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ArtSpark Holdings 3663
アートスパークホールディングス
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Recent Updates
2022-05-20
2022-05-09
2022-04-18
Get in touch
Nishi-Shinjuku, Shinjuku-ku, Tokyo, Japan 4-15-7
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
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 Corporation (a wholly owned subsidiary of Candera Japan), which was mainly engaged in custom development in the UI/UX business, to micware Co., Ltd. In FY12/21, the Creator Support business brought in 84.4% of overall sales, and the UI/UX business the remaining 15.6% (operating profit: 138.9% and -38.9% respectively). The company 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 FY12/21, ArtSpark reported full-year consolidated sales of JPY6.9bn (+8.1% YoY), operating profit of JPY1.4bn (+78.3% YoY), recurring profit of JPY1.4bn (+89.8% YoY), and net income attributable to owners of the parent of JPY1.2bn (versus net loss of JPY475mn in FY12/20).
Sales were up in the Creator Support business as subsidiary Celsys, Inc. continued its global promotion of CLIP STUDIO PAINT, software for producing illustrations, manga, and animation. Sales were down in the UI/UX business, hurt by the sale of a subsidiary (HI Corporation), delays in model changeovers in the auto industry arising from delays in new car development, and declines in auto production stemming from shortages of semiconductors and other key components. Operating profit rose substantially amid favorable sales in the Creator Support business, with the booking of highly profitable sales, including the subscription-based billing model adopted for CLIP STUDIO PAINT. The COVID-19 pandemic has caused significant changes in the business environment for the UI/UX business, and investment in R&D of next-generation HMI solutions for future market expansion took precedence.
The FY12/22 forecast calls for sales of JPY7.7bn (+12.1% YoY), operating profit of JPY1.9bn (+40.9% YoY), recurring profit of JPY1.9bn (+33.4% YoY), and net income attributable to owners of the parent of JPY1.4bn (+10.6% YoY). The year-end dividend forecast is JPY8 (JPY3 in FY12/21).
In FY12/22 as well, the company will continue to focus on the development of in-house software IP and conduct sales promotion activities in both the Creator Support and UI/UX businesses. In the Creator Support business, the company plans for sales of JPY6.4bn (+9.6% YoY) and operating profit of JPY2.1bn (+21.7% YoY). With a view toward global rollout, the company will make R&D investments in CLIP STUDIO, implement initiatives to increase the number of subscription contracts, and improve service continuity and profitability. In the UI/UX business, the company forecasts sales of JPY1.4bn (+27.0% YoY) and an operating loss of JPY220mn (JPY498mn operating loss in FY12/21). The company expects that the harsh conditions in the automotive industry will continue, but anticipates increased demand for HMI solutions in keeping with a market recovery from the latter half of 2022. It will continue aggressive marketing activities as well as development investments while controlling the balance of income and expenditures.
For FY12/25, the final year of the medium-term business plan which began in FY12/21, ArtSpark Holdings targets sales of JPY13.4bn, operating profit of JPY4.5bn, and OPM of 33.9%. In Creator Support, in addition to providing stable e-book solutions, the company aims to further advance the global expansion of the business by strengthening services for and development of the CLIP STUDIO PAINT series of products. It will also enhance the new subscription-based and other billing models to increase service continuity and profitability, while maintaining its market position. Further, the company will invest in new business development and aim to grow at a CAGR of 10–20%. In UI/UX, against a backdrop of substantial changes in the business environment brought about by the COVID-19 pandemic, the company plans to make investments in proprietary IP product development and marketing activities aimed at expanding its market share in the future.
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
Note: Figures may differ from company materials due to differences in rounding methods.
Note: The company conducted a 1:4 stock split of its common stock on July 1, 2021.
Recent updates
Capital and business alliance and issuance of new shares through third-party allotment
On April 11, 2022, ArtSpark Holdings Inc. resolved to enter into a capital and business alliance with Wacom Co., Ltd. and to issue new shares to Wacom through a third-party allotment in connection with the capital and business alliance. The company signed the alliance agreement on the same day.
Purpose and reasons for capital and business alliance
Wacom (TSE Prime: 6727), the allottee, is a "technology leadership company" that applies digital pen technology to the provision of digital drawing and writing experiences tailored to various needs. Wacom's pen tablet products are widely used in more than 150 countries and regions worldwide.
ArtSpark has worked with Wacom since August 2001, when the company's subsidiary Celsys launched its manga production software Comic Studio (current CLIP STUDIO PAINT, software for producing illustrations, manga, and animation), by for example installing the software in Wacom's pen tablet products.
The ArtSpark group and Wacom have been in discussions since January 2022 to further strengthen their relationship. The two companies have decided that they can expect to strengthen their business foundation and enhance their enterprise value by utilizing Wacom's digital pen technology and global sales capability and ArtSpark's CLIP STUDIO PAINT functions and related services as well as its creator-oriented events planning capability. The company has decided to enter into the capital and business alliance and establish a medium- to long-term cooperative structure with Wacom to further accelerate initiatives set forth in its medium-term management plan.
