Nihon M&A Center Holdings Inc
TSE:2127
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Nihon M&A Center Holdings Inc
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Hello, everyone. Today, we are holding our financial results [indiscernible] session for the third quarter for the fiscal year ending March 2023, and thank you for joining us.
I am Miyake, I am the President of the company. And for our Q&A session, I'll be joined by Naraki-san from our company.
Hello, I am Naraki, I am the Senior Managing Director of the company.
Today, we have simultaneous interpretation because we are joined by people from throughout the world. And I will try to explain slowly so everybody will be able to understand easy.
And the second half of today's session will be dedicated to answering your questions. So we welcome your questions. Please ask us questions through chat box, et cetera.
Our company, Nihon M&A Center Holdings had incident. However, for this fiscal year, in the first half, we failed in our purpose statement, which reflects the faults of our employees, and that's to bring optimal M&A ever closer. And we try to create a society where we can have M&A with a peace of mind. And we believe that the optimal M&A is about the optimal compliance, optimal customer satisfaction and optimal quality.
This has been the basis of our business management in the third quarter. To start with, we would like to provide our explanation on the status, both implementation of preventative measures in the third quarter. We took actions to strengthen our compliance in the third quarter. For example, we continue to hold compliance training sessions in the third quarter, such as information compliance trainings targeting all employees.
We also held harassment-related trainings targeting department heads. We also had compliance training held by CCO and they are held on a monthly basis. And especially we have been putting a big focus on training on compliance targeting new employees. And the harassment prevention training is something which is notable this time. And I believe that the participants [ would learn ] something new.
And also, we make sure to announce on our system for reporting. And as a result, our environment has improved so that people do not really hesitate to report and as a result, the number of reportings we received increased from the first quarter to the third quarter and the number has been increasing 10, 13, 25. And we believe that this establishment of this system for reporting is very useful and effective. And this, we believe, is an indicator of our corporate culture, where people can have free and open discussion.
We implemented other measures. For example, we established a similar system targeting customers. Some people may feel that it's weird. Some people may think that this is not really -- this does not really represent our attitude of putting customers first. So what we did is to put this information on a pamphlet targeting customers. We also conducted questionnaires targeting all employees. And this fiscal year, we implemented compliance or ran a survey targeting all employees to understand the level of compliance awareness, among our people.
And also, for the new purpose statement, we have been trying to reform our corporate culture to fit our new purpose and we have been implementing structural measures. And that starts with our corporate philosophy, which never changes. And that is to contribute to the continuation and the prosperity of cultures through M&A. However, what this means changes with the time.
Therefore, as our corporate rationale, we have been doing our best to bring optimum M&A ever closer. And to realize this reference, we considered what kind of corporate [ cradle ] we should have. We also considered what kind of code of conduct our employees should have and we defined them based on our 8 philosophies.
And below that, we set many guidelines, rules and regulations. And after philosophy, during the third quarter, from October to December, we decided next-generation management. And on the 13th of January, we made sure that every employee understands about this as their new year training. Testing and trying to build our new corporate culture this way. And the 8 philosophies is about paying the best respect to our customers. And also, it's about high viewpoint, broad field of view. Another philosophy is about striving without fear of mistakes. Another part of our philosophy is about fully engaging. We also strive to have best discussions with free and open -- we also try to have best decisions with free and open discussion. And we keep going until the result is achieved.
We learn with modesty and develop. And we cherish that we do the right things in the right way. We decided to have these 8 as our philosophy.
Now let me move on to the main part of today's session, which is about the results of the third quarter. Generally, we have been implementing sales activities and recruitment activities, and we believe that we accelerated such activities toward our revival. However, there is something unfortunate to report. It's that our sales number declined to be 87% of what it was a year ago and our ordinary profit is only 70% year-over-year. And I believe that we did not meet the expectations from our investors, and we need to apologize for that.
And there are reasons behind them. And the reasons will be explained in more detail later. However, as to the number of transactions closed, this number increased. For the past 10 years, we have had the best quarter in the third quarters for the past 10 years. And for this fiscal year, compared to 243, the number transactions closed in Q3 last fiscal year, we were able to grow by 6% at 258 this time in the third quarter. And this is the best number as the third quarter number.
We also hired many consultants. And we did not do recruiting activities for the past 8 to 9 months before this. So there were concerns and now we are focusing on recruiting activities. And as a result, the number of consultants we have at our company increased by 8.7% year-over-year to 610 from 561. And we have been recruiting many excellent talented consultants which means that the numbers in the next fiscal year onwards are going to be quite positive.
Now let's think about why our sales declined and why our ordinary profit declined more severely. And after these reasons, the main factor you see a lower average unit price. When sales are divided by the number of transactions closed, average unit price or average transaction value can be provided and this year, the number was about JPY 38 million. And in the next -- in the last fiscal year, the number was about JPY 44 million which means that an average transaction value declined by about JPY 9 million in just one year.
If we were able to sustain the level of unit price last year, we were able to have a sales number of [ JPY 11.5 billion ]. What this indicates is that we had a decline in the number of major transactions. From around December, when we learned about incidents last fiscal year, we had to stop pursue -- we had to stop pursuing development of mid-cap projects. And this time, we are heavily impacted by stopping our activities targeting mid-cap companies. And we also have the negative impact from moving of some people who left our company.
