Creek & River / 4763

COVERAGE INITIATED ON: 2011.02.10 LAST UPDATE: 2020.10.08

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.

Research Coverage Report by Shared Research Inc. Creek & River / 4763 RCoverage LAST UPDATE: 2020.10.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.

Executive summary ------3 Key financial data ------5 Recent updates ------6 Highlights ------6 Trends and outlook ------7 Outlook ------18 Business ------23 Business description ------23 Strengths and weaknesses ------36 Market and value chain------37 Strategy ------39 Historical performance ------41 Other information ------67 History ------67 News and topics ------68 Major shareholders ------69 Company profile ------70

02/71 Creek & River / 4763 RCoverage LAST UPDATE: 2020.10.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Executive summary

Offering Agency and Production businesses targeting professionals

◤ Creek & River was founded in March 1990 by President Ikawa who used to be a freelance creator. After launching an agency business in the video field, he moved into other creative services, expanding the scope of these services to include doctors, IT engineers, lawyers, accountants, architects, fashion designers, researchers, chefs, performing artists, researchers (research support staff), corporate executives (CXOs), and athletes with the view that Creek & River’s business model is applicable to many such specialists. The company’s growth strategy lies in simultaneously expanding professional services and deepening business content.

◤ Creek & River consists of the Agency business, the Production business, and the Rights business. As of FY02/20, the majority of operating profit was generated by Agency and Production. Since FY02/17, though, the Rights business’s earnings contribution has risen also. The company divides its services into Creative and Technical, Medical Staffing, and Accounting and Legal. It has also launched new businesses in architecture, fashion, culinary chef, computer science, virtual reality (VR), artificial intelligence (AI), drone, performing arts, life sciences, corporate executives (CXOs), and athletes. The company is also involved in peripheral services businesses such as VR hardware for professionals, recruitment media, data analysis, social media, and language learning.

◤ Mainstay business Creative and Technical (Japan) (FY02/20: 74.3% of sales; 62.9% of operating profit) offers recruiting and temporary staffing, outsourcing services, and rights management (distribution of intellectual property) targeting creators in television and video, games, web, and advertising and publishing. As of the end of February 2020, about 85,000 creators were registered with the company.

◤ Medical Staffing (FY02/20: 12.3% of sales; 35.4% of operating profit) provides medical specialist employment services to physicians, resident physicians, and medical students. Approximately 124,000 members (physicians and medical students) are registered with the company and the majority of medical institutions in Japan (about 13,000) are registered as clients.

Trends and outlook

◤ In FY02/20, the company reported full-year consolidated sales of JPY32.9bn (+11.4% YoY), operating profit of 2.1bn (+32.0% YoY), recurring profit of JPY2.1bn (+32.7% YoY) and net income attributable to owners of the parent of JPY1.4bn (+40.2% YoY).

◤ For FY02/21, the company forecasts full-year consolidated sales of JPY40.0bn (+21.4% YoY), operating profit of JPY2.6bn (+24.8% YoY), recurring profit of JPY2.6bn (+23.6% YoY), and net income attributable to owners of the parent of JPY1.6bn (+17.7% YoY). Owing to the difficulties of accurately quantifying the impact from the novel coronavirus (COVID-19) pandemic, the company chose not to factor any impact from the pandemic into its initial outlook for FY02/21 at the time of its release in April 2020.

◤ For the medium term, the company expects a CAGR of 10% in profits in existing businesses centered around Creative and Technical (Japan) and Medical Staffing. It further projects medium-term profits from the Agency business in new fields including fashion, chef, professor, performing arts, and researcher, peripheral services such as drones and language learning, VR Japan in the VR field, JURISTERRA (a global social media platform for worldwide lawyers), Professional Media (subsidiary operating recruitment media for professionals), Idrasys (provides system planning, development, sales, operation, and maintenance services using AI), Economic Index (data analysis business), and Claytechworks (game development company). These new group companies collectively booked an operating loss of JPY605mn in FY02/20 (versus an operating loss of JPY249mn in FY02/19).

03/71 Creek & River / 4763 RCoverage LAST UPDATE: 2020.10.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Strengths and weaknesses

Shared Research believes that Creek & River’s strengths lie in its brand recognition and track record in selective fields, President Ikawa’s original insights and ideas, and its business model as a one-stop company recruiting both skilled short-term and permanent staff. Its weaknesses are ongoing losses in new businesses, issues with execution, and the Rights (intellectual property) business, which is still a work-in-progress. (See the Strengths and weaknesses section for details.)

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Key financial data

Income statement FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 FY02/21 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 14,137 15,458 17,533 20,612 22,926 24,909 26,581 26,709 29,569 32,946 40,000 YoY 8.3% 9.3% 13.4% 17.6% 11.2% 8.7% 6.7% 0.5% 10.7% 11.4% 21.4% Gross profit 4,597 5,124 5,994 6,392 7,240 7,996 9,234 10,168 11,366 12,556 YoY 11.0% 11.5% 17.0% 6.6% 13.3% 10.4% 15.5% 10.1% 11.8% 10.5% GPM 32.5% 33.1% 34.2% 31.0% 31.6% 32.1% 34.7% 38.1% 38.4% 38.1% Operating profit 287 637 992 1,093 1,296 1,178 1,610 1,806 1,579 2,084 2600 YoY 102.1% 122.2% 55.7% 10.1% 18.6% -9.1% 36.7% 12.2% -12.6% 32.0% 24.8% OPM 2.0% 4.1% 5.7% 5.3% 5.7% 4.7% 6.1% 6.8% 5.3% 6.3% 6.5% Recurring profit 300 691 1,036 1,092 1,320 1,116 1,478 1,825 1,585 2,104 2,600 YoY 90.4% 130.3% 49.9% 5.5% 20.9% -15.5% 32.4% 23.5% -13.1% 32.7% 23.6% RPM 2.1% 4.5% 5.9% 5.3% 5.8% 4.5% 5.6% 6.8% 5.4% 6.4% 6.5% Net income 89 156 335 491 744 627 893 1,104 970 1,360 1600 YoY - 75.6% 114.1% 46.8% 51.5% -15.8% 42.4% 23.7% -12.1% 40.2% 17.7% Net margin 0.6% 1.0% 1.9% 2.4% 3.2% 2.5% 3.4% 4.1% 3.3% 4.1% 4.0% Per share data (split-adjusted; JPY) Shares issued (year-end; '000) 22,609 22,609 22,609 22,609 22,609 22,609 22,609 22,609 22,609 22,609 EPS 4.1 7.3 15.5 22.8 35.1 30.2 42.9 52.3 45.7 63.6 74.7 Dividend per share 1.0 2.0 4.0 5.0 7.0 8.0 9.0 11.0 12.0 15.0 16.0 Book value per share 140.7 146.7 162.6 185.7 229.0 227.6 265.5 305.4 334.9 386.1 Balance sheet (JPYmn) Cash and deposits 2,100 2,465 2,481 2,788 3,293 3,143 3,978 4,966 5,172 6,729 Total current assets 4,109 4,510 5,598 7,046 6,515 6,684 8,107 9,079 9,747 12,352 Tangible fixed assets 174 182 194 214 217 250 233 167 883 809 Intangible fixed assets 488 334 257 313 307 537 518 498 581 543 Investments and other assets 753 727 824 978 2,013 1,476 2,154 2,109 2,103 2,527 Total assets 5,524 5,753 6,873 8,551 9,053 8,947 11,012 11,852 13,314 16,231 Operating accounts payable 814 715 992 2,468 1,218 1,407 1,606 1,427 1,532 2,138 Short-term debt 440 399 400 450 500 750 1,106 1,325 1,212 1,213 Total current liabilities 1,998 2,199 3,006 4,063 3,426 3,583 4,266 4,231 4,711 6,627 Long-term debt 49 - - 63 52 - 517 384 1,103 845 Total fixed liabilities 146 107 92 170 485 175 698 579 1,402 1,203 Total liabilities 2,144 2,306 3,098 4,233 3,912 3,758 4,964 4,809 6,113 7,830 Net assets 3,380 3,447 3,775 4,319 5,141 5,189 6,048 7,043 7,201 8,401 Total interest-bearing debt 489 399 400 513 552 750 1,623 1,709 2,315 2,058 Cash flow statement (JPYmn) Cash flows from operating activities 193 589 317 634 1,350 622 1,185 1,104 1,625 2,407 Cash flows from investing activities -197 -129 -588 -326 -14 -1,375 -1,041 -272 -1,044 -816 Cash flows from financing activities -98 -114 -44 -38 -557 42 710 124 -156 -442 Financial

ratios ROA (RP-based) 5.4% 12.3% 16.4% 14.2% 15.0% 12.4% 14.8% 16.0% 12.6% 14.2% ROE 3.0% 5.1% 10.1% 13.1% 17.0% 13.2% 17.3% 18.3% 14.3% 17.7% Equity ratio 54.8% 54.9% 50.9% 46.8% 52.6% 52.8% 50.7% 54.6% 53.6% 50.9% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Net income refers to net income attributable to owners of the parent.

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Recent updates

Highlights

On October 8, 2020, Creek & River Co., Ltd announced earnings results for 1H FY02/21; see the results section for details.

On August 24, 2020, Shared Research updated the report following interviews with the company.

For previous releases and developments, please refer to the News and topics section.

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Trends and outlook

Quarterly performance

Cumulative FY 02/ 20 FY 02/ 21 FY 02/ 21 FY02/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4% of Est.1H Est.% of Est.FY Est. Sales 8,233 16,512 24,543 32,946 9,486 18,454 94.6% 19,500 46.1% 40,000 YoY 11.8% 11.4% 11.1% 11.4% 15.2% 11.8% 18.1% 21.4% Gross profit 3,419 6,508 9,498 12,556 3,760 6,889 YoY 10.8% 10.5% 10.3% 10.5% 10.0% 5.9% GPM 41.5% 39.4% 38.7% 38.1% 39.6% 37.3% SG&A expenses 2,631 5,242 7,842 10,472 2,711 5,433 YoY 13.8% 13.3% 8.6% 7.0% 3.0% 3.7% SG&A ratio 32.0% 31.7% 32.0% 31.8% 28.6% 29.4% Operating profit 788 1,266 1,656 2,084 1,049 1,456 104.0% 1,400 56.0%2,600 YoY 1.9% 0.1% 18.9% 32.0% 33.2% 15.0% 10.6% 24.8% OPM 9.6% 7.7% 6.7% 6.3% 11.1% 7.9% 7.2% 6.5% Recurring profit 790 1,269 1,661 2,104 1,063 1,476 105.4% 1,400 56.8%2,600 YoY 2.6% 1.0% 19.3% 32.7% 34.5% 16.3% 10.3% 23.6% RPM 9.6% 7.7% 6.8% 6.4% 11.2% 8.0% 7.2% 6.5% Net income 507 792 1,028 1,360 710 967 113.7% 850 60.4% 1,600 YoY 11.4% 7.2% 26.8% 40.2% 40.1% 22.1% 7.4% 17.7% Net margin 6.2% 4.8% 4.2% 4.1% 7.5% 5.2% 4.4% 4.0% Quarterly FY 02/ 20 FY 02/ 21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Sales 8,233 8,279 8,030 8,404 9,486 8,968 YoY 11.8% 11.1% 10.5% 12.3% 15.2% 8.3% Gross profit 3,419 3,089 2,990 3,058 3,760 3,128 YoY 10.8% 10.1% 9.8% 11.1% 10.0% 1.3% GPM 41.5% 37.3% 37.2% 36.4% 39.6% 34.9% SG&A expenses 2,631 2,611 2,600 2,630 2,711 2,722 YoY 13.8% 12.9% 0.2% 2.4% 3.0% 4.3% SG&A ratio 32.0% 31.5% 32.4% 31.3% 28.6% 30.4% Operating profit 788 478 390 428 1,049 406 YoY 1.9% -2.7% 204.9% 130.0% 33.2% -15.0% OPM 9.6% 5.8% 4.9% 5.1% 11.1% 4.5% Recurring profit 790 478 392 443 1,063 413 YoY 2.6% -1.6% 189.3% 129.2% 34.5% -13.6% RPM 9.6% 5.8% 4.9% 5.3% 11.2% 4.6% Net income 507 285 237 331 710 257 YoY 11.4% 0.5% 223.5% 109.1% 40.1% -9.8% Net margin 6.2% 3.4% 2.9% 3.9% 7.5% 2.9% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Net income refers to net income attributable to owners of the parent.

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Quarterly performance by segment

Cumulative FY02/20 FY02/21 FY02/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4% of Est.FY Est. Total sales 8,233 16,512 24,543 32,946 9,486 18,454 46.1% 40,000 YoY 11.8% 11.4% 11.1% 11.4% 15.2% 11.8% 21.4% Creative (Japan) 5,927 11,906 18,023 24,599 6,284 12,471 46.5% 26,800 YoY 11.8% 11.0% 10.2% 10.7% 6.0% 4.7% 8.9% Creative (South Korea) 11 16 68 860 1,674 44.4% 3,770 YoY ------Medical Staffing 1,322 2,559 3,373 4,070 1,312 2,302 51.2% 4,500 YoY 11.8% 9.9% 10.1% 9.8% -0.7% -10.0% 10.6% Legal and Accounting 514 1,044 1,602 2,122 544 1,010 43.2% 2,340 YoY 4.3% 10.9% 11.3% 8.7% 5.9% -3.3% 10.3% Other 502 1,073 515 1,050 YoY -- 2.4%-2.2% Operating profit 788 1,266 1,656 2,084 1,049 1,456 56.0% 2,600 YoY 1.9% 0.1% 18.9% 32.0% 33.2% 15.0% 24.8% Creative (Japan) 344 534 816 1,315 546 818 50.0% 1,635 YoY -16.8% -17.7% -2.9% 22.6% 58.7% 53.1% 24.4% Creative (South Korea) -25 -61 -67 -2 -16 - 20 YoY ------Medical Staffing 472 750 810 740 475 667 83.3% 800 YoY 29.4% 17.4% 35.0% 38.8% 0.5% -11.1% 8.1% Legal and Accounting 56 108 195 233 66 67 25.8% 260 YoY 40.9% 149.3% 143.9% 59.2% 18.5% -37.9% 11.8% Other -54 -60 -38 -82 YoY -- -- Eliminations, company-wide -5 -5 -4 -5 1 2 Recurring profit 790 1,269 1,661 2,104 1,063 1,476 56.8% 2,600 YoY 2.6% 1.0% 19.3% 32.7% 34.5% 16.3% 23.6% Net income 507 792 1,028 1,360 710 967 60.4% 1,600 YoY 11.4% 7.2% 26.8% 40.2% 40.1% 22.1% 17.7% Quarterly performance FY02/20 FY02/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Total sales 8,233 8,279 8,030 8,404 9,486 8,968 YoY 11.8% 11.1% 10.5% 12.3% 15.2% 8.3% Creative (Japan) 5,927 5,979 6,116 6,577 6,284 6,187 YoY 11.8% 10.2% 8.8% 12.2% 6.0% 3.5% Creative (South Korea) 11 4 860 814 YoY -- -- Medical Staffing 1,322 1,237 814 697 1,312 990 YoY 11.8% 8.0% 10.7% 8.1% -0.7% -20.0% Legal and Accounting 514 531 558 519 544 466 YoY 4.3% 18.1% 12.0% 1.3% 5.9% -12.1% Other 502 571 515 535 YoY -- 2.4%-6.3% Operating profit 788 478 390 428 1,049 406 YoY 1.9% -2.7% 204.9% 130.0% 33.2% -15.0% Creative (Japan) 344 190 282 499 546 271 YoY -16.8% -19.4% 47.4% 115.1% 58.7% 42.9% Creative (South Korea) -2514.2% -3548.2% -167.0% -1401.5% YoY -- -- Medical Staffing 472 278 61 -70 475 192 YoY 29.4% 1.5% - - 0.5% -30.9% Legal and Accounting 56 52 87 38 66 0 YoY 40.9% - 137.5% -43.1% 18.5% -99.1% Other -54 -6 -38 -45 YoY -- -- Eliminations, company-wide -5 0 1 -1 1 1 Recurring profit 790 478 392 443 1,063 413 YoY 2.6% -1.6% 189.3% 129.2% 34.5% -13.6% Net income 507 285 237 331 710 257 YoY 11.4% 0.5% 223.5% 109.1% 40.1% -9.8% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Net income refers to net income attributable to owners of the parent. Note: In Q1 FY02/21, the Creative and Technical (South Korea) business which had been included in the Other segment became an independent reporting segment.

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Results by business

Cumulative FY02/20 FY02/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Sales 8,233 16,512 24,543 32,946 9,486 YoY 11.8% 11.4% 11.1% 23.4% 15.2% TV and video 1,581 3,137 4,614 6,161 1,518 YoY 15.4% 12.6% 8.8% 6.9% -4.0% Games 2,001 4,062 6,062 8,335 2,134 YoY 22.3% 19.2% 15.3% 12.3% 6.7% Web 1,712 3,385 5,129 6,985 1,746 YoY 0.6% 4.8% 6.5% 7.4% 1.9% Medical 1,301 2,526 3,338 4,019 1,309 YoY 11.1% 9.3% 10.3% 10.5% 0.6% Accounting 453 925 1,399 1,845 446 YoY 4.2% 11.4% 7.4% 7.6% -1.5% E-books 428 925 1,448 2,076 588 YoY 11.8% 9.5% 11.1% 23.2% 37.4% Operating profit 788 1,266 1,656 2,084 1,049 YoY 1.9% 0.1% 18.9% 15.4% 33.2% OPM 9.6% 7.7% 6.7% 6.3% 11.1% TV and video 119 163 220 313 114 YoY 148.1% 89.9% 18.0% 25.3% -3.9% OPM 7.5% 5.2% 4.8% 5.1% 7.5% Games 159 280 384 631 327 YoY -28.1% -28.4% -33.9% -14.9% 105.7% OPM 8.0% 6.9% 6.3% 7.6% 15.3% Web 138 232 353 496 161 YoY -10.4% 3.5% 2.1% 4.4% 16.4% OPM 8.1% 6.8% 6.9% 7.1% 9.2% Medical 464 741 800 729 475 YoY 29.0% 22.7% 38.4% 42.1% 2.4% OPM 35.7% 29.3% 24.0% 18.1% 36.3% Accounting 51 90 164 173 38 YoY 43.9% 209.0% 93.0% 44.1% -26.2% OPM 11.3% 9.7% 11.7% 9.4% 8.5% Legal 4 18 30 56 29 YoY 1.9% 55.7% - 174.1% 645.7% E-books 25 62 114 183 71 YoY -56.0% -45.5% -34.9% -10.0% 183.0% OPM 5.9% 6.7% 7.9% 8.8% 12.1% Other -173 -277 -363 -498 -167 Quarterly FY02/20 FY02/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Sales 8,233 8,279 8,030 8,404 9,486 YoY 11.8% 11.1% 10.5% 31.0% 15.2% TV and video 1,581 1,557 1,477 1,547 1,518 YoY 15.4% 10.0% 1.5% 1.4% -4.0% Games 2,001 2,061 2,000 2,273 2,134 YoY 22.3% 16.3% 8.2% 5.0% 6.7% Web 1,712 1,673 1,744 1,855 1,746 YoY 0.6% 9.4% 10.1% 9.7% 1.9% Medical 1,301 1,226 811 682 1,309 YoY 11.1% 7.5% 13.7% 11.5% 0.6% Accounting 453 472 474 446 446 YoY 4.2% 19.4% 0.2% 8.3% -1.5% E-books 428 497 523 628 588 YoY 11.8% 7.6% 14.2% 64.1% 37.4% Operating profit 788 478 390 428 1,049 YoY 1.9% -2.7% 204.9% 34.1% 33.2% OPM 9.6% 5.8% 4.9% 5.1% 11.1% TV and video 119 44 57 92 114 YoY 148.1% 16.5% -43.4% 47.0% -3.9% OPM 7.5% 2.8% 3.9% 6.0% 7.5% Games 159 121 104 247 327 YoY -28.1% -28.9% -45.0% 53.3% 105.7% OPM 8.0% 5.9% 5.2% 10.9% 15.3% Web 138 94 121 143 161 YoY -10.4% 34.1% -0.4% 10.4% 16.4% OPM 8.1% 5.6% 6.9% 7.7% 9.2% Medical 464 276 59 -70 475 YoY 29.0% 13.5% - - 2.4% OPM 35.7% 22.6% 7.3% - 36.3% Accounting 51 39 74 9 38 YoY 43.9% - 32.5% -74.2% -26.2% OPM 11.3% 8.2% 15.6% 2.0% 8.5% Legal 4 14 12 26 29 YoY 1.9% 83.4% - 28.9% 645.7% E-books 25 37 52 69 71 YoY -56.0% -34.9% -15.3% 145.3% 183.0% OPM 5.9% 7.4% 10.0% 11.0% 12.1% Other -173 -105 -85 -135 -167 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Sales and operating profit by business area are calculated by Shared Research based on percentage breakdown disclosed by the company.

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Seasonality: Physician referral revenue at Medical Principle Co. (fiscal year ends on October 31) is normally concentrated in April, as well as in July and October (when physicians tend to transfer). As a result, quarterly sales at Medical Principle are usually highest in February–April, followed by May–July, August–October, and November–January. Meanwhile, fluctuations in quarterly expenses are smaller than those in sales, so operating profit tends to be higher in February–April, while August-October and November–January see losses. Medical Principle’s financial year ends in a different month from that of Creek & River, meaning Q1 sales in the Medical Staffing segment cover February–April, and so on for Q2, Q3, and Q4. This means consolidated operating profit tends to be higher in Q2 and lower in Q3 and Q4.

1H FY02/21 results

▷ Sales: JPY18.5bn (+11.8% YoY) ▷ Operating profit: JPY1.5bn (+15.0% YoY) ▷ Recurring profit: JPY1.5bn (+16.3% YoY) ▷ Net income*: JPY967mn (+22.1% YoY) *Net income attributable to owners of the parent

Sales were up YoY. Sales rose in the Creative and Technical (Japan) business and the Creative and Technical (South Korea) business. The company's Rights business, which includes rights management for YouTube videos and e-books, was solid in 1H, absorbing the impact of the COVID-19 pandemic (see below). Further, the company reviewed the capital structure for Creek & River Entertainment Co., Ltd., which provides agency business services to TV stations in South Korea, and made it a consolidated subsidiary, which helped boost sales.

