ArtSpark Holdings 3663

アートスパークホールディングス

Recent Updates

2021-11-08

Q3 FY12/21 flash update

2021-09-03

Group reorganization; change of trading name

2021-08-30

1H FY12/21 report update

Get in touch

Nishi-Shinjuku, Shinjuku-ku, Tokyo, Japan 4-15-7

http://www.artspark.co.jp/

Summary

ArtSpark is a pure holding company that has under its umbrella operating companies that promote R&D and practical application of primarily graphics technologies and develop two businesses based on proprietary technologies—Creator Support and UI/UX—targeting customers around the world. Celsys, Inc. runs the Creator Support business, through which it offers anime and mange production software CLIP STUDIO PAINT and e-book distribution solutions. Australian subsidiary Candera GmbH and Candera Japan are in charge of the UI/UX business, focused on a solutions business for LCD screens centered on in-vehicle systems using CGI Studio and UI Conductor.

Internet Software & Services

Key dates

2014-03-18

Coverage initiation

Full Report

2021-11-08

Q3 FY12/21 flash update

2021-11-08

1H FY12/21 flash update

2021-08-06

Download

Executive summary

Twofold business model sets ArtSpark apart

ArtSpark is a pure holding company that has under its umbrella operating companies that promote R&D and practical application of primarily graphics technologies and develop two businesses based on proprietary technologies—Creator Support and UI/UX—targeting customers around the world. Celsys, Inc. runs the Creator Support business, through which it offers anime and manga production software CLIP STUDIO PAINT and e-book distribution solutions. Australian subsidiary Candera GmbH and Candera Japan are in charge of the UI/UX business, focused on a solutions business for LCD screens centered on in-vehicle systems using CGI Studio and UI Conductor.

ArtSpark has two business segments: Creator Support business (B2C/B2B business) belonging to Celsys and UI/UX business (B2B business) to Candera. In each of these businesses, the company is making a strong push to build a proprietary IP-centered business. In March 2021, the company sold HI Corp (a wholly owned subsidiary of Candera Japan), which was mainly engaged in custom development in the UI/UX business, to micware Co., Ltd. In FY12/19, the Creator Support business brought in 66.9% of overall sales, and UI/UX business the remaining 33.1% (operating profit, 270.2% and -170.2% respectively). ArtSpark aims to strengthen existing businesses and create new ones by combining the technologies and customer base of Celsys (applications) and Candera (UI/UX) which both excel in their individual fields.

The company’s main business strategies are global expansion and further improvements for CLIP STUDIO PAINT series, and product improvement and enhanced marketing for HMI (scalable and not reliant on hardware) and GUI design software CGI Studio, as well as UI authoring software product UI Conductor (a foundation for HMI [Human Machine Interface])in the UI/UX business. (See Business description section for details.)

Performance

In FY12/20, ArtSpark reported sales of JPY6.4bn (+18.4% YoY), operating profit of JPY773mn (+219.6% YoY), recurring profit of JPY748mn (+224.8% YoY), and net loss attributable to owners of the parent of JPY475mn (versus net income of JPY241mn in FY12/19). Results were in line with company forecast as upwardly revised on February 8, 2021. In the Creator Support business, demand was firm for the products and solutions, which contributed to firm sales in Japan and overseas.

Revised company forecast for FY12/21 (upgraded on July 28, 2021): Sales JPY7.1bn (+11% YoY), operating profit JPY1.4bn (+79.9%), recurring profit JPY1.3bn (+79.9%) net income JPY1.3bnn (vs. net loss of JPY475mn in the previous year), year-end dividend of JPY12.0 (vs. JPY10.0 in the previous year). Sales are expected to exceed the initial forecast due to strong sales from the worldwide online promotion of the illustration, manga, and animation production app, CLIP STUDIO PAINT, conducted by subsidiary, Celsys. Operating profit and recurring profit have been boosted by strong demand and high margin sales, including the subscription revenue for CLIP STUDIO PAINT. Net income has been revised upward to reflect the recording of a JPY205mn extraordinary gain from the sale of HI Corp (a wholly owned subsidiary of Candera Japan) in Q1 and tax adjustments. The company stated that it would provide updates on further revisions to its earnings forecast as necessary in light of continued uncertainty over consumer spending and economic trends in Japan and overseas.

For FY12/25, the last year in the new medium-term business plan that begins in FY12/21, the company targets sales of JPY13.4bn, operating profit of JPY4.5bn, and OPM of 33.9%. The company expects to achieve the FY12/20 sales and operating profit targets contained in the previous medium-term business plan, which was formulated in February 2019. Moreover, the company expects to achieve the FY12/23 targets for the Creator Support business in FY12/20, three years ahead of schedule. On the other hand, the company expects the UI/UX business to achieve earnings at only about 60% of its FY12/20 target, due largely to sluggish demand and a downturn in vehicle production volume in the automobile industry caused by the COVID-19 pandemic. With these conditions in mind, the company formulated a new five-year medium-term business plan, with FY12/21 serving as the plan’s first year.

Strengths and weaknesses

Shared Research believes ArtSpark’s strengths lie in its technological expertise cultivated by creating products for mobile phones, Celsys’ large global share in application software for end users, and Candera’s track record in proprietary UI/UX and IP software product development. Weaknesses: high marketing cost of Creator Support business, major performance fluctuations in the UI/UX businesses, and time-consuming and costly to add or revise functions (see Strengths and weaknesses section).

Key financial data

Income statement		FY03/12	FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPY'000)		Simple sum	Cons. 9mo.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Est.
Sales		4,565,225	2,633,289	3,685,419	3,826,206	4,156,911	3,835,853	3,636,018	3,789,652	5,381,272	6,373,808	7,077,000
	YoY	-7.4%	-	-	3.8%	8.6%	-7.7%	-5.2%	4.2%	42.0%	18.4%	11.0%
Gross profit		1,694,117	411,323	1,142,503	1,333,494	1,278,954	1,564,523	1,602,062	1,787,129	2,302,804	3,132,156
	YoY	-21.2%	-	-	16.7%	-4.1%	22.3%	2.4%	11.6%	28.9%	36.0%
	Gross profit margin	37.1%	15.6%	31.0%	34.9%	30.8%	40.8%	44.1%	47.2%	42.8%	49.1%
Operating profit		226,566	-667,312	-69,093	99,713	88,488	500,504	423,803	374,886	241,957	773,273	1,377,000
	YoY	-63.6%	-	-	-	-	465.6%	-15.3%	-11.5%	-35.5%	219.6%	78.1%
	Operating profit margin	5.0%	-	-	2.6%	2.1%	13.0%	11.7%	9.9%	4.5%	12.1%	19.5%
Recurring profit		215,666	-690,045	-68,222	93,621	62,226	477,045	410,425	357,679	230,167	747,669	1,345,000
	YoY	-64.5%	-	-	-	-	666.6%	-14.0%	-12.9%	-35.6%	224.8%	79.9%
	Recurring profit margin	4.7%	-	-	2.4%	1.5%	12.4%	11.3%	9.4%	4.3%	11.7%	19.0%
Net income		-255,795	-1,350,939	42,811	59,958	34,791	337,150	374,791	334,144	241,469	-475,407	1,328,000
	YoY	-	-	-	40.1%	-42.0%	869.1%	11.2%	-10.8%	-27.7%	-	-
	Net margin	-	-	1.2%	1.6%	0.8%	8.8%	10.3%	8.8%	4.5%	-7.5%	18.8%
Per-share data
Shares outstanding (year-end; '000)		-	6,635,570	6,636,770	6,647,375	6,709,945	6,779,120	6,779,120	6,799,220	8,158,720	8,159,720
EPS		-	-203.59	6.45	9.02	5.21	49.80	55.25	49.18	31.42	-58.31	40.58
Dividend per share		-	-	-	-	2.00	3.00	4.00	5.00	6.00	10.00	12.00
Book value per share		-	350.03	340.55	348.84	356.88	410.47	464.19	509.60	554.63	492.06
Balance sheet (JPY'000)
	Cash and cash equivalents	2,191,488	1,294,740	1,323,533	1,086,746	1,323,640	2,152,234	2,491,012	2,700,195	1,905,356	2,923,860
Total current assets		3,823,757	2,158,580	2,130,897	2,214,755	2,085,545	2,542,140	2,996,405	3,279,406	2,708,841	3,866,018
Tangible fixed assets		83,204	70,065	55,733	71,552	52,856	56,035	76,767	79,336	224,285	209,027
Investments and other assets		667,529	806,700	453,119	351,810	252,399	188,993	208,959	285,966	208,157	269,210
Intangible assets		1,406,486	979,243	1,003,040	1,326,376	1,209,075	911,906	741,982	709,851	2,669,878	1,294,023
Total assets		5,980,979	4,024,939	3,650,704	3,969,974	3,602,921	3,699,684	4,024,115	4,354,561	5,811,162	5,638,279
	Accounts payable	276,578	170,305	168,904	211,822	149,730	68,135	80,707	100,590	95,858	119,644
	Short-term debt	503,136	438,576	596,879	558,012	473,141	357,329	274,964	68,080	-	-
Total current liabilities		1,117,737	1,022,418	1,021,006	1,241,218	975,882	756,137	676,402	666,971	896,781	1,295,597
	Long-term debt	324,940	474,391	267,512	276,203	87,011	36,372	18,080	-	-	-
Total fixed liabilities		427,264	653,465	343,485	365,953	187,233	145,328	180,242	210,792	385,583	322,005
Total liabilities		1,545,002	1,675,884	1,364,491	1,607,172	1,163,115	901,466	856,644	877,763	1,282,364	1,617,602
Total net assets		4,435,976	2,349,056	2,286,213	2,362,802	2,439,806	2,798,218	3,167,471	3,476,797	4,528,797	4,020,676
Total interest-bearing debt		828,076	912,967	864,391	834,215	560,152	393,701	293,044	68,080	-	-
Cash flow statement (JPYmn)
Cash flows from operating activities		273,344	137,818	358,484	672,554	837,494	1,435,075	1,021,462	1,007,074	988,658	1,820,864
Cash flows from investing activities		-1,052,154	-622,300	-163,135	-508,476	-539,941	-551,610	-577,430	-550,631	-2,425,091	-778,846
Cash flows from financing activities		869,543	-355,593	-48,473	-238,659	-64,272	-58,486	-108,862	-250,865	728,621	-46,282
Financial ratios
ROA (RP-based)		3.8%	-13.8%	-1.8%	2.5%	1.6%	13.1%	10.6%	8.5%	4.5%	13.1%
ROE		-5.8%	-41.0%	1.9%	2.6%	1.5%	13.0%	12.6%	10.1%	6.1%	-11.2%
Equity ratio		73.1%	54.9%	61.7%	58.4%	66.4%	75.2%	78.3%	79.4%	77.8%	71.2%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: The company was formed from a merger of Celsys, Inc. and HI Corp. in April 2012, and thus FY12/12 is a nine-month period.
Note: Figures for FY03/12 and earlier are a simple aggregate of the results of Celsys, Inc. and HI Corp.

Recent updates

Group reorganization; change of trading name

2021-09-03

ArtSpark Holdings Inc. announced the reorganization of the group (merger with subsidiary [simplified and short-form merger]) and partial changes to the trade name and articles of incorporation.

At a meeting held on September 3, 2021, the company's board of directors passed a resolution regarding the reorganization of the company and its wholly owned subsidiary, and partial amendments to the articles of incorporation, including a change of the company name. This is subject to approval at the annual shareholders' meeting scheduled for March 30, 2022.

The company believes that the best approach for generating medium- to long-term growth is to establish a more flexible management structure to drive the business. On this basis the company will merge with Celsys, Inc. and the trading name of the integrated group will change to Celsys, Inc., which is well recognized as an operating company.

Candera GmbH and Candera Japan Inc., which oversee the UI/UX business, will remain as wholly-owned subsidiaries of the integrated company.

The impact of the reorganization on the results for FY12/21 will be minimal.

Details of reorganization

The merger will be an absorption-type merger, with Celsys, Inc. as the absorbed company and ArtSpark Holdings Inc. as the surviving company.

Board of directors' approval for merger agreement (ArtSpark and Celsys): September 3, 2021

Effective date of merger: April 1, 2022 (scheduled)

Trends and outlook

Quarterly trends and results

Quarterly performance		FY12/19				FY12/20				FY12/21
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
Sales		1,180	1,355	1,513	1,334	1,443	1,564	1,657	1,709	1,779	1,727	1,687
	YoY	16.5%	48.8%	67.2%	38.7%	22.3%	15.5%	9.6%	28.1%	23.3%	10.4%	1.8%
Gross profit		652	508	476	666	685	853	927	667	952	921	864
	YoY	26.7%	19.4%	13.7%	55.7%	5.1%	67.9%	94.7%	0.2%	39.0%	7.9%	-6.8%
	Gross profit margin	55.3%	37.5%	31.5%	49.9%	47.5%	54.6%	56.0%	39.0%	53.5%	53.3%	51.2%
SG&A expenses		396	535	462	668	542	638	653	527	531	560	538
	YoY	31.5%	58.9%	57.6%	38.8%	36.9%	19.3%	41.4%	-21.1%	-1.9%	-12.2%	-17.6%
	SG&A ratio	33.5%	39.5%	30.5%	50.0%	37.5%	40.8%	39.4%	30.8%	29.9%	32.5%	31.9%
Operating profit		256	-27	14	-2	143	215	274	140	421	361	325
	YoY	20.0%	-	-88.6%	-	-44.0%	-	1,813.1%	-	193.8%	67.6%	18.4%
	Operating profit margin	21.7%	-	0.9%	-	9.9%	13.8%	16.5%	8.2%	23.7%	20.9%	19.2%
Recurring profit		252	-33	12	-1	140	209	268	132	422	383	349
	YoY	25.5%	-	-90.7%	-	-44.7%	-	2,152.6%	-	202.2%	83.6%	30.4%
	Recurring profit margin	21.4%	-2.4%	0.8%	0	9.7%	13.3%	16.2%	7.7%	23.7%	22.2%	20.7%
Net income		202	-31	50	20	75	133	-859	176	544	320	311
	YoY	13.2%	-	-46.6%	-	-63.1%	-	-	771.9%	628.5%	140.7%	-
	Net margin	17.2%	-2.3%	3.3%	1.5%	5.2%	8.5%	-51.8%	10.3%	30.6%	18.5%	18.4%
Cumulative		Q1	Q1-Q2	Q1-Q3	Q1-Q4	Q1	Q1-Q2	Q1-Q3	Q1-Q4	Q1	Q1-Q2	Q1-Q3	% of Est.	FY Est.
Sales		1,180	2,534	4,047	5,381	1,443	3,007	4,665	6,374	1,779	3,506	5,193	73.4%	7,077
	YoY	16.5%	31.8%	43.1%	42.0%	22.3%	18.7%	15.3%	18.4%	23.3%	16.6%	11.3%		11.0%
Gross profit		652	1,160	1,636	2,302	685	1,538	2,466	3,133	952	1,873	2,737
	YoY	26.7%	23.4%	20.4%	28.9%	5.1%	32.6%	50.7%	36.1%	39.0%	21.8%	11.0%
	Gross profit margin	55.3%	45.8%	40.4%	42.8%	47.5%	51.2%	52.9%	49.2%	53.5%	53.4%	52.7%
SG&A expenses		396	931	1,393	2,060	542	1,180	1,833	2,360	531	1,091	1,630
	YoY	31.5%	46.0%	49.7%	46.0%	36.9%	26.8%	31.6%	14.5%	-1.9%	-7.5%	-11.1%
	SG&A ratio	33.5%	36.7%	34.4%	38.3%	37.5%	39.2%	39.3%	37.0%	29.9%	31.1%	31.4%
Operating profit		256	229	244	242	143	359	633	773	421	782	1,107	80.4%	1,377
	YoY	20.0%	-24.2%	-43.1%	-35.5%	-44.0%	56.4%	159.8%	219.6%	193.8%	118.0%	74.9%		78.1%
	Operating profit margin	21.7%	9.0%	6.0%	4.5%	9.9%	11.9%	13.6%	12.1%	23.7%	22.3%	21.3%		19.5%
Recurring profit		252	219	231	230	140	348	616	748	422	805	1,154	85.8%	1,345
	YoY	25.5%	-24.3%	-44.6%	-35.6%	-44.7%	58.7%	166.4%	224.8%	202.2%	131.1%	87.3%		79.9%
	Recurring profit margin	21.4%	8.7%	5.7%	4.3%	9.7%	11.6%	13.2%	11.7%	23.7%	46.6%	22.2%		19.0%
Net income		202	171	221	241	75	208	-651	-475	544	864	1,175	88.5%	1,328
	YoY	13.2%	-31.4%	-35.6%	-27.7%	-63.1%	21.2%	-	-	628.5%	316.3%	-		-
Net margin		17.2%	6.8%	5.5%	4.5%	5.2%	6.9%	-14.0%	-7.5%	30.6%	24.6%	22.6%		18.8%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Performance by quarter

