TechnoPro Holdings, Inc. (6028) Earnings Call Transcript & Summary

[Interpreted] I am Hagiwara, CFO of TechnoPro Holdings. Thank you for joining today's full year financial results briefing. We are very sorry that we have not been able to meet our guidance for the second consecutive year. In response to strong demand, we recruited over 900 mid-careers in the fourth quarter, which coincided with new grads joining so that we can jump start this fiscal year with as many resources as possible. For TechnoPro, whose primary assets are human capital, talent acquisition and development must be growth investments that can generate returns efficiently and our under-deliver is the result of not cutting back on hiring and training costs in order to adhere to the guidance achievement. Please note that recruitment fees in the fourth quarter was up JPY 300 million year-on-year and quarter-on-quarter as well. On the other hand, thanks to price hike that we've secured upon contract renewals in March and reassignment in April, we were able to keep the shortfall in core operating profit guidance to around JPY 100 million. However, in the other businesses in Japan and the overseas segments, we recorded impairment losses of around JPY 2.8 billion in goodwill and customer-related assets resulting in operating profit remaining roughly at the same level as the previous year and net profit declining year-on-year. The entire management team, including myself, shall be fully responsible for such underperformance. As TechnoPro's stock price has been on a downward trend, we've been discussing with investors our capital policy regarding shareholder returns. Operating profit target of JPY 32 billion for the fifth year of the medium-term plan originally incorporated an expected inorganic contribution of JPY 4.5 billion while we have no intention of engaging in M&A that is not in line with our strategy or ignores our financial disciplines with the sole aim of satisfying our target figures. We have completed all purchases of JPY 2.5 billion share buyback program we set in April this year and also established a new buyback program of JPY 5 billion for this fiscal year. Given the nature of our business, a high cash generation capacity, we will consider further shareholder distribution with capital efficiency in mind unless there are investment opportunities in the near future that are supposed to generate sufficient returns exceeding our cost of capital. When we last announced the third quarter financial results, I spoke about our budget guidelines for this fiscal year and the increasing difficulty of forecasting accuracy. Operating profit for this fiscal year is projected to reach JPY 27 billion, the same target as the fourth year of the medium-term plan after factoring in the worsening turnover ratio and the surging recruitment fees both of which are urgent operating challenges to address. We continue to thoroughly implement KPI-driven management with the achievement of this fiscal year's guidance as our minimum commitment. Now I will explain the summary of the previous fiscal year's financial results, the key KPIs in Japan, the update of overseas subsidiaries and the outlook for this fiscal year. First, let's look at the financial overviews on Page 2. Revenue for the previous fiscal year totaled JPY 219.2 billion, up 9.7% year-on-year, while GP was JPY 58.8 billion, up 11.2% year-on-year and GP margin was 26.8%, an improvement of 0.4 points year-on-year. GP for 3 months in the fourth quarter grew significantly by 14.6% year-on-year hitting a historical high for quarterly GP. The number of working days in the previous fiscal year was often below forecast, which had a negative impact on GP, but we understand that the increase in unit prices in April this year had a positive effect, especially in the fourth quarter. We are just 0.1 points away from GP margin target of 26.9% in the fifth year of the medium-term plan. Having said that, we would expect the improvement in GP margin this fiscal year to be small because we implemented annual pay hike in July this year in full response to the union's request. SG&A expenses for the previous fiscal year were JPY 34.4 billion, plus JPY 2.9 billion year-on-year of which the hiring related was plus JPY 710 million, and the overseas segment related was plus JPY 1.06 billion. Despite the soaring recruitment fees, the year-on-year growth rate of SG&A expenses on a quarterly basis has been below 10% since the third quarter of the previous fiscal year. This trend is expected to continue going forward. So we would anticipate continuous margin expansion by finally enjoying the operating leverage. In the previous fiscal year, core operating profit was JPY 24.4 billion. Operating profit was JPY 21.9 billion because of impairment losses and net profit was JPY 14.7 billion. The year-end dividend was not revised from the initial forecast from the progressive dividend perspective and the annual dividend, including the interim one, will be JPY 80, up JPY 5 year-on-year. Pages 3 and 4 show the quarterly performance of each P&L item and key KPIs in Japan that make up domestic revenue. The number of working days ended up with 225.8 days, which is 1.8 days less than the previous year. Assuming JPY 400 million by the minus impact of 1 less day on profit both