Analysis on business performance(FY2019)
Overview

The core business of MTI Ltd. (the “Company”) and its group companies (the “Group”) is content distribution, in which the Group operates B-to-C services whose primary revenue source is monthly service fees collected from end users. Using the knowledge and experience gained in this business, the Group is now focusing on establishing a healthcare-related service business with strong growth potential in order to make it the next core business of the Group.

The Group’s business is significantly affected by the trend in the number of smartphones sold in mobile phone stores across Japan, which are the sales channels for paid subscriptions of smartphone owners. During the fiscal year under review, the number of new subscribers remained low, mainly because the smartphone penetration rate was already high and given the new requirement for large mobile phone carriers to separate communication charges and handset prices.

Given this background, the Company worked continuously to raise the average revenue per user (ARPU) by improving the video lineup of “music.jp,” a one-stop online store offering music, videos, and books and comics, and further control advertising expenses by enhancing promotion strategies for subscriptions through mobile phone stores with a high ratio of acquiring efficiency of paying subscribers.

Net sales decreased to ¥27,112 million (down 6.8% year on year) as a result of a fall of 0.65 million in the number of smartphone-based paying subscribers from September 30, 2018, to 3.92 million as of September 30, 2019, and a decline of 0.81 million in the total number of paying subscribers to 4.79 million. Gross profit declined to ¥19,955 million (down 12.0% year on year), mostly reflecting the decrease in net sales.

Operating income fell to ¥2,959 million (down 8.0% year on year), chiefly due to the decrease in gross profit despite a decrease of 16,996 million yen (down 12.6%) in selling, general, and administrative expenses based on a reduction in advertising expenses achieved by prioritizing the efficiency of acquiring paying subscribers on smartphones in mobile phone stores, a fall in depreciation, and other factors.

While operating income fell, ordinary income rose to ¥3,134 million (up 0.6% year on year), which was chiefly attributable to a share of the profit of entities accounted for using the equity method due to a gain on bargain purchases associated with the acquisition of shares in Shobunsha Publications, Inc., which has become an equity method affiliate, despite the one-time amortization of goodwill due to the book value depreciation after making MNES Inc. an equity method company.

Profit attributable to owners of parent stood at ¥1,508 million (down 7.4% year on year), reflecting the absence of a decrease in tax expenses due to an absorption-type merger of a consolidated subsidiary that existed in the previous fiscal year and the posting of extraordinary losses such as a loss on valuation of investment securities, a loss on the sale of shares of an affiliate, and an impairment loss on intangible assets (mainly software).

【Consolidated operating results】

(Millions of yen)

2019/9 2018/9 Change Percentage
Net sales 27,112 29,075 (1,963) (6.8%)
Gross profit 19,955 22,670 (2,714) (12.0%)
Operating income 2,959 3,218 (258) (8.0%)
Ordinary income 3,134 3,116 +18 +0.6%
Profit attributable to owners of parent 1,508 1,629 (120) (7.4%)