TechnoPro Holdings Inc

TSE:6028

Earnings Call Transcript 2019-Q2

[Unknown Executive]

So thank you very much for participating. We would like to start. So this is a briefing of the financial results of the TechnoPro Holdings Q2 of fiscal year ending June 2019.

So we'd like to start. First, we would like to make sure that you have all the documents: first is TechnoPro Group Q2 financial results; and second is the financial updates and the progress of medium-term management plan; and the IFRS-based Q2 results summary; and announcement concerning acquisition of common shares and absorption-type merger of Misystem Co., Ltd. by TechnoPro Holdings consolidated subsidiary; and the survey. So we have distributed those 5 documents. If you're missing any of it, please let us know.

Also, at the entrance of this room, we have prepared integrated report as our internal organ, that is TechnoPro newsletter. So please make sure to pick up one copy.

Now let us introduce the participants from TechnoPro Holdings. First, we have Mr. Yasuji Nishio, President and CEO. Next, we have Hiroshi Sato, CFO. Also, at the back of this room, we have Mr. Mitsutoshi Takao who is the independent outside auditor. Outside auditor will be present at this briefing so that he can check on the content of the presentation and also to listen to the request from the investors directly. I hope you would understand and cooperate with us. The moderator is [ Ogawa ], in charge of IR of TechnoPro Holdings.

In today's briefing, first, we will report on the Q2 financial results of fiscal year ending June 2019 and give you the financial update as well as progress of midterm management plan. We plan to spend about 45 minutes for the presentations and then we will take questions until 6:00 p.m.

In order to improve the disclosure of information, we are streaming this briefing session in English as well, and this video will be available from our website.

The content of today's briefing will be made into text in both Japanese and English by our partner and will be available in our corporate website. This would include Q&A. So if you don't want your names and company names disclosed, you don't have to tell us your affiliation or names at the time of questions.

In order to make sure we have a smooth operation of this briefing session, please make sure to turn off your mobile phones or set it on the quiet mode.

Now I'd like to ask Mr. Sato, CFO, to make the presentation.

[Hiroshi Sato, executive]

Hello, ladies and gentlemen. I am Sato, the CFO of the company. Thank you very much for sparing your time from your busy schedules to be here today.

Without further ado, I would like to start by talking on Slide 2 to report on our financial results. Regarding the Q2 overview, we have the outline here of the numbers, and I would like to talk about the cumulative numbers here. In terms of sales versus same time last year, we are up by 26.6% at JPY 70.114 billion. Operating profit, up by 33.0% at JPY 7.386 billion. Net profit is also up. The tax rate has been normalized at 32.4%, tentatively calculated, but this has been absorbed in going up -- net profit up by 17.3% reaching JPY 4.854 billion.

Orion Managed Services from October, it has been consolidated. But SOFTWORKS, the company that we've announced the purchase of as of November 26, will only be consolidated from January and on the balance sheet from December.

Now this time, to be honest, I had to do some thinking whether we should upward revise our numbers or not for the full year. And we are sure that the full year will see deliver -- will see a better financial result than the guidance. But actually, we have some various other uncertainties that we need to take into consideration. And that's why for the full year of FY 2019, we have decided to remain the -- keep the guidance unchanged. I would like to talk about this a little bit more later on Slide 5.

But first, let me talk to Slide 3. This is the managerial performance by business units. So first of all, our flagship business, the engineering staffing, the 8 companies in Japan and 3 -- 4 companies under the overseas category, all business line units have been able to deliver an operating margin of about 10% in the past 3 years. We have been promoting the M&A. And steadily, the M&A companies are contributing to the performance of the company. Now as a result, you can see that the global sales is now up to 7.4% of the total corporate sales.

I'd like to move on to Slide 4. You can see all of the business units by organization here. First of all, I'd like you to see this right half, this is this year, and the left-hand side is last year. You can see that 5 companies are added in red squares. These 5 companies, as of December 2017, these did not exist. So if we take out these 5 companies and compare apple-to-apple, organic base growth of the top line was 15.6%.

