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Edited Transcript of 2170.T earnings conference call or presentation 13-Feb-20 10:59am GMT

Full Year 2019 Link and Motivation Inc Earnings Presentation

Chuo-Ku, Tokyo Mar 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Link and Motivation Inc earnings conference call or presentation Thursday, February 13, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hideki Sakashita

Link and Motivation Inc. - President & Representative Director

* Hiroyuki Kitsu

Link and Motivation Inc. - Director

* Takashi Oguri

Link and Motivation Inc. - Director

* Yoshihisa Ozasa

Link and Motivation Inc. - Chairman of the Board

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Presentation

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Yoshihisa Ozasa, Link and Motivation Inc. - Chairman of the Board [1]

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I am Ozasa, Chairman and Representative Director of Link and Motivation. I'll start earnings presentation for fiscal year ended December 2019.

Here's today's agenda. Firstly, I will give you a company overview; secondly, business report, announcement of consolidated results for 2019. Thirdly, each director in-charge will report on conditions by business. Fourthly, I'll report on conditions by organization and engagement ratings of each group company. Fifthly, I will discuss 2020 forecast.

Now I will give you a company overview. This page shows operating structure of our group. In addition to 3 divisions including Organizational Development Division, Individual Development Division and Matching Division, we are involved in business of venture incubation.

On this page, let me talk about 3 competitive advantages of our group: firstly, one-stop products, services and business domains. Based on Motivation Engineering, which is our core technology, we provide one-stop products and services in each of our businesses and operate in business domains that range widely from individuals to corporations. Secondly, high-quality products and services. Rigorous development of products and services based on Motivation Engineering enables us to provide high-quality products and services that are reproducible and practical. Thirdly, robust personnel and organizational capabilities. By applying Motivation Engineering to our own companies, we can recruit and cultivate capable talent to create an organization with a high level of employee engagement. Now I will move on to business report, announcement of consolidated result for 2019.

This page shows consolidated statements of operations. Revenues decreased slightly both year-on-year and compared with our forecast. However, operating income exceeded our forecast by 6.8%. Net income exceeded our forecast slightly by 3.8%.

This page is SG&A expenses. Total SG&A expenses increased slightly by 1.6% year-on-year. What is characteristic is that sales-related expenses increased substantially by 30.8% year-on-year due to investment in Motivation Cloud series and other core products. I hope you understand we are continuing investment for the future.

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

This page shows Organizational Development Division products revenues by business. In Consulting & Outsourcing business, revenues and gross profit both decreased substantially year-on-year. In Event & Media business, revenues decreased substantially and gross profit decreased slightly year-on-year. In Consulting & Outsourcing business due to a concentration of personnel and other resources in the first half to focus on cloud-based business, full year revenues from consulting decreased substantially year-on-year.

I want you to look at percentage of total. Member and database services, mainly including Motivation Cloud series, grew significantly and accounted for 30.0%, up from 19.4% year-on-year. I hope you understand we are in a process of transforming the total structure.

This page shows Individual Development Division. In Career School business, revenues increased slightly by 0.2% and gross profit decreased slightly by 3.5% year-on-year. In Cram School business, revenues decreased and gross profit decreased substantially year-on-year. In the Career School business, as a result of investment in new schools and other factors, revenues increased year-on-year, although gross profit decreased year-on-year. In the Cram School business, revenues decreased year-on-year due to the full year impact of lower-than-expected growth in enrollment in first half.

Next, Matching Division. In ALT Placement business, revenues and gross profit both increased slightly by 3.5% and 2.1%, respectively, year-on-year. In Personnel Placement & Temp Staff business, revenues decreased substantially and gross profit decreased year-on-year. The ALT Placement business continued to grow steadily by reliably capitalizing on market expansion. The Personnel Placement & Temp Staff business decreased year-on-year due to weak growth in revenue from store sales and office temp staff caused by the trend toward regular employment.

This page shows consolidated balance sheet. Assets increased slightly due to the acquisition of shares of OpenWork Inc., et cetera. Liabilities increased slightly due to borrowings to cover investments. Equity decreased slightly due to returns to shareholders, including dividends and a share buyback.

This page shows dividends. We continue to pay quarterly dividends. A dividend of JPY 1.8 per share is scheduled to be paid on March 25, as originally planned.

Next, report on conditions by business.

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Hideki Sakashita, Link and Motivation Inc. - President & Representative Director [2]

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I am Sakashita, President and Representative Director of Link and Motivation. I will report on business KPIs and highlights of Organizational Development Division.

Let me start with subscription model. We set Motivation Cloud monthly fee revenue as a business KPI for the subscription model. In 2019, it exceeded the estimate of JPY 190 million and was up significantly by 47.7% year-on-year to JPY 192.961 million. Factors for the increase include an increase in the number of companies introducing the service, progress in delivery to big companies and the subsequent increase in average monthly fee. We'll continue to focus on promotion of introduction to big companies in particular.