But besides that, as one important KPI, we have been tracking the number of transactions closed. To revitalize the local communities of Japan, it's important that we save as many companies as possible. And we would like to eventually save 600,000 companies. Therefore, we did our best and as a results, we increased in the ratio of small transactions, meaning that the number of transactions closed increased. However, since the ratio of small transactions increased, our sales declined hence also margin declined together with the decline in sales. And as a result, we now have smaller profit than before.
However, for the fourth quarter and beyond, we believe that we now have a positive outlook. It's just 9 months since we learned about the incident. However, when I look back on the 9 months, we believe that we did so much in the 9 months. Because the level of motivation of employees in the sense of unity, we received many comments. I won't say that was from every employee. However, I believe that almost all or a significant portion of our employees now are united. And the number of transactions closed is -- shows the level of motivation among employees.
Without their passion, the number does not improve. However, this time, the number improved, which indicates that the -- we are experiencing an improvement in the level of motivation and sense of unity at our company. And in normal time, first quarter, second quarter, these quarters, we tend to enjoy [ trailing ] speed. And we tend to have a forecast, especially in the second quarter because roughly end of the first half and third quarter tends to be an important quarter for sales quarter -- sales headquarters because that's an important timing for them to try to achieve their sales target ahead of the end of the full year. So we have -- we tend to have great momentum in the third quarter. And fourth quarter tends to be a quarter that's moderate because that's basically for preparation for the mandate from the next or the fiscal year after that.
And this year, we took actions following incidents in March. And when we started this fiscal year, our employees were not really united. And at the beginning we were worried. Therefore, I decided to have 50 meetings with employees on a physical basis. I had teaching activity on a face-to-face basis with employees. And from the middle of May, we started to be able to have full-fledged activities.
And in the second quarter, we collected opinions from 1,000 employees about our potential purpose statement, and we received 1,200 comments and that became the basis of our new purpose statement.
And the third quarter based on the purpose statement, we established quality department, and we took other actions to improve sales. And as a result, we have the highest number of transactions closed as a single quarter of the third quarter. This indicates a great recovery in our motivation.
And as to this fiscal year, the fourth quarter is going to be a quarter where we will continue to do our best to achieve our full year guidance while also preparing for the next fiscal year. And the fact that our number of transactions closed is higher than a year before, the number 258, gave me so much confidence and courage. And at the same time, the number of consultants, we struggled a lot. From January this year, we had to stop recruitment activity because we had incident and some magazines talked about on our company. And our employees also have some concerns and worries. However, from the start of autumn, or rather, we started to hold some sessions where I myself explained and our executives even have been holding interviews with new candidates on weekends.
In this way, from 561 to 612, we were able to increase headcount and that gives me so much joy. And for the upcoming or the fourth quarter, ongoing quarter, the important point is to increase unit price. And therefore, we have been planning some project for mid-cap targets. And we have been focusing on matching. And at the same time, we started airing TV commercials without restrictions on time lines while we also started to strengthen our system, so people can take [indiscernible].
And we have been focusing on recruiting activity, but it's also important to retain them. It doesn't make sense when people leave our company early. That's the reason why we have been trying to shift towards management with a bigger focus on team. And the aim is to retain our employees from the first year to the second year, from the second year to the third year without losing them.
When we can put this in practice, we will be able to achieve against our midterm business plan, and that leads to our new system of selling in pairs. For example, a person in year 1 and person in year 3 work together in sales activities, maybe this can be calculated as 2-in-1 activities, but in Japanese, we call it [ Nikolic ] and this system of selling in pairs is now introduced at our company. So we can reduce turnover rate of employees while trying to develop new employees relatively at early point in time, so they can start to contribute to our company early.
Services sales compared to the full time -- full year forecast, it is at JPY 29.8 billion and the ordinary profit, JPY 11 billion. So it was a 61% progress. And in the fourth quarter, we would like to strongly manage the cooperation and these numbers demonstrate that. And the progress against [ JPY 18 billion ] is only 61%. So of course, we value top line numbers but we always look closely the ordinary profit, and that has been the one and only KPI for our corporate management. So I would like to apologize deeply that we couldn't meet your expectation. And at the same time, we are going to introduce proper measures so that we can really satisfy your expectations.
So in terms of the number of transactions, please take a look and [indiscernible]. As of third quarter -- as for third quarter last year, it was 243 and last -- 2 years ago, 246 and 3 years ago, 224. And this year, we marked 258, record high number. However, if you look at the cumulative total, if you compare to the number of last fiscal year, it decreased by 8% so we have to grow or recover this number.
Last year, we marked exceed [ 30s ]. So in the first and second quarter, we saw a very strong momentum, abnormal momentum, but even if you take account that kind of extraordinary events, we still have to reinforce our efforts going forward.
And in terms of the number of transactions, just the cumulative number, 421 and it was 388. So it was only 91% compared to the previous year. However, compared to the 2 years ago, it was 108%. So it is growing steadily. But if we compare to the previous year, it's only 91%, so we have to make efforts more.
The mandate is same. We had to stop the mandate activities. So the number of mandates cumulative 952 went down to 883. It was only 93%. So this number has to be reinforced even further.
If we look at the balance sheet, there is no big impact, and we have been able to maintain the healthy balance sheet. And so with this as a base, the payout ratio will be raised to 60%.
And in terms of the number of employees, I think this is very steady and stable. As of the end of March, it was 568 consultants, and we could really -- we grew that to 610 by the end of third quarter. And -- but having said that, we shouldn't really deteriorate in terms of the quality of people. We have to try to acquire the excellent people. That's why I myself attend in the explanatory and recruiting sessions in January, February, March, we would like to focus more on the quality of new hires.