GP and core operating profit for the previous fiscal year were negatively affected by approximately JPY 700 million year-on-year. For your information, the number of working days for this fiscal year is currently projected to be almost same as last year. Pages 5 and 6 show the performance by segment for the full year and the fourth quarter, respectively. Boyd & Moore, a part of the other businesses in Japan, which provides executive search services for foreign tech companies posted losses for 2 years in a row, an impaired goodwill by JPY 980 million. Provided that Boyd & Moore is not aligned with our current strategy and also its business is sensitive to economic conditions and highly volatile, we will consider selling it to a third party during the medium-term plan period. In addition, PC Assist, which offers training services for engineers saw a decrease in profit due to upfront investment aimed at expanding external sales to competitors and our customers. As a result, adjusted operating profit, excluding impairment losses, was JPY 200 million, JPY 200 million lower than the revised guidance of JPY 400 million at the time of the second quarter briefing. In the overseas, Robosoft and Orion wrote down customer-related assets by JPY 1.58 billion and JPY 210 million, respectively. Robosoft reevaluated assets on the assumption that customers at the time of acquisition would continue to refrain from new digital spending for a certain period of time, while Orion reflected changes in customers since the acquisition. Neither company has yet reached the point of recording goodwill impairment, but for Robosoft, in particular, the key is how many new projects it can win from existing and new customers going forward. The update of each overseas subsidiary will be touched upon later, while adjusted operating profit, excluding such write-down was JPY 1.6 billion, narrowly meeting the revised guidance at the time of the second quarter briefing. On Page 7, we added a new slide showing the robustness of our major domestic businesses. Compared to the sluggish performance of the other businesses in Japan and the overseas, our major domestic businesses, the R&D outsourcing and the construction management outsourcing have grown steadily and continue to evolve under the medium-term plan. We would like to emphasize again that these 2 businesses account for approximately 90% of our group's total revenue and operating profit. The top graphs show the year-on-year growth rates of revenue, GP and operating profit, while the bottom graphs show the development of GP margin and operating profit margin. Even in the previous fiscal year, the third year of the medium-term plan, when we faced an increasing turnover ratio and soaring recruitment fees, both businesses achieved over 10% growth in GP and operating profit, respectively, and each margin has continuously expanded so far. As for the construction management, GP and operating profit margins for this fiscal year are supposed to be slightly lower year-on-year due to the reductions in holiday work and overtime hours caused by the work-style reform-related 2024 problem as well as the acceleration of inexperienced hires on the premise of training. Page 8 shows balance sheet and cash flows. Due to the impact of social insurance premium and other payments due in the following month because of the bank holiday, the cash balance of JPY 45.2 billion at the end of the previous fiscal year was approximately JPY 4 billion higher in real terms. We will pay corporate taxes and year-end dividend towards the end of September this year, redeem corporate bonds of JPY 5 billion in October and buyback shares through a new program, all of which will return our cash position to an appropriate level. From Page 9 onward, we will show the key KPIs for our domestic business. The number of engineers at the end of June this year was 26,054 plus 1,929 are up 8.0% year-on-year. Although the number of resignations was higher than expected, it was fully covered by mid-career hires and the year-end headcount exceeded the initial forecast of 25,900 by 154. In the past 2 years, the engineer number had grown by about 8% to 9% per year. But based on the further attrition trend for this fiscal year, the number of engineers at the end of June next year is supposed to be 27,500, which is only up 5.6% year-on-year. Therefore, price hike will become even more essential to top line growth. For this fiscal year, we target the average unit price to increase by 2.5% year-on-year. The full year average utilization ratio was 95.0%, down 0.2 points year-on-year, which is negligible decline based on current GP margin level. For the new grads who joined TechnoPro in April this year, we conduct strategic training for more than 3 months mainly in the digital technology field for about 200 people, the same as last year. Consequently, the utilization ratio at the end of July is still in the 94% range. However, as the allocation of strategic training recipients is gradually progressing, we plan to maintain a utilization ratio of over 95.0% from August onwards. Pages 10 and 11 show the distribution and year-on-year growth rate of assigned engineers by technology and industry sector. By technology portfolio, all fields have grown year-on-year. Demand for mechanical engineers, such