Direct Marketing MiX Inc. (7354) Earnings Call Transcript & Summary

[Foreign Language] I will start with the results for the fiscal year ended in December 2021, following with the outlook for the fiscal year ending in December 2022 and then the medium to long-term growth strategy. Firstly, the financial results for the fiscal year ended in December 2021. The financial highlights of the fiscal year ended in December 2021 can be seen on the screen. Surpassing the company's forecast, we achieved a 34.8% increase in sales, a 36.1% increase in EBITDA and a 32.7% increase in net income year-on-year. In regards to sales, growth is accelerating compared to the fiscal year ended December 2020 due to an increase in sales outsourcing needs. As for various profits, we steadily secured an increase in profits, even though there was a significant increase in costs associated with the expansion of capital and personnel investments in order to meet the client needs. On the screen, you can see the profit and loss statement. We exceeded the upwardly revised forecast at the end of second quarter in sales revenue and various profits and achieved sales revenue of JPY 30 billion. Next, I would like to explain the quarterly business results. Existing business continued to grow steadily, although COVID-19 vaccination related business has subsided in the fourth quarter. Sales increased by 25.1% year-on-year. We are also beginning to see the new sectors development progress in the fiscal year ended in December 2021. On the other hand, EBITDA was up 2.6% year-on-year because of major strategic investments, such as office space expansion and growth in personnel numbers in the fourth quarter. This was made in response to higher-than-expected customer demand and is not a permanent investment. On the screen, you can see the results by segment. In the Primary Marketing Business, we saw steady growth in our existing business. This is due to the main telecommunications infrastructure sector as well as the web IT sector with its focus on cashless payment and food delivery services, which are growing rapidly along with the emerging new lifestyle and so on. With the favorable influence of the public sector, both sales and profits grew by 33.6% and 38.3% year-on-year, respectively. Sales in the on-site business increased by 34.4% year-on-year. On the other hand, operating profit decreased by 65% year-on-year due to upfront investment in recruitment costs. These were incurred in preparation of the temporary shortage in the recruitment market caused by the reopening. Next, I would like to explain about the number of employees, which is the main KPI of the marketing business. In the fiscal year ended in December 2021, we conducted a large-scale center development and as of the end of 2021, increased center capacity by approximately 2,600 seats compared to the previous fiscal year. This has made it possible for us to respond to sudden request for personnel increases. With this flexibility is a sales focus, we are able to respond proactively to the growing demand in the existing business and at the same time, handle new business requests more rapidly to achieve even better results. The growth of transactions with existing customers is progressing steadily, and the sales revenue of existing customers increased by 29% year-on-year. This was accomplished due to further outsourcing within the department and lateral expansion to other departments. In addition, the acquisition of new customers has been steady. Next are the main factors behind the year-on-year increase and decrease in operating profit. Adjusted operating profit for the year ended December 2020, excluding temporary factors, was JPY 3,194 million in the fiscal year ended December 2021. Operating profit was JPY 4,780 million, up by 49.7% from adjusted operating profit in the fiscal year ended December 2020 due to an increase by JPY 909 million in profit from grown revenue. A temporary increase of JPY 1,099 million in profitability from COVID-19 vaccination related business and a temporary decrease of JPY 422 million in expenses. The temporary expenses include year-end settlement bonus and expenses incurred for large-scale capital investments. On the screen, you can see the balance sheet. As a result of steady earnings growth, the ratio of equity attributable to owners of parent improved by another 5.6% from the previous year to 43.2%. The ratio of goodwill to total assets and net debt have been steadily reduced, and financial soundness has improved significantly since the fiscal year ended in December 2020. Next is the cash flow. Operating cash flow increased due to steady business expansion, which led to an increase in profit before tax, while trade and other receivables temporarily increased due to the impact of public sector projects with long-term contract periods. Consequently, there was an increase of JPY 49 million year-on-year. Investment cash flow increased due to accelerated capital investment to meet client needs. Next, I would like to talk about our financial forecast for the fiscal year ending in December 2022 and our medium- to long-term growth strategy. For the fiscal year ending December 2022, we forecast sales revenue of JPY 32.5 billion, an increase by 7.3% year-on-year and operating profit of JPY 5 billion, an increase by 4.6% year-on-year. EBITDA is projected to be JPY 6.45 billion, an increase by 9.7% year-on-year. Next, I will explain the factors for increases and decreases in the forecasted operating profit. Operating profit for the fiscal year ended in December 2021 contain factors such as the aforementioned temporary increase in profitability and expenses and after deducting these factors, adjusted operating profit resulted in approximately JPY 4.1 billion. For the fiscal year ending December 2022, we expect growth by approximately 21.9% compared to the adjusted operating profit. Next, I will discuss the growth strategies by sector. The graph on the left shows the distribution of the number of clients by sector and the pie chart on the right shows the sales composition ratio. As the public sector grows, the overall client portfolio continues to diversify and expand with balance. As for potential room for market development, we envision an expansion in the telecommunications infrastructure sector, which is our main client base. In the medium to long term, we will also strategically work to deepen revenue opportunities in the finance, mobility and real estate sectors, which we expect to become our next pillar of earnings. Next, I will discuss in detail the expansion strategy for the expected return sectors. We believe that each of the financial, real estate and mobility sectors has a potential market comparable in size to the telecommunications infrastructure sector. These markets have traditionally been slow to outsource their sales operations for a variety of reasons, including security and technology. However, we believe that the demand for sales outsourcing functions is becoming apparent amidst the drastic change in the external environment, such as the rise of Internet-based businesses, the progress of online business operations, the need for a drastic change in sales strategy due to the recent impact of COVID-19 and the shift in strategy during the demographic onus period. In fact, the number of newly acquired clients has been steadily increasing compared to the fiscal year ended in December 2020. Next, I would like to discuss our long-term vision for growth. In the short to medium term, we continuously expect that our main existing sector, telecommunications infrastructure