アクシス（4012） – [Delayed]Explanatory Material on Financial Results for FY12/21

Axis Co., Ltd.Explanatory Material on Financial Results for FY12/21February 25, 2022Securities code: 4012/Tokyo Stock Exchange Mothers Market© Axis Co., Ltd.Table of ContentsI Consolidated Financial Results for FY12/21II Launch of New BusinessesIII Full-year Business Forecasts for FY12/22IV Medium-term Management Plan© Axis Co., Ltd.2IConsolidated Financial Results for FY12/21© Axis Co., Ltd.3Summary of Consolidated ResultsNet sales4,774 million yen(+28.2% YoY)Operating income505 million yen(+43.9% YoY)Operating income margin10.6%(+1.2p YoY)■Key points✓ Net sales: +28.2% YoY, Operating income: +43.9% YoYYoY comparison of core business(Million yen)✓ Significant increase in sales and profits, absorbing M&A-4,774 related expenses3,723 505 ✓ Strong corporate needs for digital transformation (DX). Both the SI Business and the CS Business performed well.+28.2%350 +43.9%✓ Operating income was 10.6%, exceeding the management target of 10%, due to an increase in gross margin from an increase in high-profit projects.Net salesOperating income© Axis Co., Ltd.4Summary of the Profit-and-Loss StatementCorporate investment in IT systems, including DX, was healthy. In addition to the consolidation of subsidiaries, the number of projects increased more than expected, slightly exceeding the upwardly revised figures, and achieving an increase in both sales and profits year-on-year.Profitability improved both in amount and ratio due to an increase in high-profit projects and reduced costs.Net salesGross profitOperating incomeOrdinary incomeGross profit marginOperating income marginOrdinary income marginNet income attributable to owners of parent(Figures for FY12/20 are net income)FY12/20(non-consolidated)FY12/21(consolidated)(Million yen)YoYPct. changePct. change3,72394135036425825.3%9.4%9.8%4,7741,29350552834927.1%10.6%11.1%+1,051+352+155+163+9128.2%37.5%43.9%44.9%35.0%+1.8p+1.2p+1.3p© Axis Co., Ltd.5Analysis of Factors Behind Changes in Operating IncomeIn addition to an increase in high-profit projects, the outsourcing ratio temporarily declined due to higher-than-planned hiring of engineers.Profits increased as increased marginal profit margins offset the negative factors such as increased personnel costs due to enhanced recruitment of engineers and acquisition costs of consolidated subsidiaries, etc.Operating income margin is 10.6%, exceeding the management target of 10%Analysis of factors behind changes: operating income(Million yen)Goodwill: ▲22Acquisition-related expenses:▲38■Major items✓ Increase in hiring cost: ▲ 20© Axis Co., Ltd.6Variation in Quarterly PerformanceStrong performance by quarter, achieving record-high net sales and operating income in Q4Net salesOperating incomeFY12/20FY12/21FY12/20FY12/21(Million yen)1,296 1,220 1,253 1,005 950 929 900 942 137 114(Million yen)132 141 95 7774841Q2Q3Q4Q1Q2Q3Q4Q© Axis Co., Ltd.7Sales of Each Business and Major KPIsCorporate IT-related investment, including digital transformation (DX), has been firm, and both SI Business and CS Business showed favorable performance.In SI Business, performance was strong in both Humansoft Inc., our new subsidiary, and the parent company.FY12/20(non-consolidated)FY12/21(consolidated)System Integration (SI)Cloud Service (CS)Total (net sales)Major KPIsSIBacklog of orders [million yen]CSNo. of vehicles managed with “KITARO” [vehicles]*Figures in parentheses are non-consolidated figures of Axis3,4822403,7236337,694(Million yen)YoYChangePct. change 4,513(3,887)+1,031(+405)260+204,774+1,05129.6%(11.6%)8.3%28.2%1,054(848)7,985+421(+215)66.5%(33.9%)+2913.8%© Axis Co., Ltd.8Sales by Business: Strong Performance in SI BusinessBoth parent company (Axis) and Humansoft Inc. performed well.Steady increase in projects in growth areas, such as support for the introduction of cloud system for core systems.Order backlog increased steadily at the parent company, but temporarily decreased at subsidiaries because it was in between projects.SI Business Net salesQuarterly Order Backlog(Million yen)(Million yen)Axis non-consolidatedHumansoft (subsidiary)3,482+29.6%4,513626 1,080 1,054284 206 1,019294 3,482 3,887 540 586 581 633 695 725796848 FY12/20(non-consolidated)FY12/21(consolidated)1Q2Q3Q4Q1Q2Q3Q4QFY12/20 (non-consolidated)FY12/21 (consolidated)© Axis Co., Ltd.9Sales by Business: CS BusinessCS Business remained steady due to an increase in the number of subscribers to its core services “KITARO”, a real-time operation control system.Sales of IoT equipment also increased due to increased sales of “KITARO x Dashcam” and “KITARO x Digital tachograph”.Temporary decrease in contracts by SMEs due to spread of infections caused by Delta strain of COVID-19.CS Business Net sales(Million yen)Trends in the number ofcontracts for KITARO 7,479 7,694 7,746 7,929 7,975 7,170 7,985 260 6,208 5,791 6,476 6,477 5,192 240 +8.3%FY12/20 (Non-consolidated)FY12/21 ConsolidationFY12/19FY12/20FY12/211Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q© Axis Co., Ltd.10Statuses of B/S and CFNet assets increased steadily due to the increase in profits.The equity ratio maintained a sound level at 69.7%, despite an increase in interest-bearing debt and an increase in investment cash flows due to the consolidation of Humansoft as a subsidiary.Major figures in B/SFY12/20(non-consolidated)FY12/21(consolidated)(Million yen)YoY changeCash and depositsAccounts receivableInventory assetsGoodwillCurrent assetsFixed assetsTotal assetsLiabilitiesAccounts payableInterest-bearing liabilitiesReserve for employees’ retirement benefitsLiabilities for retirement benefitsNet assetsTotal liabilities and net assetsCapital-to-asset ratio2,2461,707475292412681109ー183ー1,8062,48772.6%2,5671,76870735529276939151116ー2142,1583,09769.7%+321+61+232+6+288+274+610+258+42+116-183+214+352+610-2.92,4873,097Major CFsOperating CFFCFInvesting CF(Million yen)446 440318 ▲ 675▲ 243FY12/20 (non-consolidated)FY12/20 (consolidated)© Axis Co., Ltd.11Topics: Made Humansoft Inc. a Consolidated SubsidiaryAcquired Humansoft Inc., whose main business is system integration, and make it a consolidated subsidiary on April 1.Diversify into areas not covered by us and strengthen the personnel system of the Group as a whole.Transitioned from FY12/21 to consolidated accounting due to the acquisitionOne-stop support for the planning, design, development, construction, operation, and maintenance of network infrastructure and information systems, based on knowledge and experience cultivated in system construction for telecommunications carriers, businesses, and government agenciesStrengthening the group structure and expanding business domains through consolidation© Axis Co., Ltd.12Outline of Humansoft Inc.One-stop support from planning, design, development, construction, operation, and maintenance management of network infrastructure and information systems, mainly for telecommunications carriers and government agencies.Especially with a wealth of experience in maintenance and operation.Corporate profileBusiness scale (Results)Net sales composition by customer industryCompany nameHumansoft Inc.Established Oct. 1994RepresentativeJunetsu Matsumaru, President and Representative DirectorCapital43 million yen (as of Dec. 31, 2021)Number of employees56 (as of the end of December 2021)(Million yen)Public and social infrastructure35%Humansoft Inc.Non-consolidated (Axis)FY12/21Net sales4,774626 4,148 FY12/21 Consolidated net salesNet sales: 626 millionOperating income: 75 million(recorded for 9 months in FY12/21)Telecommunications63%・Approximately 63% are telecommunications field・About 35% are public and social infrastructure field© Axis Co., Ltd.13IILaunch of New Businesses© Axis Co., Ltd.14Our Group’s Issues and StrengthsSI Business accounts for about 95% of sales, and overconcentration on SI Business is an issue for business expansion in the IT business domainWe have a wealth of experience and expertise in the IT growth area. It is important to expand business using these resources.Issue: Approximately 95% of sales are concentrated in SI BusinessAssets owned: Accumulate DX know-how by increasing projects in growth areasProjects in growth areas are increasing every fiscal year, and know-how on DX is accumulated.Composition of Sales by Business100.0%5.5%CS BusinessSI Business: Sales Breakdown by Field(FY12/21 consolidated)Existing domainsGrowth Area RatioGrowth areas42.8%36.6%30.5%26.3%SI Business94.5%Financial sectoraccount for 55.8%Human softwareFintech-related•Introduction of cloud system for financial business systems• Construction of cashless payment platform• Anti-money launderingNext-generation SI-related•Introduce cloud system for business system (AWS)Introduction of Salesforce•• Support for use of RPA• Operation by DevSecOpsIoT-related• Telematics© Axis Co., Ltd.150.0%FY12/21(Consolidated)FY12/18FY12/20External Environment-1: Domestic Digitization Market Continues to Expand with DXThe domestic DX market is expected to exceed 3 trillion in 2030; the domestic digitization market is continuing to expandOn the other hand, domestic companies lack the in-house human resources to promote DX. In particular, DX promotion has become a major issue for SMEs, which are in need of a specialized company that is skilled in DX/IT.Digital transformation (DX) market3.04 trillion yenShortage of human resources is an issue in advancing DX for Japanese companiesApprox. 