Ai Holdings is a joint holding company formed in April 2007 following share transfers by Dodwell BMS Limited and Graphtec Corporation. The holding company has five business segments. While the segments have little in common, all operate in niche markets with limited competition, allowing them to maintain high profit margins. In FY06/20, the segments accounting for the largest proportion of sales and earnings were the Security Equipment segment, the Card Equipment and Other Office Equipment segment, and the Peripheral Computer Equipment segment.
The Security Equipment segment accounted for 27.5% of total sales and 56.8% of operating profit in FY06/21. In this segment, the company primarily conducts sales and installation of security systems for condominiums. It says it procures leading global security systems (including devices such as surveillance cameras and recorders) from various manufacturers, uses its own sales force to market the systems, and has strong relationships with condominium management companies. Leveraging these strengths, it has continued to add to the cumulative total of security systems it has installed.
The Card Equipment and Other Office Equipment segment accounted for 8.0% of total sales and 5.3% of operating profit in FY06/21. Sales consist primarily of instant card issuing systems for hospitals, clinics, and financial institutions. The company is one of the few manufacturers with proprietary embossing technology. In March 2015, Ai Holdings acquired NBS Technologies Inc., a manufacturer of card issuance software and equipment for financial institutions with a global network of authorized dealers. Now sporting a full product line ranging from small instant card issuing equipment to large high-volume systems, Ai Holdings is in a position to leverage a network of about 150 dealers worldwide to grow this business.
The Peripheral Computer Equipment segment accounted for 41.7% of total sales and 34.8% of operating profit in FY06/21. In this business, the company manufactures and sells commercial cutting products (cutting plotters), scanners, and other computer peripherals. Subsidiary Silhouette America Inc., established in FY06/10, sells compact cutting plotters for the paper craft and hobby market, primarily in North America.
In FY06/21, Ai Holdings reported consolidated sales of JPY46.2bn (+7.0% YoY), operating profit of JPY9.4bn (+24.4% YoY), recurring profit of JPY9.9bn (+24.5% YoY), and net income attributable to owners of the parent of JPY5.9bn (+26.9% YoY).
The company's forecasts for FY06/22 are consolidated sales of JPY47.6bn (+3.0% YoY), operating profit of JPY10.1bn (+6.9% YoY), recurring profit of JPY10.5bn (+6.3% YoY), and net income attributable to owners of the parent of JPY7.0bn (+19.4% YoY).
Shared Research sees the security equipment, card, and compact cutting plotter businesses as medium-term growth drivers. (See the Outlook section for details).
Strengths: talented management team, many businesses with strong positions in niche markets, and strong financials with close profit margin management. Weaknesses: cautious M&A stance, limited network for sourcing overseas acquisition targets, and limited growth potential at some existing businesses (see Strengths and Weaknesses section).
|Gross profit margin||38.2%||40.3%||42.7%||42.6%||41.0%||40.8%||39.7%||42.2%||46.6%||47.0%|
|Operating profit margin||12.6%||15.4%||17.3%||17.2%||16.7%||17.0%||16.5%||16.5%||17.6%||20.4%||21.2%|
|Recurring profit margin||14.1%||15.7%||17.7%||20.4%||17.1%||17.8%||17.0%||16.9%||18.4%||21.4%||22.1%|
|Shares issued ('000, year-end)||56,590||56,590||56,590||56,590||56,590||56,590||56,590||56,590||56,590||56,590|
|EPS (fully diluted)||-||-||-||-||-||-||-||-||-||-|
|Dividend per share||16.0||20.0||24.0||30.0||30.0||36.0||38.0||40.0||45.0||45.0||50.0|
|Book value per share||438.4||495.6||561.7||663.0||720.8||827.9||922.9||991.6||1,045.9||1,135.3|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||9,012||12,565||15,200||15,176||15,372||17,938||20,948||23,318||25,507||32,058|
|Total current assets||20,594||23,768||27,971||31,681||34,944||38,007||41,106||39,006||40,333||46,997|
|Tangible fixed assets||6,232||6,156||6,247||6,719||6,753||6,797||7,525||9,578||9,573||9,504|
|Investments and other assets||2,079||2,339||2,797||4,576||4,462||6,779||7,819||8,234||8,467||7,852|
|Total current liabilities||6,604||6,832||7,740||9,740||10,591||11,695||11,907||8,321||6,727||7,934|
|Total fixed liabilities||2,403||2,727||3,275||3,539||4,413||4,122||4,081||4,535||4,719||4,935|
|Total net assets||20,763||23,472||26,605||31,398||34,138||39,209||43,707||46,958||49,530||53,765|
|Total interest-bearing debt||-||-||-||-||-||-||-||-||-||-|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||3,803||3,937||4,154||4,503||4,076||6,498||6,846||7,212||5,578||9,372|
|Cash flows from investing activities||-425||570||-430||-3,493||-1,292||-1,940||-2,533||-3,136||960||-656|
|Cash flows from financing activities||-4,458||-920||-1,116||-1,376||-2,323||-2,040||-2,303||-2,583||-2,319||-2,465|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Gross profit margin||48.1%||46.8%||46.9%||47.0%||48.7%|
|Operating profit margin||20.2%||20.1%||20.3%||20.4%||22.0%||21.2%|