The company believes that the two companies will generate synergies through a medium- to long-term cooperative structure. They plan to build systems and environment that attract creators and develop user-oriented products from both hardware and software perspectives. The company has decided to raise capital required for software development through the third-party allotment of new shares.
The company believes that the alliance will enhance its enterprise value over the medium- to long-term, but expects a negligible impact on its business performance for FY12/22. Going forward, the company will promptly announce any matters requiring disclosure.
Details of the capital alliance
ArtSpark will allot 1,813,500 shares of its common stock to Wacom (5.30% of the 34,220,952 shares outstanding as of end-December 2021 [excluding 235,128 shares of treasury stock]).
In addition to the shares to be acquired through the third-party allotment, the allottee Wacom plans to further acquire common shares of ArtSpark through market purchase on the Tokyo Stock Exchange, to the extent that its shareholding ratio of outstanding shares (excluding treasury stock) does not exceed 10%.
Details of the business alliance
Third-party allotment of new shares
Overview
Application of funds
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Subsegment sales are calculated as the total of the rolling three-month average for each of the three months in that quarter. The rolling three-month average is used because the amount fluctuates due to the fact that the number of business days per month depends on the settlement method (usually 28 business days, but there are special cases of 35 business days), and because adjustments are made at the end of each quarter, when results are calculated. The figures may display differences from consolidated results, or other indicators, as a product of the inclusion of group-internal sales and the practice of rounding down to the nearest JPY1mn.
Note: Cumulative subsegment sales are calculated as the sum of quarterly sales. For more detail on quarterly sales figures, please refer to the note to the table above, "Segment trends (quarterly)."
Q1 FY12/22 results (out May 6, 2022)
Summary
Q1 FY12/22 results
Q1 FY12/22 (January–March 2022) results: ArtSpark reported sales of JPY1.8bn (+2.7% YoY), operating profit of JPY457mn (+8.4% YoY), recurring profit of JPY463mn (+9.8% YoY), and net income attributable to owners of the parent of JPY287mn (-47.3% YoY).
The company focused on management centered on software IP. It continued to strategically invest in development, and concentrated on improving corporate value; ArtSpark also combined and reduced office space (see section below). The company worked to facilitate communication and improve operational efficiency as it heads toward restructuring and a change of trade name (with the objective of structural improvements to allow more flexible management), scheduled for summer 2022.
The company has not disclosed specific figures on the impact of exchange rates, but the weak yen will be a tailwind for the company. However, even taking the example of a 10% YoY depreciation to the yen, some subscription sales where payment was received as a lump sum will be recorded pro rata over the 12-month period, and a lump sum payment received prior to the continuing currency depreciation will not be affected by the favorable forex impact. That is to say, such sales will not contribute to company results to the extent the weak yen would indicate.
Progress
Q1 sales were in line with the company target (for both the Creator Support and UI/UX businesses), and Q1 profits were slightly higher than targets (above target for the Creator Support business, and level with target for the UI/UX business).
Q1 progress versus the company’s 1H FY12/22 targets was 50.5% for sales (50.7% of 1H FY12/21 result in Q1 FY12/21), 61.8% for operating profit (53.9%), 64.7% for recurring profit (52.4%), and 88.8% for net income attributable to owners of the parent (63.0%). Q1 progress versus the full-year company forecast was 23.7% for sales (25.8% of the full-year result in Q1 FY12/21), 23.5% for operating profit (30.6%), 24.5% for recurring profit (29.7%), and 21.2% for net income attributable to owners of the parent (44.5%).
The company did not amend its FY12/22 forecast.
Sales
Q1 FY12/22 sales were JPY1.8bn (+2.7% YoY, +7.6% QoQ).
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.
Recovery from quarterly sales decline
Q1 FY12/22 sales of JPY1.8bn represent 7.6% growth QoQ (versus Q4 FY12/21). The QoQ growth rate for sales in Q1 FY12/22 exceeded the 4.1% figure from Q1FY12/21 (versus Q4 FY12/20). The company's analysis is that sales promotion measures including higher than normal advertising expenses in Q4 FY12/21 and high spending on advertising expenses in Q1 FY12/22* contributed to increased sales in Q1 FY12/22.
Quarterly sales had been on a downward trajectory up to Q3 FY12/21. More specifically, Q1 sales were JPY1.779bn (+23.3% YoY, +4.1% QoQ), Q2 sales were JPY1.727bn (+10.4% YoY, -2.9% QoQ), Q3 sales were JPY1.687bn (+1.8% YoY, -2.3% QoQ), and Q4 sales were JPY1.698 (-0.7% YoY, +0.6% QoQ). The company concentrated on investment in advertising expenses to break this trend, which yielded results in increased sales. That is to say, the company created a virtuous cycle of accumulating steady profit while investing actively in advertising.
Operating profit
Q1 FY12/22 operating profit was JPY457mn (+8.4% YoY).
