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Edited Transcript of 3978.T earnings conference call or presentation 8-Aug-19 1:00pm GMT

Full Year 2019 Macromill Inc Earnings Call

Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Macromill Inc earnings conference call or presentation Thursday, August 8, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Masahiro Shimizu

Macromill, Inc. - Executive Officer & Global CFO

* Scott Ernst

Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director

* Toru Sasaki

Macromill, Inc. - Representative Executive Officer of Japan Operation

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Presentation

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Unidentified Company Representative, [1]

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Good evening and good morning, and welcome to Macromill's Fiscal Year 6/2019 Full Year Earnings Conference Call. This is [Naoto Kurata] again from Macromill IR team, and I would like to host tonight's call. (Operator Instructions)

Today, we have 3 main speakers on the call, Representative Executive Officer and Global CEO, Scott Ernst, as our main speaker; Toru Sasaki, Representative Executive Officer for Japan operation; Masahiro Shimizu, Executive Officer and Global CFO; and we also have Ryo Takahashi, Head of IR and Stakeholders Communication to support the management.

We would like to conduct tonight's conference starting with the presentation by Scott, Masahiro and Toru for the fiscal year June 2019 full year earnings results and our new midterm business plan. After the presentation, we'll be opening the lines for a Q&A session, then conclude the call with the closing remarks from our management.

Please note that this event is being recorded for a replay call available for 2 weeks.

Now I'd like to turn the conference over to Scott Ernst to kick off the presentation.

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Scott Ernst, Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director [2]

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Thanks, [Naoto]. Welcome, good morning, good afternoon and good evening, everyone. Thank you for joining us for our Q4 earnings announcement. On behalf of the entire team, I'd like to thank you for your continued support of our company. We have a lot of content to get through tonight. And we recognize that it might be hard to be on listen-only, so we'll try to keep a quick pace and get through the content that we've prepared. We'll try to get through probably in about 45 minutes or so and then leave about 45 minutes for Q&A.

So in that time, during the presentation, we'll cover a couple topics: an overview of our fiscal '19 financial results, then a look back at our performance over the prior midterm plan. We'll then share our guidance for fiscal '20, and then we'll provide some highlights from our midterm planning process that covers the periods from fiscal 2020 to fiscal 2022. We'll then open it up for questions.

So let's start with a high-level summary, our key takeaways, Slide #3, please. Fiscal '19 was a challenging year, and I apologize that we did not achieve the original guidance that we set for ourselves a year ago. We did, however, deliver on the financial targets that were part of our revised guidance that we shared in February. As a team, we've had lots of accomplishments across all parts of the business. And we're focused on improving our performance. We faced challenges and headwinds but are committed to learning from these issues. And we've put together action plans that we believe will improve both our short-term and our longer-term performance.

The following are a couple of key takeaways I'd love to share with you. We'll go into more detail in each one of these points during the body of the presentation, but this is the executive summary, the key takeaways that you should take from this meeting.

So first, our fiscal '19 results were as expected, as we indicated in our guidance, with double-digit revenue growth, including M&A, EBITDA growth of 6% and net income remaining flat over the fiscal year.

Second, that fiscal '19 was the last year of our prior midterm plan. And over the last 3 years, we've achieved steady growth and it significantly improved our position in the global market, moving to the #13 largest global market research company. That's up 4 spaces. And we did, in retrospect, meet the majority of the KPIs that we set for ourselves.

Third, that the market research space is changing rapidly, and we've experienced some -- an event -- unanticipated events but that our business model, our proprietary panels and data, our compliant -- privacy-compliant business model are really difficult for competitors to duplicate. And we believe that we're increasing our competitive advantage.

Fourth, that in the current situation of dramatic change, we continue to pursue further growth, and we aspire to become a top global 10 -- a top 10 global market research company, #1 in Asia and #1 in Japan.

And lastly, that 2020 will be an investment year for us to accelerate our growth and realize our aspirations as we described in our midterm plan and we'll be -- continue to commit to growing faster than the market and delivering against our ambitious vision.

So with that, let's provide some context on our historical performance. Let's look at Slide #4, please. Our performance in fiscal '19 continues to earn us the position as the fastest-growing global market research company, with a 5-year CAGR of 16%.

So let's now move to our full year results on Slide #5. So a look back at our fiscal year performance in terms of revenue, EBITDA and net income, and for today's session, we'll move right into the full year results, but you can see Q4 stand-alone results in the appendix. So while we had a strong start to fiscal '19, we did see a slowdown in the Japanese market and the U.S. market in the second half. We don't, however, believe that this slowdown is a structural issue, and our teams have worked hard in terms of recovery plans for this fiscal year in the planning process for fiscal '20 and on our midterm plan.

So now to the numbers. Fiscal year revenue increased to JPY 44.2 billion or 11% year-on-year growth in reported revenue and 12% year-on-year growth in constant currency. 6% of this growth came from M&A, largely the acquisition of HMM. Full year EBITDA increased to JPY 9.1 billion or a 6% increase in both reported and constant currency. And then net income reached JPY 4.7 billion, flat year-on-year.

