Linical Co., Ltd. (2183)
Kazuhiro Hatano CEO
Kazuhiro Hatano
Corporate Profile
Linical Co., Ltd.
Code No.
First Section, TSE
Kazuhiro Hatano
HQ Address
10 Fl., Shin-Osaka Brick Building, 6-1 Miyahara 1-chome, Yodogawa-ku, Osaka, Japan
Home Page
Stock Information
Share Price Shares Outstanding Market Cap. ROE (Act.) Trading Unit
¥1,309 22,759,812 shares ¥29.79 billion 52.4% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Act.)
¥10.00 0.8% ¥60.43 21.7x ¥145.43 9.0x
* Stock price as of closing on November 30, 2016. Number of shares issued at the end of the most recent quarter excluding treasury shares.
Consolidated Earnings Trends
Fiscal Year Sales    Operating
Net Income EPS (¥)  Dividend (¥)
March 2013 3,599 1,003 998 616 54.13 16.50
March 2014 3,721 706 703 449 39.42 14.00
March 2015 4,872 876 840 437 38.36 14.00
March 2016 7,666 2,012 1,985 1,330 58.40 10.00
March 2017 Est. 8,633 2,075 2,060 1,377 60.43 10.00
* Estimates are those of the Company. An additional dividend of ¥2.5 per share was paid to commemorate the listing of the Company's shares to the First Section of the Tokyo Stock Exchange during FY3/13, and ¥1 per share was paid during FY3/2016 to commemorate the 10th anniversary of its establishment.
*A 2 for 1 stock split was performed on January 1, 2016. Dividend payment after the stock split is ¥10 per share (Including a ¥1 commemorative dividend), the actual dividend payment would have been ¥20 per share if the stock split is not considered.

We present this Bridge Report about Linical Co., Ltd. and details of the first half of fiscal year March 2017 earnings.
Key Points
Company Overview
Linical Co., Ltd. provides contract research organization (CRO) services that support the drug development processes of pharmaceutical companies on an outsourced consignment basis, and sales and marketing functions for pharmaceutical products and post market launch clinical research and surveys on a consigned basis in the contract medical affairs business (CMA). Pharmaceutical products are subject to approval of the Ministry of Health and Welfare prior to their sales, and efficacy and safety of pharmaceutical products must be confirmed through clinical trials prior to their approval. Companies providing clinical trial support services are known as contract research organization (CRO) service providers. In addition, there is a need to conduct surveys and clinical research after pharmaceutical products have been launched into the market and contract medical affairs is a service provided to support these efforts.

Linical has conducted various efforts to eradicate cancer, central nervous system and other diseases globally since its founding, and it has deployed its CRO business in disease realms where there is strong demand for new drug development. These are highly difficult disease realms, and Linical is able to support clinical trials in these realms with its high levels of knowledge and bountiful expertise. In addition, Linical focuses its efforts up the new drug development support and contract medical affairs business, approval application support and post approval marketing and clinical research, and post market survey support services, which exceed the traditional definition of outsourcing and is now considered to be part of a wider range of consulting services provided to customers as a "true clinical development partner". Furthermore, amidst the advance of globalization and large scale pharmaceutical product development, the Linical Group can provide "one stop shopping" type comprehensive services for large scale global products. Consequently, Linical is able to play the role of a strategic business partner by providing total support to help raise the competitive advantage of customers in the market and to help pharmaceutical companies develop new future business opportunities.
<Corporate History>
Linical Co., Ltd. was established in June 2005 by nine members who worked at Fujisawa Pharmaceutical Co., Ltd. (Currently known as Astellas Pharma Inc.) on the development of immunosuppressant drugs. Established with the objective of becoming the ideal drug development outsourcing (CRO) company from Osaka, Linical focused its efforts upon the realms of central nervous system diseases (CNS) and oncology since its founding, and received one of its first orders from Otsuka Pharmaceutical Company shortly after its establishment. Thereafter, the Company fortified its staffing as part of its efforts to strengthen its order taking capabilities. In addition, Linical is benefitting from the bountiful experiences of its employees in the realm of oncology pharmaceutical product development and experiences having worked at foreign pharmaceutical companies. Consequently, Linical is successfully expanding orders in the near term.

