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“Creating a society without obstacles with total solution deployment centered on the Internet platform.” – H.E.R.O. Innovation Insights from LITALICO’s Atsumi Hasegawa | H.E.R.O. HeartWare | 27 August

“Creating a society without obstacles with total solution deployment centered on the Internet platform.” – H.E.R.O. Innovation Insights from LITALICO’s Atsumi Hasegawa | H.E.R.O. HeartWare | 27 August

“Education is and will be the most powerful tool for individual and social change, and we must do all that it takes to facilitate it,” said HCL Technologies billionaire founder and philanthropist Shiv Nadar, who also helped set up NIIT in 1981 to impart high quality IT education in India, which led to the IT solutions provider offshoot NIIT Technologies (NSE: NIITTECH). Nadar, nicknamed by friends as Magus {old Persian for ‘wizard’), is now focused on developing the educational system of India through the Shiv Nadar Foundation.

Another unique under-the-radar H.E.R.O. tech-focused innovator making a positive impact to the society in education is Atsumi Hasegawa, CEO of LITALICO Inc. (TSE: 6187), listed on the first section of the Tokyo Stock Exchange.

Hasegawa has built one of Japan’s largest online-to-offline social skill, learning skills & classroom management and academy in LITALICO Junior (46.1% of sales) (https://junior.litalico.jp), which provides learning tailored to the individuality of each child with learning difficulties such as autism and ADHD from infants to high-school students, supported by a network of 98 bases and 8,575 users, as well as LITALICO development navi (https://h-navi.jp), a developmental disorder community portal site for parents, seniors, families and welfare facility workers concerned on child-rearing issues, as well as providing information on over 15,000 childcare development support facilities nationwide with user-generated review and content (https://h-navi.jp/support_facility) with 3.28m monthly active users (MAU) (up from 1m in 2Q16); and the child-rearing internet media portal Conobie (https://conobie.jp) for parents with 12m page views and 1.7m monthly active users (MAU). It is estimated that around 1m children or about 6.5% of children show significant difficulties in learning or behavior in regular class due to autism and ADHD etc and require special support education services. Among public elementary and junior high school students with disabilities, nationals who are enrolled in ordinary classes take classes in separate rooms as necessary. The number of schools installed with LITALICO’s ‘Class guidance’ in FY 2017 increased by 15.5% yoy to 5,283 schools and 108,946 people. In addition, LITALICO Wonder (6.2% of sales) is an ‘IT X Monozukuri’ classroom that provides digital-based educational courses that include game and application programming, web design, robotic production, etc with a network of 9 bases and 2,288 users (up from 3 bases and 650 users as of end Dec 2015).

LITALICO also operates LITALICO Works (47.7% of sales) (https://works.litalico.jp), Japan’s No. 1 online-to-offline recruitment and employment support services platform focusing on disabled people supported by a network of 66 bases nationwide to achieve a 86.1% retention rate of employment for its users. In Japan, under the Act on Employment Promotion of Persons with Disabilities, companies and central and local governments are required to hire a certain percentage of disabled persons at their offices – a measure intended to create an inclusive society. Every year, the Ministry of Health, Labor and Welfare asks government agencies and companies to report the number of their disabled workers as of June 1. If a company fails to achieve the legal employment rate of such workers in a certain month over the preceding year, the firm is charged 50,000 yen for each person per month in principle, while subsidies are paid to firms that meet the target rate. Of the 8.58m disabled people in Japan, only 11% of the workable population of 3.54m are working while the remaining 86% are not working. The Japanese government plans to increase the support of the employment of person of disabilities and in 2013, the statutory employment rate of persons with disabilities is increased from 1.8% to 2%, and to 2.2% in April 2018 for private companies, while the figure for central and local governments was increased from 2.3% to 2.5%. According to the labor ministry, as of June 1 last year, 50% of private enterprises had achieved the employment rate.