Quarterly		FY12/19				FY12/20				FY12/21
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales
	Creator Support	909	886	904	918	1,014	1,242	1,257	1,293	1,477	1,495	1,449
	UI/UX	287	473	608	422	434	334	405	416	300	226	236
	Subtotal	1,196	1,359	1,513	1,340	1,448	1,576	1,661	1,709	1,777	1,721	1,684
	Adjustments	-17	-4	0	-5	-5	-12	-4	0	2	6	3
	Total	1,180	1,355	1,513	1,334	1,443	1,564	1,657	1,709	1,779	1,727	1,687
Operating profit
	Creator Support	239	177	191	85	312	476	415	260	518	500	448
	UI/UX	40	-196	-160	-120	-201	-268	-168	-175	-124	-150	-142
	Subtotal	279	-19	32	-35	111	208	247	85	395	350	306
	Adjustments	-23	-8	-17	33	33	8	27	55	27	11	18
	Total	256	-27	14	-2	143	215	274	140	421	361	325
Operating profit margin
	Creator Support	26.3%	20.0%	21.2%	9.2%	30.8%	38.3%	33.0%	20.1%	35.1%	33.5%	31.0%
	UI/UX	13.8%	-41.4%	-26.3%	-28.4%	-46.3%	-80.3%	-41.6%	-42.1%	-41.1%	-66.4%	-60.2%
	Total	21.7%	-2.0%	0.9%	-0.1%	9.9%	13.8%	16.5%	8.2%	23.7%	20.9%	19.2%
Cumulative		FY12/19				FY12/20				FY12/21
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales
	Creator Support	909	1,795	2,699	3,617	1,014	2,256	3,513	4,807	1,477	2,971	4,420
	UI/UX	287	760	1,369	1,790	434	767	1,172	1,588	300	526	762
	Subtotal	1,196	2,555	4,068	5,408	1,448	3,024	4,685	6,394	1,777	3,498	5,182
	Adjustments	-17	-21	-21	-26	-5	-17	-21	-21	2	8	11
	Total	1,180	2,534	4,047	5,381	1,443	3,007	4,665	6,374	1,779	3,506	5,193
Operating profit
	Creator Support	239	416	608	693	312	787	1,203	1,463	518	1,018	1,467
	UI/UX	40	-156	-316	-436	-201	-469	-637	-812	-124	-274	-415
	Subtotal	279	260	291	256	111	318	565	651	395	745	1,051
	Adjustments	-23	-31	-48	-14	33	40	67	122	27	37	56
	Total	256	229	244	242	143	359	633	773	421	782	1,107
Operating profit margin
	Creator Support	26.3%	23.2%	22.5%	19.1%	30.8%	34.9%	34.2%	30.4%	35.1%	34.3%	33.2%
	UI/UX	13.8%	-20.6%	-23.1%	-24.4%	-46.3%	-61.1%	-54.4%	-51.2%	-41.1%	-52.0%	-54.5%
	Total	21.7%	9.0%	6.0%	4.5%	9.9%	11.9%	13.6%	12.1%	23.7%	22.3%	21.3%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods. Figures are before eliminations.
Note: From Q1 FY12/16, the company revised its business performance management categories, integrating the Applications business with the UI/UX business (figures for the businesses are shown under the UI/UX business). Figures for periods prior to Q1 FY12/16 are also retroactively adjusted in the table above.
Note: From Q1 FY12/17, the company revised its business performance management categories, integrating the Content Solutions business with the Creator Support business (figures for the businesses are shown under the Creator Support business). Figures for periods prior to Q1 FY12/17 are also retroactively adjusted in the table above.

Q3 FY12/21 results (out November 5, 2021)

Summary

Cumulative Q3 FY12/21 results: ArtSpark reported sales of JPY5.2bn (+11.3% YoY), operating profit of JPY1.1bn (+74.9% YoY), recurring profit of JPY1.2bn (+87.3% YoY), and net income attributable to owners of the parent of JPY1.2bn (versus a loss of JPY651mn in cumulative Q3 FY12/20).

Progress: Progress versus the company’s full-year FY12/21 targets is 73.4% for sales (73.2% of FY12/20 result in Q3 FY12/20), 80.4% for operating profit (81.8%), 85.8% for recurring profit (82.4%), and 88.5% for net income attributable to owners of the parent (versus a loss in cumulative Q3 FY12/20). The FY12/21 forecast remains unchanged.

Sales

Sales were JPY5.2bn (+11.3% YoY). Sales rose in the Creator Support business as subsidiary Celsys, Inc., continued its global promotions of CLIP STUDIO PAINT, software for producing illustrations, manga, and animation. In the UI/UX business, sales fell due in part to the sale of HI Corporation, along with a prolonged model change cycle in the automotive field arising from delays in new car development and decline in production volume in the face of a semiconductor shortage and other factors.

Operating profit

Operating profit was JPY1.1bn (+74.9% YoY). Alongside favorable sales in the Creator Support business, operating profit rose sharply on the booking of highly profitable sales, including the new subscription-based billing model adopted for CLIP STUDIO PAINT. The COVID-19 pandemic has caused significant change in the business environment for the UI/UX business, and investment in research and development of next-generation HMI solutions for future market expansion took precedence.

Recurring profit and net income attributable to owners of the parent

Recurring profit was JPY1.2bn (+87.3% YoY), aided by an increase in operating profit as well as the recording of JPY54mn in subsidy income. Net income attributable to owners of the parent was JPY1.2bn (versus a loss of JPY651mn in cumulative Q3 FY12/20). In Q1, the company recorded JPY206mn in gain on sales of shares of subsidiaries and associates due to the transfer of shares in HI Corporation. Income taxes were JPY186mn.

Results by segment

Creator Support

The Creator Support segment recorded sales of JPY4.2bn (+25.8% YoY) and operating profit of JPY1.5bn (+21.9% YoY).

Subsidiary Celsys continued investing in development to improve the functions of CLIP STUDIO PAINT, a software product for producing illustrations, manga, and animation. It also conducted global promotional activities aimed at increasing the numbers of overseas users and subscription contracts.

Assuming there were 100 CLIP STUDIO PAINT subscribers in January 2020, the total increased to 350 at end Q3 FY12/21 (+83.2% YoY). In terms of business progress of the subscription model, starting with the Monthly Business Progress Report for September 2021, the company discloses the amount it expects to earn annually from subscriptions in the form of Annual Recurring Revenue (ARR). In September 2021, ARR was JPY1.6bn, up 80.8% from JPY882mn in September 2020.

While offering licenses under a subscription model can lower the threshold for users to start using the software and accelerates growth in the user count, it is less profitable in the short term than outright purchases. However, the company will continue to focus on offering licenses under the subscription model, as it expects to generate stable earnings over the medium to long term by encouraging the continued use of CLIP STUDIO PAINT through ongoing development investment.

In August 2021, the subscription model CLIP STUDIO PAINT began shipping globally preinstalled on Samsung's Galaxy Tab S7 FE, an Android tablet with a stylus pen. The tablet's preinstalled version of CLIP STUDIO PAINT can be used continuously by entering a subscription contract after the free usage period ends, and the company expects the number of subscriptions to increase.

As a result of promotions particularly targeting overseas users, cumulative shipments of CLIP STUDIO PAINT were approaching 15mn units as of September 2021, of which 70% were overseas shipments of non-Japanese versions.

In September 2021, with the aim of increasing the number of overseas users, Celsys formed a technical alliance with WEBTOON Entertainment Inc., a global provider of services including LINE Manga in Japan and NAVER WEBTOON in South Korea, to improve the efficiency of production, translation, and distribution of webtoons, which are vertically oriented full-color comics that are rapidly gaining popularity around the world. As partners, the companies hope to revitalize the market.

UI/UX

Segment sales were JPY762mn (-35.0% YoY) and the operating loss was JPY415mn (versus a loss of JPY637mn in cumulative Q3 FY12/20). The operating loss includes goodwill amortization of JPY97mn (versus JPY312mn a year earlier) on subsidiary acquisition.

HI Corporation will not be contributing to results from Q2 onward as the company transferred all of its shares in HI Corporation to micware Co., Ltd. on March 1, 2021.

New installations of CGI Studio and UI Conductor totaled 9.03mn vehicles at end-Q1 FY12/21 (+2.34mn QoQ, +7.28mn YoY), 11.68mn vehicles at end-Q2 FY12/21 (+2.65mn QoQ, +8.0mn YoY), and 13.95mn vehicles at end-Q3 FY12/21 (+2.27mn QoQ, +9.21mn YoY).

In the UI/UX business, ArtSpark focuses on development and sale of self-developed IP products such as software development platform for in-vehicle equipment, CGI Studio, and UI-authoring-software products, UI Conductor (a foundation of HMI), primarily in fields relating to vehicles (automobiles and motorcycles).

During cumulative Q3, the business environment remained difficult as the COVID-19 pandemic led to a prolonged model change cycle in the automotive market arising from delays in new car development and decline in production volume in the face of a semiconductor shortage and other factors. However, with an eye on eventual market recovery and expansion, subsidiary Candera GmbH integrated the respective strengths of its main HMI tools, CGI Studio and UI Conductor, and focused its investment on advanced R&D of next-generation HMI solutions not just for the automotive industry, but for a wide range of fields where market expansion is anticipated, encompassing both industrial and consumer LCD devices.

In July 2021, to promote the use of its HMI solutions in the industrial and consumer electronics sectors, Candera GmbH entered a partnership with Taiwan's Adlink Technology, a global leader in edge computing. This has put it in a position to fulfill the needs of large international customers in the IoT space. An early example of the sort of projects on which Candera and Adlink will be working is the implementation of a multilingual, fully HD, digital 2D/3D graphical user interface (GUI) for washing machine displays.

In the mainstay automotive field, in August 2021, Candera entered a strategic partnership with Pricol Limited, a leading Indian manufacturer of automotive components and precision engineering products. Hereafter, HMI solutions enabled by Candera's HMI tools will be implemented in Pricol Limited's next-generation connected driver information system (DIS) for the automotive market.

As a result of ongoing R&D investment, Candera's HMI tool won "Most Innovative Application of Machine Learning and AI in Automotive HMI + UX" at the Car HMI Europe Awards 2021, sponsored by Car HMI Europe. ArtSpark will continue to use its technology to promote the use of Candera's HMI solutions in the automotive sector.

The company says it will also continue to promote active sales of CGI Studio.

Company forecast for FY12/21

		FY12/19			FY12/20			FY12/21
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	1H Act.	2H Est.	FY Est.
Sales		2,534	2,847	5,381	3,007	3,366	6,374	3,506	3,571	7,077
	YoY	31.8%	52.5%	42.0%	18.7%	18.3%	18.4%	16.6%	6.1%	11.0%
Cost of sales		1,373	1,705	3,078	1,470	1,771	3,242	1,631
Gross profit		1,160	1,143	2,303	1,538	1,595	3,133	3,506
	Gross profit margin	45.8%	40.1%	42.8%	51.2%	47.4%	49.2%	100.0%
SG&A expenses		931	1,130	2,060	1,180	1,180	2,360	1,091
	SG&A ratio	36.7%	39.7%	38.3%	39.2%	35.1%	37.0%	66.9%
Operating profit		229	13	242	359	415	773	782	595	1,377
	YoY	-24.2%	-	-35.5%	56.4%	3,165.0%	219.6%	118.0%	43.5%	78.1%
	Operating profit margin	9.0%	-	4.5%	11.9%	12.3%	12.1%	22.3%	16.7%	19.5%
Recurring profit		219	11	230	348	400	748	805	540	1,345
	YoY	-24.3%	-	-35.6%	58.7%	3,603.7%	224.8%	131.1%	35.2%	79.9%
	Recurring profit margin	8.7%	-	4.3%	11.6%	11.9%	11.7%	23.0%	15.1%	19.0%
Net income		171	70	241	208	-683	-475	864	464	1,328
	YoY	-31.4%	-16.8%	-27.7%	21.2%	-	-	316.3%	-	-
	Net margin	6.8%	2.5%	4.5%	6.9%	-20.3%	-7.5%	24.6%	13.0%	18.8%

Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
Forecast based on most recently released figures.

FY12/21 earnings forecast (revised on July 28, 2021)

The FY12/21 forecast (upgraded on July 28, 2021) calls for sales of JPY7.1bn (+11.0% YoY), operating profit of JPY1.4bn (+78.1% YoY), recurring profit of JPY1.3bn (+79.9% YoY), and net income attributable to owners of the parent of JPY1.3bn (versus net loss of JPY475mn in FY12/20). The year-end dividend forecast is JPY12 (JPY10 in FY12/20).

*Revised company forecast for FY12/21
Sales: JPY7.1bn (previously JPY6.7bn)
Operating profit: JPY1.4bn (JPY922mn)
Recurring profit: JPY1.3bn (JPY877mn)
Net income*: JPY1.3bnn (net income of JPY965mn)
*Net income attributable to owners of the parent

Reason for revision
- Sales are expected to exceed the initial forecast due to strong sales from the worldwide online promotion of the illustration, manga, and animation production app, CLIP STUDIO PAINT, conducted by subsidiary, Celsys.
- Operating profit and recurring profit have been boosted by strong demand and high margin sales, including the subscription revenue for CLIP STUDIO PAINT. Net income has been revised upward to reflect the recording of a JPY205mn extraordinary gain from the sale of HI Corp (a wholly owned subsidiary of Candera Japan) in Q1 and tax adjustments.
- The company stated that it would provide updates on further revisions to its earnings forecast as necessary in light of continued uncertainty over consumer spending and economic trends in Japan and overseas.

On April 30, 2021, the company announced revisions to its 1H forecasts for FY12/21. However, the company left its full-year FY12/21 forecast unchanged, citing continued uncertainty over personal spending and economic activity, both domestically and overseas.

Revised company forecast for cumulative Q2 (1H) FY12/21 (announced April 30, 2021)
Sales: JPY3.4bn (previously JPY3.3bn)
Operating profit: JPY638mn (JPY391mn)
Recurring profit: JPY628mn (JPY370mn)
Net income*: JPY803mn (net income of JPY548mn)
*Net loss attributable to owners of the parent
Reason for revision
In 1H FY12/21, the company expects to beat its initial expectations both for sales and each level of profit. It attributes the sales overshoot to global online sales promotions undertaken by its subsidiary, Celsys, Inc. at end-December 2020, for the illustration, anime, and manga production app, CLIP STUDIO PAINT. With sales tracking above projected levels, the company expects each level of profit to exceed initial forecasts also.
It left its full-year forecast unchanged at this time, citing continued uncertainty over personal spending and economic activity, both domestically and overseas

In March 2021, the company transferred all shares of Candera Japan’s wholly owned subsidiary, HI Corp (a consolidated second-tier subsidiary of the company) to micware Co., Ltd. In the Creator Support and UI/UX businesses, the ArtSpark Group will continue to focus on developing proprietary software IPs and conduct sales promotion activities. HI Corp’s business mainly focuses on custom development, which is not in line with the Group strategy of leveraging proprietary IP.

The difference between the FY12/21 earnings forecast in the medium-term business plan announced on November 6, 2020 (FY12/21–FY12/25; see section below) and the initial FY12/21 earnings forecast announced on February 12, 2021 is attributable to the sale of HI Corp (March 2021). At the time of the announcement of the medium-term business plan, the disposal was not planned. HI Corp only contributed for two months.

For FY12/21, the first year of the medium-term business plan, the company sees a solid start with full year results based on the revised forecast (announced on July 28, 2021: sales of JPY7.1bn, operating profit of JPY1.4bn, operating profit margin of 19.4%) expected to be ahead of the original plan (announced on November 6, 2020: sales of JPY7.0bn, operating profit of JPY1.1bn, operating profit margin of 15.3%).

The revised FY12/21 forecast for the Creator Support segment announced on July 28, 2021 is for sales of JPY6.1bn (versus JPY5.4bn announced on November 6, 2020) and operating profit of JPY1.9bn (JPY1.4bn). The company expects results to exceed its medium-term targets due in part to its global online promotions of CLIP STUDIO PAINT, an app for producing illustrations, manga, and animation.

The revised forecast for the UI/UX segment for FY12/21 announced on July 28, 2021 is sales of JPY1.0bn (versus JPY1.5bn announced on November 6, 2020) and operating loss of JPY480mn (JPY300mn operating loss). In addition to the sale of HI Corp, the key changes in the business environment since the formulation of the medium-term business plan include the global impact of the COVID-19 pandemic and the semiconductor shortage. These are reflected in the forecast revision.

