DIP Corp

TSE:2379

Earnings Call Analysis

Company Boosts Profits and Promotes Inclusivity

In the second quarter financial results, sales and operating profit matched projections, with a 9.1% rise in sales to JPY 12.5 billion and a 10.1% increase in operating profit to JPY 2.8 billion. The company's market share has grown to a solid 26.4%, and it's actively pursuing DEI through projects like DIP DEI, aiming to remove age bias. The business is also expanding its AI capabilities and expects an operating margin increase to about 30% owing to the full productivity impact of 600 new graduates. Currently, the firm is aligned with a forward-thinking philanthropy and driving diversity, cutting its new graduate hiring by half to enhance productivity and efficiency.

Strategic Focus on Big Ideas and Mid-Term Plans

The company is carving its path forward with a theme of 'thinking big' and working on substantial activities aligned with this mindset. A significant milestone on the horizon is the unveiling of their new mid-term business plan, dubbed 'dip30th', which is set for announcement in November. Additionally, the second edition of their integrated report, which will include the Mid-term Management Strategy, is also scheduled for release in the same month. This indicates a forward-looking approach where the company not only reflects on past performances but also sets a concrete roadmap for future growth.

Initiatives to Enhance Employee Compensation and Market Position

The company has been proactive in raising hourly wages, a move that has set them apart from the competition and resulted in marked improvements in employee treatment. They believe these efforts are yielding impressive results, which is substantiated by a strong market share position of 26.4%. Their robust approach to market leadership is also reflected by successful app downloads and user engagement numbers, indicative of the company's strong digital presence.

Promoting Diversity and Inclusion

Embarking on a significant promotional campaign—the DIP DEI project—aimed at reducing age bias is one of the strategic highlights. Altering the application fields to make age information voluntary, rather than mandatory, has received positive acknowledgment from customers, with 62% following suit. This proactive stance towards diversity and inclusion is also seen in the company's advertising campaigns, challenging the biases related to age, gender, and nationality, thereby showcasing the organization as a champion for a more inclusive workforce.

Digital Excellence and AI Integration

The company is not just utilizing artificial intelligence (AI) for external services but is also deeply integrating AI into internal operations, positioning itself as one of the leaders in leveraging AI technology in Japan. This embraces AI for streamlining tasks such as drafting job advertisements, which shows a commitment to improving operational efficiency. Furthermore, by conducting a philosophy contest internally, they've nurtured a culture where employees are encouraged to ideate and engage in activities that align with core company values, aiming to better society.

Fiscal Year Forecast and Financial Health

Financially, there's a focus on expanding sales and improving profit margins in the coming half of the fiscal year, with the expectation that recently joined graduate employees will start contributing significantly to sales. The company has also seen a reduction in advertising costs, which is a result of streamlined and efficient promotional strategies, suggesting healthy cost management practices. They also have an optimistic view that their labor cost ratio will trend downwards to approximately 32-33%, signaling an efficient allocation of human resources.

DX Business Segment Performance and Forecasts

The DX business segment has shown a promising 26% year-over-year growth in sales, outperforming their initial plan and underscoring the company's ability to navigate off-peak seasons successfully. Additionally, the 20% year-over-year growth in the number of companies subject to monthly billing signals a steady business expansion. New product rollouts like the SNS Booster KOBOT have started strong, expecting to attribute to future sales growth.

Recruitment Services Trends and Permanent Placement Services

The recruitment services have experienced a 7.2% sales growth year-over-year, with media services contributing a 7.6% increase. Despite a minor decrease in permanent placement services due to the initial costs of incoming graduates and launch of new services, the company is prepared for these investments to yield improvements in the following fiscal year. They're confidently navigating the market dynamics, outperforming market growth, and incrementally increasing their market share.

Earnings Call Transcript 2024-Q2

[Hideki Tomita, executive]

Thank you very much all for giving us your time despite your busy schedule today. For the fiscal year ending February 2024, we would now like to start the financial results announcement for the second quarter.

And for Investor theme is think big, and we have taken various activities based on this theme. We have the mid-term business plan called dip30th and this is being built right now, and this will be announced in November of this year. And in November, the integrated report - the first round of the integrated report was announced for the first-time last year. But this year in November, the second version of the integrated report will be published. And within that, our Mid-term Management Strategy will also be included.

