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Scala, Inc. (JP-4845) Tokyo Stock Exchange First Section ( I )

2018-10-09  提供機構:FISCO  作者:FISCO  點閱次數:2

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◆Summary

Earnings to continue to increase from the growth of SaaS/ASP services in the CRM area and the effects of M&A

Scala, Inc. <4845> (hereafter, also “the Company”) is a leading provider of website search services, FAQ services, and other services for corporate websites. It continues to develop its businesses and achieve sustainable growth, centered on SaaS/ASP* services, which are a business model with recurring income. It also actively conducts M&A to expand its business area, and in July 2016 it made a subsidiary of Softbrain Co., Ltd. <4779> (percentage of voting rights: 50.23%), which is a major sales support software company. It also made subsidiaries of plube Co., Ltd. (ownership ratio: 100%), an EC website management company, in August 2017, and of Leoconnect, Inc. (ownership ratio: 66.0%), which carries out customer support consulting via call centers operated by the HIKARI TSUSHIN INC. <9435> Group, in March 2018. The Company has adopted International Financial Reporting Standards (IFRS) accounting.

* Service that supplies application software functionality to customers over a network

1. Sales and profits increased in FY6/18 based on non-GAAP standards

In the FY6/18 consolidated results based on non-GAAP standards that exclude temporary earnings, sales and profits increased by double digits, with sales revenue growing 20.3% year on year (YoY) to ¥12,829mn and operating profit rising 11.3% to ¥1,546mn. In the SaaS/ASP business, the Company made progress in cross sales to existing customers and the acquisition of new customers, mainly for the mainstay services, and sales revenue increased 11.9% to ¥3,141mn and operating profit rose 41.2% (non-GAAP standard) to ¥559mn, which drove the results as a whole. Profits declined slightly for Softbrain’s business, including due to the impact of a delay in projects for e-Sales Manager. But at plube, which was newly made a subsidiary, sales revenue was ¥547mn because of the strong sales of trading cards, while Leoconnect recorded net sales of ¥856mn and operating profit of ¥7mn, and these results were also factors behind the higher sales and profits.

2. Forecasts double-digit increases in sales and profits for FY6/19

The outlook for the FY6/19 results is for the double-digit increases in sales and profits to continue, with sales revenue to rise 20.4% YoY to ¥15,450mn and operating profit to grow 18.3% to ¥1,830mn. The SaaS/ASP business will continue to achieve high growth from the strengthening of the corporate CRM department and the increased investment in IT to improve operational efficiency, while Softbrain’s results are expected to be double-digit increases in sales and profits. Leoconnect’s full fiscal year contribution to results will also be a factor behind the higher sales and profits.

3. Synergies with Leoconnect are expected

In terms of developments in the future, the focus will be on synergies with Leoconnect. This is because while Leoconnect previously only carried out a management consulting business for the customer support centers of the HIKARI TSUSHIN Group and its operating margin was low, at around 1%, its sales are expected to increase and profitability improve through synergies with the Company. It is considered that in the future, it will be possible to raise its operating margin to a level of around 10%. Since FY6/19, the Company has been sequentially introducing telephone-related services, such as IVR (interactive voice response) services, to the customer support centers to which Leoconnect provides consulting (24 centers nationwide), and the strategy is to improve productivity (reduce the number of responses by operators) at the same time as developing new customers and thereby increase earnings. It will strengthen services for foreigners from who demand is rising, such as due to the increase in the number of overseas visitors to Japan, through a collaboration with Inbound Tech Inc. Specifically, it is planning to provide FAQ translation services and multilingual support services, which are expected to contribute to earnings in the future.

4. Will continue to increase dividends, assuming earnings growth

The Company’s basic dividend policy is to stably and continuously pay dividends while retaining the internal reserves necessary to strengthen its financial structure and to develop its businesses in the future. In FY6/19, it plans to pay a dividend per share of ¥24, up ¥4 YoY, for the 10th consecutive fiscal year of higher dividends. It also aims to continue to increase the dividend in the future alongside the growth in earnings.

◆Company profile

The corporate cloud service in the CRM field is its core business and it is expanding business scale through an M&A strategy

1. History

The Company was founded in December 1991 with an initial start as a sales distributor of database systems. It realized significant growth in 1999 by inheriting support services, including customers, for the Model 204* mainframe database management system license from Mitsui Knowledge Industry Co., Ltd. In May 2001, it was listed on the Osaka Securities Exchange’s NASDAQ Japan Market (now the TSE’s JASDAQ) and it is currently listed on the TSE First Section.

* Developed by US-based Computer Corporation of America and Sirius Software (now, Rocket Software). Major customers were large companies in Japan like as Bank of Japan <8301> and Tokyo Electric Power Company Holdings, Inc. <9501>. Demand for it ceased due to changes in the market environment, and the service was ended in the fall of 2016.

