COMPANY RESEARCH AND ANALYSIS REPORT

Cross Marketing Group Inc.
3675
Tokyo Stock Exchange First Section

18-Oct.-2019
FISCO Ltd. Analyst

Kimiteru Miyata

FISCO Ltd.
http://www.fisco.co.jp

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. Business overview................................. ......................................................................................................

02

2. History................................................... ......................................................................................................

03

3. Industry environment............................. ......................................................................................................

04

4. Research business................................. ......................................................................................................

05

5. IT solutions business and other businesses.................................................................................................

07■Business model----------------------------------------------------------------------------------------------------------------------------------------------------------- 08
1. Earnings structure........................................................................................................................................

08

2. Strengths and weaknesses..........................................................................................................................

09

3. Turning points........................................ ......................................................................................................

09■Business trends----------------------------------------------------------------------------------------------------------------------------------------------------------- 11
1. Business initiatives for FY12/19...................................................................................................................

11

2. 1H FY12/19 results................................ ......................................................................................................

12

3. 1H FY12/19 results by business segment. ...................................................................................................

14

4. FY12/19 outlook.. ................................... ......................................................................................................

16

5. Medium-term growth image. . ................. ......................................................................................................

17■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 18■Information security------------------------------------------------------------------------------------------------------------------------------------------------ 19

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

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/██Summary
Steady progress toward becoming a comprehensive marketing
solutions group
Cross Marketing Group Inc. <3675> is comprised of three businesses: Research, IT solutions, and other businesses.
The mainstay research business offers a one-stop service for various marketing research services based primarilyon online research. The IT solutions business handles smartphone app planning, development, and operations, andalso dispatches engineering personnel. Under other businesses, the Company runs a promotion services businessto provide marketing support. Despite being a late-comer to the industry when it was founded, the Company has
since become one of the largest companies in the marketing research industry. It is currently strengthening functions
in various businesses, arranging crossover of business functions, and bolstering response capabilities to diversifying
customer needs. It is also actively working on building overseas business.
Quality and quantity of registered monitors is a key attribute of the Company’s research business. In terms of quantity,
at about 5mn people, the Company has a sufficient volume of active registered monitors. For quality, it applies strict
quality management for registered monitors, such as constantly keeping the latest information on basic attributes
related to registered monitors and eliminating registration in the case of inappropriate responses. The Company also
has a characteristic support structure. As opposed to its competitors, whose functions are relatively separate fromone another, the Company holds an advantage in having sales staff, researchers, directors, and all other personnel
who interact with clients work to resolve issues in a unified manner. From a customer perspective, in addition to
the support structure, the Company differentiates itself from peers in the experience of its researchers who makesuitable proposals and designs for addressing issues and proposes comprehensive marketing solutions that utilize
IT solutions and other functions inside and outside the group.
For 1H FY12/19, the Company reported revenue of ¥8,808mn (+2.3% year on year (YoY)) and operating profit of¥423mn (-7.7%). Results fell short of targets, primarily in profit attributable to owners of parent (initial forecast of¥147mn in profit versus an actual loss of ¥955mn). This was due changes in organizational structure at overseas
subsidiary Kadence following the acquisition of its stock; to timing differences in booking of earnings from large
projects, making it impossible to expect the initially estimated level of earnings; and to the impairment of Kadence
goodwill, a move taken from a conservative perspective. The Company’s full-year FY12/19 outlook calls for revenueof ¥20,000mn (+14.3% YoY) and operating profit of ¥1,250mn (+30.9%). Aside from profit attributable to ownersof parent, this is the same as the initial outlook, but assumes that mainstay domestic businesses will continue toperform strongly, that overseas results will recover, and that amortization of goodwill will be reduced by about ¥70mn
in 2H through booking of impairment losses.
In the medium term, the Company intends to develop new services and businesses and strengthen group collaboration in digital marketing, IT and other areas with robust growth potential. It thus plans to continue aggressively
investing in its IT solutions and web promotion businesses. In the domestic research business, it also plans toactively invest in upstream research areas such as the consulting business, and in medical, big data, AI andother growth areas with the goal of enhancing profitability. Meanwhile, in overseas business, while the impact of
the impairment of goodwill at Kadence remains, the Company is beginning to build a foundation for business inAsia, with a business process outsourcing (BPO) site in the Philippines and an R&D center in India. Domestic andoverseas marketing-related markets remain strong, and the Company is making steady progress in creating a basefor becoming a comprehensive marketing solutions group.

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

01 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Summary

Key Points
Currently broadening business scope from online research to marketing solutions
Strengths are monitor quality and quantity, unified support, and group function crossover• Harnessing strengths, a positive external environment, Kadence impairment as a springboard for returning to a
growth track••㻾 㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻾㼑㼢㼑㼚㼡㼑㻔㼘㼑㼒㼠㻕（¥㼙㼚）㻞㻡㻘㻜㻜㻜

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Source: Prepared by FISCO from the Company's financial results██Company profile
From online research to marketing solutions
1. Business overview
The Company is comprised of three businesses: Research, IT solutions, and other businesses. Its original business
was marketing research based primarily on online surveys, but over the years, it has developed a full range ofservices covering all areas of marketing research with quantitative and qualitative studies. Most of the research isbased on online surveys, but offline surveys and other types of research are done as well. The IT solutions businessdoes mobile system planning, development, and operations, and also dispatches engineering personnel. Other
businesses include a promotion services business for marketing support. With these service lines, the Company has
greatly expanded its business interests from online survey-based marketing research to marketing solutions. Now,
the Company is strengthening each business function in combination with advances in time and technology, andreinforcing its capabilities to respond to diversifying customer needs by crossing over functions among businesses.
It is also actively working on building overseas domains. As of the end of FY12/18, the Company had a total of morethan 20 offices in 11 countries as well as 33 subsidiaries and 4 affiliated companies.