Alongside favorable sales in the Creator Support business, operating profit rose 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.
Gross profit margin improved by 4.1pp YoY to 57.6%. The SG&A ratio was up 2.7pp YoY to 32.6% due to higher advertising expenses. As a result, OPM rose 1.3pp YoY to 25.0%.
Recurring profit and net income attributable to owners of the parent
Recurring profit was JPY463mn (+9.8% YoY). Factors affecting recurring profit included the recording of JPY7mn in forex gain. Net income attributable to owners of the parent was JPY287mn (-47.3% YoY). In Q1, the company recorded JPY60mn of extraordinary losses associated with office relocation (JPY11mn loss on retirement of fixed assets and JPY49mn from cancellation of rental contracts), and income taxes were JPY116mn.
Office relocation
The company combined (the management department, which had been located in a neighboring building, was relocated into the main building) and reduced office space. This was motivated by staff reduction (of around 30 employees) associated with the disposal of HI Corporation, progress with remote working during the COVID-19 pandemic, and the introduction of hot-desking in the office. The result is that, although a loss of JPY49mn from cancellation of rental contracts was reported in Q1 FY12/22, this extraordinary loss will be recovered within one and a half years through the reduction in rent.
Results by segment
Creator Support
The Creator Support business recorded sales of JPY1.6bn (+5.4% YoY) and operating profit of JPY566mn (+9.3% YoY). Sales by subsegment were as set out below (the company began disclosing subsegment results from Q1 FY12/22). CLIP STUDIO PAINT subscription revenue rose steadily.
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.
As a result of promotions particularly targeting overseas users, cumulative shipments of CLIP STUDIO PAINT were approaching 18.9mn units as of March 2022 (+56.5% YoY), of which 70% were overseas shipments of non-Japanese versions.
There were 553,000 subscription contracts as of March 2022 (+79.0% YoY), and the Annual Recurring Revenue (ARR: the amount that the company expects to earn annually from subscriptions) was JPY2.0bn (+58.3% YoY).
While offering licenses under a subscription model at a low price can lower the threshold for users to start using the software and accelerate 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.
Starting in Q1 FY12/22, CLIP STUDIO PAINT was offered as a bundled product with Samsung’s Galaxy Book2 Pro 360 laptop (with stylus) and preinstalled in Samsung’s Galaxy Tab S8 series of Android tablet (with stylus). Preinstalled and bundled versions 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. In all of these collaborations, bundling is offered worldwide, so an increased number of overseas users can be expected as well.
In February 2022, Artspark began offering worldwide the CLIP STUDIO PAINT Volume License for companies and educational institutions adapted for working and studying from home. The company commented that it would continue with initiatives with global business expansion in mind.
In December 2021, the company entered into a capital and business alliance with WEBTOON Entertainment Inc. The company supports WEBTOON Entertainment's global contest WEBTOON's Call to Action, helping to discover and nurture talented creators with CLIP STUDIO PAINT.
UI/UX
Segment sales were JPY270mn (-9.9% YoY) and the operating loss was JPY111mn (versus a loss of JPY124mn in Q1 FY12/21). Q1 FY12/21 results include results of HI Corporation, which was a consolidated subsidiary until February 2021. Sales by subsegment were as set out below (the company began disclosing subsegment results from Q1 FY12/22).
New installations of CGI Studio and UI Conductor totaled 18.89mn vehicles at end-Q1 FY12/22 (+2.76mn QoQ, +9.86mn 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).
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. The subsidiary Candera GmbH, however, has actively undertaken R&D and tie-ups with partners, with an eye on eventual market recovery and expansion in the latter half of 2022 and beyond.
In R&D, the company invested upfront in 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 (both industrial and consumer devices) due to the popularization of LCD devices that the company began providing in FY12/22.
In January 2022, Artspark exhibited at the 14th Automotive World trade fair (one of the world's largest trade fairs for advanced automotive technologies) held at Tokyo Big Sight. The company showcased state-of-the-art technologies in automotive HMI design and embedded software, including a digital meter cluster for alliance partner Renesas Electronics Corporation's (TSE Prime: 6723) electric vehicles and Siemens EDA's high resolution in-car meter cluster. The company worked to deepen relationships with partner companies in anticipation of a market recovery.
Company forecast for FY12/22
Figures may differ from company materials due to differences in rounding methods.
Forecast based on most recently released figures.
FY12/22 earnings forecast (released February 10, 2022)
Overview
The FY12/22 forecast (released February 10, 2022) calls for sales of JPY7.7bn (+12.1% YoY), operating profit of JPY1.9bn (+40.9% YoY), recurring profit of JPY1.9bn (+33.4% YoY), and net income attributable to owners of the parent of JPY1.4bn (+10.6% YoY). The year-end dividend forecast is JPY8.0 (+JPY5.0 YoY).
In FY12/22 as well, the company will continue to focus on the development of in-house software IP and conduct sales promotion activities in both the Creator Support and UI/UX business segments.