For the group as a whole, the Creator Support segment, performing better than expected, has offset the decline in the UI/UX segment. As described above, the company revised its FY12/21 forecast upward. Its specific initiatives by segment for FY12/21 include the following:

In the Creator Support business, the company will continue investing in R&D for CLIP STUDIO with an eye on global rollout, while maintaining its market position and enhancing its new subscription-based billing model, with the aim of improving the continuity and profitability of service.

The COVID-19 pandemic has caused significant change in the business environment for the UI/UX business. Although the production of finished automobiles is recovering at some manufacturers, the company expects challenging conditions to continue due to the auto industry’s cautious approach on capital spending. It plans to prioritize investment in the development and marketing of its proprietary IP products such as CGI Studio, targeting market expansion.

Outlook

Medium-term business plan (FY12/21–FY12/25)

The company announced a new five-year medium-term business plan set to start in FY12/21. The background is as follows.

The company expects to achieve the FY12/20 sales and operating profit targets contained in the previous medium-term business plan, which was formulated in February 2019.

Moreover, the company expects to achieve the FY12/23 sales targets for the Creator Support business in FY12/20, three years ahead of schedule. On the other hand, the company expects the UI/UX business to achieve only about 60% of its FY12/20 sales target, due largely to sluggish demand and a downturn in vehicle production volume in the automobile industry caused by the COVID-19 pandemic.

For FY12/25, the final year of the medium-term business plan, the company targets sales of JPY13.4bn (+212.8% versus FY12/20 forecast) and operating profit of JPY4.5bn (+809.3% versus FY12/20 forecast).

The company projects sales to exceed previous medium-term management targets (FY12/19—FY12/23; see section below) as the pace of growth in the Creator Support business has accelerated.

Operating profit is on an upward trend compared to the previous medium-term management plan as the company recorded impairment losses on goodwill in FY12/20.

Medium-term plan (announced November 6, 2020)

			FY12/21	FY12/22	FY12/23	FY12/24	FY12/25
(JPYmn)			Targets	Targets	Targets	Targets	Targets
Sales			6,980	8,110	9,190	11,090	13,380
	Creator Support		5,490	6,640	7,460	8,950	10,690
		Distribution and direct sales	49%	43%	37%	30%	25%
		Subscription	28%	36%	44%	49%	52%
		Solutions	23%	20%	16%	15%	14%
		New businesses	-	1%	3%	6%	9%
	UI/UX		1,490	1,470	1,730	2,140	2,690
		Royalty	36%	47%	48%	45%	42%
		Licensing	15%	15%	19%	25%	30%
		Support	11%	9%	7%	9%	9%
		Contract services	38%	29%	26%	21%	19%
Operating profit			1,070	1,880	2,190	3,340	4,540
	Creator Support		1,370	2,120	2,270	2,870	3,500
	UI/UX		-300	-240	-80	470	1,040
	UI/UX (before goodwill amortization)		-180	-120	40	500	1,040
OP before goodwill amortization			1,190	2,000	2,310	3,370	4,540
Operating profit margin			15.3%	23.2%	23.8%	30.1%	33.9%
	Creator Support		25.0%	31.9%	30.4%	32.1%	32.7%
	UI/UX		-20.1%	-16.3%	-4.6%	22.0%	38.7%

Source: Shared Research based on company data
Note: Sales mix is an approximation calculated by Shared Research based on values taken from figures in company documents.

Future initiatives

Creator Support business
In addition to providing stable e-book solutions, the company aims to further accelerate the global expansion of the business by strengthening services and development of the CLIP STUDIO PAINT series of products. To accomplish this, it will continue investing in R&D and establish a new subscription-based billing model to improve service continuity and profitability while maintaining its market position. Additionally, the company will invest in new business development and aim to grow at a CAGR of 10–20%.

For subscription sales as a percentage of total sales, the company is targeting about 28% in FY12/21, 36% in FY12/22, 44% in FY12/23, 49% in FY12/24, and 52% in FY12/25.

To grow its number of users five-fold by FY12/25, the company plans to implement various measures aimed at driving monthly subscription user growth.

CLIP STUDIO user expansion plan 1—accelerating global expansion: The company will raise the percentage of users outside of Japan from the current 60% to more than 80% by FY12/25 by strengthening localization of its tools and services in multiple languages and carrying out global marketing activities over the internet.

CLIP STUDIO user expansion plan 2—strengthening multiplatform and multidevice expansion: In addition to Windows, Mac, iPhone, iPad, and Galaxy, the company will start supporting Android and Chromebook platforms.

CLIP STUDIO user expansion plan 3—expanding payment options: In addition to accepting credit card payments as well as payments from app store platforms operated by Apple and Google, the company will support payment methods tailored to various countries.

Proactive and continuous R&D investment plan 1—strengthen CLIP STUDIO functions: The company will enhance functionality and improve reliability of CLIP STUDIO PAINT and expand content output services, including for e-book solutions. Additionally, it will expand community services and improve operational capabilities for users worldwide.

Proactive and continuous R&D investment plan 2—strengthen AI and machine learning initiatives, further leverage 3D graphics technologies: The company will take on the challenge of developing a new 3D technology-based business by creating a realistic virtual environment using 3D technologies where people can create, present, and consume content unique to the virtual 3D world.

UI/UX business
Amid a sharp shift in the operating environment triggered by the COVID-19 pandemic, the company aims to invest in the development and marketing of its self-developed IP products with an eye toward a future expansion in the market. The company is strengthening development and marketing collaboration efforts with Candera GmbH, establishing Candera Japan Inc. in June 2019 as a wholly owned subsidiary to handle sales, development, and support operations in Japan and Asia. Moreover, to acquire new customers in North America, it established second-tier US subsidiary Candera America Inc. in the Detroit area in December 2019. In addition to strengthening the functionality of its self-developed IP products, the company will proactively pursue customers in the industrial equipment and consumer electronics industries on top of its current customer base in the automotive industry. Also, to establish a structure that can withstand changes in the business environment such as the recent COVID-19 outbreak, the company will invest in development and marketing activities through FY12/23 with aims to expand sales from FY12/24.

Although the company anticipates in-vehicle related sales to be sluggish in 2021 due to the COVID-19 outbreak, it plans to leverage its advanced technologies accumulated in this field to approach a wide range of customers.

Raising the percentage of sales from royalties: For royalty sales as a percentage of total sales, the company is aiming for roughly 36% in FY12/21, 47% in FY12/22, 48% in FY12/23, 45% in FY12/24, and 42% in FY12/25.

Raising the percentage of sales from licensing: For licensing sales as a percentage of total sales, the company is aiming for about 15% in FY12/21, 15% in FY12/22, 19% in FY12/23, 25% in FY12/24, and 30% in FY12/25.

The company’s IP products are essential HMI solutions for displaying GUIs on LCDs, and it believes LCD demand will continue to grow in the future, including in the automotive industry, which is currently the company’s main customer market.

The human-machine interface (HMI), which is the link between humans and machines, goes beyond just images and includes voice and gestures. However, images are still the primary focus, and the company believes that for HMIs that require real-time rendering, the tools for developing GUIs as well as the rendering engines that display the GUIs are essential.

The next-generation solutions under development will be based on the highly acclaimed functions of existing products CGI Studio and UI Conductor and will go beyond the automotive industry, supporting various embedded products such as industrial and consumer devices, which are becoming increasingly sophisticated. The company aims to create a low maintenance product mix by passing on the strengths of CGI Studio and UI Conductor by end-2022, and will switch its focus to sales and new function development from 2023.

For existing products such as CGI Studio and UI Conductor, the company will establish customer relationships as a software developer and then introduce new products by end-2022. It will lay the groundwork needed for a smooth introduction of new products. Additionally, in terms of developing new markets, the company will work on expanding beyond the automotive industry by end-2022 to diversify its earnings sources across multiple areas. Starting in 2023, the company will leverage technologies developed within the group to launch a community version (free evaluation copy) and reach more users. It also aims to reduce support resources by providing extensive manuals and samples in multiple languages, and encourage users to switch from existing products such as CGI Studio and UI Conductor to next-generation solutions.

Reference: Previous medium-term business plan (FY12/19–FY12/23)

Along with its FY12/18 full-year results, the company announced a new medium-term plan (FY12/19–FY12/23). FY12/23 targets include sales of JPY8.5bn (2.2x FY12/18 levels) and operating profit of JPY2.2bn (5.9x). Assumptions are stable growth for the Creator Support business and accelerated growth for the UI/UX business due to the Candera acquisition (discussed below).

It plans to continue providing an environment that offers total support of all activities—from digital content creation through use and application.

Background to announcement of new medium-term business plan
Along with its announcement of FY12/17 results on February 9, 2018, ArtSpark noted the need to update the medium-term business plan it released back in July 2015, due to changes in the market environment. It added changes in market environment had increased uncertainty about the future and made it necessary to step up R&D efforts in order to reinforce the competitiveness of its software IP. Regarding performance targets, the company said at the time that it was limiting revisions to its sales and earnings targets for FY12/18, but that it planned to put together a new business plan and, once that was ready, it would be released at the appropriate time.

Medium-term plan

(JPYmn)	FY12/19	FY12/20	FY12/21	FY12/22	FY12/23
Total sales	5,170	6,050	6,660	7,440	8,520
Creator Support business	3,250	3,440	3,720	4,110	4,700
UI/UX business	1,920	2,610	2,940	3,330	3,820
Operating profit (OPM)	260 (4.9%)	380 (6.2%)	1,000 (15.0 %)	1,580 (21.2%)	2,190 (25.8%)
Operating profit before goodwill amortization* (Profit margin)	530 (10.2%)	800 (13.3%)	1,420 (21.3%)	2,000 (26.9%)	2,620 (30.7%)

Source: Shared Research based on company data
Note: Figures shown are before amortization of goodwill from acquisition of Candera GmbH. Five-year straight-line amortization is assumed for goodwill

Initiatives aimed at future growth

Creator Support business: Further accelerate global development through strengthening development and service offerings while maintaining stable growth.

CLIP STUDIO PAINT growth (see the Business section for details): Work toward further global rollout. Strengthen development, service offerings, and promotion, and look for annual growth of 10–20%. Look for margin improvement driven by recent strength in CLIP STUDIO PAINT for iPad and continued growth in the subscription version.

UI/UX business: Following the Candera acquisition, grow business by exploiting synergies through expanded customer base and sharing expertise. The company aims to double sales partly due to impact of acquisition.

Synergies from Candera acquisition

Aims to expand business portfolio through acquisition of Candera, a leading company in the embedded HMI and GUI design software field.
ArtSpark mainly supplies products to Japanese and American car companies, and Candera to European manufacturers, so both companies can tap into each other’s customer base.
Aims to improve added value and market competitiveness by strengthening development structure through collaboration.
Aims to improve margins by reducing marketing and other costs

Generating earnings from existing pipeline

ArtSpark has already signed contracts with major Japanese car manufacturers and expects related earnings contributions to emerge from FY12/21.
HMI is bound to become an important concept as safety is being increasingly scrutinized due to autonomous driving and other factors. The company expects earnings growth to be driven by further installations of UI Conductor, an HMI development tool enhanced with 3D functions to be more competitive in the market.

Group synergy project: Create new IP by synergies among three businesses: Candera, HI, and Celsys. Aims to generate earnings from new project from FY12/22.

Phase 1: Deepen mutual understanding between Candera, HI, and Celsys (in terms of corporate cultures, including skills, technologies, challenges, and procedures).

Phase 2: Explore and determine specific themes (narrow down to a few themes based on internal discussions in the group).

Phase 3: Conduct small-scale development projects in line with themes (select themes from challenges faced by each company).

Phase 4: Conduct joint development on the assumption of scrap and build with an eye toward Phase 5 (link to formulation of themes for full-scale joint development).

Phase 5: Conduct full-scale joint development (target creation of new IPs without being constrained by existing businesses).

Acquisition of Candera

In January 2019, ArtSpark acquired the shares of Socionext Embedded Software Austria GmbH (currently Candera GmbH; company name changed on February 1, 2019) for JPY2.0bn^* (excluding roughly JPY150mn in advisory fees), and turned the company into a subsidiary.

* Conditional acquisition price: In the next three fiscal years, if Candera’s pre-tax profit exceeds predetermined targets (net income target for first fiscal year), ArtSpark will pay an additional premium for the acquisition.

Profile of Candera

Software company established in Austria in 2000; leading company in the embedded HMI and GUI design software field.

Its key product is CGI Studio, a UI design software that reduces development time and costs for development processes for embedded and in-vehicle devices.

The company mainly supplies CGI Studio to German and other European major car manufacturers on an OEM basis.

Purpose of acquisition

Expand business portfolio.

Grow customer base and market share.

Improve added value and market competitiveness by strengthening product development through collaboration.

Increase margins through cost reductions.

Background

In its UI/UX business, ArtSpark has development solutions including a UI authoring tool (UI Conductor) and products for drawing graphics which are used in UI (user interface) solutions to provide total support in fields from technology through design. Meanwhile, Candera supplies scalable human-machine interface (HMI) not reliant on hardware as well as CGI Studio, GUI (graphical user interface) design software. It supplies major automobile companies primarily in Europe on an OEM basis and is highly compatible with ArtSpark.

Japanese car companies are customers for the ArtSpark group’s existing UI Conductor, and major European car manufacturers are customers for SESA’s CGI Studio, so each company can tap into the other’s customer base. SESA has knowledge about ISO 26262*¹as well as Automotive SPICE*^２. It will be able to share this expertise at a time when safety is under increasing scrutiny due to autonomous driving and other factors. ArtSpark thinks that there are many potential synergies, as sharing development expertise will assist in developing more efficiently, and expects enhanced market competitiveness.

The company plans to appoint Candera director Reinhard Füricht to the position of managing director.

*1: ISO 26262 refers to a global functional safety standard for automotive electric and electronic systems.
*2 Automotive SPICE refers to a process model issued by the VDA QMC (German Automotive Industry Association Quality Management Center) that establishes the process framework for automotive software development. It aims to evaluate automotive software development processes quantitatively.

Equity financing

The company announced the issue of its 11th stock acquisition rights with exercise price adjustment provisions (and provisions enabling instructions to exercise or suspend exercise) through third-party allocation.

Overview of offering

Allotment date	One of the days between March 8, 2019 and March 12, 2019. Allotment date is to be 15 days following the day that conditions governing the exercise price are decided. If the second date is a holiday, allotment date shall be the next business day.
Number of rights	13,500
Exercise price	JPY514 per stock acquisition right However, the company’s board of directors will select one of the days from February 21, 2019 through February 25, 2019 as the day (determination date) to determine the final conditions applying to the stock acquisition rights. It will consider a variety of circumstances including stock price fluctuations at the relevant time. If the calculations result in an exercise price of over JPY514 (based on the same method used to calculate the exercise price above), the exercise price shall be based on the determination date calculation. The total amount of the issue will be result of multiplying the number of stock acquisition rights, 13,500, by the issue price per stock acquisition right.
Resulting dilutive shares	Number of dilutive shares: 1,350,000 (100 shares per stock acquisition right) The minimum exercise price will be set on the determination date, but the dilutive number of shares to is still 1,350,000 at the minimum exercise price
Amount to be raised (estimated net proceeds)	1,260,539,000
Subscription or allotment method (allottee)	Third-party allocation to Nomura Securities Co. Ltd.

Source: Shared Research based on company data

Application of funds raised

Specific application of funds raised	Amount (JPYmn)	Planned expenditure period
Funds used to purchase Candera GmbH* (former Socionext Embedded Software Austria GmbH), made a subsidiary on January 31, 2019	1,260	March 2019–March 2023

Source: Shared Research based on company data
Note: *Refer to December 17, 2018 release

Business

Business description

Dual-company business model sets ArtSpark apart

Merger of Celsys and HI Corp.

ArtSpark was a joint holding company formed by the merger of Celsys, Inc. and HI Corp in April 2012, but HI Corp (a wholly owned subsidiary of Candera), which was mainly engaged in custom development in the UI/UX business, was sold to micware Co., Ltd. in March 2021.

ArtSpark is a pure holding company that has under its umbrella operating companies that promote R&D and practical application of primarily graphics technologies and develop two businesses based on proprietary technologies—Creator Support and UI/UX—targeting customers around the world. Celsys runs the Creator Support business, through which it offers anime and mange production software CLIP STUDIO PAINT and e-book distribution solutions. Australian subsidiary Candera GmbH and Candera Japan are in charge of the UI/UX business, focused on a solutions business for LCD screens centered on in-vehicle systems using CGI Studio and UI Conductor.

