Bridge Report:（9327）e-LogiT second quarter of the Fiscal Year Ending March 2023

President and CEO Ryoichi Kakui	e-LogiT Co., Ltd. (9327)

Company Information 

Stock Information 

*Stock prices as of the close price on December 12, 2022. Number of shares outstanding, DPS and EPS are from the brief financial report for the second quarter of fiscal year ending March 2023. ROE and BPS are based on the actual results of the previous term end.

Earnings Trends 

* Unit: million-yen, yen. Estimates calculated by the company. 

This Bridge Report introduces e-LogiT Co., Ltd.’s second quarter of the Fiscal Year Ending March 2023 Earnings Results, etc.

Table of Contents 

Key Points
1.Company Overview
2. Second Quarter of the Fiscal Year ending March 2023 Earnings Results
3. Fiscal Year ending March 2023 Earnings Forecasts
4. Major Future Measures & Growth Strategy
5. Conclusions
<Reference: Regarding Corporate Governance>

Key Points 

• The company offers all logistical services in one place as fulfillment service, mainly logistics agency service for e-commerce mail-order companies, including product storage, picking, packing, and delivering.  Their strong competitive advantages are the adaptation capability to flexibly respond to any shippers’ increase in shipment volume by utilizing Fulfillment Centers (FCs), which deploy a dominant marketing strategy, and mass customization to enhance each product’s added value, for example, by sticking to a wrapping material and performing elaborated wrapping for a product customer. The company aims to make omni channel logistics, including physical stores in addition to mail-order logistics and e-commerce, as its business domain. 
• The sales in the second quarter of the term ending March 2023 stood at 6,538 million yen, up 14.2% year on year. The increase of new clients and business operations for them progressed as planned as a whole. Gross profit grew 42.9% year on year owing to the V plan in addition to the increase in sales, and gross profit margin, which also improved 1.2 points. Operating income, ordinary income and quarterly net income turned positive, standing at 200,000 yen, 6 million yen and 300,000 yen, respectively. The rise in SGA expenses was only 5% year on year owing to efforts for curtailing the augmentation of costs stemming from preparations for the operations for new clients.
• The earnings forecast remains unchanged. For the term ending March 2023, sales are expected to increase 9.3% year on year to 13,342 million yen, and operating income is forecast to turn positive, standing at 101 million yen. The company will aim to earn an annual profit by continuing to increase the sales in the EC and mail-order logistics business and strengthening initiatives for profitability improvement. The dividend is still to be determined.
• While sales from new clients accounted for 7.6% of the overall sales in the term ended March 2021 and 9.4% in the term ended March 2022, this ratio rapidly rose to 23.8% in the first half of the term ending March 2023. Sales grew 84.1% year on year, significantly contributing to the increase in sales of all companies. While costs structurally augment in step with the business operations for new clients, it can be expected that this increase will lead to the reinforcement of the revenue structure from now on.
• Regarding profit, attention will be paid to whether the company can realize profitability throughout this term based on the V plan, which will reform the growth model following the establishment of an FC, which used to “start from deficit as the first year after the establishment is a period of preparations for full-scale operation” and enable profit recovery at an early stage even in case of establishing a new FC by “improving warehouse rental ratio.”

1. Company Overview

The company offers “operation agency services” for product photography, measurement and introduction text, order processing, customer support, etc. in addition to “logistics agency services” for product storage, picking, distribution processing, packing, delivery, fee collection, etc. as one-stop fulfillment services to e-commerce mail-order companies which outsource logistics operations, meeting the needs of e-commerce companies and consumers (buyers).

It aims to make omnichannel logistics, including physical stores in addition to mail-order logistics and e-commerce, its business domain.

【1-1 Corporate History】 

【1-2 Corporate Philosophy】 

The company set the following vision, mission, and value. 

 
Although the company’s clients are shippers, the company keeps at the heart of its management to bring the heart moving experiences gained from goods and services to the mail-order users (end customers) who purchase products on mail-order websites by delivering products quickly and carefully, and it believes that increased sales through the end users’ greater satisfaction and repeated purchases will lead to the shippers’ own greater satisfaction. 

