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

This is Wada from PERSOL Holdings. Thank you very much for joining us today. As we have announced, our CFO, Tokunaga, will step down at the end of his term in late June and Kemmochi, the Executive Manager of Group Finance Division sitting next to me, is scheduled to take over as CFO starting in July. Today, Mr. Kemmochi and I will be presenting an overview of our financial results and the outline of our new Mid-term Management Plan. Let me start with the highlights. There are 3 highlights: the results of fiscal 2025, the plans for fiscal 2026 and the dividend. We achieved record highs in revenue and all stages of profits with all SBUs achieving revenue growth. Adjusted EBITDA rose 12.6% Y-o-Y and operating profit rose 15.8% Y-o-Y, both achieving double-digit growth. ROIC was 18.2% and ROE was 20.9%, both achieving the targets set out in the Mid-term Management Plan 2026. Regarding dividends for fiscal 2025, we will increase the dividend by JPY 0.5 from the initial plan, bringing it to an annual dividend of JPY 11.5. For fiscal 2026, we are forecasting an increase of JPY 1.5 from the previous year, reaching a record high annual dividend of JPY 13. Now Mr. Kemmochi will provide an overview of our full year financial results. Mr. Kemmochi, please go ahead.

My name is Kemmochi. I will be serving as CFO starting in July, and I look forward to working with you. I will now provide an overview of the financial results for fiscal 2025, which has just finished. This is fiscal 2025 full year summary. Overall, the financial results were solid. Revenue increased 7.2% Y-o-Y to approximately JPY 1.5 trillion. Operating profit rose 15.8% to JPY 66.5 billion. Adjusted EBITDA, which we regard as our most important KPI, also grew 12.6% to JPY 88.1 billion, maintaining double-digit growth. Profit increased 19% Y-o-Y, partly due to the impact of tax credits under the wage increase promotion tax system. Furthermore, we exceeded all the financial targets of the initial earnings forecast shown on the right. Next, I will explain the full year analysis of increase, decrease in adjusted EBITDA. Gross profit increased 7% Y-o-Y, an increase of JPY 20.3 billion. Meanwhile, we continue to optimize SG&A expenses, resulting in adjusted EBITDA of JPY 88.1 billion. Next, I will explain the full year adjusted EBITDA versus operating profit. First, depreciation and amortization costs increased JPY 1.4 billion Y-o-Y to JPY 15.3 billion, while the additional provision for accrued paid leave increased JPY 300 million Y-o-Y to JPY 3.9 billion. Other items include one-time factors such as the gain of JPY 2.7 billion from the sale of certain business in Q2 and an impairment loss of JPY 1.6 billion. Next, regarding revenue by SBU, all segments achieved revenue growth. I will explain the status of each SBU in the section on each SBU that follows. Next, regarding Y-o-Y adjusted EBITDA by SBU, all segments except the Asia Pacific SBU achieved an increase. I will explain the situation regarding the Asia Pacific SBU later in the section on SBU-specific results. The same applies to operating profit by SBU, so I would appreciate if you could take a look later. This slide shows the achievement rate by SBU compared to the initial forecast announced last May, and we have generally met our targets across all SBUs. Please take a look at this later as well. Since this is our full year financial results, I will explain the balance sheet and cash flow. First, regarding changes on the left side of the balance sheet, the asset side, trade and other receivables, goodwill and intangible assets have increased significantly. This is due to the addition of Gojob, which we acquired last October. And as noted in the footnotes, the weakening of the yen compared to the end of the previous fiscal year, which led to an increase in APAC assets. On the right side of the balance sheet, under liabilities, trade and other payables and other items have also increased following Gojob's acquisition. Next is about ROIC and ROE, which are indicators of capital efficiency. In the previous mid-term management plan, we set targets of 15% or higher for ROIC and 20% or higher for ROE. In fiscal 2025, ROIC stood at 18.2% and ROE at 20.9%, both exceeding the targets. Next, I will explain the balance of goodwill. The total amounts to JPY 94 billion. There was an increase of approximately JPY 18.9 billion due to the acquisition of Gojob, which I explained earlier. Regarding Gojob, in addition to goodwill, we have recognized JPY 6.7 billion in intangible fixed assets, which are customer assets as noted in the footnote below. These assets are expected to be amortized over a period of just over 10 years with annual amortization cost of approximately JPY 500 million. Next is cash flow. As mentioned earlier, in fiscal 2025, we made an investment of approximately JPY 20 billion in connection with the acquisition of Gojob and generated free cash flow of just over JPY 40 billion. After paying dividends and other cash outflows, our cash and cash equivalents stand at just over JPY 80 billion, similar to last year. I will now provide an overview of the financial results by SBU. First, let's look at the core Staffing SBU. Full year revenue increased 3.5% and adjusted EBITDA rose 12.3%. In the 3 months of Q4, both revenue and profit exceeded the previous year's levels, partly reflecting the contribution of 1 more operating day versus the previous year. Regarding KPIs, the number of active staffs rose 1.1% Y-o-Y, though the growth rate moderated due to a decline in demand from some customers. On the other hand, charge price increased 2.3% Y-o-Y, demonstrating