Also, I'd like to note that we've received requests from you about the numbers that we reported in the earnings briefing report. There's a category called financial reporting for R&D outsourcing and construction management outsourcing. We have the marks on the companies now. The square is R&D outsourcing, and the triangle is construction management outsourcing. So please confirm them on this slide.

Moving on to the quarterly performance results. The progress versus full year guidance for the 6 months is 52% for revenue, 55% for operating profit. So we are at the same level as last year.

Now as we have announced, we have seasonality in our business results. I just explained that the first half of this year, we have the results from the M&A that we've acquired in the second half of last year. And because of that, we have more profit in the first half. But in the second half of this year, it will be a comparison with the same M&A the company has included. So that's why the growth of the profit in the second half of this year will be slightly less than the first half of this year, which cannot be helped, we think.

Also, I'd like to mention that this year, we are going to hire over 1,000 new grads from universities as of April. We had 889 last year. Last year, we had an increase of 250, 260 more versus last year. But this April, we are going to hire more than 1,000 new grads. This April -- that is because we have more orders. And so based on the calculation that -- we will have 1,000 new grads onboard, just taking salary but not really performing, on training, and so that's why we always seasonally have a bit of a slump in our performance in the springtime. This is the pattern seasonally for our results every year.

Now Mr. Nishio will later explain in detail about this. But the reason why we did not revise our guidance upwards for this fiscal year is because of the second half of this year, but it is not to say that our business is uncertain. There are some people who see the economy going slightly down in the second half of the year. But for us, we are getting very strong orders, although there are some differences between the companies, the clients. But it was very difficult just to decide how much we should revise our numbers upwards because of the uncertainty, and that's why we did not revise the numbers ultimately.

I'd like to move on to talk about the P&L summary. I'd like to see -- explain the reason why the revenue went up. First of all, impact of engineer increase boosted JPY 8.2 billion; impact of unit sales price, JPY 320 million; M&A contribution, JPY 6 billion -- JPY 6.1 billion.

As for the gross profit, that ratio is 24.9%. This is 0.1 point improved versus last year, and this is basically due to the impact of utilization rate, which has risen. And I will explain about this later in more detail.

Also, if you look at the P&L, we have a bit of a swing versus last year because last year, if you remember, I think many of you do, we had the difference of JPY 180 million when switching to the defined contribution pension, it was a loss of JPY 180 million, and we do not have this, this year. So that creates a gap in the other expenses. And also, we have 2 foreign companies now, so foreign exchange also has been giving us a positive impact due to the stronger yen. So that's why we have some differences in the other income, other expenses line.

Moving on to the balance sheet. We have a very healthy balance sheet maintained, but I would like to comment on a few points. First of all, goodwill. We have acquired companies this year, and due to that, we are up by JPY 2.9 billion for the goodwill, and also other liabilities have risen a bit as well. And this has been explained when I talked about the foreign exchange. We did not acquire 100% of some of the foreign companies. It's an earn-out contract, incentive contract, so we have the put option from these businesses on the other liabilities.

Next, number of engineers and utilization rate in Japan, domestic business, on Slide 8. Engineers on payroll in Japan at the end of Q2 is 17,638, and including the overseas engineers is 861, even 110 members up with the non-Japanese engineers.

The average utilization rate of 96.4% was achieved for the first half. This is up 0.1% year-on-year. But actually, as I've mentioned many, many times, our comfortable utilization rate is 95% to 96%. And that is because we have some engineers that are on training, not being utilized, a few percentage of that. These are stock that will be assigned in the next month. We need a few percentages, a leeway there. So 94.6% -- correction, 96.4% is good as a short-term result, but it is not good when you look at the longer-term business.

Now outside of this business, we have the engineers outside of Japan, 1,623. So we have an engineer base of 19,200 now all in all.