as machinery, electric and electronic, which was relatively weak before, has also recovered gradually. The next topic is the current status of recruitment and turnover. The number of mid-career hires in the fourth quarter was 937 and for the full year, we were able to secure 4,575 engineers, including 1,002 new grads this April. Facing the war for talent, we demonstrated our recruiting competitiveness. Although there is an aspect of driving recruitment to make up for the number of resignations, we have not relaxed our hiring standards and the headcount growth has been accompanied by a greater emphasis on quality as set out in the medium-term plan. For this fiscal year, we plan to hire 3,400 mid-careers and 1,100 new grads, a total of 4,500 engineers, down only 75 year-on-year. Considering the intensification of mid-career hires and the reduction in the average cost per hire, we will slightly increase the proportion of new grads. On the contrary, more engineers have left TechnoPro, raising the permanent employee turnover ratio for the previous fiscal year to 9.1%, a deterioration of 1.3 points year-on-year. Depending on the turnover assumption, the earnings plan for this fiscal year will fluctuate significantly, while the turnover ratio was finally budgeted at 9.8%, up 0.7 points year-on-year. If it is lower than 9.8%, we could assume upside to our guidance. But if it tends to exceed 9.8%, the risk of missing the guidance would rise. This fiscal year's turnover forecast will be subject to even more imperative KPI monitoring than usual. And if the number of retirees is likely to go beyond the budgeted one, we shall take measures in advance and strive to mitigate such risks. Page 13 shows the change in its waterfall chart in the unit sales price per month. The average monthly unit sales price for the previous fiscal year was JPY 678,000, plus JPY 9,000 or up 1.3% year-on-year. Also, the base charge or contract unit price for our existing dispatch engineers at the end of June this year, which is not affected by working days or overtime hours, was up 4.2% compared to a year ago. As the average wage hike for our engineers in July this year was 3.8%. We think that we have been able to pass on the salary increment to customers through contract negotiations over the past year. Please note that this indicator for unit price improvement is limited to staffing contracts. Additionally, we should endeavor to accelerate the expansion of the solution business, which has relatively higher prices and margins. We believe that improving the treatment of our engineers as much as possible through compensations and attractive career paths will contribute to sustainable employee retention. Next is the update of our overseas subsidiaries. The yen continued to be weak for the previous fiscal year and the positive effects of exchange rates were plus JPY 2.1 billion for revenue, plus JPY 350 million for SG&A expenses, and plus JPY 170 million for operating profit for the full year. Robosoft struggled in the first half of the previous fiscal year due to the advanced securing of bench resources and misjudged anticipation of new orders and the emergence of unprofitable projects. Nevertheless, by strictly managing KPIs, GP margin and operating profit in the second half have recovered slightly. Both annual revenue and GP were almost flat year-on-year, while the increase in SG&A expenses of JPY 400 million had a direct hit on operating profit negatively. The fundamental way to get Robosoft back on track for earnings growth is to continue to grow the top line, anticipating that it would take some time for demand to return to normal in the United States and Europe. We are accelerating the cultivation of Japanese customers with more new pipelines accumulated in collaboration with TechnoPro. This fiscal year will be an important year to test Robosoft's resilience, and we aim to ensure earnings growth of at least 10% year-on-year while maintaining appropriate profitability through resource optimization and efficient investment. As initially expected, profit margin of the China business declined due to the loss of high-margin projects and consequently, its operating profit decreased. In contrast to the previous fiscal year, which was a transitional period from traditional business, this fiscal year, we expect to see increased revenue and earnings with improved profit margin while expanding our solutions domain in earnest. Helius revenue on a local currency basis has been down approximately 10% year-on-year, while its operating profit was maintained due to an improvement in GP margin through the expansion of one-stop solution services using India offshore. On the flip side, digital demand in the financial sector in Southeast Asia is still stagnant and the revenue for this fiscal year is expected to remain at the same level as last year. In addition, Helius is a joint venture with the founder and CEO, and we will continue to discuss future management policies with its minority shareholder. Although Orion's revenue on a local currency basis grew by more than 10%, it was unable to fully absorb the increase in spendings due to high inflation in the U.K., and its operating profit fell by nearly 30% year-on-year. This fiscal year, we will quickly stabilize Orion's financial performance and