BRIDGE REPORT
TAC Co., Ltd. (4319)
Hiroaki Saito, President
Hiroaki Saito, President
Corporate Profile
Company
TAC Co., Ltd.
Code No.
4319
Exchange
1st Section Tokyo Stock Exchange
Industry
Service
President
Hiroaki Saito
HQ Address
Misaki-cho 3-2-18, Chiyoda-ku, Tokyo
Business
Description
TAC provides education and training for both university students and working people seeking to obtain various certifications and qualifications based upon its fundamental corporate philosophy of "develop professional."
Year-end
March
Homepage
Stock Information
Share Price Shares Outstanding Market Cap. ROE (Act.) Trading Unit
¥237 18,503,932 shares ¥4.385 billion 10.3% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Act.)
¥5.00 2.1% ¥23.78 10.0x ¥267.76 0.9x
* Stock price as of close on June 5, 2017. Number of shares outstanding as of most recent quarter end do not include treasury shares.
 
Consolidated Earnings Trends
Fiscal Year Sales      Operating
       Income
Ordinary
     Income
Net Income EPS (¥)   Dividends (¥)
March 2010 23,991 623 442 40 2.20 17.00
March 2011 24,575 465 283 -244 - 20.00
March 2012 22,578 -606 -530 -799 - 0.00
March 2013 20,999 136 377 977 53.63 0.00
March 2014 20,526 1,034 1,299 816 44.68 1.00
March 2015 19,537 140 404 208 11.24 1.00
March 2016 20,007 605 635 213 11.54 2.00
March 2017 20,440 713 692 490 26.49 4.00
March 2018 Est. 20,900 810 780 440 23.78 5.00
* Estimates are those of the Company. The definition for net income has been changed to net income attributable to parent company shareholders. (Abbreviated as Parent Company Net Income)
 
We present this Bridge Report reviewing Fiscal Year March 2017 earnings results and other information about TAC.
 
Key Points
 
 
 
Company Overview
 
TAC Co., Ltd. is known as the "TAC, The Certification School" where university students and working people come to study to increase their chances of passing tests for various certifications and qualifications. The Company operates schools throughout Japan that educate students and adults in academic fields necessary to pass certification and Public Officer tests to become Certified Public Accountants, Licensed Tax Accountants, Real Estate Appraisers, Certified Social Insurance and Labor Consultant, Bar Examination, Judicial Scriveners and other professional occupations. In addition, TAC also provides various training programs for corporate clients and conducts publishing business as well.
 
 
<Corporate History>
TAC was established in December 1980 as a school providing instruction to people seeking to obtain certifications and qualifications through examinations, including courses for the Certified Public Accountant, Bookkeeper, and Licensed Tax Accountant examinations. In October 2001, TAC listed its shares on the Over The Counter Market, and later moved its shares to the Second Section of the Tokyo Stock Exchange in January 2003 and then to the First Section in March 2004. TAC acquired KSS Co., Ltd. (formerly known as Waseda Management Publishing), which conducts certification and qualification acquisition support services including the provision of preparatory courses for Bar Examination, Judicial Scrivener, Patent Attorney, Level-1 Civil Service, Special Personnel of the MOFA, in September 2009. Through the addition of this company, TAC has been able to fortify its strengths in the accounting area by adding certification preparatory courses in the legal area, and to round out its service lineup with courses in the Public Officer area. In December 2013, the Company formed a collaborative agreement that included the sharing of capital with Zoshinkai Publishers Co., Ltd. for work in the development of a correspondence course education service for elementary, junior and senior high school students. Furthermore, other M&A activities were conducted in June 2014 to gain entry into the medical office area.
 
<Strengths>
(1) Detailed Response to Changes, Revisions in Examination System, Laws
Since the founding of the Company, TAC instructors have made revisions to the text materials used in its courses every year, and this ability to respond to changes and revisions in the examination and legal systems is a distinguishing feature and strength of TAC. For a company like TAC with sales approaching ¥20.0 billion, absorbing the costs of updating text materials on an annual basis is possible. However, new entrants and smaller players in the market have a much more difficult time absorbing the costs of updating teaching materials. Other strengths of TAC include its knowhow and efficiency accumulated over the history of its operations in providing the most updated information to the students of its courses.
 
