*The share price is the closing price on November 29. 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. ROE, BPS are actual results at the end of the previous term.

 

*The forecast is from the company.

This Bridge Report presents Minori Solutions's first half of fiscal year March 2019 earnings results and fiscal year March 2019 earnings estimates.

 

 

 

 

Minori Solutions business is supported by two pillars: development of software and operation/management of systems. Minori Solutions sells hardware, general-purpose packaged software, etc. for developing software. JSC Co., Ltd., which specialized in the development and operation of resident systems mainly for financial institutions, such as banks and credit-card companies, and E-Wave Co., Ltd. fully undertook the development of systems in a broad range of fields, including manufacturing, transportation, and distribution, merged into Minori Solutions Co., Ltd. in Apr. 2010 for a new beginning. The "Minori" in the corporate name represents an ear of grains, means "bearing fruit," and was infused with the hope that all employees will join hands to improve its corporate value further and produce good results as the "Minori" for clients, stakeholders, and employees, under the new organization after the merger. 【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 contents】 The business of Minori Solutions is classified into the following three segments: software development business, system operation/management business, and system-related device sale business. Software development business includes the developing and updating of systems and software as well as IT consultancy. The system operation/management business consists of operation, maintenance, and management of developed systems, and help desk work. The system-related device sale business handles the sale of devices related to system development. The ratios of their sales are 76.2%, 21.5%, and 2.3%, respectively (FY 3/18). The software development business is divided into two types: one is the business of undertaking the development of an entire system and the other is the business of partially developing systems while staying in client companies (dispatching about 100 workers for some clients). 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 more. 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, which leads to decline in sales. However, the contribution of sale of devices has been insignificant from the beginning, 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 35.3%, and manufacturing with transactions with wide categories of companies makes up 19.4%. Public services/energy field is 10.0%. The sales in other fields, including information, transportation, communications, and distribution/service, account for 7 to 10%, respectively. Although finance has a high ratio, the business fields of end users excluding it are equally diverse. End users are excellent enterprises and with their performance, they are expected to maintain a certain level of investment, despite some fluctuation. Their business fields are also diverse. Therefore, the amounts 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 (SI). 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 solutions】 End users are distributed in a good balance among the fields of manufacturing, information, distribution, services, transportation, public services, energy, communications, and especially finance, and Minori Solutions offers comprehensive services, including development, operation, and management, in most cases. Accordingly, its revenue base is stable. All of the end users are leading or top-class companies in each field, and most of them have been using the service of Minori Solutions for many years. Therefore, its financial standing is so excellent that equity ratio is 67.4% (results for the term ended Mar. 2018. Same below), current ratio is 338.5%, and rate of return on invested capital is 14.2%. 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.

 

 

