Good afternoon, everyone. I am the President of Nihon M&A Center Holdings. I am Miyake. It's nice to see you. I am the Senior Managing Director of the company. It's nice to talk to you. Now, today, we are starting the quarterly financial results briefing session for the third quarter of our fiscal year, 2023. Thank you very much for joining this session. At the onset, I would like to express my sincere condolences to the people affected by the Noto Peninsula earthquake this time. I offer my heartfelt sympathies. Your safety and the early recovery of the disaster hit areas are what I would like to offer my prayers for. About 29 years ago, I myself was affected by the Great Hanshin-Awaji Earthquake in Takarazuka, and when there was the Great East Japan Earthquake, I experienced the earthquake in Tokyo.
That experience is not something that you get to know unless you are actually there, and there are a lot of sufferings that you cannot really imagine. I hope from the bottom of my heart, that people in that area will be able to recover as soon as possible. Now, I would like to share with you our actual results for the third quarter this year. For the third quarter, on a cumulative basis and a single quarter basis, we increased in both top line and bottom line on both terms, and I believe that this is all thanks to the cooperation from various parties. Thank you. For the single quarter of the third quarter, our margin improved significantly, and the number of transactions closed was record high at 300 this time.
The number of transactions closed on a cumulative basis was 796 from Q1 to Q3. This is an increase by 5.6% from the same period last year, and 300 for the single quarter of Q3, or increase of 16.3% from the same quarter last year. Our biggest concern has been the average transaction value, and this is also an indicator which show the recovery, more than JPY 37 million. On a single quarter basis, it even recovered to more than JPY 38 million, an increase of 7.8%.
As a result, sales improved because sales is a combination of these two numbers and achieved JPY 31 billion+, and this increased by 4.3% from the same period last year, or on a single quarter basis, we had sales of JPY 11.9 billion, and this is an increase by 22.5% from Q3 last year on a single quarter basis. We are starting to see the signs of further improvement of our income statement, and ordinary profit this time was JPY 11.6 billion in Q1 to Q3, and JPY 5.5 billion in Q3. And single quarter basis, we had an improvement of ordinary profit by 81.2%. And ordinary profit margin-wise, this third quarter alone, we had 46.5%, which shows a significant improvement from the same quarter last year.
Compared to our guidance for these numbers, sales-wise, we had annual target of sales, which was JPY 44 billion, and we had a progress rate of 70.8%. And for ordinary profit, we had JPY 11.6 billion in actual results, which is the progress of 68.7% versus guidance. And for guidance, we had planned to have a progress of 20%, 20%, 30%, 30% for every quarter from Q1, and we needed to have progress rate of 70% approximately by the end of the third quarter. And we exceeded 70% in sales, and our progress rate for ordinary profit was 68.7%, slightly shy of our target, and I apologize for that, but this number is basically in line with our progress target.
As to our income statement, from sales to operating profit, ordinary profit onward, you can see the numbers, each numbers here, and I would like to provide details for these numbers starting with sales. For sales, on a cumulative basis, we had JPY 31.1 billion, which is an increase of JPY 4.3 billion compared to the same period last year. 8.1, 10.9, and 11.9 from the first quarter. In this way, we have been increasing sales from Q1 to Q3. The reason is the higher motivation of our employees. Employees have better motivations, and that impacted positively on our number of transactions closed, which was 797, up by 5.6% versus a year before. And 230, 260, and then 300.
In this way, the number of transactions closed also increased as we headed toward Q3 from Q1. The important indicator is the average transaction value, because mid-cap mandates were affected severely from the incident, and that impacted negatively on our average transaction value. However, from the fourth quarter last year, we believe that we finally have been able to recover. And in Q1, JPY 33.5 million was this number for Q1. But in Q4, JPY 40 million. So we had a recovery, and we were not confident that the recovery is solid. However, on JPY 38.9 million, this time in Q3.
We believe that we have come down to the target range that we have set, and we believe that this shows a solid recovery, and sales can be provided from the number of transactions closed times average transaction value. So next, for gross profit, SG&A or rather the cost of sales increased by 6% compared to the same time last year. This partially is because of increase in labor cost, but thanks to the efforts of our headquarters administrative functions, transportation cost and other costs declined from last year. However, referral fees that we need to pay for the transactions that we acquired from our network, so having a lot of referral fees, per se, is not a problem. However, compared to network referrals, direct mandates are limited in comparison or proportion.
For network-sourced mandates, they are sourced through accounting firms, securities companies, and local banks, et cetera. So, these referrals, we need to pay referral fee to our partners for their efforts. Therefore, our gross margin is naturally lower than others' direct mandates. However, for direct mandates, we need to spend for seminar fees, advertising fee, et cetera, but cost of sales tend to be lower, at least in ratio. We need to have an equal ratio to prevent not enough margin. But we made some improvement. In Q1, only 37%. However, in Q2, 38%. In Q3, 47%. In this way, we have recovered to some extent.
