Link and Motivation Inc

TSE:2170

Earnings Call Transcript 2023-Q1

[Yoshihisa Ozasa, executive]

I am Ozasa, Chairman and Representative Director of Link and Motivation Inc. I will explain the consolidated financial information for the 3 months ended March 31, 2023. This is the agenda for today. First point is company overview. Second one is business report. And the third one is the progress of growth strategy centered on Organizational Development Division.

First, company overview. This is the mission of our group. Through motivation engineering, which is our core technology, we provide opportunities to transform organizations and individuals and create a more meaningful society. Under this mission, group companies are united. This slide shows our business structure. We have 3 divisions. The first one at the top is Organizational Development Division. It has 2 businesses of Consulting & Cloud business and IR Support business. The second one in the middle is Individual Development Division. It operates Career School business and Cram School business. The last one at the bottom is Matching division. It operates ALT Placement business and Personnel Placement business.

Let me move on to the second point, business report for the consolidated results for the first quarter. This slide shows the consolidated statements of operations. Although profit continued to decline in the Career School business and the ALT Placement business, revenues were almost on par with the previous year and gross profit and operating income surpassed the previous year on growth of the high-margin Consulting & Cloud business and Personnel Placement business.

Net income and net income attributable to owners of the parent increased substantially year-on-year based on the previous year's accounting policy. Net income before application of IAS 12 was up 39.7% year-on-year. This slide shows revenues and gross profit by segment. First, in Organizational Development Division at the top, expansion of the Motivation Cloud series drove growth in the Consulting & Cloud business. As for individual development division in the middle, restructuring of the Career School business, such as relocation and closure of schools resulted in a decline in revenue. In Matching division at the bottom, revenue continued to decline in the ALT Placement business, but the Personnel Placement business, including OpenWork made rapid strides.

From this slide, I will explain the summary of each division. First one is Organizational Development division. Consulting & Cloud business made a substantial increase year-on-year, driven by growth of the Motivation Cloud series. The graph on the right shows the monthly fee revenue of Motivation Cloud series, it grew 32.4% compared with the previous year to JPY 339,179,000. IR Support business increased year-on-year as well due to growth of integrated reports.

Next is the summary of Individual Development division. Career School business recorded substantial year-on-year decrease in B2C services due to relocation and closure scores and B2B services decreased substantially year-on-year as the repeat rate became an issue. The graph on the bottom right shows revenues for B2B services. It recorded revenue decrease. On the other hand, in Cram School business, revenues increased substantially year-on-year due to improvement in the continuation rate after completion of junior high entrance exams. However, gross profit decreased slightly year-on-year as an increase in personnel expenses was reflected in cost of sales.

This page is for the summary of Matching Division. In ALT Placement business due to price adjustment as a result of the expansion of social insurance coverage for ALTs, some local governments did not place bid because the price exceeded their expectations. As a result, both revenues and gross profit decreased substantially year-on-year. On the other hand, in Personnel Placement business, OpenWork Recruiting continued to grow. As a result, it increased substantially year-on-year as revenues were up 30.6% and gross profit was up 28.7% year-on-year. The graph on the right shows OpenWork Recruiting sales and it recorded a sharp increase of 128.9% from the previous year.

This page is about consolidated SG&A expenses. Total SG&A expenses was almost flat to the previous year, and there were no significant year-on-year changes in each item. This slide shows consolidated statements of financial position. Assets and liabilities increased slightly due to financing for future investments. Net assets increased due to the recording of net income and issuance of new shares of OpenWork. Total equity increased by JPY 897 million.

This slide is about the dividend. For the first quarter, a dividend of JPY 2.8 per share is scheduled to be paid on Friday, June 23. Next is the third point. Progress of growth strategies centered on the Organizational Development Division. There are 3 strategies: first, achieve substantial growth of the Organizational Development Division; second, enhanced synergies between the Organizational Development Division and Individual Development Division. Third, enhance synergies between the Organizational Development Division and the Matching Division. These are the key strategies, and they are summarized on the right.

For the first strategy, revenue in the Consulting & Cloud business increased 11.9% year-on-year. From the second quarter onward, we will work to meet needs for the release of information on human capital while focusing on supporting human capital management. For the second strategy, the repeat customer rate became an issue in the first quarter. From the second quarter onward, we will work to provide programs with a high rate of continuation while enhancing collaboration with the Organizational Development Division further. For the synergies with the Matching Division, OpenWork Recruiting revenue grew 128.9% year-on-year.

From the second quarter onward, we will continue to promote OpenWork Recruiting to meet the need of organizational development division customers. I will explain the summary for each strategy. We promote introduction of the Motivation Cloud series at major companies and lateral deployment of their group companies will stimulate the demand for human capital management and focus on supporting its development. First quarter review is provided on the right. Monthly fee revenue made a favorable growth. On the other hand, accumulated monthly fee revenue recognized for the first quarter alone was approximately JPY 10 million. So faster growth will be required from the second quarter onward. As for the issue on the lower right, currently priority of transformation is relatively low as companies are pressed to respond to mandatory human capital disclosure and securities reports beginning in 2023.

To address this issue, we will work to meet needs for the release of information on human capital, while focusing on supporting human capital management that combines diagnosis, transformation and disclosure. This is the second strategy to enhance the synergy with the Individual Development Division. We promote re-skilling services to customers of the Organizational Development Division. From the second quarter onward, we will work to provide programs with a high rate of continuation while enhancing collaboration with the Organizational Development Division. Continuation is the key word here.

As the first quarter review, repeat customer rate has become an issue as some services remain centered on one-off on-site support. On the other hand, introductions as part of employee benefit plans are increasing. This is expected to be a stable revenue source issues are on the lower right. That is shifting to providing programs with a high level of continuation as well as promoting customer referrals from the organizational development division. We will provide programs that have a high level of continuation to the HR department instead of client sales functions in the field while enhancing collaboration with the Organizational Development Division.

Lastly, the third strategy to enhance synergy with the Matching Division. We provide a direct recruiting service that leverages one of Japan's largest online review platforms, OpenWork. We will boost investment in human capital and marketing to support further growth. For the first quarter review, stronger marketing helped increase cumulative online resume registrations to approximately 820,000 and we promoted OpenWork Recruiting to meet the needs of Organizational Development Division customers. For the issue, we need to enhance recruiting and organizational structure to support further growth. We will continue to implement current strategies, which have been a making good progress so far, while enhancing human resource and organizational capabilities with a view toward medium-term growth.

That is all for my explanation on the financial information for the first quarter of the fiscal year ending December 2023. Some divisions are performing very well and others are struggling a little. But overall, we are backed by favorable situations. So we will continue to manage our businesses to accelerate the growth. I appreciate your continuous attention to us. That is all for my presentation. Thank you.

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