With its advance into the site management organization (SMO, clinical trial facility support organization) business, Aurora Ltd. was turned into a subsidiary in January 2006. However, all shares held in Aurora were later sold in May 2007 in order to focus management resources upon the CRO business. In July 2008, Linical USA, Inc. was established in California, United States to provide support to Japanese pharmaceutical companies seeking to enter the United States market. Also in October of the same year, Linical listed its shares on the Mothers Market of the Tokyo Stock Exchange, and subsequently moved its listing to the First Section of the Tokyo Stock Exchange in March 2013. In May 2013, Linical Taiwan Co., Ltd. and Linical Korea Co., Ltd. were established in Taiwan and Korea respectively. In April 2014, Linical teamed up with its Linical Korea to acquire the Korean CRO company P-pro. Korea Co., Ltd. In October 29, 2014, all of the shares of Nuvisan CDD Holding GmbH, which conducts CRO business in Europe, were acquired and it was converted to a 100% owned subsidiary effective on December 1, 2014. In order to strengthen the collaboration within the Group, the company name of Nuvisan CDD was changed to Linical Europe GmbH. In addition, Linical U.K. Ltd. was established in March 2016, and a local subsidiary called Linical Poland SP. Z.O.O. was also established in October of the same year.
<Business Description>
CRO Business
In the main CRO business, Linical seeks to provide highly effective clinical trial support to allow the quick introduction of new drugs into the market by maintaining staff with high levels of technological knowledge and bountiful experiences. The company has opened facilities in Asia (Korea, Taiwan, Singapore), Europe and the United States to be able to respond to growing demand for global studies. Llinical provides "one stop shopping" services ranging from pharmaceutical affairs to planning, implementation plan creation, monitoring, data management, statistical analysis, and pharmacovigilance. With regards to jointly conducted global trials, Linical headquarters operates a function where personnel with in depth knowledge about various countries pharmaceutical product development work. These personnel are able to provide information necessary to establish a development environment that can enable jointly conducted global clinical trials to be conducted in Japanese. Within new drug development projects, which take between 10 to 20 years, the Company specializes in the clinical trial process where patients are subjected to treatments in the "phase II" and "phase III" stages of clinical trials, which require between 3 to 7 years, and monitoring, quality management, and consulting services, which make up the core of clinical trials, are provided. Highly credible data is accumulated in support services to ensure quick and steadfast new drug development can be conducted. Moreover, Linical has chosen to specialize in oncology and central nervous system related realms, where development demands from the market are strong, and other highly difficult disease realms and to respond to the needs of pharmaceutical companies in these realms.
Contract Medical Affairs Business
Clinical research after pharmaceutical product approval entails evidence based medicine (EBM) data creation related to activities designed to improve the quality of medical treatment including validation of effectiveness, confirmation of safety, and interaction consideration for pharmaceutical product usage in the clinical work front. In recent years, facilitation of rules for clinical research has progressed, and the amount of corporate led clinical research is on the rise, in addition to the traditional physician led clinical research. Linical has been able to implement clinical research that responds to the most recent information in global applications not only in intervention studies, but also in consigned observational studies, database research and other various clinical research by leveraging its knowhow in the realm of clinical trials. In the future, pharmaceutical companies will gather opinions from key opinion leaders (KOL) in various disease realms through its medical affairs division (MA) and medical science liaison (MSL) along with the increasing fairness and transparency of marketing activities. Various tasks are conducted within the MSL division including key opinion leader engagement, advice board operations, and lecture operations. Linical will leverage its experiences in creation of operating manuals, regional opinion leader support, clinical research procedure manual creation support and consulting services to provide medical science liaison support on a global basis.
New Drug Development Support Business
Linical provides a wide range of services that respond to the needs of pharmaceutical product development including consigned clinical trial monitoring, new drug marketing support, development plan proposal, and clinical trial plan creation that fully satisfy the requirements of client pharmaceutical companies in the new drug development support business. Moreover, Linical proposes new drug development solutions that reduce the risk of development by leveraging funds and subsidies to develop compounds that become the "seeds of medicine" in the initial stages of pharmaceutical product development process.
(1) Concentrated Specialized Knowledge, Knowhow, Experience that Respond to Pharmaceutical Companies' Needs
In general, a long period of time of between 10 to 18 years is required to obtain approval for the commercial launch of new drugs into the market. In this overall process, clinical trials require between three to seven years to complete, and lack of preparation, data, and other issues can lead to delays in the progress of trials and in the market launch of new drugs. Linical leverages its bountiful experience in the CRA services, including its highly accurate and speedy data gathering capability, other knowhow to predict and prevent various problems from occurring and ability to ensure that the "clinical trials progress smoothly," allowing it to provide accurate explanations of the overall clinical development process at the orientation stage to clients. Furthermore, a characteristic of Linical's specialized CRO service is its focus upon the three highly efficient tasks mentioned below.
① Linical specializes in the three core tasks ("monitoring", "quality control" and "consulting") of development
② The Company focuses upon the two most important stages of clinical trials of phase II and III.
③ Linical focuses upon major pharmaceutical companies that possess bountiful pharmaceutical product development information.
(2) Strengths in CNS, Oncology Monitoring, Highly Difficult Realms with Few Competitors
One of Linical's strengths is its specialization in monitoring services for highly difficult disease realms of the central nervous system (CNS) and oncology, where there are few competitors. For example, evaluating symptoms to determine whether they are the result of side effects of drugs or the cancer itself in the realm of oncology is very difficult. And in the realm of central nervous system diseases, evaluating the efficacy of drugs prescribed for patients afflicted with Alzheimer's disease is also highly difficult. Therefore, sophisticated responses and expertise in monitoring are necessary in these difficult realms. In addition, new drug development for patients of acute and specified diseases (Difficult diseases), which are also highly difficult disease realms, oncology and CNS disease realms is very active (There are only a few CROs that can respond to these situations). Evaluation of the efficacy of drugs for adult lifestyle related diseases is far easier because conditions of patients undergoing clinical trials tend to be relatively stable (Data gathering of blood sugar levels in diabetes patients).