As a result, the referral fee ratio went down from the initial 14.8%- 12%, but we would like to decrease the referral fee ratio further, and we need to do more efforts. We need to make more efforts. As to gross margin, on Q1 to Q3 basis, gross margin improved to 57%. However, Q1 was 50%, and Q2 was 58.8%, and Q3 was 61.5%. Finally, we have recovered to be above 60%. For SG&A cost, we have been intentionally reducing SG&A cost. That's thanks to our efforts. At some point, we will need to take drastic measures to reduce the cost. From JPY 2.3 billion-JPY 2.4 billion to JPY 2.2 billion or so, we have been controlling this expense.
Also, the ratio of client-facing employees out of all the employees is improving from around 47%- 62%. Now 62% are the sales and other client-facing employees out of our all employees. This way, ordinary profit improved significantly by quarter, JPY 1.6 billion, JPY 4.4 billion, and then JPY 5.4 billion. This is determined by the progress rate. For example, 20% to be achieved in Q1, another 20% to be achieved in Q2, and 30% in Q3. This is the budget allocation for throughout the year. Naturally, we get the budget number for each quarter, and compared to this budget, our achievement rate was 48%, 90%, and 98%. So finally, we reached 98% compared to this allotted budget.
And, we had a significant recovery in Q2 and Q3, and this recovery should not be a one-time thing. Toward Q4, we would like to do more, and I believe this is the area of your biggest interest. Toward the fourth quarter, we have the pipelines. And, and we started negotiations, and the number of the start of negotiations increased this time. From July last fiscal year to September, and for this fiscal years, I mean, this fiscal year's July to September and October to December, we increased, or rather we started 298 new negotiations. This means that we have enough pipelines that will be the basis for our future transactions to be closed. And also, we have received, more large new mandates, from 114 to 128. And these are for the,
Also, we had an increase in the number of large mandates from which we can receive JPY 150 million success fee. We would like to continue to do our best to achieve our target for the fourth quarter. As to the number of transactions closed and number of new mandates, I have explained, and there are more details that you might be interested. If I am to point something that is quite notable, is average transaction value, because without improvement of average transaction value, it is difficult to improve sales. This has been our focus.
As to the companies with sales of less than JPY 100 million, we believe that these are the companies and mandates that fit to be handled through our internet platform, so we have been passing over these cases to Batonz, our group companies. This is exactly the number of referrals that you see on this page. 21 was the number last year, but this time, 42. Previously, we took care of these cases by ourselves. However, annual sales of less than JPY 100 million fit internet-based services, and we think that these are good to be handled through our subsidiary. And balance sheet remains very healthy, we believe. So please take a look. And something that's very close to cash and deposit is about JPY 48.45 billion. We believe that we have sufficient asset.
COVID or large earthquake, we don't know what will occur in this time, but despite such potential disasters, we believe that with our current balance sheet, we can survive it. As to our own acquisition, we should be able to have a significant size of acquisition in our balance sheet.
Regarding recruitment, we have been very active, but quality is the focus for us. Starting this January, we have become even more active in hiring. Up until the third quarter, we were prudent and careful, but now we increased to 33 employees and, when it comes to consultant, we would like to be more active to hire quality consultants. Our executives, all of them, are even participating in explanatory meetings on weekends, and sometimes we make decision and decide on hiring at the spot, if we find a very quality employees. Now, we had an incident, and in March 2022, we had no choice but to dispose more than 80 employees, and as a result, the sense of unity became very weak. As a result, the employees' motivation became very, very low.
In order to recover the momentum of our company, to bring back to growth track, to increase market capitalization is required, and this is how we are proceeding with that. First, the first step was to recover the sense of unity. And of course, before that, we had to introduce the implementing the preventive measures and also shifting our management to compliance-oriented management, and it took a year. And after that, we thought about how we can create sense of unity by creating purpose and philosophy so that we can face into the same direction in the company. And this year, we decided to make our company fun and a great company so that we can entrust our future.
One example of that is to start 100 clubs and communities. The largest club is a basketball team with about 125 members, and Mr. Naraki and I belong to music club, and we are playing in bands. And this is the second largest club with about 65 members. And we also have, like, a dog lovers club and others. So we have a very fun and bright atmosphere, and we have seen a sense of unity. And as in one of the outcomes, we had a huge improvement in the number of transactions closed. However, the things that we lost because of the misconduct, there are two.
One is the loss of the value per transaction because after we lost the mid-cap team members and also the team to do the direct marketing was lost, so the gross margin became very low. These were the two damages we incurred. First, we recovered value per transaction. Of course, the team in charge of mid-cap companies was doing very well. The value per transaction has almost recovered to the past, and the sales is on track of recovery because of that. However, the direct sales has yet to recover fully, so in the next fiscal year, we would like to take much focused initiatives. Of course, we are doing some in this year already, but we would like to put even more focus on that so that we can have a better margin.
Then, sales and ordinary profit will be recovered in line with that, and then we have to put them on a sustainable track of growth. But that requires human resources, so we have to improve the turnover ratio, and we also work through the introduction of Two-in-One System to expedite the training of new people, and also the productivity of business processes, introducing IT. So we are working on that, and we also have to take good approach to market by explaining these steps very in a very articulated manner. So that is why we are, for example, broadcasting this conference call, both in Japanese and in English, globally, simultaneously. Last year, June, I visited in the United States, and in November, I visited Europe for IR road show, and I met the investors through about 25 meetings in each region.
