outsourcing inc. 2427 - irtv · pdf filethis memo is for reference purposes only and is not...
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This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
1
March-24-2015
OUTSOURCING Inc., hereafter “the Company” or “the OS Group”, announced its FY12/14
consolidated financial results, as well as its new Medium-Term Management Plan for FY12/15 –
FY12/17 “Vision 2017: Vector to the New Paradigm”, and Trias Corporation conducted an interview
with Chairman and CEO Haruhiko Doi. The following is a summary of the interview.
Summary of FY12/14 Consolidated Financial Results
As can be seen from consolidated financial results shown in 【Table 1】, growth rates for net sales,
operating income and ordinary income in FY12/14 all exceeded those in FY12/13, posting record
incomes. Net sales were ¥59,421 million (+25.4% YoY), gross profit was ¥11,963 (+28.9% YoY),
operating income was ¥2,010 million (+67.1% YoY), ordinary income was ¥2,197 million (+61.9% YoY)
and net income was ¥1,316 million (+17.3% YoY).
Compared with full-year company guidance as of the Q3 FY12/14 results announcement (net sales
¥61.3 billion, operating income ¥2.0 billion, ordinary income ¥2.05 billion and net income ¥1.06 billion),
net sales fell short by nearly ¥1.9 billion, however, incomes came in above guidance. Net sales fell
short due to the negative impact of the coup d’état and civil demonstrations in Thailand, Vietnam and
Hong Kong, however, in addition to the profit contribution from Overseas Business still not being that
large, high margin domestic Engineering Outsourcing was stronger than expected, resulting in income
overshooting. We discuss trends by operating segments later.
Gross profit margin rose from 19.6% in FY12/13 to 20.1%, securing the Company’s minimum target
level above 20%. This was largely owing to the increase of nearly 30% in net sales of high margin
Engineering Outsourcing to which the Company has been devoting efforts in recent years. Also
Manufacturing Outsourcing net sales which declined last term saw recoveries for the Electrical &
Electronics and Transport Equipment sectors which benefitted from the weak yen under Abenomics,
contributing to profit.
SG&A expenses increased by nearly ¥1.9 billion, and the breakdown by major items was: ¥0.65 billion
for increased personnel expenses due to increased business, ¥0.3 billion for increased recruitment
expenses of worksite employees in response to increased demand for Manufacturing Outsourcing,
¥0.15 billion for increased amortization of goodwill related to the series of M&A acquisitions, and
¥0.1billion for consulting fees related to M&A. Nevertheless, SG&A expenses ratio declined from
17.0% in FY12/13 to 16.8%, and the operating income margin similarly increased from 2.5% to 3.4%.
FY12/14 Financial Results and Follow-up Interview
OUTSOURCING Inc.
2427 TSE 1st
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
2
March-24-2015
This achieved the Company’s exact aim of absorbing increased SG&A expenses with increased net
sales, with profit margins improving, and both operating income and ordinary income rose sharply by
over 60%.
Growth in net income lower than growth in ordinary income was due to loss carry-forwards
disappearing, amortization of goodwill increasing, and impairment losses arising, resulting in corporate
taxes increasing from ¥0.38 billion in FY12/13 to ¥0.72 billion, nearly doubling, and the ratio of net
income to pretax income declined from 70.6% in FY12/13 to 62.1%.
