TKC 9746

TKC

Recent Updates

2022-05-11

1H FY09/22 flash update

2022-04-18

Q1 FY09/22 report update

2022-02-14

Q1 FY09/22 flash update

Get in touch

1758 Tsurutamachi Utsunomiya, Tochigi Prefecture, Japan

http://www.tkc.jp/company/

028-648-2111

Summary

TKC provides computer-based accounting services to accounting firms employing tax accountants and certified public accountants (Accounting Firm segment: 70.9% of total sales in FY09/17). TKC uses a mainframe computer to handle accounting tasks for its accounting firm clients. TKC’s clients pay fees to TKC for preparing accounting documents for their customers, as well as fees to rent TKC’s accounting software.

IT Services

Key dates

2016-11-01

Coverage initiation

Full Report

2022-05-11

1H FY09/22 flash update

2022-05-11

Q1 FY09/22 flash update

2022-02-14

FY09/21 flash update

2021-11-10

Q3 FY09/21 flash update / Upward revision to its dividend forecast

2021-08-11

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Executive Summary

Core businesses

TKC provides computer-based accounting services to accounting firms employing tax accountants and certified public accountants (Accounting Firm segment: 68.6% of total sales in FY09/21). TKC uses a mainframe computer to handle accounting tasks for its accounting firm clients. TKC’s clients pay fees to TKC for preparing accounting documents for their customers, as well as fees to rent TKC’s accounting software. Based on the number of accounting firms, TKC’s market share was 36.8% (of the 26,608 total accounting firms in Japan [according to a 2018 announcement regarding a 2016 economic census by the Ministry of Internal Affairs and Communications and the Ministry of Economy, Trade and Industry], TKC’s clients numbered 9,800 accounting firms as of September 30, 2021).

Accounting Firm segment: The company’s Accounting Firm segment has a distinctive business model in that its clients are not the small and medium-sized enterprises (SMEs) who contract for accounting services, but rather the accounting professionals (tax accountants and certified public accountants) that offer corporate tax, finance, and management advice and provide bookkeeping services to support those SMEs. TKC has also established the TKC Nationwide Society*¹, a professional organization that it works with to build relationships with financial institutions and help SMEs gain better access to financing.

According to the 2021 White Paper on Small and Medium Enterprises, SMEs*² and small enterprises*³ account for 99.3% of the 1.61mn companies in Japan outside of primary industries, 64.6% of the 41.1mn people employed by these companies, and 44.1% of total sales generated by these companies. This presents a large potential client base for TKC, as a Ministry of Finance survey in 2018 shows nearly 90% of these SMEs using certified tax accountants to prepare their financial statements (89.1% file corporate tax returns through tax accountants). A total of 580,000 SMEs use TKC’s accounting system. In addition, the number of listed companies and other groups is 4,500, and the total number of associated companies, including large corporations, is about 850,000 (as of end-FY09/21).

*1: The TKC Nationwide Society is Japan’s largest organization for accounting professionals. About 14.5% of the nation’s roughly 79,200 tax accountants and some 37% of the 26,600 accounting firms were members as of 2021.
*2: How the Japanese government defines SMEs differs depending on the industry in which they operate. The largest number of employees (some 5.8mn people) is at companies deemed SMEs in the manufacturing industry. SMEs in manufacturing are defined as those capitalized at less than JPY300mn or those that have fewer than 300 full-time employees. By comparison, in the retail industry, there are about 3.3mn employees at companies that are classified as SMEs, defined as those capitalized at less than JPY500,000 or having fewer than 50 full-time employees.
*3: Under Japanese law (the Small and Medium-size Enterprise Basic Act), in the case of manufacturing and other category, small enterprises are defined as companies employing fewer than 20 people; in the case of retail and service industries, small enterprises are defined as companies with fewer than five employees.

TKC’s accounting system uses a proprietary computation center to create reliable financial statements for SMEs (the clients of accounting firms). This allows the SMEs to more easily obtain loans from financial institutions. Unlike competitors, TKC’s services involve a third party (TKC) preparing monthly and annual financial statements, so retroactive processing of historical financial data (revisions, additions, and deletions) is not possible. SMEs that use accounting firms belonging to the TKC Nationwide Society can obtain loans from the financial institutions that partner with the society, using “Certificates of Bookkeeping Timeliness” issued by TKC (a certificate offering third-party verification of the timeliness and accuracy of prepared financial documents).

At the Local Government segment (26.7% of FY09/21 sales), TKC provides basic resident registration systems to local governments based on the technology and expertise it holds in the Accounting Firm segment.

According to TKC, it had a domestic market share of about 9% in March 2021 (by number of organizations using its basic resident registration systems). As of end-September 2021, TASK Cloud Service (core systems: cloud-based basic resident registration and tax systems), a packaged system operated by the company’s data centers that can be jointly used over the cloud by customers across the nation, had been adopted by over 160 organizations across Japan. In addition, TKC was the first to offer an electronic regional tax filing system that receives tax data, screens it, and ensures its originality. The company has a top market share of about 45% for this service (780 users as of end-September 2021). Furthermore, the number of municipalities using TKC’s system (including general affairs associations) reached 1,000 as of end-FY09/21.

Trends and outlook

For FY09/21, the company reported full-year consolidated sales of JPY66.2bn (-2.3% YoY), operating profit of JPY12.3bn (+8.2% YoY), recurring profit of JPY12.7bn (+8.5% YoY), and net income attributable to owners of the parent of JPY8.7bn (+11.1% YoY). Accounting Firm segment sales declined 3.7% YoY, Local Government segment sales rose 1.9% YoY, and Printing segment sales fell 5.5% YoY, with YoY declines in sales largely attributable to the company’s early adoption of the Accounting Standard for Revenue Recognition that listed companies are required to transition to from April 1, 2021. After applying the new standard, sales were JPY2.5bn lower compared to not applying the standard. The rationale for adopting the new accounting standard early was to acquire expertise in its implementation so that TCK can provide consulting services to listed companies.

For FY09/22, the company projects full-year consolidated sales of JPY67.6bn (+2.0% YoY), operating profit of JPY12.6bn (+2.0% YoY), recurring profit of JPY12.9bn (+2.0% YoY), and net income attributable to owners of the parent of JPY8.9bn (+2.0% YoY), and plans to pay an annual dividend of JPY72.0 per share (flat YoY).

TKC does not release a medium-term business plan. However, TKC Nationwide Society, an organization that counts TKC’s client firms among its members and has a strong influence on TKC’s management strategy, releases strategic targets. By 2021, the 50th anniversary of the establishment of the society, TKC Nationwide Society targets 15,000-member tax accountants and certified public accountants (+32% versus end-FY09/20) and 500,000 installations of its accounting software FX Series (+90%). TKC prioritizes three long-term targets: sales growth of 3% YoY or more, shareholders’ equity ratio of 70% or more, and ROE of 8% or more.

Strengths and weaknesses

Shared Research sees TKC’s strengths as a stable earnings base supported by the TKC Nationwide Society (which counts TKC’s client firms among its members), an accounting system that creates reliable earnings statements, which helps SMEs obtain loans, and a track record of accounting software that supports accounting firms’ management. Weaknesses: slow growth as a result of clinging too tightly to its past success, a weak appeal to SMEs seeking simpler services, and low capital efficiency due to low asset turnover.

