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

[Interpreted] Hello, everyone. I am Otsuki, Managing Director of Nihon M&A Center. Thank you very much for taking your time out of your schedule to join our financial results briefing session. According to our original plan, Miyake-san, our President was going to deliver presentation today. However, due to his physical conditions or more specifically, his voice is not really working today. And therefore, I would like to take his place to present together with Naraki-san, our Senior Managing Director. To start with a few words from Miyake-san.

[Interpreted] Hello, everyone -- thank you very much for joining our financial results briefing session today. YouTube fever and my throat is not in good condition. I have sore throat. So, I was planning to deliver presentation myself. But today, Naraki-san are going to present to you on my behalf, but I will be with you till the end of today's session -- thank you. Then a few words from Naraki-san.

[Interpreted] I am Naraki. I am the Senior Managing Director of the company. Thank you for joining -- now I would like to start my explanation on the financial results briefly for the year that just ended. Starting with the purpose of an M&A center holdings that we created last year. The purpose is to connect hosts and dreams for the best M&A experience in Japan and then the world. We got opinions from all employees and we define those opinions as senior management, and we came up with this purpose of reading the best M&A experience ever process. The saves from July and since then, we have been making new progress based on this purpose. Now I would like to talk about the actions taken in FY 2022. Last year, in FY 2022, we implemented the current prevention measures of incidents. For example, we established compliance division in April last year. And also, we hired CCL and Head of Internal Audit Office in July from outside the company. And also, we implemented effective compliance training and education. Also, we introduced our new HR system, including ethical considerations. And also, to enhance compliance -- we have been making a lot of efforts, including the efforts of the sales department. And also for incentives, the previous criteria was based on achieving 100% of the target, but this target was lowered. So, employees can receive incentives even at a lower level. And also the achievement is measured every quarter. And the incentive gap or the incentive level across a quarter was updated to become a better system. And also, we strengthened communication about the newly established [indiscernible] systems. We said that any content of report is welcomed that any computation is welcomed, and we sensitive message to all the employees. And as a result, 2 years ago, -- we already have the resource slowing top line, but we did not receive any reports. However, we received 62 reports in the single year of the last year FY 2022. And we were able to capture more voices from throughout the company. And we have been ready to receive any opinion. In that way, the number of reports started to come down in the fourth quarter, as you can see in the chart. And my second point on the major actions taken last year. It was the measure to recreate the sense of unity among employees. Our company was torn apart with the incident, but our President decided to have dialogues with all the employees in the dialogue activity is called key gen activity. He held 50 of such activities. And every time he discussed with 20 employees, and he held the session for 50 times. For 2050, equals 1,000. He talked with 1,000 people. And also, the company created purpose and philosophy statements. And when there are more than 1,000 employees, what happens is that we realize that each employee has different hobby, different strength and also different areas of strength that comes from their previous experience at a different company. And these are the characteristics that we would not know otherwise, without such special dialogue, but we decided to introduce talent salad, which is our talent management system to connect employees based on their strength and other characteristics. And this has been affected so far. The third action taken is the action towards shareholders. More specifically, we raised our Tier ratio to 60% last year. And -- for the auction, we have been having compliance-centric management. And the last year was the year for the prevention of recurrence. We have the incident and we determined to never have that incident again. We solidified our foundation for that. And for the new year we are targeting to be a trusted company, a step-up from the current prevention to becoming a trusted company. Ali talked about enhanced communication about the retooling hotline. But with this new foundation of the new system, we are going to identify and resolve potential nonconformity at the earliest stage possible. Now I would like to explain on how we did in the previous year. In the year that just ended in March. Year-over-year, we increased in revenue but decline in profit, and we were not able to reach our initial forecast. Achievement rate in sales was 19.4% of the forecast and ordinary profit, 86% of the initial forecast. We apologize profoundly to investors that we were not able to meet expectations [indiscernible] sales -- you can see the sales, JPY 41.3 billion, which is a record high sales, and this was 2.3% higher year-over-year. However, this was 1.6% short of our initial forecast for ordinary profit, JPY 15.4 billion or 91.8% versus the year before. This was 86% of our initial forecast. After transactions closed, 1,050 transactions were load, and this is a record high number. The number of transactions closed is something that we cannot deliver without the strong unity of our employees, and we did extremely well. We did record high on this number. And this number was 105.4% of the year before. Now on to how we did in the fourth quarter. For the fourth quarter, we implemented many measures, and they became successful. Therefore, unlike our usual fourth quarter, we were able to deliver very high growth in profit. For example, sales wise, we had JPY 11.4 billion, which is 187% year-over-year and ordinary profit was JPY 4.4 billion or 352.7% year-over-year. Transaction cost was also record high in the fourth quarter at 296 transactions closed. This was 168.3% of the year before. On the right-hand side, you can see the chart our Group fourth quarter traditionally has been a quarter to feature ourself for the start of the year, year after. Therefore, in a normal year, fourth quarter tends