Link and Motivation Inc. (2170) Earnings Call Transcript & Summary

I am Yoshihisa Ozasa, and I'm Chairman and Representative Director of the Board of Link and Motivation. Today, I'm going to present our full year results for the fiscal year 2020. So let's get started. Here is today's agenda. First, I will give you an overview of our company. Second, I want to reflect on what the year 2020 has been for our group and what the next year will hold for us. I will specifically talk about our consolidated financial results, our organization and our forecast for 2021. The third and final item will be business reports presented by our respective directors. So let's begin with the company overview. This diagram shows the operating structure of our group. The upper left circle repins Organizational Development division, which supports creating organizations that individuals choose. They are Consulting & Cloud business and Event & Media business. Next to the right is Individual Development division, which supports creating individuals that organizations choose. It includes Career School business and Cram School business. And the one below is Matching division, which provides opportunities to link organizations and individuals. And in this division, we have Global Personnel Placement & Temp Staff business and Domestic Personnel Placement & Temp Staff business. And at the bottom, you see we have Venture Incubation business as well. Next, I'd like to move on to agenda Item 2 to talk about where we were in 2020 and where we're going to be next year. Let's get into the full year financial results for fiscal 2020 on a consolidated basis. Here is our P&L. We had an operating income, which beat our expectations. The fallout of the COVID-19 pandemic hit hard our second quarter and confounded our expectations for the rest of the year. But it turned out that we saw a strong rebound across our divisions in the third and fourth quarters. Revenues came in better-than-expected by JPY 278 million. Adjusted operating income also beat our forecast by JPY 157 million at JPY 2.057 billion. And operating income, as I just said, defied the bleak outlook and significantly exceeded our forecast by JPY 1.471 billion to be at JPY 241 million. This slide shows revenues and gross profits by segment for 2020 and the year before. Organizational Development division and Individual Development division saw revenues and gross profit slipped from the previous year because of the pandemic. But the recovery took hold in the third quarter and beyond. Matching division, on the other hand, saw a huge jump in gross profit, thanks to the addition of OpenWork Inc. having a high gross profit margin. This one shows SG&A expenses. Total SG&A expenses increased because OpenWork joined our group in the first quarter last year and also because we posted moving expenses in connection with the office relocation project that aims to reduce rent in the future. But we still managed to cut our advertising expenses for Motivation Cloud series and other expenses to rain into spending. The total figure for SG&A expenses rose 9.2% from a year earlier. This is our consolidated balance sheet. Both assets and liabilities decreased due to the office relocations and the downsizing of our office space. Equity also shrank because we posted a net loss for fiscal 2020. This is our dividend policy. We continue to pay a quarterly dividend of JPY 1.8 a share. The next payment is slated for Thursday, March 25. Next, I want to talk about where our organization is standing today in terms of engagement. It is imperative for companies today to adapt not only to the product market, but also to the labor market. That is why our management indicators include not only financial information, like P&L and the balance sheet, which measures how fit we are for the product market, but also what we call engagement score, which measures how fit we are for the labor market. We believe it is essential to focus on engagement score for any organization to be successful. Our engagement score is calculated based on the values in the 16 areas of questions to measure the degree of engagement between a company and its employees. There are 8 areas of questions asking about the company, 4 areas of questions asking about managers and supervisors and 4 areas of questions regarding the workplace. Results and answers of these 16 areas of questions will then be quantified in terms of employee expectation and satisfaction, and as to what extent employee satisfaction and expectation are matched. We also rate our organization in terms of disengagement score on the scale of AAA to DD with 11 ratings. Now the most recent survey shows that out of our 13 group companies, 11 got AAA, 1 got AA and 1 got BBB. So as a group, we remain highly engaged. Let me then move on to present our full year forecast for fiscal 2021. The year 2020 saw our efforts in transitioning to an online business result in building a new value creation model. In 2021, we are going to spend approximately JPY 1 billion in SG&A expenses in connection with the relocation project, which aims to reduce our overall office space. That's going to be a one-off item. And despite this one-off item, both top line and bottom lines are expected to be better than the previous year, getting back to growth track. We expect revenues to go up 6.9%. Adjusted operating income to rise 15.2%, and operating income will soar more than 460%. Let me also talk a little bit about what we're doing to realize a new way of working. We call this Compatible Work. This pandemic has forced us to work from home and do our job entirely online. In fact, about 80% of our employees are now working from home. And today, we better understand the benefits as well as limits of working from home, but more commercially, we now know that there are also many things that we cannot accomplish unless we are really physically being together. So what we need to do from now is strike a delicate balance between office working and remote working and bring the benefits of what is real and what is virtual to the next level so that both go together in harmony. That is what compatible work is all about. Each division, it's days when the employees basically go to office, say, 1 or 2 days a week and for the rest of the week, they work from home. The introduction of Compatible Work style is a management decision, which demonstrates our commitment to changing the way we work. I want to touch on the cost saving briefly as well. The introduction of Compatible Work will significantly cut our office-related costs. The office relocation project started with our Hiroshima office moving last November. In January, last month, both Sendai office and Osaka office were relocated to a smaller office space. And in February, our Nagoya office is also moving into a smaller space. Then our Fukuoka office is expected to move in April. And finally, we decided to relocate our Tokyo head office from Ginza Six to Kabukiza Tower in October this year. This office relocation project will eventually reduce our total floor space by 60% and cut our rent by 70%. Now we want to move on to agenda item 3, business reports presented by our respective directors.