Sales and operating income rose 5.7% and 14.8%, respectively, year on year. Sales were 8,221 million yen, up 5.7% year on year. The software development business saw an increase of 6.9% year on year through growth of businesses targeted at end users in the fields of manufacturing, and public services and energy, and a successful start on the services of installation consulting and system construction for cloud applications. The business of system operation and development, too, grew 7.6% year on year with products designed for the communications segment being as the driving force. Regarding profit, gross profit rate rose 0.5 point to 16.3% through an excellent progress with software development projects, growth of the high value-added CAE solution, and the improved operating ratio in the business of system operation and management. Although the company spent on promotion of its RPA products and donations as relief for disaster-hit areas, an increase in selling, general and administrative (SG&A) expenses remained only slight, resulting in operating income of 733 million yen that went up by 14.8% year on year. The improvement in non-operating profit and loss due to the increasing dividends income and insurance amounts and the reduced tax burden rate raised net profit 18.1% year on year to 519 million yen. Concerning sale of system-related devices, although sales declined as a reaction to the large-scale hardware sold in the same period last year, profit increased thanks to sale of licenses accompanying cloud services. Sales in the field of communications, in which large-scale projects were completed in the previous term, shrank 23.4% year on year; however, other business segments showed healthy growth, and RegTech-related projects contributed to the finance segment, where big projects for megabanks were finished in the previous term, enabling the company to maintain almost the same amount of sales as the year before in the segment. In the manufacturing field, sales rose 12.4% from the same period last year and the company saw increases in development projects for end users and the CAE solution associated with automobiles. In the public services and energy segment, the project of separating the power generation sector from the power distribution sector made contributions to sales growth in the power supply section, raising sales 11.9% from the same period of the previous year. In the field of transportation in which the company's main customers consist of door-to-door delivery companies and railway companies, a 30.7% sales increase resulted primarily from the renewal project for mission-critical systems at delivery companies. In the segment of distribution, services and other, contributions of the development project of cloud services for on-demand printing using "SAP® Business ByDesign®" raised sales by 18.0% from the same period last year. The information field, where the company mainly targets SIer, saw a sales increase from the human resource and payroll system. Here, RegTech is a term that has been coined using two words, "Regulation" and "Technology," and is a technology that enables users to cut down on costs of dealing with financial regulations. More stringent financial controls have been imposed since the global financial crisis in 2008, boosting the costs necessary for financial institutions to conform to the regulations. In view of this situation, Minori Solutions is striving to establish a system that will allow financial institutions to effectively satisfy the regulations by using a multitude of technologies, such as artificial intelligence, big data analysis, and blockchain. In addition, "SAP® Business ByDesign®" is a SaaS cloud service that is designed for medium- and small-sized companies and provided on the HANA cloud platform of SAP SE (in Germany). As a business partner of SAP Japan that is the Japanese subsidiary of SAP SE, Minori Solutions deals with requests and questions regarding installation of the cloud service, which SAP Japan receives from customers, and provides services of installation consulting and system construction for cloud applications. The company plans to take in new demand for systems, with the installation of "SAP® Business ByDesign®" as a stepping-stone. It records the sales related to installation consulting and system construction under software development, and the sales associated with licenses under sale of system-related devices. Total assets as of the end of the first half of this term stood at 11,187 million yen, up 243 million yen from the end of the previous term. Although the company paid dividends and other necessary expenses, it secured a free CF of 668 million yen, resulting in an increase in cash and deposits. Capital-to-asset ratio was 68.7% (67.4% at the end of the previous term). Treasury stock acquisition With the aim of improving capital efficiency and implementing agile capital policies in response to changes in the business environment, the company is acquiring treasury stocks.

 

 

Sales and operating income are estimated to grow 2.3% and 2.0%, respectively, year on year. In the second half of this fiscal year, it is forecasted that sales will grow from the first half in the field of manufacturing, where sales will increase with the development project of systems for automobiles and home appliances as a driving force, in the public services and energy sector in which sales of products will grow thanks to the project of separating the power generation section from the power distribution section, and the wheeling service-related projects, and in the segment of distribution, services and others where projects of "SAP® Business ByDesign®" will rise at retailers. Furthermore, while continuing to receive orders for projects related to RegTech, the company is expected to see steady sales growth at nearly the same level as the first half in the finance field, where products for life and non-life insurance companies are expanding, the field of transportation, in which the project of renewing mission-critical systems at delivery companies continues, and the communications segment that focuses mainly on maintenance projects. As a result, sales for the full year are estimated at 16.8 billion yen, up 2.3% year on year. It is projected that operating income will also grow 2.0% year on year to 1,545 million yen, while increasing marketing and other related expenses for supporting installation of cloud applications and expanding sales of its internally developed RPA product, "MinoRobo®," will be offset. The amount of term-end dividend is to be 18 yen/share in the second half, which yields an annual dividend of 36 yen/share together with the term-end dividend of 18 yen/share for the first half (with the payout ratio estimated to be 30.1%). The company has adopted a basic policy of paying dividends with a target payout ratio of 30%. (2) Efforts in each segment Software development The company will not only work on adding value to products and forming a more solid customer base in the System Integration (SI)-related business, but also focus on prospecting for new business fields and new customers in different industries in the business of the CAE solution. SI-related business In an effort to have higher added value, the company will fortify the Project Management Office (PMO) system in order to improve its business quality through a timelier checking system in the development-related section, and encourage its employees to change their job skills with the aim of boosting sales from projects related to AI, IoT, and blockchain. Concerning the infrastructure-related section, it will focus on making proposal for cloud security solutions. Meanwhile, as an effort to strengthen its client base, the company will endeavor to secure new customers and build up stronger relationships with existing customers, utilizing its products and cloud solutions. CAE solution The company plans to enter into the fields of production engineering and electromagnetic field analysis, and expand into the construction and chemicals segments. Operation and management of systems The company will propose offering business operations support for 24 hours, 365 days through RPA and AI in a bid to help its clients break away from a custom of relying heavily on a particular worker for a specific task, and improve business efficiency and profit rate. Sale of system devices The company will sell a variety of devices that accompany system development and infrastructure base construction. It will also work on promoting its own RPA product, "MinoRobo®."

