AOI TYO : 〔Delayed〕Summary of Consolidated Financial Results for the Second Quarter of the Fiscal Year Ending December 31

Summary of Consolidated Financial Results (Japanese Accounting Standards)

for the Second Quarter of the Fiscal Year Ending December 31, 2020

August 14, 2020

Company name:

AOI TYO Holdings Inc.

Stock Exchange:

Tokyo Stock Exchange

Code:

3975

URL:

http://aoityo.com/en/

Representatives:

Yasuhito Nakae, Representative Director

Inquiries:

Satoshi Yuzurihara, Executive Director

Tel: [phone]

Scheduled date of submission of quarterly report:

August 14, 2020

Scheduled date of commencement of dividend payment:

-

Supplementary documents for quarterly results:

Yes

Quarterly results briefing:

Yes

(Rounded down to the nearest million yen)

1. Consolidated Financial Results for the Second Quarter (from January 1, 2020 to June 30 2020)

(1) Consolidated operating results

(The percentages are year-on-year changes.)

Net sales

Operating income

Ordinary income

Profit attributable to

owners of parent

Million yen

%

Million yen

%

Million yen

%

Million yen

%

Q2 FY2020

24,367

-20.5

-881

－

-1,047

－

-956

－

Q2 FY2019

30,636

-0.7

816

-53.2

637

-62.1

257

-78.0

(Note) Comprehensive income

Q2 FY2020: -1,133 million yen (-%)

Q2 FY2019: 66 million yen (-94.0%)

Net income per share

Diluted net income�

per share

Yen

Yen

Q2 FY2020

-40.76

－

Q2 FY2019

10.95

10.91

(2) Consolidated financial position

Total assets

Net assets

Equity ratio

Million yen

Million yen

%

Q2 FY2020

49,573

21,951

43.5

FY2019

53,352

23,363

43.0

(For reference) Shareholders' equity Q2 FY2020: 21,560 million yen

FY2019: 22,935 million yen

2. Dividends

Dividends per share

End of Q1

End of Q2

End of Q3

Year end

Annual

Yen

Yen

Yen

Yen

Yen

FY2019

－

8.00

－

12.00

20.00

FY2020

－

0.00

FY2020 (forecast)

－

－

－

(Note)

1. Revisions to dividends forecast published most recently: No

2.The Company's Articles of Incorporation stipulate that the record dates for dividends are the end of the second quarter

and the end of the fiscal year; however, the dividend forecast for the end of the fiscal year has not yet been determined.

3. Consolidated Financial Forecast for FY2020 (January 1, 2020 to December 31, 2020

Though the full-year results forecast for the fiscal year ending December 2020 remain undecided, we are currently in the final adjustment stage, analyzing the current business environment and order trends as we assess the impact of COVID- 19. We will promptly announce our results forecasts once their calculations are completed.

* Notes

(1) Important changes in subsidiaries for the second quarter under review (Changes is specified subsidiaries resulting in

change in scope of consolidation):	No
New: ― companies	Excluded: ― companies

1. Application of accounting treatment specific to the preparation of quarterly consolidated financial statements: Not applicable
2. Changes in accounting policies, and changes or restatements of accounting estimates

(i)	Changes in accounting policies due to revisions to accounting standards etc.	:	Not applicable
(ii)	Changes in accounting policies other than (i)	:	Not applicable
(iii)	Changes in accounting estimates:	:	Not applicable
(iv)	Restatements of accounting estimates:	:	Not applicable

1. Number of issued shares (common stock)
2. 1. Number of issued shares (including treasury stock)

Q2 FY2020 24,566,447 shares

FY2019

24,566,447 shares

1. Number of treasury stock at end of period

Q2 FY2020 1,102,452 shares FY2019 1,109,564 shares (iii) Average number of issued shares

Q2 FY2020 23,459,787 shares Q2 FY2019 23,528,173 shares

(Note)

The number of treasury stock includes the shares that Trust & Custody Services Bank, Ltd. (trust account E) holds as trust property related to a Board Benefit Trust system.

