Link and Motivation Inc

TSE:2170

Earnings Call Transcript 2020-Q1

[Yoshihisa Ozasa, executive]

I am Ozasa, Chairman and Representative Director of Link and Motivation. I will start earnings presentation for the first quarter of 2020. Here is today's agenda: firstly, company overview; secondly, business report for the first quarter; thirdly, conditions and outlook by division; and fourthly, forecast of financial results and dividends.

Firstly, I will give you a company overview. This page shows operating structure of our group, as shown in the 3 circles: Organizational Development Division, that provides support for creating organizations that individuals choose; Individual Development Division, that provides support for creating individuals that organizations choose; Matching Division, connecting the 2 businesses; and venture incubation. That is the operating structure of our company.

Some businesses have been renamed in light of the addition of OpenWork Inc. to the scope of consolidation in the first quarter of 2020 and the changing product composition of the businesses. In Organizational Development Division, due to significantly increased proportion of cloud businesses, Consulting & Outsourcing business has been renamed Consulting & Cloud business. Matching Division was divided into ALT Placement business and Personnel Placement & Temp Staff business. Due to addition of OpenWork Inc. to the group, we decided to divide the division into Global Personnel Placement & Temp Staff business and Domestic Personnel Placement & Temp Staff business.

Let me move on to the second item, business report, consolidated result for the first quarter. Revenues increased slightly by 1.7% year-on-year. Operating income increased substantially by 44.4% year-on-year. Net income increased substantially by 104.1% year-on-year. In the first half of the first quarter, we got off to a very good start and made progress. Despite difficulty due to the impact of COVID-19 pandemic from the latter half of the first quarter, each business steadily accumulated results for increases compared with the same period a year earlier.

This page shows consolidated SG&A expenses. Total SG&A expenses increased substantially by 10.1% year-on-year. Overall increase was due to the addition of OpenWork Inc. to the scope of consolidation in the first quarter.

This page shows consolidated balance sheet. Assets increased by JPY 1.020 billion year-on-year due to the increase in goodwill from the acquisition of OpenWork Inc. and other factors. Liabilities increased slightly by JPY 186 million due to an increase in borrowings, et cetera. Equity increased by JPY 834 million due to the addition of OpenWork Inc. and recording of net income.

This page shows year-on-year change of revenues and gross profit by segment. In Organizational Development Division, revenues and gross profit both decreased slightly year-on-year. Revenues decreased 2.5% and gross profit decreased 1.4%. In Individual Development Division, revenues decreased slightly by 3.6% and gross profit increased slightly by 2.4% year-on-year. In Matching Division, revenues increased by 5.6% and gross profit increased substantially by 35.5% year-on-year.

I'll move on to the third item, conditions and outlook by division. This page shows business KPIs by segment. As we changed business categorization slightly this time, please note that we also changed KPI slightly. For Organizational Development Division, in Consulting & Cloud business, revenues increased slightly by 0.5% and gross profit decreased slightly by 1.3% year-on-year. In Event & Media Business, revenues decreased substantially by 11.9% and gross profit decreased slightly by 4.1% year-on-year.

In Consulting & Cloud business, revenues only of the cloud business grew substantially by 30.8% year-on-year. The growth was very favorable. In Event & Media business, revenues from events decreased substantially by 46.9% year-on-year due to request to voluntarily refrain from holding events. Revenues from media increased steadily by 13.3%. Revenues of IR-related media production mainly increased.

This graph shows average revenues per customer for the past 12 months. Our focus at the end of 2019 on activities for orders in 2020 resulted in an increase of 2.4% compared with the previous quarter. However, postponements and cancellations of group training activities since March are expected to have a major impact in the second quarter and thereafter.

This graph shows cloud series monthly fee revenue. Results increased from the previous quarter due to introductions at major companies and other factors. Monthly fee revenue in the first quarter of 2020 was JPY 203,789,000, which was an increase of 3.4% from the previous quarter, an increase of 40.3% year-on-year. However, due to the worsening economic environment, there is an increasing number of suspensions and cancellations, mainly by SMEs and venture companies. Major companies are also starting to suspend or cancel membership, which is expected to have some impact in the second quarter and thereafter.

