| Minori Solutions Co., Ltd. (3822) |
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Company |
Minori Solutions Co., Ltd. |
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Code No. |
3822 |
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Exchange |
TSE 1st Section |
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Industry |
Information and communications |
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President |
Yuji Morishita |
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Address |
Shinjuku NS Building, 2-4-1, Nishi-Shinjuku, Shinjuku-ku, Tokyo |
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Year-end |
March |
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URL |
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* The share price is the closing price on June 22. The number of issued shares is obtained by deducting the number of treasury stocks from the number of shares issued at the end of the latest quarter.
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* The forecast is from the company. *The company conducted 2-for-1 share split in August 2015.
This Bridge Report on Minori Solutions is reviewing Fiscal Year March 2017 earnings results and Fiscal Year March 2018 earnings estimates. |
| Key Points |
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| Company Overview |
 Corporate ethos and rules of conduct Corporate ethos
Through the use of our information technology, we will contribute to the creation of an affluent and fruitful society by growing, taking on challenges and always having high ambitions.
Rules of conduct
1. Ensure trust: We will observe relevant laws and regulations, ensure fair transactions, protect the confidentiality of information on clients, follow the basic rules for the proper management of personal information, etc., and execute fair corporate activities.
2. Coexist with clients: We will make continuous efforts to maintain and improve reliable relationships with clients, and aim to create the prosperity of clients and the growth of our company.
3. Continuation of self-reform: We will always be ambitious, and try to reform ourselves by taking on challenges to grow.
 Business contentsThe software development business is divided into two types: one is the business of partially developing systems while staying in client companies (dispatching about 100 workers for some clients), and the other is the business of undertaking the development of an entire system. For banks, workers are stationed there for ensuring security, and for other businesses, system development is fully entrusted in most cases. The business of stationing workers in client companies, which is recognized by the company as recurring revenue-type business, (although the performance of short-term projects fluctuates), is stable. In this business, the company receives fees for each month and each worker like worker dispatch business. On the other hand, the business of fully undertaking system development is highly profitable, but the number of orders fluctuates, causing development risk. In the system operation and management business, Minori Solutions operates and manages systems (by stationing workers at clients' data centers to operate and manage the systems of end users, stationing workers at the facilities of end users to operate and manage them, and conducting operation and management via networks), operates call centers (help desks), and so on. As for the business of selling system devices, the number of cases in which devices are delivered through development is decreasing, and enterprises are adopting cloud computing, and so sales are declining. However, the contribution of sale of devices has been insignificant from the beginning, and so its effect on profit is minor.  Sales for each business field of end users
As for the sales for each field of end users, finance, in which resident services are dominant, accounts for 38.3%, and manufacturing with transactions with a wide categories of companies, makes up 19.7%. The sales in other fields, including information, transportation, communication, public services/energy, and distribution/service, account for 6 to 10%, respectively. Although finance has a high ratio, the business fields of end users excluding it are equally diverse. The top 10 companies account for 50% of sales, and the top 30 companies occupy 75%. Although the degree of dependence on top companies is high, these are excellent enterprises and their performance is expected to continue a certain level of investment, despite some fluctuation. Their business fields are also diverse. Therefore, the amount of orders and sales are stable. The sales of manufacturing include the sales of computer aided engineering (CAE) solutions, which are unique among system integrators (SIer). In the case of new car development, for example, a CAE solution is to render a new car (not only its appearance, but also its internal structure) with a 3D system on PC based on the data of the new car under development (including design and materials), and conduct all kinds of simulation necessary for development, including strength, endurance, vibration, collision, and hydrodynamic and aerodynamic tests. The simulation data are analyzed to determine if the new car fulfills the design requirements, and the analysis results are summarized in reports including countermeasures, as needed, and the reports are submitted to automobile manufacturers. By utilizing these reports, the automobile manufacturers can reduce the number of prototype cars and demonstration tests, resulting in shortened development period and lower development costs. The main clients are domestic automobile manufacturers. In the domestic market, most products are produced in-house, and so competitors are few. Users are increasing in the fields of aircrafts, power generation equipment, artificial satellites, smartphones, etc.  Strengths and characteristics - stable revenue base, excellent financial standing, and achievements of unique CAE solutionsAccordingly, its financial standing is excellent, as "current ratio," which indicates that short-term solvency is high when the value exceeds 100% (ideally 200%), is 393.7% (376.8% in the term ended March 2016), and "fixed ratio," which indicates that long-term solvency is high when the value is less than 100%, is 10.3% (14.4% in the term ended March 2016). ROE has been over 10% since the term ended March 2014, and it was 15.5% in the term ended March 2017. The rate of return on invested capital (ROIC), which represents the efficiency of procured funds, was 14.0% for the term ended March 2017 (10.9% in the term ended March 2016). The effective utilization of funds is a challenge and future investment for growth is expected. In addition, the company possesses unique characteristics, including the experience of CAE solutions for structural and hydrodynamic analyses, and the business footholds in Sendai, Matsumoto, Nagoya, and Fukuoka, as well as the headquarters in Tokyo and Osaka Branch earning profits while contributing to local economies.    |
| Fiscal Year March 2017 Earnings Results |
 Sales grew for 3 consecutive terms, and operating income marked a record high.