(Q2 FY2020: 411,200 shares, Q2 FY2019: 418,900 shares)

• This summary of financial results is not subject to review by a certified public accountant or certified public accounting firm.
• Explanation on the proper use of results forecasts and other notes

The forward-looking statements, including results forecasts, in this document are based on information that AOI TYO Holdings has obtained at the time of publication and certain assumptions that it believes to be reasonable. Actual results may differ materially from the forecasts due to a variety of reasons. For more about assumptions underlying earnings forecasts and cautions regarding the use of earnings forecasts, see 1. Qualitative Information on Results (3) Discussion of consolidated results forecasts on P.3 of Attachments.

• AOI TYO Holdings will hold an earnings briefing for institutional investors and analysts on September 2, 2020. After the conclusion of this meeting, the group will publish the materials distributed on the AOI TYO Holdings corporate website as quickly as possible.

Attachments

1. Qualitative Information on Results in the Second Quarter	2
(1)	Discussion of operating results	2
(2)	Discussion of financial position	2
(3)	Discussion of consolidated results forecasts	3
2. Quarterly Consolidated Financial Statements and Major Notes	5
(1)	Quarterly consolidated balance sheets	5
(2)	Quarterly consolidated statements of income and statements of comprehensive income	7
(3)	Quarterly consolidated statements of cash flows	9
(4)	Notes to quarterly consolidated financial statements	10
	(Notes on the premise of a going concern)	10
	(Notes in the event of significant changes in shareholders' equity)	10

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1. Qualitative Information on Results in the Second Quarter

(1) Discussion of operating results

Any forward-looking statements below are based on AOI TYO Group judgments as of the end of the second quarter of the current consolidated fiscal year.

During the consolidated second quarter, COVID-19 became a global epidemic, bringing constraints on domestic and overseas economic activities and leading to an extremely severe economic state.

As much of the AOI TYO Group's film production and editing processes for commercial production fall under the Three C's (closed, crowded, close-contact spaces that are to be avoided), we have begun as of February to adopt measures in a stepwise fashion to prevent the spread of infection. Under the Japanese government's state of emergency declaration, we took measures such as shifting employees to working from home in principle, temporarily suspending operations at filming and editing studios, requesting postponements to advertising companies and advertisers involved in filming projects. Further, a number of projects were postponed, and some were suspended. After the state of emergency was lifted on May 25, we applied new standards for safety in production work, and, in addition to a series of information from national and local governments and various domestic and overseas film production guideline examples, we have entered into an advisory contract with a medical coordination company, drafting our own guidelines for production work. We also restarted filming and editing operations, taking a number of measures to prevent the spread of COVID-19. For example, during filming, we have required attendance of a hygiene management team which includes healthcare professionals, mandated health checks, and are regularly conducting and checking disinfection and ventilation. However, we were unable to catch up to work delays with only the month of June remaining, and many projects were delayed to the third quarter.

Under these circumstances, though net sales for the second consolidated quarter of the current fiscal year were nearly unchanged year-on-year in the Solutions Business, net sales fell dramatically in the Video Advertising Business, with decreases also in Advertising-Related Businesses due to the suspension and postponement of various events. As a result, consolidated net sales were ¥24,367 million, a decrease of ¥6,269 million compared to the prior year. Of this decrease in sales, we can identify ¥5,400 million (of which approximately 70% was postponed to the third quarter or later) related to postponements or cancellations of projects due to COVID-19. Order volumes also fell sharply during the consolidated second quarter due to future uncertainty from the spread of COVID-19 and suspension of economic activity during the state of emergency. The balance of order volumes as of the end of the consolidated second quarter was ¥14,029 million, down ¥1,090 million year-on-year.

Sales declines had a significant impact on profits. Operating losses, ordinary losses, and net losses were all recorded for the quarter, despite elimination of costs related to restructuring at poorly performing subsidiaries and software recorded as impairment loss in the prior year.

