Nihon M&A Center Holdings Inc

TSE:2127

Earnings Call Analysis

Company Q1 Performance Decline with Moderate Optimism for Future

Nihon M&A Center Holdings experienced a 7.4% decline in Q1 sales to JPY 7.6 billion, primarily due to a 17% drop in closed transactions to 191. Despite this, there was a slight improvement in profit margins. SG&A costs decreased by 9.8%, and strategic investments are being redirected towards further growth. New sell-side mandates rose by 14.6% to 321. Management remains optimistic for improved results in Q2 and Q3, aiming to hit a full-year revenue target of JPY 17 billion, showcasing measures such as shortening lead times and increasing productivity .

Performance Overview

In the first quarter of fiscal year 2024, Nihon M&A Center Holdings faced a decline in sales, reporting JPY 7.6 billion, a decrease of 7.4% compared to the same period last year. The ordinary profit also dropped to JPY 1.5 billion, down by 5.7%. However, the ordinary profit margin improved slightly to 20.2% from 19.9%. The dip in sales and profits was primarily attributed to a reduced number of transactions closed, down from 230 last year to 191 this quarter, marking a significant contraction in their core M&A activity.

New Mandate Growth

Despite the decline in overall sales, the company reported an increase in new sell-side mandates, which rose by 14.6% to reach 321. This growth indicates that the company is successfully attracting more potential sellers, which is a positive sign for future revenue generation. Additionally, the number of new buy-side mandates increased from 290 to 335, a growth of about 16%. These improved numbers in mandates suggest that while immediate transactions are down, the foundational elements for future business growth are solid.

Cost Management Efforts

Nihon M&A Center Holdings is focused on improving cost efficiency, as evidenced by a 9.8% reduction in Selling, General and Administrative (SG&A) expenses. This aligns with their strategic aim to control costs while increasing investment in marketing and promotional activities, which rose by 5.3%. The management acknowledged that while they will continue to recruit and advertise, they are also working diligently to cut unnecessary costs, indicating a balanced approach to growth and sustainability.

Operational Improvements and Efficiency Gains

The company has seen significant improvements in operational efficiency. They reported a 15% reduction in lead time for transactions, now at 85 days. Notably, the number of mandates ready for matching reached an all-time high of 337, up from 250, contributing to a solid pipeline for future earnings. Additionally, the productivity per consultant is expected to improve, with the recruitment of high-quality new consultants set to boost overall capacity.

Future Guidance and Projections

Looking forward, the company aims to improve its performance in the second and third quarters. They have set an ambitious guidance target of JPY 17 billion in ordinary profit for the fiscal year. Management indicated that they want to achieve at least JPY 2 billion in ordinary profit for the first half, although the actual performance fell short at JPY 1.6 billion. They expressed confidence that leading indicators such as the number of new mandates and ongoing negotiations position them favorably for recovery in future quarters.

Management Changes and Strategic Investment

With several new general managers and group leaders newly appointed this quarter, management acknowledged potential transitional challenges. Nonetheless, they emphasized that strategic investments, particularly in human resources and digital transformation, continue to be a priority. They anticipate this will ultimately drive productivity and enhance client satisfaction, reinforcing the company’s competitive position in the M&A landscape.

Investor Confidence and Market Position

Despite the initial disappointments in performance metrics, the company is focusing on building trust with both current and potential investors. They highlighted the need for consistent growth and clear guidance, aiming to stabilize market presence and attract long-term investors. The management underscored their commitment to maintaining a high success rate of 48% in closing transactions, positioning themselves as leaders in the M&A brokerage industry.

Earnings Call Transcript 2025-Q1

[Suguru Miyake, executive]

Good afternoon, everyone. I am the President and Representative Director of Nihon M&A Center Holdings. I am Suguru Miyake. Today, we're having the Online IR Presentation for the First Quarter of the Fiscal Year 2024 for Institutional Investors and Analysts. Thank you for joining this session. Today, Naraki-san and myself are going to explain content.

[Takamaro Naraki, executive]

I am Naraki, I am the Senior Managing Director of the company.

[Suguru Miyake, executive]

Okay. So let's get started with this online IR presentation. We're going to do presentation first, which will be followed by a Q&A session.

We would like to bring the optimal M&A ever closer, and this has been the purpose of our company. The results of our first quarter, starting with sales, JPY 7.6 billion or JPY 7,638 million. Q1 last fiscal year was JPY 8,246 million. So this time, sales were lower by 7.4% year-over-year. Ordinary profit was JPY 1,546 million. And the same quarter last fiscal year was JPY 1,640 million. So ordinary profit was also down, and it is down by 5.7%. For ordinary profit margin, it was 19.9% last fiscal year, Q1. And this time, it's 20.2%. So this is an increase.

And about the number of transactions closed, this is the most important indicator. And last year, Q1, the number was 230. And this time, it's 191, and this number also declined and became the biggest factor for the negative performance this time. However, average transaction value, the M&A sales per transaction was JPY 38.5 million. And I have some target number for a stable M&A sales per transaction. And this time, this number is very close to my targets. And the new sell-side mandates grew significantly from 280 to 321, up by 14.6%.

Let's look back on how we did in more details. The sales number, which declined by 7.4% this time to JPY 7,638 million. The biggest reason for this decline is the decline in the number of transactions closed. The reason this time is quite clear for this decline in performance. The major reason, basically, it can -- there are 2 major reasons. The first reason is that in the fourth quarter last fiscal year, we had a very outstanding result in Q4 and showed a recovery from the incident. In the second and the third quarter of last fiscal year, we started to see more unity among employees, and we saw more enthusiasm from employees. And as a result, in the fourth quarter, we did our best to achieve our guidance and all the employees were united and did their best and we had the record high performance. And the number of transactions closed was 350. The year before that was 296, so 350 was 18% higher year-on-year and sales was JPY 12.9 billion. So 14% increase. And on a quarterly basis, we really had the record high numbers.

