Link and Motivation Inc

TSE:2170

Earnings Call Transcript 2018-Q2

[Yoshihisa Ozasa, executive]

I am Yoshihisa Ozasa, Chairman and Representative Director of Link and Motivation Inc. Let me start the presentation of the financial result information for the 6 months ended June 30, 2018.

Here is the agenda for today. First, announcement of consolidated business results for the 6 months ended June 30. Second, progress report on key indicators.

First, I want to start with the announcement of consolidated business results. This is the operating structure of our group. First, there is Organizational Development Division, which provide support for creating organizations that individuals choose. And there is Individual Development Division, which provides support for creating individuals that organizations choose. And there is Matching Division, which connects organizations and individuals. In addition, we have venture incubation.

Here is the consolidated statements of operations. Revenues and every level of income increased substantially year-on-year to record highs. Revenues increased by 10.8%. In particular, operating income and net income increased substantially as profitability improved. Operating income increased by 31.4% and net income increased by 33.1%. As a result, operating income margin for the first half of the year increased from 8.9% to 10.6% year-on-year.

This is the result versus forecast. Although revenues fell slightly short of the forecast, operating income exceeded the forecast by 5.8% due to business growth in the highly profitable Organizational Development Division and improved profitability in the Individual Development Division.

This is revenues and gross profit by segment. In the Organizational Development Division, revenues and gross profit both increased substantially due to strong performance by the highly profitable Consulting & Outsourcing business. Revenues increased by 13.6% year-on-year and gross profit increased by 18.6%.

In the Individual Development Division, revenues and gross profit both increased substantially due to significant improvement of the profit margin in the Career School business and business expansion in the Cram School business. Revenues increased by 16.3% and gross profit increased by 34.3%.

In the Matching Division, both revenues and gross profit increased due to firm growth of the results of the ALT Placement business and the Personnel Placement & Temp Staff business. Revenues increased by 6.7% and gross profit substantially increased by 10.3%.

Now let's look at the product revenues by business of each division, starting with the Organizational Development Division. In the item number one, the Consulting & Outsourcing business, sales of consulting and member database services, including the Motivation Cloud, grew substantially. Revenues increased by 9.2% and gross profit increased substantially by 25.1%.

Item number two is the Event & Media business. Revenues and gross profit decreased due to an intentional reduction in event production that had previously been ordered by the Consulting & Outsourcing business. On the other hand, sales of IR-related media production grew due to the addition of a new company to the group. Revenues decreased slightly by 2.1% and gross profit decreased by 9.4%.

Next division is the Individual Development Division. Regarding number three, the Career School business, revenues increased by 8.3% due to steady sales of Pro Series and National exam courses and English conversation. Also, gross profit increased substantially by 19.2% due to significant improvement in school profitability with success in rapid development and placement of new graduates in the workforce. Particularly for National exam courses, there was an increase in needs for acquisition of certifications, such as certified social insurance and labor consultant and registered real estate broker, backed by an increase in leisure time due to work-style reform. Revenues increased by 17.1% year-on-year.

For English conversation, lessons of one-on-one English conversation school that joined the group in April 2017 went online and rolled out to more than 75 existing Career Schools. By this, revenues increased substantially by 147.7%.

Regarding number four, the Cram School business. Revenues and gross profit both increased substantially due to an increase in the number of classrooms. Due to the addition to the group in July 2017 of SS-1, an individualized instruction Cram School for junior high school entrance exam takers, the number of schools in the Cram School business increased from 3 to 10.

Next one is the Matching Division. In number five, the ALT Placement business. Revenues and gross profit both increased substantially due firm performance from capitalizing on the expansion of English education promoted by Japan's education ministry. Revenues increased by 11.2% and gross profit increased by 15.8%.

In number six, the Personnel Placement & Temp Staff business, revenues and gross profit both increased due to a forecast on highly profitable Foreign worker support and recruiting introductions. Revenues increased by 4.7% and gross profit substantially increased by 10.6%.

Here is the consolidated balance sheet. Assets increased by JPY 557 million due to promotion of investment in Motivation Cloud, among other factors. Liabilities decreased by JPY 824 million due to the repayment of long-term financial liabilities. Total equity increased by JPY 1.382 billion from recording net income and an increase in the value of incubation company stock. As a result, the equity ratio improved from 26.0% to 30.7%.

This is our dividend policy. We continue to pay quarterly dividends. For the second quarter, a dividend of JPY 1.7 per share will be paid on September 25 as originally planned.

Next item on the agenda is the progress report on key indicators.