As a result, the AOI TYO Group recorded net sales of ¥24,367 million for the consolidated second quarter, representing a 20.5% decrease compared to year-ago quarter. Operating loss amounted to ¥881 million (¥816 million of operating profit in the same period of prior fiscal year), while ordinary loss amounted to ¥1,047 million (¥637 million of ordinary profit in the same period of prior fiscal year), and loss attributable to owners of parent amounted to ¥956 million (¥257 million of profit attributable to owners of parent in the same period of prior fiscal year). Selling, general and administrative expenses included ¥169 million in amortization of goodwill associated with M&A activity.

(2) Discussion of financial position

Total assets as of the end of the consolidated second quarter amounted to ¥49,573 million, a ¥3,778 million decrease compared to the end of the prior consolidated fiscal year. This decrease was mainly due to a decrease in notes and accounts receivable of 8,846 million yen, compared to increases in cash and deposits of ¥4,196 million and electronically recorded monetary claims of ¥1,628 million.

Liabilities decreased by 2,365 million yen compared with the end of the prior fiscal year to 27,622 million yen. Although long-term loans payable increased ¥4,281 million, short-term loans payable and accounts payable decreased ¥3,200

―2―

million and ¥4,637 million, respectively.

Net assets amounted to ¥21,951 million, a decrease of ¥1,412 million compared to the end of the prior consolidated fiscal year, mainly due to decrease in retained earnings of ¥956 million by the net loss attributable to shareholders of the parent company and ¥286 million by dividend payments

Cash and cash equivalents amounted to ¥13,225 million as of the end of the consolidated second quarter, a ¥4,164 million increase compared to the end of the prior consolidated fiscal year.

The following paragraphs summarize cash flow activity through the six-month period ending June 2020.

Cash Flows from Operating Activities

Cash used in operating activities amounted to ¥2,494 million compared to net cash used of ¥259 million in the same period of the previous fiscal year. This result was mainly due to a decrease of ¥7,201 million in trade receivable, combined with a decrease of ¥4,624 million in trade payable and ¥1,161 million of the net loss attributable to shareholders of the parent company

Cash Flows from Investing Activities

Cash used in investing activities amounted to ¥365 million, compared to ¥642 million in the year-ago period. This result was mainly due to ¥262 million in outlays for the purchase of property, plant and equipment and ¥155 million in payments for investments in capital. These outlays were offset in part by proceeds of ¥81 million in sales of investment securities.

Cash Flows from Financing Activities

Cash flows from financing activities amounted to ¥2,057 million, compared to ¥2,820 million in the year-ago period. This result was mainly due to ¥7,200 million in proceeds from long-term loans payable, offset by a ¥3,200 million decrease in short-term loans payable and ¥1,544 million in repayments of long-term loans payable.

(3) Discussion of consolidated results forecasts

• Response to and Impact of COVID-19

After the state of emergency was lifted on May 25, we applied new standards for safety in production work, and, in addition to a series of information from national and local governments and various domestic and overseas film production guideline examples, we have entered into an advisory contract with a medical coordination company, drafting our own guidelines for production work. During filming, we have also required attendance of a hygiene management team which includes healthcare professionals, and we are taking a number of other measures to prevent the spread of COVID-19 in filming and editing work, such as health checks, and regularly conducting and checking disinfection and ventilation. Further, we are also implementing remote video editing methods.

However, while there is still uncertainty as to when the spread of COVID-19 will subside, it is assumed that efforts to prevent the spread of infection, such as voluntary closures of commercial facilities and voluntary at-home quarantine, will continue to suppress economic activity in the future. Also, with deterioration of corporate profits and the economy both in Japan and overseas, there is significant potential for an immediate reduction in corporate demand for advertising; therefore, though order volumes will be lowest in the consolidated second quarter, we believe it would be difficult to expect a broad recovery in order volumes in the consolidated third and fourth quarters.