|Recurring profit margin||20.7%||20.2%||20.9%||21.4%||23.0%||22.1%|
|Gross profit margin||48.1%||45.7%||47.0%||47.3%||48.7%|
|Operating profit margin||20.2%||19.9%||20.9%||20.8%||22.0%|
|Recurring profit margin||20.7%||19.7%||22.4%||22.8%||23.0%|
|By segment (cumulative)||FY06/21||FY06/22|
|Card Equipment and Other Office Equipment||962||1,835||2,764||3,686||1,005|
|Peripheral Computer Equipment||4,603||10,139||14,507||19,277||4,473|
|Operating profit margin||20.2%||20.1%||20.3%||20.4%||22.0%|
|Operating profit margin||41.3%||41.3%||41.8%||41.5%||41.9%|
|Card Equipment and Other Office Equipment||151||265||382||491||177|
|Operating profit margin||15.7%||14.4%||13.8%||13.3%||17.6%|
|Peripheral Computer Equipment||830||1,798||2,398||3,236||766|
|Operating profit margin||18.0%||17.7%||16.5%||16.8%||17.1%|
|Operating profit margin||0.3%||0.8%||4.2%||3.5%||0.4%|
|By segment (quarterly)||FY06/21||FY06/22|
|Card Equipment and Other Office Equipment||962||873||929||922||1,005|
|Peripheral Computer Equipment||4,603||5,536||4,368||4,770||4,473|
|Operating profit margin||20.2%||19.9%||20.9%||20.8%||22.0%|
|Operating profit margin||41.3%||41.3%||42.7%||40.6%||41.9%|
|Card Equipment and Other Office Equipment||151||114||117||109||177|
|Operating profit margin||15.7%||13.1%||12.6%||11.8%||17.6%|
|Peripheral Computer Equipment||830||968||600||838||766|
|Operating profit margin||18.0%||17.5%||13.7%||17.6%||17.1%|
|Operating profit margin||0.3%||1.3%||9.0%||0.9%||0.4%|
Sales and all profit categories increased YoY. Performance was driven by higher sales and profit in the Security Equipment and Card Equipment and Other Office Equipment segments, which offset declines in sales and profit in the Peripheral Computer Equipment segment.
Progress versus the full-year FY06/22 forecast was 24.2% for sales (23.8% in Q1 FY06/21 versus full-year results), 25.0% for operating profit (23.5%), 25.2% for recurring profit (23.0%), and 28.7% for net income attributable to owners of the parent (26.4%). With sales and all profit categories at more or less 25% of their respective targets, Shared Research understands that Q1 progress was in line with the company's full-year forecast.
Results by segment were as follows.
Sales to condominiums—both renewals of agreements for the use of the company's security systems and new orders—were robust, leading to YoY growth in sales and profit. The total number of renewals and new orders was up by double digits YoY.
Renewals of agreements associated with the company's security equipment doubled YoY. This increase was primarily driven by renewals at rental apartments, but renewals at condominiums rose as well. Lease agreements for the company’s security systems expire after six years, and for some time, the company has observed a pattern under which about 70% of customers fully extend these agreements. New installations in rental apartments increased significantly YoY in FY06/16, and the company benefited from renewal demand for these agreements in Q1 FY06/22. Based on previous installations, the company projects that renewals in FY06/22 will increase by about 50% YoY.
The number of new orders was down YoY, both from rental apartments and condominiums. This was in part because the company concentrated its operations on obtaining renewal orders.
Segment sales and profit generated through corporate clients increased as the company won a large order.
Sales and profit increased YoY as the company resumed sales activities to hospitals, its key customers for card equipment.
Sales from the card equipment business at Dodwell BMS were flat YoY, but profit was up YoY.
Sales and profit generated through card equipment at NBS Tech grew YoY, thanks to the booking of sales for a large overseas order for which delivery had been delayed due to the COVID-19 pandemic.
Sales and profit generated through CAD software for use in the steel industry declined. The pandemic caused stagnation in the overseas engineer training and staffing business, which is included in the segment. Previously the company sold to steel structure and construction companies, but in Q1 worked to expand its sales channel to include steel structure trading companies.
The segment comprises the commercial-use cutting machines business and the cutting machines for consumers business. In Q1, while the commercial-use cutting machines business posted higher sales and profit YoY, sales and profit in the cutting machines for consumers business fell YoY.
Sales of commercial-use cutting machines increased in the US, thanks in part to subsidies the US government handed out as part of its economic stimulus measures.
Subsidiary Silhouette America, Inc., which operates the cutting machines for consumers business, posted sales of JPY2.7bn (-16.0% YoY) and operating profit of JPY428mn (-35.2% YoY). Due to difficulty procuring semiconductors and other electronic parts globally, production of small cutting machines for the consumer market among others could not meet their demand. As a result, sales and profit fell YoY. Despite a high level of demand for small cutting machines and there being order backlogs, supply is lagging demand due to shortages of parts.
Sales fell but profit rose YoY due to delays in the completion of construction work caused by the pandemic.
