Septeni Holdings Co Ltd

TSE:4293

Earnings Call Transcript 2021-Q2

[Koki Sato, executive]

Good afternoon, ladies and gentlemen. I am Sato. Thank you for attending the earnings call of Septeni for Q2 of the fiscal year ending in September. I would like to start my presentation, which covers an overview of the consolidated financial results for the first half as well as for the second quarter of the fiscal year, an overview of each business segment and the revised earnings forecast and dividends forecast.

First of all, please refer to Page 4 of the handout, which shows highlights of the financial results for the 6-month period ended in March 2021. The company has achieved great results, with revenue exceeding the last year's level and non-GAAP operating profit doubling year-on-year. And as a result, we decided to revise the guidance for full year ending in September 2021.

As shown on the slide, revenue was JPY 10.642 billion, an increase of 20.9% over the previous year, and non-GAAP operating profit was JPY 2.378 billion, almost double the amount in the previous year.

Next is the highlights of the financial results of each segment, starting with the Digital Marketing Business, which showed a significant growth on the back of the strong momentum over the last 6 months, meaning October to December and January to March, first and second quarters of this year. The Media Platform Business, which showed a positive revenue year-on-year, increased its operating loss slightly, as shown on the slide.

Page 6 shows the consolidated P&L for the first 6 months. Revenue growth turned out to be extremely strong to overcome an increase in SG&A, enabling a profit growth of more than 100% on each level of profit.

Page 7 shows earnings trends for each segment, bar charts are used here. As I mentioned in the outline, the strong growth was shown in Digital Marketing, and it was the driver of the overall results.

Let me now take you through the quarterly results on a consolidated basis for the January to March period. The consolidated P&L is shown on Page 9 for the period between January and March. We disclose both net sales and revenue every quarter based on IFRS reporting. Net sales refers to GMV or gross merchandise volume. And the important point is that it was very strong this quarter as you can see on the slide.

Page 10 shows the quarterly trend of consolidated earnings. In the first quarter of the fiscal year, we saw a strong momentum in business trends due to the factors associated with the current environment. And the strong trend continued during the second quarter, keeping revenue in the record high level. The op margin was also kept at a high level. It was in excess of 20% and supported the quarter's high earnings.

Page 11 shows the breakdown of consolidated expenses. The topic here is the increase in labor cost. It was up about 24% compared with the same period of the previous year. The reason for the increase is explained here on Page 12 of the handout. In view of the strong performance in the past quarters, the company has decided to make a provision for performance-linked bonuses to be paid to employees as well as a provision for stock compensation to be provided to directors and executive officers. The timing of payment will be sometime after the financial closing, but the expenses are booked now for accounting purposes.

Please be aware that stock compensation expense is not going to be included in the non-GAAP adjusted operating profit due to the scope of the accounting standards. That was my brief overview of the quarterly results.

I now like to move on to the explanation of each business segment on Page 14. This is a summary of the financial results of the Digital Marketing Business. As shown here, the figures are almost the same as what I have just talked about earlier. But the domestic and overseas revenue increased, respectively, in the second quarter compared with the level of 1 year ago. In other words, growth was achieved in both -- in Japan and outside of Japan.

For this segment, in particular, the non-GAAP operating profit was more than JPY 2 billion for the quarter, for the first time in the company's history, a clear sign that the size of business is steadily increasing.

The quarterly results of the Digital Marketing Business are shown on Page 15. Both revenue and non-GAAP operating profit were record highs for the third consecutive quarters. This time, another sign was shown that the business is growing steadily.

Page 16 shows the trend in brand advertising transaction, which is an area of focus of the digital marketing business. As shown here, the transaction value has increased consistently with 23% growth year-on-year, meaning the successful development of new markets.

Page 17 shows the progress on the business alliance with our partner, Dentsu Group. We are disclosing this data to investors on a regular basis. Compared with the same period in the previous year, the number of customers has grown 1.6x (sic) [ 1.9x ], and it is still growing as we speak. That was my brief overview of the Digital Marketing Business.

I would now like to explain the overview of the business in the Media Platform Business segment on Page 19. In this business segment, revenue growth was sluggish. And in terms of expenses, some expenses were incurred for the expansion into new domains and for the execution of upfront investments, which resulted in an expanded operating loss compared with the previous year. As I mentioned earlier, we are expanding into new segments as is shown on Page 20, and are incurring some upfront investments.

Page 21 shows the trends of revenue in the Manga Content Business, which shows a steady growth. The breakdown, however, shows the growth in advertising revenue, which is rather sluggish, while revenue from B2C consumer business are growing strongly over the last quarters for both subscription and commerce. The Manga Content Business had a strategic turning point, about 3 quarters ago in Q3 of the previous year, as the company tried to adapt to the COVID-19 environment with a shift of focus towards B2C revenues. As a result of the change, 3 quarters later, we are seeing an accelerated growth in the business trend as well as positive response to the new direction.

Next is the trend in subscription revenues, which the Manga Content Business is focusing at the moment. As shown on Page 22, an accelerated growth is seen in this area, with revenue growing 1.6x compared with the level we had in the previous year. The steady growth in the number of new users as well as in revenues was driven by the intellectual properties and the original publications created internally by the company.

Page 23 shows the trends in commerce revenue, the other part of the Manga Content Business. The revenue is made up of both crowdfunding and e-books, growing steadily during this quarter, though some seasonality is included in this business.

Page 24 shows the business topic that is related to our Media Platform Business. As part of the portfolio review conducted by the business segment, we had a divestiture of a wholly owned subsidiary called Pharmarket, in which we had 100% of shares, and we sold 100% shares to a company called Kakehashi. The business lines of Pharmarket is as shown here on the slide. The business was involved in the operation of a B2B marketplace to sell drugs to pharmacies. The business was sold to a start-up company, which had more expertise in the health care DX than we have.

The right-hand side of this slide shows the details of the transaction. The sale was executed on April 1. The earnings call for this quarter is for the second quarter, but the impact of the transaction will be seen on the results for the third quarter, where we plan to recognize a gain from asset sale. The impact on the consolidated financial results, however, is supposed to be limited.

That was a brief summary of the portfolio review conducted during the second quarter as well as my overview of the result for the Media Platform Business. Let us move on to the last part now, consolidated earnings forecast and dividend forecast. Page 26 shows revised full year forecast and dividend forecast. Overall, with the sharp growth in the Digital Marketing Business, going beyond our expectations as the backdrop, we've decided to revise our earnings forecast and dividend focused upward.

In terms of numerical targets, which are shown in red, the projected revenue is JPY 21.5 billion, non-GAAP operating profit is JPY 4 billion and net profit is JPY 2.85 billion. As for earnings per share, it is JPY 22.54, showing a sharp increase in EPS. As for the dividend, the current forecast is JPY 3.4 per share, which is an increase from JPY 2 per share. We managed to ensure a sufficient return for our investors.

Next is the full year forecast by segment. The figures are shown here on the slide, but we made upward revisions, both through the Digital Marketing Business and the Media Platform Business. In the Media Platform Business, as we plan to make some upfront investments to help develop new business segments, operating loss is expected to increase year-on-year. Despite the review on the business portfolio, the Media Platform Business should show an accelerated revenue growth driven by the existing businesses for the second half of this fiscal year.

Page 28 shows the progress on the revised forecast. We have a steady progress even in comparison with the revised forecast, with a progress rate of 49%, 59% and 55%, respectively, on revenue, operating profit and net profit as of the end of the second quarter. The slide shows the progress with bar charts for each business segment. That was my explanation of the revised guidance.

With this, I would like to conclude my presentation, asking for your continued support for the company. Thank you.