Of course, on the web, we've been having meetings with more investors, with me and Mr. Miyazaki. And of course, integrated report will be improved even further. So these are the approaches we are taking to approach in a better way to the market. Now going to dividend policy and shareholders breakdown. We made announcement today, we are going to conduct the second share repurchase, which will be up to JPY 7 billion in this fiscal year, and the total payout ratio will be about 200%. And starting January thirtieth until March thirty-first, the up to JPY 7 billion yen of buyback will be conducted. So the total seven point three billion will be paid total dividend, and total amount of share repurchase of JPY 14 billion yen this year. So then the payout ratio will be 127.3%.
So with the total dividend of JPY 7.3 billion, payout ratio of 66.7%, so total, it will be about 200%. Now, the dividend policy, the dividend payout ratio will be kept 60% according during the midterm business plan, and we would not reduce the dividend. So this year, we expect that we would deliver 23 yen dividend, and as a result, the payout ratio will be around 69.2%. This is the share ownership and market capitalization. We really inconvenienced you when it comes to market capitalization, so in order to recover it, we executives work together to take every measures possible. And now, the individual investors account for 30% and foreign institutions, financial institutions, 24%, with foreign investors, 33.7%. And, financial-...
Sorry, foreign investors who tend to hold our shares for long term have to be invited more. And at the peak time, it used to be around 52%, so we would like to increase this ratio of foreign investors. So that's why I, myself, is visiting the foreign markets, so that I can explain clearly how we are going to achieve the growth track again on a face-to-face basis. So now I'd like to talk about the potential market. This is the Yano Research Institute issued this. This has the longest history in this market research, and they issued estimated potential demand for M&A related to business succession. And the report shows that we just focused on the companies owned by the people who are more than 60 years old.
The SME Agency cuts the owner's age at 65, but according to our experiences, the many cases have owners who are 60 years old and above, so we used this yardstick. And according to that, the peak will continue, but the highest peak will come in 2035, and now we are in 2024. So gradually, the number will increase and it will peak in 2035, and then it will peak out gradually. So up until 2045, the current situation is expected to continue. So even if it peaks out in 2035, we won't expect any huge decline. But anyway, for about 20 years, at least, the succession, because of the SME lacking a successor, will increase and will remain. And I also believe that the restructuring purpose M&A will increase, because there is an issue of 2024.
Remember, there is a lack of labor force in logistics industry and at restaurants and hotels. Because of the lack of workforce, they can't really increase their utilization or occupation rates. This is just the beginning. This is the start of the serious lack of working population, and if that really happens, the only solution is the consolidation of companies. So this will be the trigger of consolidation of industries. And around, I, I believe that it will start in a full-fledged manner starting in 2030. So I believe that trend will be building upon this data. So how much will these markets will be? So for the business succession focus is targeted for CEO age over 60, and business succession not focus is CEO age under 60, so not for the sake of successors.
Less than JPY 100 million business is excluded, because we can deal with internet platform for M&A, so we didn't include those. And the companies which will be closed and it will be given to relatives are also removed from this data. So the ones with the, about JPY 4 trillion is the potential market for the sales size of less than JPY 1 billion, and 9.5 trillion market size for the—from the company, more than JPY 100 million and less than JPY 1 billion. So total, JPY 13.5 trillion is the potential market size. And we are about, 25th place, in the industry. Of course, it really depends on the calculation method and the definition of the industry, but...
So of all industries, this M&A industry market size is about 25th place, and this situation will continue more than 20 years. So the market share of ours within this JPY 13.5 trillion, if we can achieve this year's target, only JPY 44 billion. So putting together all the industry potential, our share is really limited, so the room for growth is indefinite. I think this is the most lucrative market that we can find. So we have to think how we can really grow our business as a leading company in this industry. This is also our social mission, and also, this is for the sake of shareholders as well as employees. But we believe that this is a very important social mission of ours. Now, as to industry trends... Please, let me have a water.
... Cup of water. Now, we're having an increase in the number of boutique-type M&A intermediaries companies, and the number of companies registered to Small and Medium Enterprise Agency is about 3,000, slightly short of 3,000. And of that, the companies that are registered in the business of M&A intermediary services is about 600, if my memory is correct. However, the active companies is only 400, with some track record. And of these 400 companies, about 85% are within two years since the start of their business, with less than four employees, meaning that these boutique companies lack in experience, know-how, and morale. And Small and Medium Enterprise Agency hopes to correct this point and grow this industry. And this is the background why the SME M&A Guidelines were revised for the first time in three years.
There are three major themes. The first one is the variability of fee structure, depending on the boutique, because this is very difficult to understand for external parties. Many of the owners of SME companies came from the engineering field. So when we say, we use share price Lehman method or the capital Lehman method or the total asset Lehman method, they don't really understand the difference. So the revision is to provide thorough explanation on the differences with some fresh examples. So, potential clients clearly know what are the differences and what the actual fees are going to be like. Another area is the improvement of the quality of people who support M&A, together with the improvement of morale.
