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Ladies and gentlemen, thank you for sparing time from your busy schedules to attend TechnoPro Holdings earnings results briefing for the first quarter of fiscal year ending June 2022.
So today, in this briefing, we have our Managing Director and CFO, Mr. Toshihiro Hagiwara, present with us. And I, Naoko Ogawa, will serve as the MC from the PR IR department.
Now the CFO, Hagiwara, will speak about 20 minutes regarding the earnings results for the first quarter, and then we have until 5:30 p.m. to take your questions. The questions can only be taken from the Japanese channel. We ask you for your understanding. And we have English simultaneous translation to enrich information disclosure. Later on, today's briefing session will be uploaded onto our website, the Q&A part as well, in video and text. We ask you for your understanding on this front as well.
Without further ado, Mr. Hagiwara.
Yes. This is Hagiwara, CFO of TechnoPro Holdings. Thank you for your time today. On August 10, we announced the outline of our new 5-year midterm plan and the acquisition of Robosoft, a strong offshore delivery company in the digital domain, and since, we have been engaging with our investors. Our stock price dropped right after the announcement of the midterm plan, but has recovered since and ultimately, reached a new record high since listing.
Although our full year guidance indicates a decrease in profit and dividend for the first time since listing, we feel that the current stock price reflects hopes for our mid- to long-term growth strategy because it is going back up. To meet the expectations from the stock market, we will continue to manage our business steadily to realize our strategies. And many investors have requested us to disclose information well and communicate with the market so that they understand the progress of the strategy set forth in the midterm plan, especially regarding the solutions business.
We believe the execution of the plan is key to the strategy. And we are managing the policies and KPIs meticulously for each business, in line with the road map. And we would like to present our progress of the midterm plan at least once in 6 months with these KPIs.
Now in Q1 this fiscal year, we have some delays in the execution of some investments, pertaining to the midterm plan, but the actual business is moving at a pace generally in line with our expectations. The P&L of Robosoft, acquired in September, will be consolidated from October, but it has not yet been reflected in the full year guidance. So this will become an upside factor. In relation to the Robosoft acquisition, we recently issued straight bonds for the first time. As part of our financial strategy in the midterm plan, this access to direct financing, not only bank financing, will help us diversify our financing methods for M&A because we need M&A to grow the group. And when issuing these bonds, we held debt IR meetings with bond investors. And we understood that governance by bondholders, not only shareholders, provides us valuable discipline in running the company.
I will now provide an overview of the Q1 results and key KPIs, using some slides. First, on Slide 2, Q1 revenues were JPY 41.6 billion, up 6.2% year-on-year. Gross profit was JPY 9.8 billion, up 11.0%. These were mainly due to more engineers in Japan and the expansion of the contract assignments and outsourced development businesses, both which are already back in regrowth phase. In terms of sales and recruitment, we no longer see much impact from the pandemic. But as a trend in Q1, more paid holidays were taken for vaccinations and subsequent reactions. So the number of working days in Q1 was 0.7 days less than initially expected. Going forward, in Japan, a third round of jabs is scheduled. So we still need to expect this sort of risks associated with the vaccines. Now operating profit was JPY 3.9 billion, down 9.5% or JPY 0.4 billion year-on-year. This can be largely explained by the government subsidy for continuous employment, which contributed significantly to profits last year. And this is down by JPY 400 million this year. So excluding this subsidy and other extraordinary items, core operating profit was JPY 3.7 billion, down only JPY 83 million or 2.2% year-on-year. I will explain the operating profit further, using the bridge on the next slide. Previously, I explained the operating profit bridge between last year's results and this year's guidance in 2 separate parts, 1 being the transition to normalization and the other being the cost of implementing the midterm plan. So please look at the graph on Slide 3. We announced that the investment required to execute the midterm strategy was JPY 1.7 billion in the first year or 1.0% of sales. And we got some feedback that this was higher than the market forecast. But we believe that the first 2 years of the midterm plan are extremely important for the execution of the mid- to long-term strategy. And so these upfront investments will generate sufficient returns.
On the bridge of Q1 results, in the transition to normalization, shown in the graph above, the increase in hiring costs and other expenses is well covered by the improvement in gross profit. However, we cannot offset the loss of the continuous employment subsidy. And we know this trend will continue into Q2, when we are up against a tough comp year-on-year because we have the biggest subsidy income in Q2 last year.