New drug development trends are shifting from adult lifestyle related diseases towards the realms of oncology and CNS, where treatment satisfaction is low. However as stated above, the safety evaluation of oncology realm drugs and the efficacy evaluation of CNS realm drugs are more difficult. Therefore, there is a trend of aggregation of CROs with bountiful experiences in consigned tasks in these realms. Order backlog is expanding especially in the realm of acute diseases, specified diseases, and CMA. Order backlogs in the realms of oncology and central nervous system as of end September 2016 declined slightly from end March 2016, but the impending start of several large projects are expected to contribute to an expansion in this business.
(3) High Profitability
The deviation rates on projects undertaken by Linical have been held to extremely low levels, and the implementation period, including the period required for introduction of cases and data collection, for about 80% of all projects has been shortened. Because of its high levels of service quality and quick delivery times in highly difficult disease realms, Linical is able to book orders without having to offer reduced prices, and it is able to achieve high profit margins by overcoming the economies of scale advantage of its larger competitors.

Moreover, the source of Linical's earnings generation capability are its highly skilled and well trained clinical research associates (CRA), as reflected in the good clinical practice (GCP) passport certification examination passage rates. The GCP passport certification examination is designed to promote improvements in the quality of Japan's clinical trials and clinical research and is conducted by the Japan Society of Clinical Trials and Research. Moreover, all of the employees eligible to obtain qualifications have gone through the examination process, and Linical achieved passage rates which are much higher than its competitors.
Management Strategy
(1) CRO Business
The main business strategy within the CRO business calls for 1) continued results to be achieved in the realms of oncology and central nervous systems, with repeat orders being converted into exclusive contracts, 2) early achievement of a structure with 300 CRAs within Japan while developing the volume in U.S. and Taiwan and 3) implementation of a global structure that enables one stop consignment order taking capability for jointly conducted global clinical trials.
Within Japan, new staff hiring will be aggressively promoted, while at the same time maintaining both quality and speed. Furthermore, a structure of 300 CRAs capable of responding to increases in projects will also be created and maintained. Moreover, Linical will endeavor to maintain high capacity utilization rates of its CRAs while at the same time expanding the number of its exclusive contracts in the realms of oncology and central nervous systems. During fiscal year March 2017, the number of regular hires for new graduates from faculty of Pharmaceutical Sciences will be steadily increased, and similar levels of midcareer hires as the previous year are expected to be hired in spite of intense competition.
Global Development
Linical will leverage its global consignment business structure for jointly conducted global clinical trials conducted in Japan and Asia, the United States and Europe to accelerate the expansion in its global business. As part of the facilitation of a structure for clinical trials conducted between multiple countries, Linical Taiwan Co., Ltd. (Taipei City, Taiwan, capitalized at Taiwan $10 million) and Linical Korea Co., Ltd. (Seould City, Korea, capitalized at 1 billion won) have been established as 100% owned subsidiaries. In April 2014, Linical Korea Co., Ltd. was merged with the Korean CRO service provider P-pro. Korea Co., Ltd. And in July 2008, Linical USA, Inc. was established, and an office was opened in San Diego, California in September 2014 to expand business in the United States. Furthermore, Linical reached an agreement with Nuvisan Pharma Holding GmbH to acquire Nuvisan CDD Holding GmbH as a subsidiary to provide CRO services in Europe on October 29, 2014, with completion of the acquisition on December 1, 2014. At the same time, the company name was changed to Linical Europe GmbH. These developments have created a consignment business structure in the three regions of Japan and Asia, the United States and Europe.

