Miki Igarashi: Hello, my name is Miki Igarashi and I am the President and Representative Director of the Cross Marketing Group.
I would like to give you an overview of the financial results for the second quarter of the fiscal year ending in December 2020.
Q2 FY2020 Financial Results and Forecast of Q3
I will start by explaining the financial results in the second quarter of fiscal 2020 and our Q3 forecasts, and will then explain our policies on responding to a post-coronavirus world.
The Group’s second quarter (April-June) was affected the most by the novel coronavirus outbreak, with revenue down 25% compared to the same period in the previous fiscal year.
We expect revenue in the third quarter to be 90% to 100% of levels in the same period in the previous fiscal year, since economic activity has gradually picked up since June and we have seen a recovery from the second quarter.
We also curbed unnecessary and non-urgent expenses, which brought sales, general and administrative expenses down by about 150 million yen in the second quarter, or about 90% of expenses in the same period in the previous fiscal year.
We expect similar levels in the third quarter and will strive to generate profit.
In addition, while promoting and providing the tools for remote work, we plan to reduce some of the office area at our Tokyo headquarters. We expect this will have an annualized impact on profit amounting to about 100 million yen.
Policies for Post-Covid19
Next, I will address the company-wide policies on responding to a post-coronavirus world.
We need to adapt to the changes in society and values that are resulting from the coronavirus outbreak, and are therefore moving ahead with “Innovation for Maintaining and Growing Business.”
While promoting remote work, we are making improvements to our HR evaluation system that are tailored to this work style, and taking thorough measures to prevent infection in all of our services.
We are strengthening digital marketing and CRM to adapt to changes in our customer interaction now that remote work has expanded, and are acquiring the funding needed to maintain and grow our business. The entire Group is working together to address these changes.
Q2 FY2020 Executive Summary
This is an executive summary of the second quarter of the fiscal year ending in December 2020.
First, as I just explained, our results in the second quarter were significantly impacted by the effects of the coronavirus outbreak, particularly overseas, however we generated profit in the cumulative first half.
Second, we augmented our cash at hand with loans as an emergency measure, and also controlled costs, thus building a system that enables us to invest in business continuity and growth.
FY2020 Consolidated Financial Results of the First Half
This is an overview of financial results in the second quarter of fiscal 2020.
Revenue totaled 7.7 billion yen in the first half of 2020, down 12.6% compared to the same period in the previous fiscal year. Operating profit was 166 million yen, down 60.8%, while ordinary profit amounted to 186 million yen, down 45.6%. Net income for the quarter was 32 million yen.
Although business performance was difficult in the second quarter, especially overseas, we were able to post profit for the first half, thanks to contributions from the IT Solution Business and other businesses.
Q1・Q2 FY2020 Trend of Consolidated Financial Results
This lays out financial results in the first and second quarters of fiscal 2020.
The coronavirus outbreak had a limited impact on revenue and profit in the first quarter, and earnings were in line with the previous year, but results were poor in the second quarter from April to June, when revenue fell 25% over the same period in the previous fiscal year and we posted an operating loss of 260 million yen.
I will provide a breakdown of the differences to the previous year on the next slide.
Q2(Apr.-Jun.) FY2020 Analysis of Gap of Operating Profit
I will now explain the differences in operating profit between April-June 2020 and the same period in the previous fiscal year.
Operating profit totaled 14 million yen in 2019.
In 2020, the decline in revenue, primarily in the overseas research business, had a major impact, and gross profit declined 438 million yen, including Japan.
Gross profit surpassed 10 million yen in the previous year for IT Solution and other businesses.
As regards selling, general and administrative costs, we reduced expenditures such as personnel and subcontracting costs, and saw decline in expenditures such as travel and transportation costs and the cost of consumables due to changes in the environment, and amortization of goodwill also declined. As a result, we posted an operating loss of 260 million yen in April-June 2020.
Moving on now to conditions by business segment, I will explain the Domestic and Overseas Research Business.
Sales for Domestic Research were down 7.4% and down 37.7% for Overseas Research in the first half of the fiscal year, and segment profit was down 15.4% over the previous year.
In the second quarter in particular, revenue in the Overseas Research business was far below the previous year's level due to the impact of city lockdowns. In the Domestic Research business, revenue from off-line research decreased, but Internet Research contributed to revenue, resulting in a 20% decline over the same period in the previous fiscal year.
We plan to post large-scale projects overseas in the third quarter, and forecast a 20% increase in revenue compared to the previous year, and also expect domestic revenue to recover to about 90% of the previous year’s level.
IT Solution Business
This slide shows conditions for the IT Solution Business.
Revenue rose 1.2% over the previous year in the first half, but segment profit was down 61.9% over the previous year.
Although the growing coronavirus outbreak affected sales activities and other operations, revenue from Cross Communication increased 12% over the previous year and remained solid, resulting in revenue exceeding the previous year in the business overall.