Moving on to the next page, recruitment/turnover. So hiring is 1,744 in the 6 months. Misystem, 43; TOQO, 35 engineers are included in this number. This number is up by 212, first half versus first half compared to last year. Turnover, we have 50 more, but the full-timers in the first half is down to 7.3% turnover rate. It was 7.9% last time. So various activities that we have implemented have helped to reduce the turnover gradually.

Moving on to the assigned engineers by technology, please look at the pie charts. You can see the number of assigned engineers. In all technology fields, the number of assigned engineers increased. But basically, we see a very strong demand for IT engineers because the people have a sense of very strong shortage in this area. So we are getting a lot of requests for this. 47% is the composition of the software engineers today.

Moving on to the next pie chart, assigned engineers by industrial sectors. The point that I'd like to highlight here is that the number of assigned engineers increased in all industrial sectors. Of course, there's a difference, some contrast between our client companies, but we have a strong demand from all industrial sectors. This pie chart proves this, especially even if it -- especially in the software area, for example, model-based development or embedded software, et cetera. In any sense, software engineers have very strong demand currently.

Moving on to the next slide, 12, this explains the unit sales price. Regarding unit sales price, the business model overseas is different. So we're only looking at the 2 companies in Japan here. So right now, we can see that the unit sales price increased 0.5%, up by JPY 3,300 to JPY 633,000.

Compared to same time last year, we have less days, 0.1 day per month and over time, down by 0.8 hours per month. So there is a reduction of JPY 4,000 per month year-on-year due to these reasons. But we have increased JPY 15,000 per month, driven by increased contract price for existing engineers on assignment.

We have the trend on the bottom. You can see that we're around 2.7%, 3%. This is the situation where we've been able to continuously increase the price of existing engineers on assignment.

Now I'd like to talk about the share repurchase program announced on November 28 last year. Since October last year, the stock market has gone into an adjustment period, and our beta has been 1.2, 1.3. The decline was bigger compared to the Nikkei average. But we believe that we're very underweight and it does not reflect the fundamentals of the company, so that's why we have announced to repurchase our shares. The contents have already been released to the press, but -- well, when we filed to the Tokyo -- as we reported to the Tokyo Stock Exchange, we have not executed this share repurchase yet because we are not inside or free yet, but we will continue to be very flexible to manage this up to November this year.

Finally, I'd like to talk about the dividend. In formality, we have decided to maintain our full year guidance, so that is why the dividend forecast is maintained as well. But as we do all the time, when we can fix increased profit, of course, we will increase the dividend because we would like to continue to maintain the payout ratio, 50%, which we have committed to you, so we will commit to increasing the dividend when our profit goes up.

Thank you very much, and we will accept your questions later.

[Unknown Executive]

Next, I'd like to invite Mr. Nishio, the CEO, to talk about the financial update and the progress of the medium-term management plan. Mr. Nishio.

[Yasuji Nishio, executive]

Thank you for the introduction. I am Nishio. I'd like to mainly talk about the progress of the medium-term management plan.

Now the current medium-term management plan started from the fiscal year ending June 2018, and this is for 5 years. So it's been 1.5 years since the beginning. And our target of this plan is to become global human resource services company with technology at its core. In terms of numbers and also measures, we are making a good progress.

Now first looking at the numbers. As you see on Slide 3, our target for this fiscal year is the target for the third year. This is something that you already know. At the beginning of the year, we told that those are the 2 high target for us. But as Sato, CFO, explained to you, actual growth of our businesses is faster than this. So we are not concerned about the progress in terms of numbers. So today, I'd like to focus more on the strategic measures which are included in the medium-term management plan.

Now as for the strategies, Slide 4 shows 4 major growth strategies. First is to increase or grow our core engineering -- engineer staffing business, second is to shift toward higher added value, the third is globalization and fourth is move toward platforms utilizing IT. So from the first to the third majors or strategies, in order to realize them, we are trying to pursue aggressive M&A activities.