On the profit front, all lines from operating profit down recorded double-digit gains. In addition to the sales increase, , reviewing work styles of executives and employees kept SG&A expenses under control, which also contributed to improved profitability.

The COVID-19 outbreak had a negative impact on some of the company's businesses, such as the cancellation of events for medical students in the Medical Staffing business, and reduced orders for outsourcing projects in the Creative and Technical (Japan) business. A decline in motivation to hire staff resulting from a deterioration to clients’ business environments has also delayed progress in the Agency business, which may affect 2H FY02/21 performance.

Note: Starting in Q1 FY02/20, the Creative and Technical (South Korea) business, which had been included in the Other segment became an independent reporting segment. The following YoY comparison figures reflect the new segment classifications.

Creative and Technical (Japan)

▷ Sales: JPY12.5bn (+4.7% YoY) ▷ Operating profit: JPY818mn (+53.1% YoY)

Video, TV, and video technology-related businesses

▷ The company strengthened TV show planning and production mainly at its production studios, stepped up content for its video distribution service, and responded to the increase in demand for shows on BS and terrestrial television such as variety shows, educational programs, and documentaries. Registrations for EIZOshigoto.com, a job information site specializing in the visual media industry, also increased. ▷ WING Inc. (acquired in July 2020, and made a consolidated subsidiary), founded by an NHK veteran, is a temporary staffing agency that provides production and editing personnel for NHK and its affiliated broadcasting companies, and also provides a temporary staffing service for weather forecasters. The company looks to generate synergies through integrating the subsidiary’s services into the company’s network.

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YouTube Online Creators (OC)

▷ At YouTube Online Creators, the company saw a steady rise in the views of uploads by YouTubers . ▷ The business supports YouTube channels that it plans, produces, and manages, foremost among which is the ULTRA TEENS Channel, which is popular among teenagers. It also strengthened its efforts in the growing video market by entering into a comprehensive license agreement with Nintendo for the use of game copyrights in August 2020.

Games business

▷ The company undertook new production projects on behalf of clients, and progressed with its own development work using licensed IP. ▷ The company established Creative Academy, a tuition-free training facility for people with no experience in the game industry in an effort to address the shortage of qualified personnel in the industry.

▷ Together with subsidiary VR Japan, the company worked on the development of VR remote communications system. It also began rolling out a comprehensive business solutions service (including everything from the hardware to the content). The target markets include corporate education and training facilities, amusement facilities, hotels, tourist facilities, events, and

exhibitions. ▷ Profit improved significantly due to the decline in expenses related to the in-house developed smartphone game Palette Parade, distributed by Claytechworks in FY02/20.

Web business

▷ The company worked to expand its network of website creators and data scientists in the digital marketing field through its job information sites Webist and Symbiorise. ▷ While demand in the data marketing industry was strong, the COVID-19 pandemic has had a negative effect on orders for projects on job information sites and gourmet information sites.

Publishing business In publishing, the company distributed (as an agent) e-books through electronic bookstores, including Amazon Kindle. In this e- book distribution agent business, the company reported a steady increase in downloads and distribution of e-books, partially due to stay-at-home demand as a result of the novel coronavirus outbreak.

Architecture business

▷ The agency business (which provides a referral service of certified class 1 architects and a temporary staffing service for BIM engineers) showed steady growth. The company rolled out a new series of the Creative Residence® brand, which proposes rental housing with distinctive designs. ▷ In April 2020, the company launched Chokenchiku VR, a service that allows homebuilders and building contractors to present and sell homes to customers in a VR space.

BIM, or Building Information Modelling, refers to the production of three-dimensional models of buildings on a computer, identical to reality, and the use of such models in the construction process.

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Initiatives in new fields The company developed its agency business for researchers and doctorate holders in the AI domain, R&D support staff to assist with R&D in the life sciences, rakugo comic storytellers and professional actors, athletes who have experience competing at the national level, and chief executive officers (CXOs, or corporate executives with chief executive duties and functions).

Creative and Technical (South Korea)

▷ Sales: JPY1.7bn (about 107x the 1H FY02/20 figure) ▷ Operating loss: JPY16mn (versus a loss of JPY61mn in 1H FY02/20)

Sales grew YoY as the company made Creek & River Entertainment Co., Ltd. a consolidated subsidiary following a review of its capital structure.

Consolidated subsidiaries Creek & River Korea Co., Ltd., and Creek & River Entertainment Co., Ltd. run a similar business as the Creative and Technical (Japan) business, but in South Korea.

▷ Creek & River Korea Co., Ltd. mainly engages in the rights management business, and distributes popular South Korean smartphone games around the world. Game distribution was delayed in every country as a result of the COVID-19 pandemic. ▷ Creek & River Entertainment Co., Ltd. provides agency services to TV stations in South Korea. In future, it plans to strengthen cooperation with the company and diversify earnings with the electronic distribution of manga and the like.

Medical Staffing

▷ Sales: JPY2.3bn (-10.0% YoY) ▷ Operating profit: JPY667mn (-11.1% YoY)

Sales and operating profit fell YoY. Demand for doctors remained high due to the chronic shortage of physicians nationwide and the uneven distribution of doctors by region, resulting in higher sales and operating profit YoY for the physician staffing business. However, due to the COVID-19 outbreak, the company cancelled Resinavi fairs for medical students and residents nationwide, which had a negative impact on results.

Accounting and Legal

▷ Sales: JPY1.0bn (-3.3% YoY) ▷ Operating profit: JPY67mn (-37.9% YoY)

The COVID-19 pandemic led to a decline in client orders and significant delays to the hiring process, causing sales and operating profit to fall YoY in both the accounting and legal fields.

▷ The company worked to expand the agency business and increase its name recognition in the industry by enhancing relationships with associated organizations and holding joint seminars with client companies and firms. ▷ Making use of the network it has already established, Creek & River expanded its service offering with the full-scale launch of business succession and M&A support services to better meet the business succession planning needs of accounting firms and their clients.

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▷ The company expanded its service offerings by providing a referral service for accounting staff who wish to telecommute in an effort to address work style diversification in the accounting field.

Other

▷ Sales: JPY1.1bn (-2.2% YoY) ▷ Operating loss: JPY82mn (operating loss of JPY60mn in 1H FY02/20)

Sales and profit declined YoY as a result of the impact of the COVID-19 pandemic on the agency business in the fashion industry and on production of VR goggles in China.

negative impact on profit, this was minimized through the use of subsidies among others. ▷ Consolidated subsidiary Professional Media, which operates a personnel media business, established an earnings base combining its media business and its agency business centered on Koukokutenshoku.com (an online job board for advertising

and web professionals). It also expanded into the digital marketing industry in an effort to diversify its earnings. ▷ Consolidated subsidiary VR Japan sells in Japan the VR goggles from China-based Idealens and SKYWORTH. Due to the novel coronavirus outbreak, China-based production lines were shut down and the company was unable to fulfill customer orders,

despite heightened demand for the company’s VR remote simultaneous lecture system and low-latency, real-time transmission system. ▷ Consolidated subsidiary Idrasys provides system planning, development, sales, operation, and maintenance services using AI. Idrasys worked to position itself as a solutions partner for companies looking to make use of AI, by releasing Forecasting Experience, which is a proprietary AI-enhanced cloud platform that enables demand forecast and provides tools for contract scoring. ▷ Consolidated subsidiary Economic Index, which operates data analysis business, worked to generate profit from its data analysis service and consulting (suggesting measures for clients to improve on the basis of unique methods of analysis), and provided solution services based on the results of data analysis.

For details on previous annual results, please refer to the Historical performance section.

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Full-year company forecast

FY02/20 FY02/21 (JPYmn) 1H Act. 2H Act. FY Act. 1H Act. 2H Est. FY Est. Sales 16,512 16,434 32,946 18,454 21,546 40,000 YoY 11.4% 11.4% 11.4% 11.8% 31.1% 21.4% Cost of sales 10,005 10,386 20,391 11,565 Gross profit 6,508 6,048 12,556 6,889 YoY 10.5% 10.5% 10.5% 5.9% GPM 39.4% 36.8% 38.1% 37.3% SG&A expenses 5,242 5,230 10,472 5,433 SG&A ratio 31.7% 31.8% 31.8% 29.4% Operating profit 1,266 818 2,084 1,456 1,144 2,600 YoY 0.1% 160.5% 32.0% 15.0% 39.9% 24.8% OPM 7.7%5.0%6.3%7.9%5.3%6.5% Recurring profit 1,269 835 2,104 1,476 1,124 2,600 YoY 1.0% 154.0% 32.7% 16.3% 34.6% 23.6% RPM 7.7%5.1%6.4%8.0%5.2%6.5% Net income 792 568 1,360 967 633 1,600 YoY 7.2% 145.3% 40.2% 22.1% 11.4% 17.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Forecasts by segment Forecasts by segment FY02/20 FY02/21 (JPYmn) Act. Est. Sales 32,964 40,000 YoY 11.5% 21.3% Creative (Japan) 24,559 26,800 YoY 10.6% 9.1% Creative (South Korea) 68 3,770 YoY - - Medical 4,070 4,500 YoY 9.7% 10.6% Accounting and legal 2,122 2,340 YoY 8.7% 10.3% Other 1,844 2,890 YoY -3.6% 56.7% Operating profit 2,084 2,600 YoY 32.1% 24.8% OPM 6.3% 6.5% Creative (Japan) 1,315 1,635 YoY 22.6% 24.4% OPM 5.4% 6.1% Creative (South Korea) -67 20 YoY - - OPM - 0.5% Medical 740 800 YoY 38.9% 8.1% OPM 18.2% 17.8% Accounting and legal 233 260 YoY 59.3% 11.8% OPM 11.0% 11.1% Other -131 -90 YoY - - OPM - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods

For FY02/21, the company forecasts sales of JPY40.0bn (+21.4% YoY), operating profit of JPY2.6bn (+24.8% YoY), recurring profit of JPY2.6bn (+23.6% YoY), and net income attributable to owners of the parent of JPY1.6bn (+17.7% YoY). From FY02/21, it has included Creek & River Entertainment Co., Ltd., which conducts temporary staffing for television stations in South Korea, in the scope of consolidation. Excluding this impact, it expects sales to grow 10% YoY.

The company expects operating profit to rise by JPY516mn YoY. A temporary increase in expenses in the games business had a negative impact of JPY228mn on profit in FY02/20, but no such increase is anticipated in FY02/21. Other new businesses (new agencies, group companies still at the investment stage, and new Medical Staffing businesses) posted operating losses totaling JPY377mn in FY02/20, and the company expects similar operating losses in FY02/21.

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Given the difficulties of quantifying the impact from the COVID-19 outbreak, the company as of April 2020 refrained from factoring the outbreak and its effects into its earnings forecasts, but is currently investing the potential earnings impact. Creek & River says Medical Staffing events have been canceled or postponed, television program production suspended, and game releases delayed, and temporary or seconded staff have been ordered to stay at home. On the other hand, nationwide stay-at- home recommendations have resulted in greater view counts for videos and increased videogame playtime, and such factors may have a positive impact on the company’s performance. In addition, in agency businesses, the number of registered members is trending upward, which will have a positive impact on performance hereafter.

The outlook for each business segment is as follows.

Creative and Technical (Japan) Creek & River forecasts sales of JPY26.8bn (+9.1% YoY) and operating profit of JPY1.6bn (+24.4% YoY).

The company plans to strengthen its Production business which utilizes production studios, and enhance its Agency business by recruiting and developing unique creators. Further, in addition to growth in existing businesses, the company plans to strengthen new business initiatives (architecture, fashion, computer science, chefs, professors, drones, performing arts, life sciences, languages, athletes, and corporate executives [CXOs]). The company is also developing its unique Rights business, which aims to enhance the added value of professionals by responding to new technologies such as VR and AI.

It expects to increase operating profit by growing existing businesses, resolving loss from the smartphone game Palette Parade distributed by Claytechworks, and improving the performance of new businesses.

▷ Growing existing businesses: Creek & River expects to increase sales by handling a growing number of orders in its existing

video, games, web, and advertising and publishing businesses. Client companies of these businesses are increasingly

outsourcing to shift fixed expenses to variable expenses, and Creek & River has been achieving earnings growth by

capturing such outsourcing demand.

▷ Resolving loss from Palette Parade: During FY02/20, Claytechworks (made a subsidiary in July 2018) developed and released

the smartphone game Palette Parade, but the game’s earnings fell short of the company’s expectation, resulting in a

JPY160mn operating loss. In Q4 FY02/20, Claytechworks changed the operating method used for Palette Parade and

improved its earnings, and expects in FY02/21 to resolve the JPY160mn loss booked in FY02/20.

▷ Improving the performance of new businesses: New businesses (chef, professor, researcher, drone, and performing arts)

posted a JPY128mn operating loss in FY02/20. The company expects in FY02/21 to shrink the operating loss by increasing

the number of registered members and expanding the various businesses.

▷ In FY02/21, it also plans to launch CXO and athlete agency businesses.

CXO agency: This business handles searches for CEOs, CFOs, and other corporate executives, with a focus on those with experience at strategic consulting firms and director-level experience at listed companies. Athlete agency: This business supports retired athletes, including Olympic-level athletes and athletes retiring from professional sports.

Creative and Technical (South Korea) Creek & River forecasts sales of JPY3.8bn (sales of JPY68mn in FY02/19) and operating profit of JPY20mn (operating loss of JPY67mn in FY02/20).

The company will focus on its Rights management business by licensing Korean game content to countries around the world, including Japan. The company shifted Creek & River Entertainment Co., Ltd., which provides agency (staffing) business services to TV studios in South Korea, from an equity-method affiliate to a consolidated subsidiary in January 2020. Creek & River

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Entertainment Co., Ltd., is subject to consolidation starting in FY02/21 as the Creative and Technical (South Korea) business. The company intends to promote the referral of South Korean engineers in Japan.

Medical Staffing Creek & River forecasts sales of JPY4.5bn (+10.6% YoY) and operating profit of JPY800mn (+8.1% YoY).

Creek & River aims to continue focusing on the doctor referral business in view of strong demand for physicians. It plans to increase headcount and bolster systems utilization to expand its sales capabilities and capitalize on the nationwide shortage and uneven regional distribution of doctors. The company is developing services aimed at supporting M&A, clinic openings, and business successions, as well as a diagnostic imaging knowledge service, and will proceed with initiatives leveraging its operating assets, including doctors and medical institutions.

It expects to increase operating profit by growing existing businesses and gaining earnings contributions from new businesses.

▷ Growing existing businesses: Because of the strong demand for physicians, the company expects to grow the physician

referral business.

▷ Gaining contributions from new businesses: It plans to launch a new consulting business that will harness its relationships

with 124,000 doctors and medical students, as well as with 13,000 medical institutions, to act as an intermediary for buying

and selling businesses that fulfill hospitals’ succession planning needs. The consulting business will provide business support

for the medical industry in areas such as the launch of medical institutions, business succession, establishment of new

businesses, and hospital management. In FY02/20, new Medical Staffing businesses posted an operating loss of JPY110mn.

The company expects to narrow that loss somewhat in FY02/21.

Accounting and Legal Creek & River forecasts sales of JPY2.3bn (+10.3% YoY) and operating profit of JPY260mn (+11.8% YoY).

Accounting business In the accounting business, the company aims to continue strengthening recruitment services, and improve its presence in the industry by developing services that cater to the needs of society, such as business succession support for accounting firms and the Work-From-Home Staffing Service for those who have experience working at accounting firms.

Legal business In the legal business, the company aims to bolster its business foundation by increasing headcount and operational bases. It also plans to strengthen its legal staff network to establish its presence in the industry. The company aims to strengthen its business foundation by hiring more staff and improve its profitability by increasing its recruiting capability. Further, the company is expanding its business with JURISTERRA, a global social media platform for lawyers.

Other businesses Creek & River forecasts sales of JPY2.9bn (+56.7% YoY) and operating loss of JPY90mn (operating loss of JPY131mn in FY02/20).

It expects to increase sales chiefly in the IT field and to narrow operating loss largely due to higher sales.

IT business In the IT business, Creek & River’s strategy is to strengthen initiatives to train and dispatch technicians for the robot and AI markets, with a focus on training for the robot-related Python programming language. The company is also focused on business expansion, including in the launch of studios.

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Fashion business At Inter Belle Inc., the company plans to boost earnings power by hiring and training more staff, making changes at the unprofitable projects, utilizing its network of relationships with apparel manufacturers and expertise in sales and the training of sales staff.

Other

▷ Professional Media Co., Ltd., which operates a personnel media business, aims to strengthen the profitability of Koukokutenshoku.com (a job board for advertising and web professionals) and expand services by applying the same business model to other professional industries. ▷ VR Japan Co., Ltd., will promote sales in Japan of Idealens’ integrated, 4K resolution, head-mounted display (HMD), Idealens K4 and SKYWORTH S1, a VR HMD capable of replaying 8K resolution VR video. The company will continue to promote development leveraging hardware and technology, including the low-latency, real-time VR transmission technology developed by VR Japan and used in proof-of-concept tests conducted in cooperation with Konica Minolta Japan and NTT Docomo. ▷ In response to social issues such as labor shortages and workstyle reforms, Idrasys Co., Ltd., is focusing on the advancement of the consulting business, as well as proposals and implementation support for AI solutions based on a theme of people and AI

working together. ▷ Economic Index, which operates a data analysis business, will work to generate profit from its data analysis service and consulting (which suggest measures for clients to improve on the basis of unique methods of analysis). ▷ Creek & River Global, Inc. will focus on the development of JURISTERRA, a social media platform that links legal professionals around the world, and legal consulting services in the US using the platform. ▷ Creek & River Shanghai Co., Ltd., will develop the rights management business by cooperating with the company to distribute the works of Japanese authors (e.g., novels) in China while aiming to increase profitability.

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Outlook

The mid- and long-term outlook for the company can be split into two themes—continued revenue growth and profitability improvement in existing businesses, and attaining profitability while expanding revenues in new business areas.

Outlook by segment

Segment Existing businesses New businesses

Creative & Technical Sustained demand for TV program, game, and E-book and online creator businesses turn a profit, (Japan) web creators continuing their growth momentum Architecture agency expected to break even in FY02/18 Fashion, chef, and professor agencies still in the beginning stages, but losses are contracting

Launched drone and performing arts operations in FY02/19, researcher agency and language learning operations in FY02/20, and CXO and athlete agency operations in FY02/21 Medical Staffing Shortage of doctors and varied availability of Provides physicians and medical institutions with diagnostic departments nationwide resulted in support services for M&A, clinic openings, business robust demand from medical institutions; opened successions, and new business startups. Also provides more offices a diagnostic imaging knowledge service (Dokuei Shinan). Plans to operate nationwide doctor visit services after establishing new operation centers Accounting and Legal Strong demand for accounting and legal Operates business succession and M&A support professionals services in Accounting, and JURISTERRA (a global social media platform for lawyers) in Legal business Other Aiming for business growth in Other business VR Japan undertakes exclusive sales of Idealens through increasing registered members and Technology’s products, marketing, and platform company personnel operation in Japan In November 2019, VR Japan was named the authorized distributor in Japan for SKYWORTH S1 (VR headset) and expanded its lineup of products. It is also developing a low-latency, real-time VR transmission system. Professional Media, which runs recruitment site for professionals, plans to strengthen profitability of Kokukokutenshoku.com, a recruitment site for advertising and web professionals. Plans to apply same business model to recruitment of other professionals. Idrasys is the Japanese marketing arm of the SmartRobot™ AI platform, developed by Taiwanese company Intumit. It also developed and sells Forecasting Experience, an AI-enhanced cloud platform that helps forecast demand and provides tools for contract scoring. Economic Index provides data analysis and consulting services using proprietary methods that make improvement recommendations to clients and a solution service based on data analysis results. Source: Shared Research based on company data

Existing businesses The main contributors to the company’s operating profit are Creative and Technical (Japan), which accounted for 74.3% of sales and 62.9% of operating profit in FY02/20, and Medical Staffing, which accounted for 12.3% of sales and 35.4% of operating profit in FY02/20. In fact, the company sees growth potential for the Creative and Technical (Japan) and Medical Staffing segments over several years to come and, therefore, aims for about 10% CAGR in profits.

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Earnings growth of Creative and Technical (Japan) In Creative and Technical (Japan), Creek & River forecasts sales growth by keeping up with a growing order book in the existing businesses of visual, game, web, advertising, and publishing. Client companies of these businesses are increasingly outsourcing to shift fixed expenses to variable expenses, and Shared Research understands that Creek & River has been achieving earnings growth by capturing such outsourcing demand. Moreover, Shared Research thinks profit margins will improve as a result of higher profit due to sales growth.

In the five years from FY02/15 to FY02/20, Creative and Technical (Japan) business recorded CAGRs of 11.4% in sales and 10.3% in operating profit. FY02/20 included one-time losses, and if that impact (JPY160mn loss related to the new game Palette Parade, and JPY68mn from delays in the global distribution of South Korean games) were excluded, the CAGR for operating profit would have been 13.9%.

Earnings growth of Medical Staffing In the five years from FY02/15 to FY02/20, Medical Staffing recorded CAGRs of 8.3% in sales and 15.4% in operating profit.

Based on MHLW’s “Employment Referrals for General Workers,” the active job openings-to-applicants ratio for physicians in FY2018 was 4.51x, consistently exceeding 1.46x for all job categories. In the medium term, there are chronic doctor shortages all over Japan due to uneven regional distribution. Thus, the demand for doctors remains high, which we believe indicates significant growth potential for the Medical Staffing business.

In the medical field, the company, which has 17 nationwide offices as of April 2020, plans to increase the number as a growth strategy in the medium term. The company plans to operate nationwide doctor visit services after establishing new operation centers around the country.

As of April 2020, around 13,000 medical institutions in Japan were registered as clients. In the medium term, the company seeks to harness its relationship with these medical institutions to create new businesses, such as acting as an intermediary for buying and selling businesses that fulfill hospitals’ succession planning needs.