【Table 1】 Summary of FY12/14 Consolidated Financial Results
(¥ million) FY12/12 FY12/13 FY12/14
Actual Actual Amount Ratio Actual Amount Ratio
Net sales 42,090 47,384 5,293 12.6% 59,421 12,037 25.4%
Cost of sales 33,618 38,102 4,484 13.3% 47,457 9,355 24.6%
Gross profit 8,472 9,281 809 9.6% 11,963 2,681 28.9%
Gross profit margin 20.1% 19.6% - 0.5pp 20.1% +0.5pp
SG&A expenses 7,471 8,078 607 8.1% 9,953 1,874 23.2%
SG&A expenses ratio 17.8% 17.0% - 0.7pp 16.8% - 0.3pp
Operating income 1,000 1,202 202 20.2% 2,010 807 67.1%
Operating income margin 2.4% 2.5% +0.2pp 3.4% +0.8pp
Ordinary income 1,153 1,357 203 17.6% 2,197 840 61.9%
Ordinary income margin 2.7% 2.9% +0.1pp 3.7% +0.8pp
Net income 641 1,122 480 74.9% 1,316 194 17.3%
Net income margin 1.5% 2.4% +0.8pp 2.2% - 0.2pp
Source: Compiled by Trias Corporation from the Company IR materials
YoY ChangesYoY Changes
As can be seen from the consolidated balance sheet shown in 【Table 2】, total assets increased from
FY12/13 by roughly ¥3.8 billion. Aside from increased notes and accounts receivable from sales
expansion and increased retained earnings from higher sales and increased consolidated base
through acquisition of subsidiary shares, while the amount of goodwill booked increased, progress was
made in repaying long-term loans, which decreased.
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
3
March-24-2015
【Table 2】 FY12/14-End Consolidated B/S Summary
(¥ million)
ActualComposition
RatioActual
Compositio
nAmount Major Factors
Current assets 14,119 69.4% 17,065 70.7% 2,945
Cash and deposits 6,032 29.7% 6,671 27.6% 638
6,529 32.1% 8,257 34.2% 1,728Acquisitions of subsidiaries’
share and business
Non-current assets 6,223 30.6% 7,067 29.3% 844
Goodwill 1,330 6.5% 1,791 7.4% 460Acquisitions of subsidiaries’
share
Total assets 20,343 100.0% 24,132 100.0% 3,789
Current liabilities 10,003 49.2% 12,967 53.7% 2,963
Short-term loans payable 3,550 17.5% 3,886 16.1% 336
Accounts payable - other 2,905 14.3% 3,800 15.7% 894Acquisitions of subsidiaries’
share and business
Non-current liabilities 4,423 21.7% 3,596 14.9% (827)
Long-term loans payable 2,578 12.7% 1,763 7.3% (815) Repayments
Shareholders' equity 4,945 24.3% 6,219 25.8% 1,274 A net income increase
Net assets 5,915 29.1% 7,569 31.4% 1,654
20,343 100.0% 24,132 100.0% 3,789
Source: Compiled by Trias Corporation from the Company IR materials
FY12/13-End FY12/14-End YoY Changes
Notes and accounts receivable - trade
Total liabilities and net assets
FY12/15 Consolidated Financial Forecasts
For FY12/15, in addition to domestic business expected to continue the favorable trend in FY12/14,
Overseas Business is expected to return to normal, and is entering a collection period on upfront
investment until now, so the Company is guiding for large increases in net sales and incomes to
continue.
As can be seen from 【Table 3】, the Company guidance for net sales is ¥74.0 billion (+24.5% YoY),
operating income ¥3.1 billion (+54.2% YoY), ordinary income ¥3.0 billion (+36.5% YoY) and net
income ¥1.62 billion (+23.0% YoY). Also, the operating income margin is forecast to increase again
from 3.4% in FY12/14 to 4.2%.
By operating segment, double-digit growth in net sales of Manufacturing Outsourcing is expected to
continue, and growth rates for net sales of Engineering Outsourcing and Overseas Business are
expected to accelerate. Operating income margins for the main three segments are all expected to rise,
and above all Overseas Business is expected to increase sharply from 0.8% in FY12/14 to 3.3%,
estimated to exceed that for Manufacturing Outsourcing. One-off special factors of coup d’état and civil
demonstrations disappear, and since business structures have been put in place in all regions, large
increases in both net sales and incomes can be expected. For domestic manufacturing, revision of the
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
4
March-24-2015
Worker Temporary Dispatch Law is expected, and demand for temporary placement rising will likely
become a tailwind.
