BRIDGE REPORT
(3916)

東証1部

Bridge Report:(3916)Digital Information Technologies the fiscal year ended June 2020

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President Satoshi Ichikawa

Digital Information Technologies Corporation (3916)

 

 

Company Information

Exchange

TSE 1st Section

Industry

Information and Communications

President

Satoshi Ichikawa

HQ Address

FORECAST Sakurabashi, 4-5-4 Hatchobori, Chuo-ku, Tokyo

Year-end

End of June

Homepage

https://www.ditgroup.jp/english/

 

Stock Information

Share Price

Number of shares issued

Total Market Cap

ROE (Actual)

Trading Unit

¥1,332

15,501,820 shares

¥20,648 million

29.6%

100 shares

DPS (Est.)

Dividend Yield (Est.)

EPS (Est.)

PER (Est.)

BPS (Actual)

PBR (Actual)

20.00

1.5%

¥61.81

21.5x

¥240.04

5.5x

*The share price is the closing price on September 15. The numbers are taken from brief financial report of FY 6/20.

 

Consolidated Earnings

Fiscal Year

Net Sales

Operating Income

Ordinary Income

Net Income

EPS (yen)

DPS (yen)

Jun. 2017 (Actual)

10,273

653

641

466

30.33

7.50

Jun. 2018 (Actual)

11,076

787

790

531

34.57

11.00

Jun. 2019 (Actual)

12,355

1,095

1,106

737

48.07

16.00

Jun. 2020 (Actual)

13,495

1,352

1,357

978

64.18

20.00

Jun. 2021 (Forecast)

13,580

1,358

1,358

942

61.81

20.00

*The forecast is from the company. A 2-for-1 share split was implemented on October 1, 2016 and April 1, 2018. EPS and BPS were retroactively recalculated. * Net income is net income attributable to shareholders of the parent company. Hereinafter the same will apply.

 

This Bridge Report introduces the fiscal year ended June 2020 earnings results of Digital Information Technologies Corporation.

 

Table of Contents

Key Points
1. Company Overview
2. Fiscal Year ended June 2020 Earnings Results
3. Fiscal Year ending June 2021 Earnings Forecasts
4. Medium-Term Management Plan
5. Conclusions
<Reference: Regarding Corporate Governance>

Key Points

  • For the fiscal year ended June 2020, sales increased 9.2% year on year to 13,495 million yen. Sales rose in all businesses. The embedded solution unit and the original product unit saw double-digit growth. Gross profit margin increased 0.7 points year on year due to new projects with high-profit margins and the growth of the original product unit. Operating income improved 23.5% year on year to 1,352 million yen. Double-digit profit growth was achieved by absorbing the increase in R&D expenses and personnel expenses centered on sales personnel. Operating income margin rose 1.1% year on year to 10.0%. Both sales and profits reached record highs.

     

  • For the fiscal year ending June 2021, sales are expected to increase 0.6% year on year to 13,580 million yen, and operating income is estimated to rise by 0.4% to 1,358 million yen. The company aims to achieve almost the same results as the previous year at lowest, considering the investment stance of client companies affected by the novel coronavirus. Except for the system sales business, sales are projected to increase, and the original product unit will witness a double-digit growth. The dividend is to be 20 yen/share, unchanged from the previous year. The estimated payout ratio is 32.6%. In the previous fiscal year, there was a considerable impact on business performance due to the novel coronavirus crisis, such as stagnation of sales activities, postponement of acceptance in some projects, improvement of the remote work environment, and provision of allowances. IT investment for DX promotion is expected to remain robust in the future, but there are signs of a cautious stance towards IT investment in some industrial fields.

     

  • Amid substantial uncertainty caused by the novel coronavirus, the company has set three main measures: "efforts to sustain growth," "enhancing the comprehensive corporate strength," and "creating a comfortable workplace." In "(1) efforts to sustain growth," the company will expand sales of its original products (xoBlos and WebARGUS), provide new values (new product development and promotion of DX business), and expand advanced in-vehicle technology areas (Connected and Autonomous). In "(2) enhancing the comprehensive corporate strength," the company will work on improving profit per person and strengthening on-site capabilities. In "(3) creating a comfortable workplace," the company will continue with the “Japan Employee Stock Ownership Plans (Japanese version of ESOP; JESOP),” and promote the adoption of the talent management system that can make the most of the skills and abilities of employees.

     

  • The company aimed to achieve the Triple 10's: "sales of 10 billion yen, an operating income of 1 billion yen, and an operating income margin of 10%" as its medium-term goals. However, the company achieved its goal ahead of schedule, the sales goal in the fiscal year ended June 2017, the operating income goal in the fiscal year ended June 2019, and the operating income margin goal in the fiscal year ended June 2020. Currently, the company is formulating a long-term vision according to changes inside and outside the company, such as achieving medium-term management goals ahead of schedule, accelerating DX, coping with cliffs in 2025 (the shortage of IT engineers), and facing a new normal society in the wake of the novel coronavirus crisis. The company will clarify its direction and work towards the realization of continuous growth.

     

  • The company achieved an "operating income margin of 10%" ahead of schedule, which was the final goal of the Triple 10's, the medium-term management goals. In the fourth quarter (April-June), in addition to the seasonality in which profits decline due to the hiring of new graduates and payment of term-end allowances, the impact of the novel coronavirus was considerable. However, gross profit margin remained at a relatively high level. Sales and profits forecasts for this term are about the same as the results in the previous term, but they are at the minimum level. We would like to pay attention to whether the company can raise the top line while maintaining the profit margin despite the impact of the novel coronavirus. Also, we will focus on the state the company is aiming for in its next long-term vision.

     

1. Company Overview

Digital Information Technologies Corporation is an independent information service company. Its sales are mostly from the undertaking of the development of business systems, embedded devices, etc. for clients mainly in the fields of finance, communications, etc. The company concentrates on the expansion of its products based on its original technologies, including "WebARGUS," a website security solution, and "xoBlos," an Excel work innovation platform. The company has a variety of characteristics, such as "multifaceted, diverse information technologies" and "organizational strategies of partial and total optimizations."

 

1-1 Corporate History

The former president Norikazu Ichikawa (current Representative Director and Chairman) discovered a new world of computers and obtained programming qualifications while he was working at Nippon Telegraph and Telephone Public Corporation. He set up his own business because he was willing to take on challenges and found a great appeal in the potential of computers.
In 1996, he was appointed president of Toyo Computer System, Inc. as the successor to one of his acquaintances. He expanded its business area starting from business system development, and then computer sales business (current: system sales business), embedded product development validation business and operation support businesses turning Toyo Computer System Inc. into a multifaceted and diverse IT company.

