Persol Holdings Co Ltd

TSE:2181

Earnings Call Transcript 2024-Q1

[和田 孝雄, executive]

Hello. I am Wada, CEO of Personal Holdings. Thank you very much for coming to the financial results briefing. Today, I would like to communicate the four highlights described here on this slide. The first point is the summary of the first quarter of fiscal year 2023. The second is about the credit rating. The third is the stock split, which will be implemented. And the fourth is a better management structure. We have appointed a new member, and I will talk about that also.

First, I'd like to start with the summary of the first quarter financial results. Revenue was JPY 328.7 billion. Adjusted EBITDA was JPY 19 billion. They are progressing in line with our full year forecast. Revenues progress rate is 24.5%, adjusted EBITDA is 25.2%, both progressing smoothly. Compared to the first quarter of last fiscal year, adjusted EBITDA is a bit behind but things are in line with the plan. So please rest assured.

The second point is about credit rating. As is shown here, we have been upgraded to A plus. Also, IFRS-based ROIC and ROE targets have been set as described here. I will talk about this later. The next point is the stock split. The Board meeting today approved the stock split of 10:1. This will improve the liquidity as well as reflect our intention to have a broader range of shareholders. And the management structure is described here, which I will explain later.

Mr. Tokunaga will explain the details of the financial results now. Mr. Tokunaga please.

[Junji Tokunaga, executive]

[Interpreted] Hello. I am Tokunaga, CFO of Persol Holdings. I will explain the summary of financial results for the first quarter. As has been informed already, we shifted to IFRS from this fiscal year. And this year is also the first year of the new midterm management plan, and we have disclosure based on new segments. I would also like to touch on that in my briefing today. Revenue grew 9.4% year-on-year and gross profit grew 8.0% year-on-year. Operating profit decreased 15%. Adjusted EBITDA fell 16%. But as CEO, Wada mentioned earlier, we are making good progress against the full year forecast for all of revenue, operating profit and adjusted EBITDA.

Next is on revenue by SBU. For BPO SBU in the middle, with dissipating impact of COVID-19, COVID related work decreased, pushing down BPO revenue slightly. But on the other hand, centering around staffing SBU, carrier SBU and others, as you can see, we enjoyed strong revenue growth.

Next is operating profit by SBU. Our core businesses of staffing SBU and carrier SBU increased profit by 6.9% and 7.9%, respectively. BPO, as I explained earlier, decreased due to the impact of COVID-19. This is adjusted EBITDA by SBU. The trend is very similar to operating profit. As was mentioned at the beginning, this fiscal year is different from last fiscal year in that we started making strategic investments from the first quarter. Last year, as was shown in the graph, we made strategic investments in the third and the fourth quarters. But this fiscal year, we started making investments from the first quarter and are planning to generate similar level of profit throughout the quarters. This is an analysis of increase and decrease in operating profit.

First, gross profit increased JPY 5.5 billion compared to the last fiscal year. Career SBU performed well and marked an increase of JPY 6 billion. Staffing and Asia Pacific also performed well. On the other hand, as I explained earlier, Career SBU made personnel investments and spent on advertising expenses from the first quarter and overall, operating profit decreased year-on-year. Similarly, this is analysis of increase or decrease in adjusted EBITDA year-on-year. Other than on operating profit, there was no major impact on depreciation and amortization cost or accrued paid leave.

Next, I'd like to explain about the adjustments made from IFRS-based operating profit to adjusted EBITDA. The upper part is last fiscal year. The lower part is this fiscal year. First, depreciation cost is added to IFRS-based operating profit. Then lease depreciation and amortization are deducted, shown in the black box, which is equivalent to rent and accrued paid leave is adjusted, then share-based payment expenses are adjusted. This is how adjusted EBITDA is calculated. There is not much of a difference in adjustments last fiscal year and this fiscal year. This is a slide on revenue by SBU. Progress rate against the full year forecast at all SBUs are about 25%.

