DIP Corporation (2379) Earnings Call Transcript & Summary

Thank you very much for your participation and into your very busy time. Now we'd like to start the briefing session for Q1 of the fiscal year ending February 2024. First of all, let me talk about the initiatives we are working on to enhance our corporate value. Our philosophy, improve the society with dream, idea and passion. One of the social issues is the wage. Wage has not been rising for a long time in Japan. So about 18 months ago, we started to work on this initiative to encourage the business owners to raise the salary. We've been working on this project under the name of DIP Incentive Project. We have been advertising this initiative as well. And our salespeople have been convincing the business owners, it's going to be beneficial for them as well to raise the wages. And thanks to these daily effort, we've been able to bear fruit. As I explained before the user side evaluation is going to be, of course, higher if the pay is going to be higher. But actually, the client side as well, they have been well accepting this Incentive Project. As an initiative to improve the society, now we are working on the second initiative which is to do away with this age bias. As you know, Japan is facing this labor shortage situation. And with the age restriction, sometimes there are people who are not being able to get the job only because the person does not meet this age guideline. And that has been leading to missing job opportunities, which should be considered as waste. So we should do away with this age discrimination or bias. And we've been asking business owners that please do not restrict the ages. And those companies who are supporting this idea, the ratio is now already 46%. So close to half and they are supporting this idea and they are no longer forcing people to input their age when they apply for the job. And senior people are -- we thought that senior people are going to well accept this idea. And of course, that has been the case, but actually young generation as well, those people in their 20s, they have been highly evaluating this initiative as well. We've been feeling that following this trend on SDGs, the society itself, the mindset has been changing, which should be a good trend. We'd like to further accelerate the speed to further promote this trend. So we'd like to keep on working on this initiative. Next is the media service business advertisement. As one of the new initiatives, right now what should we call them [indiscernible] we've been collaborating with [indiscernible] to and have this by this Baitoru theme song, and [indiscernible] has composed the music and which is becoming a big hit. And YouTube, the count of view was 6 million within the first 2 weeks, so a lot of people have been listening to this theme music. And actually, with TikTok, the number of views reached 10 million during the first 3 days, we've been able to enjoy very high advertising effect. And moving on to the signage side. In Osaka -- in Umeda -- there is an area called Umeda which has very high traffic. And now we have this 3D signage. DIP Vision is the name we are naming this signage and starting from July, we have our advertisement on this signage board. Now COVID-19 has been stabilizing. So increasing number of events being held and under such an environment, real physical is one of our important things as well. And we've been sponsoring physical or sporting events and our live events. And thanks to these promotional activities as well, the number of app download, we are being the absolutely number one. The number of MAU, the number of monthly active users. For the first time, we are being able to become the #1. The most important KPI for us is the number of applications, which has been rising significantly, trending very well. Media evaluation,Hatarako.net, has been able to win the #1 Oricon customer satisfaction based on app-friendliness, easy to search, et cetera. In this year, one of the target areas is the -- further strengthening the permanent placement business, especially from now on, Japan is facing this aging society, and medical and nursing care areas are going to keep growing. And we would like to be the #1 here as well. We would like to be the #1 in terms of net sales, but high efficiency, high profitability, is another area we are aiming to be the #1 because our strength is, again, the fact we do have the media. Job advertisement business, we have Baitoru, Baitoru NEXT, Hatarako.net, et cetera. And we have medical nursing care job advertising here and by strengthening both the media and permanent placement business, we should be able to be stronger than the others. Typically, this agency business, clients to pay a lot to these agencies, but by making investment in our own website, we would like to enjoy higher profit on a midterm basis. And another initiative we are working on this year is DX business. Till now hiring-related KOBOTs, we've been developing and selling, which are continuously performing well, but now we are -- have started to focus on customer attraction area as well. And as a new product, to develop new products, we have signed up OEM contract with Bespo, company called Bespo, and we are planning to release a new customer attraction KOBOTs. Social media and Google map, this service is their service, Bespo service is very strong with social media and Google Map by leveraging the capability they have, we should be able to come up with a new KOBOT, which is going to be strongly supporting our clients. And one of the most important things this year is going to be AI agent business, and let me talk about the progress. Usually, these kinds of service tends to be delayed compared to the original plan, but we are being able to make a good progress. And during the current fiscal year we were saying, but now we can tell you during this calendar year, meaning that 3 months earlier than expected, we are expecting to release this new service. This year, we have hired more than 600 new grads. And now we are promoting to use AI as much as possible. And by doing so, productivity should be improving. And by further improving our productivity, maybe we can revisit the number of new grads we are going to hire in the future. And next year, the number of new grads is going to be approximately half compared to this year, we are expecting to hire approximately 350 next year. In the meantime, we're going to further enhance our productivity to further improve our profitability. On a midterm basis, we are aiming to enhance the sales productivity among our media sales people by 80% compared to now. To achieve this call, we're going to use more and more AI technologies in the future. And I've been able to tell you that the AI agent business is going to be released 3 months earlier than expected. And this is something we've been working on together with Matsuo Laboratory. And as the Head of DIP's Technology Research Institute, we are welcoming Mr. Chikashi Okamoto. He is going to be the Head of DIP's Technology Research Institute. Mr. Okamoto used to work at Hitachi and he was getting involved with AI research and development initiatives. He was the leader, and he also has experiences in Venture Capital as the Head of AI Division. And I'm sure he's going to be able to exercise CE expertise he has at DIP.