 

In 2002, he established Toyo IT Holdings Corporation, which is the predecessor of current Digital Information Technologies Corporation, by separating several companies under the same group and establishing subsidiaries with 100% ownership. In 2006, he integrated four subsidiaries into one company and renamed it to the current company name.
In addition, in January 2011, he established DIT America, LLC in Kansas, U.S.A. Digital Information Technologies Corporation was listed on JASDAQ of Tokyo Stock Exchange (TSE) in June 2015, listed on the second section of TSE in May 2016 and listed on the first section of TSE in March 2017.
In July 2018, Mr. Satoshi Ichikawa, who used to be Representative Director and Senior Managing Officer, took up the office of Representative Director and President to rejuvenate the management structure under the business environment where change is accelerating and make a system to enable prompt decision-making.

 

1-2 Corporate Philosophy

 

 

Our logo is a collection of cubes with an infinite number of stairs.

This collection is our company itself, and each cube represents each employee.

The 6 facets of the cubes represent six values which all employees share and consider valuable.

Our corporate identity represents these values in three tiers; clients, company and employees.

(From the company's website)

 

(From the company's website)

 

The above diagram is the unfoldment of the cube. According to the president Ichikawa, it emphasizes “clients first; this is where it all starts." Furthermore, the logo represents “training employees” and “communication with clients and among employees.” These are important values to the company. Additionally, we implore employees to “improve its added values,” “have passion” and “have a sense of purpose.”
Employees are to uphold this company policy as their creed and follow these principles at all times.

 

1-3 Market environment

The outlines of the market environment and growth potential of each business unit of the company mentioned in Section 1-4 “Business Description” are as follows.

 

(1) Business Solution Unit
The market of IT solutions, which helps deal with the shortage of manpower and the streamlining of business operations, has grown steadily. Cloud services & packaged software have been adopted by small and medium-sized enterprises and large companies.
In addition, digital transformation (DX), including the use of AI, IoT, RPA, and robotics, is expected to progress rapidly.

 

(Taken from the reference materials of Digital Information Technologies Corporation)

 

(2) Embedded Solution Unit
The Japanese IoT market, especially services, is expected to grow considerably.
The industry of in-vehicle devices is forecasted to see the rapid growth of “connected cars,” which would create a variety of value, by having the functions as ICT terminals, obtaining various data, including vehicle states and surrounding road conditions, with sensors, and collecting and analyzing them via networks.

(Taken from the reference materials of Digital Information Technologies Corporation)

 

(3) Original Product Unit
① WebARGUS
In the Japanese market of network security, both products and services are estimated to grow, and there are growing needs for the detection and elimination of threats before intrusion, as well as response after intrusion.

 

(Taken from the reference materials of Digital Information Technologies Corporation)

 

② xoBlos
RPA (Robotic Process Automation), which is a system for supporting the significant streamlining of business operations, is attracting attention.
RPA means the automation of processes using robots. By using technologies, such as artificial intelligence (AI) and machine learning, in which AI learns things through repetition, white-collar tasks, especially back-office ones, are handled. Just by registering procedures of human tasks on an operation screen, it is possible for them to handle the tasks using various apps, including software, browsers, and cloud.

 

It is expected to spread rapidly, as one mean for reforming the ways of working, which is an issue to be overcome by Japanese enterprises.

 

(Taken from the reference materials of Digital Information Technologies Corporation)

 

1-4 Business Description

1. Segments
There are two segments: software development business and system sales business. The software development business consists of 3 business units: business solution unit, embedded solution unit and original product unit.

 

(Taken from the reference materials of Digital Information Technologies Corporation)

 

(1) Software Development Business
①Business Solution Unit
(Business system development unit)
The sales for this business unit is mostly from custom development for end-users and information systems companies which are clients’ subsidiaries in a wide variety of industries including finance, medicine/pharmacy, communications, distribution and transportation as well as for leading SI vendors.
Specifically, development for websites and key systems, front and back office operations, new system development and maintenance development with technologies developed in each area. The company has developed trustworthy relationships with leading companies in each area which enables them to secure stable orders.

 

(Operation support unit)
Main clients include communications carriers, total human service corporations and information system companies which are airlines subsidiaries.
This “business unit to support clients’ daily operations through IT” has stable revenue as it is an ongoing business in line with the business website domains of leading companies.

 

Specific business includes:
*Support desk operation for end-users who use various business systems.
*Build and maintain infrastructure (servers and networks).
*Efficient system operations in line with the latest technology trends.

 

②Embedded Solution Unit
(Embedded product development unit)
This business unit is trusted by leading manufacturers to directly develop custom software for in-vehicle devices, mobile devices, information home appliances and communication devices. For in-vehicle devices, mobile devices and information home appliances, the unit develops custom software for overall systems including firmware, device business unit controls and applications.
It focuses on Auto-Drive related field with new technology, as well as infotainment for in-vehicle devices as the demand for this market is expected to grow. In addition, it undertakes software development for wireless base stations and communication module devices for communication devices.

 

(Embedded product verification unit)
This business unit verifies and makes suggestions to improve qualities and functions of products through its verification service.
It provides verification services domestically and internationally (North America, Asia, Europe, etc.) including laboratory tests using specialized devices to verify product operation and function, field tests to verify products in the actual environments, as well as overall system tests conducted as the final quality verification from the perspectives of the third party.

 

Some of the overseas field tests are designated to its subsidiary, DIT America, LLC, which provides fast service with verification of product usability from the perspective of local staff.
The range of products for verification includes in-vehicle devices, medical devices, communication devices and mobiles.

 

③Original Product Unit
The company develops and sells its original products as a growing business, using its unique technology.
Currently, the company strongly focuses on the sales of two products, “WebARGUS,” a website security solution, which detects tampered website simultaneously as it occurs and instantly restores the original normal condition, and “xoBlos,” an Excel work innovation platform, which features data decomposition and restoration as well as meeting various forms of data business processing needs.

 

There are other products such as “APMG (Anti Phishing Mail Gateway),” a solution to prevent damages from phishing and illegal use of brands by automatically adding electronic signatures on e-mails, and “Rakuraku page,” a CMS (content management system), which enables editing and updating websites easily.

 

(2) System Sales Business
The company and its subsidiary, DIT Marketing Service Co., Ltd., sell “Rakuichi,” a business support mission-critical system, for small and medium enterprises, manufactured by Casio Computer Co., Ltd.
The sales area is started at Kanagawa first and expanded to Tokyo, Chiba, Gunma and Ehime successively. The Company provides substantial support for their users to increase the client retention rate. In addition, they set up a call center to attract and build a new client base. The number of sales for “Rakuichi” has been recorded to be the highest across all agencies for 16 consecutive years.

 

2. Main Strategic Products
(1) "WebARGUS," a new website security solution
WebARGUS is a new security solution which detects tampered websites instantaneously and immediately restores it to its original state. By detecting and restoring immediately when incident occurs, WebARGUS protects corporate websites from damage caused by malicious and unknown cyber-attacks and simultaneously prevents the escalation of the damage from viruses spreading via the tampered website.

 

(Taken from the reference materials of Digital Information Technologies Corporation)

 

Increasing tampering of websites
According to the incident report published by “JPCERT Coordination Center”, about 100 cases are reported every month, and websites including the ones of government agencies are constantly exposed to threats, whether the case is major or minor.