Sales were 15,541 million yen, up 5.2% year on year. While the sales of system equipment decreased due to a trend of moving to Cloud computing, the sales of software development increased 9.0% year on year to 11,760 million yen. The sales of operation and management of systems, for which review of low-profitable projects was carried out, increased 2.4% year on year to 3,531 million yen mainly among major existing customers. The sales of software development showed steady growth for projects to develop various business systems in the fields of finance and transportation, projects to develop mission-critical systems using ERP packages in the field of manufacturing, and CAE (CAE solutions for structural and hydrodynamic analyses) projects. The company is supporting skills development among employees who are engaged in operation and management of systems as part of its efforts to strengthen workforces for software development. Thus, for the operation and management of systems, it is promoting activities to emphasize profitability. Operating income was 1,338 million yen, up 26.6% year on year. The profit rate of information service (= software development + operation and management of systems) improved as a result of increased value-added new transactions, enhanced productivity due to thorough quality control, and optimization of existing projects (selection and concentration). The gross profit rate grew 0.9 points to 15.9%, partially due to reduction of the sales of low profitable system equipment. Meanwhile, major items of SG&A expenses decreased. By segment, the profit of software development increased 20.1% to 1,716 million yen, and the profit of operation and management of systems increased 3.0% to 341 million yen. The profit rates of both software development (profit rate: 13.2% →14.6%) and operation and management of systems (profit rate: 9.6% →9.7%) increased. On the other hand, the sales of system equipment could not absorb overhead costs due to drop in sales.     Finance Sales: 5,945 million yen (up 8.7% year on year)
In the field of banks, although the system integration projects showed healthy growth, the projects decreased due to drop in profits because of negative interest in the second half. Meanwhile, the credit card business to which personnel was shifted from the bank business in anticipation of reduction of bank businesses successfully obtained a new large-scale project (migration from COBOL to java) from a card company in the distribution industry. Sales in the field of insurance, which is undergoing system organization after restructuring, also increased. Sales composition was slightly over 70% for banks and bank-related credit card companies, slightly below 20% for non-banks (consumer credit), and 10% for insurance. Although sales grew 477 million yen, about 50% of them are from the fields of banks and credit card companies.
Manufacturing Sales: 3,063 million yen (up 4.0% year on year)
The projects to develop mission critical systems for electricity and automobiles manufacturers and the CAE projects for structural and hydrodynamic analyses showed healthy growth. As for the manufacturing field, sales composition for automobile manufacturers is high. As for CAE projects, although sales are below 1 billion yen (about 1/3 of the sales for the manufacturing field), the profit rate is high.
Information Sales: 1,542 million yen (up 4.6% year on year)
Development and maintenance support businesses for workforce related packages and database operation support businesses showed healthy growth.
Transportation Sales: 1,374 million yen (up 12.0% year on year)
Sales grew, thanks to the existing projects for updating existing systems and a new development project for the enhancement of competitiveness of a major courier company, to which the company allocates 100 employees from the system development to its operation.
Communication Sales: 1,033 million yen (down 1.9% year on year)
Capital investment by each carrier is at the off-crop season, and therefore, sales decreased.
Public services/energy Sales: 1,102 million yen (down 8.3% year on year)
The sales for public offices and local governments showed steady growth through infrastructure building projects. However, the sales for electric power decreased as response to deregulation of electric power ended. The business for electric power is mainly operated in the Tohoku, Kansai and Kyushu regions.
Distribution/Service Sales: 1,479 million yen (up 5.8% year on year)
The sales increased thanks to contributions from the mission critical systems development and maintenance projects for various EC services and data analysis support businesses for specialized services.
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| Fiscal Year March 2018 Earnings Estimates |
 Sales are estimated to grow 2.3% year on year, and operating income is projected to increase 2.0% year on year. Both sales and operating income are expected to mark a record high for 4 consecutive terms and 2 consecutive terms, respectively.
