Link and Motivation Inc

TSE:2170

Earnings Call Transcript 2020-Q3

[Yoshihisa Ozasa, executive]

I am Ozasa, Chairman and Representative Director of Link and Motivation. I'll start earning presentation of Link and Motivation for the 9 months ended September 30, 2020.

Here is today's agenda: firstly, I'll give you a company overview as usual; secondly, business report; thirdly, each director in charge will report on conditions by business; fourthly, I will talk about revision of full year forecast and highlights.

Firstly, I'll give you a company overview. This page shows operating structure of our group. Organizational Development division shown on the top left, Individual Development division on the top right, Matching division in the middle, connecting the 2 businesses and venture incubation. Some businesses were renamed in light of the changing product composition of the business in January this year.

In Organizational Development division, Consulting & Outsourcing business was renamed Consulting & Cloud business. Matching division was divided into Global Personnel Placement & Temp Staff business and Domestic Personnel Placement & Temp Staff business due to the addition of OpenWork Inc. to the group.

Now I'll move on to business report consolidated results for the 9 months. Please look at this page. Operating income increased in the third quarter, mainly due to an increase in gross profit mainly in Matching division. In the 3 months of the third quarter, operating income increased year-on-year. On the other hand, it was not enough to cover the decrease in the second quarter due to the COVID-19 pandemic, and results for all line items for the first 9 months of 2020 decreased year-on-year.

This page shows revenues and gross profit by segment. Both in Organizational Development division and Individual Development division, revenues and gross profit both decreased substantially year-on-year. In Matching division, revenues increased slightly and gross profit increased substantially year-on-year.

This page shows consolidated SG&A expenses. SG&A expenses increased by 5.3% year-on-year overall.

Overall expenses increased due to the addition of OpenWork Inc. to consolidation in the first quarter. But from the second quarter onward, we started reducing advertising expenses for the Motivation Cloud series and cut cost by promoting online operations for remote work.

This page shares consolidated balance sheets.

Assets decreased due to a decrease in right-of-use assets. Liabilities decreased due to factors, including a decrease in lease obligations and repayment of debt. Equity increased by JPY 323 million due to the addition of OpenWork Inc. and recording of net income.

This page shows dividends. We continue to pay quarterly dividends, a dividend of JPY 1.8 per share is scheduled to be paid on Friday, December 25.

Next, report on conditions of each business.

[Hideki Sakashita, executive]

I am Sakashita, President and Representative Director of Link and Motivation. I'll report on conditions of Organizational Development division. This page shows year-on-year change on Organizational Development division products revenues by business. In Consulting & Cloud business, revenues decreased 14.1%, and gross profit decreased 14.5% year-on-year. In Event & Media business, revenues decreased 25.6%, and gross profit decreased 17.0% year-on-year. In Consulting & Cloud business, overall revenues decreased year-on-year due to the impact of a decrease in consulting related to formulating and establishing corporate philosophies. Revenues of the Motivation Cloud series increased 11.2% year-on-year.

In Events & Media business, revenues decreased year-on-year as in the second quarter due to a decrease in in-person events and a delay in delivery of IR-related media products. This page shows business KPI average revenues per customer for the past 12 months. Although the number of customers decreased due to the impact of uncertain conditions, average revenues per customer increased 3.0% quarter on quarter even during the COVID-19 pandemic through successful sales promotion to major companies.

Motivation Cloud series monthly fee revenue was JPY 190,423,000 at the end of the third quarter of 2020, up 3.7% quarter-on-quarter and up 10.7% year-on-year. Although the number of customer cancellations and suspensions increased in the second quarter during the declaration of a state of emergency, we are back on a growth track from the third quarter due to an increase in introductions at major companies. This page shows the first highlight introduction and motivation cloud at major companies.

With steady progress in introductions at industry-leading companies and major companies with numerous employees, the proportion of major companies in both monthly fee revenues and revenues from new membership has increased substantially year-on-year.

This page shows the second highlight. Report of the Study Group on Improvement of Sustainable Corporate Value and Sophistication of Human Capital, commonly known as Ito Review of Human Resources, was issued by Ministry of Economy,, Trade and Industry in September 2020. Regarding employee engagement, when the 5 common factors required of HR strategy, correlation between employee engagement scores and business performance qualified in research we conducted with Keio University was presented in report as an evidence.

With a trend toward using human capital as a basis for investment decisions and obligated disclosure of information about human capital in the U.S., human capital is attracting increasing attention in the capital and product market, which is a great opportunity for the Link and Motivation Group. Based on motivation engineering, we will continue to sophisticate quality of diagnosis and transformation services to enhance employee engagement of many companies.

[Takashi Oguri, executive]

I am Oguri, Director of Link and Motivation. I'll report on business conditions of Individual Development division. This page shows year-on-year change of product revenues by business. Career school business were significantly impacted by the spreading infection of COVID-19. Revenues decreased 18.7%, and gross profit decreased 36.3% year-on-year. In Cram School business, revenues decreased 7.3% and gross profit increased 9.1% year-on-year. Despite recovery in new enrollments and the progress of classes in both the Career School business and the Cram School business from July, it was not enough to compensate for school closures. In April and May, revenues decreased substantially year-on-year.