In the new low-carbon systems business, the company installs and manages systems that electronically control outdoor units of air conditioners installed in office buildings and manufacturing facilities, thereby reducing electricity bills (demand control system, Ai-Glies; see the Outlook section). In Q1, sales and profit from the low-carbon systems business (included in the Others segment) were negligible.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||FY Est.|
|Cost of sales||11,880||11,192||23,072||12,390||12,112||24,502|
|Gross profit margin||47.7%||45.3%||46.6%||46.8%||47.2%||47.0%|
|Operating profit margin||19.8%||15.1%||17.6%||20.1%||20.8%||20.4%||21.2%|
|Recurring profit margin||20.3%||16.3%||18.4%||20.2%||22.6%||21.4%||22.1%|
The company's forecasts for FY06/22 are consolidated sales of JPY47.6bn (+3.0% YoY), operating profit of JPY10.1bn (+6.9% YoY), recurring profit of JPY10.5bn (+6.3% YoY), and net income attributable to owners of the parent of JPY7.0bn (+19.4% YoY). The company projects increases in both sales and profits generated through the Security Equipment, Card Equipment and Other Office Equipment, and Design segments. However, it also anticipates a decline in sales and profit generated through the Peripheral Computer Equipment segment, which drove performance growth in FY06/21.
Through its low-carbon systems business, the company installs and manages systems (demand control systems) that electronically control outdoor equipment attached to air conditioners installed in office buildings and factories, thereby reducing corresponding electricity bills. AI Holdings projects that the low-carbon systems business will have negligible impact on sales and profit in FY06/22.
The company plans to pay an annual dividend of JPY50.0 per share (JPY25.0 for the interim dividend and JPY25.0 for the year-end dividend), with a payout ratio of 33.8% (36.3% in FY06/21).
For the Security Equipment segment, the company projects full-year sales of JPY13.9bn (+9.2% YoY) and operating profit of JPY5.6bn (+5.9% YoY).
The company projects that segment sales and profit will increase along with a rise in renewals of agreements associated with security equipment for condominiums that it sold previously.
Ai Holdings projects that renewals of agreements concerning security systems for condominiums will be the primary driver of performance growth. Lease agreements associated with these security systems expire after six years. For some time, the company has observed a pattern according to which about 65% of customers fully renew these agreements, about 25% renew them for one year, and about 10% choose not to renew. Meanwhile, renewals of these security system agreements are steadily rising. In FY06/16, the company reported a substantial increase in new installations of security systems in rental apartments, and corresponding agreements will be up for renewal in FY06/22. Accordingly, the company anticipates that renewals of agreements associated with its security systems will rise by about 50% YoY in FY06/22.
AI Holdings projects that segment sales will increase due to a rise in installed security systems consisting primarily of agreement renewals. Accordingly, it also anticipates corresponding growth in segment profit.
For the Card Equipment and Other Office Equipment segment, the company projects full-year sales of JPY4.4bn (+19.4% YoY) and operating profit of JPY650mn (+32.4% YoY).
AI Holdings forecasts growth in sales and profit generated through card equipment from Dodwell BMS. It also projects recovery in demand for card issuing machines used in hospitals and clinics. Furthermore, the company anticipates growth in sales of card issuing machines for use in financial institutions.
At NBS Tech, the company forecasts a rise in profit stemming from cost reduction.
The company projects that sales and profit generated by CAD software for the structural steel construction industry will remain level YoY. The COVID-19 pandemic factored into stagnation in the overseas engineer training and staffing business (included under the Card Equipment and Other Office Equipment segment) in FY06/21. Ai Holdings anticipates that FY06/22 performance in the overseas engineer training and staffing business will be on par with corresponding performance in FY06/21. The company came to conclusion primarily because of ongoing uncertainty surrounding the outlook for this business.
For the Peripheral Computer Equipment segment, the company projects full-year sales of JPY18.8bn (-2.5% YoY) and operating profit of JPY3.1bn (-4.2% YoY).
Ai Holdings anticipates a decline in sales and profit generated through Silhouette America, Inc., which accounts for the majority of segment profit.
The company projects that Silhouette America will generate JPY13.2bn in sales (-0.5% YoY) and JPY2.8bn in operating profit (-2.9% YoY). Demand for small cutting plotters has been strong due to the trend of consumers remaining at their homes in response to the COVID-19 pandemic, and the company is accordingly carrying an order backlog. However, since Q4 FY06/21, parts such as IC chips, motors, and connectors have been in short supply, and production volumes have fallen short of volumes ordered. Additionally, the COVID-19 pandemic has caused distribution delays and operational suspensions at the company’s production factory in Vietnam. Accounting for the possibility of corresponding production limitations, the company anticipates that sales will remain level YoY. Meanwhile, the company projects a decline in profit based on rising procurement costs resulting from part shortages and growth in shipping costs.
The company projects full-year sales of JPY4.5bn (+4.7% YoY) and operating profit of JPY250mn (+67.8% YoY).
In FY06/21, private-sector demand for construction declined due to impact from the COVID-19 pandemic, and the company reported a decline in orders received and delayed completion of construction projects within the Design segment. Based on its order backlog, the company projects that segment sales and profit will increase compared to FY06/21, when the company observed a temporary decrease in performance.
Ai Holdings does not disclose a medium-term management plan.
Shared Research considers the security system equipment, small cutting plotter, and low-carbon systems businesses as potential sources of organic growth over the medium term. We will also discuss external growth by measures such as IoT-related initiatives and M&A.
Despite the mature market for condominium security camera systems, Ai Holdings’ market share means there is still sufficient potential to sell more security systems. The company estimates there are about 120,000 condominiums in Japan and as of end-June 2021 it had installed systems in approximately 35,000 of these, about 30% of all condominiums in Japan. The company aims to take that number to 50,000.