So let's look at the revenue drivers for that growth, Slide #6. As a reminder, our 3 main drivers of growth are Japan, Global and Digital. And this chart shows both revenue and revenue growth rates for each. So first, Japan. Japan revenue includes Macromill Japan, Macromill Japan subsidiaries, DMI and now HMM. Total Japan revenue grew to JPY 30.9 billion or 13% year-on-year, with 9% of this growth coming largely from additional revenue from the HMM acquisition. Macromill Japan stand-alone full year revenue growth was 4.5%, coming up short of budget but growing faster than the market and faster than our competition. DMI showed a good recovery with slight growth on the top line but strong improvement in both quality and profit. And other top-performing Japan subsidiaries include Macromill Carenet growing at 12%; M-Promo growing at 23%; and Centan growing at more than 2x but off a relatively small base.

Now to Global. Global includes revenue from MetrixLab and Embrain. Overall, Global Revenue increased to JPY 13.4 billion or 6% in reported revenue and 9% in constant currency. Embrain revenue grew at 14% year-on-year in reported revenue and 16% in constant currency. Embrain growth was driven largely by our digital products built upon our innovative panel big data and also from our global key accounts, mainly one of Korea's largest automotive manufacturers, growing at 66% year-on-year. MetrixLab revenue grew at less than 2% in reported revenue and 6% in constant currency. In spite of a strong Q1, revenue growth slowed later in the year, especially in Q2 and Q4, largely due to the loss of 2 large clients in the U.S., which has been difficult to make up for. MetrixLab did see good growth in our core solutions, however, growing at 23% year-on-year, with particularly strong growth from our campaign effectiveness and packaging solutions.

Lastly, Digital. Digital revenue grew to nearly JPY 7.9 billion or 21% growth in reported revenue and 23% in constant currency. Digital growth in Japan was driven by 173% growth in our DMP Solutions and 14% growth from AccessMill. Embrain Digital growth was nearly 70%. Digital at MetrixLab was down 7% year-on-year, but we believe that this decline in Digital at MetrixLab was largely a product mix issue and not a structural issue with our products or markets.

So now I'd like to hand it over to Shimizu-san to take us through a more detailed financial update and to share our full year performance against our revised guidance.

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Masahiro Shimizu, Macromill, Inc. - Executive Officer & Global CFO [3]

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Thank you, Scott. I would like to walk you through P&L. Please turn to Page 8. Regarding revenue, we saw an increase of 10.6% year-to-date. We have maintained our growth rate at a higher pace than the market. Japan and Korea segment grew 13.2%. Other overseas segment grew 2.0%. In terms of major expense items, we have slowed our hiring and started to see more moderate growth in total employee expenses. In Japan, to address tightened Japanese labor laws, we hired 116 new graduates this spring as a onetime event. We plan to reduce the number to 60 next year, which is a normal level for us. We expect to continue to invest in people to stay compliant with tightened Japanese and Korean labor laws.

We also have invested in AI and RPA and aim to increase efficiencies going forward. As to panel expenses, without reclassification of certain items, we -- they would have grown 10.5%, which is in line with the revenue growth of 10.6%. Regarding outsourcing expenses, we saw an increase mainly in off-line research in Japan but have started to internalize certain tasks and started to see positive impact. Depreciation expenses grew due to IT investments. We will continue to invest in IT and expect to see depreciation expenses increase. For clients, we have upgraded the CRM system.

We have invested in moving our research system to cloud, which enables us to operate safer and faster than service on-premise. For internal operations, we have upgraded our global HR and accounting systems. We saw a decrease in foreign exchange income, which was related to a hedge on non-Japanese yen loans. We enjoyed savings on interest costs. We also saw increased minority interest adjustments due to positive performance of joint ventures. Profit margin has been diluted by acquisitions of lower-margin businesses and investments in people and IT, but we are confident that we can improve profitability by introducing Macromill way to these acquired businesses and expect returns from the prior investments.

Now please turn to Page 9 for our balance sheet discussions. We managed our cost of interest-bearing debt reasonably low, and we lowered average debt cost to 1.05% per annum in Q4 from 2.03% per annum from a year ago. We improved leverage ratio. We reduced net debt-to-EBITDA ratio at 2.8x, which is better than our goal of 3x. We increased interest coverage ratio to 12.9x. We deleveraged our balance sheet and, therefore, return on equity was lower to 17.1%, down by 3.6 points. But our ROE is still higher than Japanese market average of 9%.

Next, I would like to explain cash flow statements on Page 10. We generated free cash flow of JPY 4.2 billion or 6% higher than last year before interest payment and finance cash flow. We repaid extensive tranches of bank loans. As a result, we increased cash and cash equivalents by JPY 1 billion from a year ago. We have JPY 10.1 billion in cash and cash equivalents.

Then let me explain how we did against our latest revenue and profit guidance. Please turn to Page 11. Revenue was JPY 44.3 billion, JPY 130 million below the guidance. Strong yen lowered euro and Korean won based revenue translation by JPY 100 million. Without this negative impact, we would have been almost at the guidance. We managed our cost as planned. So actual EBITDA was at the guidance. Attainment in operating profits is higher than that in EBITDA. This is due to delayed IT investments, which led to delayed depreciation expenses. We saw a good attainment in net income. This is due to certain financial income and onetime tax credit based upon salary increase in Japan. Please refer to the details of foreign exchange translation rates used for guidance and actual.