[Hideki Sakashita, executive]

I am Sakashita, President and Representative Director of Link and Motivation Inc. I will explain about the key performance indicators of the Organizational Development Division. Nowadays, market environment for corporations is rapidly changing. With the rapid evolution of intangible factors and services of industries, management issues of corporations are shifting from procuring money and investment in things to procuring and investing in people. Because of the work-style reform promoted by the government, corporations are willing to make more investment in manpower and organizations.

Against this background, as the corporations are paying a lot of attention to the field called HR tech, adaptation to the labor market is now important and inevitable for corporations. However, there are 2 major issues for corporations. First, there is an issue for organizational diagnostics. For business activities, there are yardsticks such as income statement and balance sheet. However, there has been no yardstick for organizational activities, and it was difficult to correctly diagnose the status of organization and find solutions for improvement.

The second issue is related to organizational transformation. Although many corporations conduct employee satisfaction survey, it only provides understanding of current conditions and does not provide targets or improvement activities. In other words, there is no PDCA cycle for organizational improvement. Therefore, our division developed and has been promoting Motivation Cloud, which supports adaptation to the labor market and realized organizational improvement.

Motivation Cloud is a cloud-based service for improving employee engagement, and it's currently #1 in Japan in terms of contact points. Employee engagement means the level of mutual understanding, empathy and commitment between companies and employees, which is known to have correlation with the performance. Motivation Cloud is a monthly pay-as-you-go model cloud service.

Now we have cumulative data of more than 860,000 employees at 3,640 companies. Utilizing the data accumulated in cloud, we are providing high-quality organizational improvement support, which cannot be imitated by other companies. After its release in July 2016, the number of contact points steadily increased reaching 576 at the end of June, and the monthly fee revenue has exceeded JPY 92 million.

We are building a stable earnings structure, and the average monthly fee has increased by promoting introduction at major companies. We will further expand our business, aiming at JPY 130 million by the end of this year and JPY 330 million by the end of 2020.

This is some of the contact points that have adopted Motivation Cloud. There is growing support from leading companies in all industries that aim to increase engagement with employees. We want to provide support for organizational improvement for more companies to make further contributions in this area. Please continue paying attention to our activity.

[Takashi Oguri, executive]

I am Takashi Oguri, Director of Link and Motivation Inc. Nice to meet you. Let me explain about the KPIs of the Individual Development Division.

There are 2 major changes in the area of individual career development. One is the change in the value of education. In the past, contents of the textbooks and lessons had high values. However, because the contents have been widely distributed by Internet, their values have become relatively lower. On the other hand, motivation or how one learns the contents of education has become more important. Because of this, the core value has shifted from what one learns to how one learns.

Another change is the change in working lifespan. Because the life expectancy is becoming longer, lifespan of individuals will become longer than that of companies and business models. At a time like this, career development, depending on specific skills, is not suitable to adapt to the change of companies and business models, and there is increasing risk to career development. Based on this environmental change, our division has set up a vision to contribute to the development of so-called i-Companies with unfailing total career support. We are providing support so that people can maintain high motivation to study to acquire skills. We are determined to keep providing unique value by providing not only specific skills, but also total solutions reflecting changes of the environment to help individuals who are actively developing their careers.

In order to provide unfailing career support, we developed Bridge-C career diagnostic. It was developed using Motivation Engineering, which is our core technology, and it's a diagnostic tool by which we can maintain our competitive advantage. We are rolling it out to around 35,000 course enrollees throughout Japan. Bridge-C contains diagnosis of motivation type and skill sufficiency of students. Based on their results, we can provide support for unfailing learning and total career support.

Motivation-type diagnosis utilizes accumulated data from around 90,000 students and clarifies motivation characteristics, tendencies toward failure and direction for overcoming failure. It enables an approach of unfailing, ongoing learning by helping students maintain their motivation to study.

Skill sufficiency diagnosis is made on the elements of technical literacy skills and portable skills. Technical literacy skills are knowledge and techniques necessary to carry out work duties. Portable skills are basic skills, which will not become obsolete and go beyond industry and business-type boundaries.

We calculate career development score, a standard deviation value, and clarify the area each student needs to improve for intended career. By this analysis, we can make comprehensive proposals for skill development for each student and follow them up.

Our Career Schools can provide approximately 50 different courses from 4 brands at each school. By this, we can provide total support for various study needs based on the results of Bridge-C career diagnostic. Furthermore, our Career Schools have linkage with Temp Staff business of the Matching Division, and they are providing opportunities for work. Our division is providing comprehensive support, including total support for study and support for work. Utilizing Bridge-C, we will continue to provide unique value to all our students in Japan to materialize unfailing total career support.