seriously explore the carve-out possibility. Page 16 is a guidance for this fiscal year. And Page 17 is a breakdown by segment. Compared to the fourth year of the medium-term plan, revenue on an organic basis, not incorporating new M&A is expected to be JPY 237 billion plus JPY 9 billion, while operating profit is expected to remain the same target at JPY 27 billion. As SG&A expenses ratio has yet to fall below 15.0%, operating profit margin of 11.4% is supposed to be 0.5 points behind the medium-term plan target. Furthermore, there are distortions in operating profit and net profit because of impairment losses in the previous fiscal year. Therefore, please focus on core operating profit. For this fiscal year, it is guided to grow by 10.7% year-on-year, and its margin has been steadily improving year by year. Finally, please see Page 18. In the previous fiscal year, ROE fell below 20% for the first time since IPO, but the dividend payout ratio was 58.2% with DOE maintained at 10%. Moreover, TechnoPro acquired its own shares of JPY 3.9 billion, resulting in a total payout ratio of 84.6%. Based on this fiscal year's guidance for net profit of JPY 18.5 billion, the dividend payout ratio is expected to be 51.5%. And if all JPY 5 billion of buyback program completes, the total payout ratio is supposed to be 78.6%. As a note, the acquisition period for a new buyback program has been set long with the intention of enabling opportunistic purchases in the event of a sudden drop in stock prices. That's all for my presentation. Thank you very much.

I am Yagi, CEO of TechnoPro Holdings. Thank you for your time today. I apologize for missing guidance for 2 consecutive periods and for the impairment losses. We tried to cover the underperformance of both the other businesses in Japan and the overseas segments with our major businesses in Japan, but we fell just short of our overall revenue and core operating profit targets. However, major businesses in Japan are growing steadily. At the beginning of this month, there was a stock market crash triggered by the Bank of Japan's interest rate hike and concerns about the U.S. economic outlook but the performance of many Japanese companies, including ours, remain strong. Of course, it is difficult to predict what will become a turning point, and we need to keep a close watch on customer trends. However, as long as there is no significant economic downturn, we believe that the strong demand in the IT and digital area, where we are focusing our efforts will continue for the time being. We will strive to achieve our guidance for this fiscal year while carefully explaining our future growth prospects. My section covers the current Japan business environment, the medium-term plan progress and sustainability management. First, based on Japan business KPIs, I will explain the current business environment. Page 2 shows the trend in contract renewal every 3 months. The contract renewal ratio for March and June 2024 both exceeded the same months of the previous year. The renewal ratio for June was 93.8%, and it would have been 94.4% without the cancellations initiated by our side. We plan to continue aggressive charge-up and shift-up negotiations at the time of contract renewals, leveraging the supply-demand gap. Page 3 shows the trend of newly acquired orders. In the previous fiscal year, we successfully secured new orders in all fields, surpassing the year before on an annual basis. Although a decline is observed in the IT field, this is due to our focus on acquiring high-value orders while considering resource shortage. We do not perceive this as a sign of economic downturn and are not concerned. In the construction sector, there are projects being postponed due to high material costs. However, the fact remains that there is still a structural shortage of engineers across all fields and we have been able to secure a sufficient number of orders. Page 4 shows the transition of mid-career recruitment by technology. In the previous fiscal year, we demonstrated our strong hiring capability by exceeding our plan, achieving a total of 3,573 mid-career hires for the year. We also increased on hiring inexperienced talents requiring OJT resulting in 542 hires. Notably, in the construction field, the number of hires nearly doubled compared to the previous year reaching 347. Going forward, we will continue to leverage our strengths in not only hiring talent, but also in training and creating talent, responding to customer needs. Page 5 is a newly added slide showing turnover ratio and number of permanent employees by technology. In the second year of the medium-term plan, turnover ratio in the IT and chemical fields decreased due to the effects of the new personnel system introduced. However, turnover ratio started to rise in fields other than the machinery field in the previous fiscal year, and we expect further increases in all fields this fiscal year. Higher ratio in the construction field is due to the proactive recruitment of inexperienced individuals. Some competitors with a focus on inexperienced hires have even higher resignation rates. According to the latest statistics from the Ministry of Health, Labor and Welfare, the overall turnover ratio for Japanese companies in the year of 2022 was 15.0%, an increase of 1.1 points from