FAQ (Search categories)

FY08/20_Q4

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• Why did the gross profit decline in FY08/20?

  Due to the impact of COVID-19, there was a slight decline in utilization rate between May and July 2020 and that pushed down the gross profit. However, regarding the current utilization rate as of November 2020, recovery has been visible since around August 2020.

• Have you seen recovery in the utilization rate?

  Utilization has largely recovered to a normal level.
  We saw a slight dip in the utilization rate between May and July 2020 due to the impact of COVID-19 but we are now seeing recovery.

• Why was Proposal Number 6 rejected at the Annual General Meeting of Shareholders?

  Although we have yet to identify why this Proposal was rejected, we assume that many institutional investors voted against the issuance of stock options to outside partners. Following the outcome of this vote, we intend, in dialogue with the market, to investigate various strategies, including stock options, towards creation of new effective methods that will allow us to achieve our mission of maximizing corporate value.

• What is the main business of CLUTCH Inc.?

  CLUTCH Inc. is an online advertising agency which offers its clients a one-stop service, from buying and selling advertising space to website creation-related tasks. With its strong relationships with major advertising sponsors, CLUTCH Inc. ensures high quality advertisement operations. The inclusion of CLUTCH Inc. has enabled the SHIFT Group to expand into the internet advertising agency business. Toward the achievement of our growth strategy “SHIFT 1000,” which targets net sales of 100 billion yen, the company aims to rebrand as “SHIFT as a sellable service producer,” and we believe that the addition of CLUTCH Inc. will enable us to support the last mile of our customers’ journey to bring their products to their end user. CLUTCH Inc. has around 30 permanent employees.

  Please refer to SHIFT’s IR releases for details on CLUTCH Inc., including net sales during the last fiscal year.
  https://en.shiftinc.jp/news_en/announcement-of-acquisition-of-clutch-inc/

• What is the main business of HOPES Corporation?

  HOPES Corporation boasts strength in consultation-based system development such as implementing, operating, and maintaining main enterprise resource planning (ERP) systems, as well as investment plan optimization support. It also serves clients in a wide variety of industries, such as manufacturing, medical treatment & social care, and finance.
  HOPES Corporation employs around 300 engineers as full-time employees, making it a relatively large subsidiary within the SHIFT Group.
  Please refer to SHIFT’s IR releases for details on HOPES Corporation including net sales during the last fiscal year.
  https://en.shiftinc.jp/news_en/announcement-of-acquisition-of-hopes-corporation/

• What is the background to the capital reduction?

  The purpose of the capital reduction is to ensure flexibility and agility in future capital policies.
  As secondary effects, we are expecting some benefits in terms of taxation and other procedures.
  The reduction will be processed as transfer to “share capital,” which corresponds to time deposits, and “capital surplus,” which corresponds to ordinary deposits. Consequently, net assets will remain unchanged.
  SHIFT also implemented capital reduction during the FY08/19 period and saw no significant impact.

• Has recruitment activity been successful?

  Recruitment has been progressing in line with plan.

  As explained in the FY08/20 and Q4 results presentation materials, 5.4% of the total SG&A expenses will be allocated as recruitment costs. Of this, we expect to invest 300 million yen for recruiting full-stack engineers and 500 million yen for recruiting engineers that will be engaged in migration projects.

  Please refer to the latest consolidated financial results materials for specific recruitment-related information and recruitment costs.

  https://en.shiftinc.jp/ir/library/

• Review of FY08/20

  FY08/20 was the final fiscal year of the “SHIFT 300” plan, in which we targeted net sales of 30 billion yen. The actual results were: Net sales: 28.7 billion yen (+3% vs forecast), operating profit: 2.3 billion yen (-2% vs forecast), ordinary income: 2.5 billion yen (+6% vs forecast), profit attributable to owners of parent: 1.6 billion yen (+14% vs forecast).

  With the spread of COVID-19 from around March 2020, the business, recruitment and M&A environments surrounding our company changed significantly. We believe that FY08/20 was thus a year in which the SHIFT Group was able to demonstrate its resilience and flexibility.

  With regards to the business environment, although we initially saw a slight negative impact on our utilization rate, we were able to minimize the impact on sales, thanks to having customers from a wide range of industries. Meanwhile, the pandemic brought a favorable environment for both recruiting and M&A.

• What is the recruitment plan for FY08/21?

  The COVID-19 pandemic has improved the recruitment environment, and we plan to continue with aggressive recruiting, peaking between December and March.

• Background/ objective of the financing: How much did the company raise? What is the intended use of the funds?

  The financing that was announced in October 2020 was carried out in order to accelerate our M&A strategy and also to boost both our funding capacity and financial basis. SHIFT successfully raised approximately 9.8 billion yen through this financing.

  The funds will be used to boost the company’s financial standing by repaying borrowings resulting from M&A and other activity in September 2020, as well as from past M&A activity, etc. The funds will also be used for strengthening our basic infrastructure in line with the increase in the number of group companies, and also for providing a stable supply of funds to growth businesses to ensure we boost our corporate value and to expand our business.

  Furthermore, we believe that this financing will enable us to proceed with financial preparations for further M&A, because our investment and borrowing capacity will be enhanced by the improvement in our capital ratio and by repayment of loans.

  Please refer to our Timely Disclosure notices for further details on the background and results of the financing.

  https://en.shiftinc.jp/news_en/announcement-regarding-issuance-of-new-shares/
  https://en.shiftinc.jp/news_en/announcement-regarding-determination-of-issue-price-and-other-matters/

• FY08/21 operating profit forecast: What are the factors behind the difference in operating margin forecast for the first and second halves?

  As a premise, our budget is always skewed toward the second half, since we focus on aggressive investments centered on recruitment in the first half, and then focus on recouping profits during the second half. This fiscal year, we are assuming that a slight impact from COVID-19 will remain during the first half, which will be a drag on gross profit compared to normal years.

  Meanwhile, we plan to invest proactively on SG&A expenses as in past years. This is to ensure that we continue to invest aggressively in recruitment, especially between December and March, so that we benefit from improvements in the recruiting environment on the back of the COVID-19 pandemic. We have therefore slightly lowered the operating margin forecast for the first half.

  We have set the second-half operating margin higher than that for the first half, as we expect to recoup the aggressive investment made during the first half.

• FY08/21 net sales forecast: What are the assumptions behind the net sales forecast?

  Assumptions for net sales forecast
  M&A activity that has not been announced as of October 8^th, 2020 is not factored into the sales forecast. Macroeconomic assumptions are based on the economic environment observed at the time of the announcement of the forecast on October 8^th, 2020.  For a breakdown of consolidated and non-consolidated results, please refer to p39 of the Company Overview and Earning Results for FY08/20 Q4 Investor Briefing materials.

  Why do you forecast stronger growth during the second half?
  As our fiscal year ends in August, our budget is always skewed toward the second half, based on the assumption that our sales peak in March, the fiscal year end for many Japanese companies. In addition, owing to recruitment that takes place during the first half, the number of engineers typically increases during the second half, and this is also the case for FY08/21.