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
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).
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
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.
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.
Trends and outlook
Quarterly trends and results
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
Note: Figures may differ from company data due to differences in rounding methods
Summary
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).
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.
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.
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.
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”
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
*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.
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.
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.
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.
・No specialized knowledge needed
(Essential for a profitable operation)
・Daily accounting reduces mistakes
・Frees up accounting firms for additional services, such as field audits
・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)
・Specialized knowledge needed
・Requires capital expenditure for in-house accounting
・Leads to price competition on consulting fees
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 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***
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.
Note: Non-consolidated results through FY1993, consolidated results from FY1994.
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***.
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.
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).
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.