*The share price is the closing price on April 27. The number of shares issued was obtained by subtracting the number of treasury shares from the number of outstanding shares as of the end of the latest quarter. ROE and BPS were the values for the previous term.

 

*The forecasted values were provided by the company. Net income is profit attributable to owners of the parent. Hereinafter the same apply. This Bridge Report overviews the business performance for the term ended February 2018 and describes the earnings forecast for the term ending February 2019, for BELLSYSTEM24 Holdings, Inc.

 

 

 

 

The company, which is the holding company, and its 7 subsidiaries form a corporate group. The main businesses include the Customer Relationship Management (CRM) business in which a focus is given to the outsourcing of contact center operations, technology services, and consulting services. The company's subsidiaries are the following 7 companies: (1) BELLSYSTEM24, Inc., which engages in operation of contact centers and auxiliary tasks, (2) CTC First Contact Corporation (capital contribution ratio: 51%) specializing in IT service desks and Business Process Outsourcing (BPO), (3) BI Medical, Inc., which conducts business of Contract Sales Organization (CSO) and Medical Information Service (MIS), (4) BELL24-Cell Product, Inc. offering the Site Management Organization (SMO) business, (5) POCKE INC., which sells contents, (6) BELL SOLEIL INC., a special subsidiary aimed at raising employment of people with disabilities, and (7) BELLSYSTEM24 - HOASAO (capital contribution ratio: 49%), which engages in the contact center business in Vietnam. ITOCHU Corporation holds 41.01% of the company's voting rights and deems the company as a company accounted for using the equity method (the company has accepted 8 temporarily loaned workers). In ITOCHU Corporation, which is focusing on business in non-resource sectors, especially the Consumer related Sector, the company, which engages in the call center business, plays a role as "the contact point between companies and consumers." Since the capital alliance entered into in October 2014, the company has built a broad range of alliances and successfully expanded the volume of transactions with ITOCHU Corporation (the company makes transactions with ITOCHU Group under the same transaction conditions as other client companies, and will continue to follow the policy).

 

 

Business Description

The company's business consists of the Customer Relationship Management (CRM) business, which is the segment to be reported, and other businesses, with the CRM business accounting for over 90% of consolidated sales. Other businesses include the Contract Sales Organization (CSO) business and the Medical Information Service (MIS) business of BI Medical, Inc., the Site Management Organization (SMO) business of BELL24-Cell Product, Inc., and sale of contents of POCKE INC.

 

CRM Business The CRM Business is the business field mainly of BELLSYSTEM24, Inc. and CTC First Contact Corporation. In addition to the conventional task of dealing with inbound and outbound calls, which use telephones as a major communication tool, in this business, a multitude of services that take advantage of Information Technology (IT), such as the Internet and social media, are offered to client companies. This is a stock business in which continuing operations make up slightly over 90% of sales, and spot operations, such as election-related tasks, constitute the remaining portion. Furthermore, sales from Softbank Corp. (operations of BB Call, Inc.) account for slightly over 10% of the total sales (continuing operations). The business is composed of the following 4 operations:

 

① Customer support for client companies (mainly by dealing with inquiries about products and services of client companies)

② Sales support for client companies (mainly by assisting client companies in promoting sales of their products and services)

③ Technical support for client companies (mainly by handling inquiries as to how to operate IT-based products of client companies)

④ BPO tasks (mainly by undertaking creation of websites, and data entry for client companies)

 

