IMAGICA : Consolidated financial results for FY2021 2Q

English Translation

This document is a translation of the Japanese original. The Japanese original has been disclosed in Japan in accordance with Japanese accounting standards and the Financial Instruments and Exchange Act. This document does not contain or constitute any guarantee and the Company will not compensate any losses and/or damage stemming from actions taken based on this document. In the case that there is any discrepancy between the Japanese original and this document, the Japanese original is assumed to be correct.

Consolidated financial results (Japanese Accounting Standards) for the Second Quarter of the fiscal year ending March 31, 2022

			Filing date: November 1, 2021
Company name:	IMAGICA GROUP Inc.		Stock exchange listing: Tokyo 1st section
Securities code:	6879	URL:	https://www.imagicagroup.co.jp/en/
Representative:	Nobuo Fuse, Representative Director, President		Tel:[phone]
Inquiries:	Masakazu Morita, Director, Managing Executive Officer

Quarterly report filing date (as planned):	November 1, 2021
Dividend payment date (as planned):	－
Supplemental material of quarterly results:	Yes
Convening briefing of quarterly results:	Yes
	(Millions of yen, rounded down)

1. Consolidated Financial Results for the Second Quarter of the fiscal year ending March 31, 2022 (April 1, 2021 - September 30, 2021)

(1) Consolidated Operating Results

(Percentage represents change from the same period of the previous fiscal year.)

Net sales

Operating income

Ordinary income

Net income attributable

to owners of the parent

Millions of

yen

%

Millions of yen

%

Millions of yen

%

Millions of yen

%

6 months ended Sept 30, 2021

33,846

(5.6)

431

－

999

－

1,694

－

6 months ended Sept 30, 2020

35,835

(24.4)

(2,628)

－

(2,928)

－

(1,952)

－

(Note) Comprehensive income:

2nd quarter ended September 30, 2021: 2,328 millions of yen /－%

2nd quarter ended September 30, 2020: (2,435) millions of yen /－%

Earnings per share of

Diluted earnings

per share of

common stock

common stock

Yen

Yen

6 months ended Sept 30, 2021

38.17

－

6 months ended Sept 30, 2020

(44.05)

－

(2) Consolidated Financial Position

	Total assets	Net assets	Shareholders' equity
	ratio to total assets
	Millions of yen	Millions of yen	%
As of Sept 30, 2021	64,533	32,583	46.2
As of March 31, 2021	60,446	29,832	45.4

(Reference) Shareholders' equity: As of September 30, 2021: 29,817 millions of yen As of March 31, 2021: 27,450 millions of yen

						English Translation
2. Dividends
				Dividend per share
		1st quarter- end	2nd quarter- end	3rd quarter- end	Year-end	Annual
		yen	yen	yen	yen	yen
Year ended March 31,2021		－	0.00	－	0.00	0.00
Year ending March 31,2022		－	0.00
Year ending March 31,2022				－	5.00	5.00
(Forecast)

(Note) Changes in dividends forecast from the latest disclosed information: None

3. Consolidated forecast for the fiscal year ending March 31, 2022 (April 1, 2021 - March 31, 2022)

(Percentage represents change from the same period of the previous fiscal year.)

Net income

Earnings per

Net sales

Operating income

Ordinary income

attributable

share

to owners of the

of common

parent

stock

Millions of yen

%

Millions of yen

%

Millions of yen

%

Millions of yen

%

yen

Fiscal year ending Mar.2022

75,000

(13.5)

1,500

－

2,000

－

2,000

(42.1)

45.06

(Note) Changes in earnings forecast from the latest disclosed information： None

*Notes:

1. Material changes in subsidiaries during this period (changes in scope of consolidations resulting from change in subsidiaries): Yes
2. The application of specific accounting of the consolidated quarterly financial statements: No
3. Changes in accounting policies, accounting estimates and retrospective
4. 1. Changes in accounting policies based on revisions of accounting standards: Yes
   2. Changes in accounting policies other than ones based on revisions of accounting standards: Yes
   3. Changes in accounting estimates: Yes
   4. Retrospective restatement: None
5. Number of issued and outstanding shares (common stock)
6. 1. Number of issued and outstanding shares at the end of fiscal year (including treasury stock)

As of September 30, 2021	44,741,467 shares	As of March 31, 2021	44,741,467 shares

2) Number of treasury stock at the end of fiscal year

As of September 30, 2021	345,844 shares	As of March 31, 2021	353,231 shares

3) Average number of shares

As of September 30, 2021	44,390,071 shares	As of September 30, 2020	44,312,754 shares

*Consolidated quarterly financial results are exempted from quarterly review by a public certified accountant or an auditing firm.