Earnings estimates are weighted toward 2H (1H: 3.2% YoY increase in sales, 5.5% YoY decline in operating profit; 2H: 21.4% increase in sales, 101.6% increase in operating profit) because the company assumes that sales and profits will accumulate through 2H due to the shift to a subscription model and that the UI/UX business will recover in 2H, and because it expects to book office relocation expenses in 1H.
Difference between the forecast and medium-term plan
At the time of the release of the medium-term management plan (November 6, 2020), the company had targeted FY12/22 sales of JPY8.1bn (+16.2% YoY) and operating profit of JPY1.9bn (+75.7% YoY). The sales forecast for FY12/22 (released February 10, 2022) is JPY383mn lower than the medium-term target because of the removal of HI Corporation. There is no impact on profit.
By segment
Creator Support business
In the Creator Support business, the company plans for sales of JPY6.4bn (+9.6% YoY) and operating profit of JPY2.1bn (+21.7% YoY). With a view toward global rollout, the company will make R&D investments in CLIP STUDIO, implement initiatives to increase the number of subscription contracts, and improve service continuity and profitability. The company will also strengthen joint initiatives with WEBTOON Entertainment and officially release the metaverse service CLIP STUDIO WALL, which is currently being offered in a beta version. It plans to invest in R&D of digital rights management technology for copyrighted works.
UI/UX business
In the UI/UX business, the company forecasts sales of JPY1.4bn (+27.0% YoY) and an operating loss of JPY220mn (JPY498 operating loss in FY12/21). The company expects that harsh conditions in the automotive industry will continue, but anticipates increased demand for HMI solutions in keeping with a market recovery from the latter half of 2022. It will continue aggressive marketing activities as well as development investments while controlling the balance of income expenditures. The company plans to release the next-generation HMI solutions. It will also focus on expanding the application of HMI solutions to industries and private sectors other than the automotive-related industry.
Restructuring and change of trade name
With the aim of realizing medium-term growth for the group, ArtSpark Holdings plans to carry out restructuring and subsequently change its trade name effective July 1, 2022. Specifically, the company will merge with Celsys, Inc., with the company being the surviving company and Celsys the absorbed company. Following the merger, the trade name of the company will change to Celsys, since Celsys has greater recognition as an operating company. Candera GmbH and Candera Japan, which operate the UI/UX business, will remain wholly owned subsidiaries of the new company (Celsys). These changes will enable the company to build a more flexible management structure and further develop its businesses.
The company had initially planned to carry out the aforementioned restructuring and subsequently change its trade name on April 1, 2022. However, due to the time required for obtaining approval to register as an issuer of prepaid payment instruments for third-party business*, the company delayed its initial plan by three months. The registration Celsys obtained an as issuer of prepaid payment instruments for third-party business cannot be transferred to the new merged company, and the new company must obtain approval again. The company believes there will be no issue in obtaining the approval as it already has a track record of doing so with Celsys. However, as there is no guarantee that it can obtain approval by April 2021 and as it needs to make a public notice 40 days in advance, the company has decided to delay the merger and subsequent trade name change.
Prior to the scheduled date of restructuring, the group has already been operating under the new structure since January 1, 2022. In March 2022, it combined and reduced office space in connection with the structural change. The delay in restructuring and trade name change has had no negative impact on business operations.
Capital and business alliances
The company issued new shares as part of capital and business alliances with WEBTOON Entertainment and Wacom Co., Ltd. (described below), raising JPY1.5bn and JPY1.6bn, respectively. These funds will be allocated to development (predominantly personnel expenses and outsourcing expenses).
Capital and business alliance with WEBTOON Entertainment
In December 2021, the company entered into a business alliance with WEBTOON Entertainment Inc., a leading service provider (one of the largest in the world with 72mn monthly users, according to the company) in the field of webtoons, vertically read color comic strips (see the News & topics section for details). Through the alliance, the two parties aim to collaborate with each other to generate synergies.
Overview of business alliance
Purpose of business alliance
Capital and business and alliance with Wacom Co., Ltd.
In April 2022, the company entered into a business alliance with Wacom Co., Ltd. (TSE Prime: 6727). Wacom is a "technology leadership company" that applies digital pen technology to the provision of digital drawing and writing experiences tailored to various needs. Wacom's pen tablet products are widely used in more than 150 countries and regions worldwide.
The ArtSpark group and Wacom have been in discussions since January 2022 to further strengthen their relationship. The two companies have decided that they can expect to strengthen their business foundation and enhance enterprise value by utilizing Wacom's digital pen technology and global sales capability and ArtSpark's CLIP STUDIO PAINT functions and related services, as well as its creator-oriented events planning capability. The company has decided to enter into the capital and business alliance and establish a medium- to long-term cooperative structure with Wacom to further accelerate initiatives set forth in its medium-term management plan (see the Recent updates section for details).
