Top Interview

 

Q. First, please share with us your general overview and evaluation of KKE in the 59th term.

As was the case in the previous year, customers who do business with us continued to demonstrate strong appetites for investment and customer orders remained robust. In the Engineering Consulting business, which accounts for approximately 80% of orders received, we have been offering system development services to blue-chip enterprises in the residential/construction industries, in response to requests for continuous technology development investment. In addition, we have been steadily receiving orders for our structural design and analytical consulting services, which have contributed to the Company's performance. However, defects occurred in certain system development projects and we ended up unsatisfying some customers due to delayed deliveries, which adversely affected our business results. Nevertheless, such issues, including the defective projects, were all resolved during the 59th term, and will have no effect upon the coming fiscal year (60th term).

To avoid any more unprofitable projects, we have increased personnel at the Quality Assurance Center, and provided the necessary time and authority to the directors in charge so that they will exert their leadership in preventing the recurrence of defective projects.

Going forward, the Company cannot expect to grow by simply relying on high revenues from existing businesses and business fields in which we currently receive a steady stream of orders. Consequently, amid the constantly changing tide of technology, we have been promoting the marketing of new technology themes that will solve the customers' issues. Three years have passed since we became the Japanese distributor for the cloud-based platform email distribution services of SendGrid, headquartered in Denver, Colorado in the U.S., which has resulted in a considerable amount of contracts and customers. In addition, in January we commenced sales of "RemoteLock," a Wi-Fi-connected, smart lock system, with the cooperation of LockState in the U.S. We have also commenced sales of "EVER Relief," a monitoring sensor system for nursing care facilities. Furthermore, expectations are high for the growth of the granular and multiphase flow simulation software "iGRAF," for which we launched domestic sales in April, in addition to our previously released particle method simulation technology.

While these Product Services have yet to contribute to profits on levels comparable to existing businesses, each project is being led by junior staff members who will become next-generation leaders and how our customers will evaluate these projects will become crucial. All of these new businesses are in line with the Company policy of (1) Collaboration between academia and the industrial world, (2) Collaboration with outstanding overseas partners and (3) Our Thought "Innovating for a Wise Future."

Q. What are KKE's growth strategies from a medium- and long-term perspective?

I would like to talk about growth strategies and investments in human resources by type of business.

First of all, we are aiming for growth in each business based on the following three perspectives.

The Company, which was founded in the late 1950's as a structural design office, started as a provider of structural design services amid the post-WWII boom in castle reconstruction, including the restoration of Kumamoto Castle. Ever since the Company adopted computers (IBM1620) to enhance the value of its structural design services in 1961, it has been creating value for its customers through the effective utilization of information technology. Nevertheless, we consider such technology to be only a means to an end and that our true strengths lie in systematic consulting conducted face-to-face with our customers by our staff members.

In our mainstay Engineering Consulting business, it's essential for our consultants to nurture the problem-solving capabilities and steadily improve their communication skills.

Additionally, in the Product Service business, new ways of providing services have appeared amid various developments in information technology. With the spread of the Internet and the widespread use of smartphones and tablet devices as well as the emergence of cloud services, we have been expanding our business not only as a company engaged in B-to-B contract development but also through B-to-B-to-C business models based on marketing in line with the trends of our end users.

Furthermore, in recent years, the Company has been promoting investments to enable collaboration with partner companies both in Japan and overseas as well as cooperating with funds that invest in start-up enterprises with unique technologies and has been developing a systematic approach for revenues generated by investments.

In order to ensure medium- to long-term growth, the first order of business will be to develop human resources in the core business of Engineering Consulting, which will be followed by the pursuit of new ways of expanding the Product Service business, and finally the establishment of the investment business.

Next, turning our attention to investments that are not necessarily reflected in the financial statements, we must consider investments in human resources development. From the standpoint of human resources development, we have been carrying out the following three measures.

First, our staff members are receiving training at external organizations.

We are providing next-generation management candidates with opportunities to gain multiple perspectives of the organization from the outside, including the dispatch of researchers to Stanford University in the U.S., and the secondment of staff members to a joint venture in Singapore; the Ministry of Economy, Trade and Industry and other agencies; and to U.S. partner enterprises, among others. We are confident that the experience at the host companies and organizations will prove invaluable to them in the future.

Secondly, from the standpoint of hiring diverse talent, we have been engaged in recruitment activities in Singapore from around four years ago as well as making ongoing efforts to hire foreign nationals to be trained as engineers in Japan. Currently the Company has 36 foreign engineers. These male and female engineers hail from universities that rank higher than most renowned Japanese universities in the Asian University Rankings (e.g. National University of Singapore, Nanyang Technological University and Bandung Institute of Technology) and many quickly become fluent in Japanese. Having diverse talent participate has also benefited our Japanese staff members, which has led to the necessity of maintaining a broad perspective and mutual acceptance of diverse cultures and civilizations. We are looking forward to the day in the near future when the Company's engineering is introduced throughout Southeast Asia.

Thirdly, the Company encourages shadow work and supports efforts by its staff members to enhance their capabilities. The Company provides an environment conducive to study and promotes self-improvement by supporting presentations at various academic societies, writing endeavors, and establishing its own library accessible 24/7 within the premises.

While the three measures that I have just explained and the development of systems and environments to encourage staff members to grow will not directly be reflected in the financial statements, we believe they are strategies that will be beneficial to the medium- to long-term growth of the organization going forward.

Q. What is your message to the shareholders?

The order backlog from the previous term to the 60th term is on an increasing trend. Moreover, the projects for orders brought forward from the previous term are highly profitable and work on many of the projects has not commenced yet. The profit margin on the projects brought forward has improved by approximately 17% and profits have also exceeded the previous term by ¥80 million. We hope to maintain the patronage of our existing customers while steadily receiving evaluations and rewards from new customers with regard to new technology themes.

As far as returning profits to shareholders is concerned, we will continue with the quarterly dividend system which was adopted in the 59th term to encourage our shareholders to hold our stocks in the medium- to long-term, based on the principle of maintaining stable dividends and aim for a dividend payout ratio of approximately 40%. Needless to say, we will flexibly respond to changes in the economic situation while taking into account the improvement of the Company's financial standing and the costs involved in the development of new businesses. Furthermore, as resolved by the General Meeting of Shareholders held on September 15, the Company transitioned from "a Company with Board of Company Auditors" to "a Company with Audit and Supervisory Committee." The Company intends to further improve its corporate governance structure and enhance its corporate value by establishing an Audit and Supervisory Committee comprised of a majority of outside directors, and reinforcing the functions of audits and monitoring of the execution of business by the outside directors.

Therefore, we ask our shareholders for their continued support going forward.

September 2017

President, Shota Hattori