DIP Corp
TSE:2379
Earnings Call Analysis
Q3-2024 Analysis
DIP Corp
The company began 2024 under the somber shadow of the Noto Peninsula Earthquake but pledged JPY 10 million to relief efforts, aligning with its ethos of 'think big.' This year, the firm reaches for transformative growth by appointing global baseball superstar Shohei Ohtani as its Brand Ambassador, leveraging his alignment with dip's core values—dream, idea, passion—and its dedication to providing equitable employment opportunities. Ohtani's endorsement sparked significant media coverage, equating to over JPY 1.2 billion in advertising value, indicating a successful stride in enhancing the company's corporate image as it pivots increasingly towards AI. While the AI Agent service's release was postponed for further development, internal use of AI technology aspires to reduce employee hours by a notable 500,000, exemplifying dedication to innovation and productivity[7][8].
The COO outlined a mixed financial terrain: sales rose by 6.3% year-over-year to JPY 13.7 billion, yet operating income saw a 3.3% decline to JPY 3.5 billion. These shifts can be attributed to a faltering call center and clerical job market, as well as a slower-than-expected recovery in the food and beverage sector. Consequently, the full-year forecast anticipates sales of JPY 53.2 billion—JPY 3.1 billion below the initial forecast—and an operating income of JPY 11.9 billion, down by JPY 2.6 billion. The initial ROE projection has also been adjusted from 23% to 21.5%. These forecasts were recalibrated with an uptick for the DX business and a reduced outlook for the Personnel Recruiting Service business. Despite these challenges, the company remains steadfast in its larger transformation goals, without numerical changes to its midterm management plan targets[12].
The company views the hiring of new graduates as an upfront investment, anticipating that they will bolster productivity and contribute sales of more than JPY 10 billion by the fiscal year ending February 2026. Investments in corporate advertising for AI initiatives demonstrate a long-term vision, despite contributing to downward revisions in operating income. The investment strategy, particularly in advertising and promotions, is described as efficient and well-managed, with a special focus on rolling out promotional activities utilizing Ohtani's influence to penetrate new customer segments[12].
The DX business flourished with a 23% year-on-year sales increase, benefiting notably from strong sales in stock products and a 20% growth in companies subject to monthly billing. However, the Personnel Recruiting Service business underperformed, leading to a downward revision of sales and segment profits. Despite this, there are positive indicators such as extended market share and a record number of job applications received, hinting at potential rebounding opportunities. The use of innovative AI tools and corporate advertisement campaigns are expected to optimize customer acquisition and reinforce sales strategies going forward[12][13].
In light of the fiscal revisions, a notable steadying factor for shareholders is the year-end dividend forecast, which remains unchanged at JPY 48 per share. This consistency in payout reflects the company’s commitment to shareholder returns, even as it navigates through a year marked by strategic shifts and investment in future growth[13].
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First of all, on January 1, 2024, the Noto Peninsula Earthquake occurred. And I would like to express our heartfelt condolences to those who lost their lives in that earthquake. And also, I would like to express our deepest sympathies to all those affected by the disaster.
And in order to contribute to the relief [indiscernible] of restructuring of the affected areas, the company has decided to donate a total of JPY 10 million to Peace Winds Japan. And so we sincerely pray for the swift recovery of the disaster-affected areas.
Well, we started 2024, and I look forward to your continued support again this year.
First of all, I would like to talk about the activities that -- towards enhancing our corporate value. This fiscal year's theme is, "think big." And really, we have announcement that is most suitable for our [indiscernible] that corporate value.
I don't need to explain him, but you know very well, Mr. Shohei Ohtani, and he is probably the most famous Japanese in the history. And for us, this will be a huge transformation for us at this time. Mr. Shohei Ohtani has been appointed as our Brand Ambassador. And on the Internet, some people say that why dip? But from our perspective, it's one of the dreams that we have for a long time. Well, ever since he joined the major leagues. I have this dream of him of becoming our Brand Ambassador, and I was able to make this dream come true.
And the reason why we had him appointed was that our company name, dip; dream, idea, passion, this is very appealing to him and our philosophy, and the activities that we conducted during COVID, and also improving the environment for the workers and also reducing the bias in employment. All those activities have been recognized by him. And he had currently signed the contract of becoming an ambassador for our company.
And what we were very surprised of was that after WBC, that was something like the Ohtani fever. There was a huge boom after the WBC. And after WBC, we were the first corporate to sign a contract. And at this point, no other company has made an announcement for signing a contract, which is a great honor for us.
