Consolidated Financial Results Supplementary Document Q1 FY20
August 3, 2020 / SIGMAXYZ Inc. (Stock Code: 6088)
Outline of Financial Results for Q1 FY20
Summary | (YoY change) | ||
| Consolidated revenue | 3.36 billion yen | (-12%) |
Profit before income taxes | 309 million yen | (+4%) | |
| Profit | 87 million yen | (-46%) |
- Despite the growth in ERP cloud migration services, revenue declined due to the decrease in the consulting services for the aviation industry, which has been severely affected by the COVID-19 pandemic. The decline is also due to the decrease in product sales, which involved the procurement of hardware and software products for call center projects in the retail industry.
- Selling, general and administrative expenses increased by 9% due to increased costs incurred for measures taken for the COVID-19, personnel and other costs associated with recruitment, and investments for solution development and productivity improvement.
- The sale of the entire stake in Lawson Digital Innovation Inc. resulted in a 4% increase in the profit before income taxes.
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Consolidated Income Statement for Q1 FY20
FY19 | FY20 | YoY change | |||
Unit: JPY mn | Major changes | ||||
(Apr to Jun) | (Apr to Jun) | Amount | Rate | ||
Revenue | 3,804 | 3,366 | -438 | -12% | Although ERP cloud migration |
services are growing, revenue | |||||
is impacted by the COVID-19 | |||||
Gross profit | 1,361 | 1,300 | -60 | -4% | pandemic. |
S, G&A | +96 | +9% | - Increase in costs incurred for | ||
1,051 | 1,147 | measures taken for the | |||
expenses | |||||
COVID-19, personnel and | |||||
other costs associated with | |||||
Operating profit | 309 | 152 | -156 | -51% | recruitment, and investments |
for solution development and | |||||
productivity improvement. | |||||
Ordinary profit | 297 | 163 | -134 | -45% | - Profit from the sale of affiliate |
shares. | |||||
- The profit without considering | |||||
Profit before | |||||
297 | 309 | +12 | +4% | the impact of the increase in | |
income taxes | valuation allowance and tax | ||||
effects was 179 million yen, | |||||
Profit | 161 | 87 | -74 | -46% | which is a decrease by 0.5% |
compared with the same | |||||
quarter last year. | |||||
2 |
Key Performance Index (KPI)
Q1 FY19 | Q1 FY20 | YoY change | |
Number of employees | 539 | 564 | +5% |
(Number of consultants) | (479) | (498) | (+4%) |
Client Satisfaction (NSI*) | 95 | 94 | -1pts |
Number of projects | 398 | 363 | -9% |
Number of clients | 114 | 125 | +10% |
Revenue per contract | 9.6 | 9.3 | -3% |
(Unit: JPY mn) | |||
- NSI (Net Satisfaction Index): Average score from 5 possible ratings for 10 questions evaluating project satisfaction.
- Format: Questionnaire
- Respondents: Project owners
5: I really agree | 100 points |
4: I agree | 75 points |
3: I can't say either way | 50 points |
2: I don't agree | 25 points |
1: I don't agree at all | 0 points |
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Consolidated Balance Sheet for Q1 FY20
Unit: JPY mn | End of | End of | YoY change | Major changes |
FY19 | Q1 FY20 | (Amount) | ||
Current assets | 6,943 | 6,914 | -29 | - Increase in cash and deposits, |
and decrease in accounts | ||||
receivable-trade | ||||
Cash and deposits | 4,175 | 4,552 | +376 | - Borrowings and dividend |
payments | ||||
Non-current assets | 2,725 | 2,339 | -386 | |
Total assets | 9,669 | 9,253 | -415 | |
- Borrowings and the reduction | ||||
Current liabilities | 3,424 | 3,126 | -297 | |
of income taxes payable, etc. | ||||
Non-current liabilities | 1,208 | 1,394 | +186 | - Increase in provision for |
share-based remuneration | ||||
Total liabilities | 4,632 | 4,520 | -111 | |
- Reduction due to dividend | ||||
Net assets | 5,036 | 4,732 | -304 | |
payments | ||||
Equity ratio | 52% | 51% | -1pts | |
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Transitions in Consolidated Cash Flow
Unit: JPY mn
Profit before income taxes (+309)
4,175
Depreciation Payments of
costs corporate taxes, etc.