However, because we did our best in the last fiscal year, that led to a decline in our pipelines. And also, everybody did their best at the end of the previous fiscal years. So they had a burnout syndrome maybe. And as a result, this time, Q1 FY 2024, we were not able to make a rocket start, and we started with the delay.

Now the second reason for this performance, I believe that this is associated with the internal administration system that was handed over to new people. We had incident. So 2 years ago, many managers resigned from our company. And after that, last fiscal year, we had to have a recovery. So we introduced a new system or business unit system, but we did not intend to keep the system forever in place. We had the departure of many middle management. So we introduced this new system as a temporary measure. And we wanted to achieve midterm business plan, and we even wanted to do better than the plan. And that required the ideal structure in place.

And this time, we positioned this year as a year of new start for the growth and introduced 11 channels, be it accounting office channel or regional financial institution channel and others. We established the 11 channels that are specialists individually. And as a result, former general managers became head of channels and we suffered from a lack of general managers. So this time, we appointed 14 new general managers. And the number of members to be covered by a department manager is around 15, and the number is down. And the general managers, it's difficult for them to pay very detailed attention to the progress of every one of the projects. So we have group leaders. This is nothing new, but this year, we added the number of -- we added many group leaders and more than 40 leaders appointed this time. And the new general managers and new group leaders, they are the people who started their new position in the first quarter. So we happen to have a transition period in this Q1 and the newly appointed members are not mature yet in their new positions. And that's another reason why we couldn't deliver against our target. But this is a repetition of what we had last year. And for these 2 reasons, in the first quarter, we had a slow start.

However, about the cost of sales, the cost of sales declined. And SG&A, as we promised, is down by 9.8%. And advertising and promotion costs actually increased by 5.3%. And we did sales activities quite actively with that cost. And this is exactly as we explained before at shareholders meeting and the previous earnings results briefing sessions. And sales were down by 7.4%, but ordinary profit is down by 5.7%. And I believe that we made an effort and did some achievement in cost improvement.

So what about the expectations for the second and the third quarters? We are implementing measures to increase the number of transactions to be closed. And I see improvement in situations, starting with the number of new sell-side mandates. This number increased significantly and the qualities of the new sell-side mandates are improving.

I have been talking about the new sell-side mandates from 3 perspectives. The first one is that we would like to increase the directly acquired sell-side mandates because that improves gross margin. Last fiscal year, full year, the gross margin was 34%, but this Q1, 37% is the ratio of the mandates gained through direct sales, so a 3% increase in this direct ratio. Another point I would like to talk about is the implementation of main metropolitan areas of Tokyo, Kansai and others because the project in these areas have higher likelihood for matching and higher commissions expected to be received. So projects in the main metropolitan areas tend to contribute very favorably to our performance, and we saw a significant improvement with this strategy; 41% improvement from the same time last year to 48 in numbers, 40% increase.

And another point is mid-cap projects. We want to increase average sales per transaction. And the number increased to 61. So this time, we had many new sell-side mandates. But we have to increase productivity, the sales per consultants, at the same time, and that requires a reduction of lead time. We have been talking about our initiatives to reduce lead time. And this time, again, we saw a significant improvement. Last fiscal year, we didn't do well with this indicator, but this fiscal year, we changed our organization, and we replaced people responsible. And this time, the lead time from receiving mandates to matching is 85 days, and this is down by 15%. And thanks to this, the number of mandates ready for matching reached a record high to 337 from 250, up by 35%. And these are the projects that are soon going to be concrete contribution for our performance.

And we also see a significant increase in the number of buy-side registrations, the number of registrations for matching. This number increased by 47% year-on-year. And as a result, advisory agreements signed from buyers reached a record high and increased by 44%. These numbers show an increase in the number of pipelines over the number of companies that found the right pipeline. And this, I believe, is a sign for the future growth in our performance -- overall performance. And about managers, we have the 11 heads of channels and the general managers underneath as well as group leaders at the bottom. We have to address the structure improvement, 60 group leaders and more than 30 general managers and the newly appointed members -- the ratio of newly appointed members is high and how well they can manage members, how well they can control their members determines our progress. July, August, we have been concentrating our focus on the improvement or training of these newly appointed people.

And about this page, I have quite a confidence about the leading indicators, starting with new sell-side mandates. Compared to the same time last year, the number increased by 14.6%. We have received retainer fees and closed advisory agreements. And we have this many sell-side new mandates. And of that mid-cap mandate from which we can expect success fees of at least JPY 100 million is up from 52 to 61 by 17.3%. And new buy-side mandates also increased from 290 to 335, up by about 16%. And this led to an increase in the number of new transactions negotiations between buyers and sellers. But I believe that this can improve further. We are trying to improve this because even when projects are matched, the buyer and seller is matched, they need to go towards further steps. So we are introducing a system to improve this number.

And this gives you the overall picture of our performance. The number of transactions closed is down. However, we have good operating assets, so you can expect better numbers in Q2 and Q3, and that is what you see at the bottom. M&A sales per transaction at the bottom is close to my target, JPY 38.5 million. And the new sell-side mandate number is also quite favorable.

Summary page. Actual results of Q1, we should do even better. You see sales number, but we want to improve gross margin. And we need to add more directly-acquired mandates. We also need to increase the per-head numbers and we will continue to take the measures required. And about ordinary profit, we would like to improve ordinary profit margin, and that would require a reduction of the waste and unnecessary costs. But we are going to continue to spend what we think is necessary, be it recruitment-related costs or advertising-related costs. Our healthy balance sheet has been mentioned many times already, so I'm not going to talk about this at this time.

The transition of head count is one of the most important factors for us. And 681 is the latest number of consultants. This is up from 645 at the end of the previous fiscal year. And we have some close to 50 people who received our unofficial offers to enter into our company. We have many high-quality consultants, and we would like to have a net increase in the number of high-quality consultants this fiscal year. This is going to be one of the keywords for the success of the mid-term business plan. We want to recruit more people, and we would like to retain people, and we also would like to improve the productivity, the per-head numbers.