【1-3 Market Environment】 

The percentage of households that use the Internet for shopping has remained at over 50% even after the first state of emergency was lifted following the declaration in April 2020. As the amount of money spent on online shopping shows a growing trend, it can be assumed that the increase of use of the Internet for shopping is not temporary consumer behavior caused by the COVID-19 pandemic.

It is forecast that the BtoC e-commerce sale market will keep expanding due to initiatives for the optimal fusion of physical stores and e-commerce sites in retail sale such as omnichannel, growth of DtoC (Direct to Consumer) where manufacturers sell their products directly to consumers on e-commerce sites, further increase in electronic transactions through smartphones, etc.

【1-4 Business Description】 

(1)Outline of services

(Taken from the reference material of the company)

① Logistics Agency Service 
At the request of e-commerce mail-order companies, the company receives their products and undertakes a series of logistics operations such as product management, picking, distribution processing, packing, delivery, and payment collection. 

*Customized products 
Products that follow the unique packing instructions (message cards, campaign goods, appendix bundles, etc.) from e-commerce mail-order companies, instead of being simply packaged and shipped. 

Food distribution is steadily expanding among the products the company covers.
Far more advanced quality control is needed for food logistics. It is difficult to control temperature, especially for food products, and some warehouses have limitation of products due to a range of temperature.
The company can deal with three ranges of temperature for room-temperature foods, refrigerated foods, and frozen foods, therefore they can deal with various products.
They can also manage the best-before date and a lot of each product at e-LogiT WMS.
Currently, the company handles frozen foods, liquor (sake, wine, etc.), condiments (miso and soy source), chocolates, ham and sausages, etc.

② Operation Agency Service 
At the request of e-commerce mail-order companies, the company undertakes product photography, product data uploading, order processing, customer support, etc. 
 
◎Optional services 

 
③ Logistics Consulting Service 
Our company offers consulting services such as seminars, education, and operational improvement, for corporations running their own logistics businesses, by utilizing the knowledge accumulated through the experiences of the mail-order distribution business.

(2) Operation of FCs 
As of December 2022, the company operates the following eight FCs as its bases for logistics agency service. 

【1-5 Characteristics and Strengths】 

In the Kanto area, the company is going forward with its dominant strategy by keeping the FCs within 20 km of each other when opening a new one.
Moreover, the company has realized the reduction of delivery costs and shorter lead time by operating in the two areas of Kanto and Kansai.

In addition, the company’s FCs are not located in chaotic arrays of warehouses around bays, but in residential areas where it is easy to secure personnel who are key in logistics. As products handled by the company require a lot of fine work, manual work is more efficient than machines, so they strive to secure personnel. This is another considerable factor which allows the company to handle a lot of products during busy seasons.

While securing sales by shipping goods as requested by shippers, the company also achieves reductions in delivery costs and shortens lead times, and this “response to surges” is the company’s biggest competitive advantage and the company plans to further brush up this asset in the future. 

(Taken from the reference material of the company)

The company engages in creating a heart-moving experience for consumers (buyers) by elevating the added value of products by using package materials matching the brand or special types of wrapping.

In each step of logistics — arrival of goods, storage, packing, wrapping, and shipping — other companies in the same industry, especially major operators that use platformers and robotics for efficiency improvement, tend to apply the same operation to all shippers. 

【1-6 Shareholder Return】 

2. Second Quarter of the Fiscal Year ending March 2023 Earnings Results

(1) Overview of business results (Non-consolidated) 

* Unit: million-yen.

Increase in sales, return to profitability
Sales increased 14.2% year on year to 6,538 million yen. The increase of new clients and business operations for them progressed as planned as a whole. Gross profit grew 42.9% year on year owing to the V plan in addition to the increase in sales, and gross profit margin, which also improved 1.2 points. Operating income, ordinary income and quarterly net income turned positive, standing at 200,000 yen, 6 million yen and 300,000 yen, respectively. The rise in SGA expenses was only 5% year on year owing to efforts for curtailing the augmentation of costs stemming from preparations for the operations for new clients.

