Link and Motivation Inc

TSE:2170

Earnings Call Transcript 2022-Q2

[Yoshihisa Ozasa, executive]

I am Yoshihisa Ozasa, and I am Chairman and Representative Director of the Board of Link and Motivation. Welcome to the Second Quarter 2022 Financial Results Webcast. So let's get started.

Here's today's agenda. First, I will give you our company overview. Second, I'm going to give you a group summary for the second quarter of 2022, where I'm going to talk about the consolidated financial results as well as the organizational status. And then I will give you an update on the progress on our growth strategies centered on the Organizational Development Division.

So let's begin with the company overview. Here is our mission. Through Motivation Engineering, we provide opportunities to transform organizations and individuals and create a more meaningful society.

On the right, you see 3 divisions that comprise our business structure. From upper left, Organizational Development Division. It supports creating organizations that individuals choose or what we call motivation companies. Next to the right is Individual Development Division. It supports creating or developing individuals that organizations choose. We call them i-company. And the third one, which is just below is Matching Division, which provides opportunities to link organizations and individuals. We also have venture incubation business, which provides both capital and organizational support for venture companies.

As of 2022, we changed to new business classifications in line with our medium-term long-term strategy. Within Organizational Development Division, Event business was transferred to Consulting & Cloud business. So Consulting & Cloud business and IR support business are the businesses of Organizational Development Division. There is no change to Individual Development Division, which you'll find in the middle. Third, business classification of Matching Division was changed to ALT Placement business and Personnel Placement business because of the transfer of the Domestic Temp Staff business.

Next, agenda item #2, group summary for the second quarter of 2022, and the report on consolidated financial results. These are consolidated statements of operations. Revenues rose to JPY 16.766 billion for the quarter, up 2.2% from the same quarter last year. Adjusted operating income as well as operating income soared year-on-year. Adjusted operating income came in at JPY 2.225 billion for the quarter, up 37.5% from a year ago, and operating income rose 31% from a year ago to JPY 1.969 billion.

The substantial increase in adjusted operating income and the line items below it was a result of the growth of Consulting & Cloud business, which is a high profit margin business, and the growth of Personnel Placement business as well as the structural reforms, including the transfer of the Domestic Temp Staff business and office relocations.

This slide shows revenues and gross profit by segment. We are turning our growth businesses into high profit margin businesses and earning more gross profit despite a drop in revenues from some of our other businesses. Organizational Development Division's revenues rose 15.7% and its gross profit rose 12.7% from the same quarter last year.

When it comes to Individual Development Division, its revenues declined 2.5%, but its gross profit increased 6.1% from a year ago. Matching Division as well saw its revenues down 3.5% from a year ago, but its gross profit inched up 0.7%.

Let's take a look at the first half summary for each division. Organizational Development Division enjoyed a substantial increase in both revenues and gross profit, up 17.5% and 11.3%, respectively, from the same quarter last year.

Consulting & Cloud business successfully captured a major company's demand for improving their employee engagement. IR support business saw a significant increase in gross profit from a year ago, thanks to a rise in orders of the integrated report production service, which is a high profit margin business. Its revenues increased to 3.5%, and its gross profit jumped 16.3% from the same quarter last year.

The chart you see on the right side is showing monthly fee revenue of Motivation Cloud series. It's been growing strongly and consistently. And the latest figure as of the end of the second quarter of 2022 is JPY 284.692 million, up 30% in just 1 year.

Next is the summary for Individual Development Division. For Career School business, although the B2C services were significantly impacted by the pandemic, the gross profit increased from the same quarter last year, thanks to growth in DX support business for individuals at companies, which is a high-profit margin B2B business. Its second quarter revenues declined to 3.5%, but its gross profit rose 6.1% from a year ago. For Cram School business, both revenues and gross profit rose year-on-year due to an increase in the number of enrollees, up 9.2% and 5.6%, respectively.

The chart you see on the right side is showing revenue from DX support for individuals and companies in Career School business. It's been growing strongly and jumped 68% for the quarter from the same quarter last year.

Next is Matching Division. For ALT Placement business, we had to raise prices in anticipation of the eligibility expansion of the social insurance program scheduled to be in effect in October this year. Some local governments and municipalities withdrew their bids because new prices exceeded their budget. As a result, both its revenues and gross profit dropped 7.2% and 9%, respectively, from the same quarter last year.

Personnel Placement business, on the other hand, had brilliant results, thanks to a strong growth of OpenWork recruiting. Its revenues increased 18%, and the gross profit rose 19% from the same quarter last year.

The chart you see on the right side is showing the pace of revenue growth of OpenWork recruiting. When the revenue figure of the second quarter 2020 is indexed at 100, the revenue for the latest quarter has increased 164% from what it was just 2 years ago.

These are SG&A expenses on a consolidated basis. Total SG&A expenses inched up just slightly by 0.9% from the same quarter last year. The decrease in expenses due to office relocations was reallocated for investment for future business growth. So it is a well-balanced allocation of SG&A expenses. These are consolidated statements of our financial position. Assets decreased due to the transfer of the Domestic Temp Staff business and office relocations.

Liabilities also decreased, thanks to a decrease in interest-bearing debts and other financial liabilities. Equity increased by JPY 581 million to JPY 9.229 billion for the quarter due to the posting of net income. We continue to pay a quarterly dividend of JPY 1.9 a share. The second quarter dividend payment is scheduled for Tuesday, September 22, 2022.