For non-operating income and expenses, gains on foreign exchange disappear, so guidance assumes
a slight deterioration from FY12/14. The forecast for net income assumes a conservative stance on the
corporate tax amount, so the net income margin is expected to be unchanged at 2.2% from FY12/14.
【Table 3】 Summary of FY12/15 Consolidated Financial Forecasts
(¥ million) FY12/14 FY12/15
Actual Amount Ratio Forecast Amount Ratio
Net sales 59,421 12,037 25.4% 74,000 14,578 24.5%
Cost of sales 47,457 9,355 24.6% 58,900 11,442 24.1%
Gross profit 11,963 2,681 28.9% 15,100 3,136 26.2%
Gross profit margin 20.1% +0.5pp 20.4% +0.3pp
SG&A expenses 9,953 1,874 23.2% 12,000 2,046 20.6%
SG&A expenses ratio 16.8% - 0.3pp 16.2% - 0.5pp
Operating income 2,010 807 67.1% 3,100 1,089 54.2%
Operating income margin 3.4% +0.8pp 4.2% +0.8pp
Ordinary income 2,197 840 61.9% 3,000 802 36.5%
Ordinary income margin 3.7% +0.8pp 4.1% +0.4pp
Net income 1,316 194 17.3% 1,620 303 23.0%
Net income margin 2.2% - 0.2pp 2.2% - 0.0pp
Source: Compiled by Trias Corporation from the Company IR materials
YoY ChangesYoY Changes
Financial Summary by Operating Segment (FY12/14 Results, FY12/15 Forecasts)
【Table 4】 shows the trend of earnings by operating segment. The domestic earning environment in
FY12/14 was generally favorable overall. There were some negative factors on consumption including
poor weather and reactionary decline following the consumption tax hike, prompting inventory
consolidation by manufacturers, however, Engineering Outsourcing to which the Company is devoting
efforts is growing favorably, and Manufacturing Outsourcing is also growing sharply from export-driven
makers who benefit from the weak yen stepping up production. For Overseas Business, one-off
special local factors including civil demonstrations overlapped and income suffered. For FY12/15,
domestic business is expected to continue the favorable trend in FY12/14, and Overseas Business is
entering a collection period on upfront investment until now, so the Company is guiding for large
increase in income.
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
5
March-24-2015
【Table 4】 Financial Summary by Operating Segment
(¥ million)
Actual Changes Actual Changes Forecast Changes
Net sales 47,384 12.6% 59,421 25.4% 74,000 24.5%
Manufacturing Outsourcing Business 21,812 -9.8% 25,478 16.8% 28,399 11.5%
Engineering Outsourcing Business 17,079 39.3% 22,036 29.0% 28,568 29.6%
Administrative Outsourcing Business 603 -1.8% 601 -0.4% 620 3.0%
Recruitment and Placement Business 477 11.6% 779 63.4% 783 0.4%
Overseas Business 7,220 62.0% 10,346 43.3% 15,256 47.4%
Other Business 190 24.7% 178 -6.1% 374 109.7%
Operating income 1,202 20.2% 2,010 67.1% 3,100 54.2%
Manufacturing Outsourcing Business 538 372.9% 584 8.7% 713 21.9%
Engineering Outsourcing Business 742 11.2% 1,423 91.7% 1,965 38.1%
Administrative Outsourcing Business 139 -43.9% 92 -34.0% 59 -35.9%
Recruitment and Placement Business 129 -12.8% 354 173.3% 237 -33.1%
Overseas Business 22 - 87 296.6% 497 468.9%
Other Business 5 -38.3% 6 13.9% 9 48.7%
Operating income margin 2.5% +0.2pp 3.4% +0.8pp 4.2% +0.8pp
Manufacturing Outsourcing Business 2.5% +2.0pp 2.3% - 0.2pp 2.5% +0.2pp
Engineering Outsourcing Business 4.3% - 1.1pp 6.5% +2.1pp 6.9% +0.4pp
Administrative Outsourcing Business 23.1% - 17.4pp 15.3% - 7.8pp 9.5% - 5.8pp