Orders activities faced restraints in the second quarter, but given progress with new services and other factors, in the third quarter we expect revenue at levels equivalent to 80-90% of that in the previous year.
This slide explains conditions in the other business, which is a digital marketing business.
In the first half, revenue was down 3.4% and segment profit was up 54.9% compared to the previous year.
Revenue was in line with the previous year, but revisions to staffing plans and other measures resulted in segment profit that exceeded the previous year’s level.
Even in these businesses, projects are being delayed or cancelled due to the impact of the coronavirus, and although levels are in line with those in the previous year, we expect revenue in the third quarter to be about 90% to 100% of the previous year’s levels by strengthening alliances with external partners in this fiscal year and reinforcing relationships with customers and enhancing inbound marketing in our marketing activities.
Activities in the First Half About Key Theme in 2020
Continuing on, I will explain the topics through the second quarter of 2020 and our initiatives in each of the businesses.
We have designated “digital transformation” as the keyword for 2020, and are expanding our service offerings in all businesses, including in the fields of digital marketing, AI and big data. I will now explain initiatives through the first half.
Topics and Activities of Q2 FY2020 in Domestic Research 1
First is an example of our big data analysis projects in our domestic research business.
This is a project commissioned by one of the major System Integrators.
Engineers compiled a large volume of locational data, consisting of more than 10 billion records, which was then analyzed by data marketers, allowing us to provide reports analyzing the movements of tourists in tourism regions.
We received orders for these projects two years in a row, and orders for big data projects like this are increasing.
Topics and Activities of Q2 FY2020 in Domestic Research 2
Now I will introduce new services in the research business.
These services are the Customer Journey Type Data Analysis, released in February 2020.
At present, many industries are being affected by the growing coronavirus outbreak, forcing companies into difficult positions. Given this, we are analyzing customer Awareness Data and Behavioral Data, and proposing approaches to measures aimed at improving revenue based on calculations of lifetime value (LTV). While carrying out test marketing, we are examining the results.
We are expanding such initiatives as a service that will guide clients to the optimal marketing measures in a harsher environment.
Topics and Activities of Q2 FY2020 in Domestic Research 3
This is a new service released by Medilead, a medical research business.
This service makes the process of compiling and analyzing the necessary information from over 1.7 billion websites all over the world more efficient and sophisticated by combining AI optimized for text analysis with web crawlers.
The expertise in medical data analysis that Medilead has built up to date is combined with the data compilation process to provide analytical reports that help clients make decisions and support them in realizing open innovation and data-driven management.
Topics and Activities of Q2 FY2020 in IT Solution
This slide introduces projects commissioned and developed in the IT Solution Business.
We developed the entire process from design to infrastructure for CONNECT, the new smartphone application offered by the Daiwa Securities Group, using our track record and accumulated expertise in the development of applications for financial institutions.
Topics and Activities of Q2 FY2020 in Digital Marketing 1
Next, we have our new services for the digital marketing business.
We formed a business tie-up with X-Locations Inc., which provides location data analysis services, and jointly developed a new service.
Our new service helps clients devise measures that will attract new clients, promote repeat customers, and improve the efficiency of attracting clients by analyzing the results of questionnaires given to marketing targets, together with data on their location and behavior.
Topics and Activities of Q2 FY2020 in Digital Marketing 2
Next is another new service for the digital marketing business.
We provide marketing research services within the Group, but Qwantz, the DIY survey tool just released differs from the survey services we have previously offered with full support. Instead, the user can easily prepare a survey and deliver the data quickly and inexpensively.
Moreover, these services not only narrow-down data by attributes such as gender, age, and place of residence, but can also narrow-down the information by site interaction data and app use data through a collaboration with the data of partner companies. This service makes it possible to deliver surveys more effectively.
Financial Results Forecast of Q3 FY2020
Moving on, I will explain Q3 earnings forecasts in light of the coronavirus and our response.
Although our marketing activities in all businesses were impacted significantly by the coronavirus outbreak, in the third quarter they have been recovering toward the levels in the same quarter of the previous fiscal year.
Although we expect a substantial impact in some areas in the overseas research business, we plan to post large-scale projects in the US, and thus forecast revenue above the previous year’s levels.
We anticipate consolidated revenue to be about 90-100% of third-quarter levels in the previous fiscal year, with a recovery compared to the second quarter.
Our most recent forecasts through the third quarter anticipate a recovery in line with the previous year’s levels, but at this point, as we do not yet have a good idea of when the coronavirus will subside globally and expect the impact on the economy to continue, at this point we have left our full-year forecasts undecided.
Shareholder Return and Dividend Amount
Finally, I will touch on our dividends for the fiscal year ending in December 2020.
We have decided to pay an interim dividend in 2020 of 3.1 yen per share, in line with our initial plans.
At present, as our full-year earnings forecasts are undecided, our year-end dividend forecast is also undetermined.
As soon as our earnings forecasts for this fiscal year have been determined, we will announce the year-end dividend amount.