Next is operating profit by SBU. For staffing career SBUs and Asia Pacific, progress rate exceeded 25%. For BPO and technology, their profits tends to be higher towards the end of the fiscal year because of the characteristics of the businesses. Despite BPO progress rate being 15% and technology 6.7%, we believe we will be able to achieve the annual profit targets of each SBU for the full year.

We expect EBITDA to be the same. So I would like to omit explaining about it. We shifted to IFRS from this fiscal year. So I would like to compare the differences with JGAAP and also explain the changes on the IFRS-based balance sheet comparing the end of the fourth quarter of last fiscal year and the end of the first quarter of this fiscal year.

First, I will explain the differences between JGAAP and IFRS as of the end of March 2023. A big change is shown in the middle, where there is an increase in right-of-use asset. This is an increase equivalent to rent increase. Compared to JGAAP, it is an increase of JPY 22.9 billion. This is the liability side against the increase in right-of-use assets I just explained about. For lease liabilities, both current liabilities and noncurrent liabilities increased. Accrued vacation of JPY 39.6 billion was posted based on IFRS. These are the major gaps between JGAAP and IFRS.

Next is a comparison between IFRS-based balance sheet as of the end of March and end of June. Current assets increased JPY 1.2 billion. Noncurrent assets increased JPY 5.1 billion. Please take a look at liability side. Borrowings to be repaid next fiscal year are moved from noncurrent or fixed to current liabilities. But there are no major changes as total liabilities.

Next is the financial results by SBU. As was mentioned at the beginning, this is the first year of the new midterm management plan, and we changed the segments. Please take a look at the very right, we newly added the second from the top segment, BPO segment. This SBU was separated from staffing SBU and professional outsourcing SBU and was newly added and former professional outsourcing SBU changed its name to Technology SBU.

Technology SBU and Asia Pacific SBU changed the disclosure of sub-segments from the previous disclosure based on each company to based on each business. I will explain this later also. With the segment changes this time, we enhanced the disclosure of KPIs. The first SBU is staffing SBU. Revenue for Staffing SBU increased 8.4%, performing well. On the other hand, adjusted EBITDA with the change in social insurance scheme last October, costs went up. As a result, adjusted EBITDA increased 0.7%.

At the right top of the page, we have the breakdown of revenue increase. Number of persons employed increased 6%. Unit price of billing increased 2.5%. Furthermore, we have the details of KPIs described at the right bottom of the page. And at the back of this deck in the appendix, so please check the details when you have time.

Next is BPO SBU. Due to the impact of COVID-19, revenue dropped 5.7%. Adjusted EBITDA fell 60%. However, excluding COVID-19 related projects, revenue increased 15%, continuing to grow steadily. Next is Technology SBU. As I mentioned earlier, subsegments changed from disclosure by company to disclosure by business. The first subsegment is IT. The second subsegment is engineering. This is mainly contract business for automotives and home appliances software. The third is engineered temporary staffing business. These are the three subsegments we changed to.

Looking at the latest results, Technology SBU's total revenue increased 13.6%, continuing to perform strongly. On the other hand, in the first quarter, we hired 480 new graduates, more than double that of last fiscal year and that is included in cost. As a result, adjusted EBITDA decreased 43.5%. From the second quarter onwards, these new graduates are expected to contribute to revenue and thus, we believe we will be able to achieve the full year forecast. And the composition of revenue by subsegments are shown on the right side by the pie chart.

The current composition is about 1/3 each. Next is Career SBU. Career SBU continues to be very strong since last year. Revenue increased 31%. Because we have been making strategic investments centering around marketing from the first quarter, adjusted EBITDA increased 13.2%. Comparing year-on-year, new user registrations at Duda brand grew 12% as an effect of marketing investment. We're also increasing the head count of mainly career advisers which increased by 400 to 2,100, a 25% increase year-on-year. As a result, revenue increased 31%.