Regarding payout ratio and others, we have touched upon them already this year, JPY 29, and with the 83.6% forecast payout ratio. And last fiscal year, we conducted buybacks. With that, ROE is more than -- has been improved to be more than 20%, and we would like to try to retain this above 20%. And in the number of investors, now you see the breakdown of 30% individuals, 25% financial institutions, and foreign investors, 30%. But in order to increase our market capitalization, we have to have long-term investors from foreign countries. So that's why we are broadcasting today's conference call globally with simultaneous interpretation. So we would like to increase our fans globally.

Now for the midterm management plan, there has been no changes. So I'm going to skip this slide. But as you can see on this chart, this fiscal year, we would like to clear this JPY 17 billion, and we would like to see how much we can exceed this level, which should demonstrate how much we can do in the next fiscal year. So we would like to achieve this year's plan so that we'll be able to achieve JPY 30.5 billion of ordinary profit in the last fiscal year of this current midterm plan. And there is no change to our plan. And in order to realize this, we have shifted to channel system and increased the number of general managers and as well as group leaders. So -- and for this purpose, we have done the organizational change. And unfortunately, the -- during the transition period, we had some delay. So we were a little bit behind from our plan for the first quarter of this fiscal year, but please understand that we spent this first quarter to lay the very important foundation.

So as I touched upon earlier, the strategy investment, human resource investment, digital transformation investment and operation investments are very actively done. And at the same time, we are going to eliminate and control the unnecessary spend and expenses. So under such circumstances, I'd like to introduce what sort of seminars we are now conducting.

First, direct marketing is being increased so that we can get directly-sourced mandates. And this has been conducted nationwide, and we call it last live seminar, and I've been visiting many different places in Japan: Okinawa, Kyushu Island and many other cities. And this seminar has been received very well after reopening. We have been conducting face-to-face seminar, and I really feel the passion of participants and many participants will line up to exchange business cards and sometimes they make decisions on the spot. So -- and in order to rejuvenate regional cities, which is our basic idea or as well as my own life work is pursued in different places in Niigata, Miyagi, and Ibaraki and Shizuoka. We have opened a local representative office with discussion desk, and we have aired well-localized TV commercials. They are well received very much. And then, for example, [ Sasa Dango ], and we sometimes use well-known characters in each local cities to do TV commercials.

And training and recruitment are combined together and also, we try to create and pursue the affection to companies. And we have to do them all together. Otherwise, it will be meaningless. So we always try to take a comprehensive attitude to do this. And for that, Mr. Takeda was appointed as the Head of HR. And also we appointed him as a Director of Nihon M&A Holdings.

And this is the area we focus most. Just for your information, in June, I visited the United States for IR road shows, and I visited 22 companies in 5 days in New York, Chicago, Boston and San Francisco. I visited 22 companies, and of that, the questions I received from 20 companies were about hiring. And of course, competitive situation and the business environment and growth strategies were some of the questions we received. However, the most often-asked question was hiring -- was about hiring. So we, of course, focus on hiring. And we also see this as the most important part of our business management.

On to related activities. For example, Tokyo per market is doing well. 110 companies are listed, thanks to our initiatives. And when we started this initiative, the number was only 20. And all 110 listed companies, the number of companies we have sponsored is 36, and we will continue to do even better to gain top market share. And for your information, this fiscal year, 8 companies got listed already, and of that, 3 are the companies which used us as their sponsor.

About our fund, exit and formation of funds are going well. High-margin termite control service, AMEMIYA, the company, they had a wonderful exit and found a good partner. And about Search Fund, they made a new investment. So the funds are doing well, but an issue is to scale the businesses. So more active scaling strategy, we would like to form that strategy.

Other topics. Every year, targeting local banks, we award some local banks under M&A Bank of the Year. And this year, Shiga Bank was selected for the top award. And not just that, there are many local banks who have been working very closely with our company, and we had a very difficult time choosing which bank should receive which award, but you can see the results. We awarded many banks.

And we are strengthening our structure and policy for gaining mid-cap company mandates. I myself participate in different seminars to provide advice to mid-cap companies. Well, the customers of mid-cap companies, we cannot just correspond with younger reps. The experienced staff have to -- like us have to really face directly with senior owners of mid-cap companies. So by involving more, we would like to increase the number of mid-cap company mandates. And we -- this is about how we directors will be in the same boat. And by -- we have introduced restricted stock remuneration plan as of the general shareholders meeting time. And currently, 5 directors are subject to this plan, directors of Holdings. But if possible, we would like to include directors of our subsidiaries, such as Nihon M&A Center as well as executive officers. So bit by bit, we would like to expand the scope as well as the weight of this plan so that the management and executives will be more committed to increase corporate value. And we would like to demonstrate such mindset more by introducing this plan.

Now, let me touch upon the industry trends. There are different difficult situations going on. What I mean by that is that, while in the past, they were -- they used to be -- we didn't have any buyers with bad will, of course, there were some difficult cases or problems because they didn't really have much will or there were some people like claimers but they didn't have bad wills. But these days, we see the bad buyers who seem to have more like a fraud. And Asahi newspapers and Toyo newspapers or representative newspapers or media have questioned whether the M&A industry could stay as is. Of course, there are thousands of M&A transactions, and this kind of fraud cases are very limited. But one example is that the loss-making seller will be very much discounted for the transaction. And when the buyer buys the company, then they will really have to be responsible for everything, including liability of the original owner.

But sometimes, such buyer would just draw cash from the selling company and let the selling company go bankruptcy. And then the owner of the seller company would go bankruptcy. And there, we have seen a selling company who has done such fraud-like transactions so many times. And we are being held accountable for certain situation, whether we really screened well and at the same time, at the very end of the transactions, whether they will really get the representation and warranty insurance and also refinancing deal -- refinancing and deal were done together and if they did try to do that or not. So therefore, we, of course, are not involved in such a case. But in order to avoid such condition, we have to strengthen our organization. And also we, as an intermediary association, we have to respond to such cases. And I've been talking about this many times, but new boutiques are emerging and service quality is declining. This is one of the concerns this industry is faced with.

