Persol Holdings Co.,Ltd. (2181) Earnings Call Transcript & Summary

Hello. I am Wada, CEO of PERSOL Holdings. Thank you very much for joining us today. I have 3 points I would like to convey to you today, namely the summary of fiscal 2024 results, the financial forecast for fiscal 2025 and the financial strategies. Please note that fiscal 2025 financial forecast does not take into account the recent Trump tariffs and the accompanying significant exchange rate fluctuations. We will inform you again if there is a need for significant changes. First, let me present the summary of fiscal 2024 results. Revenue was JPY 1,451.2 billion, up 9.4% year-on-year. Adjusted EBITDA was JPY 78.3 billion, up 8.4% year-on-year. Adjusted EBITDA, operating profit and profit all reached new record highs. Next is the financial forecast for fiscal 2025. Revenue is forecast to be JPY 1,540.0 billion, up 6.1% year-on-year. Adjusted EBITDA is forecast to be JPY 86.5 billion, up 10.4%. We will aim for double-digit growth. The third point is the financial strategies. We plan to distribute annual dividends of JPY 9.5, an increase of JPY 0.5 compared to the initial forecast. The forecast annual dividends for fiscal 2025 are record high JPY 11, an increase of JPY 1.5 year-on-year. ROE for fiscal 2025 is forecast to be approximately 20%, while ROIC is expected to be approximately 18%, which are the highest ever. Now we will have CFO, Tokunaga, explain the financial results.

Hello. I'm Tokunaga, CFO. I will explain the summary of the consolidated financial results, followed by the status of each SBUs. First, I will start with a summary of consolidated financial results. As Mr. Wada explained, the overall financial results were very solid. Revenue was JPY 1.450 billion plus, up 9.4% versus fiscal 2023. Operating profit was JPY 57.4 billion, up 10.3% year-on-year. Adjusted EBITDA, which we, the management team, consider to be the utmost importance, was JPY 78.3 billion, up 8.4% year-on-year. Profits for the current fiscal year also increased 19.7% year-on-year to JPY 35.8 billion but fell slightly short of the November forecast. The factors behind this are noted in the comments, but we had expected to be eligible for tax deductions under the wage increase tax system. However, we did not quite meet conditions, resulting in an increase in taxes, which was the main factor behind the decline. Next is a comparison of adjusted EBITDA with fiscal 2023. Adjusted EBITDA for fiscal 2023 was JPY 72.2 billion. Gross profit increased 10.3% year-on-year or JPY 30.9 billion. On the other hand, SG&A increased JPY 24.9 billion. As explained in our February financial results briefing, we allocated approximately JPY 6 billion more than usual for marketing investment and systems development costs in the fourth quarter, resulting in a total of JPY 11.6 billion. As a result, we recorded adjusted EBITDA of JPY 78.3 billion. Next, I will explain the analysis of increase in adjusted EBITDA forecast of JPY 11.1 billion to JPY 13.5 billion actual. First, gross profit exceeded the forecast by JPY 600 million. There were no major items in SG&A expenses, but we were able to reduce personnel expenses and marketing investments, resulting in a cost reduction of approximately JPY 1.8 billion, achieving JPY 13.5 billion of adjusted EBITDA. This is on adjusted EBITDA versus operating profit. First, depreciation expenses for the fiscal 2023 was JPY 12.5 billion, while for fiscal 2024, they were JPY 13.9 billion. There were no significant differences in accrued paid leave expenses or share-based payment expenses. This slide is on revenue by SBU. We achieved revenue increase in all segments. Especially, we achieved significant revenue growth of over 10% in Technology and Career SBUs. For Asia Pacific SBU, although there was an impact of approximately 5% from foreign exchange rates, we achieved a 10% increase in revenue in local currency. This is year-on-year adjusted EBITDA by SBU. Although BPO SBU had an impact of decrease of 21.2% due to COVID-19-related projects, all other SBUs achieved increase in profits. Specifically, Staffing SBU achieved a 9.5% increase, while Technology, Career and Asia Pacific SBUs achieved increases of over 10%. Operating profit by SBU is the same as adjusted EBITDA, so I will omit the explanation and ask you to refer to the figures. We have tables showing revenue by SBU by adjusted EBITDA and operating profit, respectively. We also included the differences between the November forecast and the actual results. So please take a look later. The financial results for the full year have been finalized, so I will explain the balance sheet and cash flow. First, as a major change, cash and cash equivalents decreased by approximately JPY 25 billion. This is due to the acquisition of a subsidiary of Fujitsu, which will be explained later, an increase of approximately JPY 5 billion in working capital and a decrease of approximately JPY 4 billion in borrowings. In addition, regarding capital, share buyback was performed, resulting in a decrease in equity. This slide shows the balance of goodwill. As a result of the acquisition of Fujitsu subsidiary mentioned earlier, goodwill increased by approximately JPY 12 billion in the BPO segment. In addition to the goodwill, as noted in the footnote below, we recognized JPY 5.6 billion in intangible fixed assets of customers. We plan to amortize this over a period of 16 years. This is consolidated cash flow. Compared to fiscal 2023, operating