Next, I'll report on business KPI. The average number of enrollees for the past 12 months, the monthly number of enrollees from April to September for reference and year-on-year comparison of revenues. The number of enrollees has not reached the level to offset the closures in April and May, but revenues have already recovered to more than 90% of the previous year's level.

Next, I'll report on average revenues per enrollee for the past 12 months and single-month revenues per enrollee from July to September for reference. As we are now able to provide both online and in-school services, students having been taking the classes they have registered for, and revenues per enrollee increased year-on-year. I feel needs for learning are enhancing more and more as new ways of working a new normal are required. In the new trends, we will make sure to capture needs by sophisticating products and brand further.

Lastly, the highlight of Individual Development division. In October, we started offering, i-Company Club 2.0, a membership service that supports the acquisition of habits for self-improvement. It is already used by more than 3,000 members. In the revision this time, we revised the monthly fee added to one of Japan's largest Q&A sections, enhanced team functions. We revised the content significantly for individuals to entrench habits. We will aim for 10,000 members by May 2021 by continuously developing services in our company and adding more contents through collaboration with other companies. We will promote further enhancement of retention rate.

[Hiroyuki Kitsuu, executive]

I am Kitsu, Director of Link and Motivation. I'll report on business conditions of Matching division. This page shows year-on-year change of product revenues by business. In Global Personnel Placement & Temp Staff business, revenues increased 1.9%, and gross profit increased 11.6% year-on-year.

In Domestic Personnel Placement & Temp Staff business, revenues decreased 2.4%, and gross profit increased 84.6%. In Global Personnel Placement & Temp Staff business, in ALT Temp Staff business, lessons were given during summer holiday to make up for classes missed during school closures under the declaration of a state of emergency in April and May. Due to that and a review of projects with low gross profit, revenues increased year-on-year in the third quarter. In Domestic Personnel Placement & Temp Staff business, revenues decreased year-on-year due to a slump in the number of temp staff dispatched as in the second quarter. But gross profit increased substantially year-on-year due to the addition of high margin OpenWork Inc. to the group.

Next, I will talk about business KPI average number of temp staff dispatched in the past 12 months, global personnel ALTs and the number of temp staff dispatched from July to September for reference. Dispatches of ALTs increased due to steady progress in hiring foreign staff to meet strong needs during summer vacation. It was 3,350 in September, up 1.5% year-on-year. Medium to long term needs also remained firm.

Next, I will report on average number of temp staff dispatched in the past 12 months, a monthly number of temp staff dispatched from July to September for reference. The number of temp staff dispatched in Japan decreased significantly by 36.5% year-on-year in September as the decline in the number of domestic temp staff dispatched has bottomed out. Due to changes in the customer portfolio, we will continue this initiative.

Lastly, the highlight of Matching division and Global Personnel Placement & Temp Staff business, we are conducting measures to include ALT engagement. We measure the level of ALT engagement on a regular basis and make and implement action plans based on the survey results. Even under the COVID-19 pandemic, ALT engagement score is on the upward trend. We are promoting various measures such as implementation of workplace survey training and sharing of successful actions on the platform.

In addition to recruiting foreign workers in Japan, we are promoting longer-term employment for current ALTs by working to improve ALT engagement, thus helping to reduce recruiting costs and accumulate knowledge.

Lastly, I will explain revision of full year forecast and highlights. We revised upward full-year forecast. Although we continue to incorporate the maximum amount of impairment of goodwill and other factors due to the uncertain business environment, all divisions are recovering rapidly, and we have revised our earnings forecast upward. We revised upward forecast of revenues from JPY 34 billion to JPY 35 billion and adjusted operating income from JPY 1 billion to JPY 1.750 billion.

I will move on to the highlight. Since April 2020, we have been implementing an online-centered working style or remote work. As a result of continuing remote work, we recognize the respective benefits of real world and virtual operations. There are advantages in working in the real world; for example, sense of unity, deep discussion, divergent thinking through brainstorming and discovery through learning from others.

There are also advantages in virtual world or remote work. For example, concentration due to individual work, simultaneous report on facts or communication, more free time due to reduction in commuting time and as a result, self-reliance. We decided to pick the best of both and mix both. We named our way of working compatible work. Compatible means achieving both through harmonization. We pursue a work-style that raises productivity and motivation. At the same time through compatible real world and virtual work, each division sets up a schedule in advance of days for working in the office. To be more specific, working offline or coming to work about 2 days a week and working online or remote work about 3 days a week. We aim at such a balance. In that sense, we will reduce investment in offices. We plan to reduce working space nationwide, including Tokyo headquarters, to less than half during the rest of the year into early next year. Through reduction in fixed expenses, we will accelerate investment in human resources and IT.

Concretely speaking, in human resources investment, we will raise salary levels through revision of salary table rather than providing a one-time payment such as allowance for remote work. As a result, we intend to improve in pre-engagement and enhanced competitiveness in the labor market further. In IT investment, we will promote digitalization to set up a remote working environment. To be more specific, we will further raise productivity through digitalization, digital work or online work.

This page shows operating structure of our company again. Under the COVID-19 pandemic, we are promoting transformation rapidly in each division. Specifically, we are accelerating various initiatives for transformation from offline to online, or from analog to digital. Although we are still impacted by COVID-19, we are on a rapid recovery trend. Please stay tuned for initiatives in each business.

That concludes results presentation of Link and Motivation for the 9 months of 2020. Thank you very much for your attention.