So through the industry association, we are now trying to strengthen the rules and regulations. We have 108 companies and firms in this association, and we would like to really make this industry a respectable industry. And we, as a leading company in this industry, we are going to lead this M&A Intermediaries Association while working together with academia and government authorities. And with the guidance of the government, we will comply with the rules and regulations of the government. And by working together with academia and others, we would like to improve the different schemes like evaluation of companies as well as other schemes of M&A industry, so that we can make this M&A industry a successful industry.

And we do not deal companies as objects. We believe that companies are a place where people spend their lives and have lasting bonds with each other. That's why we take a very thorough response and correspondence. And that is why we receive retainer fee to confirm sellers' commitment, and that really results in high success rate as well as customers' satisfaction. And we would like to bring these to the top level globally, and that's how we are going to achieve the optimal M&A. And I have to apologize that the results of the first quarter was slightly disappointing to expectation, but I am committed to work even harder for the second and third quarter and onwards good results.

[Unknown Executive]

[Operator Instructions] And we have prepared some questions. So we would like to answer first commonly-asked questions. And due to time restrictions, we may not be able to take and answer all the questions received. Let's start the Q&A session.

The actual operating profit of the Q1, was it in line with your plans? Or is it smaller than your plan.

[Suguru Miyake, executive]

Operating profit of the first quarter was lower than our expectation. Naraki-san, could you add comments?

[Takamaro Naraki, executive]

Sure. our guidance is JPY 4.5 billion. Actually, first half guidance for OP is JPY 4.5 billion of JPY 17 billion whole year. So at least we wanted to do better than our previous year, at least JPY 2 billion -- we want it to be at least JPY 2 billion. But this time, we didn't reach JPY 2 billion. And operating profit was 1.6. So next time around, we would like to catch up to be in line with guidance.

[Unknown Executive]

Next question. Please let us know the actual value of the number of negotiation open as of the end of June.

[Suguru Miyake, executive]

Thank you very much for the question. At the end of June, the actual number, so the actual mandates 2,010, this is the number of mandates. So sell-side mandates active on last year, 1,880, and this time, 2,010, so up by 7%. And regarding the negotiation open, the ones in pipelines are currently 370 and compared to last year, increased by 23.

[Unknown Executive]

Next question. Could you share with us the size of the project that were not closed in the first quarter, the number of those transactions and the sales of those transactions? And would you be able to recover in the second quarter entirely? Or would that go into the second half of the fiscal year?

[Suguru Miyake, executive]

I would like to ask Naraki-san to answer.

[Takamaro Naraki, executive]

About the transactions we couldn't close in Q1, we want to eliminate that. We have been making efforts so we can close transactions as planned each quarter. And as a result, last fiscal year, we saw a decline in the number of transactions that we couldn't close as planned and the number of -- the size of the transactions we didn't get to close was down to around JPY 262 million. However, in Q1, we had unexpectedly many large transactions that we couldn't get to close, which exceeded JPY 500 million, but we have been applying a very tough standard in recognizing the transactions. So we have deadline for submission of the documents. And we don't recognize transaction as closed unless the necessary document procedure is not taken. And that's the reason why -- that's part of the reason why we had this relatively large number around transactions that were not closed in Q1.

And going forward, we're going to reexamine transactions one by one. And actually, we did the reexamination. And for now or at the end of the previous weekend, it's only the JPY [ 3 ] million size transactions that were not closed. And as time passes, we may face more delays in transactions closures, but those transactions that did not get to be closed are still active. So we're going to make efforts to close those transactions without breaking them.

[Unknown Executive]

Next question. You said that this year will be the strategic investment year, but it seems that you didn't have increased cost in the first quarter. Have you been able to execute strategic investment that has been planned? Or will you accelerate the investment into Q2 and beyond?

[Suguru Miyake, executive]

I believe that we are investing as we planned. And as you can see, SG&A, the advanced advertisement spend increased by 3.5% year-on-year. But we are very rational. For example, direct mailing is -- instead of sending -- being sent by each individual rep, but it is designed corporate level and in lump-sum. And by doing that, we could control costs. And we have full strategic investments, direct marketing, like seminars and direct marketing and HR and DX and operational investment and for seminars. The direct marketing, mail and marketing -- direct marketing have been very good and as planned and seminars have been conducted as planned, but that doesn't mean that it's satisfactory.

When we entered a reopening after COVID-19, the very first direct seminar -- the first phase of direct seminars are on track, but we have to really drive these direct seminars more in terms of the number of participants. And in the area of human resources, I think the cost will increase going forward because we are now providing in official offers. So when they join, I think we'll spend more cost and expenses on sales and education. And digital transformation is more like leveled investments. So we are not going to see the jump up of investment in DX. And activity-wise, we are making activities as planned. And with that, we have seen the steady increase of direct-sourced mandates.

[Unknown Executive]

Next question. Could you give me the breakdown of the number of transactions closed and the new sell-side mandate in the first quarter into direct mandates and referral mandates.

[Suguru Miyake, executive]

In Q1, direct mandates were 37%, 37% were direct and referral ratio from network was 63% of total.

[Unknown Executive]

Next question. In this call, it said that M&A guideline will be revised again and what sort of changes to rules and regulations with this revision do you think?

[Suguru Miyake, executive]

I believe this is a very important theme, and our team members are involved and industry -- as for the Industry Association itself is involved and the consideration of the items for the third revision is -- one is the explanation of the fees, intermediary fee should be more detailed explanation. And the second point is that there are some items that will be banned for advertisement and promotion. That's a possibility because there are some firms who are very persistent in approaching to keep sending direct mails and so forth. So for such companies and firms, rules to ban some sort of promotion advertisement are being considered. And also another area is to explicitly state what sort of items, things are banned in the guideline. We, intermediary associations have already introduced. So for example, the -- by receiving a lot of money from buyer, then sometimes the prioritized seller introduction or it could be a case where the transaction is -- the money that seller will receive will be discounted. So this is a conflict of interest. And all these specific cases will -- could be stated in the new guideline.