cash flow in fiscal 2024 decreased by approximately JPY 9 billion. The payment was rescheduled to fiscal 2024 due to the fact that March 31, 2024, the last day of fiscal 2023, was a weekend. Operating cash flow for the business remains solid. Also, regarding investing cash flow, as explained earlier, the acquisition of a subsidiary of Fujitsu resulted in an acquisition cost of JPY 20.3 billion. However, since the acquired company held JPY 3 billion plus in cash and cash equivalents, the negative investing cash flow amounts to approximately JPY 17.8 billion. Next, I will explain the financial results by SBU. Let me start with Staffing SBU, our main pillar of business. Revenue increased 4.6% from fiscal 2023. In addition, adjusted EBITDA increased 9.5% to JPY 31.3 billion, reflecting steady performance in the placement business. Regarding the KPIs for the fourth quarter, please refer to the right side of the table. Number of active staffs increased by 2%, and average charge price also increased by approximately 2%. However, revenue growth slowed slightly in the fourth quarter. As shown in the table below, this was due to the fact that there were 58 operating days in the fourth quarter of fiscal 2023 compared to 57 operating days in the fourth quarter of fiscal 2024. There are 2 topics related to Staffing SBUs. Please take a look at them later. Next is BPO SBU. We achieved revenue increase offsetting the absence of COVID-19-related projects. On the right side, we have the decline in revenue due to the impact of absence of COVID-19-related projects and the impact of the acquisition of Fujitsu subsidiary, which we explained earlier. February and March are included in the consolidated results, and the acquisition resulted in JPY 4 billion increase in revenue and JPY 410 million impact on adjusted EBITDA. This slide shows business topics related to BPO SBU and Career SBU. BPO SBU's StepBase and Career SBU's doda Direct are collaborating and are starting to provide services to consumers as a group. Let me move on to the third SBU, Technology SBU. Technology SBU reported a 12% increase in revenue and an 11.5% increase in adjusted EBITDA, reflecting strong performance. Regarding KPIs, the number of engineers increased 18% in the IT/DX solutions and 9% in mechanical and electrical engineering, indicating a healthy growth in the number of engineers. Regarding average sales per unit per month, the IT/DX solutions saw a 2.6% decrease compared to the fourth quarter of fiscal 2023. However, this decrease is due to the rescheduling of system development projects within the group to fiscal 2025, and we do not anticipate any significant business concerns. We have the number of full-time employees, excluding registered temporary staffing and freelancers, in the IT department and the number of active mechanical and engineering staff as well as their operating rate. Number of operating persons increased steadily from 6,243 at the end of fiscal 2023 to 7,080 now. The operating rate decreased slightly from 92.3% to 91.5%, but our group is shifting from temporary staffing to contracting services. As a result, the operating rate will decline slightly, but on the other hand, the average sales per unit will increase. So our overall strategy is to increase our gross profit, and the figures are almost as planned. We have 2 topics from Technology SBU. Please refer to it later. This is Career SBU. Revenue increased 12.8%, and adjusted EBITDA grew 16%. Although there were some uncertainties at the beginning of fiscal 2024, we believe we were able to achieve our targets within the scope of our forecasts. At the same time, revenue in the fourth quarter of fiscal 2024 grew approximately 10%. As Mr. Wada explained, while hiring interest at corporate clients are high, it seems that there is a bit of a cautionary trend among job seekers due to wage hikes. Based on that, the table in the middle shows our intention to control the number of consultants while generating profit at the same time. Also, we intend to improve the productivity of each consultant. Last of all is Asia Pacific SBU. As mentioned at the beginning, there was a 5% impact from foreign exchange. But even on a local currency basis, we were able to increase sales by approximately 10%. The market situation for Asia Pacific SBU is that temporary staffing is somehow slow in Australia but remains strong in Asia. Regarding placement business, the situation is somewhat weak in both Asia and Australia. We thus intend to focus on cost control, including the number of consultants. On the other hand, facility management continues to perform well, achieving double-digit growth. The contract balance at the end of fiscal 2024 increased by approximately 20% compared to the end of the previous fiscal year. Please refer to the business topics from Asia Pacific SBU later. Last of all is others/adjustments. For others, adjusted EBITDA expanded from negative JPY 1.6 billion to negative JPY 3.4 billion, and the loss increased. This is because of an upfront investment by Shareful specifically for strengthening sales personnel and marketing investments. There is no significant gap in the consolidated adjustments between fiscal 2023 and fiscal 2024. We have business topics for PERSOL Research and Consulting. Please refer to it later. That concludes my presentation on the consolidated financial results and the results of each SBU. Overall, I believe that the results were very solid and favorable. That is all from me.