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

02 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Company profile㻿㼍 㼘 㼑㼟㻌㼎㼞㼑㼍㼗㼐㼛㼣㼚㻌㼎㼥㻌㼟㼑㼓㼙㼑㼚㼠㻌㻔 㻝㻴㻌㻲 㼅㻝㻞㻛㻝㻥㻕㻻㼠㼔㼑㼞㻌㼎㼡㼟㼕㼚㼑㼟㼟㼑㼟㻠㻚㻞㻑㻵㼀㻌㼟㼛㼘㼡㼠㼕㼛㼚㼟㻝㻤㻚㻝㻑㻾㼑㼟㼑㼍㼞㼏㼔
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Source: Prepared by FISCO from the Company's financial resultsGrew rapidly as one of the major firms in Japan’s research industry
2. History
The Company can trace its roots to Cross Marketing Inc., an online research company that was founded in April
2003 by Miki Igarashi, the current representative director, president and CEO. In May 2006, Cross Marketing enteredinto a capital and business alliance with EC Navi Inc. (currently VOYAGE GROUP Inc. (CARTA HOLDINGS, INC.
<3688>), the operator of ad platform and point media businesses). In March 2007, it entered into capital allianceswith major research companies such as Dentsu Research Inc. (currently DENTSU MACROMILL INSIGHT, INC.) andVideo Research Ltd. In October 2008, Cross Marketing listed its shares on the Mothers Section of the TSE andsubsequently broadened business from online research to marketing research and marketing solutions. In February
2011, it formed an alliance with Rakuten Research, Inc. and others to jointly develop a monitor database. In August
2011, it acquired Index Inc.’s mobile solutions business (currently the IT solutions business). In 2013, a decade after
the company’s establishment, Cross Marketing converted to a holding company, Cross Marketing Group, in what
it refers to as its second founding. The Company is accelerating M&A and new business and overseas initiatives. It
has actively acquired and developed powerful companies such as Kadence International Business Research Pte.
Ltd., Research and Development, Inc., and Medilead Inc. after 2015, while also successfully changing its listing to
the First Section of the Tokyo Stock Exchange (TSE) in March 2018. Despite having been a late starter, the Company
is now counted among the research industry’s leading companies in Japan.

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

03 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Company profile

Steadily growing marketing research industry in Japan
3. Industry environment
Marketing research is broadly divided into online research and offline research depending on whether it is conductedon the Internet or in the real world. The methods are also separated into panel research and ad hoc research.
Panel research collects data from a fixed target group over an extended amount of time periodically and in defined
locations. Ad hoc research, in contrast, is one-off research that designs a questionnaire and other materials eachtime for a region or target group to fulfill a purpose. While both approaches require considerable time and effort,
ad hoc research must be customized in each case and is even more laborious. The marketing research industry inJapan continues to steadily grow with increased and more diversified consumption and strong corporate earnings.
Online research expanded along with growing utilization of the Internet from 2000. Key differences compared tooffline research are the short number of days in which survey results can be obtained: easier processing of response
data because it is already digitalized: lower costs for printing, mailing, and survey staff: reduction of response gifts:
ability to conduct surveys of a few hundred thousand people in a short period: and ability to survey rare targets.
Online research excels in speed, cost, and scale, and these attributes have rapidly driven usage. In the market
research industry, major companies fuse market research like this with IT solutions to expand their business scope
to include marketing solutions. We note that there are three largest firms dominating the marketing research industry:
Macromill, Inc. <3978> (with fiscal year ending in June), INTAGE HOLDINGS Inc. <4326> (fiscal year ending inMarch), and Cross Marketing Group (fiscal year ending in December).
Trends in the domestic marketing research market