Key financial data

Income statement		FY09/11	FY09/12	FY09/13	FY09/14	FY09/15	FY09/16	FY09/17	FY09/18	FY09/19	FY09/20	FY09/21	FY09/22
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Est.
Sales		53,635	53,387	53,115	54,502	54,928	57,750	59,705	61,621	66,120	67,814	66,221	67,550
	YoY	0.4%	-0.5%	-0.5%	2.6%	0.8%	5.1%	3.4%	3.2%	7.3%	2.6%	-2.3%	2.0%
Gross profit		32,121	33,485	33,142	34,112	35,747	37,406	39,285	40,619	43,298	45,147	46,902
	Gross profit margin	59.9%	62.7%	62.4%	62.6%	65.1%	64.8%	65.8%	65.9%	65.5%	66.6%	70.8%
SG&A expenses		26,905	27,262	27,178	27,920	29,006	29,764	30,718	31,939	33,951	33,766	34,587
	YoY	0.6%	1.3%	-0.3%	2.7%	3.9%	2.6%	3.2%	4.0%	6.3%	-0.5%	2.4%
	SG&A ratio	50.2%	51.1%	51.2%	51.2%	52.8%	51.5%	51.4%	51.8%	51.3%	49.8%	52.2%
Operating profit		5,215	6,222	5,964	6,192	6,741	7,642	8,567	8,679	9,347	11,381	12,314	12,560
	YoY	-13.4%	19.3%	-4.1%	3.8%	8.9%	13.4%	12.1%	1.3%	7.7%	21.8%	8.2%	2.0%
	Operating profit margin	9.7%	11.7%	11.2%	11.4%	12.3%	13.2%	14.3%	14.1%	14.1%	16.8%	18.6%	18.6%
Recurring profit		5,421	6,431	6,186	6,401	7,042	7,604	8,792	8,961	9,669	11,685	12,673	12,930
	YoY	-12.3%	18.6%	-3.8%	3.5%	10.0%	8.0%	15.6%	1.9%	7.9%	20.9%	8.5%	2.0%
	Recurring profit margin	10.1%	12.0%	11.6%	11.7%	12.8%	13.2%	14.7%	14.5%	14.6%	17.2%	19.1%	19.1%
Net income attributable to owners of the parent		3,000	3,112	3,685	3,604	4,011	4,770	6,071	6,158	6,721	7,821	8,686	8,860
	YoY	-13.9%	3.7%	18.4%	-2.2%	11.3%	18.9%	27.3%	1.4%	9.1%	16.4%	11.1%	2.0%
	Net margin	5.6%	5.8%	6.9%	6.6%	7.3%	8.3%	10.2%	10.0%	10.2%	11.5%	13.1%	13.1%
Per-share data (split-adjusted; JPY)
Shares issued (year-end; '000)		53,462	53,462	53,462	53,462	53,462	53,462	53,462	53,462	53,462	53,462	53,462
EPS (JPY)		56.17	58.33	69.22	67.78	75.59	89.83	114.57	111.73	127.76	148.82	164.93	168.21
EPS (fully diluted; JPY)		-	58.30	69.10	67.58	75.32	89.44	114.08	116.21	127.51	-	-
Dividend per share (JPY)		22.0	22.0	22.0	22.0	35.5	40.0	50.0	52.5	55.0	60.0	72.0	72.0
Book value per share (JPY)		949.17	987.67	1,053.12	1,102.70	1,152.19	1,187.04	1,275.85	1,343.16	1,362.39	1,466.56	1,582.45
Balance sheet (JPYmn)
Current assets		28,291	31,645	33,352	34,944	31,666	29,554	30,545	31,747	41,073	35,844	36,107
	Cash and cash equivalents	19,083	22,614	22,922	23,625	21,919	19,552	20,039	22,268	29,810	26,769	26,426
	Trade receivables	5,805	5,865	7,300	7,648	6,377	6,299	6,555	7,690	8,755	7,014	6,973
	Inventories	609	506	561	869	636	630	754	618	1,089	722	411
	Other	2,794	2,660	2,569	2,802	2,734	3,073	3,197	1,171	1,419	1,339	2,297
Fixed assets		38,746	37,943	39,371	40,322	45,170	51,562	54,883	58,454	55,915	61,826	67,298
	Tangible fixed assets	15,312	14,426	13,740	13,668	14,495	14,906	16,212	17,464	17,963	17,794	17,540
	Intangible assets	1,258	1,188	1,646	2,744	3,365	3,712	3,812	3,707	3,290	3,120	3,605
	Investments and other assets	22,176	22,329	23,985	23,910	27,310	32,944	34,858	37,282	34,661	40,911	46,152
Total assets		67,037	69,588	72,723	75,266	76,836	81,116	85,428	90,202	96,989	97,671	103,406
Current liabilities		10,791	11,171	10,689	13,281	11,749	13,419	13,345	13,955	16,278	14,701	14,721
	Trade payables	3,125	2,782	3,460	3,296	2,540	2,602	3,289	3,904	4,518	2,983	3,236
	Short-term debt	80	80	64	384	356	401	424	505	683	664	548
	Other current liabilities	7,586	8,309	7,165	9,601	8,853	10,416	9,632	9,546	11,077	11,054	10,937
Fixed liabilities		4,300	4,459	4,613	2,079	2,457	3,140	3,191	3,696	7,590	5,893	5,268
	Long-term debt	27	75	76	164	1,039	984	969	1,156	1,771	1,408	908
	Other	4,273	4,384	4,537	1,915	1,418	2,156	2,222	2,540	5,819	4,485	4,360
Net assets		51,946	53,958	57,421	59,906	62,630	64,557	68,892	72,550	73,121	77,075	83,416
	Capital stock	5,700	5,700	5,700	5,700	5,700	5,700	5,700	5,700	5,700	5,700	5,700
	Capital surplus	5,409	5,409	5,409	5,409	5,419	5,419	5,409	5,409	5,711	6,588	6,589
	Retained earnings	40,522	42,460	44,966	47,399	49,906	52,606	56,549	59,806	63,623	68,533	73,411
	Treasury stock	-38	-143	-194	-406	-349	-350	-968	-971	-1,630	-1,660	-1,352
	Accumulated other comprehensive income	-887	-783	172	388	508	-339	621	917	-1,787	-2,085	-932
	Share subscription rights	-	30	55	100	127	176	178	235	-	-	-
	Non-controlling interests	1,240	1,284	1,312	1,315	1,317	1,345	1,401	1,453	1,504	-	-
Total liabilities and equity		67,037	69,588	72,723	75,266	76,836	81,116	85,428	90,202	96,989	97,671	103,406
Statement of cash flows (JPYmn)
Cash flows from operating activities		5,236	6,889	3,926	4,402	6,485	9,181	8,123	8,810	10,550	10,569	10,550
Cash flows from investing activities		-3,293	-2,634	-2,026	-2,873	-4,558	-7,022	-4,617	-4,013	411	-10,124	-7,201
Cash flows from financing activities		-1,211	-1,324	-1,291	-1,125	-1,333	-2,225	-3,019	-2,567	-3,792	-3,786	-3,691
Financial ratios
Interest-bearing debt		107	155	140	548	1,395	1,385	1,393	1,661	2,454	2,072	1,456
Net cash		18,976	22,459	22,782	23,077	20,524	18,167	18,646	20,607	27,356	24,697	24,970
ROA (RP-based)		8.1%	9.4%	8.7%	8.7%	9.3%	9.6%	10.6%	10.2%	10.3%	12.0%	12.6%
ROE		6.0%	6.0%	6.8%	6.3%	6.7%	7.7%	9.3%	8.9%	9.4%	10.5%	10.8%
Current ratio		262%	283%	312%	263%	270%	220%	229%	227%	252%	244%	245%
Fixed ratio		74.6%	70.3%	68.6%	67.3%	72.1%	79.9%	79.7%	80.6%	76.5%	80.2%	80.7%
Equity ratio		75.6%	75.6%	77.1%	77.7%	79.6%	77.7%	78.8%	78.6%	73.8%	78.9%	80.7%

Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.
Note: Accounts receivable amounts shown are after deductions for allowance for doubtful accounts.
Note: On April 1, 2021, the company conducted a two-for-one stock split of its common shares. The figures prior to FY09/20 have been adjusted retroactively to reflect this change.

