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Good evening, ladies and gentlemen. Thank you very much for gathering to hear from us about the TechnoPro Group financial results for the third quarter of FY June 2018.
So we have the CFO, Hiroshi Sato, here to present. Miyuki Waki is serving as the emcee today.
So without further ado, we'd like to talk about the TechnoPro Group financial results for the third quarter, take about 20 minutes. And then we would like to take questions until 5:50. Please allow us to take questions just from the Japanese line.
So third quarter results of TechnoPro Group financial results are on our homepage, so please also confirm our homepage as well. In order to enrich our information disclosure, we have provided English translations for this content as well. And also, the explanations gone through this -- explanations that were made through this session will be also posted on the homepage without the name of the ladies and gentlemen who place their questions. The question itself will be posted on the homepage, though. Also, the video and the sound will be on the homepage in later dates.
This is Sato, the CFO of TechnoPro Group. We don't have much time, so I would like to jump right into the topics.
First of all, I want to talk about our understanding of the market. In terms of engineer staffing outsource market, the demand continues to be very strong today. At the same time, the labor market supply-demand is remaining tight. We have some information on the appendix at the back of our presentation deck, so please confirm the appendix for the market situation.
So let's talk about the FY 2018 Q3 overview. We'd like to look at the YTD numbers up to the quarter 3 of FY 2018.
So in terms of the revenue, it is up by 13.8% at JPY 84,344,000,000. The operating profit is up by 16.7%. It is at JPY 8.647 billion. And for the net profit, it is up by 9.6% to JPY 6.437 billion.
In terms of the consolidated earnings of PROBIZMO, the numbers have been consolidated since February 2018, but when it comes to Helius and Techno Live, the 2 subsidiaries that we've acquired recently, which -- it was announced in March, so the numbers are not in these numbers. It is to be consolidated from April. As for the full year FY 2018 guidance which we have announced previously on February 2, that was when we announced the upward revision, this time, the numbers have been maintained in this chart. As mentioned at the time of February, that PROBIZMO is not reflected into these numbers, but -- so we did maintain the full year FY 2018 guidance from February 2, so that means now we have not only PROBIZMO but also Helius and Techno Live that are not reflected into our performance right now. All 3 of the companies are in black ink, so therefore, we will have upside profit from these 3 companies. But when it comes to goodwill and also the depreciation and amortization, the PPA is still to be worked on with the third-party company that is going through these numbers. So the details are not fixed, but we will have an upside from this. Please wait for the result after we get the review of the outside party.
I have some special notes on this slide. So these points have been explained in the first quarter and second quarter results. That is the account reclassification. So the COGS and the SG&A classification has changed. So in order to compare it apple to apple to the previous quarter, the gross profit ratio is -- gross profit margin of 24.7%, and the ratio on SG&A is 14.2%. The second point is something that I've also explained previously, but on top of this, I would like to add a little bit of more information. So compared to the first half, the second half of our fiscal year has 2.1 days less working days. When you look at the third quarter alone, it's about 1.2 days less. These are the negative impacts which have been absorbed in these numbers. In other words, this number reflects the fewer working days in the second half.
Please move on to Slide 4. So this is the quarterly performance. We have the same pattern typically every year. And we are very steady, in line with the annual patterns.
Page 5. We are looking at the P&L structure. Allow me to explain in detail here.
Revenue, first of all, it is up by JPY 10.2 billion compared to the previous YTD third quarter number. And when you look at the breakdown: Impact of engineer increase is JPY 7.4 billion. Impact of unit sales price increase is JPY 0.4 billion. And also, M&A contribution, the companies that we have acquired in this fiscal year et cetera, gives us an extra of JPY 2.4 billion. When you also look at the gross profit, we have the impact of the account reclassification. That's 0.7 points. Impact of utilization rate, 0.4% -- 0.4 points up. And also, other reasons like the seasonal reasons, for example the Boyd & Moore, the referral business and also nonstaffing business, are included here. And these change depending on the quarter. On the other hand, when it comes to SG&A, again this is related to the account reclassification change. There is an impact of 0.7 points; and also M&A-related expense, which is a onetime cost related to due diligence and financial adviser fees. So we have 0.6 points more fee in the SG&A.
Moving on to the balance sheet, to Page 6. So when you look at the balance sheet. We announced the new share issuance on March 22. And we have increased our capital, but the cash in or the closing date is April, so that amount is not included in the March 2018 figures here on the balance sheet. The goodwill is increasing a little bit by 4 -- or JPY 5 billion, and this one is due to the Helius acquisition in -- announced in March. Just for this: On the balance sheet, the Helius numbers are in this chart. As I mentioned earlier, the actual amount of the goodwill is still tentative because it is still under the review of outside party.