to be a not-so good quarter. According to our track record, but this year compared to the past 3 years, we were able to deliver a very high growth in profit, unlike normal fourth quarter. JPY 11.4 billion sales, JPY 4.4 billion ordinary profit and 296 production flat. Based on this number, you may have -- you may think that we actually took the most advantage of the pipeline that we don't have in pipelines anymore. However, we have sell-side mandates and the number is very high, and we are going to come back to that number later. And also, together with that, we still have a great number of mandates in the plans ahead. For example, we closed many buy-side advisory agreement, meaning that many negotiations are coming in for the first quarter, this new year. And also, what I have just explained is explained on this page. The number of transactions closed in the second half was about 32.2% from the same time a year before. We recovered from the incident, and we now have unique among employees that... For this year ending March 2022, I'd like to talk about the review and the measures. In terms of the number of transactions, as I said earlier, we recorded highest number. However, the M&A sales transaction was lower, and therefore, the sales increased just slightly increased. And the transaction closed, it's 1,050, and it was 105% of the previous year, but the sales was 102% and JPY 41,350,000 million and for reasons because of the increase of the new employees, the value per head went down. And also the transaction value went down as well. And measures included the training and development of the mid-class leaders and a lot of people -- a lot of group leaders who are promoted to general managers and also we created a lot of group leaders. And in order to increase the transaction value, we started the mid-cap programs as well. And it's for the cost of sales because of the completion of COVID-19 situation. And as a result, the consultant started to move around the whole nation. And as a result, in the expenses and the travel expenses increased, -- and also, we have less direct mandates. And as a result, the sales through network mandates increased relative manner. And because of this increase, the cost of networking referral increased compared to the normal years. And as for the measures of that, well, in the past, it consultants, for example, in total visited Hokkaido or Kyushu Island, but we decided to strengthen regional offices. And by that, we can actually cover it seems in Q2 by people in Q2 and cases in Hokkaido by Ocado pipe. So that is the whole purpose to strengthen regional offices. And I'm going to explain this in more detail later, but we are going to strengthen direct strategy. And in terms of SG&A costs, it was 106.5% over the previous year, JPY 8.2 billion, and this was due to the IT expenses increase for operational efficiency. This is IT investment. So of course, we incurred expenses. But for the future outlook, we would have a better productivity. Now we'd like to look at the M&A sales employee as well as lower average transaction value. These are the issues. These were the issues, and we believe there were 4 major causes for that: people, productivity, transaction value and mandates. These were the 4 factors. And I'm going to give you the detailed explanation on each sector. First, people. we had a decreased number of middle-class employees, and we have some negative impact on management M&A center in the past. From the experience, we always set 15 members, or department and that was due to the past experiences. And we always operate in that level like 14.7% or 13 people or 14.7 people. However, in fiscal year 2022 because of the misconduct and the incident, we lost middle management staff and the PA general managers members increased to 22.5 people. And for control purpose and management purpose, it had a negative effect. -- and we couldn't create optimal structure. However, over the past 12 months, we could train the middle management and many group leaders were promoted to general managers, and we also have new group leaders. And over the past 12 months and ending March 2024, we are going to -- we have already completed the correction of the course of the structure. And at the beginning of this fiscal year 2023, we started at the number of 16 members per department. So, we are more getting close to the normal level. And in terms of the productivity, -- we are going to strengthen and build HI development system to improve productivity in the first half because some middle management left the company that definitely happened. However, in the second half, the ratio of turnover showed improvement trend already. In the first half, the turnover rate was 9.7%, but it went down to 6.7% in the second half. That was a 3 percentage point improvement, and it was 16.3% for the full year basis. But for us, we would like to lower this turnover rate to 10% to 12%. - and the training I'm going to explain about this later, but the new members. So, the group leaders and below, we have 4 different layers for training, proper training. In this fiscal year, we introduced the system 2 in 1 mentor system. So those who are less than 3 years of experience will be trained and will be given very efficient development program through this 2-in-1 system. So, it's more like a mentor system. -- and mentor gives guidance and instruction. -- and new graduates should not be concerned and nervous however, it usually takes a long time until they actually get the first M&A deal and some of the new graduate could be concerned and anxious. So, we cover these young employees with less than 3 years of experience. And next point, the transaction value. Because of the drop in number of large transactions, we had a lower average transaction value that we are going to focus on new cap mandates to solve this problem. Last year, because of the misconduct, we couldn't really approach actively to mid-cap companies. So, with the more than JPY 1 billion sales or the profit JPY 550 million companies, which are mid-cap mandates, we couldn't really approach to them. And also, we had up until the second quarter, we had a lot of departures of employees who were working in the mid-cap strategic departments. So, we only had 20 departments. So about 5% by each department and this specialized mid-cap departments and mid-cap is about 20% to 30% of the entire sales, and it had a very big portion of our sales. And in those departments, we had a lot of people who left the company, and that was -- that resulted in the drop in the number of mid-cap mandates. In fiscal year 2022, we had 67 