Other businesses Other businesses are divided into the CSO business, the MIS business, the SMO business, and other businesses. CSO Business The CSO business is the business domain chiefly of BI Medical, Inc. This business includes multifarious tasks that are required in the stage of sale and marketing of pharmaceuticals, such as promotional activities of drugs. MIS Business This business field is primarily for BI Medical, Inc. The MIS business includes BPO tasks that offer contact center services associated with medicine and health 24 hours a day, 7days a week, through qualified personnel. SMO Business The SMO business is the business domain mainly of BELL24-Cell Product, Inc. This business provides medical service support that, through contracts entered into with medical institutions which are site management organizations, supports fair and smooth clinical trials based on Good Clinical Practice (GCP; the standards that, on the basis of the practice criteria for clinical tests agreed upon internationally, have been specified in the ministerial ordinances and the like by the Ministry of Health, Labour and Welfare (MHLW) so that clinical trials are carried out in a proper manner in Japan with the environments in Japan taken into account). Other businesses Sales and profit of POCKE INC. and BELL SOLEIL INC. are recorded. POCKE INC. sells digital contents for general consumers through mobile phones and computers (for monthly fees) and weather forecast contents for business operators. Meanwhile, the major tasks of BELL SOLEIL INC., as the special subsidiary that aims at promotion of employment of people with disabilities, include general affairs-related operations and consignment business of outsourced clerical work for the corporate group.

 

Corporate History

Exploiting the potential of a secretarial agency business using telephones, the company started a business of 24-hour call center services using call diverters, and night-time and holiday call center services for credit card application in October 1982. Then, it expanded the business by starting to offer call center services for receiving orders through mail order and call center services for receiving reports about car accidents. The company was registered as an over-the-counter registered stock by Japan Securities Dealers Association (JSDA) in December 1994, listed on the Second Section of Tokyo Stock Exchange (TSE) in February 1997, and was assigned to the First Section of TSE in November 1999. In order to develop group strategies based on more agile business judgment, the company was delisted from the First Section of TSE in January 2005. After the delisting, the company carried out corporate restructuring several times, through which the present form of the corporate group was developed. In October 2014, ITOCHU Corporation took a stake in the company (acquired 49.9% of the number of issued stocks). The company changed its name to BELLSYSTEM24 Holdings, Inc. in September 2015, and got listed on the First Section of TSE in November of the same year.

 

 

 

Business Environment

Although the outsourcing market in Japan is growing at an annual growth rate of about 5%, the ratio of BPO to Gross Domestic Product (GDP) is lower than that of the United States, meaning that there is plenty of possibilities for expansion. While dialogue with consumers is being automated and hybridized (voice-based dialogue + dialogue via email/chat) by using AI (artificial intelligence) and state-of-the-art technology, such as Robotic Process Automation (RPA) and Internet of Things (IoT), there are ongoing discrepancies between people who want to work and employment opportunities due to multifarious factors, including nursing care, child rearing, and work-life balance, and time and places at which workers can work are limited more and more. In addition, in overseas nations, mainly in countries of ASEAN, the BPO market continues to be thriving, and leading BPO companies have succeeded not only in business expansion but also in streamlining of their businesses using technology.

 

Overview of Mid-term Management Plan

In such circumstances, the company is forging ahead with the Mid-term Management Plan with the term ending February 2020 set as the final year, from the perspective of long-term growth by taking account of the whole concept of next-generation contact centers. The company has mapped out three growth strategies as the pillars of the plan, including "Expand Existing Business," "Expand into New Areas," and "More Advanced Management of Human Resources," based on which it plans to develop both the system and the equipment for business management with resignation prevention and strengthening of recruitment activities in mind, as well as cement relationships with existing customers and pursue service quality and competitive advantages, further expand synergy with ITOCHU Group, and provide services using new technology such as AI and enter into new markets abroad with a focus on Asian countries (for 5 years by the term ending February 2022, which is beyond the business period of the Mid-term Management Plan, the company will invest a total of over 10 billion yen in the approaches).

 

 