(2) Full-Scale Lineup and Active Course Development
TAC has risen to become the top player in the industry through its active efforts to develop courses in new areas, including those targeting university students, and it has become the first company within its industry to list its shares. Along with the acquisition of W Seminar's certification and qualification acquisition support business in 2009, TAC has been able to fortify its weakness in the areas of legal and public officer related courses. Consequently, the Company now boasts of a strong business model comprised of the three main cornerstones of accounting (Certified Public Accountant, Licensed Tax Accountant and Bookkeeper), legal, and public officer related certification and qualification acquisition support courses.
 
(3) Providing Innovative Services with a Focus upon Students
Innovative services are yet another strength of TAC. TAC was the first school in the certification and qualification acquisition support services market to introduce educational media and enable students to choose which instructor they would like to study under. This corporate focus upon satisfying the needs of students is reflected in the quality of the text materials offered and has contributed to the establishment of a strong brand reputation as "TAC, The Certification School."
 
Return on equity rose by a large margin from the previous term due in part to the decline in extraordinary loss. However, improvement in net income to sales ratio remains to be a crucial issue for TAC.
 
 
Fiscal Year March 2017 Earnings Overview
 
Regarding Sales
Students applying for courses are required to pay tuitions at the time of their initial application (TAC calls these fees tuition advance pre-adjustment sales or sales on a cash basis), which are then booked on the balance sheet as a liability under the title "tuition advance." These tuition advances are then written down and booked as sales in the month that educational services were provided to the student (TAC calls these fees tuition advance pre-adjustment sales or sales on an accrual basis). While sales booked on the income statement are "sales on an accrual basis (tuition advance pre-adjustment sales)", the actual indicator of the sales conditions of the Company in the term are considered to be the "sales on a cash basis (tuition advance pre-adjustment sales)" (The fact that cash and equivalents are influenced strongly by the sales on a cash income is a characteristic that is shared with companies that take orders) and they are deemed to be a leading indicator for actual sales. Therefore, TAC management identifies this "sales on a cash basis (tuition advance pre-adjustment sales)" as a key management indicator.
 
Regarding Seasonal Characteristics
Examinations for the majority of certification courses are held from the second (July to September) to third quarters (October to December), and core courses, especially those for Certified Public Accountants and Licensed Tax Accountants, fall into the time frame for examinations in the following year. At the same time, all courses fall into the fourth (January to March) and first quarters (April to June).

Despite an increase in sales on a cash basis and Account receivable-trade sales during the second and third quarters, tuition advances are written down and booked depending upon enrollment period and gross margin is profoundly influenced because of the booking of a fixed level of expenses every month. In the fourth and first quarters, these tuition advances are then written down and booked as sales in each month, causing gross margin to increase.
 
 
Sales, Profits Rise
Sales on a cash basis and on an accrual basis rose by 2.6% and 2.2% year-on-year to ¥20.627 and ¥20.440 billion respectively. Finance and accounting, financial service and real estate, and medical care and welfare areas related curricula trended favorably. When the loss of some ¥300 million from the termination of the sales of the tax filing software "Mahojin" at the end of the previous Fiscal Year March 2016 is taken into consideration, sales on an accrual basis would have risen by about ¥800 million year-on-year.
Operating income rose by 17.7% year-on-year to ¥713 million. While labor, advertising and other expenses increased, the disappearance of goodwill amortization from the current term allowed the operating income to rise by double digits.
¥120 million in dealer contract cancellation settlement fees for the tax filing software "Mahojin" booked as extraordinary income allowed the net income to rise by 129.6% year-on-year to ¥490 million.
 
 
<Personnel Education Business>
Sales and Profits grow, and business turns profitable for the first time in three years.
 
 
Successful cost controls allowed outsourcing fees including instruction fees, course material creation and rent to decline, thus allowing operating expenses to decline by 1.0% year-on-year to ¥12.308 billion.
Strengthening of sales channels including reforms of the Internet application system, reduction in operating hours, and internalization of business processes allowed the expenses to be reduced.
 
<Corporate Training Business>
Sales and Profits Decline.
 
 
In addition to efforts made for foreign language training, TAC responded flexibly to the diversifying needs for corporate training.
 