By segment		FY09/11	FY09/12	FY09/13	FY09/14	FY09/15	FY09/16	FY09/17	FY09/18	FY09/19	FY09/20	FY09/21	FY09/22
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Est.
Sales		53,635	53,387	53,115	54,502	54,928	57,750	59,705	61,621	66,121	67,814	66,221	67,550
	Accounting Firm	38,360	38,122	39,027	39,772	39,067	40,636	42,325	43,781	45,899	47,150	45,412
	Local Government	11,932	12,087	10,881	11,453	12,472	13,455	13,717	14,113	16,413	17,377	17,704
	Printing	3,341	3,177	3,205	3,277	3,388	3,658	3,662	3,726	3,808	3,286	3,105
YoY		0.4%	-0.5%	-0.5%	2.6%	0.8%	5.1%	3.4%	3.2%	7.3%	2.6%	-2.3%	2.0%
	Accounting Firm	-2.1%	-0.6%	2.4%	1.9%	-1.8%	4.0%	4.2%	3.4%	4.8%	2.7%	-3.7%
	Local Government	9.9%	1.3%	-10.0%	5.3%	8.9%	7.9%	1.9%	2.9%	16.3%	5.9%	1.9%
	Printing	-1.5%	-4.9%	0.9%	2.2%	3.4%	8.0%	0.1%	1.7%	2.2%	-13.7%	-5.5%
% of total		100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
	Accounting Firm	71.5%	71.4%	73.5%	73.0%	71.1%	70.4%	70.9%	71.0%	69.4%	69.5%	68.6%
	Local Government	22.2%	22.6%	20.5%	21.0%	22.7%	23.3%	23.0%	22.9%	24.8%	25.6%	26.7%
	Printing	6.2%	6.0%	6.0%	6.0%	6.2%	6.3%	6.1%	6.0%	5.8%	4.8%	4.7%
Operating profit		5,215	6,222	5,964	6,192	6,741	7,642	8,567	8,699	9,347	11,381	12,314	12,560
	Accounting Firm	3,776	4,545	5,372	5,446	5,579	6,479	7,818	8,501	8,725	10,237	10,563
	Local Government	1,407	1,579	492	726	1,100	1,016	576	3	425	1,037	1,705
	Printing	24	90	91	6	54	143	166	168	189	106	39
	Adjustments	7	7	7	12	6	3	5	6	7	-	-
YoY		-13.4%	19.3%	-4.1%	3.8%	8.9%	13.4%	12.1%	1.5%	7.4%	21.8%	8.2%	2.0%
	Accounting Firm	-18.5%	20.4%	18.2%	1.4%	2.4%	16.1%	20.7%	8.7%	2.6%	17.3%	3.2%
	Local Government	3.2%	12.2%	-68.8%	47.6%	51.5%	-7.6%	-43.3%	-99.5%	14,066.7%	144.0%	64.4%
	Printing	50.0%	275.0%	1.1%	-93.4%	800.0%	164.8%	16.1%	1.2%	12.5%	-43.9%	-63.2%
OPM (ex. adjustments)		9.7%	11.7%	11.2%	11.4%	12.3%	13.2%	14.3%	14.1%	14.1%	16.8%	18.6%	18.6%
	Accounting Firm	9.8%	11.9%	13.8%	13.7%	14.3%	15.9%	18.5%	19.4%	19.0%	21.7%	23.3%
	Local Government	11.8%	13.1%	4.5%	6.3%	8.8%	7.6%	4.2%	0.0%	2.6%	6.0%	9.6%
	Printing	0.7%	2.8%	2.8%	0.2%	1.6%	3.9%	4.5%	4.5%	5.0%	3.2%	1.3%
% of total (incl. adjustments)		100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	99.8%	100.0%	100.0%	99.9%
	Accounting Firm	72.5%	73.1%	90.2%	88.1%	82.8%	84.8%	91.3%	97.8%	93.4%	89.9%	85.8%
	Local Government	27.0%	25.4%	8.3%	11.7%	16.3%	13.3%	6.7%	0.0%	4.6%	9.1%	13.8%
	Printing	0.5%	1.4%	1.5%	0.1%	0.8%	1.9%	1.9%	1.9%	2.0%	0.9%	0.3%

Trends and outlook

Quarterly trends and results

Cumulative		FY09/20				FY09/21				FY09/22		FY09/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	% of Est.	FY Est.
Sales		16,320	35,137	51,310	67,814	14,837	33,372	49,587	66,221	15,292	33,768	50.0%	67,550
	YoY	15.4%	10.0%	7.5%	2.6%	-9.1%	-5.0%	-3.4%	-2.3%	3.1%	1.2%		2.0%
Gross profit		10,392	22,938	34,088	45,147	10,542	23,731	35,298	46,902	10,943	24,079
	Gross profit margin	63.7%	65.3%	66.4%	66.6%	71.1%	71.1%	71.2%	70.8%	71.6%	71.3%
SG&A expenses		7,928	15,946	24,110	33,766	7,871	15,825	23,796	34,587	7,852	15,854
	YoY	1.6%	-0.9%	-0.6%	-0.5%	-0.7%	-0.8%	-1.3%	2.4%	-0.2%	0.2%
	SG&A ratio	48.6%	45.4%	47.0%	49.8%	53.0%	47.4%	48.0%	52.2%	51.3%	46.9%
Operating profit		2,464	6,991	9,977	11,381	2,670	7,906	11,502	12,314	3,091	8,225	65.5%	12,560
	YoY	52.3%	49.4%	37.0%	21.8%	8.4%	13.1%	15.3%	8.2%	15.8%	4.0%		2.0%
	Operating profit margin	15.1%	19.9%	19.4%	16.8%	18.0%	23.7%	23.2%	18.6%	20.2%	24.4%		18.6%
Recurring profit		2,581	7,149	10,245	11,685	2,816	8,086	11,808	12,673	3,242	8,431	65.2%	12,930
	YoY	49.3%	47.4%	35.4%	20.9%	9.1%	13.1%	15.3%	8.5%	15.1%	4.3%		2.0%
	Recurring profit margin	15.8%	20.3%	20.0%	17.2%	19.0%	24.2%	23.8%	19.1%	21.2%	25.0%		19.1%
Net income attributable to owners of the parent		1,594	4,712	6,792	7,821	1,873	5,495	7,961	8,686	2,228	5,816	65.6%	8,860
	YoY	36.2%	35.9%	31.3%	16.4%	17.5%	16.6%	17.2%	11.1%	19.0%	5.8%		2.0%
	Net margin	9.8%	13.4%	13.2%	11.5%	12.6%	16.5%	16.1%	13.1%	14.6%	17.2%		13.1%
Quarterly performance		FY09/20				FY09/21				FY09/22		FY09/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	% of Est.	1H Est.
Sales		16,320	18,817	16,173	16,504	14,837	18,535	16,215	16,634	15,292	18,476	101.9%	33,140
	YoY	15.4%	5.7%	2.5%	-10.3%	-9.1%	-1.5%	0.3%	0.8%	3.1%	-0.3%		-0.7%
Gross profit		10,392	12,546	11,150	11,059	10,542	13,189	11,567	11,604	10,943	13,136
	Gross profit margin	63.7%	66.7%	68.9%	67.0%	71.1%	71.2%	71.3%	69.8%	71.6%	71.1%
SG&A expenses		7,928	8,018	8,164	9,656	7,871	7,954	7,971	10,791	7,852	8,002
	YoY	1.6%	-3.4%	0.1%	-0.4%	-0.7%	-0.8%	-2.4%	11.8%	-0.2%	0.6%
	SG&A ratio	48.6%	42.6%	50.5%	58.5%	53.0%	42.9%	49.2%	64.9%	51.3%	43.3%
Operating profit		2,464	4,527	2,986	1,404	2,670	5,236	3,596	812	3,091	5,134	122.2%	6,730
	YoY	52.3%	47.9%	14.8%	-32.1%	8.4%	15.7%	20.4%	-42.2%	15.8%	-1.9%		-14.9%
	Operating profit margin	15.1%	24.1%	18.5%	8.5%	18.0%	28.2%	22.2%	4.9%	20.2%	27.8%		20.3%
Recurring profit		2,581	4,568	3,096	1,440	2,816	5,270	3,722	865	3,242	5,189	121.8%	6,920
	YoY	49.3%	46.4%	14.1%	-31.6%	9.1%	15.4%	20.2%	-39.9%	15.1%	-1.5%		-14.4%
	Recurring profit margin	15.8%	24.3%	19.1%	8.7%	19.0%	28.4%	23.0%	5.2%	21.2%	28.1%		20.9%
Net income attributable to owners of the parent		1,594	3,118	2,080	1,029	1,873	3,622	2,466	725	2,228	3,588	122.7%	4,740
	YoY	36.2%	35.8%	22.0%	-33.6%	17.5%	16.2%	18.6%	-29.5%	19.0%	-0.9%		-13.7%
	Net margin	9.8%	16.6%	12.9%	6.2%	12.6%	19.5%	15.2%	4.4%	14.6%	19.4%		14.3%
Segments (cumulative)		FY09/20				FY09/21				FY09/22		FY09/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	% of Est.	FY Est.
Sales		16,320	35,137	51,310	67,814	14,837	33,372	49,587	66,221	15,292	33,768	50.0%	67,550
	Accounting Firm	11,288	23,510	34,917	47,150	10,631	22,466	33,341	45,412	10,638	22,776
	Local Government	4,203	9,830	13,763	17,377	3,523	9,358	13,838	17,704	3,907	9,311
	Printing	828	1,796	2,629	3,286	683	1,547	2,408	3,105	746	1,680
YoY		15.4%	10.0%	7.5%	2.6%	-9.1%	-5.0%	-3.4%	-2.3%	3.1%	1.2%		2.0%
	Accounting Firm	8.5%	6.3%	4.4%	2.7%	-5.8%	-4.4%	-4.5%	-3.7%	0.1%	1.4%
	Local Government	48.3%	23.7%	21.6%	5.9%	-16.2%	-4.8%	0.5%	1.9%	10.9%	-0.5%
	Printing	-7.7%	-4.5%	-11.5%	-13.7%	-17.5%	-13.9%	-8.4%	-5.5%	9.2%	8.6%
Operating profit		2,464	6,991	9,977	11,381	2,670	7,906	11,502	12,314	3,091	8,225	65.5%	12,560
	Accounting Firm	2,347	5,364	8,649	10,237	2,632	5,990	9,050	10,563	2,807	6,456
	Local Government	227	1,653	1,104	1,037	212	2,028	2,298	1,705	354	1,740
	Printing	-95	-17	229	106	-170	-117	147	39	-62	28
	Adjustments	-15	-8	-6	-	-2	5	6	-	-7	-1
Operating profit margin		15.1%	19.9%	19.4%	16.8%	18.0%	23.7%	23.2%	18.6%	20.2%	24.4%		18.6%
	Accounting Firm	20.8%	22.8%	24.8%	21.7%	24.8%	26.7%	27.1%	23.3%	26.4%	28.3%
	Local Government	5.4%	16.8%	8.0%	6.0%	6.0%	21.7%	16.6%	9.6%	9.1%	18.7%
	Printing	-11.5%	-0.9%	8.7%	3.2%	-24.9%	-7.6%	6.1%	1.3%	-8.3%	1.7%
Segments (quarterly)		FY09/20				FY09/21				FY09/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Sales		16,320	18,817	16,173	16,504	14,837	18,535	16,215	16,634	15,292	18,476
	Accounting Firm	11,288	12,222	11,407	12,233	10,631	11,835	10,875	12,071	10,638	12,138
	Local Government	4,203	5,627	3,933	3,614	3,523	5,835	4,480	3,866	3,907	5,404
	Printing	828	968	833	657	683	864	861	697	746	934
YoY		15.4%	5.7%	2.5%	-10.3%	-9.1%	-1.5%	0.3%	0.8%	3.1%	-0.3%
	Accounting Firm	8.5%	4.5%	0.7%	-1.9%	-5.8%	-3.2%	-4.7%	-1.3%	0.1%	2.6%
	Local Government	48.3%	10.1%	16.6%	-29.0%	-16.2%	3.7%	13.9%	7.0%	10.9%	-7.4%
	Printing	-7.7%	-1.5%	-23.5%	-21.7%	-17.5%	-10.7%	3.4%	6.1%	9.2%	8.1%
Operating profit		2,464	4,527	2,986	1,404	2,670	5,236	3,596	812	3,091	5,134
	Accounting Firm	2,347	3,017	3,285	1,588	2,632	3,358	3,060	1,513	2,807	3,649
	Local Government	227	1,426	-549	-67	212	1,816	270	-593	354	1,386
	Printing	-95	78	246	-123	-170	53	264	-108	-62	90
	Adjustments	-15	7	2	6	-2	7	1	-6	-7	6
Operating profit margin		15.1%	24.1%	18.5%	8.5%	18.0%	28.2%	22.2%	4.9%	20.2%	27.8%
	Accounting Firm	20.8%	24.7%	28.8%	13.0%	24.8%	28.4%	28.1%	12.5%	26.4%	30.1%
	Local Government	5.4%	25.3%	-14.0%	-1.9%	6.0%	31.1%	6.0%	-15.3%	9.1%	25.6%
	Printing	-11.5%	8.1%	29.5%	-18.7%	-24.9%	6.1%	30.7%	-15.5%	-8.3%	9.6%

Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.
Note: Operating profit tends to be lower in Q4 than in other quarters because the company books expenses in Q4 to use up its full-year budgets.

1H FY09/22 results (out May 10, 2022)

Summary

In 1H FY09/22, the company reported sales of JPY33.8bn (+1.2% YoY), operating profit of JPY8.2bn (+4.0% YoY), recurring profit of JPY8.4bn (+4.3% YoY), and net income attributable to owners of the parent of JPY5.8bn (+5.8% YoY).

Achievement rate versus the 1H FY09/22 forecast put sales at 101.9%, operating profit 122.2%, recurring profit 121.8%, and net income attributable to owners of the parent 122.7%, with sales and all profit items exceeding the initial estimates. Progress versus full-year FY09/22 forecast put sales at 50.0% (1H FY09/21 was at 50.4% of FY09/21 results), operating profit 65.5% (64.2%), recurring profit 65.2% (63.8%), and net income attributable to owners of the parent 65.6% (63.3%). The company has left its forecast for the full year unchanged.

Sales grew 1.2% YoY: Accounting Firm segment sales rose 1.4% YoY, Local Government segment sales fell 0.5% YoY, and Printing segment sales rose 8.6% YoY.

Operating profit increased 4.0% YoY: Accounting Firm segment operating profit increased 7.8% YoY, while operating profit in the Local Government segment fell 14.2% YoY. The Printing segment logged an operating profit of JPY28mn (versus an operating loss of JPY117mn in 1H FY09/21). The operating profit margin of 24.4% represented a 0.7pp improvement YoY, with the company’s gross profit margin of 71.3% up by 0.2pp YoY, and its SG&A expense ratio of 46.9% up by 0.5pp YoY.

Quarterly trends

Performance by segment

Accounting Firm segment

Segment sales were JPY22.8bn (+1.4% YoY). Operating profit rose to JPY6.5bn (+7.8% YoY) on increased sales of relatively high margin computer services and software. On the other hand, sales of relatively low margin hardware and supplies declined YoY.

Sales from computer services were up 3.7% YoY. Introduction of the cloud-based financial accounting information system targeting SMEs that links accounting data to sales management and payroll systems (FX4 Cloud) has picked up amid accelerated efforts by SMEs to adopt Digital Transformation (DX). Use of the tax accounting office management system, OMS Cloud, and secure remote OMS access system, OMS Mobile, also increased among accounting firms.

Software sales were up 2.5% YoY, the gains on this front underpinned by the growing number of users of the FX Cloud series, which completely conforms to the requirements of Japan’s Electronic Books Maintenance Act (since it meets legal requirements for good electronic bookkeeping and includes storage of evidentiary documents as standard). The act came into force in January 2022.

Consulting sales rose 2.6% YoY. Sales generated by installation support services increased as the company’s cloud-based financial accounting information system targeting SMEs (FX4 Cloud) turned in a strong performance.

Hardware sales declined 4.6% YoY. Many companies have refrained from replacing their PCs since the online banking systems of various financial institutions are not yet compatible with Windows 11. Also, the Japanese government released information on granting aid for hardware purchases through its FY2022 subsidy program for introduction of IT (program that aims to improve productivity in services via introduction of IT to businesses). Accordingly, companies have opted to postpone their PC purchases to April 2022, when the government began accepting subsidy applications, or later. These factors drove a YoY decline in PC sales volumes.

Sales from supplies decreased 1.6% YoY. The company reported strong performance from office equipment that support remote work and digitalization. However, demand for paper-based accounting supplies and printing-related consumables decreased due to the shift to paperless accounting by associated companies.

Local Government segment

Segment sales were JPY9.3bn (-0.5% YoY) and operating profit was JPY1.7bn (-14.2% YoY). The 14.2% decline in operating profit was due to lower sales in consulting services and in one-off system upgrades accompanying regulatory changes. These factors absorbed the sales growth in computer services from systems deployment by new customers.