On the other hand, as the pace of change accelerates over the medium term in the evolution of information and communication technologies, diversification of media, and transformation of behavior patterns in a post-corona society, it is certain that there will be growing needs for planning and production of video-centric communication tools in order to deepen engagement between companies and consumers. These changes present an opportunity for expansion of what the AOI TYO Group is asked to handle, and we are presently exploring a medium-term business strategy that includes cost

―3―

reductions.

As of the end of June 2020, AOI TYO Holdings maintains a high level of consolidated cash and deposits, at ¥13,307 million, and a high current ratio of 277.2%. Further, we have concluded commitment lines with a number of financial institutions for a combined ¥12 billion (¥0 billion outstanding as of June 2020). We have also secured long-term loans of ¥7,200 million during the second consolidated quarter for the fiscal year to ensure sufficient liquidity.

• Future Outlook

In the Notice Regarding Delay of Financial Results Announcement for Q1 of FY2020 and Revision to Q2 and Full- year Forecast, announced on April 28, 2020, we had temporarily retracted our full-yearconsolidated results forecast and set the forecast as undecided. However, we are now, as stated above, in the final adjustment stage and are analyzing the current business environment and order trends, as well as formulating medium to long-termbusiness strategies. As soon as the calculations for our consolidated results forecast are completed, we plan to make another announcement, which will include medium to long-termbusiness planning.

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2. Quarterly Consolidated Financial Statements and Major Notes

(1) Quarterly consolidated balance sheets

					(Unit: thousand yen)
				FY 2019	Q2 FY2020
				(December 31, 2019)	(June 30, 2020)
	Assets
	Current assets
	Cash and deposits			9,111,122	13,307,381
	Notes and accounts receivable - trade	16,873,978	8,027,285
	Electronically recorded monetary claims - operating			4,413,564	6,042,472
	Merchandise and finished goods	7,301	7,162
	Work in process			4,510,288	4,344,798
	Other	1,125,296	875,017
	Allowance for doubtful accounts			37,727)	(31,424)
	Total current assets		36,003,823	32,572,693
	(
	Non-current assets
	Property, plant and equipment
	Land			3,606,822	3,593,652
	Other	3,477,826	3,243,452
	Total property, plant and equipment			7,084,649	6,837,105
	Intangible assets
	Software			161,589	204,465
	Goodwill	4,010,215	3,711,847
	Other			103,479	15,994
	Total intangible assets		4,275,284	3,932,307
	Investments and other assets
	Investment securities	1,787,051	1,530,951
	Deferred tax assets			1,328,303	1,679,914
	Lease and guarantee deposits	1,522,658	1,536,489
	Other			2,125,874	2,250,632
	Allowance for doubtful accounts	775,409)	(766,445)
		5,988,478	6,231,541
	Total investments and other assets			(
	Total non-current assets		17,348,413	17,000,954
	Total assets			53,352,237	49,573,647

―5―

	(Unit: thousand yen)
FY 2019	Q2 FY2020
(December 31, 2019)	(June 30, 2020)

Liabilities

Current liabilities

Accounts payable - trade

Short-term loans payable

Current portion of long-term loans payable Advances received

Income taxes payable

Provision for bonuses

Other

Total current liabilities

Non-current liabilities

Long-term loans payable

Long-term deposits received

Provision for directors' retirement benefits Provision for management board incentive plan trust Net defined benefit liability

Asset retirement obligations

Other

Total non-current liabilities

Total liabilities

Net assets

Shareholders' equity

Capital stock

Capital surplus

Retained earnings

Treasury shares

Total shareholders' equity Accumulated other comprehensive income

Valuation difference on available-for-sale securities Foreign currency translation adjustment Remeasurements of defined benefit plans

Total accumulated other comprehensive income

Share acquisition rights

Non-controlling interests

Total net assets

Total liabilities and net assets

	8,697,200	4,059,792
	3,200,000	-
	3,073,876	4,444,085
	899,779	1,,704,247
	428,710	168,407
	72,660	82,339
	1,970,931	1,292,445
	18,343,158	11,751,317
	6,672,675	10,953,762
	3,501,199	3,501,199
	261,883	253,293
	254,811	241,000
	267,504	290,884
	491,279	468,177
	195,809	162,954
	11,645,165	15,871,271
	29,988,323	27,622,589

