Link and Motivation Inc

TSE:2170

Earnings Call Transcript 2021-Q1

[Yoshihisa Ozasa, executive]

I am Yoshihisa Ozasa, and I'm Chairman and the Representative Director of the Board of Link and Motivation. Welcome to the first quarter 2021 financial results webcast.

So let's get started. Here is today's agenda. First, I'll give you a brief introduction of our company. Second, I'm going to talk about our first quarter financial results. And the third and final item will be business reports and updates for each division.

So let's begin with the company overview. This diagram shows the operating structure of our group. We have 3 divisions: Organizational Development Division, Individual Development Division and Matching Division, which links the 2 divisions. We also have Venture Incubation business.

Let me move on to talk about our Q1 financial results on a consolidated basis. The first quarter revenues dropped 4.1% from a year earlier. The adjusted operating income and operating income came in better than last year, up 8% and 4.3%, respectively. That is because of steady improvement across all the businesses, especially in the high-margin Organizational Development Division despite the still recovery in Domestic Personnel Placement & Temp Staff business and the increase in expenses due to the office relocations.

The first quarter net income fell from the previous year as a result of a higher estimated tax rate.

This is to show how much has been achieved during the first quarter against our full year forecast. We saw high achievement rates because of the steady improvement in business across the divisions and cutbacks in SG&A expenses despite the state of emergency put in place in early January. In fact, these achievement rates are on par with those of the same quarter of the previous year, and that is, of course, before the COVID-19 dealt a big blow to our business. As you can see, revenues achieved 23.8%, adjusted operating income is at 28.4% and operating income hits 46% against the full year targets.

These are our first quarter revenues and gross profits by segment as compared with the same quarter of the previous year. During the first quarter of 2020, Organizational Development Division and Individual Development Division were still unscathed by the pandemic. So when this year's first quarter results are as good as the year before, it is safe to say that the transition from recovery to growth is taking place right now.

This one shows our first quarter SG&A expenses on a consolidated basis. Total SG&A expenses dropped 2.2% in the first quarter from the year earlier period. We take a well-balanced approach when it comes to SG&A expenses. For instance, we consider raising salaries, including an increase in base pay, to be an investment. Payrolls increased 12.8% in the first quarter. Equally important is an investment in our workplaces such as office relocations and efforts towards the digital transformation of the office environment. These expenses were 31.4%, a very big jump from the year earlier period. In contrast, we kept tight control on other expenses, and this balanced spending approach helped us bring the overall spending in the first quarter down 2.2% from the year earlier level.

This is our consolidated balance sheet. Both assets and liabilities shrank significantly, in large part, thanks to a big decrease in right-of-use assets and lease liabilities, following our office relocations. Total assets decreased by JPY 8,438 billion in the first quarter from a year ago. Total equity increased to JPY 4,997 billion because of the net income posted in the first quarter.

This is our dividend policy. We continue to pay a quarterly dividend of JPY 1.8 a share. The next payment is slated for Friday, June 25.

Next, let us move on to give you business reports and updates for each division.

[Hideki Sakashita, executive]

Hello. I'm Hideki Sakashita, President and Representative Director of Link and Motivation. I'd like to report on the current business situation surrounding Organizational Development Division and explain our strategy.

Let's take a look at our product revenues by business. In the first quarter of 2021, our Consulting & Cloud business saw its revenues and gross profit rising 2.6% and 1.6%, respectively, from the year earlier period. For our Event & Media business, revenues dropped 17.5%, and gross profit edged up 0.7% in the first quarter.

Consulting & Cloud business performed better than last year, especially in the consulting business as the demand for online trainings for new graduates and new managers as well as in terms of HR system design has been rising. Event & Media business, on the other hand, is still recovering in terms of staging large in-person events as well as the production of in-company media contents. But we saw a significant improvement in gross profit margin in this first quarter, and its gross profit actually came in better than the year before.

Next, I want to give you an update on our Motivation Cloud series. The pandemic continued to cause a decline in new subscriptions by small and medium-sized businesses and venture companies, bringing its share of the product revenues slightly down from the same period of the previous year. But the monthly fee revenue of the Motivation Cloud series has been recovering steadily since the third quarter of last year. In addition, monthly sales per customer have also been rising even during the pandemic as a result of targeting big corporations.