[indiscernible] and for myself. I would like to report on the consolidated performance of the first quarter and our annual forecast and give you progress on the DIP's business as well. And for the first quarter results on a consolidated basis. I have highlighted them but I would like to skip the highlight and start explaining from the next page. For both sales and operating profit, we are progressing in line with the initial plan. And sales compared to the previous year grew by 13.6% and ended up JPY 14 billion. OP grew by 5.8% to JPY 3.3 billion. And both our personnel recruiting business and DX business area steadily growing in sales. On the other hand, the OP did not grew as much as the sales growth and the decline of the profit was that we have boarded 600 new graduate joining in the first half, and there is less contribution to sales by the new graduates. And at the same time, the existing sales are spending time to train and educate those new graduates, and we're not able to spend time in negotiations, and I think that was the impact. However, that was initially assumed started from the beginning of the year. And in the second half, we expected new graduates to ramp up and start contributing to the sales. And also the workload of the existing sales can be secured, and therefore, we are expecting OP to grow solidly in the second half. So I hope that you will keep your expectations. As a result of that, in the second half, the OP margin is expected to grow to 30% in the second half. And moving on, I would like to explain about the SG&A. With regards to ad and promotion cost the promotion that was explained by Mr. Tomita and the other initiatives are working well, and we have been able to drive the productivity. So therefore, the ad and promotion cost ratio went down by 2.2 percentage points. And on the other hand, the 612 new graduates joined the company, and because of that, the personnel cost ratio has gone up. However, as I have explained just now, the new graduates will start contributing to the sales and with that, the personnel cost ratio should come down from 33% to 32%, will go down to 32% to 30%. And we say that it takes 3 years for the new graduates to become fully capable. And of the 612, we have 516 salespersons. And 2 years later, once they become fully capable in February '26, this 516 people will definitely deliver the sales, and they should be able to deliver around JPY 10 billion in annual sales. So this prior investment should be realized by forward training and education of those new graduates. So now I would like to move on and talk about the forecast for the year ending February 2024. So there is no change in the forecast that we announced in April. So I would like to skip that explanation. And now I would like to give you the overview and the progress of the DX business. The overview of the DX business is shown on first page and second page, and that has not changed. So I would like to skip the explanation and jump to Page 3. I would like to explain about it characteristics of the DX tool KOBOT series, the organization of the DX business, the Service Officer was changed in February and that was already communicated. And underneath this new organization once again towards the SMEs, we want to make it more easier to use for the product. And we're trying to simplify the function of the product, and we find the products even more, and we have been working on that, and we have added that onto the page. And by doing so, the characteristics, which was customer success, meaning that we have very heavy customer service to our customers. But by refining the product, the customer service will no longer be required. And by refining those simple functionality, we want to improve the service level. And by evolving the product, the customer support will no longer be required and the cost structure will be stronger, and that's how we want to develop the product, and that's why we have changed the characteristics of the product as it's shown here. And next page shows the lineup and in the fall. We will introduce the MEO KOBOT, the SNS booster will be added. So I would like to skip the explanation of this page. And now I would like to talk about the performance of our first quarter compared to the previous year, the sales grew by plus 29%. So we are continuing with a very good growth. And recently, we're seeing some acceleration of the growth, and that is because the media job ads are performing well. And along with that, the interview scheduling KOBOT sales are doing well, and that is a major reason. And moving on, I would like to talk about the number of companies subject to monthly billing. And that has increased by 24% year-on-year, and we're seeing a very steady growth. And so similar to sales, we're starting to see some acceleration. Now I would like to 1 talk about the KPIs for the first quarter results. Right now, we have revised the KPI target upward. And that is because the recent performance is trending quite well. And on top of that, in order to make it easier to sell for the sales, we are developing a new function to the existing products. And from this quarter onwards, for the KPIs rather than disclosing the month for the quarter end, but instead we are showing the quarterly average. And the reason is that the interview scheduling KOBOT is impacted a lot due to the fluctuation of job ads. And so in order for you to understand the KPI trend more correctly instead of the monthly numbers, we decided that the quarterly average will be easier to understand. So I hope you would understand the change. An moving on, I would like to talk about the strategy for this quarter. I would like to talk about the strategy under this