And in the third provision, there is a way how to deal with the conflict cases at the very last phase, for example, the tail provision or the representation and warranty insurance provision and also the guarantee -- owner's guarantee is another one. So joint guarantee was not removed from the original owner. Of course, the ownership as well as the right of business operation have been already transferred to the selling -- excuse me, to the buyer company. But even after that, sometimes a joint guarantee or liability are not removed from the seller company's owners. So for such cases, what should be done, that should be also included.

And another area is excluding the inappropriate players, the ones that who conduct fraud-like transactions. So what sort of a screening or evaluation should be done or what sort of responses should be taken? So all these things, about 6 items, seem to be considered for this revision, and we still don't know how detailed these items will be introduced.

[Unknown Executive]

Next question. What were unexpected and different from your prediction at the time of announcing the previous year full year results? What kind of actions have you taken to what extent?

[Suguru Miyake, executive]

So things that came out as a surprise that we had not projected when we announced our results for the previous fiscal year, it's the lack of growth in the number of transactions we closed. In my estimate, I have thought that we could do a better number. Pipeline numbers and the number of mandates received did not seem to be bad at the end of the previous fiscal year. So -- and last year as well, we were at the transition period, and we could see that this could occur this fiscal year. So being hit by the negative size of the transition period, I could see this negative impact. So maybe our forecast were not conservative enough. And maybe our management didn't do well enough, but we have been educating those management, and they have to gain experience first before they grow. So we could see some downside from having new managers and so on. But it's like we did the construction work that is necessary to solidify a very good ground. So what happened this time is within our expectation. And this would be the food for our future growth going forward.

And once again, the fourth quarter previous fiscal year was a good quarter where our employees were united and did their best. So they suffered from burnout syndrome and they maybe got a bit tired this time. And when employees close many transactions, they have to provide a follow-up support after the closure. We don't close transactions, and that's it. We treasure client satisfaction. So we provide dedicated and detailed services for the follow-ups after closure for buyer and seller, both. So the number of transactions closed was lower than our expectation. But in that sort of -- within expectation, but I believe that we are taking the right actions, and we have been thoroughly educating the newly appointed general managers and so on. So we are mitigating the impact -- the negative impacts from being in a transitional period and the number of transactions closed. Judging from the current level of negotiations, I have a firm confidence for growth to come in the second and the third quarter. So I believe that we took the necessary action already.

[Unknown Executive]

It seems that productivity per consultant has declined. Would you elaborate on the background and factors?

[Suguru Miyake, executive]

Well, yes. For as far as the first quarter is concerned, the transaction closed did not grow. So the productivity per consultant went down. But we would like to take a longer-term view. So the number of transactions closed per head as well as the sales per consultant should be viewed in a full year basis, and we would like to see the steady growth over the quarter-on-quarter. And for that, we cannot really make it jump up. So -- but by shortening lead time and increasing the accuracy of matching or getting rid of unnecessary internal competition have to be conducted to that. And starting this fiscal year, in order to shorten the lead time, the higher executives are assigned as responsible people. And for matching, we created matching administrative department, and the very senior manager was appointed as the responsible person for these departments. Putting them together, I believe that activity per consultant will be improved over this year and the next year.

[Unknown Executive]

Next question, the number of transactions closed in Q1 was limited, but it seems that various leading indicators are solid. So can we expect the growth in the number of transactions closed in the second quarter?

[Suguru Miyake, executive]

Thank you for this very important question. I also would like to have a growth in transaction closures in the second quarter. And fortunately, we have the number of negotiations required for the growth, and we have the necessary pipeline signs. So Miyake, Takeuchi, Suzuki, these management need to guide and lead our people using our ability, and we will do our best to be up to investors' expectations. We have the confidence, but we cannot say that this is 100% safe. So what I'm going to say is that we're going to make our utmost effort to be up to investors' expectations.

[Unknown Executive]

Next question. Regarding the new general managers and group leaders for this fiscal year, it seems that there has been some delay just as you had in the first quarter in the last fiscal year. Did you take any measures based on the learnings of the last fiscal year?

[Suguru Miyake, executive]

Well, yes, we try to learn from the lessons and in order not to repeat the same mistakes. From the very early phase of this fiscal year, we had a camp and training camp with new managers and leaders. And that's just one of the examples that we had of the measures we are taking. And we are making very intensive guidance to managers and leaders. And group leaders' training is conducted on every Monday. And that's the -- what we are doing for training, but there are areas that we cannot just teach by training and training camps, that -- management. So this July, we really made intensive OJT for each individual mandates with Takeuchi and Suzuki and [ Hiduya ], Director as well as the President and Managing Director of M&A, and they also the Head of Sales department. So with these efforts, we made a good improvement last year. So we hope and we believe that these efforts will enable the good improvement.

[Unknown Executive]

Next question. This time, transaction closure number declined, but average transaction value increased. Is this your cruising speed? Or could you aim higher?

[Suguru Miyake, executive]

Between JPY 38.5 million to JPY 39.5 million is, I believe, the optimal or the appropriate level for this fiscal year -- the whole of this fiscal year for 2 reasons. The first reason is that we would like to grow in the number of transactions closed because, that way, average transaction value declined because of the wider coverage. However, by focusing on mid-cap project, we would like to maintain the overall transaction amount. And given this, I see the range of JPY 38.5 million to JPY 39.5 as our appropriate number.

And the second point to mention is that when we try to increase average transaction value, we will need to count on larger projects that would increase the volatility of our business performance significantly because when we fail on one large transactions, that would be a big blow. And when we succeed with another large transaction, then there would be a huge contribution to our performance, and that would lead to an instability. So we would like to aim for a stable growth without depending on very large projects, but we will make sure we will not lower average transaction values with the firm capture of mid-cap projects. So all in all, I see JPY 38.5 million to JPY 39.5 million as the appropriate amount.