Sales from computer services were up 13.8% YoY on an increase in data center service usage fees due to full-scale systems deployment for orders from new customers received in FY09/21. The company also received orders for the preparation of notices regarding the third round of COVID-19 vaccinations and admission tickets for the House of Representatives election.

Software sales were down 4.8% YoY. Sales from one-off system upgrades recorded in 1H 09/21, such as those associated with vaccination record keeping and regulatory changes including amendment of the Digital Procedure Act, declined YoY. Meanwhile, software usage fees for core systems held firm thanks to an increase in customer count.

Consulting service sales were down 37.9% YoY due to the absence of fees booked in 1H FY09/21 related to the migration of local governments’ intermediate server platforms to new systems.

Hardware sales fell 10.8% YoY due to a decline in replacement demand for equipment such as servers, which concentrated in 1H FY09/21.

Printing segment

Segment sales were JPY1.7bn (+8.6% YoY) and operating profit was JPY28mn (versus loss of JPY117mn in 1H FY09/21). An increase in order volume for data printing service (DPS) products drove improvement at the operating level.

Sales of data printing service (DPS) products were up 18.3% YoY. The company received orders to print admission tickets for the House of Representatives election, vaccination coupons for municipalities, notices of special relief payment for lower income house, and postcards on notices regarding 2021 tax filing.

Sales of business forms were down 3.2% YoY, owing to a decline in demand for business forms stemming from digitalization at client companies.

Commercial printing-related sales (catalogs, books, etc.) were up 10.8% YoY. The company won numerous orders for items such as books explaining Japan's revised Electronic Books Maintenance Act, invoice handling, and FY2022 tax reform.

For details on previous quarterly results, see the Historical financial statements section.

Company forecast for FY09/22

Earnings		FY09/20			FY09/21			FY09/22
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	1H Act.	2H Est.	FY Est.
Sales		35,137	32,677	67,814	33,372	32,849	66,221	33,768	33,782	67,550
	YoY	10.0%	-4.4%	2.6%	-5.0%	0.5%	-2.3%	1.2%	2.8%	2.0%
Operating profit		6,991	4,390	11,381	7,906	4,408	12,314	8,225	4,335	12,560
	YoY	49.4%	-6.0%	21.8%	13.1%	0.4%	8.2%	4.0%	-1.7%	2.0%
	Operating profit margin	19.9%	13.4%	16.8%	23.7%	13.4%	18.6%	24.4%	12.8%	18.6%
Recurring profit		7,149	4,536	11,685	8,086	4,587	12,673	8,431	4,499	12,930
	YoY	47.4%	-5.9%	20.9%	13.1%	1.1%	8.5%	4.3%	-1.9%	2.0%
	Recurring profit margin	20.3%	13.9%	17.2%	24.2%	14.0%	19.1%	25.0%	13.3%	19.1%
Net income attributable to owners of the parent		4,712	3,109	7,821	5,495	3,191	8,686	5,816	3,044	8,860
	YoY	35.9%	-4.5%	16.4%	16.6%	2.6%	11.1%	5.8%	-4.6%	2.0%
	Net margin	13.4%	9.5%	11.5%	16.5%	9.7%	13.1%	17.2%	9.0%	13.1%
Segments (quarterly)		FY09/20			FY09/21			FY09/22
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	1H Act.	2H Est.	FY Est.
Sales		35,137	32,677	67,814	33,372	32,849	66,221	33,768	33,782	67,550
	Accounting Firm	23,510	23,640	47,150	22,466	22,946	45,412	22,776
	Local Government	9,830	7,547	17,377	9,358	8,346	17,704	9,311
	Printing	1,796	1,490	3,286	1,547	1,558	3,105	1,680
YoY		10.0%	-4.4%	2.6%	-5.0%	0.5%	-2.3%	1.2%	2.8%	2.0%
	Accounting Firm	6.3%	-0.6%	2.7%	-4.4%	-2.9%	-3.7%	1.4%
	Local Government	23.7%	-10.8%	5.9%	-4.8%	10.6%	1.9%	-0.5%
	Printing	-4.5%	-22.7%	-13.7%	-13.9%	4.6%	-5.5%	8.6%
Operating profit		6,991	4,390	11,381	7,906	4,408	12,314	8,225	4,335	12,560
	Accounting Firm	5,364	4,873	10,237	5,990	4,573	10,563	6,456
	Local Government	1,653	-616	1,037	2,028	-323	1,705	1,740
	Printing	-17	123	106	-117	156	39	28
Operating profit margin		19.9%	13.4%	16.8%	23.7%	13.4%	18.6%	24.4%	12.8%	18.6%
	Accounting Firm	22.8%	20.6%	21.7%	26.7%	19.9%	23.3%	28.3%
	Local Government	16.8%	-8.2%	6.0%	21.7%	-3.9%	9.6%	18.7%
	Printing	-0.9%	8.3%	3.2%	-7.6%	10.0%	1.3%	1.7%

Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods

Summary

For 1H FY09/22, the company forecasts a 0.7% YoY sales decrease and a 14.9% YoY operating income decrease due to declining YoY revenues from system renovation related to coronavirus vaccinations. Other than spot profits in the Local Government segment, because both the Accounting Firm and Local Government segments are stock-type business models, even though a lack of rapid growth is forecast, continuing use by existing customers should lead to stable growth.

Company forecast by segment

Accounting Firm segment

At the Accounting Firm segment, the company projects full-year sales of JPY46.7bn (+2.8% YoY).

The business climate surrounding TKC member companies and SMEs is evolving year by year, affected not only by economic weakness caused by the COVID-19 pandemic, but also by reforms to the Electronic Books Maintenance Act and Consumption Tax Act, the introduction of electronic invoicing, work style reforms, and DX promotion. In addition to providing TKC member firms and partner companies with fully compliant systems in a timely manner, the company also will utilize the latest cloud technology to help clients improve productivity and aid them in achieving a positive balance and proper filing.

As of end-FY09/21, 7,644 companies (3,170 companies as of end-FY09/20) used the ASP1000R (corporate electronic tax filing system).

As of end-FY09/21, roughly 4,720 corporate groups (4,100 groups as of end-FY09/20) used the TKC Consolidated Group Solution. TKC’s tax filing systems are used by 89% of the top 100 (by sales) listed companies in Japan, and 41% of all listed companies in Japan.

Local Government segment

For the Local Government segment, the company projects full-year sales of JPY17.3bn (-2.3% YoY).

Local governments are being urged to harness digital technology in reforming business processes to improve user convenience and administrative efficiency. TKC regards such changes as an opportunity to acquire new customers and to enhance satisfaction levels for existing customers through elevated support and creation of new customer value via use of state-of-the-art technology to deliver innovation.

Printing segment

For the Printing segment, the company projects full-year sales of JPY3.6bn (+14.3% YoY).

The business climate surrounding the Printing segment has undergone rapid change, with the paperless trend and growth in COVID-19 infections causing rapid acceleration in the decline in demand for business forms. The environment is especially challenging for the segment's mainstay data printing service (DPS) business, due to decreased demand for promotional direct mailings.

The company is now looking to expand sales channels by concentrating human and other resources into its DPS and BPO businesses, developing new products and services addressing society and customers' altered values, and working to further improve the quality and value-added of existing products and services.

External environment

The revised Electronic Books Maintenance Act will take effect beginning January 1, 2022, after which dealing with electronic transactions will become an issue for SMEs (details on the revised Electronic Bookkeeping Act will be presented later). With an upgrade to the existing system, the company's accounting system has been made fully compatible with electronic transactions. After enforcement is implemented, it will become impossible to print and store invoices received by e-mail, so standard specifications can be used to store data such as receipts at the company's data center. When it comes to accounting software, the company believes that disparities between vendors will arise due to the prevalence of vendors that do not engage in data storage and similar measures.

Prior to the introduction of an invoice system (details presented later) on October 1, 2023, it will become necessary at some point in 2022 to determine whether the business receiving the consumption tax exemption (businesses exempt from consumption tax: see the box below) is to remain exempt from consumption taxes or is to henceforth be treated as a taxable business. It will become evident which companies understand this and which do not. The company believes that it will be difficult for SMEs to respond to the amendment without appropriate advice from tax accountants and other pertinent professionals. Whether a tax-exempt company should become liable for taxes (which is beneficial to the company) is largely dependent on what transactions it engages in, so the advice and suggestions of an accounting firm are critical.

