Persol Holdings Co Ltd

TSE:2181

Earnings Call Transcript 2022-Q3

[Kiyoshi Seki, executive]

I am Seki, CFO at Persol Holdings. Thank you for your time today despite your busy schedule. I would like to commence the live streaming of the consolidated financial results of the third quarter of the fiscal year ending March 2022.

We have 2 topics today. I will be briefing you about the summary of the financial results for the 9 months ended December 31, 2021. Then CEO Wada will be explaining the additional acquisition of PERSOLKELLY shares. And Mr. Yamazaki, Head of Asia Pacific SBU, will explain the future business strategies of PERSOLKELLY.

Let me start with a summary of the third quarter results. This is the summary of the consolidated financial results. Both sales and profits grew year-on-year in the third quarter. Progress rate against the full year forecast is shown at the very right. Progress rate of operating profit is 85%. We are progressing well towards the achievement of the full year forecast.

This is the net sales by SBU. Our core business of Staffing SBU continued to perform strongly. Career SBU, showing strong recovery from the pandemic, drove overall growth, and all SBUs increased sales year-on-year.

This slide shows operating profit by SBU. High-margin BPO business and Career SBU turning profitable contributed, and all SBUs achieved growth year-on-year. I will explain the details of the results of each SBU in the following slides.

This is the overview of Staffing SBU. In the core temporary staffing sector, given the strong number of active temporary staffs as we were able to curb the number of contracts terminated, sales grew by 7.1% in the third quarter. Also, as the highly profitable BPO sector continued to enjoy very strong orders mainly from public projects, its sales increased by more than 30%. As a result, both sales and profits increased for the SBU in total.

This is Career SBU. The core businesses in this SBU are placement business and job recruitment media business. Both of them performed strongly in the third quarter, posting increase in sales year-on-year and turned profitable. We need to aim for further growth from this fiscal year onwards, and we will continue to actively invest in marketing to increase the number of new registration of job seekers.

This is the results of Professional Outsourcing SBU. Demand in the IT area continued to be very strong, and at the same time, engineering area grew in the third quarter, resulting in higher sales and profit. Operating rates of both the IT and engineering areas were very high at approximately 95%. IT, engineering, temporary staffing area also trended favorably, achieving growth in sales and profits in all areas. The total number of engineers increased in all areas year-on-year. We will continue to focus on hiring engineers as a driver of growth.

Now I'd like to explain about Solution SBU, which is creating new businesses for future growth and is currently in investment phase. In the third quarter, both of MIIDAS, a career change app business, and POS+, a cloud POS business, increased sales, realizing much higher sales as SBU in total, while the deficit amount shrank. The number of companies that have introduced both MIIDAS and POS+ are increasing, and we will continue to promote growth by making investments proactively in development of the businesses and the services.

Next, I'd like to explain about Asia Pacific SBU. Sales increased in the third quarter, mainly driven by higher sales at PERSOLKELLY. We posted operating loss due to negative impact of approximately JPY 400 million because of changes in accounting processing for SaaS at Programmed. But without this, we would have been able to realize profit for Asia Pacific SBU in total, thanks to increase in profits of PERSOLKELLY. As this SBU is consolidated with a 3-month time lag, we have the situation of the October to December quarter described at the left bottom of the slide. Both PERSOLKELLY and Programmed are showing very firm trends.

This slide shows the breakdown of PERSOLKELLY and Programmed. Please refer to the figures later by yourself.

Last of all, I'd like to explain about Others, which are companies directly managed by Persol Holdings and adjustments which are corporate and reconciliation. In Other segment, sales increased due to increase in internal transactions of disabled persons hiring business within the group. On the other hand, increased cost, mainly of personnel cost, pushed down the profit. In the adjustment segment, a small loss was posted following an increase in costs associated with promoting remote work, workplace vaccination and others for the group.

Next is the full year financial forecast. There are no changes to the full year forecast we announced at the financial results briefing in November last year for the second quarter results. We will continue to make efforts to achieve our forecast for the remaining months of the fiscal year.

This slide onwards show forecast of net sales, operating profits and EBITDA. Please confirm them by yourself.

This was the financial results presentation for the third quarter. Next, I would like to hand over to Mr. Wada and Mr. Yamazaki to explain about additional share acquisition of PERSOLKELLY and its future business strategies.

[和田 孝雄, executive]

I am Wada, CEO of Persol Holdings. I would like to explain about the additional share acquisition of PERSOLKELLY. We have been operating this business as a JV in Asia. And in order to enhance our scope of the group, we resolved to acquire additional shares at today's Board of Directors meeting. The overview is as described.

Kelly Services owns 49%, and we own 51% of this JV currently. We are going to raise our stake to 97.5%. The remaining 2.5% will be held by Kelly. In order to utilize PERSOLKELLY brand and to maintain relationships with major global accounts that signed contracts with them, they will be maintaining 2.5% of the stake. We would like to complete the transfer of shares on March 1. The cost of the acquisition will be JPY 14 billion or USD 119 million. This transaction will be covered with our cash on hand as we have sufficient funds.