Let's move on to the next item of the agenda, group summary for the first half of 2022 report on the organizational status. Here, we describe our approach to human capital management. We have our mission at the top. Through Motivation Engineering, we provide opportunities to transform organizations and individuals and create a more meaningful society. Under this mission, we linked business to organization. For business, we pursue creation of an engagement chain. Engagement is a key word here because each business of each division is connected like a chain to create synergy.

For organization, we pursue realization of one for all, all for one, which means, in other words, enhancement of employee engagement because it is a critical metric. And at the bottom, we have organizational strategy focus areas, recruiting, development, systems and culture. We will continue to invest in those focus areas, and this is how we approach human capital management.

To improve productivity, employee engagement is the most important theme for our organizational strategy. But the promotion of DX throughout the organization is also an important theme in addition to employee engagement, and we treat it as such.

With respect to employee engagement, we created engagement rating, which gave us the level of employee engagement on an 11-ranked scale from AAA the most engaged to DD, the least engaged. And 9 out of 11 companies in our group got AAA, meaning that their employees are fully engaged. There is already evidence that employee engagement correlates well with operating margin and/or labor productivity. So we continue to manage our entire group to further raise employee engagement of each group company.

When it comes to the promotion of DX throughout the organization, we have DX score as KPI. It's an index based on results of the DX survey, which measures individual IT skills and IT operation proficiency. Last year, our average score was 98.9 out of 200. But this year, thanks to our efforts to improve the score, it went up to 123.3. And as a result, we successfully reduced the group's total working hours by about 5,000 hours. We will continue to take necessary measures for further improvement of the score. This is about employee engagement. Again, this is a list of the engagement ratings of our group companies. We continue to maintain a high level of engagement.

Next, agenda item #3, the progress on our growth strategy centered on the Organizational Development Division. This is the overview of our growth strategies. Our business growth will center on the Organizational Development Division, the blue circle on the upper left, along with businesses of other divisions that can generate synergy with it. That's the gist of our growth strategies.

This division's competitive advantage lies in our core technology, Motivation Engineering, and its application, not only in diagnosing, but also transforming organizations, and we provide one-stop support to improve employee engagement. This is our strength.

In the area of diagnosis, we have massive database accumulated over the years about approximately 2.69 million employees across 9,360 companies. And in terms of providing one-stop support for driving organizational transformation, we cover areas such as recruiting, development, systems and culture, and we have delivered our services to approximately 1,800 companies by leveraging customer assets and accumulated know-how. This is the growth strategy for Organizational Development Division.

Our main focus will be major companies with strong needs for human capital management, and we provide with them one-stop solutions for organizational diagnosis and transformation. More specifically, we're going to keep developing new customers from Motivation Cloud in the area of diagnosis, more and more major companies are introducing our service. And we are planning to roll out Motivation Cloud to global companies going forward.

At the same time, we will further try productivity by rolling out the new cloud-based services powered by the data and know-how the division has accumulated through consulting. It's about transformation, and we're going to launch new cloud-based services mainly pertaining to personnel development in order to drive further growth.

With Motivation Cloud series, we have maintained #1 share of sales for 5 consecutive years in this rapidly expanding employee engagement market in Japan. You can say that we remain the dominant player in the market.

This chart is showing monthly fee revenue of Motivation Cloud series. It's been growing strongly and consistently and is projected to hit JPY 320 million by the end of this year. We also expect that the launch of a new cloud-based service, which I mentioned earlier, will accelerate growth in the second half and drive further growth into the next year and beyond. This second quarter monthly fee revenue rose 30% from the same quarter last year.

This slide describes how the market for the Organizational Development Division is changing. What is behind the growth and where the business is going in the future? As you all know, the rising attention to human capital management and disclosure of human capital information is expected to provide tailwinds for our Consulting & Cloud business. We are ISO 30414 certified, so we will start providing consultation on its certification process to ramp up support for human capital management. As the diagram on the right shows, we are going to create a cycle of diagnosis, transformation and disclosure.

We will drive further growth by generating synergies between the Organizational Development Division and the businesses of other divisions. Here is an example of one business within the Individual Development Division. As corporate needs for DX is growing rapidly, the current customers of the Organizational Development Division become an increasingly important asset that we can leverage. We are providing services to improve IT skills of their employees. We will increase headcount to step up sales in order to generate further synergies in the second half and beyond.

The chart you see on the right side is showing revenues from DX support for individuals at corporations. Revenues have grown exponentially since 2020, and we will step up our efforts to aim even higher.

This slide is also about generating synergies with the Organizational Development Division, and this is an example of one business within the Matching Division. When it comes to OpenWork recruiting, both employee revenues and page views are growing consistently. We will promote cooperation with the organizational development vision to significantly increase the number of job openings, and we aim even higher growth for OpenWork recruiting.

The chart you see on the right side is showing the pace of revenue growth of OpenWork recruiting. When the revenue figure in 2020 is indexed at 100, the full year revenue for this year is projected to increase 205%.

OpenWork has established itself as one of Japan's largest online review platforms for those who want to find a job or change their career. Now it's adding new value to the company by building a recruiting platform and is poised to grow even bigger.

Once again, I'm showing you our operating structure. The rise in demand for human capital management or disclosure of nonfinancial information is expected to provide huge tailwinds for our business. We will continue to generate synergies among the 3 divisions with the Organizational Development Division at the center to drive further growth and success into the future. So please stay tuned to what we are up to.

And that brings to an end to this webcast. Thank you very much for watching.

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