Bridge Report:（4319）TAC Fiscal Year ended March 2024

Toshio Tada, President and CEO	TAC Co., Ltd. (4319)

Company Information

Stock Information

*The share price is the closing price on May 28th. All figures are from the financial results for the fiscal year ended March 2024.

Earnings Trends

*Unit: Million yen. Forecasts are based on company estimates. These values are on an accrual basis. Net profit is profit attributable to owners of parent (the same applies for net profit hereinafter).

We present this Bridge Report reviewing financial results for the Fiscal Year ended March 2024 and other information about TAC.

Index

Key Points
1. Company Overview
2. Fiscal Year ended March 2024 Earnings Results
3. Fiscal Year ending March 2025 Earnings Estimates
4. Conclusions
<Reference: Regarding Corporate Governance>

Key Points

• In the fiscal year ended March 2024, sales declined year on year and the company recorded an operating loss of 307 million yen (in the previous term, they recorded an operating profit of 319 million yen). Sales on a cash basis dropped 1.9% year on year. While the number of corporate course attendees increased, the number of individual course attendees has not picked up after the coronavirus crisis and decreased. In terms of profit, gross profit margin fell and operating loss worsened despite a decrease in SGA brought about by streamlining. The company provided a year-end dividend of 3.00 yen/share, so the annual dividend was 6.00 yen/share.

   

• For the fiscal year ending March 2025, the company is forecasting sales of 19,220 million yen, up 1.1% year on year, and an operating profit of 270 million yen. Moreover, they expect sales on a cash basis to grow 1.6% year on year. They will strive for (1) enhancement of existing businesses, (2) early recovery of Personal Education and (3) improvement of the price-book value ratio. With regard to existing businesses, they intend to reinforce the linkage between different segments. Regarding Personal Education, they will develop new course models, revising the cost structure and aiming for securing an appropriate level of profit. They plan to pay a dividend of 4.00 yen/share (including the interim dividend of 2.00 yen/share). The expected payout ratio is 48.4%.

   

• It can be said that the delay in the recovery of Personal Education was the major cause of the loss in the fiscal year ended March 2024. The company is responding to the transition to a new learning environment centered on online education while making progress in streamlining. We would like to observe the situation concerning streamlining as the company makes up for the delay in the recovery of Personal Education in the fiscal year ending March 2025. PBR has fallen significantly below 1.0 and it can be presumed that if they can regain their performance, it will directly improve stock price.

1. 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, Certified Public Tax Accountants, Real Estate Appraisers, Labor and Social Security Attorney, 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.

TAC Group (7 Consolidated Subsidiaries, 1 Equity Method Affiliated Company)

*As of the end of March 2024.

Target markets in each area

(*1) DC：Defined Contribution (*2) CFA®: Chartered Financial Analyst® (*3) The Proficiency Test in Trading Business is registered trademarks of Maunharf Japan Co., Ltd. (*4) MCT&MOFA: Main Career Track & Ministry of Foreign Affairs of Japan (*5) RS&LG: Regular Service & Local Government (*6) CompTIA：Computing Technology Industry Association

【1-1 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, Bookkeeping, and Certified Public Tax Accountant. 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 (Government officials in the Main Career Track), 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 enter into the medical billing area. The company was listed on the Standard Market of TSE in April 2022.

【1-2 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 yen, 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, Certified Public Tax Accountant and Bookkeeping), 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.”

【1-3 ROE Analysis】

2. Fiscal Year ended March 2024 Earnings Results

(1) Consolidated Earnings

*Units: Million yen. Net profit is net profit attributable to owners of parent (the same applies for net profit hereinafter). The company’s forecast is the forecast announced in February.

Sales declined and recorded all kinds of losses
In the fiscal year ended March 2024, sales declined 3.6% year on year and the company recorded an operating loss of 307 million yen (in the previous term, they recorded an operating profit of 319 million yen). Furthermore, sales on a cash basis, on which the company places importance in terms of business management, dropped 1.9% year on year to 18,932 million yen. Although the number of corporate course attendees increased, the number of individual course attendees has not picked up after the coronavirus crisis and decreased. In terms of profit, gross profit margin fell from 39.2% in the previous fiscal year to 36.8% due to an increase in expenses for outsourcing, etc. and operating loss worsened significantly from the previous fiscal year despite a decrease in SGA costs brought about by streamlining. While the initial forecast stated sales of 19,620 million yen and an operating profit of 380 million yen, the company made a downward revision to both figures in February as shown in the chart above. Ordinary loss was 329 million yen (they recorded an ordinary profit of 324 million yen in the previous fiscal year) and net loss was 219 million yen (they recorded a net profit of 214 million yen in the previous fiscal year).
The company provided a year-end dividend of 3.00 yen/share, so the annual dividend was 6.00 yen/share.