On the other hand, investments for the implementation of the midterm plan will be in full swing in Q2 and onward. So our objective is to hire and train quality talent, and we want to avoid making compromises just to achieve numbers.
Regarding stock-based compensation, there are no expenses recorded in Q1 as planned, because this required a resolution at the Annual Shareholders Meeting, held at the end of September, to approve on the stock-based compensation framework using the performance share unit. We will continue to disclose the year-on-year operating profit bridge in this format from 2Q and onward. Slide 4 shows the quarterly performance of net sales and operating profit, and Slide 5 shows the quarterly trend of gross profit, SG&A and core operating profit. If you would look at the graph regarding SG&A in the middle of Slide 5, we made bold cuts last year in expenses with the pandemic, mainly hiring costs. But this year, hiring will be in full swing, and we will invest in the execution of the midterm plan as well. So we expect a large increase in SG&A, compared to last year. Before COVID, we mentioned that we intend to maintain a normal SG&A run rate of JPY 2 billion per month or JPY 6 billion per quarter, and SG&A-to-sales ratio below 15%. However, I must now tell you that the monthly SG&A run rate will exceed JPY 2 billion because as the group will continue to expand our business scale, we will grow. And the SG&A ratio will also remain above 15% for a while with the costs to execute the midterm plan. Nevertheless, in the latter half of the midterm period, we will operate so that we can bring the SG&A ratio down to the 14% level. On Slide 6, we have the Q1 results by segment. Sales and profits increased significantly in the Overseas segment, compared to last year when the pandemic hit. Now our China business continues to be strong, and subsidiaries in Singapore and the U.K. are also growing steadily. And Robosoft, which is an offshore delivery model, this will also be added to the Overseas segment from Q2. So the profit margin is expected to increase overall.
Slide 7 shows the balance sheet and cash flow. As of the end of Q1, the balance sheet includes a bridge loan of JPY 6.5 billion to finance the acquisition of Robosoft, but it does not yet reflect the impact of the JPY 10 billion bond issued to refinance the loan. Compared to the end of the previous fiscal year, the amount of goodwill, put options and stock acquisition obligations have increased significantly, which will be explained in another slide. Now Q1 is usually a tough time for cash flows due to payments of income taxes and year-end dividends but especially this year with the acquisition of Robosoft; and GCOMNET, a small consulting firm for SAP implementation; and acquisition of additional shares of the U.K. subsidiary, Orion, through a put option by minority shareholders. Thus, the balance of cash and cash equivalents decreased significantly.
On the other hand, shares of HRnet, a Singapore-listed company, which we -- with which we had capital and business alliance, were sold and converted to cash as the return from the alliance was less than the cost of capital.
From here on, we have the KPIs for our domestic business. On Slide 8, the first half or 6-months average utilization rate was 95.5%, and the first half average is expected to be 95.5% as well. This is slightly above our forecast of 95.3%, reflecting a strong demand. The contract renewal rate in September was also good at 93.4% versus 92.5% last year.
The bar graph shows the number of engineers in Japan, which bottomed out in March this year and has been on an upward trend ever since. We expect to reach 20,680 engineers at the end of December, which is also a slight upward revision from the initial forecast of 20,600. Our focus in the new midterm plan is growth with greater emphasis on quality. And although we're not increasing our engineer base as fast as the pre-COVID period, we do not see this as a problem because we are on strategy.
On Slide 9, we are showing the trend of recruitment and retirement. The number of mid-career hires in Q1 was 700. And with the addition of 18 engineers from GCOMNET through M&A, the total hired was 718. Our plan for mid-career hiring is 2,700 heads for this fiscal year or 225 per month. But we slightly exceeded that pace in Q1 and, thus, our mid-career hiring guidance for the first half has been updated from the initial 1,300 to 1,375.
Looking at the unit cost of initial allocation to assignments, we have been able to acquire good talent without lowering our hiring standards. But the competition for hiring, especially in IT and digital, is gradually intensifying. So the supply constraint that we had foresaw when formulating the midterm business plan, is getting tougher today.
Now one solution to this difficulty in mid-career hiring is to hire new graduates, even if they are inexperienced. We recently held an online group informal hiring ceremony, and we expect about 800 new graduates to join us in April next year.