Revision of the Electronic Books Maintenance Act

The revised Electronic Books Maintenance Act came into effect January 1, 2021. The Electronic Books Maintenance Act stipulated that books and documents (as a general rule, tax laws require storage in hard copy format) can be saved as electronic data after satisfying certain requirements, and that documents describing transactions that are sent and received electronically must be saved. The revised Electronic Books Maintenance Act, which became effective January 1, 2021, relaxes the requirements for electronic bookkeeping. On the other hand, data concerning electronic transactions that previously could be stored in print form may no longer be stored in this manner (electronic transaction data must be saved using principle data in accordance with the requirements of the revised Electronic Books Maintenance Act). As a result of this loosening of the rules, Electronic Books serving as electronic records of national tax-related books will be divided into the following two types.

Select Electronic Books that maintain a history of addition/subtraction/corrections (traceability) involving past journal data (electronic books that meet the requirements of Articles 2 and 5 of the Enforcement Regulations of the Revised Electronic Books Maintenance Act)
Other Electronic Books created with accounting software that do not maintain a corrections history (electronic books that only meet the requirements of Article 2 of the Enforcement Regulations of the Revised Electronic Books Maintenance Act)

The company acknowledges that recognition of Other Electronic Books means that the government recognizes the use of accounting software that might allow falsification of records. Put another way, the company believes that this legal revision eliminates the evidence provided by records. With the company's accounting system, processing history is automatically stored. With utilization of a feature by which financial accounting processing is carried out by the data center, retroactive addition / subtraction / correction of past data is prohibited. A free service for third parties, Certificate of Bookkeeping Timeliness, has been created so that financial institutions and other third parties can objectively determine TKC member business level through comparisons with past time-series data. This service of issuing Certificates of Bookkeeping Timeliness was developed with the aim of increasing the reliability of financial statements and tax returns prepared by TKC members and contributing to the smooth financing of related companies.

The company is supporting the introduction of an FX series to create Select Accounting Books on a nationwide scale. As of the end of FY9/2021, 16,500 companies were using FX4 Cloud, a cloud-type integrated accounting information system for mid-sized companies (target companies with YoY sales of JPY 500mn - JPY 5.0bn) while another 120,000 companies were utilizing FX2 (YoY sales of JPY 50mn - JPY 500mn) and 112,000 companies were utilizing e21 My Star (YoY sales of less than JPY 50mn).

Consumption tax invoice system for input tax credits

This system relating to the Japanese consumption tax* and input tax credits (deductions of the consumption tax on purchases from the consumption tax on sales) will be introduced on October 1, 2023. It requires the preservation of qualified invoices issued by qualified invoice issuers—taxable businesses that have registered for the designation with the tax office—as a requirement for input tax credits. Here, a "qualified invoice" refers to a document for the seller to inform the buyer of the exact applicable tax rate, amount of consumption tax, etc. In addition to the registration number, invoices, delivery slips, and other similar items containing pertinent information must be retained.

* Consumption tax: A tax imposed broadly and uniformly on transactions such as the sale of goods and products and the provision of services. Ultimately, the consumer of the product or service pays for it with their purchase, but the business operator is responsible for the tax. As of September 2021, either a standard tax rate of 10% or a reduced tax rate of 8% may apply depending on the types of goods and services.

Businesses whose taxable sales for the fiscal year exceed JPY10mn are responsible for filing the required return and paying consumption tax. As a general rule, businesses with taxable sales of less than JPY10mn during the fiscal year are exempt from having to pay consumption tax and do not need to file a consumption tax return. However, even a tax-exempt business can choose to become a taxable business.

The amount of consumption tax paid by a business to the relevant tax office is calculated by deducting the amount of purchase tax from the amount of sales tax.

In order for a business to receive input tax credit, it will be necessary to keep qualified invoices issued by the seller in addition to accounting records. Since tax-exempt businesses (see box above) can not issue qualified invoices, purchases made by taxable businesses from tax-exempt businesses are not eligible for input tax credit. Taxable entities need to be clear on which sellers are tax-exempt and perform the appropriate accounting procedures. Many experts believe there will be an increase in tax-exempt sellers changing to taxable status as a result of requests from their business partners to issue qualified invoices.

Qualified invoices have six specific items that must be included in order to ensure that proper accounting procedures are followed at the varying tax rates. These include the name of the qualified invoice issuer, registration number, total amounts by tax rate, applicable tax amounts, etc. The company believes that the need for more efficient bookkeeping and invoicing will grow along with the increase in items to be reported. It plans to continue encouraging electronic bookkeeping with TKC-member accounting firms, as well as in-house accounting among SMEs.

DX conversion of the Local Government segment

Local governments have no choice but to quickly respond to DX conversion of administrative services. In order to support the DX conversion of administrative services, the company has gained the cooperation of companies on the cutting edge of such efforts as it seeks to complete the TASK Cloud Smart Application System as a package system to further enhance and expand functionality. The TASK Cloud Smart Application System, which was developed with the cooperation of Osaka, has expanded to other local governments near Osaka, such as Kobe, and served as a factor in the company's improved business performance in FY 9/2021. As of the end of September 2021, the TASK Cloud Service had been adopted by more than 160 local governments.

Outlook

Targeted management indicators

TKC’s management philosophy since its founding has been “Contributing to customers.” Main customers are accounting firms and regional government bodies. The company’s market strategy is to develop products and services in collaboration with accounting firms, its core customers.

TKC prioritizes three long-term targets: sales growth of 3% YoY or more, shareholders’ equity ratio of 70% or more, and ROE of 8% or more. Short-term targets are a marginal profit ratio (1 – variable costs / sales) of 60% or higher (internal target; results not disclosed) and a 50% labor share of income (personnel costs as a percentage of marginal profit). The labor share target represents a 4pp increase from the actual figure of 46% in FY09/16. TKC also aims for a recurring profit margin of 8% or more.

Medium-term targets in the Accounting Firm segment

In the Accounting Firm segment, TKC operates under a distinctive business model. Targets are set by the TKC Nationwide Society. This society is an organization of tax accountants and certified public accountants who are TKC’s customers (see the Business section). In light of the policy tasks it faces as it approaches its 50th anniversary in 2021, the TKC Nationwide Society has announced its operational policy for the three years from 2019 to 2021 and strategic objectives in 2020 as listed below.

Operational policy for changing society with the TKC brand

Promoting the “TKC method of Document Attachment*”: End-2020 objective of 144,000 companies using corporate “Document Attachment”

Promoting the “TKC Monitoring Information Service”: End-2020 objective of 245,000 companies

Promoting the “TKC method of in-house accounting”: End-2020 objective of 285,000 companies

In addition, since numerous financial institutions have started to take notice of the TKC Nationwide Society initiatives, the company has taken this opportunity to compile the following policies to fortify the business foundation of TKC-member accounting firms:

Promote understanding and implementation of the “TKC Accountants’ Code of Conduct”

Help expand the number of field auditors and assistant field auditors

Work to enhance business advisory service as “certified support organizations”

Number of TKC-member accounting firms: More than 10,000 (9,800 as of end-FY09/21)
Number of tax accountants at TKC-member accounting firms: 15,000 (11,500)
Companies using the Continuity MAS System*: 500,000
Companies using the TKC in-house accounting system: 500,000
Companies utilizing attachments, such as the “Document Attachment*” and the “Certificate of Bookkeeping Timeliness*”: 500,000
Number of auditors*: 20,000 people
Companies subscribing to corporate defense*: 300,000

*Detailed descriptions are provided below.

TKC Management Strategy 2021 (Accounting Firm segment)

In January 2014, the company announced the “TKC Management Strategy 2021.” From the five targets raised by the TKC Nationwide Society (listed above), the TKC Management Strategy 2021 concentrates on the first two: increasing the number of TKC-member accounting firms and tax accountants**, and increasing the number of companies using the TKC internal accounting system. Both targets are linked with boosting Accounting Firm segment sales.

**TKC-member accounting firms and tax accountants:
TKC-member tax accountants make up the TKC Nationwide Society. These tax accountants belong to TKC-member accounting firms. On average, one TKC-member accounting firm has 1.2 TKC-member tax accountants.