Source: The Company's results briefing materials

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

04 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Company profile

High quality and number of registered monitors supporting theonline research business
4. Research business(1) Research steps
Marketing research usually adheres to the following steps: 1) Listen to the client about the survey backgroundand purpose and prepare the method to achieve the survey goal, 2) support survey form planning and designand confirm purpose of the survey, 3) handle fieldwork in the various processes to improve quality, 4) implement
suitable planning and conduct compilation and analysis, 5) prepare a report with detailed analysis of the survey
results, and 6) conduct discussions which lead solutions. Online research service consists of the following detailed
steps: 1) Receive a research request from the client and develop a questionnaire program that reflects planned
content. Host the materials on the questionnaire server. In the survey itself, 2) conduct preliminary screening to
extract registered monitors suited to giving responses, 3) request e-mail distribution of questionnaire notification
to affiliate Research Panel, Inc. for the purpose of notifying registered monitors and recruiting questionnaire
respondents from the registered monitors, and 4) pay an honorarium (operating company points, etc.) to registeredmonitors who respond to the questionnaire via Research Panel and complete the questionnaire survey aftercollecting required sample volume. Then, 5) data cleaning is implemented with a system check and visual check by
dedicated staff to remove contradictory or improper replies. After the survey, 6) results are compiled and delivered
to the customer and various statistical analysis reports may be prepared if requested by the client. Finally, 7) pay
Research Panel for use of its registered monitors.
(2) Registered monitors
Quality and quantity of registered monitors is the most important factor to the Company’s marketing researchbusiness. In terms of quantity, at 1.8mn people, the Company has a very large number of active registeredmonitors. These registered monitors are recruited from the members-only websites run by VOYAGE GROUP,
Credit Saison Co., Ltd. <8253>, and others, and managed by Research Panel.
In the case of VOYAGE GROUP, members of its EC Navi website (a comprehensive shopping website) are invited
to register at Research Panel. In the case of Credit Saison, Credit Saison website members who wish to participate
in surveys are asked to sign up as registered monitors with Eikyufumetsu Research, which is operated by Research
Panel. The Company also has a reciprocal agreement that gives it access to the networks of registered monitorsof other marketing research firms, which have a combined total of more than 3.2mn active monitors. This means
the Company could potentially make use of a total of 5mn active monitors, which is more than enough in termsof quantity.
For quality, Research Panel annually updates member registered information to ensure data reliability and constantly keeps the latest information on basic attributes related to registered monitors. It also checks the content
of survey responses for individual registered monitors and actively manages the quality of registered monitors,
such as eliminating registration in the case of inappropriate responses. Additionally, it extracts registered monitors
for specific features, such as consumer goods ownership and assets, and places them in categories (car owner,
mobile phone owner, asset owner, etc.). This method facilitates highly accurate and effective surveys without
having to define survey conditions each time. Skepticism about reliability in online research’s early years has
almost entirely disappeared now thanks to cumulative efforts with these measures and there has been sufficient
securing of quality.

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05 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Company profile(3) Coverage ranges from online research to marketing research and now aiming for overseas
The Company steadily broadened business scope from Internet to offline research leveraging online researchknow-how and the infrastructure explained above. Offline research offers quantitative surveys using questionnaires
and interviews with research participants gathered at a venue and qualitative surveys via interviews of research
participants in a panel discussion format. Furthermore, the Company supplies various research services thatcombine IT with existing survey methods. These capabilities have enabled it to build an extensive track record in a
broad range of industries, including food products, beverages, cosmetics, pharmaceuticals, automotive, researchfirms, advertising and mass media, financial and insurance services, wholesale and retail, and services. The
Company can also accommodate various themes, such as consumer activity, concept tests, product evaluation,
packaging tests, advertising effect measurement, advertising evaluation, usage patterns, commercial zones andareas, brand evaluation, and customer satisfaction (CS). Furthermore, Japanese companies are increasing their
expansion overseas to places like countries in the rest of Asia and the Company has accelerated its Asian
expansion. While overseas businesses marked time between FY 12/18 and FY 12/19 as they built out theiroperations, revenue has grown to about half that of the domestic research business.
Main services in the research businessResearch
type
Quantitative
research

Qualitative
research

OthersResearch method

Service content

Online research

Original questionnaire program that meets customer needs is created on the Internet and registered monitors
fill out the questionnaire

Mailing research

Questionnaires are mailed to research participants and then collected. Results are compiled and analyzed

Phone research

Research staff interview research participants by phone and questionnaire results are compiled and analyzed

CLT research

Research participants gather at a designated venue for questionnaires and interview surveys. Results arecompiled and analyzed. People walking in the area by the venue are selected as participants in some cases

Mobile research

Original questionnaire program that meets customer needs is created in a mobile format for the Internet andregistered monitors fill out the questionnaire

Home-use test

Send products to the research participant’s home to obtain product evaluation in a questionnaire after test
use or tasting. Involves product delivery, questionnaire collection, and compilation and analysis of results

Focus group interview

Gather a group (normally 5-8 people) and interview of research participants conducted by a moderator in apanel discussion format

In-depth interview

One-to-one interview of research participants by a moderator

Home visit

Visit research participants at home or work to conduct questionnaires and interviews

Shop along

Accompany research participants on shopping trips to conduct questionnaires and interviews

Eye-tracking survey

Measure “view movement” by research participants using a special eye-tracking system

Overseas survey

Surveys in 85 countries - mainly developed countries (US and Europe), BRICS, Southeast Asia, and Oceania

ID-POS data

Various types of research using ID-attached POS data at supermarkets, drugstores, and convenience storesSource: Prepared by FISCO from the Company’s securities report

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

06 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Company profile

Providing integrated service through marketing solutions
5. IT solutions business and other businesses
The IT solutions business offers a one-stop service for all essential functions in mobile and smartphone services,from marketing to planning, development, operation, and promotion. More specifically, the IT solutions businessengages in website construction, smartphone app development, various tools and software package provision,
surveys and analysis, infrastructure and server building, online promotions, security measures, and operational
outsourcing. The Company has experience in building and operating systems for financial institution apps andsettlement and point management that require robust performance, large-scale systems with millions of members,
along with other systems. The Company also conducts systems development addressing the latest features for
rapidly advancing mobile equipment. Furthermore, the Company is capable of smoothly applying the PDCA cycle
to marketing strategies of customer companies and achieving even greater outcomes by leveraging the strengths of
its mainstay research business. In other businesses, the Company provides marketing assistance services, mainly
through promotion business operator D&M, Inc. It is capable of delivering integrated marketing solutions services
by bringing IT solutions and promotions businesses together with research business.
Main services in the IT solutions business
Service

