Bridge Report:（4319）TACthe Fiscal Year ended March 2023

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

Company Information

Stock Information

*The share price is the closing price on May 26th. Number of shares issued, DPS, EPS, BPS and ROE are from the financial results for the fiscal year ended March 2023.

Earnings Trends

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

We present this Bridge Report reviewing financial results for the Fiscal Year ended March 2023 and other information about TAC.

Index

1. Company Overview
2. Fiscal Year ended March 2023 Earnings Results
3. Fiscal Year ending March 2024 Earnings Estimates
4. Conclusions
<Reference: Regarding Corporate Governance>

Key Points

• Sales and operating profit declined year on year in the term ended March 2023. Sales on a cash basis declined 4.2% year on year to 19,295 million yen. Sales on an accrual basis decreased 3.7% year on year to 19,711 million yen. Cost of sales dropped 5.4% year on year, but SG&A expenses rose 0.2% year on year, resulting in a 22.8% YoY decline in operating profit on an accrual basis to 319 million yen. Net profit fell 51.7% year on year to 214 million yen.

   

• For the term ending March 2024, the company forecasts an increase in sales and profit. They forecast sales of 19,720 million yen, up 2.2% year on year, on a cash basis, sales of 19,620 million yen, down 0.5% year on year, on an accrual basis, and an operating income of 380 million yen, up 19.1% year on year. They will compensate for the decrease of attendees of the Public Accountant, Public Officer and other courses with recently popular qualifications (such as Certified Public Tax Accountant and IT-related qualifications). As needs for distance learning are high due to the diversification of lifestyles, they will continue the reduction of floor area, relocation, etc. of school buildings to match the actually used space. The company plans to pay a dividend of 6.00 yen/share, unchanged from the previous term. The estimated payout ratio is 51.8%.

   

• The learning environment will transform into a new one in the term ending March 2024 as COVID-19 has been recategorized into Class 5. It comes down to whether the company can take advantage of such changes of the environment to boost their business. We would like to pay attention especially to whether they can differentiate between classroom and distance learning. Above all, we would like to keep an eye on whether they can efficiently utilize online learning, which became standard during the COVID-19 crisis, in distance learning, and expand their revenues through it.

   

1. Company Overview

TAC Co., Ltd. is known as the “TAC, The Certification School” where university students and working people come to study to increase their chances of passing tests for various certifications and qualifications. The Company operates schools throughout Japan that educate students and adults in academic fields necessary to pass certification and Public Officer tests to become Certified Public Accountants, Certified Public Tax Accountants, Real Estate Appraisers, Labor and Social Security Attorney, Bar Examination, Judicial Scriveners, and other professional occupations. In addition, TAC also provides various training programs for corporate clients and conducts publishing business as well.

TAC Group (8 Consolidated Subsidiaries, 1 Equity Method Affiliated Company, 1 Non-Consolidated Subsidiary / not accounted for by Equity Method)

*As of the end of March 2023.

【1-1 Corporate History】
TAC was established in December 1980 as a school providing instruction to people seeking to obtain certifications and qualifications through examinations, including courses for the Certified Public Accountant, Bookkeeping, and Certified Public Tax Accountant. In October 2001, TAC listed its shares on the Over-The-Counter Market, and later moved its shares to the Second Section of the Tokyo Stock Exchange in January 2003 and then to the First Section in March 2004. TAC acquired KSS Co., Ltd. (formerly known as Waseda Management Publishing), which conducts certification and qualification acquisition support services including the provision of preparatory courses for Bar Examination, Judicial Scrivener, Patent Attorney, Level-1 Civil Service (Government officials in the Main Career Track), Special Personnel of the MOFA*, in September 2009. Through the addition of this company, TAC has been able to fortify its strengths in the accounting area by adding certification preparatory courses in the legal area, and to round out its service lineup with courses in the Public Officer area. In December 2013, the Company formed a collaborative agreement that included the sharing of capital with Zoshinkai Publishers Co., Ltd. for work in the development of a correspondence course education service for elementary, junior and senior high school students. Furthermore, other M&A activities were conducted in June 2014 to enter into the medical billing area.

【1-2 Strengths】
(1) Detailed Response to Changes, Revisions in Examination System, Laws
Since the founding of the Company, TAC instructors have made revisions to the text materials used in its courses every year, and this ability to respond to changes and revisions in the examination and legal systems is a distinguishing feature and strength of TAC. For a company like TAC with sales approaching 20.0 billion yen, absorbing the costs of updating text materials on an annual basis is possible. However, new entrants and smaller players in the market have a much more difficult time absorbing the costs of updating teaching materials. Other strengths of TAC include its knowhow and efficiency accumulated over the history of its operations in providing the most updated information to the students of its courses.

(2) Full-Scale Lineup and Active Course Development
TAC has risen to become the top player in the industry through its active efforts to develop courses in new areas, including those targeting university students, and it has become the first company within its industry to list its shares. Along with the acquisition of W Seminar’s certification and qualification acquisition support business in 2009, TAC has been able to fortify its weakness in the areas of legal and Public Officer related courses. Consequently, the Company now boasts of a strong business model comprised of the three main cornerstones of accounting (Certified Public Accountant, Certified Public Tax Accountant and Bookkeeping), legal, and Public Officer related certification and qualification acquisition support courses.