strong growth. This chart shows the quarterly trends in our KPIs, so please take a look at it later. Next is BPO SBU. Following the acquisition of CSL, former Fujitsu Communication Services, full year revenue increased 22.1%. Adjusted EBITDA rose 54.9%. Excluding CSL, organic revenue growth in Q4 was 5.5%. This was primarily due to the completion of several public sector projects on schedule. Organic growth for the full year was approximately 7%. Next is the Technology SBU. The Technology SBU saw revenue growth of approximately 9% for both the full year and the 3 months of Q4. Breaking down Q4 revenue, IT and DX Solutions performed strongly with revenue increase of 14.5%. Revenue from Engineering increased 8%. As for registered temporary staffing and freelancers, although the number of active registered temporary engineers decreased, charge price increased, resulting in revenue growth of over 3%. Additionally, regarding the IT and DX Solutions contract services, which we explained in Q3, the number of active engineers increased in Q4, contributing to higher profits. This is the operating person month, operating rate and average sales per unit for in-house employees. First, the number of in-house employees increased 7.9% Y-o-Y, indicating a solid performance. However, the operating rate has declined slightly from 91.5% in Q4 last year to 90% in Q4 this fiscal year. As we are gradually shifting from temporary staffing to contract work, we had already factored in the decline in the operating rate to some extent. However, we intend to implement measures to further improve the operating rate going forward. Average sales per unit increased 3.6%. Next is Career SBU. Full year revenue increased 5.7% Y-o-Y. In Q4, in the placement business, a trend towards selective hiring of the majority group who are job seekers with an average annual income range of JPY 4 million to JPY 6 million is gaining momentum, particularly among large companies in addition to the impact of internal factors. As noted here, when we integrated the IDs for doda and doda X last year, users were required to log in again as part of the authorization process. However, due to defects in the log-in flow, some existing users ended up disengaged. Consequently, login rates and active users have declined, leading to a drop in applications. Because of the time lag between hiring decisions and new hires joining the company, this has begun to impact revenue starting in Q4. We estimate that the negative impact on revenue in Q4 will be approximately 2%. We completed fixing the log-in process by the end of last fiscal year, and with the accumulation of users who have logged in again and new registrants, we expect to return to pre-disengaged levels by the first half of fiscal 2026. However, the impact on our performance is expected to continue through the first half of fiscal 2026, and we anticipate that this will push down the first half revenue by approximately 5%. For the details, please refer to Page 30. Meanwhile, placement business and support for side jobs and freelancers for the high-income group were strong as double-digit growth was achieved. Next is KPIs for Career SBU. Although the number of consultants in Q4 decreased by just over 7% Y-o-Y, productivity in Q4 improved by only 7% due in part to issues with the log-in process resulting from the IT integration I mentioned earlier. Next is the Asia Pacific SBU. Full year revenue increased 4.3%. Market conditions of facility management business in Australia continue to perform well. While the temporary staffing market remained robust in Asia, it was sluggish in Australia. The placement business remained sluggish in both Australia and Asia. Adjusted EBITDA declined 10.2%. As we explained at the beginning of the fiscal year, we are undergoing the system renewal this year. And since we invested JPY 1.7 billion over the full fiscal year, our adjusted EBITDA increased for the SBU, excluding this. Finally, we have Others and Adjusted. Revenue in Others increased approximately 42%, driven by revenue from Gojob, which we acquired in October. Gojob's revenue for the 3 months from January to March was JPY 10 billion. While this represents a slight decrease compared to the JPY 11.7 billion recorded in the previous quarter of October to December, which included peak seasons such as Christmas, the company is progressing as expected. For Adjusted, as a result of group-wide system investments and an increase in intra-group transactions, adjusted EBITDA was negative JPY 11.5 billion. However, the results were generally in line with our initial forecast. That concludes my presentation on the company-wide situation for fiscal 2025 as well as the status of each SBU. That is all for me. Now I would like to provide an overview of our mid-term management plan fiscal 2028. Rooted in the corporate philosophy, providing opportunity, individual growth, social contribution passed down since its founding, PERSOL aims to realize a society of Work and Smile. We will continue to move forward toward 2030, aiming to create better work opportunities for 1 million people. A review of the previous mid-term management plan is on the next page. In the previous mid-term management plan, we postponed the target year for achieving adjusted EBITDA and our efforts to improve ROIC of Asia Pacific SBU, which we had identified as a key priority, remained incomplete. On the other hand, our revenue, ROIC, ROE and shareholder returns are progressing as originally planned. We will address the remaining issues in the new mid-term management plan. Our review and summary are as described. Following the Staffing SBU, the Career SBU has grown to an adjusted EBITDA