11. Financial Information
Figure 2. Capital Returns vs TSE Average*

A decade of performance

（%）
18.0

16.0

The investment landscape in Japan over the pastdecade, from fiscal 2013 to 2022, has broadly
followed the trajectory outlined below. In theaftermath of the supply chain disruptions triggeredby the 2011 Great East Japan Earthquake, thegovernment of the day, unable to devise effective
measures, yielded to the Abe administration of theLiberal Democratic Party at the close of 2012. Abe
was intent on avoiding deflation and introduced
Abenomics, a growth strategy that combinedfinancial easing, fiscal policy, and initiatives tostimulate private-sector investment—known as the“three arrows.” Helped by a weak yen and a decline inoil prices, Abenomics fostered a fledgling recovery
in corporate earnings.

Only companies adaptable to the economy’s “newnormal” could look beyond the challenges and see
business opportunities.

14.0

Domestic IT services providers, including ITFOR,
have experienced heightened demand for system
updates to address regulatory compliance insectors such as finance and distribution. There has
also been a surge in demand among businesses forefficiency improvements that contribute to workstyle reform. The COVID-19 pandemic has accelerated the transformation to digitization to achieve
noncontact and remote interactions. And that digitaltransformation spans the whole of society and notjust business enterprises.

10.0

Corporations’ accumulated retained earnings,
however, did not translate into investments forgrowth. In fact, two consecutive consumption tax
hikes hindered Japan’s economic growth, resulting
in two periods of negative growth. Since the early2020s, the global economy has grappled with challenges, such as the COVID-19 pandemic, Russia’sinvasion of Ukraine, inflation due to surging raw
material prices, and worldwide interest rate hikes.

A decade’s worth of changes have, for ITFOR,increased net sales from ¥10,429 million to ¥18,322
million over the 10-year period. This growth, of75.7%, corresponds to an annual growth of 5.8%.
The company’s operating income, meanwhile, has
increased from ¥1,315 million to ¥3,217 million, again of 144.7% or, on an annual basis, of 9.4%, asshown in figure 1.

Figure 1. 10-Year Net Sales and Income Trends

Net sales

Income(Millions of yen)

(Millions of yen)

20,0005,000

18,00016,000oundComplannua: 5.8%

4,500(AGR)

3,500

12,000

3,000

nnual

me ag inco

tin
Opera

8,000

h ra

growt

1,000

2,000

500

00

Consolidated
net sales

2015

2016

2017

Consolidated
operating income

In figure 2, we examine profitability trends thatreveal that ITFOR’s return on assets (ROA) andreturn on equity (ROE) are consistently and significantly higher than the Tokyo Stock Exchange (TSE)average. ITFOR’s ROA in fiscal 2022, for example, isa notable 15.7%, whereas the TSE average lags at

2.00.0FY2018

2013

2014

ROA

2015

2019

Consolidated
ordinary income

2016

ROE

2017

TSE ROA average

2018

2019

TSE ROE average

Table 1 breaks down ITFOR’s ROE, with a focus on
fiscal 2022, into three components using DuPont
analysis, which employs formulas to dissect thefinancial condition of a company into multiple
elements and to detail the factors that influence
ROE. ITFOR’s ROE is revealed to be challenged
by the absence of external capital and by a highequity to total assets ratio. But analysis also shows
the company’s ROE to be superior in profitability(net profit margin) and operational efficiency(asset turnover), offsetting the challenges. The
latter contribute heavily to ITFOR’s elevated capitalprofitability.

2020

2021

2022

*The TSE (Tokyo Stock Exchange) average is theaverage value of TSE-listed companies forthe year ended March 31 as sourced fromthe TSE Monthly Report.

ITFOR’s enhanced revenue growth and profit margin
in recent years is attributable to the improved sophistication of the packaged systems that it hasdeveloped for financial institutions over its decades
in business. Also contributing are the company’s
improved customization capabilities, which havegrown its customer base considerably.

Table 1. DuPont Analysis of ROE
ROE = Net income / Shareholders’ equity =Profitability

Operating efficiency

Financial leverage

ROE

Net profit margin

Asset turnover

Leverage factor

ITFOR

14.0%

12.5

0.9

1.3

TSE average

9.1%

5.0

0.6

3.0

2,000

4,000

2014

4.0

2,500

1,500

2013

6.0

Net profit margin (Net income / Sales) × Asset turnover (Sales / Total assets) × Leverage factor (Total assets / Shareholders’ equity)%
te: 9.4

6,000

FY

8.0

4,000

14,00010,00052

h rate
growt

12.0

2020

2021

2022

Net income attributableto owners of the parent

4.2%. This showcases a substantial advantage for
ITFOR over the market norm. Also in fiscal 2022,
ITFOR’s ROE (including net income attributable toowners of the parent) is 14.0%, surpassing the TSE
average of 9.1% and signifying superiority in thisregard as well.