New business areas If the company is successful in establishing several new businesses starting in the Agency business as outlined in the table above, the growth in such new businesses should combine with expansion in existing businesses to produce strong earnings growth.

Upfront startup expenses for new businesses resulted in an operating loss of JPY330mn in FY02/19 (JPY215mn operating loss in FY02/18).

The e-book business turned into the black in FY02/16, and the architecture business turned profitable in FY02/18. In FY02/19, the fashion, chef, and professor (now computer science) agency businesses together posted an operating loss, which the company narrowed in FY02/20.

A summary of new businesses as of April 2020 is provided below.

New business 1: Agency operations in new fields In the area of agency operations in new fields, the architectural agency business launched in 2013 turned profitable in FY02/18. The architecture, fashion, chef, professor (now computer science), drone, and performing arts agency business posted a JPY100mn operating loss in FY02/19 versus a JPY170mn operating loss in FY02/18.

Architecture business With regard to the architecture business, which is mainly an architect referral service, the company launched a specialist website called “Architect Agency” in April 2013. The number of registered architects was about 2,600 in FY02/18.

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Creek & River has started a business of packaging design proposals for made-to-order houses submitted by registered architects and providing them to small- and medium-sized homebuilders. Its Creative Residence® brand, which has proposed and provided unique architect design services (including rental properties with golf and vegetable garden themes) to rental property owners from FY02/16, offered a portfolio of 12 architect-designed residences in FY02/19. Whereas previously the company’s business model consisted of providing designs and receiving a fee for design consultation or construction management services, Creek & River now has completed the process to become a registered architects’ office, which will make it possible to undertake design contracts.

Fashion designer agency business For the fashion designer agency business, in May 2013 the company launched a specialist website called “Fashion Creator Agency,” and began accepting registrations from designers and apparel companies. In October 2014, the company opened a fashion business information site SOW.TOKYO and is working on establishing the brand and strengthening the site’s capacity to communicate information. As yet another medium-term plan, the company may package ideas of registered designers and provide them to apparel makers in Japan, China, and South Korea.

In December 2013, the company made Inter Belle Inc. a consolidated subsidiary (included in the Other segment) after acquiring shares through a private placement.

Chef agency and professor agency businesses Creek & River started up the chef agency and professor agency businesses in FY02/16, which posted operating losses in FY02/19. In FY02/20, Creek & River aimed to make a profit at both the chef agency and professor (now computer science) agency businesses.

Performing arts agency business In March 2018, the company launched a performing arts agency business, where it provides networking services, produces performing arts events, undertakes corporate promotions, and acts as an agent for all manner of performing artists including theater actors, rakugo comic storytellers, singers, and magicians. In December 2018, the company also launched a “corporate history theater performance” service, in which professional actors perform plays telling the story of a company’s history or management philosophy. In future, Creek & River aims to establish a fund specifically for performing artists, as well as owning and operating theaters and producing theatrical companies. In October 2019, the company sponsored 2.5D performances of Shijushichi Taisen (winner of the 2018 Web Manga Sousenkyo contest) in Tokyo and Tottori as part of its efforts to increase opportunities for performing artists.

Researcher (now life sciences) agency business In February 2019, Creek & River launched an agency business for R&D support staff (researchers) to assist with R&D in the life sciences, including biology and chemistry. Clients include pure research departments at universities and major food and pharmaceutical manufacturers.

Other new agency businesses (CXO, athlete) Creek & River plans to launch CXO and athlete agency businesses in FY02/21.

▷ CXO agency: This business handles searches for CEOs, CFOs, and other corporate executives, with a focus on those with

experience at strategic consulting firms and director-level experience at listed companies.

▷ Athlete agency: This business supports retired athletes, including Olympic-level athletes and athletes retiring from

professional sports.

New business 2: New businesses in Medical Staffing (support for M&A, business succession, image diagnostics, and advertising) The company will operate a consulting business that will harness its relationships with 124,000 doctors and medical students and 13,000 medical institutions, to act as an intermediary for buying and selling businesses that fulfill hospitals’ succession planning

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needs. The consulting business will provide business support for the medical industry in areas such as the launch of medical institutions, business succession, establishment of new businesses, and hospital management.

New business 3: VR business In August 2016, the company established VR Japan (84.21% stake) with Wang Han (partner of investment fund New Margin Ventures, which is the top shareholder of Idealens Technology Co., Ltd.) to move into Japan’s virtual reality (VR) and augmented reality (AR) markets. VR Japan is the sole distributor of Idealens Technology’s VR head-mount displays (HMDs) in Japan and is also responsible for such things as marketing and platform operation. In addition, Creek & River is engaged in the planning and development of VR content.

In September 2019, VR Japan launched the IDEALENS K4 model of 4K HMD VR goggles with new functionality. In addition, in November 2019, the company was named the authorized distributor in Japan for SKYWORTH S1, a VR headset with a 4K resolution display which supports direct 8K VR reproduction, broadening its lineup.

New business 4: JURITERRA In April 2016, the company launched the beta version of JURISTERRA, a social media for lawyers worldwide. JURISTERRA is positioned as a social media platform connecting lawyers of all specialties around the world, with features that allow them to share knowledge and expertise with each other and communicate with clients. The platform is designed to help lawyers’ problem-solving, such as expanding their client base and scope of specialization, finding partners to work with, and strengthening their overseas/cross-border caseload.

New business 5: Professional Media Creek & River acquired shares in Professional Media, which operates Koukokutenshoku.com (a job board for the advertising and web industries), by third-party allocation and made it a subsidiary.

The company already has established a profit base for its media business centered on the advertising and web industry job board Koukokutenshoku.com, and now has expanded the same business model in the video and fashion industries in an effort to diversify its revenue.

New business 6: Idrasys Co., Ltd. In January 2018, the company established Idrasys Co., Ltd. (a company that provides system planning, development, sales, operation, and maintenance services using AI) with Taiwanese company Intumit Inc., whose main businesses are development and sales of AI platforms and robotic process automation (RPA). The company has an 80.11% stake in Idrasys.

In October 2017, Creek & River began exclusive sales in Japan of AI platform SmartRobot™* developed by Intumit. The company is offering a chatbot** that utilizes the platform as a solution to financial institutions, travel agencies, real estate agents, game companies, and companies in the leisure industry. In the past three years, four out of Taiwan’s five megabanks have adopted the platform, giving Intumit an extensive database (data count of 500mn). The company also provides consulting on the use of a range of other AI solutions, along with support services for the adoption of such solutions.

* SmartRobot™ is an AI platform that integrates voice synthesis, voice recognition, voice interaction, knowledge search, image recognition, and translation. It is used by 80% of major banks in Taiwan.

** Chatbot: A term combining “chat” and “robot” that refers to an automated chat program that uses AI.

New business 7: Economic Index Co., Ltd. Economic Index was founded in September 2012. The company provides data analysis and consulting services leveraging its own unique analysis methods that propose improvements to clients and solutions services based on data analysis results.

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The company made Economic Index an equity-method affiliate through a third-party allotment of shares in May 2015, and a consolidated subsidiary in February 2018, because its importance had increased.

New business 8: Other new services (drone business, language learning for professionals) Drone business Creek & River launched a drone business in March 2018. In this business, it provides support for the adoption and operation of drones, and training and referrals of personnel involved with drones. In November 2019, the company teamed up with drone developer Saitotec Co., Ltd., to conduct a drone drill with the Self-Defense Forces, using drones to transport and drop materials out of the direct line of sight of the operator.

Language learning for professionals In March 2019, the company launched a language-learning service for professionals in various fields to enhance their expertise and language abilities. At present, the service provides English lessons targeting physicians, medical translators, and others in the medical industry.

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Business

Business description

The company defines itself as an agency business. Given the main sources of earnings are its recruitment services such as temporary staffing and employment agency businesses, one could view Creek & River as simply an employment agency. However, President Yukihiro Ikawa’s ambition is broader—providing higher value-added services, including contracting/outsourcing and rights management (distribution of intellectual property).

By business The company’s business officially consists of the Agency, Production, and Rights management businesses. In FY02/20, the Agency business (temporary staffing and employment) accounted for the bulk of both sales and gross profits, at 53% (52% in FY02/19) and 65% (63% in FY02/19), respectively. The Production business made up 39% of sales (41% in FY02/19) and 27% of gross profits (29% in FY02/19), and the Rights management business accounted for the remaining 8% (7% in FY02/19) and 8% (flat YoY), respectively.

Over the past five years, the contribution of the Agency business (temporary staffing) has been declining, while those of the Agency (employment), Production, and Rights management business have been increasing.

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Sales by business (JPYmn) FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Sales 14,340 15,237 17,089 19,102 22,212 24,599 YoY - 6.3% 12.2% 11.8% 16.3% 10.7% Video-related work (TV and movie) 4,732 4,876 4,956 5,539 5,997 6,150 YoY - 3.0% 1.6% 11.8% 8.3% 2.5% % of sales 33.0% 32.0% 29.0% 29.0% 27.0% 25.0% Games 3,441 4,266 4,956 5,921 6,886 8,364 YoY - 24.0% 16.2% 19.5% 16.3% 21.5% % of sales 24.0% 28.0% 29.0% 31.0% 31.0% 34.0% Online and paper media 5,449 5,181 5,468 5,730 6,664 6,888 YoY - -4.9% 5.6% 4.8% 16.3% 3.4% % of sales 38.0% 34.0% 32.0% 30.0% 30.0% 28.0% E-books and YouTube 574 762 1,367 1,146 1,777 1,968 YoY - 32.8% 79.5% -16.2% 55.0% 10.7% % of sales 4.0% 5.0% 8.0% 6.0% 8.0% 8.0% Other 143 152 342 764 888 984 YoY - 6.3% 124.3% 123.6% 16.3% 10.7% % of sales 1.0% 1.0% 2.0% 4.0% 4.0% 4.0% Operating profit 804 719 1,083 1,155 1,072 1,315 YoY - -10.6% 50.7% 6.7% -7.2% 22.6% OPM 5.6%4.7%6.3%6.0%4.8%5.3% Video-related work (TV and movie) 418 345 390 323 257 316 YoY - -17.5% 13.0% -17.0% -20.4% 22.6% OPM 8.8%7.1%7.9%5.8%4.3%5.1% % of operating profit 52.0% 48.0% 36.0% 28.0% 24.0% 24.0% Games 257 446 552 693 708 631 YoY - 73.3% 24.0% 25.5% 2.1% -10.8% OPM 7.5% 10.4% 11.1% 11.7% 10.3% 7.5% % of operating profit 32.0% 62.0% 51.0% 60.0% 66.0% 48.0% Online and paper media 321 180 390 335 482 486 YoY - -44.1% 117.0% -14.1% 44.0% 0.8% OPM 5.9%3.5%7.1%5.8%7.2%7.1% % of operating profit 40.0% 25.0% 36.0% 29.0% 45.0% 37.0% E-books and YouTube -80 -50 54 92 204 184 YoY - -37.4% -207.7% 70.7% 120.4% -9.7% OPM -14.0% -6.6% 4.0% 8.1% 11.5% 9.4% % of operating profit -10.0% -7.0% 5.0% 8.0% 19.0% 14.0% Other -112 -201 -303 -289 -579 -302 YoY ------% of operating profit -14.0% -28.0% -28.0% -25.0% -54.0% -23.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Agency business The company acts as an agent between client companies and various specialists. The two contractual forms of the relationship are: temporary staffing (for short-term temporary positions such as for the duration of a project) and employment agency (or recruiter; for long-term positions).

▷ Temporary staffing: after an employment contract is signed between the client company and a specialist, Creek & River dispatches the specialist to client sites to perform work. The company invoices the wage amount plus its own management fee. In FY02/20, the Agency business (temporary staffing) accounted for 38% of sales (37% in FY02/19) and 26% of gross profit (25%), and had a GPM of 26.4% (25.7%). ▷ Employment agency: the company refers professionals who are registered to client companies. The business model is such that if the referred professional is hired directly by the employer as an employee of the client, then the client pays the company a fixed finder’s fee. In FY02/20, the Agency business (employment agency) accounted for 15% of sales (15% in FY02/19) and 39% of gross profit (38%), and had a GPM of 100.0% (97.7%).

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Production business The company assists clients in content production and other businesses, using its specialists to produce and manage visual, game and web content. In FY02/20, the Production business accounted for 39% of sales (41% in FY02/19) and 27% of gross profit (29%), and had a GPM of 26.6% (27.3%).

Rights management business The company distributes and manages copyrighted material produced mainly by the creative staff registered with it. In FY02/20, the Rights management business accounted for 8% of sales (7% in FY02/19) and 8% of gross profit (8%), and had a GPM of 38.5% (42.9%).

Segments Creek & River provides above three services in business segments of Creative and Technical (Japan), Medical, Accounting and Legal, and Other (including IT, fashion). The company’s roots are in the creative sector, which includes such areas as TV and cinematic production, web design, and computer game development. Subsequently, the company added new businesses in publishing (e-book distribution in Japan and the author agency business overseas), architecture, fashion, online creator, and other fields. As of April 2020, the company had new businesses such as chef, professor, drone, performing arts, VR, AI chatbot, and other new agency operations (CXO, athlete).

Segments and business description Segment Business description

Creative and Technical (Japan) Offers employment and temporary staffing, as well as outsourcing services targeting creators in visual, games, web, and publishing. Also includes publishing (e-book distribution in Japan and the author agency business overseas), architecture, fashion, and online creator businesses. Creative and Technical (South Consolidated subsidiary Creek & River Korea mainly engages in the Rights management business, licensing South Korea) Korean games for global distribution. In addition, consolidated subsidiary Creek & River Entertainment Co., Ltd., conducts temporary staffing for television stations. Medical Consolidated subsidiary Medical Principle Co., Ltd., provides medical specialist (mostly doctor) employment services. It also provides physicians and medical institutions with support services for M&A, clinic openings, business successions, and new business startups. Furthermore, it provides a diagnostic imaging knowledge service (Dokuei Shinan). Accounting and Legal Consolidated subsidiary C&R Legal Agency Co., Ltd., provides employment services for lawyers. Consolidated subsidiary JUSNET Communications Co., Ltd., provides employment and temporary staffing services for chartered accountants and licensed tax accountants Other IT Consolidated subsidiary Leading Edge Co., Ltd., provides employment and temporary staffing services for IT engineers Fashion Consolidated subsidiary Inter Belle Inc. operates the group’s agency business in the fashion industry.

Recruitment Consolidated subsidiary Professional Media operates recruitment sites specializing in advertising and Web media industries. VR Consolidated subsidiary VR Japan Co., Ltd., is marketing IDEALENS all-in-one VR headsets in Japan.

United States Consolidated subsidiary Creek & River Global develops and operates the legal networking social media platform JURISTERRA and provides consulting services China Consolidated subsidiary Creek & River Shanghai operates a rights management business in China

AI Consolidated subsidiary Idrasys Co., Ltd., operates the SmartRobot™ chatbot system business in Japan.

Data analysis Consolidated subsidiary Economic Index Co., Ltd., provides a data analysis service that proposes improvements to clients using unique analysis methods.

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Note: From Q1 FY02/19, the accounting and legal businesses which had been included in the Others segment became an independent reporting segment. Note: Starting in FY02/21, the company made Creative and Technical (South Korea), previously included in the Other segment, an independent reporting segment.

Sales and operating profits by segment

Segment sales and OP FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 14,137 15,458 17,533 20,612 22,926 24,909 26,581 26,709 29,569 32,946 YoY 8.3% 9.3% 13.4% 17.6% 11.2% 8.7% 6.7% 0.5% 10.7% 11.4% Creative (Japan) 9,311 10,019 11,196 13,236 14,340 15,237 17,089 19,102 22,212 24,599 YoY 4.5% 7.6% 11.7% 18.2% 8.3% 6.3% 12.2% 11.8% 16.3% 10.7% Creative (South Korea) 1,811 2,007 2,208 2,984 3,276 3,820 3,301 986 32 - YoY 14.9% 10.8% 10.0% 35.1% 9.8% 16.6% -13.6% -70.1% -96.8% - Medical 1,961 2,154 2,535 2,542 2,732 2,909 3,311 3,558 3,709 4,070 YoY 4.0% 9.8% 17.7% 0.3% 7.5% 6.5% 13.8% 7.5% 4.2% 9.8% Accounting and legal ------1,807 1,952 2,122 YoY -8.1%8.7% Other ------1,458 1,881 2,315 YoY - 29.0% 23.1% Accounting, Legal, IT, other 1,355 1,396 1,680 1,894 2,619 2,968 2,956 3,260 - - YoY 57.0% 3.0% 20.3% 12.7% 38.3% 13.3% -0.4% 10.3% - - Elimination or company-wide expenses -302 -118 -85 -43 -41 -25 -76 -201 -217 -160 Operating profit 287 637 992 1,093 1,296 1,178 1,610 1,806 1,579 2,084 YoY 102.1% 122.2% 55.7% 10.1% 18.6% -9.1% 36.7% 12.2% -12.6% 32.0% OPM 2.0%4.1%5.7%5.3%5.7%4.7%6.1%6.8%5.3%6.3% Creative (Japan) 184 454 621 772 804 719 1,083 1,155 1,072 1,315 YoY - 146.7% 36.6% 24.4% 4.1% -10.6% 50.7% 6.7% -7.2% 22.6% OPM 2.0%4.5%5.5%5.8%5.6%4.7%6.3%6.0%4.8%5.3% Creative (South Korea) 42 42 35 22 41 23 18 3 -32 - YoY 156.6% 0.5% -17.4% -37.6% 87.8% -43.0% -20.4% -85.0% - - OPM 2.3% 2.1% 1.6% 0.7% 1.2% 0.6% 0.6% 0.3% - - Medical 135 231 339 327 361 409 433 575 533 740 YoY -49.2% 71.9% 46.6% -3.6% 10.6% 13.3% 5.9% 32.8% -7.3% 38.8% OPM 6.9% 10.7% 13.4% 12.9% 13.2% 14.1% 13.1% 16.2% 14.4% 18.2% Accounting and legal ------148 146 233 YoY ------1.1%59.2% Other ------83 -150 -199 YoY ------Accounting, Legal, IT, other 12 -102 -12 -41 85 24 77 65 - - YoY ------71.6%216.5%-15.7%-- Elimination or company-wide expenses -86 12 9 13 5 2 -1 8 9 -5 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: From Q1 FY02/19, the accounting and legal businesses which had been included in the Others (IT, Legal, Accounting, other) segment became an independent reporting segment. Note: In Q2 FY02/19, the company changed Creek & River Entertainment Co., Ltd., from a consolidated subsidiary to an equity-method affiliate, so Creative and Technical (South Korea) was excluded as an independent segment in FY02/20. Then in January 2020, the company changed the capitalization of Creek & River Entertainment Co., Ltd., and made it a consolidated subsidiary once more. For this reason, starting with FY02/21, it has made Creative and Technical (South Korea) an independent reporting segment again.

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Group network Registered professionals Business area Company Year Clients and numbers

Creative and Creek & River Established in 1990 Creators: 85,000 15,000 companies Technical Creek & River Korea (South Established in 2001 Production: 1,000 Korea) Creek & River Shanghai Established in 2010 Professional Media Acquired in 2015 Creek & River Entertainment Established in 2016 Co., Ltd. (South Korea) Claytechworks Acquired in 2018

Publishing Creek & River Business started in 2012 e-book titles: 70,000 850 companies (Agency for e-books, Titles published overseas: copyrights, and authors) 5,000 Creek & River Shanghai Established in 2010

Medical Medical Principle Established in 1997 Physicians and medical 13,000 institutions students: 124,000

IT Leading Edge Established in 2000 IT engineers: 4,200 450 companies Economic Index Acquired minority stake in 2015 Idrasys Established in 2018

Legal C&R Legal agency Established in 2007 Lawyers, etc.: 13,200 1,200 offices/companies Creek & River Global Established in March 2016

Accounting JUSNET Communications Established in 2009 Accountants, etc.: 48,000 4,000 offices/companies

Architectural Creek & River Business started in 2013 Architects, etc.: 3,500 1,400 offices/companies (Architect agency)

Fashion Creek & River Business started in 2013 7,000 500 companies (Fashion creator agency) Inter Belle Acquired in 2013

Food Creek & River Business started in 2015 2,100 300 companies (Chef agency)

Computer Creek & River Business started in 2015 4,500 400 companies science (Computer science agency)

VR Creek & River Business started in 2016 - - (VR business division) VR Japan Established in 2016

Performing arts Creek & River Business started in 2018 500 100 companies (Performing arts agency)

Life sciences Creek & River Business started in 2019 600 100 companies (Life sciences agency)

Athletics Creek & River Business started in 2020 - - (Agency for retired athletes)

CXOs Creek & River Business started in 2020 - - (Executive search agency) Source: Shared Research based on company data

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Creative and Technical (Japan)

(In FY02/20: 74.3% of sales; 62.9% of operating profit)

The Creative and Technical business is run by parent company Creek & River and Claytechworks (established in 2018), and represents the core of the consolidated operations. Existing businesses include video-related work (TV and movies), games, website creation, advertising and publication agency, production, rights management, publishing (e-book distribution and author agency), architecture, fashion, and online creator operations. The company has also launched new chef, computer science, drone, performing arts, VR, language learning, and life sciences businesses. As of FY02/20, existing businesses comprise the majority of revenue and operating profit of the company.

