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MEIKO NETWORK JAPAN (JP-4668) Tokyo Stock Exchange First Section ( II )

2018-11-22  提供機構:FISCO  作者:FISCO  點閱次數:7

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While the financial condition continues to be strong, recovering profitability is an urgent issue

3. Financial position and management indicators

Looking at the financial condition at the end of FY8/18, total assets were down ¥478mn on the end of the previ­ous fiscal year to ¥18,835mn. The main change factor was that in current assets, cash and deposits decreased ¥1,314mn. This was primarily due to the costs to acquire the shares of K. Line and for dividend payments. Also, in non-current assets, goodwill rose ¥192mn on K. Line being made a subsidiary and investment securities increased ¥636mn, mainly because of the rises in the prices of shares held.

Total liabilities were down ¥398mn on the end of the previous fiscal year to ¥4,498mn. In current liabilities, there were decreases in income tax payable of ¥790mn and consumption tax payable of ¥194mn, but advances received increased ¥224mn following K. Line being made a subsidiary. In non-current liabilities, deferred tax liabilities increased ¥175mn due to a rise in the valuation difference of other available-for-sale securities. Net assets declined ¥79mn on the end of the previous fiscal year to ¥14,336mn, with the main factors being increases from net income attributable to owners of the parent of ¥657mn and the valuation difference on other available-for-sale securities of ¥346mn, and a decrease from dividend expenses of ¥1,088mn.

Looking at the management indicators, the equity ratio rose slightly on the end of the previous fiscal year, from 74.5% to 76.0%, due the decline in liabilities, while the interest-bearing debt ratio was 0.5% and the Company is maintaining practically debt-free management. From these indicators, it can be judged that it is maintaining an excellent financial condition. One issue is the major declines in the indicators of profitability, with ROE falling from 14.8% in the previous fiscal year to 4.6% and the operating income margin decreasing from 13.5% to 7.5%. As previously stated, the downward trend in student numbers is continuing in the Meiko Gijuku business, which caused the worsening of results. Therefore, it is thought that the most urgent issue for management is recovering the profitability of the Meiko Gijuku business.

◆Business outlook

The outlook for FY8/19 is for a double-digit increase in profits from the recovery of the Meiko Gijuku business and the reduction in sales promotions expenses

1. FY8/19 outlook

The forecasts for the FY8/19 consolidated earnings are for higher sales and profits, with net sales to increase 6.3% to ¥20,320mn, operating income to rise 29.0% to ¥1,860mn, ordinary income to climb 24.5% to ¥1,940mn, and net income attributable to owners of the parent to grow 55.2% to ¥1,020mn. The cost of sales ratio will rise from 68.1% in the previous fiscal year to 69.3%, but this will mainly be due to the decline in the percentage of total sales provided by the franchised operations business, from 27.4% to 25.6%, following K. Line being made a subsidiary. Meanwhile, sales promotions expenses, which increased in the previous fiscal year, will return to the level of a typical year and decrease 5.9%. This decrease in sales promotions expenses will account for the majority of the increase in profits.

The most important issue for FY8/19 is building the business foundation toward the renewed growth of the mainstay Meiko Gijuku business. The Company intends to have introduced MEIKO Style Coaching into all schools by the spring of 2019, which is the new student recruitment season, and by 4Q it is aiming to catch up student numbers to the level of the same period in the previous fiscal year. At the end of FY8/18, student numbers had declined 7.1% on the end of the previous fiscal year, so it is anticipated that the average number of students during the period will fall by a single digit. The decline in the number of schools will continue, including due to the closures of unprofitable schools. But the Company intends to recover profitability by increasing the number of students per school and the sales unit price per student.

