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My name is Negi. This slide shows you the fourth quarter results. And you can see that the net sales has increased by 3% and operating income has increased by 1%. And in both cases, this is below our expectations and our forecast, I'm sorry to say. And if you go to the bottom, you can see the pre-GAAP. We have increase in net sales by 4%. This is because of the FX impact. And if we exclude the foreign exchange impact, it's increased by 6%. Why was it lower than our forecast? I'd like to use these 2 slides to explain about it. First, in the -- up until the third quarter, if you look on the left-hand side, you can see that everything went according to our forecast. But from the fourth quarter, normally, in regard to the GAAP here, it should have been larger, but we have seen that from the third quarter to the fourth quarter, numbers are flat. And so therefore, when we made the forecast, we anticipated that there would be growth, but there were some changes that took place in this area. And meanwhile, in regard to the expenses, this has gone down here. So we have been lower in our net sales forecast. But then the expenses went according to forecast. And the background for this is because when we looked at our Q4 forecast it was a bit optimistic. The reason why this came to be the case is because in the fourth quarter of FY 2017, there used to be a lot of big deals then. We were quite strong then. And so when we made the plans for FY 2018, we thought that in the fourth quarter we'll see a similar trend. And in regard to the big deals, we did not get as many as we had expected. And so therefore, in regard to our estimates for large deals, we were a bit too optimistic. And in regard to where this occurred the most, this is a comparison on a year-over-year basis. But when we look at Q4, in Europe, especially U.K. and also in countries like Brazil, we did not have such trends observed, so they compared to the previous year, it was below our expectations. Meanwhile, when it comes to the expenses for each product, there is the User Protection which is the conventional malware products. And for the mid-market, compared to the previous fiscal year, we were not doing well. And Eva will be talking about this later on. But when it -- because of the concentration in big deals, there were attractive TippingPoint-related deals, but the sales focus was not in the mid-market, but rather in the bigger deals, and so therefore, we were below our forecast for the mid-market. And then expenses. There's some accounting processing here. But when it comes to the deferred revenues, depending on when the payment is recognized, then this changes the situation of deferred revenues. And if things make it within the deadline, then we see changes taking place in the deferred revenue. But, at any rate, profitability after the deferrals was below our forecast. And next in regard to our expenses. For long-term investments, the net sales could not be meeting our forecast, but we do anticipate that this will come up. It's not because there are no deals in the pipeline. And Eva's presentation will touch upon this. But when it comes to the changes in the IT infrastructure, there are new opportunities that are emerging. So we are making advanced investments. We have continued with investments. And so, unfortunately, for the second half of FY 2018, this has impacted our profits. Now it's not all low lights. There are highlights for the fourth quarter. First of all, there is the Hybrid infrastructure protection for the network and the data centers security, double-digit growth has continued. And also I forgot to explain about this, but when it comes to the net income, we have seen an increase by 41% in the first quarter. And if we look at the annual profitability calculations, this goes into the fourth quarter. And so from the first quarter, in the United States, we have seen the taxes go down. And so not everything may have occurred in the fourth quarter. But we were not clear about the calculations and so we made the -- we decided to do the adjustment in the fourth quarter. And in FY 2017, because of the decrease in personal income tax rates, we had seen higher tax rates, but this did not take place in 2018. And so therefore, in the world of taxation, we are seeing some profits. And in operating income, in regard to what the situation of the company is, we're looking at things from operating income perspective. And so we're using that as the basis for calculation of dividends. And when net income increases, then we have the dividends increase. And we have increased dividends, so that we are now going to have the highest ever dividend payout. This is in a dollar-denominated basis. And if we look at the sales by region, net sales by region, we see that in -- it's minus 17% (sic) [ minus 11% ] in North America and plus 13% in Europe. But there is the Tipping -- rather plus 16% and in TippingPoint, we have moved forward with North America. And in 2018, we have also the allocation to the different regions, and this impact was greatest in Europe. And fourth quarter, it seems like we're down in the North America market, but this is because the TippingPoint sales are not included here, whereas in Europe, we're having a plus effect. If we make the adjustments, both are flat. Europe is -- the North America's revenues are not going down and the Europe has not seen, again an increase. But, at any rate, when we look at the fourth quarter, then we're seeing that the 2 regions are flat in this sense. And this is the FX impact excluded. And this was not anticipated, but we should see efforts to increase this. And sales by segment is shown here. And for the consumers in Japan, we have seen revenues down in all other areas besides Japan. But in terms