Persol Holdings Co Ltd

TSE:2181

Earnings Call Transcript 2023-Q1

[和田 孝雄, executive]

I am Wada. CEO of Persol Holdings. Thank you very much for your time today despite your busy schedule. These are the 3 highlights for today. The first is the summary of financial results for the first quarter of fiscal year ending in March 2023.

Net sales were JPY 284.1 billion, year-on-year increase of 13%. Operating profit was JPY 16.4 billion, up 27% year-on-year. We were able to achieve significant growth. As for our full year forecast, there are uncertainties, including macro economy, but we are making steady progress. The second is the midterm management plan of Asia Pacific SBU. The overview will be explained later, but the coming 3 years will be a phase to improve profitability for our future growth based on plans and execution. The third is about share repurchase.

Let us first start with the financial results by Mr. Tokunaga, who has assumed the CFO post in July. The floor is yours, Mr. Tokunaga.

[Junji Tokunaga, executive]

I am Tokunaga. I became CFO of Persol Holdings in July last month. I will explain the summary of the first quarter results of this fiscal year. In the first quarter, we were able to grow both net sales and operating profit significantly. To be specific, net sales grew 13% year-on-year to JPY 284.1 billion. Operating profit also grew 27% year-on-year to JPY 16.4 billion. Adjusted quarterly net profit grew 23% to JPY 12.2 billion. We achieved record high quarter profit.

On this slide, we have net sales by SBU with year-on-year change. The core staffing SBU grew 9.9% year-on-year, achieving net sales of JPY 151.4 billion. As for career SBU, where we expect significant growth this fiscal year, year-on-year growth was 37.5%, reaching net sales of JPY 24.1 billion. We were able to achieve increase in net sales in other SBUs as well.

This slide shows operating profit by SBU with year-on-year change. The core staffing SBU grew 11.9% year-on-year to JPY 11.6 billion. Career SBU, where we expect significant growth this fiscal year, grew 132% and achieved operating profit of JPY 4.7 billion. Other SBUs also increased profit or was able to reduce loss.

This is a slide on analysis of change in operating profit year-on-year. In this quarter, personnel expenses increased in order to enhance our competitiveness. And marketing expenses also increased, resulting in increase in overall expenses. However, we were able to increase gross profit, exceeding the increase in expenses. As a result, we achieved operating profit of JPY 16.4 billion.

This slide shows net sales by SBU with year-on-year change and the progress rate against the full year forecast. This is a slide on operating profit and OP margin by SBU with year-on-year change and the progress rate against the full year forecast. Against the consolidated forecast for this fiscal year of JPY 52 billion, the progress rate of the first quarter was 31%. Progress rates for staffing, SBU and career SBU also exceeded 30%. For professional outsourcing SBU and Asia Pacific SBU, because of the characteristics of their businesses, profit usually increases in the second half. And we believe the full year forecast can be achieved for these 2 SBUs as well.

This slide shows EBITDA and EBITDA margin by SBU and year-on-year change. EBITDA forecast for this fiscal year is JPY 74.2 billion, and the progress rate of the first quarter was around 30%.

From here on, I will briefly explain the progress of the first quarter by SBU, including KPIs.

The first is the Staffing SBU. Please refer to the graphs on the left for year-on-year change of net sales and operating profit. For Staffing SBU, temporary staffing accounts for 84% of sales and BPO sector accounts for the remaining 16%. As described at the right bottom of the slide, temporary staffing sales grew 8% and number of active staffs grew at a similar rate of 8% year-on-year, showing strong performance.

The second sector, BPO, grew 22% in total sales. However, even excluding onetime public projects, sales grew approximately 6%, marking very strong growth for the SBU as a whole.

Next is Career SBU, where we expect to see significant growth this fiscal year. Please refer to the graphs on the left for year-on-year change in net sales and operating profit. Career SBU is composed of 3 businesses of placement business, job recruitment media business and other. The biggest business is placement business. Sales increased by approximately 50% year-on-year. The second business, which is job recruitment media, also increased sales by 30%.

Looking at the career change market, there were very strong moves to strengthen hiring, mainly in IT industry and at major companies. Also, due to the impact of COVID-19, recovery had been delayed in restaurant industry, but now we are seeing a recovery trend. We are expecting significant growth for Career SBU this fiscal year.

And I would like to briefly explain about the current supply and demand balance. This graph shows the number of jobs available, number of candidates who want to change jobs and job openings to applicants ratio from before COVID-19.