Moving on to Page 7, we are looking at the number of engineers and their utilization rate here. As of March end, we have a number of 15,493, which is 1,147 up compared to the previous fiscal year as of end of quarter 3. Actually in this upside we have 700 non-Japanese engineers working in Japan. The average utilization rate was 96.3%. Compared to the same time last year, we're up by 0.5%.
Now also we have the number of new graduates that will be onboard on April -- have been onboard since April 2 this year, 889 of them, which are not included in these numbers. Furthermore, when we look at the overseas subsidiaries, we have 827 engineers that we've employed. Helius is about 500 plus, so a little bit less than 600. And the rest is from China.
Page 8, please. So here we're looking at the turnover situation, recruitment. First of all, we have 245 engineers from EDELTA acquisition and 112 engineers from PROBIZMO acquisition, making up 2,321 new hires. As for the full-timers turnover, in the YTD number it is 8.5% right now. So we can hire, but also there is turnover, which is increasing slightly. The market average is more than 10%, so compared to that, 8.5% is a very good number. But the mobility in the market is still very high. This is what we feel through our daily operations.
Page 9, please. So this is the assigned engineers by technology. And you can see that in all areas, all fields, we are seeing increasing number of assigned engineers. And I mention this every time, and that it, when it comes to IT engineers, especially due to EDELTA and PROBIZMO this time which focuses on software development, the number of IT engineers is going up a bit less than 45% now.
I'd like to skip to Page 11 to present the unit sales price and its trends. So first of all, the unit sales price increased 0.6%. Up -- this is JPY 3,500 up Y-o-Y. And this is making 6,200 -- excuse me, JPY 629,000 right now. Decreased JPY 6,000 per month due to fewer working days; which is down 0.6 days, 9 months. We have shorter overtime hours as well. On the other hand, when it comes to the new grads, which we hired 554 of last year; and also the mid-career entries which also include some junior engineers, this also impacts, JPY 8,000 unit price decline. This is included in the others.
So ultimately when you look at all of these elements, the increase of the engineers, price increase on engineers on assignment excluding the impact from working days and overtime hours is 2.7% up, as you can see.
I'd like to talk about the new share issuance on Page 12. The net proceeds from offering is JPY 12.33 billion. Basically we would like to use this to redeem a part of the outstanding borrowings, and the remaining will be used to invest in building a new talent management system. But basically all of these initiatives are in place so that we can strengthen our financial foundation to promote more active and swift M&A going forward. That is the purpose of this capital increase.
When you look at the EPS growth in the charts here on the right-hand side, you can see that -- you'll remember that we did the upward revision of our guidance numbers on February 2. At that time, the EPS was JPY 236.53. Now with the shares offer this time of 2 million shares of common stock this time, when you look at the evened-out number, we will be reaching JPY 233.32 if we base it on February 2 guidance, but we have always mentioned to you that we would only increase our capital when we believe that we can achieve a strengthening of our financial foundation. And we believe that there is still much growth, leeway for growth here. So we actually have exercised this because we believe we can achieve JPY 236.53 and more by the end of this fiscal year. And that's why we are walking the talk here.
We have the numbers still from the February 2 guidance, so that is still in place, but if the net profit goes up, of course, the payout ratio will be 50% or higher.
So I'd like to also talk about the new M&A, Page 14. When we talk about the 2 companies that we acquired, Techno Live and Helius Technologies. So Techno Live is acquisition hiring. And also, globalization, for Helius. I'd like to talk in more detail about Helius on Page 15.
In Southeast Asia. They deliver engineering staffing business. And one of the major company is DBS, Development Bank of Singapore. This is one of their major clients, and they are in -- working on their digital banking project. They play a very important role in this project. That is what Helius does. So therefore, since they have very high-level IT engineering services, we believe that they are capable to provide this service to overseas subsidiaries. There's Japanese IT firms as well, including setting up a Japan desk for liaison. This is the type of synergy that we believe that we can get out of this acquisition. The number of engineers is approximately 600. The annual revenue was JPY 5 billion last year, EBITDA making JPY 600 million. This is the kind of company Helius Technologies is.
Our policy is not to acquire them 100%. We would like to have the local management stay in their position and have a cooperative alliance with them to mutually grow together. That's why, this time, TechnoPro Holdings has acquired 51% of its outstanding shares. And the current management still owns 49%. The acquisition price was JPY 2.56 billion, so the EBITDA multiple was about 8.5x. That's the kind of M&A this was.
