Nihon M&A Center Holdings Inc. (2127.T) Q2 FY2026 Earnings Call Transcript & Summary

[Audio Gap] [Interpreted] Sales stood at JPY 22.5 billion, and this was an increase year-on-year by 21.5%. Ordinary profit this time was JPY 8.1 billion, and this was up by 43.1%. And as a result, we released an upward revision on our forecast for the first half of October 23. This page shows our progress compared to our whole-year forecast. And as you see, our sales and ordinary profit are almost 50% of our target for the whole year. To talk about the breakdown of sales and so on, I would like to talk about the number of transactions closed and M&A sales per transaction. We closed 488 transactions, up by 7.5% year-on-year. M&A sales transaction was JPY 44.6 million, and this was an increase of 12.6% and part of the factors that led to the increase in M&A sales per transaction is the number of large transactions closed, which was 46 this time, up by 58.6% About the factors that have led to these results, we believe that the fact that we've ensured thorough project management from the start of negotiations through to closure worked well. About the improvement in M&A sales per transaction, we believe that this is a result of providing a company-wide support system through a specialized department, which is the Growth Strategy Development Center. Next page. I would also like to report on the cost of sales and SG&A. As we reported when we released our results for the first quarter, we have done a reclassification of what we record as cost of sales and what we record as SG&A, and this reclassification has been applied since the beginning of the current fiscal year. As a result of the reclassification, the cost of sales declined by 943 million, while the same amount increased in the category of SG&A expenses for the first half of FY 2024. In the first half, our cost of sales was 8.601 billion, and the cost of sales ratio was 38.1%. And at the same time, the previous year was 7.502 billion at 40.4%. And this indicates that, thanks to growth in sales and other factors, our cost-of-sales ratio declined. Of the items included in the cost of sales, our referral fee and outsourcing expenses stood at JPY 3.2 billion this time, and the ratio of that out of sales was 14.2%. Compared to that, the same time last year was JPY 2.562 billion at 13.8%. This indicates a slight increase in the ratio of referral fees out of sales. About our SG&A expenses this time, they were JPY 5.586 billion at this time, at 24.7% out of the sales. And the same for the previous fiscal year was JPY 5.164 billion at 27.8%. So the SG&A expenses amount increased while the ratio of SG&A out of sales declined. Summary of the stand-alone quarter of the second quarter. The summary is as we've written at the top, that the further benefits occurred from the implementation of policies for mid-cap companies, resulting in a significant increase in M&A sales production. To talk about our leading indicators on the next page, about the number of our new sell-side mandates, this was 327, and this is a decrease of 15.9% year-on-year. About the number of new buy-side mandates, that was 388, down by 4%. Below that, the number of new transaction negotiations was 297, down by 4.8%. The reason why we have declined in the number of new mandates, be it sell side or buy side, is a result of our focus we put in Q1 and Q2 on growing sales and the number of transactions we closed. Another factor that I should mention is that to increase the success rate of completing transactions, some sales channels became far structured in screening new mandate opportunities. This means that out of the many more mandates that we could have accommodated, we decided to be more selective and decided to choose the mandates that we believe have a higher ratio, a higher likelihood of getting closed eventually. So we have to have a more thorough or more strict screening process. However, in order to generate solid results in the second half and for the next fiscal year onward, it is necessary that we have a recovery in the new mandate numbers. Therefore, we have launched a campaign that's active this month and the month after, especially targeting young employees or consultants with relatively limited tenure at our company. So they'll acquire more new mandates. Please move on to Page 12. On the balance sheet, total assets stood at 60.520 billion, which was an increase compared to 10x last year. And our net assets this time were 48.341 billion. This was an increase of 752 million compared to the end of the previous fiscal year. The ratio of the net assets this time was 79.9% which was an increase of 2.9% compared to the end of the previous fiscal year. I'll talk about headcount on the page after. In talking about headcount, we first would like to talk about the transition of our headcount in accordance with the new classification we've introduced from the first quarter of the current fiscal year. Then on the right-hand side, we have a table of the different categories of our personnel. The top row says M&A consultants. This is a category that includes our sales representatives at Nihon M&A Center, as well as the sales representatives at our overseas local subsidiaries or local entities. At the end of the second quarter, the number of M&A consultants that came into this category was 640, an increase of only 10 compared to the end of the previous fiscal year. To share with you the breakdown of the net increase in people, during the first half of the fiscal year, 97 people joined our company. However, there was a decrease of 87, which includes 73 people who left our company and 14 people who got classified into other areas because of department shuffling. And as a result, we had a net increase of 10 in M&A consultants. There are people who come into the cost of sales category of M&A support. Who comes to the category of M&A support cost of sales, this includes people at their promotion headquarters, these are people, for example, who are lawyers or CPA, the M&A Deal Dedicated Professionals. Other people who are included in the cost of sales of M&A support are Japan PMI consulting people, people at the TPM division, people at the Corporate Value Laboratory, and the Special People Association. After the reclassification, other people's sites to be classified as SG&A expenses of M&A support. And this page shows our transition of headcount in accordance with the previous classification method. So starting from the current fiscal year, or for the current fiscal year rather, we are releasing the headcount transition and the breakdown in accordance with the previous and the new reclassification or classification method. Before I wrap up my presentation, I will talk about shareholder return and shareholder structure. There is no change to the dividend forecast we have for the current fiscal year. We're still planning to pay JPY 29 per share for the current fiscal year, which is the same as the amount we paid in the previous fiscal year. And this is translated into our dividend payout ratio of 83.6%. Our policy of dividend payout ratio of 60% or more will be continued during the midterm management plan period. And our ROE this time is planned to be 22.9% and our ROE has been progressing over 20%. On the left-hand side of this page shows our share ownership structure. There was a bit of a change to the share ownership structure. The ratio of individuals or individual investors declined slightly, while the ratio of financial institutions and foreign institutions increased. This is the end of the summary of our performance this time.