Recruitment and Placement Business 27.2% - 7.6pp 45.5% +18.3pp 30.3% - 15.2pp
Overseas Business 0.3% +1.2pp 0.8% +0.5pp 3.3% +2.4pp
Other Business 2.8% - 2.9pp 3.4% +0.6pp 2.4% - 1.0pp
Source: Compiled by Trias Corporation from the Company IR materials
FY12/13 FY12/14 FY12/15
FY12/14 SUMMARY
For FY12/14, Manufacturing Outsourcing net sales rose +16.8% YoY, reversing to double-digit growth
after the decline in FY12/13. Looking at the breakdown of placement destinations by industry sector in
【Table 5】, net sales to Electrical & Electronics clients rose sharply by +63% YoY, and Transport
Equipment-related (mainly automobiles) also rose by +32% YoY. The ratios of these two sector of 27%
and 34%, respectively, increased sharply from 19% and 30% in FY12/13. The number of worksite
employees at client locations as of the end of the fiscal year was 6,732, +6% from the 6,351 at the end
of FY12/13.
Operating income for this segment of ¥584 million was an increase from ¥538 million in FY12/13,
however, the operating income margin declined 0.2pp to 2.3%. While net sales increased sharply,
recruitment expenses including job offer advertisements increased from ¥687 million in FY12/13 to
¥1,029 million due to overall tight supply/demand for labor, resulting in costs also rising sharply.
However, segment income was basically in-line with plan according to the Company. Wage costs are
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
6
March-24-2015
rising, however, the Company appears to be absorbing this through temporary placement contract unit
price hikes.
Net sales for Engineering Outsourcing, which account for roughly 70% of operating income, rose
sharply by +29.0% YoY, and demand for engineers was strong from Transport Equipment-related
which accounts for over 30% of segment net sales and IT-related client firms. Net sales for civil
engineering and construction-related for which the OS Group has high expectations for growth, still
only account for less than 3% of consolidated net sales, actually rose over +30% YoY, exceeding
forecast.
Segment operating income virtually doubled to ¥1,423 million, with an operating income margin of
6.5%, rising sharply from 4.3% in FY12/13. While amortization of goodwill increased from M&A, in
addition to the impact of increased net sales, the utilization rate of worksite employees rose from
96.5% in FY12/13 to 97.3%, also boosting income margins. Due to aggressive staff recruiting, the
number of worksite employees rose from 2,600 at the end of FY12/13 to 3,271.
For Overseas Business which is primarily focused in Asia, net sales increased +43.3% YoY, and the
ratio to consolidated net sales rose from 15.2% in FY12/13 to 17.4%, however, the negative impact
from the coup d’état in Thailand and civil demonstrations in Hong Kong and Vietnam resulted in net
sales falling below forecast. Operating income rose from ¥22 million in FY12/13 to ¥87 million,
however, many regions are still in the process of development and have leading costs associated with
establishing bases, so the operating income margin was only 0.8%. The number of worksite
employees rose from 6.562 at the end of FY12/13 to 10,425. Entry into Malaysia in the 2H of 2013 and
Thailand M&A at the end of 2014 also contributed to boosting the increase in the number of staff.
