Recruit Holdings Co., Ltd. (6098) Earnings Call Transcript & Summary

Thank you for joining Recruit Holdings ESG fireside chat with Ayano "Sena" Senaha and Jun Arai. This call is simultaneous translation of the original call in Japanese. Today, Sena will first give an overview of our progress made during FY 2022 for our ESG goals, which is the third pillar of our medium- to long-term corporate strategy. Next, we will begin the fireside chat with Jun Arai, Senior Vice President in charge of Corporate Strategy and Investor Relations. The fireside chat will start by answering the questions we frequently receive from investors. If you're attending the live stream, please submit your questions through the following Google Form at any time. The instruction shown on the screen is Zoom participants only. Please use the Google Form to submit your questions. Please note that we are recording today's session. Presentation material will be obtained from the website.

Hi. I am Sena, Ayano Senaha, Director of the Board, Executive Vice President and COO of Recruit Holdings. Thank you for joining us today. Some of you may have already seen the video we released as part of the earnings report on May 15, but I'd like to briefly explain the key points of our progress in 2022 on the ESG commitment, Prosper Together, which we first announced in 2021. Delivering social value has been part of our DNA since the foundation of the company in 1960. In 2021, at the time of the launch of the new management team, we once again discussed our social value as a global leader in HR matching. We felt strongly that we must use our increasing influence and capabilities to achieve a greater social impact and came to agree that our sustainable growth will become possible by doing so. This is why we added Prosper Together as the third pillar of our management strategy and established 5 clear measurable goals in environmental, social and governance categories with an ambitious time frame. In our first year, we focused on using frameworks and midterm goals. We're starting to see tangible signs of progress in the second year through the evolution of our products and services. Our first sustainability goal focuses on climate actions. We will achieve our short-term goal as planned by reaching carbon neutrality throughout our business activities in FY 2022. And to achieve our long-term goal of reaching carbon neutrality across our entire value chain by FY 2030, we are reducing GHG emissions by setting targets validated by SBTi as a near-term targets to 1.5 degrees in June. Next is our social impact goal. Our target is to shorten the time it takes to get hired by half by FY 2030. We aim to do so through making job matching significantly faster. In FY 2022, we observed several signs we were getting closer to the hire. One of the signs was seen among those using Indeed Assessments. Indeed Assessments let job seekers proactively take assessments, offering a way to showcase their skills to potential employers. Employers who utilized Indeed Assessments for screening were able to hire 16% faster. There are other examples connected to reducing the time it takes to get hired through the evolution of the product. Refining and updating our products in this way will, first and foremost, help simplify hiring, and we believe it will also help our financial growth in the long run. However, job seekers from the underrepresented or vulnerable groups face barriers that are difficult to remove through improving matching quality and efficiency alone. This is why we are also committed to helping 30 million job seekers facing barriers get hired by 2030. Although there are many barriers and biases in the job market, in FY 2022, we decided to focus on and work to reduce 5 barriers. For example, education is a common barrier around the world when looking for a job. We believe hiring should be determined by whether a candidate has the skills and abilities to do the job, not by unrelated factors. However, according to a study, 60% of employers said they have rejected candidates because they do not have sufficient education requirements even though they have adequate skills and abilities. Through making product advancements and partnerships, we are proud to have been able to help 3.9 million job seekers facing barriers get hired in the first 2 years of our journey. Finally, our goal of achieving gender parity across the company. Last week, our proposal to appoint Katrina Lake as a new candidate of the Board of Directors was approved at the Annual Meeting of Shareholders on June 26. As a result, the percentage of women in the Board of Directors members increased from 27% to 33%. This appointment also broadened the diversity in terms of nationality, age, skills and experience. Since we simplified the ESG goals, we have often been asked, "How we can achieve such ambitious goals." To be honest, even now, there is no single goal that we are clearly seeing the pathway towards the goal line. However, because it's not easy, we believe exceptional ideas and innovations will be born out of it. In fact, we are beginning to see tangible signs of progress that we can achieve, both social impact and sustainable business growth. Today, I'd like to share with you those signs of progress, including some information that we will share with you for the first time. Thank you very much.

Thank you very much, Sena. Next, we will move on to the fireside chat with Jun Arai by answering frequently asked questions, including questions we received in advance from the audience. Jun will take the lead from here.

This is Jun. Please to meet you all. I'm sure there is a lot to share today, but let's begin with this. How do you feel about the progress you've made in fiscal year 2022?

Well, honestly speaking, some targets progressed well, while others were more difficult and challenging than I imagined.

Well, you said that you will be honest, so I would like to ask the next question. Which targets do you think are progressing well?

There are 3: environment, 1 of our 2 social impact goals help 30 million job seekers facing barriers and achieving gender parity in the boardroom. I believe the 3 have been progressing relatively well.

On the other hand, which targets do you think did not progress well?