Hello. I'm Hideki Sakashita, President and Representative Director of Link and Motivation. I'd like to report on the current business situation of Organizational Development division and our future strategy. First, let's take a look at our product revenues by business. For fiscal 2020, Consulting & Cloud business saw its revenues and gross profit fall 12.1% and 11.9%, respectively, from a year earlier. For Event & Media business as well revenues dropped 24.1% and gross profit slipped 15.1% from the previous year. If we take stock of 2020 for our division, we can sum it up by saying as follows: the COVID-19 pandemic delta tough but temporary blow to our second quarter results. And at the same time, it gave us an opportunity to focus on 2 things to get us back in the game: one is targeting big companies with our Motivation Cloud series; and the other is delivering our training and internship programs online to meet the needs of our customers following the COVID-19 safety protocols. These focused efforts worked well, giving our big company clients more visibility to the situation of their remote working employees and capturing the training and development needs for new staff and managers. And our division's performance has been back on track for growth since the third quarter. Another topic I want to talk about is our growth strategy. We will continue to grow our Consulting & Cloud business to become the dominant player in the field of HR Services business. When it comes to cloud business, we're going to continue to enhance our product and its usability and expand our footprint in more big companies and other leading companies in the nation's regional cities. And our target of the subscription revenue is JPY 230 million by the end of this year. With respect to consulting business, our focus is to provide one-stop services to our clients to fully meet their engagement needs and thereby raise revenue per client going forward. Also, in an attempt to stimulate the market in the long run, we are raising awareness among Japanese companies for human capital disclosure, which is mandatory in the United States. We have created a logo for engagement ratings and are planning to launch more and new initiatives to create the [ stur ] in the industry. Stay tuned to what we are up to and that does it for my business report. Thank you very much.

Hi. I am Takashi Oguri. I'm in charge of Individual Development division. Let me begin my business report by talking about our product revenues by business. Career School business suffered a big decline in both revenue and gross profit from a year earlier, while Cram School business saw a mild slide in revenue and a big jump in gross profit from the previous year. Revenue began to drop precipitously in April and continue to slide. And the recovery we saw in the second half of the year was not strong enough to recoup the earlier losses, and our full year results fell compared with a year earlier. Next, I want to look back and sum up what we have been doing over the last 12 months. The number of enrollees decreased sharply because of the tentative school closures during the months of April and May, when we would normally welcome thousands of new enrollees to our schools. But we immediately transition to online teaching, so we enjoyed a nice rebound in the third quarter and beyond coupled with the rising demand for learning new skills among individuals facing a fragile jobs market today. And to fully grasp this opportunity, we continue to increase and enhance our online course offerings and cut costs so that we firmly get back on track. When it comes to our growth strategy, we will continue to speed up the creation of new models to provide value in a virtual space by leveraging our strengths that we have developed in the real space and forge ahead with our efforts of delivering services that will help individuals improve their true market value. How do we get there exactly? Last year, we officially released i-Company CLUB, which helps individuals create a system in their learning so that they take the learning into their hands. We are now transforming i-Company CLUB into a virtual platform that helps them improve their true market value through providing opportunities to learn new knowledge and skills required for the career that people want to pursue and also leveraging OpenWork expertise to share the database with our Matching division. Our i-Company CLUB will function as a critical mediator between learning individuals and talent-seeking companies. Looking ahead, we remain committed to growth by taking a unique approach that focuses on our expertise in information technology and our personal support services we've delivered over the years. So stay tuned to what we're up to. Thank you very much.

Hello. I'm Hiroyuki Kitsu. I'm going to give you some business updates and the future strategy for Matching division. First of all, I wanted to take a look at our product revenues by business. Global Personnel Placement & Temp Staff business saw its revenue edge up 2.9% and gross profit soared grew 9.9% from a year earlier. Domestic Personnel Placement & Temp Staff business, on the other hand, reported that revenue declined 5.9% and gross profit soared 81.2% from the year before. If I will sum up the past year, I would certainly say that Global Personnel Placement & Temp Staff business has fared reasonably well in part because school summer holidays were cut short to help students catch up for their classes canceled due to the pandemic. And our Domestic Personnel Placement & Temp Staff business saw its gross profit soar as OpenWork joined our group in January last year. It is true that Domestic Personnel Placement & Temp Staff business suffered a temporary drop in both revenue and gross profit because of business closures by our clients at the request of the government, but we managed to get back to recovery in the third quarter and beyond by swiftly changing our client mix. Let me move on to talk about our growth strategy. Setting our Global Personnel Placement & Temp Staff business on a solid track for growth as well as forging a closer alignment with OpenWork are crucially important. And we're going to fully utilize the assets of OpenWork and the data on organizations and individuals that our group possesses. We will increase the size of our data sets for organizations and individuals alike and make our Matching engine stronger and smarter by also leveraging the data that OpenWork possesses. By doing all this, we will further advance true mutual understanding and trust between organizations and individuals to realize what we call engagement matching. So stay tuned to what we are up to, and that's it for my business report. Thank you.

Thank you, my fellow directors. Last but not least, I want to talk about our group's theme for this year. Every year, we set a theme or a keyword, which will guide us all in whatever we do in each division. Last year's theme was transform. This year, it is reborn because we were off to a fresh start as a newly reborn company. Each and every business division is encouraged to do things differently from the way they have always being done. We have renewed our commitment to creating and delivering new value to the communities we serve. So please stay tuned to what we are up to. And that does it for our earnings briefing for fiscal 2020. Thank you very much for watching. [Statements in English on this transcript were spoken by an interpreter present on the live call.]