3.8 times791.2 billion yenOther46.9%Shortage of human resources53.1%20192030 (Forecast)*Prepared by us from “Domestic Market Survey of DX (July 20, 2021)” *Prepared by company from the 2021 White Paper on Information and Market size of IT utilization by companies with annual sales of 50 billion yen or less(100 million yen)Approx. 260 billion yen6,553 3,178 1,268 725608 Less than500 millionyento 5 billionyento 10 billionyento 30 billionyento 50 billionyen*Prepared by company from data from Nork Research’s “2021 IT Expenditures and Market Size in Response to the DX/COVID-19 Era at Small and Medium-sized Enterprises”© Axis Co., Ltd.16External Environment-2: Expand of the Security Market Along with IT ExpansionThe number of unauthorized access to Japan is rapidly increasing, and 500.1 billion cases were observed in 2020.The amount of damage caused by cyber-attacks worldwide is predicted to be 1,155 trillion yen in 2027, approximately twice the amount in 2021.In addition to DX initiatives, increased use of remote work, web conferencing, and cloud services due to the spread of COVID-19.Supported by strengthened security measures, the domestic corporate security market is expected to grow to approximately 1.2771 trillion yen in 2027.Cyber attacks on Japan (Number of Unauthorized Access)Global cyber-attack damage forecastSecurity market size for corporations in Japan(Millions of Access)500,100 1,155 Trillion yenApprox. 2 times322,000 660 Trillion yen(100 million yen)12,771 +218.3 billion yen11,837 10,974 10,588 212,100 150,400 2017201820192020202120272021202320252027*Prepared by us from NICT “NICTER Observation Report 2020 NICTER Darknet Observation Statistics (for the last decade)”*Prepared by company from “JPCERT/CC Incident Reporting Response Report”*Prepared by us from Cybersecurity Ventures estimates (November 13, 2020). Converted to US$1=110*Prepared by Nomura Research Institute, Ltd. from the results of a trend analysis and market size forecast for the domestic market announced on December 17, 2021© Axis Co., Ltd.17Started Two New Businesses from FY12/22Started digital consulting business by leveraging our accumulated experience and knowledge in analyzing issues and introducing cloud computing, and security business by leveraging our experience and knowledge in security.Accelerate overall corporate growth through synergies among businesses over the medium to long term, while expanding each business area.Digital consulting businessSecurity businessExisting business© Axis co.,ltd.18Strategy for Digital Consulting Business In addition to consulting services, provide services such as education and outsourcing.Propose optimal solutions tailored to customers, including not only support for digitization but also the creation of digital businesses.Increase in SI Business orders is expected by entering the consulting field to improve unit prices and acquiring related systems integration businesses in a lump sum.Companies that would like to promote DXHearings on IssuesProposals for optimal solutionsProvision of servicesConsultant12345Consulting・Development of DX plan・System concept proposalDigitization support・Introduction of cloud services to improve operational efficiency・Digitization of operations (construction of systems, support for introduction)Support for creation of digital businesses・Expansion into digital business taking advantage of existing businesses: e-commerce services, etc.Digital Human resource development・Provision of training programs that meet customer needsTechnology Support・Consolidated outsourcing services for in-house IT support and the utilization and management of IT resources© Axis co.,ltd.19Strategy for Security Business Provide overall security-related services, including security consulting, introduction of security products, operational support, and vulnerability assessment.Provide services to address systems and human vulnerabilities across large to high mid-sized and mid-sized companies.Planning security measures from a specialist’s point of view and providing comprehensive support from introduction to operation.Expect to increase sales by building ongoing relationships and using peripheral services by regularly providing vulnerability assessment.Web site vulnerability assessment・Tools and Human Vulnerability AssessmentPenetration test・Fake attacks