of the enterprise market, we're seeing growth. In North America and Europe, there is the TippingPoint sales recognition that impacts things. But if we look at this by region, then we see that the sales are increasing. Next we have the Hybrid infrastructure protection. And it's 11% increase in yen-denominated basis. And on a last year currency basis, it's 14% increase. There is quite a lot of fluctuation here. This is because of the impact of large deals. And when we look at these kind of growth rates, we thought that this would be the case for this fiscal year as well. There is growth, but the growth is not as high as FY 2017. And so therefore, this shows some of the optimism of our forecast. This is the pre-GAAP sales. There's nothing of note to make here. And in this area, the growth rates are high. And this includes Middle East and it's getting closer and closer to the levels of Europe. This is the pre-GAAP sales and enterprise sales. Consumer of 5% and enterprise 6% growth. In the case of Japan, mobile channel sales growing once again. One thing to note for year-on-year comparison, for mobile, rebate is not excluded. So accounting-wise, if sales is happening in mobile channel, for pre-GAAP it has to be deducted from the gross, but in this case it's not deducted. So this is something that you need to be careful when you compare against the previous year. So if all the rebate is excluded, the growth rate is more like 2% or 3%. This is the balance of deferred revenue. Looking at the cost. What is increasing? Yellow, salary and benefit. This tends to increase in the fourth quarter. And the growth rate for each quarter is not that high compared to the previous fiscal year. And another thing that's included here is the AI contest. We explained this in the previous quarter. AI contest for engineers, this expense is included. And in Japan, the HR system has been changed as well. The pension balance, this is about several, maybe JPY 300 million or JPY 400 million. It's also included. So when you make the comparison, please note that there are some special items. Sales and marketing is also increasing because of big events. These are event expenses. And the dark blue, this is administration, administrative cost. The biggest growth in this area is a cloud back-end. SaaS type sales is on the increase recently. And in relation to that, there are some back-end costs, which is included in administration. It's not that the headcount is increasing in accounting. AWS and Azure or cloud-related services have seen an increasing cost. And this is the profit and this is cash flow. There is nothing to comment. Moving on to headcount. Headcount has increased. And as Eva will mention later, we need to acquire headcount because we see needs for new services on various fronts. So we're trying to hire people in order to prepare ourselves for the new stage. Moving on to the full year numbers. This is the summary of all 4 quarters. So I would like to skip these slides and go to the dividends. Payout ratio is the same, 70% of consolidated net income, and TippingPoint amortization impact is added back, JPY 163 per share. And this is 9% increase because of the tax impact I mentioned before. And, of course, this has to be approved by the shareholders, but this is our proposal. Today, we made announcement about share buyback. In terms of absolute amount, well, the green is dividend. And this year will be the highest so far. So with the share buyback, we don't know exactly how it will end, but about JPY 6 billion will be added on top of this bar. That's what we expect. So in terms of shareholder return, this year, we will be able to return a lot of cash to our shareholders. FY '19 forecast. Japan and Europe, 5% increase in sales, flat in North America and 15% increase in Asia. This is what we expect. Why flat in North America? This is a complicated explanation. So maybe I should ask Habara-san to explain the accounting method.
In FY '19, we're not expecting anything special to happen. But since we have been explaining since FY '18, pre-GAAP for TippingPoint, we are beginning a new allocation method. So up until the end of FY '17, we were basically accounting all the deferred revenue in U.S. And in FY '18, as Negi has mentioned, it is changed. And pre-GAAP for U.S., the numbers appears to be lower because of this. And FY '19, the same situation will continue. That's all this is. So if there is a multiyear account -- contract and if there is a deferred revenue installment, in FY '18, it was still there in the U.S., but this impact will shrink in FY '19. So we set up -- something up until the end of FY '17, which existed in each region, but in FY '18 and '19 this impact will weaken. And in terms of deferred revenue, there is still some remaining impact in North America. So pre-GAAP doesn't look very bad. So FY '18, FY '19, pre-GAAP basis you can make that comparison. But in terms of net sales, we still have some residue in FY '19 and FY '18. In FY '19, this impact will weaken. But in terms of net sales, the situation will still remain the same. I'm sorry about this very complicated explanation. So for pre-GAAP, FY '18, '19, that comparison is possible. But in terms of net sales, North America situation will be basically the same as FY '18. If this is too complicated, I would like to explain this separately. Thank you.
Headcount has increased. Headcount-related expenses is expected to increase in FY '19. And the assumption for exchange rate is shown on the slide. 5% increase in sales, 16.8 -- sorry, JPY 168.6 billion and operating income expected to grow by 6%. Without the exchange impact, we expect sales to grow by 6%. We regret that we did not perform as well in FY '18, but in FY '19, we will do our best to achieve these numbers to increase the sales and profit. Thank you.