large-scale mandates. Although we had an increased number of transaction closed, the number of large mandates went down and that resulted in the lower transaction value. And on the right-hand side is the planned solution, and we are going to resume have resumed the activity for mid-caps -- and also the content has been upgraded. For example, the President, Mr. Miyake and those who are specialized in mid-cap deals directly get engaged in these activities, and we've already seen bright signs of the outcome and also the regular mid-cap Monday matching meetings are being conducted. And the theme of this upgraded plan is the selection of President. And for factor, that is the reduction of new mandates because we couldn't hold large-scale seminars as well as the DM direct mails. And we reduced the number of direct mails slightly. In 2021, we -- we held a huge conference for 30 years anniversary. But since then, we had to suspend the huge conferences. And also, we used to send a lot of direct mails that we decided to review this approach. And from the perspective of cost reduction, we control the number of direct mails in a constructive manner. And as a result, we had the number of sell-side mandates declined by 3% over the previous year. And in terms of absolute value, it went down by 3%. However, we increased the number through network. So, the selling sell-side mandates increased through network. However, the -- it went down by 15% through direct -- so as a result, we had a declining trend. And as a solution we have finally signed the basic contract for formulation of joint venture with Guoco Financial Group. And we also accelerated the introduction of valuation system, [indiscernible] into financial institutions. And these are the solutions for network, but for direct side, we resumed the large-scale seminars and target is 10,000 participants. -- and we also introduced regional bespoke strategy. And the first one was held in [indiscernible]. We established the local representative office with consultation desk. So, this was the first trial to have this kind of consultation desk. And again, we also have a matrix strategy between region and sector. So, the review of fiscal year 2022 as a summary, and we had to come back from the new conduct situation. That was the extraordinary circumstances in fiscal year 2022. And because of that, we couldn't really have the long enough period to have sales activity with a sense of unity, which usually should start from April. But the third quarter was spent to create -- recreate sense of teamwork. So, the real sales activity started in the second quarter. And also [indiscernible] resumed in November. And as a result, the mid-cap programs were delayed or suspended. And as the third point, we had departures of middle management and then we had disadvantage of mix of HR levels. But these are all extraordinary events or the situation for fiscal year 2022. So, with a new structure, we are going to move forward towards the next -- this year as well as in next year. On to the summary of how we did, and this is exactly as I stated earlier, the increase in revenue but declined in profit. And we fell short of our targets. Balance sheet wise. We maintain a healthy balance sheet. Trends of the number of transactions closed as [indiscernible] M&A Center. For the first time, we reached and exceeded 1,000 mark in the number of transactions closed per year. And the same number for the fourth quarter increased by 58.2% year-over-year. And the sell-side mandates wise for the fourth quarter was up by 10.3% year-over-year. And you can see the number 301 at the bottom on the right corner, and this sell-side mandate is our leading index. This leading indicator was very -- performed very well, and it's picking up, which indicates our good future. And now to the trends of the number of employees, we resumed active recruiting activities since summer last year. And as a result, our headcount increased by 111 people from the end of the previous year. Now on dividend policy and shareholder breakdown -- as to the trends of the dividend per share. The annual dividend of FY 2022 will be JPY 23 as expected or in line with our initial plan. And this would indicate a dividend payout ratio of 77.3% on -- and we expect to continue or keep this JPY 23 level in FY 2023. Now the dividend payment amount and market cap. You can see the trend of the 2 numbers. The 60% dividend payout ratio will remain during the period of the new midterm plan. And dividend amount has been trending quite favorably. As to our market cap, we need to apologize that we have cost inconvenience. It has been down. However, we have new measures planned. And we, we are going to have recovery. We are definitely going to have a recovery in the future. We have just released a plan on our share repurchase plan, its upper limit is JPY 7 billion. It's a share buyback program and total payout ratio will be about 132%, and this is based on plan or forecast, 132% in total payout ratio. In about the buyback plan, the total number of shares that may be purchased will be maximum 10 million shares. And the total purchase amount will be JPY 7 billion at maximum. In purchase period will be from May 1 to June 30 of 2023. -- by implementing this program, the total dividend payment amount will be about JPY 7.6 billion in forecast, indicating payout ratio of 69.2%. And also, total amount of share repurchase is capped at JPY 7 billion. And according to that payout ratio will be 63.6%. The total sales ratio will be about 132% based on this basis. And as to the shareholder mix, foreign shareholders' ownership ratio is 42.7% of our total shareholders. This ratio remains very high. And the number of shareholders -- on the 30th of September last year was 41,339. But as of March 31, 2023, the number of shareholders increased to 62,367 up by about 21,000 new shareholders, and we appreciate this back very much -- now our IR activities. We have a focus on having dialogues with shareholders. And we will continue to do IR activities more actively. The first thing we do is the further completion or enrichment of integrated reports. We started issuing this integrated report in the FY 2022. And in the new year, we plan to publish the Japanese version in the English version at the same time in our plan. The second thing to do as part of our IR activity would be related to the extension of our overseas in road shows, our President will implement his first overseas IR road show. First, he will visit the U.S. in June. New York and San Francisco. And then in November, he will visit Europe. The third in IR activities is to have