(3) Providing Innovative Services with a Focus upon Students
Innovative services are yet another strength of TAC. TAC was the first school in the certification and qualification acquisition support services market to introduce educational media and enable students to choose which instructor they would like to study under. This corporate focus upon satisfying the needs of students is reflected in the quality of the text materials offered and has contributed to the establishment of a strong brand reputation as “TAC, The Certification School.”

【1-3 ROE Analysis】

2. Fiscal Year ended March 2023 Earnings Results

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

Regarding Seasonal Characteristics
The company’s quarterly trends are as follows. Sales on a cash basis (tuition advance pre-adjustment sales) refers to sales after aggregating tuitions, and sales on an accrual basis (tuition advance post-adjustment sales) refers to sales after allocating tuitions to the period in which the company provides education services.

Examinations for the company’s main certification courses, such as Certified Public Accountants and Certified Public Tax Accountant, are held from spring to fall (Q1 to Q3), and applications for courses for mainly university students, such as public officer courses, are concentrated in the spring and summer (Q1 to Q2). Therefore, applications (sales on a cash basis) in the fourth quarter tend to be less than in other quarters.
On the other hand, operating expenses, such as rent, instructor fees, and advertising expenses, are booked in a fixed amount each month, so there is no quarterly bias.

(1) Consolidated Earnings

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

Decrease in sales and profit
Sales and operating profit declined year on year in the term ended March 2023. Sales on a cash basis declined 4.2% year on year to 19,295 million yen. Sales on an accrual basis decreased 3.7% year on year to 19,711 million yen. Cost of sales dropped 5.4% year on year, but SG&A expenses rose 0.2% year on year, resulting in a 22.8% YoY decline in operating profit on an accrual basis to 319 million yen. Net profit fell 51.7% year on year to 214 million yen.

(2) Business Segment Trends

Sales on a cash basis by Business Segment

*Units: Million yen

Operating profit on a cash basis by Business Segment

*Units: Million yen

【Personal Education】
Decrease in sales and widening deficit

The Certified Public Tax Accountant course, which is the mainstay, performed favorably throughout the year, due to the fact that requirements for taking the examination will be less strict from the next examination on, and exceeded the sales in the previous year. However, overall sales fell short of those in the previous year, as especially applications for the Certified Public Accountant and Public Officer courses, which are attended mainly by students, were sluggish throughout the year and sales of the Bookkeeping course, Labor and Social Security Attorney course, Real Estate Transaction Agent course, etc. dropped from the previous year. In terms of costs, operating expenses such as the lecture fee, outsourcing expenses for producing learning materials and rent amounted to 11,048 million yen (down 5.5% year on year).
Consequently, sales of Personal Education on a cash basis stood at 9,974 million yen (down 7.6% year on year) and there was an operating loss of 1,074 million yen on a cash basis (operating loss was 897 million yen in the previous year).

【Corporate Training】
Increase in sales and decrease in profit

The performance of training for enterprises remained steady owing to the favorable demand for IT-related training. Regarding performance in each field, the performance of the Financial Services and Real Estate field fell slightly short of that in the previous year, but the performance of the IT and International Field was healthy owing to the trend of enterprises focusing on DX. The performance of university seminars was favorable, better than that in the previous year, as face-to-face classes were restarted. In addition, the sales of the affiliated school business, whose main clients are individuals in the countryside, declined 16.3% year on year, the sales from provision of content to vocational schools in the countryside dropped 12.9% year on year and the sales from commissioned training for local governments grew 7.3% year on year. Overall, the performance was better than that in the previous year.
In terms of costs, operating expenses, mainly the training-related lecture fee, labor costs concerning marketing, etc. augmented to 3,457 million yen (up 3.9% year on year).
Consequently, sales of Corporate Training on a cash basis stood at 4,423 million yen (up 1.2% year on year) and operating income on a cash basis was 966 million yen (down 7.4% year on year).

【Publishing】
Decrease in sales and increase in profit

The corporate group's publishing business is conducted under two brands: "TAC Publishing " operated by the company and "W Seminar" ("W Publishing") operated by its subsidiary, Waseda Management Publishing, Co., Ltd. The performance of the Publishing business was sluggish until the second quarter as the demand from people staying at home diminished, but it reached the level of the previous year for most part as orders from bookstores, etc. gradually recovered from the third quarter. Regarding books that are used to prepare for qualification exams, TAC publications for Certified Public Tax Accountant, IT Specialist, Labor and Social Security Attorney, S&M Enterprise Mgt. Consultant and other qualifications performed favorably, while those for Bookkeeping, Real Estate Transaction Agent, FP, etc. did not sell well. In addition, the sales of travel guides were healthy, as the demand for leisure activities has recovered owing to the alleviation of restrictions on free movement, etc. Moreover, in regard to W Publishing, sales of publications for Certified Administrative Procedures Legal Specialist, Judicial Scrivener, etc. were favorable. In terms of costs, overall operating expenses reached 329 million yen (down 5.5% year on year).
Consequently, the sales of Publishing stood at 4,426 million yen (down 1.9% year on year) and operating income was 1,216 million yen (up 9.0% year on year).