And when we shot the commercial, although we had very limited time, well, we were able to have a discussion where the -- for the first time, he had allowed us to do a one-on-one discussion as a Brand Ambassador. And I think, it's probably the first time for him, but we were lucky enough to have this opportunity. And I think I was able to have a great discussion with him.
And the release was made on the 15th, and the day was -- actually, it's the same day when he announced the joining of the Dodgers, and was captured by many media. It was covered by 19 programs, and they had a very long coverage. And during the peak hours, during the daytime, they spend more than 20 minutes for this coverage on this discussion. When you convert that into ads, the value is exceeding JPY 1.2 billion. So even aside from the commercials, I felt that had a huge value.
And in other areas are the employees, and also from other people, they have given us a lot of positive comments. And in the ads, [ taxi ] ads and TV commercials are going to be shown. And TV commercials in the past, we had a style, I'll show you many commercials on a spot basis. But this time, as a program sponsorship, we are showing our commercials. Also, we purchased many programs and as the sponsor for those programs, we will be showing those commercials. And in addition to that, we will be showing the taxi commercials from the 8th. And we'll have other initiatives like jacking Shibuya or jacking the stations. And so I think, there will be more opportunities to see those commercials. So I hope you would keep an attention to them.
Well, also Mr. Shohei Ohtani has become the Ambassador and the contract with Mr. Shohei Ohtani, objective was to improve the dip's corporate value. And of course, going forward, dip is going to transform from the recruitment ads business, and we're going to transform significantly into the AI business. And in order to do so, we want to improve the credibility of the company as well as improve the awareness of the business, so that we made sure this AI Agent will be a success, and this is just one of the demonstration of our commitment.
And the release of the AI Agent service, I mentioned, was going to be until the end of December last year. And it was already functional, and we already used it internally, but I decided that it was too early for the release yet. And so we have decided to postpone the release.
The AI itself is a service that needs to be developed and nurtured. And so it's going to be difficult to do something that is great from day one, but once it reaches that level that is acceptable for everybody to use, and that is when I will make the decision to release it, and so I hope you would look forward to the release.
With regards to AI, internally, we are actively utilizing AI. The target for next fiscal year is to reduce approximately 500,000 hours. This is a huge amount of hours, but the level that used to be done by human before will now be done by AI, and that is the plan that we have for next fiscal year. And by doing so, we want to increase the time that is purely used for sales, and also we want to give more time for employees to learn so that the time can be more effectively be used.
And the activities that we have introduced fiscal year is things like the customer proposal support tool or job page improvement tools or development support tools. So in many ways, we are already using AI, and chatGPT is being I'll used by many, many employees every day.
And yesterday, [indiscernible], there was a coverage around the illegal part-time job screen AI, and this was developed, and this is to reduce the time that's required for doing assessments on the ads, but we are also working with the police to reduce the victims that have been impacted by illegal part-time jobs. Well, there are some criminals that are very close to victims, so we want to try and reduce such people as well. Also, we want to be actively be involved in working on eliminating illegal part-time job.
And last time I mentioned that we're going to hold a conference, and this is under the theme of Human Capital Management Changing with AI, and the conference was called Labor Force Solutions Conference dip 2023, and this was held on October 24. We had more than 200 untapped client companies that are placing orders with us so this had a very big impact.
Including online, we have more than 3,600 companies participating. And when we did a survey, 93% of the participants responded very good or good. And the conference was very successful with high satisfaction. And this is available on YouTube. So if you haven't watched it, I hope you would go on and watch this. And Matsuo-san, Professor Matsuo, who is involved in the dip AI Agent was also available to give us a presentation, and he delivered a very good presentation.
Well, in terms of ESG management and TV commercials, we have been communicating that we should reduce the bias in the employment, and we should give opportunities to everybody, and especially around female executives. There has been a lot of discussion in FY 2023, within the Female Directors Ratio Ranking, the top 500 companies listed on the Tokyo Stock Exchange Prime Market, we were ranked #1, and this is a very big honor. But to be honest, there are more external directors. And so I would like to develop our female executives who can become Board members internally so that I can -- we can demonstrate the leadership in promoting female executives.
That will be all the presentation I have from my side. Thank you very much.
Hello, I'm Shidachi, COO. I'm going to explain the consolidated set for the financial results. Page 13, please. This is the result. Sales were up by 6.3% year-on-year to JPY 13.7 billion. Operating income declined year-on-year by 3.3% to JPY 3.5 billion.