Supported by delivering care and innovation in serving a huge unaddressed demand of underserved customers, LITALICO has generated a 50%, 53% and 62% absolute increase in sales, operating profit and EBITDA in the recent 3 years to US$98.9m, US$7.8m, US$10.7m respectively for its latest 12 months results on a ROE of 34.7%, which enabled a doubling in its market value since its March 2016 listing to US$318m and attracted long-term institutional investors such as Norway’s sovereign wealth fund Norges Bank who holds a 1.27% stake. On 14 Aug 2018, LITALICO announced its 1Q (Apr-Jun) results in which operating profit increased 58.3% yoy to 304m yen. Operating income margin improved from 7.9% to 10.2% in the same period last year. Sales increased steadily both in the LITALICO WORKS business (+15% and +7 new bases yoy) and the LITALICO Junior business (+19.9% and +24 new bases yoy).

“Since its founding in December 2005, LITALICO has worked on solving social issues. We have a vision of ‘creating a society without obstacles’, centering on the Internet platform of the developmental disability portal site ‘LITALICO Development Navi’ and employment information site ‘LITALICO job navigation’” CEO Hasegawa shared the vision of LITALICO. “There are diverse people in society. By building the services, technologies and medical systems that realize the diversity of individual ways of living in society based on the idea that disability is not on the person but on the society’s side, obstacles can be lost. Leveraging upon the knowledge cultivated in the disability field, we are also provide educational services unique to LITALICO in fields that are becoming increasingly important in the future, such as developing LITALICO Wonder, our ‘IT × Monozukuri’ classroom that provides digital-based educational courses such as programming, and parenting internet media ‘Conobie’ in the general education field. We will continue to develop nationwide store services, mainly LITALICO Works and LITALICO Junior, for the parties in order to respond to the requests from many customers, but in the future we will promote ‘total solution deployment centered on the Internet platform’. We will accelerate the realization of ‘society without obstacles’ as promoting and improving the quality of the industry as a whole.” CEO Hasegawa added, “The origin of the company name LITALICO is a word coined by combining the Japanese words ‘altruism’ and ‘self-interest’, which means ‘altruistic self-interest’, as you benefit others, it will become my own advantage. Bringing happiness to those involved leads to their own happiness. It is a philosophical brand that expresses our philosophy and values. I think that one of the merits of the Japanese is ‘a heart to consider others’.. to give courage and hope to people all over the world.. to demonstrate courageous leadership in the international community.”

CEO Hasegawa also shared how he himself had ADHD tendencies when he was a child, which is one of his key motivational drivers to realize LITALICO’s vision of ‘creating a society without obstacles’: “The vision that LITALICO presents in ‘creating a society without obstacles’ was born from my own personal experience. I was born in Tajimi City, Gifu Prefecture. Since I was in a kindergarten, I was not good at the collective life and it was said that ‘I will not listen to the teacher.’ I had ADHD tendency, I could not sit still. In the middle and high school days, I often wondered about the rules of the school and the teachings of the teacher, and I feel bad by speaking or acting to change them. I disliked myself as a person, and I thought it will go wrong if I go out to society. When I was in college for the first time, it is an encounter with the owner and couple at the yakiniku store where I was working as a part-time job that changed my life. I was told that ‘I am doing good’ and I was liked by customers. These affirmed ‘I have action power’. To respond to expectations, I jump in the office building to acquire group customers, distributes flyers for soliciting part-time jobs for the store and distributes them in front of the station. I was actively involved in the management of the store. I was told ‘I may have the power to improve the world.’ ‘Try to go to Tokyo or New York,’ the couple told me.”

“I worked in the IT company Gaiax (TSE: 3775) for three years after I came to Tokyo. And I thought IT is amazing. I would like to use this for people who are in trouble, not for games or war, turn society into a good direction. At school, the more we demonstrate creativity, the more I was condemned as a nuisance in breaking the rules, but people who change society are different, and I began to think about creating a social structure and education. While I love the corporate culture and people at Gaiax, I began to realize that I wanted to live a way to hit all my passion for innovation that fundamentally solves social problems. While I was studying education and medical field, I visited LITALICO with my friend’s introduction. The encounter with a young woman of about 20 years old with cerebral palsy who was contracted to do data input work changed my life. She communicated with me by hitting the keyboard with her headgear that she looks forward to buying a gift for her family with savings from her wage of about 2,000 yen a month to show her appreciation. I decided to participate in LITALICO and work to devote my life to create a society without obstacles, in which these people can work on their own will and can be happy even if there are obstacles. Every day I clench my teeth that we will do our best to help people with disabilities to become recognized by society. Business is the way to last. LITALICO showed sustainability as a ‘business’, so that support for persons with disabilities was inaugurated as a business in a niche market. We want to continue to give courage to people who gave up on working and learning.”