On the other hand, the churn of full-time employees in Q1 was only 7.7%, the lowest ever in the past 24 months. Now seasonally, in Q1, we usually see more churn related to the summer bonus paid in June and the fiscal year-end bonus in August. But maybe our engineers appreciate the improved treatment from the company and the midterm plan going forward. And when you look at the LTM-based churn, this is declining as well. So we will continue to make our efforts to keep this trend going on. On Slide 10, we have the distribution of engineers by technology, and on Slide 11 by industry. So please refer to the comments on the slide later on.
Slide 12 shows the monthly average unit sales price, which is up 3.0% versus last year. One of the pillars of our new midterm plan is to expand the solutions business, including contract assignments and outsourced development businesses, where we enjoy higher average unit sales price and gross profit margin compared to the staffing business.
Starting this fiscal year, we have expanded the scope of our unit sales calculation to include all domestic subsidiaries in the R&D and construction management segments, including subsidiaries, such as PROBIZMO, which specializes in this sort of business. In addition, charge-ups and shift-ups, which we struggled to do under the pandemic, are finally returning to normal. And the unit price of contracts for existing engineers compared to a year ago, was up by 1.7%.
After bottoming out at plus 0.7% at the end of Q4 last year, we expect to head for recovery in the future. And in the midterm plan, which places greater emphasis on quality, unit price increase is an extremely important KPI, so we will focus on it more than ever.
Slide 13 shows the status of Robosoft, which joined the group when this midterm plan had started. 100% of the investment is about JPY 12 billion. And since it is an overseas project, we'll try to disclose results meticulously every quarter.
Now Robosoft's fiscal year ends in March. And so in the first half this year, from April to September, it posted sales of JPY 2.05 billion, EBITDA of JPY 730 million and profit margin of 35.6%. The company has been growing steadily since the acquisition, and we expect the ROIC to exceed the necessary 10% level as early as the next fiscal year.
Robosoft's P&L will be consolidated from October this month, and we will start taking in profits from Q2 this year. However, Robosoft's forecast has not been revised this time because we have not yet determined the actual value of customer-related assets post the purchase price allocation. In addition, business and administrative PMI is progressing well. So we would like to announce some concrete initiatives in the next earnings announcement.
Slides 14 and 15 provide guidance for the first half and full year. The P&L figures have not been revised since the last time. But as mentioned on the KPI slide, only the domestic KPIs for the first half have been updated, based on the Q1 results. Again, the positive P&L impact from Robosoft in the first 9 months will be reflected onto our full year forecast as soon as we finalize the figures regarding the amortization of the PPA assets.
On Slide 16, we have the dividend trend and forecast for this year, based on the current full year guidance. Please confirm this later. On Slide 17, we have the list of companies by segment. GCOMNET, the 14th M&A since we went public, has been added to the R&D Outsourcing segment. And then Robosoft, the 15th acquisition we made, has been added to the Overseas segment. The table of risk assets on Slide 18 reflects GCOMNET and Robosoft.
In particular, the Robosoft acquisition has increased goodwill by JPY 10.5 billion, a portion of which will be allocated to PPA assets by the end of December. In addition, we recorded the remaining 20% of the stock acquisition debt at the current estimate price of JPY 3.6 billion, to be paid in July next year. Now please note, however, that the final price will be determined by Robosoft's financial results for the fiscal year ending March 2022. And also the debt, in yen terms, will vary depending on the exchange rate.
Last but not least, we are currently working on our integrated report, to be published on December 1. And in this report, we plan to disclose materiality with more attention to ESG. Also, in accordance to the revised corporate governance code, we are scheduling direct engagement with investors and outside directors. Specifically, we're hosting a small meeting at the beginning of December. So if you are interested, please do contact our IR team. With this, I would like to conclude my presentation. Thank you for your attention.
Thank you, Mr. Hagiwara. Now we would like to move on to Q&A. [Operator Instructions] All right. Let's take the first question. From Jefferies, Mr. Takeuchi.
This is Takeuchi from Jefferies. Can you hear me?
Yes, we can.
I have 2 questions, please. So one is regarding your customers recently. How is the demand? I'd like to ask the trend. Compared to 3 months ago, how has things changed especially in the IT and, what is it, the construction, these types of industry? Maybe the demand is different depending on the field. And if you can also give color on fact that you're hiring inexperienced engineers. Do they accept inexperienced engineers more versus 3 months ago? What is the sentiment of the customers, please?