Now most easy to understand, in terms of the achievement, is the progress of the M&A. Slide 5 shows that we have, first of all, acquired Pc Assist in September 2015. Starting with that until December last year, we have realized 12 M&As. From fiscal 2018, we have become more aggressive in promoting M&A. So in fiscal 2018, we had 5 M&As.

And for this fiscal year up until the first half, we acquired, for example, the company called TOQO, which focuses on the seismic resistance diagnosis and design management; and also Misystem, which is in the area of the ERP, especially the SAP system implementation; and Orion Managed Services, which is in the engineer staffing and reference service in U.K.; and also the SOFTWORKS, which specializes in the upstream of the model-based development.

So those 4 companies who joined our group, their contribution in terms of the revenue and the profit, roughly speaking, on the annual basis, it was JPY 4 billion on revenue and JPY 300 million in terms of EBITDA. So they are contributing to the numerical growth of the group. But the high expectation is in the area of the higher value-added business as well as the globalization. We believe that there will be a big contribution from those companies.

Slide 6 shows the growth of the core engineer staffing business. As in the last fiscal year, the recruitment or hiring is going very well. We often talk about the labor shortage recently these days, but actually, we are seeing the increase in terms of the number of applicants to our group. And also, we have been strong in the mid-career requirement as well as new grads. As it was mentioned, we will be welcoming more than 1,000 new grads this April.

As a result, so every year, we see the increase of the engineers on payroll of the group. The increase is actually the size of the medium-size class company. And for this fiscal year, we'll be focusing more on the core business expansion rather than M&A.

Now Slide 7 shows some of the examples of our shift toward higher added value businesses. One company I am quite impressed with, if I may boast about it, is the company we acquired, SOFTWORKS, that was acquired in November last year. This company is in the area of the embedded auto system development, which has a strong need in the auto industry. So they specialize in the upstream part of the model-based development.

In the past several years, we have been focused upon the hardware and software of the model-based development together with dSPACE in Germany. And we have been working on the midstream to downstream of the model-based development, and we have been training and fostering the engineers in those areas. However, in the upstream, that is to say, that conceptual design and the detail design or building the models, this was the area where we did not have the engineers until now. But with the acquisition of the SOFTWORKS, now we can do all the processes of the model-based development from the upstream, midstream to downstream.

In addition, our engineers can go through the on-the-job training at the development center so that they can become the engineers who have a skill in the upstream design. So we should be able to train those engineers from now on. And those engineers, the contract unit price is high, and it is not likely to be affected by the changes in the economy. So we believe that in comparison to other companies, we should be able to become more competitive in this area. So we are trying to shift toward the higher value-added services. And this, I think, is a typical example of that.

Now in July, Misystem joined the group. Now this company has a lot of experience in the system implementation of SAP. Its consultant and engineers are very experienced ones. And we, of course, have the engineers in the area of SAP. But together with the Misystem, we have created the ERP business team so that we can expand this SAP-related business.

Now since 18 months ago, we have started to work with a company called ALBERT in the area of the data scientist and data analyst training and fostering. I think you're already familiar with this. Now after going through the training, those engineers are high in demand by many customers. There's a huge need there.

So in addition to ALBERT, this year, this fiscal year, we'll be working together with the i's FACTORY, which is a company specializing in the data analytics, and we started to train the data scientists. Actually, in the past 18 months, the number of engineers on our payroll in the area of the data analytics has increased from 0 to about 100. And we will continue to increase these engineers so that we can respond to the needs of the customers and the society.

Now turning to Slide 8. This shows our progress in terms of globalization. In addition to our China business, we have expanded our footprint to Singapore, India and U.K.

Now there are 2 purposes to the overseas expansions. First, we are a Japanese company, so we like to support the Japanese companies doing business abroad, helping their technological development abroad. March last year, we have acquired Helius Technologies in Singapore. In November, we acquired Orion in U.K. Both companies' executives accepted our offer since they believe that there's a huge opportunity in working with our Japanese customers. So that was the major reason why they accepted our offer for the acquisition.