【Table 5】 Net Sales Ratio by Industry
(¥ million)
ActualComposition
RatioChanges Actual
Composition
RatioChanges
Manufacturing Outsourcing Business 21,812 46.0% -9.8% 25,478 42.9% 16.8%
Electrical & Electronics 4,158 19.1% -21.8% 6,774 26.6% 62.9%
Transport Equipment 6,558 30.1% -14.0% 8,680 34.1% 32.4%
Engineering Outsourcing Business 17,079 36.0% 39.3% 22,036 37.1% 29.0%
Transport Equipment 5,126 30.0% 24.8% 6,946 31.5% 35.5%
IT-related 5,674 33.2% 104.9% 8,335 37.8% 46.9%
Overseas Business 7,220 15.2% 62.0% 10,346 17.4% 43.3%
Other Business 1,270 2.7% 6.4% 1,559 2.6% 22.7%
Consolidated net sales 47,384 100.0% 12.6% 59,421 100.0% 25.4%
Source: Compiled by Trias Corporation from the Company IR materials
FY12/13 FY12/14
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
7
March-24-2015
FY12/15 OUTLOOK
While favorable trends in the domestic market in FY12/14 are expected to continue, the Company
sees a sharp increase in income for Overseas Business. As can be seen from 【Table 4】 on page 5,
the growth rate for net sales for Manufacturing Outsourcing will be somewhat lower, however it is
expected to maintain double-digit growth. The Company is targeting to increase the number of
worksite employees at the end of FY12/15 by 1,200 to 7,891 through the OS Group’s proprietary
personnel recruiting scheme in cooperation with and support from client manufacturing firms. Since
this scheme doesn’t require costs including recruitment expenses, the Company is guiding for
operating income increasing by over +20% YoY, and the operating income margin increasing by 0.2pp
to 2.5%.
For Engineering Outsourcing to which the Company is currently devoting efforts, the Company is
planning to increase the number of worksite employees by 1,100, and is guiding for net sales to
increase by +29.6% YoY. For worksite employees in this segment, in order to take on personnel as
full-time employees for regular use-type temporary placement “Specified Dispatch”, initial recruiting
temporary costs increase, however, this is absorbed by increased net sales, and the Company is
guiding for operating income to increase by +38.1% YoY , with the operating income margin rising
0.4pp to 6.9%.
For Overseas Business, since upfront investment through FY12/14 are gradually entering a collection
period, the income margin is expected to improve sharply. The Company is guiding for net sales to
increase +47.4% YoY, operating income to jump by nearly six-fold, and the operating income margin to
rise sharply from 0.8% in FY12/14 to 3.3%, which will actually exceed that of Manufacturing
Outsourcing.
As a result, the net sales ratios for Engineering Outsourcing and Overseas Business are expected to
become 38.6% and 20.6%, respectively, posting a rise of roughly 10pp from 29.1% and 10.6% in
FY12/12. At the same time, Manufacturing Outsourcing is estimated to decline from 57.4% to 38.4%
over the same period. Structural reforms put in place by the Company to address contraction of
domestic production over the medium-to-long-term appear to be making definite progress toward
achieving goals for FY12/17, the final fiscal year of its new Medium-Term Management Plan which we
discuss later.
Summary of Medium-Term Management Plan “Vision 2017: Vector to the New
Paradigm”
The OS Group formulated its new Medium-Term Management Plan “Vision 2017” for the 3 year period
from FY12/15 – FY12/17, announcing it on February 12 together with FY12/14 financial results. With
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
8
March-24-2015
“Vision 2017”, the Company is aiming at a major shift in group strategy given the major paradigm shift
of Japan’s main industries from industrial manufacturing to IT and construction. The Medium-Term
Management Plan slogan “Vector to the New Paradigm” signifies a shift in the business structure, and
at the same time, is an internal message within the Group that all employees should constantly strive
for completely new ideas, according to Chairman Doi. Numerical targets for the final fiscal year in
FY12/17 include consolidated net sales of ¥130 billion and consolidated operating income of ¥8.5
billion, representing 2.2-fold and 4.2-fold increases, respectively, from FY12/14.
Regarding the temporary staffing and placement industry, the Company’s basic recognition is that
globalization of production of Japan’s manufacturing industries continues to progress, and that
domestic demand for staffing will contract going forward. Since domestic output volume will decline
due to demand for “Made in Japan” products declining and export competitiveness receding from the
declining domestic population and high transportation and personnel costs, the workforce for that
portion will likely become redundant.