Lease periods on security systems installed in condominiums are typically six years. The company sees replacement demand continuing, with 65% of customers choosing to continue, 25% opting for a one-year renewal, and 10% not renewing.
The company is optimistic about future growth of Silhouette America Inc., a subsidiary of consolidated subsidiary Graphtec America, Inc. Silhouette America manufactures and sells small cutting plotters to consumers for papercraft and other hobby-related crafts as well as providing online papercraft and other hobby-related crafting content.
According to the company, crafting is a highly popular hobby in the United States and Europe. Holders of this hobby are primarily women aged 30 through 59 who are raising children and have incomes that are mid-ranged or higher. In particular, scrapbooking, which falls under the category of paper crafts, is apparently one of the three most prevalent hobbies among female homemakers in the United States. About 60% of the 128 million households in the United States (70–80 million households) have reportedly listed crafting as one of their hobbies. Silhouette America has captured under 10% of this market.
Cricut, Inc. is another company conducting similar operations in the United States. According to the company, Cricut had previously focused on a business model through which it sold small cutting plotters and pattern designs as a package to individual consumers. However, the company indicates that Cricut has also begun selling providing designs over the Internet. In FY12/20, Cricut generated USD959mn in sales (+97.1% YoY) and USD 201mn in operating profit (+274.4% YoY).
Since its founding, Silhouette America had consistently achieved growth in in performance until reporting declines in sales and profit in FY06/19 that stemmed from competition with other companies operating in the same industry. However, the company once again generated growth in sales and profit in FY06/20, thanks to the release of CAMEO4, a new product featuring higher cutter pressure and speed. In the following fiscal year (FY06/21), it reported an increase in sales and record-high profit, primarily thanks to demand stemming from the trend of consumers remaining at home in response to the COVID-19 pandemic.
Over the medium term, the company will strive to achieve performance growth by expanding its sales divisions and launching new products in North America, Europe, Latin America, and Asia and by reducing the number of consumable goods it provides in North America.
|Operating profit margin||16.0%||13.7%||16.7%||13.6%||13.6%||13.0%||13.6%||11.8%||16.3%||21.7%|
Dubbed the “low-carbon systems” business, the new business launched in July 2021 features IoT technology-based automatic control systems for governing building ventilation; these are marketed as a new solution for companies seeking to reduce their utilities costs, the target market being companies with which Ai Holdings has done business in the past.
Ai Holdings began manufacturing and selling commercial-use demand control ventilation systems (Ai-Glies) that automatically control airflows, thereby reducing the base rates charged by electric power companies and power consumption.
Using devices attached to outdoor air ventilation units, the system automatically controls output ventilation and reduces the level of peak power demand (used by electric power companies to determine their base rate). Because the new control system makes adjustments to ventilation every three minutes with its patented power saving control feature that responds to a temperature-humidity index, it is also able to keep indoor temperatures comfortable while at the same time helping users to reduce their annual electric power consumption. Data is stored on the cloud, and users can monitor and manage their reduction of electric power consumption, associated fees, and CO2 emissions.
The new system will use the transformers, control units, sensors, and other network components that utilize the wireless communication and solar power feeding technology (patent pending) of Social Area Networks Co., Ltd, an equity-method affiliate that Ai Holdings since May 2019. Compared with traditional demand control ventilation systems, the new system does not require costly wiring work; this keeps the installation cost low, making it easier for potential client companies to switch, and creates a highly cost-effective demand control ventilation system that is manufactured, sold, and installed entirely by companies in the Ai Holdings group.
The company commented that, with building air conditioning costs accounting for a significant portion of electrical power consumption across all industries, running from roughly 25% on the low side to 50% on the high side, it expects to find applications for its new demand control ventilation system in a wide range of buildings, including factories, warehouses, distribution centers, hospitals, and hotels. Client companies pay the cost of equipment and installation when buying the system as well as a monthly fee while the system is in operation. They can recover this outlay from power savings within two to three years. And, because the new system is wireless and does not require expensive wiring installation (as mentioned previously), the company also expects to find customers among owners of general office buildings that are too small to realize the cost-savings from traditional demand control ventilation system because the cost of new wiring installation work eats up most of the savings.
Products from the company’s competitors feature alarms that alert users when the temperature of outdoor equipment attached to their air conditioning systems rises, giving them the opportunity to adjust this temperature manually. In contrast, the company maintains that its demand control systems have an advantage over these products because they adjust output automatically and regulate air conditioning systems based on a discomfort index calculated using measurements of outside temperature and humidity.
Marketing plans call for making use of existing sales channels, starting with those client companies that already use its security camera system.
Approximately 25% reduction in base rate charged by electric power companies: Most companies and small and medium-sized factories enter into contracts with electric utility companies for high-voltage power, under which the base charge is determined based on the customer’s highest usage during a single 30-minute period in the past year. Through regulation, the new demand control ventilation system from Ai Holdings can achieve automatic adjustment that facilitates consistency in the amount of electricity used during peak hours. By reducing the number of air conditioning units running simultaneously in one building, these systems can reduce the total amount of power consumed by the user during peak demand periods enough to lower the base charge they will pay for high-voltage electricity.