Now I would like to hand the microphone back to Scott.

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Scott Ernst, Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director [4]

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Thank you, Shimizu-san.

So I'd ask you to go to Slide #13. So this slide is a reminder of how we look at the overall market opportunity that we're pursuing. And the market for marketing research is a $46 billion TAM with a 3% overall CAGR, along with the market for digital advertising, which is a $231 billion TAM with a 15% CAGR. And it's clearly the combination of these 2 big and growing markets that creates what we think is an exciting market opportunity. And over the prior midterm plan, we had been focused on the drivers of continuing to expand in Japan, to accelerate Global and to create new demand with our Digital Marketing Solutions, along with continued focus on incremental growth through M&A.

So let's provide our version of a scorecard on our performance against the prior midterm plan. Slide #14, please. So looking back upon our goal for the prior midterm plan, we see mixed results but generally positive on what we have accomplished. Well-achieved were our results in M&A, Digital and leverage reduction. Over the last 3 years, we've been -- we've completed 4 company acquisitions which have generated significant incremental revenue, along with bringing in great new talent, new solutions and new technology into the group. In spite of some unforeseen external environmental changes, Digital continues to be a strong growth driver. And we've achieved our growth target and our penetration target for our Digital Solutions. And based upon our strong cash flow, we've also reduced our leverage ratio below the 3x mark, beating our own initial expectations.

Nearly achieved were our efforts in terms of revenue and profit growth. Our revenue CAGR over the last 3 years was 11%, including M&A, but we fell short of our target to achieve 10% organic growth, realizing 9% over the midterm planning process. Profit was nearly achieved with EBITDA growth of 12% and net income growth at 18%. But we're not satisfied with these results which are largely due to a slowdown in revenue growth and the acquisition of less profitable businesses.

And lastly, we were not satisfied with the proportion of our revenue coming from Global. While we've made very positive progress in Global and we've significantly improved our position in the market, 36% of our revenue coming from Global is not good enough, and we're not satisfied with this result. While some of this variance is a result of the acquisitions in Japan, it's clear that our organic Global Revenue growth did not meet our expectations.

As a reference, let's look at where we rank as far as global market research companies, Slide #15. While our own self-assessment of our performance during the prior midterm plan is mixed, we've seen significant improvement in our global market position as measured by external sources. In the last 3 years, we've moved up the ranks of global market research companies by 4 positions and are now ranked as the 13th largest marketing research company worldwide by ESOMAR. But our ambitions don't end there. We'll share more about our global growth goals that we've incorporated into our midterm plan later in today's presentation.

Let's now switch from looking backward to looking forward at our fiscal '20 and update you on our midterm plan, Slide #17. So before we get into the details of our midterm plan, I'd like to give you some background. Over the last year, we've been engaged in the process to create our next midterm plan. And today, we're excited to provide some of the output of that process with you. Refreshing our midterm plan is an important part of our overall operating system. And this midterm plan will cover the periods of fiscal '20 to fiscal '22.

First, it's important to remember that while we're focusing on our new midterm plan, we remain committed to our mission, vision and values, which remain unchanged and which will act as a foundation for our strategy. Over the course of the planning process, we conducted over 140 internal and external interviews, held multiple workshops in both Tokyo and Rotterdam as well as hundreds of hours of research to understand what trends were most relevant and important to the industry, our clients and competitors. We then used this information as the basis of our strategic choices that we believe will enhance our competitive advantage.

Now let me share some of the output of this process, Slide #18. This slide shows the framework that we used to develop our midterm plan at the group level. The good news is that our new midterm plan is built upon the similar focus areas as our prior midterm plan. Our interviews, analysis and research reinforced that the core strategies that we've put into our prior plans remain foundational to our new strategy. That means we will maintain our focus on expanding our share in our largest and most important market, Japan, that we need to continue to expand our share of revenue coming from Global, and that Digital will continue to be an important growth driver. But clearly, we recognize that we need to incorporate lessons learned to make sure that what's made us so successful in the past will continue to be the foundation of our future growth strategy. For us, that means strengthening our foundation for our future growth, which includes even more automation of our technology platforms, strengthening and expanding our proprietary panels and data, complementing our strong sales culture with more of a product- or market-driven culture, continued embodiment of our great place to work initiatives, and lastly, the enhancement of our strategic group collaboration. While the foundation of growth is firmly in place, we will make investments to expand our business into new areas. This includes solution expansion, domain expansion and regional expansion. And then finally, while we set up this framework for the group, we also recognize that each of our companies will require specific strategies. So today, we'll share an overview of our strategy for Macromill Japan, along with MetrixLab.