 

“JPCERT Coordination Center” (*): This center receives reports concerning computer security incidents including hacking via internet and service disturbance in Japan. It also supports measures, grasps how the problems are generated, analyzes the methods, investigates and advises on measures to prevent recurrences from a technical point of view.

 

The background of the development of "WebARGUS"
Under these circumstances, the company, which had already released a solution called “APMG” to prevent damage from phishing and illegal use of brand by automatically adding electronic signature in e-mails, started developing “WebARGUS,” based on a core security technology in the spring of 2013, after 2 years of research. Then in July 2014, it released “WebARGUS.”

 

The major characteristic and strength of the company is that it has a variety of rich IT related technologies and has a highly standardized core security technology. This is because its engineers have a mindset to embrace challenges and are not afraid to take risks. Thus, they are not satisfied with just developing custom products. This is strongly influenced by the company’s organization strategy represented by its corporate culture and in-house company system which will be explained later in this report

 

The features and overview of the product

Instant detection and restoration for minimizing tampered website to nearly zero

Provide protection from tampering by a fake identity posing as a registered member, internal attack and new methods which can be difficult to protect from.

It detects with high accuracy and uses “electronic signature” technology which protects from even 1 bit of tampering.

Protects from high level attacks aimed at applications and settings files.

The CPU load (usage rate) on a web server is less than 1% while it is monitoring on a regular mode.

Equipped with preservation of evidence function which stores the tampered files as evidence.

 

When a website has been tampered with, it can take an average of one month to restore. This is because the restoration process includes disabling the website, identifying the damaged files, strengthening protection, website restoration and re-enabling the website. For an e-commerce related website, the damage can be serious, including a drop-in sales, time and effort to announce the re-enabling of the website and the difficulties in re-attracting clients who left the website.

 

On the other hand, if “WebARGUS” is installed, because it instantly detects and restores websites when tampered with, the condition of a website can be maintained in the normal state. Thus, the website does not need to be disabled in a rush when the application detects a threat. Companies can concentrate on pursuing the cause and strengthening protection while its website is kept open to public.

 

Most of the detection software detects tampered website with a periodic monitoring on pre-configured, specified timing or intervals. With this method, there will be a time lag between when the website is tampered with and when it was detected, so it is inevitable for the website to be tampered. In addition, if the interval is shortened to reduce the time lag, there are other challenges such as increasing CPU load.

 

On the other hand, when some kind of event occurs (such as data deletion or addition excluding browsing), “WebARGUS” conducts real time scanning to detect the event.
The major feature of this product is that it is also equipped with an instant restoring function which enables restoration to the original state in less than 0.1 seconds after the detection (average time under the demo environment: 0.03 seconds per file). This instant restoration is its unique technology.

 

The annual license fee of “WebARGUS” is JPY480,000 (excl. tax) per OS with support.
This also includes free update modules for minor version updates.

 

Introduction and sales
When WebARGUS was released, the sales growth was rather slow because general understanding of website security was mainly about protection against hacking into a computer system and awareness about “tampering” was limited. However, the acknowledgment that “software for detection is needed as well as for protection” is growing rapidly due to the more frequent mentioning of the independent administrative agency, “IPA (Information Processing Association),” taking measures to prevent defacement. This agency is established to support the IT national strategy from a technical and personnel aspect perspective and is supervised by the Ministry of Economy, Trade and Industry.

 

In addition, “Revised Points for the Cyber-Security Management Guidelines” were announced on November 16, 2017, to which the Ministry of Economy, Trade and Industry added a new key aspect: construction of a system to handle cyber-security risks, including functions such as threat detection and restoration. Because of this, inquiries to the company increased further.
Under these circumstances, the company has carried out promotion and marketing including organizing seminars for target users who recognize the necessity for a higher level of security, and participation in exhibitions.
It focuses on agency sales to strengthening marketability and currently makes agency contracts with 37 companies in total.
They have been actively involved in development collaborations with data centers and cloud service corporations.
Furthermore, the company is expected to expand its business overseas as well as product sales in Japan. The company is preparing to provide support for the tampering of websites across the globe.

 

Strengthening the feature of merchandise
Initially, WebARGUS was only available for Linux, but a Windows version was released in April 2016, and the enterprise edition, which was targeted at large-scale companies in September 2017. In February 2018, the company began offering a next-generation cloud WAF (WebARGUS Fortify), which dramatically strengthens the functionality of comprehensive web security. In particular, because of the release of the enterprise edition, which was targeted at large-scale companies, an increasing number of large companies (mainly listed companies) adopt WebARGUS.
The company also began offering “SaaS” in May 2018 to enhance user convenience and further popularize the products, and collaborated in full scale with F-Secure Corporation, a Finnish cyber security company, in June 2018. The company established a total security provision system using the complementary relationship between F-Secure’s “F-Secure RADAR,” a vulnerability scanning tool for IT system, and DIT’s “WebARGUS.”
It began collaboration with Secure Age, a cyber security company based in Singapore, on information leakage measures (encryption technology) in December 2019 and with SSH Communication Security, a cyber security company based in Finland, on access route optimization in January 2020. The company will continue to establish such alliances.

 

The company enhanced the varieties of the security solution products through various measures including the above alliance, and it is also considering expanding the range of applications of products in anticipation of needs for security measures for the IoT generation, including WebARGUS for embedded products.
For example, the spread and penetration of automatic driving have made the securement of safety an important mission for the companies providing automatic driving systems, and it is expected that the field where they work actively will grow further.
As for the embedded edition, the company started up an official project and is continuously carrying out discussions and technical investigation of concrete business plans for its commercialization. Although commercialization will take time, the company aims to realize it earlier through the accumulation of its steady business accomplishments.

 

(2) “xoBlos,” an Excel work innovation platform
Even in advanced corporations with a high level of IT, there are numerous Excel-based tasks including manual operations in the office. Most non-routine tasks consist of repetitive manual operations such as processing Excel reports by manually inputting data from paper reports, aggregating totals from multiple Excel sheets and visualizing and analyzing CSV data extracted from packaged system.
The company's original-brand, "xoBlos," entirely automates these inefficient Excel-based tasks and provides drastic improvements to workflow.

 

(Taken from the reference materials of Digital Information Technologies Corporation)

 

Background of development
Many corporations use Excel, the major spreadsheet software, for generating quotations and invoices. However, in cases where they generate these documents in different formats for each client according to the clients’ requirements, manual input is mandatory because it is difficult to tally, sort and analyze in a systematic way.
For this, the company developed “xoBlos,” an Excel work innovation platform, to automate tasks and significantly improve workflow efficiency.

 

Product feature, overview and an example of introduction

Enables management of different data formats for tallying and processing

Enables increased efficiency with current Excel spreadsheets.

Process up to dozens of times faster than using macros.

Can be embedded into other packaged products as an engine to output Excel spreadsheets.

