TechnoPro Holdings Inc

TSE:6028

Earnings Call Transcript 2019-Q3

[Hiroshi Sato, executive]

Thank you very much. This is Sato, CFO. Thank you very much for joining us.

Let me start with the Q3 overview. Revenue, 9-month period increased by 26.3% and reached JPY 106.544 billion. Operating profit increased by 28.7% and reached JPY 11.131 billion. Net profit after absorbing the higher tax increased by 14.1% and reached JPY 7.341 billion.

On the right-hand side, we are showing the Q3 numbers. Revenue increased by 25.9% to JPY 36.430 billion. Operating profit increased by 21.1% and reached JPY 3.745 billion. Net profit increased by 8.2% and reached JPY 2.487 billion.

As for the full year guidance, as I mentioned at the first half results announcement, we are likely to deliver better results than the guidance for the full year. We have conducted various simulations, but since we have acquired 5 companies, there are many unsettled items to be evaluated at the year-end closing such as PPA. So we are keeping the full year guidance unchanged.

Next is business line results. For those 2 engineering staffing companies, contribution margin was 11.1%, offsetting expenses related to the headquarters functions provided by TechnoPro Holdings from the operating profit. For overseas prices, unit sales price is not consolidated as earnings structure are different from Japan. The engineers, both, 19,709: 18,060 in Japan and 1,649 in other countries. Total number of engineers rose to 20,000.

Next page shows the companies in each business line. This page is for your reference.

Let's now look at the quarterly performance. The progress up to the end of Q3 was 79% for revenue and 82% for operating profit, so higher profit is expected based on this number. We expect seasonal uncertainty in Q4 such as increase of training and idle period expenses for new-graduate engineers and unsettled accounting items, such as foreign exchange, which will be evaluated at the year-end. In April 2019, the new grads hired was 1,048, which is up 159 year-on-year.

Next page shows 9-month profit and loss summary. In comparison to the previous year, the revenue increased by JPY 22.2 billion. The impact of engineer increase is JPY 12.214 billion. The impact of unit sales price increase is JPY 286 million. M&A contribution and others is JPY 9.7 billion.

Below that, you see GP margin and percentage of SG&A to the revenue. Those 2 have changed slightly compared to the previous year. The major reasons for that is the 2 overseas companies which have different business structure. Those 2 companies have, compared to our core business, lower GP margin, and the percentage of SG&A to revenue is also lower. Those are the factors behind those slight changes.

Next is cash flow and balance sheet. On the February 28, we announced the acquisition of TECHNO BRAIN, and balance sheet of this company is consolidated as of the end of March. Earnings will be consolidated in April, but there are no major changes in the balance sheet. The net worth ratio is 46.9%, and debt/equity ratio is 0.2x. So we have a very healthy balance sheet.

Next is the number of engineers and utilization rate. At the end of Q3, the engineers on payroll in Japan totaled 18,060, up 1,263 from the end of prior year. And 922 is non-Japanese engineers, which is up by 166 from the end of the prior year. As for the average utilization rate, it was 96.3%, same as the last prior year.

Now overseas subsidiaries employed 1,649 engineers, and this is not included in the numbers above. As I mentioned, 1,048 new-graduate engineers joined on April 1 of this year. As of today, 70% to 80% of the new-graduate engineers are already assigned to their particular section. Although they are still going through training, they still have 2 months of training time frame, they will be on assignment.

Next is the recruitment and the turnover. So the number of the engineers hired up to Q3 was 2,653. As for the 9-month turnover rate for the full timer was 8.5%, which is the same as the previous year. The number of the new hires have increased, and also, turnover is slightly higher. There are some seasonal factors, but relatively speaking, those people with only a couple of years of services have more higher tendency to leave. So this shows that higher mobility of the labor market. But we are winning in terms of the recruitment because we are hiring more engineers.

Next, we are showing the assigned engineers by technology. In comparison to the end of March last year, numbers of assigned engineers increased in all technologies. IT and software engineers continue to have a strong demand. There's still the lack of those in our portfolio at the end of March. The percentage of the IT engineer is -- has increased to 47.8%. At the same time, if you compare those numbers with the end of December last year in machinery and electric and electronic, there are a slight decline in terms of the assigned engineers. These are mainly due to the industrial machinery and semiconductor industry. But all of those engineers are already reassigned to other areas and sectors.

Next, let's look at assigned engineers by industrial sectors. Number of assigned engineers increased in all industrial sectors. As I mentioned on the previous page, in industrial machinery and electronic components in comparison to December time frame, they are lower.

Next is unit sales price. Unit sales price increased 0.4% or JPY 2,300 per month year-on-year to JPY 632,000. However, if you look at the number of the days assigned and overtime, if you exclude them, that is to say the contract price increase of existing engineers on assignment excluding the impact from the working days or over hours -- overtime hours, it was an increase of 2.7%.

Next, let me briefly share with you the new acquisition, TECHNO BRAIN Company Limited. The deal -- share was transferred on February 28 this year. So balance sheet is consolidated in March, but earnings will be consolidated from April. Now company overview is shown here. We acquired this company to broaden the scope of technology-related services. They have search- and scout-type headhunting capability. Our clients tend to employ advanced engineer -- advanced technology engineers on their own, and as for the other workable engineers, they tend to come to us.

So through the acquisition of this TECHNO BRAIN from the customers' perspective, they can come to us as a one-stop-shopping service provider. And from our perspective, the database of the TECHNO BRAIN company can be utilized by us, more specifically in the database that they have. The very capable engineers who want to work overseas are included. For example, headhunters can utilize those people. There are some cases that people are assigned based on this database.

Lastly, let me talk about the dividend. Since we are keeping the full year earnings guidance unchanged, we're keeping the dividend forecast also unchanged. But if we achieve higher than our guidance, we will be committing to more than 50% dividend payout ratio as we did in the past.

With that, I would like to end my presentation and take questions.

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