Now let's share our goals for our next midterm plan, Slide #19. Our goals for our next midterm plan are that we aspire to be a top 10 global market research company and claim our #1 position in Japan and broaden our ambitions to also be #1 in Asia by no later than 2024. This is certainly an aggressive goal, and achieving it in the next 3 to 5 years would mean we would need to return to high single-digit or double-digit growth through the combination of both organic and inorganic revenue. While this is not a commitment, at this point, it is our goal to get back to that level of growth, to get back to the 7% to 10% level of growth. Fiscal 2020 will be an investment year to get us back on that track. We do believe, however, that we have the right market opportunity, the right capital structure and the right team to deliver on both this worthwhile and ambitious goal. What we will commit to, however, is to continue to grow faster than the market. We'll commit to recognize continuous profit growth to maintain our position as the best-in-class in terms of both productivity and product profitability. We'll maintain our leverage ratio between 2x and 2.5x without transformational M&A, and we'll enhance shareholder return through stable dividend growth and we'll consider a share buyback program as one option as part of our capital allocation strategy.

So how do we get there? Slide #20, please. To achieve these goals, it's clear that we'll need to move from transactional-based relationships to partner-based relationships with select clients. It's clear that clients need our help in navigating increasingly complex consumer journeys as they work to increase their brand engagement and their sales with their own customers. We will need to strengthen and expand our proprietary panels. Our relationship with consumers via our panels is a critical component of our competitive differentiation. We believe that panels will continue to be an important way to bridge first-party data and third-party data, including big data sources, to provide clients with the best visibility into consumer interests, attitudes and behaviors. We will move with more aggregated and integrated data and view that as a requirement. The explosion of consumer touch points requires increasingly that we need to collect more data and expanding both the breadth and the depth of these touch points across the globe. We will need to accelerate our innovation and technology, including things like AI and RPA. And it's clear that competitive advantage comes through technology and global platforms that will -- that have it will be an increasingly important role in our success. And finally, to achieve our goals, we need a sustained commitment to our mission, vision and values.

So next, I'll hand it back to Shimizu-san to take us through our guidance for fiscal '20. After that, Sasaki-san will take you through details of our Macromill Japan strategy, and then I'll come back and provide some high-level details on the MetrixLab. So back to you, Shimizu-san.

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Masahiro Shimizu, Macromill, Inc. - Executive Officer & Global CFO [5]

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Thank you. Now please turn to Page 22 for FY '20 guidance. We positioned this year as a year of investment and expect revenue will be JPY 46 billion, 3.9% above FY '19 in nominal FX and 5.9% in constant FX. We intend to control panel costs and outsourcing costs in line with revenue growth. We intend to control employee cost growth slower than with revenue growth. During fiscal year '20, we expect CapEx will be JPY 1.4 billion. We will continue our IT investments in the -- mainly in the following 4 areas shown in the boxes at the bottom.

Moving to cloud from fiscal servers will incur higher operating expenses and smaller depreciation expenses. Combination of operating expenses and depreciation expenses related to IT will grow 12% versus FY '19. Based on this, before IFRS 16 adoption, EBITDA will be flat year-on-year. After IFRS 16, we expect EBITDA will be JPY 10.4 billion or 13.4% higher than FY '19. Including impacts from IFRS 16, operating profit will go down by 2%. However, we believe that midterm cost of cloud will be smaller than physical servers going forward.

Onetime benefits in fiscal '19 in financial gains and tax credit in Japan will not be repeated in FY '19 -- FY '20. Net income decline is due to these reasons. We believe, however, IT investments in FY '20 will lead us to faster growth in FY '21 and, afterwards, to be a top 10 global research company and the #1 in Japan and Asia. Based on our capital allocation policy, we would like to gradually increase dividend per share. We expect to increase it to JPY 11 per share from the current JPY 9 per share.

For details of seasonality in FY '20, please turn to the next page. Based on the requests from certain investors and analysts, we will start to share with you seasonal proportion of our revenue and profit guidance. First half of our revenue growth will be impacted negatively by foreign exchange translation as euro and Korean won were stronger last year than our projected rates used for guidance. Fixed costs such as depreciation from IT investments and head count increases in FY '19 will start to give us the full year impact in fiscal year '20.

I now would like to pass the microphone to Sasaki-san.

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Toru Sasaki, Macromill, Inc. - Representative Executive Officer of Japan Operation [6]

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[Interpreted] Thank you, Shimizu-san. Now let me brief you on the Japan midterm plan. As Scott mentioned, Macromill Group is aspired to become global top 10 company, #1 in Japan and the #1 in Asia within 5 years. Being #1 in Japan is not a mere hope, and we are very eager to be there. This is not what we want to be but should be. Through many hearings with the clients, I was convinced that such a goal must be met not only for Macromill but for entire research industry.

First, Japanese marketing research in more depth. Please turn to Page 24. Those data were given by JMRA in July. The market became a bit slower but still sustained firm growth.

Page 25, please. Against this backdrop, we think Macromill Japan is performing brilliantly. Of course, our organic growth got slower than expected in the second half of last year, but we have been still growing faster than market and the competitors. HMM acquisition would give us a great opportunity for coming 3 years, allowing Macromill to expand the wallet share of Hakuhodo, which has the second biggest marketing research budget after Dentsu.

