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

Hello. I am Wada from Persol Holdings. Thank you for your time today. Today, I would like to begin by sharing 3 key highlights with you. First is the cumulative results for Q3 of fiscal 2025. We achieved increase in both revenue and profits, and we are on track to meet our full year targets. Profits at each stage reached record highs and all SBUs achieved revenue growth. We currently anticipate meeting our planned target, including 10% growth in adjusted EBITDA and our operating profit forecast. The second highlight is our current view on the business environment and outlook for fiscal 2026. As for the macro environment, given an uncertain economic outlook and the need to assess the effectiveness of AI implementation and its costs, some companies are showing signs of caution in their hiring. Despite these conditions, we aim to maintain steady revenue growth while enhancing profitability. Specifically, we intend to firmly pursue a 10% growth in adjusted EBITDA for the next fiscal year, focusing on enhancing profitability even in challenging environment. Details will be explained in the next midterm management plan to be announced in May. Thirdly, I would like to briefly explain the current status and the future strategy of the Career SBU. Given the current market environment is experiencing some fluctuations, I would like to outline our initiatives in response, specifically our approach to the high-income group and our perspective on AI investments. Now regarding the financial results, CFO, Tokunaga, will provide an explanation. Tokunaga-san, please.

Hello. This is Tokunaga, CFO. I will now present an overview of the cumulative results for the first 3 quarters and the results for each SBU. First, regarding the consolidated cumulative results in Q3, as Wada mentioned at the outset, the situation remained strong, similar to Q2. Specifically, we achieved growth exceeding 6% in both revenue and gross profit. For operating profit on an IFRS basis, it increased by 11.5% to JPY 53.9 billion. Adjusted EBITDA rose by 5% to JPY 68 billion. And for the cumulative quarterly profit through Q3, it increased by 10% to JPY 34.3 billion. As explained during the Q2 earnings presentation, we divested our inventory-related business for JPY 2.7 billion in September. However, this is not included in adjusted EBITDA, which is why the growth rates for operating profit appear different. Here, we have the year-on-year comparison of adjusted EBITDA for the first 3 quarters. As explained earlier, gross profit increased by 6% or JPY 15.9 billion. On the other hand, SG&A expenses rose by JPY 12.6 billion, primarily due to personnel expenses. Consequently, adjusted EBITDA totaled JPY 68 billion. Regarding the impact of foreign exchange rates, gross profit was negatively affected by JPY 1.1 billion, and SG&A expenses were negative JPY 0.9 billion, resulting in a net decrease of JPY 0.2 billion. This is the difference between adjusted EBITDA and operating profit. The trend is essentially similar to Q2. Depreciation and amortization increased by JPY 1 billion year-on-year to JPY 11 billion. The additional accrued paid leave decreased to JPY 2.7 billion year-on-year. As a result, operating profit under IFRS was JPY 53.9 billion. Next is the progress through to Q3 and the outlook for Q4. The progress rate of revenue was exactly 75%. For adjusted EBITDA, the progress rate was 78%. We expect to achieve the initial forecast at the beginning of the year of both adjusted EBITDA of JPY 86.5 billion and IFRS-based operating profit of JPY 66 billion. Here is the progress rate by SBU. Our core Staffing SBU and Career SBU both achieved high progress rates, exceeding 80% for both adjusted EBITDA and IFRS-based operating profit. On the other hand, BPO and Technology SBUs, due to the nature of these businesses, tend to see profits concentrated in Q3 or Q4 and the progress rates are also somewhat behind schedule. On Pages 9, 10 and 11, we have year-on-year comparisons of each SBU. Since I will be explaining the financial results summary for each SBU shortly, I will omit these details here. Next, I will present the financial results summary by SBU. First, our core Staffing SBU. Revenue increased by 3% and adjusted EBITDA by 4.6%. Q3 shows flat performance at JPY 9.7 billion, both last year and this year. However, as noted in the upper right, this year's Q3 had 2 fewer working days compared to the previous year. KPIs remained largely unchanged compared to up to Q2. The number of active staffs increased by 1.9% compared to Q3 of last year and the charge price went up by 2.2%. The next page shows the quarterly KPI trends. Please take a look at it later. Next is BPO SBU. Following the acquisition of CSL, revenue increased by 27% and adjusted EBITDA rose by 39%. Regarding the quarterly breakdown, as shown on the right, apologies for the small font. Q2 showed substantial growth of 11.5% year-on-year, while Q3 saw a growth of 5.3%. This is primarily due to several public projects concluding as scheduled in Q2. For the full year, we anticipate organic growth, meaning growth, excluding the CSL acquisition of approximately 7%. Next is Technology SBU. Technology SBU saw revenue growth of approximately 9%. As explained in Q2, delays in group development projects resulted in costs of about JPY 500 million combining Q1 and Q2. However, Q3 profit was JPY 2.8 billion, on