 

xoBlos was released about eight years ago with the aim of drastically improving the efficiency of work using Excel. It is now receiving considerably more attention due to its efficiency “to create a company-wide platform which covers everything from improving work efficiency to providing information useful in managerial decisions, while diverting workflow from areas currently using Excel,” in addition to the convenience and relatively cheap introduction cost, because work-style reform trends centered on revising long work hours grow stronger. Indeed, the times have caught up with xoBlos and the company.

 

For further enhancement of product competitiveness, the company strengthened the automatic processing of Excel work by providing a function linked with RPA* products and other systems in February 2018. This function can be operated on a PC client as well as a Web Server, leading to improvements in convenience for wider users.

 

The domestic RPA market is projected to double to 80 billion yen in the next few years, and RPA-related services, which occupy 80% of the market, are expected to have a higher growth rate than RPA tool products, which occupy only 20%. Based on this, xoBlos, which can be considered as an RPA-related service, is anticipated to have high growth potential.

 

Introduction of xoBlos brought significant operational efficiency in many companies, including the cases given below.
(Every excerpt/summary by Investment Bridge with reference to the materials of the company)

 

* A sample use case: Accordia Golf Co., Ltd. “Reduced the number of work hours by about 20,000 hours annually”
The Accordia Golf Group runs golf courses and golf ranges in 161 locations in Japan, engaging in golf course and golf range management businesses, etc.

 

(Situation before the installation of xoBlos)
At the end of every month, a massive number of reports on business results, including sales, were collected in the form of Excel files in various formats from 161 bases in the country, but data totalization work was an extremely difficult task since some bases had restaurants, shops, hotels, resort facilities, etc., attached to the golf courses.
Also, as these figures were managed and analyzed in detail for each base, business unit, department, and employee, the back-office department had concerns about sustainability due to increased size of Excel files and maintenance at a macro level.

 

(Reasons for choosing xoBlos)
Most importantly, it is a high-speed engine. A system becomes useless despite its ability to process Excel files, if it is slow. Therefore, the fact that xoBlos can process a large number of Excel files at high speed was an important factor for selection for the company. In addition, the company valued the fact that it did not require database and could be used without programming as control sheets were also in Excel, and its cost was reasonable.

 

(After the installation of xoBlos)
Since the format differed for each base, a large number of work hours used to be required, but the adoption of xoBlos led to reduction in the number of work hours by about 20,000 hours (estimated) annually, and the information required by the management team for management could now be delivered swiftly and accurately.
With RPA in mind, the company is considering the utilization of xoBlos for further improvement of workflow and operational efficiency.

 

Toward further value improvement of the platform “xoBlos Plus-One Concept”
“xoBlos” is already highly rated as a work innovation platform that supports in bringing significant operational efficiency by fully automatizing the inefficient work based on Excel, but the company started taking initiatives to make it a platform that offers more high-added value to clients to respond to the changing times and customer needs.
“xoBlos Plus-One Concept” is the result of the above initiatives.

 

The main concept of “xoBlos Plus-One Concept” is “improvement of data value.”
Companies carry out various activities, and they have different systems for the management of each activity.
For example, a company has a system for ERP, which drafts a plan for the appropriate distribution of resources including personnel, things, capital and information, and their effective utilization, at the top, and other systems for CRM for customer management, inventory management, management of acceptance & placement of orders, attendance data, personnel and accounts.
A large amount of data is extracted from each system, and in recent years, there has been a skyrocketing need for enhancement of operational efficiency and visualization of a company’s own state by integrating and combining the data, instead of handling them individually.
However, realization of the above is not easy for a company as it requires a large number of work hours and involves huge costs.

 

In such a situation, clients who installed xoBlos, which processes data efficiently at high speed, achieved efficiency in reporting and are able to utilize the data of by integrating and combining the data easily at a reasonable cost.
Also, it is one of the major features of “xoBlos Plus-One Concept” that it allows the use of data in a desired format of each division and department, from the upstream management team to downstream departments of production, sales, general affairs and administration.
Although it is still a “concept” at present, the company has just begun to carry out activities for its realization, and it plans to link various systems on xoBlos through tie-ups with manufacturers, and propose a concrete image of “xoBlos Plus-One Concept” to its client companies.

 

* A sample use case: Shibukawa City Hall in Gunma Prefecture “Scheduled to install xoBlos aiming to improve the efficiency of administrative work”
(Background of installation of xoBlos)
With the progress of the information society, Shibukawa City Hall started actively using IT in 2007 to improve administrative services and enhance efficiency. In 2018, the City Hall formulated the “Shibukawa City Information Technology Promotion Basic Policy,” and in the following 2019, established the “Shibukawa City Information Technology Promotion Implementation Plan,” with the goal of improving administrative efficiency.
Specifically, it is aiming to streamline administrative activities using AI, IoT and RPA.

 

(Reasons for choosing xoBlos)
Initially, the City Hall was considering installing RPA. However, after the vender interviewed the HR Department, it found that Microsoft Excel® is used in many work processes. Based on the result, the City Hall was advised that, for streamlining the work, tools such as xoBlos that is specialized for Excel® would be better for the staff, as they can be handled more easily and results can be obtained more easily, too, compared with other tools such as RPA that can handle general computer works.

 

Based on the advice, the City Hall compared the Excel® macro function, RPA, and xoBlos.
Macro function of Excel® has a disadvantage that maintenance cannot be performed if a staff member who has detailed knowledge on the function is transferred, and the City Hall actually experienced such an issue before.
Furthermore, although RPA can run applications and software other than Excel®, it requires a lot of man-hours and specialized skills to create automated programs and ensure stable operation.
Meanwhile, xoBlos is easy to use, even for people who are not familiar with IT and will also help the City Hall improve efficiency, as there are many work processes that require Excel® at the City Hall.

 

(How to use xoBlos)
The City Hall’s HR Department annually conducts a questionnaire called a staff survey, in which all 700 employees are asked about their request for transfer and their workplace. They used xoBlos for the calculation of this survey.
Before the installation of xoBlos, the employees filled in the designated survey form on a computer or by hand, and submitted it in a sealed envelope to the HR Department. The HR Department checked them one by one, transcribed the data of over 700 people onto a file using Excel®, and filed them as reference material for personnel transfer.
Because there were so many descriptive questions such as “Request of transfer (name of department)” and “Request for a workplace,” the data were huge. Furthermore, because sensitive information was contained in the answers, only 1 person at the HR Department was in charge of the transcription work. Due to confidentiality, the person needed to work at night or in the conference room.
According to the calculation by the City Hall, it took the person 78 man-hours to aggregate the data.

 

Upon using xoBlos, the City Hall, in collaboration with the vender, first revised the questionnaire survey format to make it compatible with xoBlos.
Next, they imported employees’ personal data such as email addresses and dates of birth to xoBlos, and set personal information of each employee in a questionnaire form in advance via xoBlos. The questionnaire was then sent by xoBlos to each employee by a batch email.