the previous year, indicating increased labor mobility. We believe our turnover ratio is still relatively low compared to our competitors but we are not complacent and we'll comment on measures to curb turnover later. Next, I will explain the medium-term plan progress, starting with financial performance. Page 7 shows the financial target of medium-term plan, reflecting the previous fiscal year's results and the guidance for this fiscal year. In the previous fiscal year, operating profit fell below the medium-term plan target due to the impact of a JPY 2.77 billion impairment and ROE dropped below 20% for the first time since IPO. Operating profit for this fiscal year is expected to return to the initial plan level, and we plan to recover ROE to over 20%, which is also a performance indicator for performance share unit plan. The target figures for the final year of the medium-term plan include contributions from M&A, and we are not revising them at this point. Page 8 shows the actual and planned figures for revenue, operating profit and ratio on revenue. Revenue is growing at a pace exceeding the medium-term plan and even without new M&A, we are more likely to achieve the final year target of JPY 250 billion. We expect to catch up to the fourth year target of the medium-term plan for operating profit this fiscal year but achieving the final year target of JPY 32 billion, including the JPY 4.5 billion contribution from M&A will require a significant jump in the fifth year. However, we do not plan to pursue acquisitions of companies that do not align with our strategy solely to meet numerical targets. GP margin is also steadily rising above the medium-term plan and the final target of 26.9% is within reach. However, due to the increasing necessity for wage hike and the reduction in working days and overtime hours due to work style reforms, future growth may slow down. We believe it is necessary to focus on expanding the higher-margin solution business in accordance with the medium-term plan strategy. SG&A ratio remains high due to growth investments such as recruitment and training costs and it will take some time to reduce it below 15%. The previous terms OP margin fell below the medium-term plan target due to impairment losses but core operating profit margin of 11.1% exceeded the medium-term plan target. Achieving the final target for OP margin requires improving SG&A ratio. We will continue to strive to improve operational efficiency and reduce waste while investing in business growth. Page 9 shows the actual and planned revenue and composition on revenue for each business. Revenue in the core business, the solution business and the overseas business are all growing at a pace exceeding the medium-term plan. In the core business, which underpins our business operations and serves as a talent pipeline for the solution business, the shift towards growth areas centered on IT and digital area is progressing, leading to both quantitative expansion and qualitative improvement. The solution business has achieved a 3-year CAGR of 17.7% despite no M&A contributions. And with the remaining 2-year CAGR of 12.1%, it is on track to reach the final year target of JPY 57 billion. This reflects the development of mechanisms and environments for expanding the solution business as well as strategic efforts to create solution talent through both recruitment and training. We will continue to focus on priority areas where we have a competitive edge to achieve growth in the solution business. For the overseas business, despite only Robosoft contributing to M&A, revenue has been progressing at a pace exceeding the medium-term plan. And this fiscal year is expected to be almost on par with the fourth year target of the medium-term plan. There may be some overseas subsidiaries that could be considered for sale depending on the strategic review. And if sold, revenue of the sold company would fall off, making it difficult to reach the final year target of JPY 30 billion. However, our priority is aligning with the group strategy. Page 10 shows the actual and planned figures for the number of engineers, recruitment and unit sales price. At the stage of formulating the current medium-term plan, we assumed recruiting over 3,000 engineers annually considering the increasingly challenging hiring environment, but we have been able to consistently hire over 4,000 engineers per year, and we expect this to continue for the time being. Although the pace of net increase is slowing due to an increase in turnover, we expect to achieve the final year target number of 27,500 engineers by the end of this fiscal year, 1 year ahead of schedule. Regarding the average unit sales price, we recognized that it would be a stretch goal, but we believe we are relatively performing well given the downward pressures, such as the reduction in working days and overtime hours and the dilution effect from hiring new graduates and inexperienced talent. We will continue our efforts to get as close to the target as possible. Page 11 shows the ROIC trends of acquired companies over the past 3 years. PROBIZMO, which mainly engages in IT-related project-type business and is growing steadily, has an ROIC of over 20%. PC Assist, which is responsible for the engineered training business faced performance issues