more comprehensive IR communication through proactive activities. For example, the top management will directly have dialogue with institutional investors. Last year, in FY 2022, we conducted about 400 IR interviews. IR meetings. We had dialogues with many institutional investors. In addition, utilizing our website, we are going to release more disclosure information. The fourth activity plan is to intend the IR department itself. Up until last year, we used to have IR office, but starting from this April, we now have IR department so to have better communication with foreign investors, we have been adding personnel with good English capabilities Fiscal year 2023 forecast and revised midterm management goals Fiscal year 2023 forecast on a consolidated basis. For a full year basis, we estimate a growth in sales and profit in the full year, 40% in the first half and 60% in the second half. This is the same as fiscal year '22 and sales is JPY 44 billion and operating profit and ordinary profit, JPY 17 billion for both and profit attributable to parent company JPY 11 billion. And earnings per share, JPY 33.24. These are the goals forecast for a consolidated basis. And I'd like to talk about the revised midterm management goals need [indiscernible] JPY 3.5 billion had to be achieved in 2026. However, considering the current business situation, we decided to move down the timetable by 2 years. At the beginning, we were to achieve this amount in March 2026. However, we are going to achieve this JPY 30.5 billion in fiscal year 2027. And M&A center made a clear recovery from misconduct last year. However, still, we would like to establish a good foundation to make stable growth. So first, we would like to aim for 10% for 2 years consecutively, and then we would like to go back to the 15% growth trend. So this time, 16.6% and then 16.5% and 20.1%. So, we would like to bring back the growth trend. And this is the revised plan. In order to achieve our targets, higher productivity is indispensable. -- recruitment of excellent people excellent people is our assets. So, we have to recruit excellent talents, and then we train them and using digitalization, we are going to improve the productivity. Using Dx, we will increase productivity and also reduce lead time. As I said earlier, Nihon M&A center has a particular training system. This starts from senior executives to graduates as well as all new recruits. We contact training session at each layer. So, I also received training although I am a senior executive. But the different trainings will be given to different layer, and we have prepared different content of trainings for each layer. And there is no one in our company who hasn't received any type of training and especially this selected new recruits or new recruits and graduates receive the efficient development. And on the right-hand side, these pillars of training plan and they received this training according to our systematic plan to develop these new recruits and new graduates as soon as possible. And this is DX strategy. First, we would put focus to raise awareness so that people would know about us. We use newspapers, magazines, radio, TV commercial, YouTube, lab and social media. We would raise our lens. And then once we are recognized, we create lead the potential customers. So, we use introductions, collaborations, seminars, direct mails, website and e-mail circulars, and that's how we capture these. And once we receive lease, then we would start actual M&A procedures. And in each process, we use digitalization to increase productivity and reduce lead time and to result in better yield. On related businesses for related activities, Battens and TTM IPO support. We continue to have very good results from these 2 businesses. For Batten, the number of transactions closed reached 3,739 -- compared to the year before, the number increased by almost 2,000. Hence, this is supported by user registration number, which have been trending favorably. 85% of all companies around are small companies with under JPY 100 million in turnover, and we are targeting the M&A demand of the such small companies. Now our initiatives around total per market IP also force activities. Last year, we have the record high number in IPO support assignments. Last year, 22 companies have IPO or TPN, and this was the record high number. And of '22, we served and assisted 9 companies IPO. The IPO or TPN, it has becoming more and more active each year. And in the month of April this year alone, there were 4 IPOs, TPM. And of that, we assisted 3 companies. Our aim is to contribute to regional and national rejuvenation with the group of great companies. Now our overseas activities. I have been supervising this overseas activities, and there is a very solid trend recently abroad. For example, the number of transactions closed in, we doubled compared to the year before and [indiscernible] transaction for the transactions between foreign companies has been closed, for example, between Singapore and the U.K. We can close such cross-border transactions now. [ Topics,] as I said earlier, we have signed the basic contract to establish a joint venture with [ Juroku ] Financial Group. On April 6, we had a signing ceremony for basic agreement M&A intermediary company and regional bank created joint venture for the first time to support the M&A work, and we are going to establish the joint venture in the summer of 2023 this year. We are going to strengthen the relationship with regional financial institutions to strongly promote regional rejuvenation. Now the company evaluation system, and we are going to accelerate the adoption of this system at financial institutions. The Compass is a system to use comparable transaction methodology. Starting generally last year, we started using introducing of this system from Bank of Okinawa, and we now have 5 users. And currently, more banks are evaluating, assessing the adoption. And we are going to expand the users. And we have resumed in the full-face manner, the programs for accounting firms because of COVID-19, we couldn't hold International conference. But in this year, we hosted in Sydney for the first time in 3 years. And the accounting firms resumed their activities fully. And we are going to have a nationwide symposium for accounting firms. And we are going to have more than 1,000 accounting firms on our network, and we are going to strengthen the network of this and would like to expand the network even further. With this, I would like to wrap up my presentation. Thank you very much for your attention. Now we would like to take your questions.