So what exactly is happening for the slowness? Please move on to Page 26. As we discussed before, clients' marketing environment is changing so quickly. The increasing number of consumer touch points, additional requirement to make investment in new business, IT and technology with more widely available data and the marketing support tools, to name a few. In the end, our clients decide how to spend their budget more carefully by cutting down on the research portion. But various of marketing researches are not impaired. This is proved by firm market growth. But we could say this is positive and negative construct we make. We have an expanding business, and the major researchers more easily are available to clients. This means more and more clients are doing nice to have surveys and they are cutting down on those nice to have surveys. This would be fine if we were satisfied with the growth flat against the market growth, but we are not and aim at a higher target. The good news is there are higher demands from clients, which will lead to new opportunities for us. Our clients are looking for marketing partners which will commit to their upper stream of the process. Again, intrinsic value of researches is not impaired. Our clients are facing an increasing number of complex marketing issues, and the research data is becoming more important for clients. This is why we believe that it is meaningful for us to challenge such new attractive markets.

Please turn to Page 27. Within 3 years, we'd be evolving to become data consulting firm and to become a client partner. We'll help them to select and recruit data required for consumer insight as well as researchers and to create and evaluate hypotheses for new countermeasures. Currently, in Japan, our clients do not have marketing partners. Agencies, consulting firms and the research companies have been taking that role on an ad hoc basis for a long time where the boundary is blurred. Clients have certain demands but nobody is meeting those demands. This is why Macromill must expand business in this area. Can we do that? I will tell you its market size later.

We'll proceed with the 3 growth pillars: first, creating a new business in such new domain; secondly, expand Digital Solutions; and thirdly, to explore the Southeast Asia market. We will strengthen our steadily growing existing business as well.

Now let me elaborate on the growth strategy in our existing business areas. Please move on to Page 28. First, online researchers. Our market share is already very high. But there are still other attractive clients. Some clients have high budget, while the Macromill's wallet share is low. We'd expand Hakuhodo's wallet share following HMM foundation, too. And a wide variety of a new technology will give us unprecedented opportunities. You maybe heard of a BI tool called Tableau. I think Macromill is the only company in this industry supporting research result utilization. Tableau allows us to replace 6-point surveys, which is difficult in the past. It also enables us to avoid unnecessary price competition.

Page 29. Our share in the off-line market is just around 10%. Compared with online market, the off-line market is very fragmented because it has a long history and highly dependent on staff members. The good news for Macromill is that there are lots of opportunities of a digitalization in off-line. Macromill will replace existing FGIs with faster and less expensive solutions. Macromill will accelerate online interviews rather than face-to-face meetings, digitalization of operations, automation and the visualization of output and the stabilization of quality. Quality of conventional FGIs can be unstable as it depends on facilitators. We'd also promote insight provision in person with standardization of skill sets required for facilitators. This market size is an estimation, and we believe it is quite accurate. This number is already very appealing to Macromill.

Now let me explain another growth strategy. Please go to Page 30. Digital continues to be one of our growth drivers. The key here is how to retrieve competitive marketing data based on the very competitive panels.

Page 31. We'll obtain more easy data and locational data. We'd also launch new services such as beacon treatment ad measurement. Our great number of active panelists and the permissions from them would be our competitiveness, though other agencies are doing similar things. Many companies such as video research in cars, TV stations and agencies are in a fierce competition for TV viewership data. I can't give you the details today, but we already implemented some actions against them.

Finally, YouTube measurement issue, we'll do whatever we can to address this. But I think we need to proceed, assuming that this issue would be never resolved.

Please move on to Page 32. I said it is important for us to become data consulting firm and a marketing partner. But can we really do so? The answer is yes. Our case studies with leading Japanese audit company and FMCC companies using DMP are the good examples of the positioning of Macromill as a business partner for our clients. We're going to enhance Macromill's positioning as a business partner.

Now let me share our estimation on this market. We think that JPY 5 billion market at the minimum is available for us. Here, we added our market estimation of the market and demand prediction analytics using recommendation for selection models and DMP utilization. Such potential market is very attractive to us. The market is even bigger. And I think the research companies must take a lead in this market.

Let me share another example of a confectionary manufacturer. With their flagship sweets brand, we were chosen as the preferred vendor and highly praised by this company, making the biggest revenue as a Japanese research company. I had a chance to talk to their executive in charge of marketing and he said they were in trouble addressing many brand issues, which could not be solved with the research data only. He also said he did not have any partners to work on those problems together.

So we learned that they have been offering the research projects to Macromill only when they have thought their brand problem couldn't be solved with researchers. Macromill have never gotten inquiries from this company on their brand issues other than researchers. Possibly because we had a good relationship with this person, we started to build a new partnership and received even more inquiries on their brands. They said they've allocate no research budget to those projects. The existing market is very appealing to us, and we found clear objectives, too. Of course, we need to change the perception of Macromill and secure talents for expanding revenues and the increasing number of clients.

Now Page 33. The confectionary manufacturer said that research agencies must evolve themselves for becoming their partners. Data is becoming more and more critical for our clients. Macromill's strength in data provision is highly evaluated by our clients, far beyond our expectations.