Approximately 20% reduction in usage charges through reduced power consumption: Based on the temperature and humidity levels within a building, the patented demand control ventilation system makes adjustments to ventilation every three minutes, by automatically switching cooled/heated air to fan-only mode (switching to a three-minute fan-only mode without stopping the air conditioning unit helps prevent fluctuations in indoor temperature). In this manner, the new system is able to keep the temperature inside a building comfortable while reducing the amount power consumed in the process, thereby decreasing amount the user pays for metered power usage. Because the new system reduces the total amount of energy consumed, it will also help reduce greenhouse gas emissions by providing the volume (tons) of reduced CO2 emissions, and help alleviate related environmental problems.
Newly established Demand System Business Control Department will supervise groupwide operation of the new business. Operations of the new business will involve Dodwell B.M.S. Ltd., Graphtec Corp., Ai Sekkei Corp., and other group companies taking the lead on the sales. Through these group companies, Ai Holdings will make proposals regarding the implementation of demand controls systems to customers who are already utilizing some of its products (e.g., security camera systems and card issuing machines).
Meanwhile, Social Area Networks Co., Ltd. will handle product development and manufacturing.
The company’s demand control system (Al-Glies) received the Top Invention Award at the 37th Tokyo Prefectural Governor Awards event and was nominated for the FY2019 Energy Conservation Grand Prize.
Received the Top Invention Award at the 37th Tokyo Prefectural Governor Awards event for the demand control mechanism that regulates temperature by making adjustments at three-minute intervals
Mechanism regulating temperature based on a discomfort index calculated using measurements of outdoor air properties nominated for the FY2019 Energy Conservation Grand Prize
Growth through acquisitions is an important component of Ai Holdings’ strategy. However, while historically an active and successful acquirer, the company attributes some of its track record to patience in waiting for the right opportunities at the right prices. If previous performance is any indication, while it has no specific timetable for acquisitions, when Ai Holdings makes acquisitions its prospects for success should be high.
The company’s deal-making can be split into:
1) Strategic M&A either to enter a new business or to enhance an existing one, e.g. Security Equipment or Card Equipment.
2) Opportunistic deal-making when the company finds a struggling target that has strong products serving a niche market but is in need of restructuring to realize its potential (Dodwell BMS and Graphtec Corp. being good past examples).
The company has defined criteria for an enterprise to be considered an M&A target; while a target company may be operating in the red it must have a decent balance sheet and a strength in a niche market. Barring food and real estate, the company is open to acquisitions in any industry. The company won't engage in hostile takeovers and, unlike a private equity fund, doesn't make acquisitions with an eye to selling the acquired company later. Finally, Ai Holdings tries to pay below net asset value for target companies and businesses.
Typical restructuring targets are companies plagued by management problems, or that own troubled subsidiaries and also supply products or services to Ai Holdings' own customer base (30,000 to 40,000 companies). These companies can either diversify or concentrate the company's portfolio of businesses: Graphtec being an example of the latter.
The company's M&A stance is cautious: it needs to be confident its deals will succeed and it eschews using M&A simply to chase growth. While this conservative approach seems to have paid off so far, achieving sufficient growth via a mix of organic and M&A-driven growth will likely be an issue in the future.
It is fairly commonplace among Japanese companies for managements to remain in place even as a business bleeds red ink, as long as the balance sheet is not irreparably damaged. Consequently, even if a business makes an attractive target, the company will probably pass on many such opportunities because management would have to be kept on.
One method for the company to deal with this is to target overseas M&A. At overseas companies, managements who do not produce decent financial results get replaced and these companies often become acquisition targets. The company has been actively considering overseas M&A, but it faces the issue of building a network of contacts to help it source target companies. Given a high percentage of Graphtec Corp’s sales are from overseas and it has already been developing its businesses globally, one option might be to utilize Graphtec’s network.
Card equipment (NBS Tech) produced lower sales YoY and generated an operating loss. In FY06/22, the company had planned to gradually deliver card issuing machines to the Bank of China, but these deliveries have been delayed by the COVID-19 pandemic.
Ai Holdings is a joint holding company formed in April 2007 following the share transfer of Dodwell BMS Ltd. and Graphtec Corp., both of which were listed on the Tokyo Stock Exchange’s (TSE) First Section.
The company has conducted a series of mergers and acquisitions, and its organizational structure has thus changed significantly over time. Moreover, the company’s businesses and structure are likely to continue changing considerably, but its main business segments as of end-FY06/21 are described below.
The company operates four businesses. Dodwell BMS is a core group company, and its main businesses are sales of security equipment, and the development and sales of IC-card issuance equipment and related products. Graphtec Corp. is another core group company; main businesses are developing, manufacturing, and selling peripheral computer equipment.