<Publishing Business>
Higher Sales and Profits
(TAC Publishing Sales)
Bookkeeping, Real Estate Transaction Manager, Financial Planner related curricula trended favorably.
New business areas including the travel books "Otona Tabi Premium" (Adult Travel Premium) (Total of 24 titles published until the end of March 2017) trended favorably.
(W Publishing)
The demand arising from revisions in the Companies Act and Commercial Registration Act has subsided and led to a decline in sales.
 
Despite increases in expenses for the publication of "Otona Tabi Premium" (Adult Travel Premium) and sales promotions, TAC was able to secure profits, along with higher returns and disposal reserves.
 
<Manpower Business>
Higher Sales and Profits
Demand for human resources in the accounting area including corporate auditors is strong.
Headhunting, worker dispatch, and advertising related areas also saw higher sales.
Successes of sales promotional activities are beginning to be achieved in the area of medical care related human resources services.
The ramping up of the nursing care human resources service is taking time.
 
 
<Market Overview>
The number of people applying for examinations of various certification categories in which TAC conducts training increased by about 96,000 from 2.513 million in the previous year to 2.609 million in 2016, for the second consecutive year of year-on-year increase. Bookkeeping, financial planning, and IT related students rose by 38,000, 33,000 and 45,000 respectively.
The number of people sitting for Accountant examinations rose for the first time in six years, but students of Licensed Tax Accountant exams continued to decline.
 
Finance, Accounting
Sales on an accrual basis rose by 9.7% year-on-year.
(Certified Public Accountant Examination Course)
Sales on a cash basis rose by 6.8% year-on-year.
The number of people sitting for the Certified Public Accountant examination had declined for five consecutive years, but rose for the first time in six years during Fiscal Year 2016 by 76 students to 10,256. The number of students applying for the first short answer type test conducted in December 2016 amounted to 7,818 (compared with 7,030 in the previous year), and the number of applicants of the second short answer type test conducted in May 2017 rose to 8,214 (compared with 7,968 in the previous year).
The number of applicants for new student learning introductory courses trended favorably during the course of the year. In addition, the aggregate number of people taking certification examinations courses fell below previous year's level, but their numbers remained in line with the previous year on a six month basis during the second half (October to March).
(Bookkeeping Certification Course)
Sales on a cash basis rose by 14.7% year-on-year.
The number of applicants for the Bookkeeping Certification examination (total for grades 1 to 3) has risen from the recent bottom of 534,208 in 2014 to 545,431 and 583,800 during Fiscal Years 2015 and 2016 respectively for two consecutive years of increase. A slight increase in the difficulty of the examination due to revisions in question categories has also led to an increase in the number of people applying for TAC courses.
The "Easy to Understand Bookkeeper Skills" and "Bookkeeping Skills Text That Everyone Wanted" text materials designed for examination applicants have also been favorably received.
 
Management, Taxation
Sales on an accrual basis declined by 4.9% year-on-year.
(Licensed Tax Accountant Examination Course)
Sales on a cash basis declined by 6.4% year-on-year.
During Fiscal Year 2016, the number of Licensed Tax Accountant examination applicants declined by 6.6% year-on-year to 44,044 (National Tax Agency data) in continuation of the weak trends already in place, with the number of applicants declining by 16,000 during the past five years.
TAC has implemented reviews of its text materials and curriculum in line with the revisions in the question categories in order to be able to promote a smooth progression in learning programs for students taking Licensed Tax Accountant and Bookkeeping Certification examination courses. However, the negative influence of the overall decline in the number of students sitting for the examinations was large.
 
(Small and Medium Enterprise Management Consultant Course)
While the number of examinations applicants has declined for five consecutive years since the peak in Fiscal Year 2010, their numbers recovered to growth for the first time in six years during Fiscal Year 2016.
Due to the low passage rates for the primary examination implemented in August, the number of applicants for upper level courses in the following year trended favorably.
Demand from applicants for the second level examination remained weak.
 
Financial Service, Real Estate
Sales on an accrual basis rose by 10.9% year-on-year.
 