Next is Asia Pacific SBU. Last August, new midterm management plan was announced ahead of others at this SBU. The targets were ROIC of 10%, operating profit of JPY 10 billion and EBITDA of JPY 15 billion. This time, as a group overall, we changed the target to adjusted EBITDA of JPY 12.5 billion. As such, we changed the target for Asia Pacific from the previous JPY 15 billion to JPY 12.5 billion, but this gap of JPY 2.5 billion is depreciation cost equivalent to rent. Therefore, there are no changes to the actual target.

This is a slide on progress in Asia Pacific SBU against midterm management plan shown from [A to F], which we announced last August. All are progressing well. For Asia Pacific, the conventional subsegments of PERSOLKELLY and program, which were company-based have been changed this time to three subsegments of staffing, facility management and others.

Looking at the first quarter results, revenue grew 8.9%, and adjusted EBITDA grew 20%, showing strong performance. There was hardly any impact of FX from last fiscal year to this fiscal year. Please refer to the pie chart on the right for composition of revenue by the three subsegments. Revenue and operating profit of the respective companies of PERSOLKELLY and programmed are shown for your reference. Please take a look at it when you have time.

Last of all, we have others and adjustments other than the SBUs. Others increased slightly to JPY 8 billion. Adjusted EBITDA was negative JPY 500 million. On a consolidated adjustment, adjusted EBITDA was negative JPY 1.5 billion, but this is due to enhancing functions at holdings company and changes in management cost allocation between each SBU and Holdings. It does not mean there was a significant increase in cost. This was all for the update of each SBU and the consolidated performance.

Next, I'd like to continue with credit ratings and ROIC ROE targets. As I mentioned in the highlights, in July, our credit rating was upgraded from A to A+. The outlook changed from positive to stable. This is an update in our change in credit rating by JCR. For our capital efficiency criteria, we made some adjustments in line with the introduction of IFRS. ROIC remains to be the same at 15% as previously disclosed. If you could please refer to Slide 64, calculation methods have changed slightly.

ROE target has been changed from 18% to 20%. This is because we want to maintain this as a minimum criteria in 2026 to manage our business and also intend to take initiatives to surpass this. Next is about stock split, we are planning to split the stock 10 to 1, record date will be September 30. This has been resolved at today's Board of Directors meeting, and we will proceed based on the procedures described here on this slide.

This is about dividends. Basically, there are no changes, but since our stocks will be split 10:1 dividend at the end of the fiscal year is expected to be JPY 4.3 per share. Again, I'd like to emphasize that this has not changed from before. So please rest assured. Next is about diversity and governance. As we changed the management structure, I'd like to share an update with you. We appointed a non-Japanese female Independent Director, Ms. Deborah Hazelton. She has chaired the Board of a leading Australian financial institution. She has experience in insurance as well as bank. She has experience in management, extensive experience in human resources and has also worked in Japan in the past. She has extensive knowledge about Japan as well. And we are sure that she will bring advice and opinions from diverse perspectives at the Board of Directors' meetings.

In promoting our diversity, percentage of female managers is a major topic. As of April, this ratio increased to 24.4%. This is an increase by 1.5 percentage points year-on-year. We aim to achieve 37% by fiscal year 2030. I am taking the central role in promoting diversity and inclusion, and we are making progress as planned. The governance structure and skill matrix will look like this with appointment of [indiscernible] san. [indiscernible] san will join the Corporate Governance Committee. As I mentioned, she has strong expertise in human resources and financial accounting and naturally has global mindset. This is the Board of Directors' structure and skills metrics.

We published integrated report 2023 on July 31. We have been making efforts to offer more detailed information and we started a new midterm plan this fiscal year, and our value creation story for 2030 is featured. So please take a look at the content. We also enhanced ESG information and financial, nonfinancial information and thus hope we will be able to live up to your expectations. That is all from me. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]