In order to support global strategies of pharmaceutical companies, Linical employs personnel with in depth knowledge about pharmaceutical product development work in various countries and facilitates a work environment where this information can be communicated in Japanese. Linical provides the capability of acting as a conduit that enables clients to conduct jointly conducted global clinical trials for development at an early stage in difficult disease realms such as oncology and central nervous system, and to thereafter expand development to facilities in Japan and Asia. The Company also boasts of a strategy that supports client's efforts to achieve simultaneous market launch of products in Japan and Asia, the United States, and Europe by working on latter stages of development in these countries. Linical will also promote efforts to strengthen their capability for jointly conducted global clinical trials in the three regions of Japan and Asia, the United States and Europe.
Countries Where Services Can Be Provided Directly
Japan, United States, Korea, Taiwan, Singapore, Germany, France, Spain, Holland, Croatia, Portugal, United Kingdom, Belgium, Switzerland, Italy, Austria, Slovakia, Hungary, Serbia, Montenegro, Bosnia Herzegovina, Ukraine, Russia, Poland
(Source: Linical)
Linical is planning to expand its staff numbers in the United States to 20 immediately and is considering expansion of facilities.
(2) Contract Medical Affairs Business
Linical differentiates itself from its competitors, which primarily offer only MR dispatch services, by focusing upon the consigned service type drug development business. Specifically, the Company seeks to differentiate itself by hiring MRs with bountiful experience in special patient realms and leveraging its bountiful knowhow established in the CRO business to take on highly specialized tasks. Currently, Linical provides the two main services of clinical research support and product marketing (liaison). With regards to the provision of consigned support services for clinical research, the securing of quality levels of clinical research is a critical issue for evidence creation. Linical creates procedure manuals for structure facilitation support, monitoring and surveillance implementation. Cultivation of new medical institutions and physicians as clients in the process for market launch of new products in new realms, and execution of product differentiation strategies are conducted and proposed in the product marketing (liaison) service. In addition, the ability to receive work for clinical research was responsible for the turn to profits of this business segment during fiscal year March 2013, and new orders for clinical research and development in fiscal year March 2014 allowed sales and profits to rise from the previous term. While the number of staff in this business has been rapidly expanded to 50, aggressive hiring is expected to be maintained to respond strong demand for this business.
(3) New Drug Development Support Business (New Business Development)
Linical is endeavoring to cultivate new drug development support services by responding to customers' needs for comprehensive "one stop shopping" services by providing new drug development schemes that have little impact upon near term earnings and for which demand is growing. In addition, patients and the administrative authorities in Taiwan and Japan are encouraging companies to develop drug lag compounds as well as new drugs in the realms of oncology, dementia, difficult diseases and regenerative medical treatments. Linical seeks to cultivate a new drug development support business that responds to these needs which have surfaced in recent years. Therefore, the Company will implement efforts for clinical trial implementation planning creation, data collection and other tasks, and plan development of compounds in house at an early stage by leveraging subsidies and new drug development funds. Development of compounds using new drug funds is expected to help grow the CRO business while allowing the experiences of the Company to also be leveraged. Also, experiences in consignment of tasks ranging from development planning to approval applications are expected to be gathered.
Market analysis (Sales forecasting, others), drug development responses (PMDA consultations, others), development strategy proposals, partnering support (Business model proposal, licensing negotiation support, others) and other services are provided to pharmaceutical and bio-venture companies in the new drug development support business. Currently, this business is ramping up smoothly and Linical has already concluded two contracts, is in negotiations for one contract, and is considering another three contracts with overseas companies.
First Half of Fiscal Year March 2017 Earnings Results
Sales Rose 6.6%, Ordinary Income Decline 5.8%
Sales rose by 6.6% year-on-year to ¥4.029 billion, but ordinary income declined by 5.8% year-on-year to ¥1.071 billion. Against the backdrop of growing demand for outsourcing of pharmaceutical product development and sales functions, and jointly conducted global clinical trials, the market scale of the CRO and CSO industries to which Linical belongs is gradually expanding. Amidst these trends, Linical promoted efforts to strengthen the global consignment structure, covering Japan and Asia, the United States, and Europe, results in capturing the increased demand for jointly conducted global clinical trials and realizing an expansion in subsidiaries' earnings, especially in the CRO business. With regard to the contract medical affairs business, the number of new orders for corporate led clinical research for post market launch new drugs is on the rise. And despite the influence of the rapid strengthening of the yen, expansion of oversea subsidiaries' earnings and favorable earnings in Japan are contributing to overall sales growth.