(+65)
(-589)
Operational investment securities (-59)
Operational CF +26
Investment | ||
asset | ||
redemptions | Other | |
(+145) | investment | |
CF | ||
Sale of affiliate | ||
Other | shares | (-34) |
operational | (+225) |
CF | |
Borrowings | |
(+300) | (+600) |
Investment CF +336
Acquisition of treasury stocks
(-134)
Dividend
payments
(-448)
Financial CF +13
Other | 4,552 |
Other | |
financial CF | (-0) |
(-2) | (+376) |
Other
-0
Start of | End of |
FY 20 | 1Q FY 20 |
5 |
Migrating ERP to the Cloud
In readiness for the situation called the "2025 Digital Cliff," when the existing ERP maintenance support expires, SIGMAXYZ supports clients to enhance their corporate value by smoothly migrating their ERP to a cloud environment, and carries out organization/business transformation and change management, based on the growth scenarios for clients that we provide.
We are a leader in the industry, with consultants who have acquired a total of 38 certifications of the SAP S/4HANA Cloud certification (as of the end of June). This certification is a qualification for consultants who offer ERP cloud services.
Current state of IT at Japanese companies
Core IT systems
- Outdated (20% currently over 20 years old, will be 60% in 2025)
- Based on business units -> Difficult to use data across the whole company
- Excessive customization -> Complexity, black boxes
Issues to be addressed
Migrate core IT systems
to the cloud
(Reform business
process )
Customer example
IT budgets
Maintenance operation : Value creation = 80%:20%
IT personnel
Allocating most IT personnel to maintaining and operating the core system is hindering the acquisition of new technologies.
Potential economic losses* | ||
of JPY 12 trillion per annum | 2025 Digital | |
from 2025 onward if there is | Cliff | |
no change |
Digital transformation
* METI report (September 7, 2018)
SAP Award of Excellence 2020 "Project Award" winning project
SIGMAXYZ supported the NTT Advanced Technology Corporation's core IT system reform project, and completed the migration of key systems to the cloud in about six months.
The project used SAP S/4HANA Cloud's multi- tenant edition, which is SAP's next-generation cloud ERP (Enterprise Resource Planning) package. It was the first time multiple modules (financial accounting, management accounting, sales management, purchase management, and project management) were implemented all in one to go for a Japanese company's domestic operations. (As of June 2019)
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Digital Transformation of Indirect Operations
SIGMAXYZ Inc. has achieved complete digitization of expense settlements and invoice management for indirect material purchases. Based on the knowledge we have gained from this, we have started providing a service for the "digital transformation of indirect operations."
In order to promote this service, we have developed solutions and partnerships, utilizing various types of SaaS, including Concur. Aiming for nationwide market expansion.
Image of process innovation with DX for expense settlement in the company
Use of expenses to expense applications | Check (approval) + audit |
Before | ||||||||||||||||||||
DX | ||||||||||||||||||||
Manager's | Accounting | Compliance | ||||||||||||||||||
Cash | Paper receipt | Manual input | ||||||||||||||||||
approval | approval | check | ||||||||||||||||||
API | ||||||||||||||||||||
Compliance | ||||||||||||||||||||
Receipt reading | Concur expense | |||||||||||||||||||
inter- | ||||||||||||||||||||
AI-OCR | check | |||||||||||||||||||
action | ||||||||||||||||||||
DX | ||||||||||||||||||||
Elimination of | Automatic acquisition of | |||||||||||||||||||
Transform operational processes | ||||||||||||||||||||
paper vouchers | expense data | centering on audits | ||||||||||||||||||
Stop submission | Stop inputting expense | Stop manual approvals | ||||||||||||||||||
and storage | settlement information manually | |||||||||||||||||||
- Reduced the number of man-hours by 28% per employee
- Eliminated manager's approval process (average of 120 minutes per month)
Customer example
We assisted SHIONOGI & CO., LTD. in introducing an operational process and cloud services for expense settlements-both which comply with the Electronic Books Storage Act, and achieved complete digitization of the expense settlement process, including digitization of its vouchers. We completed the introduction of the new operational process and its system for all 5,000 employees in 10 months.