The third point of revision is the contract form, because contract formats are very complicated, and many people do not often have the experience of reading contract. For example, you may purchase car and life insurance, but you don't really get to read the contents of the contract, because some people may think that it doesn't make sense to read contract, because even when you read contract, the contract content cannot be revised and modified. However, M&A is a once-in-a-lifetime opportunity. It's different from the contract for purchasing cars and others because the content is different for all transactions, and it's important to thoroughly explain important key terms in the contract.
So, this time, the key term explanation is mandated, and experienced people should provide a thorough explanation on key terms, and contract closure should be conducted after some time from the explanation of the key terms. This is the new guidance. M&A Intermediaries Association is the name of the self-regulating industry association that we established. This association sets even stricter self-regulating rules than the SME M&A Guidelines. So that's the objective. This time, we have established three self-regulating points. The first point is about compliance. The second point is about advertising and the way of doing sales activities. For example, phishing advertisements to be prohibited and pushy, aggressive, excessively aggressive sales techniques to be prohibited. Also, explanation on key contract terms would be very crucial and mandated and many other points.
This body will work in line with Small and Medium Enterprise Agency, and we are planning to add more members. As of the twenty-third of January, the body conducted explanation sessions for memberships, and then invitations were sent through Small and Medium Enterprise Agencies. So 500 parties came to listen. So we lowered membership fee significantly. In that way, we prepared an environment where even very small boutique companies with, let's say, two or three employees, can join to form a healthy industry and to have a revitalization of Japan's small and medium-sized companies. Together with that, we are collaborating with academia, and we made a progress. For example, with Kobe University Graduate School of Business Administration, we started collaboration, and we established SME M&A Study Center.
We have a dedicated professor from the university to conduct further study and research. With Kyoto University, we are going to do joint research. In this way, we have been collaborating with more and more universities to do further study and research. Eventually, we would like to hold academic conference. We would like to develop this industry to be an even better one based on the collaboration with academia and government. The three parties of academia, industry, and government is crucial in developing this sector. That way, we're hoping that our market cap can improve eventually. As to our medium-term plan, mid-term management goals stay the same. This fiscal year, sales JPY 44 billion, with ordinary profit JPY 17 billion. These are our target, and these are going to be our starting point.
We need to have a solid basis this fiscal year, and that will be the basis for us to achieve our medium-term management plan. So we need to have a solid starting point, starting basis. And in the fourth quarter, the fourth quarter, we can define the height of where we are going to start for the medium-term management plan. The launch pad. And then we will clarify what we need to do to achieve target, and that is exactly the improvement of productivity. We need to hire excellent talents, so we will recruit excellent people. But not just that, we need to train people once we hire them, and that also is not enough. We need to do more digitalization-related initiatives to improve productivity. We would like to reduce lead time.
Previously, we had to spend nine months, but we are going to spend instead six months, and then we will even shorten the lead time to be four months. In this way, the number of transactions closed per personnel will increase. In this way, we are going to definitely improve productivity. And-
Other activities, so you see the M&A sales and other sales, you see these PNL numbers, so please refer to that. Of that, I'd like to take on some highlights. First of all, Tokyo Pro Market is making very steady progress. This year, we helped four companies to complete IPO. I believe that we are steadily expanding our market share. Before we get this business, we have Go Public. It's a product to provide pre-IPO assessment, and we have signed with 95 companies for that. So it's like we have a lot of fish in a pond, and from that pond, we help we sign the contract with TPM and help them to achieve IPO. So this is the pyramid we have established. Fund business is also going well.
First, Search Fund Japan has reached nine companies, and we help one of them, company, to exit. And so, Aries company, the searcher was a very young person, but I thought that this was a very good exit. And the J Fund, we already decided on the fund number two, and fundraising activity is going very well. Batonz, this is the internet matching platform company, and every month, more than 100 conversational transactions are achieved, and the accumulated transactions closed is 85,800, and user registrations is over 272,000. So we are confident that we are making very good progress to become integrated M&A group. Now, let me share with you some topics. First, the gaining mid-cap company mandates is definitely required to increase the value per transaction.
And because of the increase of mid-cap acquisition, the this average sales per transaction is increasing. And direct marketing strategy, so direct sourcing is focus very much, and it usually takes a year to yield the result. So what we are trying now will really be harvested in 12 months as a sales. But we still need to increase direct marketing pipelines, so we have to emphasize this direct sourcing strategy. Well, we have one of them is an area strategy, so Niigata and Miyagi will be the focus. And sometimes we focus in industries such as constructions, printing company, printing industries. So these area and industry are two strategy directions. And we actually started a dedicated team for e-commerce industry to help e-commerce M&A businesses so that we can support them directly.
And as a good news or bright news, our Chubu branch celebrated its 10-year anniversary, and Chubu Branch has established a very good relationship with the local, institutions, financial institutions, accounting firms, and about 750 participants from our alliance partners came to celebrate this anniversary. So we would like to make even farther to contribute to the development of Chubu area. Now, overseas, finally, we changed our Thailand, office to a local subsidiary. We have five offices in Asia, including Vietnam and Malaysia and Singapore. All of them have started local subsidiary, and, Thai also shifted the representative office to local subsidiary. I think this year will be the year to really start making this as a serious business. Now, another news is, related to a female employee.