While CEO Hasegawa owns 32.6% of LITALICO, he was not the founder. However, Hasegawa was the one who transformed the loss-making social venture when he took over into a thriving tech-focused innovator: “I joined LITALICO in 2008 after graduating from the Faculty of Science in Nagoya University. After working as salesperson, in the next year I became president in August 2009 as a successor. Originally, I thought that I wanted to be a manager, so I had no anxiety or pressure. However, at the time when I took over the president, there was a deficit of about 7 to 8 million yen every month. Therefore, we focused on expanding the base of the employment support business in order to increase sales. As of August 2010, it was 6 bases nationwide, but it doubled to 15 bases in March 2011 after six months, and now it is 66 bases. Before I took over, it was a B2B business model to introduce people with disabilities to companies and receive recruitment fees from companies. However, with this, only some people with minor obstacles can get a job. It will not be a solution to increase employment of persons with disabilities. Therefore, we transitioned to the B2C business to offer employment support services to persons with disabilities, 90% from the users and 90% from the local governments for 10% of the fees. It is similar to a hospital or nursing home. Users learn about how to use personal computers and how to communicate, and practice at companies. We support job hunting activities such as interview measures. After finding employment, we will also be involved in establishing consolidation and adjusting them in the workplace environment. We also do the follow-up half a year after employment. We also run a classroom for children with developmental disorders such as autism, Asperger’s syndrome, attention deficit hyperactivity disorder (ADHD) and so on. The fee is about 20,000 yen per month in the case of using once a week. Currently, there are 98 bases and about 8,400 users. However, as the classrooms are full, there are thousands in the waiting list. There is such a urgent need. Parents with children with developmental disorders tend to raise children while withdrawing them from their surroundings, but it is often said that ‘you can feel secure if you come to LITALICO.’ When autistic children have panic attacks, you can bring them to LITALICO as they are. We have a professional teacher and parents feel relieved because there are similar children around. A monitor is attached outside the classroom, and parents can observe the situation in the class. There are a lot of people who are eagerly making notes while watching the monitor as to what teachers are communicating and interacting. For parents, it is also a place to learn.”

CEO Hasegawa also shared how LITALICO Wonder had expanded from providing a niche environment for children with developmental disabilities to a place opened to all children: “We also run a classroom for children to program and make games and robots. Over 80% of users are children with no obstacle. Originally we started to provide a place to extend the specialty of children with developmental disabilities and could have a talent in a specific field such as IT. Children who cannot adapt well at school can also be active in LITALICO’s classroom. It was born under the idea of creating a ‘third place’ for children between school and home, between school and lesson, between learning and play. We prepare an environment to learn soft · hard · design skills using a wide range of various IT tools suitable for manufacturing in the 21st century. You can learn world-class programming, develop iPhone application development, robot production, digital fabrication, make things with 3D printers, and so on. It is built into the process to extend creativity, express your own intention, work collaboratively and have subjectivity. We also develop our own educational learning tools. In April 2017, we delivered an application ‘Eikomu’ which digitized ‘picture card’ and parents gave us feedback saying, ‘Thanks to this application, I was able to communicate with the child for the first time’. ‘Koegi catch’ was an app delivered in August 2017 which lets users enjoyingly learn control of the size of the voice.”

