information on major customers
Information on major customers is omitted since there is no single customer with 10% or more of the amount of net sales
presented in the consolidated statements of income.
Fiscal year ended March 31, 2020
1. Information by products and services
The Company and its consolidated subsidiaries consist of a single business, which aims to build information infrastructure
suitable for the aging society, and operations incidental thereto. Accordingly, there is no segment information to be disclosed andas such the disclosure is omitted.

－

28

－

2. Information by geographical areas(1) Net sales(Millions of yen)
Japan

Other
29,863

Total
5,276

35,140(Note) The amount of net sales is classified by country and region based on customers’ location.
(2) Property, plant and equipment(Millions of yen)
Japan

Other
443

Total
562

1,006

3. Information on major customers
Information on major customers is omitted since there is no single customer with 10% or more of the amount of net
sales presented in the consolidated statements of income.
【Information on impairment loss of non-current assets by reportable segment】
The disclosure is omitted since there is only one segment in the Group.
【Information on amortization of goodwill and balance of unamortized goodwill by reportable segment】
The disclosure is omitted since there is only one segment in the Group.
【Information on negative goodwill incurred by reportable segment】
None to report.
【Related party transactions】
1. Related party transactions
Transactions between the Company and related parties
Fiscal year ended March 31, 2019
None to report.
Fiscal year ended March 31, 2020
None to report.
2. Notes on parent company or major affiliates
Summary of financial information of major affiliates
As of and for the fiscal year ended March 31, 2020, M3 Career, Inc. was a major affiliate of the Company and its condensed
financial information is as follows:(Millions of yen)
M3 Career, Inc.
2019

2020

Total current assets

5,411

5,775

Total non-current assets

1,156

1,132

Total current liabilities
Total non-current liabilities

2,458
88

2,526
81

Total net assets

4,020

4,300

Net sales
Profit before income taxes
Profit13,7093,726
2,704

15,393
4,046
2,950

－

29

－

(Amounts per share)
Fiscal year ended
March 31, 2019
Net assets per share (Yen)Profit per share (Yen)
Diluted profit per share (Yen)

Fiscal year ended
March 31, 2020

176.5548.51

220.86
54.69

48.24

54.45

(Note) The basis for calculating profit per share and diluted profit per share is as follows:
Fiscal year ended
March 31, 2019
Profit per share:
Profit attributable to owners of parent(Millions of yen)

Fiscal year ended
March 31, 2020

4,216

4,760

–

–

Profit attributable to common stock owners ofparent (Millions of yen)

4,216

4,760

Weighted average number of shares (Shares)

86,934,982

87,033,325––

Increase in number of common stock (Shares)

475,622396,895[Of which, exercise of subscription rights to shares(Shares)][475,622][396,895]

Amount not attributable to common stock
shareholders (Millions of yen)

Diluted profit per share:
Adjustment to profit attributable to owners ofparent (Millions of yen)

Details of potential shares excluded from calculation ofdiluted profit per share due to no dilutive effectNo.12 Subscription rights to sharesbased on the resolution of theBoard of Directors’ meeting heldon July 20, 2016:
Common stock 204,000 shares

No.13 Subscription rights to sharesbased on the resolution of theBoard of Directors’ meeting heldon May 29, 2017:
Common stock 284,400 shares

No.13 Subscription rights to sharesbased on the resolution of theBoard of Directors’ meeting heldon May 29, 2017:
Common stock 316,000 shares

No.14 Subscription rights to sharesbased on the resolution of theBoard of Directors’ meeting heldon July 18, 2018:
Common stock 180,000 shares

No.14 Subscription rights to sharesbased on the resolution of theBoard of Directors’ meeting heldon July 18, 2018:
Common stock 180,000 shares

No.15 Subscription rights to sharesbased on the resolution of theBoard of Directors’ meeting heldon August 19, 2019:
Common stock 254,000 shares(Note) The Company implemented a 2-for-1 stock split effective July 1, 2018. Net assets per share, profit per share, diluted profit per
share, weighted average number of shares, increase in number of common stock, and potential shares excluded from calculationof diluted profit per share due to no dilutive effect are calculated on the assumption that the stock split was executed at the
beginning of the fiscal year ended March 31, 2019.
(Significant subsequent events)
None to report.
－

30

－

【Consolidated statements schedules】【Details of bonds】
None to report.
【Details of loans payable】

Classification

Balanceat beginning of the year
(Millions of yen)

Balanceat end of the year
(Millions of yen)

Average interest rate(%)

Repayment date

Short-term loans payable

–

–

–

–

Current portion of
long-term loans payable

2,487

2,487

0.46

–

Long-term loans payable(excluding current portion)

17,632

15,144

0.34

From 2021 to 2028

Total

20,12017,632––(Notes)1. The average interest rate represents the weighted-average rate applicable to the balance at end of the year.
2. The five-year repayment schedule of long-term loans payable (excluding current portion) subsequent to the fiscal year
end is as follows:(Millions of yen)
Due after one year
through two years

Long-term loans payable

Due after two years
through three years

2,487

2,394

Due after three years
through four years

Due after four years
through five years

2,301

2,301

【Details of asset retirement obligations】
For asset retirement obligations, instead of recording liabilities for asset retirement obligations, the Group reasonably estimates
the amounts which would not be recoverable at the end of the lease periods and recognizes expenses for the year by amortizing
the amounts of lease deposits over the expected periods of use.
Thus, there is nothing to report.