Let me also update on the subscriptions by large corporations. More and more industry-leading companies and big corporations that employ thousands of people are subscribing to the Motivation Cloud series, and the share of such big corporations and the monthly fee revenue continues to increase. To become the dominant player in the field of HR services business remains to be our focus, and we will do everything in our power to increase subscriptions of our motivation diagnostic service, design and develop a model that produces cyclic transformations and further promote human capital disclosure. Diagnostics, transformation and disclosure will be the next key elements of new value cycle, which we are committed to deliver for better company management.

So stay tuned to what we are up to, and that does it for my business report. Thank you very much.

[Takashi Oguri, executive]

Hi, I am Takashi Oguri. I'm a Director in charge of Individual Development Division. I'm happy to update the business and our strategy going forward.

Let me begin with the first quarter product revenues by business as compared with the year before. Career School business saw both revenues and gross profit going up 1.2% and 1.4%, respectively. On the other hand, Cram School business revenues and gross profit took a hit from the pandemic, down 8.8% and 6.2%, respectively, from the year earlier period.

The slower-than-expected conversion of the new enrollments has contributed to the slump in our Cram School business. In contrast, Career School business' first quarter results comfortably beat last year's figures, although this business remained pretty much unscathed during the pandemic. To give you more details, we saw more new enrollments in our Career School business in this year's first quarter than the year before, and the number of enrollees is back on track for recovery, especially in our civil servant programs.

In addition to that, making our online courses more accessible helped us ride out the state of emergency put in place back in early January. Of course, we are once again under the state of emergency, and those of us living in big cities need to remain vigilant for an extended period of time, and we are closely monitoring possible impact of this extension of emergency on our business.

Having said that, however, we have reasons to believe that this pent-up demand for learning new skills and individual development continues to drive our business forward. So we will continue to speed up the creation of new models to provide value in a virtual space and forge ahead with the efforts to delivering services that will help individuals improve their true market value.

Stay tuned to what we're up to, and that's it for my business report. Thank you very much.

[Hiroyuki Kitsuu, executive]

Hello. I'm Hiroyuki Kitsu, and I'm a Director responsible for Matching Division. I am pleased to give you an update on our business and our strategy going forward.

Let's get started. I wanted to take a look at our first quarter product revenues by business as compared with the earlier period. Global Personnel Placement & Temp Staff business saw its revenue going up 6% and the gross profit growing 4.8% from the year ago period. Domestic Personnel Placement & Temp Staff business, on the other hand, reported revenue falling 28.8% and the gross profit sliding 20.3% from the year before. Signing a long-term contract with existing ALTs and hiring native English speakers living in Japan helped us overcome the possible shortage of ALTs due to immigration restrictions put in place to prevent the spread of the virus, enabling our Global Personnel Placement & Temp Staff business to beat last year's results.

For Domestic Personnel Placement & Temp Staff business, I prepared the following slides to give you more details. Let me talk about the temp staff business first. In this year's first quarter, we were still not as good as in the first quarter of last year, that is, before the COVID-19 pandemic. But we believe we have fared well in terms of continuing to supply temporary workers given the seasonal slowdown in the first 3 months of the year, and we are clearly on track for recovery. We will continue to change our client mix and shift our focus to such sectors as retail and call centers and leverage our core technology, Motivation Engineering, to improve the retention rates.

When it comes to our personnel placement business as well, we are noted where we were a year ago when the impact of the pandemic was still minimum. But we have on our working data platform more than 4.1 million registered users and over 11 million company reviews and counting. We will continue to make more job offers available and enhance our Matching Division to further advance through mutual understanding and trust between organizations and individuals to realize we call, engagement matching.

So stay tuned to what we are up to, and that does it for my business report. Thank you.

[Yoshihisa Ozasa, executive]

Thank you for the business updates, my fellow directors. It is undeniable that the ongoing pandemic in general, and the spread of variants in particular, took uncertainty in the coming months. But it is also true that our group and our business divisions have been performing with agility and flexibility during this time. We quickly shifted to doing business online and adapted to working from home. Digital transformation is taking place within our organization at speed and in full swing. We should never underestimate this pandemic, but so far, we have been able to take it in stride and operate at crude speed.

So once again, I want you to stay tuned to what each division is up to, and that brings to an end of our first quarter 2021 financial results webcast. Thank you very much for watching.