 

When the response was sent back by email, the files were saved in a specified folder and aggregated by xoBlos. The contents of the questionnaire were then automatically displayed in a list, which made it possible to check who has submitted and who has not at a glance. Finally, as for printing and filing the questionnaire, using an extension application developed by the vendor, the City Hall was also able to print the data all at once from xoBlos and prepare for filing the report with one click.
As a result, the required time for finishing the task was reduced from 78 hours to 7 hours after the installation of xoBlos. The impact of efficiency improvement was extremely large.

 

 

(Comments on the use of xoBlos)
The use of xoBlos this time was experimental, and because most of the installation processes, such as formulating a new process, creating a new format, and configuring xoBlos, were conducted by the vendor, it was extremely easy for the City Hall to handle the set xoBlos.
Furthermore, because xoBlos is already installed and used on the existing client computers, there was no need for new capital investment associated with the installation.
The City Hall felt that it was very rare that a new IT initiative could be implemented so smoothly like this.

 

(Future policy and development)
Because the City Hall was able to confirm the effect of xoBlos in the demonstration experiment at the HR Department, they are willing to expand the use of xoBlos in other departments and other tasks in the future. Because there are so much work using Excel® in the City Hall, they believe that a significant efficiency improvement effect can be expected using xoBlos.

 

The City Hall also needs to visualize the current work process to streamline the work by xoBlos. In the process, they need to review work and identify which works are not necessary. In this regard, according to the City Hall, installation of xoBlos is a good opportunity not only for improving work efficiency, but also for raising awareness on work.

 

Introduction and sales
The company has been expanding sales including hosting seminars jointly with one of its major agencies, Daiko Denshi Tsushin, Ltd (8023, the second section of TSE), by taking full advantage of its wide variety of clients, branches and marketability. The company has established a network of about 30 primary agencies including Daiko Denshi Tsushin, Ltd.
Initially, the company was mainly making introductions to medium-sized companies, but as the need for efficiency in on-site work has increased, there have also been more introductions to large companies. Currently, about 70% of newly introduced companies are large companies. The company holds a seminar for sales promotion three times per week, and on most occasions every seat is filled. At present, the company made introductions to over 450 companies, and it plans to increase the number by 100-120 annually.
In August 2020, it began using a subscription mode to expand sales stably and improve profitability.

 

1-4 Characteristics and strengths

(1) Multifaceted and diverse IT company
The company has expanded its business areas by flexibly responding to the progress of information technology, from business system development business to computer sales (current: system sales), embedded product development and verification business, and operational support business as well as working on its original products based on its technical strengths which have been developed during the process of business expansion.
One of the major characteristics of the company is that it is a multifaceted and diverse IT company and has a wide range of business activities and provides own-brand product with originality.

 

In order to improve the strengths and characteristics of the company, it is essential to acquire new technology and improve the on-site capabilities.
The company has been providing training and education to the employees; however, it is establishing a stronger education system, as it is important to have the latest knowledge ahead of customers in times of rapid changes.

 

From the perspective of diversity, the company is also working to create an environment in which female employees can easily demonstrate their abilities.
It is making efforts to provide not only on the job training, but also training on managerial skills to promote female employees from mid-level positions to managerial positions including executive positions.

 

(2) A wide range of customer base
There are about 2,700 client companies. Main clients for the software development business are listed companies and their affiliates, while main clients for the system sales business are small and medium-sized enterprises. Since the business categories of clients are diverse as shown below and stable long-term business is mainly operated, its business base is stable.
The ratio of sales of end users, including information system subsidiaries, is about 80%.

 

(Taken from the financial briefing materials (FY6/20) of Digital Information Technologies Corporation)

 

(3) Organizational strategies of partial and total optimization
Another significant characteristic of the company is that it has an organizational strategy with two opposite factors, partial and total optimization in a well-balanced manner.
For partial optimization, the company has specialized companies under an in-house company system which aim to be the best in each field. It also provides training and produces entrepreneurs with innovative spirits.
For total optimization, the company pursues synergy between companies while respecting independence of each in-house company; through scrap and build done by the headquarters, collaboration between each in-house company and development of new business areas.

 

(Overview of each in-house company)

Main business unit

Company name

Overview

Business

system development unit

Business Solution

Company

This company develops a proposal style SI business to provide solutions for clients.

Especially in the fields of finance, communications and distribution, this company undertakes design and development of a wide range of software such as general-purpose systems, website systems, mission-critical systems and information systems for leading companies in each industry. It also provides a new business area, ASP business for "Insurance Pharmacy Integrated Management System (Phant's)."

e-business Services

Company

This company provides website system architecture and maintenance for e-commerce websites and service websites for clients mainly for finance and major retail industries for many years. It provides a one stop service to suit clients’ requirements with technologies which it has developed through experience.

Operation

support unit

Support Business

Company

This company’s engineers have a wide range of knowledge enabling it to provide one stop optimal IT environment (service) to suit clients' requirements including support for introducing systems, infrastructure-building, network operation management and middleware development.

Embedded product

development unit

Embedded Product Solution

Company

This company specializes in control system development focused on embedded systems for in-vehicle devices, communication devices, industrial equipment and digital home appliances. It has many engineers with highly specialized skills for embedded system development. Because of the physical conditions of hardware, embedded systems development can be very restrictive, and requires a meticulous level of problem-solving that differs from general application development.

Embedded product

verification unit

Quality Engineering

Company

This company has a wide range of software validation and verification businesses from in-vehicle devices such as car navigation systems to medical devices, communication infrastructure and mobile terminals. It gives priority to improving the quality of products and provides total service from planning, designing, implementing, operating and analyzing tests to consulting.

It has collaborated with DIT America, LLC, a local subsidiary in the U.S.A. since 2011. It also provides verification services overseas.

(Combination)

Western Japan Company

Activities are based west of Nagoya, with a focus on Osaka. DIT takes part in three businesses: business system development and operational support, mobile and web application development, and embedded systems development (in-vehicle devices and security-related matters).

Recently, the company is aiming to expand into the IoT and Web service businesses, taking advantage of multi-skilling.

Ehime Company

This company is located in Ehime and provides a high added-value one stop service for product development to meet the regionally specific requirements for a variety of industries and businesses as well as sales of software and system devices, operation and system support, and contributes to local revitalization. It also employs engineers locally at a multi-purpose IT development center to tackle the engineer shortage in the other companies, which enables nearshore development.

 

(4) Development and sales of original own-brand products
As mentioned above, the company has developed a variety of original own-brand products like “xoBlos” and “WebARGUS” with its unique technologies. They are growing to be the primary source of revenue in the future.