A second purpose is to expand our businesses utilizing the non-Japanese engineers that we have abroad. Now especially I believe that India is going to be an extremely important market for us. There are several reasons behind this. First of all, India, of course, as you know, has excellent IT engineers in huge volume. And in Southeast Asia, there is a shortage of the mechanical engineers, and there are a lot of mechanical engineers in India, which is quite attractive.

Secondly, all of those Indian engineers speak English as a matter of course. Thirdly, as just happens that the Boyd & Moore, which we acquired in July 2017, and also Helius Technologies, all of -- 2 of those companies already have, for example, in Hyderabad in India, they have our footprint of recruitment in India. So that means that we don't have to build the recruitment footprint in India starting with scratch.

The fourth factor, it's a bit political. Unlike China, Indian people usually have a favorable view toward Japan. That's another factor. Of course, because they speak English, it doesn't mean that the Japanese major customers will employ Indian engineers right away. There's a very high hurdle of Japanese language. So we'll start with the IT companies, which are likely to accept the English-speaking engineers, and also to provide our engineers to the Japanese companies doing business in Western countries and also to those regions where we have a footprint in Asia and the U.K., introducing our Indian engineers. So we would like to create that path, and we can do so. We believe that the competitiveness will be improved.

Now fourth strategic measure is to build the business platform utilizing IT. As you see on Slide 9, well -- I'm not going to -- into the details, but we're currently trying to build the business' digitalization, utilizing AI. So this is talent management system or what we call Talent Cube. It is a system. And already, the learning management system, LMS, was introduced, and also e-learning system operation has been started.

We are also making the recruitment system more sophisticated and also building the prototype for the new grads. And from now on, we should be able to have a comprehensive system from the recruitment to assignment or matching, including the skill management, order management and matching and also introduce the support tool for the technical engineers.

And as you see on the right-hand side, from this fiscal year -- or from this year, I should say, we are working on the business operational reform. We have already started with this. And ultimately, we would like to utilize various KPI information that we can get from this mission-critical business system and utilize it for the talent management system so that we can have a business operation utilizing the latest digital technologies.

Now as I explained to you, as for the strategic measures, we are making good progress based on our plans. And as it was mentioned, we are likely to achieve the numerical target of our medium-term management plan, actually 1 year ahead of the plan. So looking at the economic situation, probably it would become necessary for us to think about the revision of the management plan, although we don't know the timing.

Now that concludes my explanation on the progress of our medium-term management plan. Now I'd like to move on to Slide 12. This includes the 4 major topics which are related to the investor inquiries, and I'd like to share with you our view on those topics.

Now on Slide 13. So one of the topic is as a result of the U.S.-China trade friction. We are seeing the deceleration of the Chinese economy. So based on that, there's a question as to what will be the impact on our business. Now on the left of the Slide 13, it shows R&D spending in Japan. On the right, we are showing you the historical staffing requests that we receive.

Now one thing I would like to add on the right-hand side, the number of the staffing requests should be higher. However, we exclude those requests for which we cannot find the engineers or based upon the contract conditions, we are unable to find a matched engineer, so we exclude them. So this is the effective number of the staffing requests. As you see, in Q2, we are receiving a lot of orders or requests, so the supply is quite tight. And this trend still continues in Q3.

And there are several reasons behind this. First, from Q2, it is true that a part of the mechanical engineering areas, companies, for example, machine tools and semiconductor, the orders are down in some cases. And starting with this fiscal year, we started to see some of the mechanical engineering customers becoming more cautious. However, overall order has not been impacted. So it's really individual basis, depending on their view on the ForEx and the economic outlook.

Now as we showed you on Slide 10 of the summary of the financial results, one of our characteristics is the high percentage of the IT engineers. So IT demand is a domestic demand. And as you see on Slide 14, on the right-hand side, software is becoming more complex and digitalization is going on. So in this area, there will be more labor shortage. So we expect the order or request to continue to grow. In addition, the construction industry is also strong. So we can more than offset the decline of the mechanical engineers with other areas, including construction.

