Company Overview
2. Business content
The company group consists of the System Support <4396> and seven consolidated subsidiaries (as of June 30, 2024), and discloses its business segments in five segments: cloud integration business, system integration business, outsourcing business, product business, and overseas business. The revenue composition ratio for the fiscal year ended June 2024 is 53.5% for the system integration business, with the cloud integration business at 32.8%, outsourcing business at 9.3%, product business at 3.5%, and overseas business at 1.0%. The recent trend over the past three periods shows a decrease in the composition ratio of the system integration business against the background of the expansion of the cloud infrastructure services market, and an increasing trend in the cloud integration business. The composition ratio of the gross profit by business segment also shows a similar trend, with the system integration business accounting for 43.9% in the fiscal year ending June 2024, the cloud integration business at 34.9%, outsourcing business at 11.2%, product business at 8.4%, and overseas business at 1.6%.
(1) Cloud Integration Business
In the cloud integration business, the company engages in the introduction and use support of various cloud infrastructures such as ServiceNow, AWS, Microsoft Azure, Google Cloud, Oracle Cloud Infrastructure, and the resale of licenses. The revenue composition ratio for the fiscal year ended June 2024 is highest for the AWS-related resale at 34.2%, followed by ServiceNow-related at 33.1%, Google Cloud-related at 11.8%, and Microsoft Azure-related at 10.1%. The resale business, which becomes a stock-based business, has a sales ratio of 34.5%.
Cloud-related orders are often referred by cloud operators, so it is important to develop a large number of certified technicians for various cloud infrastructures and accumulate a track record of high customer satisfaction to expand orders. Therefore, the company is focused on the recruitment and development of certified technicians, and as a result of these efforts, it has received numerous awards in AWS, Microsoft Azure, Google Cloud, Oracle, and others. The profitability is relatively stable, and in particular, in the case of ServiceNow, it has secured the highest profitability among cloud-related services, entering the market early in Japan and accumulating a large number of development achievements (with a gross profit margin of 45.0% for the fiscal year ended June 2024, exceeding the segment-wide 29.7%).
Regarding the usage fees for cloud services through resale, the company is billed in dollars by the cloud operators, which the company converts to yen and adds a certain margin before invoicing the customer in yen. Therefore, a weaker yen could be a factor contributing to an increase in revenue and gross profit, but could also lead to a move to suppress usage as the burden on the customer increases. The settlement period is typically around 1 to 2 months, but if the exchange rate swings sharply to a weaker yen during this period, exchange losses on dollar-denominated liabilities may occur.
(2) System integration business
The system integration business includes consulting, design, development, operation and maintenance of IT systems, as well as technical support for the introduction and use of ERP packages and infrastructure construction such as Oracle databases (Oracle Cloud Infrastructure-related is included in the cloud integration business). The revenue composition ratio for the fiscal year ending June 2024 is 57.7% for IT system development, followed by 28.0% for ERP-related and 14.3% for database-related.
For large-scale projects such as system development for financial institutions and ERP construction, there are many cases where they are subcontracted instead of directly ordered to avoid the risk of unprofitability due to delays in delivery. Although profitability is reduced, large-scale projects contribute to revenue over a long period of time, fulfilling the role of maintaining a certain level of engineer utilization.
(3) Outsourcing business
The outsourcing business mainly consists of operating services at two domestic data centers (Tokyo, Kanazawa) operated by subsidiary eNet Solutions, accounting for 80.3% of revenue, with the remaining 19.7% accounted for by data analysis/input and system operation and maintenance by nearshore.
Data centers are mainly used for the infrastructure of corporate private clouds or for BCP measures/data backup management, with approximately 1,050 customers. In addition to customer acquisition strategies for data centers and upselling strategies, they provide value-added services such as the emergency notification and status confirmation service "Safetylink24" that automatically delivers messages to confirm the safety of employees in conjunction with earthquake information, workflow service "ActionPassport", and online storage service "ActiveAssets". Since 2017, they have also started providing the service "Magic Insight", which allows the use of IBM Watson Explorer (an AI-powered search and analysis platform) on a monthly fee basis. Data center services have a stock-based revenue structure in which monthly sales accumulate due to an increase in the number of customers and the expansion of customer business. Capacity expansion investments such as servers are implemented as needed.
(4) Product business
In the product business, they develop, sell, and provide services for products (software) within the company group, and also provide customization development to meet customer needs. The current main products are the construction industry's construction information management system "Tateyakusha", the mobile ordering system for the wholesale and retail industry "MOS", the attendance and work management system "Shigotoyakusha", and the cloud-based shift management system "SHIFTEE", accounting for 33.3%, 31.5%, 11.7%, and 9.6% of revenue composition ratio for the fiscal year ending June 2024, respectively. In addition to accepting custom development projects on an ad hoc basis, they also recognize hardware sales at the time of introduction, but sales based on monthly billing for cloud (SaaS) services account for about 58% of the total and revenue increases through accumulation of contract numbers, making it a stock-based business. Sales are mainly direct sales ("Tateyakusha" has many OEMs), but they are actively working on agent strategies to strengthen sales force.
(5) Overseas business
The overseas business is mainly focused on providing system integration services and personnel introduction services to Japanese companies operating in North America through its subsidiary in the United States, as well as outsourcing services for payroll and accounting operations through its subsidiary in Canada.
(6) Group companies and number of employees
The company's subsidiaries specialize in specific functions and industries in order to provide new solutions to customers with enthusiasm and promptness. As of the end of the fiscal year in June 2024, the consolidated number of employees increased by 136 compared to the previous period, reaching 1,484, with 85% of the employees being technical professionals. In terms of regions, the Tokyo Metropolitan area accounts for about 50%, and in order to meet the increasing demand for cloud infrastructure services in other regions such as Hokuriku, Kansai, and Tokai, the company is actively hiring talent in a balanced manner. The employee turnover rate increased by 1.0 percentage point compared to the previous period, reaching 6.4%. However, this is considered to be lower than the industry average (10% or higher), and is attributed to increased mobility of IT professionals as the COVID-19 pandemic subsides. This can be attributed to improvements in salary and benefits, full reimbursement of qualification acquisition costs to enhance technical skills, and the establishment of a teleworking environment to improve working conditions and actively support employee career development.
(Written by FISCO guest analyst, Jo Sato)