Details of capital alliance
Details of business alliance
Outlook
Medium-term business plan (FY12/21–FY12/25; released November 6, 2020)
On November 6, 2020, the company announced a five-year medium-term business plan set to start in FY12/21. The background is as follows.
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).
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%.
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.
(OPM)
(4.9%)
(6.2%)
(15.0 %)
(21.2%)
(25.8%)
(Profit margin)
(10.2%)
(13.3%)
(21.3%)
(26.9%)
(30.7%)
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
Generating earnings from existing pipeline
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.
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*1 as 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.
Business
Business description
Dual-company business model sets ArtSpark apart
Merger of Celsys and HI Corporation
ArtSpark was a joint holding company formed by the merger of Celsys, Inc. and HI Corporation in April 2012, but HI Corporation (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.
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 Corporation’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 FY12/21, Creator Support accounted for 84.4% of sales and UI/UX for 15.6%. Their respective shares of operating profit were 138.9% and -38.9%.
Figures may differ from company materials due to differences in rounding methods.
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: 84.4% of sales (75.2% in FY12/20)
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
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 4mn creators are registered with the creative support site CLIP STUDIO (as of end-December 2021). 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 16mn units (as of end-FY12/21).
B2B business
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.
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: 15.6% of sales (24.8% in FY12/20)
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.
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).
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.
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 Corporation to Candera Japan with the aim of consolidating its domestic UI/UX business.
In March 2021, ArtSpark transferred all shares of HI Corporation, a subsidiary of Candera Japan Inc. to micware Co., Ltd.
Production and sales
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
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
Figures may differ from company materials due to differences in rounding methods.
The company was formed from a merger of Celsys, Inc. and HI Corporation 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 Corporation 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
Full-year FY12/21 results (out February 10, 2022)
Summary
FY12/21 results
Full-year FY12/21 results: ArtSpark reported sales of JPY6.9bn (+8.1% YoY), operating profit of JPY1.4bn (+78.3% YoY), recurring profit of JPY1.4bn (+89.8% YoY), and net income attributable to owners of the parent of JPY1.2bn (versus a loss of JPY475mn in FY12/20). The group has developed business based on its management philosophy of providing an environment that can comprehensively support all activities from digital content creation to usage and application. In FY12/21 as well, the company continued to prioritize management centered on software IP and focused on increasing management efficiency through strategic allocation of development resources.
Attainment rates
Versus the company’s full-year FY12/21 forecast (revised upward on July 28, 2021), sales were 97.4%, operating profit was 100.1%, recurring profit was 105.5%, and net income attributable to owners of the parent was 92.1%. FY12/21 was a difficult year for the UI/UX business due to the COVID-19 pandemic and semiconductor shortages, but the shortfall here was offset by favorable performance in the Creator Support business. Versus the FY12/21 targets (sales of JPY7.0bn and operating profit of JPY1.1bn) set out in the medium-term management plan (released November 6, 2020), sales fell slightly short of the target due to greater-than-expected progress made in the shift to a subscription-based billing model while operating profit exceeded the target by 28.9%, with OPM 4.7pp above plan at JPY20.0%.
Sales
Sales in FY12/21 were JPY6.9bn (+8.1% YoY).
Sales rose in the Creator Support business as subsidiary Celsys, Inc. continued its global promotion 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.
In the Creator Support business, the transition to a subscription model made steady progress, and the share of monthly sales accounted for by subscription fees was 38.6% in December 2021 (versus 28.5% in December 2020).
Operating profit
Operating profit in FY12/21 was JPY1.4bn (+78.3% 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 R&D of next-generation HMI solutions for future market expansion took precedence.
GPM (adjusted for provision for sales returns and reversal of the provision) was up 3.4pp YoY to 52.6%. SG&A ratio was down 4.4pp YoY to 32.6%, and OPM was up 7.9pp YoY to 20.0%.
Recurring profit and net income attributable to owners of the parent
In FY12/21, recurring profit was JPY1.4bn (+89.8% YoY). Factors affecting recurring profit included the recording of JPY54mn in subsidy income, JPY5mn in forex gain, and JPY8mn in share issuance costs, as well as operating profit growth. Net income attributable to owners of the parent was JPY1.2bn (versus a loss of JPY475mn in 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 JPY403mn.
Dividend
In FY12/21, ArtSpark Holdings paid a dividend of JPY3.0 per share (+JPY0.5 YoY). The company conducted a 4-for-1 stock split of its common shares effective July 1, 2021.
Restructuring and change of trade name
With the aim of realizing medium-term growth for the group, ArtSpark Holdings plans to carry out restructuring and subsequently change its trade name effective July 1, 2022. Specifically, the company will merge with Celsys, Inc., with the company being the surviving company and Celsys the absorbed company. Following the merger, the trade name of the company will change to Celsys, since Celsys has greater recognition as an operating company. Candera GmbH and Candera Japan, which operate the UI/UX business, will remain wholly owned subsidiaries of the new company (Celsys). These changes will enable the company to build a more flexible management structure and further develop its businesses.