 

2. Fiscal Year ended June 2020 Earnings Results

2-1 Consolidated business results

 

FY 6/19

Ratio to sales

FY 6/20

Ratio to sales

YoY

Ratio to the original forecast

Ratio to the revised forecast

Sales

12,355

100.0%

13,495

100.0%

+9.2%

+3.6%

+0.7%

Gross profit

2,949

23.9%

3,323

24.6%

+12.7%

-

-

SG&A

1,854

15.0%

1,971

14.6%

+6.3%

-

-

Operating Income

1,095

8.9%

1,352

10.0%

+23.5%

+14.6%

+4.0%

Ordinary Income

1,106

9.0%

1,357

10.1%

+22.7%

+15.3%

+4.6%

Net Income

737

6.0%

978

7.3%

+32.6%

+23.8%

-0.2%

*Unit: million yen

 

Sales and profit grew, hitting a record high.
Sales increased 9.2% YoY to 13,495 million yen. Sales increased in all businesses. The embedded solution unit, original product unit grew by double digits. Gross profit margin increased 0.7 points YoY thanks to new projects with high profit margins and growth of original product unit.
Operating income increased 23.5% YoY to 1,352 million yen. The increases in R&D and personnel expenses, especially for sales personnel, were absorbed, resulting in a double-digit profit increase.
Operating income margin increased 1.1% YoY to 10.0%. Both sales and profit have reached record highs.

 

2-2 Trends by segment

 

FY 6/19

Ratio to sales

FY 6/20

Ratio to sales

YoY

Software Development Business

11,677

94.5%

12,756

94.5%

+9.2%

System Sales Business

678

5.5%

739

5.5%

+8.9%

Total sales

12,355

100.0%

13,495

100.0%

+9.2%

Software Development Business

1,041

8.9%

1,271

10.0%

+22.0%

System Sales Business

53

7.8%

84

11.4%

+58.2%

Adjustment

0

-

-2

-

-

Total operating income

1,095

8.9%

1,352

10.0%

+23.5%

*Unit: million yen. Sales mean sales to external clients. The composition ratio of operating income means the ratio of operating income to sales.

 

(Sales trends by business unit)

 

FY 6/19

Ratio to sales

FY 6/20

Ratio to sales

YoY

Ratio to the original forecast

Business Solution Unit

7,311

59.2%

7,838

58.1%

+7.2%

+3.1%

 Business system

4,629

37.5%

4,550

33.7%

-1.7%

-

 Operation support

2,682

21.7%

3,287

24.4%

+22.6%

-

Embedded Solution Unit

3,865

31.3%

4,308

31.9%

+11.5%

+3.6%

 Embedded product development

2,971

24.0%

3,344

24.8%

+12.6%

-

 Embedded product verification

894

7.2%

963

7.1%

+7.7%

-

Original Product Unit

500

4.0%

609

4.5%

+22.1%

+0.7%

System Sales Unit

678

5.5%

739

5.5%

+8.9%

+11.1%

Total sales

12,355

100.0%

13,495

100.0%

9.2%

+3.6%

*Unit: million yen

 

◎Software Development Business
Both sales and profit increased.

 

*Business solution unit
(Overview)
In business system development, the development of financial and distribution systems was sluggish. Even though system development for the public sector and the manufacturing industry covered it, sales declined.
Profit increased as the company met development needs with high-profit margin.
The operation support unit grew significantly as a result of having a large number of new customers.

 

*Embedded solution unit
(Overview)
In embedded product development, sales and profits improved significantly due to the growth of in-vehicle-related fields centered on connected cars and the expansion of IoT-related mobile application development for home appliances and other devices.
Embedded product verification has shifted to in-vehicle products, and both sales and profits have exceeded the previous year's levels.

 

*Original Product Unit
(Overview)
COVID-19 almost halted business negotiations in March and May, but sales increased for the year.

 

(Major results)
“WebARGUS”
Business talks almost halted from March to May due to the impact of the novel coronavirus, but sales increased for the full year.
The company has started operations for its largest users (financial field) since its release, and as a result of collaborating with an external security specialist company to enhance the lineup of total security services, sales have expanded steadily.

 

“xoBlos”
The sales of “xoBlos” was strong as a result of building an integrated sales system with its subsidiary DIT Marketing Services as well as promotion of the xoBlos Plus One concept, which links xoBlos with other products such as RPA and ERP.

 

◎System Sales Business
Both sales and profit increased.
(overview)
In addition to the replacement and repair demand for "Rakuichi" due to the consumption tax hike, the end of support for Windows 7 caused the steady growth of sales and profits.

 

2-3 Financial condition and cash flow

◎Main BS

 

End of June 2019

End of June 2020

 

End of June 2019

End of June 2020

Current assets

3,933

4,590

Current liabilities

1,601

1,634

 Cash and deposits

1,840

2,399

 Accounts payable

393

417

 Trade receivables

1,892

1,905

Fixed liabilities

105

68

Noncurrent assets

721

774

Total labilities

1,707

1,703

 Tangible fixed assets

132

120

Net assets

2,947

3,660

 Investments and other assets

578

630

 Capital stock

2,938

3,640

Total assets

4,655

5,364

Total liabilities, net assets

4,655

5,364

*Unit: Million yen

 

Current assets increased 656 million yen from the end of the previous fiscal year, due to an increase in cash and deposits. Noncurrent assets grew 52 million yen from the end of the previous fiscal year, and total assets rose 708 million yen from the end of the previous fiscal year to 5,364 million yen. Total liabilities decreased 3 million yen from the end of the previous fiscal year to 1,703 million yen.
Net assets grew 712 million yen from the end of the previous fiscal year to 3,660 million yen, due to the growth of retained earnings.
As a result, equity ratio improved 4.9 points from the end of the previous fiscal year to 68.2%.

 

◎Cash Flow 

 

FY 6/19

FY 6/20

YoY

Operating Cash Flow

693

927

+233

Investing Cash Flow

-70

-80

-10

Free Cash Flow

623

846

+223

Financing Cash Flow

-415

-287

+127

Cash, Equivalents

1,834

2,393

+558

*Unit: Million yen

 

The surplus of operating CF and free CF increased due to an increase in profits, etc.
The cash position improved.

 

3. Fiscal Year ending June 2021 Earnings Forecasts

3-1 Full-year earnings forecast

 

FY 6/20

Ratio to sales

FY 6/21 Est

Ratio to sales

YoY

Sales

13,495

100.0%

13,580

100.0%

+0.6%

Operating Income

1,352

10.0%

1,358

10.0%

+0.4%

Ordinary Income

1,357

10.1%

1,358

10.0%

+0.0%

Net Income

978

7.2%

942

6.9%

-3.7%

*Unit: Million yen. The estimated values are from the company.

 

The company aims to achieve almost the same results as the previous year
For the fiscal year ending June 2021, sales are expected to increase 0.6% year on year to 13,580 million yen, and operating income is estimated to rise by 0.4% to 1,358 million yen. The company aims to achieve almost the same results as the previous year at lowest, considering the investment stance of client companies affected by the novel coronavirus. Except for the system sales business, sales are projected to increase, and the original product unit will witness a double-digit growth. The dividend is to be 20 yen/share, unchanged from the previous year. The estimated payout ratio is 32.6%.

