fy2020 financial results & 3 medium-term management plan
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FY2020 Financial Results &
3rd Medium-Term Management Plan
Friday May 14th, 2021
〔Ticker: 4743〕
ITFOR Inc.Tsunenori Sato
President & Representative Director
Copyright © ITFOR.Inc All Rights Reserved.
Today’s Agenda
1. FY2020 Financial Results
2. 3rd Medium-Term Management Plan (FY2021-FY2023)
3. FY2021 Forecasts
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1. FY2020
Financial Results
FY2020 Financial Highlights
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Both net sales and earnings hit record high
Delivered results stronger than revised management guidance due to robust
growth in Financial Systems and BPO for local governments, in addition to
“iRITSpay”, multi payment terminals, selling higher than initially expected
Net Sales 16,289MM
YoY Up 6.9%
vs Revised guidance Up 3.1%
Operating Income 2,186MM
YoY Up 26.5%
vs Revised guidance Up 18.2%
Net Income 1,683MM
YoY Up 36.7%
vs Revised guidance Up 29.5%
ROE12.7%
YoY Up 2.8pt
vs Revised guidance Up 2.7pt
Attributable to owners of the Parent Co
Net Sales
5
Order backlog accumulated at the end of FY2019 contributed to
realizing strong sales
2,112 2,775 3,712
2,872 3,475
3,797
7,569
8,988 8,780
12,554
15,23916,289
FY18 FY19 FY20
System Solutions
Service Solutions
Infrastructure Solutions
• New large-scale projects for financial
institutions commenced operations
• Combined sales of “SCOPE”, personal
loans operation support systems, and
“WELCOME”, web-based reception
systems, performed well
• Sales declined YoY in Retail and CTI
systems due to COVID-19
• BPO services for our targeted
ordinance-designated and core cities
remained strong. Won contract from
prefectures, too
• Conversely, installing infrastructure and
investigation services for residence
verification at our subsidiary, were
negatively impacted by COVID-19
• Sales of “iRITSpay”, multi payment
terminals, surged YoY due to strong
shipment exceeding the original plan
(JPY MM)Net Sales
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Operating Income
6
40.8%
37.4%34.8%
36.8% 36.4%
31.5%
27.9%
32.2% 31.9%34.1%
32.7% 33.2%
5.0%
11.3%10.4%
19.1%
7.0%
13.2%
5.6%
16.4%
8.4%
14.1%
11.9%
17.2%
Gross Margin SG&A Margin Operating Income Margin
Q1 Q2 Q3 Q4
FY18
1,637 1,728
2,186
13.0%
11.3%
13.4%
FY18 FY19 FY20 Q1 Q2 Q3 Q4
FY19
Q1 Q2 Q3 Q4
FY20
Operating Income
Gross margin bottomed out in Q3 FY2019 and recovered steadily since
SG&A expenses are under control by various initiatives, improving production efficiency and promoting work style reforms in particular
Quarterly Trends(JPY MM)
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New Orders
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2,451 3,248 3,891
4,140 4,387
5,075
9,737 8,333
9,492
16,329 15,969
18,459
FY18 FY19 FY20
Infrastructure Solutions
Service Solutions
SystemSolutions
4,540 4,669
4,001
5,248
Q1 Q2 Q3 Q4
FY18 FY19 FY20
New Orders
Won a multi-year contract for BPO services from local governments
Systems for financial institutions remained strong. Secured new orders from non-banking financial institutions (“NBFI”) for system renewal at existing customers and introducing robotic calls and other new delinquency management systems
(JPY MM) Quarterly Trends (JPY MM)
Performance Overview by Segment
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System Solutions
ServiceSolutions
Infrastructure Solutions
Net Sales 8,780 JPY MM
3,797JPY MM
3,712 JPY MM
YoY Down 2.3% Up 9.3% Up 33.8%
Segmental Profits
2,282 JPY MM
503 JPY MM
835 JPY MM
YoY Up 27.0% Down 18.6% Up 39.7%
Segmental Gross Margin
33.4 %
35.8 %
29.4 %
YoY Up 4.6pt Dow 3.7pt Down 2.3pt
COVID-19 led to declines in sales of System Solutions and
segmental profit of Service Solutions
System Solutions
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1,323 1,666 1,252
1,444
2,074
1,507
407
715
687
4,395
4,5325,334
7,569
8,988 8,780
26.0%
20.0%
26.0%
FY18 FY19 FY20
(JPY MM)
Sales by sectors & operating income margin
Financial Systems
Public Systems
• As school lunch expenses shift to public
accounts, systems managing such expenses
draws attention. Increased new orders for
school admin support systems including
school lunch management systems, leading
to steady backlog that resulted in steady
sales
Retail EC Systems
• Sales fell due to rebound from irregular