But we have one issue. We believe that -- the total number is -- employee is 1,066. However, the consultants is 610 so I think we have to bring this ratio of consultants to 65. So the balance between the direct labor and indirect labor has to be done, and we have started working on this improvement since autumn.
Now let me report on the related activities. As for the profit, we didn't drop very much. Although we saw some decline because we used to charge a fee for education and so forth but we didn't have it this year. That's why -- however, for the major businesses of related activities are working very well. And what's most strong is Batonz business.
First of all, the number of registration, that's the key KPI. And from 150,000 to 200,000. So over the past 9 months, it increased almost to 135%. And what's more important is that the number of transactions closed. This is cumulative number. It increased from 1,749 to 3,074. So it increased by 1,324 over the past 9 months. In one month, it goes over 100 transactions, in some months. So 100 transactions in one month demonstrates the strategy of Batonz, which focuses on transactions. So 85% of the all industry companies have only less than JPY 100 million annual revenue. So we believe that we have to satisfy the needs of M&A for these.
And there's another area where Batonz is very good at. That is B Mass system. They developed a system called B Mass which has been introduced into regional banks as well as in your Shinkin banks. B Mass best manages mandates and information. So these banks and Shinkin banks are trying to be more serious about this M&A business. And before that, they didn't really have enough information so they could actually manage the information by Excel, for example. However, they are now improved [ in this ] manner. So the size of the information grew. That's where this system, B Mass, is utilized very well.
And another area is Tokyo Pro Market, TPM. This has recorded a highest number of IPO. The -- even with our -- the company's for -- with our service are very strong. And for this TPM market itself, the number of listed companies was record high, 21 companies. And actually, since we joined into this TPM, we feel that this situation started to pick up a great deal.
And in order to accelerate this momentum, we started service Go Public and to signing the J-Adviser agreement, we provide the assessment and guidance. However, there are some companies who need more to go into this serious phase. So some companies need some prep school phase. So for those we signed a contract of Go Public, and then we provide assessment service. And we have already received this contract with 43 companies. So we would like to contribute to regional and national rejuvenation with the birth of great companies.
And we established the BELLS, the association for leaders of TPM-listed companies. We think that this name of BELLS is very good. Let's ring a bell. So we also help in this association to create more innovation and also grow these companies for the next steps and they share knowledge and experiences. This is the form of that. And the next topic.
For the first time in a long while, in 7 locations of Japan, we held a large-scale seminar on a face-to-face basis. But this is, in fact, a hybrid seminar, including some online participants. This level of seminar was held for the first time in 3 years face-to-face. Even for a web seminar -- the last time we had this level of seminar was 5 November, 2 years ago. So we haven't held large seminars for a long while. But this type of seminar is at the heart of our sales activities. Without holding such seminars, we cannot get [indiscernible] mandates or other types of mandates. However, we were able to resume seminar activity for the first time in a while.
For mid-cap, for the first time in 3 years, targeting small and medium-sized company owners, we held some programs called Think Owner's. And we are hoping that this will lead to a higher unit price transactions. And there have been -- or there were so much expectations for this symposium. These owners were desperate to hear about growth strategies, and they were desperate to know owners that they did not know otherwise. And we hope that this will lead to better unit price.
And we also have been focusing on expanding our network. For targeting accounting firms, we held symposium in Okinawa. We asked public accountants to join this symposium to have better collaboration. And this symposium was held face-to-face. And also targeting investors, we create communication tool, that's integrated report, and we published integrated report for the first time. And since this is our first integrated report, we believe that there are opportunities for improvement. There will be occasions of talking with investors like this. We hope to receive your feedback of what you would like to know about our company, what you would like to see in our integrated report. But it's a good thing that we were able to publish our first integrated report.
And we identified 18 materiality, the items that we should resolve or we should address. And there are 5 particularly important materialities. For example, transformation into an establishment of an ethics-oriented culture, and developing next-generation executive management personnel, and promoting businesses that will benefit local rejuvenation, satisfaction -- customer satisfaction improvement and providing safe and fair M&A.
These are 5 of the materialities that we identified. And we would like to continue to contribute towards resolution of social issues through these materialities.
And we would like to continue to have a dividend payout ratio of 60% for the fiscal year that ends in March 2027. And we would like to commit to our growth. In -- so we would like to continue to focus on dividend payout ratio and share price. For share price, today, our [indiscernible] price was JPY 1,753. For fourth quarter and beyond, we would like to continue to do our best to do better. And foreign ownership is now 48%. And this ratio decreased slightly. However, our retail investors or individual investors have our shares and that number of our shares held by individual investors is 41,000. And at the same time, we are happy that many of our foreign investors still hold our shares backed by their expectations, we hope that more foreign investors will hold our shares.
And as to our target. No change to a midterm management plan of 5 years. For the next 5 years, we would like to aim for 15% CAGR. Of course, we are making a very difficult fight and not just this year and first half of next year, we have to be faced with a difficult fight, but we will take on this challenge with some devise and review the expense structure, profit structure so that we'll be able to achieve the 15% CAGR.
And not just looking at the expenses, but we also would like to work in a positive manner. So the recruitment of excellent people, training and digitization. Digitalization will be a very important success. And early development and we have to reduce the attrition rate. So we have -- we are taking serious measures to that. And marketing and [ DX ] are now being utilized fully. And we also would like to raise our awareness in the society, and we utilize a TV commercial nationwide.