[Operator Instructions] [Interpreted] To translate the first question from the audience. This is about headcount. The number of consultants decreased in the first quarter. Is this because there are many people who left your company with a tenure of less than 1 year? And what about the transition of the ratio of consultants with tenure of 3 years or longer? And what about the turnover rate this time?

Turnover rate in the second quarter was 18.7% and this 18.7% is a 2.5-point increase compared to the previous turnover rate of 16.2%. About the type of people who have decided to leave our company or who have actually left our company, the main people are the people with limited tenure at our company. As a result, relatively experienced consultants, the kind of consultants who have been with us for more than 3 years, are 45.3% of the total. The same ratio in the second quarter last fiscal year was 40.2%. So the ratio increased by 5.1%. About the fact that we are having more inexperienced people leaving our company, we've been taking action. The action is for our Miyake-san and Takeuchi-san to have periodical communication, bilateral communication with relatively new people at the points of 7 months after or 7 months after and 12 months after joining our company, through holding meetings such as one-on-one meetings and group meetings. When 12 months pass and after a new employee joins our company, we decide to do a review of what to do with the employee, especially for the employees who have not been able to generate good results at that moment. And the options include assigning them to a more appropriate department and assigning more appropriate pauses.

Does anybody have additional question? Since this is a very good opportunity, we welcome and appreciate your questions. But if there are no more questions, then we can close this session early. We've one more question, so we continue. You have explained that the focus of the efforts up to the third quarter is on growing sales and not much on acquiring new mandates. But do you believe that by acquiring more orders from the fourth quarter, you'll be able to convert them into your sales by the end of the next fiscal year?

When we started this fiscal year, we had to lower our budget, and that was the last thing that we could do. So we were desperate when we started out this fiscal year. Accordingly, our focus was on growing sales and on closing as many transactions as possible. As a result, we started to gain bigger confidence from around the middle of the second quarter that we'll be able to close the second quarter or the first half in a very good state. We are not waiting until the fourth quarter to start acquiring more mandates. We've already started to put a bigger focus on new mandates acquisition from August. And this is especially targeting the employees with tenure of no less than 3 years at our company, and targeting these people, we've launched a campaign to acquire at least 3 mandates starting from October, and we are making company-wide movements to acquire more mandates. Therefore, we are hoping to have a new mandate number recovery from the third quarter. Another factor that we should explain is that the way that we've been acquiring new mandates is completely different in nature compared to before, in the sense that, be it buy-side mandates or sell-side mandates, when we acquire new mandates, we decide which mandates to receive and which mandates to rather decline at our sales department and marketing department. And the threshold has become tighter or more careful, and we are being more selective than before in choosing which mandates to receive. At any rate, for the current fiscal year, we're going to strike an even better balance among creating good results for the current fiscal year in terms of sales and closing transactions, but also with creating pipelines, which will be converted into closures in the next fiscal year after.

The next question is, what's the likelihood of achieving the continued double-digit growth going forward, and the likelihood of achieving the forecast you have going forward?

We have an explanation of our midterm plan targets on Page 21 of the presentation material. Of course, we are trying to achieve double-digit growth, but we have minimum must targets that we have to achieve, and they are on this page. Our first focus is on making sure that we will be able to achieve at least 7% to even higher than 10% growth. And also, we will try to exceed these targets.

The next question. Even in the case of recovery in your financial performance, is it safe to assume that the company plans to continue to pay commemorative dividends and other sorts of dividends?

About this, we are going to consider this in our company going forward. It was in the previous fiscal year that we introduced dividends, and that was also at the time when we discontinued the policy of providing shareholder benefits. The reason why we are keeping this dividend guidance for the current fiscal year as well is because we believe that we have not been able to contribute to shareholders in terms of income gain. So, since we believe that we have not been able to sufficiently contribute to shareholders in terms of income gains, we are going to make a decision on whether or not we will continue to pay dividends or not. In making the decision, we're going to take into consideration TSR or total shareholder return.

We welcome additional questions. [Operator Instructions] Since we are receiving no more questions, we're closing this session. And before we close this session, we have a comment from Mr. Naraki, and his comment is going to be on the timing delay that he mentioned at the end of the presentation briefing session yesterday.

This is a topic that the company receives questions about in every presentation briefing, basically. And in the second quarter, the amount of the project that experienced a time lag was worth JPY 150 million. JPY 150 million is far less compared to JPY 560 million experienced in the second quarter last year. Although we have been making our deal progress more complex and complicated than before, including our screening process, we feel that in the second quarter, our sales representatives and consultants have become more mature. And we believe that that's part of the reason why we had limited the amount of the project that we didn't get to close this time. About the changes in the environment that the entire industry is facing, we believe that we have been taking the necessary and appropriate actions. So we would ask investors to count on us to deliver solid results in the second half as well. Thank you very much for being with us through the end today.