She was very active in DX team, and she started a new company called Nihon DX Human Resources Center Inc. We are Salesforce, and the engineers Salesforce is not good enough in terms of the number. We are now trying to penetrate the entire company with Salesforce, and we are now trying to do the same to external players. And in addition, we are going to introduce Salesforce users to other companies, and of course, we partner Salesforce, company Salesforce, and I believe that this will be the very first step to have a more active participation from female employees. And another topics, we published the integrated report of 2023 on November tenth of 2023, simultaneously in domestic market as well as abroad, in English and in Japanese.
This is the second version, the second issue of integrated report, and we have to improve the content. But of course, the latest version was recognized higher by investors. So for those investors who are participating in today's session, I'd appreciate it if you could take your time to look at our read through our integrated report. So this ends my remarks on the report of the results, and I'd like to start Q&A session to receive your questions. And Mr. Naraki and myself would like to answer your questions. Thank you.
Thank you, President. Now we will start Q&A session. We accept your questions through chat function. Due to time restriction, we may not be able to answer all of your questions. Please understand in advance. Now, we will start taking your questions, but we have prepared frequently asked questions, so we would like to start with these questions. Of the new Q3 sell-side mandates, what is the ratio of direct mandates and referral mandates? For this first question, about closed transactions as to sell side, transaction-wise, direct ratio was 35% and network was 65%. However, what is not recovering is the ratio of sell side mandates. Network is 67%, direct is 33%. We need to have an improvement of direct ratio. The network number should also be improved, so it's not just improvement of the ratio.
We will add network mandates, but also we need to get even more, direct mandates to have more equal ratio. So 35% or so for direct and 65% or so for network for the third quarter.
Next question: At the end of third quarter, how many consultants joined and how many consultants left? Thank you very much for the question. That's the most important issue. For the third quarter, 33 new consultants joined us and 21 consultants left, and one was transferred internally to staff department to become support staff. So the net increase was 12 consultants. But because there was an internal transfer, I could say that the net increase was 11.
The next question. I would like to ask about the number of transactions to be closed from Q4 onward. It seems that there is no major change to the number of new mandates, but compared to the third quarter, is it possible that you can grow further in the number of transactions to be closed from Q4 onward? I believe that we have a big potential for having an increased number of transactions to be closed, because the buy side mandates for Q3 showed a significant growth. This means that we have entered into negotiation for many cases. The number of pipeline is quite solid, sufficient. Therefore, compared to the third quarter, there is a good potential for us to have even higher number of transactions closed in the fourth quarter. But we put customers first.
There is the issue of schedule, managing schedule, and there may be some matters that may lead to risks. And about risks, we conduct pre-due diligence in advance. So we get retainer fee, and we do the pre-due diligence thoroughly, and then we do the matching activities, and we pay attention to details in the whole process. So not many negotiations are not converted eventually. Meaning that in a very few are not converted. And we have abundant negotiations, and our employees are highly motivated. So we believe that we can close even more transactions in the fourth quarter. That's not a definite, definite statement, but as to the question of whether I think it's possible, my answer would be, I think it's highly possible that we can have higher number.
Next question. The gross profit margin of the third quarter, it improved compared to the second quarter. Can you expect further improvement in the fourth quarter and onwards? Well, yes, it will be probably in the same level as the third quarter's improvement. I don't think we can expect a huge improvement from the third quarter, and we cannot really preclude the possibility to see the declining of the gross profit margin. We have to scrutinize the transactions underway now, whether these are through network or directly sourced, and which one could be closed by the end of March, should be looked at. We haven't scrutinized completely, but my hunch is, according to the forecast meeting, I would say that probably will be about the same level as the third quarter, with a slight improvement.
There is no huge increase of direct sales to expect a huge increase.
The next question: What is the number of pairs of large cases for the third quarter? Let me check the number. Q3 large case number. Naraki-san, do you have the number? Yes, I am Naraki. Let me take this question. As of the end, or rather, the Q3 large number is 20. 20 large cases in Q3. And, last year, the same period, number was 13. Q1 was only eight, but, 19 in Q2 and 20 in Q3. In this way, this number has been improving, and Q4 last year was 17. Thank you. The number is 20 this time, and we would like to add more large cases. Together with improvement in average transaction value, mid-cap mandates tend to be direct mandates in tendency.
By acquiring more Mid-cap mandates, we can improve the direct transaction ratio, gross margin as well, so they are very important.
Next question. As of the end of December, how many sell side transactions backlog did you have?
1,930. At the end of September, it was 1,900, and at the end of June, 1,880, so it is increasing gradually. The next question. Expense increase is expected in the second half with incentive payment. So, what would be your measure to achieve your profit guidance, and what is the level of your confidence to achieve profit guidance? Thank you for this question. Volume times average transaction value makes our sales. And for this sales number and the breakdown as well, I have good level of confidence, and volume is the number of transactions closed. For this indicator, the number of ongoing negotiation times the likelihood of closing those negotiations, and we have sufficient number of negotiations.