In this report’s section on our business divisions(pages 30–36), for example, we speak to how
we leverage the expertise that we’ve gained
in developing packaged systems for financial
institutions to develop products and services for
local governments. We also plan to employ ourknow-how in retail solutions to offer paymentbusiness solutions for financial institutions. We
intend to maximize our resources to explore newcustomers and products.

ITFOR remains debt free and has achieved steady
growth by offering customers quality systemproducts and services and by benefiting from therecommendations of satisfied customers to garner
further business opportunities and customers. The
rapidly changing social and business landscapes
make it imperative for our growth that we extend
ourselves beyond our usual activities to implement
novel growth strategies. Absent initiatives andinvestments, our further enhancement of ourcorporate value may prove difficult. How best
to sustain our growth is an ongoing issue formanagement.

53

11. Financial Information

Background to change in segment classification

ITFOR recently changed the segment classification
outlined in its securities reports. Until fiscal 2020, it
categorized segments by the form of the solutions
provided: System Solutions, Service Solutions,and Network Solutions. Since fiscal 2021, it has
streamlined its classification into two businesssegments: System Development and Sales andRecurring Business. ITFOR discloses its financial
figures under this revised classification. SystemDevelopment covers equipment sales, design, andinstallation until the service launch of contractedprojects. Recurring Business encompasses BPO
and maintenance, activities of stable revenue.

Segment Income

Segment Sales

The company’s reason for this change in segmentclassification was its expanding customer base.
We believe that classifying our operations bySystem Development and Sales and by RecurringBusiness elucidates our performance better than aclassification based on solutions. To complementthat explanation of our performance for investors,
we also disclose the net sales of our six businessdivisions as categorized by customer industry: theFinancial Systems Division, Public Systems Division,
Retail EC Systems Division, CTI Systems Division,Communications Systems Division, and Payment
Systems Division.

(Millions of yen)

(Millions of yen)

20,0003,500

18,00014,000

3,000

+6.0%

16,000

–5.9%

7,710

7,166

1,529

12,0002,000

10,000

+7.7%

1,500

8,000

6,000

+18.4%

9,855

10,611

1,000

1,501

4,000

Changes in Segment Classification
To FY 2020

System Solutions

500

System Developmentand Sales

Customer Service Solutions

Network Solutions

BPO andmaintenance services

Recurring BusinessAnalysis of fiscal 2022 performance

During ITFOR’s fiscal year 2022, ended March 31,
2023, the Japanese economy showed signs ofgradual normalization as COVID-19 movement
restrictions were eased. Global uncertainties
persisted, however, because of soaring resource
and commodity prices, inflation, and interest rates
in the United States and elsewhere.
The Japanese IT service industry of which ITFOR isa part witnessed rising attention from consumers indigital technologies that help to avoid contact andface-to-face interactions and that promote artificial
intelligence (AI) and blockchain. Some companies
nevertheless limited or delayed investments in IT.
Consequently, robust economic recovery for ourindustry remained elusive.
ITFOR, meanwhile, continues to update its flagshipdelinquent loan management system targetedprimarily at financial institutions. The company isseeing steady sales of that system’s latest iteration,
which combines a personal loan operation support
system SCOPE and the web-based loan application54

1,778

2,000

From FY 2021

From equipment sales anddesign to installation

1,439

2,500system, WELCOME. This innovative solution facilitates interactions that are not face to face, andwe are constantly adding features to enhance its
functionality.
To address concerns about labor shortages, weoffer Robotic Call, an efficient call center solutionthat has gained widespread adoption by major
financial institutions. ITFOR is also responding toheightened demand for the replacement of legacy
network equipment.
Consequently, we achieved record highs in neworders for our various solutions, which rose to¥18,567 million in fiscal 2022, a 5.8% year-on-yearincrease, and in order backlogs, which reached¥15,300 million, a 1.6% increase. As a result, ourfiscal 2022 net sales were ¥18,322 million, up 7.6%
over the previous fiscal year; operating income
was ¥3,217 million, up 6.1%; ordinary income was¥3,278 million, up 5.5%; and net income attributableto owners of the parent was ¥2,291 million, up 8.5%.

