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

I am Yoshihisa Ozasa, Chairman and Representative Director of Link and Motivation Inc. I would like to start my presentation on the consolidated financial information for the fiscal year ended December 31, 2021. This is the agenda for today. I will first give you the company overview, followed by the summary of the results for the group for 2021 with report of the consolidated financial results and a report on the status of the organization which we update every 6 months. I will then disclose the financial forecast for 2022 and then present the growth strategies centered on the Organizational Development Division. I would like to start with the overview of our business. This is the operating structure of Link and Motivation. The mission of the company is, "Through motivation engineering, we provide opportunities to transform organizations and individuals and create a more meaningful society." On the right are the 3 divisions of our company. First, the Organizational Development Division, top left, which supports creating organizations that individuals choose, in other words, B2B business that support creating motivation companies. This division operates, one, consulting and cloud service; and two, offer event and media production solutions. Secondly, top right, the Individual Development Division supports creating individuals that organizations choose as, in the new era, individuals need to exercise independence to establish one's self as managers of their own i-Companies to pave the path forward in their careers and lives. This division operates Career School business, three; and Cram School business, four. And thirdly, Matching Division, which provides opportunities to link companies with individuals that is our companies, offering Global Personnel Placement & Temp Staff business, five; and Domestic Personnel Placement & Temp Staff business, six. In addition to the 3 divisions, we offer venture incubation service which offers capital and organizational support for venture companies on the road to stock listing. Please read the note, bottom left. The domestic temp staff business in the Matching Division was transferred on January 1, 2022. This announcement of financial results discloses figures excluded from the scope of consolidation due to the application of International Financial Reporting Standards. I hope to have your understanding. Now the group summary for 2021. First, report on the consolidated financial results. Revenues were up 6% year-on-year to JPY 32.644 billion. Adjusted operating income and the operating income increased substantially year-on-year. Adjusted operating income was up 50.9% year-on-year and operating income up 140.2%. Due to growth centered on the Organizational Development Division, all items exceeded previous year's results and achieved our earnings target. This slide shows the results and year-on-year changes of the revenues and gross profit by segment. The Organizational Development Division contributed to improved profit group-wide through the growth of the Consulting & Cloud business, with revenues increasing 9% year-on-year and gross profit up 10.4%. In the Individual Development Division, revenues grew substantially due to strong sales of DX, digital transformation support for cooperations in the Korea school business, with revenues increasing 11% year-on-year and gross profit increasing 36.9% year-on-year. In the Matching Division, the Global Personnel Placement & Temp Staff business continued to grow steadily. This slide shows SG&A expenses. Although there are irregularities with items, through decisive cost reforms implemented, overall, we have completed laying the groundwork for robust management. Total SG&A expenses increased 4.5% year-on-year. This is our consolidated balance sheet. Assets and liabilities decreased substantially due to decreases in right-of-use assets and lease liabilities as a result of head office relocation as well as a decrease in borrowings. Equity increased due to the disposition of treasury stock for a sounder financial structure. The reference equity ratio came to 28.8%, transforming to a healthier financial structure. Next, our dividends. We will continue to pay dividends quarterly with dividend of JPY 1.9 per share scheduled to be paid on Friday, March 25. Next, I would like to report on the organizational status. We believe it is critical for companies to adapt to the labor market as well as to the product market. Therefore, we use what we call the engagement score, ES, to measure the degree of adaptation to the labor market as nonfinancial information, in addition to our financial information that is profit and loss income statements and balance sheets, which measure adaptation to the product market as managerial indicators. Link and Motivation discloses its engagement rating, ER, as an indicator showing company's level of employee engagement with mutual understanding, empathy and commitment between the company and its employees. It consists of engagement scores shown on the left, using data of 2.37 million employees of 8,740 companies to calculate the deviation, showing expectations and satisfaction of employees. This engagement score gives you the engagement breaking shown on the right, ranked on 11 levels. Out of the 11 group companies, 9 were rated AAA, showing our group's high engagement status continuing to be maintained. Next, I would like to explain the financial forecast for 2022. From 2020 to 2021, we implemented business and cost restructuring. In 2022, we expect significant growth centered on the Organizational Development Division and forecast record-high operating income. The forecast is for revenue to increase 7.2% year-on-year to JPY 35 billion, adjusted operating income to increase 43.1% to JPY 4.5 billion, operating income to increase 93.6% to JPY 4 billion and net income to increase 115.6% to JPY 2.2 billion. We expect substantial growth centered on the Consulting & Cloud business in the Organizational Development Division. In the Individual Development Division and Matching Division, expansion will center on growth businesses that have strong synergies with the Organization Development. The Organization Development Division, which recorded high growth rate of approximately 15.5% year-on-year this fiscal year, is a driver of growth for the entire group. On the left is a change in the gross profit by division. We expect all the divisions to increase gross profit, but the largest will