And digital marketing is another area. The Owner is the one media and we also hold and developed our website so that we can maximize the opportunities for profitability. And the [ DX ] area, is also utilized well internally. V-Compass is a simple variation system used at the regional banks as well as accounting firms as partners. And in TV commercial, for example, in Okinawa we partner with Okinawa Bank to do the local commercial. And after we get mandates pre-due diligence is very important. That's where this V-Compass system is used.
And of course, the very important point is matching the very optimal matching is needed. This is where we use M-Compass matching system to find the best buyers using recommendation system as well as AI and this is the [ DX ] and it's with the Batonz platform. And there is a company called MOON-X, this is a [indiscernible] brand company. We invested in this company. And so we are thinking about M&A strategy in this area.
And Salesforce is being used very well internally. There is a competition by Salesforce. And [ Mai Fujita ] our employee received a gold medal in Japan at their competition. She became -- the team became #1. And over the past 12 years, we increased sales and profit. So we -- so that we can continue this trend, we would work very hard for the fourth year, both quarters. And we always achieved the target of midterm plan over the past 3 plans. So we will continue our efforts to do the same for the latest midterm business plan.
So with that, I have given the reports on the third quarter's results. Thank you very much for your attention.
Thank you very much for the presentation. Now we will move on to Q&A session. We received your question through chat function. And due to time restrictions, we may not be able to address all of your questions.
Now let's move on to the first question. To achieve your financial guidance, it is necessary that you need JPY 12 billion in sales, ordinary profit or rather operating profit, JPY 7 billion, ordinary profit ratio of 57% in the fourth quarter. And all of these are your record high numbers. Please give us some quantitative information which keeps that -- assures market confidence in the likelihood of achieving the guidance.
Thank you very much for your question. And I believe this is one of the most important questions. I will say, in the fourth quarter, we will need to do the best sales activities that we have never had before to achieve the guidance. And one point is the growth in transaction numbers to grow sales number. This is one important point. Another important point is the review -- is to review our expense structure to reduce expenses which will lead to higher profit ratio to achieve good ordinary profit margin.
I think these are how we can achieve the financial guidance. And for now, sell-side mandate pipeline, we have 1,820 mandate pipelines. And this is about 8% or so higher than the same time last year. And we have new mandate pipelines of 883 in the recent 9 months, and many of them are matched with counter parties.
Based on these new pipelines, negotiations started with buyers. Or the new pipelines, which have buy-side candidates, the number of such pipeline reached 255 which is slightly lower than the same time last year by 3%, but it's almost in the same level as last year. And the negotiation open pipeline or the number of transactions that are being discussed and negotiated, we have about 350 of such cases.
And at the same time, emergency matching is something that we have been doing. This is to increase the pipeline numbers further. And currently, in an organic state, of 350 cases. We have enough portfolios to achieve our guidance based on the 350 cases. However, M&As are not all [ float ]. Some may not be able to reach agreement, but some may be recorded as sales in later timing. And for example, due to due diligence, something unexpected may come out or there may arise an issue with the loan on the buyer side and transaction closer -- closure may be delayed to the following fiscal year. Therefore, just having organic pipeline is not enough. Therefore, we have been doing what we call emergency matching for emergency pipeline.
And through these activities, we believe that the likelihood of achieving this guidance has become much higher. And for myself, what we want to do is to close based on the pipelines we have towards March based on firm possible scenarios while also creating new pipelines for new matching. So we can compensate for potential pipelines, which may not lead to closure.
And this is the second action that we have started taking. And another is the activity to lower expense level. And this will make it easier for us to achieve the guidance on ordinary profit ratio. And we have been doing our best in all of these activities, and we are hoping to meet your expectations. Please continue to count on us. I hope this answers your question.
Next question. At the previous meeting, we heard that there has been the 30% growth of the number of negotiation open pipeline since the end of June to the end of September. However, if we look -- when we look at the transactions, it decreased from the second quarter. Why is this? Is there anything unexpected from the previous meeting?
There was nothing unexpected since the last time -- the trend is steady -- the number of negotiation open numbers is fiscal year 2021 second quarter and the second quarter of 2022, 231 and 177. So 19.9%, almost 20% growth have been seen. So in terms of our second quarter negotiation open have grown very steadily.
In fiscal year 2022, first quarter's open numbers was at 215. However, in the second quarter, it was 277. So it grew by almost 30%, precisely 28.8%. So this is also steady. Having said that, the second quarter's transactions in order to close the first half, everybody worked so hard. So we did have 270 transactions. But in the third quarter, it was 258. So that was a very unfortunate result. We wanted to grow more. The reason for this situation was -- one is that there was some delay into fourth quarter -- the first report -- reported number of transactions was more -- it was 270. It was nearly 270 -- however there were some issues of financing or they didn't make timing, good timing for finalization, detail finalization.
So some of the cases were deferred to the fourth quarter and we couldn't book sales in the third quarter. So because of the delay into the fourth quarter, we couldn't achieve 270. So I believe that is the major reason for this. However, we had to really exceed this number of 270 to reach, for example, to 275 or 280. That's my honest feeling in the first quarter and the second quarter, there was a number of people who left the company in the first and second quarter. So in some cases, negotiation had to be suspended or we had to replace the people or team members and that may have resulted in the shortfall of achieving the targets, and that's why we couldn't really exceed the result with the second quarter. However, in terms of the number of negotiation open pipeline, the situation is not bad, definitely not.