Celsys		Candera Japan
Main business	Main product	Main business	Main product
Anime and manga production software	CLIP STUDIO PAINT	UI development for embedded devices	CGI Studio
	RETAS STUDIO		UI Conductor
e-book distribution system for mobile phones	CLIP STUDIO READER
	CLIP STUDIO LAYOUT

Source: Shared Research based on company data

The ArtSpark Group intends to focus on winning orders for its proprietary IP in its Creator Support and UI/UX businesses, and make a strong push to build a proprietary IP-centered business. In contrast, HI Corp’s business mainly focuses on custom development, which is not in line with the Group’s proprietary IP-centered strategy, leading to the decision to sell the company.

Making Candera a subsidiary

In January 2019, ArtSpark acquired the shares of Socionext Embedded Software Austria GmbH (currently Candera GmbH), and made Candera a subsidiary. For more information on the purpose and background of the merger, see the New medium-term plan (FY12/19–FY12/23) section. Candera supplies scalable human machine interface (HMI) not reliant on hardware as well as CGI Studio, GUI (graphical user interface) design software.

Establishes own base in human-centered design

Technologies to display graphics are advancing spurred by a wider range of portable internet devices, and the profusion of consumer electronics devices like digital cameras, in-vehicle devices, electronic billboards and store information terminals. The popularity of the iPhone and iPad has increased demand for user-friendly devices over functions.

While general electronic devices have been made on the idea of function-centered design, the iPhone and iPad, which offer ease of use, are based on human-centered design. The UI (user interface design) and UX (user experience design) concept is key. The UI/UX business provides comprehensive solutions for development and implementation by combining user interface (connecting users to devices and software), with user experience (pleasure, ease of use and other experience from devices and software). Since function-centered design has been dominant in Japan, human-centered design has not yet taken root. However, the need for user-friendly operations is likely to increase as functions increase.

Segments

The company’s business segments are Creator Support, originally a business operated by Celsys, and UI/UX coming from Candera GmbH and Candera Japan. In FY12/20 (including results for HI Corp), Creator Support accounted for 75.2% of sales and UI/UX for 24.8%. Their respective shares of operating profit were 224.8% and -124.8%.

Sales breakdown

Source: Shared Research based on company data

Sales, profit, and margins by segment

		Sales					Segment profit					Net margin
(JPYmn)		FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20
		FY	FY	FY	FY	FY	FY	FY	FY	FY	FY	FY	FY	FY	FY	FY
New segments
	Creator Support	2,161	2,413	2,957	3,617	4,807	196	300	472	693	1,463	9.1%	12.4%	16.0%	19.1%	30.4%
	UI/UX	1,705	1,291	886	1,790	1,588	281	56	-67	-436	-812	16.5%	4.3%	-7.6%	-24.4%	-51.2%
	Adjustments	-31	-68	-53	-26	-21	24	68	-30	-14	122	-	-	-	-	-
Old segments
	Content Solution	1,021	-	-	-	-	24	-	-	-	-	2.4%	-	-	-	-
	Creator Support	1,140	-	-	-	-	172	-	-	-	-	15.1%	-	-	-	-
	UI/UX	1,705	-	-	-	-	-281	-	-	-	-	-16.5%	-	-	-	-
	Subtotal	3,867	3,704	3,843	5,408	6,394	-85	356	405	256	651	-2.2%	-	-	-	-
	Adjustments	-31	-	-	-	-	585	-	-			-	-	-	-	-
	Total	3,836	3,636	3,790	5,381	6,374	501	424	375	242	773	13.0%	11.7%	9.9%	4.5%	12.1%
% of total (excl. adjustments)
New segments
	Creator Support	55.9%	65.2%	76.9%	66.9%	75.2%	-	84.4%	116.7%	270.2%	224.8%	-	-	-	-	-
	UI/UX	44.1%	34.8%	23.1%	33.1%	24.8%	-	15.6%	-16.7%	-170.2%	-124.8%	-	-	-	-	-
Old segments
	Content Solution	26.4%	-	-	-	-	-28.7%	-	-	-	-	-	-	-	-	-
	Creator Support	29.5%	-	-	-	-	-202.5%	-	-	-	-	-	-	-	-	-
	UI/UX	44.1%	-	-	-	-	331.2%	-	-	-	-	-	-	-	-	-

Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
From Q1 FY12/16, the company revised its business segmentation, integrating the Applications business with the UI/UX business (earnings booked under the UI/UX business). Year-on-year comparisons that follow are retroactively adjusted.
Adjustments to segment profit mainly comprise company-wide revenues not distributed to segments and company-wide expenses (net). Company-wide revenues are management consultancy fees paid by group subsidiaries; company-wide expenses are expenses related to group management.

Creator Support: 75% of sales (67% in FY12/19)

The Creator Support business provides services and sells software and hardware related to the digital production of illustration, manga, and animation; it promotes research and development and the practical application of graphics technologies, and expands its product lineup in response to new content creation techniques and new devices. It comprises a B2C business that offers total support for creators and a B2B business that provides software and service expertise as solutions.

B2C business

CLIP STUDIO PAINT (PRO, EX):
▶ Paint software that has achieved 10.0mn unit sales globally since it was launched in 2012 (as of end-December 2020).
▶ Top sales and market share in graphic software field: Consistently ranked No. 1 in the graphic software category of the BCN AWARD in 2015–2019 based on unit sales data from Amazon and mass retailers. With more than 30,000,000 users, it is the most utilized software on pixiv, one of the world’s largest social networking platforms geared toward illustrators (Celsys estimate for January–December 2018 based on data provided by pixiv).
▶ Actively used by more than 50 educational institutions to develop creators that can immediately function as professional assets in graphic arts fields, including illustration, comics, animation, and design.
▶ Manga, illustration, and animation production software with various uses, such as monochrome and color drawings for printing on commercial magazines and manga for websites and digital devices. In addition to drawing and painting features for color illustrations, it has features that cover all production processes of manga including rough sketches, frame cuts, inking, background, effect, lettering and management of multiple pages. It is the world’s first dedicated manga production software. (Compatible with both Windows and Mac.)
▶ Combines the company’s expertise in 2D, 3D, and e-books to provide new value for creators.

In the B2C business, the company provides graphic content production software such as the CLIP STUDIO PAINT series, software for the production of manga, illustration, and animation. The company also manages its own website CLIP STUDIO, which provides total support to creators producing illustrations, manga, animations or novels, offering comprehensive services to support their creative activities. As well as selling software, the company provides information creators need, such as support, how-to courses, and context introduction. According to the company, over 1.46mn creators are registered with the creative support site CLIP STUDIO (as of end-December 2019). Subsidiary Celsys is in charge of planning, development, and support of all software and services.

The company sells the software products through the CLIP STUDIO website as well as through PC distributors and retailers, and receives usage fees from end users. In the Japanese market, its manga and animation software are de-facto standards among professionals and more than 90% of TV animations use its products.

Accelerating global business is part of the company’s growth strategy for CLIP STUDIO. ArtSpark has released multiple-language versions of CLIP STUDIO PAINT: English and Chinese versions in September 2013, French and Spanish versions in July 2014, a Korean version in May 2016, and a German version in September 2017. As a result, now nearly half of CLIP STUDIO sales are for non-Japanese versions. It also improved usability by ensuring functions that are linked up with ibisPaint, a popular painting app from ibis mobile inc. offered only in Japanese, can be used in all available languages. The subscription version, which allows multiple PC installs with a single serial number, and CLIP STUDIO PAINT for iPad released in 2017 have performed well recently.

The total shipment volume of CLIP STUDIO PAINT has topped 10.0mn units (as of end-FY12/20).

B2B business

CLIP STUDIO READER: As the product allows users to browse e-books on web browsers, users do not need to download viewer applications to look around content at e-book store sites. A variety of content can be distributed: comics, novels and photo books.

In the B2B business, the company provides software and knowledge of services based on research and development of graphic technologies as solutions to companies. Sales come from royalties from companies and revenues for providing services under contract.

The core product is the CLIP STUDIO READER series of e-book viewers, developed by Celsys. The company has not unveiled a detailed sales breakdown, though it said that the BS Reader series accounted for 70–80% of sales and almost all the segment’s profit. The segment also develops and sells (or leases out) e-book creation tool CLIP STUDIO LAYOUT e for processing manga and other publications for mobile devices, and develops and provides ComicDC, a data server for content distribution.

CLIP STUDIO READER: As the necessary software for browsing e-books, the company provides the product, or grants a license, to content providers, which distribute content to feature phone and smartphone users, and telecom carriers, and receives certain royalty rates depending on sales of content by using the viewer.

Total solution for e-book distribution

The company’s subsidiary, Celsys, is a total solution vendor for e-book distribution, providing the e-book viewer CLIP STUDIO READER, website development support, data center operation outsourcing, and e-book content production support.

The solutions offered by Celsys have been adopted by over 1,200 services, including one of Japan’s largest e-book sites, Mecha Comic (Amutus), as well as ComicFesta (WWWave), cmoa (NTTsolmare), TSUTAYA Musico (TSUTAYA), pixiv Comic (pixiv), and BookLive! Comic (BookLive) among other services, and has a proven track record as a commercial viewer for comics. In addition, more than 10 million traditional panel display content files, a feature of the CLIP STUDIO READER, are in circulation.

CLIP STUDIO READER supports various display formats such as vertical scrolling, which is a format suitable for smartphones that show comics by scrolling vertically as if browsing a web page. For displaying text, CLIP STUDIO READER adopts the reflow method to display contents such as novels and light novels in EPUB format in a layout optimized for the device’s screen size, and also helps reduce the size of the distributed file. In addition to vertical scrolling and text display, it supports display formats such as page display and traditional panel display that are suitable for a variety of devices.

Another benefit of CLIP STUDIO READER is that it helps reduce distribution costs, such as server operation costs, by compressing images without loss in quality, enabling high-quality content to be distributed in small file sizes. In addition, the viewer’s UI and functions can be customized as needed, enabling customers to change the UI to match their e-bookstore’s brand or add functions for specific use cases. In addition to e-bookstores, the viewer can be used in a variety of different ways, including short-term use in PR such as for sales promotion campaigns, sales of comics as part of a music distribution site, and for distribution of submitted works on a work posting site.

For content production support, the company offers a full range of support, including providing production tools, accepting production requests, and introducing content production companies.

UI/UX: 25% of sales (33% in FY12/19)

CGI Studio: Core product of Candera. Scalable HMI not reliant on hardware as well as GUI design software platform for in-vehicle equipment. Candera mainly supplies the product to European car manufacturers on an OEM basis.

UI Conductor: A comprehensive suite of software tools for developing embedded HMI. Project data that has been authored with material placement, interaction settings, and animation settings on the tool can be deployed for mass development in the production environment. Updates are made as needed to meet market needs, and the latest version features a “view model” and “view state editor” to improve the expressiveness of the UI and 3D performance.

The UI/UX business focuses on the development of self-developed IP products such as software development platform for in-vehicle equipment, CGI Studio, and UI-authoring-software products, UI Conductor (a foundation of HMI), primarily in fields relating to vehicles (automobiles and motorcycles). It licenses the use of its products as UI solutions for digital consumer electronics devices such as in-vehicle equipment and digital cameras, as well as mobile devices such as smartphones, and earns licensing revenue.

In recent years, ArtSpark has worked to shift its business model away from primarily focusing on winning orders for its development services (as it had done to scale up quickly), toward winning orders for its proprietary IP over the past few years. In this way, it has aimed to reduce production costs and increase profits.

The company’s strength in the UI/UX business is in a product lineup supported by provision of UI design by designers and endorsed by de-facto standard 3D graphics technologies. Core products include:
CGI Studio: a software development platform for in-vehicle equipment.
UI Conductor: provides a UI development environment for embedded devices.
Higlyph: a scalable font rendering engine with an emphasis on design; provides high speeds and rendering even on embedded devices.

ArtSpark develops UI solutions-related products for different fields. In the printer field, the company has developed a product that has been installed on total over 10.0mn printers produced by Seiko Epson Corp. In addition, the company has developed UIs for the SLR cameras of Olympus Imaging Corp, all-in-one printers of Brother Industries (TSE1: 6448) and Clarion Co Ltd (TSE1: 6796) touch panel audio-display screens for Suzuki Motor Corp (TSE1: 7269) K-cars.

The company receives revenue from licensing those graphics-related products as UI solutions. It also receives revenue from the development, maintenance and support of custom UI design, software development and implementation.
K-car: A Japanese car category—literally “light car”. Engine displacement limited to 660cc. The number plates of private cars have a yellow base (black base for commercial vehicles).

In January 2019, ArtSpark acquired the shares of Socionext Embedded Software Austria GmbH (currently Candera GmbH), and made Candera a subsidiary. For more information on the purpose and background of the merger, see the medium-term plan (FY12/19–FY12/23) section. Candera supplies scalable human machine interface (HMI) not reliant on hardware as well as CGI Studio, GUI (graphical user interface) design software.

In June 2019, ArtSpark established subsidiary company Candera Japan Inc. Candera GmbH, an Austrian firm, and Candera Japan focus mainly on the development of CGI Studio and UI Conductor, which are proprietary IP products.

In November 2020, ArtSpark decided to transfer all its shares in HI Corp to Candera Japan with the aim of consolidating its domestic UI/UX business.

In March 2021, ArtSpark transferred all shares of HI Corp, a subsidiary of Candera Japan Inc. to micware Co., Ltd.

Production and sales

(JPYmn)	Segment		FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	YoY
Production	Creator Support (new seg.)		1,663	1,623	1,672	1,549	1,540	1,808	1,983
		Content Solution	829	820	890	744	-	-	-
		Creator Support (old seg.)	833	803	782	805	-	-	-
	UI/UX		1,267	1,280	1,493	884	738	819	1,146
	Total		2,930	2,904	3,182	2,434	2,279	2,627	3,129
Purchase	Creator Support (new seg.)		212	115	116	101	117	142	104
		Content Solution	102	49	49	31	-	-	-
		Creator Support (old seg.)	110	66	67	70	-	-	-
	UI/UX		-	-	-	-	-	-	-
	Total		212	115	116	101	117	142
Sales	Creator Support (new seg.)		1,920	1,869	2,119	2,161	2,413	2,957	3,617	4,807	32.9%
		Content Solution	1,283	1,118	1,155	1,021	-	-	-	-	-
		Creator Support (old seg.)	637	751	965	1,140	-	-	-	-	-
	UI/UX		1,789	2,001	2,070	1,705	1,291	886	1,790	1,588	-11.3%
	Adjustments		-23	-44	-33	-31	-68	-53	-26	-21	-
	Total		3,685	3,826	4,157	3,836	3,636	3,790	5,381	6,374	18.4%

Source: Shared Research based on company materials
From Q1 FY12/16, the company revised its business performance management categories, integrating the Applications business with the UI/UX business (figures for the businesses are shown under the UI/UX business). Additionally, in FY12/17 the company consolidated Content Creation and Creator Support into a single Creator Support category. Figures for years prior to FY12/16 are also retroactively adjusted in the table above.
Sales figures are adjusted for intragroup transactions.

Personnel

Segment
	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20
Creator Support	84	87	88	84	100	134
UI/UX	129	54	46	69	61	102
Company-wide	19	25	22	14	15	16
Total	232	166	156	167	176	252

Source: Shared Research based on company data
Figures for the Creator Support segment from FY12/14–16 are the totals of the Content Solution and Creator Support segments.

Profitability snapshot, financial ratios

Consolidated (JPYmn)		FY03/10	FY03/11	FY03/12	FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20
		Simple sum	Simple sum	Simple sum	Cons. 9mo.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.
Sales		4,954	4,932	4,565	2,633	3,685	3,826	4,157	3,836	3,636	3,790	5,381	6,374
	HI	2,259	2,210	1,863	-	-	-	-	-	-	-	-	-
	Celsys	2,696	2,721	2,702	-	-	-	-	-	-	-	-	-
Gross profit		2,136	2,149	1,694	411	1,143	1,333	1,279	1,565	1,602	1,787	2,303	3,132
	HI	805	843	503	-	-	-	-	-	-	-	-	-
	Celsys	1,331	1,305	1,191	-	-	-	-	-	-	-	-	-
SG&A expenses		1,593	1,525	1,468	1,079	1,212	1,234	1,190	1,064	1,178	1,412	2,061	2,359
	HI	738	728	734	-	-	-	-	-	-	-	-	-
	Celsys	856	797	733	-	-	-	-	-	-	-	-	-
Operating profit		543	623	227	-667	-69	100	88	501	424	375	242	773
	YoY	63.2%	14.8%	-63.6%	-	-	-	-	-	-	-	-	-
	HI	68	115	-231	-	-	-	-	-	-	-	-	-
	Celsys	475	508	458	-	-	-	-	-	-	-	-	-
Gross profit		43.1%	43.6%	37.1%	15.6%	31.0%	34.9%	30.8%	40.8%	44.1%	47.2%	42.8%	49.1%
	HI	35.7%	38.2%	27.0%	-	-	-	-	-	-	-	-	-
	Celsys	49.4%	48.0%	44.1%	-	-	-	-	-	-	-	-	-
SG&A expenses		32.2%	30.9%	32.1%	41.0%	32.9%	32.2%	28.6%	27.7%	32.4%	37.3%	38.3%	37.0%
	HI	32.7%	32.9%	39.4%	-	-	-	-	-	-	-	-	-
	Celsys	31.7%	29.3%	27.1%	-	-	-	-	-	-	-	-	-
Operating profit		11.0%	12.6%	5.0%	-25.3%	-1.9%	2.6%	2.1%	13.0%	11.7%	9.9%	4.5%	12.1%
	HI	3.0%	5.2%	-12.4%	-	-	-	-	-	-	-	-	-
	Celsys	17.6%	18.7%	16.9%	-	-	-	-	-	-	-	-	-

Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
The company was formed from a merger of Celsys, Inc. and HI Corp. in April 2012, and thus FY12/12 is a nine-month period.
Figures from FY03/12 and earlier are the simple sum of the two companies’ results.

