SHIFT has set “SHIFT1000” mid-term strategy targetting net sales of ¥100 billion by 2025. As part of our efforts to achieve our goals, we are promoting our business with the aim of achieving accelerated growth based on the 3 domains. The size of the software testing (quality assurance) market, which SHIFT considers to be its main business area, is approximately ¥5 trillion, or about 1/3 of the ¥15 trillion of software market in Japan. As there are no competitors that could pose a threat in this market, we believe that the key to future growth lies in how quickly we can capture the market share in this “Blue Ocean”.
Organic Growth in Existing Businesses
In our current main business, software quality assurance business, “sales capability” and “recruitment capability” would be two important basics to grow.
SHIFT is focusing its efforts on recruiting activity to hire talented personnel to meet the growing demand towards our business.
SHIFT implemets several tactics to recruite more engineers under this circumstances where Japanese IT market faces shortage of IT personnel.
- Developing and introducing SHIFT’s original examination, called “CAT examination”
- Conducting video recording job interview
- Focusing on referral recruitment
Utilizing CAT examination enables SHIFT to recruit talented personnel who are not neccesarily experienced ones in IT market. At the same time, those who was “non-IT personnel” could grow to “IT personnel” through experiences in SHIFT, which not only brings success to our further growth, but also, consequently generates IT personnel and contribute to mitigating a social issue in Japan.
SHIFT enforces its sales system, by cultivating existing customers (increasing net sales per customer) and increasing the number of new customers. Here below includes actions taken to strengthen sales activities.
- Increasing the number of sales personnel
- Monitoring by Michio Sasaki, Outside Director of SHIFT who were CEO of Keyence corperation
- Visualizing sales activity thouroughly and overseeing KPIs
Further M&A-Driven Growth
We are aggressively conducting M&A with the objectives of strengthening our service structure, enriching a comprehensive service portfolio in software development projects, enhancing our service provision capabilities, and acquiring a customer base. SHIFT segments the roles in the software development area and prepares M&A mappings. In this context, we are promoting the selection of target areas and companies.
１．M&A policy for selecting candidate
- Companies which covers areas that SHIFT currently does not.
- Small and midium sized IT companies that employ talented engineers but struggle with business succession.
- Major prime vendors which have user companies as thier customers.
- Companies which handle information about personnel, products, and resources to strengthen our platform business.
*Refere to below for further information about platform business.
２．M&A decision making policy
Additionally, SHIFT also considers perspectives below to make decisions in M&A.
- Whether their added value is high enough and unit price improvement can be expected
- Whether their customer population be utilized
- Whether they immediately contributes to profit over its goodwill
- Whether the acquisition price is relatively cheap (aroud 5 to 8 times EBITDA)
Check the link below for further information about group companies.
SHIFT has developed various kinds of business including our current main business, software quality assurance, and accumulated wide range of knowledge about IT industry. Such knowledge includes software development by industry or sector, infromation about skill and unit price for engineer, order amount and credit information for development projects. SHIFT would develop a matching platform based on our knowledge accumulated, which could match engineers who seek projects to work on and projects who seek engineers to assign.
Although we carefully manage risks on both strategic and operational level, there may be still risk factors that may affect SHIFT Group’s operating results and financial position including followings.
SHIFT Group’s policy is to recognize these risk factors and manage to avoid their occurrence or to respond in the event that they occur. However, these risk factors below are not complete, and there are unforeseeable risk factors. Therefore, we believe that investment decisions must be made after careful consideration of all the risk factors other than following items.
Please note that the impact of COVID-19 on our business performance is currently limited, but it could affect our financial position and operating results going forward depending on the timing of the contamination of the spread of the virus or other circumstances.
１．Software Testing Market Trends
SHIFT Group is working to develop its business, centered on software testing services. The outsourcing market for software testing offered by SHIFT Group is expanding with a background of increasing demands such as growing quality awareness among software development companies and a shortage of IT personnel in Japan. We expect this trend to continue in the future.
However, if the outsourcing market for software testing does not expand as expected, our operating results and financial position could be affected.
２．Possibilities of Intense Competitions
We differentiate ourselves from our competitors, which provide software testing outsourcing services in Japan, through quality of our services that standardize and structure knowledge and know-how on software testing.
However, in the area where relatively simple software testing operations are required, such as games and smartphone apps, there are competitors entering this market as it has labor-intensive business model and sets low barriers to entry.
In addition, as there are a number of overseas companies specializing in software testing, price competition may be intensified if such companies enter the Japanese market.
We believe that we can differentiate ourselves from our competitors by promoting the standardizing and systematizing our software testing services. However, if we are unable to sufficiently differentiate ourselves from our competitors in the intensively competitive situation, our operating results and status may be adversely affected.
３．Securing Human Resources
The software testing services of SHIFT Group are provided by employees who passed our unique examination, called “CAT examination,” sorting our those who have talents in software testing. Therefore, it is extremely important to secure a stable supply system consisting of employees who meet the criteria recognized by SHIFT Group. For this reason, we strive to secure sufficient human resources by continuously hiring and training employees and strengthening cooperation with partner companies.
