Bridge Report:（9327）e-LogiT Fiscal Year Ended March 2022

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

Company Information 

Stock Information 

*Stock prices as of the close price on May 26, 2022. Each number is taken from the brief financial report for the term ended March 2022.

Earnings Trends 

* Unit: million-yen, yen. Estimates calculated by the company. 
 
This Bridge Report introduces e-LogiT Co., Ltd.’s Fiscal Year Ended March 2022 Earnings Results, etc.

Table of Contents 

 Key Points
1.Company Overview
2. Fiscal Year ended March 2022 Earnings Results
3. Fiscal Year ending March 2023 Earnings Forecasts
4. Conclusions
<Reference: Regarding Corporate Governance>

Key Points 

• The company offers all logistical services in one place as fulfillment service, mainly logistics agency service for 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. 

   

• In the term ended March 2022, sales increased 14.1% year on year to 12,208 million yen, hitting a record high. Performance was strongly affected by Covid-19 throughout the year, but the shipping volume in the year-end shopping season from November to December 2021 increased mainly for existing customers, and new customer acquisitions and operations progressed healthily. Gross profit dropped 31.9% year on year. Cost of goods sold increased due to the packing and freight charges, rents for new FCs, and headcount increase for new customers. Gross profit margin declined 3.1 points. The company posted an operating loss of 195 million yen. In addition to the decline in gross profit, SG&A such as labour cost and recruiting fees rose 27.7% year on year. A loss was posted, but results were better than the revised forecast announced in November 2021. The company decided to pay no dividends due to the loss, while it had been undecided for the term ended March 2022.

   

• 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.

   

• The company has been working on “V Plan for Recovery” to transform its revenue structure into a lean one by reducing fixed costs, and they said that they have been successful in cutting deficits considerably at their “investment phase” FCs such as Narashino FC and Saitama Soka FC. Sales to new customers account for less than 10 percent of total sales, but its growth rate is as high as 42.0 percent. We will keep watching its growth in the current year as well.

   

1. Company Overview

The company offers not only logistics agency service that store, pick, pack, and deliver products for mail-order companies, but also operation agency service as a one-stop fulfillment service that provides customer support to help companies by operating their websites, including product photography, order processing, and response to inquiries, in order to meet the needs of mail-order companies and mail-order users (end customers).
The company holds a strong competitive advantage with their ability, which is called “response to surges”, to flexibly respond to increases in shipment volume of shippers by utilizing its FCs (Fulfillment Center) that implement the dominant strategy.
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】 

The company was founded in February 2000 by President Kakui, with the aim of acting as the logistics agency and offering consulting on logistics operations for the internet mail-order companies.
Under the concept of “Strategic Logistics” (improving sales through logistics), the company achieves “sales-earning logistics” that persuades the end-users who purchase products to become repeat customers through its operational efficiency, stemming from various aggressive schemes and its in-house-developed Warehouse Management System (WMS), rather than being contented with being a simple subcontractor. The company’s business has been growing steadily with the enthusiastic support from its clients (shippers), and it was listed on the JASDAQ Market of the Tokyo Stock Exchange in March 2021. The company got listed in the Standard Market in April 2022 upon the TSE market structure reform.

【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】 

(Taken from the reference material of the company) 

【1-4　Business Description】 

(1)Outline of services 

For mail-order companies that outsource logistics operations, the company mainly offers logistics agency service and operation agency service as one-stop fulfillment service that meets the needs of mail-order companies and mail-order users (end customers).

(Taken from the reference material of the company)

① Logistics Agency Service 
At the request of 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 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.

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

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

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

The second Osaka FC is scheduled to open in the term ending March 2023. 

The following three steps will be followed in order to generate profits in relation to any FC opening.

The negative impact of upfront investments on profits will be mitigated as the ratio of new FCs to existing FCs decreases.  

【1-5 Characteristics and Strengths】 

(1)Domination with large distribution centers
When opening a FC, the company aims for a floor area of about 5,000 tsubo (1 tsubo = approximately 3.3 square meters).
This is much larger than those of other companies’ mail-order distribution centers, which tends to be in the 1,000-2,000 tsubo range.
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.

● Dominant Strategy: the source of the company’s largest competitive advantage, the capability to respond to surges 
Through the domination with large-scale FCs, it is possible to respond to the sudden surge in sales of e-commerce mail-order companies.
The company terms this as the “response to surges.”
For example, if the shipper X conducts promotional campaigns and product shipment volume increases rapidly, the company will mostly respond in the following three ways:

①Moves shipments within FC
Temporarily moves and stores shipper X’s goods to other shipper’s work area with enough room within the same FC.

②Moves shipments to nearby FCs
If there are no room in other shippers’ work areas, move the shipper X’s goods to the nearby FC and continue working there.
A typical response to cases such as the year-end calendar shipments.

③ Personnel support from nearby FCs
When dealing with many types of products at once, it may not be efficient to move the products, so staff from nearby FCs would be called in to support them.

Since increase in shipment volume can manifest itself in many different ways, the company will take appropriate measures according to the situation each time, but response ① is able because of their large-scale FC, and responses ② and ③ are able because of their domination which keeps the distances between FCs at 20 km or less.
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)

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. 