The company had initially planned to carry out the aforementioned restructuring and subsequently change its trade name on April 1, 2022. However, due to the time required for obtaining approval to register as an issuer of prepaid payment instruments for third-party business*, the company delayed its initial plan by three months. The registration Celsys obtained an as issuer of prepaid payment instruments for third-party business cannot be transferred to the new merged company, and the new company must obtain approval again. The company believes there will be no issue in obtaining the approval as it already has a track record of doing so with Celsys. However, as there is no guarantee that it can obtain approval by April 2021 and as it needs to make a public notice 40 days in advance, the company has decided to delay the merger and subsequent trade name change.
Prior to the scheduled date of restructuring, the group has already been operating under the new structure since January 1, 2022. In March 2022, it combined and reduced office space in connection with the structural change. The delay in restructuring and trade name change has had no negative impact on business operations.
Capital and business alliance with WEBTOON Entertainment
In December 2021, the company entered into a business alliance with WEBTOON Entertainment Inc., a leading service provider (one of the largest in the world with 72mn monthly users, according to the company) in the field of webtoons, vertically read color comic strips. Through the alliance, the two parties aim to collaborate with each other to generate synergies.
Overview of business alliance
Purpose of business alliance
Results by segment
Creator Support
The Creator Support segment recorded sales of JPY5.8bn (+20.8% YoY) and operating profit of JPY1.8bn (+21.5% 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.
As a result of promotions particularly targeting overseas users, cumulative shipments of CLIP STUDIO PAINT were approaching 16.6mn units as of December 2021 (+58.5% YoY), of which 73.6% (+8.9pp YoY) were overseas shipments of non-Japanese versions.
There were 478,000 subscription contracts as of December 2021 (+87.5% YoY), and the Annual Recurring Revenue (ARR: the amount that the company expects to earn annually from subscriptions) was JPY1.8bn (+63.1% Y0Y).
While offering licenses under a subscription model at a low price can lower the threshold for users to start using the software and accelerate 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.
For CLIP STUDIO PAINT, the company entered into numerous collaborations with device manufacturers. CLIP STUDIO PAINT was offered as a bundled product with Samsung’s “Galaxy Book Pro 360” laptop (with S stylus) starting in April 2021, with Samsung’s “Galaxy Tab S7 FE” Android tablet (with stylus) in August 2021, and with Wacom’s “Wacom Intuos” and “Wacom One” in October 2021. The bundled 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. In all of these collaborations, bundling is offered worldwide, so an increased number of overseas users can be expected as well.
In December 2021, to increase the number of overseas users, the company entered into a capital and business alliance with WEBTOON Entertainment Inc., a global provider of services including LINE Manga in Japan and NAVER WEBTOON in South Korea. The companies are working together in various ways to improve the efficiency of production, translation, and distribution of webtoons (vertically oriented full-color comics that are rapidly gaining popularity around the world) and to revitalize this market.
UI/UX
Segment sales were JPY1.1bn (-31.7% YoY) and the operating loss was JPY498mn (versus a loss of JPY812mn in FY12/20). The operating loss includes goodwill amortization of JPY130mn (versus JPY367mn) 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), 13.95mn vehicles at end-Q3 FY12/21 (+2.27mn QoQ, +9.21mn YoY), and 16.13mn vehicles at end-Q4 FY12/21 (+2.18mn QoQ, +9.44mn 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).
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. The subsidiary Candera GmbH, however, has actively undertaken R&D and tie-ups with partners, with an eye on eventual market recovery and expansion in the latter half of 2022 and beyond.
In R&D, the company 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 due to the popularization of LCD devices, encompassing both industrial and consumer devices.
With a view toward future market growth, the company entered partnerships with semiconductor and hardware manufacturers, and promoted the use of HMI tools. In June 2021, Candera GmbH entered into a strategic alliance agreement with Varroc, a global automotive components manufacturer, for the development of Varroc's Thin Film Transistor (TFT) instrument cluster. 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. In August 2021, Candera entered a strategic partnership with Pricol Limited, a leading Indian manufacturer of automotive components and precision engineering products. Furthermore, STMicroelectronics, a global semiconductor manufacturer, recognized CGI Studio as an ideal tool for creating 2D/3D graphical user interfaces, and certified Candela as an HMI Tool Partner.
Q3 FY12/21 results (out November 5, 2021)
Summary
Cumulative Q3 FY12/21 results: ArtSpark reported consolidated 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 year-earlier loss of JPY651mn). The company continued to place its management focus on software IP and to strategically invest in development.
Progress: Progress versus the company's full-year FY12/21 forecast 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 company commented that the progress was in line with its FY12/21 forecast (revised upward on July 28, 2021; discussed later). The forecast remained unchanged.
