Link and Motivation Inc

TSE:2170

Earnings Call Transcript 2018-Q3

[Yoshihisa Ozasa, executive]

I am Yoshihisa Ozasa, Chairman and Representative Director of Link and Motivation Inc. Let me start the presentation of the consolidated financial information for the 9 months ended September 30, 2018.

Here is the agenda for today. First, announcement of consolidated business results. Second, report on priority themes.

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 provides 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 provides opportunities to link organizations and individuals. In addition, we have venture incubation.

Here is the consolidated statements of operations. Revenues and both levels of income increased substantially year-on-year to record highs. Revenues was JPY 29.875 billion, an increase by 10.3%. Operating income and net income increased around 30% as profitability improved. Operating income increased by 30.0% and net income increased by 28.8%. As a result, operating income margin for the 9 months period increased from 8.7% in the previous year to 10.2% this year.

This is the results versus forecast. Revenues fell slightly short of the forecast. However, operating income exceeded the forecast by 1.4% due to the improved profitability in all divisions.

This is SG&A expenses. Personnel expenses increased substantially due to an increase in staff for the group as a whole. Rent also increased substantially due to the relocation to the Tokyo Integrated Office in May last year as a result of expansion of business operation. Also, sales-related expenses increased substantially due to concentration of sales promotion expenses on Motivation Cloud and other priority businesses. As a result, total SG&A expenses was JPY 8.623 billion, an increase by 12.4% year-on-year.

This is revenues and gross profit by segment. In the Organizational Development Division, revenues and gross profit both increased substantially due to the steady growth of the highly profitable Consulting and Outsourcing business. Revenues increased by 15.4% and gross profit increased by 20.4%.

In the Individual Development Division, revenues and gross profit both increased substantially due to strong results in the Career School business and business expansion in the Cram School business. Revenues increased by 12.3% and gross profit increased by 24.2%.

In the Matching Division, there were firm growth in the results of the ALT Placement business and the Personnel Placement & Temp Staff business. Revenues increased by 5.4% and gross profit substantially increased by 10.0%.

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 and Outsourcing business, revenues and gross profit both increased substantially due to significant growth in sales of consulting and member/database services, including Motivational Cloud. Revenues increased by 11.8% and gross profit increased by 26.5%.

Item #2 is the Event & Media business. Sales of event production decreased due to an intentional reduction in event production that had previously been ordered by the Consulting and Outsourcing business. However, sales of IR-related media production increased due to the addition of a new company to the group. As a result, revenues increased slightly by 1.4% and gross profit decreased by 4.9%.

Next one is the Individual Development Division. Regarding #3, the Career School business, revenues increased by 7.6% due to steady sales of Pro Series, national exam courses and English conversation. Also, gross profit increased substantially by 13.9% 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. For English conversation, lessons of one-on-one English conversation school that joined the group in April last year went online, and they were rolled out to more than 75 existing career schools. By this, revenues increased substantially.

Regarding #4, the Cram School business, we accelerated expansion of the classrooms with the rollout of SS-1 individualized instruction schools for elementary school students at locations of Motivation Academia cram schools for junior high students. As a result, revenues increased by 102.4% and gross profit increased substantially by 391.8%. As of November this year, we have 13 classrooms nationwide.

Next one is the Matching Division. In #5, the ALT Placement business, revenues and gross profit both increased substantially due to firm performance from capitalizing on the expansion of English education promoted by Japan's education ministry. Revenues increased by 10.2% and gross profit increased by 11.4%.

In #6, the Personnel Placement & Temp Staff business, revenues and gross profit both increased due to a focus on highly profitable foreign worker support and recruiting/introductions. Revenues increased slightly by 2.3% and gross profit substantially increased by 13.5%.

Here is the consolidated balance sheets. Total assets increased by JPY 1.019 billion, due to promotion of investment in Motivation Cloud, among other factors. Liabilities decreased by JPY 805 million due to the repayment of long-term financial liabilities. Total equity increased by JPY 1.824 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 31.8%.

This is our dividend policy. We continue to pay quarterly dividends. For the third quarter of 2018, a dividend of JPY 1.7 per share will be paid on December 25, as originally planned.

Next item on the agenda is the priority themes of each division.

[Hideki Sakashita, executive]

I am Hideki Sakashita, President and Representative Director of Link and Motivation Inc. I will report on the priority themes of the Organizational Development Division.

First, let me report on the progress of the Motivation Cloud. In the era of tangibles, centering on the secondary sector of industry, procurement of money and things to make investments in the equipment and factories were most prioritized for company management. However, with the arrival of the era of intangibles centering on the tertiary sector of the industry, priority of management is rapidly shifting from procuring money and investing in things to procuring and investing in people.

Because of this strength, the corporations are paying a lot of attention to the field called HR tech, and adaptation to the labor market has become 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.

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

Motivation Cloud is a cloud-based service for improving employee engagement. Since our foundation, we have been conducting survey to understand the status of organizations. Now we have cumulative data of more than 910,000 employees at 3,940 companies. Utilizing the vast amount of data, we are conducting highly accurate organizational diagnostics to find effective solutions and providing PDCA cycle, which helps to organizational improvement.

Employee engagement means the level of mutual understanding, empathy and commitment between companies and employees, which is known to have correlation with business performance. From the start of this business, we have been focusing on product development, enhancing the value of this product. As a result, we have patents approved for all the functions and it was selected as one of the BEST 100 of the GOOD DESIGN award.

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. After its release in July 2016, the number of contact points steadily increased reaching 641 at the end of September of this year. And the monthly fee revenue has exceeded JPY 100 million building a stable earnings structure.

