Q1 2020 Septeni Holdings Co Ltd Earnings Presentation
Feb 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Septeni Holdings Co Ltd earnings conference call or presentation Tuesday, February 4, 2020 at 7:00:00am GMT
TEXT version of Transcript
* Koki Sato
Septeni Holdings Co., Ltd. - Group Executive President, CEO & Representative Director
Koki Sato, Septeni Holdings Co., Ltd. - Group Executive President, CEO & Representative Director 
I am Sato. Thank you very much for participating to our business results briefing despite your busy schedule today. I will start my explanation with consolidated earnings overview for the first quarter followed by status of each segment. I will also explain expansion into new business segments planned in our midterm business policies.
Now let me start explanation on consolidated earnings highlights for the first quarter. Revenue was JPY 4.362 billion, and non-GAAP operating profit was JPY 614 million. Revenue and profit increased both year-on-year and quarter-on-quarter. Our first quarter was finished with quite strong results.
Next page is about earnings highlights for Digital Marketing Business. As shown on the slide, revenue and non-GAAP operating profit grew both quarter-on-quarter and year-on-year. We are enhancing the business alliance with Dentsu Group, and that made a progress as planned. Starting this fiscal year, we changed the name of this segment as Digital Marketing Business.
Media Platform Business recognized revenue of JPY 606 million and non-GAAP operating loss of JPY 209 million. Its top line recorded a significant growth of 45% year-on-year with accelerated growth in each business. Revenue increased sharply year-on-year, coupled with a significant decrease in deficit.
Next slide shows consolidated income statement for the first quarter under review. Results are as shown on the slide, and we are making a steady progress against the full year estimate for FY 2020.
The graph on the next page shows quarterly consolidated earnings trend. In this first quarter, from October to December, revenue achieved a record high. And with this result, non-GAAP operating profit remained firm. Revenue was up 7% year-on-year, and non-GAAP operating profit grew about 33% year-on-year.
Next page shows constitution of consolidated expenses. We do not have any major points to explain, but cost of sales increased due to expansion of Media Platform Business with growing revenue.
Page 10 is about quarterly consolidated SG&A trend. SG&A expenses are well controlled and remained almost flat to be in line with the plan.
From this page on, I'd like to explain some business topics for each segment. Page 12 describes earnings overview of Digital Marketing Business. As I said in the highlights, both revenue and profit increased, thanks to short-term initiative and the alliance with Dentsu Group.
Next page is about quarterly earnings trend. Revenue grew for both Japan and overseas. And the total revenue was up 2.8% year-on-year, and profit increased 3.6% year-on-year.
Next page describes domestic brand advertising transactions trend, which is our area of focus. This business grew steadily as well to record increase both quarter-on-quarter and year-on-year. Also, the ratio of brand ad transactions has been on the rise to record about 7% of the total transactions.
We are making a continuous progress in the business alliance with Dentsu Group, and this page shows a conceptual chart of the alliance. We are striving for a business alliance, which can make a significant contribution to our clients through proposals of integrated marketing of online and offline advertising through utilization of the 2 company groups' client bases.
We intend to form systems for #1 digital marketing support. In the past year, we could make a solid progress on the business alliance with Dentsu Group that is shown as quarterly changes in the number of clients in this alliance. As you can see, the effect of this alliance is growing, and the number of clients increased steadily in the past year. Our assumption is that deals with these clients are basically continuous, and the number is incremental in this business structure. As such, we make sure to implement short- and medium-term initiatives in this alliance.
Next page shows Digital Marketing Business topics, which were published in the press release the other day. This is about the business alliance project of the Septeni, Dentsu and Dentsu Digital. Currently, companies utilizing smartphone applications are on the rise. Application-based business model is increasingly adopted not only by companies engaged mainly in digital content such as games but also in other industries like finance.
This alliance project is to provide one-stop support for business growth of such companies. This framework is named as App Growth Mall. And through this service structure, we can strongly support client business growth. We can offer more comprehensive service and support in digital domain by the collaboration with Dentsu and Dentsu Digital.
There are some other topics at the Premier Partner Awards 2019 sponsored by Google. We were awarded with the grand prize in the Application Advertisements section. For advertisement business on the platform of TikTok, which has a growing user base both in Japan and in the world, we were certified as Platinum Partner, which is its highest-ranking partner as the only company in Japan. We are showing our presence on such a new platform of remarkable growth.
In the area of solutions, we started to provide Creative Rally, which was originally an internal system for ad creative to external users and the SaaS model. This is named as CRALY, a creative operation tool for ad technology. We will continue to develop strong product in the solutions area and offer them to a wider range of clients. That is all for the topics of Digital Marketing Business.
Next, I'd like to explain about business topics of Media Platform Business. The name of the segment was changed as well in this fiscal year. Its earnings overview is described on Page 20. As I said, for highlights, costs increased due to significant revenue growth. However, top line growth improved overall financial status and decreased deficit.
Next page shows quarterly earnings trend. Revenue grew in each business, including Manga Content Business.
Page 22 is about application revenue trend in Manga Content Business, GANMA! The trend remained unchanged, and brand ad and subscription revenue increased to record year-on-year growth.