Secondly, our business is closely aligned with the investment of the technological development as well as R&D. Recently, the Chairperson of the Nidec Corporation, Mr. Nagamori, commented that even though the sales are down, their CapEx and technological investment is going to be continuing. So despite some recession, we expect no major impact on the investment of the technological development or R&D.

As you see on the left-hand side of the Slide 13, after the bursting of the bubble or after the so-called Lehman shock, R&D investment declined. But these recessions were driven by the credit crunch. So in the future, say that there's a global economic slowdown or slowdown of the Japanese economy, we believe that that will be the part of the cyclical change of the economies. So it will not impact on our business greatly. So we are not concerned about the demand at all. So we continue to believe that the key to our growth is going to be hiring or recruitment.

Now Slide 14. Say that there is a economic downturn, this slide shows the resilience to the economic cyclicality. So on Page 14, this is a summary of what I have commented upon, so I'd like to mention other points. Now staffing service from the perspective of customers is a kind of a buffer or adjustment above. So it has such function. So if the economy worsens more than expectation, the utilization rate could come down temporarily. Since we placed such a buffer function, since we have those engineers as a full-time employee in comparison to other human resource-related businesses, our profitability is higher. So we keep that in our mind, and we try to strengthen our financial base so that we can deal with the fluctuation of the utilization. And last year, we increased our capital, and that is a part of the strengthening of our financial base.

Secondly, and this is something that is encouraging to me, the technical skill structural reform of the engineers. That is to say, we try to foster and train engineers who will be needed in the future by our customers, focusing on the engineers with the technical skills which has a very strong need. So we have been doing so for a long time.

As I mentioned, under the shift to the high added value, the increased development of the data scientists and also the engineers in the model-based development and also the engineers in the -- with the strength in the package implementation of ERP or AI and IoT, in the mechanical design, we have also fostered engineer who have skills in 3D design, CAE, embedded software, inverter and high-frequency circuit. We have continued to do so for a long time.

So even when there's a recession, we have a structure or a system in which the engineers are not coming back or not returning to us. So even if they are returned to us, we have internal training system and also we have a menu of education provided by the Pc Assist. So by going through those trainings, those engineers can be reassigned to something else. So we already have such a structural scheme.

As I mentioned, some of the companies are struggling. And in those cases, those engineers will come back to us. We used to think that when the 20, 30 engineers come back, it was a big trouble. But actually, we appreciate that these days. We know beforehand that some of the companies having difficulty. So we already reassigned those reengineers who are likely to come back or return to us. So this is something that is quite encouraging to me.

Next, please turn to Slide 15. I'd like to comment on the question regarding the hiring market environment and to your question as to whether this good hiring trend is sustainable or not. Now the reason why hiring is very steady this fiscal year again is, firstly, due to the IT engineers, which we are very successful in hiring.

According to the study such as the national census, there are around 2.5 million workers categorized as engineers, and IT engineers comprise 40% of this, which accounts for about 1 million. Even if we say that the job turnover rate is 10%, which is the national average, even if we say so, more than 100,000 IT engineers are available in the market every year. And because we are strong in this IT area, which has the greatest universe of applicants, our hiring is successful. And looking at our competitors, they seem to be increasing IT engineer headcount recently. But the scale is still small and thus, will not be a threat to us as of today.

And secondly, due to the structure of the nation's employment market, it is still very difficult to join a large enterprise if you're a mid-career worker. This continues to be the case. And since it would be difficult to work for a large enterprise, the options that one would have is to go seek a tech staffing company like us or to work for a small or mid-sized business or IT company or a large system integrator. But still, in the case of Japanese people, the Japanese workers still tend to aspire to work for big companies. And that is what brings us the superiority in this hiring market because we are the one who can provide various jobs to these big enterprises such as development and research in our clients' offices.

So from our experiences with M&A, small and mid-sized IT companies in the regional areas reach a limit in growth despite their technological expertise, and this is because of the hiring limitations. And ultimately, these companies decide to join our group. We had several of these cases, and we feel this is true from our own experiences.