Nikkei Computer (issued on April 18, 2019)
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Business Operations in the Era of Fully Remote Work
As the spread of COVID-19 significantly impacts society and the economy on a global scale, SIGMAXYZ Inc. has started to offer its own perspectives as a comprehensive package. This includes corporate business management that we put into practice ourselves in the era of COVID-19. We have modeled eight elements including operational processes and systems, various rules, and tools, which need to be designed and organized in cooperation with each other in order to ensure the stable business operation of a company, and provide mixed solutions that include each perspective.
- Operational processes | ||||
Operational | (business activities) | |||
Octagon Model | - Operational processes | |||
processes | (support activities) | |||
- Decision-making/settlement | ||||
processes | ||||
Fully remote work environment at SIGMAXYZ Inc.
- E-mail,telephone, and chat
- Teleconference tools
- Scheduling tools
- Safety and health
management of employees
- Personnel development and evaluation systems
- Organizational structures, operating systems and culture
- Personnel and labor regulations (working systems, etc.)
- Compliance with the Worker Dispatching Act and carrying out labor management
- Information management regulations/rules
- Operational applications | |||||||||||||
Communi- | Operational | ||||||||||||
- External cooperation | |||||||||||||
cation tools | systems | applications | |||||||||||
- Various middleware | |||||||||||||
- Business-use terminals and | |||||||||||||
Human | |||||||||||||
Infrastructure | |||||||||||||
resources/ | smartphones | ||||||||||||
environment | - Networks | ||||||||||||
organizations | |||||||||||||
- Security | |||||||||||||
- Office | |||||||||||||
Regulations | |||||||||||||
Workplace | environment/facilities | ||||||||||||
and rules | - Meeting management | ||||||||||||
- Board of | Decision- | - Work styles | |||||||||||
directors/management | |||||||||||||
making/business | |||||||||||||
meetings/IR | |||||||||||||
management | |||||||||||||
The number of seats is 1/5 the number of employees! The office is a place for collaboration
Freedom to choose work hours and workplace. How can employees be evaluated when you do not meet them in person?
Essential equipment for an "office from anywhere"
- yellow light indicates urgent attendance at the office. A "Management ambulance" supported by real-time business management systems.
Morning meetings, exercises and reviews are done online. Training of fresh graduates through video conferences. Is it effective?
All that's needed is a team with employees who are self-controlled and self- driven
Reduced the work time of employees by 28%. "Receipt gluing" for expense settlements is no longer necessary!
There is one multifunctional device per floor.
What is a fully paperless office really like?
- Regulations for | . |
administrative authority |
- Business management methods
The future of "managers and employees that do not see each other"
MM, DD
Draw a transformation | ||||
Assess the current situation | Develop a concept | |||
road map | ||||
Working in an office is no longer essential, and our work style has changed a great deal. Since we don't meet each other every day, we share each other's responsibilities and goals. We let team members manage their day-to-day operational progress on their own.
Survey
The target achievement level for each element is assessed and analyzed based on surveys and interviews conducted with management and employees.
Data analysis
Trends are analyzed based on indicators such as sales/cost outcomes and lead times, etc. in order to use them as reference data for the survey.
Operational | |
processes | |
Communi- | Operational |
cation tools | systems |
Human | Infrastructure |
resources / | environment |
organizations |
Regulations | Workplace |
and rules | |
Decision-making / | |
business | |
management |
I used to worry when I could not see my staff and check the orders they received, etc. but because key indicators like these can now be checked in real time on the web dashboard, I no longer have these concerns.
The personnel evaluation system has also changed significantly, and a capability-based evaluation system has been introduced. I conducted year-end evaluation interviews in person or online, depending on each member's work situation. I evaluate them with a focus on their output to the goals set at the beginning of the year. One of my staff members made work improvements by introducing a new tool that no one was aware of, and reported his achievement happily. It appears that the work efficiency and motivation of my staff are increasing.
8
Digital Workplace Environment
Since its inception in 2008, SIGMAXYZ has developed and maintained a digital workplace environment based on strict security policies.
The aim is to provide employees with the freedom to choose the time and location that best suits their value creation activities. Through the following environment and mechanisms, we will use the digital platform in all areas related to business operations, and develop business activities that are independent of office work.