This page is about average revenue per user or ARPU. This is on the rise and recognize significant growth year-on-year. As the revenue structure of subscription business increases revenue incrementally, this revenue structure contributed to the rise of ARPU.
Page 24 shows quarterly subscription revenue trend indicated by index. 1 year has passed since the full-scale launch of the subscription service, and subscription revenue increased substantially by about 2.6x from the same quarter of the previous year. As such, its revenue increase is making a steady growth. In January 2020, quality of the subscription services significantly improved for better value proposition to our users and for our further growth.
This is a topic for Manga Content Business. This is a measure to strengthen the power of our content by collaboration with the excellent external IP. This is a collaboration with Netflix and its new original anime series directed by Mr. Masaaki Yuasa, who is a prominent anime director. Its title is JAPAN SINKS: 2020, and it was decided that we participate in its production committee. This is aimed for a collaboration with our manga business.
As a result of prior investment, mainly in GANMA! in Media Platform Business, monetization of GANMA! business is progressing steadily to develop a good growth cycle for product and monetization. We have come to a stage of gradual earnings improvement for this investment. Therefore, starting from this fiscal year, we implement the media platform concept to launch a series of media as platforms, including investment in GANMA! We intend to expand business as a platform, utilizing the comprehensive power of our group.
Today, I'd like to explain about Babyful as a recent example of growing business. The service is operated by TowaStela and it uses a media EC model, that is an e-commerce site with a medium. There are many user communities for child care on Instagram, and the company operates an Instagram account which is one of the largest ones in Japan. It forms a user community with strong engagement with the users in the child care domain as well as a media EC model based on the community.
They offer e-commerce services under the 2 brands of Babyful and amanoppo and offer some products with a vision to make child care more joyful. As such, we have achieved many successes in consumer services recently, and we will continue to enhance Media Platform Business next to GANMA! That is all for Media Platform Business.
Next part is about expansion into new business segments. Page 29 shows the overview of our midterm business policies updated from the one shared in the previous financial results briefing. Two arrows are pointing horizontal and vertical directions. Horizontally, expansion of the existing domain is indicated, and Internet Marketing Business was renamed to Digital Marketing Business. Also, Media Content Business was renamed to Media Platform Business for more utilization of comprehensive power of the group. Respective areas of focus are as described on the slide. The vertical arrow indicates expansion into the new domain. We are seeing a gradual progress in the new business segment, and we will clarify our policy in some areas.
Next page is about the direction and expansion into new business segments. Our existing domains are for pure Internet players, mainly in the market in which businesses are completed by digital only such as advertisement, media and content. We define them as existing domains for traditional Internet industry.
On the other hand, in new domains we are going to deal with, digital transformation, or DX, in the existing markets will be the key. As you know, recently, existing industries by Internet gains growing attention as a new growth area. In a business environment, customer inquiries about the DX are increasing. We will focus on specific industries which will be redefined by DX to create new growth markets. We plan to invest our management resources in such domains.
To be more specific, we identified 2 domains, that is sports and sharing assets. Sports is quite self-explanatory, although the growth speed of sports industry is accelerated. There is still much room for improvement in utilization of digital technologies in this domain. We will support digital transformation in sports industry by making use of the assets of our group.
As for sharing assets, we assume real estate and costs, and this domain is about to change user experience by digital technologies. We believe new digital industry domain with data and AI will positively affect such existing industries.
We plan expansion into new business segments for environment where existing asset domains will be redefined by technologies. And emotions and excitement created with sports will trigger new industries and new consumption. Currently, we will focus on some domains as a new business segment: they are sports, sharing assets and others, which are in preparation.
Please note, we intend to take capital-intensive measures in the expansion into new business segments, so it is expected to use our own assets for the investment first, and impact on P/L will be limited. Currently, we are investing in Media Platform Business. So for the expansion into new business, we will start with business development by using our own assets. After we established a solid revenue, we will set out to increase revenue and profit.
Let me share with you some examples. In the sports domain, we implemented capital participation in Vegalta Sendai. They are a professional soccer club of J1 League. J1 League soccer club is one of the growth areas which is gaining much public interest. And going forward, Vegalta Sendai wants to introduce digital utilization to its growth strategy, and we will strongly support their intention. We entered into this agreement and announced a capital participation and business collaboration this time. Please refer to the press release for more details. As a digital marketing partner, we will firmly support club operation and growth of the team.
In sharing assets domain, we plan to collaborate with Hosty, a start-up company. Hosty develops and operates unstaffed compact hotels. They convert ordinary residential houses to new-type hotels for users, and the number of facilities is growing rapidly. We will plan capital participation in Hosty and joint development and operation of properties. We will make this industry better by improving user experience by digital technologies as added value to traditional real estate assets domain. That is the explanation on how we plan to expand into new business segments.
Lastly, progress on earnings estimates is described. Both revenue and non-GAAP operating profit are progressing steadily against the earnings estimates for this fiscal year as of the first quarter. Progress by business segment is as indicated on the slide.
This concludes my explanation. I appreciate your continued support for our business. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]