Content

Website (PC/smartphone) construction

Services ranging from site strategy proposals to system development, site design, and maintenanceand operation

Smartphone app development

Planning and development of iPhone and Android native apps supporting a broad array of applications
from entertainment to business

Tool and package supply

Provision of various tools and packages to support web strategies that meet customer needs

Research and analysis

Hypothesis assessment and improvement proposals based on website research and analysis that aims
to contribute to enhanced customer KPIs

Operations outsourcing

Consignment of website operations, such as content updates, email magazine distribution, user
support, and site inspection

Infrastructure and server construction
and operation

Construction, operation, and hosting of an infrastructure environment that supports large-scale,concentrated access

Web promotion

Provision of optimal promotion measures for purpose (customer draw and member acquisition) andplatform attributes

Security measures

Comprehensive security measures for site operation, such as personal information protection and sitevulnerability checks

Source: Prepared by FISCO from the Company’s securities report

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

07 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/██Business model
Recovery of an operating profit margin that bottomed out in FY12/18
1. Earnings structure
Taking a close look at sources of earnings, we note that costs of researchers and directors fall under cost of sales
while selling and overhead costs (the functions used in common with the headquarters) are booked under SG&A
expenses. With regards to the flow of business and the functions, after the sales team brings in a project, researchers
put together a proposal for a specific research approach and work out the details of the research methodology.
The director is the individual who, depending on the size of the research and scope of the project, will design andoversee the research process, collect the data, and turn the results into a research product, and the researchers
create a research report. Simplifying the contributions to earnings, one might say that the Company should be
able to increase both sales and gross profit by increasing productivity through a proper balancing of the skills of
the directors, and by building up the expertise and size of the research department. On the other hand, increasing
the size of the sales team would lead to more orders, and indirect costs need to be properly matched to the sizeof operations.
Looking at the operating profit margins reported by the leading firms in the industry for the most recent fiscal year,
we find Macromill with an operating profit margin of 17.5% (¥44,279mn in revenue and ¥7,751mn in operating profit
in FY6/19), INTAGE 7.9% (¥53,986mn in revenue and ¥4,268mn in operating profit in FY3/19), and Cross MarketingGroup 5.5% (¥17,491mn in revenue and ¥954mn in operating profit in FY12/18). Macromill is highly efficient becausea large percent of its research is based on online research. INTAGE’s margins are lower than Macromill because
INTAGE mainly conducts offline and panel research and these are rather labor-intensive services. The Company’s
profitability is relatively weak for having started as an online research specialist. We attribute this result to decline
in the share of online research that generates attractive margin within the overall business amid broadening ofscope from the full range of marketing research to marketing solutions and modest pressure from upfront costsfor M&A, new business development, and promotion of overseas efforts in recent years. The former is unavoidable
as a strategic choice, but the latter is expected to be resolved once profits begin to come in. With operating profit
margins originally at 8.4% (FY12/16), about on par with INTAGE, they are seen as highly likely to recover to the
8% range in the future. For the time being, plans call for returning operating profit margins, which bottomed out in
FY12/18, to 6.3% in FY12/19.

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

08 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Business model

Strength in cross-segment support structure
2. Strengths and weaknesses
Notable features of the Company’s research are screen designs that make it easier for respondents to answer
questions; distribution settings to achieve accurate target selection; accurate and high-quality data cleaning; quick
response with screen formulation, distribution, and data delivery using a high-performance questionnaire system;
industry-leading number of registered monitors in Japan; and surveys that are capable of targeting not only basic
attributes but also small, unique groups as well. However, major peers also possess these capabilities and services
to some extent, and they do not provide significant differentiation. The Company’s biggest strength is its support
structure that brings together all sales staff, researchers, directors, and others who can adapt quickly and interact
with clients to resolve issues in a unified manner, as opposed to its competitors whose functions are relatively
separate from one another. Furthermore, the Company’s support structure together with the experience of its
researchers in making suitable proposals and design to address the client’s situation and its ability to provide
comprehensive marketing solutions that draw on internal IT solutions capabilities appear to effectively distinguish theCompany from its competitors in the eyes of clients. The Company is also consciously reinforcing these strengths.
Weaknesses or challenges, meanwhile, are delay in improving its profit margin because of growth in labor-intensive
service with the increase in offline research, and inadequate domestic and overseas recognition, as well as the factthat performance at Kadence, acquired in 2014, have not improved as expected. In response to these issues, theCompany has reorganized its domestic subsidiaries, while listing on the first section of the Tokyo Stock Exchange
in 2018; in FY12/18 it began a strong push toward structural reforms at Kadence. It has begun to make progress
both in terms of improving profitability and increasing recognition.

Building on growth during turning points
3. Turning points
Cross Marketing was founded in 2003 and was viewed as the latest arrival in the online research industry at thetime. However, it has successfully grown into a company that leads the marketing research industry. We see theCompany’s growth story as being marked by three major turning points thus far.