Today, I'd like to talk about art of cybersecurity. I think people will say -- will wonder why is cybersecurity can become a art, but I think you all know that book called Art of War. Actually cybersecurity is a war against the hackers, the bad guys. So this year, starting we talk about art of cybersecurity, how do we enable our customer to be art -- master of art of cybersecurity. But before I talk about that strategy, I'd like to reflect on Trend Micro's strategy. In the past 10 years, actually Trend Micro's major strategic direction has 2 very important transformation that we undertake. First one is we need to transform Trend Micro's brand name from a very cool virus buster company to a mature, professional cybersecurity company. And therefore, in the last 10 years, we are focusing on growing our commercial business, not by diminishing the consumer business, but we need to grow faster on the commercial business. So from 2012 to 2018, our commercial business grew 71%. But also, not only just on the commercial business, we need to also expand our product portfolio in the commercial business, which is transforming from a mainly desktop user productivity protection company to a infrastructure security company. So we expand our business in infrastructure security, which include server security, cloud security and network security. Those are the major spending area of the enterprise commercial business. And you can see that we successfully grow that business, expand that part of business much faster than our traditional endpoint security product. So in 2018, we continue this to a major direction, grow our commercial business, focusing on the Hybrid infrastructure security growth. And we're starting to embrace this concept of not that we have a complete network security, cloud security, desktop security, we embrace the concept of connected threat defense. Our strategy in sales is, if we can land in one product, then later, this new customer, we can upsell them the other product. That's our major expanding strategy. So 2018, we achieved 2,800 new customer in hybrid cloud security and we added 20 -- 1,100 new customer for network defense. Network defense is mainly very large enterprise, like TippingPoint, Deep Discovery, these are very large enterprise customers. And in User protection, we at more than 10,000 customers. And this customer is not small customer. We did not include the Worry-Free or Cloud Edge type of small business. These are major mid-size above customers. So that's the achievement we have by adding all this new customer. Each of those new customers, we believe, is our future expanding Connected Threat Defence. We can upsell them more solution. Also at the same time, 2018, we come up with a lot of new product, new technology. For instance, in hybrid cloud security, we come out with a smart check, which is a container security. It's very important. If you know that last week, AWS just issued a serious warning about their container vulnerability. And Trend Micro's Smart Check and our deep security product was able to protect against that vulnerability in container. So that's deep security part, the cloud security. For Deep Discovery and TippingPoint, we come out with a network analytic, which is a new tool for the CISO to do a forensic analysis for the breach instance. And for our largest space, the User protection part, we come out with Apex One, which is the Virus Buster corporate edition's new version. This version is the first one that include endpoint detection and endpoint protection in one package. But I must say, too bad that this product was launched in November last year and because of the customer waiting for this, because of the sales was waiting for this new version and that's part of the reason that Mahendra mentioned about our mid-size and [ cup ] product selling wasn't that well in Q4 last year, part of which, I believe, is because our sales force and our channel and our customer was waiting for this new release, but it was November, end of November. So not fast enough to produce the revenue for Q4. The other one, very important one, is the new service that we're starting to provide, which is called Managed Detection and Response. It's a service that Trend Micro will help our customer manage their security product and manage their security event because we see a lot of customers [ lack of ] the security expertise to perform this. So with all this new product, new services and new customer acquisition, obviously, in 2018, we need to make a lot of investment. One of them, for instance, we need to invest in our back-end system, expanding our Smart Protection Network in the cloud. We now move it all to AWS for scalability. In 2018, one year, we were able to handle more than 2 trillion queries and block 40 billion malware threats for our customer. That infrastructure also including adding new technology, new product. For instance, we acquired TELUS Lab for the [ exploit ] technology. And we train, like Mahendra mentioned about this, AI contest, we need to train all our engineering force to understand all the new technology and able to use them in the best way for preventing the threats. So we have a lot of new threats and new technology. And on the Zero Day Initiative, last year actually was a very busy year. We have 24% year-on-year business ever and over 1,400 advisory for the vendors. All those activity, of course, involve people and investment. For instance, the Pwn2Own, which is our -- the way we find all those vulnerability, we held 2 Vancouver and Tokyo events to do this. We awarded over $0.5 million to external researcher to find the bugs and exploit. And we held the Capture the Flag, which is the threat defense and offense competition. We have more than 700 teams worldwide and the final teams come to Tokyo for this final competition. And internally, we do invest a lot for our own people, I call it people infrastructure. The people infrastructure means that we have to train our engineer for all this new technology, especially on AI. And I will say, yes, I feel sorry that I spend more money on R&D training, but I'm really very proud that now I can say, in Trend Micro, there's more than 2,000 engineers that would have hands-on experience on AI technology and they know how to program and do that. I think you all know how hard for the industry to find the AI security expert engineers. So we're very proud of building those infrastructure, preparing the company's human capital to grow in the next 10 years. We also have this activity of grooming new graduates. So in the last one year, we actually trained 300 just new graduate to become the cybersecurity, either sales, SE or engineers. And I'm personally very proud, 40% of -- 47% of them are women. They are able to take on this very technical job. So I talk about all this investment that we've done, but obviously, I do need to apologize for the miss of the Q4 and the profit did not meet the expectation. We do learn and I believe we know how to adjust in 2019. I think our key learning in 2018, first one is that TippingPoint success is a twofold [ knife ]. Actually, we're very proud that 48% of the TippingPoint deal was actually concluded by the traditional Trend Micro seller. Remember, I was talking about the transformation. Trend Micro's original seller was selling to the desktop administrator. At first, we were very worried that they don't know how to sell networking product. So we -- over training them and excite them and they were able to now know they can sell to network security buyers. That's good news. However, what we learn is also they are over excited about the big deal. And we still need to train them about how to manage the big deal. I think the Q4 miss partly is because they were too optimistic about those big deal and kept on thinking it will come, and it did not come. But in 2019, I think with the Apex One launching and everybody will understand how to balance between the big deal and the so-called volume deal, transactional deal. That's the first learning we had. The second one is that we do understand, we do find out that the SaaS cost went up too fast. Apex One is a SaaS product. And when we start to ramp up the [indiscernible] start to launch it, we prepare lots of computing power in the cloud and that's a big cost to us. And now we, in 2019, [ boast ] Trend Micro's engineers is optimizing the usage of the cloud to lower the cost of the SaaS, but also when we sell more of Apex One, then the per user cost will go down. So we believe we can ramp up the sales for the Apex One and then lower the cost for average per customer. The last one we learned is that on-boarding and training of cybersecurity experts is not like microwave. You can't instant heat, it takes time. And so for 2019, we call it the digestion year. We will -- we hire a lot of new graduate -- new employee and we were taking to a year that we continue to train them and groom them to make sure they can be productive and so we call it the shift to the digestion more to increase the efficiency. So those are the 2019's adjustment that we would do. But long term, our strategy does not change. I believe, cybersecurity -- being a cybersecurity company and offer full range of cybersecurity product, transform into not a product, single product company, but a solution providing company is what Trend Micro should be and will provide the best value for our customer. Therefore, in the next 10 years, our strategy, we call One Vision enable our customer to be the art of cybersecurity. So let's face it. Those security is very ugly. What our customer everyday facing is like this, millions of log pumping up in their screen. They cannot see what's going on there. How can cybersecurity be art? But actually if you can enable the visibility, let them see clearly, then they can see something like this. They can see where is the center point that they need to quickly take action. And once they take it out, they can enable their business to back to normal operation, fast enough to recover from any attack. And that is what we call art of cybersecurity, to enabling customers to prepare for and we stand and rapidly recover from threat, so that they can be free to go further and do more. That's the art of cybersecurity. In order to do that, we need to understand what is the customer's biggest problem. Why is that so difficult for them? The first one is the shift in IT and threat landscape. And for Trend Micro, why we can help, why Trend Micro can help them on that one is because Trend Micro already have 30 years dedicated security experience. We have proven foresight of security and threat. So our customer can rely on us to tell them what could be the next threat. And those threat information intelligent sharing with our partner, with our customer are of very high value. Second one, customer are bothered by there's too many tools and very limited visibility. They cannot see what is the overall security posture, they cannot see where the attack come from. And therefore, Trend Micro's XGen security strategy providing the Connected Threat Defence can help our customer enable them to have One Vision. They can see clearly where is the threat come from and what is the way to prevent them most effectively. And last one is the cybersecurity shortage of the skill set. That was part of the reason we were so eager to invest in the human capital because the shortage of cybersecurity expert is the overall industry's biggest problem. And therefore, Trend Micro with the expertise and passionate people, we can enable our customer by doing something like manage, detection and prevention service or enable our partner to deliver this type of service. The small business, the mid-sized customer or even the very large enterprise, they don't know how to manage those. We can use different ways to enable them using our expertise. That's why we believe enabling our customer to master the art of cybersecurity is by using AI for detection and prevention in all the platform and we leverage the cloud, the Trend Micro central intelligence about security. And finally, we integrate with customers same system or Splunk or their data lake to enrich the data. So think of very simple example. If we say, "Oh, Omikawa-san got a spam mail and there's a link in there that is malicious." With this we can very quickly say not only Omikawa-san got that, we sweep the whole company and we can tell that there was 10 more people also received that, and 3 of them also clicked that link and therefore just those 3 and Omikawa-san that I need to take care of. So with those integration, we believe we were able to enable our partner, our customer to receive the One Vision. That is why we believe our next 10 years most important thing, enable very large enterprise with their SOC, security operation center, enable our middle customers, mid-size customers to use shared security operation center provided by our partner. And lastly, the small business and the consumer, we can enable the telecom company or Trend Micro's expertise can provide through our service to our customer. And with those, we also have some investment since last year by investing the management -- Managed -- MDR, that's what we call, MDR service. And we invest, coinvest with our partner on a very large enterprise managed service providing, that is [indiscernible] initiative and also very specialized for manufacture OT environment security monitoring.