will remain the growth driver. In the medium to long term, we will work to build a second and third pillar of earnings by fully developing the core competencies we have established in the telecommunications infrastructure sector into the expected return sectors of finance, mobility, real estate and other areas. At the same time, by utilizing AI, which we have been developing and testing since fiscal year ended in December 2020, we will be able to invest personnel more heavily in communication with users. Thus, in addition to improving productivity, we hope to build a system that will enable us to achieve sustainable growth. Next, I will explain the long-term growth image based on client issues. Traditional Japanese B2C companies, including the ones in the telecommunications infrastructure and financial sectors are facing numerous challenges as they move forward with the DX. For example, they are facing a variety of issues, such as being unable to draw a growth strategy while setting out to reduce costs, being unable to break away from traditional sales methods that rely on experience and intuition and being unable to accumulate and utilize customer and transaction data. In other words, DX and B2C companies is about solving these problems and improving the top line. The sales solutions our company provides play an indispensable role in implementing DX in these companies. Specifically, it can be broken down into 4 categories; first, rebuilding and creating a database of customer data that the client has been able to accumulate and utilize; second, to improve sales efficiency by analyzing the obtained information and implementing customer segmentation. Furthermore, through one-to-one communication, a personalized UX can be achieved based on customer attributes. Finally, by establishing such a system, the overall quality of sales will be raised and the true LTV of the provided service will become apparent. We believe that through the value we provide, our clients will be able to realize true DX and achieve top line growth, which is the ultimate goal. The slide on the screen shows the same concept in concrete details. For the sake of clarity, I will use housing loan sales as an example. In the past, even for customers who had already expressed their intention to apply for a housing loan, it was difficult to properly follow up with such cases when application process was delayed due to deficiencies or pending applications at the prescreening stage resulting in lost opportunities. Under such circumstances, our company is able to monetize not only current customers but also potential customers who are still in the consideration stage of application. Through our know-how of creating talk scripts for each situation, accumulating sales data, timely approaches for each customer and so on, we are able to realize a significant increase in the productivity of our client companies. We believe that our company's unique approach enables clients to achieve sales results while maintaining the strict compliance system required by financial institutions. In other words, both quality and results are maintained. In the future, we will continue to develop our customer base and offer a full lineup of financial products, aiming to further expand profit opportunities. Next, I would like to explain the high productivity through in-house system production and hybrid operation in inbound business of contact centers. There are 2 major factors that distinguish us from other companies. First, is the speedy response due to in-house system construction. Secondly, outbound personnel with sales functions can handle inbound calls, which enables us to manage both customer support and sales as well as to allocate resources flexibly and maintain a high operation ratio through hybrid operations. In this way, we are expanding into the inbound market with our unique approach of transforming a contact center into a profitable department. On the next slide, you can see our investment plan. In the fiscal year ended in December 2021, we invested JPY 928 million in our centers, far exceeding our initial forecast. By doing so, we were able to secure excess capacity to respond more flexibly to the growing demand from existing clients and also build a system that allows us to flexibly tackle short-term projects. As you can see on the slide, we are planning to increase the number of operating staff in the first half of the fiscal year. we consider policies for shareholder returns as 1 of the most important management issues and aim for a total return ratio of 40%. On the other hand, we recognize that we have issues with our financial soundness due to our past buyout history, and we are also working to secure a certain amount of equity capital in anticipation of future business development. Although we have not yet reached our target, we would like to actively increase shareholder returns, while maintaining a balance between capital efficiency and financial soundness. We are also considering stable dividends as a means of returning profits to shareholders and will consider purchase of treasury shares as an option. Next is the capacity to acquire personnel to support further growth. We have been able to secure sufficient human resources through a wide range of recruitment opportunities and a unique personnel system. The graph on the left shows the change in the number of personnel in the marketing business. The number of communicators is increasing at an average annual rate of 22%. As shown in the graph on the right, the number of applications has also increased significantly over the years. Recently, the number of applications has jumped over 200,000, mainly due to COVID-19 vaccination related business in the on-site business. We believe that there is ample room for recruitment in conjunction with business expansion. One of the strengths of our company is the diversity of human resources by allowing flexible work schedules, such as 1 day a week or 1 hour a day, regardless of gender or age, we are able to ensure diversity in our workforce and build a profit-generating talent pool that is not limited by existing frameworks. We are also proud of the fact this system contributes to ensuring social mobility. Next, I would like to discuss our sustainability initiatives. We consider sustainability initiatives, which aim at both sustainable development of society and continuous enhancement of our own corporate value to be an important management issue and established the Sustainability Committee in November 2021 to promote sustainability management. The entire company is committed to addressing all issues related to sustainability based on the corporate philosophy of take on what our society needs now. Specifically, as part of our efforts to address climate change, we are targeting a 100% reduction in CO2 emissions from electricity consumption by 2030. Based on our 2020 consumption levels and as part of our efforts to strengthen governance, we are aiming to increase the percentage of women on the board to 30% by the end of March 2025. Among the ESG social issues, human resources is particularly important to us, and we have been addressing this issue with a high level of awareness since before our listing in 2020. We have received high praise for these efforts. In the future, we will continue to contribute to the sustainable development of society by fostering a culture that makes the most of diversity, valuing the idea that human resources are our greatest asset. [Foreign Language] [Statements in English on this transcript were spoken by an interpreter present on the live call.]