demands for legal compliance in FY2019
• Furthermore, COVID-19 forced some
department stores and specialty stores to
re-consider or postpone investment
CTISystems
• Robotic calls remain sound
• Sluggish orders from call centers due to
COVID-19
• Combined sales of “SCOPE”, personal loans
operation support systems, and “WELCOME”,
web-based reception systems, performed
well. High level of order backlog contributed
to sales
• Large-scale system renewals of existing
NBFI customers also contributed
Service Solutions
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1,423 1,530 1,359
1,449 1,944 2,438
2,872
3,475 3,797
17.7
%
17.8
%
13.3
%
FY18 FY19 FY20
Sales by sectors & operating income margin
Public BPO
• Orders built up from new contracts with our
targeted ordinance-designated and core
cities. Order backlog from the end of
previous FY contributed to sales boost
• Won new orders and new contracts through
efforts such as collaboration with core
system vendors and regional Slers
• Profitability of newly launched BPO service
projects declined due to start-up costs
• Contract research at our consolidated
subsidiary experienced declines in both sales
and earnings due to COVID-19
Technical Support
• Sales shrunk due to partial transition to
cloud
• Also, delays in installing infrastructure
related equipment due to COVID-19 led to
drops in sales
(JPY MM)
Infrastructure Solutions
Copyright © ITFOR.Inc All Rights Reserved.11
2,112 2,775
3,712
18.2%
21.5%22.5%
FY18 FY19 FY20
Sales by sectors & operating income margin
Payment
• “iRITSpay”, multi payment terminals,
remained strong
• Gross margin fell due to incurring sales from
strategic orders
Communication Infrastructure
• New installation of telecommunication
equipment for a major provider
• Operating income margin improved as SG&A
margin lowered as a result of extended
infrastructure construction work due to
COVID-19
(JPY MM)
0
10,000
20,000
30,000
40,000
50,000
60,000
FY18 FY19 FY20
Accumulated volume of orders
55,125
While some issues remained in the launch of new businesses, the key strategies set forth were largely accomplished
Review of the 2nd Medium-Term Management Plan: Key Strategies
12
Sustain competiti-veness in
strong business
1
• Enhanced engagement with existing customers, especially regional banks. Maintain leading position in credit management related business
• Sales grew steadily, but profitability declined slightly due to fluctuations in the business environment, such as alliances among regional banks
• New entrants in the BPO market are increasing competition, whereas our strength lies in our ability to provide a combination of systems and services
• Solid orders from ordinance-designated and core cities• Contribution to earnings slightly delayed due to unexpected external influences
2
Expand sales from strategic products
• Shipment volume of payment terminals was in line with plan• Speedy investment for further expansion was not sufficient
• Only able to cultivate specific users such as Ministry of Internal Affairs & Communications owing to our products’ spec being exceedingly high
Maintain growth of mainstay
financial business
Expand public sector business
Cashless Payment
RPA
• The delay in the release of the results of the FATF review combined with the inability to sufficiently motivate customers to adopt the product due to its high functionality and high unit price forced us to revise original plan
• Strengthened development division by acquisition of EeB• Unable to execute M&As to pursue business synergies due to delays in setting
up procedures for assessment
3Develop
new market
Launch AML systems
Promote M&As
• Steady orders mainly from NBFI and major regional banks• Successful example of cross selling among business units4 New tech
Expand “robotic calls”
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Net sales exceeded the plan while earnings target was missed due to delays in earnings contribution from Public Sector businesses and launch of new
businesses
Review of the 2nd Medium-Term Management Plan: Financial Targets
13 Copyright © ITFOR.Inc All Rights Reserved.
12,554
15,239 16,289
14,000
1,637 1,728 2,186 2,300
9.4%9.9%
12.7%
10.0%
FY18 FY19 FY20 FY20 目標
売上高
営業利益
ROE
Net Sales (JPY MM)
Operating Income (JPY MM)
Target
Reaffirmed that our strength lies in our market-in approach, which embodies our “ability to be close to customers“.