 

In the previous fiscal year, there was a considerable impact on business performance due to the novel coronavirus crisis, such as stagnation of sales activities, postponement of acceptance in some projects, improvement of the remote work environment, and provision of allowances. IT investment for DX promotion is expected to remain robust in the future, but there are signs of a cautious stance towards IT investment in some industrial fields.

 

3-2 Trend of each business unit.

 

FY 6/19

Ratio to sales

FY 6/20

Ratio to sales

YoY

Software Development Business

12,756

94.5%

12,923

95.2%

+1.3%

Business Solution Unit

7,838

58.1%

7,905

58.2%

+0.9%

Embedded Solution Unit

4,308

31.9%

4,340

32.0%

+0.7%

Original Product Unit

609

4.5%

676

5.0%

+11.0%

System Sales Unit

739

5.5%

657

4.8%

-11.1%

Total

13,495

100.0%

13,580

100.0%

+0.6%

*Unit: Million yen

 

◎Business Solution Unit
(Overview)
It is predicted that the impact of the novel coronavirus will be considerable in business system development, especially for new projects.
Currently, the financial sector accounts for about 50% of the company's clients, but the number of clients and business areas are expanding. Thus, the company will further revise its business portfolio and aim to improve profits. Operation support is mainly to support customers' business operations with IT know-how. It is an area that is less susceptible to the effects of the novel coronavirus than business system development. Hence, the company will continue to aim for its expansion.

 

(Priority measures)

Priority Measures

1. Expand the business in the public sector (disaster prevention systems, etc.) and ERP (SAP, etc.) in addition to the financial sector, which is the company's strength.

2. Acquire technical projects to promote DX, such as cloud services and AI.

3. Increase direct contracts with end users. Promote service proposal-type business.

4. Aim to improve the ratio of contract projects and thoroughly manage projects.

5. Expand business by utilizing local bases as "advanced near-shore development center."

 

◎Embedded Solution Unit
(Overview)
Although the impact of the novel coronavirus crisis is expected in the in-vehicle device related industry, which was performing well, the company will strive to maintain and develop it because it is responsible for the core area with high social needs. At the same time, the company will expand the ratio of the industrial equipment field and aim for growth.
On the other hand, IoT-related projects such as home appliances are growing, and development projects are expected to increase.

 

(Priority measures)

Priority Measures

1. Along with maintaining and developing the automobile-related fields (autonomous driving, in-vehicle communication devices, and safety standards), the company will work to expand the industrial equipment field.

2. Expand IoT beyond the boundaries of industries such as automobiles (development of communication modules) and home appliances (development of IoT service platforms for kitchen appliances and service expansion).

3. Aim to receive more MaaS-related orders through partnerships with companies that develop car-related services.

4. Expand the scale and areas of verification projects.

 

◎Original Product Unit
Both products can be used more effective in the new normal society in the wake of the novel coronavirus crisis. Hence, the company aims for steady growth.

 

*WebARGUS
(Major points)
The company expects to grow in response to the ever-increasing demand for cyber security.
Business talks stagnated from April to June due to the impact of the novel coronavirus. Still, it has been favorable since July due to the needs of companies that want to take security measures before the arrival of the second and third waves of the novel coronavirus.
In addition to expanding its installation among large-scale users acquired in the previous fiscal year, the company will strengthen its approach to other companies in the same industry.
The company is preparing to provide new services for the IoT version of WebARGUS in the automobile field, which requires a high degree of safety, and aims to establish a new profit model.

 

(Priority measures)

Priority Measures

1. Based on the installation results, the company will actively approach large-scale users, mainly financial institutions.

2. Expand the provision of the SaaS model WebARGUS primarily for cloud providers.

3. Providing comprehensive security services under the "DIT Security" brand.

- Revitalization of activities through joint seminars with affiliated companies

- Strengthening of the lineup of cyber security products

4. Strengthen customer engagement with online ads, webinars, and DMs.

5. Focus on introducing the IoT version of WebARGUS based on the system resilience (restoration) concept.

 

*「xoBlos」
(Major points)
The company anticipates growth as it rides the trend of work style reform.
Major electric companies have decided to adopt it globally. Also, pharmaceutical companies have decided to install it in combination with RPA products. Like this, it is becoming more popular with large-scale users.
The company partially refurbished it for cloud services and started OEM provision as a collaborative function of cloud ERP "ZAC" provided by oRo Co., Ltd. It can minimize the time and effort of processing the data output from "ZAC" into a layout familiar to the management and of creating reports that combine multiple data.

 

(Priority measures)

Priority Measures

1. The cumulative number of companies that have installed it has exceeded 450. Strengthen sales further to large-scale users.

2. Promote sales in collaboration with DIT Marketing Service, a system sales subsidiary.

3. Expand sales opportunities by actively promoting the Plus-One Concept (cooperation with other systems such as RPA and ERP).

4. It will be sold as a solution that automates not only Excel operations, but also a series of operations (core system linkage, timer activation, mail delivery, etc.).

5. Commercialize the RPA operation portal based on xoBlos and provide services.

 

* New products and DX
(Major points)
The following measures will be implemented to expand new business areas.
"CMS: Contents Management System" is a general term for a system that performs necessary processing such as distribution by integrating and systematically managing digital contents such as texts and images that make up web content. The company will create new demand by combining it with "WebARGUS."
An electronic contract system will be provided by OEM from October to capture the needs that have become apparent due to the novel coronavirus crisis.

 

(Priority measures)

Priority Measures

1. Promotion of new product development: Develop competitive new products that combine the company's areas of specialty, which are CMS and security technology.

2. Providing DX-related services: Provide new services corresponding to the new normal society of the novel coronavirus and the SDGs.

 

System Sales Unit
(Major points)
Sales are estimated to decline in anticipation of a reaction to the previous fiscal year's special demands, such as the response to the reduced tax rate.
The transactions with customers are long-term and stable. Thus, the company aims to provide value-added services and increase sales through other products, and also focus on developing new customers.

 

(Priority measures)

Priority measures

1. To support the production of management analysis documents required by clients, by utilizing the standard functions of Rakuichi.

2. To suggest various services required by customers, including printers, networks, and security products more strongly.

3. The company will cultivate new customers by proposing dedicated business packages for companies that are larger in scale than existing customers.

 

3-3 Main measures

Amid substantial uncertainty caused by the novel coronavirus, the company has set three main measures: "efforts to sustain growth," "enhancing the comprehensive corporate strength," and "creating a comfortable workplace."

 

① Efforts to sustain growth
* Expansion of growing areas
<Specific measures>
- Expand sales of original products (xoBlos and WebARGUS)
- Providing new value (new product development and promotion of DX business)
- Expansion of advanced in-vehicle technology areas (Connected and Autonomous)

 

As mentioned above, the DX business will focus on selling electronic contract systems that have already been commercialized and with specific needs.
Also, the company will steadily advance the field of advanced in-vehicle technology areas in which it can demonstrate its strengths, where the current environment is somewhat uncertain, but the demand is expected to grow in the medium term.