Efforts in Mid-term Management Plan

Expand Existing Business The company will further pursue competitive quality advantages, as well as strengthen relationships with customers and expand synergy with ITOCHU Group. In order to cement relationships with customers, the company will increase the wallet share by making the most of the good relationships with existing customers (with the aim of further expanding sales from clients worth over 500 million yen per year, which were 58.8 billion yen from 38 companies in the term ended February 2018), improve customer satisfaction, and offer new added value. In an effort to expand synergy with ITOCHU Group, in addition to extending the approaches in cooperation with the group companies, the company will proactively make investment in and forge an alliance with key technology companies for realizing more advanced BPO services. Furthermore, it will expand joint establishment of a BPO model in collaboration with the group companies. With regard to further pursuit of a competitive quality edge, the company will strengthen the management system of quality and profit for each project, and measures related to human affairs, such as resignation prevention and enhancement of recruitment activities. Expand into New Areas The points include a business structure reform (development of a new earnings model), services (making the BPO business more advanced), and markets (enhancing overseas businesses). Regarding the business structure reform, the company will engage in creation of a billing-based business, revenue share, and businesses with partners, in order to develop a new earnings model. With regard to services, it will make the BPO business more advanced through efforts to develop types, such as accounting, human affairs, and IT, promotion of synergy with ITOCU Techno-Solutions Corporation, and establishment of a highly efficient model using new technology. In addition, in cooperation with Toppan Printing Co., Ltd., which obtained about 14% of the company's shares at the end of 2017, the company is contemplating the possibility of a new BPO business in which RPA and marketing automation (MA) will be introduced. As for markets, the company will enhance its overseas businesses by taking advantage of the network of ITOCHU Group, expanding the business in Vietnam, and developing new business bases. More Advanced Management of Human Resources The company will devote itself to strengthening of recruitment capabilities, elaboration of the on-site human resources management system, and resignation prevention. Specifically, it will clearly segment targets (such as housewives, students, and potential customers) and introduce policies, such as recruitment activities and brand development strategies, for each target (target marketing). The company is also going ahead with scientific analysis and experimental approaches regarding application and recruitment, retention marketing, labor costs, and outsourcing expenses. Furthermore, it will promote work style reforms through efforts to cut down on working hours, change the mindset of personnel holding administrative or similar positions, use diverse human resources, and introduce various work styles, and besides, it will make strategic investment in new remuneration policies, new centers (division of tasks into smaller business bases), and utilization of new technology (such as AI). In addition to the aforementioned, the company will enrich its corporate governance framework and develop and improve the compliance system so that it continues to be a company that earns trust of each stakeholder and the society surrounding the corporate group. Moreover, in an effort to contribute to realizing diverse richness of the society as a whole, the company will review its tradition and practice in order not to waste "time," "places" and "talent" and to optimize utilization of not only its own management resources but also resources of the industry and society.

 

 

 

 

Sales and profit increased 6.2% and 14.0%, respectively, year on year Sales revenue was 115,618 million yen, up 6.2% year on year. Although other sales dropped 8.7% due to the shrinking sales in the SMO business, the decline was offset by sales in the CRM business which grew 7.2% year on year. Sales from spot operations decreased 6.1% year on year in the CRM business; however, the former BB Call operations showed a steady growth by 1.5% year on year while sales of both existing operations and new operations grew 9.8% year on year. Regarding each business industry, while broadcasting/publishing/information services, finance, and distribution (retail and wholesale), all of which make up a large portion in the company's sales, grew healthy, transport/communications rose 36.5% with the communications industry serving as a leading force. Operating income stood at 9,319 million yen, up 14.0% year on year. The rise in SG&A expenses due mainly to labor costs generated by business expansion (which increased 1,320 million yen) were offset by the effect of a sales increase (which is the factor in a profit growth by 1,020 million yen), price optimization, and improved profitability of the large-scale projects launched in the previous term (the factor in the profit increase by 1,510 million yen in total). In the previous term, the company struggled with launching multiple large-scale projects, resulting in impairment of profitability; however, this term, the company got operation of these projects on the right track, which consequently improved business efficiency. Furthermore, new projects were launched steadily and smoothly in general.

 

 

 

 

 

 

 

 

(2) Progress in Mid-term Management Plan (FY2/18 - FY2/20)

The Mid-term Management Plan is composed of three growth strategies: "Expand Existing Business," "Expand into New Areas," and "More Advanced Management of Human Resources." In the efforts towards the strategy of "Expand Existing Business," the company not only successfully increased sales from existing clients, as demonstrated by a rise of about 10% from clients worth over 500 million yen per year, but also extended the scale of synergy with ITOCHU Group nearly to 10 million yen. In addition, the company acquired CTC First Contact Corporation that offers services of IT service desks and BPO as a subsidiary (the company has turned CTC First Contact into a joint venture company by having a 51% stake in CTC First Contact) in May 2017 and opened Sapporo Solution Center, its 5th bases, in Hokkaido in June of the same year. CTC First Contact won the "HDI Award Bronze Prize" in "HDI Academy 2017 in Japan" held (in October 2017) by HDI, the international institution in the support service industry.