The next question, in the selling in pair system, is there something that you trying to be creative in sales recognition or incentives. For example, is there any system or were in place so that the achievement of younger people is not recorded as achievement of a more senior-level person.
Thank you for your question. We, in fact, have an experience of doing this selling in pairs system. And we also used to have brother system, and we always try to have a better system in place.
For our new joiners, we consider how they can be developed quickly and how they can overcome some situations which may mentally be tough for them. And in the past few years, the brother system and the selling in pairs systems were not in place. Instead, our teams try to develop new people by themself. However, at the [ brief leader ] off-site, there was a comment that a more detailed care is needed for new people, and we received this comment from many people, especially in the hospital or medical industry, there is a system of supporting new people with senior level people.
For example, a system of supporting intern doctors or intern people. So we have a similar system in other industries. And following the opinions of group leaders, we have decided to revitalize this selling in pairs system and improving sales and change our incentives are very important.
And about the share of incentives or sales target we also considered the incentives and budget. And we have been having a lot of discussions about the concrete details of this system, and we do not disclose details of this system. However we are planning to -- sales in accordance with the ratio of the budget ratio. However, this has limit, when this limit is reached, the efforts -- based on efforts, we are going to pay out on a fair basis.
For example, when there is a big contribution from the new person then we will try to be creative so that the contribution of the new person will not be taken over by a senior person. So please understand that this system is also based on our care.
In order to achieve the full year plan of ordinary profit, please tell us your policy on controlling expenses in the fourth quarter?
Thank you very much for the question. Takamaro Naraki should explain this, the Head of Administration, headquarters.
Our expenses include the labor costs, such as compensation and rent and DX related, the commissions and fees. Those are our expenses. And there is nothing drastic measures, but first, we would like to control the unnecessary or un-urgent expenses. And another way is to be flexible and for example, in using the free address to control rent fee even when we have increased number of employees.
And also DX-related areas. There are things we have to do now. And the others, we can wait for the moment. So we always try to strike the balance between them. And the day-to-day commuting expenses and entertainment fee expenses as well as business trip expenses, though it has to be controlled with a reasonable attitude, I think.
The next question, how has been the environment on the seller side? And what's the motivation among buyers side offering any new movement as to the motivation?
We believe that the momentum is improving after the environment among sellers. COVID impact has diminished to some extent. And from midstream, is going to be an important point in time of having to repay for loans received. For example, during the past 3 years, some very senior business owners may have got hired. And they may have decided to retire from their company themselves. And also, company will have to start repaying for the loans they received even when their revenue levels have not recovered enough which may put them in a difficult position in financing.
And this we believe may lead to a higher interest in using M&A services of selling their company. However, on that and on the buyer side, there is small impacts from COVID and the economy is recovering to normal times. And based on some lessons from COVID, some companies may be considering some changes in strategies. And also, there's -- I mean the feeling the need to establish a new business model, the need to improve margin. In this way, I feel that there are many companies with high level of motivation for acquisition. So we believe that we are now in a very good environment when we consider our future business.
Next question. I hear that there is an increasing number of people who lead the company. What is the turnover? As a result, is the ratio of experienced employees going down?
Thank you very much for the question. Number of people who leave the company is increasing. In the first half, the turnover rate was 8.1%, just for your information. Full year basis, in fiscal year '20, it's 11.8% and the following year, 14% for full year. So fiscal year '22, in the first half, we didn't see the drastic increase of the number of people who leave the company. However, it's the fact in the first and second quarter that the number of people who leave the company is increasing. However, we see some modest trend in the third quarter, and there is no difference between those who have less than 3 years of service, and the ones with more than 3 years of service.
In terms of turnover, the ones with more than 3 years was 33%. And with less than 3 years, it was 67%. And in the third quarter of this fiscal year, the ratio did not change very much just for information, 2 years ago, fiscal year 2020 in the third quarter, those with less than 3 years of experience, it was 60%. Those with more than 3 years, it was 40%. So compared to 2 years ago, last year and this year, the ratio of those with 3 years of experience, the turnover or the ratio is less than 2 years ago.
I -- so we have to think whether this is good or bad. Of course, those with experience, and when they leave, we would lose a lot of strength. So it has to be okay. But those who are less than 3 years of service leaves, then it will be a huge issue. So that's why we introduced this to in [ Montoya ] was introduced to retain those who have less than 3 years of services.
Does this answer your question? Is there anything additional comments from you, Naraki-San?
The next question, you talked about making indirect department operations more efficient. Do you have some compact KPI targets, for example, during the same work, we have a number of people who are using DX?
Thank you for the question. We will not be able to reduce the number of personnel as dramatically asked this question state. Because M&A -- in M&A, if you really need services, each case is different, so we will not be able to reduce our workload even when we use DX. However, for accounting, even when we have more personnel than transactions, as consultants, we'd not add accounting number. Rather, we have one less person at the department, meaning that the -- although we have higher and larger work volumes, we are doing -- we are having the work volume, the high volume of work with less number of people.
In the areas of document control and others we have been implementing DX and that we will continue to do. And I believe that we need to make efforts to not increase the number of indirect department people. We will not be able to completely eliminate indirect department personnel, but we will try to not increase our indirect personnel number. And 65% to 35% is going to be the good ratio of indirect members to have good level of productivity. Therefore, indirect department personnel ratio being around 35% to 37% is the GTA we have.
At this time, the drastic inflation paced by SME companies, they are struggling very much. What sort of those activities do you do against this backdrop? And is there any impact on sell-side mandates?
