We would like to express our deepest gratitude to our shareholders and investors for your constant support and patronage.
The change in classification of COVID-19 under the Infectious Diseases Control Law has led to a recovery in crowds and accelerated the search for the new normal. At the same time, the yen has once again weakened, making businesses and households even more wary of rising costs.
In the IT industry, to which the CRESCO Group belongs, there is increasing attention on the impact of generative AI on company measures to address labor shortages and improve productivity. The threat of cyber attacks is also coming under increasing scrutiny, and we believe that companies will be even more eager to invest in IT.
At CRESCO, the Quality Management-Unit was reorganized as the Quality & Process Management-Unit in April 2023 with the aim of promoting further improvements in quality and operational efficiency. In addition, the Sales Division as an organization began reporting directly to the Business Enablement Service-Unit in order to drive expansion of our corporate group, primarily in the Digital solutions business.
Furthermore, we launched the “Integrated Report 2023” which organizes and explains in detail the CRESCO Group’s financial information and non-financial information (management principle, business details, value creation process, sustainability/ESG initiatives, etc.), and posted it on our website.
Moreover, in February 2024, we acquired company-wide ISMS certification, one of the targets of the Medium-Term Management Plan 2023.
Based on a resolution of the Board of Directors meeting held on May 10, 2023, CRESCO acquired 500,000 shares of treasury shares (aggregate purchase amount of 995,644,700 yen) through open-market purchase during the second quarter of FY2023 and cancelled 1,000,000 shares of treasury shares on September 8, 2023. As a result, the total number of issued shares at the end of the second quarter of FY2023 was 22,000,000 shares.
In addition, in February 2024, we decided to change our dividend policy and announced a dividend payout ratio of 40% starting with the interim dividend for the fiscal year ending March 31, 2025. In March, we also announced an increase of 2 yen in the year-end dividend amount for the current fiscal year.
Furthermore, in March 2024, we raised a total of 1.9 billion yen in long-term borrowings for the purpose of funding future M&A and working capital.
With regard to our Digital solutions business, we were awarded “Revenue Growth Partner of the Year” at the UiPath Japan Partner Awards 2022 by UiPath, a leading RPA vendor, in April 2023. We concluded a distributorship agreement with WingArc1st Inc. in July and began offering a solution that realizes paperless and automation for accounting operations by linking UiPath with their “invoiceAgent” electronic form platform. Additionally, in February 2024, we began offering the “UiPath Support Service,” which supports the development of human resources capable of realizing business automation on their own.
In addition, in the area of AI, we built the “CrePT” generative AI chat service using Microsoft’s Azure OpenAI Service to improve internal operational efficiency and refine our proposals to customers, and began operating it for employees in May 2023. Furthermore, we began offering the “AI Escort” service provided by our own AI experts in June. Moreover, in October, we released “RooMagic,” a tool for streamlining the hotel room assignment process using mathematical optimization techniques. In addition, in November 2023, we obtained a patent for an information processing device, method, and program for identifying individual teeth from dental x-ray images.
In the area of cloud computing, we began offering the “GPUSOROBAN Remote Workstation,” a service that allows users to comfortably operate CAD and other systems in a telework environment, in September 2023.
In the area of security, we expanded our lineup by adding a penetration testing service (identifying issues through pseudo-cyber attacks) and IoT security diagnostics to our Security Vulnerability Diagnostics lineup.
Cognavi India Private Limited, an Indian corporation in which we have made a capital investment, opened the “Cognavi” job portal site for newly graduated Indian students in June 2023.
In addition, we invested in Vietnamese startup CAPICHI PTE. LTD. (head office: Singapore; hereinafter “CAPICHI”), which is focused on restaurant and retail tech, and concluded a business alliance agreement with it in September 2023. We became the Japanese distributor of “Capichi OI,” CAPICHI’s QR-based mobile ordering system through this business alliance. We will contribute to the digital transformation of restaurants, retail stores, and accommodations through inbound tourism measures and improvement of foreign customer satisfaction.
In December 2023, we concluded a capital and business agreement with Secure Innovation Inc. (head office: Naha-shi, Okinawa), an information security service provider, for the purpose of strengthening our security solutions.
CRESCO Digital Technologies Ltd. announced a “CROSS for Mist” subscription WiFi service and an integrated BOM management solution for the manufacturing industry. In addition, CRESCO VIETNAM CO., LTD. began selling production management systems to local Japanese manufacturing companies.
Furthermore, CRESCO e-Solution Co., Ltd. received the “Assessment Champion of the Year” award in the Partner Award 2023, which recognizes outstanding partners from Panaya Japan. In addition to that, Enisias Co., Ltd. acquired Partner Specialization in the area of data analytics under the Google Cloud Partner Advantage program, and was also certified as a Google Cloud generative AI partner.
On the other hand, personnel and education expenses increased compared to the same period of the previous year. This was due to the aggressive hiring of new graduates by CRESCO and some consolidated subsidiaries, salary level increases as a measure to recruit and retain employees, and increased investment in training. In addition, with respect to the IT services business, unprofitable projects occurred due to system specifications, functional requirements, and development systems for multiple large-scale outsourced projects.
In accordance with the agreement on a reorganization among CRESCO and its consolidated subsidiaries, Japan Software Design CO., LTD., and Mexess Co., Ltd., at meetings of the Board of Directors of each company in January 2024, CRESCO recorded an impairment loss (extraordinary loss) for goodwill related to Japan Software Design CO., LTD. of 209 million yen in the current fiscal year, and an impairment loss (extraordinary loss) of 87 million yen for fixed assets in connection with the decision to relocate the head offices of the two consolidated subsidiaries.
In addition, in connection with the management of funds, CRESCO recorded a gain on valuation of derivatives (in non-operating income) of 273 million yen, a gain on sales of investment securities (in extraordinary income) of 323 million yen, and a gain on redemption of investment securities (in extraordinary income) of 108 million yen.
With regards to the outlook for FY2024, there are concerns about negative impact on the political economy from the conflict in Russia and Ukraine as well as the growing tension in the Middle East. A number of other downside factors to business performance are recognized, including increased recruiting and training costs due to labor shortages as well as increased overhead costs due to the weak yen and soaring prices. However, we believe that investment in IT will grow as a result of DX promotion at client companies to improve productivity, and that orders for the CRESCO Group will also grow steadily.
The CRESCO Group launched our Medium-Term Management Plan 2026 in April 2024 with the financial targets of consolidated net sales of 70 billion yen, consolidated operating profit ratio of 11.5%, and consolidated ROE of 15% or more in FY2026. In FY2024, the first year of the Medium-Term Management Plan 2026, we will steadily implement the growth strategies we have formulated, aiming to increase net sales and improve profitability.
May, 2024
Hiroyuki Nemoto, Chairman & CEO
Hiroshi Tominaga, President