As for future policies, in addition to reducing various costs, we will build an online support system for improving employee engagement. Firstly, we offer training and events online. Many people cannot gather in a current situation. With online as a keyword, we plan to transform trainings and events. As shown on the right, we will also step up support for Motivation Cloud users. To prevent suspensions and cancelations of Motivation Cloud, we enhanced knowledge provision for customers. We intend to share knowledge on improving employee engagement in a management environment with an unclear outlook. Besides, we started to offer some communication promotion services for free for internal communication in customer companies. We also plan to support promotion of internal communications, such as sharing of management policies in the field.

Let me move on to Individual Development Division. In Career School business, revenues decreased slightly by 3.8% and gross profit increased slightly by 0.7% year-on-year. In Cram School business, revenues decreased slightly by 0.6% and gross profit increased substantially by 18.5% year-on-year. Revenues decreased year-on-year in both the Career School business and the Cram School business due to a slump in new enrollees from the impact of voluntary restraint by individuals in going out. We forecast the impact to continue in the second quarter onwards.

Revenues per career enrollee increased due to an increasing amount per contract. However, the number of new enrollees has decreased substantially due to the expanded scope and extension of the emergency declaration, which is expected to have a significant impact in the second quarter and thereafter. Average number of enrollees for the past 12 months and average revenues per enrollee for the past 12 months are as shown in the graph.

As for future policies, in addition to reducing various costs, we will move all processes from trial courses and enrollment to course attendance online. In addition to on-demand qualification courses we've been providing, we will provide online IT and English conversation courses speedily. Also in Cram School business, we plan to provide online learning support to students whose schools are closed.

Next, Matching Division. In Global Personnel Placement & Temp Staff business, revenues decreased slightly by 0.3% and gross profit increased substantially by 11.5% year-on-year. In Domestic Personnel Placement & Temp Staff business, revenues increased substantially by 15.7% and gross profit increased substantially by 83.5% year-on-year.

Global Personnel Placement & Temp Staff business revenues decreased year-on-year due to a decline in the number of ALTs working because of school closures nationwide. Domestic Personnel Placement & Temp Staff business revenues increased substantially year-on-year due to the addition of OpenWork Inc. to the group. The graph on the left shows, average number of temp staff dispatched in the past 12 months, global personnel, mainly ALTs. The graph on the right shows average number of temp staff dispatched in the past 12 months, domestic personnel.

The impact of COVID-19 on ALT placement was minimum due to factors, including class preparation and other work during school closures. However, a substantial impact on domestic temp staff dispatch is expected in the second quarter and thereafter due to corporate cutbacks in hiring. In addition to reducing various costs, we will ensure employment for ALTs and secure customer companies with high demand for temp staff. We intend to shift domestic temp staff dispatch from conventional customers, mainly for apparel sell, to supermarkets and call centers, where demand is expected.

I will explain the fourth item, forecast the financial results and dividends. Firstly, forecast of financial results. We disclosed figures for the forecast for financial results for 2020 in our announcement of financial results for the year ended December 31, 2019. However, we have concluded that it is impossible to reasonably recalculate our consolidated forecast of financial results at present due to numerous uncertainties that will impact our business results. Accordingly, our outlook is undetermined. While keeping an eye on trends in COVID-19, we will disclose our forecast promptly as soon as a calculation becomes possible. I appreciate your understanding.

Regarding dividends, we will continue to pay quarterly dividends. A dividend of JPY 1.8 per share is scheduled to be paid on Thursday, June 25 as planned. This is repetition of our operating structure. In all the divisions and all the businesses, we are impacted to no small extent by the spread of COVID-19. At present, it isn't clear how long the impact will last and how significant the impact will be. Basically, with transform and online as keywords, we are striving for speedy transformation in each business day after day.

I appreciate your continued attention and support. That concludes earnings presentation, thank you very much for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]