However raising the hourly wage, is the promotion that we have been conducting. And our employees one by one are approaching our customers and constantly, they are making down-to-earth activities to ask the increase in rates of the hourly wages. And their efforts have bear all the fruit. And compared to the competitors and when we compare the hourly wage, as you can see here, we can see a very big difference. Many customers have recognized this activity, by doing so, we were able to improve the treatment of the employees. We think we are delivering very good results.

And in terms of the number of app downloads and the usage rate are doing quite well -- as well and our both app downloads and MAU have been doing quite well. And in relation to that, we have been able to receive a record number of applications.

And in terms of the market share, according to our survey, has grown their share by 1 point, but [ in quarters Mynavi ] has dropped their share. And that is what we see based on the survey that we have conducted, right now our market share is 26.4%, which is a very strong number.

Right now, as the second phase of our activity following the increase in hourly wage, we are conducting a large promotion called DIP DEI project. And mainly this is focusing on trying to reduce the bias around age. We have revised our sites instead of making the age field mandatory we had made it voluntarily. So therefore, the age information has not become mandatory anymore. I mean there are some customers who require this information, so we are not able to take out the field completely. However, we are asking the users to enter it if they wish to. This activity has been recognized by many customers, 62% of the companies has switched to making the age field voluntarily. In TVs and newspapers and magazines, this has been covered very broadly, we want to make this a major movement.

As a character for this campaign, Miki Maya is playing the role of the division head. And through this campaign, we are giving an updating, that the companies are taking out the age field. Baitoru, we are focusing on the diversity, so not just the age or gender or nationality bias is something that we want to eliminate in that way we are broadcasting the new commercial.

As you saw here, the new TV commercials for TV as well as online and also our YouTube channel and TikTok are areas that we're focusing on. So we have 250,000 users who are registered under our corporate channel. The number of video views has exceeded 100 million. So we had many users registering and also watched the videos.

On October 24, for the first time in our history, we are holding a business conference. It is called the Labor Force Solution Conference. As the theme, we are using Human Capital Management Changing with AI, as a theme. And professor Matsuo, from the Matsuo Laboratory who are involved in developing the AI Agent, and also our outside directors, Mr. Mabuchi and Ms. Shimada, will be speaking on this conference, we will be doing a live streaming of this conference. So I hope you would join.

The permanent placement services will be expanded this time and to the existing media business by Baitoru, Baitoru NEXT and Hatarako.net, Baitoru PRO. For the permanent placement services, Nurse de Hatarako, Nursing Care de Hatarako. Well all you saw other nursing care requirement commercials have been introduced by doing so, we are focusing a lot on this area.

For the DX business, in addition to recruitment, the DX so far attract more users is another area that we're focusing on more. This is an MEO service but through this, this time, we are working with Google to conduct an event, co-sponsored with Google. And on October 4, we are going to co-sponsor with Meta to conduct this event, and for both events we have more participation, by more than 100 companies, and this is received very well. It is very well received.

And this is a page that was shown in the previous earnings call as well, we are seeing a very steady development of the product and I would like to update you on that. AI and AI Agent is a service targeting the users, but also in terms of the usage of AI within the company, we are focusing about there as well. With regards to our activities, we are getting many inquiries, it has been covered by the newspaper quite broadly. But internally, we have 250 ambassadors being assigned. These ambassadors -- for AI -- especially for generative AI. They are in a position of promoting the usage of AI and generative AI, so in the field, we are conducting activities to promote the usage of AI in the field. Throughout Japan, we have been positioned as one of the leading companies who leverages on AI.

For the sales reps, they use AI for building the draft text for job ad postings and job text is something that requires a lot of time. Being able to automate this process would contribute significantly to improve the productivity, and also business negotiation tools would also contribute to improving the win rate as well as the process of the sales and also for engineering positions and planning and administrative positions that we are actively driving the usage of AI.

And this time, we have conducted philosophy contest, which is a new initiative internally and myself. But a lot of the employees were very stimulated and each employee are conducting those actions within the field, that was a big learning for us. So if we have the opportunity going forward, we would like to share that with you again. But based on the philosophy, of course raising the hourly wage and also eliminating the age bias is another thing. But with dream, idea, and passion, the activity to improve the society is the philosophy that employee -- each one employees are having, and they had the opportunity to announce on that.

And in terms of diversity, with regards to LGBTQ+, we have conducted a training and our outside director, the attorney, Imazu was invited as a lecturer to talk about the face and value of driving our diversity with the aim of integrating our views. All the employees, for the directors as well as the employees, we have conducted this session.