Creative and Technical (Japan): sales and operating profit (JPYmn) FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Sales 14,340 15,237 17,089 19,102 22,212 24,599 YoY - 6.3% 12.2% 11.8% 16.3% 10.7% Video-related work (TV and movie) 4,732 4,876 4,956 5,539 5,997 6,150 YoY - 3.0% 1.6% 11.8% 8.3% 2.5% % of sales 33.0% 32.0% 29.0% 29.0% 27.0% 25.0% Games 3,441 4,266 4,956 5,921 6,886 8,364 YoY - 24.0% 16.2% 19.5% 16.3% 21.5% % of sales 24.0% 28.0% 29.0% 31.0% 31.0% 34.0% Online and paper media 5,449 5,181 5,468 5,730 6,664 6,888 YoY - -4.9% 5.6% 4.8% 16.3% 3.4% % of sales 38.0% 34.0% 32.0% 30.0% 30.0% 28.0% E-books and YouTube 574 762 1,367 1,146 1,777 1,968 YoY - 32.8% 79.5% -16.2% 55.0% 10.7% % of sales 4.0% 5.0% 8.0% 6.0% 8.0% 8.0% Other 143 152 342 764 888 984 YoY - 6.3% 124.3% 123.6% 16.3% 10.7% % of sales 1.0% 1.0% 2.0% 4.0% 4.0% 4.0% Operating profit 804 719 1,083 1,155 1,072 1,315 YoY - -10.6% 50.7% 6.7% -7.2% 22.6% OPM 5.6%4.7%6.3%6.0%4.8%5.3% Video-related work (TV and movie) 418 345 390 323 257 316 YoY - -17.5% 13.0% -17.0% -20.4% 22.6% OPM 8.8%7.1%7.9%5.8%4.3%5.1% % of operating profit 52.0% 48.0% 36.0% 28.0% 24.0% 24.0% Games 257 446 552 693 708 631 YoY - 73.3% 24.0% 25.5% 2.1% -10.8% OPM 7.5% 10.4% 11.1% 11.7% 10.3% 7.5% % of operating profit 32.0% 62.0% 51.0% 60.0% 66.0% 48.0% Online and paper media 321 180 390 335 482 486 YoY - -44.1% 117.0% -14.1% 44.0% 0.8% OPM 5.9%3.5%7.1%5.8%7.2%7.1% % of operating profit 40.0% 25.0% 36.0% 29.0% 45.0% 37.0% E-books and YouTube -80 -50 54 92 204 184 YoY - -37.4% -207.7% 70.7% 120.4% -9.7% OPM -14.0% -6.6% 4.0% 8.1% 11.5% 9.4% % of operating profit -10.0% -7.0% 5.0% 8.0% 19.0% 14.0% Other -112 -201 -303 -289 -579 -302 YoY ------% of operating profit -14.0% -28.0% -28.0% -25.0% -54.0% -23.0% Source: Shared Research based on company data Note: Sales and OP calculated by Shared Research based on percentage breakdown disclosed in company data. Note: The Other segment includes new agencies.

Existing operations (video-related work, games, web, advertising and publishing) To recap, Creek & River runs Agency, Production, and Rights management businesses that provide services to creators in the fields of video-related work (TV and movies), games, web, advertising and publishing.

Existing operations

Business Details

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Video-related (TV, movies, Agency services for creators, with skills that range from television production to movies, commercials, music videos, videos) and other videos. Specific jobs include producers, television directors, script writers, and camera operators. Young creators receive training via the company’s internship program prior to placement Games Agency services for creators. The company also develops its own social games and manages operations. Specific jobs include game producers, game designers, game programmers, and character designers Web Supports the needs of web creators, which include agency services to web production companies, along with planning, design, and operation of corporate and product websites. Specific jobs include web designers, planners, and writers Advertising and publishing Agency services for graphic designers, editors, copywriters, and editors. Also provide services for catalog and pamphlet production and outsourcing

Creators A creator refers to mostly freelance specialists working in areas such as audiovisual production, web development, game development, software application development, advertising, and publishing. In terms of specific professions, examples include TV and movie directors and producers, script writers, photographers, web designers, computer graphics (CG) designers, game programmers, copy writers, illustrators, etc. The definition applies to the company’s Creative and Technical operations in China as well. The number of creative staff registered with the company was about 85,000 at the end of FY02/20.

Clients The company’s clients include businesses that create and provide content, like TV stations, game development companies, website design companies, advertising agencies, and publishers, as well as general business firms that do not produce any content but only use it (examples of services here include promotional videos, web content, and printed materials). There were approximately 5,000 client companies as of end-February 2020. Breaking it down at the client level, the Agency business has a comparatively high share of clients who are TV stations, game companies, and advertising agencies, while the Production business generally has a higher share of companies in non-creative sectors as clients.

Existing business models The Agency, Production, and Rights businesses comprise the existing businesses within the Creative and Technical segment. In FY02/20, the Agency and Production businesses generated the majority of earnings.

Agency business In its Agency business the company mostly provides permanent and temporary staffing services, as well as outsourcing (subcontracting) services.

▷ Temporary staffing: After the company and an employee sign an employment contract, the company assigns the employee (creator) to perform services at the client’s place of business. The company invoices the wage amount (cost of sales [labor cost]) paid to the creator plus its own management fee (gross profit). Charges to clients vary depending on the desired skill sets of the creator, but it is normally in the 350,000–500,000 yen a month range. In this business, sales are the invoiced amounts sent to clients. The direct costs are wages paid to creators (labor cost). The gross profit margin is higher for the company, because it operates in specialized fields, than competitors that provide temporary office staff, such as Pasona Group Inc. (TSE1: 2168) or PERSOL Holdings Co., Ltd. (TSE1: 2181), where gross margins tend to be in the 15–25% range. ▷ Long-term and permanent staffing: The company introduces creative staff to clients and receives a fee when a permanent employment contract is signed. In some instances, professionals who are at the end of their temporary contracts may receive a permanent employment offer from the client. Employment service fees tend to be about 35% of the base annual salary and only the fees are booked as sales by Creek & River in its income statement. Since employment service fees have no cost of sales, gross profit is the same as sales booked, and GPM is 100%.

Production business (Outsourcing creative functions for clients)

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While in its staffing service the company mostly provides specialists to assist in production of creative work, in outsourcing Creek & River is involved in creation itself under contract from the client, starting from the concept and planning, and finishing with production. Actual examples of outsourcing projects include creating help-wanted ads for a recruitment company, TV show production, game development, and events that utilize characters or IP.

In outsourcing, the money paid by the client is booked as revenue, and the cost of revenue is wages paid to the employed individuals (or subcontractors if an external production team is used). According to the company, the gross profit margin is about 30% for this segment.

New businesses New businesses include architecture, fashion, chef, and professor operations. (See Future outlook). Creek & River also has become involved in VR (virtual reality) and IoT (Internet of Things), AI (Internet of Things and artificial intelligence).

Business models of new businesses

Business Details Architecture Introduces architects to clients and receives a finder’s fee. The company also provides these architects’ designs to rental property owners and receives a fee for design consultation or construction management services Fashion Introduces designers to clients and receives a finder’s fee. The company also plans to provide these architects’ works to apparel makers in Japan, China, and South Korea Chef Introduces chefs to clients for both permanent and temporary jobs and receives a management fee or finder’s fee. Also assists chefs in starting businesses, and provides production services (subcontracting and introduction) such as developing menus targeting food and beverage companies. Also in the pipeline are rights-management operations for the publishing of cooking-related books Computer science Provides job support services to researchers, e.g., professors and associate professors, assisting them with finding (research) sponsors and joint development partners for their research, aiding them in developing their intellectual property into products and services, and helping them with career upgrade in terms of employment, mid-career changes, and starting up businesses

VR Plans and develops VR content. Also sells and rents out VR head-mount displays (HMDs). Its rental service offers a one- stop solution, renting out HMDs, estimating the number of HMDs required, providing content, and dispatching

support staff (technicians). Performing arts Provides networking services, produces performing arts events, undertakes corporate promotions, and provides performing arts agency services for all manner of performing artists including theater actors, rakugo comic storytellers, singers, and magicians. In addition to agency services for performance artists, offers a “Dramatic Corporate History” service. Life sciences Provides agency services to R&D support staff (researchers) to assist with R&D in the life sciences, including biology and chemistry. Clients include pure research departments at universities and major food and pharmaceutical manufacturers. CXO Provides agency services to CEOs, CFOs, and other corporate executives, with a focus on those with experience at strategic consulting firms and director-level experience at listed companies. Athlete Provides agency services to retired athletes, including Olympic-level athletes and athletes retiring from professional sports.

SG&A expenses in Creative and Technical business in Japan In terms of SG&A costs for the Creative and Technical business in Japan, the company spends very little on attracting its registered staff. It does not advertise itself on TV, relying instead on word-of- mouth and its own portal-type website. The main cost component, particularly pronounced in the case of small outsourcing projects, is sales personnel expense. The company refers to its salespeople as “agents.” Creek & River agents are responsible for developing new clients, writing proposals, negotiating contracts, managing the projects, and confirming final product delivery. The parent company employed approximately 250 agents as of February 2020. These agents are divided into groups by client type, e.g. TV stations, game companies, advertising agencies, and others, and handle both staffing and outsourcing requests. The company spends a trivial amount on recruiting creators. Creators are mainly recruited via portal sites without the use of television commercials, and prior to establishing portal sites, most were recruited via word-of-mouth.

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SG&A costs for the parent (Creative and Technical business in Japan) A FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. SG&A expenses 2,279 2,487 2,783 3,298 3,738 4,364 5,245 5,599 SG&A ratio 20.4% 18.8% 19.4% 21.6% 21.9% 22.8% 23.9% 23.5% Personnel expenses 1,101 1,259 1,519 1,784 2,001 2,370 2,719 2,996 % of sales 9.8% 9.5% 10.6% 11.7% 11.7% 12.4% 12.4% 12.6% % of SG&A expenses 48.3% 50.6% 54.6% 54.1% 53.5% 54.3% 51.8% 53.5% Salaries and allowances 743 825 988 1,148 1,229 1,412 1,547 1,697 Provision for bonuses 62 56 67 81 108 97 113 131 Provision for retirement benefits 1111141516218332 Other salaries 138 195 243 289 367 510 607 729 Legal welfare expenses 146 172 207 251 280 330 369 407 Rents 307 300 277 262 261 261 392 538 % of sales 2.7% 2.3% 1.9% 1.7% 1.5% 1.4% 1.8% 2.3% % of SG&A expenses 13.5% 12.0% 10.0% 7.9% 7.0% 6.0% 7.5% 9.6% Others 871 928 986 1,252 1,477 1,733 2,134 2,066 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Number of employees at Creative and Technical business in Japan (JPYmn) FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Number of employees 153 177 211 237 255 352 825 872 Number of temporary employees 40 63 80 93 104 110 104 100 Source: Shared Research based on company data Note: Personnel expenses per employee were calculated by diving personnel expenses by the average of the number of employees at the beginning and end of a fiscal year. Note: In FY02/19, the number of employees increased due to the conversion of professional staff into full-time employees.

Medical Staffing

(In FY02/20: 12.3% of sales; 35.4% of operating profit)

Consolidated subsidiary Medical Principle Co., Ltd., established in 1997 (Creek & River holds a 100% stake in the company) provides medical specialist employment services.

Professionals The personnel targeted by Medical Principle include physicians, resident physicians, and medical students. The company targets doctors who work as hospital or clinic employees, rather than physicians with private practices (doctors who operate their own clinics or hospitals). The company also targets part-time physicians. As of April 2020, approximately 124,000 physicians and medical students were registered with the company. Japan has approximately 327,000 registered physicians (Ministry of Health, Labour and Welfare, 2018), meaning that nearly 40% of physicians are registered with the company.

Registered physicians and medical students

Source: Shared research based on Medical Principle Co., Ltd., data

Clients Medical Principle’s clients are medical institutions throughout the country, healthcare related firms, and government organizations employing physicians. As of April 2020, roughly 13,000 institutions—which include hospitals and clinics—were

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registered with the company. Concerning hospitals specifically, the number of hospitals in Japan was 8,357 as of end-December 2018 (Ministry of Health, Labour and Welfare); it appears that a significant number of hospitals utilize the company’s services.

Client medical institutions

Source: Shared Research based on Medical Principle Co., Ltd., data

Business details Physician services (Minkan Ikyoku) The company mainly provides permanent staffing services (recruiting services) for physicians, resident physicians, and medical students in this segment as temporary staffing services are not allowed under the law. The company provides its services under the Minkan Ikyoku brand, which roughly translates into English as a “Private Medical Office.” In reality, the service it offers is actually a referral service (introductions) for physicians to hospitals they are interested in for permanent (long-term) employment rather than an actual private-sector medical practice.

Ikyoku—literally a medical office—is a practice unique to the Japanese medical community. It refers to a group in charge of physician hiring and placement decisions at university (medical school) hospitals. Such groups exist in each medical department and are hierarchically organized with a university professor, the head of that particular department, at the top, followed by assistant professors, instructors, assistants, physicians, residents and graduate students in that order. Ikyoku groups are not limited to within one university hospital, but often cover affiliated hospitals.

The ability of physicians to change their professional affiliation more flexibly has been growing since 2004, because of new policies introduced by the Ministry of Health, Labor and Welfare (such as the New Resident Physician Policy). Prior to 2004, the ikyoku system held more power. For instance, doctors that graduated from a certain university hospital would normally rotate every 2-3 years from hospital to hospital within their particular ikyoku network. Medical Principle owes its existence to the increased mobility of medical specialists made possible by deregulation that started in 2004.

Services for medical students and residents (Resinavi) The company hosts joint presentation meetings for medical students and residents and provides information online.

▷ Resinavi Fair: Teaching hospital joint presentation meetings are held at nine venues nationwide (including Tokyo, Osaka,

Fukuoka, Nagoya, Sendai, and Kanazawa). Participating hospitals provide explanations of their clinical resident training and

senior resident training programs. According to the company, 95% of Japanese medical students and nearly all of Japan’s

600 hospitals with clinical resident training programs participate in its Resinavi fairs.

▷ Resinavi Web: The company provides information online about clinical resident training programs for medical students and

senior resident training programs for residents.

Revenue structure If a staff doctor who is registered with the company moves from hospital A to hospital B, then the revenue to the company is determined by the expected annual salary of the doctor at hospital B. According to the Basic Survey on Wage Structure compiled by the Ministry of Health, Labour and Welfare, the average annual compensation for physicians during 2019 was JPY11.7mn.

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If a part-time physician splits time between hospital A and hospital B, the company’s revenue is determined according to the income of the part-time physician at each hospital.

Part-time physician: This refers to a physician who, while working at a university hospital or other facility, takes short-term or part-time work at another medical institution when their schedule permits.

Because the full-time physician job-change referral and part-time physician job referral operations are based on commission, sales amount and gross profit is nearly identical.

Number of contracts (physicians and nurses)

Source: Shared Research based on company data

The company says, similar to the approach used at its Creative and Technical segment, it does not spend heavily on advertising and promotions to encourage physicians to register with it. However, the company does host joint presentation meetings at hospitals nationwide where it invites attending medical students to register.

Accounting and Legal

(In FY02/20: 6.4% of sales; 11.1% of operating profit)

In Accounting and Legal, consolidated subsidiaries JUSNET Communications Co. and C&R Legal Agency Co. run an agency business for accountants and lawyers, respectively. In this business, Accounting area is main (in FY02/20, Accounting accounted for a 5.6% of consolidated sales [5.8% in FY02/19] and 8.3% of operating profit [7.6%] and the ratio of sales and operating profit in the Legal area is limited.

Accounting Established in 1996, JUSNET Communications Co. is 100.0% owned by Creek & River after becoming part of the company’s group in 2009. The subsidiary provides permanent and temporary staffing, and outsourcing services for chartered accountants and licensed tax accountants. Clients include accounting firms, licensed tax accounting offices, and general businesses. As of end February 2020, the company has 42,000 registered accountants and 4,000 client firms.

Legal Established in 2007, C&R Legal Agency Co. provides permanent and temporary staffing for lawyers and paralegals. Creek & River holds a 90.0% stake in the company, which has about 900 client companies and offices, including law firms and general-purpose businesses, and 11,900 lawyers registered with it as of end-February 2020. As of March 2019, there were around 41,000 lawyers in Japan according to the Japan Federation of Bar Associations website. This means around 29% of all lawyers in Japan are registered with the company.

Other (IT, fashion, others)

(In FY02/20: 7.0% of sales, JPY199mn operating loss)

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The Other segment includes IT, fashion (Inter Belle), and recruitment media (Professional Media), as well as new businesses such as VR Japan, Idrasys, and Economic Index.

IT Established in 2000, Leading Edge Co. provides permanent and temporary staffing, and production services for IT engineers. Creek &River holds a 99.9% stake in the company. Client firms include manufacturers, vendors, system integrators, and general businesses. From FY02/16 onward, the company plans to strengthen initiatives to dispatch and train more technicians, particularly to become adept at using the Python programming language. As of February 2020, the company had 4,000 registered IT engineers and 400 client companies.

Fashion Inter Belle Inc. (established in 2005; owned 90.9% by Creek & River; acquired in 2013) provides human resource, training, and consulting services for the apparel industry.

Recruitment Media Professional Media Co., Ltd. (established in 2015; 94.1% owned by Creek & River) operates Koukokutenshoku.com (a job board for advertising and web professionals) and Creative-Haken.com (a dispatch site), and also runs a recruitment business.

Creative and Technical (South Korea) Creek & River Korea Co., Ltd., mainly engages in the Rights management business. From May 2018, it began a Japan-South Korea joint publishing business in collaboration with the Creative and Technical (Japan) business to distribute popular South Korean smartphone games in Japan. The company plans to categorize such operations as Creative and Technical (South Korea) starting in FY02/21.

New businesses In new business areas, the Other segment encompasses VR Japan Co., Ltd., Idrasys Co., Ltd., and Economic Index Co., Ltd., whose operations are as outlined below.

Business models for new businesses

Company name Business description and business model VR Japan Co., Ltd. Sole distributor in Japan of head-mount displays (HMDs) from China’s Idealens Technology Co., Ltd. Idealens (company’s stake, 81.8%) Technology’s HMDs are distinguished from rival products in that they are cordless and easy to use. They are mainly being installed in training facilities. VR Japan began selling the IDEALENS K4 VR headset with a 4K resolution display in September 2019, followed in November 2019 by the SKYWORTH S1 VR headset with a 4K resolution display that supports direct 8K VR reproduction. Idrasys Co., Ltd. Conducting R&D for systems developed for use in Japan using AI as well as strengthening services and product (company’s stake, 80.1%) development for the Japanese launch of SmartRobot™, an AI platform developed by Taiwan-based Intumit. Idrasys strengthened marketing of SmartRobot™ in Japan, centered on chatbot—automated chat program utilizing SmartRobot™. Economic Index Co., Ltd. Provides data analysis service and consulting (suggesting measures for clients to improve on the basis of unique (company’s stake, 27.6%) methods of analysis), and solution services based on the results of data analysis.

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Cost structure

A FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY 02/ 20 (JPYmn) Par.Par.Par.Par.Par.Par.Par.Par.Par.Par. Sales 9,311 10,019 11,196 13,236 14,340 15,237 17,089 19,102 21,937 23,863 YoY 4.5% 7.6% 11.7% 18.2% 8.3% 6.3% 12.2% 11.8% 14.8% 8.8% Cost of sales 7,094 7,535 8,296 9,977 10,753 11,220 12,268 13,582 15,550 16,847 YoY 4.8% 6.2% 10.1% 20.3% 7.8% 4.3% 9.3% 10.7% 14.5% 8.3% Cost ratio 74.1% 75.4% 75.0% 73.6% 71.8% 71.1% 70.9% 70.6% Outsourcing costs 2,547 2,389 3,214 3,038 3,605 3,316 3,355 3,972 4,194 4,326 Labor costs 4,590 5,148 5,559 6,085 6,643 7,183 7,604 8,341 9,622 10,768 Other costs -43 -2 -477 855 504 721 1,308 1,270 1,546 1,818 Gross profit 2,217 2,484 2,900 3,259 3,587 4,017 4,821 5,519 6,388 7,016 GPM 23.8% 24.8% 25.9% 24.6% 25.0% 26.4% 28.2% 28.9% 29.1% 29.4% SG&A expenses 2,033 2,030 2,279 2,487 2,783 3,298 3,738 4,364 5,245 5,599 SG&A ratio 21.8% 20.3% 20.4% 18.8% 19.4% 21.6% 21.9% 22.8% 23.9% 23.5% Personnel expenses 973 960 1,101 1,259 1,519 1,784 2,001 2,370 2,719 2,996 % of sales 10.4% 9.6% 9.8% 9.5% 10.6% 11.7% 11.7% 12.4% 12.4% 12.6% % of SG&A expenses 47.8% 47.3% 48.3% 50.6% 54.6% 54.1% 53.5% 54.3% 51.8% 53.5% Salaries and allowances 743 825 988 1,148 1,229 1,412 1,547 1,697 Provision for bonuses 62 56 67 81 108 97 113 131 Provision for retirement benefits 1111141516218332 Other salaries 138 195 243 289 367 510 607 729 Legal welfare expenses 146 172 207 251 280 330 369 407 Rents 324 307 307 300 277 262 261 261 392 538 % of sales 3.5% 3.1% 2.7% 2.3% 1.9% 1.7% 1.5% 1.4% 1.8% 2.3% % of SG&A expenses 16.0% 15.1% 13.5% 12.0% 10.0% 7.9% 7.0% 6.0% 7.5% 9.6% Others 736 762 871 928 986 1,252 1,477 1,733 2,134 2,066 Operating profit 184 454 621 772 804 719 1,083 1,155 1,142 1,417 YoY - 146.7% 36.6% 24.4% 4.1% -10.6% 50.7% 6.7% -1.1% 24.0% OPM 2.0%4.5%5.5%5.8%5.6%4.7%6.3%6.0%5.2%5.9% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

The cost structure analysis is based on the parent company numbers.

Gross profit margin (GPM) GPM from FY02/11 to FY02/20 ranged from 23% to 30%. Changes in spread (billing rates for clients minus pay rates for creators) and the respective sales weightings of permanent staffing, temporary staffing, and outsourcing are the main factors affecting GPM. GPM has been on an upward trend after the company started up its own TV/game/web production studio to lower the subcontracting ratio.

Operating profit margin (OPM) Looking at parent OPM, the picture is different. The company booked operating losses in FY02/10. Shared Research believes this is due to the high ratio of fixed SG&A costs, with personnel costs and rent accounting for around 60%. For the company’s OPM to improve it needs to increase sales while maintaining headcount, in other words, increase sales per agent. Shared Research thinks while the overall economic environment obviously impacts sales productivity, it is extremely important for the company to find ways to increase the inherent productivity of its sales force. Looking for sales and project/client management approaches that match the profitability of individual projects (particularly in outsourcing) appears to be an important task for management.

