■Business Overview

c) KPIs

Engineers are necessary in order to respond to orders received by Baltes Holdings ＜4442＞, and the “number of engineers” is an important factor for the company's business. The number of engineers at the company is equal to the production capacity of manufacturers, and increasing the number of engineers with certain knowledge and knowledge increases the company's production capacity, leading to an increase in sales as a result. Furthermore, in addition to regular employees and contract employees, engineers from companies called business partners are also included among engineers. The number of operating engineers at the end of the 2024/3 fiscal year was 1,222, and the breakdown was 695 full-time employees (composition ratio 56.9%), 112 contract employees (same 9.2%), and 415 business partners (same 34.0%), and the total number of engineers has also increased steadily in the last 5 years.

The second important factor is “sales per engineer.” The company defines this figure as “unit price (monthly),” and it is “sales of the software testing service business ÷ number of engineers.” Although the 2020/3 fiscal year declined due to the spread of the novel coronavirus infection (hereinafter, COVID-19), it has steadily risen thereafter, and the unit price for the 2024/3 fiscal year was 765,000 yen.

The third element is “number of projects.” Most of the company's operations are “quasi-delegation agreements,” and there are few “contract agreements” that risk turning into unprofitable projects. Basically, it is a contract for each project, but development projects and development issues come up one after another, and it often leads to continuation contracts due to requests from customers when renewing systems that have been ordered once, etc., so it can also be said that this is a considerable barrier to entry. Order amounts vary depending on the project, and range from several million yen to tens of millions of yen, but if the project continues, sales to the customer may be in units of hundreds of millions of yen as a result. Since the cumulative sales volume of each of these projects accounts for the majority of segment sales, it can be said that “number of projects” is one of the KPIs in the company's performance. The number of projects (software tests) for the 2024/3 fiscal year was 3,384, and it has been steadily expanding over the last 5 years.

d) Reasons to outsource the testing process

The first reason why customers request (order) software tests from external companies such as the company is that general system engineers do not receive systematic training on testing and are not test professionals, so efficiency is poor. In particular, for subcontracted small-scale SIers, engineers who carried out development tend to perform tests. However, it is generally said that it is difficult to perform objective tests for programs created by oneself. This is similar to the fact that magazine reporters, etc., often overlook things when they proofread and edit articles they write themselves. Furthermore, there are few developers who know systematic and comprehensive test methods, and since developers do not like the test work itself, when developers perform the test process, it often leads to prolonged test processes and a decrease in quality (launch without bugs discovered) as a result. In order to resolve these issues, orders to external companies have progressed in recent years.

The second reason is the current shortage of engineers in the domestic IT industry. The domestic IT market is expected to continue to expand in the future due to DX measures, etc., but on the other hand, it is also true that there is a shortage of engineers, and there are many situations where it is difficult to receive orders due to lack of personnel at many SIers. Under such circumstances, if test processes exceeding approximately 40% of the entire development process can be outsourced, new development projects can be ordered with free resources. Also, since productivity is improved by optimizing human resources in addition to shortening processes and ensuring quality, it is also true that the number of major SIers and users that outsource test processes is increasing.

The third reason is an increase in the burden on user companies due to the promotion of DX. When users outsource the redevelopment of their own systems or the introduction of new package systems to SIers or package vendors, it is necessary to carry out “acceptance tests” on the user side. In response to this “acceptance test,” users need to perform it appropriately with few IT human resources owned by the company, and as DX investment has become active in recent years, it has become an extremely large burden on users. In order to reduce this burden, there are an increasing number of cases where user companies outsource the “acceptance test” process and retrospectively comprehensive test support and quality control to test specialists as third party organizations.

From this current situation, it can be said that there is a high possibility that outsourcing of software tests will increase further in the future.

(2) Web/mobile application development service business (12.1% same)

Baltes Mobile Technology Co., Ltd., a consolidated subsidiary, provides web application/mobile application development and security diagnosis (vulnerability diagnosis) services. In web application/mobile application development, everything from planning to requirement definition, development, design, release, and operation can be provided in one stop. Furthermore, improving software quality is a group management policy, and software development services with secure coding through software testing by the company and security service team education are provided. The security diagnosis service provides safety investigations. The diagnostic know-how of skilled engineers has been programmed, and potential vulnerabilities can be discovered.

In addition, RSR Co., Ltd., a consolidated subsidiary, develops computer software, contracts development of systems, dispatches development personnel, etc. Furthermore, from the 2024/3 fiscal year, Shinpho, which performs software development, system maintenance, and package development, and Fairness Consulting, which mainly provides SAP solutions, have joined this segment.

(3) Offshore service business (0.3% same period)

VALTES Advanced Technology, Inc., a consolidated subsidiary that mainly develops business in the Philippines, provides software testing services and software development services to customers operating manufacturing companies and software vendors by sharing know-how with group companies. Against the backdrop of the local cheap and abundant labor force, local engineers who have taken the company's educational content provide services to Japanese companies and Japanese companies based in the Philippines using the company as a point of contact.

(4) M&A and transition to a holding company

The company is also actively carrying out M&A, and made Mint a subsidiary in 2022/4, Shinpho in 2024/4, and Fairness Consulting in November of the same year. Since the number of subsidiaries has increased in this way, the company transitioned to a “holding company system” from 2023/10, and currently 7 companies are developing businesses. The purposes of the transition include 1) strengthening businesses that provide value for improving software quality, 2) strengthening group governance, and 3) developing management human resources.

(Written by FISCO Visiting Analyst Noboru Terashima)