Next, as a highlight, I will talk about future disclosure of subscription model business results. Previous disclosure covered the Motivation Cloud series. Future disclosure will present figures including monthly fee revenue of Motivation Company Club, which is a membership service of managers we have been providing since before. Monthly fee revenue is set as a KPI for the subscription model, so we decided to disclose figures including Motivation Company Club in addition to Motivation Cloud series, which is a major change this time. This graph shows combined figures of both services. Going forward, as you see here, we plan to disclose total monthly fee revenue of subscription model businesses.

Next, KPI in Consulting & Outsourcing model. We set average gross profit per customer for the past 12 months as a business KPI for the model. It was JPY 5.173 million, a decrease of 4.5% quarter-on-quarter in 2019. It remained nearly flat for 3 quarters in a row and stopped declining but has not yet recovered.

As a highlight this time, I will touch upon recovery of consulting. Consulting & Outsourcing model cumulative total sales for each quarter is shown in graph. Due to various measures, sales have been recovering steadily. As we expect further recovery in 2020, please stay tuned.

That's all for business KPIs and highlights of Organizational Development Division.

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Takashi Oguri, Link and Motivation Inc. - Director [3]

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I am Oguri, Director of Link and Motivation. I will talk about business KPIs and highlights of Individual Development Division.

We set average number of enrollees for the past 12 months; and average LTV, lifetime value, for the past 12 months as the business KPIs for Individual Development Division. The average number of enrollees decreased slightly by 0.4% from the previous quarter. However, average LTV increased steadily by 2.7% from the previous quarter. That's all for my report on business KPIs.

Next, as a highlight, I will discuss progress of i-Company CLUB, which is a subscription model service of Individual Development Division. The number of members exceeded 3,000 in 2 months since the launch in November and is growing steadily. About 40% of total users are in their 20s and use it for planning their carriers. Monthly sales expanded to slightly less than JPY 10 million. We aim to capture more new customers going forward by developing more services and in collaboration with other companies, so please stay tuned.

That's all for business KPIs and highlights of Individual Development Division.

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Hiroyuki Kitsu, Link and Motivation Inc. - Director [4]

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I am Kitsu, Director of Link and Motivation. I will discuss business KPIs in Matching Division.

We set the average number of temp staff dispatched during the past 12 months and the total number of referrals during the past 12 months as business KPIs for Matching Division. The average number of temp staff dispatched was 5,271, down 0.4% or almost flat from the previous quarter. The total number of referrals decreased 4.0% from the previous quarter to 1,229. Length of ALT service increased in the ALT Placement business in our division as we reinforced engagement measures. As a result, the number of referrals within the group decreased. And that's all for my report on business KPIs.

The highlight of Matching Division is about establishment of overseas recruiting bases. Link Japan Careers, which provides services for foreign national recruiting, onboarding and ongoing support, established an office in Europe. Start of operation is scheduled for April. By strengthening hiring in Europe, we aim at further acquisition in foreign nationals, so please stay tuned. That's all for my report on Matching Division.

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Yoshihisa Ozasa, Link and Motivation Inc. - Chairman of the Board [5]

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Next, report on conditions by organization.

We report on engagement rating of each group company once every 6 months. At a time when it is critical for companies to adapt to the labor market as well as the product market, we use engagement score as a management indicator in addition to financial statements, including income statement and balance sheet, which measure adaptation to the product market. We consider engagement score as a yardstick to measure adaptation to the labor market. It is an indicator that provides a standard deviation value for employee engagement, and an evaluation is based on [your] results of an original organizational diagnostic survey developed by Link and Motivation.

Elements that significantly influence employee engagement are classified into 16 areas based on social psychology. The areas are further subdivided into 132 items for questions on the organizational diagnostic survey. Engagement score, which is standard deviation value, is calculated based on employee expectations and satisfaction, the level of correspondence between the 2 items and our database of 1.42 million employees at 5,950 companies. Engagement scores are grouped into 11 ranks to provide an engagement rating.

This page shows engagement ratings of Link and Motivation group companies. Among the 14 group companies, 11 have a AAA rating and 3 have a AA rating. We've been maintaining high level of engagement.

Let me move on to 2020 forecast. We forecast substantial year-on-year increases in all 3 categories of revenues, operating income and net income. Revenues will be JPY 41 billion, up 7.4% year-on-year. Operating income will be JPY 2.870 billion, up 42.9%. Net income will be JPY 1.570 billion, up 44.0%.

We forecast substantial increases in revenues and income due to the following key points for each division in 2020. In Organizational Development Division, consulting is on a recovery trend and is expected to recover [all of risk scale]. As advanced indicators have already been steadily showing, recovery is considered to be certain. Steady growth of Motivation Cloud series is also expected. Due to these 2 factors, Organizational Development Division will grow significantly.

In Individual Development Division, further expansion of English conversation courses is expected. Besides improvement in i-Company CLUB, continuation rate will contribute to revenues. In Matching Division, stable growth of ALT Placement business is continuing. Addition of OpenWork Inc. to the group will also contribute to business performance.

Once again, this page shows operating structure of Link and Motivation Group. As a whole, we are on a very favorable recovery trend. Please watch for our future progress.

Thank you very much for your attention.

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