[Operator Instructions] [Interpreted] Thank you very much for your presentation. Now we will move on to Q&A session, and we accept your questions using chat function. And due to time restrictions, we may not be able to go through all of your questions and provide answers today. Please understand. Now please let us move on to the first question for today. Please share the details about your measures to increase new direct mandates replacing direct mail activity.

[Interpreted] Thank you for this question. This is about the new measure to increase new direct mandates, which is not changed through the or direct mail activities. I will take this question. This is a page that we covered earlier. On the right-hand side, you can see the planned solution. And under the direct section, we talk about this initiative. And there are 3 points raised here, but -- of the 3, we have a particular focus on similar because our direct activities started from holding seminars. So, the important point was the resumption of the large seminars and with the target of getting 10,000 participants. But of course, we would like even more people to join this seminar and to know and understand the importance of M&A. And this will be translated into the future increase in the new direct numbers.

[Interpreted] Next question, with the increase of ad and promotion cost because of 3D commercial, the ordinary profit will be squeezed even further... Mr. Muraki, please.

[Interpreted] I am Meraki. I'm going to answer to that question. We actually TV commercials are possibly costly. However, in our case, we do not invest a great deal of investment to make a TV commercial. We usually make an experimental trial in regional cities. And looking at the results as well as the progress of our sales, we usually gradually place TV commercial. So, it is expensive, but it would not squeeze or pressurize our ordinary profit. And we will make sure that this wouldn't happen by having TV commercials.

[Interpreted] Now the next question -- the next question is about the reason why the company has not been able to do share back the buyback earlier with more than a year's time since the incident.

[Interpreted] Let me address this question. share buyback or share repurchase, there are 3 important objectives for doing the share repurchase. First one, the important point is that there is no insider information. To prevent recurrence, we identified all the issues we had, and we created and implemented recurrent prevention measures. And now there is no more insider information left. The second point we would like to commit to our future. Now we have a better structure in place. We just need to implement based on the better structure. And we are going to definitely achieve on our midterm business plan. And compared to this target, we know that our current share price is low or undertone. And one more point is the return to our shareholders -- we would like to return our profit to shareholders, partially because our share price is lower now. Then as to why now, why not earlier? About the timing, as our company, -- for the share repurchase, we have been considering about -- we have considered about the share repurchase from earlier. About a year ago, we were really going to do share buyback. We had a serious discussion on the buyback. And in a strict sense, it was not an insider information, but there was the incident and we wanted to solidify our foothold and we wanted to make sure that we are fully careful. So, the incident information was not strictly in [indiscernible] information, but we decided that it will be better to refrain from making share repurchase. That was the decision made earlier. That is the reason why we did not implement share repurchase earlier and we became insider information free in August last year. However, share repurchase in August last year. for that plan, the timing was not huge because other companies, including competitors did share repurchase earlier. So, we thought that the August was too late. Although we became free of insider information only in August, but it was a bit late. That's the reason why we decided to have an implement share repurchase this time.

[Interpreted] Next question, what is the biggest issue for management at this time? And what is the countermeasures to that?

[Interpreted] For this question, I would like to answer. So, the questions at management, but I'd like to think about how we manage the company. So, the value per person has to be increased. And for that, we have to train the human resources to increase the productivity and value, and we would like to continue doing that. And for the expenses cost, we are going to control properly. And the sense of unity among employees. In the first quarter of last year, we conducted [indiscernible] in the latter half of the year, not Mr. Miyake but other leadership had vision meetings with each individual employees to talk about their careers and lives. And furthermore, in October last year. So that was the announcement of the latter half management policy announcement and everybody gathered and people national staff from 5 countries of overseas markets who couldn't really come due to Covid even participated. And in January, we had the gathering for New Year meetings and with all employees participant, and we could really establish a sense of unity and we really set the vector among all the employees. And in terms of the ratio between indirect and direct employees is another issue that we would like to work on.

[Interpreted] Now the next question, what was most needed for the creation of the sense of unity among employees.

[Interpreted] I would like to answer these questions. to have sense of unity among employees. It is important that we share a big picture of the future we would like to have. And based on these thoughts, our senior management always talks about the future, communicate this to our employees and make sure that we can deliver on that. And this has become the basis of the creation of the sense of Unity. And teaching activity was conducted by our President and created opportunities for all employees to have dialogue with them.

[Interpreted] I would like to add some comments to this. to have United employees is a is the most important because without opportunity, we cannot improve our business performance. And when our business performance is not good, we cannot grow. And when we do not grow, our share price does not grow. And we would have this negative circle. So, the starting point is the United employees. Therefore, this question is something that is very important for us to consider. And what is -- what was the most needed increase in the sense of Unity, I would say, is to have a recovery from the sentiment of the employees that would turn a part. And the word core is related to the incident. So, the content options, responsibilities related to the incident -- there were some misunderstanding and on some assumptions, which were not necessarily true among employees. And there were rumors about this content. They were misunderstanding among employees. So, we faced our employees. We had direct dialogue with employees, and we made sure to communicate what kind of company we would like to be. And that's how we solidified our basis. The second most important is to have that -- is to share the same value. And this is supported by the purpose and philosophy that we created last year. And purpose and philosophy was thoroughly trained internally. Through trainings and others, we started to generate the sense of Unity. For example, for purpose, this water bottle is something that we use to our clients, but this pet bottle also has this message of reading the best M&A experience ever closer. In this state, we made sure to communicate our values -- and then the next deal we need to do is to make sure we have the same vectors, so we can reach where we would like to be in 3 to 5 years' time. And for that, we have division meetings involving all employees last year. And through this vision meeting, we now share the same vector for the future of 3 to 5 years away from now. And that has led to a large increase in the number of transactions closed in the fourth quarter. This is thanks to the generated sense of Unity.

[Interpreted] Next question. Please share with us the value amount of outstanding landed at the end of third quarter and fourth quarter.

[Interpreted] I'm going to answer that question. At the end of March, the outstanding, it was about INR 1,820 -- and at the end of fourth quarter, the mandates was about 1,850 mandates...