The blue bar shows the growth in number of jobs available or corporate demand. It declined slightly during COVID-19. But from the latter half of 2020 or the first half of 2021, we started to see big growth in number of job openings. Gray bar shows the number of candidates who want to change jobs. It has not yet fully recovered to pre-COVID level yet, but we are seeing a recovery trend. In terms of job openings to applicants ratio, which is calculated by job openings divided by number of applicants, it has come close to 2x now. We therefore believe there are very strong needs in career change market from our customers.

The third is Professional Outsourcing SBU. Please refer to the graphs on the left again for year-on-year change in net sales and operating profit. This SBU is comprised of 3 businesses. The first is IT, including BPO. The second is electric and mechanical engineering. And the third is IT/engineering, temporary staffing.

In the first business of IT, net sales grew 15% year-on-year, performing very strongly. In the second business of engineering, focusing on electric and mechanical engineering, net sales grew by 12%, also performing strongly. The third is IT/engineering, temporary staffing. Since the hiring, market is very tight. We were able to achieve 5% growth in net sales. In this SBU, hiring of engineers will directly contribute to sales. As the hiring is very challenging now, we are approximately 95% against the plan. We will continue to strengthen hiring of engineers.

The fourth is Solution SBU. It is comprised of mainly 2 services. The first is MiiDas, a career change application. The number of companies registered reached 400,000 as of the end of June this year, increased from 280,000 last year. And sales continue to be strong. The second is called POS. The total number of stores that introduced it increased approximately 1.2x year-on-year, marking strong growth.

The last is Asia Pacific SBU. The midterm management plan of this SBU will be explained later. So I will be very brief. Asia Pacific SBU consists of program, which mainly covers Australia, and PERSOLKELLY, focusing on Asia. For Asia Pacific SBU, January to March is the first quarter, and thus, this period is reflected on our April to June quarter results. Despite the Chinese New Year during this period, overall performance was strong. For April to June period, which will be reflected on our consolidated figures for our July to September period, there was an impact of lockdown in China, as you know, but the SBU enjoyed steady recovery and growth in other regions. For Asia Pacific SBU, we have net sales, operating profit loss and EBITDA breakdown of PERSOLKELLY and Programmed. EBITDA grew 16% year-on-year to JPY 1.7 billion, growing strongly.

Last of all, this is a slide on others and adjustment on a consolidated basis. Due to increase in internal transactions between SBUs, net sales and operating profit for adjustment decreased, but there is no major impact on the total earnings results.

I have explained the business results for the first quarter. From here on, CEO Wada, and the Head of Asia Pacific SBU, Yamazaki, will explain the Asia Pacific SBU midterm management plan.

[和田 孝雄, executive]

Hello. This is Wada again.

First, I would like to share our thoughts on APAC business. Our vision is work and smile. We want to penetrate this vision of work and smile, not only in Japan, but truly penetrate it in APAC as well and materialize this world. We also want to be able to solve employment and labor issues that exist in Japan through collaboration with APAC business. In order to do so, personnel exchange from Japan to APAC and also from APAC to Japan is very important. It is also important in order to create synergy between businesses as well.

Technology investments are very much advanced in APAC. And we'd like to incorporate advanced technologies and AI into Japan and share what we have in Japan with APAC business as well. We will collaborate closely in taking initiatives together. As you can see on this slide, APAC is a high-growth market. In addition to that, APAC region accounts for approximately 50% of the global labor force. Compared to the labor force in Japan, that of major countries in the ASEAN is around 4x more, with 250 million people. We would like to realize the world of work and smile in such a market.

ASEAN is an area whose wages are rising the most in the world. And we would like to offer diverse options to such a market to enable job seekers to make their choices so that their well-being of working will increase, leading to our vision of realizing work and smile.

Until today, we had faced many challenges in APAC business. We started to engage in this business fully in 2012 and have taken many initiatives. We had posted impairment loss and had been scolded by our shareholders. And from there on, we had rebuilt the business. We are going to fully improve profitability first, which had been an issue, and lead to realization of the world where people will be able to work and smile.

We are planning to go through 3 phases of future initiatives in APAC SBU. In Phase 1, we will fully improve profitability to transform the business to exceed shareholder value. This is the key. It is because ahead of that, in Phase 2, we will utilize technology and respond to talent mobility in collaboration with Japan. And from 2030 onwards, for sure, Persol Group's corporate value can be lifted by APAC business. It will become a solid earnings pillar on par with Japan's staffing business, placement business and outsourcing business. We are going to take initiatives to realize this.

We will now explain about our first step, Phase 1. Mr. Yamazaki, who is in charge of APAC SBU, will explain the concrete steps. Mr. Yamazaki, please?