Simultaneously identified issues that need to be addressed
Review of the 2nd Medium-Term Management Plan:Recap
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Issu
es
Stre
ng
ths
Orders from financial institutions including mainstay regional banks steadily surged
Successfully entered into non-financial sectors such as public sectors and local companies leveraging our regional foothold
Competitive advantage comes from developing a wide range of products in multiple sectors in-house
High level of expertise in sales and development in each field
Ability to make timely and in-depth proposals, and respond to diversifying customer needs
Silo mentality that needs be broken down effectively (as it may lead to losing potential business opportunities)
Balance of orders and development needs to be improved as we experienced imbalance caused by solid orders (though efforts are already underway to optimize the development organization)
New business development being falling short of the plan though in part due to external factors
More “product-out” derived from “market-in”. “Culture of challenge needs to be rebuilt
Quantitative internal monitoring requires speed and comprehensiveness
Internal governance to solve all of the above
Quality of ESG management needs to be greatly improved
Our approach
2. 3rd Medium-Term
Management Plan
Where 3rd Medium-Term Management Plan Stands
This medium-term plan is positioned as a new stage for accelerating efforts to realize sustainable growth having resolved issues identified to date
16
NEXT STAGE 2023 - HENCA SINCA SOZO -
HENCA
SINCA
SOZO
変化 Be free from the past practices
返歌 Value “ability to be close to our customers”
深化Strengthen relationship with various stakeholders
進化 For something better
想像 With flexible thinking
創造To become a company that can create new values to the society
Copyright © ITFOR.Inc All Rights Reserved.
3 • Designate officer in charge of promotion• Significantly change the current approach
3rd Medium-Term Management Plan: Basic Guidelines
NEXT STAGE 2023 - HENCA SINCA SOZO -
Copyright © ITFOR.Inc All Rights Reserved.17
1Reinforcing
management base
• Reform organization and systems• Strengthen internal collaborations• Promote internal DX• Strengthen HR• Strengthen development organization and quality
2Enhancing profitability
• Introduce ROIC based management• Reform methodologies to monitor divisional
earnings and expenses• Exit from unprofitable businesses• Further pursue synergies among business units• Actively invest in growing businesses and new
businesses for nurturing
Advancing ESGmanagement
Reinforcing Management Base①: Governance
Copyright © ITFOR.Inc All Rights Reserved.18
Some already completed. Steadily implement measures, verify effectiveness and take actions for further improvement as necessary
Strengthening supervision function
Strengthening internal collaborations
Strengthening investment management
Changing President job scope ✓
Setting Nomination and Remuneration Committee
✓
President & Representative Director, Executive Officer, Head of Business HQ, GM of Business Mgmt
President & Representative Director
• Consists of 3 or more directors • Independent external directors
constitute majority• Chaired by independent external
director
New) External Director
Reorganizing Business Division Reorganization ✓
• Transferred NBFI sales division to Financial Business Division
Establishing investment rules
Setting investment committee
• Ms Waka Abe(currently Director of SK Electronics)Experienced in business development, corporate planning, IR, and overseas business
Strengthening Business HQ Function ✓
• Appointed Mr. Oeda, Director & Executive Officer as Head
• Integrated divisions within
Consolidating Back-office Function ✓
• Transferred the internal infrastructure department to the administration department
Reorganizing Technology & Development Group ✓
• Effective utilization of infrastructure engineers
Intensively invest in internal systems to attain growth over the next three years, and strengthen human resources in both quality and quantity for
growth as needed
Reinforcing Management Base ②: Internal Infrastructure
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Promoting internal DX
Implement real-time monitoring of management indicators
Launch full-scale implementation of sales activity visualization system
Introduce support systems to strengthen security and improve business efficiency (promoting remote works)
Renew core system
Reforming HR and compensation policies
Introducing new policies
Strengthening HR
Revise training and development programs
Enhance recruiting diversified human resources
19
FY21 FY22 FY23
Reinforcing Management Base ③:Development Organization and Quality
Promote strengthening the development organization and quality, which is vital for our expansion
Copyright © ITFOR.Inc All Rights Reserved.20
Increasing personnel Enhancing quality
Promoting internal collaborations
Obtaining new technologies and reskilling
• Diversify recruitment targets• Increase transactions with carefully
selected partner companies through deepened relationships
• Secure through alliances and M&As• Create a more comfortable working
environment
• Renew methods of managing projects• Visualize planning of engineering staff
Visualize quantitative evaluation of each step of the process
• Provide more training opportunities internally and externally
• No-code development• Infrastructure and network technology• More web coding qualified engineers• More management qualified engineers
• Agree on scope and development team before receiving orders
• Confirm items such as differences from orders after requirements definition
• Collaborate in quality evaluation and transition preparation before implementation
Enhancing Profitability
Set corporate ROIC target at 13%Aim to enhance profitability through companywide adoption of ROIC
management in this plan. Intend to elaborate by setting ROIC by business line and breaking down into ROIC tree over the long run
Copyright © ITFOR.Inc All Rights Reserved.21
• Sold Snappy Communications, Inc., a wholly-owned subsidiary
• Sold Arrow series of products
Recent initiatives
• Robotic calls• WELCOME
• Introduced automatic ticket vending machines with cashless functions
• Sell or exit after a certain period of time if
• Stand-alone profitability not foreseeable, or
• Synergies with other businesses not anticipated
• Financial x CTI• Financial x EC• Financial x Public
Services• Financial x
Infrastructure
• Financial x Public Services x Payment
• Public Services x Payment• EC x Public Services x
Payment, etc.