With the adoption of the service by major companies, the average fee is expected to rise, but the process from introduction to final delivery really takes time in major companies and therefore, progress of monthly fee revenue growth has been somewhat delayed. However, the revenue is expected to reach JPY 130 million, achieving the target for December 2018 as planned.

Since October 26 this year, we have started TV commercial in Fukuoka area, using a well-known actor, Koji Yakusho. We will continue investing in marketing to cultivate more customers.

Now let's look at the actual TV commercial.

[Presentation]

[Hideki Sakashita, executive]

Next I want to report on the capital and business alliance with Vorkers Inc. On September 20, we have completed capital and business alliance agreement with Vorkers Inc. As a result, Vorkers Inc. has become an equity-method associate of the Link and Motivation. Vorkers is a job search information platform with one of Japan's largest sections for online reviews by employees. There are approximately 6.3 million reviews by employees.

On this website, companies are rated based on the reviews made by current and former employees. Using this service, job seekers can search companies, referencing, candid opinions of the employees of those companies.

Recently, Vorkers has started a new business called Vorkers Recruiting. In addition to referencing their reviews on the website, registered users can upload their web resume and can have opportunity to be directly recruited by companies. In the traditional recruiting services, any company could approach job seekers. But in this recruiting service, only highly rated companies can approach job seekers and it provides better matching for job seekers. We believe that our customer base and business capability can make big contribution toward further promotion of the business of Vorkers Recruiting. For that reason, Link and Motivation will conduct sales and operation of this new business.

In addition to that, we will propose introduction of Motivation Cloud to companies with lower ratings to encourage organizational improvement to make the company's great place to work. In the future, in addition to the engagement score, which is quantitative information, we will utilize ratings by Vorkers, which is qualitative information in order to continue supporting companies to adapt to the labor market.

I would appreciate your continued interest in our activity.

[Takashi Oguri, executive]

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

There are 2 major changes of environment regarding 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 become widely available due to advanced information technology, their values have become relatively lower. On the other hand, motivation or how one learns the content has become more important. Because of this, the core value of education has shifted from what one learns to how one learns. Another change is the change in working life span. Because life expectancy is becoming longer, life span of individuals is becoming longer than those of companies and business models.

At a time like this, career development, depending on specific skills, is not suitable to adapt to the changing environment and there is increasing risk to career development. Based on this environmental change, our division has setup 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 strong motivation to continue studying 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 development of so-called i-Companies or 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, which supports our competitive advantage. We are rolling it out to around 35,000 course enrollees throughout Japan.

By this Bridge-C, we can understand the motivation type of the students and by taking actions in advance, we can provide support for unfailing learning. Also, we are providing total career support by making comprehensive proposals based on diagnosis of skill sufficiency of students.

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 by this, we are providing opportunities for work as well as learning. Utilizing Bridge-C, we will continue to provide unique value to all our students to materialize unfailing total career support.

As the priority theme of our division, we have 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 third quarter of 2018 mainly came from practical courses such as CAD and Creatives. It has increased by 9.6% year-on-year and the business scale is steadily growing. We will continue to develop Aviva Pro, which has high market needs.

Also, lifetime value per career school student has increased by 13.1% 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 our division.

[Hiroyuki Kitsuu, executive]

My name is Hiroyuki Kitsuu, Director of Link and Motivation Inc. Nice to meet you. I will explain the priority themes of the Matching Division.

First, let me explain the progress of 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 1 lesson per week will become mandatory. Also, fifth- and sixth-grade students who used to have 1 lesson per week will have 2 lessons. From this year, transitional steps aiming at full implementation have started. Backed by this trend, the number of ALTs placed by our group is growing steadily.

From 2,794 in September 2016 and 3,100 in September 2017, it has increased to 3,326 in September this year. And the 3-year average growth was 9.1%.

Next, let me explain the progress and future plan 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, ranging from finding housing and resident registration.

Regarding foreign worker support service, we have captured employment needs of foreign workers and 1,251 were hired as of September this year achieving the annual target, and making steady progress exceeding our original target.

In addition to the introduction of personnel for ALTs, our business is steadily expanding to areas such as English conversation instructors for the incubation companies of our group. By properly capturing the change of external environment, we will continue to try to expand our business.

Lastly, I want to report on 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 establishing the system to provide employment opportunities for those who acquire skills in our Career School business. This is our unique approach, which cannot be imitated by other companies. With this business model, we can make highly profitable matching possible because personnel recruiting expenses are not required.

As a result of these activities, the number of Individual Development Division students we placed in jobs has significantly increased by 54.4% year-on-year. We will further establish systems which other companies cannot imitate and improve matching efficiency to improve profitability.

Please keep paying attention to the progress of our activity.

[Yoshihisa Ozasa, executive]

Next, I will report on the activity of the venture incubation. So far, we have invested in 22 companies. We have 2 selection criteria: first, companies that have sympathy with creating motivation company; second, companies aiming to list stock. Up until now, #3, Akatsuki Inc., #12, Innovation Inc. and #8, RakSul Inc. has successfully listed stock.

As for the third quarter, we sold the stock of #20 Phone Appli Inc. to NTT Communications. As a buyout business instead of stock listing, it became our fourth successful case, which was handled by our incubation business. Our support capability in organizational and personnel field is highly appreciated, and we are receiving a lot of inquiries about our business. We will continue expanding venture incubation business selecting companies, which has sympathy with our philosophy.

Lastly, this is the operating structure of our group. Regarding all the divisions, we feel that current environment is very favorable to us.

I would appreciate your continued interest in our business expansion and growth. Thank you very much.