Sales
Consolidated sales of JPY5.2bn were up 11.3% versus the same nine-month the previous year. Sales were up at the Creator Support business as subsidiary Celsys, Inc., continued its global promotions of CLIP STUDIO PAINT, software for producing illustrations, manga, and animation. Sales were down at the UI/UX business, hurt by the sale of a subsidiary (HI Corporation), a delays in model changeovers in the auto industry arising from delays in new car development, and declines in auto production stemming from shortages of semiconductor and other key components.
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, the recording of JPY54mn in subsidy income, and a JPY9mn decline in forex loss. 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 reported 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). As of the end of October, the figure was up to 363 (+82.4% 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. In October 2021, ARR was JPY1.7bn, up 73.1% versus JPY959mn in October 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% (72.6% in September 2021, +8.2pp YoY; 72.9% in October, +8.1pp YoY) 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 JPY 415mn (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.
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).
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). At the end of October 2021, the installed vehicle count was up to 15.98mn (+2.03mn QoQ, +9.31mn YoY).
Automobiles accounted for 38.6% of the new installations in cumulative Q3 FY12/21 (versus 38.4% in cumulative Q3 FY12/20) and other applications (consumer electronics and industrial equipment) 61.4% (61.6%). As of October 2021, automobiles accounted for 38.8% (versus 37.4% in October 2020) and other applications 61.2% (62.6%).
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 actively promote sales of CGI Studio.
Group reorganization and name change
At a meeting of the company's board of directors on September 3, 2021, the board approved plans for a restructuring of the group and a change in the company's name. The restructuring plans call for the merger of ArtSpark and Celsys effective April 1, 2022; the thinking here is that a merger between the two will greatly aid efforts to establish a more flexible management structure and promote businesses as the company works to realize its growth plans over the medium to long term. The name of the new merged entity will be Celsys, Inc., this name being selected over ArtSpark because of its greater name recognition. There will be no change in the status of the two subsidiaries, Candera GmbH and Candera Japan Inc., which oversee the group's UI/UX business, as both will remain as wholly-owned subsidiaries of the merged entity.
Expounding further on its thinking behind the merger and the change in the group's name to Celsys, the company noted that Celsys has a longer history, going back 30 years since its founding in 1991, and also has high name recognition among people working the field of illustration and anime production.
Progress of medium-term business plan
FY12/21 is the first year of the current medium-term business plan (released on November 6, 2020). Company forecast figures for FY12/21 (upgraded on July 28, 2021) have been revised upward compared to initial targets for FY12/21 set under the medium-term plan, although performance varies by business.
The company said the upward revision reflected stronger-than-expected results in its Creator Support business, citing the success of its worldwide online promotion of CLIP STUDIO PAINT. In the UI/UX business, the sale of a consolidated subsidiary, which was not anticipated at the time the medium-term plan was formulated, has resulted in the loss of 10 months worth of related revenue. Still, the company expects the stronger-than-expected results in the Creator Support business to offset the revenue decline in UI/UX business (for further breakdown of forecast by business, see the Company forecast for FY12/21 section below.)
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 (TSE Prime: 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.
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).
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).
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. (TSE Prime: 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.
Income statement
Figures may differ from company materials due to differences in rounding methods.
The company was formed from a merger of Celsys, Inc. and HI Corporation 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 Corporation, 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 FY12/21, sales grew by 8.1% YoY and operating profit by 78.3% YoY, mainly due to growth in the Creator Support business as was the case in FY12/20.
Balance sheet
Figures may differ from company materials due to differences in rounding methods.
The company was formed from a merger of Celsys, Inc. and HI Corporation 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-FY12/21, current assets of JPY6.6bn were up JPY2.7bn YoY and fixed assets of JPY1.8bn were down JPY1mn YoY. In FY12/20, fixed assets were down JPY1.1bn YoY to JPY1.8bn, reflecting 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-FY12/21, the company held JPY28mn 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-FY12/21, total liabilities of JPY1.8bn were up JPY151mn YoY. This was attributed to increases of JPY168mn in advances received and JPY29mn in retirement benefit liability, partially offset by decreases of JPY55mn in accrued expenses and JPY42mn 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 from FY12/18 to FY12/21.
Net assets
As of end-FY12/21, net assets of JPY6.6bn were up JPY2.6bn YoY. This reflected increases of JPY1.1bn in retained earnings from the booking of net income attributable to owners of the parent and JPY781mn in capital and capital surplus due to the issue of new shares. The equity ratio at end-FY12/21 rose to 78.5% versus 71.2% at end-FY12/20.
Cash flow statement
Figures may differ from company materials due to differences in rounding methods.
The company was formed from a merger of Celsys, Inc. and HI Corporation 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.
In FY12/21, net cash provided by operating activities was JPY2.0bn. Cash and equivalents at end-FY12/21 were JPY5.7bn, up JPY2.8bn YoY.
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.
In FY12/21, net cash provided by operating activities was JPY2.0bn. This was attributed to the booking of JPY1.6bn in profit before income taxes and JPY706mn in depreciation, partially offset by JPY464mn in income taxes paid and JPY206mn gain on sales of shares in subsidiaries and affiliates. Cash and cash equivalents at end-FY12/21 were JPY5.7bn, up JPY2.8bn YoY.