new organization, we will be refining the existing products and at the same time, we will be developing new products in the new areas and the promotions like MEO KOBOTS for SNS booster. And also, we will work on improving the sales efficiency for KOBOT, the strength was that the client will have to spend the efforts for the implementation. But for implementation, we did have our sales reps spending a lot of efforts to help the clients introduce it. And by reducing the efforts of the sales rep by improving the products, we should be able to accelerate the sales even more because we can free up the time for our sales reps and focus more on media sales and DX sales, and that would be a positive impact on the products, and we should focus more on the upsell. And lastly, for DX, I would like to talk about the business plan for this fiscal year. There is no change in the sales and segment profit forecast. But as I mentioned before, this plan is a conservative plan. And obviously, we would like to target for something higher for this fiscal year as well. And for this fiscal year, we are working on many new products. And so from next fiscal year onwards, we should be able to go back to the 30% level of annual growth. So I hope you will look forward to that. So once again, I would like to explain about the personal recruiting business progress. The sales of the personal recruiting business grew by 12.2% year-on-year to JPY 12.6 billion. So this is growing steadily. And now I would like to talk about the media job advertisement business and the permanent placement service. Instead of showing the sales of cycle, now we would like to show you the breakdown by service for both media job advertisement and permanent placement services. From the previous period, we have applied a new recognition standard. And for the discount of the products that were cross-sold at the same time will be equalized when the revenue is booked. And based on that, for the first quarter, we have changed the segment of the sales to online services so that it is in line with the sales policy. So from your perspective, the sales of direction in the business will have a stronger correlation when you read our disclosure. And I hope you would understand this change. According to this new segmentation, the media job advertisement grew by 12.5% year-on-year and permanent placement service grew by 7.0%. And I would just like to explain the trend by each site, Baitoru including Baitoru NEXT has exceeded before COVID. For -- based on the new revenue recognition standard, if that was applied before February 2020, we have exceeded the pre-COVID level. Hatarako.net was pretty much flattish and Hatarako.net was about 2.5x, which is a significant growth. So that was the explanation. And for the first quarter, I would like to talk about the performance. Starting from the media job as the sales grew by 12.5% to JPY 11.9 billion, which was a very strong growth. And the unique number of companies is steadily growing as well. Now contract unit price is solidly growing. I would now like to talk about the priority measures for the second quarter. Of the priority measures in the second quarter as a topic, the -- we are working on the draft for ads using AI. And by doing this, we want to improve the productivity by delivering the add a draft that is more aligned with the business owners, we will like to make sure that the seniors and other people will be able to apply more easily. And for the other initiatives, there's no change, I would skip the explanation. Now I would like to talk about the sales trend for the permanent placement service for the first quarter. The sales grew by 7.0% to JPY 690 million. The growth is slowing down a little bit is due to the new service lines [indiscernible] and also the service expansion to the regional areas aside from the metropolitan areas. Those initiatives were introduced. And these are the new challenges and the very capable members are now reassigned to those initiatives. And because of that, the sales look like it's slowing down tentatively. But the activities for this period will reach the peak for the permanent placement service. But we believe that this will be a positive trend for next fiscal year. So I hope you would expect the sales increase in the next fiscal year. So now I would like to talk about the priority measures for the permanent placement service for the second quarter. We have assigned 87 new graduates to this business. And the existing sales reps are educating this, and we're trying to ramp them up quickly so that they can contribute to the sales from next fiscal year. And [indiscernible] de Hatarako service as I mentioned earlier, has started and the sales contribution is very small. But the in terms of gathering the customers from the existing media, we believe this has a very strong potential. And so I hope that you would look forward to this business. And of course, in improving the service quality, AI will of course, be utilized in the permanent placement service too, and we want to improve the matching accuracy so that we can improve the overall service quality. So now I would like to talk about the business plan for this business. The sales and segment profit for the personnel recruiting service business will not change. Against this full year plan of 14%, the first quarter sales growth was 12.2%, which is relatively low. But in the second half, the new graduates are expected to contribute to the sales and it's going and we expect an additional JPY 1 billion or so increasing sales in the second half. So therefore, we're not revising the full year plan. That was the explanation from my side. Thank you very much for your attention.