 

Enhancing the comprehensive corporate strength
* Improve profit per person
The company will review the work system and work to increase the added value of employees to improve the profit per employee.
* Strengthening on-site capabilities
Improve profitability and customer satisfaction by establishing the Project Management Promotion Department.

 

③ Creating a comfortable workplace
* To be a rewarding workplace where employees are active
<Specific measures>
- Continue the incentive plan "Japan Employee Stock Ownership Plans (Japanese version of ESOP; JESOP)," to provide employees with their own stocks
- Introduction of a talent management system that maximizes the skills and abilities of employees
- Enhancement of employee education and training systems

 

The talent management system is a system that centrally manages the skills, knowledge, and experience of employees and visualizes them so that they can be used to provide the right-person-in-the-right-place allocation and suitable training.
Within the DIT Group, the company will enhance corporate strength by increasing fluidity, including transferring human resources between companies.

 

4. Medium-Term Management Plan

(1) Achieved medium-term management goals

As a medium-term goal, it is aiming to realize “Triple 10”, namely, “sales of 10 billion yen, an operating income of 1 billion yen, and an operating income margin of 10%”. As for sales, it already achieved the goal in the fiscal year ended June 2017. As for sales, it already achieved the goal in the fiscal year ended June 2019. Also, the target operating income margin was achieved ahead of schedule in the fiscal year ended June 2020.

(Taken from the reference materials of Digital Information Technologies Corporation)

(2) New long-term vision

The company is currently formulating a long-term vision that responds to changes inside and outside the company, such as achieving medium-term management goals ahead of schedule, accelerating DX, coping with cliffs in 2025 (shortage of IT engineers), and facing a new normal society due to the novel coronavirus crisis.
The company will clarify its direction and work towards achieving continuous growth.

 

5. Conclusions

The company achieved an "operating income margin of 10%" ahead of schedule, which was the final goal of the Triple 10's, the medium-term management goals. In the fourth quarter (April-June), in addition to the seasonality in which profits decline due to the hiring of new graduates and payment of term-end allowances, the impact of the novel coronavirus was considerable. However, gross profit margin remained at a relatively high level.
Sales and profits forecasts for this term are about the same as the results in the previous term, but they are at the minimum level. We would like to pay attention to whether the company can raise the top line while maintaining the profit margin despite the impact of the novel coronavirus.
Also, we will focus on the state the company is aiming for in its next long-term vision.

 

 

 

<Reference: Regarding Corporate Governance>

Organization type, and the composition of directors and auditors

Organization type

Company with audit and supervisory board

Directors

10 directors, including 3 external ones

Auditors

3 auditors, including 2 external ones

 

Corporate Governance Report
Last Update: June 11, 2020

 

<Basic principle>
The company recognizes that compliance with laws and regulations, maintaining transparency in management, and improving the soundness and sustainability of its corporate value are the most important management issues.
In order to tackle these issues and to fulfill social responsibilities to shareholders and other stakeholders, the company has established the following corporate governance system. The company considers it important to further strengthen this system, verify its functions on a regular basis, and implement necessary measures.

 

<Reasons for Non-compliance with the Principles of the Corporate Governance Code>

Principles

Reasons for not implementing the principles

<Supplementary principle 1-2-4>

Because the number of foreign shareholders such as foreign companies is small as of the most recent record date, the convening notices of general shareholders’ meetings in English version are not provided yet for business efficiency reasons. The company will explore the possibility in accordance with the changes such as the composition of shareholders.

<Supplementary principle 4-10-1>

 

3 out of 10 board directors of our company are independent outside directors. They do not account for the majority, but each independent outside director plays an important role in decision making with expertise and wide experience.

Although the company currently receives advice from the independent outside directors concerning the nomination and remuneration of board directors, we will establish a system where their opinions are reflected more strongly.

 

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>

Principles

Disclosure contents

<Principle 1-4>

<Policy and principle related to reduction in strategically-held shares>

In case the company expects synergy effects with its important stakeholders such as business partners, it will strategically hold the shares of the concerned companies, based on its basic principles to enhance corporate value in the mid/long term and ensure sustainable growth while promoting co-existence and co-prosperity with all the stakeholders.

The company will clarify the objective when acquiring new shares, and verify the trading activity periodically after the acquisition. If the company finds no mid/long term prospect of enhancing its corporate value, it will reduce the number of shares through sale or any other means.

 

<Verification details to determine the appropriateness of holding strategically-held shares>

The appropriateness of possessing strategically-held shares is verified periodically. Recently, regarding all the trade partners, the company verified the mid/long term prospect of enhancing its corporate value and confirmed its intention of continued holding of the concerned shares at a board meeting held on December 12th, 2019.

 

<Standards for exercising voting rights concerning strategically-held shares>

The company will decide whether to give approval for exercising the voting rights of strategically-held shares after a careful individual examination to confirm that there is no possibility of damaging our corporate value.

<Principle 3-1>

(1) Our management philosophy, business strategies, and business plans are disclosed at financial results briefings and on our webpage (at the following URL).

Information for financial results briefings https://www.ditgroup.jp/ir/kessan.html

(2) Our actions concerning corporate governance are published on our webpage (at the following URL).

Corporate Governance

https://www.ditgroup.jp/ir/governance.html

(3) The principles and procedures to determine remuneration of the board directors are based on the Rules and Regulations for Board of Directors. The remuneration takes into account the common level of remuneration, the Company’s business performance and other employees’ salaries. It is determined at a board of directors meeting within the limits of total remuneration determined at a general shareholders’ meeting.

(4)We have established the standard to appoint board directors and auditors. Taking into account the overall performance, knowledge and experiences of each candidate and advice from the outside directors, the representative director and president will propose the final candidate to the board of directors. The directors will deliberate and decide the final candidate, and the name will be submitted as an agenda for a general shareholder’s meeting. As for proposal for dismissal of a director, the decision will be made at a board meeting, based on the company’s rules for officers.

(5) The reasons for nomination and appointment of each director or auditor are described in the notice of general shareholders’ meeting. We will also describe the reasons for dismissal, in case of any.

<Principle 5-1>

The company is making efforts in collaboration with relevant departments, led by the President, to achieve constructive dialogue with shareholders.

As an action to enrich dialogue methods other than individual meetings, the company hosts financial settlement briefings every half-period for the analysts and institutional investors. The IR Department also proactively receives IR interviews through meetings and phone calls from investors.

As a measure to appropriately and effectively provide shareholders’ opinions and concerns to the executives and board directors, the company regularly reports the questions raised at the financial settlement briefings and opinions from shareholders and investors to the management executives.

The company also ensures appropriate management of insider information during dialogues with shareholders and investors in accordance with the internal regulations.

 

 

This report is intended solely for information purposes, and is not intended as a solicitation for investment. The information and opinions contained within this report are made by our company based on data made publicly available, and the information within this report comes from sources that we judge to be reliable. However, we cannot wholly guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and 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.

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