We invest -- have a joint venture and set up in with the industry specialty in OT. That's the TXOne. Those are the 3 major investment we've done in 2018 also. So I will say in conclusion, what we want to do is to enable our customer, transform them from seeing all those simple, very complicated log into cybersecurity where they can see the whole vision, so enable customer to be the art of cybersecurity. And I also want to say, I heard that in investment, art is the very long-term investment and also very profitable and art collection is the longer you invest, the more return you get. I hope Trend Micro is that art of cybersecurity. Thank you.
Thank you. I would like to talk about what is happening mostly in Japan. Every year, we indicate the annual plan and this was the plan or policy for 2018 for the Japanese market. For the enterprise business, XGen IPS business is shown at the top of the list. TippingPoint business was not strongly promoted by HP and the user base was very small. But in 2018, thanks to everybody's support, Trend Micro's sales team can now provide TippingPoint as a solution and especially in OT which is a new area for us. The Discovery and TippingPoint combination is being provided as a solution. This is what we started in 2018 and it's been a major step forward. TippingPoint business has started off nicely in Japan. And the second bullet point is SOC support. The english version was available in November and we have to wait for the Japanese version. So -- and there is some delay in the shipment of the product. So we didn't exactly do this, but in 2018, regarding many large enterprises, we have received a request for consultation. For example, in manufacturing industry, when they manufacture the products, they need a security policy and also after the products are shipped, they need to set up the security policy for those shipped products. And the manufacturers are thinking about company-wide security policy, and they are directly asking us for consultation. And using IoT, there is potential vulnerability in any IoT system. So we have received requests directly from the customers to investigate the vulnerability. And these are some of the new areas that we have entered into in 2018. We also have some education training requests. And this is what we started in 2018. In 2019, we will continue to work on these new relationships. We may receive a request for consultation as security company and that will be the starting point for new business opportunities. And we're seeing more and more of these cases. [Foreign Language] For consumer market, we're moving forward with home network, mobile security, and we're working with companies like Bic Camera, and we have various corners where our home routers are placed. And from those areas, we're also working in the television corners. And our home network security sales is increasing in the TV section as well. There is the Rugby World Cup and there is also the increase in the consumption tax this year. So the television corner is an area where retailers are focusing in their areas. And if there are 40-inch television sets bought, then our products are often sold at the same time with them and there's Elecom and routers where, in most cases, our product is included. And for digital life support, there is a lot of experiment. We haven't started the official delivery yet, but there has not been any sales contributions from that area last year, but this year, we believe that this will come about, and we believe that sales contributions can made from this area. As for IoT, there's a lot of announcements that have been made. We have made over 40 announcements about partners or POCs involving IoT and there are quite a few validation trials that have been implemented as well. And in Q4, we're working on the Hybrid Infrastructure protection. Trend Micro is shifting from the endpoint to the infrastructure. And we have increased year-over-year 26% and 19% year-over-year increase in new sales, especially in the mid-market, there is higher penetration. And so compared to the previous year, we've increased by 44%. And in new areas, there's NEC and our Deep Security has been adopted for their servers as a standard. And there's also insurance coverage of cybersecurity that NEC is offering with Sumitomo Mitsui Marine Insurance Company. And for Deep Discovery, there have been big deals, including those involving TippingPoint and in the area of OT as well there are bigger deals. And we're also getting big deals from the central government. As for the User Protection area, for the endpoint market, we've had a great share, but there's also been increase by 13% in new sales. So we continue to see steady growth here. For the small and medium companies, we have the security appliance product, Cloud Edge and this has been increased by 70% in terms of new customers and 75% increase in terms of year-over-year sales. And we want to have further progress in this area. We are again seeing an increase in the number of partners. And in the CAS product for cloud application security, for Office 365, they say that Microsoft has security functions, but there are some areas that need to be covered more. So with the use of CAS or C-A-S, it will be possible to enhance the security. It's not just for the large enterprise, but also there are more and more companies who are SMBs or companies with less than 100 employees that have started to adopt this. And even more than the standard features of Office 365, we're able to achieve greater results in this area. And also there is the cloud storage that is combined. And so CAS is able to scan everything and know the combinations so that we're seeing more partners that are offering solutions in this area. For the consumer area, from the beginning of September, there was activity in the Apple Store and for 2 to 3 months, we were not able to sell because of the situation there. But even there in Q4, including retailers in -- we have been able to avoid impacting PC soft sales, while still increasing our share in this area. And in terms of the handset retail stores, all of our partners have started to resume selling our products and there is greater user penetration. And when it comes to the resellers of handsets, we have