On October 2, we have conducted a informal ceremony for the new graduates. This year, we are hiring about half the size that we hired last year. But still, we are hiring about 303 new graduates. As I mentioned earlier, right now, the draft creation can be done in a more productive way by using AI, and we are trying to improve the productivity significantly that way. By doing so, we expect the productivity to improve. Of course, we haven't done a thorough study on this yet, but we need to assess whether the 303 new graduates are the adequate number or not and consider reducing the number going forward. However, for this year's new graduate hiring, we have reduced it down to half, so that we can conduct a more productive way of work and by doing this, we want to find out what the appropriate number of new graduates are going forward.

This time all GPIF have recognized our new ESG indices that was adopted and by doing this, all the ESG index has been selected. The new -- our ESG index that was newly selected, we have been rated as part of our Group 1. Thank you very much. That is all for me.

[Masatsugu Shidachi, executive]

Hello, I am Shidachi. I would like to first present on the consolidated results for the first half of this fiscal year. I will skip on this highlight page and moving on to the consolidated results.

Both sales and operating profit were in line with our initial projection for sales compared to the same time last year, sales increased by 9.1% to JPY 12.5 billion. Operating profit increased by 10.1% to JPY 2.8 billion. For personnel recruiting services and DX, both services enjoyed a steady growth in both sales and profit. For operating profitability, it was 23%. It is somewhat higher than the previous year. And in the latter half, we are planning to increase this operating margin to around 30%. And this is because in the latter half, the 600 new graduate who joined our company will start to contribute to our sales on a full scale. And also, previously, our existing employees spent a lot of time on educating and guiding these new graduates but will be able to secure enough time on sales negotiations. So we're hoping that we can expand our sales in the latter half, together with an improvement of margin.

Now on to the breakdown of the SG&A, starting with advertising cost. For advertising cost in the previous year, we invested meaningfully on Baitoru PRO. We spent JPY 2.5 billion on an annual basis last year. But this time, it will be half to around JPY 1.2 billion. In addition to this, we are seeing an improvement in efficiency and promotion. So advertising cost ratio will go down -- or rather has gone down by 6.6% year-over-year. We are cutting back on the advertising cost for Baitoru PRO. It is because we are running web ads for Baitoru, Baitoru NEXT and Hatarako altogether efficiently, we have received enough applications so far. In this way, we are making solid and enough investment into the 4 media covering the 4 services altogether.

Now on to labor cost or personnel costs, 612 graduates joined our company. So labor costs increased -- labor cost ratio increased rather. However, in the latter half, we're going to expect the start of full-scale sales contribution by these people. So we are hoping that the labor cost ratio will go down to 32% to 33%. And as to the fiscal year that will end in February 2026, we are planning that a new graduates who have joined our company this fiscal year can generate sales of more than JPY 10 billion in this single fiscal year. So we will continue to develop our new graduate employees fully.

Now on to the full year forecast for this fiscal year. We announced our full year forecast on the 14th of April, and there is no change since then. The way that we think about this forecast is the same, and this is the same slide as what we presented last time. So we're skipping this slide.

Now by segment, starting with DX segment. We will share with you the content of the business and our progress. As to the positioning of DX business, its business environment and the characteristics of DX tool KOBOT series, the pages are the same as what we showed last time. So I will skip explanation on this. However, there is a new addition to our DX product lineup. It's the SNS Booster KOBOT. This is a new product related to customer attraction.

And this one, MEO was announced in Q1. This is the customer attraction using Google map. In addition to this MEO KOBOT or M-E-O KOBOT, we added SNS Booster KOBOT covering Instagram, and also, this can have a reservation button that can be directly used from map in addition to reservation function. So customer management can be supported better with this new product, and we started offering this product this month. As our President said earlier, we made announcement about this through webinars and others so far, we have received good customer response, we have made a good start, we are hoping that this product will be bigger in results.

As to the results in the second quarter, second quarter wise, our sales grew by 26% year-over-year. And both flow product and stock product exceeded our initial plan. For the second quarter, second quarter is an off-peak season for media services. So flow product sales somewhat slowed down. However, stock product sales grew steadily. As to the number of companies subject to monthly billing, this number increased by 20% year-over-year, showing a steady growth, which is as high as 20%.