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Strengths and weaknesses

Strengths

◤ Brand recognition and track record in Creative and Technical and Medical Staffing. Creek & River has a solid reputation in both of its core business areas, to such an extent that it attracts new members with minimal advertising. That word-of-mouth is the main channel for attracting new candidates suggests the company is the de facto choice for workers in those industries who are looking for job placement assistance.

◤ President Yukihiro Ikawa’s unique insights and ideas. In our view, Ikawa’s personal experience as a freelance specialist provided him with firsthand knowledge of the challenges connecting creative staff with the firms that need those skills. His insight that other specialists (like medical doctors) may face similar challenges has been a key contributor to the company’s growth, leading him to start the company’s Medical Staffing business and inspiring the company to create new businesses.

◤ Highly unique business structure. Creek & River’s structure (part-staffing agency, part-talent agency) is part of what makes the company successful. The company is able to provide a “one-stop shop” for client firms that need skilled creative staff for a short term, and also connect companies with permanent staffing needs with qualified specialists. In Shared Research’s understanding, there are no other competitors that offer these types of services in similar areas.

Weaknesses

◤ Ongoing losses in new businesses. Since the 2010s, Creek & River has established a range of new businesses, including agency businesses and e-book and VR businesses, in connection with which it continues to book expenses. In FY02/20, these new businesses had a negative impact of JPY605mn on operating profit (including JPY220mn in one-time game-related expenses). Of these new businesses established in the 2010s, the one that contributes the most to earnings is the e-book publishing business, which contributed just 6.3% of consolidated sales and 8.8% of consolidated operating profit in FY02/20. The company’s management policy calls for expanding the scope of these businesses, for example by enlarging specialist fields and deepening business content, but entry into new businesses will continue to have a negative impact on operating profit in the short term.

◤ Issues with execution. While Ikawa’s ideas are one of the company’s strengths, only a limited number of projects and businesses actually contribute to earnings. Without proper execution, great ideas may remain just that and could also turn into a source of distraction from core business operations. Shared Research sees this as a weakness because competitors who lack Creek & River’s creative spark could try to become “fast followers” and benefit from Creek & River’s innovative thinking.

◤ Rights management business still a work-in-progress. The company positions the Agency business (temporary and long-term staffing), the Production business (subcontracting and outsourcing), and the Rights business (intellectual property management) as its core operations. It is probably fair to say that the Production and Right businesses are more difficult to handle than the Agency business. Although the company appears to be approaching the completion of a Production business model, as of April 2020 it seems the Rights management business has yet to have the right model, as its earnings contribution remains below 10%.

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Market and value chain

Market overview

Advertising industry sales and IT service industry sales trends

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (JPYbn) GDP YoY -1.1% -5.4% 4.2% -0.1% 1.5% 2.0% 0.4% 1.2% 0.5% 2.2% 0.3% 0.7% Advertising industry sales 5,522 4,708 4,737 5,163 5,424 5,565 5,768 5,924 6,089 5,999 5,952 5,911 YoY -5.9% -14.7% 0.6% 9.0% 5.0% 2.6% 3.7% 2.7% 2.8% -1.5% -0.8% -0.7% TV 1,573 1,388 1,418 1,434 1,488 1,493 1,546 1,519 1,544 1,524 1,502 1,461 YoY -4.3% -11.8% 2.2% 1.1% 3.8% 0.4% 3.5% -1.8% 1.7% -1.3% -1.4% -2.7% % of total advertising industry sales 28.5% 29.5% 29.9% 27.8% 27.4% 26.8% 26.8% 25.6% 25.4% 25.4% 25.2% 24.7% IT service industry sales 11,204 10,535 10,150 9,881 10,120 10,326 10,633 10,797 10,993 11,322 11,584 12,064 YoY 0.2% -6.0% -3.7% -2.7% 2.4% 2.0% 3.0% 1.5% 1.8% 3.0% 2.3% 4.1% Source: Shared Research based on Ministry of Economy, Trade and Industry data Note: Advertising Industry includes newspaper, magazine, TV, radio, and internet. Note: IT service includes software development, programming, information processing, software, and system integrators.

The above table summarizes statistical data relevant for assessing the business environment of Creek & River’s Creative and Technical business. There are a couple of conclusions that one can draw from the data above. First, such client businesses as TV stations, web design companies, advertising agencies, and system integrators are substantially and immediately affected by macroeconomic trends. Therefore, Creek & River’s Creative and Technical and IT Staffing businesses will also tend to fluctuate with changes in macroeconomic factors.

However, precisely because client companies are sensitive to macroeconomic trends, they have a tendency to rely on outsourcing to shift fixed expenses to variable expenses. Shared Research understands that Creek & River has been achieving earnings growth by capturing such outsourcing demand.

Job-to-applicant ratio trends for physicians and medical nurses

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 （(times) Job-to-applicant ratio: Overall 0.77 0.45 0.56 0.68 0.82 0.87 1.00 1.11 1.25 1.38 1.46 For doctor, dentist, veterinarian, pharmacist 6.27 5.70 5.46 5.71 6.71 6.91 6.54 6.07 5.89 5.41 4.51 For nurse, midwives, obstetric nurse 2.42 2.36 2.54 2.76 2.78 2.69 2.602.542.432.332.28 Source: Shared Research based on Ministry of Health, Labour and Welfare data

The job-to-applicant ratio for physicians and medical nurses is well above that of other fields, and seems unaffected by economic trends. There is clearly persistently strong demand for doctors and nurses independent of what the economy is doing. If the company could work effectively to meet such demand then there is probably room for stable growth in Medical Staffing.

Market size of new business initiatives

Domestic e-book market

(JPYbn) 500

450 461.0 442.8 400 421.5 393.5 350 362.2 300 312.2 250 255.6 200 227.8

150 182.6 141.1 100 101.3 76.8 50 65.1

0 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 forecast forecast forecast forecast forecast Source: Shared Research based on Impress Media, ICT Research & Consulting data Note: Estimates for FY2019 onward

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The e-book market, which is the focus of a business initiative by the company, is anticipated to continue expanding, driven by the penetration of smartphones, tablets and e-book reader devices.

According to Impress Corporation, the Japanese e-book market (including e-magazines) grew to JPY312.2bn in FY2018 (+12.2% YoY). Impress Corporation forecasts that the Japanese e-book market will continue to grow at a CAGR of 8.1%, hitting about JPY461bn in FY2023.

Advertising video market to expand fourfold in five years The advertising video market, the main earnings source of the company’s online creator business, is expected to grow at a CAGR of 22% through 2023.

According to a survey jointly conducted by Online Video Soken (run by Cyber Agent, Inc. (TSE1: 4751)) and Digital InFact, Japan’s advertising video market was worth JPY259.2bn in 2019 (+40.6% YoY). Smartphone video ads totaled JPY229.6bn, or 89% share of the market. Japan’s advertising video market is projected to grow at a CAGR of 22.4% to reach JPY506.5bn in 2023.

Advertising video market growth projection

(JPYbn)

600.0

506.5 500.0 447.0

388.8 400.0 328.9

300.0 259.2

200.0 184.3 137.4

100.0

0.0 2017 2018 2019 2020 2021 2022 2023 Source: Shared Research based on Online Video Soken and Digital InFact data

Barriers to entry

Starting a business similar to Creek & River’s is relatively simple. However, the network of clients and staff the company has built over the years cannot simply be duplicated overnight. On the other hand, the company has also entered into new low barrier to entry areas in other areas itself and is a smaller operator in these segments, such as legal, IT, and accounting staffing.

Competition

No other companies appear to be providing a wide variety of creative staffing services similar to Creek & River. However, there are a number of listed production companies like Tohokushinsha Film Corp. (JASDAQ: 2329) and AOI TYO Holdings (TSE1: 3975). Also, in many cases Creek & River clients have a choice of doing the work using internal resources, or employing staff not registered with the company (e.g. freelancers available through informal networks). Therefore, it is probably fair to say that despite the company’s unique business structure, it operates in a highly competitive environment.

In the Medical Staffing segment, competitors include M3 Career, a subsidiary of M3, Inc. (TSE1: 2413), and Doctor’s Career, a group company of Recruit Holdings (TSE1: 6098). A large number of firms of various sizes have been entering the market recently.

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Strategy Horizontal (specialists) and vertical (business) expansion In his thinking about the business, President Ikawa relies on his early experiences and focused on the difficulties that even very talented freelance specialists face in marketing their skills and securing clients. The company’s strategy has been to create a win- win proposition for all sides involved, staff, clients, and Creek & River itself, by marketing the skills of its registered staff.

Creek & River future vision

Source: Shared Research based on company data

Expansion of specialized fields The company believes all professionals share similar challenges in terms of professional networking, and this has underpinned its gradual expansion into different sectors such as creative, medical, IT, legal, accounting, architectural, fashion-design, culinary chefs, producers, performing artists, and researchers (research support staff]) Creek & River plans to expand into a total of 50-some fields where Japan is thought to be internationally competitive. Along with an expansion in business fields, the number of clients (around 38,000 companies/offices as of February 2020) is also rising. According to the company, new services can also be marketed to existing clients. Thus, the 50 fields can be expected to produce synergies with existing operations.

Network of 292,750 professionals

Source: Company data

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Adding depth, increasing value-added The company is also making steady progress toward adding value in the fields where it already operates, including its personnel placement agency business (temp services and job placement), contract production business (contracting and outsourcing), and rights management business (intellectual property). The rights management business distribution of internally developed games, overseas distribution, and overseas copyright distribution.

For FY02/20, agent businesses and production businesses comprised most of the company’s sales and profits. The rights- management operations comprised less than 10% of the company’s overall business in the latest fiscal year. However, the company wants to expand its operations in the medium to long term.

Sales (left) and gross profit (right) breakdown

Rights Rights management, management, other other 8.0% 8.0% Agency: Temporary staffing 26.0% Agency: Temporary staffing Production 38.0% (contracting and outsourcing) 27.0% Production (contracting and outsourcing) 39.0%

Agency: Agency: Employment Employment 15.0% 39.0%

Source: Shared Research based on company data

The table below shows the company’s status in various business fields as of year-end FY02/20.

Creek & River business mapping Movies Movies TV Games Web Publishing VR IT Medical Accounting Architecture Fashion Legal chefs Culinary Research Athletes CXOs

Rights ○ ◎ ◎ ○ ○ ○ ○ ○ managements

Production ◎ ◎ ◎ ◎ ○ ○ ○ ◎ ◎ ○ × ○ ○ (contract)

Agency ◎ ◎ ◎ ◎ ◎ × ◎ ◎ ◎ × ○ ○ ○ ○ (Temp)

Personnel agency ◎ ◎ ◎ ◎ ○ ◎ ◎ ◎ ◎ ◎ ◎ ◎ ○ ○ (recruiter) Source: Shared Research, based on company data Note: ◎ denotes mainstay businesses; ○ denotes new business; × denotes businesses the company cannot legally pursue

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Historical performance

Q1 FY02/21 results

▷ Sales: JPY9.5bn (+15.2% YoY) ▷ Operating profit: JPY1.0bn (+33.2% YoY) ▷ Recurring profit: JPY1.1bn (+34.5% YoY) ▷ Net income*: JPY710mn (+40.1% YoY) *Net income attributable to owners of the parent

Sales were up across all segments, driven mainly by (1) its Agency business under the Creative and Technical (Japan) business, which includes temporary staffing and recruiting services; and (2) its Rights business, which includes rights management for YouTube videos and e-books. Sales also got a boost from the addition of Creek & River Entertainment Co., Ltd. to consolidated results following changes in the capital structure of this agency business, which provides services to TV stations in South Korea. Without the addition of Creek & River Entertainment, Q1 consolidated sales would have risen 5% YoY.

On the profit front, the company reported double-digit growth from the operating profit level on down thanks to top-line growth and the improving profitability driven by progress in new businesses. Curtailment of SG&A expenses with the help of various work-style reforms of executives and employees, including the move to do more tasks online, also contributed to profit growth.

▷ The company reported Q1 gross profit of JPY3.8bn (+10.0% YoY). The gross profit margin fell 1.9pp YoY to 39.6%, with the decline attributable to the inclusion of the lower-margin businesses of Creek & River Entertainment in consolidated results.

Without Creek & River Entertainment, Shared Research understands the Q1 gross profit margin would have been up YoY thanks to the higher rates for certain types of work and technical skills that the company negotiated with the client companies to which it was sending temporary staff. ▷ New businesses reported a combined operating loss of JPY136mn (versus a loss of JPY225mn in Q1 FY03/20). Most of the improvement stemmed from the dropout of JPY50mn in development expenses at Claytechworks for the new smartphone game Palette Parade and the dropout of JPY30mn in expenses related to the startup of its Game Academy training program, both of which were booked in Q1 FY03/20. ▷ Q1 SG&A expenses of JPY2.7bn were up 3.0% or JPY80mn YoY. Of this, personnel expenses of JPY1.7bn was up only 2% or JPY40mn YoY, despite additions to employee headcount. To bolster existing businesses and support launch of new businesses

at each segment, employee headcount expanded to 1,914, an increase of 10% or 175 employees YoY. Advertising and promotion expenses, and expenses to facilitate remote work totaled JPY510mn, up 10% or JPY50mn YoY. Travel, meeting, and entertainment expenses came to JPY30mn, down 50% or JPY30mn YoY.

The COVID-19 pandemic reduced Q1 sales by JPY300mn and operating profit by JPY120mn. While its businesses in some areas were affected by the pandemic-related restrictions—particularly its Medical Staffing business, which was forced to cancel events for medical students, and its management agency business, which was hurt by the suspension of operations at apparel stores due to temporary closures of department stores—some of its other professional agency businesses absorbed any negative impact and pushed ahead with initiatives that will lead to future growth.

▷ At its Medical Staffing business, the company estimates that the pandemic reduced Q1 sales by JPY200mn and operating profit by JPY100mn. This reflects cancelations its Resinavi fairs for medical students and residents, and reduced demand for contract physicians for short-term positions. Going forward, the company will work to restore the revenue stream from its Resinavi fairs by holding the event online.

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▷ Consolidated subsidiary Inter Belle, which operates the group’s agency business in the fashion industry, took a hit from shutdown of department stores and other retailers amid the pandemic. Consolidated subsidiary VR Japan was also affected as orders for head-mounted displays from customers were canceled following the halt in production at China-based Idealens Technology. They had a combined negative impact of JPY100mn on sales and JPY20mn on operating profit.

Versus full-year FY02/21 company forecast, Q1 sales reached 23.7% (Q1 FY02/20 sales reached 25.0% of full-year results), operating profit 40.4% (37.8%), recurring profit 40.9% (37.6%), and net income attributable to owners of the parent 44.4% (37.3%). Q1 left the company on track to meet its full-year targets. As detailed above, the pandemic reduced sales by JPY300mn and operating profit by JPY120mn. In this relation, the company successfully offset the negative impact with higher gross profit thanks to negotiated rate hikes in the staffing business and better cost control at the SG&A expense level through efforts such as moving more tasks online. Notwithstanding, the company says there are still uncertainties surrounding the outlook for earnings in Q2 and beyond, as the lingering impact of the pandemic is likely to lead to reductions in order flows from client companies and delays in screening of job applicants.

The breakdown of results by business, detailed below, show the Creative and Technical (Japan) and the Creative and Technical (South Korea) segments driving growth in sales, and the Creative and Technical (Japan) segment driving growth in profit.

Note: Starting in Q1 FY02/20, the Creative and Technical (South Korea) business, which had been included in the Other segment became an independent reporting segment. The YoY comparisons below reflect the new segment classifications.

Creative and Technical (Japan)

▷ Sales: JPY6.3bn (+6.0% YoY) ▷ Operating profit: JPY546mn (+58.7% YoY)

At the Creative and Technical (Japan) segment, both sales and profit grew YoY, driven largely by its games business. Profit rose due in part to the dropout of the development expenses for the new smartphone game Palette Parade at Claytechworks and the absence of the expenses related to the startup of the company’s Game Academy training program, both of which were booked in Q1 FY02/20.

Video, TV, and video technology-related businesses

▷ Sales and profit fell YoY in the video, TV, and video technology-related businesses, hurt by the drop in contract production work for television shows, which was partly offset by increases in sales and profit from its temporary staffing and personnel

recruiting businesses. However, the company says Q1 earnings were in line with expectations, and it expects to win new contracts for television show production work in 2H. ▷ The company strengthened TV show planning and production mainly at its production studios, stepped up content for its video distribution service, and responded to the increase in demand for shows on BS and terrestrial television such as variety shows, educational programs, and documentaries. ▷ Services were expanded to include TV director training courses and networking broadcasters all around Japan, and the number of television production staff increased. Registrations for EIZOshigoto.com, a job information site specializing in the visual media industry, also increased.

YouTube Online Creators (OC)

▷ At YouTube Online Creators, the company saw a steady rise in the views of uploads by YouTubers and won more contracts to operate YouTube channels for companies and television programs.

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▷ It has been planning, producing, and managing the YouTube channel ULTRA TEENS Channel, which is popular among teenagers, since March 2019 in collaboration with Ultra Teens. It also strengthened support for Virtual YouTubers (VTubers) and accelerated its efforts in the growing video market. Both sales and profit in this area got a boost from the rise in video views amid the pandemic.

Games business

▷ In the games business, sales and profit rose YoY, benefiting from the rise in sales and the dropout of JPY50mn in development expenses for the new smartphone game Palette Parade at Claytechworks and the dropout of JPY30mn in expenses related to the startup of the company’s Game Academy training program, both of which were booked in Q1 FY03/20. Margins at the games business also benefited from the company’s greater use of remote work arrangements, which allowed it to slow increases in rents. ▷ Together with consolidated subsidiary Claytechworks, the company undertook new production projects on behalf of clients, progressed with its own development work using licensed IP, and held events in collaboration with other companies’ content. ▷ In September 2019, consolidate subsidiary Claytechworks began distributing Palette Parade, an internally developed smartphone game for training artists. However, earnings from the new game were lower than expected, leaving it with a loss of JPY160mn for FY03/20. The game’s profitability improved in Q4 FY03/20 after Claytechworks started operating the game in

cooperation with a partner company. In July 2020, it launched Palette Parade Re:Parade, an updated version of Palette Parade in partnership with GAGA Corporation (unlisted). ▷ Working primarily from its production studio, the company also established tuition-free training academies (Creative Academy and Tech Stadium) for people with no experience in the industry in an effort to address the shortage of qualified personnel in the game industry.

VR Together with subsidiary VR Japan, the company developed content delivery systems such as the VR remote medical training system using IDEALENS K4 (VR goggles featuring 4K resolution). It also began rolling out a comprehensive business solutions service (including everything from the hardware to the content). The target markets include corporate education and training facilities, amusement facilities, hotels, tourist facilities, events, and exhibitions.

Web business

▷ Sales and profit at the web business grew YoY and logged solid growth. The agency business grew as the company expanded recruitment of website creators and its network with the help of Webist, its web business-oriented job information site that is one of the largest of its kind for professionals in the web, advertising, and publishing industries in Japan. ▷ There was an increase in the number of large-scale website production projects for government ministries and manufacturers at the web studio that was expanded in FY02/16. ▷ Creek & River also began operating Symbiorise, a job information website for people working in AI and IoT fields, and expanded its digital marketing services, including referral of data analysts to companies.

Publishing business In the publishing business, sales and profit rose YoY. In the e-book distribution agent business, the company distributes e-books through Amazon Kindle and other e-book sellers. The company reported a steady increase in downloads and distribution of e- books thanks in part to stay-at-home demand amid the pandemic.

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Architecture business

▷ In the architecture business, the agency business (a referral service of certified class 1 architects) showed steady growth. The company rolled out a new series of the Creative Residence® brand, which proposes rental housing with distinctive designs. ▷ In April 2020, the company launched Chokenchiku VR, a service that allows homebuilders and building contractors to present and sell homes to customers in a VR space. Leading up to the full-fledged start of service planned for December 2020, the company will be directing its sales efforts toward homebuilders and building contractors.

Initiatives in new fields

▷ At its new agency businesses (which handle performing artists, researchers, corporate executives [CXOs], and athletes), the company reported a Q1 operating loss of JPY33mn (versus a loss of JPY23mn in Q1 FY02/20). ▷ Creek & River developed various agency businesses, including a professor agency business (where the company operates an AI domain-centered staffing business for researchers and doctors), a researcher agency business (for R&D support staff to assist with R&D in the field of biology, chemistry, and other life science-related fields), and a performing art agency business (that performs a “Dramatic Corporate History” play with professional actors to instill a company’s core principles during corporate training). ▷ The company started a new agency business for corporate executives (CXOs) and athletes.

▷ In the area of new services (drones, language learning), the company reported a Q1 operating loss of JPY21mn (versus a loss of JPY12mn in Q1 FY02/20).

Creative and Technical (South Korea)

▷ Sales: JPY860mn (about 75x the Q1 FY02/20 figure) ▷ Operating loss: JPY2mn (versus a loss of JPY25mn in Q1 FY02/20)

The jump in sales reflected the addition of Creek & River Entertainment Co., Ltd. to consolidated results following changes in its capital structure.

Consolidated subsidiaries Creek & River Korea Co., Ltd., and Creek & River Entertainment Co., Ltd. run a similar business as the Creative and Technical (Japan) business, but in South Korea.

▷ Creek & River Korea mainly engages in the rights management business, and distributes popular South Korean smartphone games around the world, including in Japan. Delays in the rollout of a new smartphone game left it with a Q1 operating loss of JPY15mn (versus a loss of JPY25mn in Q1 FY02/20). ▷ Creek & River Entertainment Co., Ltd. provided agency services to TV stations in South Korea. It is also looking to diversify its revenue sources by providing management services for manga artists, a move that will give it a foothold in the booming South Korean market for digital comics.

Medical Staffing

▷ Sales: JPY1.3bn (-0.7% YoY) ▷ Operating profit: JPY475mn (+0.5% YoY)

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Sales and operating profit were largely flat YoY. As a result of the COVID-19 pandemic, the company had to cancel Resinavi fairs for medical students and residents nationwide, and demand for contract physicians for short-term positions declined. Consequently, the pandemic reduced Q1 sales by JPY200mn and operating profit by JPY100mn.

Still, the chronic shortage of physicians nationwide and the uneven distribution of doctors by regions continued to underpin steady demand for doctors. The company promoted its doctor referral business by investing in advertising and increasing personnel. In new businesses (including acquisitions) in the Medical Staffing field, the company posted an operating loss of JPY30mn, basically unchanged YoY.