Sales growth slowed more than expected, and as a result, operating income decreased Y-o-Y. Sales growth slowed because due to the deterioration in the call center and clerical job advertisement market, the sales to human resource companies such as BPO and temp staff agency were [ appalled ].
On top of that, market of food and beverage sector has been recovering, but the speed of recovery, it's slower than expected, which also impacted our business results. I will elaborate more on this on the slide for a full year forecast revision.
Next, SG&A. Management of advertising and sales promotion expenses has been efficient, and its ratio to sales declined from 20.8% in the third quarter of the previous fiscal year to 18.2% in the third quarter of current fiscal year, which is 2.6 percent point decline.
On the other hand, labor cost ratio increased to 34.6% from 30.6% of the previous year. It was up by 4 percent point. This is mainly because of 612 new graduates who joined the company last April. Composition wage of junior staff is lower, productivity is getting higher. But as they work with us longer, individual productivity would improve. So please think of this hiring as upfront investment.
We assume new graduates who joined the company in this current fiscal year will have more productivity, and will be able to generate annual sales of more than JPY 10 billion in the fiscal year ending February 2026. So we will continue to foster them in a steady manner to realize this figure.
Now, that is consolidated financial results. Let's move on to the full year forecast. We have revised the full year forecast downward. Revised sales forecast is JPY 53.2 billion, which is JPY 3.1 billion less than initial forecast, and the revised operating income is JPY 11.9 billion, which is JPY 2.6 billion less than initial forecast. Initial forecast of ROE was around 23%. But in the light of this revision, it is expected to be 21.5%.
By segment, we revised upward the forecast of DX business, while we revised downward the forecast of Personnel Recruiting Service business. I will explain the background of this downward revision on the next slide.
There are 2 factors behind the revision of the net sales. As I explained, as the background to the weak third quarter sales, the first point is that, due to the rapid deterioration in the call center and clerical job advertisement market in the second half, sales to temp staff agencies and BPOs declined. This is the result of the absence of so-called COVID-19 special demand, such as call center operations for vaccination, after COVID was classified in the fifth class, and our client companies significantly reduced their recruitment budget to secure their own profit. That is our understanding.
Second point is that despite the continuous recovery trend in food and beverage sector, the recovery pace has been slower than anticipated. I will elaborate more on this later on another slide.
Regarding the background to the downward revision of the operating income, in addition to the market environment related factors that I have just mentioned, we made an aggressive investment in corporate advertising for the release of AI Agent.
But as you can see, in the bar graph, revised advertising and promotion expenses declined compared to previous fiscal year or initial forecast, which means efficient management of promotions has been kept. And investment in advertisement for existing service is suppressed much more than initial forecast and well-controlled.
So regarding the market, let's take a look at this graph. This is the new active job opening to applicants ratio year-on-year for part-time jobs. Since August, market has been deteriorating. This is, I think, well expressing our situation in line with this market.
And when we focus on the food and beverage sector, let's take a look at this data, which is provided by the Japan Food Service Association. This shows the changes in sales and number of customers at food service operators compared to the pre-pandemic level. So people tend to think that food and beverage sectors are enjoying the customer traffic same as pre-pandemic days, but as a matter of fact, sales have surpassed pre-pandemic level, thanks to the raising prices, customer counts have not yet returned to the pre-pandemic level.
Having said that, the traffic recovery is continuing. And this moderate recovery will continue. And in midterm perspective, we believe that the market is modestly growing.
Next, by client category. As you can see on this slide, sales to small and medium and large companies, large client companies, were weaker than initial assumption, but we achieved high growth rate.
On the other hand, sales to human resource companies, such as temporary staff agency and BPO, and sales to agencies declined year-on-year. As I stated earlier, due to the rapid deterioration in the call center demand related to vaccination of COVID-19 and clerical job advertisement market in the second half, sales to human resource companies declined.
And regarding agencies, sales decreased due to reduction of sales force at agencies because of COVID, and this number hasn't recovered yet. We have taken measures to improve share among agencies. So we would like to correct the situation as soon.
Now our midterm management plan, dip30th. The factors related to the downward revisions, such as deterioration of job advertising market, these have been incorporated. So there is no numerical change in targets. And recently, thanks to other corporate companies featuring Ohtani and other efforts, sales growth rate has turned upward, and that is how we feel in that -- I believe, we have already bottomed out.