Please turn to Page 34. We are planning to launch Macromill Consortium, leveraging external force of our partner companies through business and capital alliance. Here, Macromill will be taking a lead and inviting partner companies capable of data consulting. We'll hold joint seminars to promote new perception of Macromill, and we expect those seminars will also be good opportunities for employees to learn. We've already started negotiation with some candidate partners. Last but not least, human resources. We'll keep enhancing our employees' skill sets as well as hiring external talent in the mid- to long term. We have been seconding more members to clients' companies, too. I don't -- we can't tell you who. Collaboration with universities such as Shiga University and the Yokohama City University would be beneficial in this regard, too. We'll be seconding more employees to companies participating in the Macromill Consortium, too.

Page 35. We started full-fledged expansion to Southeast Asia last April. Southeast Asia is very attractive markets for Japanese companies, and its marketing research markets keeps growing. There's no dominant player in this area. Big 4 are also struggling. Macromill South East Asia, which majority of shares were acquired by us last April, has the best-in-class proprietary panel in Asia. We'll leverage the panel and localize Macromill Japan's business model in this area. We'd also enhance our sales force, improve productivity, further expand our proprietary panels and enrich marketing data based on panel IDs.

We had met our competitors who did this earlier than us, but we think we can catch up and establish our competitive advantage soon if we utilize our expertise in this zone.

Wrapping up, we think it is necessary for us to explore data consulting domain, not only for Macromill to become #1 in Japan in the real sense, but for all Japanese research agencies to enhance their process with new positioning and keep growing sustainably. After becoming #1 in Japan, Macromill will be #1 in Asia to be the first global research firm originated from Japan or Asia.

So Scott-san, please?

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Scott Ernst, Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director [7]

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Thanks, Sasaki-san. I'll now go through a high-level overview of our global strategy as part of the Macromill Group midterm plan.

Let's start with an overview of the market research market, Slide #37. This slide shows the overall global market research growth from 2010 to 2017. From this slide, you can see that the overall global market has grown at 3% over the last 3 years. Similar to Japan, total global market research showed steady growth along -- although current growth rate has slowed a bit.

Slide #38, please. In this slide, we're now showing Macromill global growth over the last 4 years. What we see here is that global growth is 6% or double the overall market growth, but again, volatile. Similar to Japan, we've sustained growth over the last 3 years through the combination of organic growth and M&A. And our organic -- but our organic growth has slowed. What you will see in the following slides is how we respond to market trends to innovate and accelerate our organic growth, along with the continuing to identify opportunities to further accelerate our results via select acquisitions.

So now to our global plans, Slide #39. Our global strategy is, of course, aligned with the Macromill Group midterm business plan. Our aspiration is to evolve to become a consumer insight and data partner. We will respond to what we've heard from our clients and the industry by developing deeper capabilities in consumer insights and data solutions. Our strategy consists of the combination of initiatives aligning around strengthening our foundation, along with expanding our solutions, domains and regions. In the next few slides, I'll provide some additional details on these expansion areas.

As a starting point, however, I'd like to share some organizational changes that we've made to strengthen our foundation. In January, I took over as Interim CEO of MetrixLab to help lead the team through the strategy process and to get more directly involved with managing the business. In early July, we appointed Thijs Elias as the new CEO of MetrixLab. Thijs was most recently Executive Vice President of Global Development at MetrixLab, and he's been a long-term employee with the company and also has a very strong commercial focus. I'm excited to be able to hand over the leadership to Thijs and his new leadership team.

So let's start with our solutions, Slide #40. As a part of our strategy, we'll continue to concentrate our focus on core solutions of brand engagement and product innovation, which we believe represent areas where we can excel versus our competition. We will continue to innovate in our core offerings. This includes our largest products in copy testing, campaign evaluation, brand tracking and U&A. We've also recently launched Tempo, our next-generation brand tracking solution, and ACT Instant, our AI-based predictive ad testing solution. More on those in a minute.

We also see opportunities to expand our solutions to include online qualitative, which we believe that there is a big market opportunity and an opportunity for us to innovate in this space as well. Hence, we've developed a product called Immerse.

Let's spend a couple of minutes providing some additional details on these solutions on the next page. Slide #41, please. Immerse is our digital alternative to focus groups. Immerse is a live online group discussion that helps our clients understand the success potential of early stages of creative development processes. What makes Immerse unique is that it combines the depth and flexibility of qualitative research with the confidence and scale typically delivered through quantitative research. Immerse is an AI-powered moderation platform that allows us to engage with large groups of consumers by analyzing their responses in real time. Immerse is fast, flexible and globally scalable, allowing our clients to observe insights as they unfold in real-time from anywhere around the world.

ACT Instant is our AI-based research solution. ACT Instant is a copy testing system that utilizes machine learning or deep -- machine learning and deep learning to predict ad performance. It leverages our normative database, so we do this without the need for surveys or respondents. One of the primary benefits of ACT Instant is speed in -- where we can deliver these results more quickly than traditional copy testing solutions.

And then lastly, Tempo, which is our next-generation brand tracking solution that is actionable, agile and future-ready. Tempo is grounded on how people make decisions and how brands grow market share. It utilizes a simple but intuitive framework to measure the emotional resonance, mental availability and physical availability of consumers. We leverage the latest thinking, technology and innovation, combining both System 1 and System 2 responses along with Bayesian Network modeling. We believe that Tempo helps deliver to clients the levers that they need to influence consumer choice and provide the missing link between brand tracking and market performance.

