Persol Holdings Co Ltd

TSE:2181

Earnings Call Analysis

PERSOL HOLDINGS Q3 Performance and Full-Year Forecasts

In Q3, PERSOL HOLDINGS reported revenue growth of 7.2% year-on-year to JPY 990.6 billion, although profits fell below the previous year. Operating profit was JPY 40.9 billion, down from prior forecasts, leading to revised full-year projections: JPY 1.314 trillion in revenue, JPY 49 billion in operating profit, and JPY 69 billion in adjusted EBITDA. Despite facing a market cooldown post-COVID, and shifts in company hiring strategies, they maintain a year-end dividend forecast of JPY 4.3 per share, leaning on a solid 50% payout of adjusted EPS. Amidst these developments, PERSOL continues investing in human capital as a core strategy for sustainable value creation.

Contribution to Earthquake Relief and Q3 Performance

The management started by expressing condolences for the tragic 2024 Noto Peninsula earthquake losses and announced a monetary contribution to support affected communities. They provided a briefing on the third quarter, highlighting key metrics: a 7.2% year-on-year increase in revenue to JPY 990.6 billion and growth in gross profit. However, despite the revenue increase, both operating profit and adjusted EBITDA fell below the previous year's figures.

Full Year Financial Forecasts and Dividend Projections

Due to the market shift from the intense demand post-COVID-19 to a calmer environment, the company revised its full-year operating profit forecast from JPY 54.5 billion to JPY 49 billion, and adjusted EBITDA from JPY 75.5 billion to JPY 69 billion. The expected year-end dividend remains at JPY 4.3 per share, aligning with the unchanged full-year dividend forecast.

Strategic Business Unit (SBU) Performance Analysis

The Staffing SBU, being the core, reported a revenue increase by 6.9% and a modest 1.1% in adjusted EBITDA. The Technology SBU made notable gains with a 955 engineer hiring spree and improved operating rates driving EBITDA growth. Career SBU emerged as the growth leader, achieving a 25% revenue hike and an adjusted EBITDA boost of 14%. The Asia Pacific SBU faced some adjusted EBITDA negativity due to one-off events, but showed a solid 6.1% revenue increase. The non-SBU segment had an 8.6% revenue uptick, attributed mainly to R&D efforts.

Challenges and Operational Adjustments

The company is contending with a post-pandemic hiring slowdown and a simultaneous push for higher wages by job seekers. In response, they're strategically preparing to adapt to the market's dynamic demands, ensuring readiness for when the hiring activities intensify again.

Dividends and Human Capital Investments

The forecasted dividend is tied to the larger financial strategy, expected to be JPY 8.6 for the full year, with a 65% payout ratio of the pre-adjustment EPS. In an effort to emphasize the significance of human capital, the company released a report detailing its commitment to its employees and temporary staff, outlining policies focusing on their development as a central business growth element.

Earnings Call Transcript 2024-Q3

[和田 孝雄, executive]

Hello. I am Wada, CEO of PERSOL HOLDINGS. Thank you very much for your time despite your busy schedule.

First of all, we send our heartfelt condolence to those who lost lives due to the 2024 Noto Peninsula earthquake; and express our deepest sympathies to all those affected by the disaster, and their families. Furthermore, with deep respect to those working on rescue recovery and reconstruction efforts and others in the disaster-stricken area, we made a monetary donation to The Japanese Red Cross Society, for use in support and rescue activities and reconstruction efforts. We are also soliciting donations from group employees for the same purpose. We sincerely hope that local residents will stay safe and that the affected areas will recover as quickly as possible.

Now there are 3 highlights for today. The first is summary of fiscal 2023 Q3. The second is full year financial forecasts. The third is year-end dividend forecast.

Let me start with Q3 results. Revenue was JPY 990.6 billion, up 7.2% year-on-year, as is described. Operating profit was JPY 40.9 billion, and adjusted EBITDA stood at JPY 53.4 billion. Both gross profit and revenue grew year-on-year, but profit was below last year. Based on this, we are announcing the full year financial forecast for fiscal 2023 today.

Demand for placement business, which have been heating up significantly in the aftermath of the COVID-19 convergence, is calming down. Reflecting such trend, we revised our full year forecasts for operating profit from JPY 54.5 billion to JPY 49 billion and adjusted EBITDA from JPY 75.5 billion to JPY 69 billion.

The third is the year-end dividend forecast. Year-end dividend forecast remains to be unchanged at JPY 4.3 per share. The dividend policy with dividend payout ratio of approximately 50% of adjusted EPS, under the mid-term management plan 2026, will be maintained. Payout ratio based on unadjusted EPS is forecast to stand at approximately 65%.

From here on, I'd like to ask our CFO, Tokunaga, to explain the summary of the consolidated financial results for Q3.

[Junji Tokunaga, executive]

Hello. I'm Tokunaga, CFO. I will explain the summary of the financial results for Q3.

First, on a consolidated basis, revenue increased 7.2% to JPY 990.6 billion. Gross profit increased 5.7% to JPY 224.3 billion. Our important profit indicator, adjusted EBITDA, decreased 17.8% to JPY 53.4 billion.