Having said that, orders received in January will be recorded as sales in February or later. So please bear in mind that positive impact on the fourth quarter is expected to be limited. That's all about the forecast, full year forecast.
Next, let's move on to the business overview and progress in the DX business. Slide -- Page 24 to 27 are about the overviews of DX businesses. This is the sales of DX business. The sales was up by 23% year-on-year. Particularly, sales expanded strongly in stock products. That is because of the good progress in sales expansion of customer traction covered for MEO in sales promotion domain on top of the sales covered in HR and recruiting domain.
Next is the number of companies subject to monthly billing grew, it was up by 20%, it was a nice growth.
Next, KPI. With an increase in the number of companies subject to monthly billing, we continuously increased monthly sales. Regarding the number of companies, sales expansion of product in sales promotion domain has been strong, such as customer attention covered for MEO. And we were able to add more than 600 companies from the previous quarter.
As a result, the number of new customers with lower contract price increased. Because of this mix, our ARPU slightly declined. We will strive for increase of clients in sales promotion domain so that the entire number would be improving.
Now, the priority measures of DX business. By implementing new sales promotion, utilizing corporate advertisement featuring Ohtani, and by webinars, we will aim to acquire a new potential customers. And other measures were explained previously, and we will continue those other measures.
Next is business plan for the next -- this fiscal year. As we have explained in the past, initial term was conservative. So this is a business plan, so we realized this. And because it was conservative, so this time, we revised them upward. That's all about DX business.
Next, progress in the personnel recruiting service business. The sales trend, it was up by 4.5% to JPY 12.1 billion. The breakdown, the Media and Permanent Placement Service. Media Service was up by 4.7%. Permanent Placement Service was up by 3% year-on-year.
First, Media Service. The sales of Media Service was up by 4.7% to JPY 11.7 billion. As I explained at the slide of new job opening to applicants ratio, we assume market growth rate will be negative. Although our growth rate is slowing down along with the slowdown of the market, our market share continues to extend. This is the number of contracted companies. It was up by 7.5%. It is a steady increase.
Next is the contract unit price trend. Contract unit price per customer declined year-on-year. We were able to accelerate the increase of the number of contracted companies in the third quarter compared to the second quarter. And as a result, small and midsized clients with lower unit price increased. This client mix drove down the total unit price. In addition, sales to temp staff agency and BPO companies with higher unit price has been weak. These are the reasons behind this decline.
From this page, I will explain KPIs relating to users. First, the average hourly wage for listed jobs. Average hourly wages for job listing on Baitoru stays at the highest level, leaving other media far behind. And this quarter, natural traffic to Baitoru exceeded that of competitor for the first time and we achieved #1. Natural traffic means the number of times a user visited the Baitoru site through a genuine search on the web, excluding advertisement. From user side, we have become #1. I think this indicated that.
And let's talk about app, app downloads and MAU. We are continuing to be #1 in both. Regarding the application received. The number of applications received stays at the highest level on record, exceeding the pre-COVID level. And this is the priority measures. In the fourth quarter, on top of the existing measures, we improved the customer acquisition efficiency by introducing order forecasting tools. And also, we would like to promote a role playing for sales proposal utilizing chatGPT. And we conduct new sales promotion, leveraging Ohtani's corporate advertisement, which leads to the increase of the sales. That's all about Media Service.
Let's move on to Permanent Placement Service. This business sales was up by 3.0% to JPY 440 million. So the priority measures of Permanent Placement Service, in the same way as Media Service, we promote role playing for career advice utilizing AI to strengthening new graduates and career advisers education.
On top of that, we will strengthen customer development in the Central Tokyo to increase our business. Not only Media Service, but Ohtani's advertisement is acting as a positive element for Permanent Placement Service, too. So we would like to use that corporate advertisement for Permanent Placement Service.
And this is the business plan for this fiscal year. As I explained on the slide about the revision of the forecast, with the change of the market environment as a major factor, we revised downward the sales and segment profit of Personnel Recruiting Service business. That's all for me. Thank you very much.
Well, with regards to the year-end dividend forecast, it will be the same as the initial forecast, and it will be JPY 48. And so there will be no change in paying out the dividend.
And the total payout ratio is 97% for all the fiscal year. And with regards to the Shareholder Benefit Program, well, we had very strong request for that. And so therefore, the QUO card featuring Shohei Ohtani will be provided, and we saw some posting or talking about the benefits going to be Shohei Ohtani, so we will be providing QUO card featuring Shohei Ohtani at the AGM.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]