Law
Sales on an accrual basis declined by 2.9% year-on-year.
(Bar Examination Courses)
Sales on a cash basis rose by 5.7% year-on-year.
The number of preliminary Bar Examination applicants rose in Fiscal Year 2017 to 13,178 from 12,543 and 12,767 in 2015 and 2016 respectively. The number of applicants of the preliminary Bar Examination rose because it offers the shortest route to acquiring the final certification of the Bar Examination and because applicants of the preliminary Bar Examination boast of high final Bar Examination passage rates.
A main product entitled "4A Fundamental Course" has garnered a wide range of support from entry level to more advanced students who have examination experience. In addition, materials covering past examination questions for preliminary examinations have also been well received by applicants.
 
(Others)
Bar Examination courses for entry level students and students with examination experience both trended weakly, contributing to a 10.3% year-on-year decline in sales on a cash basis.
Patent Attorney courses also fell by 5.7% year-on-year.
 
Public Officer, Labor
Sales on an accrual basis rose by 1.7% year-on-year.
(Certified Social Insurance and Labor Consultant Course)
While the number of examination applicants declined for six consecutive years, the implementation of various campaigns and the low passage rates in recent years have contributed to favorable numbers of students taking extended entry level courses. In addition, favorable sales of text materials also contributed to a 4.4% year-on-year increase in sales on a cash basis of Certified Social Insurance and Labor Consultant courses.
 
(Public Officer Course)
National Public Employees in the Regular Service and Senior Officials of Local Government courses trended stably despite the strong demand for workers seen in the private sector. Furthermore, successful measures such as week-end classes targeting both working people and students seeking employment as public officers contributed to a 2.9% year-on-year increase in sales on a cash basis.
At the same time, main career track personnel and special personnel of the MOFA courses saw a 1.0% year-on-year decline.
 
Information Technology and International Areas
Sales on an accrual basis rose by 1.6% year-on-year
(IT Specialist Course)
The Information Security Management examination for individuals began from Fiscal Year 2016. Also, the creation of a National Certification for Information Safety Securitization support (formerly known as the Registered Information Security Specialist examination) and IT specialized technical staff categories saw favorable trends in course applicants. At the same time, IT passport course participant numbers declined from the previous term.
Corporate training declined slightly from the previous year, and sales on a cash basis of all curricula trended sideways.
 
(United States Certified Public Accountant, Enrolled Agent Licensed Tax Accountant (EA), Certified Management Accountant (USCMA), TOEIC® L&R Test, and Other International Certifications)
From April 2017, changes in the United States Certified Public Accountant examination system have contributed to a gradual recovery in course participants, but the recovery has been unable to offset the influence of the decline in course participants caused by the participation restraint in advance of these changes. Consequently, sales on a cash basis of the international certifications curricula including enrolled agent Licensed Tax Accountant (EA), Certified Management Accountant (USCMA), and TOEIC® L&R Tests declined by 7.0% year-on-year.
 
(Comp TIA Course)
Corporate training demand trended strongly. Consequently, sales on a cash basis rose by 5.7% year-on-year.
 
Medical Care and Welfare
Sales on an accrual basis rose by 39.2% year-on-year.
Medical Office Staffing Kansai Co., Ltd., which provides medical care office staffing human resources services in the Kansai region, saw a 1.2% year-on-year decline in sales.
Results of sales promotional activities conducted by TAC Medical Co., Ltd., which provides medical care human resources services in the Kanto region, are beginning to surface and helping to drive sales of human resources dispatching service higher.
In the nursing care human resources services started from June 2016, inquiries for nursing care staff are increasing due to shortages within the industry overall. However, the time required to secure nursing care staff and to match them to jobs suggests that the sales contribution is expected to come sometime from Fiscal Year March 2018 onwards.
Aside from this, social and care workers, care managers and other medical care and welfare related certification text materials are contributing to sales.
 
Others
Sales declined by 17.0% year-on-year.
(Manpower Business)
The influence of the human resources shortage in the accounting industry is contributing to increases in demand for employment presentation and other events; Internet advertising, corporate promotional video creation and other advertising; and to higher sales of headhunting and human resources dispatching services.
 
(Others)
Favorable demand for "Otona Tabi Premium" (Adult Travel Premium) within TACBOOK contributed to a strong 62.2% year-on-year increase in sales.
Termination of the sales agreement with H.A.N.D. Inc. for its tax filing software "Mahojin" and subsequent termination of sales on March 31, 2016 was partly responsible for a 17.0% year-on-year decline in sales.
 