last fiscal year, leading to a significant drop in ROIC, although it still exceeds the cost of capital. Boyd & Moore, which provides executive search services for foreign companies has reported losses for 2 consecutive periods, resulting in a significant decline in its ROIC. Orion and Robosoft, unable to absorb increased SG&A expenses and upfront investments saw their ROIC fall below the cost of capital last fiscal year. As previously explained, we may consider selling these existing acquisitions to the best owners, if deemed necessary based on our strategic review. For companies aligning with our group strategy, we will strengthen monitoring and internal collaboration to enhance growth and ROIC particularly for PC Assist, which plays a crucial role in our strategy amidst the rising demand for reskilling and upskilling and the anticipated expansion of the education market. We will review its management structure to improve its performance. Next, I will explain our initiatives for the remaining 2 years of the medium-term plan. Page 13 presents a conceptual diagram of our business strategy using from the initial announcement of the medium-term management plan. In the current medium-term plan, we are aiming for an evolution by leveraging the value chain, customer base and engineer base of the core business. Specifically, we are seeking a gradual transformation of our business model through the growth of the solution business. The competitive advantage developed in the core business strengthens both the core business itself and the solution business. This growth strategy is possible because both businesses are closely aligned. Page 14 is also a reposted slide, so I will skip detailed comments. However, it explains the increasing importance of R&D and the manufacturing and creation processes akin to those in the manufacturing industry in overcoming the limitations and supply constraints of a business model that primarily revolves around headcount provision akin to trading business. On Page 15, we have organized our recognition of current and future risks, which were not anticipated at the time of the medium-term plan formulation, along with our response policies. In the past decade, the peak turnover ratio was 9.4% in the fiscal year ended June 2015, the year of our IPO. After successfully reducing it to the 7% range, it rebounded to over 9% in the previous fiscal year. Additionally, the wage increase rate, which was 1.8% in July 2021 at the start of the medium-term plan has risen to 3.8% as of this July. Given the rising mood for wage hike and intensified competition for talent acquisition, it has become difficult to retain high-quality engineers without reasonable wage increases. Furthermore, the job market has undergone a game change with the widespread adoption of recruitment agencies even for junior level hires. In TechnoPro, the ratio of mid-career hiring via recruitment agencies increased from 37% in the fiscal year ended June 2018 to 71% in the previous fiscal year becoming the main driver of rising recruitment costs. Nonetheless, given the availability of other recruitment channels, we do not anticipate that the ratio will approach 100%, and we expect the pace of increase to level off. In light of these circumstances, we believe that strategic responses, in addition to initiatives in regular operations will become increasingly important. The key driver among these initiatives is unit price increase. Unit price increase reflects high customer evaluations and can enhance job attractiveness and fulfillment, thereby reducing the turnover ratio by enabling better compensation. Saving on recruitment costs needed to cover turnover can improve profit margins, providing more room for further investment in human capital. As a result, enhanced skills and problem-solving abilities of engineers can lead to the expansion of the solution business and further unit price increases, creating a virtuous cycle. We will strive to realize and sustain this cycle through our efforts. On Page 16, we outlined operational initiatives to promote effective hiring and curb turnover. Among various hiring initiatives, we are particularly enhancing employee referral channel and promoting the utilization of our in-house recruitment agency, TechnoBrain, which does not entail cost outflows to external groups. Employee referral hiring with its lower cost per hire is also known to have a lower turnover ratio compared to other recruitment channels. Moreover, we are implementing measures to enhance the appeal to job seekers such as strengthening the external communication of case studies directly related to solving customer and societal issues. To enhance the effectiveness of measures to curb turnover, it is crucial to analyze the reasons for resignations and to identify early signs of intent to leave. To reduce the number of engineers leaving for more attractive jobs. It is also necessary to improve the ability of our sales reps to acquire more attractive jobs and organize project-type services. We have also begun considering human resources systems tailored for solution talent. Furthermore, we have introduced AI engine for turnover prediction, and reinforced our career support and consultation organizations to improve the quality and quantity of communication with engineers. To