	5,000,000	5,000,000
	12,172,896	12,173,895
	7,056,711	5,814,067
	(1,259,085)	(1,249,840)
	22,970,523	21,738,122
	10,693	(98,643)
	(44,141)	(77,409)
	(1,945)	(1,304)
	(35,393)	(177,357)
	86,274	85,410
	342,508	304,882
	23,363,913	21,951,058
	53,352,237	49,573,647

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1. Quarterly consolidated statements of income and statements of comprehensive income Quarterly consolidated statements of income
   Consolidated second quarter

				(Unit: thousand yen)
			Q2 FY 2019	Q2 FY2020
			(January 1, 2019 -	(January 1, 2020 -
			June 30, 2019)	June 30, 2020)
	Net sales		30,636,633	24,367,278
	Cost of sales	24,900,706	21,163,971
	Gross profit		5,735,926	3,203,306
	Selling, general and administrative expenses		4,919,224	4,084,431
	Operating profit		816,702	(881,125)
	Non-operating income
	Interest income		4,699	1,541
	Dividend income	13,847	7,448
	Insurance return		28,688	32,971
	Other	56,399	93,155
	Total non-operating income		103,634	135,117
	Non-operating expenses
	Interest expenses		36,957	41,605
	Commission fee	81,190	80,649
	Share of loss of entities accounted for using equity method		69,578	90,577
	Other	94,842	88,763
	Total non-operating expenses		282,568	301,595
	Ordinary profit (loss)	637,768	(1,047,603)
	Extraordinary income
	Gain on sales of non-current assets	-	6,038
	Gain on sales of investment securities		281,355	3
	Other	2,448	864
	Total extraordinary income		283,803	6,905
	Extraordinary losses
	Loss on sales of shares of subsidiaries and associates		11,235	-
	Impairment loss	-	116,673
	Loss on liquidation of subsidiaries and associates		279,462	-
	Loss on sales of investment securities	64,824	-
	Other		-	4,496
	Total extraordinary losses	355,522	121,170
	Profit (loss)before income taxes		566,049	(1,161,867)
	Income taxes - current	378,826	126,735
	Income taxes - deferred		(48,042)	(312,841)
	Total income taxes	330,784	(186,106)
	Profit (loss)		235,265	(975,761)
	Loss attributable to non-controlling interests	(22,425)	(19,626)
	Profit (loss) attributable to owners of parent		257,691	(956,134)

―7―

Quarterly consolidated comprehensive statements of income

Consolidated second quarter

(Unit: thousand yen)

Q2 FY 2019		Q2 FY2020
(January 1, 2019	-	(January 1, 2020	-
June 30, 2019)		June 30, 2020)

Profit (loss)

Other comprehensive income

Valuation difference on available-for-sale securities Foreign currency translation adjustment Remeasurements of defined benefit plans, net of tax

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

Total other comprehensive income

Comprehensive income

Comprehensive income attributable to Comprehensive income attributable to owners of parent

Comprehensive income attributable to non-controllinginterests

	235,265	(975,761)
	(138,250)	(109,336)
	(25,823)	(43,387)
	571	640
	(5,712)	(5,533)
	(169,215)	(157,617)
	66,050	(1,133,378)
	87,094	(1,108,089)
	(21,043)	(25,289)