[Interpreted] The next question, will the change of incentive scheme leads to increase in cost from the near year onward? Senior Managing Director, Nora will address this question.

[Interpreted] This is a good point from 100 to 0 ratio 80% to 20% ratio. The incentive scheme has changed so that the employees can receive incentives even when they achieve, let's say, 80% of the target instead of 100, which was the previous threshold. So, it may be true that we would have some increase in cost. However, compared to the actual results rather, the incentive will be paid out based on the gap versus some threshold. So, the incentive will be paid out only for the excess portion. So, for this reason, we do not believe that this change in incentive scheme will not immediately lead to the significant increase in costs. Because when incentive increases intended take increases, our performance would have increased accordingly.

[Interpreted] The next question. Your competitors seem to strengthen their recruitment. And it seems your improvement is smoothly done. Is there any changes in terms of recruitment environment such as background of your recruits?

[Interpreted] In terms of the background of recruits, I don't see any significant change. So, from different industries, we are able to hire people on a balanced basis. And joining MN center seem to -- from different industries seem to create value inside of the company, and we believe that would serve as our strength.

[Interpreted] The next question, could you tell us the reason why the new year's plan is backloaded? And is there a reason why the first half that you expected to experience a decline in revenue and profits for the new year, -- we have the group momentum in the fourth quarter last year, and we have confidence that we can keep this momentum for the new year. However Earlier, we showed you our new organizational structure, and we now have many new general managers as well as many new group leaders. Therefore, in the first half, there will be some adjustments needed for the new general managers and year group leaders, they need some time until they get accustomed to the new position.

[Interpreted] However, we are confident that we can achieve our annual plan, but we decided to be conservative to present 40%, 60% ratio between first and the second half. Last year, in the year before, we made a promise and we failed to deliver on the promise. And this is something that we should take seriously. And there is no thought failure to deliver on the promise. So, this new year, we are definitely going to achieve our annual target.

[Interpreted] next question, what are the prerequisites or assumption for the increased number of transactions and average transaction value for this year.

[Interpreted] I'm going to answer to this question. The number of transactions last year, it exceeded 1,000 and recorded record high. And continuously, we would like to keep this trend. So, for this fiscal year, 1,200 transactions is estimated. And for average transaction value should be increased accordingly. So. we are going to focus on the number of transactions so that we can make a record high number again.

[Interpreted] The next question, how much room for cost reduction do you have if you fail to meet sales target?

[Interpreted] Mr. Naraki will answer this question. So, I will answer this question. For last year, we made a mistake and we did fundamental analysis on the word code, et cetera, and we have been taking action. As to cost sales, et cetera, labor costs and travel expenses are the focal point, and we have been doing recruiting activities in plan or as planned, but it's important to improve productivity based on per head level. And therefore, after recruiting new people, it's important that we implement thorough training so they can lead good results after joining us. And also appropriate assignment of personnel would be important in improving per-head productivity. And as to travel expenses compared to -- or rather from the start of this fiscal year for each area for each side of sell-side buy-side, plans we decided for that unnecessary business trouble will not be made this year. And after SG&A, which includes labor costs, SG&A basically includes the people who are at the [indiscernible] administrative work. front office, not office, back office, we will make sure to have the appropriate balance among the 3, we will cut costs where we can this year to reach optimum balance. That's our strategy for the year. And also as to TVC and IT cost, throughout the year, we will continue to review our progress throughout the year. So, we will manage our progress versus plan. So, we will be able to reduce cost in line with our sales progress.

[Interpreted] The next question, who are the members to formulate the midterm business term? Who is held accountable for the achievement -- the current midterm business plan was created by the members of Management Committee. M&A center management committee has Board members, President Directors and this fiscal year's candidates for directors and Audit as well as independent counsel lawyer. So, these members of management committee formulated the midterm business term. And the next question who is responsible for the achievement.

[Interpreted] Members of the management committee created this as a group. So, everybody is responsible. But if we dare to select one person, it will be Mr. Miyake, the President.

[Interpreted] Let me add a few words to that. At this time, the management committee is conducted very smoothly. -- unlike the past meetings, we are having very fruitful substantial discussion at the meetings. And of course, the current midterm plan structure itself was considered by Takeuchi and will be responsible by Takeuchi, who is in charge of strategy, corporate strategy and sales... Growth... For the sales growth, [ Mr. Suzuki ], the head of sales headquarters is responsible. However, even if we have better sales, if we have extraordinary increase in cost, we can increase ordinary profit, so PL and cost will be taken care of by Mr. Naraki. So, these 3 people would control these factors. And of course, I would be the person to be responsible to achieve the midterm business plan.

[Interpreted] The next question, when will we hit the bone and recover in per head sales, which have been declining with stronger hiring activities, both for new graduates and midcareer people.

[Interpreted] As we said earlier, birthed sales for productivity should increase. And we have been doing many actions -- taking many actions -- after earliest, we would like to recover by the end of this year or we must recover by the end of this year.

[interpreted] The next question, please give us updates on your overseas business?