This is revenue by SBU. Because of the decline due to COVID-19 related factors, BPO revenue decreased year-on-year. However, other SBUs, including our core Staffing SBU and Career SBU which is the pillar of growth this fiscal year, continue to achieve revenue growth.

This is operating profit by SBU. Here again we saw decrease in BPO, as we have the impact of decreasing COVID-19 related projects. As I will explain later, there was also a 7.4% decrease in operating profit in technology, where we are strengthening recruitment of new graduates and mid-career. On the other hand, career, the pillar of growth this fiscal year, and Asia Pacific achieved growth, as is shown.

This is adjusted EBITDA by SBU. I will limit explaining, as the trend is similar to operating profit.

This is the analysis of change in operating profit year-on-year. First, gross profit grew JPY 12.1 billion year-on-year. This was mainly driven by Career SBU. On the other hand, in the mid-term management plan that started this fiscal year, personnel expenses increased by JPY 15.5 billion, as we decided to make solid investment in human capital, including salary increases for career consultants and others. Additionally, advertising expenses increased by JPY 3.8 billion, as we are making solid marketing investments centering on Career SBU. Also, impairment loss in APAC in October-to-December period last fiscal year has no impact this fiscal year, so profit increased by JPY 8.9 billion to JPY 40.9 billion.

This is analysis of change in adjusted EBITDA year-on-year. There was an impact of approximately JPY 11 billion due to the impairment loss mentioned earlier and operating profit. Other than that, there was an impact of depreciation, accrued paid leave and share-based payment expenses, but it is my understanding that there is no major impact year-on-year.

On the following 3 pages, we have revenue, operating profit, adjusted EBITDA by SBU. Please refer to them later. Next, I will explain the current status of each SBU and the business topics.

I will start with our core SBU, Staffing SBU. Revenue increased 6.9% and adjusted EBITDA increased 1.1%. Although the increase may be small, the number of persons employed increased 3.5% year-on-year. Average billing rate improved 2% plus. Looking at the October-to-December quarter: Gross profit decreased, as there was an increase in social insurance costs since last October, but since it's been a year since then, as you can see at the left bottom of the slide, gross profit ratio improved from 16.2% in October-to-December period last year to 16.6% now.

I will introduce 2 business topics from Staffing SBU. The first is the survey ranking of temporary staffing businesses conducted by en Japan. In addition to ranking first in overall satisfaction level, we were also able to rank first in the intention to continue working. Improving the satisfaction level of our staffs is a pillar of our ability to increase corporate value over the mid- to long term. We will continue to make efforts to further improve the satisfaction level. The second business topic of Staffing SBU is that we have a corporate philosophy of a mission to provide opportunities. As is shown here, we are engaged in development of bio engineers and development of career support for scientific human resources. We will continue with this effort in the future as well.

The second SBU is BPO SBU. Because of the absence of COVID-19 related projects, revenue declined 7%. Adjusted EBITDA decreased as much as 57%. The trend has not changed from Q1 and Q2. However, excluding the impact of COVID-19, on an organic basis, performance was strong with revenue growth of 12.7%, as is shown.

For BPO SBU, we have 3 topics. BPO is providing services for public sector and for private sector. Here we have 3 cases where we are collaborating with local governments. Because of time constraints, I will touch on just 1 of them. We opened a BPO center in Kobe Sannomiya and plan to bolster BPO service mainly for public services.

The third is Technology SBU. As shown in the pie chart on the right, it consists of 3 services, namely IT and DX solutions. The second service is mechanical and electric engineering; and the third is engineer temporary staffing, freelancers. The 3 main KPIs for this business are increasing the number of engineers hired, increasing their operating rate and increasing their unit price. As is shown at the right bottom, we increased the number of engineers in fiscal 2023, from Q1 to Q3, by hiring 955 engineers.

To be specific. For IT solutions, we increased the number of engineers by 15% year-on-year to 3,160. Mechanical and electric engineers increased by 7.9% to 3,310. IT's operating rate was 89%, and engineers 94%. As of the end of Q3, average was 91.7%, which is an improvement by 2% Q-on-Q. Increase in operating rate is leading to improvement of adjusted EBITDA, pushing up profit much higher year-on-year in Q3.

I will share one topic about Technology SBU. For this SBU, we recognized that it is extremely important to increase the number of offices in order to connect with corporate customers and recruit engineers. We are now opening new offices in places like Sendai and Hiroshima, where we did not have presence before, to increase the touch points with customers and engineers.

Next is Career SBU, the growth pillar of this fiscal year. At the left top of the slide, you can see our revenue increased 25% year-on-year. Growth slowed a bit entering into Q3, but still revenue is continuing to grow over 18%. Adjusted EBITDA increased 14% year-on-year and achieved JPY 17.4 billion.

This year's Career SBU measures include [ creating a ] number of career consultants and investing in marketing. Compared to the end of Q3 last fiscal year, the number of consultants increased 25% to more than 2,300. On the other hand, productivity of consultants decreased a little by 6%, so we will continue to take measures to improve productivity. We are introducing 3 business topics for Career SBU here, but because of time, I will just touch on the very right one, our receipt of Tokyo metropolitan women's achievement promotion award.