The Company determined that it needed to change its business structure to continue growing amid the migration of corporate information systems from mainframes to small-scale open servers, and it started expanding its business through M&As utilizing funds obtained from its IPO. It began with the purchase of PatentManager, a patent manage­ment software business from Interscience in 2003, and then acquired Dbecs Co., Ltd. with the aim of entering the CRM field, Vodamedia Inc. with the goal of entering the IVR field, the news distribution service provider NewsWatch Inc., the website developer TriAx Corp., and other firms in the Internet domain as subsidiaries one after another. The Company is steadily expanding its SaaS/ASP business, which is a business model with recurring income, as its core operations and bolstering its recruitment of system engineers to enhance its own service development capabilities.

Recently, the Company made subsidiaries of Softbrain (ownership ratio based on voting rights as of the end of June 2018: 50.23%), a major sales support software company, in July 2016; plube (ownership ratio: 100.0%), an EC website management company that conducts trading of battle game trading cards, in August 2017 in order to enter the EC business; and Leoconnect (ownership ratio: 66.0%), which uses 24 call centers to provide customer support consulting for the brands and products of the HIKARI TSUSHIN Group, in March 2018.

To conduct more flexible management, the Company switched to a holding company organization in 2004 and currently has 10 consolidated subsidiaries. In FY6/16, it changed its accounting standards to IFRS to disclose its results.

Holds the leading share in the domestic market, including for i-search (an internal website search service) and i-ask (an FAQ service)

2. Business description

The Company divides and discloses information on its businesses into its 4 mainstay businesses: The SaaS/ASP business, which provides IT services that contribute to improving operational efficiency in the corporate CRM area; the Softbrain Group’s SFA business (the e-Sales Manager-related business); the field marketing business; and Leoconnect’s customer support business, and also the other businesses (Softbrain’s systems development and publishing business and plube’s EC business). In FY6/18, the percentages of total sales by business were 24.5% from the SaaS/ASP business, 32.6% from the SFA business, 26.7% from the field marketing business, 6.7% from the customer support business, and 9.5% from the other businesses. In the percentages of segment profit to total profit, the SaaS/ASP business provided 36.2%, the SFA business 42.0%, and the field marketing business 17.0%, so these 3 business provided approximately 95% of the total.

(1) SaaS/ASP business

The Company provides SaaS/ASP services as its core business. The main services are the i-search website search service, i-ask FAQ service, IVR service, and news distribution service.

The i-search service was launched in 2007, and it currently holds the leading market share at around 15% with more than 360 customers, particularly large enterprises. While the Company has over 10 competitors, its i-search service offers better visibility by displaying images in search results and provides effective guidance to users. The average usage fee per month is ¥100,000-150,000.

The Company launched the i-ask service around 2008 and it is used by about 160 companies, mainly in the financial and insurance industries. This service lets users resolve issues on their own by listing frequently asked questions and related answers on their corporate sites. It helps to lower costs by reducing accesses to call centers and can improve customer satisfaction. The Company holds a roughly 15% market share, ranked second after OKWAVE <3808>. The average usage fee per month is ¥200,000-300,000.

IVR is a system for voice-based automated responses at corporate phone help desks, and the Company’s service stands out for being provided in the SaaS format. Companies previously incurred large investment costs for IVR, including the need to install a PBX (private branch exchange) system. However, the SaaS format enables them to access the service inexpensively and use it during limited periods, such as campaigns.

Other than these businesses, the Company also provides various other services, including a news distribution service for corporations, and a service for the planning, development, production, maintenance, and management of websites according to customer needs, and one of its features is that it has a rich service lineup and it does not rely upon a specific service. It also develops systems and provides services related to IoT and big data as customized development projects. Examples of this are Smiling Road, a safe-driving assistance service (for corporations)*1 sold by Sompo Japan Nipponkoa Insurance, and Portable Smiling Road, a smartphone app (for individuals)*2. In these services, big data, such as driving-related data sent from the users’ dashboard cameras, is received by the server of Scala Communications and is operated and managed by the web system developed by the Company.

*1 A service that contributes to the promotion of continuous safe driving and accident prevention. It does so by using a website or smartphone app to provide various functions to facilitate safe driving, for example, processing of driving data collected from dashboard cameras utilizing IoT technologies, providing safe diving analysis for drivers and administrators, granting points to drivers rated highly in the driving evaluation system, and enabling them to apply for prizes.

*2 A service that contributes to the promotion of safe driving and accident prevention. It does so by using a smartphone app to provide various functions for “peace of mind,” reporting accidents with a single push of a button should the driver be in an accident, and for “safety,” being useful for accident prevention including through driving analysis and the provision of information in real time, and GPS for “convenience.”