- Access to digital and mobile tools for all employees
- Digital distribution of internal information and paperless operations
- Use of collaboration tools such as web conferencing and business chat systems
- Process various internal operations such as expense settlement digitally
- Use real-time operation management system to visualize operations
- Skill-basedhuman capital evaluation system
- Office operations via company-wide free address system
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Presenting Information as a Leading Company in Food Innovation
We have participated in government-led workshops as a core member. We have also received media coverage, and provided information through lectures, contributions, and publications.
In July 2020, consultants in this field published the first food business book in Japan, "The Food-Tech Revolution", in which they thoroughly detail how "food" acts in the era of COVID-19 and post COVID-19, and the cutting-edge food business.
- "The Future of Food Tech 2019-2025" (Nikkei BP, 2018)
- "Food Tech Revolution" (Nikkei BP, 2020)
10
Enhancing Non-financial Value (SDGs and ESG initiatives)
We believe that the value of a company is a synthesis of financial and non- financial value, and place importance on Sustainable Development Goals (SDGs) and Environmental, Social and Governance (ESG) factors in promoting our business.
SDGs | ESG | |
-
We strive to expand value-added activities to address social problems as well as our clients' issues.
On commencement of the project, a forum for consensus building is set up with the client concerning which items pertaining to the SDGs' 17 goals are to be achieved, and how.
SIGMAXYZ supports the SDGs | https://www.un.org/sustainabledevelopment/ | |
- We have implemented paperless internal information sharing processes*, and have stopped offering beverages in PET bottles and switching clear folders made of plastic materials
to paper-based ones in our business premises.
(*Monthly number of copy/print paper used per employee for the fiscal year ending March 31, 2020 : 160 sheets [12% decrease from the previous year])
• We are working on building a "social multi-sided platforms" to form an ecosystem where people in Japan and overseas who empathize with and support our initiatives gather to address social issues.
• With regard to the corporate governance system, the ratio of independent outside directors is 58%, and all of the members of the Audit & Supervisory Committee and the Compensation
Committee are outside directors.
11
Our Digital Transformation: Three Innovations
1) | Digital Transformation (DX) | Streamline existing business operations |
2) Service Transformation (SX) | Create new value | |
3) | Management Transformation (MX) | Management platform reform |
Social changes
Analog society | Digital society |
"Goods-dominant""Service-dominant"
societysociety
Business challenges | ||
Digital | Management | |
Transformation | Transformation | |
(DX) | ||
(MX) | ||
Service | • | Organizational |
culture | ||
Transformation | • | Organizational |
(SX) | structure | |
• | IT system | |
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SIGMAXYZ's Business
In response to the various business challenges that companies face, SIGMAXYZ provides consulting services in a wide range of fields, and launches and operates related forms of business.
In addition, we aim to promote value creation activities that go beyond the boundaries of a single company or industry, by forming an ecosystem through networks with a diversity of professionals and companies.
Consulting Services
Digital transformation
Program & project management ERP cloud migration services Business process transformation Innovation regarding people and organizations
M&A strategy planning Platform strategy planning Construction of multi-sided platforms
Alliance
New business development | ||
Business investment | ||
Establishment and management of | ||
joint ventures | ||
Expertise, | Development and delivery of joint | |
・ | services | |
knowledge | ||
Incubation | ||
・ | Human resources | |
- Networks
- Funds
Forming and operating an ecosystem
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Skill Teams
Organizing projects by combining professionals with diverse skills
Industry Sherpa
Understands industry characteristics and business processes, and draws transformation scenarios
Retail | Manufacturing | Logistics |
Aviation | Transportation | Communication |
Consumer goods | Insurance and finance Public and infrastructure | |
Pharmaceuticals | Trading companies | Media and entertainment |
Heuristic Sherpa
Innovation regarding people and organizations to transform management and connect companies in order to create value
Vision Forest*
Organizational design
Multi-sided platforms
* Art-based human resources activation program
PS** Sherpa
Drives enterprise transformation with Project Management (PMO) and SaaS
Project management | Change management |
Vendor management | SaaS solutions |
Stakeholder management | SaaS integration |
Integration management | Rapid development management |
** Abbreviation for PMO & SaaS |
Digital Sherpa
Implements digital technology in companies' business operations
Digital transformation | AI |
Digital architecture | IoT & robotics |
Digital application design | Service design |
Process design | IT planning |
Alliance
New business development, business investment, establishment and operation of joint ventures,
development and delivery of joint services, and incubation
As of April 2020 14
Alliances
We create value through collaboration with our business partners and group companies, and companies we invest in
Subsidiaries | Affiliates | Companies we invest in |
M&A advisory
SXA Inc.