Accounting and Legal

▷ Sales: JPY544mn (+5.9% YoY) ▷ Operating profit: JPY66mn (+18.5% YoY)

The COVID-19 outbreak led to a decline in client orders and delays in the hiring process, provoking increased uncertainty about earnings from Q2. In Q1, sales and profit grew YoY thanks to initiatives implemented by the company.

Accounting

Legal In the legal space, the company advanced the full-scale use of JURISTERRA, a social media platform that links legal professionals around the world, by adding a feature of a voice dictation editor using RECAIUS™ speech recognition technology.

Other

▷ Sales: JPY515mn (+2.4% YoY) ▷ Operating loss: JPY38mn (versus a loss of JPY54mn in Q1 FY02/20)

Sales rose YoY thanks in large part to growth in the agency business in the IT industry. The operating loss narrowed YoY as the company made progress in building a business base in new business fields such as AI and VR. In new businesses, the company reported an operating loss of JPY37mn (versus a loss of JPY55mn in Q1 FY02/20).

The COVID-19 pandemic reduced Q1 sales at consolidated subsidiaries Inter Belle and VR Japan by JPY100mn and operating profit by JPY20mn.

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▷ Consolidated subsidiary Leading Edge, which operates the IT staffing agency business, continued to work on hiring, training, and referral of IT engineers in response to market demand for robotics and artificial intelligence, creating a network of more than 5,000 engineers adept at the Python programming language. In December 2019, the company launched the Python Start Lab, a Python engineer training program, and began new IT engineer referral service. Demand for engineers remained strong and results were steady. ▷ Consolidated subsidiary Inter Belle, which dispatches temporary sales staff and operates a store management agency business, was hit especially hard by the COVID-19 pandemic. The Japanese government’s state of emergency declaration precipitated a wave of temporary closures at department stores and commercial facilities across the country, forcing many personnel to stay home. The company paid leave compensation to its employees during the shutdown and used the employment adjustment assistant payments from the government, but it posted a loss in Q1. Stores have been gradually reopening since June. ▷ Consolidated subsidiary Professional Media, which operates a personnel media business, established an earnings base combining its media business and its agency business centered on Koukokutenshoku.com (an online job board for advertising and web professionals). It also expanded the same business model in the video and fashion industries in an effort to diversify its earnings. ▷ Consolidated subsidiary VR Japan promoted the VR goggles with Creek & River to expand sales in Japan. In September 2019, VR Japan began selling IDEALENS K4, new VR goggles with 4K resolution. In addition, it worked to expand its business base through marketing of its virtual reality safety training service to companies in the construction industry. In November 2019, the

company was named the authorized distributor in Japan for SKYWORTH S1, a VR headset with a 4K resolution display which supports direct 8K VR reproduction, broadening its lineup. Due to the COVID-19 outbreak, the production line of China-based Idealens was shut down and the company was unable to fulfill customer orders. ▷ Consolidate subsidiary Idrasys provides system planning, development, sales, operation, and maintenance services using AI. Idrasys expanded the Japanese operations of SmartRobot™, an AI platform developed by Intumit Inc. In addition to selling chatbots (automatic response systems) that utilize SmartRobot™ in Japan, the company plans to release Forecasting Experience,

which is a proprietary AI-enhanced cloud platform that helps forecast demand and provides tools for contract scoring. The company aims to position itself as a solutions partner for companies looking to make use of AI. ▷ Consolidated subsidiary Economic Index, which operates data analysis business, worked to generate profit from its data analysis service and consulting (suggesting measures for clients to improve on the basis of unique methods of analysis), and provided solution services based on the results of data analysis.

Other topics: Acquisitions of WING Inc. and Grune Inc. WING Inc. In July 2020, Creek & River acquired 100% stake in WING Inc., making WING a wholly owned subsidiary. Founded in 2005 by NHK veteran Tetsuya Oikawa, WING is a temporary staffing agency that provides production and editing personnel for NHK and its affiliated broadcasting companies. It also operates businesses such as a temporary staffing service for weather forecasters. In FY03/20, WING reported sales of JPY707mn and operating profit of JPY3mn.

Grune Inc. Creek & River acquired a 75% stake in Grune Inc. in July 2020, making Grune a consolidated subsidiary. Founded in 2016, Grune started a range of businesses in areas including website production, systems development, consulting, and development of 3D, VR, and AR. It grew businesses by leveraging its advanced technological expertise. Creek & River has been working together with Grune to develop its new Chokenchiku VR service (mentioned previously). In FY10/19, Grune reported sales of JPY105mn and operating profit of JPY21mn.

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Full-year FY02/20 results

▷ Sales: JPY32.9bn (+11.4% YoY) ▷ Operating profit: JPY2.1bn (+32.0% YoY) ▷ Recurring profit: JPY2.1bn (+32.7% YoY) ▷ Net income*: JPY1.4bn (+40.2% YoY) *Net income attributable to owners of the parent

▷ Reaching an all-time high, sales were up YoY in all segments, in line with company forecasts. ▷ On the profit front, all lines from operating profit down recorded double-digit gains. Existing businesses in all segments performed strongly. However, there were delays in the global distribution of smartphone games licensed by Creek & River Korea Co., Ltd., and Palette Parade, developed by Claytechworks, did not perform as well as the company expected. ▷ Expenses grew with the relocation and consolidation of the group headquarters in October 2018 and subsequent increase in personnel, so operating profit was down YoY or grew only slightly from Q3 FY02/19 onward despite higher sales. However, from Q3 FY02/20 onward, profit growth outpaced sales growth.  SG&A expenses were JPY10.5bn (+JPY684mn, or +7.0% YoY), of which personnel expenses accounted for JPY6.6bn (+JPY590mn, or +9% YoY). The employee count rose to 1,744 (+166 employees, or +10% YoY) as a result of personnel enhancement aimed at strengthening existing businesses and launching new businesses in each segment. In addition, rent,

depreciation, and other expenses rose to JPY1.2bn (+JPY180mn, or +17% YoY) as a result of relocating and consolidating the group headquarters (established in the Tokyo area in October 2018). Although in FY02/19 the company recorded one-time expenses of JPY350mn on the relocation of its headquarters, there were no such expenses in FY02/20, driving down SG&A

expenses.  A temporary increase in expenses in the games business had a negative impact of JPY228mn on profit. There were delays in the global distribution of smartphone games licensed by Creek & River Korea Co., Ltd., and Palette Parade, developed by Claytechworks, did not perform as well as the company expected. ▷ Breaking down the operating profit by existing businesses and new businesses (including costs for the launch of new businesses in existing businesses), existing businesses posted operating profit of JPY2.7bn (+47.1% YoY), while new businesses

posted an operating loss of JPY605mn (JPY249mn loss in FY02/19). Details are shown below:  New businesses in Medical Staffing had a negative impact of JPY110mn on profit (negative impact of JPY30mn in FY02/19). The company launched new business providing support services for clinic openings, M&A, business successions, and diagnostic

imaging.  New businesses (performing arts, researchers, drones, language learning) posted an operating loss of JPY127mn.  The new game Palette Parade at Claytechworks Co., Ltd., caused a JPY160mn operating loss. Distribution of the game began in September 2019, but loss continued because the ratio of free users was initially high. The company improved the profitability of Palette Parade in Q4 by changing its operating method. In addition to its own game production projects, Claytechworks is booking profit from game production projects it conducts under contract, and in FY02/21 it plans to shift more toward a business model that relies on contract production to achieve profit growth.  Creek & River Korea Co., Ltd., booked an operating loss of JPY68mn (JPY25mn loss in FY02/19) due to delays in the release of a smartphone game. The game’s distribution began in September 2019, and profitability improved in Q3, but there was still a

loss in Q4.  Group companies that are still at the investment stage (Professional Media, VR Japan, Idrasys, and Economic Index) posted an operating loss of JPY139mn (JPY191mn loss in FY02/19).

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Versus the respective targets set in the company’s FY02/20 forecast, sales achieved 99.8%, operating profit 88.7%, recurring profit 89.5%, and net income attributable to owners of the parent 93.8%. The shortfalls were caused by the aforementioned delays in the global distribution of smartphone games by the South Korean subsidiary and a disappointing performance by the smartphone game Palette Parade developed by Claytechworks. However, the South Korean smartphone games moved into the black in Q3 FY02/20 (September‒November 2019), and the profitability of the Claytechworks smartphone game improved in Q4 FY02/20 (December 2019–February 2020) after a change in operating method.

The results of individual segments are detailed below. All segments generated higher sales and profit YoY except the Other segment.

Note: Starting in Q1 FY02/20, Creative and Technical (South Korea) has been excluded as an independent segment and included in the Other segment, as a result of reduced quantitative significance.

Creative and Technical (Japan)

▷ Sales: JPY24.6bn (+10.7% YoY) ▷ Operating profit: JPY1.3bn (+22.6% YoY)

Higher sales and the disappearance of JPY350mn in expenses booked in FY02/19 related to relocation of the headquarters both had a positive impact on operating profit. However, a disappointing performance by the smartphone game Palette Parade (from Claytechworks) had a negative impact of JPY160mn, and new Creative and Technical (Japan) businesses posted operating loss of JPY128mn.

Video, TV, and video technology-related businesses

▷ The company’s video, TV, and video technology-related businesses generated higher sales and profit YoY. The company strengthened TV show planning and production mainly at its production studios, stepped up content for its video distribution service, and responded to the increase in demand for shows on BS and terrestrial television such as variety shows, educational

programs, and documentaries. Higher sales, more efficient operations, cost-cutting, and improved margins all contributed to an increase in operating profit. ▷ Services were expanded to include TV director training courses and networking broadcasters all around Japan, and the number of television production staff increased. Recruitment from EIZOshigoto.com, a job information site specializing in the visual media industry, also expanded. ▷ In July 2019, the company increased floor space at its Osaka office in order to accommodate the creative demand for video, web-based applications, and games in the Kansai area, which is expected to increase in anticipation of the Osaka Expo 2025 and due to other factors. It also strengthened its planning, development and creative development capabilities.

Games business

▷ The games business generated higher sales but lower profit YoY. However, profit would also have been higher YoY if not for development expenses of JPY160mn (for Palette Parade from Claytechworks) and other one-time expenses. ▷ In video games, at its production studio, the company undertook new production projects on behalf of clients, worked together with the group’s Korean subsidiary (Creek & River Korea Co., Ltd.) on joint development projects, and progressed with its own development work using licensed IP. ▷ At its production studio, the company primarily employed staff involved in game development (such as with VFX to enhance the visual effects of a game, or those who work on the scenario and thereby influence the appearance of the in-game world),

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and offered contract development and operations management work in the consumer, amusement, and social gaming fields. Working primarily from its production studio, the company also established tuition-free training academies (Creative Academy and Tech Stadium) for people with no experience in the industry in an effort to address the shortage of qualified personnel in the game industry. ▷ In September 2019, consolidated subsidiary Claytechworks started distributing Palette Parade, an internally developed smartphone game for training artists. In the same month, Claytechworks acquired the 3D-CG avatar business, VR business, and content development business of Interactive Brains as part of a move to strengthen its content development capabilities. Palette Parade earnings coming in below expectations, causing a negative impact of JPY160mn. The game’s profitability improved in Q4 after Claytechworks began operating it in cooperation with a partner. The company is currently considering new initiatives. ▷ The company also focused on boosting the event business, which includes eSport (competitive video gaming). In May 2019, it collaborated with the Pokémon Company to host a corporate Pokémon tournament for Pokémon: Let’s Go, Pikachu! and Let’s Go, Eevee! on Nintendo Switch™, and Pokémon cards, gathering 120 participating companies. In addition, the company hosted an event called the Attraction Festa at various locations in the Greater Tokyo area. The Attraction Festa, which combines anime and game content with a live event, establishing a new revenue model in intellectual property distribution and event management.

Web business

▷ The web business achieved higher sales and profit YoY. The company strengthened recruitment of website creators and the company’s network among website creators through the web business-oriented job information site Webist, which is one of the largest of its kind in the web, advertising, and publishing industries. The company has adopted various initiatives, including establishment of a hands-on system for training inexperienced applicants to become website creators, and recruitment service

for advertising agencies based on the applicant screening system, which contributed to the growth of the Agency business. ▷ There was an increase in the number of large-scale website production projects for government ministries and manufacturers at the web studio that was expanded in FY02/16. ▷ Creek & River also began operating Symbiorise, a job information website for people working AI and IoT fields, and expanded its digital marketing services, including referral of data analysts to companies. ▷ In September 2019, Creek & River established a new company, jeki Data-Driven Lab, in collaboration with JR East Marketing & Communications, Inc. (Jeki), to engage in a data-driven marketing business. The collaboration will combine the data-driven marketing businesses of Jeki and the JR East group and the company’s data analyst agency business, through which the company aims to enhance its data marketing services.

E-book publishing business

▷ The e-book publishing business generated higher sales but lower profit YoY. Although the e-book distribution agent business progressed smoothly, profit in the overseas agency business declined YoY. ▷ In publishing, the company distributed (as an agent) e-books through electronic bookstores, including Amazon Kindle. In this e-book distribution agent business, the company reported a steady increase in downloads and distribution of e-books. ▷ To capture growing demand for video content in China and other markets, the company also is also developing its overseas agency business that works to license the rights to make videos for the local market based on the works of Japanese authors.

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YouTube Online Creators (OC)

▷ At YouTube Online Creators, the company saw a steady rise in the views of uploads by YouTubers and won more contracts to operate YouTube channels for companies and television programs. ▷ In OC Studio for intra-office video content production, it has been planning, producing, and managing the YouTube channel ULTRA TEENS Channel, which is popular among teenagers, since March 2019 in collaboration with Ultra Teens. It also organized a street piano event in collaboration with popular YouTubers. In March 2020, the company operated 219 channels (up from 130 in March 2019) with 625mn views per month (+93% YoY).

▷ Together with subsidiary VR Japan, the company developed content and systems using IDEALENS K4 (VR goggles featuring 4K resolution). It has also produced a VR-based experience corner for the Awa Odori Museum in Tokushima in January 2020 and accelerated development of a real-time VR telecommunications system following success with proof-of-concept tests of low- latency VR transmission using 5G technology conducted in cooperation with Konica Minolta Japan and NTT Docomo. It also began rolling out a comprehensive business solutions service (including everything from the hardware to the content). The target markets include corporate education and training facilities, amusement facilities, hotels, tourist facilities, events, and

exhibitions. ▷ In September 2019, the company started selling IDEALENS K4, new IDEALENS VR goggles with 4K resolution.

Architecture business

▷ In the architecture business, the agency business (a referral service of certified class 1 architects) showed steady growth. The company saw continued inquiries from interested parties for Staple House® homes, which are a new series of detached houses with integral garages produced under the Creative Residence® brand. ▷ In February 2019, the company created the store design for an Italian restaurant that opened in the Ginza Mitsukoshi department store, as it worked to build a track record in the architecture design business by taking advantage of its network with approximately 1,000 design offices. The restaurant won a Kukan Design Award.

Initiatives in new fields

▷ New businesses (performing arts, researcher, drones, and language learning) posted a JPY128mn operating loss. ▷ In the professor agency business, in which the company operates an AI domain-centered staffing business for researchers and doctors, Creek & River launched an agency business for R&D support staff in February 2019 to assist with R&D in the life sciences, including biology and chemistry. Orders increased in all sectors. As of April 2020, the company had registered more than 600 researchers and had received more than 400 staffing orders from biotech startups, universities, research institutions, and pharmaceutical companies. Starting in April 2020, Creek & River has expanded the professor and researcher agency businesses, making them into computer science and life sciences agency businesses, respectively. ▷ With the performing art agency business, the company developed its sales activities to open up new venues for performing artists to work in, introducing its new “Dramatic Corporate History” service to medical institutions, through which professional actors use drama to instill a company’s core principles during corporate training. In October 2019, the company sponsored 2.5D performances of Shijushichi Taisen (winner of the 2018 Web Manga Sousenkyo contest) in Tokyo and Tottori. ▷ In March 2019, the company launched a language-learning service for professionals in various fields to enhance their expertise and language abilities.

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▷ In the drone business, the Self-Defense Forces ordered guidance and support for a drone drill, which was conducted in November 2019.

Medical Staffing

▷ Sales: JPY4.1bn (+9.8% YoY) ▷ Operating profit: JPY740mn (+38.8% YoY)

Sales and operating profit were up YoY. The sales growth accompanied an increase in doctor referrals. The increase in sales made up for an JPY80mn jump in new business expenses (including for M&A), driving profit upward YoY.

The chronic shortage of physicians nationwide and the uneven distribution of doctors by region continued to underpin steady demand for doctors. Against this backdrop, the company invested in new businesses with the aim of establishing new revenue bases. It strengthened its ability to attract doctors by investing in advertising and expanded the doctor referral business. Additionally, it made progress in effectively allocating personnel. Both of these measures contributed to higher earnings.

To meet the various needs of medical institutions, municipal governments, doctors, and nurses, the company rolled out services in its medical staffing business such as Resinavi fairs for medical students and residents held all over the country; Resinavi, a clinical trial training information site; MediGate, a job search website for doctors; and Minkan Ikyoku Academy, a training program for doctors. As of end-FY02/20, the total number of facilities in Japan was 17.

Creek & River plans to launch a new consulting business that will harness its relationships with 124,000 doctors and medical students and 13,000 medical institutions, to act as an intermediary for buying and selling businesses that fulfill hospitals’ succession planning needs. The consulting business will provide business support for the medical industry in areas such as the launch of medical institutions, business succession, establishment of new businesses, and hospital management. In addition, the company has already launched the Dokuei Shinan diagnostic imaging knowledge service.

Diagnostic imaging knowledge service Dokuei Shinan (instruction for reading images): In a medical setting, doctors must be able to read a variety of images, including thoracic/abdominal X-rays, abdominal ultrasounds, and gastrointestinal endoscopic images, in order to reach accurate diagnoses. The Dokuei Shinan service helps doctors efficiently acquire the skills needed to read such images using case studies by university hospitals and specialist knowledge and experience.

Accounting and Legal

▷ Sales: JPY2.1bn (+8.7% YoY) ▷ Operating profit: JPY233mn (+59.2% YoY)

Solid demand for professionals with expertise in the accounting and legal fields led to higher YoY sales and operating profit.

The company aims to expand the agency business and increase its name recognition in the industry through join seminars with client companies and firms as well as strengthen relationships with organizations in related industries.

Accounting Making use of the network it has already established, Creek & River expanded its service offering with the full-scale launch of business succession and M&A support services in order to better meet the business succession planning needs of accounting firms and their clients. It also began a referral service for accounting staff who wish to telecommute in an effort to address work style diversification in the accounting field.

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Legal In the legal space, the company has been advancing the full-scale use of JURISTERRA, a social media platform that links legal professionals around the world that now features a voice dictation editor using RECAIUS™ speech recognition technology. C&R Legal Agency established the Bengoshi Tenshoku.jp (lawyer job-changing) and Houmu Kyujin.jp (lawyer recruitment) websites, aiming to improve its recruiting capacity and brand recognition.

Other

▷ Sales: JPY2.3bn (+21.1% YoY) ▷ Operating loss: JPY199mn (operating loss of JPY182mn in FY02/19)

Sales rose YoY thanks in large part to growth in the Agency business in the IT industry. Operating profit fell YoY due to the company’s efforts to strengthen initiatives for new markets, such as VR and AI, and also because of delays in the global distribution of smartphone games licensed by Creek & River Korea Co., Ltd.

▷ Leading Edge Co., Ltd., which operates the IT staffing agency business, increased sales particularly in the temporary staffing business, but profit was flat YoY on an increase in hiring and personnel expenses. It continued to build up its track record in hiring, training, and referral of IT engineers in response to market demand for robotics and artificial intelligence, creating a network of more than 5,000 engineers adept at the Python programming language. The company in December 2019

launched the Python Start Lab, a Python engineer training program, and began new IT engineer referral service. ▷ Inter Belle Inc., which operates the group’s agency business in the fashion industry, improved its profit position YoY. It made progress in reconstructing its business foundation through such efforts as reviewing unprofitable projects. It also looked to

diversify its business model, for example by externally expanding its original sales staff training program and using a combination of its expertise in apparel store management and visual expression to launch full-scale services. ▷ Creek & River Korea Co., Ltd., a Korean subsidiary that develops Korean game licenses around the world, had an operating loss of JPY68mn (operating loss of JPY25mn in FY02/19). It launched CeresM in 148 countries in September 2019. As for Sangokushi Mugen Taisen, the company is coordinating with publishers in each country to prepare for global distribution. ▷ Professional Media Co., Ltd., which operates a personnel media business, established a profit base combining its media business and its agency business centered on Koukokutenshoku.com (an online job board for advertising and web professionals) and Creative-haken.com (an online job board for temporary workers with advertising and web expertise), which revamped in July 2018. It also expanded the same business model in the video and fashion industries in an effort to diversify its

income. ▷ VR Japan Co., Ltd., promoted the VR goggles with Creek & River to expand sales in Japan. The company began selling IDEALENS K4, new VR goggles with 4K resolution in September 2019. It aims to further expand through aggressive marketing of its virtual reality safety training service to companies in the construction industry. In November 2019, the company was named the authorized distributor in Japan for SKYWORTH S1, a VR headset with a 4K resolution display which supports direct 8K VR reproduction, broadening its lineup. In January 2020, the company announced the success of proof-of-concept tests of low-latency VR transmission using 5G technology conducted in cooperation with Konica Minolta Japan and NTT Docomo. ▷ Idrasys Co., Ltd., which provides system planning, development, sales, operation, and maintenance services using AI, generated higher sales YoY and narrowed its operating loss. Idrasys sells chatbots (automatic response systems) that utilize SmartRobot™, an AI platform developed by Intumit Inc. in Japan. The company aims to position itself as a solutions partner for companies looking to make use of AI, and has rolled out initiatives such as a support service for using the cloud-based AI platform Magellan Blocks, developed by Groovenauts Inc.