At Career SBU, more than half of the employees are women, so we have been creating an environment that is comfortable for women to work in. And this time, we were recognized for it and won the excellence award from the Tokyo Metropolitan Government. We would like to continue to create an environment where women can thrive.

The last is Asia Pacific SBU. Asia Pacific SBU, as is shown in the pie chart on the right, is approximately 60% staffing service; and 26% facility management service, which is mainly in Australia. Revenue increased 6.1% year-on-year and is performing strongly. Regarding adjusted EBITDA, there was one-off revenue in Australia in October-to-December quarter last year, so adjusted EBITDA is slightly negative this year, but overall we are performing strongly.

We have fiscal 2022 Q3 revenue, operating profit and adjusted EBITDA; and Q1-to-Q3 cumulative revenue, operating profit and adjusted EBITDA of PERSOLKELLY and Programmed, whose businesses are mainly in Australia and New Zealand. As mentioned at the beginning, since there was an impairment loss of JPY 8.9 billion in Australia in October-to-December period last year, operating profit decreased, but please note that there are no major issues this fiscal year.

We received various awards in Singapore and others, but I will omit explaining because of time constraints.

The last is non SBU, others. Revenue increased 8.6% year-on-year, mainly at R&D FU. On the right, you see adjusted EBITDA of negative JPY 5.6 billion. This was explained already in Q2 briefing. This is an increase in adjustments reflecting intersegment transactions with SBUs. It is not that there was a significant increase in spending.

We have 2 business topics for R&D FU. One is Miidas, an HR service for medium-sized and small to medium-sized companies. The other is Shareful, a -- spare-time, part-time jobs. We are promoting these 2. And especially of note is that Shareful number of downloads exceeded 5 million. We would like to continue to bolster one-off and short-term part-time jobs using spare time.

Last of all, our think tank, PERSOL Research and Consulting, operates businesses including HR development and various types of consulting associated with human capital investment. I hope you will take a look at it.

This is all from me explaining about performance by SBU and business topics.

[和田 孝雄, executive]

Now I will explain about the full year financial and year-end dividend forecasts.

We revised full year financial forecasts. Revenue was revised to JPY 1.314 trillion, operating profit to JPY 49 billion, adjusted EBITDA to JPY 69 billion and adjusted profit to JPY 38.4 billion and adjusted EPS to JPY 16.83.

Let me introduce the full year forecasts by SBU. Among the SBUs, Staffing SBU revenue was revised by JPY 23 billion from JPY 597 billion to JPY 574 billion. Career SBU revenue was also revised, by JPY 9 billion, from JPY 137 billion to JPY 128 billion. We also changed others by JPY 4 billion. Technology SBU and APAC SBU are progressing in line with the plan. BPO revenue was revised from JPY 104 billion to JPY 109 billion.

Next is adjusted EBITDA forecasts. Staffing SBU was revised from JPY 31.1 billion to JPY 28.9 billion. BPO was revised from JPY 9.6 billion to JPY 8.6 billion, Technology SBU from JPY 6.8 billion to JPY 6.2 billion, Career SBU from JPY 27.1 billion to JPY 24.8 billion and APAC from JPY 10.2 billion to JPY 9.9 billion.

Looking at the current market, we believe there is some variance in orders among large companies. In particular, demand from medium-sized and small to medium-sized companies in the temporary staffing business continues to be strong, but demand from large companies appear to be patchy. Furthermore, in the placement business, we believe there is lull in the market in the second half this year. There were very strong hiring needs after COVID-19, and I think we are now seeing a lull from that. At the same time, I also observe that many companies are shifting from aggressive hiring to selective hiring. On top of that, candidates are looking for higher wages, seeing companies' wage hikes.

Other companies are actively seeking to secure human resources. As such, I think job seekers are slowing down a bit. However, we are aware that the market may fluctuate significantly and the overall sense of demand itself continues to be strong, so we believe it is critical that we create a system that will firmly respond to future changes. When the market improves in the future or when it rises further, we would like to proactively respond without missing the timing. To that end, we would like to proactively proceed with preparations and monitor the market closely.

Last of all, I will explain the year-end dividend forecast. As mentioned earlier, dividend forecast is in line with the full year plan. It is planned to be JPY 8.6 on a full year basis; and JPY 4.3 for the second half, which is the same as the first half. This is expected to be payout ratio of approximately 65% of the EPS before adjustment. We believe we will solidly return 50% of adjusted EPS.

Let me introduce a group topic. We published PERSOL Group human capital report. We believe human capital is extremely important. Our group positions its employees and temporary staffs, who constitute its human capital, as the source of value creation. Under the mid-term management plan 2026, the group positions human capital as one of its business growth engines. The report exhaustively describes policies and initiatives for maximizing the value of human capital toward the achievement of the value creation goal set by the group. This is the first time we published such a report. And we hope you will take a look at it when you have time, as it will give you a good understanding of our group as a whole.

This is all from me. Thank you for your attention.