The outlook is conservative, because there are uncertainties in foreign exchange rates which affect IT investment in the manufacturing sector, and in the economic and political situations of overseas countries. Sales estimates reflect decrease in revenue from the system equipment sales and increase in revenue from software development and operation and management of systems. The company will continue to strive toward receiving orders of high value-added projects and the improvement in productivity due to thorough quality control as well as optimization of existing projects. However, profit estimates are based on the operating income margin of the previous term, and operating income is projected to slightly increase by 2.0% year on year to 1,365 million yen.
(2) Plans for each segment
For software development, the company will focus on services with high added value (upstream process business, integration service, etc.) and converting business models (cloud-based service, etc.). At the same time, it will make efforts to enhance business quality in order to secure high profitability and acquire, train and strengthen skills of manpower to enhance productivity. Furthermore, in the growing fields such as cloud, big data, IoT, and AI, the company will respond to the needs in collaboration with other companies with expertise in each field. In addition, it will strengthen its customer base. Specifically, it will try to increase the number of customers and increase partnerships with major system integrators to stabilize earnings, because transactions with end users related to investment often fluctuates on a company basis regardless of the business sectors.For system operation and management, the company will move towards businesses with higher added value in response to the needs for reviewing maintenance and operation systems associated with system update. It will also proactively make proposals for total outsourcing such as receiving orders for maintenance and operation business for previously developed projects. As for the system equipment sales, demand will continue to decline due to increasing utilization of PaaS such as cloud and data center. (3) Outlook for each business field of end users
For the finance field, the business is expected to be healthy in general. For banks, although the system integration projects are coming to an end, IT investment for overseas projects and FinTech related businesses will continue to grow. For credit card companies, the businesses will grow healthy especially for various integration projects in the distribution industry. The insurance field, where projects to update legacy systems will continue to exist, will continue to have healthy businesses.For the manufacturing field, although it may be influenced by fluctuation of exchange rates, projects to develop manufacturing management system and mission-critical systems are expected to make good contributions. The demand for CAE solutions business for automobiles is also expected to grow. For the transportation field, major user companies are currently responding to the shortage of workforces using IT. Therefore, the company will continue its healthy businesses for the development and update of the relevant systems. For the communication field, although there will be a demand for updating infrastructure, decreasing trend of overall sales will continue because capital investment is at the off-crop season. For the public services/energy field, although the businesses with IT utilization support and system infrastructure development will continue for the public services field, the businesses for electric power will decrease because the new fee systems and sales-related systems will come to an end. However, the movement for unbundling power generation and transmission in 2020 will gradually be visible. For the distribution field, although the ERP establishment project with an ERP vendor will come to an end, it will be succeeded by a maintenance project. Furthermore, the company has many other small to medium-sized projects. However, lower sales compared to the previous term is inevitable due to decrease in a large-scale project. For the service field, although the demand for system development for service expansion using the Internet will be stable, the competition is intensifying. The company will focus on the maintenance and update support for the existing customers. |
| Interview with new President Morishita |
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New President Yuji Morishita, who was born on September 5, 1963, is 53 years old. After working at Matsumoto Computer Center, Inc. (now TIS Inc.: securities code: 3626), he joined Flight Co., Ltd. (now Minori Solutions Co., Ltd.) in September 1991. He served as the Executive Officer, Director and Executive Officer of IT Solutions Department, and Managing Executive Officer, General Manager of Solution 1 Division since April 2007. Solution 1 Division is not only in charge of the innovation field such as cloud, big data, IoT and AI but also a hub that manages the company's strategic locations such as Matsumoto and Sendai. It is the primary department of the company. Managing the cutting edge field of innovation as the Managing Executive Officer, General Manager of Solution 1 DivisionYou have been involved with the management of your company as the Managing Executive Officer, General Manager of Solution 1 Division so far. What role does Solution 1 Division play? The company has been undertaking organizational restructuring from the latter half of the previous term to this term. I believe organizational restructuring is closely linked with business expansion under the new management structure. Could you explain it together with the overview of the organizational restructuring?