by white hacker Targeted e-mail training・Through targeted e-mail trainingSecurity education・Security education via web and expert Operational support・Operational support for introduction measures© Axis co.,ltd.20Expected to Become Profitable during the Period for Medium-term Management Plan after Upfront InvestmentInitially, we anticipate upfront investment for business expansion and profitability within Medium-term Management Plan when launching new businesses.Both of the two businesses are expected to have high margin rate, and the Security business is expected to generate continuous profit. Contributing to the stabilization of our profitability and earnings over the medium to long term.RevenueUpfront investment phaseExpand customer baseProfits acquisition phaseBreak-even pointEarnings Stabilization PhaseStabilizing profitsBusiness reinvestment phaseUpfront Investment-Customer Expansion PhaseInvestment expenses up front mainly due to the following investments・Strengthen recruitment of human resources necessary for new businesses・Strengthen sales network by promoting alliances with SaaS companies and other DX-promoting companiesBreak-even pointBreak-evenpoint← Image of earnings growthFY12/22(Current fiscal year)FY12/23FY12/24Monetization-Reinvestment PhaseAnticipating business profitability in FY12/24 from FY12/25・The digital consulting business is expected to have a high gross profit margin, and the security business is expected to have continuous incomes, so it is expected to contribute to a high profit in the earnings stabilization phase・After earnings stabilize, reinvestment in existing businesses and further new businesses is expectedFY12/25(Final Year of the Medium-Term Management Plan)・ ・ ・T i m e© Axis co.,ltd.21IIIFull-year Business Forecasts for FY12/22© Axis Co., Ltd.22Full-year Business Forecasts for FY12/22Net sales are expected to increase significantly following the previous year due to strong demand.Gross profit is expected to exceed the previous year’s level in both amount and percentage due to the concentration on high-profit projects, maintaining the record-high level.Due to upfront investment for new business startup, operating income and lower income slightly decreased from the previous year.FY12/21(consolidated)Full-year forecast for FY12/22(consolidated)(Million yen)YoYChangePct. changeNet salesSystem Integration (SI)Cloud Service (CS)Other (New Business)Gross profitOperating incomeOrdinary incomeNet income attributable to owners of parentGross profit marginOperating income marginOrdinary income marginSI: No. of projects [projects]SI: Average project fee [thousand yen]CS: No. of vehicles managed with KITARO [vehicles]4,7744,513260ー1,29350552834927.1%10.6%11.1%25217,9117,985+806+696+2683+226-1-13-15,5805,209286831,51950451534827.2%9.0%9.2%24920,9229,230-3+3,011+1,24516.9%15.4%10.1%ー17.5%-0.1%-2.5%-0.3%+0.1p-1.6p-1.9p-1.2%16.8%15.6%© Axis Co., Ltd.23Analysis of Factors Behind Changes in Operating incomeSignificant increase in gross profit is expected due to the steady increase in sales.Operating income slightly down due to investing in new businesses (strengthening DX/Security personnel recruitment, advertising, etc.)Full-year performance of Humansoft was started to be recorded in our consolidated results from this fiscal year, contributing to the Group’s earnings.Analysis of factors behind changes: operating income(Million yen)■Major items✓ Hiring cost increase ▲ 33✓ Other SG&A ▲ 97© Axis Co., Ltd.24Sales Forecast by Business: SI BusinessCorporate IT investment is expected to remain strong overall, and both Axis alone and Humansoft are expected to perform well.Highly profitable projects are expected to increase, including projects in growth areas such as support for cloud adoption and other projects, and projects in the financial field.SI Business Net sales(Million yen)Net sales: 5,209 million yenAxis aloneHumansoft (subsidiary)YoY: +15.4%+15.4%■Segment Overview4,513626 3,887 5,209927 4,282 FY12/21(Consolidated)FY12/22(Consolidated)• Strong demand for DX/IT, including cloud development projects.• Axis on a non-consolidated basis is expected to increase 10.2% in sales, and humansoft is expected to increase 48.1% due to the recording of sales for 12 months from this fiscal year, which is a favorable forecast for the Group as a whole.• Strengthen expertise in growth areas, such as cloud-based projects utilizing AWS, and shift to highly profitable projects.• Strengthen employee training and recruitment to make employees more competitive as early as possible (improve occupancy rate).