00FY 2021

FY 2022

FY 2021

FY 2022

System Development
and Sales

Recurring Business

System Developmentand Sales

Recurring Business

Sales and profits for the year under review
represent record highs. In addition, we surpassed
the operating income target of our medium-term
management plan a year ahead of schedule andenhanced our operating profit margin. We credit
improvements in our financial performance to ourreinforced in-house development, which has led tocost reductions, and to our improvements to ensure
system stability, which contributed to increasedprofits. Our emphasis on system sales, moreover,and particularly on packaged systems, has enabled
us to establish a robust and profitable foundation.
By business segment, System Development andSales achieved net sales growth of 7.7% year onyear and an 18.4% increase in operating income.
Recurring Business saw net sales rise 7.6%, but
the segment’s operating income decreased 5.9%.
Whereas System Development and Sales gained
strongly in sales and profit, Recurring Business saw
its profit decline because of an increase in orders
for BPO services. ITFOR’s emphasis on humanresources education and training as a differentiator
in its BPO services resulted in an initial increasein costs during the first year of contract acquisition. When contracts continue over the long term,
however, costs tend to decrease in subsequentfiscal years.

year-end. This growth was predominantly driven by
an increase of ¥2,291 million in net income attributable to owners of the parent but was partially offset
by a decrease of ¥831 million in dividend paymentsfrom retained earnings. As a result, our equity tototal assets ratio rose to 79.1%, up from 77.9% at
the previous fiscal year-end.
As of March 31, 2023, we had cash and cash equivalents of ¥10,796 million, a ¥211 million increasesince the previous fiscal year-end. This uptick is
attributed to funds generated by operating activities of ¥1,714 million as driven by an increase in
net income before taxes. We also allocated ¥758
million to investing activities, mainly in tangible
fixed assets. In addition, we used ¥744 million for
financing activities, including dividend payments.

As of March 31, 2023, ITFOR’s total assets were¥21,667 million, an increase of ¥1,656 million
compared with the end of fiscal 2022. This is mainly
attributed to an increase of ¥1,470 million in notes
and accounts receivable—trade, in contract assets,
and in securities. Total liabilities increased ¥96
million year on year, to ¥4,499 million.
Net assets at fiscal year-end 2023 were ¥17,167
million, up ¥1,560 million over the previous fiscal

55

11. Financial Information

11-Year Summary
11-year financial summary(Millions of yen)

Balance sheet (As of March 31)
FY 2012FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

FY 2019

FY 2020

FY 2021

FY 2022

Current assets

8,69210,225

9,886

10,796

10,507

11,322

12,29912,84914,694

16,264

17,676

Fixed assets

3,384

3,213

4,770

4,166

4,411

4,095

3,578

3,445

3,996

3,746

3,990

Current liabilities

2,362

2,830

2,986

2,954

2,445

2,777

3,244

3,459

4,341

4,174

4,243

Fixed liabilities

258

246

351

257

386

427

266

271

248

229

256

Net assets

9,456

10,361

11,31811,75012,088

12,21312,367

12,564

14,101

15,606

17,167

Total assets

12,076

13,43814,656

14,962

14,91915,25915,87816,294

18,69020,01021,667

Income statement (As of the years ended March 31)
Net sales

10,42910,974

11,467

12,154

11,111

11,831

12,554

15,23916,28917,021

18,322Gross profit

3,931

4,248

3,989

4,410

4,079

4,528

4,652

4,840

5,386

6,156

6,734

Operating income

1,315

1,675

1,078

1,540

1,270

1,535

1,637

1,728

2,186

3,031

3,217

Ordinary income

1,344

1,697

1,100

1,588

1,331

1,605

1,709

1,839

2,317

3,106

3,278

823

1,009

658

1,013

906

1,124

1,148

1,232

1,683

2,1122,291

Net income attributableto owners of parent

Cash flow statement (As of the years ended March 31)
Cash flows fromoperating activities

2,396

1,118

1,215

1,464

1,531

1,830

899

1,879

2,728

2,811

1,714

Cash flows frominvesting activities–223–1,534–1,239

–186

–155

–203

–306

–714

–429

–353

–758

Cash flows fromfinancing activities

–360

–225

–562

–255

–825

–1,129

–693

–694

–526

–544

–744

Cash and cash
equivalents at year-end

5,687

5,045

4,458

5,480

6,031

6,528

6,428

6,899

8,672

10,585

10,796

ROA (%)

11.4

13.3

7.8

10.7

8.9

10.6

11.0

11.4

13.2

16.1

15.7

ROE (%)

9.1

10.3

6.2

8.9

7.7

9.3

9.4

9.9

12.7

14.3

14.0

ROIC (%)

8.8

10.1

5.8

8.6

7.3

8.4

9.0

9.3

11.8

13.9

13.7

Equity to total
assets ratio (%)

77.1

76.0

75.9

77.5

80.9

79.9

77.7

76.8

75.2

77.9

79.1

Net debt to equity
ratio (times)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Operating profit
margin (%)

12.6

15.3

9.412.7

11.4

13.0

13.0

11.3

13.4

17.8

17.6

Key indicators

ROA (return on assets) = (Current ordinary income / Average total assets of the current and previous period) × 100
ROE (return on equity) = (Net income attributable to owners of parent for the current period / Average equity of the current and previous period) × 100
ROIC (return on invested capital) = (Net income attributable to owners of parent for the current period / Average of (Equity - New stock subscriptionrights) of the current and previous period) × 100

5657