(2) Softbrain Group’s businesses

The Softbrain Group’s businesses can be divided into the SFA business, field marketing business, and other businesses. The SFA business is mainly the development and sales of e-Sales Manager, which is SFA/CRM software, but also includes a consulting service to solve sales issues, skills training, and a service to support the introduction of smart devices into companies. e-Sales Manager has an excellent reputation as being No. 1 for usability. It is the industry-leading product from domestic SFA vendors, and has been introduced by a total of more than 4,500 companies.

The field marketing business is mainly for consumer goods manufacturers, and involves conducting field activities, market research, and other activities in stores utilizing registered staff, who are mainly housewives aged in their 30s to 50s. As of the end of June 2018, the Company has approximately 84,000 registered staff nationwide who cover more than 160,000 stores, including convenience stores and drugstores, and it is deploying this business on the largest scale within Japan. It is also developing businesses for the dispatch and referral of retailer quality counselors who conduct field activities.

The systems development business and publishing business are included in the other businesses segment. But they are small scale in terms sales and profits, and their impact on earnings is negligible.

(3) Customer support business

This is the business of Leoconnect, which was made a subsidiary in March 2018. It provides consulting services for the management of the inbound call centers (24 centers nationwide), from accepting enquiries about customer companies’ services and products through to the follow-ups after the responses. Previously, its customers were the members of the HIKARI TSUSHIN Group. But on joining the Company’s Group, it has strengthened its IT services and is aiming to develop from providing conventional, problem solving-type call centers to proposal-type, inbound call centers, while at the same time its policy is to develop new customers from outside of the HIKARI TSUSHIN Group.

(4) Other businesses

The other businesses include Softbrain’s systems development business and the publishing business. They also include plube’s EC business, which manages “yuyu-tei,” an EC website to buy and sell battle-type trading cards. The site has a high name recognition in the game industry and is influential to the extent that it is used as a reference indicator for the pricing of used cards, and many of the purchases on it are made by overseas users.

Aims to differentiate itself from competitors by increasing convenience through developments from the customer’s perspective and providing a rich service menu

3. The Company’s strengths

One of the Company’s strengths in the SaaS/ASP business is that it develops services from the customer’s perspec­tive. It handles most of its business as direct sales and 80% of sales revenue is from direct salesforces. It improves service functions and develops new services by listening closely to customer needs and feeding this information back to its development team, and its development policy is to meet 100% of customer requests. The Company developed its core i-search and i-ask services thanks to this approach of meeting customer requests and its services are characterized specially by their ease of use, and this has also enabled it to make smooth progress in expanding sales to new customers.

Another strength is that its extensive lineup of services developed in this manner differentiates it from its competitors. While many competitors offer SaaS/ASP services for corporate websites, most of these companies only supply standalone services and few can provide multiple services as the Company does. The ability to propose multiple services enables it to meet diverse customer needs, and this cross-selling helps to raise the average price per customer and customer satisfaction. It has a track record of transactions with over 1,000 companies, including 400 listed companies.

The features of the SaaS/ASP business are that monthly billing revenue accounts for approximately 70% of sales revenue and its recurring income business model, in which monthly revenue is accumulated in accordance with the number of service contracts. The Company’s basic policy is to avoid usage-based billing as much as possible and to provide services only from fixed monthly billing. Also, the main services are maintaining a high level of profitability, with the gross profit margins at around 80% (the margin is lower for the news distribution service, at around 70%, because of the costs of purchasing content). A reason for this is that the Company initially develops services customized to customer needs, and then develops them horizontally as general services, which enables it to keep development costs down.

◆Results trends

Double-digit increases in sales and profits in FY6/18 based on non- GAAP standards

1. Summary of FY6/18 results

For the FY6/18 consolidated results according to non-GAAP standards that exclude temporary earnings and costs, sales and profits increased by double digits, with sales revenue rising 20.3% to ¥12,829mn, operating profit climbing 11.3% to 1,546mn, pretax profit growing 11.1% to ¥1,535mn, and net income attributable to owners of the parent increasing 28.0% to ¥707mn. Results in Softbrain’s SFA business were slightly less than forecast due to the effects of the delay in the occurrence of projects and upfront investment, but they steadily grew for the other businesses. Within them, sales and profits increased by double digits for the mainstay SaaS/ASP business, which drove the results as a whole.

Looking at the effects of the M&A, plube, which was made a subsidiary in August 2017, recorded sales revenue of ¥547mn, while Leoconnect, which was made a subsidiary in March 2018, achieved sales revenue of ¥856mn and operating profit of ¥7mn, and both contributed to the higher sales and profits. The IFRS results for FY6/17 included ¥2,633mn as a gain on the staged acquisition of Softbrain shares* at the operating profit stage.

* The gain on the difference between the market value of the relevant subsidiary at the time it entered the scope of consolidation and the acquisition cost of the shares

 

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