The table above shows the historical performance of ArtSpark’s two predecessor companies, HI Corp and Celsys. The increasing popularity of smartphones in Japan from 2010 onward significantly affected results at both companies. HI’s main product was a 3D rendering engine for feature phones. This product generated licensing fees for the engine when phones were shipped, so the business model was affected by rising smartphone sales and the accompanying drop in shipments of feature phones. Celsys obtained revenue mainly from e-book browser distribution solutions for feature phones. Revenue was in the form of license fees paid by content holders when users viewed e-book browser. As such the impact of smartphone diffusion on Celsys was less than for HI. However, the drop in the number of feature phone users decreased the number of e-book browser viewers, affecting Celsys’ performance. Both companies focus on software development, a labor-intensive business. The need to develop software for smartphones has driven up CoGS at both companies, resulting in falling gross margins from 2010 onward. HI temporarily shored up earnings by selling assets in unprofitable businesses, but declining sales still meant the company began booking operating loss in FY12/12.

Amid such conditions, the two companies established a joint holding company on April 2, 2012, in a bid to gain a competitive edge by combining their technologies and customers. Since the merger, the new company—ArtSpark Holdings—has focused on tapping into new markets, mainly in the Creator Support and UI/UX segments, and improving margins with tight project management. The company initially booked operating loss, partly owing to upfront investment. But its expansion into new businesses is paying off, with the company moving back into the black in FY12/14. However, the UI/UX business reverted to generating operating losses again from FY12/18 onward.

Strengths and weaknesses

Strengths

Technological expertise from creating products for feature phones: ArtSpark enjoys a 90%-plus market share in 3D-rendering software and image distribution solutions for feature phones. Feature phones have limited memory and processing power, so they require light software. The experience that the company has built up in creating these programs will lend it a competitive advantage in developing programs for other devices with low processing power.

Celsys’ large global share in application software for end users: Celsys, one of the two companies merged to create ArtSpark, held a large market share in applications designed for end users. According to the company, ArtSpark tops global shares in the field of manga, illustration, and animation production software.

Candera’s track record developing proprietary UI/UX and IP software products: The strengths of Candera are in proprietary UI/UX and IP software for manufacturers. More specifically, its strengths lie in HMI (Human Machine Interface) and GUI (graphical user interface) design software CGI Studio and UI authoring software products UI Conductor (used to develop UI for embedded devices), which is a foundation for HMI.

Weaknesses

High marketing cost of Creator Support business: In the Creator Support segment, the company operates a B2C business providing creators a total support service through product offerings such as manga, illustration, and animation production software CLIP STUDIO PAINT and animation production software RETAS STUDIO. Since it is difficult to gauge the market size for these products or clearly identify the target customer base, associated marketing cost tends to get higher as a result.

Major performance fluctuations in the UI/UX business: Over the past few years, the company has managed to shift its UI/UX business model toward handling proprietary IP products. That said, the process leading up to licensing (clients’ adoption of the product) is significantly time consuming, and it takes another few years for the company to receive royalties from mass production. Even in the mass production stage, since production volume relies heavily on the manufacturers’ production plan, earnings tend to fluctuate significantly. To narrow the range of fluctuation, ArtSpark must develop highly competitive products that match client needs and can be adopted repeatedly by clients for use in mass production.

Time-consuming and costly to add or revise functions: In both the Creator Support and UI/UX businesses, the company responds to client requests for complex revisions and upgrades. Adding or upgrading functions to products can be time-consuming and costly. In the software development business, fixed cost is inherently high, and operating leverage also tends to be high.

Historical performance and financial statements

Historical performance

1H FY12/21 results (out August 6, 2021)

Summary

1H FY12/21 results: ArtSpark reported sales of JPY3.5bn (+16.6% YoY), operating profit of JPY782mn (+118.0% YoY), recurring profit of JPY805mn (+131.1% YoY), and net income attributable to owners of the parent of JPY864mn (+316.3% YoY).

Progress versus the company’s revised 1H targets (announced on April 30, 2021; see Company Forecast for FY12/21) was 102.0% for sales, 122.6% for operating profit, 128.1% for recurring profit, and 107.6% for net income attributable to owners of the parent. Progress versus the company’s full-year FY12/21 targets (upgraded on July 28, 2021; see Company Forecast for FY12/21) was 49.5% for sales (47.2% of FY12/20 result in 1H FY12/20), 56.8% for operating profit (46.4%), 59.8% for recurring profit (46.6%), and 65.0% for net income attributable to owners of the parent (recorded loss in 1H FY12/20).

Sales

Sales were JPY3.5bn (+16.6 YoY) in 1H FY12/21. Sales of the Creator Support segment were JPY3.0bn (+31.7% YoY), and sales of the UI/UX segment were JPY526mn (-29.9% YoY).

Sales rose in the Creator Support segment as subsidiary Celsys, Inc. continued its global online promotions of CLIP STUDIO PAINT, an app for producing illustrations, manga, and animation. As of the end of Q2 FY12/21, the number of subscribers to CLIP STUDIO PAINT (including those who signed up for the free period and those who signed up with an activation code) increased by 40% compared to the start of FY12/21.

In the UI/UX segment, sales fell due in part to the sale of HI Corporation.

Operating profit

Operating profit was JPY782mn (+118.0% YoY). The Creator Support segment recorded operating profit of JPY1.0bn (+29.3% YoY), while the UI/UX segment recorded operating loss of JPY274mn (JPY469mn operating loss in 1H FY12/20). The gross profit margin increased 2.2pp YoY to 53.4% due to improved profitability of the UI/UX segment (reflecting lower goodwill amortization amongst other factors). The SG&A ratio decreased by 8.1pp YoY to 31.1%, reflecting the impact of higher sales. As a result, the operating profit margin rose 10.4pp YoY to 22.3%.

In the Creator Support segment, operating profit increased 29.3% YoY due to strong sales and high margin sales, including from the CLIP STUDIO PAINT subscriptions.

In the UI/UX segment, the business environment has changed dramatically due to the pandemic. The company invested in the development and marketing of its proprietary IP products, targeting future market expansion. Operating loss narrowed by JPY 195mn YoY.

Recurring profit and net income attributable to owners of the parent

Recurring profit was JPY805mn (+131.1% YoY), aided by an increase in operating profit as well as the recording of JPY29mn in subsidy income. Net income attributable to owners of the parent was JPY864mn (+316.3% YoY). In Q1, the company recorded JPY206mn in gain on sales of shares of subsidiaries and associates due to the transfer of shares in HI Corporation. Income taxes were JPY 147mn.

Results by segment

Creator Support

The Creator Support segment recorded sales of JPY3.0bn (+31.7% YoY) and operating profit of JPY1.0bn (+29.3% YoY).

Results were steady as subsidiary Celsys continued its global online promotions of CLIP STUDIO PAINT, an app for producing illustrations, manga, and animation.

Cumulative shipments of CLIP STUDIO PAINT for Android surpassed 1.0mn in April 2021. Cumulative shipments across all platforms at end 1H (June 30, 2021) totaled 13.56mn units (+1.51mn units from end Q1 FY12/21, +5.62mn units YoY), of which 71.4% were overseas shipments of non-Japanese versions. The company began disclosing monthly shipment data in February 2021.

The free usage period of the Galaxy and Android versions of CLIP STUDIO PAINT released in 2020 ended, and the company began charging subscriptions in February and March 2021, respectively.

Assuming there were 100 CLIP STUDIO PAINT subscribers in January 2020, the total increased to 266 at end Q1 FY12/21 (+20.9% from end FY12/20, +141.8% YoY) and to 308 at end 1H FY12/21 (+15.8% from end Q1 FY12/21, +104.0% YoY). While offering licenses under a subscription model can lower the barrier to start using the app and accelerate user growth, it is less profitable in the short term compared to outright purchases. However, the company will continue to focus on offering licenses under the subscription model, as it expects to generate stable earnings over the medium to long term by encouraging continued use of CLIP STUDIO PAINT through ongoing development investment.

To expand its user base, the company launched collaborations between CLIP STUDIO PAINT and device manufacturers. The app is now bundled with Wacom Co., Ltd.'s (TSE1: 6727) Wacom Intuos and available globally for Chromebook users. It is also bundled globally with the new Galaxy Book Pro 360, a 2-in-1 PC & tablet that comes with an S Pen, with a streamlined creation workflow enabled by connecting the Tab S7/S7+ as a second screen. In addition, CLIP STUDIO PAINT was also bundled with three models of raytrek geared for illustrators offered by Thirdwave Corporation.

In terms of initiatives with corporations and publishers, CLIP STUDIO PAINT for iPad was adopted by Yoyogi Animation Academy. With 600 licenses made available, it is now possible to use the app at home in the same environment as at school. In addition, with the cooperation of Shueisha Inc., CLIP STUDIO PAINT is equipped with a team production function, enabling smooth manga production by multiple people in a remote environment. Furthermore, CLIP STUDIO PAINT is equipped with commercial printing submission templates for Shogakukan and KADOKAWA. In collaboration with publishing companies, including Shueisha and Kodansha, whose templates are already available in CLIP STUDIO PAINT, the company has strengthened its efforts to support digital submissions by manga artists.

In e-book solutions, the company’s e-book viewer CLIP STUDIO READER was adopted by DLsitecomipo, operated by Eisys Inc., and its e-book production tools were adopted by Goma Books Co., Ltd.

UI/UX

Segment sales were JPY526mn (-29.9% YoY) and operating loss was JPY274mn (versus operating loss of JPY469mn in 1H FY12/20). The operating loss includes goodwill amortization of JPY65mn (versus JPY226mn a year earlier) on subsidiary acquisition.

HI Corporation will not be contributing to results from Q2 onward as the company transferred all of its shares in HI Corporation to micware Co., Ltd. on March 1, 2021.

New installations of CGI Studio and UI Conductor totaled 9.03mn vehicles at end Q1 FY12/21 (+2.34mn from end FY12/20, +7.28mn YoY) and 11.68mn vehicles at end 1H FY12/21 (+2.65mn from end Q1 FY12/21, +8.0mn YoY).

In 1H FY12/21, Candera GmbH entered into a strategic alliance agreement with Varroc Engineering Limited, a global automotive components manufacturer, to share Human Machine Interface (HMI) technology for the development of Varroc's Thin Film Transistor (TFT) instrument cluster.

Candera GmbH signed a partnership with Taiwan's Adlink Technology Inc., a global leader in edge computing, on July 26, 2021. The company believes this will enable it to fulfill the needs of larger and international customers in the IoT space. Candera GmbH and Adlink Technology Inc. have collaborated to implement a multilingual, fully HD, digital 2D/3D graphical user interface (GUI) for washing machine displays in CGI Studio. CGI Studio, whose focus had primarily been on in-vehicle equipment, has expanded to home appliances. Although the impact on results for FY12/21 will be minor, the company expects this partnership to make a significant contribution in the medium to long term. The company aims to expand business domains in FY12/21 and beyond.

The company participated in the online MATLAB EXPO 2021 Japan as a connection program partner, and also exhibited at the Automotive Engineering Exposition 2021 Online, where it unveiled the latest version 3.10 of CGI Studio and the instrument cluster for EVs. It continued to actively promote sales of CGI Studio. The company is also developing next-generation HMI solutions to be used not only in the automotive industry but also in a wide range of fields such as for industrial and consumer devices.

Q1 FY12/21 results (out May 7, 2021)

Summary

Q1 FY12/21 results: ArtSpark reported sales of JPY1.8bn (+23.3% YoY), operating profit of JPY421mn (+193.8% YoY), recurring profit of JPY422mn (+202.2% YoY), and net income attributable to owners of the parent of JPY544mn (+628.5% YoY). Robust performance in the Creator Support business, particularly overseas, pushed up sales and profit.

Progress: Progress versus the company’s 1H targets (revised forecasts announced on April 30, 2021) is 51.8% for sales (48.0% of 1H FY12/20 result in Q1 FY12/20), 66.1% for operating profit (40.0%), 67.2% for recurring profit (40.1%), and 67.8% for net income attributable to owners of the parent (36.0%).

However, progress toward the company’s FY12/21 targets was 26.4% for sales (22.6% against FY12/20 results), 45.7% for operating profit (18.6%), 48.1% for recurring profit (18.7%), and 56.4% for net income attributable to owners of the parent (loss in FY12/20).

Revised company forecast for cumulative Q2 (1H) FY12/21 (announced April 30, 2021)
▷ Sales: JPY3.4bn (previously JPY3.3bn)
▷ Operating profit: JPY638mn (JPY391mn)
▷ Recurring profit: JPY628mn (JPY370mn)
▷ Net income*: JPY803mn (net income of JPY548mn)
*Net loss attributable to owners of the parent

Reason for revision
▷ In 1H FY12/21, the company expects to beat its initial expectations both for sales and each level of profit. It attributes the sales overshoot to global online sales promotions undertaken by its subsidiary, Celsys, Inc. at end-December 2020, for the illustration, anime, and manga production app, CLIP STUDIO PAINT. With sales tracking above projected levels, the company expects each level of profit to exceed initial forecasts also.
▷ It left its full-year forecast unchanged at this time, citing continued uncertainty over personal spending and economic activity, both domestically and overseas

Company initiatives

In Q1 FY12/21, the company continued to place its management focus on software IP. The company also concentrated on efforts to boost management efficiency, such as the strategic allocation of development resources. In March 2021, ArtSpark transferred all its shares in Group company HI Corporation to micware Co., Ltd. In February, the company began making monthly reporting in its Creator Support and UI/UX businesses.

Sales

Sales were JPY1.8bn in Q1 FY12/21 (+23.3% YoY). By segment, the Creator Support business generated sales of JPY1.5bn (+45.7% YoY), and the UI/UX business delivered JPY300mn (-30.8% YoY).

The UI/UX business struggled amid sluggish demand and a downturn in production volume in the automobile industry. On the other hand, in the Creator Support business, demand was firm for the products and solutions supplied by subsidiary Celsys that use digital technology to support content creation and viewing, which contributed to firm sales in Japan and overseas. The free usage period of the Galaxy and Android versions of CLIP STUDIO PAINT (released in 2020) ended and the company began charging subscriptions in February and March 2021, respectively.

Operating profit

Operating profit was JPY421mn (+193.8% YoY). Segment operating profit was JPY518mn (+66.2% YoY) in the Creator Support business, while the UI/UX business produced operating loss of JPY124mn (operating loss of JPY201mn in Q1 FY12/20).

Alongside favorable sales in the Creator Support business, operating profit rose 193.8% YoY on the booking of highly profitable sales, including the new subscription-based billing model adopted for CLIP STUDIO PAINT. The COVID-19 pandemic has caused significant change in the business environment for the UI/UX business. The company prioritized investment in the development and marketing of its proprietary IP products, targeting market expansion.

Recurring profit and net income attributable to owners of the parent

Recurring profit was JPY422mn (+202.2% YoY). The company recorded a forex gain of JPY1mn versus a forex loss of JPY3mn in Q1 FY12/20. It also recorded profit from the sale of shares in an affiliate of JPY206mn due to the transfer of shares in HI Corporation, and tax charges of JPY83mn. As a result, net income attributable to owners of the parent was JPY544mn (+628.5% YoY).

Results by segment

Creator Support

Segment sales (sales to external customers) were JPY1.5bn (+45.7% YoY) and operating profit was JPY518mn (+66.2% YoY). OPM improved 4.3%pt YoY, to 35.1%. Although domestic and overseas sales were both strong, overseas sales in particular outpaced the company’s expectations. The company attributes this success to its focus on global web promotion coupled with region-specific marketing.

Worldwide shipments of the CLIP STUDIO PAINT series at end Q1 (March 31, 2021) totaled 12.05mn units (+1.58mn units from end FY12/20, +5.01mn units YoY). The company began disclosing monthly shipment data in February 2021.