[Interpreted] I would like to answer to that question. Our overseas business is out in countries and in out is Japanese companies purchase and overseas company self. And in fiscal year 2022 last year, since last year, we created 5-year midterm business plan. And in the first year, JPY 1 billion was set. And in the last year, in fiscal year '16, we are going to achieve JPY 5.6 billion. And last year, for 12 months, we worked for the first year, and we achieved JPY 1 billion target. We have 5 offices in Singapore, Malaysia, Vietnam, these are local entity. And in Thailand and Indonesia, we have experts offices. But for overseas business, we see a very smooth and steady growth.

[Interpreted] The next question, what's the plan or estimate of large mentor large transactions this year compared to 67 the previous year. Is it going to increase from $67 million -- compared to 67 large transactions closed in FY '22.

[Interpreted] We are going to increase average transaction value, and we have been taking actions for that conclusion, we plan to increase in the number of large transactions closed from 67% in FY 2022, 80% is our plan for the new year.

[Interpreted] I would like to add some comments. A is the target for the new year. We reduced mid-cap targeting activities from November. And from a we are going to enhance such activities further. I will take initiatives, and I have been preparing for the enhanced vision -- very outstanding mid-cap transactions have been acquired already. A few of them, not just one. However, we need to wait until the start of the second half of the year to see more tangible results because mid-cap transactions tend to take time until we receive mandates. So far, our progress has been quite steady. In this fiscal year, transaction closure or sales, we think -- I think that there is going to be a concrete contribution to these 2 numbers this year.

[Interpreted] The next question, as regional banks and partners try to diversify their earnings sources, do you see changes in the number of introduced mandates and size of transaction? Any change or move to internal M&A procedures at regional banks and partners. What do you think is happening in the industry in 5 years' time?

[Interpreted] I'm going to answer that question. So, the regional banks and the partners, yes, the question was that there is any change in the size and the number of introduced cases. Well, compared to the past, regional banks, it has become very active in M&A transactions in regional cities, they are selling companies or selling companies owners. Of course, there was a need reason. However, it became more obvious. So, when the number of transactions increase, of course, the size, power transaction is smaller, becomes smaller. That's what people say, generally speaking. And any internal M&A move at regional banks and partners. And of course, the internalized M&A is happening. However, the only thing I can say is that as I mean scenario, in regional cities, the number of M&As is increasing in reasonable cities and especially the regional banks -- when I talk to the executives of regional banks, I often hear that in the past, the number of transactions were limited. So, they could actually cope with that. And even before that, there was no transaction. So, they wanted to work with Japan M&A. And as a result of that collaboration, they came to have some transactions. So, they try to internalize the procedures of M&A transactions. However, when the needs become more obvious and increase, then they can't really cope with the volume than the original banks, of course, cultivate new transactions. And once they calculate new transactions, they have to complete the transaction. So, they come to us to partner so that they can accommodate the needs and the volume. And there are a lot of regional banks like that, and we are making a very good relationship with such regional banks and financial institutions.

[Interpreted] And the third question is what is the industry environment in 5 years' time.

[Interpreted] I think this is about M&A industry as a whole. Well, still, in Japan, there are a lot of companies who are lacking successes and M&A market itself has a huge room for further growth. And at M&A boutiques, there are about 300 or 400 M&A boutiques. Every year, M&A intermediary companies are established. But I never heard that they go bankruptcy. Usually, the first year -- from the first year, they -- these new companies make profit. And I think this trend will continue for a while. And in the post-COVID-19, the buyer companies are more willing to purchase other companies to grow further, and that's the trend. And at the same time, the sellers -- of course, during the COVID-19, they were desperate to just survive, but once the situation becomes better, they started to consider what the future will be. And they usually think that there will be a lot of owners who think that they have to do something they can't really survive as they are now. And some owners even think that they would like to go under the umbrella of bigger companies. So, M&A market and M&A industry situation should prosper even further. And let me add a few words to that. Regional banks and partners, internalization and M&A. I can say that there is a shift from internalization to collaboration. 20 years ago, regional banks usually outsourced all the procedures or processes to intermediary company. However, these days, they started sending stuff to us to learn know-how and some regional banks started to internalize M&A transaction. However, in the future, I believe that it will be a new partnership between [indiscernible] and us -- there are 2 reasons for that. One is that recently at the head of the regional bank of Tohoku area, and I had a discussion, and there were 1,200 companies had to close their business because of the lack of successes. However, of that 600 companies were profitable. That was what he said. And of that 600 companies, the probably 10 -- only 10 or 20 companies could have been saved by only Hughes bank. So, in order to increase this number to number of companies to be saved, he said that he has to -- the regional banks has to work closely together with us. And the second reason IB investment banks. The professional for M&A, numeral securities, value securities and MUFG. They always treated M&A transactions internally. However, they have to accommodate more needs -- and they realize that they can't really cover all the needs and they have started working together with partners. And I think this is a very strong and obvious trend for the future. Major securities as well as mega banks are following this approach. So of course, I believe that regional banks will follow the same trend. And the Juroku Bank was at the front end, and that's the company or bank with which we are going to establish joint venture.

[Interpreted] The next question, any change in the environment and sentiment among sell-side and buy-side companies.