(Explanation regarding the appropriate usage of financial forecasts and other special instructions)

Forward-looking statements, such as financial forecasts, presented in this document are based on information available and certain assumptions deemed to be reasonable to the Company at the time of publication, and are not to be read as guarantees of future performance by the Company. For preconditions of the assumptions and special instructions regarding the appropriate use of financial forecasts, please refer to "1. Qualitative Information on Results in the Second Quarter, (3) Explanation of Consolidated Forecasts and Other Forward-lookingInformation" on page 4 of the supplemental material.

		English Translation
Table of Contents
1.	Qualitative Information on Results in the Second Quarter..................................................................................	2
(1)	Explanation of Operating Results ............................................................................................................	2
(2)	Explanation of Financial Position ............................................................................................................	4
(3)	Explanation of Consolidated Forecasts and Other Forward-looking Information .......................................................	4
2.	Quarterly Consolidated Financial Statements ................................................................................................	5
(1)	Quarterly Consolidated Balance Sheets .....................................................................................................	5
(2)	Quarterly Consolidated Statements of Income and Statements of Comprehensive Income ..........................................	7
(3)	Notes to Quarterly Consolidated Statements ..............................................................................................	9
	(Notes regarding ongoing concern assumption) ...............................................................................................	9
	(Notes concerning material changes in the amount of shareholders' equity) ..............................................................	9
	(Changes in accounting policies, etc.)...........................................................................................................	9
	(Segment information and others) ............................................................................................................	11

1

English Translation

1. Qualitative Information on Results in the Second Quarter

(1) Explanation of Operating Results

(Overview of the second quarter of consolidated fiscal year ending March 31, 2022)

The business environment surrounding the IMAGICA GROUP saw changes in the social environment due to the novel coronavirus (COVID-19) pandemic, in addition to rapid technological innovations. These factors are bringing about many changes in our imaging-related businesses such as the emergence of the online live market and video streaming market. The IMAGICA GROUP formulated G-EST 2025, our new mid-term plan, based on our view that these changes present growth opportunities. We have positioned fiscal year ending March 31, 2022, the initial year of this plan, as the year in which we will build the foundation for transforming into a highly profitable business, and are pursuing initiatives aimed at achieving the plan in each business segment.

The Group's financial performance for the first half of consolidated fiscal year ending March 31, 2022 resulted in net sales of 33,846 million yen (down 5.6% year-on-year), an operating income of 431 million yen (compared to an operating loss of 2,628 million yen in the first half of the previous fiscal year), and an ordinary income of 999 million yen by posting non-operating income including subsidy income of 631 million yen (compared to an ordinary loss of 2,928 million yen in the first half of the previous fiscal year). Net profit attributable to owners of the parent was 1,694 million yen by posting extraordinary income (compared to a loss of 1,952 million yen in the first half of the previous fiscal year).

The decline in net sales resulted from the implementation of the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, revised on March 31, 2020; hereafter, the "Revenue Recognition Accounting Standard") and related guidance from the beginning of the first quarter of consolidated fiscal year ending March 31, 2022, and the sales of all shares held in SDI Media Group, Inc. at the end of last fiscal year, removing it from consolidation.

See "(Changes in accounting policies, etc.)," and "(Segment information and others), [Segment Information], 2. Notes concerning changes in reportable segments" under "2. Quarterly Consolidated Financial Statements, (3) Notes to Quarterly Consolidated Statements" for further details on the impact of the implementation of the Revenue Recognition Accounting Standard and related guidance on the financial status and operating results of the IMAGICA GROUP.

(Performance by business segment)

The financial results by business segment are as follows.

One subsidiary (IMAGICA LIVE Corp.), which was previously included in the Production Services business segment, was reclassified to the Imagining Systems & Solutions business segment from the first quarter of consolidated fiscal year ending March 31, 2022. The consolidated fiscal year comparisons for the first quarter are based on the new classification.