In the outlook for net sales by business segment, in the Meiko Gijuku directly operated business, sales are forecast to increase 10% YoY to ¥10.5bn; in the franchised operations business, to decrease 1% to ¥5.2bn; in the preparatory school business, to rise 4% to ¥460mn, and in the other businesses, to grow 8% to ¥4.2bn. The results of the Meiko Gijuku directly operated business will include the full fiscal year contribution to net sales of K. Line, which was made a subsidiary in the previous 4Q, and this will be an increase factor of more than ¥800mn. But even after excluding this factor, sales are expected to increase slightly. Conversely, in the franchised operations business, the end of royalty sales from K. Line (10% of net sales) will be a factor causing sales to decline. But on excluding this factor, sales are forecast to increase slightly in this business also. This assumes that the sales unit price per student will rise, but when looking at the previous fiscal year, the MAXIS sales unit price rose 3%, while in the Company’s directly operated business as well, in 2H it changed direction and increased. So it seems possible that the rise in the sales unit price will cover the impact of the decline in student numbers.

Therefore, it can be said that the key point toward achieving the forecasts is whether or not the Company can halt the downward trend in student numbers from 3Q onwards by introducing MEIKO Style Coaching into all schools. In some of the directly operated and franchised operations schools into which this method was introduced in advance in the fall of 2017, no change was seen to the downward trend in student numbers during the 2018 spring and summer student recruitment seasons. In addition to the intensification of competition to acquire students, the Company believes that this was partly because the schools required some time for training for the MEIKO Style Coaching and the utilization of ICT, so they had to reduce the time they spent on recruitment activities. In addition to the fact that these schools will be able to allocate sufficient time to recruitment activities in the spring of 2019, the Company also intends to halt the decline in student numbers by strengthening its Internet marketing strategy.

Therefore net sales will increase only slightly on an actual basis and the spending on investment, such as to introduce ICT, will continue. But despite this, the outlook is still for a double-digit increase in profits due to the significant decrease in sales promotions expenses.

As the measures to recover student numbers in the preparatory school business, in addition to improving students’ academic performance and pass rates and utilizing ICT, the Company is newly launching a tutor visiting service in order to capture demand in regional areas from students wishing to enter university medical departments. In 1H, the decline in sales and profits is forecast to continue due to the ongoing downward trend in student numbers. But in 2H, the Company is aiming to recover student numbers, including from the effects of this visiting service, and to achieve an increase in sales and operating income for the full fiscal year.

In the other businesses, student numbers are expected to rise in the Japanese language schools business from the increase in the number of students that can be accommodated following the relocations of the schools to larger buildings. Higher sales and profits are also expected in the Kids Schools business from the progress made in expanding consignment operation services. The policy for Waseda Academy Kobetsu Schools is to develop the franchise operations, but there are no specific plans to expand facilities yet. However, the outlook is for the increase in sales to continue from the rise in student numbers. The plan is to advance the Soccer Schools business while prioritizing strengthening profitability, the same as in the previous fiscal year, and there are no plans to establish new schools. In addition, the Company intends to further expand the programming schools it started in the previous fiscal year, and also to focus on developing models for new educational services that utilize ICT.

Aiming for the renewed growth of the Meiko Gijuku business through differentiation by spreading the use of MEIKO Style Coaching and the utilization of ICT to all schools

2. Strategy for the renewed growth of the Meiko Gijuku business

As a pioneer in private tutorial schools, the Company developed its business nationwide through a franchise-op­erations method, and it continuously grew through increasing its numbers of schools and students. But for 3 consecutive fiscal years from FY8/16, the numbers of students and schools decreased, and it has been forced to struggle. Despite the declining birth rate, the number of companies entering the private tutorial schools market has been increasing and competition has been intensifying. In this situation, it is considered that the Company has been struggling as it has been unable to establish an effective differentiation strategy and also, as the industry leader that already manages more than 2,000 schools throughout the country, there are few new areas into which it can enter and acquire new students. The number of students per school has been declining due to the intensification of competition, and the number of closures of unprofitable schools has exceeded the number of schools newly opened or expanded. Therefore, first of all, an important issue can be said to be recovering the number of students per school toward achieving renewed growth. The number of students per school, which serves as the profit-loss break-even point for the franchised operations schools, differs from region to region (due to differences in rent); for instance, the standard is around 30 students for a school whose owner also serves as the head of the school, and around 50 students for a school that employs the head of the school.