of JPY 35 billion level, while the Technology SBU, BPO SBU and Asia Pacific SBU have each developed into businesses generating profits in the range of JPY 10 billion. Going forward, we will strive to enhance our operational capabilities so that we can adapt swiftly to environmental changes that exceed our expectations. Next, I'd like to discuss the market changes in the AI, which was the area we focused on most closely when formulating the new mid-term management plan. The substitution of work by AI is undoubtedly gaining momentum, and the HR market is entering a major turning point. While the administrative market is shrinking due to AI substitution, this trend also holds the potential to expand our scope of work through increased workforce mobility and creation of new work opportunities. We believe that the era of massive labor mobility is not so far off. We believe it is crucial to make this trend work in our favor. The first step PERSOL will take in the AI era is to fully leverage AI as a strategic partner. We will make it our strong ally. First is automation and efficiency gains driven by AI, followed by the reallocation of personnel, which means shifting employees to areas where value is created. Second is gaining a competitive advantage through AI. Third is expanding into frontline work areas that cannot be replaced by AI. In the age of AI, PERSOL's winning strategy lies in our ability to integrate AI into our business operations by combining the vast and diverse behavioral data collected from individuals, corporates and sales reps with AI. Through our strong AI implementation capabilities and our ability to effectively execute AI strategies, we will deliver services that will be highly valued by the market. This will enable us to create better work opportunities while simultaneously achieving high growth and profitability. Now I will introduce our mid-term management plan, fiscal 2028. The direction of our new mid-term management plan is technology-driven. Our basic policy is to transform business models by using AI as a starting point. While actively investing in AI, we will secure profit growth of 10%. We will continue to manage the business with the same level of capital efficiency and shareholder returns as in the previous mid-term management plan. In the coming 3 years, we will focus on strengthening our profitability and laying the foundation for further growth through the use of AI. This is business positioning to enhance corporate value. Our initiatives to enhance corporate value aim to increase profitability in our core businesses and enable focused investments in growth areas, namely the Career SBU and the Technology SBU. At the same time, we will swiftly launch the business and establish our presence in the frontline worker domain, which has the potential to become a pillar of growth from 2030 onwards. We will designate the Career SBU and the Technology SBU as priority investment areas as they are growth businesses expected to deliver high profitability and high growth beyond 2030. We define the Staffing SBU, BPO SBU and Asia Pacific SBU as profit-generating businesses and areas where we are focusing on refining our operations. Leveraging its strength of a placement business, Career SBU will be implementing AI-driven models to enhance matching quality and productivity through human expertise, proprietary data and AI, and shift resources to high-income domains. We will work to maximize monetization opportunities through multilayered services. For Technology SBU, we will leverage advanced technical expertise to accelerate the shift to upstream contract work. We will strengthen upstream domains, including AI solutions to increase fees, increase the contract-based business to enhance profitability and drive scalable growth, including inorganic expansion. The staffing and the BPO SBUs will work to enhance profitability by refining business operations. I'd like to take a moment to explain a bit about our approach to frontline worker domain. This page outlines our vision for frontline worker domain, which we aim to make a pillar of our business from 2030 onwards. We aim to achieve early commercialization and monetization by combining AI, Gojob's expertise and PERSOL's data in domains where there are structural labor shortages. By leveraging AI, we will expand into a new domain that we have not been able to fully address until now. We intend to tackle this domain head on, where the risk of AI replacing human work is extremely low and which is currently facing a severe labor shortage. We recognize that this domain holds significant potential amid the increasing workforce mobility driven by AI. We are confident that by promoting the use of AI and leveraging our expertise, we can contribute to improving working conditions and benefits for frontline workers. Next, we have the fiscal 2028 targets by SBU, as you can see. In particular, during the new mid-term management plan period, the Career SBU has been struggling due to a slowdown in the market and the loss of some users following the defect in integration of the ID. However, we expect it to return to a growth trajectory from the second half of the year, driven by the expansion of our high-income domain, particularly HiPro. Additionally, in the Asia Pacific SBU, we have made significant changes to our management team and are in the process of revising our mid-term management plan. Therefore, it will take some time before we can announce the details. This is the overview of financial strategy. During the new mid-term management plan period, we will ensure profit growth of 10% while maintaining a balanced approach to uphold investment discipline and maintain