|Security Equipment segment||Development, manufacture, and sale of surveillance cameras and other security system devices Dodwell BMS||Dodwell BMS|
|Card Equipment and Other Office Equipment segment||Development, manufacture, and sale of card issuance equipment (card systems for hospitals and financial institutions) and other office equipment Dodwell BMS, NBS Card, NBS Technologies Inc.||Dodwell BMS, Ai Finc Corp (formerly NBS Card Corp.), NBS Technologies Inc.|
|Peripheral Computer Equipment segment||Development, manufacture, and sale of cutting plotters, scanners, and other peripheral computer equipment; also provides maintenance services Graphtec Corp., Graphtec America, Inc., Graphtec Digital Solutions, Inc., Silhouette America, Inc.||Graphtec Corp., Graphtec America, Inc., Graphtec Digital Solutions, Inc., Silhouette America, Inc.|
|Measuring and Environmental Testing Devices segment||Development, manufacture, and sale of measuring and environmental testing devices and metallic impurity detectors||Graphtec Corp., Graphtec America, Inc.|
|% of total||20.9%||23.8%||24.7%||23.8%||22.4%||23.2%||22.2%||24.5%||28.9%||27.5%|
|Card Equipment and Other Office Equipment||2,717||2,487||3,364||4,212||5,579||5,013||6,364||6,399||4,349||3,686|
|% of total||9.6%||7.7%||9.1%||10.2%||11.4%||10.0%||11.7%||12.5%||10.1%||8.0%|
|Peripheral Computer Equipment||6,916||8,005||10,443||13,374||15,000||15,433||15,987||15,706||15,214||19,277|
|% of total||24.6%||24.7%||28.2%||32.4%||30.8%||30.8%||29.3%||30.8%||35.2%||41.7%|
|% of total||15.3%||14.3%||13.1%||12.1%||10.0%||10.1%||9.1%||8.9%||10.7%||9.3%|
|% of total||29.5%||29.5%||24.9%||21.5%||25.4%||25.9%||27.7%||23.2%||15.0%||13.5%|
|Operating profit margin||12.6%||15.4%||17.3%||17.2%||16.7%||17.0%||16.5%||16.5%||17.6%||20.4%|
|Operating profit margin||16.3%||29.7%||29.9%||30.3%||34.5%||37.5%||38.4%||41.5%||40.9%||41.5%|
|Card Equipment and Other Office Equipment||589||570||946||974||754||660||926||1,000||697||491|
|Operating profit margin||21.7%||22.9%||28.1%||23.1%||13.5%||13.2%||14.6%||15.6%||16.0%||13.3%|
|Peripheral Computer Equipment||696||809||1,091||1,663||1,859||1,927||1,901||1,498||1,354||3,236|
|Operating profit margin||10.1%||10.1%||10.4%||12.4%||12.4%||12.5%||11.9%||9.5%||8.9%||16.8%|
|Operating profit margin||15.2%||15.5%||15.9%||14.4%||14.7%||14.6%||14.0%||8.6%||7.4%||3.5%|
|Operating profit margin||6.2%||5.0%||7.6%||5.6%||8.1%||6.0%||5.0%||2.8%||-||2.4%|
|% of total||-401.6%||-426.8%||-599.1%||-457.8%||-764.1%||-453.2%||-348.6%||-163.2%||-||1.6%|
(27.5% of sales and 56.8% of operating profit in FY06/21)
This segment is engaged in the sale of security systems for condominiums and general corporations, with the core group company being consolidated subsidiary Dodwell BMS.
|Operating profit margin||16.3%||29.7%||29.9%||30.3%||34.5%||37.5%||38.4%||41.5%||40.9%||41.5%|
|Number of employees||223||239||245||255||275||284||294||287||291||289|
|Sales per employee (JPYmn)||27||33||38||39||41||42||42||43||43||44|
Dodwell BMS’ mainstay product is digital surveillance cameras. Dodwell BMS began selling security systems in FY06/00 and initially developed its business by building close ties with two of the three major South Korean security companies, which were technological leaders in the field. This included a sales agreement with POSDATA (an information-systems subsidiary of steel giant POSCO [KRX: 005490]). According to the company, South Korean companies were at the cutting edge of the security field due to the widespread penetration of broadband and digital video compression technology in the country. In Japan, major electric appliance manufacturers researched and developed home-use audio-visual equipment and were thus late in entering the security equipment segment.
As of August 2021, the company procured most of its security equipment products from South Korean companies. The company has stated its strength is that it does not rely on any one manufacturer but rather procures and sells cutting-edge products from the best suppliers globally. Competitors in this segment include Panasonic Corp. (TSE1: 6752), Mitsubishi Electric Corp. (TSE1: 6503), and Hitachi Ltd. (TSE1: 6501).
The company provides security systems for condominiums, general corporations, and some public bodies. The breakdown of digital video recorder (DVR) and iNEX (network surveillance software) unit sales by industry in FY06/20 was as follows (volume basis, excludes OEM sales):
Condominiums: 75.5% (73.0% in FY06/19)
Retail/commercial facilities: 4.8% (6.4%)
Manufacturing, transport, and warehouse facilities: 4.6% (4.9%)
Government agencies, medical facilities, schools: 4.1%
There was no significant price difference compared with competitors in surveillance cameras for condominiums, and the company’s competitive advantage can be attributed to its sales force and relationships with condominium management companies.
The chairman of the company participates in interviewing new graduates for its sales force. Motivation, speaking ability, honesty and a cheerful personality weigh heavily in the company’s selection process for sales representatives. Sales representatives are sent onsite following a rigorous in-house training program. Despite an organization comprised of young sales representatives, motivation is high and sales activities are conducted amid friendly competition amongst each other. According to the company, its sales representatives are known for service and understanding the needs of each client, and are praised for their ability to offer detailed services to customers. Its sales representatives have successfully penetrated major corporations, and this in turn, has won high praise and trust from condominium management companies. The turnover rate for sales representatives is close to zero for the company.