In this situation, the Company has set the following three measures as its priority measures for FY8/19: 1) aim to improve customer satisfaction by returning to the basics of tutorial-school services and thoroughly improving the levels of services, such as learning guidance skills and communication; 2) aim to differentiate itself from its industry peers by advancing measures including fully spreading the use of MEIKO Style Coaching, Meiko e-Po, and other methods, and the utilization of ICT, to all schools, in conjunction with improving the schools’ environments; and 3) launch measures to provide services optimized to elementary school students, junior high school students, and high schools students, while also expanding the range of each of these student groups.

In particular, the Company is focusing on a differentiation strategy to acquire students with MEIKO Style Coaching as a learning guidance method for students to practice independent learning, which is a point in the academic reforms to be implemented from academic year 2020. MEIKO Style Coaching is a guidance method that establishes “learning” and “review” as a single cycle, in which students acquire various “insights” through independently learning and then reviewing what they have learned, toward them acquiring an essential understanding. Previously, based on its MEIKO Style Independent Learning guidance method, the Company used a method in which answers were drawn out of the students themselves in order for them to acquire understanding, but the new method emphasizes independent thinking to an even greater extent. Specifically, the learning programs are advanced while the students themselves independently use their own words and express their own thoughts in writing, and then 5 to 10 minutes before the end of the lesson, they themselves summarize as “review notes” what they have learned on that day and create a learning plan for the future. These learning records are scanned using an iPad and entered into the Meiko e-Po system.

In this system, the students themselves can get a sense of their own growth through accumulation of learning records and making their progress visible. In addition, parents and guardians can use their smartphones to check on their children’s learning status anytime. Conventionally, parents would confirm what their children are doing at the school and whether or not their academic abilities are improving through regular meetings with the tutors, but this still left many points unclear and was one of the reasons for student absences and withdrawals from the school. But by utilizing Meiko e-Po, they can confirm in real time their children’s learning records and the extent that their academic abilities have improved, which is expected to lead to higher levels of customer satisfaction and thereby keep down absences and withdrawals.

An issue is whether or not the Company can smoothly spread the use of this new learning guidance method and the methods for utilizing ICT among the tutors who provide the learning guidance at the schools. At the franchised operations schools, the heads of the schools, who have received training, conduct the training for the tutors. But in the spring and summer recruitment seasons in 2018, there were cases in which the time spent on training tutors resulted in a reduction in the time spent on student recruitment activities. Overall, students and their parents and guardians are positively evaluating MEIKO Style Coaching, so if its use spreads to all schools, it can be expected to lead to an increase in student numbers.

The Company is also enhancing content utilizing ICT in order to expand the student groups for each of elementary, junior high, and high school students. Meiko Mirai Eigo for elementary school students and Meiko Chugaku Listening for junior high school students, which it started in the previous fiscal year, have been positively received. In addition, the number of applicants for MEIKO MUSE, which is a video learning course for high school students that it previously launched, is steadily increasing. The Company is currently developing a new English proficiency test course for elementary school students, which it plans to launch in the future. In FY8/18, the percentages of students by school type were that the most were junior high school students, at 57.1% of all students, followed by high school students at 25.2% and then elementary school students at 17.4%. So the extent of the Company’s reliance on junior high school students is high, but going forward, the percentages of elementary and high school students are expected to rise. In particular, elementary school student numbers recovered quickly in FY8/18 and increased YoY, and this number is expected to rise in the future.

Another issue is improving the admission rate from inquiries via the Internet. In August 2018, the number of inquiries via the Internet increased by 37.6% compared to the same month in the previous fiscal year, but the number of admissions rose by only 9.2%. The reason for this is that the percentage of bulk requests for information from comparison websites increased to constitute more than 60% of all requests (compared to less than 50% in the same month in the previous fiscal year), and the admission rate from these comparison websites is low. Therefore, the Company is aiming to improve the admission rate by analyzing responses to online advertisements and the admission process and creating measures to increase the number of accesses to its official homepage, which is considered will lead to an increase in student numbers.

