Septeni Holdings Co Ltd

TSE:4293

Earnings Call Transcript 2021-Q3

[Koki Sato, executive]

Thank you for joining us in our earnings call. I am Sato. Today, I would like to explain mainly about our third quarter results. These are the agenda items. I will start with third quarter results, followed by the performance of each business segment and conclude with the progress against earnings estimates. First of all, I'd like to share with you the consolidated earnings up to third quarter of this year. In terms of the highlights, the revenue increased year-on-year basis and the profit grew significantly. Revenue was JPY 15.911 billion, grew by 23.1% year-on-year, whereas non-GAAP operating profit was JPY 2.999 billion or roughly JPY 3 billion, which was 2.1x year-on-year basis.

These are earning highlights by business segment. First of all, Digital Marketing Business, which continued its strong momentum. Both the revenue and the profit grew as you can see the figures on the slide. Revenue grew by 23.9% and non-GAAP operating profit grew by 52.6%, strong growth both in revenue and profit.

Regarding Media Platform Business, revenue increased year-on-year basis while investments for expansion in each domain caused overall cost to go up, which resulted in bigger deficit. We closed third quarter with revenue increase by 14.9% year-on-year basis and operating profit increasing the deficit by about JPY 130 million.

We are now on Page 6. This shows the consolidated income statement for the first 9 months. Compared to the same period of last year, the operating profit roughly doubled and profit for the period tripled, achieving significant growth.

Page 7 describes earning trends by each business segment. Blue indicates Digital Marketing and red is a Media Platform. Both the revenue and the profit are shown. Digital Marketing Business made a V-shaped recovery, revamping strong from third quarter of last year when it was challenged with COVID-19. Meanwhile, Media Platform Business consists of several products, but all businesses were quite successful. Next, moving on to consolidated earnings overview of third quarter, April to June period. This chart shows the quarterly consolidated earnings for the third quarter of fiscal year 2021. Right around April to June of last year, the market was experiencing a temporary downturn due to COVID-19, which also affected our earnings, whereas for the third quarter of this year, adjustments were made to adapt to the market environment, thus achieving high year-on-year growth in both the revenue and the profit. Incidentally, the net sales also grew by 42% from the same quarter of last year. The top line is also trending high. The chart showing quarterly earnings trend. As I said, the business is adapting to environmental changes caused by the pandemic, which is obviously reflected in this chart. Here, you can see our earnings trend. If we compare the latest 4 quarters and the 4 quarters before that, the 2 wave forms are similar, but the sizes are different. The situation is indeed improving indicated in the growth. The momentum of earnings expansion is continuing.

Page 11 is the breakdown of SG&A on consolidated basis. Since the top line of each segment is growing, each expense item is growing in line with expansion of business segments. Yes, we will make sure to invest in talents as well. Page 12 shows quarterly consolidated SG&A trend. With business expansion, more investments in human resources are being made, which is shown in growing labor costs. Next, moving on to performance by business segment, starting with Digital Marketing Business. With growth in sales as well as revenue, SG&A is also increasing to a certain extent, but the profit has grown more than to offset the increase in expense. Net sales grew by about 40%, revenue by 25% and gross profit has grown by about the same level. However, SG&A growth has been controlled with plus 14.7%. Operating profit is growing at about 45%, similar rate as top line, which means that top line has grown while maintaining earnings productivity. This is the quarterly earnings trend. Strong growth in terms of year-on-year, but slight decline compared to the same quarter of last year. This business segment has seasonality, as you can see the similar curve in the past 4 quarters as in the 4 quarters before that period. In that sense, the advertisement demand has been following the seasonality trend this year as well, and our result was also in line with the market seasonality. Meanwhile, the growth has become stronger from the fourth quarter of last year, reflecting the continued momentum. Page 16. Here, we are showing the trend of domestic brand advertising transactions, which is the focus area of Digital Marketing Business. Strong growth has been achieved here as well. Last year, there was a temporary dip. Therefore, it posted 77% growth. The transactions have increased both year-on-year and quarter-over-quarter. Page 17 are the figures we have been disclosing, the progress on business alliance with Dentsu Group. The number of clients in collaboration with Dentsu was 76 in third quarter, constantly growing. Compared to same period of last year, the number of clients grew by 1.6x, achieving steady growth.

I have shared with you Digital Marketing Business up to this point. So now I'd like to give you an overview of the performance of Media Platform Business. Page 19 is the breakdown of P&L. The revenue showed strong performance with a 36% year-on-year basis. The growth rate was even higher than Digital Marketing Business. The profit grew similarly. Therefore, the bottom line improved, reducing the amount of loss in this quarter compared to the same quarter of last year. This was mainly due to our focus area, D2C domain, the commerce revenue through our media. The sales in this domain increased. The commerce revenue was the driver behind higher revenue. As I mentioned at the beginning in the highlights, this segment is not just a pure media business. The investments to expand the business domains, which will become one of our main pillars, are included in the expense of the segment. These investments are subdivided and disclosed. The amount of investment for business expansion in the third quarter was roughly JPY 56 million. If we take this figure out, we can get pure P&L of Media Platform Business, which is showing a significant improvement.

This page shows quarterly earnings trend. I talked about some of the figures already. And once again, investments into expansion of new segments are underway, but the revenue is growing, resulting in smaller losses. Next is Manga Content Business, quite successful with more than 40% increase year-on-year basis. Over the past several quarters, charge was driving growth, but although challenged with COVID-19, advertisement revenue is starting to bottom out, showing signs of recovery. Both charge and advertisement are becoming well balanced with 2 wheels of a car, where we can expect steady progress going forward. Page 22 is the subscription revenue trend of Manga Content Business. As you can see, a nice upward trajectory. Similar to software SaaS model, volume in subscription will be the key to success, as indicated in the past few quarters. Ever since the subscription model was launched, it is showing consistent growth with third quarter result being 1.7x compared to the same quarter of last year. The model is being created where subscription revenue is the driver for manga app. Page 23 is the commerce revenue trend of Manga Content Business. Both e-books and crowdfunding are expanding, particularly hits of our own titles. We internalized the development of titles. We do horizontal business. Therefore, we have our own IPs. Popular titles are emerging, which is driving higher commerce revenue.

That concludes the overview of Media Platform Business by segment. Next is the progress on earnings estimates up to third quarter. Page 25 shows progress made so far by the group. The revised earnings estimate was announced the other day. The progress has been as planned against the revised estimate. Progress rate of the revenue is 74%. Likewise, operating profit 75% and profit for the period, 79%. All are in line with the annual guidance.

Page 26 shows the progress by each business segment. As you can see, the figures, good progress has been made so far. Although brief, I've shared with you our results up to this third quarter.

This concludes my explanation, and I look forward to your ongoing support to Septeni Holdings. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]