Regarding Sales
In the certification and qualification acquisition support business conducted by the company, students applying for courses pay the entire amount of tuition fees (sales on a cash basis), which are booked on the liabilities side of the balance sheet as tuition advance. Then, these tuition advances are switched to sales every month that the educational services were provided to the student (sales on an accrual basis). Sales booked on the balance sheet represents sales on an accrual basis, and the company gives priority to the increase in sales on a cash basis as a key management indicator.
Sales on a cash basis in the fiscal year ended March 2024 stood at 18,932 million yen (down 1.9% year on year).

Regarding Seasonal Characteristics
The company’s quarterly trends are as follows. Sales on a cash basis (tuition advance pre-adjustment sales) refers to sales after aggregating tuitions, and sales on an accrual basis (tuition advance post-adjustment sales) refers to sales after allocating tuitions to the period in which the company provides education services.
Examinations for the company’s main certification courses, such as Certified Public Accountants and Certified Public Tax Accountant, are held from spring to fall (Q1 to Q3), and applications for courses for mainly university students, such as public officer courses, are concentrated in the spring and summer (Q1 to Q2). Therefore, applications (sales on a cash basis) in the fourth quarter tend to be less than in other quarters. On the other hand, operating expenses, such as rent, instructor fees, and advertising expenses, are booked in a fixed amount each month, so there is no quarterly bias.

Variation in quarterly performance

*Units: Million yen. Net profit is net profit attributable to owners of parent (the same applies for net profit hereinafter).

(2) Business Segment Trends

The company has adopted a management approach for segment information, through the application of the “Accounting Standard for Disclosure of Segment Information,” etc., and shows sales in the following tables as sales “on a cash basis” (before advances received) in accordance with the corporate group’s management decision-making.

Sales on a cash basis by Business Segment

*Units: Million yen

Operating profit on a cash basis by Business Segment

*Units: Million yen

【Personal Education】
Decline in sales and shrinkage of loss on a cash basis
When COVID-19 was reclassified into the Class 5 category, the number of applications for courses targeting mainly working adults from attendees who newly start a course and attendees who have previously taken an exam gradually picked up. As a result, sales on a cash basis in the second half grew year on year and operating loss on a cash basis in this period improved 252 million yen. Regarding the performance in each course, favorable performance throughout the year was noted in IT Specialist courses due to lasting demand stemming from the promotion of DX at enterprises and the Certified Public Tax Accountants course due to changes in the examination system, tax reforms, etc. Moreover, courses attended mainly by working adults, such as the S&M Enterprise Mgt. Consultant course, Labor and Social Security Attorney course, Real Estate Appraiser course, Real Estate Transaction Agent course, Architects and Building Engineers course and Judicial Scrivener course performed favorably. On the other hand, there were few applications for courses attended mainly by students as private enterprises are highly motivated to recruit due to labor shortage, etc., and sales on a cash basis of the Bookkeeping course, USCPA course, etc. also fell below the sales in the previous fiscal year. In terms of costs, operating expenses such as lecture fees, outsourcing costs for producing teaching materials and rent were 10,794 million yen (down 2.3% year on year).
Consequently, sales of Personal Education on a cash basis stood at 9,765 million yen (down 2.1% year on year) and operating loss on a cash basis was 1,029 million yen (operating loss was 1,074 million yen in the previous fiscal year).

Trend in Personal Education　*Sales and operating profit and loss are stated on an accrual basis.

【Corporate Training】
Increase in sales and in profit
Although the pace of Corporate Training slightly dropped in the fourth quarter, its performance was favorable throughout the fiscal year. Regarding the performance in each area, the performance of Financial Services & Real Estate, which is the mainstay, surpassed the performance in the previous year. In addition, training related to Finance and Accounting, Electricity and Facilities, etc. also performed favorably, surpassing the performance in the previous year. University seminars remained at the same level as in the previous year, while the sales of the affiliated school business, whose main clients are individuals in the countryside, declined 7.3% year on year, the sales from provision of content to vocational schools in the countryside dropped 8.5% year on year and the sales from drills commissioned by municipalities decreased 0.9% year on year. In terms of costs, operating expenses were 3,433 million yen (down 0.7% year on year).
Consequently, sales of Corporate Training on a cash basis stood at 4,445 million yen (up 0.5% year on year) and operating profit on a cash basis was 1,011 million yen (up 4.7% year on year).