par with last year's level. IT/DX saw a 10% increase in revenue, while mechanical and electrical engineering saw an 8% increase. However, for registered temporary staffing, similar to Staffing SBU, less number of working days had an impact. This is the number of in-house employees, operating rate and average sales per unit. First, the number of in-house employees increased by 8.3% compared to the previous year, indicating a solid trend. However, the operating rate decreased by 2% from 91% last year to 89% in Q3 this year. For us, this decline is partly anticipated due to our gradual shift from outsourcing to contracting. However, we are considering ways to further improve the operating rate for the next fiscal year. The average sales per unit increased by just over 2%. Next, we have Career SBU. Cumulative revenue for the first 3 quarters increased by 6.7%, consistent with the first 2 quarters, while adjusted EBITDA grew by 16.7%, achieving significant profit growth. Regarding market conditions, while the number of registered individuals were recovering, companies showed a strong tendency to be more cautious in hiring human resources. Wada will later explain the current state of the recruitment market and our strategy. Next, regarding the productivity of placement business. Q3 saw productivity improvements exceeding 10%, consistent with the first 2 quarters. While the number of consultants continue to show a slight decrease as before, depending on market conditions going forward, we plan to consider increasing this number for the next fiscal year while monitoring productivity. This is Asia Pacific SBU. Excluding exchange rate impact, revenue increased by 4.3%. As for the market trends, facility management in Australia continues to perform well. For temporary staffing, the picture is somewhat mixed. Asia is steady, but Australia is sluggish. As for placement, both Australia and Asia continue to show sluggishness. For profits, as explained at the beginning of the fiscal year, we plan to make system investments and continued a JPY 0.3 billion investment in Q3. However, we were able to achieve profit of JPY 3.1 billion, a year-on-year increase. Finally, others and adjusted. Revenue contribution from GoJob, acquired in October, for the October to December period was JPY 11.7 billion. As the October to December period is high season in France, EBITDA turned positive. Combined with improvements in others, adjusted EBITDA for Q3 was JPY 0.8 billion. Regarding the balance sheet impact from consolidating Gojob, current assets increased by approximately JPY 15 billion and goodwill increased by approximately JPY 23 billion. Detailed materials are included in the latter part of this document and in the earnings release. Please refer to them by yourselves later. Adjusted is as stated. This period saw adjusted EBITDA of negative JPY 8.5 billion due to group-wide system investments and increased intra-group transactions, but this aligns with the initial forecast. Please refer to Pages 22 and 23 for KPIs. I have explained the company-wide situation for Q3 and the SBU financial results. This concludes my part of the presentation.

Next, I would like to briefly explain our current view on business environment and outlook for fiscal 2026. As stated here, we recognize that the Staffing, BPO and Technology SBUs are likely to maintain largely similar growth next fiscal year to this fiscal year. Specifically, regarding Staffing SBU, while there are initiatives like AI adoption, demand for temporary staffing remains substantial. Therefore, we expect stable growth consistent with the current levels. Next is BPO SBU. While there are concerns about AI replacing certain areas such as call centers, demand itself is not declining, and we continue to receive requests for AI, digital transformation facilitation, et cetera. Therefore, we expect generally steady growth in the next fiscal year as well. Next is Technology SBU. The shortage of engineers has persisted in the market for some time. We recognize that this high demand will continue. However, we also observed factors such as exchange rate issues and increased caution in investment decisions within the automotive industry. Taking these factors into account, we believe that growth of just under 10% will be achievable in the next fiscal year as well. Regarding Career SBU, I will provide a more detailed explanation later. While the high-income group remains active, there is a noticeable trend toward cautious hiring in the majority group, specifically the JPY 4 million to JPY 6 million annual income bracket, where we traditionally excel. This stems from companies keeping AI adoption, future trends and productivity gains from AI implementation firmly in their sites. Consequently, selective hiring has become the dominant trend. Therefore, we project growth of around 5% for this fiscal year and anticipate that level continuing into the next period. We will share our strategy considering the future situation a little later. Next is Asia Pacific sbu. As Tokunaga reported earlier, while regional disparities exist, we have reached a state where we can secure a certain level of profitability. However, based on our current assessment, we do not expect to achieve the 10% ROIC target for APAC set in the current midterm management plan. We take this situation seriously. We must further optimize our portfolio going forward and significantly strengthen