So as long as we can close those negotiations at high r-ratio, the number of transactions to be closed would be, would be good. And I feel, based on my gut feeling, that the average transaction value will not sway significantly. So based on my gut feeling, I believe that we can achieve solid sales number. This is based on my feeling and gut feeling. Now, as to the expense structure or cost structure, we are expecting to have larger cost increase in, for example, coming from incentive payment. And about this, Naraki-san will explain. There may be some overlapping information that we have mentioned. However, for gross profit, in the second quarter, we received many referrals from financial institutions, so network-related referral fees increased. And at the same time, direct mandates, or rather, the closure of direct mandates, direct transactions wise.
On a value basis, in Q3, the value-based sell side closure ratio was 47%. In Q1, this was 37%; in Q3, 47%, so direct side is showing an improvement, gradual improvements. 39% was the figure in the middle, Q2. In this way, we are seeing the continued good improvement trends. Based on these indicators, we believe that we are at the position that is quite favorable to achieve our profit guidance.
Next question: You said that you're going to be even more active for hiring starting January. What's different from the past? Thank you very much for the question. For the past 2 years, we, the management team, put focus on recruitment, but especially in fiscal year 2022, we had to focus more on preventive measures. In fiscal 2023, the focus was on the recovery of business performance. So we spent a lot of time and efforts on that. Well, for example, if I hold the recruitment seminars or agent seminars, and I couldn't do that. But starting this January, myself, Mr. Naraki, Mr. Takeuchi, and Mr. Otsuki, Mr. Suzuki, these executive members, have been participating or holding the recruitment seminars or even visit regional cities to hold explanatory meetings and having hiring meetings even on weekends.
We sometimes had making a decision on the spot seminars by executives. When we hold these kind of seminars, we can receive a lot of participants. That's one of the examples that we've been trying to increase or to hire the quality and very talented personnel. This is the, this year's policy already. I held, I hosted agents seminars or explanatory meeting, and also this... At the end of last year, we had a seminar to make decision on the spot to hire. All of the executive team is going to have and focus on hiring. That will be the biggest difference from the past two years.
The next question: What are the voluntary regulation rules of the M&A Intermediaries Association? So the SME M&A guidelines are set by the small and medium enterprise agencies, and the guidelines were revised. And this is to resolve issues of the industry and to improve the structure of the industry. Four major items were set this time. One is ethical standards. In addition to the contents written in the guideline, the ethical standards this time will be even stricter and more detailed to improve the entire industry. And our company had established ethical standards from long time ago, and we published those ethical standards to other parties, and that became the basis of the industry discussion. And compliance-related standards and regulations were also established.
In order to do M&A intermediaries, there are some points that require consideration, because there are possibility for the profit based on profit and issues as well. So we need to pay attention to some items, and those items are detailed out to prevent the conflict of interest. So this is something like on code of conduct and about advertising and sales guidelines or standards or regulations. M&A is a once-in-a-lifetime opportunity and chance for sellers, buyers, and others. So our members involved in the intermediary process should have the required morale, dignity, and other qualities. And we need to secure the morale and dignity of employees. For example, for sending out direct mails, we should not be sending phishing advertising contents. And there are some companies who are actually doing this.
For example, there is a company who would like to acquire your company for JPY 1 billion. This kind of phishing advertising cannot be accepted. So industry would like to win the trust from customers, and that's why we are setting these standards. And also about explanation of the key contractual terms, we have clarified the points that requires that special attention, and the explanation points are detailed out this time. Just by saying that thorough explanation is needed, that is not good enough. So we have identified the actual concrete points that require a thorough explanation to prevent misunderstanding from customers. So these details are set as industry guideline, and we plan to update these contents further. First of all, in January, we announced that the
For some remaining themes, from April onward, we're going to have the second round and the third round to be added.
Next question: Is there any change to your idea about retainer fee? Is there any discussion to discontinue the retainer fee? Thank you very much for the question. I think this is a very good point. From the conclusion, there is no plan to discontinue retainer fee system. We constantly discuss this matter, though. At the beginning of this, our business, we didn't charge any retainer fee. But in order to provide very thorough M&A support services and to lead mandates into the success for the sellers, the higher conversion rate is the key by getting very good buyers because of the M&A support. And for buyers, we have to provide M&A, which does not incur any uncertainties or concerns. So we have to have a thorough evaluations of companies and creation of memorandum based on that, reports and pre-due diligence are required.
At the same time, the sellers and buyers have to be serious to start the transaction. So that's why we charge retainer fee from both sides, so that we make sure that both sides are serious and that we can provide very thorough and complete services. And as a result, we expect the higher conversion rate and satisfaction rate of customers and retention of clients. And we would like to preserve the current status, so that's why we keep retainer fee.
Next question: Can you recover in the number of transactions closed per consultant to pre-incident level? The pre-incident level recovery in the number of transactions closed per consultant is also a crucial matter for us, together with average transaction value, because these two numbers determine productivity per consultants. Compared to pre-incident, productivity is lower now. We need to improve this. There are several themes we need to address. One of the themes is the usage of DX to reduce lead time. Reducing lead time for matching and reducing lead time of pre-due diligence. For example, from 9 months to six months, or from six months to three months even. In this way, we can handle double the number of transactions and mandates. Effective usage of DX is one of the major topics for our quality control headquarters.