In the organization chart, under the President, there are Corporate Planning Section, Risk Management Section, Business Innovation Section, Partner Promotion Section, Technology Planning Head Office, Administrative Head Office and Operations Head Office. At the same level as these head offices, there are Solution 1 Division, Solution 2 Division, Solution 3 Division, Solution 4 Division, and Engineering Head Office. The major customers of Solution 2 Division are foreign-based vendors, major manufacturer, and major SIer. It is also in charge of creating an infrastructure base before system development for local governments and financial institutions, and providing services to support operation, call center and help desk after system development. Section 3 Division is in charge of the Kansai region. Because the market in the Kansai region is not as big as the one in the metropolitan area, Section 3 Division comprises small units so that we can increase the number quickly to identify various needs and provide agile responses. Section 4 Division is mainly dealing with financial stocks related businesses for banks, credit card companies, non-banks, and insurance companies. Every head office is aiming at expanding businesses that integrate development and service. Development and services were used to be separated in our business, but now, we will try to leave the man/month (cost per person per month) business and adding high values through service provision. Developmental revision of Sales Head Office and establishment of new Business Innovation Promotion Office
In November last year, we undertook developmental revision of Sales Head Office and established new Business Innovation Promotion Office. This is to respond to a rapidly increasing demand for solutions using innovations such as cloud, AI, big data and IoT. This Office was set for the purpose of making plans for new businesses which utilize innovation and establishing an agile business promotion system. Business Innovation Promotion Office will be driven by the sales promotion team together with development teams. Based on the accumulated technological capacities and business know-how, we will offer solutions using cloud, AI, big data and IoT in collaboration with the companies that have technical strengths in each field. We also established Engineering Head Office in April to promote business innovation. To pursue synergy with CAE solutions, we will create businesses using industrial innovations such as IoT and auto-driving cars. Mid-term Management Plan (Term ending March 2018 to Term ending March 2021)I see. Your company was established as a result of merger of 2 different types of companies, namely, JSC Co., Ltd., which specialized in the development and operation of resident systems mainly for financial institutions, and E-Wave Co., Ltd., which was undertaking the development of systems all together in a broad range of fields, including manufacturing, transportation and distribution. I assume there were many challenges including establishment of systems. Now that profit making foundation has been strengthened as a result of continuous sales increase since merger and improvement of operating income margin, your company is moving to the next step.
The future direction is shown in the Mid-term Management Plan (Term ending March 2018 to Term ending March 2021), which was announced in January. 3 items including "High value-added management", "Enhancement of the Minori brand" and "Pleasant and attractive company" are set as the fundamental strategies, and the goal is set to gain sales of 20 billion yen and operating income of 2 billion yen in the last term ending March 2021. For "High value-added management", your company is planning to create high value-added businesses using new technologies such as cloud, IoT, big data analytics, AI and FinTech. Could you tell us more in details?
The results of this project were recognized, and we received the "Special Award, SAP HANA Cloud Platform" at the "SAP AWARD OF EXCELLENCE 2017" (see Note below) in March. Inquiries concerning our cloud services are increasing. The demonstration test had a great advertising effect of our solutions using cloud and IoT. HANA Cloud offers various services including IoT, big data analytics, AI, and ERP on the cloud platform. By combining these services, we can offer various solutions. Solution 1 Division is currently working on development of solutions by combining cloud, ERP, and big data analytics based on the experiences of the demonstration test. Note:
The "SAP AWARD OF EXCELLENCE" was established in 1998 to recognize SAP's partner companies that are rated at the high level for client satisfaction. 2017 is its 20th anniversary. Preparations for various growth using IoT, Big data analytics, AI, etc.
Using IoT, the company will expand the subjects of CAE solutions analysis to include sensors and parts to respond to automobile-related needs. In this April, we established Engineering Head Office to create industrial innovation businesses using CAE solutions and IoT. As for big data analytics, we provide support to handle deterioration of parts of agricultural and construction machinery, using big data analytics. We also offer services using high-speed database tools operated by a group of 60 specialists to our clients such as financial institutions and trading companies. Through collaboration with SAS Institute Japan, Inc., which is a dominant vendor in the field of big data analytics software, we will launch big data analytics solutions during this term. As for FinTech, we will absorb demands from financial institutions based on the existing businesses with them.As for AI, we are in the process of making a business deal to support a call center. Specifically, Solution 2 Division is currently developing a system using "AI" and "big data analytics" for call centers and help desks, and manufacturing companies are showing interests in the systems to receive and make orders using AI. Our company, which has a strength in infrastructure development, will develop AI systems using the products that are developed by ERP vendors such as NEC. Furthermore, in the Shinetsu region, which is one of our strategic locations and where our Matsumoto Development Division is located, there are many factories. Without limiting to AI or IoT, Matsumoto Development Division is receiving business inquiries from these factories concerning system development. We also receive business inquiries concerning line management at factories using IC tags. At Business Innovation Promotion Office, there are employees who are in charge of electric power. The Office is receiving inquiries concerning system development in preparation for unbundling power generation and transmission sectors in 2020, introduction of AI at a call center, processing of agreements using AI, and inspection of electric transmission facilities using a drone. For "High value-added management", it seems that many actions are in progress using cloud, IoT, big data analytics and AI. What are the actions to achieve "Enhancing the Minori brand" and "Pleasant and attractive company"?