Exiting from unprofitable businesses
Pursing synergies among business units
Investing in growing and new businesses
Advancing ESG Management
President himself will be in charge of promoting corporate wide sustainability, and we will expand and deepen current initiatives to
reach our goal of enhancing corporate value and contributing to society simultaneously
Copyright © ITFOR.Inc All Rights Reserved.22
E S G
• Expand school aid-related products
• Reform working environment• Create jobs in regional areas• Expand non-contact
businesses
• Broaden businesses with local governments
• Reinforce internal governance• Collaborate with local
governments and regional banks
• Promote paperless • Promote sales of electronic
contracts and web-based reception products
• Systematize procedures for local governments in requesting financial institutions to investigate assets, etc.
FY2023 Financial Targets
Target to achieve operating income of JPY3.2bn in the final year by realizing both each business unit’s stand-alone growth and
potential cross-selling opportunities. Potential upsides from M&Aare excluded
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(JPY MM) FY20 FY23 CAGR
Net sales 16,289 21,000 9%
Operating income
2,186 3,200 14%
ROIC Over 13%
ROE Over 13%
How we achieve targeted operating income (JPY MM)
23
Allocation of Management Resources and Shareholder Return Policy
Utilize cash on hand for investment over the medium term.
While maintaining current dividend per share, dividend payout
ratio is aimed at around 30% as our bottom line expands
Cash from OperationsTotal of 3 years
Copyright © ITFOR.Inc All Rights Reserved.24
JPY 6.5bn
Internal investment (Tangible & Intangibles)
Slightly below 30%
Return to Shareholders
Dividend payout ratio
Over 30%
Carry out opportunistically M&As
Allocations of CapitalTotal of 3 years
Foundations of Corporate Strategies
25
Revitalization of
economies in
regional areas
DX in regional
areas
Our Business Environment
26
Digital Agency (to be
established on Sep 1) to lead nation-
wide digitalization
Digital Government
Execution Plan
Faceless, Contactless
under COVID-19 calamity
Country with natural
disaster risk (ranks 17th
out of 171 countries)
Achieving a decarbonized
society
Our Initiatives in light of the Business Environment
27
Key themes
To build and provide a platform for the local economy
To combine existing solutions with new technologies
To connect existing customers with new individual customers (in partnership with other companies)
To establish new partnership among existing customers
Company-wide targets of our
initiatives
Pursuing a completely paperless society
Making all procedures cashless
Collaborating with local corporations to address cyber security
Providing area-specific services (contents) through local 5G
Digitizing various types of issued documents
• Digitization from application to grant and issuance
• Continuation and offering of services regardless of location, such as in times of disaster
Ensuring the authenticity of issued documents by blockchain
• Linking providers and users with a certification authority
Strategies by Sector: Financial
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Business Environment
■ Downsizing branches, faceless, contactless, labor-
saving
■ Consolidation and accelerated alliances among
regional banks
■ Shared systems
Key strategies
Expand cross-selling
■ Providing services to regional banks across Japan
through cross-selling
Specific targets
Expand market share of mainstay packages
■ Expanding unintroduced packages to existing
customers
■ Cultivating new customers
Measures to be taken
■ Continuous enhancement
■ Conversion to SaaS
■ Modification for
expansion to
non-financial
institutions
Communication Infrastructure
Data PF business (HUB), In-house cloud, support for migrating to a 3rd party cloud
Security Services
Cyber security
CTIInfrastructure
Cloud-based call center systems, Robotic calls
■ Emergence of new industry class
■ Cloud migration
■ Overall system investment expected to soar
2.8
4.35 4.75.55 6.05
10
FY16FY17FY18FY19FY20
Average # of our systems implemented at our regional bank customers
Strategies by Sector: Public Services
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Business Environment
■ Digital government is driving the shift to ICT in local governments
■ New entrants into BPO business are becoming increasingly active
■ Difficult to differentiate BPO alone thus expect lucrative earnings
■ Trend of System Standardization Plan needs to be closely monitored