Including the personnel turnover ratio, the ratio of mid-career or the middle level people is very important, the well-experienced people who can educate younger staff with about five to seven years of experience. We need to add more personnel, and we need to develop more personnel to come into this range, well-experienced people. And that way, we can have more effective OJT training, and in that way, we can improve productivity per person, per head. And together with that, recruiting excellent staff is very important. We need to hire people who can shine very brightly after refining. M&A is a very difficult work. Warm heart, cool heads are required to take care of M&A. Many qualities are required for consultants, and we need consultants with those qualities. We will continue to be selective to improve per head productivity.
To achieve our midterm plans, three to 3.2 transactions to be closed per person is required. So we will set milestones and target KPIs to get to this number.
Next question: Please give us the divisions where you had their consultants who have left. Have you stopped the consultants leaving from direct sales section? Thank you very much for the question. The divisions where we had higher turnover, yes, direct sales divisions were hit harder compared to networks division. Networks divisions didn't really have many people who left. Or even when we say direct sales, in addition to that, for example, there are people who work in each industry, so we can't really say that direct sales is weakening in terms of the consultants' turnover. But having said that, compared to other divisions, yes, it's true, we have more people who leave the company from direct sales. But the turnover based on incident has stopped, I think.
In FY 2022, there were many people who were disposed because of the misconduct, and people who were involved in the misconduct felt uncertainty for the future, and some of them left. But I don't think there are people anymore who leave the company because of that. But for direct sales divisions, including the period we had preventive measures, sales activities had to be stopped because direct mail had to be created with very much care to avoid something like phishing mails. So in order to take a preventive measures, we took even more strict rules than the guidelines, so we couldn't really make the serious activity of sales in direct sales. And because we couldn't do such activities in fiscal 2022, we couldn't really get the good result in FY 2023.
And because of the lower sales and lower results, we had more people who left the companies than before. But we have seen very good signs because we have set up a very clear sales strategy with the deployment of sales tactics, clearer or more articulated tactics. So those who are conducting, executing these strategy and tactics, they have better views for the better future.
Next question: Is it correct to understand that average lead time goes up as average sales per transaction grows? No, it's not the case. Large transaction, many of them take longer time or a long time, rather. However, we can grow in the number of transactions, so this pyramid size itself grows.... And as bottom grows, the top part also grows. So on the average, even when average transaction value goes up, average lead time does not grow, I think. And as to smaller mandates, we will take further steps to reduce lead time further to maintain average lead time. We have, roughly speaking, three layers of categories for projects.
To have a quick start, there's a category of the project that we would like to reduce lead time, another average category, and also the other category is, for example, that includes the projects to be acquired by funds and listed companies, and this category requires sufficient time in preparation. Three layers. When three layers are added up, the average lead time does not grow.
So regarding the new managers and new group leaders, how well are they developing in terms of management and day-to-day work? Thank you for the question. They are making a very good progress in development in new managers and new group leaders. For new managers, we increased the number of new managers a great deal in the fiscal year and in the first quarter. Well, there was lenient forecast, for one, and also they couldn't really capture the team members' situation as well as customers or clients' situations. But we provided quite intensive training to these new managers, not just the group trainings, but we also, starting in April, I started having meeting at breakfast, one manager per week, spending one hour to provide tailored guidance and instructions to each manager.
So based on that, because of that, starting the second quarter, new managers' performance changed and improved a great deal. So forecasting and management, they all improved, and they could increase their business performance in the second quarter. And in the third quarter, I think they even, they evolved even further. And new group leaders are also growing steadily. Mr. Takeuchi, Managing Director, is providing group leader trainings every month, very thoroughly. First year group leader, second year group leader, third year group leader, each... For each level, they, he provides a very good trainings. So this year, we seem to have another new group leader. And then when we have more group leaders, we can now really make the optimal number of teams at 15 members for each team. So I think the management will be improved accordingly. So Mr.
Takeuchi and I work together to provide proper training.
The next question: What is the ratio of consultants with less than three years' stay at your company, and the ratio of consultants who are with the company for more than three years? For those of the employees with less than three years' stay here is 62%, and 38% for more than three years. When the company was at the best condition, more than 40% of our consultants have been with our company for more than three years, and we need this ratio with more than three years to be above 40%. Otherwise, detailed and thorough OJT training cannot be provided. So we want to increase this ratio, but at the worst times, we had only 30% of our total consultants with more than three years' stay at our company, but this has grown to 38%.
So we think that we're, we are getting closer to the best times, or better times, rather. And about our hiring activities. Last year and the year before, we were not aggressive in hiring, so we did not intentionally have net increase. But now, this ratio of more than three years stay at our company is 38%. And from this year onward, we will do more aggressive recruiting, so this number should increase in net terms.
The next question: When the average revenues per transaction goes up, will it impact the number of transaction closed per consultant?
... I think it will have a very good impact. Depending on the size of a company, that doesn't really make the difference in the efforts required for M&A. Let's say, if a company has just a JPY 70 million revenues per year, compared to, mid-sized company with JPY 300 million revenues, and another one with JPY 700 million revenues, we don't see much difference in the efforts required for. If the revenue goes more than three billion or five billion yen, then it will be a large companies, then there will be more areas we have to check, and due diligence, requires to be more precise. So it requires more efforts and lead time. But if the revenues is below, seven hundred million yen, then the efforts doesn't, are not different from the ones with the JPY 70 million annual revenue.