our revenue structure and foundation. As previously announced, we changed the leadership for Asia Pacific SBU this February. Starting in April, we have established a formation to drive even greater improvements in profitability. Now I will provide a more detailed update on the status of Career SBU. Looking at the current market environment, as has been the case historically, the demand for talent itself will continue to grow significantly in this segment. This is driven by several societal factors, demographic trends, the evolving skills required by companies, increasing proportion of job changes facilitated by recruitment agencies and similar services and the rising number of job changes per individual. Therefore, the market in this area will undoubtedly expand. However, the current situation is that the companies are assessing how AI adoption will impact their talent strategies, and how they need to adjust their talent portfolios. Consequently, we anticipate a trend where companies will continue to actively pursue high-income group hires while proceeding cautiously with majority group talent, monitoring future developments. Therefore, while we naturally aim to ensure a robust growth in the majority group, we recognize that growing this higher income group is crucial. This is our current situation. This bar graph shows the revenue trends by salary range. The majority group has seen growth at around 10% CAGR. Meanwhile, the high-income group has a CAGR of over 30%. So the rate of growth is different. Looking at year-on-year growth, we project the majority group will likely grow at around 3%, while the high-income group is expected to grow at around 12%. Therefore, we recognize that further expanding this high-income group will be necessary over the next few years. In this environment, the question is, what we should do? That said, the majority group does represent a certain volume, and it is essential that we respond to it effectively. Additionally, achieving growth of high-income group simultaneously is a crucial point. Specifically, going forward, by consolidating efforts through the doda brand, we aim to attract more individuals. We will further leverage the AI we employ to enhance productivity. On the job seeker side, we aim to increase the frequency of service usage or the frequency of successful placements. That is our approach. Specifically, our strength lies in our multilayered services: doda, doda X and HiPro, particularly doda X and HiPro cover the high-income group. By having various individuals, those in placement, job media, headhunting, direct recruiting as well as side jobs and freelancing enter our database, we increased the number of applications per person. Essentially, we believe this approach ensures each individual has more reliable opportunities, and we have the results to prove it. We have also been continuously advancing our AI investments, particularly focusing on enhancing productivity and increasing added value for both companies and job seekers. We are transforming our business model by leveraging AI. Areas such as counseling, interviews, schedule coordination and resume creation are highly suitable for AI. We have already implemented AI for job posting creation, screening and scouting e-mails. We've achieved significant efficiency gains in areas like scout e-mail creation and job posting creation. Considering the workload involved, our proprietary data, AI and algorithms have proven highly effective. We anticipate a roughly 40% reduction in workforce would be possible compared to 2025 level. Furthermore, we project productivity will increase by 1.4x. By advancing these initiatives, we aim to generate solid profits in our existing majority group business while also securing growth in the high-income group. Next, we have the group topics. We are working to enhance social value by adopting Work and Smile as our group vision. Within this context, we are publishing this human capital report with the intention of clearly demonstrating the value of initiatives that boost engagement and enhance well-being for Work and Smile initiatives that are also valuable for companies. It has been very well received, so we encourage everyone to take a look when you have the opportunity. It details the relationship between employee engagement and business performance, including the models that describe this connection. We highly recommend you to read it. We are conducting our Work and Smile global survey. In partnership with Gallup, this fixed-point observation marks our fifth year of ongoing research. We aim to clarify what initiatives lead to employees' Work and Smile and how this, in turn, contributes to improved corporate performance and productivity. Now regarding our main topics. We have topics of various business segments I'd like you to review, but particularly in Staffing SBU, the overall satisfaction ranking is a truly crucial metric. We've held the top position here for 7 consecutive years. We aim to remain a company consistently chosen by our staff. Furthermore, in Technology SBU, we received the Education Award in Microsoft Japan Partner of the Year 2025. Additionally, across the entire company, we have received a star in Cyber Index Corporate Survey for 3 consecutive years. We hope you will look at these points and gain a solid understanding of our group. This concludes my presentation. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]