With regard to profits, increases in cost of sales and sales, general and administrative (SG&A) expenses arising from anticipatory investments in human resources, particularly within Japan, and reductions in the contribution of overseas subsidiaries due to the strengthening of the yen caused operating income to decline by 1.0% year-on-year to ¥1.120 billion. Gross income margin declined by 1.2 points year-on-year to 46.4% and SG&A to sales margin rose by 1 point year-on-year to 18.6%. In addition, translation losses resulting from the stronger yen's affect upon foreign currency denominated assets led to a ¥40 million loss (Compared with a profit of ¥16 million in the previous term) and contributed to a 5.8% year-on-year decline in ordinary income to ¥1.071 billion. Net income attributable to the shareholders of the parent company rose by 0.1% year-on-year to ¥747 million. There were no extraordinary expenses booked during the current first half.
Labor expenses booked as cost of sales grew due to increases in compensation for new graduate and mid-career hiring and existing employees. Increases in staff numbers also contributed to increases in labor expenses in the United States as well. While sales in Europe were negatively influenced by the stronger yen, they were basically in line with estimates. Korea turned to a profit due to an expansion in orders. Taiwan was able to surpass estimates due to an expansion in orders.
Consignment projects in both the CRO and contract medical affairs businesses usually last between 1 to 3 years, with sales being booked on a monthly basis. Order backlogs represent the residual value of consignment projects that have already been formed. Therefore, backlogs normally reflect the future sales expected to be booked between the next 1 to 3 years, and are the basis for the Company's earnings estimates.

As of November 11, 2016, order backlog were 15.5% higher than the level recorded at the end of fiscal year March 2016. This favorable figure also reflects the steady booking of backlog as sales which were exceeded by a stronger inflow of new orders. Linical has plans to strengthen its consignment structure by hiring additional CRA (Clinical development monitoring) staff in response to the favorable near term order environment with increases in outsourcing and jointly conducted global clinical trials, and large number of inquiries from both new and existing clients for consigned projects.
As of end September 2016, total consolidated assets declined by ¥138 million to ¥6.983 billion due in part to goodwill amortization and depreciation, and declines in unpaid taxes and deposits. Goodwill declined by ¥173 million to ¥1.039 billion at the end of September 2016. In addition, capital adequacy ratio rose by 5% points to 47.4% at the end of September 2016.
A decline in deposits and increase in tax payments caused the net inflow of operating cash flow to contract. Changes in the scope of consolidation including the acquisition of shares of subsidiaries caused investing cash flow to turn from a net inflow in the previous first half to a net outflow in the current first half. In addition, an increase in dividend payment caused the net outflow of financing cash flow to expand. At the same time, current and capital adequacy ratios remain at high levels in reflection of Linical's strong financial standing.
Fiscal Year March 2017 Earnings Estimates
Sales, Ordinary Income Expected to Rise by 12.6%, 3.7% Respectively
Linical's outstanding earnings estimates for fiscal year March 2017 remain unchanged and call for increases in sales and ordinary income of 12.6% and 3.7% year-on-year to ¥8.633 and ¥2.060 billion respectively. In order to offset the negative influence of major products going off patent, major pharmaceutical companies are increasing their outsourcing as a means of rationalizing and optimizing their management, as well as focusing their efforts on discovering highly promising pharmaceutical product categories. At the same time, acquisition of overseas venture companies is accelerating, and the number of consigned clinical trials for new drug development is anticipated to increase. In particular, there is strong need for development of treatments in the realms of oncology and central nervous system related diseases for which there are still no effective treatments, and new drug development responding to these needs is on the rise. Against this backdrop, Linical will endeavor to acquire repeat business from existing customers who regard Linical's services highly and to cultivate business with new clients through strengthened marketing activities. In particular, Linical boasts of strengths in oncology and central nervous system related disease realms for which customers' needs are high, and it will pursue expansion of sales through the acquisition of consigned work projects for jointly conducted global clinical trials. With regards to profits, the Company will endeavor to maintain high CRA capacity utilization rates to grow profits despite the negative influence of amortization of goodwill arising from acquisition of Korean and European subsidiaries is expected to continue, along with anticipatory investments for overseas subsidiaries. Furthermore, strengthening of marketing activities to new customers will be conducted in the contract medical affairs business, and efforts to acquire new consignment projects in realms of high specialization by leveraging knowhow accumulated in the CRO business will be conducted.