－

31

－

TRANSLATIONThis is a translation of the original Independent Auditors’ Report filed under the Financial Instruments and Exchange Act, prepared in theJapanese language. This report is presented merely as supplemental information. Ernst & Young ShinNihon LLC has not audited the English
language version of the consolidated financial statements of SMS Co., LTD. for the fiscal year from April 1, 2019 to March 31, 2020.

Independent Auditor’s Report on the Consolidated Financial Statements
andInternal Control over Financial Reporting
To the Board of Directors of
SMS CO., LTD.
June 19, 2020
Ernst & Young ShinNihon LLC
Tokyo, Japan
Designated Engagement Partner, Certified Public Accountant
Hisafumi Nomoto (Seal)
Designated Engagement Partner, Certified Public Accountant
Keiichi Wakimoto (Seal)
Audit of Financial Statements
OpinionPursuant to Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, we have audited the consolidated financial
statements included in the Financial Section, namely, the consolidated balance sheet, and the consolidated statements of income,comprehensive income, changes in net assets and cash flows, the significant matters forming the basis for the preparation of
consolidated financial statements, the other notes and consolidated supplementary schedules of SMS CO., LTD. (“the Company”)
for the fiscal year from April 1, 2019 to March 31, 2020.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionof SMS CO., LTD. and its consolidated subsidiaries as at March 31, 2020, and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under thosestandards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of
our report. We are independent of the Company and its consolidated subsidiaries in accordance with the ethical requirements thatare relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities inaccordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.
Responsibilities of Management and the Audit & Supervisory Committee for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance withaccounting principles generally accepted in Japan, and for designing and operating such internal control as management determines
is necessary to enable the preparation and fair presentation of the consolidated financial statements that are free from material
misstatements, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as agoing concern and disclosing, as required by accounting principles generally accepted in Japan, matters related to going concern.
The Audit & Supervisory Committee is responsible for overseeing the directors' performance of their duties including the design,
implementation and maintenance of the Company’s financial reporting process.

－

1

－

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free frommaterial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements canarise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:•

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion.

•

Consider internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances forour risk assessments, while the purpose of the audit of the consolidated financial statements is not expressing an opinion on
the effectiveness of the Company’s internal control.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.

•

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’sreport. However, future events or conditions may cause the Company to cease to continue as a going concern.

•

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fairpresentation in accordance with accounting principles generally accepted in Japan.

•

Obtain sufficient appropriate audit evidence regarding the financial information or business activities of the Company and its
consolidated subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Audit & Supervisory Committee regarding, among other matters, the planned scope and timing of theaudit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit & Supervisory Committee with a statement that we have complied with the ethical requirements
regarding independence that are relevant to our audit of the financial statements in Japan, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
Audit of Internal Control
OpinionPursuant to Article 193-2, Paragraph 2 of the Financial Instruments and Exchange Act, we have audited management’s report oninternal control over financial reporting for the consolidated financial statements as at March 31, 2020 of SMS CO., LTD.
In our opinion, management's report on internal control referred to above, which represents that the internal control over financial
reporting of the consolidated financial statements of SMS CO., LTD. and its consolidated subsidiaries as at March 31, 2020 iseffectively maintained, presents fairly, in all material respects, the results of the assessment of internal control over financial
reporting in conformity with assessment standards for internal control over financial reporting generally accepted in Japan.
Basis for Opinion
We conducted our internal control audit in accordance with auditing standards for internal control over financial reporting generally
accepted in Japan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit ofInternal Control section of our report. We are independent of the Company and its consolidated subsidiaries in accordance with the
ethical requirements that are relevant to our audit of internal control in Japan, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
－2－

Responsibilities of Management and the Audit & Supervisory Committee for Management's Report on Internal Control
Management is responsible for designing and operating internal control over financial reporting, and for the preparation and fairpresentation of its report on internal control in accordance with assessment standards for internal control over financial reporting
generally accepted in Japan.
The Audit & Supervisory Committee is responsible for monitoring and verifying the design and operation of internal control overfinancial reporting.
Internal control over financial reporting may not prevent or detect misstatements fully.
Auditor’s Responsibilities for the Audit of Internal Control
Our objectives are to obtain reasonable assurance about whether management's report on internal control as a whole is free frommaterial misstatement and to issue an auditor’s report that includes our opinion.
As part of an audit in accordance with auditing standards for internal control over financial reporting generally accepted in Japan,
we exercise professional judgment and maintain professional skepticism throughout the audit. We also:•

Perform audit procedures to obtain audit evidence about the results of the assessment of internal control over financial
reporting in management’s report on internal control. The procedures selected depend on the auditor’s judgment, including
the materiality of the effect on the reliability of financial reporting.

•Examine representations on the scope, procedures and results of the assessment of internal control over financial reporting
made by management and evaluate the overall presentation of management’s report on internal control.

•

Obtain sufficient appropriate audit evidence regarding the results of the assessment of internal control over financial reportingin management’s report on internal control. We are responsible for the direction, supervision and performance of the audit of
the report on internal control. We remain solely responsible for our audit opinion.

We communicate with the Audit & Supervisory Committee regarding, among other matters, the planned scope and timing of theinternal control audit, significant deficiencies in internal control requiring disclosure that we identify during our audit and theresults of corrections thereof.
We also provide the Audit & Supervisory Committee with a statement that we have complied with the ethical requirements
regarding independence that are relevant to our audit of internal control in Japan, and communicate with them all relationships andother matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Conflicts of Interest
Our firm and its designated engagement partners do not have any interest in the Company and its subsidiaries which should be
disclosed in accordance with the Certified Public Accountants Act.

(End of Report)－3－