[Unknown Executive]

There are new entrants into the industry. Have you been able to differentiate yourself, including branding?

[Suguru Miyake, executive]

Thank you very much for the question. We have been focusing on this point. In the United States in June, I made it very clear that -- on this point because we started our business with the investment of the accounting firms and CPAs and they wanted to save their clients and 200 people made a total JPY 150 million as net worth and the capital to start this business. So they really spent 30 to 40 -- their first mission was to save companies that their clients had contributed for 30 to 40 years. And this route has been maintained very strongly. That's why we don't deal or handle companies as objects or merchandise. We believe that companies are their lives, the owner's lives, not just the lives of the owners, but also of the workers and employees. All these people were making their lives at those companies and their families as well.

For example, a daughter of one of the employees of those companies like fashion. So this person wanted to become their stylist or fashion-related person because of the -- her father's job. So that's the things that we have to handle. That's why we receive a retainer fee because we want to confirm the commitment of sellers. Of course, by receiving retainer fee, we will be more responsible, and we can also confirm commitment from the seller's owners. So by doing that, we also receive retainer fee from buyers so that we want to confirm the same level of commitment from buyer side and so that we can go through the pipeline of transactions with the same mindset. And by doing that, currently, our success rate is 48% -- as high as 48%. I think this is the highest success rate in the world. And by that, the number of transactions closed, was top globally. That's why we were awarded as Guinness.

And we also publicized the way that is the biography of the sellers' owners. So of course, families of sellers' owners become rich or affluent. And they have -- they want to appreciate and recognize the efforts of their, for example, grandfather who has started the business. And on the other hand, buyers, we would like to make buyers transaction successful. That's why we provide the warranty and indemnity insurance and also we provide consultation of integration period IPO. So we are very thorough in these efforts. And we believe that we are the only one company who handle companies as important places for everybody who are involved. And when we -- when I also mentioned this, I'm always recognized at seminars.

[Unknown Executive]

When do you expect to start to experience seasonality of 9-month earnings? Do you have a plan to be back to your previous seasonality?

[Suguru Miyake, executive]

Thank you for this question. You seem to have a very good understanding about our company, and that makes me happy. And we would like to be back to the earlier seasonality. If I am to mention another reason why we didn't have good performance this time is because of the incident, and we had the blank Q1 FY '22 because of the incident. We were not able to spend our time on our work. So we had to achieve results in the rest of the quarters in that year -- in the rest of the year. And achieving solid numbers in the initial 3 quarters and spending Q4 as a preparation for the coming fiscal year, this has been the normal cycle or the seasonality of our company, but this has been different by one quarter.

And to answer this question, we would like to go back to the previous seasonality as soon as possible. And this is exactly the topic mentioned at today's executive meeting. By the end of this fiscal year, we would like to be back and as close as possible to the previous seasonality. And next year or the fiscal year that comes after that, we would like to be completely back to the previous seasonality to outperform our midterm business plan.

[Unknown Executive]

Next question, how many people left the company in the first quarter?

[Suguru Miyake, executive]

As of June, 33 people left the company. They tend to be more in the first quarter because incentive and bonus are paid in the first quarter. So we tend to have more people to leave the companies in the first quarter. And in the second and third quarters, we believe that we can reduce this number. And since last fiscal year, we started [ Azabu ] project, where we have a discussion with senior members. And for new entrants, we introduced 2-in-1 system, and we would like to lower the churn over rate to 12% to 13%. So as much as possible, we would like to keep that level.

[Unknown Executive]

Next question, what's the progress of your recruiting activities compared to company plan?

[Suguru Miyake, executive]

We just ended the first quarter, so not much progress is made at the moment. But we have given unofficial offers to 50 people already by the end of the first quarter, and we're going to accelerate hiring in the coming quarters. And what I said at today's executive meeting is that, so far, recruiting is going as planned. It's solid, but I would give 80% if I am to give a score, but the quality of the people employed is improving, and there is no doubt about that. I'm not blaming the quality of the people that were recruited last year or the year before. But portfolio may have been somewhat different from my expectation, but in quality of portfolio, I believe, and I feel is improving.

The first training for all employees are provided by myself. And given my own experience of facing the new people, I see an improvement in the qualities and about the number of people recruited. We are having very active referral events. And referral events are also joined by many people, although we haven't seen an actual concrete increase in the number of people recruited. And 2 days ago, I had a recruiting or we had a recruiting event, and I had to move to the next meeting and the HR members also had the next meeting planned after that event, and they joined the next meeting late because there were so many participants interested in our company. And we changed the Head of HR and referral and other recruiting events have been held and also various measures to retain employees, especially the employees who thought about leaving our company, and we have been implementing these measures, and we are almost certain about the success.

[Unknown Executive]

Can you explain the reasons for the reduction of SG&A cost from the previous fiscal year?

[Suguru Miyake, executive]

Mr. Naraki, please.

[Takamaro Naraki, executive]

As an extraordinary factors, there is one. The Batonz was shifted or changed to the equity holding company. So this had impact on SG&A because up until last fiscal year, the SG&A cost was put together, including the Batonz, but now, this was subtracted for the part of Batonz. And that's about more than JPY 100 million. So that expenses from Batonz, which is more than JPY 100 million was excluded from this current SG&A. But still, we have a gap of JPY 200 million, including that. So as we explained, ad and promotion costs being spent faster -- at a faster pace than last year. However, the recruitment cost and commissions are being controlled within the range of reduction of JPY 10 million compared to the previous year. So in total, it seems that we have reduced significantly the SG&A cost.

[Unknown Executive]

Next question. Do you foresee an increase -- year-over-year increase in SG&A from the second quarter onwards?

[Suguru Miyake, executive]

Naraki-san, please?