Operating income is expected to rise by 3.1% year-on-year to ¥2.075 billion. Increases in staff numbers within Japan and in anticipatory investments arising from an expansion of operations in the United States have been factored into these estimates and are expected to contribute to the conservative outlook for a 2.2% point year-on-year decline in operating income margin to 24%. In addition, there are no expectations for significant bookings of income or expenses at the non-operating or extraordinary income levels. And while Linical's estimates for fiscal year March 2017 are based on the sum of the plans for its various operating regions, they do not reflect any synergies including potential orders for jointly conducted global clinical trials derived from strengthening of the global structure and overseas facilities. Dividend payment is also remain unchanged from initial forecasts of ¥10 per share.
While sales rose by 6.6% year-on-year during the first half of fiscal year March 2017, anticipatory investments in human resources within Japan and the pronounced strengthening of the yen contributed to a 5.8% year-on-year decline in ordinary income and slightly disappointing earnings results. However, order backlog as of November 11, 2016 have risen by 15.5% from the end of March 2016. Also, conversion of orders held as backlog at the end of the previous term from large clients to sales is progressing smoothly and increases in orders from other clients is contributing to a surprisingly strong increase in order backlogs. Therefore, the overall earnings operating environment remains favorable and Linical's earnings structure remains strong. Furthermore, the number of projects in the realms of oncology and central nervous system related diseases, which are strengths of Linical, are expected to increase. Despite expectations of continued anticipatory investments in human resources, the conversion of order backlogs, which are a leading indicator of sales, into sales is expected to contribute to a further increase in growth. Therefore, the ability of Linical to leverage this favorable operating environment and further buildup order backlogs should be closely watched.

Linical must fortify its facilities in the United States to be able to capture the expansion in consignment of jointly conducted global clinical trials. The Company is anticipated to aggressively increase its staff numbers in the United States going forward. Also, M&A activities similar to those conducted in Europe are expected to be pursued as a means of quickly establishing business in the United States as well, and efforts to expand business in the United States must also be closely monitored. The number of contracts with client companies is increasing along with the steady ramping up of the new drug development support business. And while its contributions to earnings is expected to only be realized on a full scale several years forward, synergies derived from an expansion in the new drug development support business is expected to contribute to growth in the CRO and contract medical affairs businesses as well. Therefore trends in the number of contracts formed with clients in the new drug development support business should also be watched.
<Reference: Corporate Governance>
◎ Corporate Governance Report
The company submitted its latest corporate governance report on June 24, 2016 after applying the corporate governance code.

<Basic Policy>
The company will contribute to the development of pharmaceutical products as a partner of leading pharmaceutical companies in Japan with its technology for developing pharmaceutical products and live up to the expectations of the entire society from the pharmaceutical field. In addition, in order to improve corporate value, it is necessary to establish a system for making decisions swiftly while securing soundness and transparency.
Therefore, the company plans to reinforce its internal control, including thoroughgoing compliance with laws, which is the most important issue to be solved.

<Regarding the implementation of the principles of the corporate governance code>
No. of unimplemented principles: 15
Major principles and reasons
The company does not appoint outside directors. CGC promotes the appointment of several outside directors, and over 98% of listed companies in the first section employ outside directors (as of Jun. 2016; Tokyo Stock Exchange). Since the amendment to the Companies Act, companies have been transitioning to companies with a committee of audit, etc. Many companies satisfy the requirement about outside directors, as outside auditors become directors. The company has three outside auditors, and so it can satisfy the institutional requirements, but it does not do so, and explains the reason for it, while discussing whether or not it is appropriate to implement the principles of the code considering its circumstances. The company plans to discuss the methods for exercising voting rights and the disclosure in the case where there are many dissenting votes at a general meeting of shareholders.
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
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