 
Trends by Course (Combined Individual and Corporate)
<Increases>
Courses for Bookkeeping certification, Certified Public Accountants, Real Estate Transaction Manager, and Public Officers (National Public Employees in the Regular Service and Senior Officials of Local Government courses) rose by 8.6%, 5.4%, 12.5% and 6.0% year-on-year respectively.

<Declines>
Courses for Licensed Tax Accountants, Securities Analysts, Judicial Scriveners, and USCPA fell by 6.8%, 5.3%, 12.2% and 9.5% year-on-year respectively. While corporate students attending in-university seminars rose by 7.8%, corporate client services including correspondence type training, affiliated schools courses, and consigned training rose by 7.8%, declined by 4.9% and 7.8% year-on-year respectively.
 
 
Increases in accounts receivables caused current assets to rise by ¥152 million from the end of the previous term. Increases in investment securities also caused fixed assets to rise by ¥284 million and total assets to grow by ¥436 million to ¥22.069 billion over the same period.
A ¥206 million rise in tuition advance contributed to a ¥18 million rise in total liabilities to ¥17.110 billion. Net assets rose by ¥418 million to ¥4.959 billion due to a rise in retained earnings.
Consequently, capital adequacy ratio rose by 1.5% from the end of the previous term to 22.5% at the end of the current term.
 
 
An increase in accounts receivables caused the net inflow of operating cash flow to contract. Payment to acquire investment securities caused the net outflow of investing cash flow to expand, and free cash flow to turn from a net inflow in the previous term to a net outflow in the current term. A rise in short term debts contributed to a contraction in the net outflow of financing cash flow.
Consequently, cash position declined by a small margin.
 
(6) Topics
Creation of New Certification Examinations and New Courses
The creation of a new certification examination for the cultivation of human resources in the finance industry entitled "Financial Industry Human Resources, Corporate Management Advisor Certification" led to the establishment of new courses.

(Overview and Process of Newly Created Certification Examination)
While it goes without saying that the sustained growth in regional companies is critical in resolving the key issue confronting Japan of invigorating regional economies, the role of financial institutions in providing financial assistance is also crucial.
Specifically, the ability to evaluate the contributions of companies to regional economies and to subsequently respond flexibly with financial support that does not only rely upon collateral and guarantees of these companies is crucial.
TAC seeks to play a vital role in the invigoration of regional economies through its ability to cultivate human resources with specialized skills required to evaluate the future business potential of companies to which financial institutions may extend financial support. Thus, the opening of new courses in response to these new certification examinations is expected to in turn contribute to the development of regional societies.
 
 
TAC launched courses for this new certification examination from May 2017.
The capital contribution for the establishment of the Japan Finance Professional Development Association and the expense of text materials are expected to amount to between ¥20 and ¥30 million.
 
 
Fiscal Year March 2018 Earnings Estimates
 
 
Sales, Profits Expected to Rise in Coming Term
Sales on a cash basis are expected to rise by 1.8% or ¥362 million to ¥20.990 billion in the coming term.
Gross income ratio is expected to rise by 0.2%, and sales, general and administrative expenses ratio to decline by 0.2%, allowing operating income to rise by 13.6% year-on-year to ¥810 million.
Dividends are expected to be raised by ¥1 to ¥5.00 per share, for an anticipated dividend payout ratio of 21.0%.

TAC has identified four themes within its medium to long term business strategy including "New Business Development and Cost Control", "Profitability of New Courses", "Promotion of M&A and Cooperative Partnerships", and "Increasing Corporate Brand Value".
With regard to new courses, sales of the architect courses have ramped up steadily since its establishment in fall 2012, Teacher's Certificate Exam Courses have been steadily expanding by prefectures since their establishment in fall 2013, and efforts to acquire participants for other courses are also being implemented.
 
 
Conclusions
 
It appears that the medical care and welfare area business entered through M&A has finally begun to ramp up, and newly established courses including the architect curriculum are steadily expanding. However, these factors have yet to fully contribute to the overall earnings.
Amidst a recovery in the operating environment accompanying the renewed activity within the accountant market, efforts are being made to increase the speed and volume of this business to bear fruit over the near term.
 
 
<Reference: Regarding Corporate Governance>
 
 
◎ Corporate Governance Report
The company submitted the latest corporate governance report on Jun. 29, 2016.
 
 
 
 
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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