◆Medium-term management plan

While maintaining the basic strategy, intends to reset the numerical targets and work to improve results and establish a foundation for growth as the priority issues

In October 2016, the Company announced its medium-term management plan for the next 4 years up to FY8/20. But as earnings in the Meiko Gijuku business are trending greatly below the level initially anticipated, it has decided to reset the numerical targets. However, there has been no change to the fact that it will continue to implement its basic strategy.

The Company is implementing five strategies as its basic strategies in the medium-term management plan: Strengthen the Meiko Gijuku business, strengthen the profitability of all businesses, expand the business areas to achieve sustainable growth, train human resources, and improve corporate value.

In strengthening the Meiko Gijuku Business, the Company sets forth its aims of improving profitability and achieving renewed growth by recovering the number of students per school through a differentiation strategy of using MEIKO Style Coaching and the utilization of ICT, and also by working to increase the sales unit price per student through enhancing learning content.

To strengthen the profitability of all businesses, the Company intends not only to strengthen the profitability of the Meiko Gijuku business but also that of other businesses and to establish new core businesses. While sharing expertise among Group companies and improving management efficiency, it is leveraging synergies to the greatest possible extent to bolster the Group’s comprehensive strength.

To expand the business areas to achieve sustainable growth, in the education and culture business area, the Company will consider M&A and investment proposals. Based on its management philosophy, the Company will do so if there are projects that can be expected to strengthen its main businesses and generate synergies with each business within its development. It is also working to develop new educational services. The programming schools that began in August 2018 are off to a strong start, with other new forms of schools utilizing ICT, next-generation soroban (Japanese abacus) schools, and high-end English language schools. For these, the Company is considering not only conducting development in-house, but also through utilizing business alliances, M&A, and other ways.

To train human resources, the Company is aiming to realize a work-life balance, reform personnel awareness, and improve productivity, and train the human resources who will drive growth for the Group. To improve corporate value, the Company is implementing a capital dividend policy attractive to investors through sustained earnings growth.

◆Shareholder return policy

Although its record of increasing dividends will end for the time being, going forward it will continue the policy of actively returning profits to shareholders

Since it was listed on the JASDAQ market in April 1997, the Company has continuously increased its dividend. But for FY8/19, it has announced it will decrease the dividend for the first time, down ¥12 YoY to ¥30.0 (dividend payout ratio, 78.1%). This is because, in the context of the continuing severe earnings environment for its mainstay Meiko Gijuku business, it judged that in order to invest in realizing growth in the future, it would not be advantageous for shareholders if it continued to pay dividends of an amount exceeding the period’s profit. However, as it has set a standard of 80% for the dividend payout ratio level, from FY8/19, if profits continue to trend upward, we can expect it to increase the dividend again.

Under the shareholder benefit program, the Company continues to give QUO cards worth ¥1,000-5,000 to share­holders as of the end of August, according to the number of shares they hold and the length of time that they have held them. Those holding 100 shares for less than three years will receive a ¥1,000 QUO card, while those holding the same number of shares continuously for three years will receive cards with a value of ¥3,000. The gross investment yield per share unit, including the shareholder benefit program, is at the 4-6% level at the current share price (¥1,001 as of October 19). The Company’s capital policy is unchanged to strengthen its equity and to flexibly consider acquiring treasury stock when possible, taking into account the share price and financial position.

◆Information security policy

The Company manages tutorial schools and also concludes contracts with member companies based on its own franchise system, and it provides continuous school management guidance. In the school management process, it obtains personal information on students, parents and guardians, and tutors. It manages this personal information in accordance with its Regulations on the Protection of Personal Information. It also examines measures to prevent the leakage of information through the Risk Management Committee and verifies the operational statutes of measures to protect personal information.

 

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