[Takayuki Yamazaki, executive]

Hello. I am Yamazaki, in charge of APAC.

I will explain about Phase 1 in Phase 1, 2, 3, which CEO Wada has touched upon. I will explain the overview of the midterm management plan of Phase 1, which spans until March 2026. The most important theme for us in Phase 1 is improving profitability, as was mentioned earlier. I will focus on how to carry this out in 3 parts. First, I will explain about Persol's position in the market. Then I will explain about our numerical targets, which we plan to achieve by the next midterm plan until March 2026. And last of all, I will explain about the 3 strategic pillars to achieve them. First, I will clarify that we have high market share in major markets of APAC. In Singapore, Malaysia and Australia, as described here, we have the overwhelming top share in our business areas. These markets are expected to grow. And we believe we can grow more than the market since we have the top share. Please remember that we have a strong competitive advantage. We do not have emerging country data, such as Vietnam and Indonesia, since market data of emerging countries are hard to obtain. That is why we do not have them described here. However, we are among the top 3 HR service players in these countries. All in all, I would like to emphasize that we have very high market share in APAC region.

This data has been disclosed to you already, and the figures are based on J GAAP. Net sales for the fiscal year ended March 2022 have already reached close to JPY 300 billion and gross profit is already close to JPY 40 billion. In APAC region, we believe we have the top position in terms of net sales. The pie charts at the top show gross profit. Looking at the breakdown, the portion of Programmed is very big. And out of this, Singapore accounts for 10%. High-growth market of China accounts for 6%. We believe we have a good portfolio by country as well. And as gross profit by segment shows, Staffing business accounts for more than 60% and other services account for almost 40%, including facility management offered by Programmed. I will talk more about this later. But this is a business we'd like to focus on going forward.

We also have BPO business, which is also growing in APAC. We have 3 strengths in APAC region, namely collective strength, management diversity and technologies.

As for collective strengths, we are already #1 in sales in APAC. Also, compared to competitors, we are #1 in terms of coverage of countries. We also believe we are #1 in terms of diversity of services offered. Comprehensively, we can say that we have collective strength.

The second strength we have is management diversity. We are a company that was launched in Japan. But through M&A, we have grown this business. We have intentionally appointed local, highly talented and experienced management and are collaborating to grow the business together. This is another strength. As HR business is a very localized business, management with insight and experience are key for growth. And having such management is another strength that we have. Details will be explained later using a slide.

And the last is technologies. APAC is making investments proactively in technology. We have hired CTO from [ GAFA ], and we are focusing very much on technologies right now. On top of this, Japan's Persol Career has high level of technologies. By collaborating with them, we believe we now possess technologies with competitive edge in APAC and will continue to brush up to even get better. This is our management team. We have a very diverse team. We are retaining the management of companies that joined us through M&A and are managing the business together.

One of the factors I want to emphasize is, of course, diversity. We acquired shares of PERSOLKELLY. APAC SBU was originally made of 2 separate organizations of PERSOLKELLY and Programmed. But now, all the businesses are under APAC SBU, and we are removing the boundaries between the companies. As such, PERSOLKELLY and Programmed have their back office functions, respectively, currently. But we plan to consolidate them within this year, which will be the key to reducing cost. On the right bottom, we have what we call PBS. We already have back office offshore center in Malaysia. Australia, Singapore and also China is turning to be a high-wage country. And we have many headcounts in their back office functions. And by transferring transactional work to Malaysia, we want to reduce cost substantially. So again, I would like to emphasize that we have such a back office center established in APAC already.

I will now talk about the midterm management plan. Simply said, we want to improve profitability. We are already #1 in terms of size in APAC region. In the coming 3 years, we'd also like to become overwhelming #1 in terms of profitability as well. We are targeting to achieve ROIC of 10%, operating profit of JPY 10 billion and EBITDA of JPY 15 billion.

Here are the detailed figures of our targets. The earlier figures and the figures on the left are different, as the figures on this slide are converted to IFRS-based figures.

For fiscal year ended March 2022, our operating profit level was around JPY 4 billion. We are going to increase this to approximately JPY 10 billion. We are also aiming to increase our EBITDA to JPY 15 billion. In line with this, we are aiming to increase our net sales to JPY 400 billion. And the plan for the core staffing business is described on the very right.