1) Content Creation

The financial performance of the Content Creation business segment in the first half of consolidated fiscal year ending March 31, 2022 resulted in net sales of 8,833 million yen (up 22.9% year-on-year) and an operating income of 13 million yen (compared to an operating loss of 712 million yen in the first half of the previous fiscal year).

For feature films, TV dramas, TV animation and other productions, the number of orders received was in line with the forecast and sales were healthy. For TV commercials and other advertising, the number of orders received kept recovering, and orders were also strong for online streaming of live music performances and shooting music videos.

The above factors resulted in an increase in both sales and operating income in the Content Creation business segment.

2

English Translation

2) Production Services

The financial performance of the Production Services business segment in the first half of consolidated fiscal year ending March 31, 2022 resulted in net sales of 18,458 million yen (down 9.0% year-on-year) and an operating income of 202 million yen (compared to an operating loss of 2,172 million yen in the first half of the previous fiscal year).

Domestic E2E services*1 saw growth in the number of productions delivered to video streaming service providers, due in part to collaboration with Pixelogic Holdings LLC, which became a consolidated subsidiary last fiscal year. Orders for video file compression, conversion, and other encoding and localization services also grew. In addition, the performance of services for digital cinemas is recovering thanks to the reopening of movie theaters. Furthermore, we received orders for post-production services for feature films, drama series, animation, large-scale live music performances, etc., so sales were healthy.

International E2E services, including Pixelogic Holdings LLC, saw substantial sales growth due to firm orders for localization for video streaming service providers, despite a decrease in orders for digital cinema services, owing to the postponement of the release of feature films in Europe and the U.S.

In post-production services for TV programs and TV commercials, etc.*2, orders for services for large-scale events of TV programs contributed, and sales grew from the previous year. Thanks to the recovery of the advertisement market, the sales of services for TV commercials remained favorable, and the demand for the online delivery system grew.

In game production, human talent services, etc.*3, the situation of corporate recruitment activities in the field of the creative talent dispatch and referral business remained harsh, but the number of orders for game production-related services, such as 3DCG production and debugging, was healthy.

Sales for the Production Services business segment as a whole declined due to the sale of all shares held in SDI Media Group, Inc. at the end of last fiscal year, removing the subsidiary from consolidation. However, the structural reform completed last fiscal year led to improvement in gross profit and the operating income.

*1 E2E services: Refers to an integrated end-to-end (E2E) service that covers the entire post-production process for feature films, dramas, animation, and other audio/video content up to media services for localization (subtitling/dubbing) and distribution of these through all kinds of media, including theaters, TV, and video streaming via the Internet.

*2 As part of the restructuring of the Production Services business, the description of services collectively called "media and post-production services" up to last fiscal year has been revised to "E2E services" and "post-production services for TV programs and TV commercials, etc."

*3 The names of "human talent services" and "digital content" used up to last fiscal year have been revised to "game production, human talent services, etc."

• Companies in the international E2E services area have a fiscal year-end of December 31. The financial performance for this area during the second quarter of fiscal year ending March 31, 2022 therefore reflects the results for January 1 through June 30, 2021.

3) Imaging Systems & Solutions

The financial performance of the Imaging Systems & Solutions business segment in the first half of consolidated fiscal year ending March 31, 2022 resulted in net sales of 7,321 million yen (down 18.1% year-on-year) and an operating income of 486 million yen (down 4.1% year-on-year).High-speed cameras saw a rebound in demand in Asia, Europe, and the U.S., despite continued sluggish sales in Japan. Projects for broadcasting stations were still sluggish, due to the decline in the number of transactions, the postponement of order placement in the third and fourth quarters, etc. The online delivery system for TV commercials continued to see strong sales due to expansion in market needs, while video and image processing LSI saw strong domestic and overseas sales.

Moreover, IMAGICA LIVE Corp. was included in the Imaging Systems & Solutions business in the first quarter of consolidated fiscal year ending March 31, 2022 due to segment reclassification. It achieved growth in both orders and sales of live sports relay and streaming services for archived videos.

The full amount of compensation received from customers for sale of mobile communication lines was previously recognized as revenue. However, the implementation of the Revenue Recognition Accounting Standard and related guidance has resulted in a decrease in net sales due to the change in the method of recognizing revenue for the net amount after amounts paid to suppliers are deducted from the total amount of the sale.

The above factors resulted in a decrease in sales and profit in the Imaging Systems & Solutions business segment.

3