Trend in Corporate Training　*Sales and operating profit and loss are stated on an accrual basis.

(From the company’s materials)

【Publishing】
Decrease in sales and in profit
The corporate group's publishing business is conducted under two brands: "TAC Publishing " operated by the company and "W Seminar" ("W Publishing") operated by its subsidiary, Waseda Management Publishing, Co., Ltd. While the performance of Publishing showed some recovery from the third quarter, it was not enough to offset the negative impact in the first and second quarters caused by the decline in demand from people staying at home, leading to a decrease in sales. With regard to books which are used to prepare for qualification exams, TAC publications for Certified Public Tax Accountant, Real Estate Appraiser, Architects and Building Engineers and Securities Analyst as well as W Publishing books for Patent Attorney, Certified Administrative Procedures Legal Specialist, etc. performed favorably, surpassing the performance in the previous year. However, sales of publications for Bookkeeping, Real Estate Transaction Agent, Licensed Strata Management Consultant, Financial Planner, Labor and Social Security Attorney, etc. ended up falling short of the sales in the previous year. Apart from the aforementioned, the company made significant revision to travel guides and published new series, and they sold well, also owing to the growth of demand for travelling as a result of lifting of restrictions on free movement. In terms of costs, operating expenses stood at 3,398 million yen (up 5.9% year on year).
Consequently, sales of Publishing on a cash basis stood at 4,246 million yen (down 4.1% year on year), while operating profit on a cash basis reached 847 million yen (down 30.3% year on year).

Trend in Publishing　【Breakdown of sales】 (prior to consolidated adjustments)
TAC Publishing: 3,899 million yen, W Publishing: 547 million yen

【Manpower Business】
Decrease in sales and in profit
Sales of advertising and personnel placement in the business of introduction and dispatch of accounting personnel managed by a subsidiary TAC Profession Bank Co., Ltd. remained favorable throughout the year owing to the high demand for accounting personnel at tax accounting firms and audit corporations, which are clients, as well as general companies. On the other hand, sales of temporary staffing fell below those in the previous year. Sales in the business of staffing medical personnel managed by Medical Office Staffing Kansai Co., Ltd. picked up from the second quarter due to demand caused by labor shortage at medical institutions, etc., exceeding the sales in the last year. However, operating profit decreased from the previous year as a result of an increase in operating expenses, such as personnel costs brought about by securing temporary staff.
Consequently, sales of the Manpower Business on a cash basis stood at 510 million yen (down 1.5% year on year), while operating profit on a cash basis was 63 million yen (down 9.5% year on year).

Trend in Manpower Business

(3) Trend by Certification Category

The company adopted the "Accounting Standards for Revenue Recognition" and other standards, the amount equivalent to expected product returns is directly deducted from net sales for transactions in the publishing business in which there is a possibility of return of goods. The amount equivalent to such returns is calculated based on an overall estimate based on past sales returns, etc., and the deductions for each field are not known. Therefore, the total sales in "FY 3/23" and "FY 3/24" in the table below do not match the sales in the consolidated profit-and-loss statements.

Sales on an accrual basis by Certification Category

*Unit: Million yen

【Market Overview】
The number of students in the fiscal year ended March 2024 totaled 199,940 (up 1.6% from the previous consolidated fiscal year), of which 111,093 were individual students (down 1.4% or 1,535 students) and 88,847 were corporate students (up 5.7% or 4,769 students).

Student Number Trends

*Units: Person

【Overview by Certification Sector】
While the number of both individual and corporate course attendees rose 4.0% year on year in the Certified Public Tax Accountant course, 5.1% year on year in the Real Estate Transaction Agent course, 17.1% year on year in the Financial Planner course, 10.7% year on year in IT Specialist courses, 5.67% year on year in CompTIA courses, etc., it fell 5.9% year on year in the Bookkeeping course, 5.7% year on year in the Certified Public Accountant course, 6.4% year on year in the Licensed Strata Management Consultant course, 10.4% in the Government officials (RS&LG)* course, etc. The number of corporate attendees grew 8.5% year on year in distance learning, while it declined 2.2% year on year at university seminars and 7.5% year on year at affiliated schools, and grew 1.3% year on year in commissioned training.
* Regular Service & Local Government

Number of students by Certification Category

*Units: Person

(4) Financial Conditions

◎Main Balance Sheet Items

*Units: Million yen

Current assets increased 18 million yen from the end of the previous term, due to an increase in notes and accounts receivable-trade, etc. Fixed assets decreased 22 million yen year on year due to a decrease in property, plant and equipment. Total assets decreased 4 million yen to 20,790 million yen.
Due to an increase in interest-bearing debt, total liabilities increased 326 million yen year on year to 14,918 million yen.
Net assets decreased 331 million yen to 5,872 million yen, due to a decrease in retained earnings, etc.
As a result, capital-to-asset ratio fell 1.6 points from the end of the previous fiscal year to 28.2%.