 

 

 

In the approaches to the strategy of "Expand into New Areas," the company developed "Bell Cloud AI for SNS" (in April 2017) that uses LINE, and "Bell Cloud AI for IVR," an automatic voice-based consumer service solution (in July). The company completed investment in Hoa Sao Group Joint Stock Company in Vietnam and started business in July. In addition, the company moved ahead with synergy and business alliances; it began offering services that use "Sales force Service Cloud" in collaboration with Salesforce.com, Inc. in August and built up a business alliance with Hankook Corporation, one of the leading contact center companies in South Korea, in September. "Bell Cloud AI for SNS" is a service that, on "LINE Customer Connect," handles inquiries from consumers through chat. It is equipped with the Hybrid Reply function, which automatically switches between the AI-based Auto Reply function using IBM Watson and the Manual Reply function for manually dealing with inquiries. Seamless support can be realized with these functions. Meanwhile, "Bell Cloud AI for IVR" has been developed jointly with CTC First Contact with the aim of realization of, through the use of the voice recognition technology and AI technology, voice-based interactive dialogue in response to inquiries from consumers, which is different from the conventional way of dealing with inquiries that has had consumers push buttons of their phones according to instructions, such as "if you would like to ○○, press 1 and #...." In addition to the above mentioned, as efforts from perspectives of both "Expand Existing Business" and "Expand into New Areas," the company forged capital and business alliances with Toppan Printing Co., Ltd. (Toppan Printing acquired about 14% of the company's shares and entered into a business alliance with regard to the BPO business) in December 2017. Furthermore, the company acquired CTC First Contact as a subsidiary as mentioned above, because the company has taken account of strategies of not only "Expand Existing Business," but also "Expand into New Areas." As approaches to the strategy of "More Advanced Management of Human Resources," in October 2017, as part of the new personnel system, the company started a new system targeted at about 22,000 employees who have worked for 6 months or longer under fixed-term employment contracts, and enables transition of their employment status to non-fixed term employment. Other approaches the company took include enrichment of the employee benefit packages, opening of a day-care center in Okinawa in April, and holding of a lecture in a career education class at Shimane University in November. Furthermore, with the strategy of "Expand into New Areas" in mind, the company formed a capital alliance with SOLAIRO, INC. (Shinagawa-ku, Tokyo; President Hiromi Nakajima) that offers online customer services by using the artificial intelligence (AI) technology, and has introduced "OK SKY" and "AI-Chat for Shugyo Support (literally meaning employment support) (provisional name)," which are the online customer services of SOLAIRO, to "Sutabo," the call center job posting website operated by BELLSYSTEM24.

 

 

 

 

Sales and profit are estimated to increase 7.9% and 10.5%, respectively, year on year.

Sales revenue is projected to stand at 124.7 billion yen, up 7.9% year on year. While active demand for outsourcing is expected to continue, it is projected that not only will synergy with ITOCHU Group be extended, but also synergy with Toppan Printing will become obvious gradually, which will result in expansion of existing operations and new operations and encourage sales growth. Operating income will grow 10.5% year on year to 10.3 billion yen. In addition to a sales increase (which is the factor in a profit growth by 1,420 million yen), price optimization and increased efficiency (the factors in a profit rise by 820 million yen in total) are expected on a continuous basis, offsetting increases in labor costs incidental to business expansion (up 680 million yen), labor costs due to development of services using new technology and transition to a new personnel system, and expenses incurred due to enhancement of recruitment and retention activities (up 630 million yen in total).