Relative to this, OS Group growth initiatives could be largely broken down into two main strategies.
One is shifting staffing to both the IT and construction sectors which are expected to grow going
forward amongst Japanese industries, and the second is strengthening and expanding Overseas
Business where high growth is continuing.
For the domestic IT sector going forward, staffing demand related to large computer systems will likely
grow, including updating and renewal of mainframe systems of the mega banks and transition to the
cloud and utilization of big data for all types of IT systems of major corporations. Demand is picking up
for wearable devices and IoT (Internet of Things: access to the internet using a variety of consumer
electronics devices), and development of these devices and related software is likely to accelerate. In
preparation to address these market trends, in 2014 the OS Group acquired an IT school with a track
record of turning out over 50,000 graduates. Going forward, the Company plans to leverage training of
this IT school to strengthen staff hiring including the use of women.
Also, for the civil engineering and construction sector, hosting of the 2020 Tokyo Olympics and
Para-Olympics, and the National Infrastructure Reinforcement Plan focused mainly on renewal and
repair work for massive infrastructure projects, are getting underway, and staffing demand will
inevitably become brisk. For this sector the OS Group is also reorganizing group companies acquired
to date, embarking on securing and enhancing engineers. Last December the Company acquired
LINETEC Co., Ltd. which does system development on consignment for civil engineering and
construction, and this January the Company acquired Kyodo Engineering Corporation which is
engaged in temporary placement of engineers, making them wholly owned subsidiaries in succession,
and the Company is also working on collaboration with DAISEI ENGINEERING Co., Ltd. which it
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
9
March-24-2015
acquired in 2009, aiming at becoming the top recognized outsourcing firm for civil engineering and
construction.
Also, the Company is quite busy with strengthening and expanding the other growth area in Overseas
Business. The Company successfully entered Malaysia in 2013, currently operating in 13 countries
including China, Thailand, Malaysia, Australia etc, and the Group has 25 subsidiaries and affiliates. As
is shown in 【Graph 1】, the number of overseas worksite employees as of the end of FY12/14 reached
10,425 including 7,554 for Manufacturing Outsourcing, exceeding the domestic total of 10,080 for the
first time. Management plans to continue aggressive entry into new countries, planning entry into the
Americas and Europe including the US, Mexico, Brazil, UK, Germany, France, etc.
【Graph 1】 Quarterly Trend of Worksite Employees by Selected Operating Segment
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY12/12 Actual FY12/13 Actual FY12/14 Actual FY12/15 Forecasts
(Workers) Manufacturing Outsourcing Business Engineering Outsourcing BusinessOverseas Business
Source: Compiled by Trias Corporation from the Company IR materials
In order to strengthen its global staffing network, the Company has developed a scheme for the
efficient use of technical intern trainees under the government’s “Foreigner Technical Intern Training
Program” shown in 【Chart 1】. Under this scheme, after receiving prior training in their home
countries, interns are seconded to Japanese client manufacturing firms, and along with completion of
their internship period, are formally hired by the OS Group, and are then dispatched to work in
Japanese firms in their home countries. The OS Group handles the procedures for interns entering
Japan and getting approval under the “Foreigner Technical Intern Training Program”, and the
time-consuming operations related to taking care of interns during their stay in Japan, taking over the
burden from companies providing internships. The Company is targeting the seconding of 800 interns
in FY12/15, planning to expand that to 5,000 by the final fiscal year of the Medium-Term Management
Plan in FY12/17.
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
10
March-24-2015
As a result of these initiatives, Overseas Business net sales are targeted to increase four-fold over the
next 3 years, and as can be seen in 【Graph 2】 on page 12, will account for 32% of consolidated net
sales in FY12/17, exceeding the 31% estimate for Manufacturing Outsourcing.