(Created by Investment Bridge based on materials of the company)

◎Trends in New Customer and Existing Customer Sales

* Unit: million-yen.
*Sales from new clients are the total sales in 12 months after starting transactions. For example, sales from new clients in September 2022 are total sales in September 2022 from clients for which sales were newly recorded in the 12 months between October 2021 and September 2022.

(2)Financial position and cash flow

◎Main Balance Sheet 

* Unit: million yen. 

*Created by Investment Bridge based on disclosed material of the company.

Total assets grew 283 million yen from the end of the previous term to 5,523 million yen due to increase in deposits stemming from the establishment of a new FC.
Total liabilities increased 268 million yen from the end of the previous term to 3,740 million yen due to mainly increases in arrears and long-term and short-term loans payable.
Net assets were 1,782 million yen, almost unchanged.
Equity ratio decreased by 1.5 point from the end of the previous term to 32.2%. 

◎Cash Flow 

* Unit: million yen.

*Created by Investment Bridge based on disclosed material of the company.

The cash inflow from financing activities expanded due to the increase in long-term liabilities.
The cash position remained almost unchanged.

(3) Topics

◎ Establishment of the Osaka Fulfillment Center No. 2
The company established the Osaka Fulfillment Center No. 2 in November 2022 according to the plan.
The total floor area is about 9,400 tsubo (≒ 31,000 m2) and it is the eighth center in Japan and the second in the Kansai region. The total floor area of the company FCs is now about 59,000 tsubo (≒ 195,000 m2).
By expanding operational bases in the Osaka City, the company will work toward the reinforcement of on-site operation and systems for order acceptance in order to launch their dominant strategy in the Kansai area following the Kanto area.

◎ Organization of the 22nd Strategic Logistics Seminar
In October 2022, the company organized the 22nd Strategic Logistics Seminar with the theme of “acceleration of omnichannel retail sale” in a hybrid form, both online and offline.

3. Fiscal Year ending March 2023 Earnings Forecasts 

【 Earnings Forecasts】

* Unit: million-yen. Estimates are calculated by the company.  SG&A expenses are calculated by Investment Bridge based on materials of the company.

Earning forecast remains unchanged, projected increase in revenue and return to profitability
The earnings forecast remains unchanged. Sales are expected to increase 9.3% year on year to 13,342 million yen, and operating income is forecast to turn positive, standing at 101 million yen. The company will aim to earn an annual profit by continuing to increase the sales in the e-commerce mail-order logistics business and strengthening initiatives for profitability improvement. The dividend is still to be determined.

(Created by Investment Bridge based on materials of the company)

4. Major Future Measures and Growth Strategy

【4-1 Main measures in this term】

The company has engaged in the following measures in the term ending March 2023 since the beginning of the term.

(1) To improve selling capabilities
The company will establish the marketing division and develop a structure to support existing customers in marketing.
The company will further strengthen their core competence: “expanding the sales of the EC mail order company” and “providing services the customers would like to use repeatedly” with the aim of expanding sales and shipping volume.

(2) To strengthen FC Operations
* To utilize the characteristics of each FC
* To improve leader’s management capabilities

(3) To continue V Plan
By reducing fixed costs, the company aims to reform its revenue structure and become more efficient and resilient.
Specifically, the following three measures will be promoted as the Recovery V Plan continuing from the last fiscal year in this one.

①Providing high value-added services
To provide high value-added services such as an operation agency service.

②Improvement of productivity
Optimal staff assignment via productivity improvement through installation of automated equipment.

③Increasing rental rate
With regard to FCs they have established until now, the company has built a growth model consisting of the following three stages.
“First yea The investment phase; Starting from deficit as it is a period of preparations for full-scale operation.”
“Second yea The monetization phase; Revenues are levelled out as the center is used for storage. A shipment team is created and the foundations for mail-order logistics are formed.”
“Third yea The recovery phase; The shipment team is fully utilized at once and the shipment volume increases. Sales per tsubo grow to 20,000-30,000 yen per tsubo in a month. Operating income margin is kept above 6%.”
However, taking into account the recording of losses in the previous term, a new measure for avoiding the deficit in the “first year” is “improving warehouse rental ratio.”
Concretely, the company will forge ahead with the following three steps.