seen 2.6x greater growth than the previous year. And in router vendors, there are OEM shipments that are increasing, especially for the Trend Micro smart home network. On a year-over-year basis, we have increased by 1.6x in terms of sales. And for the router vendors that are embedded with our smartphone user interface on a monthly basis, we're shifting to a revenue share model. We're moving forward with negotiations. And once this is done, even with router vendors on a monthly basis, we would be able to secure sales. And so in both Japan as well as the global market, we are negotiating on this. And for 2018, we've made a lot of efforts. In the area of enterprise market, we've started to get consulting deals. Depending on the vertical, we have increased our knowledge, including the central government, financial industry and manufacturing, and we're able to talk a different language. We're able to talk not just about our products, but also the issues that the particular verticals face. And we're able to use a language that is understandable to them instead of language that is unique to Trend Micro. And this has increased confidence among our customers, including the confidence that the central government has towards us. And we've been providing our intelligence as a result. For the consumer market, in the United States, home network security sales will be started. So in the home security network area, on a monthly basis, we'll be able to generate new sales. We'll be able to do this on a global basis. So we're looking forward to the results. As for IoT, in the network security area, there's VMware that is taking advantage of our network function virtualization. And we have gotten the authentication for this, and we have solid solutions in place for these new developments. In the NTT DOCOMO, there's the open cloud initiative for 5G. They have created an open house for this. And our Virtual Network Function is being looked at, and IIJ has recently moved forward with industrial IoT network security software, FSEG, and our solution has been included as a standard and deliveries have started. And for IoT devices, there is Moxa and Conexion that has been moving forward with the efforts. And we have established a joint venture operation with Moxa and with Conexion. For IoT gateway, there's going to be Smart Ready IoT Secure Pack that we'll start launching from this month. So in regard to Trend Micro IoT security, there are more gateways for agricultural use and for the factory use. These are going to be shipped. And on a monthly basis, we'll be able to make a contribution to sales through these initiatives. And we're positively participating in a lot of different global events for IoT, for the automotive, for factories. There are more and more solutions that we're pushing forward. And we'll increase this in this year as well. Looking back at last year, there is a variety of different efforts that have been made for autonomous driving and connected cars. And these products will start to generate sales more and more this year, including Moxa and also for the TSS one for factories. We have from the second half of this year, there is going to be a lot of more protocols that we'll be able to accommodate in factories and we'll be able to go to the lower layers for security. A total solution can be provided. We will take the initiative in providing solutions here in Japan. And there are much expectations about what we can do in this area. With that, concludes my report. Thank you.
Ueno, Daiwa Securities. I have a question about the overall situation. Underachievement was explained because of our optimistic plan in U.S. and Latin America. And also last year, you had large deals, but not this year. So this is the absence of the large deals that you had last year. Still if you look at the landing, even if it was too optimistic, is this organic growth 3% increased and after exchange adjustment, 5% growth in sales. So 3% to 5% increase, maybe this is organic growth -- expected organic growth for Trend Micro now. That's my first question. I have the same question in the third quarter as well. You were hiring a lot of people, maybe you will decelerate this year. So maybe there's more leverage like other software companies, for example, a 10% increase in profit may be expected, but the structure is the same. So what is the cost structure for this year? These are the 2 questions.
First of all, organically what do we expect to see. FY '19, we're not planning on special factor such as acquisition. So organic growth rate, I think I can deduce from that. And the headcount is increasing, but the operating leverage is not really working. Why not? I have mentioned this before. Operating leverage does not look so big going forward. SaaS type service, and also as Eva mentioned, there is a shortage of experts. And software sales is not just about the selling product. Well, it's just selling products, and the customers are not really paying for the software. They want us to solve the security problem. They have some kind of problem or challenge that they want us to address. And if they cannot do it by themselves, they have to ask an expert. And if the expert cannot solve the problem, they don't want to pay for that service. We are doing a lot of demonstrations and experiments, as Eva mentioned. We're trying to figure out how much Trend Micro should do and how much we should leave it up to the channel. And we have to make our advance investments and we have to gain experience before we can teach the channel. That is why the human resource expense is expanding recently. And another thing I can say is that operating leverage for the business model going forward is not that high. So higher sales means a higher level of expense as well. Now problem has to be solved. And if it can be done and if you have relationship with the customer that way, the renewal should improve. So operating leverage may be not high, but we do not believe that the profit will not go up.
Data center demand, is that really dropping, for example. Is that another ...
Sorry, what's that?
In the fourth quarter, the sales growth, just for the 3 months is coming down and the profit is also coming down. Is there any special factor on the demand side?