[Takamaro Naraki, executive]

Sure. In terms of budget for SG&A, JPY 10 billion on a whole year basis or JPY 2.5 billion on a quarterly basis is the budget we have. And in Q1, actual spend was JPY 2.1 billion to JPY 2.2 billion. So we didn't spend as planned for SG&A this time in Q1. In advertising, promotion for seminars and recruiting, we would like to spend more so we can accelerate our sales activities from Q2 onwards. And DX and other spends will be spent carefully while confirming the actual results from the spend. And basically, we plan to spend as planned as the entire first half.

[Unknown Executive]

Next question. We have seen increased number of negative media reports about very malicious M&D intermediary companies. Would you share with us the impact on your company as well as your opinion on this situation?

[Suguru Miyake, executive]

Well, we think that this is very disappointing situation. We have saved -- we know that 1.27 million companies who are going -- could be go bankruptcy over the next 10 years. And we have been trying to save such companies, and we have been providing very detailed support, that is as far as we are concerned. However, there are some firms that do not really provide proper screening and just try to do matching as many as possible and a very limited number of very malicious companies have drawn attention from media as well as government. And the succession issue of SMEs have become social issues. That is one reason for that. And SME, M&A industry-wise, it has grown to an industry. Over about 20 years ago, there were only 20 or 30 boutiques. But now we have 400 or 500 boutiques. And the 3,000 companies have registered at SME agency. It's good. I'm happy it took 33 years to grow our business as a good industry. And this industry is the industry to save a very important social issues, and I'm really pleased with that.

However, we are now faced with a turning point for the industry. If we take a wrong road, we will be in real problem. And of course, these malicious firms are very limited. However, some of the SME companies are damaged. And this is a fact, and this is a social concern. So in order to avoid such problems, we have to make sure that everybody would do the screening. And as for the industry association, we have to, for example, make a list of such malicious or vicious companies. And, for example, for cases that keeping the joint guarantee on the part of owners of seller companies, if there is any, we have to really make a provision that would avoid such situation that such vicious companies cannot do that. And we are now in the very important phase or the turning point. And so with 6 companies, the executive companies of this intermediary association often meet together and discuss these concerns and issues. So we can really create a respectable industry.

[Unknown Executive]

Next question. What kind of programs do you have in your new manager trainings?

[Suguru Miyake, executive]

We do 2 things. One is how to manage your subordinates, how to motivate your subordinates. The second part of the training is about how to manage pipeline projects, how to understand, control and schedule pipeline project in a way that we can satisfy sellers and buyers and meeting deadlines, at the same time, necessary foreclosure. This is something that should be taught from managers to subordinates so we educate how to communicate and educate this to subordinates. These are the 2 contents we have in new manager trainings.

[Unknown Executive]

Next question. Can we expect the results of the training to the new leaders from the second quarter?

[Suguru Miyake, executive]

Yes, I believe so. In last fiscal year, we saw a good outcome. You can really expect the outcome overnight. But it is not so slow either. So when the new learner learn things, it's usually fast. And if a new golfer, if they just hit 1 in 60, then if they practice a little bit, they can reduce the number of strokes to 1 in 20 strokes very soon. So in the same manner, I think we can have a very quick improvement in the second quarter and in the third and fourth quarter, they will be even more matured. So the current training should be demonstrated in the second and third quarters.

[Unknown Executive]

Next question. Do you not review your fee structure, given intensified competition? Don't you suffer from worsened performance without changing fee structure?

[Suguru Miyake, executive]

This is a point that we are always considering or reviewing. And at the moment, we have no plans at all of changing our fee structure, especially when it comes to retainer fees. This is a way of showing our principles of having the optimum M&As and promoting the optimal M&As and we have the resolve for that. And so retainer fee is one source of our differentiation, and that represents our purpose. But other parts of the fee structure, such as minimum fees, we have now plans to change that as well. But we have been flexible depending on project. For example, projects that are very small, but are very essential, have a very essential nature as a company in that region, then we lower fees, so the company can survive. So we are flexible. We are not fixed and completely controlled by the fixed fee structure.

[Unknown Executive]

Next question. There has been the number reduction in terms of the support staff, but do you see the change in turnover?

[Suguru Miyake, executive]

Well, I don't think there is any change in turnover. The ratio of consultants is increasing. So support staff ratio is declining or for some reasons, when we have support staff leaving the company, we always consider if there is any possibility to -- by transferring other support staff as well as just allocating the task among others. And there are some departments who require -- which require the increased staff. In such cases, we take a very serious consideration and then make a decision to increase the head count. We are in the transition period. So it's true that we put more burden on the support staff, and they are having more difficult time. So to alleviate their burden, we are trying to introduce this transformation or have a higher efficiency by introducing different systems so that we can go down to the appropriate number of support staff. Now people are having difficulties, but we would like to go beyond that.

Mr. Naraki, any comments?

[Takamaro Naraki, executive]

In terms of the numbers, the support staff numbers in the first quarter, 22 people left the company. And when I share the situation of the consultants, same tendency can be seen. In the first quarter, we usually have more people. The 24 people left in the first quarter of last fiscal year. And in the second and third and fourth quarter, it was a little more than 10 per each quarter. So this is just as huge or if I dare say, so same level as last year.

[Unknown Executive]

Next question. Is it right to think that an issue that you have explained, the issue of a joint guarantor switching from a seller to a buyer does not occur to your company because you offer PMI consulting service? And also, is it right to assume that there is no such issue around this, I mean there is no issue around this at Batonz?

[Suguru Miyake, executive]

Basically right. Joint guarantor can be removed because regardless of PMI at the time of negotiation and also at the time of contract document, we take the right action. And currently, when joint guarantor is not removed for a certain period of time, we have a system in place to be actively involved. So basically, I believe that the actions that we are taking are the right actions -- needed actions. However, when it comes to troubles between the sellers and buyers, there are cases where the joint guarantor cannot be removed, but that is covered by contract documents that buyers take responsibility during the period where the joint guarantor cannot be removed. And for SPA of funds, not just for the contract SPA, but when it comes to funds that were just established recently, for example, introducing a joint guarantee for the fund itself, these are some other actions we're taking.