Thirdly, in the case of new graduates, this situation is similar to mid-career engineers actually. If you look at the Slide 15 graph on the right-hand side, the green line graph shows, the very bottom, the very bottom line graph shows the application ratio of new grads in companies with more than 5,000 employees. Now the latest figures show 0.37x, which means that it continues to be a very narrow gate to get into. Therefore, when a student could not join a company that he or she wished to, their next option would be a tech staffing company like us, and that is why we are also successful in hiring these new graduates out of university.

Of course, the threat in this case, would be where large enterprises restart their massive hiring activities like they did in the bubble age. But that is not likely to happen right now because of the uncertainty and also because in the typical Japanese employment environment with the seniority system and lifetime employment, in this situation, a company would try to avoid the increase in fixed costs. And therefore, it has become a typical trend that these companies use tech staffing services like us rather than hiring themselves massively. That's why we will continue to have good hiring from the new grads out of university. The number is growing every year.

Well, I've mentioned 2 reasons. But other than these, our group caters to over 2,000 companies as the largest player in the industry. With abundant orders, we provide attractive jobs to applicants, and over 100 dedicated recruiters are active in our company. We have an organization with this. And they use the most effective channels. Depending on the times, they choose the most effective channel very efficiently. And recently, what has become very important is the quick response. So based on the precise KPI analysis, they leverage these channels and also respond very quickly to the applicants. This is another reason why we are successful in hiring.

Let us move on to Slide 16. As we approach April 1, the day when finally the work-style reform bill becomes effective, well, I'd like to talk about this and the impact of the work-style reform bill to our business. Now first, from April this year, the complex regulation regarding long hours of labor and the mandatory paid leave utilization of more than 5 days per year will be put into place.

As you can see on this slide here, the average overtime per month for all engineers in our group is 17.6 hours, and 75% of the paid leaves are used. So we have cleared the regulation overall. But however, the point is to take care of each and every individual employee in regards to long overtime hours. So we completed an alarm system in accordance to the law, and a dedicated team from our headquarter will follow up on those individuals who may possibly exceed their hourly limits systematically.

When it comes to using these paid leaves, the administrative staff members have more risks than engineers as a tendency. But as a company as a whole, we introduced a planned paid leave utilization system from this fiscal year. So we're prepared to align with the law and regulations.

In terms of the impact to our business, we do estimate some decline in both top line and bottom line due to less overtime and more paid leaves. But if you remember our explanation on the average overtime and paid leave utilization rate, the impact will be small, with the one exception for staffing of construction management engineers.

Now in regards to the issue regarding construction management engineers where the long hours of labor has become quite normal, the law will not be effective for another 5 years during the super-busy season before Tokyo Olympics and the construction industry, which is also facing a long-time labor shortage.

So thus, the key was what is going to happen to our staffing business? But this is clearly going to be included in the scheme. So we feel very relieved that the construction management engineers will also be included in this 5-year period. Having said that, this division does include some older-aged engineers. So we will use an internal guideline of our own to make sure their safety and assurance is secured, in line with the spirit of work-style reform, just like other engineers.

But as we pursue with the work-style reform and also the labor shortage situation in the society, we hear voices of concern that clients may adopt more full-time employees. We talked about this when we talked -- spoke about the new grads earlier. But that sort of trend is not accelerating in the engineering fields compared to the past. And it is hard to imagine them increasing fixed costs when technical development divisions tend to have the fluctuation in their workload seasonally between busy times and slow times. If you have a project, you're busy. And if you don't have a project, you don't have work. So that's why we think it's unlikely, as you can see on the slide, 70% of the IT field is being outsourced. And this leaves us to believe that clients and us, outsourcers like us, will continue to share roles in technology development going forward.