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▷ Economic Index Co., Ltd., which operates data analysis business, narrowed its operating loss YoY. It worked to generate profit from its data analysis service and consulting (suggesting measures for clients to improve on the basis of unique methods of analysis), and provided solution services based on the results of data analysis. ▷ Creek & River Global, Inc., which develops and operates the legal networking social media platform JURISTERRA in the US, improved its profit position. It is making developmental progress toward full operation of JURISTERRA. Utilizing some of its functions, it has expanded its legal consulting services to form links between the US and Japan.

Cumulative Q3 FY02/20 results

▷ Sales: JPY24.5bn (+11.1% YoY) ▷ Operating profit: JPY1.7bn (+18.9% YoY) ▷ Recurring profit: JPY1.7bn (+19.3% YoY) ▷ Net income*: JPY1.0bn (+26.8% YoY) *Net income attributable to owners of the parent

Sales were up by double digits YoY in all segments, in line with company forecasts.

On the profit front, despite higher SG&A expenses and a temporary increase in expenses in the games business, all lines from operating profit down recorded double-digit gains on the strength of the higher sales. Existing businesses in all segments performed strongly. Expenses rose following relocation and consolidation of the group headquarters in October 2018, so even though the company generated higher sales each quarter since Q3 FY02/19, operating profit either fell or rose only slightly. However, in cumulative Q3 FY02/20, operating profit growth outpaced sales growth.

▷ SG&A expenses were JPY7.8bn (+JPY622mn, or +8.6% YoY), of which personnel expenses accounted for JPY4.9bn (+JPY580mn, or +13% YoY). The employee count rose to 1,762 (+186 employees, or +11% YoY) as a result of personnel enhancement aimed at strengthening existing businesses and launching new businesses in each segment. In addition, rent, depreciation, and other expenses rose to JPY920mn (+JPY180mn, or 24% YoY) as a result of relocating and consolidating the

group headquarters (established in the Tokyo area in October 2018). Although in cumulative Q3 FY02/19 the company recorded one-time expenses of JPY350mn on the relocation of its headquarters, there were no such expenses in cumulative Q3 FY02/20, driving down SG&A expenses. ▷ A temporary increase in expenses in the games business had a negative impact of JPY210mn on profit. There were delays in the global distribution of smartphone games licensed by Creek & River Korea Co., Ltd., and Palette Parade, developed by Claytechworks, did not perform as well as the company expected. The company says losses in these businesses is narrowing in Q4 (December 2019–February 2020) and is likely to narrow further in FY02/21. However, in its FY02/20 full-year forecast, it had anticipated operating profit of JPY0mn in these businesses, so this negative impact on profit was unexpected.

Breaking down the operating profit by existing businesses and new businesses (including costs for the launch of new businesses in existing businesses), existing businesses posted operating profit of JPY1.7bn (+18.9% YoY), while new businesses posted an operating loss of JPY520mn (JPY204mn loss in cumulative Q3 FY02/19). In Q3 alone (September–November 2019), new businesses posted an operating loss of JPY126mn (JPY101mn loss in Q3 FY02/19). Details are shown below:

▷ New businesses in Medical Staffing had a negative impact of JPY80mn on profit, with a JPY20mn impact just in Q3. ▷ New agencies (performing arts, researchers) posted an operating loss of JPY72mn (JPY28mn loss in cumulative Q3 FY02/19), with a JPY21mn operating loss in Q3 (JPY10mn loss in Q3 FY02/19). ▷ New services (drones, language learning) recorded an operating loss of JPY36mn (JPY11mn loss in cumulative Q3 FY02/19), with a JPY13mn operating loss just in Q3 (JPY4mn loss in Q3 FY02/19).

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▷ The new game Palette Parade at Claytechworks Co., Ltd., caused a JPY160mn operating loss, with a JPY60mn operating loss just in Q3. Distribution of the game began in September 2019, but loss continued because the ratio of free users was initially high. The company believes profitability will improve from Q4 as it proceeds with the transfer of Palette Parade operation. In addition to its own game production projects, Claytechworks is booking profit from game production projects it conducts under contract, and in FY02/21 it plans to shift more toward a business model that relies on contract production to achieve profit growth. ▷ In the games business, Game Academy training programs had a negative impact of JPY10mn on profit, although in the three months of Q3 they had a JPY20mn positive impact on profit. In Q1 (March–May 2019), profit declined due to upfront expenses, but the games business broke even in Q2 (June–August 2019) and turned a profit in Q3. Since March 2019, 113 people entered the Game Academy, 93 graduated, and 90 were hired, for an employment rate of 96.7%. ▷ Creek & River Korea Co., Ltd., booked an operating loss of JPY54mn (JPY11mn loss in cumulative Q3 FY02/19) due to delays in the release of a smartphone game, although the three months of Q3 saw an operating profit of JPY7mn. The game’s distribution began in September 2019, and profitability improved in Q3. ▷ Group companies that are still at the investment stage (Professional Media, VR Japan, Idrasys, and Economic Index) posted an operating loss of JPY108mn (JPY155mn loss in cumulative Q3 FY02/19), with a JPY39mn operating loss just in Q3.

Sales reached 74.4% of the company’s full-year FY02/20 forecast (74.7% in cumulative Q3 FY02/19 versus full-year results), while operating profit finished at 70.5% (88.2%), recurring profit at 70.7% (87.8%), and net income attributable to owners of the parent at 70.9% (83.7%). Profit progress toward the full-year target fell short of the level recorded in FY02/19. The previously mentioned delayed release of a smartphone game in South Korea and the sluggish performance of Claytechworks’ in-house smartphone game (Palette Parade) had a negative impact on results. However, the South Korean smartphone game moved into the black during Q3, and the company expects the Claytechworks smartphone game to improve its profitability in Q4 (December 2019–February 2020) with the transfer of operation.

The results of individual segments are detailed below. Higher sales and profit in Medical Staffing and Accounting and Legal covered for a decline in profit despite higher sales in Creative and Technical (Japan).

Note: Starting in Q1 FY02/20, Creative and Technical (South Korea) has been excluded as an independent segment and included in the Other segment, as a result of reduced quantitative significance.

Creative and Technical (Japan)

▷ Sales: JPY18.0bn (+10.2% YoY) ▷ Operating profit: JPY816mn (-2.9% YoY)

Sales were up YoY. Profit was up YoY at the parent level, but consolidated profit fell as Palette Parade, developed in-house by Claytechworks, fell short of expectations, causing a negative impact of JPY160mn on profit.

In cumulative Q3, Creative and Technical (Japan)’s new businesses posted an operating loss of JPY268mn (JPY39mn loss in cumulative Q3 FY02/19). Excluding this impact, operating profit in Creative and Technical (Japan) grew 30% YoY.

Video, TV, and video technology-related businesses

▷ The video, TV, and video technology-related businesses posted higher sales and profit YoY. The profit margin in these businesses fell QoQ in Q2 due to the conclusion of programs created through contracted production, but cumulative Q3 sales

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and profit rose on a YoY basis. The company strengthened TV show planning and production mainly at its production studios, stepped up content for its video distribution service, and responded to the increase in demand for shows on BS and terrestrial television such as variety shows, educational programs, and documentaries. ▷ Services were expanded to include TV director training courses and networking broadcasters all around Japan, and the number of television production staff increased. Recruitment from EIZOshigoto.com, a job information site specializing in the visual media industry, also expanded. ▷ In July 2019, the company increased floor space at its Osaka office in order to accommodate the creative demand for video, web-based applications, and games in the Kansai area, which is expected to increase in anticipation of the Osaka Expo 2025 and due to other factors. It also strengthened its planning, development and creative development capabilities.

Games business

▷ Profit fell in the games business, despite an increase in sales. The company faced one-time expenses in the games business, including JPY160mn in development expenses for the new game Palette Parade at Claytechworks and an operating loss of JPY10mn from Game Academy training programs geared toward people with no experience in the industry. Excluding these one-time expenses, operating profit was flat YoY. ▷ In video games, at its production studio, the company undertook new production projects on behalf of clients, worked together with the group’s Korean subsidiary (Creek & River Korea Co., Ltd.) on joint development projects, and progressed with its own development work using licensed IP. ▷ At its production studio, the company primarily employed staff involved in game development (such as with VFX to enhance the visual effects of a game, or those who work on the scenario and thereby influence the appearance of the in-game world), and offered contract development and operations management work in the consumer, amusement, and social gaming fields. Working primarily from its production studio, the company also established tuition-free training academies (Creative Academy

and Tech Stadium) for people with no experience in the industry in an effort to address the shortage of qualified personnel in the game industry. ▷ In July 2018, the company acquired shares in Claytechworks Co., Ltd., and made it a consolidated subsidiary. Claytechworks is a newly established spinoff from Silicon Studio Corporation that took over part of Silicon Studio’s content business. In September 2019, it started distributing Palette Parade, an internally developed smartphone game for training artists. Palette Parade generated an operating loss of JPY160mn in cumulative Q3. In Q4 or later, Claytechworks will be transferring operation of Palette Parade, and with this move it expects improvement in profitability. As mentioned, Claytechworks is booking profit from game production projects conducted under contract in addition to its in-house game development, and in FY02/21 it plans to shift more toward a business model that relies on contract production to achieve profit growth. ▷ The company acquired the 3D-CG avatar business, VR business, and content development business from Interactive Brains, as part of a move to strengthen its content development capabilities. The acquisition was effective in September 2019 and cost JPY100mn. It generated JPY69mn in goodwill to be amortized over five years. Results for Interactive Brains were consolidated from September 2019, but the company said there would be minimal impact on FY02/20 results.

▷ The company also focused on boosting the event business, which includes eSport (competitive video gaming). In May 2019, it collaborated with the Pokémon Company to host a corporate Pokémon tournament for Pokémon: Let’s Go, Pikachu! and Let’s Go, Eevee! on Nintendo Switch™, and Pokémon cards, gathering 120 participating companies. In addition, the company hosted an event called the Attraction Festa at various locations in the Greater Tokyo area. The Attraction Festa, which combines anime and game content with a live event, establishing a new revenue model in intellectual property distribution and event management.

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Web business

▷ Sales rose in the Web business, but profit increased only slightly due to upfront spending in connection with large contracted production projects. ▷ At its web business, the company grew its Agency business by strengthening recruitment of website creators and the company’s network among website creators through the web business-oriented job information site Webist, which is one of the largest of its kind in the web, advertising, and publishing industries. ▷ There was an increase in the number of large-scale web site production projects for government ministries and agencies at the web studio that was expanded in FY02/16. ▷ Creek & River also began operating Symbiorise, a job information website for people working AI and IoT fields, and expanded its digital marketing services, including referral of data analysts to companies. ▷ In September 2019, Creek & River established a new company, jeki Data-Driven Lab, in collaboration with JR East Marketing & Communications, Inc. (Jeki), to engage in a data-driven marketing business. The collaboration will combine the data-driven marketing businesses of Jeki and the JR East group and the company’s data analyst agency business, through which the company aims to enhance its data marketing services.

E-books and publishing business

▷ The publishing business booked higher sales but lower profit YoY. The e-book distribution agent business performed favorably, but the overseas agency business generated lower profit YoY. ▷ In publishing, the company distributed e-books (as an agent) through electronic bookstores, including Amazon Kindle. In this e-book distribution agent business, the company reported a steady increase in downloads and distribution of e-books. ▷ To capture growing demand for video content in China, the company also is also developing its overseas agency business that works to license the rights to make videos for the local market based on the works of Japanese authors.

YouTube Online Creators (OC)

▷ At YouTube Online Creators, the company saw a steady rise in the views of uploads by YouTubers, reaching 530mn total views per month, and won more contracts to operate YouTube channels for companies and television programs. ▷ The company accelerated its efforts in the video market, establishing OC Studio for video content production in its new office following relocation. It has been planning, producing, and managing the YouTube channel ULTRA TEENS Channel, which is popular among teenagers, since March 2019 in collaboration with Ultra Teens.

▷ In VR, the company developed a system to deliver VR content (such as the VR remote medical training system) using the VR goggles from consolidated subsidiaries VR Japan and Idealens Technology. It also began rolling out a comprehensive business solutions service (including everything from the hardware to the content). The target markets include corporate education and training facilities, amusement facilities, hotels, tourist facilities, events, and exhibitions. ▷ In September 2019, the company started selling IDEALENS K4, new IDEALENS VR goggles with 4K resolution.

Architecture business

▷ In the architecture business, the agency business (a referral service of certified class 1 architects) showed steady growth. The architectural design business that proposes rental housing with distinctive designs under the Creative Residence® brand

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launched a new series of property called the Staple House, which is a detached house with an integral garage. Inquiries from interested parties have increased as a result. ▷ In February 2019, the company created the store design for an Italian restaurant that opened in the Ginza Mitsukoshi department store, as it worked to build a track record in the architecture design business by taking advantage of its network with approximately 1,000 design offices. The restaurant won a Kukan Design Award.

Initiatives in new fields

▷ New agencies (performing arts, researchers) posted an operating loss of JPY72mn (JPY28mn loss in cumulative Q3 FY02/19), and new services (drones, language learning) posted an operating loss of JPY36mn (JPY11mn loss in cumulative Q3 FY02/19). ▷ In the professor agency business, in which the company operates an AI domain-centered staffing business for researchers and doctors, Creek & River launched an agency business for R&D support staff in February 2019 to assist with R&D in the life sciences, including biology and chemistry. Orders increased in all sectors in cumulative Q3. As of January 2020, the company had received more than 200 staffing orders from biotech startups, universities, research institutions, and pharmaceutical companies. ▷ With the performing art agency business that launched in March 2018, the company developed its sales activities to open up new venues for performing artists to work in, introducing its new “Dramatic Corporate History” service to medical institutions,

through which professional actors use drama to instill a company’s core principles during corporate training. In October 2019, the company sponsored 2.5D performances of Shijushichi Taisen (winner of the 2018 Web Manga Sousenkyo contest) in Tokyo and Tottori. ▷ In March 2019, the company launched a language-learning service for professionals, for professionals in various fields to enhance their expertise and language abilities. ▷ In the drone business, the Self-Defense Forces ordered guidance and support for a drone drill, which was conducted in November 2019.

Medical Staffing

▷ Sales: JPY3.4bn (+10.1% YoY) ▷ Operating profit: JPY810mn (+35.0% YoY)

The chronic shortage of physicians nationwide and the uneven distribution of doctors by regions continued to underpin steady demand for doctors. In order to enhance the doctor referral business, the company strengthened recruitment of doctors by investing in advertising. Additionally, it made progress in effectively allocating personnel. Both of these measures contributed to higher earnings.

To meet the various needs of medical institutions, municipal governments, doctors, and nurses, the company rolled out services in its medical staffing business such as Resinavi fairs for medical students and residents held all over the country; Resinavi, a clinical trial training information site; MediGate, a job search website for doctors; and Minkan Ikyoku Academy, a training program for doctors. As of end-November 2019, the total number of facilities in Japan was 17. The company has aimed to efficiently increase its number of doctor referrals by focusing on online marketing.

It plans to launch a new consulting business that will harness its relationships with 123,000 doctors and medical students, as well as with 13,000 medical institutions, to act as an intermediary for buying and selling businesses that fulfill hospitals’ succession

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planning needs. The consulting business will provide business support for the medical industry in areas such as the launch of medical institutions, business succession, establishment of new businesses, and hospital management.

Accounting and Legal

▷ Sales: JPY1.6bn (+11.3% YoY) ▷ Operating profit: JPY195mn (+143.9% YoY)

Solid demand for professionals with expertise in the accounting and legal fields led to higher YoY sales and operating profit.

Accounting The company aims to expand the agency business and increase its name recognition in the industry through join seminars with client companies and firms as well as strengthen relationships with organizations in related industries.

It also began a referral service for accounting staff who wish to telecommute in an effort to address work style diversification in the accounting field.

Legal In the legal space, registrations on Bengoshi Tenshoku.jp, launched in September 2018, continued to grow, with the referral business to law firms and companies expanding.

Collaborations making best use of group resources were launched, including a linkup between the medical and legal areas, which started offering referrals for in-house hospital lawyers to hospital management.

The company marketed JURISTERRA, a social media platform that links legal professionals around the world, and its voice dictation editor, which uses RECAIUS™ speech recognition technology, to lawyers and small legal companies. It also provided support for client expansion and customer efficiency improvements.

Other

▷ Sales: JPY1.7bn (+17.1% YoY) ▷ Operating loss: JPY162mn (operating loss of JPY119mn in cumulative Q3 FY02/19)

Sales rose YoY thanks in large part to growth in the Agency business in the IT industry. Operating loss widened YoY. Operating loss from new businesses was JPY108mn (versus operating loss of JPY155mn in cumulative Q3 FY02/19) due to the company’s efforts to strengthen initiatives for new markets, such as VR and AI, and also because of delays in the global distribution of smartphone games licensed by Creek & River Korea Co., Ltd.

network of more than 5,000 engineers adept at the Python programming language.

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▷ Inter Belle Inc. which operates the group’s agency business in the fashion industry, improved its profit YoY. It made progress in reconstructing its business foundation through such efforts as reviewing unprofitable projects. It also looked to diversify its business model, for example by externally expanding its original sales staff training program and using a combination of its expertise in apparel store management and visual expression to launch full-scale services. ▷ Creek & River Korea Co., Ltd., a Korean subsidiary that develops Korean game licenses around the world, posted an operating loss of JPY54mn (versus operating loss of JPY11mn in cumulative Q3 FY02/19). It launched CeresM in 148 countries in September 2019. As for Sangokushi Mugen Taisen, the company is coordinating with publishers in each country to put distribution arrangements in place within FY08/20. ▷ Professional Media Co., Ltd., which operates a personnel media business, posted lower profit YoY on a decline in the number of successful placements. It established a profit base combining its media business and its agency business centered on Koukokutenshoku.com (an online job board for advertising and web professionals). It also expanded the same business model in the video and fashion industries in an effort to diversify its income. ▷ VR Japan Co., Ltd., posted lower sales and profit YoY. It promoted the VR goggles with Creek & River to expand sales in Japan. The company began selling IDEALENS K4, new VR goggles with 4K resolution in September 2019. It aims to further expand through aggressive marketing of its virtual reality safety training service to companies in the construction industry. In November 2019, the company was named the authorized distributor in Japan for SKYWORTH S1, a VR headset with a 4K resolution display which supports direct 8K VR reproduction, broadening its lineup. ▷ Idrasys Co., Ltd., which provides system planning, development, sales, operation, and maintenance services using AI, posted higher sales and narrowed its operating loss YoY. Idrasys sells chatbots (automatic response systems) that utilize SmartRobot™, an AI platform developed by Intumit Inc. in Japan. The company aims to position itself as a solutions partner for companies

looking to make use of AI, and has rolled out initiatives such as a support service for using the cloud-based AI platform Magellan Blocks, developed by Groovenauts Inc. ▷ Economic Index Co., Ltd., which operates data analysis business, narrowed its operating loss YoY. It worked to generate profit from its data analysis service and consulting (suggesting measures for clients to improve on the basis of unique methods of analysis), and provided solution services based on the results of data analysis. ▷ Creek & River Global, Inc., which develops and operates the legal networking social media platform JURISTERRA in the US, is making developmental progress toward full operation of JURISTERRA. Utilizing some of its functions, it has expanded its legal consulting services to form links between the US and Japan.

Other topics: Consolidation of South Korea’s Creek & River Entertainment Co., Ltd. In January 2020, Creek & River made its Korean equity-method affiliate Creek & Entertainment Co., Ltd. (CRE) a consolidated subsidiary. The company said there would be no impact on FY02/20 results, and the main effect of the consolidation would be a boost to sales in FY02/21.

In December 2016, the company split Creek & River Korea Co., Ltd. (CRK) and established CRE to conduct agency business centered on the TV and video fields in South Korea. The local management team held a higher ratio of CRE stock, and Creek & River made it an equity-method affiliate. At the same time, CRK developed its business by rolling out Korean games licenses globally, including in Japan.

Thereafter, in the course of developing its business, CRK increased the number of opportunities it had to collaborate with the network that CRE had developed in the South Korean entertainment world. Creek & River therefore made CRE a consolidated subsidiary to strengthen its business ties in South Korea. CRK held 35% of the voting rights before the acquisition and 75% afterward. The consideration for the share acquisition was KRW1.2bn (about JPY110mn). For FY12/19, CRE forecast sales of JPY3.4bn and operating profit of JPY14mn.

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Calculations use an exchange rate of KRW1 = JPY0.09

1H FY02/20 results

▷ Sales: JPY16.5bn (+11.4% YoY) ▷ Operating profit: JPY1.3bn (+0.1% YoY) ▷ Recurring profit: JPY1.3bn (+1.0% YoY) ▷ Net income*: JPY792mn (+7.2% YoY) *Net income attributable to owners of the parent

▷ Sales were up at all segments. In Creative and Technical (Japan), the company worked to respond to personnel and production needs, utilizing resources at its production studios. The doctor referral business expanded in Medical Staffing. ▷ On the profit front, operating profit was mostly unchanged YoY due to a rise in SG&A expenses, which were JPY5.2bn (+JPY616mn, or 13.3%, YoY). Personnel expenses accounted for JPY3.3bn of this figure (+JPY430mn, or 15%, YoY). The total number of employees rose to 1,730 (+246 employees, or 16%, YoY) as a result of personnel enhancement aimed at strengthening existing businesses and launching new businesses in each segment. Rent, depreciation, and other costs rose to JPY670mn (+JPY200mn, or 43%, YoY) as a result of relocating and consolidating the group headquarters (established in the

Tokyo area in October 2018). Upfront expenses related to personnel enhancement blunted the profit growth rate temporarily in 1H. The company projects that the increase in personnel will lead to profit growth in 2H. During 2H of the previous year, the company recorded one-time expenses of JPY350mn on the relocation of its headquarters, and received a JPY60mn impact from

changes to the calculation method of retirement benefit obligations. The company expects that the absence of these expenses will also contribute to higher profit in 2H. ▷ Breaking down the operating profit by existing businesses and new businesses (including costs for the launch of new businesses in existing businesses), existing businesses posted operating profit of JPY1.3bn (+0.1% YoY), while new businesses posted operating loss of JPY394mn (JPY103mn loss in 1H FY02/19). Details are shown below:

 New businesses in Medical Staffing drove costs up by JPY60mn.