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

09 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

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Source: Prepared by FISCO from Company materials

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㻜



The first turning point was the business and capital alliance with VOYAGE GROUP (then EC Navi) in 2006. Cross
Marketing invested in Research Panel, which was part of VOYAGE GROUP, and thereby obtained access to its large
monitor base of 700,000 people (at the time). This event served as a catalyst for capital alliances with top-classresearch firms Dentsu Research (currently DENTSU MACROMILL INSIGHT) and Video Research and significant
expansion of business scope despite just having been established. The IPO on the TSE Mothers Section in 2008
was the second major turning point. Leveraging funds and increased recognition from the listing, Cross Marketingarranged business alliances with peers that possessed large-scale monitor groups, such as Rakuten Research,and secured access to more monitors. Separately, it developed pyxis2, which facilitates creation and customizationof questionnaire screens without expert knowledge, and this contributed to the expansion of its business scope.
The Company came to its third major turning point in 2013-15 when it switched to a holding company structurethat allowed it to accelerate M&A activity and overseas expansion. While has been accelerating site development in
Asia as a result, the goal is not just increasing the number of subsidiaries, but monetizing and growing subsidiaries
that will drive its next phase of growth. Results flattened to some extent in FY12/17 to FY12/18 due to promoting
better business efficiency, subsidiary governance, and enhanced functionality and mutual utilization of capabilities.
However, in 1H FY12/19, the Company moved to write down goodwill at Kadence while seizing the initiative torestart its overseas business. Domestically, it entered a new stage of business with its marketing solutions—the
integration of its marketing research and IT solutions—raising expectations for regrowth.

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10 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/██Business trends
Overseas business undergoes a correction in FY12/19 despite
successful domestic initiatives
1. Business initiatives for FY12/19(1) Arrival of an excellent opportunity to leverage strengths
To achieve sustainable growth, the Company is moving to aggressively expand its business in growth areasand invest in enhancing profitability. At the same time, it is moving forward with a variety of initiatives, including
the pursuit of greater group synergies. In FY12/18 it successfully shifted to the First Section of the Tokyo Stock
Exchange, and began working on structural reforms at Kadence. Meanwhile, looking again at the surrounding
environment, IT and other technologies are advancing at faster paces and promotion methods are rapidly shiftingfrom mass media to digital marketing. Nevertheless, the Company possesses clear strengths with its support
structure that resolve issues by interacting with customers in a unified manner and comprehensive marketing
solutions that utilize researcher experience and group IT solutions functions. In FY12/19, it plans to continue
strategic development of these strengths domestically, while further enhancing structural reforms at Kadence
overseas.
(2) Initiatives in domestic research business
Digital marketing is an area that the Company wants to strengthen in domestic research business. It plans to beginbuilding and providing research services that utilize SNS. For Instagram, it will utilize 3.77mn domestic researchmonitors and a network of over 3,600 influencers in Japan and overseas to deliver services that get to the core of
consumer sentiment, along with ordinary questionnaire surveys. For 50 media (including Twitter), it aims to offer
services for collection and analysis of SNS submission data, measurement of word-of-mouth share rates, andmeasurement of campaign effect. The Company also intends to integrate questionnaire data and existing data andutilize Tableau, the Business Intelligence (BI) tool with top market share, to provide support for building data-driven
decision-making operations. Cross Trace, a new service, combines attribute data, questionnaire results, and Web
access logs for a more multifaceted understanding of the actual conditions of survey coverage, including contact
with people not making purchases, and supports optimized digital marketing.
We think there are only a handful of research companies in Japan capable of integrating various new function
and data in research business as described above. Additionally, the Company aims to expand direct transactions
with advertising agencies and end user (ordinary companies) through these activities. In this process, we expect
client interest in consulting-type solutions as a core service, rather than looking at the Company as just a researchfirm. The Company is already moving forward with initiatives for business with these aspects and appears to haveincreased the number of client firms by about 1.3 times from 2016 level in 2018. For the fast-growing medical
business, it plans to hire talented people with more expertise who understand the medical field and English fromoutside and reinforce overseas sales activities and collaboration with overseas group companies.

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11 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Business trends

In IT solutions, the Company has an extensive development and operations track record focused mainly on
securities firms in the finance industry, with a high share of accounts maintained by listed securities companies
running on apps the Company has developed. Building on this track record, the Company is expanding businesswith credit card companies, Internet banks, and others. Furthermore, it wants to not only supply apps, but also
provide IT human resources to clients and obtain continuous operational work. Toward that end, the Company
has turned Supotant Co., Ltd. into a subsidiary as a company with human resource introduction and dispatches
that specialize in internet and e-commerce, which further ties into convenience for customers through operationof internet and e-commerce websites and dispatching the human resources it maintains. The Company obtained
shares in Supotant Co., Ltd. not only because there is greater demand for building e-commerce websites, butalso because the Company plans to launch a learning and training school aimed at IT engineer shortages andraising productivity. It intends to follow up with people after they get jobs and hold seminars at companies hiring
these people. Furthermore, the group company Cross Ventures Inc. invested in AdInte Co., Ltd., which developed
AlBeacon OtoO (Online to Offline) service that delivers push notifications and makes other effective approaches
when a user is near a store. The Company plans to outfit real-world stores with the system as a service for existingclients. We expect strong growth in the IT solutions business because of the many attractive opportunities it offers.
In promotions business, the Company is utilizing data collaboration with TREASURE DATA, Adobe, and othermajor data management platform (DMP) firms. It has built a promotions network, mainly run by subsidiary D&M,
with a policy to integrate large-scale attributes data and corporate data to deal with increasingly sophisticatedadvertiser needs and changes in the market environment. The Company targets steady sales expansion byharnessing knowhow and resources from its research business to expand managed-type ad business and providesite analysis and Web-contact data analysis services.
(3) Slight changes in overseas research business initiatives
While the domestic business progressed largely according to plan in 1H FY12/19, revisions are being made in
the overseas research business. Initially, the plan was to lower costs and enhance capabilities by moving forwardwith structural reforms at Kadence while steadily expanding sites in new areas in the U.S. (New York) and areasthat have not been penetrated in Asia, and strengthen infrastructure foundations by establishing business process
outsourcing (BPO) sites in English-speaking Asia and opening an R&D center. Contrary to this somewhat aggressive strategy, however, unfavorable business conditions at Kadence in 1H FY12/19 called for further enhancing
structural reforms there, although the Company’s basic policy toward its overseas strategy remains unchanged.