As key performance indicators for our division, we are using Aviva Pro IT Human Resources training course and Life Time Value. Due to the growing demand for IT, there is growing need for IT Human Resources. In Japan, developing IT manpower has become an important issue. To address that, we are rolling out Aviva Pro training course, which provides lessons for programming for AI certification and RPA course and so on. Growth of sales of Aviva Pro in the first half of the year mainly came from practical courses, such as CAD and Creatives. It has increased by 13.6% year-on-year and the business scale is steadily growing. We will continue to develop Aviva Pro, which has high market needs.

Regarding Life Time Value per Career School student, it has increased by 14.9% year-on-year. By materializing unfailing total career support, we will continue to further increase the value we provide to students. Please continue paying attention to the activity of the Individual Development Division.

[Hiroyuki Kitsuu, executive]

My name is Kitsuu, Director of Link and Motivation Inc. Nice to meet you. I will explain about the KPIs for Matching Division.

Our first KPI is regarding the placement business of assistant language teachers, or ALTs. Japan's Education Ministry announced the new curriculum guidelines. And at elementary schools, English study will start from third grade and one lesson per week will become mandatory. Also, fifth- and sixth-grade students who used to have one lesson per week will have 2 lessons. Because of this change, demand for ALT is expected to grow. However, local boards of education are taking cautious stance, and the average growth of ALTs hired in the last 3 years remained slow, which was 3.6%. But the number of ALTs placed by our group is showing firm growth and increased from 2,959 in June 2017 to 3,213 in 2018. The 3-year average growth was 6.5%.

Next, let me explain about the business of Link Japan Careers, which we started last year. As the government indicated in its basic economic policies announced in June because the labor population in Japan is decreasing, employment of foreign workers has a tendency to increase. To address the needs in the market, Link Japan Careers is providing Recruiting Support for foreigners so that they can adapt to Japan's environment. Also, we are creating an easy-to-work environment for foreign workers by providing support in their daily lives, such as finding housing and resident registration. This business is growing steadily. And in the area of Recruiting Support, 869 were hired as of June 2018. And by the end of this year, the number is expected to increase to more than triple from the previous year.

In addition to introduction of personnel for ALTs, our business is steadily expanding to areas such as English conversation instructors for the incubation company of our group. By capturing the growing needs for foreign personnel employment, we will continue to try to expand our business.

Lastly, I want to explain about the temp staffing in Japan. As you know, how to secure manpower has become the biggest issue in the domestic labor market. Our domestic temp staff business is reinforcing the synergy with the Individual Development Division and working on the career center concept by which we provide employment opportunities for those who acquired skills in our Career School business. This is our unique approach, which cannot be imitated by other companies.

With this business model, we can expect to improve profitability by reducing employment cost. In our business, we are making efforts to further improve the performance using this career center concept. As a result of promoting career center, the number of Individual Development Division students we placed in jobs has significantly increased by 43.2% year-on-year. In addition, employees from the Individual Development Division worked for a longer period than employees in general and matching efficiency with the workplace is higher. We will continue to expand the career center concept and secure highly motivated manpower and improve matching efficiency to improve profitability.

That's all for the KPIs of the Matching Division. Please keep paying attention to the progress of our activity.

[Yoshihisa Ozasa, executive]

Next, I will explain about the new investment by venture incubation.

The name of the company is RakSul Inc. and it was listed on TSE Mothers Market on May 31, 2018. The mission of its business is creation of sharing platforms in each industry. Currently, it operates RakSul sharing platform for printing and Hacobell sharing platform for distribution. This company continues to be highly evaluated in the market. We will continue to provide support to this company in the areas of organization, personnel and capital.

I want to mention about one more thing. We have signed an agreement to sell all stock of Phone Appli Inc. held by our group to NTT Communications. It is a company with high potential, which has #1 share in cloud-based phone directory apps for 5 years in a row. As the corporate value is increasing and synergy can be expected with the stock purchaser, we decided to sell the stock of this company. We will continue to provide organizational and personnel support to this company as our customer.

With this move, out of 22 companies we invest, 3 companies completed stock listing and 1 company, which is Phone Appli Inc., is to be sold. We will continue expanding venture incubation business and provide support in the organizational and personnel field by selecting companies based on our criteria, such as sympathy with creating motivation company.

Lastly, this is the operating structure of our group. Regarding all the businesses, we feel that current environment is very favorable to us. We will continue to make efforts to increase the company value. I would appreciate your continued support to our business. Thank you very much.