Next, I will explain the full year earnings forecast for fiscal 2025. Full year revenue is expected to increase 6.1% to JPY 1,540 billion, operating profit is expected to increase 14.9% to JPY 66 billion, and adjusted EBITDA is expected to increase 10.4% to JPY 86.5 billion, representing double-digit growth. We expect adjusted EPS to increase 10.2% to JPY 20.39. This is forecast by SBU. Starting this time, we will be providing a breakdown of each SBU's initiatives for the current fiscal year. Under the fiscal 2025 forecasts, we have outlined how each SBU plans to achieve the growth. I would like to draw your attention especially to Staffing, BPO and Technology SBUs. We will actively promote initiatives to improve profitability toward 2027 and 2028. We are working toward achieving adjusted EBITDA margins of 6% for Staffing in 2027, 8% for BPO in 2028 and 10% for Technology in 2028. Please turn to the next page where I will briefly explain the financial outlook for this fiscal year for Career SBU. This fiscal year, we recognize that job seekers will continue to be cautious about changing jobs and will remain in a wait-and-see mood. We believe that this trend has continued from the second half of last year. In particular, we recognize that wage increases, improved treatment and employee retention measures by companies are proving effective, but we also recognize that this will lead to continued caution. However, in the long run, the number of people intending to change jobs exceeds 10 million nationwide, but the actual number of people who are changing jobs is now only 3 million. We therefore believe that the job changes of these 3 million people as well as the remaining 7 million people will become more active over a period of time in the future. With that in mind, we are aiming for double-digit growth again in fiscal 2026. But for fiscal 2025, we are forecasting growth of around 7%. In order to achieve double-digit growth in fiscal 2026, we believe it is necessary for job seekers and those looking to change jobs to recognize and be aware of PERSOL Group and doda as their first name to remember. Therefore, we intend to continue to invest appropriately and actively in marketing. In addition, we plan to accelerate our investment in technology this year and work to enhance customer experience so that customers can further appreciate the value of human involvement. Of course, we will utilize DX and AI as a matter of course, and we intend to enhance the value of our career business in various ways, including reviewing the entire business process. Finally, I would like to mention our initiatives in Asia Pacific SBU. As I mentioned earlier, Asia Pacific is also achieving double-digit growth and improving its earnings by 0.1%, but we are planning to make investment in systems in 2025. We decided that it is specifically necessary to strengthen the systems for our facility management business, which is performing very well and is highly profitable. This fiscal year, we plan to make a total of JPY 2 billion in system investments in APAC, focusing on facility management systems. We intend to continue this investment in the coming 2 years, investing JPY 2 billion each year. By doing so, we aim to increase the likelihood of winning larger APAC businesses and contract awards as well as improve our operational performance. Based on the explanation I just gave, we have a full year financial forecast for fiscal 2025 by SBU. We have the revenue and, on Page 37, adjusted EBITDA by SBU. What we would like to highlight on this page specifically is that Staffing and Career both are expected to achieve adjusted EBITDA of over JPY 34 billion and that BPO, Technology and APAC SBU each are forecast to secure adjusted EBITDA of over JPY 10 billion. We believe that you will acknowledge once more that our business performance is firmly established. Slide 39 shows a bridge chart of adjusted EBITDA versus operating profit. As the structure is almost the same as what Mr. Tokunaga explained earlier in this year's bridge, I believe you can see that the path of adjusted EBITDA declined from JPY 86.5 billion to JPY 66 billion. Structurally, there are no major changes. Next, I would like to explain shareholder returns and cash allocation. We are showing dividends for fiscal 2024 and forecast for fiscal 2025. For fiscal 2024, the annual dividend will be JPY 9.5, an increase of JPY 0.5 compared to the initial forecast. In fiscal 2025, we are planning an annual dividend of JPY 11, an increase by JPY 1.5. We plan to perform well and give returns to shareholders. This is on cash allocation. This is a midterm management plan announced in 2023 and the target for 2025. It is in line with the plan. According to our initial plan, we plan to allocate approximately half of the amount to shareholder dividends and share buybacks and the other half to growth investments and debt repayment, allocating JPY 75 billion each. But JPY 83.4 billion was used for dividends and buybacks and JPY 68.3 billion for growth investments and debt repayment. Although the ratio is slightly skewed toward dividends, we expect to achieve this result for the current fiscal year. This is ROIC and ROE trends. We expect to proceed as planned in our midterm management plan. We expect ROIC to be approximately 18% for current fiscal year and ROE to be around 20%, which is in line with our midterm management target. Finally, I would like to talk about the group's topics. We have been working on utilizing our technology and promoting DX. And we have been selected as a Noteworthy DX Companies 2025 by the Ministry of Economy, Trade and Industry and the Tokyo Stock Exchange. We hope you will recognize us as one of the DX-related stocks. I would like to convey to you that our initiatives in this domain have been evaluated highly. We are planning to host PERSOL IR Day to share our initiatives. We are planning July 22 to share details about the PERSOL Group's use of AI, promotion of DX and other related topics as well as our future direction in order to gain your understanding. The event will be held online, and we hope that institutional investors and analysts will join us if they have time. This concludes my presentation. Thank you.