Increasing the number of TKC-member accounting firms and tax accountants

The company aims to increase the number of TKC-member accounting firms to more than 10,000 and the number of TKC-member tax accountants to 15,000. To achieve these goals, TKC is collaborating with the TKC Nationwide Society.

As part of an effort to achieve this goal, the TKC Nationwide Society worked on “Project 9501” with an aim of increasing the number of TKC-member accounting firms to at least 9,501 by end-September 2017. Working closely with the TKC Nationwide Society to recruit new members, TKC achieved this goal. The TKC Nationwide Society has a New Member Services Committee, where committee members introduce tax accountants and certified public accountants to the society. The committee conducts “New Member Follow-up Seminars” four to six times per year and holds a “New Members Forum” every November.

The number of TKC-member accountants rose from 7,200 in FY09/94 to 11,500 in FY09/21, growing at a CAGR of about 2%. TKC explains that the increase in members is due both to active recruitment by the society, and the appeal of access to accounting firm management expertise.

TKC’s market share (TKC customers as of September 30 divided by the number of registered tax accountants in Japan as of March 31) rose from 12.7% in FY09/00 to 14.5% in FY09/21.

Number of TKC-member tax accountants and TKC’s market share of tax accountants in Japan

Source: Shared Research based on company data

Increasing the number of companies using TKC’s in-house accounting system

TKC is promoting the adoption of its in-house accounting system, the FX Series. An in-house accounting system refers to one in which companies (end users) internally handle performance management processes such as organizing vouchers and making journal entries, contributing to management decision-making.

Bookkeeping and in-house accounting

Source: Shared Research based on company data

Conventionally, SMEs rely on outsourced bookkeeping, as they do not have the leeway to hire personnel with specialized accounting knowledge. (They hand over vouchers and receipts to accounting firms, which take care of everything from making journal entries to preparing financial statements.)

TKC, on the other hand, recommends an in-house accounting system for owners of SMEs, which allows them to better understand management conditions and quickly ascertain progress against management targets. The bookkeeping and in-house accounting approaches offer certain advantages and disadvantages for companies and accounting firms, shown in the following table.

Advantages and disadvantages of bookkeeping vs. in-house accounting for companies and accounting firms

SME’s perspective	Outsourced bookkeeping	In-house accounting
Advantages	・No need for company to handle journal entries ・No specialized knowledge needed	・Daily journal entry facilitates quick understanding of the management situation (Essential for a profitable operation) ・Daily accounting reduces mistakes ・Frees up accounting firms for additional services, such as field audits
Disadvantages	・Time-consuming to organize and send vouchers and receipts to accounting firm ・Makes understanding a company’s management status slow (The company may not be able to recognize right way that it might fall into the red)	・Company must make journal entries ・Specialized knowledge needed ・Requires capital expenditure for in-house accounting
Accounting firm’s perspective	Outsourced bookkeeping	Automated accounting
Advantages	・Easy to win small companies as new customers	・Increases quality of consulting service
Disadvantages	・Lowers quality of consulting service ・Leads to price competition on consulting fees	・Need to provide clients with guidance until they become used to making journal entries

Source: Shared Research based on company data
Note: For the general examples given above, actual fees and services vary by accounting firm

The number of companies using TKC’s in-house accounting system

Source: Shared Research based on company data

The number of companies using TKC’s in-house accounting system software rose from about 160,000 in 2012 to about 280,000 in 2020, up approximately 120,000. Driving this growth was strong performance by FX2 for SMEs and e21 Meister (a PC-based financial accounting system that can be operated easily by companies with 10 or fewer employees and sales of JPY100mn or less) and robust expansion of FX4 Cloud for medium-sized companies. TKC offers e21 Meister for free for the first three years, so in June 2016 it began charging companies that had adopted the software in 2013.

TKC employs a number of measures to encourage in-house accounting by SMEs that receive advisory services from accounting firms.

In October 2014, began providing an “institutional accounting tab” that allows companies under advisory agreements to print out their own accounting records

In January 2015, introduced the “OMS output” format, enabling TKC-member accounting firms to use OMS Cloud (an office management system) to print records for client companies

Sets processing fees associated with the “institutional accounting” and “OMS output” formats lower than for documents printed at TKC Consolidated Information Centers*

Encourages SMEs to use the PX Series, compatible with the My Number** system

For medium-sized companies, promotes in-house accounting using FX4 Cloud

Develops fintech services***

*TKC Consolidated Information Centers: Nine locations throughout Japan that offer large-scale output (printing). The centers receive data from the TKC Internet Service Center and provide TKC members with accounting records, financial statements, and other data and documents.

**My Number: A personal identification number assigned to every person in Japan who holds a certificate of residence. TKC manages My Number information at its data center, allowing client companies to reduce the risk and burden associated with holding such data themselves. TKC sees this service as a means of expanding sales of its in-house accounting services to companies that have already adopted PX My Portal, a cloud system that allows viewing of employee payment slips via a web browser.

***Fintech services: A term coined from “finance” and “technology,” refers to financial services that utilize the latest information technology. TKC’s Fintech services include fintech for corporate clients, and fintech for financial institutions:

Fintech for corporate clients:
In June 2016, TKC launched a service in which it collects companies’ transaction data provided by banks or credit companies—such as online-banking transaction data—and records them as journal entries for its FX Series. The company then compares such transaction data with those that have already been in the system, automatically checking for any overlaps. In compliance with the purchase tax credit requirements of Article 30 of the Consumption Tax Act, the system also checks for any omitted items in the entry column. According to TKC, this system offers access to more financial institutions than any other similar service in Japan (compatible with 99% of the corporate accounts held with the nation’s 967 financial institutions).

Fintech for financial institutions:
In October 2016, TKC launched a service that will allow accounting firms to provide financial institutions with a company’s financial statements, monthly trial balances, and other updated operating information.

Core strategy for Local Government segment

The Local Government segment will support the realization of smart municipalities and digitalization of public services, as well as administrative and fiscal reform at local governments. Its key management objective is to provide support to enhance the convenience of residents and improve administrative efficiency by developing and providing groundbreaking products and services that take advantage of the latest trends in ICT. The segment will implement the following five priority initiatives.

Expand new customers for core operational systems among municipalities, push the digitalization of administrative services by further promoting cloud systems for local governments, and support local governments reduce costs to a minimum.

Support the realization of evidence-based policy making (EBPM) based on public accounting information by providing various systems and functions that allow for multidimensional analysis of financial and other data.

Aim to expand adoption of eLTAX-related services, and support improvement in user convenience (for both governments and residents) by digitalizing tax procedures.

Work to develop and provide new user-oriented digitalization support solutions for administrative services.

Establish mutual product supply relationships with local vendors that mainly provide services to local municipalities in order to promote alliance strategies designed to achieve expansion of sales areas and multiplexing of services.

Core strategy for Printing segment

The Printing segment will implement the following measures to increase sales of data printing services (DPS) and business process outsourcing (BPO).

Focus on sales promotion for DPS-related products through the cultivation of new customers.

Establish Kansai plant and sales office to cultivate new customers in Western Japan (specifically, west of the Kansai region), and accordingly drive sales expansion.

Submit proposals combining analog and digital printing technologies to customers to achieve direct communication with such customers.

Assume back-office operations of customers through BPO, and contribute to management efficiency at customers by enhancing operational efficiency, lowering costs, and reducing information security risks while maintaining high quality.

Aim to expand market share by strengthening ties with existing customers.

Continue to respond to customer needs, leverage proposal-based sales to differentiate the company from competitors, and develop new technologies to reduce production costs.

Make proposals related to production accuracy achieved through mechanization of production processes and shorter delivery times achieved through improved production efficiency, and expand market share of governmental and municipal projects.

Strive to improve and maintain consistent quality, and enhance quality inspection systems for all processes of all products to prevent quality defects.

Increase in-house manufacturing further and cut down share of outsourcing to reduce costs.

Further strengthen information security systems based on Privacy Mark and ISMS in order to win the trust of customers and business partners, and to ensure secure management of My Number data.

As an ISO14001-certified, environmentally friendly company, aim to reduce paper waste and lower energy consumption further through enhanced productivity and efficiency.