Now let's look at how we think about expanding our business domains. Slide #42, please. The second pillar of our plan focuses on expanding our business to reach new industries and new capabilities. With respect to industries, we already have a strong foundation in the alcohol and beverage space, but we believe we can accelerate our growth through more focus and specialization. We'll be leaders in this space by partnering with our clients and combining our unique insights into -- in consumer behavior and influencer research. Similarly, we see an opportunity to extend our capabilities into the movie and entertainment segment. We have a unique capability to measure end market interest of consumers and their likelihood to go to the theater and see a new release from either our client or their competitive studios. We believe that our solutions are well positioned to offer value to our clients in this space. And again, we think we can grow faster through this focus and specialization.

We'll also be developing new capabilities in data integration and advanced analytics to better understand consumer behavior in today's world, assessing data from new and various touch points, including data beyond survey research. This includes additional data sources like TV viewership, purchase and social data, to name just a few. We will work to acquire, via our clients or partners, complementary data sets that can be merged with our core panel as we deepen our insights and capabilities. Beginning with building upon our own panel, we'll add additional data sets coming online and we'll offer advanced analytic solutions and predictive capabilities with cutting-edge data modeling. This will be coordinated and aligned globally as our companies work together on these common objectives.

And now let's look at regional expansion, Slide #43. The final pillar of our midterm plan centers around regional expansion. First, we'll continue to focus on the U.S. market, which is the largest research market in the world in terms of research spend, client concentration and solution innovation. Second, we'll expand our footprint into key markets where we feel our solutions and infrastructure will allow for differentiation and success. We've recently launched in Australia as part of our EMEA strategy, and we're investing in the potential to expand into Switzerland and South Africa, in -- as the next likely candidates for regional expansion. Australia is the eighth largest research market in the world and the only country in the top 10 where, until now, we did not have a local team. South Africa and Switzerland have shown an acceleration in research spend, and we're seeing increased interest in these countries from our global key accounts. We will also continue to explore opportunities for additional regional or office expansion based upon the needs of our global clients, either through organic expansion or M&A.

And finally, we believe that there's a need to believe trusted relationships with select clients and act as their partners as they rely on us to work hand-in-hand with them to develop both brand and product strategies. As a group and globally, we are unchanged in our approach and commitment to our clients, and we look forward to deepening and expanding these client relationships, particularly with our global key accounts.

So let's wrap up. In summary, we've delivered against our revised guidance targets that we shared in February. Over the term of the prior midterm plan, we've achieved steady growth, significantly improved our position in the market and we've met the majority of the KPIs we set for ourselves. Our new midterm plan will continue to pursue further growth, and we aspire to become a top 10 global market research company, #1 in Asia, #1 in Japan. Fiscal '20 will be an investment year to realize our growth aspiration to get back to 7% to 10% growth rate through our midterm plan, and we'll commit to growing faster than the market to delivering our ambitious vision and to improve our profits.

So finally, and probably most importantly, we remain positive about our market opportunity and remain committed to delivering on our vision to create the first truly global digital research company. Again, thank you for your continued support, and let's open it up to questions.

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Unidentified Company Representative, [8]

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Thank you, Scott. We'll begin the Q&A session now.

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Questions and Answers

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Unidentified Company Representative, [1]

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(Operator Instructions) The first question comes from [Haero-san] from Harding Loevner.

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Unidentified Analyst, [2]

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Yes. This is [Taka] -- oh, I'm sorry. Go ahead.

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Scott Ernst, Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director [3]

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No, go ahead. We can hear you.

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Unidentified Analyst, [4]

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Okay. All right. So I have 2 questions. One question at a time, so first question. Can you just remind me what would it take for you to be able to claim that you became truly global and digital? Is it just a matter of market share? And how far along do you think you want to be by the time you get to the end of this new midterm business plan? That's my first question.

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Scott Ernst, Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director [5]

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Yes. Great question. So we -- as we think about it, we think about how to help our key clients manage the transformation of digital in their own businesses. So to some degree, there's a qualitative aspect to that where clients continue to rely on us to be their trusted partners to make that navigation happen. And as more and more of our clients reach out to us for that capability, we'll then assess the fact that we've become that digital partner that they need, right?

So we talk a lot about digital in the form of our digital products, which is measurable, but all -- what we refer to internally as capital D, Digital, which is overall digital transformation. So it means we're driving digital transformation here, and we're helping our clients drive their digital transformation.

When it comes to how we'll measure that success, I think we use digital as our wedge to really become a top 10 global client, so to some degree, a top 10 global market research company. So to some degree, that's one of the ways that we'll declare victory. And the other is to continue to drive our overall proportion of revenue that comes from digital. So we've achieved -- we've gotten to 20% digital, right, and we need to set a -- what the specific target is for the next midterm plan. I would need to do the math, back of the envelope, but let us get back to you on what that number will be. But we'd like to see it continue at our growth rate. So again, back of the envelope, would be -- I don't know, I'm getting a lot of skips. Let's get back to you on that target. So that's the first question.