Assuming there were 100 CLIP STUDIO PAINT subscribers in January 2020, the total increased to 266 at end Q1 FY12/21 (+20.9% from end FY12/20, +141.8% YoY). The company began disclosing monthly subscriber data in February 2021.

The free usage period of the Galaxy and Android versions of CLIP STUDIO PAINT (released in 2020) ended and the company began charging subscriptions in February and March 2021, respectively. ArtSpark also began sales of CLIP STUDIO PAINT PRO 1 Device 1 year subscription, which offers all features of CLIP STUDIO PAINT PRO and can be used on one of the following devices: Windows, macOS, iPad, iPhone, Galaxy, Android, and Chromebook. In Japan, sales began instore at volume retailers in February 2021, and overseas at Amazon.com in North America in March.

Celsys, an ArtSpark subsidiary, co-sponsored the ACTF2021 in TAAF (a forum for the animation industry) along with Wacom Co., Ltd. (TSE1: 6727) and the Japan Animation Creators Association, distributing animation studio production templates and lecturing on digital production of animations in Japan.

In collaboration with ibis and JOINUS (operated by Sotetsu Building Management Co., Ltd.), Celsys opened “x egakeru,” a limited-period booth focused on the basics of drawing and aimed at communicating the joy drawing brings. The company intends to continue conducting similar activities to foster enjoyment among creative talent across the industry.

UI/UX

Segment sales were JPY300mn (-30.8% YoY) and operating loss was JPY124mn (versus operating loss of JPY201mn in Q1 FY12/20). The operating loss includes goodwill amortization of JPY32mn (versus JPY117mn a year earlier) on subsidiary acquisition.

As of March 1, 2021, the company transferred all shares in consolidated second-tier subsidiary HI Corporation to micware Co., Ltd. HI was no longer on ArtSpark’s balance sheet as of end-Q1, but the income statement included HI’s performance for January and February 2021.

New installations of CGI Studio (mainly for vehicles) and UI Conductor (mainly for car navigation, printers, and home electronics) totaled 9.03mn vehicles at end Q1 FY12/21 (March 31, 2021), an increase of 2.34mn vehicles from end FY12/20 and 7.28mn vehicles YoY. The company began disclosing these figures from Q1 FY12/21.

In the UI/UX business, ArtSpark is focusing on development and sale of self-developed IP products such as software development platform for in-vehicle equipment, CGI Studio, and UI-authoring-software products, UI Conductor (a foundation of HMI).

In Q1 FY12/21, subsidiary Candera GmbH developed an innovative HMI solution that supports intuitive touch feedback technology in collaboration with European companies, next system and DATE MODUL AG. Candera was also accredited as the latest HMI software partner of Infineon Technologies, one of the world’s top 10 semiconductor manufacturers.

In January 2021, Candera exhibited at The 13th Automotive World, which simultaneously showcased advanced automotive technologies physically (at Tokyo Big Sight) and online. In March 2021, Candera also exhibited at Embedded World 2021. This international tradeshow is one of the largest in Europe for embedded technologies. Next-generation HMI development was the theme of Candera’s online presentation.

Full-year FY12/20 results (out February 12, 2021)

Overview of results

FY12/20 results: ArtSpark reported sales of JPY6.4bn (+18.4% YoY), operating profit of JPY773mn (+219.6% YoY), recurring profit of JPY748mn (+224.8% YoY), and net loss attributable to owners of the parent of JPY475mn (versus net income of JPY241mn in FY12/19).

Progress: The company revised its full-year earnings forecast upward on February 8, 2021, and the earnings results were in line with the revised forecast. Sales were driven mainly by strong overseas sales in the Creator Support business, while profits were driven mainly by the sales increase as well as cost reductions in the UI/UX business.

Sales up 18.4% YoY: The UI/UX business struggled amid sluggish demand and a downturn in production volume in the automobile industry. On the other hand, in the Creator Support business, demand was firm for the products and solutions supplied by subsidiary Celsys that use digital technology to support content creation and viewing, which contributed to firm sales in Japan and overseas.

Operating profit up 219.6% YoY: Alongside favorable sales in the Creator Support business, operating profit rose sharply on the booking of highly profitable sales, including the new subscription-based billing model adopted for CLIP STUDIO PAINT. The COVID-19 pandemic has caused significant change in the business environment for the UI/UX business. The company prioritized investment in the development and marketing of its proprietary IP products, targeting market expansion.

Recurring profit up 224.8% YoY: Despite booking of JPY22mn in forex loss (versus JPY3mn in FY12/19), there was no interest expenses (versus JPY5mn in FY12/19) and a YoY decline in patent and trademark amortization.

Net loss attributable to owners of the parent of JPY475mn: Factoring in the impact from the COVID-19 pandemic on the industry, the company in Q3 recorded impairment losses of JPY1.1bn on a portion of recognized goodwill.

*Revised company forecast for FY12/20 (announced February 8, 2021)
▷ Sales: JPY6.4bn (previously JPY6.3bn)
▷ Operating profit: JPY773mn (JPY561mn)
▷ Recurring profit: PY747mn (JPY535mn)
▷ Net loss*: JPY475mn (net loss of JPY761mn)
▷ Year-end dividend: JPY10.0 per share (JPY7.0; JPY6.0 in FY12/19)
*Net loss attributable to owners of the parent

Reason for revision
▷ ArtSpark expects sales to exceed the previous forecast due to steady overseas sales growth in the Creator Support business.
▷ The company projects operating profit and recurring profit (including amortization of goodwill of Candera GmbH of approximately JPY367mn) to exceed the previous forecast, reflecting the increase in sales of the Creator Support business and greater-than-expected reductions to the cost of sales in the UI/UX business compared to the initial plan. The net loss attributable to owners of the parent reflects goodwill impairment of JPY1.1bn (recorded in Q3 FY12/20) and tax adjustments.
▷ The year-end dividend forecast has been revised upward by JPY3.0 from the previous forecast of JPY7.0 to JPY10.0 per share (+JPY4.0 YoY). The company anticipates sales and operating profit in the Creator Support business to exceed the targets for FY12/23, the final year of the previous medium-term management plan, three years ahead of schedule. Further, the company expects to record net loss due to a goodwill impairment charge in the wake of the COVID-19 pandemic, but this is a one-time extraordinary loss. The dividend forecast has been revised upward based on above factors and the revision to the consolidated earnings forecast.

Results by segment

Results by segment are outlined below.

Creator Support

Segment sales (sales to external customers) were JPY4.8bn (+32.9% YoY) and operating profit was JPY1.5bn (+111.3% YoY).

ArtSpark has shipped more than 10mn units in the CLIP STUDIO PAINT series since its 2012 launch, with more than 60% going to overseas customers.

The company launched CLIP STUDIO PAINT for Galaxy for use in Galaxy-series mobile products simultaneously on a global basis on the Galaxy Store in August 2020 using a subscription-based billing model.

Samsung’s Galaxy Tab S7 series of Android tablets, which has attracted 2.5x as many pre-orders as the preceding series did, is now shipping globally with CLIP STUDIO PAINT pre-installed.

The company held International Illustration Contest 2020 jointly with Galaxy and Wacom Co., Ltd. (TSE1: 6727), which offers pen technology for use with the Galaxy Tab series.

Toei Animation Co., Ltd. adopted the company’s CLIP STUDIO PAINT for iPad as its digital drawing software. At the same time, ArtSpark started offering volume licensing plans for businesses using the iPad version of CLIP STUDIO PAINT.

The company released CLIP STUDIO PAINT for Android using a subscription-based billing model. It works with Chrome OS and can be used on Chromebooks, which are increasingly used in the field of education. In conjunction with the release of the Android version, the company conducted a large online promotion in Japan and overseas during the Christmas season, with the aim of increasing the user count and raising brand awareness.

The company moved to expand the number of users, including by offering through the California Department of Education CLIP STUDIO PAINT DEBUT for free for six months to all of roughly 2mn students and teachers at about 1,600 high schools in the state who applied for the use of service.

The town of Oiso in Kanagawa Prefecture, ArtSpark subsidiary Celsys, Wacom, and I-NET CORP. (TSE1: 9600) concluded a partnership agreement to strengthen mutual cooperation for the purpose of promoting the New Normal Digital Creative Education program, which aims to improve the quality of primary and secondary education in Oiso.

In July 2020, the company implemented a major upgrade for CLIP STUDIO READER, an e-book viewer, which features improved customizability and allows service providers to add functions in line with the content of services offered. In addition, it enhanced text content support to optimize display according to screen size and reduce the size of delivery files.

UI/UX

Segment sales were JPY1.6bn (-11.3% YoY) and operating loss was JPY812mn (versus operating loss of JPY436mn in FY12/19). The operating loss includes goodwill amortization of JPY367mn on subsidiary acquisition.

The automotive industry, which represents the UI/UX business’s largest pool of customers, faces a challenging operating environment due to the COVID-19 outbreak, which has led to declines in auto demand and capital spending on a global scale. Although production of finished vehicles is recovering, the company expects the challenging environment to remain due to the auto industry’s cautious approach on capital spending.

The company released CGI Studio3.9 with the added functionality of an innovative AI-based importer to improve usability.

It also equipped CGI Studio with Monotype (the world largest type foundry)’s iType® font rendering engine.

CGI Studio officially began offering support for rendering operations available on all cutting-edge devices, including multi-core for Cypress’ Traveo II graphic MCUs, which are the newest products in the Traveo II automotive MCU line-up.

Subsidiary Candera and LG Electronics Inc. jointly developed an innovative augmented reality (AR) solution to support a range of displays, including in-vehicle heads-up displays (HUD) and center information displays (CID).

At Embedded World 2020, one of Europe’s largest international exhibitions of embedded-related technologies, the company presented a mix of innovative HMI solutions and technologies in the area of embedded HMI design, including a comprehensive cockpit solution for automobiles and a newly developed user interface for smart ovens.

At the electronica China 2020 event held in Shanghai, Fujitsu Electronics Inc. held a demonstration of CGI Studio installed on hardware manufactured by Socionext.

Cumulative Q3 FY12/20 results (out November 6, 2020)

Cumulative Q3 FY12/20 results: The company reported sales of JPY4.7bn (+15.3% YoY), operating profit of JPY633mn (+159.8% YoY), recurring profit of JPY616mn (+166.4% YoY), and net loss attributable to owners of the parent of JPY651mn (versus net income in cumulative Q3 FY12/19 of JPY221mn). The company focused on building a software IP-centric business and worked to improve business efficiency through strategic allocation of its development resources among other measures.

Progress: The company revised its full-year earnings forecast on November 6, 2020. In cumulative Q3, sales reached 74.2% of revised FY12/20 forecast (sales in cumulative Q3 FY12/19 reached 75.2% of FY12/19 results), operating profit reached 112.8% (100.7%), and recurring profit reached 115.1% (100.5%). Net loss attributable to owners of the parent were JPY651mn (the company revised forecast is for net loss of JPY761mn).

Sales growth of 15.3% YoY: The UI/UX business struggled amid sluggish demand and a downturn in production volume in the automobile industry. On the other hand, in the Creator Support business, demand was firm for the products and solutions supplied by subsidiary Celsys that use digital technology to support content creation and viewing, which contributed to firm sales in Japan and overseas.

Sales in the Creator Support business amounted to JPY3.5bn (+30.2% YoY).

Sales in the UI/UX business amounted to JPY1.2bn (-14.4% YoY).

Operating profit growth of 159.8% YoY: Alongside favorable sales in the Creator Support business, operating profit improved on the booking of highly profitable sales, including in CLIP STUDIO PAINT subscriptions.

Operating profit in the Creator Support business was JPY1.2bn (+97.9% YoY).

Operating loss in the UI/UX business was JPY637mn (versus loss of JPY316mn in cumulative Q3 FY12/19). Operating loss includes goodwill amortization of JPY334mn on subsidiary acquisition.

Net loss of JPY651mn: Factoring in the impact from COVID-19 on the industry, the company in Q3 recorded impairment losses of JPY1.1bn on a portion of recognized goodwill and deducted JPY202mn in tax expenses.

Company forecast for FY12/20 (revised on November 6, 2020)
▷ Sales: JPY6.3bn (previously JPY5.8bn)
▷ Operating profit: JPY561mn (previously JPY304mn)
▷ Recurring profit: JPY535mn (previously JPY271mn)
▷ Net loss: JPY761mn (net income in FY12/19 of JPY256mn)

Reason for revision
- The company expects sales to exceed its prior forecast, for while the UI/UX business struggled amid sluggish demand and a downturn in production volume in the automobile industry, the Creator Support business saw firm demand for the products and solutions supplied by subsidiary Celsys that use digital technology to support content creation and viewing, which contributed to firm sales in Japan and overseas.
- The company expects operating profit and recurring profit to exceed its prior forecast amid favorable sales in the Creator Support business and a strong improvement in operating profit on the booking of sales in highly profitable CLIP STUDIO PAINT subscriptions.
- At the net income attributable to owners of the parent level, the company in light of the impact on the industry from COVID-19 recorded impairment losses of JPY1.1bn on a portion of recognized goodwill in Q3.

Creator Support

Segment sales*: JPY3.5bn (+30.2% YoY)
Operating profit: JPY1.2bn (+97.9% YoY)

In cumulative Q3 FY12/20, CLIP STUDIO PAINT software series (supplied by subsidiary Celsys for the digital creation of comics, illustrations, and animation) surpassed 8mn units shipped across the world since its launch in 2012.

The company simultaneously launched CLIP STUDIO PAINT for Galaxy for use in Galaxy-series mobile products on a global basis on the Galaxy Store in August 2020. Moreover, CLIP STUDIO PAINT was offered pre-installed on Galaxy Tab S7 products, which attracted 2.5 times as many pre-orders as their predecessors and began shipping the same month. CLIP STUDIO PAINT for Galaxy products uses a subscription-based billing model, which improves profitability for the company while ensuring service continuity.

Toei Animation (JASDAQ: 4816) adopted the company’s CLIP STUDIO PAINT for iPad as its digital drawing software. At the same time, ArtSpark started offering volume licensing plans for businesses using the iPad version of CLIP STUDIO PAINT.

UI/UX

Segment sales: JPY1.2bn (-14.4% YoY)
Operating loss*: JPY637mn (operating loss of JPY316mn in Q3 FY12/19)
*Operating loss includes goodwill amortization of JPY334mn on subsidiary acquisition

ArtSpark is focusing on development and sale of self-developed IP products such as software development platform for in-vehicle equipment, CGI Studio, and UI-authoring-software products, UI Conductor (a foundation of HMI).

The automotive industry, which represents the UI/UX business’s largest pool of customers, faces a challenging operating environment with sluggish demand and lower production volumes due to the COVID-19 outbreak. While stimulus measures in a variety of countries have contributed to a recovery in production among manufacturers, the company is also developing new technologies and cultivating new customers to further strengthen the UI/UX business.

Starting in Q3, CGI Studio officially began offering support for rendering operations available on all cutting-edge devices, including multi-core for Cypress’ Traveo II graphic MCUs, which are the newest products in the Traveo II automotive MCU line-up.

The latest version of CGI STUDIO 3.9, which was released in summer 2020, includes a preview version of an AI-based Smart Photoshop Importer that automatically processes UI artwork and improves usability of HMI creation. The product was featured in US IT site Embedded Computing Design, which focuses on embedded software design and development stories.

At the electronica China 2020 event held in Shanghai, Fujitsu Electronics held a demonstration of CGI Studio installed on hardware manufactured by Socionext.