 New agencies (performing arts, researchers) posted operating loss of JPY51mn (JPY18mn loss in 1H FY02/19).

 New services (drones, language learning) recorded operating loss of JPY23mn (JPY7mn loss in 1H FY02/19).

 Development costs for the new game Palette Parade at Claytechworks Co., Ltd., came to JPY100mn. Distribution for the

game began in September 2019, and the company believes that profitability will improve from Q3 (September-

November 2019).

 In the games business, Game Academy training programs increased expenses by JPY30mn. In Q1 (March-May 2019),

profit declined due to upfront expenses, but the games business broke even in Q2 (June-August 2019). The company

projects that this business will become profitable from Q3.

 Creek & River Korea Co., Ltd., booked an operating loss of JPY61mn (JPY11mn loss in 1H FY02/19) due to delays in the

release of a smartphone game. The game’s distribution began in September 2019, and the company projects that

profitability will improve from Q3.

 Group companies that are still at the investment stage (Professional Media, VR Japan, Idrasys, and Economic Index)

posted an operating loss of JPY69mn (JPY67mn loss in 1H FY02/19). The operating loss at these companies was JPY55mn

in Q1, but this improved to JPY14mn loss in Q2.

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▷ Growth in operating and recurring profit were low, but growth in net income outpaced that of recurring profit. Meanwhile, the company reported a net loss attributable to non-controlling interests of JPY12mn (versus net income of JPY67mn in 1H FY02/19) due to an increase in its stake in Medical Principle Co., Ltd., from 79.8% to 100%.

Sales achieved 100.7% of the company’s 1H FY02/20 target, while operating profit finished at 97.4%, recurring profit at 97.6%, and net income at 98.9%. Meanwhile, sales reached 50.0% of the company’s full-year FY02/20 forecast (49.7% in 1H FY02/19), while operating profit finished at 53.9% (61.2%), recurring profit at 54.0% (61.3%), and net income at 54.6% (61.6%). Profit in 1H fell short of the 1H forecast, and profit progress toward the full-year target fell short of the level recorded in the previous year. Although performance was in line with the company forecast, the previously mentioned delayed release of a smartphone game in South Korea and the prolonged development period of the Claytechworks’ in-house smartphone game (Palette Parade) had an impact on results. Distribution of both of these games began in September 2019.

The results of individual segments are detailed below. Increases in both sales and profit in Medical Staffing covered for a decline in profit despite higher sales in Creative and Technical (Japan).

Note: Starting in Q1 FY02/20, the Creative and Technical (South Korea) segment has been excluded as an independent segment and included in the Other segment, as a result of reduced quantitative significance.

Creative and Technical (Japan)

▷ Sales: JPY11.9bn (+11.0% YoY) ▷ Operating profit: JPY534mn (-17.7% YoY)

Sales were up YoY. Profit narrowed due to increased SG&A expenses, even though the number of high margin production consignment projects at the company’s production studios increased, and the company worked to improve its efficiency at attracting clients through its own media. Profits also received a downward impact of JPY100mn from the prolonged development period of the smartphone game, Palette Parade, developed in-house by Claytechworks. SG&A expenses increased due to personnel enhancements in response to increased demand at existing businesses, the launch of a new agency business, strengthening efforts in new markets such as VR and AI, the relocation and consolidation of group headquarters in the Tokyo area, and the increase in floor space at the Osaka office. Operating profit declined YoY, but was broadly in line with company forecasts.

New businesses in Creative and Technical (Japan) posted operating loss of JPY204mn (JPY25mn loss in 1H FY02/19). Excluding this impact, operating profit rose by 10% YoY in Creative and Technical (Japan).

Video, TV, and video technology-related businesses

▷ Both sales and profit rose in video, TV, and video technology-related businesses. The profit margin in these businesses fell QoQ in Q2 due to the conclusion of programs created through contracted production, but both sales and profit rose on a YoY basis. The company strengthened TV show planning and production mainly at its production studios, stepped up content for its video distribution service, and responded to the increase in demand for shows on BS and terrestrial television such as variety shows, educational programs, and documentaries. ▷ Services were expanded to include TV director training courses and networking broadcasters all around Japan, and the number of television production staff increased. Recruitment from EIZOshigoto.com, a job information site specializing in the visual media industry, also expanded.

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▷ In July 2019, the company increased floor space at its Osaka office in order to accommodate the creative demand for video, web-based applications, and games in the Kansai area, which is expected to increase in anticipation of the Osaka Expo 2025 and due to other factors. It also strengthened its planning, development and creative development capabilities.

Games business

▷ Profit fell in the games business, despite an increase in sales. The company also faced one-time expenses in the games business, including JPY100mn in development costs for Claytechworks’ game, Palette Parade (scheduled for release) and JPY30mn in expenses for Game Academy training programs geared toward people with no experience in the industry. If not for these one-time expenses, profit would have risen YoY. ▷ In video games, at its production studio, the company undertook new production projects on behalf of clients, worked together with the group’s Korean subsidiary (Creek & River Korea Co., Ltd.) on joint development projects, and progressed with its own development work using licensed IP. ▷ At its production studio, the company primarily employed staff involved in game development (such as with VFX to enhance the visual effects of a game, or those who work on the scenario and thereby influence the appearance of the in-game world), and offered contract development and operations management work in the consumer, amusement, and social gaming fields. Working primarily from its production studio, the company also established training academies (Creative Academy and Tech

Stadium) for people with no experience in the industry in an effort to address the shortage of qualified personnel in the game industry. ▷ In July 2018, the company acquired shares in Claytechworks, Co., Ltd., and made it a consolidated subsidiary. Claytechworks is a newly established spinoff from Silicon Studio Corporation that took over part of Silicon Studio’s content business. Creek & River also started working to blend its creative talents with those of Claytechworks, which has extensive expertise in the area of video game content development, and strengthened its contract development activities. In addition, it proceeded with

preparations for the distribution of Palette Parade, an internally developed smartphone game for training artists. Furthermore, Claytechworks acquired the 3D-CG avatar business, VR business, and content development business from Interactive Brains Co., Ltd., in September 2019, and 25 employees joined Claytechworks as a result. ▷ The company also focused on boosting the event business, which includes eSport (competitive video gaming). In May 2019, it collaborated with the Pokémon Company to host a corporate Pokémon tournament for Pokémon: Let’s Go, Pikachu! and Let’s Go, Eevee! on Nintendo Switch™, and Pokémon cards, gathering 120 participating companies. In addition, the company hosted an event called the Attraction Festa at various locations in the Greater Tokyo area. The Attraction Festa, which combines anime and game content with a live event, establishing a new revenue model in intellectual property distribution and event management.

Web business

▷ Profit was flat YoY in the web business, despite an increase in sales. Expenses associated with large-scale contracted production projects took precedence in 1H. ▷ At its web business, the company grew its Agency business by strengthening recruitment of website creators and the company’s network among website creators through the web business-oriented job information site Webist, which is one of the largest of its kind in the web, advertising, and publishing industries. ▷ There was an increase in the number of large-scale web site production projects for government ministries and agencies at the web studio that was expanded in FY02/16.

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▷ Creek & River also began operating Symbiorise, a job information website for people working AI and IoT fields, and expanded its digital marketing services, including referral of data analysts to companies.

E-books and publishing

▷ In publishing, sales rose as profit fell YoY. Performance was strong in the e-book distribution agent business, but profit declined in the overseas agency business. ▷ The company distributed (as an agent) e-books through electronic bookstores, including Amazon Kindle. In this e-book distribution agent business, the company reported a steady increase in downloads and distribution of e-books. ▷ In the overseas agency business, which aims to capture growing demand of video content in China by licensing the rights to make videos for the local market based on the works of Japanese authors, the period to close contracts lengthened.

YouTube Online Creators (OC)

▷ At YouTube Online Creators, the company saw a steady rise in the views of uploads by YouTubers (to a monthly high of 600 million views) and won more contracts to operate YouTube channels for companies and television programs. ▷ In May 2018, it began operating foreign language channels on behalf of YouTubers, making use of the AI-driven speech synthesizing technology (RECAIUS™) developed by its strategic partner Toshiba Digital Solutions. The company presented profitability measures for domestic YouTubers, such as launching and managing Kids Line World (an English-language subtitled

version of the popular YouTuber Kids Line, aimed at children), with an aim to increasing the number of channels it operated. Using the RECAIUS technology, the company also collaborated with WatchMojo.com–a popular overseas YouTube channel–to jointly start and operate the Japanese language versions of WatchMojo.com’s subchannels. ▷ The company accelerated its efforts in the video market, establishing OC Studio for video content production in its new office following relocation. It has been planning, producing, and managing the YouTube channel ULTRA TEENS Channel, which is popular among teenagers, since March 2019 in collaboration with Ultra Teens. It has also strengthened its offering for VTubers.

Architecture business

▷ The architecture business became profitable in FY02/18, and the company continued to post profit through this business in 1H FY02/20. ▷ In the architecture business, the agency business (a referral service of certified class 1 architects) showed steady growth. The architectural design business that proposes rental housing with distinctive designs under the Creative Residence® brand launched a new series of property called the Staple House, which is a detached house with an integral garage. Inquiries from interested parties have increased as a result. ▷ In February 2019, the company created the store design for an Italian restaurant that opened in the Ginza Mitsukoshi department store, as it worked to build a track record in the architecture design business by taking advantage of its network with approximately 1,000 design offices.

▷ Sales rose and loss shrank in VR, which falls under the Creative and Technical (Japan) segment. In VR, the company developed a system to deliver VR content (such as the VR remote medical training system) using the VR goggles from consolidated subsidiaries VR Japan and Idealens Technology. It also began rolling out a comprehensive business solutions service (including everything from the hardware to the content). The target markets include corporate education and training facilities, amusement facilities, hotels, tourist facilities, events, and exhibitions.

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▷ The company continued marketing IDEALENS K4, new IDEALENS VR goggles with 4K resolution that were released in September 2019.

Initiatives in new fields

▷ New agencies (performing arts, researcher) incurred an operating loss of JPY51mn (JPY18mn loss in 1H FY02/19) and new services (drones, language learning) an operating loss of JPY23mn (JPY7mn loss in 1H FY02/19). ▷ In the professor agency business, in which the company operates an AI domain-centered staffing business for researchers and doctors, Creek & River launched an agency business for R&D support staff in February 2019 to assist with R&D in the life sciences, including biology and chemistry. As of July 2019, the company received more than 70 staffing orders from biotech startups, universities, research institutions, and pharmaceutical companies. ▷ With the performing art agency business that launched in March 2018, the company developed its sales activities to open up new venues for performing artists to work in, introducing its new “Dramatic Corporate History” service to medical institutions, through which professional actors use drama to instill a company’s core principles during corporate training. ▷ In March 2019, the company launched a language-learning service for professionals in various fields to enhance their expertise and language abilities.

Medical Staffing

▷ Sales: JPY2.6bn (+9.9% YoY) ▷ Operating profit: JPY750mn (+17.4% YoY)

Sales and operating profit were up YoY as a result of a rise in doctor referrals. The increase in sales made up for a JPY60mn jump in new business expenses (M&A, etc.), driving profit upward YoY.

To meet the various needs of medical institutions, municipal governments, doctors, and nurses, the company rolled out services in its Medical Staffing business such as Resinavi fairs for medical students and residents held all over the country; Resinavi, a clinical trial training information site; MediGate, a job search website for doctors; and Minkan Ikyoku Academy, a training program for doctors. In September 2018, the company opened its Eastern Kanto branch office in Funabashi City, Chiba Prefecture, bringing the total number of facilities in Japan to 16. The company has aimed to efficiently increase its number of doctor referrals by focusing on online marketing.

The company plans to launch a new consulting business that will harness its relationships with 13,000 medical institutions to act as an intermediary for buying and selling businesses that fulfill hospitals’ succession planning needs. The consulting business will provide business support for medical industry in areas such as the launch of medical institutions, business succession, starting up new businesses, hospital management, patient emergencies, and staff hiring.

Accounting and Legal

▷ Sales: JPY1.0bn (+10.9% YoY) ▷ Operating profit: JPY108mn (+149.3% YoY)

Solid demand for professionals with expertise in the accounting and legal fields led to higher YoY sales and operating profit.

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Making use of the network it has already established, Creek & River expanded its service offering with the full-scale launch of business succession and M&A support services in order to better meet the business succession planning needs of accounting firms and their clients. It also began a referral service for accounting staff who wish to telecommute in an effort to address work style diversification in the accounting field.

In the legal space, registrations on Bengoshi Tenshoku.jp, launched in September 2018, continued to grow, with the referral business to law firms and companies expanding. The company marketed JURISTERRA, a social media platform that links legal professionals around the world, and its voice dictation editor, which uses RECAIUS™ speech recognition technology, to lawyers and small legal companies. It also provided support for client expansion and customer efficiency improvements.

Other

▷ Sales: JPY1.1bn (+14.2% YoY) ▷ Operating loss: JPY121mn (operating loss of JPY52mn in FY02/19)

Sales rose YoY thanks in large part to growth in the Agency business in the IT industry. On the profit front, results were down YoY. Operating loss in new businesses expanded YoY, reaching JPY130mn (JPY78mn loss in 1H FY02/19) as the company strengthened initiatives for new markets, such as VR and AI, and also because of delays in the global distribution of smartphone games licensed by Creek & River Korea Co., Ltd. However, results were broadly in line with the company’s forecast.

▷ Leading Edge Co., Ltd., which operates the IT staffing agency business, posted higher sales and profit, mainly in its temporary staffing business. The company continued to focus on hiring, training, and referral of IT engineers in response to market demand for robotics and artificial intelligence, creating a network of more than 4,000 engineers adept at the Python programming language. ▷ Profit improved YoY for Inter Belle Inc., which operates the group’s agency business in the fashion industry. Inter Belle made progress in reconstructing its business foundation through such efforts as reviewing unprofitable projects. It also looked to diversify its business model, for example by externally expanding its original sales staff training program. ▷ Creek & River Korea Co., Ltd., a Korean subsidiary that develops Korean game licenses around the world, posted operating loss of JPY61mn (JPY11mn loss in 1H FY02/19). The company also experienced a delay in the global rollout of its smartphone games, CeresM and Sangokushi Mugen Taisen, scheduled for spring 2019. The company coordinated with publishers in each country to put distribution arrangements in place, and distribution of CeresM began in September 2019. ▷ Professional Media Co., Ltd., which operates a personnel media business, posted lower sales and profit YoY due to a decline in the number of successful placements. It established a profit base combining its media business and its agency business centered on Koukokutenshoku.com (an online job board for advertising and web professionals) and Creative-haken.com (an online job board for temporary workers with advertising and web expertise), which revamped in July 2018. It also expanded the same business model in the video and fashion industries in an effort to diversify its income. ▷ VR Japan Co., Ltd., a consolidated subsidiary, recorded a loss primarily because the launch of a new model was scheduled in the period ahead. The company promoted the VR goggles with Creek & River to expand sales in Japan. It aims to expand this business through aggressive marketing of its virtual reality safety training service to companies in the construction industry, as well as marketing IDEALENS K4, new VR goggles with 4K resolution. Marketing of IDEALENS K4 began in Japan in September 2019.

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▷ Consolidated subsidiary Idrasys Co., Ltd., which provides system planning, development, sales, operation, and maintenance services using AI, narrowed its losses YoY by recording higher sales. Idrasys sells chatbots (automatic response systems) that utilize SmartRobot™, an AI platform developed by Intumit Inc. The company aims to position itself as a solutions partner for companies looking to make use of AI, and has rolled out initiatives such as a support service for using the cloud-based AI platform Magellan Blocks, developed by Groovenauts Inc. Idrasys accumulated orders during 1H, and the company projects that it will post quarterly profit in Q4 (December 2019–February 2020).

Magellan Blocks allows users to construct predictive models using machine and deep learning. It comes with a diverse range of model types as a standard feature, including numerical regression, numerical classification, image classification, and document search, and enables predictions of future trends by optimizing sales forecasts, demand forecasts, contract forecasts, fraud detection, and promotion through a combination of functional blocks displayed on a screen.

▷ Consolidated subsidiary Economic Index Co., Ltd., which operates data analysis business, recorded loss in FY02/19 but posted quarterly profit in Q2, thanks to an increase in order volume. It also worked to generate profit from its data analysis service and consulting (suggesting measures for clients to improve on the basis of unique methods of analysis), and provided solution services based on the results of data analysis. The company also expects to post improved full-year results YoY in FY02/20. ▷ Creek & River Global, Inc., which develops and operates the legal networking social media platform JURISTERRA in the US, is making developmental progress toward full operation of JURISTERRA. Utilizing some of its functions, it has expanded its legal

consulting services to form links between the US and Japan.

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Other information

History

Creek & River was formed in March 1990 by President Yukihiro Ikawa, himself a former freelance film producer, with the mission to increase the lifetime value of creative staff and help customers create value. The company started as a staffing agency focusing on the video production area and subsequently expanded into web and mobile application development staffing, as well as broader creative staffing and outsourcing. The company sees its business model as applying to any type of professional staff and it has been expanding to include such professions as medical doctors, IT engineers, lawyers, accountants, architects, fashion designers, chefs, researchers, and performing artists.

Year Month Summary 1990 March Creek & River established 1992 July Begins staffing agency business for video production creators 1993 November Approved to begin fee-based employment agency business 1996 December Begins staffing agency business for game creators 1997 January Medical Principle Co. established 1997 July Begins staffing agency business for creators in publishing and advertising 2000 June Stocks listed on NASDAQ Japan (now JASDAQ)

2000 July Leading Edge established 2001 January Acquires shares in wholly owned subsidiary of TV Tokyo 2001 August Creek & River Korea established in Seoul

2003 March Rights business launched 2007 August C&R Legal Agency established 2009 June JUSNET Communications becomes a consolidated subsidiary

2010 March Creek & River Shanghai established 2012 July Begins e-book distribution business 2013 January Begins architect staffing agency business

2013 February Begins fashion creator staffing agency business 2013 July Begins online creator staffing agency business 2013 December Inter Belle becomes a consolidated subsidiary

2015 March Begins chef staffing agency business 2015 April Professional Media becomes a consolidated subsidiary 2015 May Economic Index becomes an equity-method subsidiary

2015 July Begins professor staffing agency business 2016 February Listing change to Tokyo Stock Exchange Second Section 2016 March US subsidiary Creek & River Global, Inc. established 2016 August VR Japan established 2016 August Listing change to Tokyo Stock Exchange First Section 2017 January MCR Analytics established 2017 December forGIFT established 2018 January Idrasys established 2018 March Launches performing arts agency business

2018 March Launches drone business 2018 July Claytechworks becomes a consolidated subsidiary 2019 February Launches researcher agency business

2020 January Changes Creek & River Entertainment Co., Ltd. (South Korea) from an equity-method affiliate to a consolidated subsidiary

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News and topics April 2020 On April 9, 2020, the company announced a planned acquisition of treasury stock.

Outline of the acquisition Class of shares to be acquired: Creek & River Co., Ltd., common stock Number of shares to be acquired: Up to 800,000 shares (3.5% of outstanding shares) Total acquisition cost: Up to JPY500mn Acquisition period: April 10, 2020 to August 31, 2020

January 2020 On January 9, 2020, the company announced a review of the capital structure of an equity-method affiliate (making it a consolidated subsidiary).

Creek & River decided to make its Korean equity-method affiliate Creek & River Entertainment Co., Ltd. (CRE) a consolidated subsidiary following a review of its capital structure. The company said there would be no impact on FY02/20 results, and the main effect of the consolidation would be a boost to sales in FY02/21.

Background to capital structure review In 2001 the company established a consolidated subsidiary, Creek & River Korea Co., Ltd. (CRK), in Seoul Korea, rolling out operations in Korea using the same business model as its own. This grew primarily by providing Korean television stations with dispatched personnel. In December 2016, the company established CRE by spinning out the CRK business in light of Japan-Korea relations and characteristics of the Korean television market. CRE became an equity-method affiliate by increasing the proportion of shares held by local management.

Subsequently, CRK developed its business by rolling out Korean game licenses globally including in Japan. In light of an increasing number of opportunities to collaborate with the network that CRE developed in the Korean entertainment world, the company decided to make it a consolidated subsidiary to strengthen business collaborations in Korea.

Overview of subsidiary to be consolidated Name: Creek & River Entertainment Co., Ltd. Main business: Agency business focusing on TV and video sectors Earnings (FY12/19 forecast): Sales JPY3.4bn, operating profit JPY14mn

Overview of consolidation The company’s consolidated subsidiary CRK bought additional shares in equity-method affiliate CRE on January 9, 2020, making it a consolidated subsidiary. CRK held 35% of the voting rights before the acquisition and 75% after. The consideration for the share acquisition was KRW1.2bn (roughly JPY115mn).

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Major shareholders

Shareholding Top shareholders Shares held ratio C&R Co., Ltd. 6,293,000 28.82% Yukihiro Ikawa 3,768,000 17.26% Japan Trustee Services Bank, Ltd. (Trust account) 2,209,000 10.12% Hideo Sawada 520,000 2.38% The Master Trust Bank of Japan, Ltd. (Trust account) 508,800 2.33% Tatsumi Yoda 350,000 1.60% The Nomura Trust and Banking Co., Ltd. (Trust account) 296,100 1.36% Rikihiro Madarame 284700 1.30% Northern Trust Co. (AVFC) Re Northern Trust (Guernsey) Limited Re GGDP Re: 270,000 1.24% AIF Clients 15.315 Percent Non Treaty Account (Standing proxy: The Hongkong and Shanghai Banking Corporation Limit ed, Tokyo Branch, Custody Department) SMBC Nikko Securities Co., Ltd. 245,700 1.13% SUM 14,745,300 67.54% As of end-February 2020 Excludes treasury stock Source: Shared Research based on company data

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Company profile

Company Name Head Office SHINTORA-DORI CORE Creek & River Co., Ltd. 4-1-1 Shimbashi, Minato-ku Tokyo, Japan 105-0004 Phone Listed On +81-3-4550-0011 Tokyo Stock Exchange 1st Section Established Exchange Listing March 20, 1990 June 19, 2000 Website Fiscal Year-End http://www.cri.co.jp/en/ February IR Contact IR Web

IR Mail IR Phone

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