 

 

(2) Policy on approaches in the term ending February 2019

The company will continue to move ahead with the three growth strategies of the Mid-term Management Plan ("Expand Existing Business," "Expand into New Areas," and "More Advanced Management of Human Resources"). The points for the term ending February 2019 are pursuit of synergy with Toppan Printing, in which the company will be engaged from the perspectives of both "Expand Existing Business" and "Expand into New Areas," and a shift to the new personnel system that aims at the strategy of "More Advanced Management of Human Resources." Pursuit of synergy with Toppan Printing The strengths of the BPO services of Toppan Printing are its capabilities of undertaking tasks in a one-stop manner under a highly strict security environment, and extensive business experiences in office operation, settlement-related solutions and marketing support; however, it is not easy even for Toppan Printing to develop a service system that fulfills a surging demand for BPO. The idea, therefore, of supplementing the business field of consumer services with the management resources of BELLSYSTEM24 Holdings, Inc. holds a considerable appeal. Meanwhile, synergy with Toppan Printing will enable BELLSYSTEM24 Holdings to expand its business domain by supplementing services of Toppan Printing. In addition, if the company becomes capable of coping with campaign-related back-office operations and other related tasks through the use of the management resources of Toppan Printing, BELLSYSTEM24 Holdings will be able to win new orders for outsourcing of contact center operations. By integrating their respective customer bases, and technical abilities and business know-how that each of the two companies has cultivated, both companies are planning to expand their BPO business by developing and providing new services for companies in a broad range of industries, including local governments and financial institutions, and strengthen business expansion in markets not only in Japan, but also in other Asian regions by propelling a highly advanced BPO business using new technology, such as AI and Robotic Process Automation (RPA). New personnel system Companies are concentrating their management resources to their respective core businesses, and besides, in-house manufacturing of non-core businesses is reaching the limit due to a shortage of workers. According to the company, it is expected that its business environment will continue to be favorable in the term ending February 2019 and, at the present moment, it receives new projects on a daily basis; however, the company, too, is one of the corporations that are concerned about a labor shortage, and it is confronted with various issues, including recruitment, education and training, and resignation prevention. The company has set up a new personnel system by taking account of solutions to these immediate issues and maintenance of medium- to long-term growth potential. Before establishing the new personnel system, the company interviewed employees working on site, collected on-site needs, and carried out mining activities for over a year. Although labor costs will go up in the term ending February 2019 in conjunction with introduction of the new personnel system, the rise in labor costs is not just an increase in hourly wages, but an upfront investment in further advancement of personnel management. In October 2017, as part of the new personnel system, the company launched a new system that makes it possible to shift the employment status of employees who have worked continuously for 6 months or longer (about 22,000 workers) from fixed-term employment to non-fixed term employment, and the company will take the approach in earnest in the term ending February 2019. One of the elements of the new personnel system is "multiple-track careers." The attributes of employees required should not be uniform, but be diverse, for both new business fields and expansion of the existing businesses. The company, thus, has prepared multiple steps for career advancement in order to offer its employees a wide range of options and make it easier to assess diverse skills of each employee. Provision of multiple steps for career development means that multiple assessment criteria are available, enabling easy evaluation of employees' respective attributes and abilities that have not been assessed properly under the traditional uniform evaluation system. This lowers the bar to changing the form of employment contracts from fixed-term employment to non-fixed term employment. In other words, this "realizes a company that seamlessly leads fixed-term employees to non-fixed term employees (that offers stable and safe employment)," which is the concept of the new personnel system. A shift of the hiring pattern from fixed term employment to non-fixed term employment will not increase fixed costs because the only thing that will be changed is the contract period, and will prevent employees from leaving the company. It is expected that employees will enhance their abilities to deal with consumers and handle more advanced tasks through improvement of their skills by working for a longer period of time. As a side note, if 1,000 employees leave a company, a cost of approximately 500 million yen will be required for recruitment and education in order to fill up the vacancies, which means that resignation prevention will also have a tremendous effect in cutting down on costs.