Income statement

Income statement		FY03/12	FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20
(JPY'000)		Simple sum	Cons. 9mo.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.
Sales		4,565,225	2,633,289	3,685,419	3,826,206	4,156,911	3,835,853	3,636,018	3,789,652	5,381,272	6,373,808
	YoY	-7.4%	-	-	3.8%	8.6%	-7.7%	-5.2%	4.2%	42.0%	18.4%
Cost of sales		2,871,108	2,221,966	2,542,916	2,492,712	2,878,801	2,272,354	2,033,955	2,002,522	3,078,467	3,241,651
Gross profit		1,694,117	411,323	1,142,503	1,333,494	1,278,954	1,564,523	1,602,062	1,787,129	2,302,804	3,132,156
	Gross profit margin	37.1%	15.6%	31.0%	34.9%	30.8%	40.8%	44.1%	47.2%	42.8%	49.1%
SG&A expenses		1,467,550	1,078,636	1,211,597	1,233,780	1,190,466	1,064,018	1,178,999	1,411,630	2,060,464	2,359,860
	SG&A ratio	32.1%	41.0%	32.9%	32.2%	28.6%	27.7%	32.4%	37.2%	38.3%	37.0%
Operating profit		226,566	-667,312	-69,093	99,713	88,488	500,504	423,803	374,886	241,957	773,273
	YoY	-63.6%	ｰ	ｰ	ｰ	-11.3%	465.6%	-15.3%	-11.5%	-35.5%	219.6%
	Operating profit margin	5.0%	ｰ	ｰ	2.6%	2.1%	13.0%	11.7%	9.9%	4.5%	12.1%
Non-operating income		9,346	6,399	34,455	13,778	3,746	4,611	646	763	720	491
Non-operating expenses		20,247	29,132	33,585	19,869	30,008	28,070	14,024	17,970	12,509	26,095
Recurring profit		215,666	-690,045	-68,222	93,621	62,226	477,045	410,425	357,679	230,167	747,669
	YoY	-64.5%	ｰ	ｰ	ｰ	-33.5%	666.6%	-14.0%	-12.9%	-35.6%	224.8%
	Recurring profit margin	4.7%	ｰ	ｰ	2.4%	1.5%	12.4%	11.3%	9.4%	4.3%	11.7%
Extraordinary gains		35,121	413,052	134,257	15,887	37,275	5,341	216	652	30,867	619
Extraordinary losses		318,135	1,004,349	48,891	31,934	44,588	83,298	17,086	0	28,559	1,065,863
Income taxes		188,447	72,300	-25,667	17,284	18,929	58,576	18,763	31,701	-8,993	157,832
Implied tax rate		-279.8%	-5.6%	-149.7%	22.3%	34.5%	14.7%	4.8%	8.8%	-3.9%	-49.7%
Net income attributable to non-controlling interests			-2,703	0	332	1,192	3,362	0	0	0	0
Net income		-255,795	-1,350,939	42,811	59,958	34,791	337,150	374,791	334,144	241,469	-475,407
	YoY	ｰ	ｰ	ｰ	40.1%	-42.0%	869.1%	11.2%	-10.8%	-27.7%	-296.9%
	Net margin	ｰ	ｰ	1.2%	1.6%	0.8%	8.8%	10.3%	8.8%	4.5%	-7.5%

Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
The company was formed from a merger of Celsys, Inc. and HI Corp. in April 2012, and thus FY12/12 is a nine-month period.
Figures from FY03/12 and before are simple sums of the two pre-merger results.
FY12/12 is an irregular period of nine months, owing to a change in accounting methods.

ArtSpark was established as a joint holding company in April 2012 as a result of the integration between Celsys, Inc. and HI Corp, so FY12/12 was an irregular nine-month financial year and FY12/13 was the first 12-month financial year. In the table above, SR shows the simple sums of the two companies’ results for FY12/09 through FY12/11. The two companies’ performances had expanded on main products for feature phones. However, the core of the mobile phone market began shifting to smartphones from around 2010 and the companies’ performances lost pace, a factor that led to the integration.

In FY12/12 and FY12/13, ArtSpark incurred operating losses as it restructured unprofitable businesses and recombined its segments. It has pared its dependence on feature phones. In Q4 FY12/13, it reported operating profits and sales in the core content support business, and sales from smartphones surpassed those from other cell phones. Though the UI/UX segment posted lower profitability (launch of a new project), the expansion of products for auto-related industries made progress. The company moved back into the black in FY12/14. The medium-term plan ArtSpark announced in July 2015 demonstrated a strategic shift: leveraging the group’s intellectual property by focusing on proprietary products and services. Sales consequently fell in FY12/16, but profit rose. In FY12/17, sales and earnings both fell. In FY12/18 and again in FY12/19, sales rose but earnings fell. In FY12/18, the drop in earnings came about as weak results in the UI/UX business offset strong results in the Creator Support business. In FY12/19, the decline in earnings came about as a result of the additional goodwill amortization charges stemming from the acquisition of Candera. In FY12/20, sales grew by 18.4% YoY and operating profit by 219.6% YoY, mainly due to growth in the Creator Support business.

Balance sheet

Balance sheet	FY03/12	FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20
(JPY'000)	Simple sum	Cons. 9mo.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.
Assets
Cash and deposits	2,191,488	1,294,740	1,323,533	1,086,746	1,323,640	2,152,234	2,491,012	2,700,195	1,905,356	2,923,860
Accounts receivable	1,410,763	561,478	552,076	880,145	490,332	259,294	320,305	275,934	464,404	474,833
Inventories	119,342	192,378	148,755	137,536	108,577	24,887	26,027	-	-	-
Deferred tax assets	-	-	-	-	-	-	28,903	-	-	-
Other	133,924	120,373	119,141	126,709	169,220	107,157	133,019	305,295	344,537	470,518
Allowance for doubtful accounts	-31,760	-10,389	-12,608	-16,381	-6,224	-1,432	-2,864	-2,021	-5,456	-3,193
Total current assets	3,823,757	2,158,580	2,130,897	2,214,755	2,085,545	2,542,140	2,996,405	3,279,406	2,708,841	3,866,018
Buildings	47,142	41,794	35,755	40,325	26,214	24,124	29,194	26,639	107,335	136,377
Tools, furniture, and fixtures	36,062	28,271	19,977	31,227	26,642	25,881	41,012	47,853	115,786	110,839
Construction in progress	-	-	-	-	-	6,029	-	-	-	-
Other	-	-	-	-	-	-	6,561	4,844	1,164	-38,189
Total tangible fixed assets	83,204	70,065	55,733	71,552	52,856	56,035	76,767	79,336	224,285	209,027
Software, software in progress	1,378,467	911,681	944,035	1,159,427	1,176,660	879,742	711,493	664,525	685,504	807,314
Goodwill	17,964	34,955	27,964	134,174	-	-	-	-	1,294,262	-
Other	10,055	32,607	31,041	32,775	32,415	32,163	30,489	45,326	690,112	64,465
Total intangible assets	1,406,486	979,243	1,003,040	1,326,376	1,209,075	911,906	741,982	709,851	2,669,878	1,294,023
Investment securities	338,856	599,132	203,623	111,991	103,449	58,517	81,681	80,102	40,766	19,869
Deferred tax assets	34,232	-	-	-	-	-	-	83,314	-	-
Other	294,441	207,568	249,496	239,819	148,950	130,476	127,278	122,550	167,391	249,341
Investments and other assets	667,529	806,700	453,119	351,810	252,399	188,993	208,959	285,966	208,157	269,210
Total fixed assets	2,157,220	1,856,010	1,511,893	1,749,740	1,514,332	1,156,935	1,027,710	1,075,155	3,102,320	1,772,260
Deferred assets	-	10,349	7,914	5,478	3,043	608	-	-	-	-
Total assets	5,980,979	4,024,939	3,650,704	3,969,974	3,602,921	3,699,684	4,024,115	4,354,561	5,811,162	5,638,279

Liabilities
Accounts payable	276,578	170,305	168,904	211,822	149,730	68,135	80,707	100,590	95,858	119,644
Short-term debt	503,136	438,576	596,879	558,012	473,141	357,329	274,964	68,080	-	-
Other	338,023	413,537	255,223	471,384	353,011	330,673	320,731	498,301	800,923	1,175,953
Total current liabilities	1,117,737	1,022,418	1,021,006	1,241,218	975,882	756,137	676,402	666,971	896,781	1,295,597
Long-term debt	324,940	474,391	267,512	276,203	87,011	36,372	18,080	-	-	-
Other	102,324	179,074	75,973	89,750	100,222	108,956	162,162	210,792	385,583	322,005
Total fixed liabilities	427,264	653,465	343,485	365,953	187,233	145,328	180,242	210,792	385,583	322,005
Total liabilities	1,545,002	1,675,884	1,364,491	1,607,172	1,163,115	901,466	856,644	877,763	1,282,364	1,617,602
Net assets
Capital stock	2,113,508	1,000,000	1,000,320	1,003,158	1,024,122	1,056,688	1,063,930	1,065,325	1,493,012	1,495,191
Capital surplus	1,612,626	1,867,600	479,447	482,285	503,249	535,815	543,057	544,452	972,139	974,318
Retained earnings	648,594	-658,100	773,184	832,467	867,258	1,190,994	1,545,457	1,852,434	2,059,924	1,535,615
Treasury stock	-	-71	-609	-958	-1,786	-2,946	-3,085	-3,198	-3,268	-3,738
Other	61,248	139,627	33,871	35,440	35,500	17,667	18,112	17,784	6,990	19,290
Total net assets	4,435,976	2,349,056	2,286,213	2,362,802	2,439,806	2,798,218	3,167,471	3,476,797	4,528,797	4,020,676
Working capital	1,253,527	583,551	531,927	805,859	449,179	216,046	265,625	175,344	368,546	355,189
Total interest-bearing debt	828,076	912,967	864,391	834,215	560,152	393,701	293,044	68,080	-	-
Net debt	-1,363,412	-381,773	-459,142	-252,531	-763,488	-1,758,533	-2,197,968	-2,632,115	-1,905,356	-2,923,860

Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
The company was formed from a merger of Celsys, Inc. and HI Corp. in April 2012, and thus FY12/12 is a nine-month period.
Figures from FY03/12 and before are simple sums of the two pre-merger companies.
FY12/12 is an irregular period of nine months, owing to a change in accounting methods.

Assets

The largest item in assets is cash and deposits, followed by intangible fixed assets like software. Changes in assets during FY12/16 reflect an upturn in operating performance and the sale of Hi Corp. Kansai during FY12/16.

As of end-FY12/20, current assets of JPY3.9bn were up JPY1.2bn YoY and fixed assets of JPY1.8bn were down JPY1.3bn YoY. The drop in fixed assets reflected a JPY1.3bn decrease in goodwill due to the recording of impairment losses, a JPY28mn decline in customer-related assets due to amortization, and a JPY102mn decrease in technology assets.

At end-FY12/20, the company held JPY20mn in investment securities. This centered on software-related companies in Japan and overseas that ArtSpark may have synergy with. As the group is oriented toward research and development, it believes that mergers and acquisitions, as well as partnership strategies, are important. It will consider M&A and tie-ups.

Liabilities

As of end-FY12/20, total liabilities of JPY1.6bn were up JPY335mn versus end-FY12/19, with accrued expenses down JPY30mn and deferred tax liabilities down JPY33mn, versus increases of JPY78mn in amounts in arrears, JPY146mn in advances received, and JPY179mn in income taxes payable.

Total liabilities trended down from FY12/14 to FY12/17 owing to a business turnaround and the sale of HI Corp. Kansai, but they increased modestly YoY in FY12/18, FY12/19, and FY12/20.

Net assets

As of end-FY12/20, net assets of JPY4.0bn were down JPY508mn versus end-FY12/19. The decrease reflected a JPY524mn drop in retained earnings from net loss attributable to parent company shareholders reported in FY12/20. The equity ratio at fiscal year-end slipped to 71.2% versus 77.8% at end-FY12/19.

Cash flow statement

Cash flow statement		FY03/12	FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20
(JPY'000)		Simple sum	Cons. 9mo.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.	Cons. Act.
Cash flows from operating activities (1)		273,344	137,818	358,484	672,554	837,494	1,435,075	1,021,462	1,007,074	988,658	1,820,864
Cash flows from investing activities (2)		-1,052,154	-622,300	-163,135	-508,476	-539,941	-551,610	-577,430	-550,631	-2,425,091	-778,846
	Free cash flow (1+2)	-778,810	-484,482	195,349	164,078	297,553	883,465	444,032	456,443	-1,436,433	1,042,018
Cash flows from financing activities		869,543	-355,593	-48,473	-238,659	-64,272	-58,486	-108,862	-250,865	728,621	-46,282
	Depreciation and amortization (A)	655,477	469,339	519,223	574,714	595,441	651,849	687,552	534,377	681,265	808,665
	Capital expenditures (B)	-980,638	-552,470	-563,377	-815,302	-631,804	-427,410	-550,392	-523,854	-715,155	-777,655
	Change in working capital (C)	216,754	-669,976	-51,624	273,932	-356,680	-233,133	49,579	-90,281	193,202	-13,357
Simple FCF (NI + A + B - C)		-797,710	-764,094	50,281	-454,562	355,108	794,722	462,372	434,948	14,377	-431,040

Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
The company was formed from a merger of Celsys, Inc. and HI Corp. in April 2012, and thus FY12/12 is a nine-month period.
Figures from FY03/12 and before are simple sums of the two pre-merger results.
FY12/12 is an irregular period of nine months, owing to a change in accounting methods.

In FY12/16, cash flows were affected by an upturn in operating performance and reflected the concentration and allocation of financial resources, including the selling of shares in HI Corp. Kansai.

Cash flow conditions were favorable in FY12/18 as well, due to solid operating cash inflows. As a result, cash and equivalents rose by JPY206mn YoY to JPY2.6bn at end-FY12/18.

In FY12/19, the company reported JPY989mn in cash flow from operating activities but saw an outflow of JPY2.4bn under investing activities, with major outlays including the acquisition of shares in a subsidiary accompanying changes in the scope of consolidated and capital spending. On the financing front, there was an inflow of JPY729mn from the issuance of new shares. As a result, the balance of cash and equivalents finished the year at JPY1.9bn, down JPY732mn versus end-FY12/18.

In FY12/20, the company reported JPY1.8bn in cash flow from operating activities. As a result, cash and equivalents rose by JPY1.0bn YoY to JPY2.9bn at end-FY12/20.

Cash flows from operating activities

Since being established in April 2012, the company has restructured, and cash flows from operating activities are trending upward, with annual inflows of about JPY1.0bn since FY12/16.

In FY12/18, cash inflow from operating activities was JPY1.0bn, down JPY14mn YoY. The decrease was mainly due to an increase in inventories (work in process) (there was a JPY1mn increase in inventories in FY12/17, and an increase of JPY138mn in FY12/18).

In FY12/19, cash flow from operating activities came to JPY989mn, down JPY9mn versus FY12/18. This figure reflects inflows of JPY232mn from pre-tax net profit, JPY681mn from depreciation, and JPY228mn from goodwill amortization, with this partially offset by a JPY5mn increase in trade notes receivable, JPY26mn gain on the sale of investment securities, and the payment of JPY156mn in corporate taxes.

In FY12/20, cash flow from operating activities came to JPY1.8bn. This figure reflects inflows of JPY809mn from depreciation, JPY228mn from goodwill amortization, JPY1.1bn from impairment loss, partially offset by JPY318mn from pre-tax net loss and JPY10mn from increase in trade notes receivable.

Cash flows from investing activities

For the company, whose main operation is development of software, cash flows from investing activities change mainly on acquisition of intangible assets.

In FY12/18, ArtSpark spent a net JPY551mn on investing activities. Principal outflows included JPY477mn in acquisitions of software and other intangible assets, and JPY47mn for the purchase of tangible fixed assets.

FY12/19 saw a net outflow of JPY2.4bn under investing activities, with major outlays including the acquisition of shares in a subsidiary accompanying changes in the scope of consolidated and capital spending.

In FY12/20, ArtSpark saw a net outflow of JPY779bn under investing activities. Principal outflows included JPY729mn in acquisitions of software and other intangible assets, and JPY48mn for the purchase of tangible fixed assets.

Cash flows from financing activities

There was an outflow of JPY251mn in cash flows from financing activities in FY12/18. The company paid down short-term debt worth JPY140mn, long-term debt worth JPY85mn, and paid out JPY27mn in dividends.

FY12/19 saw a net inflow of JPY729mn under financing activities, reflecting inflows of JPY1.5bn from short-term loans and JPY855mn in new equity capital from the issuance of shares, with this partially offset by outflows of JPY1.6bn to repay short-term loans and JPY43mn to repay long-term loans.

In FY12/20, ArtSpark saw a net outflow of JPY46mn under financing activities. The company paid out JPY49mn in dividends, which was partially offset by JPY4mn in new equity capital from the issuance of shares.

Other information

History

ArtSpark Holdings Inc. is a holding company, established in April 2012 as a result of the integration of Celsys, Inc. and HI Corporation. The companies are now wholly owned subsidiaries of ArtSpark. Celsys and HI were mainly operating in services for feature phones. ArtSpark was established to harness the popularity of smartphones, and build a competitive company by combining Celsys’ application technologies in 2D graphics and HI’s middleware technologies and design capabilities in 3D graphics.

Celsys was founded in May 1991. The company grew quickly by selling software enabling users to create animations and comics on personal computers. The company’s software is used by more than 90% of TV animation studios in Japan. It also has a high market share in distributing electronic comics to mobile phones. HI was established in April 1989. The company initially engaged in custom development of computer systems for corporate clients, but the success of MascotCapsule, a 3D rendering engine for mobile devices launched in 2001, helped fuel its performance in the following years. HI has delivered MascotCapsule to major telecom carriers and device manufacturers in the world. Its share is over 90% in the market of 3D rendering engines for feature phones in Japan.