So I believe that we have been taking the right actions -- the needed actions from before, but what we are doing recently is even better and even richer than before. And we want to expand this initiative to the entire industry, not just ourselves. The best practice of our company and the best practice of other companies should be put together. So -- and the best practice should be spread to the entire companies that are involved in the self-voluntary regulation bodies. And there are many business transfers -- for business transfers, that has nothing to do with loan or joint guarantee. But the kind of projects, there are many projects taken care of by boutique-type intermediary houses, for example, and also Batonz also use boutique for matching service, and that's the growing trend recently. And for a case like this, boutique houses have the responsibilities, but also as Batonz -- Batonz use boutique. So we have to set our guidelines and our thoughts and also as an industry-wide association, associations should also establish their guidelines, et cetera, about boutique houses.

[Unknown Executive]

What is the ratio of the consultants with more than 3 years of service as of the end of first quarter? Do you see the improvement since the same quarter last year?

[Suguru Miyake, executive]

Yes, it is improving, the ratio of that 36.6% last year and this year, 41.4%. So we have seen the improvement because the retirements of the experienced consultants is declining bit by bit.

[Unknown Executive]

Next question. Could you share with us the content of initiatives to reduce lead time?

[Suguru Miyake, executive]

There are 3 phases in lead time. The first phase is the preparatory period. This is about doing the corporate evaluation, analyzing the company and identifying risks. And after that, there is the matching time required, the time during matching services provided. And after the counterparty is identified, the pipeline period starts, the negotiation starts. And we're not thinking to reduce the final portion of the lead time, the pipeline period, because when this is reduced, sometimes not enough due diligence is conducted or not enough risk analysis is conducted. And sometimes, communication is reduced and these impact customer satisfaction. Therefore, it's the first and the second phase we plan to reduce.

About the first phase preparatory period, we reduced this period by 15% already. For the negotiation phase, we have been doing our best to reduce the time spent and we have reduced this period by just a few days, but we would like to use DX to have a bigger reduction. And also, we are thinking to have some overlapping period of the preparation and the matching to reduce the overall lead time.

[Unknown Executive]

How effective are your measures for the improvement of retention as well as turnover?

[Suguru Miyake, executive]

We've seen the obvious improvement, especially for middle management or employees we have as a project. And we -- I work together with 4 of them in 1 team to create their career plan. We spent dinner time together to consider what sort of a career they should think after the year of 40 years old. And what sort of efforts have to be required, and that's a very 1-on-1 sort of guidance from me. And this has been highly evaluated. And none of the people who participated in this discussion have resigned or left the company so far. And I have to be responsible and we can share these -- their career paths together with me and them. And as for the group leaders and managers, we have provided very intensive training, so we can expect good improvement in 2-in-1 system. And so this is a selling and payer system. We have seen the outcome.

However, now that we have higher quality of the people who we hire, so maybe that could be one of the reasons why we have lower turnover because we usually -- the typical reason for people to leave before they work for this company 3 years, usually their quality. So now we have a higher quality in terms of the new entrants, so that's why turnover is declining.

[Unknown Executive]

Next question. Wouldn't that be effective to hire experienced people from your competitors?

[Suguru Miyake, executive]

We have the option of -- we have that option of hiring experienced people from our competitors. But our competitors have different principles and the way of working can be completely different. It's not like we haven't opened the door for this option. Whenever we receive application, we have interviews. And a few veterans and managers have joined our company, and there are people who left our company and then came back to our company after spending some time at competitors. And they have been successful. And there are a few members who didn't spend many years at competitors, just 1 or 2 years, but there are not many of that because maybe it's more difficult to work at our company.

[Unknown Executive]

You said that you are faced at the turning point of industry. But just as it happened in the real estate industry, this kind of intermediary transactions receive more stricter rules when the transparency of the industry goes up. Do you think the restrictions will be applied to this kind of brokerage?

[Suguru Miyake, executive]

I think there is a possibility, but this kind of receiving commissions and fees from both sides sound as if it's shrewd, but we are not so much particular about intermediary. It's okay for us to go advisory or intermediary. We always try to think what is best for our clients. And SME Agency has a very good understanding about this. For example, in Iwate Prefecture, there is one company of 20 minutes by car from Ichinoseki Station. This is a plating company with 20 employees. And if you try to [ FA ] to sell this and who could be the broker, I mean, we are the one who are referred from the bank -- local bank. And then who would do the matching? And we have to do the matching by our service.

And another theme or point is that SME M&A are not to solve the conflict of interest, but we have to adjust and coordinate the interests of both. So we really need to do FA to represent both sides. And if it is a listed company, and it's, of course, the advisory is appropriate because they have shareholders or we go for the conflict of interest, but if in the case of very small-sized SME M&As, rather than the conditions or pricing, the coordination is the most important thing. So that's why intermediary is most appropriate method. And of course, in any type of procedures, we always have to focus on the best interest for clients, and that's why we take this format.

[Unknown Executive]

We apologize that we have to admit that the next question is the final question to take today. The final question is, what's the level of confidence about achieving the target for the first half with the result of Q1, your plan for this year is skewed to the second half.

[Suguru Miyake, executive]

This is the most important and difficult question. Judging from the tone of my voice, I think that you can tell the level of my confidence. About leading indicators, they indicate a good achievement. And about the measures to close transactions, I have explained many and then the level of implementation of those measures give me confidence. So I believe that we can achieve the target. I cannot make a promise or I cannot say that I do have a confidence about achieving the target. But I hope that you can tell from the tone of my voice, I hope to satisfy your expectation. We will do our best to have a very good end of the first half. The keyword at our company is that the person who has a good summer will have that good whole year -- the full year. And we will continue to do our best with all our employees. Please continue to support our company. And we apologize for running over time. But we are thankful for the participation, the many -- we are thankful for having many participants. And thank you very much for staying with us till the end.

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