【Chart 1】 Scheme for Efficient Utilization of Technical Intern Trainees
Also, relative to the scenario for contraction of demand for domestic Manufacturing Outsourcing, the
Company is not simply standing by and doing nothing, rather it is hastening to establish a business
model that diminishes the impact to the extent possible. The classic example of this is the OS Group’s
proprietary PEO scheme through its newly established subsidiary PEO Co., Ltd. last September.
PEO is an abbreviation for Professional Employer Organization, aimed at becoming an employment
organization for skilled workers. As an outsourcing format that is popular in the US, PEO jointly hires
employees from various firms, and depending on the business circumstances of each firm, reallocates
jointly employed employees accordingly.
However, joint employment is prohibited by law in Japan. Under the OS Group’s PEO scheme,
participating firms (makers) in this scheme become members of the “PEO Association” operated by
PEO Co., Ltd. PEO interviews directly employed seasonal workers of participating manufacturing firms,
and when agreement by both parties is reached, concludes an employment contract as a full-time
employee, then concluding a temporary placement contract between PEO and a participating maker,
dispatching the employee that has transferred enrollment to the participating maker. The steps and
flow of this process are shown in 【Chart 2】.
Major benefits to participating firms include freeing up fixed costs in personnel expenses, and the
ability to adjust production personnel depending on the fluctuation of production volumes. At the same
time major benefits for seasonal workers that transfer enrollment to PEO include employment security
arising from switching from definite-term contracts to indefinite-term (full-time) employment contracts.
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
11
March-24-2015
In that sense, this PEO scheme actually achieves the conflicting market needs for “freeing mobility of
workforce and employment stability,” forming “an employment safety network” with the participation
and cooperation of manufacturers.
As a result, 3 months after establishing PEO as of the end of FY12/14, there were already 87
participating manufacturing firms, and the number of employees hired by PEO reached 1,127. Based
on the latent needs of OS Group client manufacturing firms, the Company is targeting for PEO in
FY12/17 335 participating firms and 10,000 employees.
Under this scheme, PEO is saddling fixed costs, and the benefits are actually quite large. Most
temporary placement for manufacturing outsourcing is in the form of “General Dispatch” using a
registration system, and hiring requires enormous recruitment expenses for job offer advertisement etc.
For example, the average recruitment unit price per person in FY12/14 was roughly ¥68,500. In the
case of this PEO scheme, there is almost none of this type of recruiting cost, and in many cases
subject workers continue to work at the same participating firm to which they are dispatched, and since
they have high skill sets, it is also easy to find new destination firms for temporary placement.
【Chart 2】 Steps and Flows of the PEO Scheme
Also, weeding out within the production outsourcing industry is advancing due to difficulties in
responding to the diversification and sophistication of client needs or dealing with revisions in the law,
and that demand could be thought to turn toward the OS Group, however, since there is no change in
the ongoing contraction of the overall market, the OS Group only positions these various measures as
a defensive step, and the Company is placing priority on shifting staffing to domestic growth sectors
and expanding Overseas Business.
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
12
March-24-2015
【Graph 2】 Numerical Targets of Vision2017
42.047.3
59.4
74.0
100.0
130.0
0%
5%
10%
15%
20%
25%
0.0
30.0
60.0
90.0
120.0
150.0
FY12/12Actual
FY12/13Actual
FY12/14Actual
FY12/15Plan
FY12/16Plan
FY12/17Plan
(¥ billion)
Manufacturing Outsourcing Business Engineering Outsourcing Business
Overseas Business Gross profit margin
SG&A expenses ratio Operating income margin
57%46%
44%
41%
37%
31%
29%
36%37%
39%
38%
37%
19% 20%25%
32%
Source: Compiled by Trias Corporation from the Company IR materials
As we discussed at the beginning of this section, numerical targets for the final fiscal year of the
Medium-Term Management Plan in FY12/17 are consolidated net sales of ¥130 billion and operating
income of ¥8.5 billion, and as is shown in 【Graph 2】, this assumes not only growth in net sales, but
also a rise of the operating income margin.