In contrast, the company is supporting the uniqueness of each shipper, while the underlying workflow is unified company wide.
This enables the company to help express the unique worldview and values of the clients’ brands by using delivery methods, specific wrapping, and materials according to the shipper’s request. Since the workflow is unified company-wide, efficiency is maintained.
The company also uses white carton boxes, rather than general brown ones, for packing with which any dirt stands out, in order to express their quality and carefulness.
These are the unique initiatives of the company aiming to be No.1 in “creating heart moving experiences” as seen in its Mission.

(Taken from the reference material of the company)

(3)IT × Logistics
The company has developed its own WMS (Warehouse Management System) software that manages product information in the warehouse such as the storage location, expiration date, arrival and shipment of goods, and quantity.

By linking with the mail-order cart systems, that is aligned with the specifications of the mail-order sites of multiple e-commerce mail-order companies (shippers), the complicated inventory management is performed by the system.
In addition, since it is manufactured in-house by the company’s system department, it can be flexibly linked with the system environment of the e-commerce mail-order companies, and a smooth start-up is possible. The company is also active in introducing new services, and is rigorously pursuing improvements in logistics services as well as quality services by utilizing IT.

(4) Specializing in mail-order logistics to hone knowledge
In the 21 years since its establishment, the company gradually developed its services centered on mail-order logistics agency service, learnt how to deal with the high-mix low-volume logistics, which is considered difficult, and has been accumulating experiences and knowledge with diverse items such as car supplies, apparel, supplements, cosmetics, and wine. In addition, the company has honed its knowledge through on-site practice and logistics consulting.

The accumulation of such trust, credibility, and knowledge are highly valued, and the customer base continues to widen as the existing customers brings in many new customers.

Its accumulated knowledge and strong customer base should be evaluated as the company’s invisible assets.

(5) Emphasis on the front line

At every FC, all staff members are always aware of quality and improvement.

The company realizes and maintains high quality by thoroughly sticking with accomplishing each normal task perfectly.
When a problem such as a shipment error occurs, the company thoroughly investigates the cause, makes improvements, and makes sure to share the findings with all staff members.
In addition, the company actively takes up the improvement proposals from on-site staff involved in various processes, and the number of improvement proposals exceeds 7,200 annually.
The company also trains and educates logistics personnel who offer their services both inside and outside the company. It also hosts courses to help its employees to pass the business and career certification exams sponsored by the
Ministry of Health, Labor and Welfare, and for this reason, many of its employees hold these qualifications.

【1-6 Growth Strategy】 

(1)Value-chain development

*Customer journey
A series of experiences that a customer follows — from the encounter with a product or service to actually purchasing/using it with the intention to purchase/use it — is perceived as a “journey.”
For a mail-order company to turn prospective customers into actual customers and fans of its products, it is necessary to manage the customer experience throughout the “journey” that the customer follows. To manage the customer experience efficiently and to take appropriate marketing measures, it is necessary to create a customer journey map that visualizes and captures its pathway. 

(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. 

【1-7 Shareholder Return】 

2. Fiscal Year ended March 2022 Earnings Results

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

* Unit: million yen. Revised forecasts are changes from the forecasts announced in November 2009.

Losses recorded despite increased revenues, unable to cover cost increases
Sales increased 14.1% year on year to 12,208 million yen, hitting a record high. Performance was strongly affected by Covid-19 throughout the year, but the shipping volume in the year-end shopping season from November to December 2021 increased mainly for existing customers, and new customer acquisitions and operations progressed healthily. Gross profit dropped 31.9% year on year. Cost of goods sold increased due to the packing and freight charges, rents for new FCs, and headcount increase for new customers. Gross profit margin declined 3.1 points. The company posted an operating loss of 195 million yen. In addition to the decline in gross profit, SG&A such as labour cost and recruiting fees rose 27.7% year on year. A loss was posted, but results were better than the revised forecast announced in November 2021. The company decided to pay no dividends due to the loss, while it had been undecided for the term ended March 2022.

(2) Financial position and cash flow

●Main Balance Sheet 

* Unit: million yen. 

Total assets increased by 222 million yen from the end of the previous term to 5,239 million yen due to a decrease in cash and deposits and increase in guaranteed money deposited.
Total liabilities increased 512 million yen from the end of the previous term to 3,472 million yen due to mainly increases in arrears and long-term and short-term loans payable.
Net assets decreased by 289 million yen to 1,767 million yen due to decreases in retained earnings
Equity ratio decreased by 7.3 points from the end of the previous term to 33.7%. 

●Cash Flow 

* Unit: million yen.

Free cash flow turned negative, as the company recorded a net loss before taxes and increased purchase of property, plant and equipment.
The cash position lowered.

3. Fiscal Year ending March 2023 Earnings Forecasts 

【3-1 Earnings Forecasts】 

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

Projected increase in revenue and return to profitability
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.

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

【3-2　Main measures in this 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
To utilize Nestainers (steel storage shelves and racks), etc., and utilize the resulting vacant space for subleasing, etc., to improve space efficiency.

4. Conclusions

The company has been working on “V Plan for Recovery” to transform its revenue structure into a lean one by reducing fixed costs, and they said that they have been successful in cutting deficits considerably at their “investment phase” FCs such as Narashino FC and Saitama Soka FC. Sales to new customers account for less than 10 percent of total sales, but its growth rate is as high as 42.0 percent. We will keep watching its growth in the current year as well.

<Reference: Regarding Corporate Governance> 

● Organization Type and the Composition of Directors and Auditors 

 
● Corporate Governance Report 
Last updated on Nov. 26, 2021. 

<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 > 

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