【Manpower Business】
Sales and profit rose
Accounting-related Manpower Business managed by the subsidiary TAC Profession Bank increased sales from the previous year owing to healthy advertising and personnel placement sales, as the demand for accounting-related personnel at tax accounting firms, audit corporations, general companies, etc. remained high. Although there was an increase in business operations, etc. due to a medical fee revision, which takes place once in two years in the medical care-related Manpower Business managed by Medical Office Staffing Kansai Co., Ltd., sales did not quite reach those in the previous year as there is now less work related to COVID-19.
Consequently, sales of the Manpower Business stood at 517 million yen (up 1.0% year on year) and operating income was 70 million yen (up 6.5% year on year).

(3) Trend by Certification Category

The company adopted the "Accounting Standards for Revenue Recognition" and other standards in the previous fiscal year, and in the term ended March 2023, the amount equivalent to expected product returns is directly deducted from net sales for transactions in the publishing business in which there is a possibility of return of goods. The amount equivalent to such returns is calculated based on an overall estimate based on past sales returns, etc., and the deductions for each field are not known. Therefore, the total sales in "FY 3/2022" and "FY 3/2023" in the table below do not match the sales in the quarterly consolidated profit-and-loss statements.

Sales on an accrual basis by Certification Category

*Unit: Million yen

【Market Overview】
The number of students in the term ended March 2023 totaled 196,706 (down 4.1% from the previous consolidated fiscal year), of which 112,628 were individual students (down 4.7% or 5,610 students) and 84,078 were corporate students (down 3.3% or 2,895 students).

Student Number Trends

*Units: Person

【Overview by Certification Sector】
While the number of both individual and corporate course attendees rose 13.4% year on year in the Licensed Strata Management Consultant course, 4.3% year on year in the Architects and Building Engineers course, 7.9% year on year in the Public Officer course (Government officials in the Main Career Track and Special Personnel of MOFA), 27.8% year on year in IT courses, 6.3% year on year in the CompTIA course, etc., it fell 17.6% year on year in the Bookkeeping course, 8.2% year on year in the Certified Public Accountant course, 7.3% year on year in the S&M Enterprise Mgt. Consultant course, 10.9% in the Real Estate Transaction Agent course, etc. The number of corporate attendees grew 0.3% year on year in distance learning, while it declined 7.0% year on year at university seminars and 8.0% year on year at affiliated schools, and remained at the same level as in the previous year in commissioned training.

Number of students by Certification Category

*Units: Person

(4) Financial Conditions and Cash Flow

◎Main Balance Sheet Items

*Units: Million yen

Despite an increase in cash and deposits, etc., current assets decreased 75 million yen from the end of the previous term, due to the decrease in other assets. Fixed assets decreased 514 million yen year on year due largely to a decrease in guarantee deposits. Total assets decreased 589 million yen to 20,795 million yen.
Despite an increase in interest-bearing debt, total liabilities declined 617 million yen year on year to 14,591 million yen, largely due to a decrease in advances received.
Net assets grew 28 million yen to 6,203 million yen, due to the rise in retained earnings, etc. As a result, capital-to-asset ratio rose 1.0 points from the end of the previous fiscal year to 29.8%.

3. Fiscal Year ending March 2024 Earnings Estimates

(1) Consolidated Earnings

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

No change in earnings forecast
For the term ending March 2024, the company forecasts an increase in sales and profit. They forecast sales of 19,720 million yen, up 2.2% year on year, on a cash basis, sales of 19,620 million yen, down 0.5% year on year, on an accrual basis, and an operating income of 380 million yen, up 19.1% year on year. They will compensate for the decrease of attendees of the Public Accountant, Public Officer and other courses with recently popular qualifications (such as Certified Public Tax Accountant and IT-related qualifications). As needs for distance learning are high due to the diversification of lifestyles, they will continue the reduction of floor area, relocation, etc. of school buildings to match the actually used space. The company plans to pay a dividend of 6.00 yen/share, unchanged from the previous term. The estimated payout ratio is 51.8%.

4. Conclusions

The learning environment will transform into a new one in the term ending March 2024 as COVID-19 has been recategorized into Class 5. It comes down to whether the company can take advantage of such changes of the environment to boost their business. We would like to pay attention especially to whether they can differentiate between classroom and distance learning. Above all, we would like to keep an eye on whether they can efficiently utilize online learning, which became standard during the COVID-19 crisis, in distance learning, and expand their revenues through it.

<Reference: Regarding Corporate Governance>

◎Operating type, and the composition of directors and auditors

◎Corporate Governance Report
Updated on June 28, 2022

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

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

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

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

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

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

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