 

 

 

The earnings forecast for the term ending February 2019 is "achievable but challenging in some points" (according to President Tsuge). Although it is easy for the company to boost sales thanks to the favorable order receipt environment, the company plans to sort orders to accept while keeping handling of more advanced operations in mind. "Challenging in some points" means that the company will take on a challenge of undertaking projects that are considered difficult but hold high added value at the same time. A shift to a new personnel system parallels this policy and will result in a rise in fixed costs, but the company is striving to further enhance profitability by offsetting the cost increase through operational advancement and high added value which will be achieved by improving the skills and abilities of employees. The company "would like to attain fruitful growth by making the most of its superior customer assets" (according to President Tsuge). Including an effort to spread the new personnel system, it seems necessary for the company to closely examine the content, rather than the immediate, superficial numerical figures.

 

 

 

 

◎ Corporate Governance ReportUpdated on June 26, 2017

Basic Views Our company and our group companies (hereinafter collectively referred to as "our corporate group") consider that our prior management challenges to always generate new value for creating markets, and to not only support the growth strategies of our client companies as their partner but also vigorously grow ourselves with great creativity, through "high-dimensional innovation and hospitality that can be offered only by human resources," and integration and synergistic effects of "leading-edge technologies" that transcend the limit of time and distance, and the limit of quantity and quality in communications and evolves services in an innovative manner. With the aim of realizing them, our corporate group has set and been following a management philosophy (Bell Mission) and five basic policies (Bell Way), and has attached weight to "realization of fair, transparent, and free competition and fair trade" and "proactive and proper information disclosure beyond the scope of laws and ordinances," to maintaining support from all stakeholders. These views have been specified in "Code of BELLSYSTEM24 Group Conduct" that is the code of conduct common to our corporate group as a whole. Our company strengthens our corporate governance framework and maximizes the value of our company by fostering the sense of value held by our whole corporate group and sharing understanding about corporate social responsibility with all the employees through the Code. <Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)> Principle 1-4 So-called strategically held shares  With regard to investment made for purposes other than the purpose of net investment, our company makes a decision on whether or not to make the relevant investment, basically according to whether or not a synergetic effect can be expected in the businesses of our corporate group through business alliances and information sharing with companies in which we invest. In addition, our company verifies whether or not to continue major strategic shareholdings at a meeting of the board of directors each year. Regarding the voting rights for strategically held shares, our company will exercise the rights after making a comprehensive judgment on whether or not a synergetic effect that is the objective of investment will be fully exerted and contribute to the improvement of the value of our corporate group, and discussing proposed bills. Principle 1-7 Related party transactions  While setting forth provisions on management of related party transactions and, in principle, requiring the approval of the board of directors, our company has specified and abide by regulations that, depending on the scale, characteristics, and other similar factors of transactions, do not require the approval of the board of directors. Furthermore, regardless of whether or not approval has been obtained from the board of directors, at the beginning of each term, our company seeks approval of the board of directors for relevant related party transactions that we would like to continue and approved related party transactions are monitored by the board of directors. At the present moment, our company does not have any parent companies; however, if any company becomes our parent company and our company conducts transactions with the parent company or any other related companies, our company will disclose judgment or opinions of the board of directors that are different from those of outside directors, if any, by including them in business reports. Principe 5-1 Policy for constructive dialogue with shareholders  In an effort to contribute to sustainable growth and medium- to long-term improvement of corporate value, our company will have the constructive dialogue with shareholders, in the scope and to the extent reasonable, in accordance with the following policies:

(1) Our company appoints a director who will take charge of IR activities, and the director oversees dialogue with shareholders in general.

(2) Our company establishes an IR department under the director in charge of IR activities, and the department plays the central role in proper information exchange with the corporate planning department, the accounting and finance department, and other related departments, and inorganic cooperation with these departments.

(3) Our company holds a session for briefing financial results at the time of announcing financial results for the second quarter and the full business year, in order to enrich means of dialogue with shareholders.

(4) Our company notifies, at any time, the director in charge of IR activities and related departments of opinions obtained from shareholders through dialogue, and shares such opinions with the board of directors as necessary.

(5) Our company engages in dialogue with shareholders in accordance with the regulation for prevention of insider trading that stipulates prohibition of acts of conveying information and encouraging transactions, and measures necessary for restricting re-conveyance of insider information.