So when the average revenue per transaction goes up, when the transaction is less than JPY 100 million, we transfer them to Batonz, because we think the lead time should be shorter for the sake of clients. And we this is under discussion, but the JPY 70 million-JPY 150 million companies should have a shorter lead time before their transaction completion, so we are trying to introduce different measures. So this increased transaction value and the number of transaction closed are two separate things. By increasing both, then the sales per head could be improved drastically. That is the strategy we are taking.
Next question. You have been talking about lead time reduction. How much lead time reduction can we expect? Please share with us the as is and expected to-be lead time. Also, please share with us the target time or by when to achieve the reduction and planned investment amount for that. Investment amount-wise, almost no investment will be required. We are going to have some modification in relation to DX promotion, so maybe JPY 10 million or JPY 20 million may be needed as investment. But that, compared to the overall in DX-related investment, is limited. And compared to this, the DX-related investment, so, DX-related investment for this does not constitute a huge investment, so this is something that we can even ignore. And about lead time reduction.
From the time that we receive mandates to the start of matching, for this definition of lead time, currently, it's about three months for some mandates. From this current three months to average two month, is the image that we're planning to reach, reduction by one month to two months. For some mandates, we would like to start matching in just one month's time instead of the current three months. We would like to reduce lead time by the 1/3 to the 2/3. On average, we would like to have the lead time required currently, and this can be solved partially through DX. There are room for improvements in relation to our consultants, their capabilities and their attitude. For example, thoroughly collecting required and effective materials and effective interview. These can be improved with our education.
Therefore, we will do further education to consultants and improve the attitude of our consultants. Also, for matching, we're going to expedite the matching process. From the time of matching start to the top management interview, currently, on average, this lead time is about three months, and we would like to have the lead time from three months to be at most two months. About this, next fiscal year, we will put a bigger focus on matching. For DX, we need some investment. For example, we would like to collaborate with buy side, and that requires an establishment of new system. But we're not planning to have significant investment. Not much investment is needed. Just JPY 10 million or JPY 20 million, I think, is required for investment.
We are running out of time, so the next question will be the last one... Will you target the largest number of transaction closed in the fourth quarter again? Will you, when will you go back to ordinary business seasonality, or will you not to do that? Well, we would like to bring back the ordinary business seasonality. Because of the nature of M&A business, at the end of March, if when we have a peak in March, we have to be faced with uncertainties. Because M&A business always have uncertainties. Sometimes our buyers and sellers feel very concerned in the last minute before the transaction closed, like a marriage blue.
During the due diligence, when we identify the issues which needs to be solved before transaction closed, and there are some cases where the sellers start to be very worried, and then suddenly they decide not to sell. So thinking about these possibilities, closing transactions at the very end of March, the very end of each fiscal year, could pose some uncertainties for business performance, and sometimes which could result in the lack of customer first. So that is why we always try to peak in December, meaning that in December, we always try to see the very good visibility about the business performance of the full year. Fourth quarter was always used as just an addition to the already established or built business performance. And also, our fourth quarter was always used for the preparation period for the next fiscal year.
But because of the incident, we have lapse of first quarter, one quarter, because we couldn't really work seriously in the first quarter of fiscal year 2022, and we seriously started our businesses from the second quarter. So the peak was delayed into the fourth quarter. And I think we have to embrace this situation up until this fiscal year. So meaning fourth quarter of this fiscal year, we will work very, very hard to add on to the current performance, because the second quarter and third quarter yield a very good result. And finally, we could really see the very good side. So we, of course, would like to make every effort in this fourth quarter, so that our shareholders and investors would appreciate our efforts. And at the same time, bringing back the ordinary cycle is considered very important.
So for example, the sell-side mandates was focused very much in January. Myself is putting a full effort to gain mandates, and by accumulating the good number of mandates, we would like to yield the sales in the first and second and third quarter of next year, so that we can really alleviate the burden of the fourth quarter of next fiscal year. And taking a full year, we would like to bring back the normal cycle or seasonality of business results. And by doing that, I believe that we can lead to the stable growth of the business, and instead of being followed by the timing, chased by the time, the employees could really work with a better working environment. So we can also provide a buffer time to sellers and buyers who became very concerned before the transaction closed.
So everything will be improved by this. So I hope that we will make sure that we work every effort for that. Well, thank you very much for joining our third quarter's earnings conference call, despite your busy schedule. I'm sure we have received many questions, but I'm sorry that we couldn't answer to all of them. But going forward, Mr. Miyazaki and myself will have a meeting on one-on-one or, or on website, or by visit, and our focus on IR activity would not be changed. So please do not hesitate to contact our IR office for the meeting appointments. And when you have questions, please send them to us at any times. We will make sure they are answered properly.
And for those who have joined this meeting from outside of the country, as I said earlier, I visited the United States. Oh, this year, we are planning to visit the United States in spring, and in fall, Europe again. And for the next three years, my plan is to visit in person to Europe and the United States to conduct IR activities. So for those foreign investors who are interested in having meetings, please contact Mr. Miyazaki. Thank you very much again today.