Yes, very rapid inflation as well as yen depreciation caused a raw material price hike and the labor cost hike and wages increased. And under such circumstances, whether SME companies can transfer the cost to the pricing, I think that's very difficult for them to do that. It's true that the business environment has deteriorated. And for us, it actually provides tailwind, we believe that we can have more transactions or the mandates.
Since last year, November, the face-to-face seminar was resumed and we would like to intensively hold face-to-face seminars. Not just face-to-face seminars for us, we also would like to have hybrid seminars, not just with us, but at regional banks. Hybrid seminars in face-to-face and online combined. And at accounting plans, we also would like to help them hold such seminars. We are very good at holding seminars so by inviting people to the seminar we can motivate and persuade them into M&A. We want to do it very aggressively.
For that, we would like to create attractive seminars for example, how you can address the cost hike of raw materials or yen depreciation or the seminar to address how you should handle the repayment of their interest finance or for SME leaders, we believe that we can have an attractive seminars so that we can increase mandates. And ultimately, we would like to save as many companies as possible from bankruptcies.
The next question, what is the most important point in sales recovery going forward? EBITDA resumption of proactive sales activities or consultant motivation?
Thank you for your question. We believe the most important theme is included in this question for our company. And I think there are 3 important points. The first point is the resumption of decorative sales activities. This is very important. Another important point is the motivation of consultants, but it's not just consultants. The higher-level amortization of the entire company of Nihon M&A Center Group. And also, our group needs to be more unified. And also sales improvement, upskilling of consultants, these are the 3 important points for us, and these 3 will need to be addressed in parallel.
And one main thing is after the motivation of the entire company, we are in a very good position. We are having a very rapid recovery. We received many opinions. For example, let's stop part of Nihon M&A Center that should continue in -- that should improve. When we conducted this questionnaire, we received a significant number of answer or response, about 800 response from a company of 1,000 employees. And I spent so much time in reading all of these answers. And for every single question, we receive this much -- this many answers to the question. And this, I believe, shows the high level of motivation at our company. And when you look at the number of transactions closed, you can see the higher level of motivation and good momentum compared to earlier quarters, apparently, people have higher motivation.
So you can see that not only through numbers, but also through the questionnaire response. And frankly speaking, this level of recovery in the past 9 months exceeds my earlier expectations, but this is a very good trend. And another theme on upscaling of consultants, this is such an important theme, which cannot be addressed suddenly. However, the selling in payer system starts from February, and we hope that this will serve in bottoming of our sales activities. And what we can start to do immediately is the proactive sales activities to recover in sales. This is one thing that we can start in [ this week ] and we will plan things based on our expertise and list them and we will hold seminars.
We will try to be created in some of our strategies for our direct customers. And we will consider how we would like to approach local banks and other accounting firms. And the details of these plans will be crucial for our success. To have successful planning, we will lead to sales recovery in the fourth quarter and beyond.
Next question. I look forward to the number of transactions in the fourth quarter. But on the other hand, what is your stance towards mandates? Is it possible to pursue transactions and mandates simultaneously?
Thank you very much for the question. It is a very important question, and thank you very much for -- we're looking forward to the number of transactions, I will try my best to achieve that. But of course, in parallel, you're right, we have to work very hard for mandates as well. When the number of mandates go down in the next phase, we will be in trouble. So the priority is set on the transaction and then matching which may relax in the negotiation. However, the members who work on mandates are not the same members from transactions. For example, those with 1, 2 or 3 years of service, these are the ones who work on mandates.
And Nomura Securities, for example, have a separate team for mandates. They have a dedicated team for mandates. So these members can accelerate for activity -- for mandates activity. And those who do the transactions and matching are usually those with more experience. And those who work on matching the ones who are sell-side mandates. So there are usually different members from sell-side mandates.
So I think we can strike a balance between them. We cannot just -- it's really difficult to cover everything, and I always sweat on that, but we always have to look in a broader range of our different teams. However, we would like to pursue these simultaneously so that we can have a good transaction numbers.
Next question, which p of your sell-side mandate suffered versus second quarter direct channels versus referral customers? And also, please talk to us about your strategy for growing mandates going forward.
Thank you for the question. In the second quarter, we suffered in direct channel. The ratio of referral to direct channel changed significantly compared to normal times. For example, in the third quarter, direct ratio stood at 38% and 64% for referral. Referral was 64%.
On a full year basis, last year, direct ratio was 43% on a full year basis. So there was a decline in direct ratio from 43% to 38% from last year to the third quarter this year. And this matches with my actual filing. There are multiple reasons for the weaker direct channel. One is the lack of seminar holdings. To get mandate through direct channel, it's important to plan for seminars and various events. And since the incident came out, we have not been able to plan such events, which has led to a lower number of direct sourcing cases. The second factor behind us is related to the incident. The number of direct members compared to referral was higher. Therefore, many of our employees, their motivation was negatively impacted since some people left and that has led to a weaker number of direct and direct channel.
However, there has not been much change to the referral system or referral status. Despite the incident, the reaction and motivation from our partners such as local banks, securities companies, et cetera, has not changed so much. And that has led to a higher ratio of referral cases. And as to our strategy for the future, the strategy will be about taking various initiatives to strengthen direct channel through holding seminars and others, direct marketing can also be a good measure.
Next question. There has been some delay in achieving the target of quarterly plan. The external directors, are they monitoring probably at Board meetings?