CEO Hasegawa also had unique views about children’s education and how LITALICO has been a positive force: “Many children’s robot teaching materials now are completed according to the manual. However, there is no fixed manual in our teaching materials. It is often asked, ‘Why do you do education without answers?’ From my point of view, it is rather questionable to continue doing ‘education with only one answer’. Those with only one answer can be automated with computers and robots, and what is needed in the future is creativity. Rather than following the answers prepared by adults, it will be useful to develop the ability to think and produce original things themselves in future times. It is important for children’s growth process to have a different evaluation axis from the school. Because children who are robot lovers, games lovers, programming lovers are maniacs, they may be a little strange at school, but at LITALICO, they are heroes. It is clearly different from the evaluation axis of a school where only students who can study, can do sports, have high communication skills become popular. Some school students are irritated and cannot concentrate for one minute, but they can focus programming for 3 hours at LITALICO. If you look at diversity, talent blossoms. A student from LITALICO is a girl who won a prize in a certain robot contest, but the chance for her to attend LITALICO was consultation from her mother who says, “She is disassembling a personal computer.’ If you disassemble your computer as a girl, parents usually get angry when seen with the eyes of a strange child. But we are seeing a wide variety of children, so I will answer like this, ‘Well, that is pretty good talent!’ On the way back home after learning programming for the first time at LITALICO, a junior high school boy who has not talked much with parents after being refused school for many years said to her mother, ‘Mother, I did not know that there is such a fun thing in life.’ Actually, when you go to society, it is better to be able to make games and assemble computers than to study. In society, children like that are required more than children who can study. But it is strange that the school has no soil for these children. The evaluation axis of society and school needs to clearly shift. We have been taught that people who can become student council presidents are better evaluated in society, but in reality it was different when they came out to society. The correct answer given at school is not necessarily the correct answer of society. I think that the ability to find your own answer is more important. I want to create a society where many ‘strange people’ who cannot ride well on the traditional success line are active. You can live strongly if you have a theme that can burn your passion even if you cannot adapt it to school.”

“By going to LITALICO Junior and LITALICO Wonder, parents themselves also change their values, change their relationships with children, to look at their individuality and interests more carefully without comparing them with other. Even if the classroom is held several times a week, such parent-child change will be worth the lifetime. For the country, if we can firmly invest in the ten years of childhood and realize a rich educational ecosystem, we can increase the number of active people in society in the next 60 years and 70 years and raise the happiness of the people and also reduce the various expenditures of the country.”

Education is a lifelong subject close to my heart. Having taught accounting at the Singapore Management University, I remain grateful to have received encouraging feedback from my students and it was a privilege to have the opportunity to enable diverse groups of individuals to realize their fullest potential. One of the super heroes in my life is the incredibly kind and wise Professor Leong who continues to inspire with his teachings for us to have the emotional courage and fighting spirit to face and tackle the big problems and challenges in our lives. Great educators like Professor Leong are a special gift to the society and to the younger generation. As are the H.E.R.O. innovators like Shiv Nadar and Atsumi Hasegawa.


Intrigued and want to read more? Download this week’s H.E.R.O. HeartWare: Weekly Asia Tech News with brief highlights of the inspiring entrepreneurial stories of tech leaders in Asia whom we have been monitoring over the past decade in our broader watchlist of over 200 listed Asian tech companies and our focused portfolio of 40 HERO Innovators who reveal their problems and successes behind building the company. Inspired by Brandon Stanton’s photo-journalistic project Humans of New York which collects and highlights the street portraits and moving stories of people on the streets around us who were doing things that changed lives and made a difference in the city but often went unnoticed, we have curated a collection of Hear the Heart of the H.E.R.O. stories on our website which we aim to update with refreshing and uplifting new stories weekly. Please check them out and give us your valuable feedback so that we can improve to make them better for you.


It started with rethinking a few questions. Question No. 1: Can the megacap tech elephants still dance? Or is this the better question: Is there an alternative and better way to capture long-term investment returns created by disruptive forces and innovation without chasing the highly popular megacap tech stocks, or falling for the “Next-Big-Thing” trap in overpaying for “growth”, or investing in the fads, me-too imitators, or even in seemingly cutting-edge technologies without the ability to monetize and generate recurring revenue with a sustainable and scalable business model? How can we distinguish between the true innovators and the swarming imitators?