Financial EDI services
SXF Inc.
As of the end of June 2020 15
Subsidiaries and Affiliates
Company name
SXA Inc.
SXF Inc.
AnalySys. Inc.
Year of incorporation / start of business / capital participation (Joint venture partners, share of voting rights)
2014
(100% subsidiary)
2019
(100% subsidiary)
2014
(Joint venture with Plan･ Do･See Inc., 49%)
Business description
Providing M&A advisory services
(Financial advisory / due diligence / valuation / business turnaround advisory / development of in-house M&A systems)
Providing various services related to financial EDI Electronic payment agency: Director-General of the Kanto Local Finance Bureau (Electronic Payment Agency) No. 40
Providing cloud services for bridal management applications / developing and providing SIGMAXYZ solutions
As of the end of June 2020 16
Companies We Invest In (1 of 2)
Company name
SX Capital, Inc.
SALA Lifestyle Innovation Co., Ltd.
Ghelia Inc.
Year of incorporation / start of business / capital participation (Joint venture partners / main shareholders)
2016
2017
(Joint venture with
SALA CORPORATION)
2018
(Sony Computer Science Laboratories, Inc., World Innovation Lab, LLC., and Mizuho FinTech Investment Limited Partnership)
Business description
Management and administration of assets for investment associations, etc. targeting privately-owned IT venture companies
Marketing and platform business in the SALA Group
AI solution business
2019
Monstar Lab, Inc.
- digital-productdevelopment company that provides optimal resources, using IT engineers and creators all over the world
As of the end of June 2020 17
Companies We Invest In (2 of 2)
Company name
Creww Inc.
Year of incorporation / start of business / capital participation (Joint venture partners / main shareholders)
2019
Business description
Managing one of the largest start-up communities in Japan, and offering a variety of services for start-up companies
2019
(JTB Corp.)
JTB BENEFIT SERVICE, Inc.
2019
Toletta Cats Inc.
Offering various solutions in the business areas of welfare, health support, life design support, and CRM support, and incentives for employees of client companies
Pet-related services
As of the end of June 2020 18
FY20 Consolidated Earnings Forecasts
Unit: Million yen | FY 20 | Increased/decreased | Increased/decreased |
amount to the | rate to the previous | ||
previous fiscal year | fiscal year | ||
Revenue | 14,500 | -1,503 | -9% |
to 15,500 | to -503 | to -3% | |
Profit before income taxes | 1,750 | -426 | -20% |
to 2,350 | to +173 | to +8% | |
Profit attributable to owners | 1,050 | -357 | -25% |
of parent | to 1,520 | to +112 | to +8% |
Revenue: Disclosed a range of amounts instead of a specific value because it includes product sales of hardware and software procurement services for call center projects in the retail industry.
Profit: Since capital gains and earnings from business investments, which are similar to contingency fees, may be special profits for accounting purposes, the ordinary profit will remain pending, and we will disclose a range of amounts of the profit before income taxes and profit attributable to owners of parent.
19
Dividend Policy
- Focus on striking a balance between shareholder returns and internal reserves, in order to strengthen the financial structure and prepare for future development of business.
- Ensure consistent and stable payment of dividends.
- The dividend per share for FY20 : JPY 22.
20
About the Use of This Document
This document discusses not only the trends in the SIGMAXYZ Group's business and the industry, but also future prospects based on current plans, estimates, expectations, and forecasts.
Statements regarding these future prospects include various risks and uncertainties. It is possible that known or unknown risks, uncertainties, or other factors may lead to results that differ from the content of the statements regarding future prospects. SIGMAXYZ Inc. cannot guarantee that the statements about future prospects and forecasts are correct, and it is possible that the results may be significantly different from the future prospects.
The statements about future prospects in this document were created by SIGMAXYZ Inc. on the basis of information that was available when the document was being prepared. As such, they do not reflect future events and situations, or update or change any other statements about future prospects.
URL: www.sigmaxyz.com
Inquiry: info@sigmaxyz.com