Let me talk about shareholder returns. Dividend forecast, no change. Interim, JPY 35, year-end, JPY 48, annually, JPY 83. And share buyback. When we announced the full year results in April, we announced that we are going to conduct share buyback. The purpose is to enhance shareholder value and return to shareholder and improve capital efficiency. We believe that currently, our share price is undervalued, and we are confident with our future goals. So by repurchasing our shares, we believe that we should be able to return to our shareholders. At each opportunity, we are sharing a video. And this time, we are going to share a video, which was shared at the ceremony to welcome the new grads. It's about the activities of senior employees. Please enjoy. [Presentation]

To achieve better society. Our philosophy [indiscernible] agent business headquarter joined DIP in 2020. There was a nurse in her 20s, whom I met in my year 2 coming across with her become a training point to me. She was searching for a job position at the clinic, but she had a track record quitting her previous job only after the first 3 months. So which left an impression that she might quit soon again and having difficult time to be hired. I was sure that her track record was leading to this bias. So to let clients focus more on her personality, I also mentioned her various skills related to nursing and application format and also mentioned how passionate she is to keep learning new skills and submitted the application format to the clients. Then after looking at the application with a lot of information, clients started to say, okay, we want to have an interview with her. I do remember how happy and nervous she was when I told her, she got the first interview of opportunity. I kept encouraging her by telling her we're going to win this job together. Continuously provide support to make better income true. The clinic told me, they were happy to see her and willing to hire her since they could feel her passion to keep absorbing and learning. I was so happy as if it was me who was hired or even more. By keep focusing on the nurse's real strength, I believe we could win the job overcoming the bias. To create a society where everyone can strive to attain her dream. [indiscernible] Media business headquarter [indiscernible] sales division joined DIP in 2021. There was this client paying the minimum wage to the part timers. And the store manager was telling me that, that was the max they could afford to pay. So I was not being able to ask for more. I was always wanting to be a partner who gets involved with the clients' business management. However, I realized that was not something I was being able to achieve. There was more I could do for the client. Decided to change his own mindset to be the real partner. As a recruitment consultant, I decided to start thinking more on a medium-term basis. What is the goal the client is wanting to achieve. What happens if the client does not take on a challenge? I started to discuss with my clients with that kind of mindset. And as a result, I could start having new views and communicating new possibilities to my clients -- I could start feeling he is now functioning as a real consultant. I was hearing from him that now he is attending store managers meeting and sometimes even asked about new store opening plan, which tells me he is winning trust from his clients. I want to see my team providing support to our clients by making proposals, encouraging them to take on new challenges and make a step forward for better future. Dear new grads who are joining this year. Our job is to bridge the users and our clients. And we have to make both sides satisfied, which is difficult. But when we can achieve it, we can feel double joy. This is an amazing job because we can feel we are supporting the society. I hope the new grads keep a never give up mindset and continuously do their best. Be aware of what you want to achieve and keep taking on new challenges. I'm sure you're going to face difficult situation and tough time but keep proceeding to the direction you are heading to. Believe in your possibility, take on new challenges. Each person has pace or her own personality, happiness and life. Your job is to strike the right balance between the user satisfaction and the client satisfaction. That's going to be your job. Let's achieve, think big together. Your own challenge will open the way to the future, let's proceed together. [Statements in English on this transcript were spoken by an interpreter present on the live call.]