Septeni Holdings Co Ltd

TSE:4293

Earnings Call Transcript 2022-Q1

[Koki Sato, executive]

I am Sato. Thank you very much for taking time out of your busy schedule to attend our financial results briefing session. Today, I would like to focus on the financial results for the first quarter in my presentation. In terms of the agenda items, I will first provide an overview of the quarterly results. This will be followed by the overview of each business segment. And then I will explain about our midterm management policy, which will partially be updated. Lastly, I would like to share with you our guidance for the ongoing fiscal year ending September 2022. .

First of all, the financial results for the quarter that just ended. The highlights are shown on Page 4. Compared with the same period of last year, we achieved a very strong performance with an increase in revenue and a significant growth in profit. Revenue was JPY 6,572 million, and non-GAAP operating profit was JPY 2,020 million. EPS was JPY 10.08. Against the previous year, revenue was up by 24%. Operating income, up by 66%. And EPS was up by 47%. The results showed significant progress over the previous year.

Here are the highlights by segment. We are on Page 5. First of all, in Digital Marketing Business, both revenue and profit increased due to the organic growth and progress in the alliance with Dentsu, which drove overall performance. Whereas in Media Platform Business, the deficit narrowed due to the growth of Manga Content Business. Therefore, this business also demonstrated solid performance.

Page 6 is a summary of the consolidated P&L for the October to December period. Each of the line items is showing steady progress. Net sales achieved plus-30.8% year-on-year basis with gross increase recording high top line growth. Each item is performing well.

The bar chart on Page 7 shows quarterly business performance. As you can see, our performance has been trending upwards, and we were able to close this past quarter with good results. Both revenue and non-GAAP operating profit reached new record highs.

Page 8 shows the consolidated cost breakdown. As you can read from the numbers, in proportion to the growth of top line revenue, the cost of sales is also on the rise.

Page 9 is the quarterly trend of consolidated SG&A expenses. One thing to note in this quarter is that we have been promoting telework and remote work for some time, and the working environment has changed considerably. Due to the COVID-19 infection, we have been mainly working remote for about almost 2 years now. Therefore, we've canceled a part of our lease contract for the office space, which have started to appear in the figures from this quarter. You can see that the office rent has decreased compared to the fourth quarter.

Next, I'd like to explain about the overview of each business segment. First, Digital Marketing Business. You can find the overview on Page 11. Net sales grew by more than 30% year-on-year basis. Both revenue and non-GAAP operating profit recorded historical highs. It was a very good quarter, demonstrating strong growth.

The quarterly trend is shown on this page. This quarter experienced upside due to seasonality. The operating profit margin turned out to be higher than we had expected. The margin relative to revenue or the operating profit margin was 47%, which was a very high figure.

The slide on Page 13 shows the progress of our business alliance with the Dentsu Group. Previous earnings call was 3 months ago, at which we announced our policy to deepen capital and business alliance with the Dentsu Group. In line with that announcement, we have updated some of our disclosures.

As you can see, the number of clients through the business alliance with the Denso is now 85 and growing steadily. You can see the breakdown for the past several quarters, but the number of clients, organic sales as well as Dentsu alliance are all expanding successfully. In addition, the sales growth from the Dentsu alliance is further boosting the overall top line growth. This quarter also saw steady growth.

I will now move on to the overview of the Media Platform Business. You can find the figures for the previous quarter on this table. Particularly, subscriptions related to the Manga Business has been increasing and the product mix is shifting to higher-margin products. As a result, profit increased year-on-year basis. Compared to the previous year, there was a year-on-year increase in various investments for the expansion of business domains in this segment. Therefore, the improvement of revenue and profitability in this business segment has progressed quite successfully.

This page shows results by quarter. As I mentioned earlier, if we exclude the investment for the expansion of new business domains, it is obvious that the deficit in the existing Media Platform Business decreased from the same period of last year. The revenue trend of Manga Content Business is indicated on this slide.

Revenue from charge continues to be the growth driver, showing a good trend. Meanwhile, part of the advertisement revenue will be deferred to the second quarter. Nevertheless, advertisement revenue has already bottomed out from order placement perspective. Therefore, we can expect a turnaround in the following quarter. In any case, the structure of the business is such that strong charge revenue is supporting the overall growth.

As for the subscription revenue in the Manga Content Business, the number of users has been on the rise. Along with product improvements and hit content, it has resulted in a considerable acceleration in growth with a 1.8-fold increase from the same period of last year. We are on track towards sustained high growth.

This slide shows the commerce revenue trend of the Manga Content Business. My Lv.999. Love for Yamada-kun is one of GANMA!'s most popular iconic titles. This title has been well received by so many customers. And as a result, sales especially from e-books have been growing significantly. Up to this point, I have shared with you the overview of the Media Platform Business.

Now I would like to give you an update on our medium-term management policy. This is our medium-term management policy. Every year, we set out a rolling 3-year policy. Page 21 has been taken from the past announcement, which shows the overall outline of a medium-term management policy. In the previous earnings call, which took place 3 months ago, we updated the medium-term management policy by adding deepening capital and business alliance with the Dentsu Group.

In this update of the medium-term management policy, we have summarized several ideas. The figures will be shared in the later slides. First, I would like to explain the overall framework and the concept behind this update using this slide. First of all, the top line has been estimated based on the organic growth and the synergies expected from deeper alliance with the Dentsu Group. In order to achieve this growth, investment in human capital will become an extremely important factor. Aggressive investment in human resources to achieve business growth and organizational enhancement is incorporated into the plan.