Finally, I'd like to talk on Slide 18. This explains our consolidated results and EPS trends from the fiscal year 2013. As Mr. Sato, the CFO mentioned earlier, our share price went down dramatically since last autumn since the stock market deteriorated overall as well. We, of course, sincerely accept the evaluation from the market. Our stock price does reflect that. But our core policy is sustainable and -- but our core policy is to have very sustainable and stable growth in top line profit, operating profit margin and EPS. So we will continue to operate and drive our business so that we will be trusted even more from the market. In this regard, we ask you for your continued support.

I would like to end my explanation here. Thank you for your attention, and thank you very much for your participation today.

[Unknown Executive]

Thank you. Now we'd like to take questions. As it was mentioned, the Q&A session will be also made -- will be disclosed as a text with your name and affiliation. So if you don't want your names to be recorded, you don't have to give us your names or affiliation. [Operator Instructions] So if you have any questions, please raise your hand and wait for the microphone.

[Yasuji Nishio, executive]

Yes, please.

[Unknown Analyst]

[ Mineo ] from Daiwa Securities. I have only one question. Now in the medium-term management plan, 10% and the 12% increase in revenue and also the profit -- operating profit. And as you explained more recently, you are realizing faster growth. That is my understanding. So based on that, from now on, especially the growth of the profit, what will be the ideal growth? For example, the employment environment is very steady, so do you want to increase the revenue by 15% and, together with that, profit to grow? Is that what you think? Or as you showed us, you are shifting toward the higher added value and you are doing a lot of M&As. So are you focused more on the profitability? So profitability, is it going to be increasing? So how should we understand this future trend and what you've tried to achieve?

[Yasuji Nishio, executive]

Yes, recruitment and hiring has been going very well and it's increasing, but it doesn't mean that it will continue forever and the number of engineers on payroll as well as utilization rate. As a goal, a little less than 30,000, I think, that is the number of the engineer in the group. But currently, in our case, about 20,000, both in Japan and abroad. So overall management, of course, based upon the market side, we will reach a certain limit. But still, we are not feeling that we are close to the limit because our engineer staffing -- technical engineering staffing business used to be bigger. We had a very big operation in Japan. So in that sense, we still have room for growth. But eventually, at some time, we will reach a limit. So we're going to prepare for that. So we'd like to shift towards the high added-value services or solutions. We'd like to create them, so we'd like to have a higher unit sales price. And now the higher utilization led to the higher revenue and the profit. But probably in the future, we would like to make sure that the profit would grow even when the utilization goes down. For example, data scientists, we'd like to increase by 100 per year. And if we continue to do so for 10 years, we would have 1,000 of them. So it's a big group. So it's one of the bigger example; model-based development is another. So when we are strong, I think we'd like to make an investment. So rather than having a short-term view, we would like to have a long-term group growth. So utilization is likely to increase in the short term. But eventually, we would like to focus more on the profitability or profit side. That is my view. So in the medium-term management plan, 10% to 15% growth. And with the M&A, so 10% to 15%, depending on the market situation, that will be the size of the growth that we would like to see.

[Unknown Analyst]

Additional question. Say that in the future, you would shift toward the higher added value, so right now, the percentage of the operating profit rate is about 10%. But the year ahead, achievable operating margin level, what would be -- is it 15%? Is that something that you would like to achieve?

[Yasuji Nishio, executive]

Well, not everything will become high added value. And of course, the regular staffing business will remain. So it's not going to be as high as I'd like. First target is to make sure that as one of the target in the medium-term management plan, that 10% operating margin, that is something that we'd like to realize. Last year, we could not achieve that, so we'd like to make sure to achieve it this year. And the next target, I don't want to be beaten, so make it 12%. That is the next target that I'd like to achieve.

[Unknown Executive]

Do we have any other questions from the floor? Please raise your hand if you do.

[Yasuji Nishio, executive]

Any more questions? Are we good?

[Unknown Executive]

With this, we would like to close the Q&A session. Thank you very much. Thank you very much for participating in TechnoPro Holdings group financial results for the second quarter of fiscal year ending June 2019.

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