Fourth quarter, this is in human resources, we cannot really make adjustment every quarter. There may be some variances or differences every quarter. But we don't think that the sales would go up and profit would go down. So we are aiming for increased sales and profit. So external factors do not really matter. For example, semiconductor market is not so strong right now and data center demand is maybe decelerating in growth. No direct impact. Of course, there may be indirect impact. End users may see some challenges and they may reduce the security budget, but this is more like a lagging indicator. So in the most recent quarter, for example, there was Brexit in the U.K. and there may be some delay, but we have not really seen that yet.
Are there any other questions?
My name is Kikuchi of SMBC Nikko Securities. There are 2 questions. First in regard to costs. Last year, when it ended, the costs in the second half grew and perhaps on a year-on-year basis in the first half, there will be increase and maybe slowdown in the second half, that was the image that I had, but there is the 5% growth. Are you going to try and reduce the costs? Or is it going to be growing in the same manner, so that you have a 5% increase in costs?
Well, we'll try to keep the costs down. But on the other hand we have to make advanced investments for the future. So we're not going to refuse future investments all of a sudden. And there's going to be the digestion that has to be carried out. We've made a lot of different investments and we'll look at the efficiency of those investments as we move forward. So are the costs are not just going to just grow in the first half? There will be growth of costs in the first half, but will consistently grow throughout. We have the full year forecast, but we believe that there will be more investments in the first half and we'll be looking at the efficiency of those costs in the second half.
Now the second question is in regard to the top line. And you only have a full year forecast, but in regards to the first half, now when it comes to the outstanding deferred revenue amounts, you've talked about quite an accumulation of deferrals. So in the first half, does it look like the deferred revenues will contribute to sales? Or is it not just going to take place in the first half? In your business structure, there are bigger deals, so that this comes out in the fourth quarter. It may not have been the case in the last quarter, but for this new fiscal year, there should be considerable number of deals in the fourth quarter. So what is the image that you have in this area?
First of all, in regards to the big deals, we believe that there will be a concentration in the fourth quarter. This is global phenomena that we see in procurement. And so the weight is higher on the second half. As for the deferred revenues, this should be left to the expert, Mr. Habara.
Well, I'm not an expert, but logically speaking. Deferred revenues outstanding amount will be processed and as time passes, then this would diminish. And so therefore, the impact will be bigger in the first half and less in the second half. So the deferred revenue impact will be greater in the first half than the second half.
Well, in the quarter that just finished, the growth has stopped slightly. And so for the new second half -- rather, the first half of this fiscal year, it will be a lower growth rate. And in the cost on a year-over-year basis, it will increase. And you may be able to absorb this -- on a full year basis, you may be able to treat it, but what about in the first half?
Well, in the first half, there is also the accounting aspects to consider for deferred revenues, but there will be profits that will be higher in the second half is how we feel about it. As you say, there is investments and we have to get a return on the investment. And there is also the procurement situation. So this will mean that the second half sales will be greater. And even if the operating leverage is low, it's not 0. And so therefore, I don't mean that the profits will be higher in the second half.
Hiroko Sato, Jefferies Securities. Two questions. First question, for this fiscal year you were very focused on big deals, that's what you said. And then what about mid-sized and small sized deals? Maybe in terms of deals or if they were on [indiscernible] cycle the competitor got those deals and maybe you're losing share in those market segments? I think we have seen this story before, but did it happen again last year? That's my first question.
If we defocus, of course, the competitors will get that and I think that has happened.
And this is happening both in the U.S. and Europe?
Yes, I believe so.
Understand. So the focus shifted to large sized clients. Does that mean that you're beginning to increase the share?
To say for that, Q4, as I explained, some of those mid-sized deal because mainly is on the desktop one, the [ cup ] and because of our Apex was -- the new version was announced in November, so I do believe there was customer. They are not leaving it, they're just waiting for the new version. So that delayed the purchase, of those smaller deal.
So we don't have to worry too much about you losing market shares on the low-end or maybe the medium size clients, while your entire sales force seems to be focusing on the bigger size client?
I don't see that trend.
Okay. Okay. That's good to know. Second question. In the fourth quarter, you did an off-site meeting in Fukuoka. I think you spend about JPY 400 million or JPY 500 million. Are you going to do that again in FY '19?
Well, off-site meeting, this was done for training. So it's education fee. Yes, it's education.
Last year, this was outside of the budget. This year, are we going to do this?
Well, no, I don't think it's planned because there was some criticism. And finally, we have to think about the profit. When we spoke about this last year, there were some questions that we know that AI is already important, it's critical and it -- this event was really impactful to deliver this message of importance of AI even with a JPY 500 million spent. So within the organization, it was high priority. But I don't think we need to repeat the same thing again this year. Okay. Going back to the other question. For the second half, operating income will be larger than the first half. But if there is like a one-off event like this, we don't have to think about this risk. Well, if that happens, then we will provide you with a proper explanation. Within the organization, there are some internal events and as you may know, there is a performance bonus which means that if the profit goes down there is no bonus. We have to explain that to the employees too. We cannot really say that we spent too much money in Fukuoka and there is no bonus, that would make the employees quite unhappy.