Meanwhile, taking into account the various business environments, we will explore different business opportunities. Under consideration potential investments to capture business opportunities have been included in the plan. In addition, in line with the expansion of our business as we move to growth phase and as the company moves on to the next phase, we will continue to examine our approach to assets and the distribution of these assets. We intend to update our dividend policy and consider flexible shareholder returns. We have formulated this plan based on these assumptions.

Usually, our midterm business policies are updated once a year at the start of a new fiscal year. But considering the major corporate initiatives for deeper alliances with the Dentsu Group, earnings estimates were undecided at the previous business results announcement. The next update of the midterm business policies is scheduled at the full year financial results announcement for the fiscal year ending September 2022. This is the overview about the update of the plan this time.

Please turn to Page 23. Based on the policies explained earlier, a 3-year policy is updated. The graph on the left is before update, and the one on the right is after update. In the graph on the right, the left most bars indicate results of ended FY 2021 and the 3-year plan from the fiscal year ending September 2022 to the fiscal year ending September 2024 is provided as a rolling plan. As you see, we expect significant acceleration of growth by deepening alliances with the Dentsu Group.

And for FY 2024, the last year of this plan, revenue is planned to be JPY 45 billion, and non-GAAP operating profit is estimated as JPY 8.5 billion. Operating margin will improve gradually, and we plan to realize growth of top line and improvement of operating margin at the same time. In terms of CAGR, it is 28% for revenue and 49% for operating profit. And the growth rate is expected to be much higher than the rolling plan before update.

On Page 24, the midterm business policies for the entire group are described by segment as basic policies. For Digital Marketing Business, we will maintain high profitability and expand market share by placing the alliance with the Dentsu Group at the core of our growth strategy. This includes following 3 points: increase in unit price by improving service value to clients; organizational growth through active investment in human capital; and growth in solution revenue by strengthening the development system.

As for Media Platform business, we will develop into the next core business while maintaining appropriate financial discipline. This also comes with 3 points: strengthening IP development capabilities and enhancing the value of owned IP; growth of platforms; and growth in D2C revenue. The existing plan to move this segment into the flock in 3 years remains unchanged. 1 year has already passed in the 3-year plan. So we intend to be profitable in the next 2 years as originally planned.

Page 25 is the slide I already explained in the previous business results briefing. This summarizes the expansion of the alliance with the Dentsu Group in 1 page. We anticipate further collaborative synergies in both areas and functions as indicated by vertical and horizontal access.

Page 26 explains about expanding our capabilities in more details. Our business will expand in both existing areas and new areas. As we take Dentsu Direct, a 100% subsidiary, and Dentsu Digital, an equity method affiliate with 25% ownership into our group. With that, our business demand will expand, and how it will be implemented is summarized in this page. So please refer to it for more details.

Page 27 shows our image about market share expansion. It also has vertical and horizontal axis and Digital Marketing Business plans to cover more areas in the market. To the right, on the horizontal axis, organic growth and collaboration with the Dentsu Group are expected to increase unit prices. And the vertical axis is for broader target market to cover overall digital marketing market by adding solution market to the existing digital advertising market. This is expected to be achieved through stronger collaboration with Dentsu Digital. Combining the horizontal and the vertical axis will expand our capabilities and grow the market share. This is the direction clearly described in the updated midterm business policies.

Page 28 is about the impact of capital increase on EPS. We have issued new shares as we deepen the alliance with the Dentsu Group, and this dilutes EPS. But as explained in the previous briefing, this situation is expected to improve early through our organic growth and synergies by the business alliance.

As provided in the updated midterm business policies and forecast, EPS is estimated to be JPY 20.68 for FY '22, which is almost flat from FY '21, as the impact of dilution will be compensated by business growth through the synergy and our organic growth. Also, double growth is expected in several years, as indicated in the chart. This is to provide an update of what I explained in the previous briefing as we are seeing a clearer outlook for the future with the forecast of FY '22. That is all for the update of the midterm business policies.

Next is the last part about earnings estimates for the fiscal year ending September 2022. In the previous briefing, we explained earnings estimates were undecided. Afterwards, we made progress in reviewing effects of the alliance with the Dentsu Group. And now we are ready to disclose the forecast.

This is the full year earnings estimates for FY 2022. Revenue is JPY 30 billion. Non-GAAP operating profit is JPY 5.3 billion. Profit for the period attributable to owners of the parent is JPY 3.9 billion, and EPS is JPY 20.68. As a reference, net sales are estimated as JPY 136 billion. Respective year-on-year growth is about 40% for revenue, almost 40% for operating profit and slightly lower than 50% for net profit, and EPS is almost flat year-on-year, as mentioned earlier. That is a growth we expect for each item.

Page 31 shows full year earnings estimates by business segment. Each segment is expected to grow steadily as indicated by the figures.

Progress toward earnings estimate is provided on Page 32 as we have fixed the results for the first quarter. Steady progress is made toward the earnings forecast. Let me give you additional explanation here. This first quarter and the review does not include the effects of deepening alliances with the Dentsu Group as a new organization has just become effective on January 4 this year. So the results of business expansion under the new organization will be taken in from current Q2.

Page 33 shows progress by business segment.

That is all from me. Thank you for your attention, and I appreciate your continued support for our group.