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Unidentified Analyst, [6]

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All right. Sounds good. And second question is what were the top 3 reasons for not providing quantitative targets for this new midterm business plan?

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Scott Ernst, Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director [7]

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Yes. You can imagine that's been a hot topic of discussion here today. So a couple of reasons, right? One is the market actually right now is at a pretty dramatic turning point, and you can look out at the competitive set and see dramatic changing happen in the market. So to some degree, it felt like it was challenging for us to look out into the long-term horizon and predict what that growth would be. The second reason is we've talked about the fact that we're at this transition point, and fiscal '20 is a transition year for us. So it's difficult to credibly declare that we can get back to that 7% to 10% growth rate. We do very much aspire to get there. And the target that we've set is getting to JPY 60 billion in overall revenue, ideally within 3 years, maybe as long as 5 years, to declare at that point.

And then third is -- this is -- may be a sensitive point, is we feel like we've gotten pretty beaten up in the market for not achieving the quantitative goals that we put out almost 4 years ago, 3.5 or 4 years ago now. So we felt like it was a very clear message to the market that variability against those commitments would be penalized in the market, and we felt it wouldn't be prudent to provide those at this point. So our intent is -- again, is very clear with our aspiration. We need to hit and exceed our goals for this year, and then we'll come out ideally with more aggressive growth targets in the next fiscal year.

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Unidentified Company Representative, [8]

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We're still waiting for another question. (Operator Instructions)

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Scott Ernst, Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director [9]

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We came up with a fourth reason while we were waiting. And I think -- and we've been looking out at the market, and it appears that, from our view, that fewer and fewer Japanese companies are issuing -- oh, okay.

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Unidentified Company Representative, [10]

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Okay. [Takeru-san], you can go ahead.

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Unidentified Analyst, [11]

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Sorry. Since there seems to be no other questions, if I may, I just wanted to ask a few more questions, if that's okay.

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Scott Ernst, Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director [12]

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Yes, great.

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Unidentified Analyst, [13]

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Okay. Okay. The first of 2 is the -- can you please quickly run the logic behind the lower net debt-to-EBITDA target ratio for this new midterm business plan? I do understand it may be a combination of 3 different things, but...

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Masahiro Shimizu, Macromill, Inc. - Executive Officer & Global CFO [14]

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Yes. So IFRS 16 adoption is a bit tricky here. So before IFRS 16 adoption, we aim to keep that ratio between 2.5 to 3x, so we are currently around 2.8x. So we wanted to continue to enjoy the low cost of debt in Japan. IFRS 16 is a lease obligation in our occupancy rates. So that increases both debt and EBITDA, but the contribution to increase in EBITDA is larger than contribution to the incremental debt. And that translation lowers our target to 2.2 to 2.5x. So if you'd like to compare apple and apple using the -- our previous goal of below 3x, that translates to 2.5 to 3.0x before IFRS adoption.

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Unidentified Analyst, [15]

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Okay. So it's just a technicality and nothing else?

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Masahiro Shimizu, Macromill, Inc. - Executive Officer & Global CFO [16]

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Yes, that's correct. That's correct.

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Unidentified Analyst, [17]

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Okay. Understood. And my second is 2 questions. Well, it's actually more of a request than questions. But I continue to get the impression that there's a glass wall between Macromill and MetrixLab. And to become truly global, I would love to see your initiatives to remove any [partition] that may exist between 2 businesses, maybe perhaps by promoting more exchange of people. And I think this should only help you accelerate your path to be truly global. So if anything, I would love to see that happen as well in addition to all the initiatives you're taking for the course of next 3 years. And that's it.

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Scott Ernst, Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director [18]

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Yes. And I'll just -- so that's a very astute observation. And I think we look at this idea of more global collaboration beyond some of the cultural language barriers that exist around the world, and it is very much part of what we call our great place to work initiative and to creating a world-class global talent pool. So we -- frankly, we look at that. We try hard. We need to do better, including locations for people around the world and kind of breaking down some of those silos that naturally exist within groups. So very, very good observation and very much on our radar.

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Unidentified Company Representative, [19]

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(Operator Instructions) So this is our final announcement. (Operator Instructions)

Okay. It seems no questions anymore. So we will conclude our Q&A session now, and I would like to turn the conference back to Scott for closing remarks.

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Scott Ernst, Macromill, Inc. - Interim Exec. Officer of Europe/US/Latin America, Rep. Executive Officer, Global CEO & Director [20]

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Yes. So thank you again for participating. Today's been kind of a hard day, right? So it's late, and it's been a tough day. But we really look at this year, again, as a transitional year, and we're committed to get back to the road that we declared, right? So we have an aspirational vision. We have the right team. We have the right market opportunity. We have the right structure to remain undying in our desire to achieve our vision of creating the first truly global data research company.

So thank you very much again, and we look forward to sharing our Q1 results with you all in November. If you have additional questions that come up, please reach out to the IR team. We'd be happy to answer them for you. Have a great day and a great evening.

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Unidentified Company Representative, [21]

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Thank you, Scott. This conference has now concluded. Thank you for attending today's conference.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]