© Axis Co., Ltd.25Sales by Business: CS BusinessBased on the assumption that there will be a return to demand in CS Business, which had been held back by COVID-19, we assume that KITARO will continue to be firm.We expect to improve contract unit prices through proactive advertising, including expansion of advertising channels, as well as value-added improvements corresponding with the addition of functions.CS Business Net sales286 (Million yen)Net sales:286 million yen300290280270260250240230220210200260 +10.1%FY12/21(consolidated)FY12/22(consolidated)YoY:+10.1%■Segment Overview• Assuming that the impact of COVID-19 will be minor, we assume that demand will return to a recovery trend.• Aggressive advertising; new contracts are expected to reach +1,245 units, with 9,230 units contracted at the end of the fiscal year.• Expect double-digit growth in net sales due to diversification of contract plans and improvement in added value, such as provision of alcohol-checking functions.© Axis Co., Ltd.26Sales by Business: Other (New Businesses)Provision of digital consulting services and security services from the fiscal year under review.Upgrading the service provision system, advertising, etc. Planned to be profitable for FY12/24.1009080706050403020100Other (New Businesses) Net salesNet sales: 83 million yen(Million yen)YoY: -%83 ■Segment Overview• Started services in FY12/22.• Steady progress in improving the environment for providing services. Promote the acquisition of human resources specializing in digital consulting and security.FY12/21(consolidated)FY12/22(consolidated)© Axis Co., Ltd.27Shareholder Returns: Continue Commemorative Dividends for the Previous Fiscal Year as Ordinary DividendsContinue the 30th anniversary commemorative dividend for the previous fiscal year as an ordinary dividend, and plans to pay an annual dividend of 5 yen per share for the current fiscal yearWhile it will be necessary to invest in growth, we will continue to emphasize shareholder returns and implement a policy of paying stable dividendsFYAnnual dividend per shareInterimYear-endTotalFY12/210.00 yen5.00 yen(Commemorative dividend)5.00 yen(Commemorative dividend)FY12/22 (Forecast)0.00 yen5.00 yen(Ordinary dividend)5.00 yen(Ordinary dividend)© Axis Co., Ltd.28IVMedium-term Management Plan© Axis Co., Ltd.29Make Contributions by Digital© Axis Co., Ltd.302025 Management TargetsBased on the historical average annual growth rate*1 (11.2%), the average annual growth rate is expected to be 13.2%, adding new business sales to the average growth rate of 10%*2 of existing business.Expand the current System Integration (SI) and Cloud Services (CS) businesses, while launching new businesses to support customers’ digital management and stepping up to a further growth stage.*1: Average historical annual growth rate from 2015 to 2020*2: Determined based on past performance of Humansoft*3: See “Business Plan and Growth Potential Matters”FY12/25New businesses in focused areasCS Business:Expansion of existing services and development of new services10%6%FY12/216%Net sales4.87 billion yenOperating income margin8.0%FY12/206%Net sales3.72 billion yenOperating income margin9.4%Net sales8 billion yenOperating income margin10%SI BusinessExpansion through growth strategy*3SI BusinessCS BusinessNew Business© Axis Co., Ltd.31Our Focus AreasFinTechIoTSecurity・ Diversification of payments, introduction of electronic currencies, and new fintech services・High-speed networking, the use of MaaS services, and smart factoriesDigital governance・Bringing administrative applications online and utilizing the open data held by the government and local governments・Greater importance of safety and security, improved IT literacy, and a sophisticated security environmentDigital consultingbusinesses through digitization・Improving operational efficiency, improving productivity, reforming corporate culture, and supporting the creation of new © Axis Co., Ltd.32Mid-term Business PolicyIn an evolving digital society,provide high-growth technologies and servicesProvide better products and servicesto become a company with high existence value in societyPursue further growthwith an emphasis on the environment, society, and governance (ESG)© Axis Co., Ltd.33The information contained in this material is based on a number of assumptions and does not guarantee or warrant the realization of future plan figures or measures.Figures in this document have been rounded down to the nearest whole number and may not add up to the total.IR staff of Management Planning Division03-6205-8540mailto:ir@axis-net.co.jp© Axis Co., Ltd.34