In line with this transaction, we have been discussing about the dissolution of capital alliance and have agreed to execute this. We will also call off our cross-shareholding. For Kelly shares that we own, Kelly will buy them back from us. For our share that Kelly owns, they are planned to be sold in the market.

Concerning our relationship with Kelly, back in 2005, when TEMPSTAFF became listed, Kelly acquired some of our shares. Ever since then, we have maintained our relationship. In 2012, we established a JV, and for the ensuing 10 years, we have collaborated to share each other's know-how and to expand the business. However, the view on future directions started to diverge, therefore, we made a decision to acquire close to 100% of the stake. As the results demonstrate, we now have enough track record and confidence to be able to operate the business on our own. We are going to grow further in Asia and enhance our profitability. We also plan to make investments proactively in the business, which we will have a stronger group of. We will promote investments, especially for DX, and improve our profitability and also expand our business.

Although there was a decision made to acquire additional shares and to dissolve cross shareholdings, the relationship with Kelly will continue to be based on our mutual trust. There are no changes to the collaborative relationship. We are, therefore, confident that we will be able to offer a reliable service to our clients.

Now I'd like to hand over to Mr. Yamazaki for details.

[Takayuki Yamazaki, executive]

I am Yamazaki, the Head of APAC SBU. I'd like to explain about the future business strategies of PERSOLKELLY. There are 3 main pillars. We will drive the 3 strategies of offense and defense to improve profitability and accelerate growth at the same time.

The first pillar of DX investment is an offense. There are increasing needs for placement business in emerging countries where PERSOLKELLY is currently operating. We'd like to capture such placement needs opportunities efficiently and thus realize DX by introducing AI for matching of the candidates in order to increase sales. I will explain the details later.

The second pillar is a defense. PERSOLKELLY is operating in more than 10 countries. Each country has its back-office functions. We are going to consolidate them and, as necessary, move the back-office functions to areas with lower labor costs to realize a bolder reduction in cost.

The third pillar is to restructure and optimize the business portfolio for APAC business. This is not just about PERSOLKELLY alone. Until today, we had to be aligned with Kelly. But going forward, we will be able to optimize the business portfolio worth JPY 300 billion, including Programmed at our discretion. This is the major policy that we have. We have the intention to boldly restructure the business portfolio.

This is the details about DX investment. To put it concisely, we will be introducing AI for matching of the candidates. This is currently a manual work performed by consultants. They look for the right candidates for the orders received. Of course, we have a core system of applicant tracking. Keywords are entered to find suitable candidates. However, by introducing AI, we are planning to develop a function that automatically refers the most suitable candidates for the orders received. We plan to take 18 months to develop this function. And once it is complete, we plan to deploy it to countries where PERSOLKELLY is operating. This function will enable consultants to spend more time on sales activities, increasing net sales and gross profit of each consultant and improve efficiency of their work.

For cost reduction efforts, as I mentioned earlier, we are going to consolidate the back-office function in optimal locations for PERSOLKELLY and Programmed from the viewpoint of total optimization of APAC business. For example, we are operating in Malaysia and India, and accounting work currently handled in Singapore could be consolidated to India or to Malaysia. We would like to push forward with such bold measures to lead to substantial cost reductions.

The third pillar is not only about PERSOLKELLY, but that we'd like to consider Programmed as well in our portfolio restructuring. As is described here, HR tech business, for sure, will grow. We have already hired CTO at APAC and is proactively promoting this business. We'd like to make bold investments in it. And needless to say, HC business, which is a growth business, not only in Japan, but also in Asian countries, is where we will make investments proactively.

We'd also like to be selective about our core businesses. Which businesses do we grow further? We'd like to make that clear and make investments in such businesses proactively. At the same time, we will also make clear which businesses will be noncore for us. We will either make such business a cash cow business or decide to exit. We'd like to sort that out, not just for PERSOLKELLY but also for Programmed, in order to optimize the business portfolio at APAC. We are planning to include this in the midterm management plan that we will be announcing in the latter half of this year and communicate to everyone about it.

The last slide is about numerical targets. Simply said, we are going to increase our profitability. Of course, we are going to increase sales as well. We are aware that profitability is the challenge we are facing in our overseas business overall. We have both offensive and defensive strategies. DX is an offensive strategy. Back-office optimization and business portfolio restructuring are defensive strategies. We will execute them and aim for doubling of operating profit margin and EBITDA margin. As was mentioned, we will increase our stake to 97.5% of PERSOLKELLY. Based on that, we are currently creating the midterm management plan of APAC SBU. As is described at the bottom of this slide, we will be disclosing them. We are planning to communicate this to you in August 2022 at the time of the announcement of the financial results for the first quarter.

This is all from me about the business strategy of PERSOLKELLY. Thank you.

[Unknown Executive]

We have promised to grow the business in Asia even with COVID-19 and to secure profits, and we have pursued this path. We will accelerate this move 1 step further and create an organization that will enhance our corporate value.

As Mr. Yamazaki mentioned, we are currently working on the midterm management plan which will start from next fiscal year in 2023 for the group. But as we want to report about Asia Pacific SBU as soon as possible, we are planning to announce their plan earlier than others in August 2022. We will continue to commit to the business growth. Thank you very much.

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