3. Fiscal Year ending March 2025 Earnings Estimates

(1) Consolidated Earnings

*Units: Million yen. Estimates are those of the company.

Projecting an increase in sales and achievement of profitability
For the fiscal year ending March 2025, the company is forecasting sales of 19,220 million yen, up 1.1% year on year, and an operating profit of 270 million yen (in the previous fiscal year, they recorded an operating loss of 307 million yen). Moreover, they expect sales on a cash basis to grow 1.6% year on year to 19,230 million yen. In order to promote the group’s continuous business activities and growth in the medium/long term, they will strive for (1) enhancement of existing businesses, (2) early recovery of Personal Education and (3) improvement of the price-book value ratio. With regard to existing businesses, they will work toward the elevation of profitability in each segment and they intend to reinforce the linkage between different segments. Regarding the early recovery of Personal Education, they will develop new course models, revising the cost structure with the objective of securing an appropriate level of profit while aiming for the expansion of sales. They plan to pay a dividend of 4.00 yen/share (including the interim dividend of 2.00 yen/share). The expected payout ratio is 48.4%.

4. Conclusions

It can be said that the delay in the recovery of Personal Education was the major cause of the loss in the fiscal year ended March 2024. The company is responding to the transition to a new learning environment centered on online education while making progress in streamlining. We would like to observe the situation concerning streamlining as the company makes up for the delay in the recovery of Personal Education in the fiscal year ending March 2025. Moreover, they are engaging in new initiatives such as a marriage agency service and we hold expectations for the diversification of their revenue sources. Stock price is stagnant, as could be expected from the decline in sales and recording of a deficit. However, the achievement of profitability is forecast for the fiscal year ending March 2025 and the company managed to pay dividends although a decrease in dividend is forecast. PBR has fallen significantly below 1.0 and it can be presumed that if they can regain their performance, it will directly improve stock price.

<Reference: Regarding Corporate Governance>

◎Operating type, and the composition of directors and auditors

◎Corporate Governance Report
Updated on December 19, 2023

<Basic Policy>
The company's basic policy regarding corporate governance is to put importance on prompt decision-making. The company currently has ten internal directors. On the other hand, the company also assigned five outside directors to properly maintain the corporate governance and the legal compliance system required as a public company, and it operates them to function efficiently.

Japan is rapidly shifting from a mature industrial society to a knowledge society. In the knowledge society, knowledgeable specialists (professionals) are required in various fields, and the areas of their participation are expanding. "Professional" is derived from the word “profess” = "declare in front of God." Thus, in medieval Europe, knowledgeable specialists such as priests, doctors, accountants, and teachers were professionals who made a vow to God when employed. Since the company started the business of training Certified Public Accountants, it has been in charge of training many professionals required in modern times on behalf of universities.

The group has received support from a wide range of customers (university students, working people, and corporations) through its bases and media, with the management philosophy of "cultivating the professionals that society needs" and "being deeply involved in personal growth." The company aims to be a strong player in the education services and human resource training and supply markets. It believes that the most basic proposition required of a joint-stock company, "increasing shareholder value," can be achieved only by having a support base by its customers, who are stakeholders.

That kind of professionals' self-discipline is part of the organizational culture in the group's corporate governance. The directors of the company themselves also aspire to regulate themselves as "management professionals." The Companies Act stipulates that the term of each director shall be one year (two years for directors belonging to the audit and supervisory committee), and shareholders judge whether respective directors have served as “professionals in business administration” in each term at a general meeting of shareholders. Our company adopted the organizational structure as a company with an audit and supervisory committee, and strives to enhance the functions to oversee and audit business management and comply with laws and regulations thoroughly, with the aim of achieving highly transparent business management.

<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
The company has not followed the following principles in the Corporate Governance Code for the reasons described in the table below.
　

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
Our company’s policies pertaining to each principle whose disclosure is required by the Corporate Governance Code are as follows (except the principles stated in the above “Reasons for Non-compliance with the Principles of the Corporate Governance Code.”)
　

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