Accelerating structural reforms at Kadence
2. 1H FY12/19 results
For 1H FY12/19, the Company reported revenue of ¥8,808mn (+2.3% YoY), operating profit of ¥423mn (-7.7%),
ordinary profit of ¥340mn (-16.6%) and loss attributable to owners of parent of ¥954mn (profit attributable to ownersof parent was ¥186mn in the same period of the previous year).

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12 19

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

Cross Marketing Group Inc.

18-Oct.-2019

3675 Tokyo Stock Exchange First Section

https://www.cm-group.co.jp/en/ir/

Business trends

Trends in quarterly results

Source: The Company's results briefing materials

Going into FY12/19, the Company’s domestic businesses performed strongly, but in overseas research, sluggish
business conditions at the four companies of the Kadence group and timing differences in booking profits from large
projects made it impossible to expect the originally estimated profits. As a result, The Company reported revenueof ¥626mn, operating profit of ¥43mn and ordinary profit of ¥36mn. Because impairment losses to goodwill of
the four companies of ¥1,021mn were recorded as special losses, results fell short of the target of ¥1,102mn in
profit attributable to owners of parent. Note that while gross profit margins improved by 1.4 points, this was due
to postponing the booking of profits from low-profit large overseas projects, and to continued investment in the IT
solutions business and other businesses even as revenue targets went unmet and despite a 1.9 point rise in the
SG&A expense ratio. Impairment losses on goodwill also resulted in a year-on-year drop of ¥1,153mn in goodwill
on the balance sheet, to ¥327mn, reducing goodwill amortization expenses in 2H FY12/19 by about ¥70mn (areduction of about ¥140mn on a full-year basis).
1H FY12/19 results(¥mn, %)
1H FY12/18

Ratio (%)

1H FY12/19

Ratio (%)

Change (%)

Revenue

8,607

100.0

8,808

100.0

2.3

Gross profit

3,178

36.9

3,371

38.3

6.1

SG&A expenses

2,719

31.6

2,947

33.5

8.4

Operating profit

458

5.3

423

4.8

-7.7

Ordinary profit

408

4.7

341

3.9

-16.6

Profit attributable toowners of parent

186

2.2

-954

-10.8

-

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

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

13 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Business trends

Other businesses excluding Kadence progressed stably
3. 1H FY12/19 results by business segment(1) Research business
The research business posted revenue of ¥6,845mn (-3.8% YoY) and operating profit of ¥874mn (-14.6%).
Progress was made both in Japan and overseas in developing new customers and deepening relationships withexisting customers, and in providing comprehensive marketing research services. Still, due to poor performance at
Kadence, results from the domestic research business were unable to fully compensate for the overseas researchbusiness, and performance fell short of targets.
a) Domestic research
The domestic research business reported revenue of ¥4,831mn (-2.4% versus initial forecast, +8.0% YoY). The
market for domestic research showed solid growth in excess of 2%, but the Company, along with other major
market research firms, delivered even higher growth of between 8 to 10%. Behind this growth is an increasing
concentration of business among top firms, driven in part by the fact that net-based research constantly requires
new technology and thus significant capital for system investment and operation, and to a period of ownershipchange, primarily among small and medium-sized research firms. In the midst of this environment, the Company
is beginning to establish a foundation in terms of scale and organization. While some of its operating companies
have struggled, by enhancing its sales structure, and by developing and providing new services--including in thedigital marketing and big data fields—the Company has seen orders increase, primarily from research firms andadvertising agencies. It has also been successful in actively marketing to foreign-owned firms by offering medical
research and enhanced ability to handle global projects, resulting in significant growth.
While mainstay subsidiary Cross Marketing performed strongly, in 2015 it split off its dedicated medical research
practice to launch Medilead, which has seen profits increase significantly thanks to a positive environment driven
by an aging population, and to efforts to incorporate the needs of major foreign-owned manufacturers. Unlike
domestic pharmaceutical companies, overseas manufacturers emphasize patient surveys, are profitable andhave strong research needs, allowing Medilead to successfully hire specialists and expand its lineup (this also
resulted in its ability to make deep inroads into the industry). At the same time, Medilead has already conducteda survey targeting ordinary consumers, male and female, nationwide to design its Medilead Healthcare Panel,building Japan’s largest disease information panel comprising 350 thousand people (150 thousand who havebeen hospitalized within the past year; 200 thousand who have not been hospitalized during the same period).