"Pleasant and attractive company" means a company that can create the future. It is a company where each employee can have a bright prospect for the future, work healthy and feel ease. It is a company where diverse manpower gathers and each one's growth leads to the company's growth. Our key words are "Healthy company", "Diversity management" and "Company where the employees grow". In this February, for the large-scale enterprise section of the "Healthy Management Excellent Enterprises 2017", which is hosted by the Ministry of Economy, Trade and Industry and Nippon Kenko Kaigi, we were recognized as the "Enterprise that practices excellent and healthy management in collaboration with insurers". This system is to award enterprises that practice especially good and healthy management based on the health promotion activities that are facilitated by organizations that work on local health issues and Nippon Kenko Kaigi. Improvement of profitability by utilizing manpower
Although the operating income margin for the term ended March 2011, which is the first year of merger, was 2.8%, it rose up to 8.6% in the term ended March 2017. This is the result of our efforts to strengthen quality control and enhancement of technological capacity of our employees. We have established a system to transfer skills and know-how of experienced staff to young staff. We are also establishing a job rotation system to enhance skills to enable the employees to move up to higher value-added tasks. Every year, the employees in charge of operation and management of systems take a training course to acquire new skills such as JAVA programming skills, and let them be engaged in software development.For resident-type services, our customers wish that employees who are familiar with the business and have high skills continuously work for them. However, for us, once services are on track, we would like to transfer the employees with high skills to a more challenging new project or high value-added project. With development of our employees, once we elevate the bottom of the level of their skills within the entire company, we can transfer the employees with higher skills to a new project, without dissatisfying the customers of the existing projects. This will also enable us to implement a planned rotation of young employees for their skills improvement. These actions not only increase profitability but also are in line with our fundamental strategy of creating a "pleasant and attractive company". I believe they are the actions that embody our goal to create "a company where each employee can have a bright prospect for the future, work healthy and feel ease. It is a company where diverse manpower gathers and each one's growth leads to the company's growth." You mentioned that your company will promote businesses in the highly public fields or business that contribute to communities to achieve to "Enhance the Minori Brand" as "Minori in the society." Your support for the operation of "Matsumoto Yamaga FC" as part of your CSR and "Matsumoto Yamaga FC Shuttle Bus Information Provision Service" are good examples. Your actions to strengthen the employees' skills and advance their carriers as part of the actions to create a "pleasant and attractive company" are also very interesting.
 To the investorsAt last, please give your message to the investors.
Recently, demands for solutions using new innovative technologies such as cloud, AI, big data and IoT are increasing. In order to respond to this market change, we reorganized our Sales Head Office and established Business Innovation Promotion Office. We also restructured Solution Head Office for the efficient use of resources. We are hoping to have a plentiful harvest of crops that we have been growing since our merger in April 2010 and share the yield with stakeholders. We would like to ask for your continuous support. Thank you so much for giving us detailed insights for a long time. We understood that your company is having activities using cloud, IoT, big data analytics and AI in various fields. We also now have clear ideas of your actions to achieve "Enhancing the Minori Brand" and "Pleasant and attractive company". We believe that your company will be recognized even more, once these activities are reflected in your business performance.
<Reference>
Mid-term Management Plan (Term ending March 2018 to Term ending March 2021)
Managerial goals
･ To be a company that contributes to the growth of customers
･ To be a company that responds to expectations from the shareholders through sustainable growth.
･ To be a company that is proud of itself and creates its own future.
Basic strategies
･ High value-added management
･ Enhancement of the Minori brand
･ Pleasant and attractive company (to be a company that can create the future)
Numeric goals
･ Sales of 20 billion yen, and an operating income of 2 billion yen in the term ending March 2021
･ To secure an ROE of 10% and try to achieve over 15%.
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| Conclusions |
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We hope that innovation field such as big data analytics, IoT, AI will bear fruit as soon as possible and the results for this term will exceed the plan. |
| <Reference: Regarding corporate governance> |
 ◎ Corporate Governance Report (Updated on June 26, 2017)
The company considers that the basic policy for corporate governance is to secure the transparency, swiftness, and fairness of business administration and execution, clarify responsibilities, enlarge business scale, and comply with laws and regulations thoroughly, in order to improve and maximize its corporate value.
Basic Policy   Disclaimer
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.Copyright(C) 2017 Investment Bridge Co., Ltd. All Rights Reserved. |
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