―8―

(3) Quarterly consolidated statements of cash flows

			(Unit: thousand yen)
		Q2 FY2019	Q2 FY2020
		(January 1, 2019 -	(January 1, 2020 -
		June 30, 2019)	June 30, 2020)
	Cash flows from operating activities
	Profit (loss) before income taxes	566,049	(1,161,867)
	Depreciation	562,430	398,219
	Impairment loss	-	116,673
	Amortization of goodwill	152,724	169,174
	Increase (decrease) in allowance for doubtful accounts	(5,227)	(13,967)
	Increase (decrease) in provision for bonuses	3,938	9,706
	Increase (decrease) in provision for directors' retirement	7,362	(8,590)
	benefits
	Increase (decrease) in provision for share-based	24,737	(13,811)
	remuneration for directors
	Increase (decrease) in net defined benefit liability	5,709	23,380
	Interest and dividend income	(18,546)	(8,990)
	Interest expenses	36,957	41,605
	Commission fee	81,190	80,649
	Loss (gain) on sales of investment securities	(216,531)	(3)
	Loss on liquidation of subsidiaries and associates	279,462	-
	Loss (gain) on sales of shares of subsidiaries and	11,235	-
	associates
	Decrease (increase) in trade receivables	881,890	7,201,404
	Decrease (increase) in inventories	(351,671)	162,236
	Increase (decrease) in trade payables	(1,061,963)	(4,624,825)
	Increase (decrease) in accounts payable - other	(16,321)	(283,270)
	Increase (decrease) in accrued consumption taxes	33,028	(297,112)
	Increase (decrease) in advances received	265,600	810,368
	Decrease (increase) in other assets	(625,498)	49,496
	Increase (decrease) in other liabilities	68,718	(154,224)
	Other, net	36,503	131,343
	Subtotal	721,779	2,627,595
	Interest and dividend received	22,292	8,990
	Proceeds from insurance income	4,804	5,070
	Interest expenses paid	(42,065)	(39,140)
	Income taxes paid	(966,594)	(107,827)
	Net cash provided by (used in) operating activities	(259,783)	2,494,688

―9―

				(Unit: thousand yen)
			Q2 FY2019	Q2 FY2020
			(January 1, 2019 -	(January 1, 2020 -
			June 30, 2019)	June 30, 2020)
	Cash flows from investing activities
	Purchase of property, plant and equipment		(394,489)	(262,084)
	Proceeds from sales of property, plant and equipment	8,937	81,771
	Purchase of intangible assets		(27,795)	(13,863)
	Purchase of investment securities	(398,445)	(150)
	Proceeds from sales of investment securities		428,455	3
	Payments for investments in capital	(161,900)	(155,407)
	Payments into time deposits		(220,673)	(37,317)
	Payments for leasehold and guarantee deposits	(37,605)	(46,263)
	Proceeds from refund of leasehold and guarantee deposits		136,033	32,072
	Purchase of shares of subsidiaries resulting in change in	(38,088)	-
	scope of consolidation
	Payments for sales of shares of subsidiaries resulting in		(38,614)	-
	change in scope of consolidation
	Other, net	101,940	35,267
	Net cash provided by (used in) investing activities		(642,246)	(365,972)
	Cash flows from financing activities
	Net increase (decrease) in short-term loans payable		(1,039,000)	(3,200,000)
	Proceeds from long-term loans payable	5,800,000	7,200,000
	Repayments of long-term loans payable		(1,225,543)	(1,544,555)
	Cash dividends paid	(517,196)	(278,868)
	Purchase of treasury shares		(79,650)	(394)
	Commission fee paid	(81,190)	(80,649)
	Other, net		(36,869)	(38,025)
	Net cash provided by (used in) financing activities	2,820,549	2,057,506
	Effect of exchange rate change on cash and cash equivalents		(17,102)	(21,608)
	Net increase (decrease) in cash and cash equivalents	1,901,417	4,164,613
	Cash and cash equivalents at beginning of period		9,790,600	9,060,407
	Decrease in cash and cash equivalents resulting from	(16,011)	-
	exclusion of subsidiaries from consolidation
	Cash and cash equivalents at end of period		11,676,006	13,225,021

(4) Notes to quarterly consolidated financial statements (Notes on the premise of a going concern)

Not applicable.

(Notes in the event of significant changes in shareholders' equity) Not applicable

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