Plans call for maintaining gross profit margin over 20%, and this will be achieved through raising the
net sales ratio of high margin Engineering Outsourcing, as well as improving margins for Overseas
Business, maintaining the highest level in the industry. Also, for SG&A expenses which swelled as a
result of corporate acquisitions, the Company is targeting to lower the ratio in net sales through sales
expansion, aiming to raise the operating income margin from 3.4% in FY12/14 to 6.5% in FY12/17.
Further, the Company is aiming at increasing this to 10% in FY12/20.
In order to maintain its relative advantage to competitor firms, the Company will maintain strategic
investments, and at the same time, intends to enhance return to shareholders. During FY12/14, the
Company made the decision to increase the consolidated dividend payout ratio from 10% in principle
to 30%, and as part of this hiked DPS (Dividend per Share) from ¥13.00 to ¥35.00.
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein are prepared based on reliable information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any opinion or information contained in the Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification. Final investment
decisions shall be made by investors themselves based solely on their own judgment and responsibility.
Copyright © 2015 Trias Corporation All rights reserved.
13
March-24-2015
References
Consolidated Key Financial Data
No. of Shares Issued Dec-14 15,984,900 Total Assets (¥mn) Dec-14 24,132
No. of Treasury Shares Dec-14 1,139,500 Shareholders' Equity (¥mn) Dec-14 6,883
Market Value (¥mn) 23-Mar-15 27,014 Interest-Bearing Debt (¥mn) Dec-14 6,641
BPS (¥) Dec-14 463.65 Equity Ratio (%) Dec-14 28.5
ROE (%) Dec-14 21.6 Ratio of Interest-Bearing Debt (%) Dec-14 96.5
ROA (%) Dec-14 5.9 Free Cash Flows (¥mn) Dec-14 932
PER (times) FY12/15 fcst. 15.5 ROE = Net Income ÷ Averaged Shareholders' Equity
PCFR (times) Dec-14 16.3 ROA = Net Income ÷ Averaged Total Assets
PBR (times) Dec-14 3.9 PCFR = Market Value ÷ (Net Income + Depreciation)
Share Price (¥) 23-Mar-15 1,690 Ave. Daily Vol. = Ave. Daily Vol. for the last 12 months
Unit Share (shares) 23-Mar-15 100 Interest-Bearing Debts* Ratio = I.B.D. ÷ Shareholders' Equity
Average Daily Volume (shs) 23-Mar-15 205,887 *Incl. current portion of accounts payable-installment purchase
Free Cash Flows = Operating CF + Investment CF
(*)
Consolidated Financial Results
Consolidated
(¥million) Net Sales
Operating
Income
Ordinary
Income Net Income EPS (¥)
Dividend
per Share (¥)
FY12/11 32,397 563 702 194 13.48 8.00
FY12/12 42,090 1,000 1,153 641 44.46 8.00
FY12/13 47,384 1,202 1,357 1,122 77.54 13.00
FY12/14 59,421 2,010 2,197 1,316 89.81 35.00
FY12/15 1H fcst. 35,700 830 800 430 28.96 0.00
FY12/15 full-year fcst. 74,000 3,100 3,000 1,620 109.12 35.00
Note: FY12/15 forecasts announced on Feb. 12, 2015.
Share Prices and RSI (March 23, 2014~March 23, 2015)
0
500
1,000
1,500
2,000
2,500
Share Price (Close)
1 Month Moving Average
3 Months Moving Average
RSI 14 Days Moving Average (RHS)
(Yen)
Source: Prepared by Trias Corp. with Bloomberg data.
Note: RSI, Relative Strength Index, is the index representing the ratio of overbought or oversold share prices. In general, over 70 in RSI
shows overbought share price range, while below 30 shows oversold share price range.RSI=averaged share price appreciation for N days÷(averaged share price appreciation for N days
+averaged share price decline for N days) x100
RSI
70
30