Business

Business model

Overview

TKC’s main business is supporting tax accountants with computer-based accounting services. It provides information processing, software rental, consulting, and other services to accounting firms (Accounting Firm segment: 68.6% of sales and 85.8% of operating profit in FY09/21) and regional government bodies (Local Government segment: 26.7% of sales and 13.9% of operating profit).

The company also offers data printing services (Printing segment: 4.7% of sales and 0.3% of operating profit), and sells software and office equipment.

It has achieved firm long-term growth (see figure below). From its founding up through FY09/08, TKC recorded 42 consecutive years of sales increases, and 30 consecutive years of recurring profit growth. Profit growth between FY09/09 and FY09/13 was weighed down by the arrival of lower-priced versions of accounting software. However, since FY09/14, sales and recurring profit have rebounded and remained on an upward trend. In FY09/21, recurring profit reached record highs for the seventh consecutive fiscal year, totaling JPY66.2bn (-2.3% YoY) and JPY12.7bn (+8.5% YoY), respectively.
Excluding the effects of applying revenue recognition standards from FY09/21 (-JPY2.5bn), sales also increased for a seventh consecutive year.

Composition of consolidated sales in FY09/21 (Left)

Composition of consolidated operating profit in FY09/21 (Right)

Source: Shared Research based on company data

Consolidated operating performance

Source: Shared Research based on company data
Note: Non-consolidated results through FY1993, consolidated results from FY1994.

TKC’s business structure

Source: Shared Research based on company data

Accounting Firm segment

Business model

Overview

This segment provides information processing, software rental, and consulting services to firms operated by tax accountants and certified public accountants. It also sells software and office equipment to these firms.

Accounting firms provide tax advice and encourage their customers (SMEs) to adopt TKC’s systems and software. These accounting firms receive advisory fees from SMEs and pay TKC computational fees and accounting software rental fees related to SMEs’ accounting documents.

Customers: Accounting firms run by tax accountants and other accounting professionals

TKC’s customers in this segment are accounting firms run by accounting professionals, chiefly tax accountants* and certified public accountants**. These firms support individual companies in the preparation of tax documents and financial statements, and provide management advice. The individual companies (SMEs) for which accounting services are provided are not direct customers of TKC***.

*Tax accountant Tax accountants work mainly with SMEs. Primary responsibilities are preparing tax documents and financial statements, and providing bookkeeping services and management advice. Individuals are recognized as tax accountants if they hold certification as required by the Certified Public Tax Accountant Act and if they are on a list prepared by the Japan Federation of Certified Public Tax Accountants’ Associations in accordance with a Ministry of Finance ordinance. These individuals must register their names, date of birth, as well as the names of their firms and locations with the federation (Article 18 of the Certified Public Tax Accountant Act). Tax accountants numbered 79,404 as of end-October 2021 (according to the federation).

**Certified public accountant: Certified public accountants, or CPAs, are state-licensed accounting specialists who provide auditing services for financial statements of major companies, mainly publicly traded corporations. As of end-November 2021, there were 33,209 CPAs in Japan (of whom about 10,000 were registered as tax accountants, according to the Japanese Institute of Certified Public Accountants).

***TKC sells software directly to some medium and large companies.

The accounting software market includes numerous companies that sell PC- and cloud-based accounting software (discussed in the Market and value chain section). The old type of accounting firm that specializes only in bookkeeping and tax filing is fast disappearing. Some pessimists believe recent advances in artificial intelligence technology in accounting, bookkeeping, and tax work will sound the death knell for such firms.

Nevertheless, the TKC Monitoring Information Service* actively promoted by the TKC Nationwide Society (details follow) is viewed quite highly by regional financial institutions, since, under the instruction of accounting specialists, it serves as an effective method for the prompt and accurate preparation and disclosure of monthly trial balances, financial statements, and other documents by SMEs.

* TKC Monitoring Information Service: TKC-member accounting firms, upon request of their clients, use the cloud-based TKC Monitoring Information Service to provide financial institutions with financial data whose credibility, substantiality, and completeness have been confirmed by them in their monthly field audits. The provision of financial data is free of charge. As of end-FY09/21, it was being used by 468 financial institutions (+35 against FY09/20), with more than 280,000 sets of information provided (+60,000 YoY).

Strengthening tie-ups with financial institutions:
When a client (SME) of a TKC-member accounting firm receives financing from a bank, the borrower (the client of the TKC-member accounting firm) is required to provide the bank with financial statements at least once a year. The company has established an online system to send the financial statement data of the client of the TKC-member accounting firm to bank. Further, the company incorporates bank transaction data and card settlement data into the finance package in order to simplify accounting tasks such as sorting at customers of TKC-member accounting firms. Financing is shifting from the conventional system focused on past performance to a system that emphasizes business feasibility evaluation, and financial institutions will base financing decisions on analysis of the borrower’s future management plan.

Meanwhile, as a national system, when it comes to insolvent borrowers or borrowers at risk of insolvency with bad debt, and borrowers seeking a moratorium on payments, delayed repayment, or a reduced payment amount, mechanisms are in place for financial institutions to urge borrowers to improve performance through management plans and repayment plans. Tax accountants are increasingly being involved in this process, but SMEs do not have an auditing system like large companies (companies with capital of JPY500mn or more or total liabilities of JPY200mn or more are required to be audited by an audit corporation, and approximately 80% of businesses in Japan have capital of less than JPY500mn). However, client companies of TKC-member accounting firms prepare financial statements in accordance with Guidelines for SME Accounting. When these companies apply for financing to financial institutions, they also use the certificates of compliance from monthly field audits by TKC-member accounting firms, and documents used under Document Attachment System for accounting and tax reporting (based on the Certified Public Tax Accountant Act, a system whereby a tax accountant declares to the tax authorities about focal points and instructions on making an application). The company’s system and its members (tax accountants) are strengths of the company which other companies are unable to imitate (extraordinarily high entry barriers).

Sales composition by product and service

SMEs*1 (including small enterprises*2 as defined below) make up an important segment of the Japanese economy. In 2016, SMEs accounted for 99.3% (1,599,436 of the 1,610,314companies in Japan (excluding primary industries and sole proprietors) and employed 64.6% of full-time employees (source: 2020 White Paper on Small and Medium Enterprises in Japan).

Certified tax accountants play an important role in supporting SMEs and small companies from the perspective of not only financial statements and taxes, but also management and financing-related matters. Each year, SMEs must file returns with authorities for corporate tax (for sole proprietors, income tax) and consumption tax (if taxable income exceeds JPY10mn). Tax accountants are involved in 89.1% of the corporate tax returns filed in Japan (source: 2018 study by the Ministry of Finance). According to the Japan Federation of Certified Public Tax Accountants’ Associations, the main role of tax accountants is to provide support for SMEs. About 70% of the people SME managers turn to for business advice are tax accountants (according to a 2012 study by the Small and Medium Enterprise Agency).

*1: How the Japanese government defines SMEs differs depending on the industry in which they operate. The largest number of SMEs are in manufacturing industry; numbering some 5.8mn companies, SMEs in manufacturing are defined as those capitalized at less than JPY300mn or those that have fewer than 300 full-time employees. In the retail industry, the 3.3mn companies that are classified as SMEs are capitalized at less than JPY500,000 or have fewer than 50 full-time employees.
*2: Under Japanese law (the Small and medium-size Enterprise Basic Act), in the case of manufacturing and other category, small enterprises are defined as companies employing fewer than 20 people; in the case of retail and service industries, small enterprises are defined as companies with fewer than five employees.

TKC Nationwide Society

In order to use TKC’s system, accounting professionals must be members of the TKC Nationwide Society. Membership fees for a practicing tax accountant are JPY100,000. As of end-FY09/21, about 15% of the tax accountants in Japan (11,500 people), and around 35% of accounting firms (9,800 firms based on data as of the end of November 2021) belonged to the society. These figures make TKC’s one of Japan’s largest voluntary organizations for accountants.

Membership in the TKC Nationwide Society provides accounting firms with

Access to management expertise

Promotion of in-house accounting to increase value-added and standardized operations

Training systems (specialized knowledge and skills, access to the most recent tax and accounting information)

Alliances with financial institutions

Cultivation medium and large companies as customers

Support for new business development

According to TKC, the most-cited reasons for joining the society are access to management expertise, followed by the promotion of in-house accounting and training systems.

Business model in the Accounting Firm segment