 

 

【Basic Strategies and Priority Policies】 Basic strategies ･ High value-added business administration ･ Improvement of the Minori brand ･ Attractive company with a comfortable working environment (healthy management, and work-style reform) ･ Simple & speedy (management through swift decision-making) Priority policies High value-added business administration ･ Creation of a high value-added business using a variety of new technologies, such as "cloud," "IoT," "big data analysis," "AI," and "FinTech" ･ Expansion of transactions with end users in both the existing businesses and new businesses ･ Development of new businesses through promotion of intrapreneurship Improvement of the Minori brand ･ Enhancement of technological abilities, quality, organizational capabilities, and thorough risk management, with the aim of realizing "Minori, stepping together with clients" (company with strong awareness of the importance of compliance) ･ Promotion of businesses in highly public fields and businesses that lead to contributions to local community, as Minori as a member of the society (with a positive attitude toward welfare business) ･ Propelling forward commercialization of Minori Solutions' original services, tools, and packages (in order to present its corporate image of "+ONE") Attractive company with a comfortable working environment (healthy management, and work-style reform) ･ Healthy management ･ Diversity management (by increasing the number of female workers 1in administrative positions, and promoting globalization) ･ Company where employees can thrive through diverse work styles (work-style reform) Simple & speedy (management through swift decision-making) ･ Swift (speedy) decision-making (a self-reliant and strengthened organization) ･ Self-reliant behavior by each employee (establishment of working groups) ･ Simple relationship between employees and the management (promotion of an "award program") 【Progress】 In the first half of the current term, not only did the company see sales increases in the CAE solution and cloud services, which are the business fields that the company has been working on as part of its effort toward high value-added business administration, but a dedicated R&D team, which was newly formed with the aim of researching high value-added and next-generation businesses, started bearing fruit as well. Furthermore, as one of the attempts to improve the Minori brand, the company began selling its RPA product, "MinoRobo®." It released a new version of "MinoRobo®" with boosted online performance and user friendliness in August, and sale of the product through distributors will be fully started in the second half. In addition, with its efforts to "develop a comfortable working environment" highly evaluated, the company received better results in the survey of "Smart Work Management" by Nihon Keizai Shimbun Inc. (announced on November 19, 2018). Novel development of the CAE solution Regarding the CAE solution, in addition to the conventional structure analysis, vibration analysis, acoustic analysis, and fluid analysis, the company cooperated with a CAE software vendor and launched a consulting service that takes advantage of both parties' strengths in the fields of production engineering, electromagnetic field analysis, mechanism analysis, 1D (MBD), and next-generation optimization. This business is expanding on a continuous basis as the company strives to offer the solution to new fields and break fresh ground in new business industries. Thus, it is forecasted that sales will grow to 900 million yen in the term ending Mar. 2019, compared to those which stood at slightly over 700 million yen in the term ended Mar. 2016, and the company aims to earn sales of 1 billion yen in the term ending Mar. 2020. Development of cloud services While the number of development projects in which "SAP® Business ByDesign®" is used has been increasing, "SAP® Business ByDesign®" was adopted by Kinko's Japan Co., Ltd. (Headquarters; Minato-ku, Tokyo; President: Hisatomo Natori; hereinafter referred to as Kinko's Japan) in July this year. Kinko's Japan provides a wide range of items necessary for myriad scenes, such as events, weddings, and novelty production, with a focus on the printing solution, and offers such items in small lots and as quickly as possible to "individual customers," "corporate customers," and "online customers" who use its e-commerce site. Kinko's Japan has officially decided to adopt some of Minori Solutions' products, which are the cloud Enterprise Resources Planning (ERP) product, "SAP® Business ByDesign®," the analysis tool, "SAP®Analytics Cloud," and the foundation of cloud computing infrastructures, "SAP® Cloud Platform," as the foundation of IT for some tasks including accounting, sales, and production (a project of installing the products was started in May 2018). Minori Solutions has engaged in the installation of these cloud services, ranging from consulting to system construction, and will fully begin the installation in the second half of this term. Regarding cloud solutions, the company started educating its employees in the term ended Mar. 2017 and recorded sales of about 10 million yen in the term ended Mar. 2018. It is estimated that sales will grow to 200 million yen in the term ending Mar. 2019, and the company aims to achieve sales of 300 million yen in the term ending Mar. 2020. New business creation by the dedicated R&D team The dedicated R&D team is putting forth efforts in pursuit of the themes of "an interface utilizing smart device" and "content matching through the extraction of characteristic words and the machine learning," and it will make contributions to local communities through social business (related to disaster