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14 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Business trends

Overview of the Medilead Healthcare Panel Survey

Source: Medilead websiteb) Overseas research
The overseas research business reported revenue of ¥2,015mn (-19.6 versus initial forecast, -23.8% YoY). Whilesome overseas companies performed strongly, winning prizes offered to research companies, multiple sites saw
sluggish business performance. One major project undertaken by the group, primarily in the U.S., was expected
to post revenue in 2Q, but due to the time it took to start the project, that initial plan has now slid into 2H or later,
making recovery of that investment in FY12/19 difficult. In England, Indonesia and Singapore, meanwhile, changes
in organizational structures following acquisitions has caused some instability in near-term business performance.
Given the above, the Company took a conservative approach to accelerating structural reforms and decided towrite off goodwill in Kadence in a single move. While further investigation is needed in some areas, significant
progress seems to have been made in governance. Note that the large project in question has not gone away,
and because Kadence continues to acquire projects of one kind or another each quarter, this should not have amajor impact when considered over a certain period of time.
(2) IT solutions business
The IT solutions business posted revenue of ¥1,590mn (+2.9% versus initial forecast, +28.6 YoY) and operating
profit of ¥159mn (+45.2%). Building on its positive relationship with the financial services industry, the business
continues to capture orders from existing customers, and is also moving to aggressively develop new customers,
backed by its technology and sales capabilities. At the same time, it is working to secure gross profit margins by
ensuring adequate development resources and thorough quality control.
Cross Communication, Inc. has built a track record enabling it to capture about 60% market share in application
development for listed online security firms, and the reputation for reliability it has acquired in the securities industry
has allowed it to steadily expand orders for application development for online banks, insurance companies andother financial institutions, bringing double-digit revenue growth. Because security and reliability are importantcomponents of developing applications for financial institutions, few companies are able to offer stable development services, and the market is not big enough to attract major SI firms. This has afforded the Company anunchallenged position, and offers it significant room to expand into servicing regional banks, credit card companies
and others. Acquisition of the shares of Supotant Co., Ltd. in 2018 has also contributed significantly to earnings.

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15 19

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

Cross Marketing Group Inc.

18-Oct.-2019

3675 Tokyo Stock Exchange First Section

https://www.cm-group.co.jp/en/ir/

Business trends(3) Other businesses
Other businesses reported revenue of ¥371mn (-14.1% versus initial forecast, +34.9% YoY), and ordinary profitof ¥52mn (versus ¥1mn in the same period the previous year). Centered around D&M, which conducts thepromotions business, they engage in marketing and providing promotional services. Their strong profitability canbe attributed to a brisk market for digital marketing; a sales organization enhanced through stronger cross-groupcollaboration with the research business; more aggressive efforts to capture managed-type business deals;
acquisition of profitable deals; and what might be called a synergistic use of surveys as a tool for attracting
customers.
1H FY12/19 results by business segment(¥mn, %)
Revenue before
adjustment

1H FY12/18

Ratio (%)

1H FY12/19

Ratio (%)

Change (%)
-3.8

7,116

82.7

6,845

77.7

Domestic research

4,472

52.0

4,831

54.8

8.0

Overseas research

2,644

30.7

2,015

22.9

-23.8

1,216

14.1

1,590

18.1

30.8

275

3.2

371

4.2

34.9

1H FY12/18

Profit margin(%)

1H FY12/19

Profit margin(%)

Change (%)

Research

1,023

14.4

874

12.8

-14.6

IT solutions

109

9.0

159

10.0

45.2

1

0.5

52

14.3

3,768.5

Research

IT solutions
Other businesses
Segment profit before
adjustment

Other businesses

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

Anticipating 2H results that further strengthen businessdevelopment
4. FY12/19 outlook
The Company’s FY12/19 outlook calls for revenue of ¥20,000mn (+14.3% YoY), operating profit of ¥1,250mn(+30.9%), ordinary profit of ¥1,109mn (+32.0%) and net loss attributable to owners of parent of ¥490mn (versus a
net profit of ¥506mn in the same period of the previous year). With 2Q targets unmet and the occurrence of goodwill
impairment losses, the Company now expects to post a net loss attributable to owners of parent, but revenue,
operating profit and ordinary profit remain as initially forecast. This is due to continued strong performance forecast
for domestic businesses; the expectation that performance overseas will be in line with initial forecasts for 2H after
failing to meet 2Q targets; and because strong results are forecast for 2H in part due to the fact that about ¥70mn
in goodwill amortization expenses expected to be reported in 2H FY12/19 will not be expensed due to impairment
losses.
Nevertheless, a certain level of uncertainty remains with progress in the overseas research business, and some
impact can be expected from the coming hike in the consumption tax in Japan. Aside from profit attributable toowners of parent, the Company has thus left its initial forecast unchanged.

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

16 19

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

Cross Marketing Group Inc.

18-Oct.-2019

3675 Tokyo Stock Exchange First Section

https://www.cm-group.co.jp/en/ir/

Business trends

Forecasts for FY12/19(¥mn, %)
FY12/18

Ratio (%)

FY12/19
forecast

Ratio (%)

Change (%)

Revenue

17,491

100.0

20,000

100.0

14.3

Gross profit

6,429

36.8

-

-

-

SG&A expenses

5,474

31.3

-

-

-

Operating profit

954

5.5

1,250

6.3

30.9

Ordinary profit

839

4.8

1,109

5.5

32.0

Profit attributable to owners of parent

506

2.9

-490

-2.5

-

Segment revenue before adjustment

FY12/18

Ratio (%)

FY12/19
forecast

Ratio (%)