My second question is regarding hiring costs. More than I thought, you are increasing your hiring costs faster. Maybe the hiring cost per head, the acquisition cost is going up as well. Is it because we have a big shortage in labor right now? Is this an overall industrial trend where the acquisition cost is going up? Or is it just you because you're focusing on quality and trying to get people who are more expensive? And maybe that's a very positive thing because you're getting quality people. So let's ask you about the hiring costs.
Yes. Thank you. First of all, regarding the trend of the demand, I have explained that in the IT areas, construction areas continued to experience very strong demands. Having said that, it's not like the customers are saying, give us anybody, even if they're inexperienced.
For construction, still, we are not able to increase the hiring of inexperienced engineers, so we do continue to see demand. And so it's very important that, especially in the construction and construction management division, we continue to hire people if we are able to sell them, even if they have a little bit of less experience.
Also, with the lack of semiconductors and the reduction in the production of automobiles, there are questions regarding impacts. But these are all tailwinds for us. Especially when it comes to semiconductors, there's a lot of inquiries.
And originally, it's not just the semiconductor industry. It's also the OEM makers of the automobiles who all need semiconductors. And some of these makers are starting to build their own semiconductors. And so these companies are ordering for engineers regarding semiconductors themselves. But then again, the number of total automobiles being produced is going down. And so the customers -- there are questions asking, maybe the customers' budget on R&D is going down. But actually, that is not much relevant to the amount of engineers that we're able to send. So these events, regarding semiconductor and car production, is not negatively impacting us yet.
The second point about hiring costs, you're right, Mr. Takeuchi, the acquisition cost per engineer is going up. Now pre-COVID, the hiring cost was about 1.5% of the sales. This was the level that we have been communicating to you. But since we're focusing on quality, we're trying to use good referral agencies. And when we're using good referral agencies, then they take 30% of their annual income. So that is the fee that we need to pay and obviously, that increased the acquisition cost per head and so now that we're up to 1.6%, 1.7% versus that 1.5% that we communicated before.
Having said that, when it comes to referrals, we still think it's worth using them because the return on investment and the time that it takes to get the return on the investment is not that long. And also, it helps the gross profit, and we have the strong demand and these people are sellable immediately. And so we believe that this kind of investment in the acquisition cost is like an upfront investment and is not a problem. I think I'll stop here.
All right. We would like to take one more question. Mr. Sekine from Daiwa Securities.
Yes. This is Sekine from Daiwa. I'd like to ask just one question. Regarding the first half earnings results, which you will announce next time, you said that you will tell us about the strategic investment, which you said is delaying a little bit. And so I guess we'll see more of it going forward. And I'm wondering how you're going to use the cost. Maybe in the full year, you're going to use up the same budget by the end of the year or in order to execute the midterm plan. I'm wondering, investing in it is fine, but when will we see the results? When will you be able to reap the investments?
Yes, regarding the cost to execute the midterm plan, after the second year or the third year of the midterm plan, we will be able to go into reaping phase. So we will make sure that we use all the investments that are in plan, to get the midterm plan going on. And it's very important that we are able to hire the engineers, really, so that we can execute the things that are in our midterm plan. So even if the midterm plan is going on, it will still be impacted by how well we hire a little bit. Now in the second year, third year of the midterm, we will be able to start reaping the results of the investment. I mean that's the kind of investments we are making. So yes, in the first and second year of the midterm plan, we will be pressured by profitability. But from the second year and the third year on, we will have signs of recovery in terms of the margin as well as getting the return from the strategic plans.
All right. Well, I guess, it's all reflected into your plans for the next 2 years, and that's also reflected into the share price as well. So we look forward to good updates.
Yes. To that point, especially regarding how well we expand the solutions business and how well we are getting effect from the investment needs to be reported to you in a very meticulous way. And we will make sure that we do that disclosure.
Thank you. Ladies and gentlemen, this is it. Now we are at the end of the time, so we would like to conclude the Q&A. And if you have more questions, please send us your e-mails and your calls. With this, we would like to conclude TechnoPro Holdings earnings results briefing for the first quarter of the fiscal year ending June 2022. Thank you very much for your participation.