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 from 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, the company saw a net outflow of JPY474bn from investing activities. Principal outflows included JPY729mn in acquisitions of software and other intangible assets, and JPY48mn for the purchase of tangible fixed assets.
In FY12/21, net cash used in investing activities was JPY779mn. Despite cash inflows of JPY300mn from sale of shares of subsidiaries affecting the scope of consolidation, the company used JPY665mn on the purchase of intangible assets such as software and JPY100mn on 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 issuance of shares.
In FY12/21, net cash provided by financing activities was JPY1.3bn. This reflected JPY1.5bn in proceeds from issuance of shares, offsetting cash outflows of JPY82mn in dividends paid and JPY182mn on the acquisition of treasury stock.
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. This changed in March 2021 as the company sold its entire interest in HI Corporation as part of the group's structural reforms.
At a meeting of the company's board of directors on September 3, 2021, the board approved plans for a restructuring of the group and a change in the company's name. The restructuring plans call for the merger of ArtSpark and Celsys effective April 1, 2022; the thinking here is that a merger between the two will greatly aid efforts to establish a more flexible management structure and promote businesses as the company works to realize its growth plans over the medium to long term. The name of the new merged entity will be Celsys, Inc., this name being selected over ArtSpark because of its greater name recognition.
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 Holdings Inc., Celsys, Inc., and HI Corporation (sold in March 2021) are as follows.
History of ArtSpark Holdings
History of Celsys, Inc.
History of Candera GmbH
History of Candera Japan Inc.
History of HI
Shareholder returns
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 management
President Kei Narushima (born 1974) joined Celsys, Inc. in 1997 and became director in 2001, senior managing director in 2008, representative director and vice president in 2009, and representative director and president in 2016 (current post). Mr. Narushima was appointed director of ArtSpark Holdings in 2017, director and vice president in 2018, representative director and vice president in 2021, and representative director and president in March 2022.
Employees
As of end-December 2021, ArtSpark Holdings had 260 employees on a consolidated basis, of which 19 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
Change in representative director
On February 10, 2022, ArtSpark Holdings Inc. announced personnel changes at the representative director level, as detailed below.
Postponement of plans for group reorganization, name change, and amendment of Articles of Incorporation
On the same day, the company announced that its board of directors had voted to delay the implementation of previously approved plans to reorganize the group via a simplified, short-form merger. Announced on September 3, 2021, those plans called for an absorption-type merger between ArtSpark and its wholly owned subsidiary Celsys, Inc., in conjunction with which the name of the group would be changed to Celsys and the Articles of Incorporation would be amended accordingly.
Explanation of decision to delay merger
Explaining its decision to delay the merger, the company said that even though Celsys was already registered as an issuer of prepaid payment instruments for third-party business as required by the Payment Services Act, that the surviving company of the absorption-type merger that would result from its reorganization plans would not be able to inherit and use that registration. Instead, the company would have to submit a new application for the merged entity to be registered with the Ministry of Finance. As this registration process takes time and has yet to be completed, the company decided to scrap the original merger agreement and make a new agreement with a later date for the merger.
Capital and business alliance and issuance of new shares through third-party allotment
On December 10, 2021, ArtSpark Holdings Inc. announced that it had resolved to enter into a capital and business alliance with WEBTOON Entertainment Inc. and to issue new shares via a third-party allotment, with these shares to be issued to WEBTOON Entertainment's subsidiary, LINE Digital Frontier Corporation, and had concluded this agreement. The date of resolution by the Board of Directors is December 10, 2021, and the date of conclusion of the capital and business alliance agreement is the same day.
Capital and business alliance
WEBTOON Entertainment, the parent company of the allottee company, publishes Webtoon, a vertical full-color manga, globally, with audiences in Japan (LINE Manga operated by LINE Digital Frontier, the allottee company), South Korea (NAVER WEBTOON, etc.), and other countries. With more than 72mn monthly users, it is one of the world's largest service providers of this type.
In July 2021, Celsys, a subsidiary of the company, participated as a partner in the webcomic platform online event for creators, Webtoon CANVAS Summit, organized by WEBTOON Entertainment. In August, it was one of three companies, including Wacom, co-hosting the HOW TO "WEBTOON" event for creators. In September, Celsys and WEBTOON Entertainment entered into a technical alliance to improve the efficiency of content production, translation and distribution, and to revitalize the market.
Following discussions since September 2021 to further strengthen the relationship between WEBTOON Entertainment and the group, the two companies have decided to enter into this capital and business alliance and establish a medium- to long-term framework for cooperation to implement the company's medium-term management plan more effectively.
Details of the business alliance
Third-party allocation of shares
Group reorganization; change of trading name
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)
Revisions to FY12/21 forecast
ArtSpark Holdings Inc. announced revisions to its forecast for FY12/21.
Revised company forecast for FY12/21
*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
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
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.