History of ArtSpark and the two subsidiaries:

History of ArtSpark Holdings

Apr. 2012	Established as a joint holding company when Celsys, Inc. and HI Corp. were integrated. Listed on the TSE second section.
Feb. 2014	With the intent of expanding the UI/UX segment, subsidiary HI Corp acquires 91.7% of outstanding shares in HI Corporation Kansai, making HI Corporation Kansai a second-tier subsidiary.
Apr. 2014	With the intent of expanding the UI/UX segment, subsidiary HI Corp acquires 60.6% of outstanding shares in U’eyes Design, Inc., making U’eyes Design, Inc. a second-tier subsidiary.
Jun. 2015	Sells all shares in U’eyes Design, Inc. as part of restructuring.
Jul. 2016	Transfers all shares in HI Corp. Kansai held by consolidated subsidiary HI Corp.
Jan. 2019	Acquires shares of Socionext Embedded Software Austria GmbH (currently Candera GmbH) and made Candera a subsidiary.
Jun. 2019	Established Candera Japan Inc.
Dec. 2019	Established Candera America Inc.
Mar. 2021	Transferred all shares in HI Corp.

History of Celsys, Inc.

May 1991	Establishment of Celsys. Starts custom production of media content.
Sep. 1993	Release of Retas!Pro Ver1, software for production of animations.
Aug. 2001	Release of ComicStudio Ver1.0, software to produce manga.
Nov. 2001	Starts mobile solutions for au (KDDI Corp, TSE1: 9433).
Nov. 2003	Release of Claytown, clay animation software for consumers.
Jan. 2004	Starts providing mobile solutions for NTT Docomo Inc. (TSE1: 9437).
Dec. 2004	Starts mobile solutions for Vodafone (now SoftBank Mobile Corp).
Feb. 2006	Overseas release of MangaStudio, the English-language version of ComicStudio.
Feb. 2006
Oct. 2006	Upgrade of manga viewer ComicSurfing to the total e-book viewer BookSurfing (BS Reader).
Dec. 2006	Listing of company's stocks on the Nagoya Stock Exchange's Centrex market (delisted in January 2011).
Dec. 2008	Release of Retas Studio all-in-one animation production package.
Apr. 2009	Release of the color painting and illustration tool ILLUST STUDIO download edition.
Nov. 2010	Listing on the Second Section of the Tokyo Stock Exchange.
Nov. 2010	Celsys and Prime Works Co Ltd start providing the total e-book viewer BS Reader for Android for SoftBank Mobile’s smartphones as preinstalled software.
Mar. 2011	Starts exclusive sale in Japan of Panelfly, North America’s largest e-book solution. Comprehensive tie-up, development and sale of e-book solutions for iPhone and iPad.
Apr. 2011	E-book solutions of Celsys and Voyager Japan Inc. are adopted by LISMO Book Store, a KDDI e-book store.

History of Candera GmbH

Jul. 2000	Socionext Europe GmbH establishes Socionext Embedded Software Austria GmbH as a wholly owned subsidiary in Austria.
Jan. 2019	Socionext Europe GmbH transfers all shares of Socionext Embedded Software Austria GmbH to ArtSpark.
Feb. 2019	Company name changes from Socionext Embedded Software Austria GmbH to Candera GmbH.

History of Candera Japan Inc.

Jun. 2019

ArtSpark establishes Candera Japan as a wholly owned subsidiary to conduct sales, development, and support for Candera GmbH in Japan and other parts of Asia.

History of HI

Apr. 1989	HI Co Ltd established for custom development of systems for corporate clients and providing programming seminars for advanced learners.
Oct. 1992	HI is officially incorporated.
Dec. 1996	Starts development and sale of packaged software.
Mar. 2001	MascotCapsule V1, the world’s first real-time 3D rendering engine for mobile phones, is introduced.
Mar. 2001	Begins integrating MascotCapsule with mobile phones for J-Phone Group (now SoftBank Mobile).
Apr. 2001	Shifts the core target of development from PC software to mobile content.
May 2002	NTT Docomo adopts MascotCapsule for its mobile phones.
Mar. 2003	KDDI begins integrating MascotCapsule with its mobile phones.
Apr. 2003	Enters an alliance with Macromedia Inc. (now Adobe Systems Inc.) of the US and Bandai Networks Co Ltd of Japan on integrating Adobe Flash Lite with NTT Docomo’s mobile phones.
May 2003	Signs a license agreement on MascotCapsule with Motorola Inc. (USA).
Jan. 2004	Signs a license agreement on MascotCapsule with Sweden’s Sony Ericsson Mobile Communications AB.
Sep. 2004	Victor Co of Japan (now JVC Kenwood Corp, TSE1: 6632) adopts MascotCapsule for its hard disk camcorder, the first-ever mounting on a home electronics device.
Sep. 2004	Signs a license agreement on MascotCapsule with Qualcomm Incorporated (USA).
Jun. 2005	Signs a license agreement on MascotCapsule with Samsung Electronics Co Ltd (South Korea).
Aug. 2005	Signs license agreement for MascotCapsule with LG Electronics Inc. (South Korea).
Oct. 2005	Starts integrating MascotCapsule with Willcom Inc.’s mobile phones.
Apr. 2006	Signs a license agreement for MascotCapsule with Sagem Communication (France).
Apr. 2007	HI stock listed on the JASDAQ Securities Exchange.
Jun. 2008	Signs a license agreement with Sun Microsystems Inc. (USA).
Oct. 2009	Signs a license agreement with Pantech Co Ltd (South Korea).
Nov. 2020	Transferred all shares of HI Corporation held by the company to subsidiary Candera Japan Inc.
Mar. 2021	Transferred all shares of HI Corporation to micware Co., Ltd.

Shareholder return

The company recognizes that returning profits to shareholders is important and, going forward, will seek to improve return to shareholders in the form of dividends by setting its dividend payout based on the level of earnings, while at the same time balancing the need for internal reserves to assure the company has the financial wherewithal to cope with changes in the operating environment. As part of this policy, the company intends to make a single dividend payment at the end of each fiscal year. The internal reserves the company is looking to fortify will be used as a source of internal capital to fund systems development work, the hiring of additional personnel, and other investment spending needed to sustain growth in the future.

Major shareholders

Top shareholders	Shares held	Shareholding ratio
Top shareholders	(shares)
Masahiro Sumiyama	400,000	4.89%
The Master Trust Bank of Japan, Ltd. (Trust account)	292,400	3.57%
SBI Securities Co., Ltd.	278,925	3.41%
Nomura Securities Co., Ltd.	273,600	3.34%
INTERACTIV BROKERS LLC (Standing proxy: Interactive Brokers Group, Inc.)	245,200	2.99%
Tokuro Nakamura	180,000	2.20%
MSIP CLIENT SECURITIES (Standing proxy: Morgan Stanley MUFG Securities Co., Ltd.)	154,200	1.88%
Rakuten Securities, Inc.	142,600	1.74%
Japan Securities Finance Co., Ltd.	114,100	1.39%
Satoshi Hanaki	111,100	1.35%
SUM	2,192,125	26.80%

Source: Shared Research based on company data (as of June 30, 2021)

Top management

ArtSpark President Shinya Nozaki (born 1965) graduated from Nihon Kogakuin College in 1987 and joined Suda International Gear Works, Ltd. After moving to Cadix, Co., Ltd., he established Celsys, Inc. in 1991, serving as its representative director and president. He was appointed as Representative Director and President in March 2016 after the former Representative Director, Chairman, and President Yosuke Kawakami, who was also one of the founders of Celsys, Inc., resigned from his post.

Employees

As of end-December 2019, ArtSpark Holdings had 176 employees on a consolidated group basis, of which 15 are holding company employees.

Other

The company’s name is ArtSpark Holdings. The Art component encompasses a variety of meanings, such as technology, design, and creative works. The Spark component reflects the idea of companies involved in these fields forming a group, and sparking with light as they fire each other up.

News and topics

Revisions to FY12/21 forecast

2021-07-28

ArtSpark Holdings Inc. announced revisions to its forecast for FY12/21.

Revised company forecast for FY12/21

Sales: JPY7.1bn (previously JPY6.7bn)
Operating profit: JPY1.4bn (JPY922mn)
Recurring profit: JPY1.3bn (JPY877mn)
Net income*: JPY1.3bnn (net income of JPY965mn)
*Net income attributable to owners of the parent

Reasons for the revision

Sales are expected to exceed the initial forecast due to strong sales from the worldwide online promotion of the illustration, manga, and animation production app, CLIP STUDIO PAINT, conducted by subsidiary, Celsys.

Operating profit and recurring profit have been boosted by strong demand and high margin sales, including the subscription revenue for CLIP STUDIO PAINT. Net income has been revised upward to reflect the recording of a JPY205mn extraordinary gain from the sale of HI Corp (a wholly owned subsidiary of Candera Japan) in Q1 and tax adjustments.

The company stated that it would provide updates on further revisions to its earnings forecast as necessary in light of continued uncertainty over consumer spending and economic trends in Japan and overseas.

A new system of special benefits for shareholders

2021-06-21

ArtSpark Holdings Inc. announced the establishment of a new system of special benefits for shareholders.

At its board of directors meeting held on June 21, 2021, ArtSpark resolved to establish a new system of special benefits for shareholders.

Purpose of the new system

To show the company’s gratitude to shareholders for their continued support, to further shareholders’ understanding of the company’s business through the shareholder benefit system, and to encourage more shareholders to retain their shareholding in the company over the medium to long-term.

First round of shareholder benefits

Shareholders eligible for the first round of shareholder benefits are those listed or recorded as having a shareholding of 100 (one unit) or more shares in the shareholder register as at July 31, 2021. With a record date of June 30, 2021, the company plans to conduct a four-for-one split of common shares held by shareholders listed or recorded in the final shareholder register as of the same day (as outlined in the “Notice regarding the planned stock split, and the partial amendment of the articles of incorporation and revision of the dividend forecast in accordance with the planned stock split” released on May 24, 2021).

Details of the start date, presentation date, and method of presenting the benefits are scheduled to be sent to the above shareholders around mid-September 2021.

Details of benefits

The company’s shareholders will be granted continuous use of CLIP STUDIO PAINT EX, as described below.

Shareholders will be given a card containing an activation code enabling them to use CLIP STUDIO PAINT EX 1 Device offering all the features of CLIP STUDIO PAINT EX–an illustration, manga, and animation production application by the company’s subsidiary, Celsys, Inc.—on one device, whether this be Windows, macOS, iPad, iPhone, Galaxy, Android, or Chromebook, until the next round of shareholder benefits. Details of CLIP STUDIO PAINT can be found at the following link (https://www.clipstudio.net/).

Subsequent rounds of shareholder benefits

Shareholders eligible for subsequent rounds of shareholder benefits will be those listed or recorded as having a shareholding of 100 (one unit) or more shares in the shareholder register on December 31 (from 2021) and June 30 (from 2022) each year.

Eligible shareholders will be given a card containing an activation code enabling them to use CLIP STUDIO PAINT EX 1 Device Six Month Subscription offering all the features of CLIP STUDIO PAINT EX–an illustration, manga, and animation production application by the company’s subsidiary, Celsys, Inc.—on one device, whether this be Windows, macOS, iPad, iPhone, Galaxy, Android, or Chromebook.

For shareholders listed or recorded in the shareholder register as at December 31, details of the start date, presentation date, and method are scheduled to be sent together with the “Notice of Results of the General Meeting of Shareholders” around the end of March the following year. For shareholders listed or recorded in the shareholder register as at June 30, details are scheduled to be sent together with the annual report around the end of September.

Stock split; revision to dividend forecast

2021-05-24

On May 24, 2021, ArtSpark Holdings Inc. announced a stock split and a revision to its dividend forecast in line with the stock split.

Each of the shares of ArtSpark’s common stock held by shareholders included or recorded in the final register of shareholders as of the record date of June 30, 2021 will be split into four shares. Effective date: July 1, 2021.

In line with the stock split, the company has revised its annual dividend per share forecast from JPY12 to JPY3. There is no actual change to the dividend forecast.

Revisions to 1H FY12/21 forecast

2021-04-30

On April 30, 2021, ArtSpark Holdings Inc. announced revisions to its cumulative Q2 (1H) forecasts for FY12/21.

Revised company forecast for cumulative Q2 (1H) FY12/21

Sales: JPY3.4bn (previously JPY3.3bn)
Operating profit: JPY638mn (JPY391mn)
Recurring profit: JPY628mn (JPY370mn)
Net loss*: JPY803mn (net loss of JPY548mn)

Reason for revision

In 1H FY12/21, the company expects to beat its initial expectations both for sales and each level of profit. It attributes the sales overshoot to global online sales promotions undertaken by its subsidiary Celsys at end-December 2020, for the illustration, anime, and manga production software Clip Studio Paint. With sales tracking above projected levels, the company expects each level of profit to exceed initial forecasts also.

The company left its full-year FY12/21 forecast unchanged, citing continued uncertainty over personal spending and economic activity, both domestically and overseas. If it believes that revisions to the full-year forecast are necessary, the company plans to release new forecasts without delay.

Transfer of shares in a consolidated second-tier subsidiary; recording of extraordinary gains

2021-02-12

On February 12, 2021, ArtSpark Holdings Inc announced the transfer of shares in a consolidated second-tier subsidiary (a specified second-tier subsidiary) and the recording of extraordinary gains.

At a board meeting held on February 12, 2021, the company’s board of directors resolved to conclude a share transfer agreement regarding the transfer of all shares of its consolidated second-tier subsidiary (specified second-tier subsidiary) HI Corp. This share transfer will result in an extraordinary gain of JPY342mn (see below). The date of conclusion of the share transfer agreement is February 12, 2021, the effective date of the share transfer is March 1, 2021 (planned), and the transfer price is JPY450mn.

The company intends to focus on winning orders for its proprietary IP in its Creator Support and UI/UX businesses, and make a strong push to build a proprietary IP-centered business for the Group’s future growth. In contrast, HI Corporation’s business mainly focuses on custom development, which is not in line with the Group strategy, leading to the company’s decision to transfer its shares to micware Co., Ltd.

To ensure a fair and appropriate transfer price for the transaction, the company had HI Corp’s share price appraised by a third party. Since HI Corp is not publicly listed, the equity value was calculated using the net asset value method and the earnings capitalization method, and the appraisal ranged from JPY380mn to JPY540mn. Based on this appraisal, the company and micware took into account future profitability estimates and current asset conditions, and decided on the transfer price upon thorough deliberation.

The extraordinary gain of JPY342mn will be recorded in FY12/21 and has been factored into the company’s full-year earnings forecast disclosed on February 12, 2021.

The company expects the impact of the share transfer on its medium-term management plan (announced on November 6, 2020) for FY12/22 and beyond to be minimal.

HI Corp: earnings results and financial position (JPYmn)

	FY12/18	FY12/19	FY12/20
Net assets	1,401	1,383	151
Total assets	1,662	1,938	682
Sales	885	855	670
Recurring profit	-76	-120	31
Net income	0	-17	-1,232

Upward revisions to full-year earnings and dividend forecasts for FY12/20

2021-02-08

On February 8, 2021, ArtSpark Holdings Inc. announced revisions to its full-year earnings and dividend forecasts for FY12/20 (upward revisions).

Revised company forecast for FY12/20

Sales: JPY6.4bn (previously JPY6.3bn)Operating profit: JPY773mn (JPY561mn)
Recurring profit: JPY747mn (JPY535mn)
Net loss*: JPY475mn (net loss of JPY761mn)
Year-end dividend: JPY10.0 per share (JPY7.0; JPY6.0 in FY12/19)
*Net loss attributable to owners of the parent

Reason for revision

ArtSpark expects sales to exceed the previous forecast due to steady overseas sales growth in the Creator Support business.

The company projects operating profit and recurring profit (including amortization of goodwill of Candera GmbH of approximately JPY367mn) to exceed the previous forecast, reflecting the increase in sales of the Creator Support business and greater-than-expected reductions to the cost of sales in the UI/UX business compared to the initial plan. The net loss attributable to owners of the parent reflects goodwill impairment of JPY1.1bn (recorded in Q3 FY12/20) and tax adjustments.

The year-end dividend forecast has been revised upward by JPY3.0 from the previous forecast of JPY7.0 to JPY10.0 per share (+JPY4.0 YoY). The company anticipates sales and operating profit in the Creator Support business to exceed the targets for FY12/23, the final year of the previous medium-term management plan, three years ahead of schedule. Further, the company expects to record a net loss due to a goodwill impairment charge in the wake of the COVID-19 pandemic, but this is a one-time extraordinary loss. The dividend forecast has been revised upward based on above factors and the revision to the consolidated earnings forecast.

You can continue reading the full coverage report by signing up for a free account

Already have an account? Sign in