[Interpreted] I would like to answer this question. This partially overlaps with what we said earlier. But as to the change in the environment and sentiment as for buy-side companies for them to continue to grow on their own without acquisitions remains very difficult in Japan. And therefore, M&A can be a very good revenue to secure growth. Therefore, the environment on the side of the market companies is that the demand has been still robust. And as to sales by companies, previously, it was because of the lack of successors that they decided to view M&A in many cases. However, it started to be different now that the growth-oriented M&A to be part of a larger company, this is the growing case among sell-side company. So, the key word here is growth. And especially, sale-side company owners who would like to grow growth rate and how the sell-side companies can grow is really acquisition. These are the points that they put a focus in deciding the partner cousin partner. So, these tend to be frequently or sometimes asked questions by the sell-side owners. And recently, not just the business companies, but sometimes, it becomes a farm that acquires sell-side companies. The previous traditional impression about farms have been not so good that there are some funds who do acquisitions for that of near purpose of taking profit. However, the recent private equity funds, they now think of just the growth of the company. So young owners, we decided to stay in the company and in partner with the farms even after the acquisition. So, the growth-oriented M&A number has been increasing recently.

[Interpreted] Next question. The Board member, highly trusted by employees left the company. I understand he reported the incident and worked very hard. Do you have any initiative to prevent management from leading the company.

[Interpreted] Some people take this view, but the Board member, highly transit by employees left the company. I think this means Mr. Watanabe. He did not leave the company in such a negative manner. I know him from the new graduate period, and we have a common hobby and I am very close to him even in the leisure time. And so, Mr. Watanabe, -- he had his own career, his life plan. And he was right before 40 years old. And he wanted to realize his dream for his life. So, he's leading did not happen in a negative way. And I still talk to him even after he left the company. So please understand that situation is not negative.

[Interpreted] The next question, planned transactions close -- to be closed this year is 1,200, and plant sales is JPY 44 billion, and these numbers indicate lower-than-expected average transaction value. Is this assumption correct?

[Interpreted] If you do the math, you would be correct that the -- you may think that we earlier said, we are planning to increase average transaction value, which may sound opposite based on the math of these 2 numbers, but please understand that our plan is very conservative. Average transaction value wise, of course, we want to improve it, and we plan to increase it. So please understand that it's just because our plan is conservative. But in reality, -- not by an increase in the number of transactions and other factors, we would like to perform better next year for the new year.

[Interpreted] The next question, the reinforced compliance doesn't this limit active sales activity. I'm going to answer that question. We reinforced compliance whether this limits the sales activity.

[Interpreted] Well, compliance and sales activity do not contradict with each other, we can conduct them pursue them simultaneously. And when we talk to the employees, asking the same question. However, there is no feedback that their sales activity has been limited. Rather the feedback include that their sales activity based on their compliance is better, they can draw lines more clearly when they conduct sales activity. So, they say that within the framework of rules and cold, they can conduct sales activities. So, they can be more active in these activities.

[Interpreted] The next question, do you feel that the [indiscernible] system has been working effectively? And how much time is needed on to that starts to be quite visible.

[Interpreted] This is this 2-in-1 system is a system that we have just started implementing on a full scale from this year. From the standpoint of the employees who have just entered our company, they well, you know that it takes time until new employees can start to generate good results, for example, closing transactions. So, they should be quite counties at the beginning. That's why we have an entire system in placement to support system in place to provide mental relief and also the bot and senior people can provide education thoroughly. And this is a new system that just started from April -- it is less than a month since that stops. So, we cannot say that we have started to see tangible results. But we know and we have -- we have seen the signs that it's going to be effective.

[Interpreted] The next question, on Page 29, the year ending March 25 is expected to have 10% growth in revenues. However, why can't you go back to the level of 15% just after March 2026. Mr. Naraki, could you answer to this question?

[Interpreted] The basic structure of midterm plan is that we create recruitment plan that could be achieved. And based on that, we calculated top line based on the calculation multiplied by the ahead sales. And ahead sales, looking at the past trend, we are taking a conservative view and achievable view because this is a revised plan. And as a result, the current plan was formulated. Thank you.

[Interpreted] We are sorry. But because of the time constraint, the next one will be the last question. How much can the lead time be shortened through the strategy, the lead time on 2 closure of transaction?

[Interpreted] At present, at Nihon M&A center from the receiving mandates to transaction closure, 10-month time is needed currently at our company. But in sourcing and creating mandates up until then, currently 70 days are needed, but this will be to 30 days. In addition, we're matching systems such as compact, Encompass and other systems, we will show the lead time through the usage of such systems, but we have not specifically decided the target on the lead time, but we would like to shorten the lead time. Additional information. On a total basis, currently, it takes 10 months and reducing this to 7 months with a reduction of 3 months. This is my target. But it's on the premise that we do not lower quality. And at the same time, we would like to improve return. These are the basis of reduction of lead time to 7 months from 10 months. When the company is quite stiff and not flexible when people see our thinking is not flexible. It is generally said that the company tends to be suffering from large companies to ease. And I believe this is what's happening at our company. So, we would rather like to be able to make more flexible proposals. We also would like to implement more D strategy to reduce the lead time from 10 to 7 months and in the first half of this fiscal year, we would like to reach this 7 months.

[Interpreted] Thank you very much for staying with us to the end of this session, and thank you for giving us your time for this session. Our senior management and all of our employees will do our best for this year. We would like to continue to ask for your continued support. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]