Moving on to Page 16, Techno Live. The positioning of Techno Live is acquisition hiring. And we have machinery, electrics, electronics and IT fields in Hiroshima and Tokyo. Now unfortunately, for this company the current profitability level is not high, but we would like to improve the profitability by reassigning the engineers to higher-profit projects appropriate for their skills. This is the decision that has been made through the technological due diligence process that we have gone through. We are confident that they have the capability to achieve improved profitability, and that's why we've made the final decision to acquire Techno Live.
I have mentioned earlier that the purpose of the capital increase is partially to build a new talent management system. So -- just so that we can refresh our memories, I've pulled up this chart on Page 17 about the investments in IT talent management system that we've announced once in our mid-term plans.
The rest is the appendix, which I will not go through in this session, so if you have questions, please ask them now or in later dates as well. That is all for now. I think I've spent 20 minutes here.
Thank you very much for your attention.
Now we'd like to move into the Q&A session. I would like to explain how to place your questions. [Operator Instructions] Now let's start our Q&A.
[Operator Instructions] The first question will be from Mr. Sekine, Daiwa Securities.
I'm Sekine from Daiwa. So I have 2 questions. My first question is about the M&A effect. I understand, from the fourth quarter, you will be reflecting your numbers from this M&A, so obviously in the fourth quarter we'll have stronger momentum compared to third quarter, I assume. Is this understanding correct? That is my first question. And my second question is in terms of costs. In the fourth quarter, the M&A-related costs will be higher. I think the SG&A is especially high. You mentioned that it's a one-off, onetime expense, if I remember correctly. So then -- so the profitability, if there is an impact, maybe the fourth quarter profit will be better than third quarter. Is this correct?
In terms of the fourth quarter, the 3 companies that we acquired, PROBIZMO, Helius and Techno Live -- although as I mentioned earlier, Techno Live has only a very small contribution to the profits, but PROBIZMO and Helius will give us an upside on the profitability. So yes, that will give positive impact to the fourth quarter numbers, but when it comes to the new grads, 889 of them who will come onboard -- who have come onboard since April, they're basically going to be in training in the fourth quarter, so they will not contribute to the profit. Their salary will be their costs. We will have training costs as well that we need to spend. These are the negative impacts to the fourth quarter numbers. So these 2 elements will kind of offset each other and make the fourth quarter numbers. Usually in the fourth quarter -- when you look at the trend on Page 4, you can see that usually we have less profitability seasonally in fourth quarter, typically, but this time there is the add-on from the M&A companies. So the seasonal decline for quarter 4 will probably be less than the annual pattern. Please allow me to stop here for our explanations because we actually will have more differences here as a result of the PPA that we are adjusting right now. When this is fixed, we will be able to give you more details, but we will have more profit because of the M&A basically is the message. Second of all, regarding the M&A cost, we actually have accounted much of the cost in third quarter, so I think there is more cost in third quarter, not so much in fourth quarter. I think I would like to stop here.
[Operator Instructions] Thank you. We would like to hear from Ms. Watanabe from UBS Securities.
I want to talk about the third quarter performance results, 2 points here. So first of all, I'm looking at the change compared to the previous year, and I understand that you have less operating days. I'm looking at Slide 3, bottom half. You said that there is a revision of seasonal incentives and performance-based incentives, so when you offset these, I guess, the fewer working days and the incentive decline, which is bigger? This is my first question. And then my second question is regarding the turnover rate, which seems to be relatively high in the first quarter. And in the third quarter, it's the same level as the same time last year, I understand. So if there is any more explanations on what kind of initiatives or efforts you have made to achieve this level.
Yes. In terms of the third quarter results, yes, the operating days are less by 1.27 days in third quarter alone compared to same time last year. And the impact of the incentive is about JPY 250 million for the quarter, so actually the fewer working days has greater impact, but this has been absorbed and yet the profit level has been higher. Usually if we have 1 day less, we usually have an impact of JPY 350 million, usually. To your second question, about turnover, it's not that we have any special projects or initiatives going on. We are always working on retention. The biggest way to do this is to educate the engineers, investing into the engineers for their next job. And also, when they conclude their contract, we try to let them know the next order as soon as possible. These are kind of very steady and small steps that we are taking every day, but as I mentioned, the supply-demand balance is very tight right now. In March end, there's a lot of products -- projects that are concluded. And many engineers come back to standby every year, but the amount of these engineers coming back at the end of March was less than usual. There is no special event. It's a result of our daily efforts to retain these engineers. I think I'll stop here.
Do we have any more questions? [Operator Instructions] We would like to stop taking questions now since there seems to be no more. Thank you, ladies and gentlemen, for participating today. With this, we would like to conclude the call. Please make sure to hang up.
Thank you all very much.