All of the company’s condominium customers are existing condominiums. This is because security systems for new condo buildings are not a profitable niche for the company because they are normally handled by the construction companies and architectural offices. The company holds the top share in Japan for sales of security systems to existing condo buildings.
In the case of existing owner-occupied condominiums, the parties on the receiving-end of the sales pitch are the board of directors for individual condominium owners associations*. The company obtains information on security system installations and replacements from the condominium property management company** that Dodwell BMS works with and has an established relationship. Dodwell BMS has relationships with the majority of large condo management companies. Based on information obtained from these management companies, the company’s salespeople go out to give presentations at condominium association board meetings, which will be its end-customer. The company indicates that there is a strong need for surveillance systems in entrance areas and elevators, mail rooms, bicycle parking areas, and trash disposal areas in condominiums. See the Business Model section for details.
*Condominium owners associations: Establish under the Sectional Property Ownership Act, condominium owners associations in Japan are involuntary associations in that the sectional owner of the said property is obligated to join. In actual practice, operational matters concerning the condominium property are handle by the association’s board of directors, which are elected as representative from among the sectional owners in the said property.
**Property management companies are in turn hired by condominium owners associations to perform actual property management duties.
As of end-June 2021, the company had installed systems in approximately 35,000 condominiums in total. The company’s long-term target is to install systems in 50,000 out of an estimated 120,000 condominium buildings in Japan.
In addition to providing security equipment to owner-occupied condominiums, the company began selling systems for rental apartments in January 2015 in cooperation with a major real estate company.
The majority of corporate sales to customers other than condominiums are conducted via sales agents (except in the case of tender bids). The company has concluded business tie-ups for the sale of security equipment with a number of companies, including Azbil Corp. (TSE1: 6845), Itoki Co. (TSE1: 7972), and Fuji Xerox Co., Ltd. (a subsidiary of Fujifilm Holdings Corp. [TSE1: 4901]).
The company aims to grow sales to financial institutions via cooperation with resellers and its new product, the Multi-Eye System.
Multi-Eye System is capable of capturing images in a 360-degree field of view, covering all installed areas with one omnidirectional camera. One system unit is capable of total coverage compared to a conventional camera. Video images can be confirmed on one screen.
The Security Equipment segment has seen its operating profit margin rise over the years, and as of FY06/21 the operating profit margin here was above 40%. Shared Research thinks that the margin improvement has been driven by a combination of the rising proportion of segment sales accounted for high-margin sales of security systems to condominiums and careful control of growth in SG&A spending.
(8.0% of sales and 5.3% of operating profit in FY06/21)
Under the Card Equipment and Other Office Equipment are consolidated subsidiaries Dodwell BMS and NBS Technologies Inc. (NBS Tech), which develop and sell card issuing systems and other types of office equipment/software (such as CAD software).
|Card equipment (Dodwell BMS)||2,072||1,653||1,915||2,041||1,688||1,529||1,987||2,090||1,603|
|Card equipment (NBS Tech)||-||-||-||659||2,033||1,479||2,363||2,227||767|
|Other office equipment||649||924||1,506||1,663||1,974||2,125||2,131||2,203||2,282|
|Operating profit margin||21.7%||22.9%||28.1%||23.1%||13.5%||13.2%||14.6%||15.6%||16.0%||13.3%|
|Card equipment (Dodwell BMS)||455||322||444||442||308||120||328||334||-23|
|Operating profit margin||22.0%||19.5%||23.2%||21.7%||18.2%||7.8%||16.5%||16.0%||-1.4%|
|Card equipment (NBS Tech)||-||-||-||1||-343||-278||-181||-97||-91|
|Operating profit margin||-||-||-||-||-||-||-||-||-|
|Other office equipment||134||248||502||530||778||818||776||763||761|
|Operating profit margin||20.6%||26.8%||33.3%||31.9%||39.4%||38.5%||36.4%||34.6%||33.3%|
Instant hospital patient card issuance systems are one of Dodwell BMS’ main products. According to the company, its instant card issuance system has almost a 100% market share among hospitals and clinics in Japan (this includes systems supplied to competitors under OEM agreements).
Other than hospital and clinic card issuance equipment, Dodwell BMS plans to offer new products such as automatic outpatient reception machines, automatic payment machines, exam slips, patient number displays, and sample container labels.
Dodwell BMS also supplies instant card issuance equipment that can produce ATM and credit cards, such as those offered by financial institutions and retailers.
According to the company, roughly 40% of FY06/20 sales in this segment were for card equipment (figures are totals of Dodwell BMS and NBS Tech), of which the majority was to hospitals and clinics, with the remainder mainly sales to financial institutions.
The planning, development and design of Dodwell BMS card issuance equipment is done internally, while manufacturing is outsourced.
According to the company, its main competitor is Datacard Corp., an unlisted US firm with roughly 90.0% global market share in instant card issuance.
Datacard has a high market share because the market lends itself to high concentration. Only a handful of companies worldwide —including Japan’s Ai Finc Co. (former Pro-mech Corp.), a Dodwell BMS subsidiary—possess the embossing technology (raising numeric and alphabet characters up from the front surface of the card by pushing out from the back of the card the forms of the characters) normally used in card issuance.