Well, today, we also had a Board meeting. It became very lengthy. We started at 1:00 until -- this results reporting started at 4:30 p.m. each time. And I had to attend the rehearsal at 4 p.m. because of the interpretation service as well. However, this Board meeting lasted until 3:00. So with very strict monitoring and asking difficult questions for root causes are done at the Board meeting.
And we also prepare for that, for example, the analysis of factors and causes and we did a presentation at the Board meeting today and especially from external independent directors, asked very detailed questions for the reasons and they also asked us to conduct in measures and countermeasures. And to those questions, I'd like to hear from Mr. Naraki of his observation about this Board meeting with independent directors.
It is not just about this quarter, but we have changed the structure of meetings or management meetings. And we introduced independent directors, and we made it a rule to have every attendant comment views and opinions. And as the President said, we had a very candid discussions up until the start of the rehearsal of this results briefing. And we have that management coming Mr. Takeda, the Chief Compliance Officer attended the recent meetings of the compliance meeting, and he checked if there is no incidents happening. And every month, we have 3 hours or more discussion -- our discussion and Mr. Hirayama, the auditor also attends this meeting. And from the auditor and civil pricing position, we always hear the comments and views. So we always have a very active monitoring and discussion going on from external and independent directors.
The next question. You have announced about your shareholders' return policy, but even this is a good timing for considering MyVAC as one way of sending the message in the market, and please talk to us your thoughts and some message about the capital market?
Thank you for your question. About our shareholders' return policy, this policy is important for our company and the way we return to shareholders. One way of doing that is to improve dividend payout ratio while doing buyback and both of these are very important.
At today's executive meeting, this was one of the changes we discussed, do we spend so much time on the shareholders on return policy? Following the incident, our share price was impacted for despite the fact that share price is formed based on various factors. However, incident was one of the factors behind a decline in our share price. And we should be dedicated to or recently committed to achieving our midterm business stack. And that's why we raised our dividend payout ratio. And we can achieve this in the midterm business plan period, which means that we can also grow in our main business itself. And after that dividend payout ratio beyond the end of the midterm is [indiscernible] we will decide and...
There is a possibility that we ourselves meaning to acquire a company of a large-scale M&A, then we may need to take some necessary actions for that to have more capital. But there's also the possibility. There is the possibility of raising the dividend and payout ratio targets. However, we may receive an opinion that the current dividend payout ratio is the optimum level. However, during the midterm business plan, our plan is to maintain 60% dividend payout ratio. There was no opposition to our direction. But our direction is to also do buyback beside the dividend payout.
And my personal opinion is that the timing is important in terms of financial performance and share price. When we enjoy good share price and good financial performance, we would like to consider buyback. But that's just one of the many potential scenarios of considering buyback seriously. And we consider such scenarios at executive meetings and Board of Directors meeting, and we will continue to discuss shareholder return policy at such executive level meetings. And that's how we plan to send out our message to the capital market.
Next question, because of the majors for internal initiatives is compliance, do consultants spend less on sales activities? Is there any area where you can reduce the idle time of consultants?
Well, yes, for measures to strengthen compliance need time and we conduct different trainings. However, it's not that we spend hours or days for training. So I don't think we reduced the sales activity time of consultants. And on January 13, we conducted all employee training, including compliance as well as a philosophy. But this is the training has been done over the past 20 years at New Year time. So from one time we did digital transformation. And one time we thought about mission and last year, purpose and this year, philosophy. So even when we introduce measures to strengthen compliance, we are not reducing the consultant time to spend for sales activities.
Having said that, there should be some idle time, for example, meeting -- meetings or various applications. So we sometimes do have some idle time or non-sales activity time. That does exist, and we are trying to rectify the situation now. For example, the requirement of sales or for the approval of mandates in the past at the administration headquarters was the only section to check but they don't know what's happening in the field. So they have to go back to sales team so many times asking questions and getting responses and asking again. So that generated idle time.
So in the sales headquarters, we created the administrative section. And this administered section in sales headquarters will do the minimum checking. So that administration headquarters will just check at the minimum amount. And by doing this, we could reduce the correspondence between administration headquarters and sales headquarters. And the same applies to pre-due diligence. I feel that we sometimes had to had excessive control. And in the past, there was a section which is to control the projects but all these logs were introduced into quality control headquarters.
So this quality control headquarters will cover end-to-end procedures so that we could eliminate the duplicated work done by 2 or 3 different sections. And starting April, we will start process management. And we include -- of course, when we had unnecessary processes that will result in unnecessary people, and when we have unnecessary people, we will have unnecessary leaders. And in sales headquarters, they have to spend unnecessary time to answer questions. Of course, we have to improve qualities. We have to improve the management quality. However, we have to avoid excessive control or duplicated submission of documents, for example.
So that's -- this idle time is definitely where we are trying to review, anything from you, Naraki-San?
So the question is whether we have reduced number of hours of consultants to spend on sales activity because of compliance measures or what's most important is as we became accounting rules more strict. So from sell side and buy side, we have to receive the copies from both sides. And also, we have to get the original of the combination as well as the field certification. So we have established a structure where we would not have incidents anymore. So -- but of course, the likelihood is increasing. However, we have to have these disciplines because we have to avoid incidents. So with all these introduced, we have to really accelerate the sales activities. So we have to have a good balance between this discipline and aggressive active sales activities. I think that's the most important thing for the company.
Next question, please talk to us about your magistrate unit price in the time line?