Now I will explain about our business strategy to achieve them. We have 3 business strategies. First is to revise business portfolio, meaning selection and concentration, in simple words. We will be taking varied approaches. The second is to implement structural reforms and cost optimization. To be specific, we will reduce back office costs. There are 2 approaches to do this. One is the effect of APAC consolidating its back office function and the other is the effect of using offshore center. Through such approaches, we will optimize cost. The third pillar is technology. By making investments proactively in DX, we'd like to remarkably improve productivity of existing 2 businesses of staffing and placement. I will briefly explain each pillar. The first is to revise the business portfolio. A represents staffing business. Out of the staffing business, we will proactively expand high-margin and high capital efficiency business of placement. The ratio of gross profit of placement business currently accounts for 18%. And the plan is to increase this to 27% in fiscal year 2025 ending March 2026.

Furthermore, in Australia and New Zealand region, Programmed is very strong in temporary staffing business of blue collars. The ratio of gross profit of white collar temporary staffing is only 5% as of now. However, as white collar staffing business has higher margin, we will make investments proactively to raise this ratio to 13%.

B represents businesses other than Staffing business. We have many businesses here, and among them is facility management, whose ROIC already exceeds 10% as of now. It has been growing strongly in the past few years. We can position this business as BPO as well. We will focus on this business to achieve KPIs, as shown on the right side of the slide. The second pillar is about cost. We will be optimizing costs by consolidating and using offshore center.

C represents consolidation. PERSOLKELLY and Programmed have their own head office functions. And by consolidating and unifying them, we plan to reduce cost by approximately JPY 1 billion in fiscal year ending March 2026 compared to the present. Furthermore, by transferring especially payroll and accounts receivables management functions from Australia and Singapore, where wages are high, to Malaysia, we expect savings of JPY 800 million. The last strategy is technology. The first is E, AI matching. Matching is a key in placement business. Persol Career has very high-tech AI matching function. Based on this technology, we will be customizing for APAC to improve productivity of placement business consultants. This is something we have already started. And in a stepwise manner, starting from the latter half of this year to next year, we will roll this out to each country and aim to improve placement business consultants' productivity by 15%. Furthermore, temporary staffing business has a lot of transactions. For examples, contracts need to be signed appropriately with staffs. Payroll work is needed. Communication with staffs as well as with our customers need to be held appropriately. Tools to automate these processes are currently being developed by Programmed at high level. And by rolling this out throughout APAC, we plan to improve productivity of temporary staffing business consultants by 10%.

This is a bridge chart. I am showing this to give you a clearer view. I am very confident that we will be able to achieve operating profit of JPY 10 billion in fiscal year ending March 2026. Effects of each of the initiatives have already been forecasted. The current operating profit of slightly below JPY 4 billion will grow to be JPY 10 billion. And my intention here is to share the concrete strategies in order to achieve this plan. This is the last slide. We'd like to achieve JPY 10 billion as a first step. Phase 2 was explained by CEO Wada earlier. Towards fiscal year ending in March 2031, we will first achieve JPY 10 billion of operating profit by fully improving profitability of existing businesses and enhancing management base. We'd like to fully realize this first.

At the same time, what is nowadays called HR technology is emerging in Asia, which are totally new business models. For example, on-demand staffing or business model integrating digital media and placement service. We are making investments in these new areas through our corporate venture capital. We are cooperating with them to proactively capture information about new business models. And together with Japan, we believe it is essential, in some cases, to incorporate such businesses and to grow them. This is what we'd like to do towards 2030. This is all from me.

[和田 孝雄, executive]

Let me supplement a bit. The figures till fiscal year ending March 2026 are our commitments we must definitely achieve. We will also think about the future ahead of this. During the coming 3 years, we will plant seeds, conduct research, start new businesses, or even if the current business model is disrupted, we'd like to be able to recover or take initiatives to address changes. More than anything, we commit to achieving ROIC of 10%, operating profit of JPY 10 billion and EBITDA of JPY 15 billion. Please keep your eyes on us achieving them, and ahead of that, us expanding the business in APAC as well. I have confidence that we will be able to improve profitability of APAC business.

In the current midterm management plan, we have already achieved our earnings targets. And looking at the business this fiscal year, we have had a strong start of the year in the first quarter and believe we will be able to cover the market for the future as well. As such, we are planning on giving returns to shareholders at this timing.

At the Board of Directors meeting held today, we have resolved to buy back shares up to JPY 10 billion from the market. Details are shown on this slide. The maximum repurchase amount of our ordinary shares are JPY 10 billion. And the period of share repurchase will be from August 12, 2022, until March 31, 2023. We are planning on canceling all shares after the repurchase.

With this, 3 highlights for today have been reported. Thank you very much for your attention.

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