However, if we are unable to secure sufficient supply capacity required for our business operations, our ability to provide services smoothly and to actively accept orders may be impeded, which may adversely affect our operating results and financial condition.
４．Warranty against Defects
SHIFT Group provides software testing services in the form of contracts centered on outsourcing. In implementing the software testing service, we strive to fully explain to our customers that the software testing service does not guarantee that all defects, etc. contained in the software or systems will be discovered, and that it does not guarantee the integrity of the software and systems. We also clarify certain disclaimers in the contract. However, if SHIFT Group is subject to liability for defects and damages, for any reason, we may incur them, which could have an impact on our operating results and financial position.
５．Leakage of Confidential Information
In our software testing services, we contract non-disclosure agreements with employees to ensure that confidential information related to software development of our customers will not be leaked. We also take various measures to prevent leakage, such as managing entry and exit to/from operation area with fingerprint verification system and 24-hour, 365-day surveillance cameras. In addition, we have acquired ISO270001:2005 (ISMS) certification, an international standard for information security management system, and conduct proper handling and strict management of information.
Nevertheless, in the event that confidential information or personal information of our customers is leaked for any reason despite these measures, SHIFT Group’s operating results or financial position could be affected by the pursuit of liability for damages or the loss of public trust.
６．Regulations under the Worker Dispatching Act
Services provided by SHIFT Group partly include worker dispatching. Under “Act on Ensuring Proper Operation of Worker Dispatching Business and Protecting Dispatched Workers (Worker Dispatching Act),” SHIFT Group has obtained approval from the Ministry of Health, Labor and Welfare for “General Worker Dispatching Businesses” for each sites and is subject to these regulations.
SHIFT Group conducts its business in full compliance with laws and regulations. However, in the unlikely event of a violation of the law, SHIFT Group’s trust from customers could be impaired, and this could have an impact on SHIFT Group’s operating results and financial position.
７．Business Expansion to Overseas
Our policy is to aggressively expand our services to overseas. However, our overseas business activities may be affected by unexpected changes in laws or regulations, the occurrence of large-scale natural disasters, changes in the political and economic environment, fluctuations in exchange rate, differences in business practices, differences in employment systems and labor-management practices, or changes in the tax system, all of which could adversely affect our operating results and financial position.
８．New Business Development
Our corporate philosophy is to create world-class services with the aim of “creating new value concept.” Therefore, we recognize the importance of developing new business proactively in fields other than software testing in order to nurture our brand as a company that “creates new value.” In order to respond to these challenges, while expanding software testing services as our core business, SHIFT Group is actively investing to develop new businesses in a certain range, taking into account compatibility with existing businesses, profitability, sociality, and the impact on employees’ motivation.
In accordance with our corporate philosophy, we may continue to create new services and develop new businesses. However, there are many uncertainties in these activities, and if we are unable to achieve our business plan, the amount of investment in them may have an impact on SHIFT Group’s operating results and financial position.
We consider M&A in Japan and overseas as one of our options for business development with the aim of strengthening existing services, accelerating global expansion, and expanding into new business domains.
When conducting M&A, SHIFT Group strives to reduce various risks through due diligence, including advices about the financial conditions, contract relationships, etc. of the target company, from outside experts such as lawyers, certified public tax accountants and certified public accountants.
However, in business development through M&A, SHIFT Group may not be able to attain synergies and business expansion as initially expected. In addition, in new business domains, M&A may add new business-specific risk factors. Deterioration of business performance after consolidating a subsidiary, amortization or impairment of goodwill or others may have an impact on SHIFT Group’s business performance and financial position.
We recognize that returning profits to shareholders is an important management issue and our basic policy is to pay stable and continuous dividends while securing the internal reserves necessary for future business expansion and strengthening our financial position. However, we have not yet maintained sufficient internal reserves, neither paid dividends since our foundation.
In order to secure internal reserves, SHIFT Group has decided not to pay dividends for the recent fiscal year either.
Retained earnings will be used as a fund for medium-to long-term business expansion.
In the future, SHIFT Group will consider returning profits to shareholders while taking into account the internal reserves and the business environment surrounding SHIFT Group.
１１．Dependence on President
Masaru Tange, President and CEO, is the founder of SHIFT and has been CEO since its foundation. He has taken an important role in formulating business strategies and utilizing connections in the industry.
In order to avoid excessive dependence on him, SHIFT Group is working on strengthening its management control system and developing and hiring senior executives. At this point, we believe that SHIFT Group depend on him at a high degree. In the future, if it becomes difficult for him to continue to execute the business operations for any reason, there may be an impact on our group’s business operations, etc.
As of the end of FY2019, the number of dilutive shares to be issued through stock options was 1,395,500 shares, equivalent to 8.87% of the total number of issued shares, 15,737,000 shares. If our stock price exceeds the exercise price, the conditions for exercising are met, and these stock acquisition rights are exercised, the share value per share will be diluted.