management information) and offer solutions for business streamlining based on the results of these efforts. In October 2018 that is the first month of the second half of this fiscal year, the company completed a prototype of the "smart speaker system for disaster management" that has made it possible to convey information on disaster management by voice through the use of an AI-based speaker. In cooperation with "L-Alert®," which is the system of sharing disaster management information that the Ministry of Internal Affairs and Communications is striving to popularize, the "smart speech system for disaster management" delivers disaster management information, such as evacuation advisory sent by local authorities and other related organizations, via Internet communications lines to the AI-based speaker and relays the information vocally. The prototype will be used for verification of the system's usability as a means of communication of disaster management information, and demonstration experiments are scheduled to be performed in collaboration with local authorities and local cable television operators. In addition, regarding the solution for business streamlining, the company will provide systems using the image recognition technology and the natural language processing technology, and enhance support for the fields of AI and IoT, in a bid to earn the trust of customers as their ICT partner and cement the relationships with them. Development of RPA "MinoRobo®" As a solution with a concept of "RPA" for daily use, the company's RPA product, "MinoRobo®," is equipped with a user-friendly UI and enables even laypeople to easily generate scenarios, which are its selling points. Just by setting the computer operation that a person in charge engages in as a "scenario," "MinoRobo®" automatically processes a great deal of routine work in a short period of time, eliminating multifarious time-consuming manual tasks and realizing significant improvement in business efficiency. As the scenario can be produced without special knowledge of programming, persons in charge can configure scenarios according to their respective operations at their discretion. In addition, "MinoRobo®" is certified as one of the tools subject to the "subsidy program for IT introduction" by the Ministry of Economy, Trade and Industry, and users will receive a subsidy of up to 500,000 yen for installing IT-based systems or tools. In the first half of the current term, the company provided case studies at the seminar titled "Work-style reform promotion through introduction of RPA" held by the Japan Information Technology Services Industry Association (JISA) (on September 19). In addition, it exhibited at the "RPA/Business AI Conference 2018 Fall" hosted by Nikkei Business Publications, Inc. (on September 26). and made a keynote speech. The company started to strengthen sale of the product through distributors in the second half and participated in an exhibition, "RPA DIGITAL WORLD 2018 Digital Robot CAMP in Odaiba," on November 22. Development of a comfortable working environment The company received higher evaluation results in the survey of "smart work management" by Nihon Keizai Shimbun (announced on November 19) compared to the previous survey. The principal reason behind the company's rise are its efforts to make the most of its human resources and optimize its organizational performance, such as productivity, through various approaches, including realization of diverse and flexible work styles. In addition to the aforementioned, the company made donations as a "relief fund for victims of the heavy downpour in July 2018" as part of its CSR activities, and adopted a "volunteer time off program." It sent 3 million yen in donations as a disaster relief through the Japanese Red Cross Society in a bid to support rescue activities, resettlement, and revitalization of disaster-hit areas for helping the victims of the typhoon Prapiroon and the disaster caused by the heavy downpour in July 2018. Besides, adopting a "volunteer time off program," the company has allowed its employees to take special paid leaves, independently of normal paid leaves, for the purpose of proactively taking part in volunteer work, such as disaster relief activities. Minori Solutions is considering continuing to support employees' social activities.

 

 

The company is making steady progress with new development of the CAE solution and cloud solutions that have high added value and are expected to allow its clients to break away from the custom of relying entirely on a particular employee for a specific task. Regarding the novel development of the CAE solution, Minori Solutions plays a key role in providing consulting and support for system installation to individual users whom the CAE software vendor cannot cover sufficiently. As the company can take advantage of the sales capacity of the CAE software vendor, it can make the most of its strength, the CAE technology, without allocating any of its own resources to sales activities. The same is true on the cloud solutions that Minori Solutions is developing as one of the business partners of SAP Japan. Amid a rise in the number of medium- and small-sized companies using cloud services, SAP Japan has forged business ties with only 5 companies, including Minori Solutions. We would like to keep an eye on whether the company can realize high value-added management and improvement in the Minori brand, which it has cited as the basic policies in the mid-term management plan, along with the development of its originally designed RPA product, "MinoRobo®."

 

 

◎ Corporate Governance Report (Updated on June 26, 2018) Basic Policy 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.