As to KPI results for Q2, last time we made an upward revision to KPI targets. Even compared to the adjusted targets, we're making steady progress. In the latter half, we're going into the peak season of media, so we can expect to accelerate sales in the areas of corporate recruiting and personal administration. In addition, MEO KOBOT in sales promotion areas have been used by customers for free for some. However, we are seeing that these customers who use this service for free trial are shifting to paid services, so they will start to contribute to sales.

As to our focal measures of DX in Q3. The first one, improvement of quality for existing products, we are planning to renew the functions of the corporate recruiting page KOBOT. With this, we're going to reduce churn rate in our plan. But other points are already explained, so I am going to skip explanation on other points.

As to the plan for this fiscal year. No change for sales and segment profit forecast for this year. In the last time, we explained that this forecast, this plan is a conservative one. For KPIs, we made an upward revision and we have made solid progress in line with the revised plan. So we, of course, are going to outperform this plan. That is it for the progress of DX business.

Now I will going to the progress state of personnel recruiting services. Starting with the sales of personnel recruiting services. This number grew by 7.2% year-over-year to JPY 11 billion.

Now on to the breakdown. The media service and permanent placement services. Media service grew by 7.6% year-over-year and permanent placement services declined by 0.5% year-over-year. For the media services, it grew by 7.6% in sales to JPY 10.6 billion. The 7.6% growth may not be satisfactory to some of you. However, when we compare this number to market, in the part-time new job offers to seeker ratio, you can see the chart, the year-over-year job offers to seeker ratio trends. And compared to the last time -- the same time last year, you can see the growth, in fact. And the market in the second quarter slowed down compared to our expectation. However, DIP sales growth rate was as high as 7.6% compared to the market growth of 0.6%. So we outperformed the market growth, and we increased our market share.

On to the number of contracted companies, you are seeing that this number is increasing steadily by 5.3%. As to unit price, the contract unit price per company grew by 2.1% year-over-year.

About the DX product that was mentioned earlier, that this product is, of course, launched and sold. So unit price per company grew, thanks to the launch of the new product, partially.

Now let me talk about the focal initiatives of the Media Service. As to the improvement of the operational efficiency, Tomita-san earlier mentioned that we automated production of job ad text that we are expecting we will give a major impact on efficiency. And also, we started recording meetings with clients with a minute taking tool. In this way, we will be able to visualize the conversation history, the conversation details of our sales representatives, especially the top-level sales representatives, and that will be a good learning for other sales representatives. So this will allow us to share good knowledge. We are hoping that this will lead to a bottom up in terms of the quality of proposals to customers. We're starting to see the positive effect at sales department, and we are hoping that even bigger results will come out in the future. Other points have already been explained, so I am going to skip explanation.

Now on to permanent placement services, sales of permanent placement services wise, the sales declined by 0.5% year-over-year and ended up JPY 400 million. The reason why it declined is because many new graduates joined, they require meaningful education cost and they have not been able to make contribution to sales. Also, there is the launch of Nursing Care de Hatarako, the new service. We have to assign meaningful number of personnel related to the launch of this service or the preparation for the launch of this service. These are the two major factors that have led to a decline. However, please understand that we're making a meaningful upfront investment, and we're going to see an improvement in the next fiscal year as a result. April the peak month of this permanent placement services, so we are hoping and we are confident that, think this, more people will start jobs next April. So please count on good numbers to come out next fiscal year.

Onto the focal measures of permanent placement services. About development of new graduates, we have made steady progress in the development. So please expect that meaningful sales contribution will be made by these new people in the next fiscal year. Other points have already been explained in the last quarter. So I will not explain, but we will continue to fully address these 3 points.

Now on to the business plan for this fiscal year. No change to the plans for sales and segment profit of personal recruiting services business on the full year. And that is the end of my presentation.

[Hideki Tomita, executive]

With the rights to the shareholder return, I would like to explain the interim dividend, the forecast was to be JPY 35, last year was JPY 40, and the forecast for this year was JPY 35. But we have a guidance of a payout ratio of 50%, so we increased our dividend by JPY 5, raise to JPY 40. That is all for me.

The JPY 48 of the year-end dividend upheld and will remain the same, there's no change. Thank you.

Well, on the informal ceremony, we have a video presenting and depicting the activities of senior employees, every time we show the videos. But this time, I would like you to see the video from the informal ceremony.

[Presentation]

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