Key strategies
Expand cross-selling
■ To be jointly led by Public Services Division at
ITFOR and ICR
■ Creating track record and quickly rolling out
horizontally
Specific targets
Differentiate to expand orders and improve
profitability
■ Scope of services: BPO + Systems
■ Cost
■ Partnership
Measures to be taken
■ Expansion and cloudification of systems we offer
■ Cost reduction in BPO operations
■ Expansion of regional outsourcing centers
■ Strengthening collaboration with ICR (group
company) to generate synergies
■ Collaborating with core vendors
■ Exploiting partners in BPO operations (e.g.,
handling foreign nationals)
Payment Services
Payment terminals (iRITSpay)Cashless of public funds
Security Services
Cyber security
CTIInfrastructure
Voice transcriptionRobotic calls
Strategies by Sector : Retail/EC/Cashless
Copyright © ITFOR.Inc All Rights Reserved.30
Business Environment
■ Cashless, faceless cand contactless transactions will continue to spread
■ Expecting total system investment remains strong despite of declining retail sales
■ Competition in EC-related businesses will intensify due to the rapid influx of new entrants
■ Moves ahead in anticipation of device-less payment will accelerate
Key strategies
Improve profitability Retail/EC
businesses
■ Redefining target customers
■ Developing EC using our knowledge
as a core system vendor
Expand cross-selling for retailers/EC
customers
Specific targets
Boost sales of payment
terminals
■ iRITSpay
Measures to be taken
■ Sales expansion with
existing acquirers as the
core
■ Value enhancement of
payment platform
■ Expansion of payment
brands
Expand non-terminal
businesses
■ Online payment
■ Collaboration on regional
internet malls
Measures to be taken
■ Advancement of
partnership with regional
banks
■ New product
development
Cross-selling to non-acquirors
Security Services
Cyber security
CTIInfrastructure
Cloud-based call center systems, Robotic calls
Communicati-on Infrastructure
Hardware, In-house cloud, support for migrating to a 3rd party cloud
3. FY2021 Forecasts
FY2021 Consolidated Financials Forecasts
Copyright © ITFOR.Inc All Rights Reserved.32
Net sales are expected to remain unchanged, while operating income and other incomes are expected to fall due to an increase in expenses incurred in
strengthening the management base
(JPY MM)
FY2020 FY2021 (plan)
Amount Ratio YoY Amount Ratio YoY
Net sales 16,289 100.0% 106.9% 16,500 100.0% 101.3%
Gross profit 5,386 33.1% 111.3% 5,500 33.3% 102.1%
SG&A 3,199 19.6% 102.8% 3,500 21.2% 109.4%
Operating income
2,186 13.4% 126.5% 2,000 12.1% 91.5%
Ordinary income 2,317 14.2% 126.0% 2,150 13.0% 92.8%
Net income attributable to owners of the parent company
1,683 10.3% 136.7% 1,580 9.6% 93.8%
New orders 18,459 - 115.6% 18,700 - 101.3%
Order backlog 15,055 - 116.8% 17,255 - 114.6%
FY2021 Forecasts by Reporting Segment
Copyright © ITFOR.Inc All Rights Reserved.33
FY2020Actual
FY2021Plan
YoY
SystemSolutions
New orders 9,492 10,000 105.3%
Net sales 8,780 9,000 102.5%
Segmental profit
2,282 2,300 100.8%
ServiceSolutions
New orders 5,075 5,000 98.5%
Net sales 3,797 3,900 102.7%
Segmental profit
503 530 105.2%
InfrastructureSolutions
New orders 3,891 3,700 95.1%
Net sales 3,712 3,600 97.0%
Segmental profit
835 790 94.6%
With our strengths as the backbone, we aim to achieve sustainable
growth while contributing to "regional revitalization”
Our Goals
Copyright © ITFOR.Inc All Rights Reserved.34
Leveraging our “Ability to be close to customers” for
sustainable growth
NEXT
STAGE 2023
-HENCA SINCA SOZO-
• This document is not a disclosure document under the Financial Instruments and Exchange Act, and the
accuracy and completeness of the information is not guaranteed
• This document contains forward-looking statements that are based on management's assumptions and beliefs
in light of the information available at the time of the presentation and are not guarantees of future
performance.
• This document has been prepared for the purpose of providing an understanding of ITFOR Inc., and is not
intended as a solicitation for investment in the Company. Therefore, readers should refrain from making
investment decisions based solely on this document
• The Company assumes no responsibility whatsoever for any impact or damage caused by the information
contained in this document
• All rights reserved. No part of this document may be reproduced or reprinted in any form or by any means
without prior permission
Copyright © ITFOR.Inc All Rights Reserved.35
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