SEPTENI HOLDINGS CO.,LTD.SEPTENI
HOLDINGS
CO.,LTD.

President’s Message

To Our Shareholders
With our focus on our distinctive growth areas producing results, we achieved record income for the fourth consecutive year.
We continue to aim for sustainable and rapid growth.

We outperformed the competition in terms of growth by promptly responding to the rapid globalization of the market.

In the Internet industry, our main business area, the market size is expanding steadily and globalization is proceeding rapidly. These trends are noticeable, especially in the field of smartphones. The domestic smartphone market is mature, and smartphones are used in increasingly sophisticated ways. Meanwhile, overseas, especially in emerging countries, the use of mobile devices to access the Internet will become more popular.In this environment, increasing numbers of companies are providing Internet services globally. Services in multiple countries and the advertising and marketing initiatives associated with them are no longer unusual.

The Septeni Group has achieved solid results in the domestic market by rapidly shifting its business resources to smartphone advertising, which has been growing, and by becoming involved in global social media platforms early and accumulating sophisticated expertise. In addition, the Group has built a cross-border transaction system of Internet advertising among Japan, Asia, Europe, and the United States. Thanks to this system, the Group has seized business opportunities associated with the globalization of the Internet industry.In FY9/15, sales overseas, primarily in North America, expanded to 13.8% of consolidated net sales. Overseas sales are becoming an important growth driver of the Group.

In our mainstay Internet Marketing Business, the operating margin improved for the fourth consecutive fiscal year as the key businesses became more profitable.

Consolidated results were driven by the Internet Marketing Business. Net sales stood at 64.5 billion yen, and operating income was 2.75 billion yen. All indicators were at record highs for the fourth consecutive year.

In the mainstay Internet Marketing Business, growth in sales accelerated and productivity improved as high growth continued in our key businesses: Mobile, Social and Global. Operating income rose significantly, and as a result, operating margin stood at 6.0%, improving for the fourth consecutive year. Operations are increasingly high-growth and profitable.

In the Mobile domain, sales of smartphone advertising increased by around 1.7 times year on year, to 38.6 billion yen, which accounted for approximately 63% of total sales in the domain. As demand for smartphone advertising is expanding, products are becoming more and more diversified. Results in the domain were driven especially by native advertising (in-feed advertising), at which the Group excels. Market share increased.

In the Social Media Business, sales rose by a factor of about 2.1 from the previous fiscal year, to 11.2 billion yen, reflecting an acceleration in growth in Twitter advertising as well as the mainstay Facebook advertising.

In the Global business, overseas sales increased by a factor of about 2.2, to 8.8 billion yen, mainly because of an increase in billings in our North American operation and the inclusion of our subsidiary in South Korea in the scope of consolidation.Overseas sales accounted for 14.4% of sales in the Internet Marketing Business, indicating further progress in globalization.

We will put more emphasis on the three growing business fields—Mobile, Social, and Global—to expand market share and improve profitability.

In the Media Content Business, we are refining the focus and will make the Mobile Game Business a non-core business.

Two native application game titles were released. While the sales of KINGDOM –Eiyuno keifu– remained strong, other titles struggled, resulting in a decrease in both the net sales and operating income of Axel Mark.

In the Manga Content Business, we made aggressive upfront investments in both cultivating Manga artists and expanding GANMA!, an online distribution platform. To optimize our business portfolio, in November 2015, we decided to change the position of the Mobile Game Business (Axel Mark) to a non-core business from FY9/16.We have decided that we need to increase the degree of independence and freedom in the management of Axel Mark, so that the Company and Axel Mark can maximize their corporate value in response to changes in the business environment.On November 9, the Company sold part of its holding of Axel Mark shares, and the ratio of voting rights it held has been reduced to less than 50%. On December 16, interlocking directorates were abolished.As a result, Axel Mark has ceased to be a subsidiary of the Company but remains within the scope of consolidation under the International Financial Reporting Standards (IFRS).

To optimize our business portfolio, in November 2015, we decided to change the position of the Mobile Game Business (Axel Mark) to a non-core business from FY9/16.We have decided that we need to increase the degree of independence and freedom in the management of Axel Mark, so that the Company and Axel Mark can maximize their corporate value in response to changes in the business environment.On November 9, the Company sold part of its holding of Axel Mark shares, and the ratio of voting rights it held has been reduced to less than 50%. On December 16, interlocking directorates were abolished.As a result, Axel Mark has ceased to be a subsidiary of the Company but remains within the scope of consolidation under the International Financial Reporting Standards (IFRS).

We will achieve sustainable growth in the medium to long term, and at the same time, will make investments for the future, taking into consideration our future after we double profits.

The concept of the Midterm Business Policies that we announced in November 2013 is to “Double Profits.” We aim to increase our corporate value by raising the ratio of profitable businesses and building a new operational pillar second to advertising. Two years after the announcement of the Midterm Business Policies, we believe that we have increased competitiveness steadily in our three areas of focus—Mobile, Social and Global—and have begun to take the lead in growth markets. We aim to “Double Profits” inFY9/16.

We are performing well. We feel that we have entered a period to consider the next steps.We believe that after doubling profits, it will be the time to focus on building a system to achieve sustainable growth. Sustainable growth in the medium to long term and investment in future primary businesses sometimes conflict. However, we believe that we should pursue them both simultaneously.We will do our best to pursue them in our management. We hope that we can rely on your continued understanding and support.

We need excellent human resources to achieve sustainable growth. In the category of companies with 100 to 999 employees of 2015 Great Place to Work (Japanese version) by the Great Place to Work® Institute Japan, the Septeni Group was ranked fourth (it was ranked eighth last year).Under the Group’s mission “Energizing the world with the entrepreneurship of each individual,” we will continue to promote diversity, primarily by supporting women’s participation and improving work-life balance, and will seek to establish a flat and appealing organization that enables all members worldwide to fully express their talent.

Dividends were increased for the third consecutive year in FY9/15. We seek further growth through proactive investments in growth areas.

With respect to profit distribution to shareholders, we have set roughly 15% of the consolidated net income as a benchmark.Given a significant increase in net income, we have decided to distribute a dividend per share of 14 yen, up 5 yen from FY9/14, for FY9/15.We have raised dividends for the third consecutive year. Our basic policy continues to be appropriate profit distribution based on business performance, while paying attention to maintaining stable dividends.

We will seek sustainable and dramatic growth by attaining the goal of “Doubling profits” first in the Midterm Business Policies and making proactive investments in growth areas at the same time.We look forward to your continued supportfor the Septeni Group.

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