For this question, from before, we have been doing our best to implement on our growth strategy. And from a few years ago, we became more proactive in the courting personnel, especially consultants. And when we have more consultants, unit price go down. And this is something that we had expected. But we want to at least maintain unit price. And the measures to do that is to increase unit price through increase in the ratio of mid-cap cases. In this rate, we try to offset positive and negative factors to maintain average unit funds. This is one thing that we have always talked about not only at [ unit ] shareholders' meeting, but also targeting investors in an IR activities.
And also, the unit price number is also impacted by productivity and productivity should be maintained and improved through education and DX even when we add new people. And this is one more thing that we have talked about for the past few years to investors. However, we have the incident and that prevented us from implementing very proactive sales activity. Therefore, in the past 1 year, we just had organic factors around average unit price. So lower average unit price is not something unnatural. However, we need to take measures that we could not take measure for the past 1 year, it's the measure around mid-cap cases, and we just started taking that action from December.
In addition, we plan to start new activity from April and I am very excited about this activity, and it's going to be something very exciting. And we have been preparing the necessary hardware and curriculum for that. But we will start to be able to see the results only from the latter half of next fiscal year. So it's going to be from around November that we will be able to benefit from the majors. And we will do new things from April, and we have been preparing for that such as procuring hardware for that. And in the latter half of the next fiscal year, we hope and we believe that we will be able to have a significant recovery in average unit price.
But to be frank, I would like to increase this average unit price as soon as possible. Therefore, I and other executives have been accompanying ourselves personnel in mandate-related activities. For example, I have created video letters by accompanied consultants myself. And the symposium -- we have symposiums. In this way, I hope that you have good expectation towards our number next fiscal year.
What are the topics often discussed at board meetings other than topics of business execution?
Thank you for the question. There are various topics we are discussing. For example, the -- there is a company where -- which we where thinking about capital alliance, maybe it's not that much of capital alliance, but it's more like a business alliance. And we discussed how we should partner with this [ over ] online with this company. That is one topic we often discussed. And at this time in the previous meeting, we discussed the risk management. And we said that we should conduct comprehensive risk management, and we actually created manual, and we had a very tough discussion, and we decided to reformulate the manual. And I think this improves the manual content, and we explained about the new manual, and we received the approval from the board. So those are the examples of typical topics at this time. Anything from you Naraki-San?
On risk management related or compliance-related and governance-related topics are often discussed as Mr. Miyake said. And this time, we talked about the formulation of manuals, but these are the typical topics we cover these days.
Due to time restrictions, the next question will be our last question for today.
What was the ratio of your customers you acquire through direct channels? And when you resume seminars, how much increase of sell-side mandate can we expect?
Thank you for the question. The ratio of direct customers through -- or rather that ratio of direct customers who came through your seminars, we -- I need to apologize that I don't have concrete numbers, so I cannot give you some concrete percentage-based number. But we will try to give the number for you. And based on my gut feelings, after the measure of direct customers who we acquired through seminars, 60% or 70%, we leave 60% to 70% of direct customers -- became our customers through seminars.
Our company has held a very overwhelming number of seminars and very -- many mandate change from seminars. Non-seminar cases, I would say, are 30% to 35%. And when we resume holding seminars, I won't say that, that will immediately be translated into an increase in mandate numbers.
For example, when we used to have large-scale face-to-face customers, 20% to 25% of participants were our repeaters. And after I present by exchange business card with such repeaters and they are thankful to me that the -- they are happy that I came again to present. However, there are people who learned for the first time after joining our seminar for the first time that the M&A can be one way of saving companies suffering from a lot of successors. And they come to our seminar for the second time to confirm their understanding in their direction. And then they strengthen their confidence in their third participation.
And in this way, they gradually grow confidence in their decision on potential M&A because selling a company with 30 years' history, for example, is not a decision that's easy to make. Therefore, we think continuing to hold a seminar is very crucial. We just started holding seminars. However -- and I have to admit that there are many customers who immediately decide to give us mandates. And as to the repayment of the loans under structured conditions of not recurring interest or guarantees, the repayment will have to start from April. And also, there are some additional issues, for example, increase in labor cost and increase in raw material costs. And when we hold seminars in such an environment, we can expect any immediate effect.
Therefore, the past direct ratio, we think it's possible for us to come back to the previous past direct channel ratio. In the next fiscal year, we would like to target a normal ratio between direct customers and non-direct customers that will be for our customers. That's our direction for the next fiscal year.
Thank you very much for giving us your time today. And we are happy to be joined from throughout the world. Thank you for joining our financial results briefing session for the third quarter, and we have not fully recovered from the incident. And for example, that is reflected in terms of our share price, but our executive members are united to drive our business for the better.
As I stated at the beginning of the session, about improving the level of motivation and being united, we believe we have recovered to a very good extent. And that is reflected in our transaction number. Second and third quarters, our number of transactions closed -- have come to a very good stake. And I am confident that our employees' motivation is only improving. And as to headcount, we have been growing our headcount, 610 consultants we have a power company. And that gives us confidence.
Through new systems such as selling in Paris and through strengthening education and also through maintaining our employees, and through sales planning, we would like to continue to have good momentum and to have good mandate numbers. And our fourth quarter is not going to be an easy quarter for us. However, we would like to do our best to close the ongoing negotiations, the ongoing mandate, and that is not enough. We need to close transactions from new matching, and that may not be enough. And in that case, we will make sure to review our spending. And that's how we strive to be a company which can satisfy your expectations. And I feel very much that we have been recovering solidly from the incident, and please continue to support our company.
Once again, thank you very much for joining our financial results briefing session.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]