When you made the revision the other day, there was a JPY 500 million additional social benefit. And I was -- I didn't quite understand. So people are leaving and you have to maybe provide additional package -- leaving allowance?
Well, we wanted to activate the mobility of human resources. We were basically taking employees. They could retire early if they wanted to. And if we provide the system, accounting-wise, we have to add some reserve.
It's not that people are leaving. I had the strong impression that you didn't have enough people, engineers. And the target is 45-year or older. So all the engineers are not useful?
That sounds too cold. In the case of Japan, we just copied and pasted a system from outside where people have to wait until the end to be able to receive this retirement allowance. But if somebody wants to change their career midway, we want to support that as well. And it is also possible that the people leave our company and come back. They can gain new experience and they can come back to Trend Micro again if they want to. And there is also secondment system, they can go and work at the client's company. That's also supported. So mobility of the human resources is what we want to support. And in terms of accounting standards, we have to have some reserve for that.
Are there any other questions?
In regard to Apex One, I'd like to ask about more details about this. What's the background for the delay in the release? And as a result, for Apex One, in terms of deferred revenue, what was the impact of Apex One? If we look at the materials on Page 18, from September to December, the deferred revenues have not increased compared to previous years. So the impact does not seem to be so big. So please let me know the details.
Actually, it's not delayed, it was scheduled to release on November. But I was just saying that because it released on November, it wasn't time to produce enough revenue for Q4. Apex One is a product that not only antivirus, it includes lots of like vulnerability shielding and include the exploit protection and also it include if someone got breached, the CISO, the security officer can go back to find all those evidence. So it records a lot of the activity. So it's both prevention, protection and also detection and forensic tool. So it's a complete package of the new cybersecurity endpoint solution.
So it was launched on time, but it did not generate the revenues that you expected. So...
It's not generate revenue in Q4.
Well, but it was planned. So it looks like it was tough sell -- tougher sell. Is it the right way to look at it?
Maybe I didn't express it well. We did not plan for Apex One to generate revenue in Q4.
What Eva mentioned in her explanation is that the salespeople were waiting for Apex One. And so the conventional product sales did not make a contribution that much. It's not the impact of the Apex One sales, but rather the salespeople were focused on this product. It's a product that is complex, and so there is that much more sales training that is necessary. And so there was a negative impact on the conventional product sales.
Another question, a supplementary point. There was a mention about the deferred revenues not increasing, but in Q4...
When we meet analysts we explained about this. And for North America, we have installment payments. So in Q4, there was JPY 2.2 billion that was canceled out. This did not have any impact on net sales or pre-GAAP, but for deferred revenues, we get the money first. But the recognition takes place over the period. It may have been paid, but we cannot recognize this in our balance sheet. And what's common is that it's a multiyear agreement whereby there are installment payments that's increased in 2018, and so we discussed with the auditing company about how we should treat this, and we processed this accordingly. And in the fourth quarter of 2018, for U.S. there was about a decrease of JPY 2 billion according to the accounting. But once this is added, then it will not be an increase, but it will be at the same level. But the decrease is mainly due to the accounts processing.
Then this is the point that I'd like to add. I'd like to follow-up on that. So the -- there has been sales efforts. And for the deferred revenues, there has been some accounts processing. And in the first half, net sales and in profits, there should be a contribution of the deferred revenues.
Yes. We're looking forward to that happening. I think I have another type of question. In regard to the costs, in AWS or cloud expenses, how much was it for the full year? And if we make models for the future, for B2B sales or enterprise sales, should we be looking at these elements as we try to make forecasts?
In regard to how we will be disclosing this. We'll need to study this. What we would like to do is to look at the customer's infrastructure and perhaps the items we have right now are not the appropriate way of showing this. It should be several billions of yen cloud related per year. So we'll think about the method of disclosure for this and we'll get back to you on that later. In the case of the analysts model, it's not good to look at just lump figures. And so we'll be looking at ways of disclosing the numbers for this.
If it's several billions of yen, compared to the previous year, how much increase was there?
It's quite high. Perhaps about 50% increase. But in this area, we're looking at the disclosures by competitors. And SaaS sales are increasing. It's quite high. The amounts are still limited, but the feature here is that in -- this doesn't appear in the deferred revenues. So when we look at the licensed users shifting to SaaS, then it looks as if the net sales is going down. But meanwhile, this will gradually increased in which case the net sales will increase. So there are SaaS expenses that are increasing, but the SaaS net sales in total sales, there is going to be a shift to service licenses. So impact cannot be observed in what is recognized as net sales.