and improve capital efficiency with investments in business growth. Profit growth is targeting adjusted EBITDA CAGR of 10%. Capital efficiency is targeting to be at or above fiscal 2025 levels. Furthermore, in terms of capital allocation, we will allocate growth investments and shareholder returns on a 50-50 basis, in principle. In addition, regarding shareholder returns, we will revise the dividend payout ratio to 50% or higher. We view dividends as the primary form of shareholder return, and there should be no dividend reduction in principle, supported by sustained profit growth. Based on the progress of growth investments and the investment opportunities landscape, we will consider share buybacks flexibly from the perspective of capital efficiency. Next, I'd like to explain our technology strategy. As I mentioned earlier, our technology strategy will be led by the holdings company, and we will focus on implementing cross SBU initiatives. AI and business, AI and work, AI and data. Guided by these themes, we will move forward together with the SBUs to improve labor productivity. This illustrates how AI transforms our business. Here are some use cases at the Staffing SBU. In terms of automation and labor saving, we will enhance customer satisfaction by especially improving productivity through higher interview setup rates by coordinators as well as by enhancing matching accuracy, speed, lead times and conversion rates as part of our competitive advantage strategy. Furthermore, in line with the PERSOL's unique approach to AI utilization, as exemplified by our staff support initiatives, we will proactively anticipate staff needs to enhance customer satisfaction. The resulting improvements in retention rates and longer work period will have a significant positive impact on our revenue. Next, I will explain human resources strategy. In the era of AI adoption, HR strategy and AI strategy are inextricably linked when it comes to improving productivity. We are committed to simultaneously enhancing employee skill development, optimizing workforce allocation and enhancing engagement with the goal of increasing value-added and labor productivity. We will aim to improve the career well-being of our employees and staffs, and to evolve the capabilities of both individuals and the organization to create value through collaboration between people and AI. Finally, I would like to announce our IR Day. On July 6, from 10 to 12, we will be holding sessions on the strategies of each SBU. We kindly ask that you make every effort to attend. That concludes my presentation on the mid-term management plan fiscal 2028. Next, I would like to explain the full year financial forecast for fiscal 2026. For the full year, revenue is expected to increase 7% Y-o-Y to JPY 1.665 trillion, and operating profit is expected to increase 6.7% to JPY 71 billion. We anticipate that adjusted EBITDA, a key metric, will grow double digit, 10% to JPY 97 billion. Additionally, we project adjusted EPS to be JPY 22.68. Next, here are the forecasts by SBU. In the Staffing SBU, revenue is expected to be JPY 627 billion and adjusted EBITDA to be JPY 36.6 billion with a margin of 5.8%. Similarly, the BPO SBU forecasts revenue of JPY 152.5 billion, adjusted EBITDA of JPY 11 billion and margin of 7.2%. The Technology SBU also expects revenue of JPY 137.5 billion with adjusted EBITDA of JPY 11.3 billion and margin of 8.2%. In the Career SBU, revenue is expected to be JPY 156.5 billion and adjusted EBITDA of JPY 35.8 billion, margin of 22.9%. In the Asia Pacific SBU, revenue is expected to be JPY 539 billion and adjusted EBITDA of JPY 12.6 billion. In particular, regarding Career SBU, as was mentioned earlier, on top of the continued sluggishness in some markets, we anticipate a shortfall of approximately 2.7% for the full year due to a decline in the number of existing users following the IT integration impact of doda and doda X. However, since system upgrades and other necessary measures have already been completed, we intend to take steps to restore registration levels to their previous state as quickly as possible. Next, I'd like to briefly touch on the adjusted EBITDA and margin by SBU. As mentioned earlier, Career's performance has been irregular. So I hope you understand that this is having an impact. However, other businesses are performing as expected. So we intend to continue to cover this shortfall. Next is dividends. Here is the dividend forecast for fiscal 2026. As mentioned at the beginning, we have decided to set the year-end dividend for fiscal 2025 at JPY 6, an increase of JPY 0.5 from our initial forecast, bringing the annual dividend to JPY 11.5. Furthermore, we expect the annual dividend for fiscal 2026 will be JPY 13, an increase of JPY 1.5 compared to fiscal 2025, which would be a record high. We also expect dividend payout ratio to be at 57% level. Last of all, I'd like to share one topic from the Group. As we've mentioned from the outset, we've been actively advancing our AI initiatives. The market has recognized this effort by selecting us as a DX Stock 2026. This recognition is not merely based on the formulation and public announcement of our AI basic policy, but also on our M&A activities, such as the acquisition of Gojob, a French company utilizing staffing platform, which demonstrates our commitment to driving an AI-led business transformation and expansion. It is for these reasons that we have been selected as a DX Stock 2026. We look forward to continuing to evolve into a technology-driven human resources company centered on AI and data. That concludes the full year earnings forecast. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]