Change (%)
9.7

14,293

81.7

15,67678.4

Domestic research

9,551

54.6

10,22051.1

7.0

Overseas research

4,742

27.1

5,456

27.3

15.1

2,542

14.5

3,308

16.5

30.1

656

3.8

1,017

5.1

55.0

Research

IT solutions
Other businesses

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

Medium-term growth image largely unchanged despite Kadence
write-down
5. Medium-term growth image
The Company intends to develop new services and businesses and strengthen group collaboration in digital marketing and IT areas with robust growth potential going forward in the medium-term. It therefore plans to continue
aggressively investing in digital marketing and big data, including IT solutions and Web promotions businesses.
Meanwhile, in mainstay domestic research businesses, it plans to actively invest in upstream research areas,such as consulting business, and medical and other growth areas with the goal of enhancing profitability. For
domestic research, an industry with prospects of stable growth in the 2-3% range, the Company promotes businessautomation and productivity improvement with system investments, including robotic process automation (RPA)
and artificial intelligence (AI), and builds human resource cultivation programs that factor in various client issues.
Domestic businesses, which delivered strong near-term results, are expected to continue leading growth in themedium term.
Meanwhile, no changes are expected in the Company’s approach to and major trends in the overseas researchbusiness. It needs to make inroads in Asia and the U.S., which will likely require the use of M&A. That said, Kadence
also needs a recovery strategy. To build an environment that allows the Company to focus on business development,
it plans to clarify a shift in roles from general management to specific responsibility for management of overseas
subsidiaries, with accounting and finance controlled in Japan. Naturally, this will mean giving Japan greater control
over Kadence as well. Later, the Company plans to consolidate sites where profitability is unlikely due to the trade
war between the U.S. and China, while continuing active investment in countries with a demographic dividend. As
it strives toward medium-term regrowth, the Company expects to quickly rebuild its business through a reduced
cost structure and enhanced governance, working to monetize overseas businesses from their bottom in FY12/19.
While the Company has already made progress in establishing a BPO site and its India R&D center, its belief that its
overseas businesses will drive growth remains unchanged, a view backed by its high-value-added, high-productivity
structure as a marketing solutions company.

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

17 19

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

Cross Marketing Group Inc.

18-Oct.-2019

3675 Tokyo Stock Exchange First Section

https://www.cm-group.co.jp/en/ir/

Business trends

Domestic and overseas marketing-related markets remain strong, and the Company is making steady progressin expanding its business fields. While it has had its ups and downs, it is moving forward to build a foundation
for its overseas business, consolidating operations at its BPO site and establishing an R&D center in India for thedevelopment of new technology. Meanwhile, it is expanding into new areas of business, including the medical field
and mystery shoppers, and is cultivating peripheral businesses, including the promotion business (D&M) and anengineer dispatching business. It is also moving to respond to new technologies such as digital marketing. Whilethe impairment of goodwill at Kadence will have some lingering effect, the company is making solid progress inbuilding a base for becoming a comprehensive marketing solutions group.

㻹㼑㼐㼕㼡㼙㻙㼠㼑㼞㼙㻌㼓㼞㼛㼣㼠㼔㻌㼕㼙㼍㼓㼑㻾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㻞㻡㻘㻜㻜㻜

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Source: Prepared by FISCO from Company materials██Shareholder return policy
Increase in Dividend Planned for FY12/19
The Company maintains a policy of providing stable returns to shareholders in the form of dividends. However, in viewof the great demands on capital at the present time and business investment plans for the future, management has
decided to pay an annual dividend based on a dividend payout ratio of roughly 15% of consolidated earnings. Whilea net loss is forecast for FY12/19, the net loss attributable to owners of parent is due to the impairment of goodwill
in the overseas research business, a transient event, and the Company thus plans to maintain its assumption of anannual dividend of ¥6.0 per share. Note that an interim dividend of ¥3.0 is planned for FY12/19.

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18 19

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

Cross Marketing Group Inc.
3675 Tokyo Stock Exchange First Section

18-Oct.-2019https://www.cm-group.co.jp/en/ir/

Shareholder return policy㻰㼕 㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㼍 㼚㼐㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㻔㼘㼑㼒㼠㻕

（¥）
㻥㻚㻜

㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻕

（㻑）

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㻲㼅㻝㻞㻛㻝㻤

㻲㼅㻝㻞㻛㻝㻥㻌㻱Note: Conducted a 3-for-1 stock split on June 1, 2014. Dividend per share values shown here have been retroactively
adjusted.
Source: Prepared by FISCO from the Company's financial results██Information security
The research business collects personal information from those surveyed. Group companies that may come intopossession of personal information—including the parent company, UTIL, Inc., D&M, Inc., Research Panel, Inc. andMedilead Inc.—have all been certified as meeting the data privacy standards set forth by JIPDEC (Japan Information
Processing and Development Center) for the proper collection, management, and handling of personal information.

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

19 19

Disclaimer
FISCO Ltd. (“FISCO”) offer stock price and index information for use under the approval of theTokyo Stock Exchange, the Osaka Stock Exchange and Nikkei Inc.
This report is provided solely for the purpose of offering information, and is not a solicitationof investment nor any other act or action.
FISCO prepared and published this report based on information which it considered reliable;
however, FISCO does not warrant the accuracy, completeness, fitness nor reliability of thecontents of this report or the said information.
The issuers’ securities, currencies, commodities, securities and other financial instruments
mentioned in this report may increase or decrease in value or lose their value due to influence
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