enhance employees' sense of belonging and engagement, we believe it is important to penetrate corporate philosophy, including our purpose throughout the organization. We held 7 town hall meetings last fiscal year and plan to continue providing opportunities for dialogue between executives and employees. From Page 17 onwards, I will explain our strategic response policies. Our strengths in assets include the customer base established through the core business, the largest pool of engineers in Japan and robust recruitment capabilities. Not only do we aim to recruit based on the technologies and personnel required at customer sites, but our capability to develop talent is also a strategic strength. However, from a medium to long-term perspective, it is also essential to enhance our offshoring capabilities by leveraging overseas talent to prepare for potential future supply shortages. Additionally, the optimal allocation of engineers within the group, such as shifting talent from the core business to the solution business will become increasingly important. Page 18 shows the changes in the structure of engineers over the past decade. Following continued strong demand and the shift in customer R&D focus from hardware to software, the number of assigned engineers has approximately doubled over the decade and the proportion of IT engineers has gradually increased from 38.1% to 57.8%. With our management capability that has enabled such a significant transformation through recruitment and training, we believe that executing future strategic responses is also achievable. Page 19 focuses on promotion of optimal allocation within the group as one of the strategic responses. Effective lead generation for the solution business through engineers and sales reps in the core business as well as promoting the shift of engineers from the core business to the solution business is possible due to the close collaboration between the 2 businesses. Engineers who shift to the higher-value solution business can be offered improved compensation. Within the solution business, we are also shifting engineers with digital technologies working in dispatch forms to project-type services directly contracted with end users, where we can enjoy higher unit sales prices. Since both businesses share the customer base, we can save on sales costs and maintain high utilization and engineered staffing depending on project order situations. This differentiation is considered a strength compared to [ seers ] and consulting firms. Page 20 covers the classification of the solution business and the focused solution offerings. The solution business is categorized into 2: the provision of services by engineers with digital technology, including those in staffing forms; and the provision of deliverables and concepts through contract-based and project-based solutions. The former focuses on growing together with SIRs as a vital partner while the latter targets end-user clients in manufacturing and other industries. When viewed by customer business areas, our strengths lie in providing services that address challenges in the development areas such as product planning, development and design as well as in the operation support area like procurement, maintenance, human resources and finance, accounting. Additionally, our solution services in cloud, IoT and simulation development have seen significant growth. To help investors better understand we have included examples of specific projects. On Slide 21, we focus on the development area and the operation support area, showing revenue, average number of assigned engineers and average unit sales price. Both areas have seen significant year-on-year growth in revenue and number of assigned engineers with average unit sales price also higher than the overall solution business. The increase in assigned engineers can be evaluated to be a result of efforts to develop talent in growth areas. By identifying winning strategies, expanding the solution services where TechnoPro excels and maintains a competitive edge and increasing their proportion within the overall business, we can anticipate a positive contribution to our consolidated performance. Page 22 shows the assigned engineer portfolios by industry. What we want you to note here is that IT engineers are engaged across various industries due to the software-driven shift in R&D, highlighting the high potential of our solution business. The overlapping areas of ER&D services related to design and product development processes, including embedded systems and IT are referred to as digital engineering. Particularly in the automotive industry, there is significant growth potential for providing digital engineering services that leverage technologies such as AI and machine learning. Page 23 updates the development achievements in promising technology areas with expected increased demand. The fact that the average number of assigned engineers in AI, ML data science, cloud services and ERP increased by 13.2% year-on-year is not merely a result of training, but an outcome of promoting development aligned with key solution services. To accelerate the supply of talent to the solution business without relying solely on recruitment, the role of PC Assist in nurturing engineers is becoming increasingly important. We are