IMAGICA : ［Delayed］Consolidated financial results for FY2021 1Q

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 First Quarter of the fiscal year ending March 31, 2022

			Filing date: August 3, 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):	August 3, 2021
Dividend payment date (as planned):	－
Supplemental material of quarterly results:	Yes
Convening briefing of quarterly results:	No

(Millions of yen, rounded down)

1. Consolidated Financial Results for the First Quarter of the fiscal year ending March 31, 2022 (April 1, 2021 - June 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	%	Millions of yen		%	Millions of yen		%	Millions of yen	%
	yen
3 months ended June 30, 2021	15,414	(8.6)	(255)		－	(285)		－	499	－
3 months ended June 30, 2020					－			－		－
16,855	(22.5)	(1,868)		(1,942)		(1,213)

(Note) Comprehensive income: 1st quarter ended June 30, 2021: 1,306 millions of yen /－% 1st quarter ended June 30, 2020: (1,413) millions of yen /－%

	Earnings per share of	Diluted earnings
	per share of
	common stock
	common stock
	Yen	Yen
3 months ended June 30, 2021	11.25	－
		－
3 months ended June 30, 2020	(27.41)

(2) Consolidated Financial Position

	Total assets	Net assets	Shareholders' equity
	ratio to total assets
	Millions of yen	Millions of yen	%
As of June 30, 2021	60,735	31,311	47.6
As of March 31, 2021	60,446	29,832	45.4

(Reference) Shareholders' equity: As of June 30, 2021: 28,883 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		－
Year ending March 31,2022			0.00		－	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： Yes Operating income includes 1,600 million yen as goodwill amortization etc.

Operating income before goodwill amortization includes: Operating income, goodwill amortization and amortization of intangible fixed assets accompanying M&A.

*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 June 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 June 30, 2021	355,844 shares	As of March 31, 2021	353,231 shares

3) Average number of shares

As of June 30, 2021	44,386,657 shares	As of June 30, 2020	44,273,126 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 First Quarter, (3) Explanation of Consolidated Financial Forecast and Forward-lookingStatements" on page of the supplemental material.

		English Translation
Table of Contents
1.	Qualitative Information on Results in the First 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)	9
	(Segment information and others)	11

1

English Translation

1. Qualitative Information on Results in the First Quarter

(1) Explanation of operating results

(Overview of the first 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 quarter of consolidated fiscal year ending March 31, 2022 resulted in net sales of 15,414 million yen (down 8.6% year-on-year), an operating loss of 255 million yen (compared to operating loss of 1,868 million yen in the first quarter of the previous fiscal year), and an ordinary loss of 285 million yen (compared to an ordinary loss of 1,942 million yen in the first quarter of the previous fiscal year). Net profit attributable to owners of the parent was 499 million yen (compared to a loss of 1,213 million yen in the first quarter 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 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 quarter of consolidated fiscal year ending March 31, 2022 resulted in net sales of 3,928 million yen (up 34.0% year-on-year) and an operating loss of 30 million yen (compared to an operating loss of 469 million yen in the first quarter of the previous fiscal year).

Orders received for TV animation and other productions were firm, despite the fact that net sales of some feature film productions and TV dramas will be posted in the second quarter or later. Orders for TV commercials and other advertising show signs of rebounding, 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 quarter of consolidated fiscal year ending March 31, 2022 resulted in net sales of 8,687 million yen (down 17.4% year-on-year) and an operating loss of 174 million yen (compared to an operating loss of 1,267 million yen in the first quarter of the previous fiscal year).

Domestic E2E services*1 saw growth in orders for digital cinema, in addition to post-production for large projects such as feature films and drama series and theater animation due to the reopening of theaters and other factors. This segment 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 grew, and sales were steady.

International E2E services 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 delayed release of feature films by Pixelogic Holdings LLC in Europe and the U.S.

In post-production services for TV programs and TV commercials, etc.*2, sales for post-production services for TV programs trended on par with last year. With the activation of the advertising market, the number of orders for TV commercials increased year-on-year, and demand for the online delivery system also expanded.

In game production, human talent services, etc.*3, the creative talent dispatch and referral business continued to experience severe conditions. However, strong orders for 3DCG production and debugging led to improvement in sales.

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

*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 first quarter of fiscal year ending March 31, 2022 therefore reflects the results for January 1 through March 31, 2021.

3) Imaging Systems & Solutions

The financial performance of the Imaging Systems & Solutions business segment in the first quarter of consolidated fiscal year ending March 31, 2022 resulted in net sales of 3,151 million yen (down 11.9% year-on-year) and operating income of 103 million yen (compared to an operating loss of 46 million yen in the first quarter of the previous fiscal 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 continued to struggle as the number of projects declined and the size of projects shrank. 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 a rebound in demand in Japan and strong sales in Europe, the U.S., and South Korea.

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 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 an increase in profit in the Imaging Systems & Solutions business segment.

3