be generated by the Organizational Development Division. The pie chart on the right shows the ratio of the gross profit by division, showing Organizational Development Division making up close to 50% of the total gross profit. Next, growth strategy centers on the Organizational Development Division. Shrinking labor force is one of the environmental changes surrounding organizations and individuals. Due to the declining birth rate and the aging population, Japan's working population is declining at the fastest rate in the world, requiring further promotion of women's active participation, the necessity of promoting nighttime workers, and sometimes foreign workers is also expected to increase. How to increase labor productivity as a whole is a national issue. As an economy becomes more prosperous, the purpose of work shifts to be rewarding and fulfilling and people change jobs more frequently. The graph on the left shows that close to 40% of the new hires say that the purpose of working is because they want to enjoy life, showing an increase from 2000. As for seniors, aged 70 and over, 27.1% of the respondents say they work to get fulfillment. So the motivation to work is becoming more diversified, not just simply to eat or to earn. We see liquidation of the labor market as well. With these dramatic changes in the environment, the management issues of companies are changing as well. In a survey in 2003, personnel system and employee treatment was ranked eighth as a management issue. But last year, in 2021, strengthening human resources was ranked second. In 2021, we also asked what they foresee as a management issue in 3 years' time, and strengthening human resources ranked first. From these results, we can see that the importance of HR development and improvement of employee engagement are set to increase in importance further to become key managerial challenges going forward. Therefore, we are rapidly providing essential value through a highly effective practical and reproducible cycle of diagnosis and transformation with speed based on motivation engineering, our core technology. For diagnosis, we have an overwhelming amount of accumulated data: the organizational diagnosis and engagement survey data of 2.37 million people from 8,740 companies. We work based on the score calculated and issues that surfaced, supporting transformation of companies. The main area of transformation includes recruiting strategy or human resource development, training systems and evaluation and remuneration systems. And fourth is the organizational climate. We are the only company that can provide one-stop solution. Our customer assets and accumulated know-how resulted in achieving a number of customers of 2,200 companies. And in 2016, we launched Motivation Cloud and, with it, realizing improved employee engagement for a wide-ranging customers. The share of sales of Motivation Cloud has been #1 in Japan for 4 years in a row at 52.8% of the market. The employee engagement market using HR tech is a niche market of less than JPY 10 billion but is expected to grow into a JPY 30 billion to JPY 50 billion market, and we would like to lead the market further as a pioneer. Based on our advantage of being able to support both diagnosis and transformation, we will continue working for further adaptation at major companies. These are just part of the companies which gave us permission to show their company logos. We will also aim for global rollout with offerings in different foreign languages. The number stands at 13 currently, but the plan is to increase the number of languages going forward. Next is our plan to launch new cloud series. To enhance our human resource development services, we plan to launch a new cloud series in addition to our shift to online training which was implemented last year. With the shift to online training, the sales for training service grew approximately 12% from 2019, reflecting realization of training efficiency and expansion. In addition, as we have know-how and database accumulated since the establishment of the company, in the second half of 2022, sometime after June, we will make additions to the series of cloud services for HR development. If we position Motivation Cloud to be diagnosis of the organization, HR Development Cloud will be more for a diagnosis of the individual. This will be a subscription-based service, which is expected to make huge contribution to increasing monthly fee revenue. We will aim to maximize the effectiveness of the trainings offered. In addition to the growth of Motivation Cloud, the new cloud service will also be contributing to results by the end of December 2022. This unprecedented growth will contribute significantly to building up a base of subscribers as we enter 2023 and beyond. The outlook of monthly fee revenue as of fourth quarter of 2022 stands at JPY 320 million, which would come to a rapid growth of 33% year-on-year. This is my last slide. These 3 divisions make up our company. And in coordination with the Organizational Development Division, the divisions will grow further. For example, coordination between Individual Development Division and Organizational Development Division lead to increased DX or digital transformation support for individuals of companies for which we are receiving a lot of inquiries. In that sense, the Individual Development Division, mainly focusing on B2C, by expanding business for companies and utilizing customer assets of Organizational Development Division, can expect further growth in the B2B business. In the Matching Division, there are open works, the viral sites or word-of-mouth information offering websites for job changes and finding employment, an area in which we are strengthening to directly match individuals with companies to promote direct hiring. By utilizing customer assets of the Organizational Development Division, we are seeing rapid increases in the number of companies looking for hiring. And I feel confident that collaboration among the divisions will be more fruitful going forward. Our Venture Incubation business was on hold for a while. But from this year, we are planning to revitalize it by finding good quality assets. So please keep an eye on the progress of each divisions going forward and the Venture Incubation business as well. I'm sorry to be lengthening my explanation. But with that, I would like to close the financial results presentation for the year ending December 2021 for Link and Motivation. Thank you for your attention.