enhancing training programs and upgrading the quality of instructors at PC Assist while strengthening OJT directly linked to assignments in collaboration with alliance partners, promoting talent development aligned with our strategy. Page 24 outlines the clarified management policy for the overseas business again. In the remaining 2 years of the medium-term plan, our focus will be on enhancing offshore capabilities with Robosoft in India as the core. This initiative is positioned as a strategic measure to address potential future supply shortages in Japan. We will operate based on a Japan-centered approach, considering how Robosoft can be leveraged to utilize Japan's customer base and transitions to solution and what benefits Robosoft can offer. Furthermore, for overseas subsidiaries that primarily engage in local-to-local staffing and recruitment business, which do not align with our strategy and lack synergy with domestic operations, we will begin concrete considerations for their carve-out during the medium-term plan period. Finally, I will explain our approach to sustainability management. Page 26 illustrates our value creation process, which is also included in the integrated report. Here, we emphasize that TechnoPro aims to achieve our purpose by integrating human capital strategies and business strategies to improve economic value and create positive social outcomes, which translates to social value. Page 27 illustrates our organization structure for sustainability management. The Sustainability Committee discusses sustainability agenda aimed at value creation and business growth. The ERM committee improves management methods and framework, keeping in mind that the purpose of entire risk management is to enhance the feasibility of business strategies. The Nomination and Compensation Committee held 8 meetings last fiscal year, during which specific discussions on the succession of independent outside directors were progressed. The election proposal to be submitted to the next general meeting of shareholders will be announced on August 23. The Management Development Committee held 4 meetings last fiscal year working on the concretization of succession plans for key positions and the personnel transfers of executives and general managers. From Page 28 onwards, I will explain human capital management. For our business, where talent is the source of value creation, human capital management is synonymous with business operations. We aim to be a platform where engineers gather, grow and thrive by recruiting, utilizing and developing diverse talent and assigning them to attractive jobs. We foster a group of many engineers capable of solving increasingly complex customer and social challenges. Our commitment is to contribute to innovation and the realization of a sustainable society by leveraging our talented engineers. Page 29 is a logic tree diagram showing the connection between human capital investment and execution of business strategy and shareholder value enhancement. Continuous investment in human capital directly impacts financial performance and contributes to sustained economic value. We are promoting initiatives related to human capital, emphasizing the interconnection with value drivers in our business strategy. Page 30 shows the goals and progress of human capital KPIs. Many KPIs have improved year-on-year, but the biggest challenge remains the turnover ratio. Although the employee satisfaction index has remained nearly flat compared to the previous year, it has improved by about 20% over the past 10 years from the mid-60% range when the survey began in 2013. We will continue to enhance nonmonetary reward measures such as workplace environment improvements and career development support to increase retention and LTV of engineers, thereby helping to reduce turnover ratio. Page 31 is about management with consciousness of cost of capital and stock prices. Aside from updating data on M&A performance and IR meetings, the content remains the same from the slide 6 months ago. Our capital policy and capital allocation strategy essentially remain unchanged. I would like to add that we recognize the current PER level is not satisfactory for both our investors and us. To help investors and shareholders understand our growth potential, we strive to provide clear explanations and disclosures. While we will not undertake M&A that does not align with our strategy and discipline, we are open to pursuing M&A that fits these criteria. We want to emphasize our continued strong pursuit of growth. Additionally, our stance on being mindful of stock prices and shareholder returns is also evident from our recent progressive dividends and the newly establishment of a share buyback program. The final slide highlights the major certifications and recognitions received from external parties. TechnoPro continues to be included in all the ESG investment indices used by GPIF, as well as the JPX Prime 150 index. Additionally, we have maintained our AA rating from MSCI ESG ratings. Just as we value our dialogue with investors, we also aim to leverage the insights and discipline provided by evaluations from various ESG rating agencies to refine and enhance our management practices. That concludes my presentation. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]