In March 2015, the company acquired NBS Technologies Inc. (NBS Tech), a manufacturer of card issuance software and equipment for financial institutions with a global network of agencies (acquisition cost: JPY2.6bn).
In July 2015, the company changed the name of Pro-mech Corp., a Dodwell BMS s subsidiary that develops and manufactures card systems, to NBS Card (now Ai Finc Co.). NBS Tech operates the card issuance equipment business overseas and Ai Finc operates the business in Japan.
According to the company, the global market for card issuance equipment is worth about JPY90bn, with NBS Tech holding the second largest share after the Datacard Group. Prior to Ai Holdings’ purchase of NBS Tech, however, it was part of a fund and had limited human resources, so sales were only JPY3.5bn in FY12/14. Nevertheless, according to Ai Holdings, there is no significant difference between NBS Tech’s products and those of Datacard, the global market leader. After bringing NBS Tech into the group, Ai Holdings plans to enhance NBS’s product lineup to cover a full range of card issuance equipment, from small instant issuing equipment to high-volume systems. It also plans to vertically integrate NBS, focusing on all aspects of the business, from manufacturing through sales and maintenance.
Ai Holdings will also be able to leverage NBS Tech’s global network of 150 or so agencies to expand its business. In addition to strengthening the range of card issuance equipment, the company expects growth in this business as Ai Finc sells NBS Tech’s high-volume card systems in Japan, while Dodwell BMS sells its own small instant card issuance equipment globally through NBS Tech’s channels.
The segment’s Other Office Equipment business sells CAD software for steel structures. The company said that as of June 2021, it holds about 70% of the domestic CAD market with its software for steel structures, and has been making inroads into the section of the market represented by large general contractors.
During Japan’s bubble economy of the 1990s, the company had many competitors, but their number declined as the market shrank, to the extent that only a few remained as of August 2021. The company has benefited from being one of the few survivors. Sales have been robust due to increasing demand from the construction industry coupled with a new product introduced in 2012.
(41.7% of sales and 34.8% of operating profit in FY06/21)
In the segment, Graphtec Corp. and Graphtec America, Inc. manufacture and sell peripheral computer equipment (including some via OEM agreements), such as cutting products (vinyl sign cutters, or cutting plotters) and scanners. Silhouette America, Inc., a subsidiary of Graphtec America, sells cutting plotters primarily in North America. Graphtec Digital Solutions, Inc. manufactures and sells label printers.
Graphtec America accounted for roughly 70% of segment sales and 100% of segment profit in FY06/20, with Silhouette America accounting for 80% of sales and 90% of operating profit of Graphtec America.
|Operating profit margin||10.1%||10.1%||10.4%||12.4%||12.4%||12.5%||11.9%||9.5%||8.9%||16.8%|
|Number of employees||145||171||197||218||242||244||249||245||250||253|
|Sales per employee (JPYmn)||48||51||57||64||65||64||65||64||61||77|
Product planning, development, and design are conducted in-house by Graphtec, but manufacturing is outsourced to affiliates both domestically and overseas. Measuring equipment and large-sized environmental devices are assembled and aligned in-house but Graphtec does not actually manufacture any products itself.
A cutting plotter cuts material (usually vinyl sheets) to correspond to graphic data (such as characters, symbols, or illustrations) sent to it by a computer. It is used to create stickers and posters for advertising and billboards, and the majority of the company’s customers are thus in the advertising or billboard industries, although it also sells specialized models for use in the apparel industry.
Graphtec was the first company in Japan to develop an X-Y plotter (a plotter that operates in two axes of motion—that is both X and Y axes—in order to draw continuous vector graphics). During Japan’s real estate bubble of the 1980s, its mainstay product was a Computer Aided Design (CAD) pen-plotter (a device that automatically moves a pen to create diagrams). But demand for pen plotters declined dramatically at the start of the 1990s when Hewlett-Packard Co. (NYSE: HPQ) launched an inkjet CAD printer. However, the company replaced the pen used in its pen plotter with a cutter to create a cutting plotter and the pen plotter business was able to survive by changing from a product aimed at the CAD market (particularly for creating blueprints) to a device targeted at the advertising and billboard markets. Cutting plotter demand has remained constant in the Japanese market. Globally, Asia has been the driver of demand expansion.
The company is the market leader, with a worldwide share of more than 30% of the global cutting plotter market. Competitors include Roland DG Corp. (TSE1: 6789), Mimaki Engineering (JASDAQ: 6638), and Summa Bvba of Belgium.
Graphtec Corp. also manufactures large-size scanners for business use, which are exclusively used to copy technical drawings, such as survey maps for engineering works. Competitors include Denmark’s Contex A/S and Colortrac Ltd. of the UK. Although some sales are made directly to customers, the majority of sales are made via OEM agreements. In many cases, the company notes, the end customers are government and municipal offices. Graphtec has around 30% market share for scanners, but in many cases large-size scanners are not used individually but rather in conjunction with a printer as part of a multifunctional device.
In September 2009, Graphtec America, Inc., established subsidiary Silhouette America. In addition to its previous cutting plotters for commercial use, Silhouette America is currently developing and marketing small cutting plotters for general consumers while cultivating markets associated with papercrafts and hobbies. Within this field, Silhouette America is focused on the following areas:
2) Decorated cards
3) Customized clothing
DIY machine USD299.99
hobby machine USD249.99
for personal use USD199.99