*Utilization of external warehouses
They will utilize external warehouses to store product stock. Creating unused space in existing FCs will newly enable the storage of products that are often shipped.
↓

*Consideration of a new company FC
While utilizing external warehouses, they will consider establishing a new company FC according to the handling volume.
↓
*Establishment of a new company FC
By moving products in external warehouses to the new FC, revenues will arise in the establishment stage.

Storing product stock in external warehouses and increasing the ratio of products that are frequently shipped in existing FCs, the company will work toward further elevation of profitability by clarifying the roles of “warehouses for shipping (company FCs)” and “warehouses for storage (external warehouses).”

(Taken from the reference material of the company)

【4-2　Major measures and growth strategy from the next term】

While ensuring profitability throughout the term by enhancing marketing capability, reinforcing the operation of FCs and continuing with the V plan, the company will work toward the growth of sales and profit by boosting three key factors addressing the needs of customers from the next term.

(1)Value-chain development 
To build up structures to support existing customers in marketing

(2)Expanding target customers/areas
The company will expand services for manufacturers aiming for D2C, etc. to acquire new customers.
It will also launch bases with affiliated investors overseas in ASEAN region, etc. where EC is rapidly growing, in order to support Japanese enterprises in business expansion.

(3) Establishment & evolution of FC 
To achieve highly efficient operations by utilizing each FC’s characteristics
To promote automation and enhance storage efficiency

(Taken from the reference material of the company)

In addition to the conventional mail-order logistics and e-commerce, the company intends to make the omnichannel market including actual stores its business domain and is working to secure management resources for that purpose. 

5. Conclusions

While sales from new clients accounted for 7.6% of the overall sales in the term ended March 2021 and 9.4% in the term ended March 2022, this ratio rapidly rose to 23.8% in the first half of the term ending March 2023. Sales grew 84.1% year on year, significantly contributing to the increase in sales of all companies. While costs structurally augment in step with the business operations for new clients, it can be expected that this increase will lead to the reinforcement of the revenue structure from now on.
On the other hand, regarding profit, attention will be paid to whether the company can realize profitability throughout this term based on the V plan, which will reform the growth model following the establishment of an FC, which used to “start from deficit as the first year after the establishment is a period of preparations for full-scale operation” and enable profit recovery at an early stage even in case of establishing a new FC by “improving warehouse rental ratio.”

<Reference: Regarding Corporate Governance> 

◎Organization Type and the Composition of Directors and Auditors 

◎Corporate Governance Report 
Last updated on Sept. 1, 2022. 

<Basic Policy>
The Company aims to maximize its corporate value by achieving sustainable business growth based on the following vision, mission and values.

◆ Vision
To anticipate change and continue to evolve emotional experience of people.

◆ Mission
-To grasp distribution from a global perspective
-To seek solutions useful to future customers before anyone else
-To become a professional group of mail order/retail logistics
-To become the No. 1 company in "creating excitement" by achieving high added value using innovative technology

◆ Value
-To constantly think and act for the benefit of the future customers, and become a trusted figure
-To create success together with shippers through overwhelming proposal capabilities
-To continuously learn and make self-improvement with new viewpoints
-To act quickly, try first, and work together to complete each task
-To enjoy work with a humble and honest heart

Based on this vision, mission, and values, we will strive to select, improve, and strengthen the most appropriate business management system in order to respond quickly to changes in the business environment, build a highly transparent corporate governance system that includes thorough compliance and appropriate information disclosure, and fulfill our corporate social responsibility.
By implementing these measures, we will earn the trust of all our stakeholders, including customers, business partners, shareholders, investors, employees, and local communities, and build good relationships with them.

<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpt) > 

<Disclosure Based on the Principles of the Corporate Governance Code (Disclosure)>