Question No. 2: What if the “non-disruptive” group of reasonably decent quality companies with seemingly “cheap” valuations, a fertile hunting ground of value investors, all need to have their longer-term profitability and balance sheet asset value to be “reset” by deducting a substantial amount of deferred innovation-related expenses and investments every year, given that they are persistently behind the innovation cycle against the disruptors, just to stay “relevant” to survive and compete? Let’s say this invisible expense and deferred liability in the balance sheet that need to be charged amount to 20 to 30% of the revenue (or likely more), its inexactitude is hidden; its wildness lurks and lies in wait. Would you still think that they are still “cheap” in valuation?

Consider the déjà vu case of Kmart vs Walmart in 2000s and now Walmart vs Amazon. It is easy to forget that Kmart spent US$2 billion in 2000/01 in IT and uses the same supplier as Walmart – IBM. The tangible assets and investments are there in the balance sheet and valuations are “cheap”. Yet Kmart failed to replicate to compound value the way it did for Walmart. Now Walmart is investing billions to “catch up” and stay relevant. Key word is “relevancy” to garner valuation.

We now live in an exponential world, and as the Baupost chief and super value investor Seth Klarman warns, disruption is accelerating “exponentially” and value investing has evolved. The paradigm shift to avoid the cheap-gets-cheaper “value traps”, to keep staying curious & humble, and to keep learning & adapting, has never been more critical for value investors. We believe there is a structural break in data in the market’s multi-year appraisal (as opposed to “mean reversion” in valuation over a time period of 2-5 years) on the type of business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. Tech-focused innovators with non-linear exponential growth potential are the most relevant multi-year investment trend and opportunity.  

During our value investing journey in the Asian capital jungles over the decade plus, we have observed that many entrepreneurs were successful at the beginning in growing their companies to a certain size, then growth seems to suddenly stall or even reverse, and they become misguided or even corrupted along the way in what they want out of their business and life, which led to a deteriorating tailspin, defeating the buy-and-hold strategy and giving currency to the practice of trading-in-and-out of stocks. On the other hand, there exists an exclusive, under-the-radar, group of innovators who are exceptional market leaders in their respective fields with unique scalable business models run by high-integrity, honorable and far-sighted entrepreneurs with a higher purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – “Honorable. Exponential. Resilient. Organization.”, the inspiration behind the H.E.R.O Innovators Fund, (surprisingly) the only Asian SMID-cap tech-focused fund in the industry.

The H.E.R.O. are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out. There’s a tendency for us to think that to be a disruptive innovator or to do anything grand, you have to have a special gift, be someone called for. We think ultimately what really matters is the resolve — to want to do it, bring the future forward by throwing yourself into it, to give your life to that which you consider important. We aim to penetrate into the deeper order that whispers beneath the surface of tech innovations and to stand on the firmer ground of experience hard won through hearing and distilling the essence of the stories of our H.E.R.O. in overcoming their struggles and in understanding the origin of their quiet life of purpose, who opened their hearts to us that resilience and innovation is an art that can be learned, which can embolden all of us with more emotional courage and wisdom to go about our own value investing journey and daily life.

As the only Asian SMID-cap tech-focused listed equities fund in the industry, we believe we are uniquely positioned as a distinctive and alternative investment strategy for both institutional and individual investors who seek to capture long-term investment returns created by disruptive forces and innovation without herding or crowding to invest in the highly popular megacap tech stocks, and also provide capital allocation benefit to investors in building optionality in their overall investment portfolio.

The H.E.R.O. HeartWare Weekly highlights interesting tech news and listed Asian emerging tech innovators with unique and scalable wide-moat business models to keep yourself well-informed about disruptive forces and innovation, new technologies and new business models coming up, and the companies that ride on and benefit from them in some of the most promising areas of the economy in Asia as part of our thought leadership for our ARCHEA Asia HERO Innovators Fund to add value to our clients and the community. Hope you find the weekly report to be useful and insightful. Please give us your candid feedback and harshest criticisms so that we can improve further to serve you better. Besides the BATTSS (Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung), do also tell us which Asian tech entrepreneurs & CEOs whom you admire and respect and why – we will endeavor to do up profiles of them for sharing with the community. Thank you very much and have a beautiful week ahead.

Warm regards,
KB | kb@heroinnovator.com | WhatsApp +65 9695 1860
www.heroinnovator.com

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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