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Review of full-year financial results

The year ended September 2019

The rate of individual smartphone ownership in Japan increased to 64.7% in 2018. In particular, the rate reached 80% to 90% among people between the ages of 10 and 39. Quantitative expansion is progressing in segments centered on Generation Z and the millennial generation. Time spent on smartphones grew longer per owner in step with a rise in the usage rate of social media as well. These data suggest conspicuous qualitative changes (source: "White Paper 2018 Information and Communications in Japan" published by the Ministry of Internal Affairs and Communications). Smartphones have become the mainstream among devices for accessing the Internet, as described above. Under the circumstances, demand for contents, such as videos, music and electronic books, is expanding in an accelerated manner in markets for various services and applications. In addition, the use of social media is spreading to fields such as account settlement and purchasing, and the influence of social media is increasing more and more. Demand for marketing support that makes the most of the characteristics of the respective social media, data, and AI is rising further for these reasons.

In this environment, SEPTENI HOLDINGS CO., LTD. (hereinafter the "Company") and its consolidated subsidiaries (hereinafter the "SEPTENI Group" collectively) promote the development of the market for brand advertising, which had grown remarkably. At the same time, a business alliance with the Dentsu Group started, and it progressed steadily as originally planned.

In addition, for raising competitiveness on medium- and long-term bases, the SEPTENI Group implemented proactively hiring and training personnel using an AI-based personnel system focused on machine learning. The Group made prior investments for expanding media focused on GANMA!, a manga content app in the Media Platform Business, and for strengthening its own content as well.

Meanwhile, AXELMARK INC. was excluded from the affiliated company accounted for by the equity-method. The loss arising along with measuring residual equity at fair value due to this was recorded at 2nd quarter FY2019.

In addition, it was revealed that Lion Digital Global LTD. (hereinafter the "Lion"), which is an overseas consolidated subsidiary, would likely underperform its initial business plan anticipated at the time of merger, and the Company has conducted impairment testing in accordance with IFRS requirements and examined the future collectability. Consequently, the Company recorded an impairment loss of ¥1,802 million* for Lion's goodwill and business assets recognized in value at the time of the merger in the fiscal year ending September 30, 2019.

As a result, revenue increased to ¥16,796 million (up 10.0% year on year), non-GAAP operating profit increased to ¥2,065 million (up 104.2% year on year) and operating profit decreased to ¥183 million (down 81.3% year on year) , profit attributable to owners of parent totaled ¥-547 million (down ¥1,394 million year on year).

Overview of consolidated full-year financial results

(units:\million)

  FY2015※ FY2016※ FY2017 FY2018 FY2019
Revenue 11,195 13,862 14,702 15,272 16,796
Non-GAAP Operating profit 2,901 4,147 2,325 1,011 2,065
Operating profit 2,533 4,154 2,248 977 183
Profit attributable to owners of the parent 2,351 2,519 2,211 847 -547
【Reference】Net Sales 61,476 73,203 72,375 72,443 76,501

-For FY9/17, AXEL MARK INC. is excluded from the consolidated results.
Consolidated profits and losses for FY9/16 and before, with which comparisons are made, are corrected
retroactively and presented after being reclassified as those of discontinued businesses.

The trend of consolidated full-year financial results

Revenue
Non-GAAP Operating profit
Operating profit
Profit attributable to owners of the parent

Financial results by segment

(units:\million)

    FY2015※ FY2016※ FY2017※ FY2018※ FY2019※
Revenue
Digital Marketing Business 11,096 13,409 13,833 14,234 15,079
Media Platform Business 207 601 1,163 1,324 2,005
Adjustment -108 -148 -294 -286 -289
  11,195 13,862 14,702 15,272 16,796
Non-GAAP Operating profit
Digital Marketing Business 3,816 5,331 5,468 4,026 4,775
Media Platform Business -530 -718 -1,324 -1,051 -901
Adjustment -378 -467 -1,820 -1,964 -1,809
  2,901 4,147 2,325 1,011 2,065
【Reference】Net Sales
Digital Marketing Business 61,564 73,159 72,549 72,177 75,311
Media Platform Business 207 601 1,163 1,324 2,005
Adjustment -295 -559 -1,336 -1,058 -815
  61,476 73,203 72,375 72,443 76,501
Revenue
Non-GAAP Operating profit

※Further, we have changed our policy and decided not to allocate corporate expenses that had been allocated to each segment, effective from FY9/18 onward. As a result of the change, Non-GAAP operating profits by segment for FY2017 have been revised retroactively based on the understanding that corporate expenses are not allocated. Though earning results before FY2016 have not been revised retroactively, these are recorded for your information.

Review of Digital Marketing Business in Fiscal Year Ended September 2019

In the fiscal year under review, the number of clients and budget from large clients in the domestic market increased steadily. Overseas business was sluggish in regions of North America and Asia. In the meantime, it progressed as planned to support the implementation of advertisements for Digital marketing projects handled by the Dentsu group, offer knowledge and technology to Dentsu group, and so on, and that contributed to increasing the revenue.

As a result, revenue increased to 15,079 million yen (up 5.9% year on year), and Non-GAAP operating profit increased to 4,775 million yen (up 18.6% year on year).

Revenue
Non-GAAP Operating profit
【Reference】Net Sales
Volumes in overseas
Volumes of video ad
Transaction of Domestic Brand Ad

Review of Media Platform Business in Fiscal Year Ended September 2019

In the fiscal year under review, GANMA!, a Manga Content Business, expanded steadily, cumulative downloads of the app rose beyond 13 million as of September 30, 2019. And Revenue increased by the expansion of brand advertising and subscription, thereby declining the deficit.

From the above results, Revenue increased to 2,005 million yen (up 51.4% year on year), and Non-GAAP operating loss decreased to 901 million yen (Non-GAAP operating loss of 1,051 million yen in the previous term).

Revenue
Non-GAAP Operating profit