It's not like we didn't see a progress, rather, we faced challenges in 2 targets, reduce the time it takes to get hired by half, the other social impact goal; and achieve gender parity at all levels of our employees, which is something we promised with our employees. Because we are taking on the challenge that no other company in the world has been able to achieve, we are still in a state of exploration with much trial and error. When it comes to reducing the time it takes to get hired by half, we are the only company that has set such objective.

Then, for today, why don't we start by briefly asking the progress in the 3 targets you think are on track, then deep dive into the 2 targets you're facing challenges while covering the points that are anticipated by investors to know? So the environmental goal, besides achieving carbon neutrality throughout the business activities, what progress did you make?

In terms of the environment, we have made progress in reducing Scope 3 emissions by working closely with our supply chain partners. We have also contributed to mitigating climate change through our product called Indeed hiring platform. These were the topics of fiscal year 2022. First of all 95% of our group's GHG emissions are Scope 3 emissions or from our value chain or supply chain. Therefore, Scope 1 and 2 only accounts for 5%. In order to reduce these emissions, we need our supply chain partners to take action. There is no shortcut. There is the GHG protocol. Our environmental team created a manual to assist measuring companies' emissions according to the GHG protocol, a global standard. After measuring is done, we also helped partners develop plans to reduce their emissions. I believe you can imagine that many of our partners are in the media, IT and advertisement sectors. Different from manufacturers, many of them are unable to take action because they do not know how much GHG they are currently emitting. There is a room for further reduction, and the first step in this journey is to help them measure their current emissions. And it was a good news that we have been able to make positive progress.

Does Indeed hiring platform also contribute to reducing emissions in the supply chain?

No, it's not about the supply chain. This is a new product we launched during the pandemic. Emissions avoided through Indeed hiring platform, which allows job interviews to be conducted entirely online, is a contribution outside our supply chain. Therefore, the amount avoided is not counted as the reduced amount of GHG emissions. If our clients use this service, job seekers do not have to travel, and thus, GHG emissions from travel can be avoided. We call this avoid. This is not counted as the reduced amount of GHG emissions because this is outside our supply chain. This is our product, but it's the client who use this service. But I still think this is a great contribution because of the scale. More than 300 million people visit Indeed every month. The GHG emissions avoided in 2021 from this product is equivalent to the charging capacity of more than 1.5 billion smartphones per day. Namely, there are 7.5 billion people in the world. So that means we can charge the smartphones of 1/5 of the world population. This cannot be included in our emission reduction plan. But I believe this represents what we can do with our product.

As for the target to help 30 million job seekers facing barriers, I believe the fact that we were able to help 3 million job seekers is the major progress, as you mentioned earlier. Do you plan to share the breakdown of this 3.9 million people?

To answer that question, I want you to imagine who exactly are the job seekers facing barriers. There are many various job seekers face, but we've identified the 5 barriers that we focused on and work to reduce as shown on the screen. Yes, there are 5 barriers. Of these, perhaps the most difficult for you to imagine are criminal record and military service. I was also shocked when I heard about this, but there are more than 70 million people who have some type of criminal record in the U.S. This is about 1/3 of the adult population. There is public research showing that job seekers with criminal records are over 50% less likely to get a callback or offer. And then working experience in military service is also especially unique to the U.S. in this context. Approximately 200,000 veterans return to civilian life each year. But many veterans have a hard time explaining their job experience and skills they have acquired in the military in their resumes and at interviews and find it difficult to appeal to employers. According to 1 study, more than 50% of veterans are unemployed for more than 4 months after leaving the military. You asked, do we plan to share the breakdown of the 3.9 million? We do not disclose the breakdown because we found that many job seekers are facing more than 1 barrier. For example, some may face 2 barriers at the same time, such as educational requirement and criminal record, or they may have a disability. Some may face 2 barriers or more at the same time. Even if they face multiple barriers, we count them as 1, if it is a 1 individual. For this reason, we do not currently disclose the breakdown of barriers in order to be fair.

Yes, I can see that this is complicated. I bet it is not easy to achieve this goal if we focus on users who have difficulties finding the job compared to when we just focus on those who have great careers and are likely to find a job easily or more specifically can choose from several offers.

That is exactly why this challenge is meaningful. I believe the audience today, the majority of you graduated university and have white-collar jobs and are working based on intellectual activity. In Japan and elsewhere, or, for example, in the U.S., the annual income range of job seekers hired through Indeed is about the same as the annual income range of U.S. workforce. Because this is a service used by so many people, as a company operating a global HR platform, with about 300 million visitors each month, we believe that helping job seekers who face barriers to enter or return to the job market is a mission we should take.

So you're setting a difficult challenge intentionally?

But we think it is working. Yes, it is challenging, but it's working.

So next, I'll move on to the other targets you mentioned that you are struggling with. About the other social impact goals, reduce the time it takes to get hired by half. This bold target, let us talk about that. The contribution from several product updates that were reported in May. But I think what people want to know today is how much of those actually helped shorten the baseline duration of 15 weeks you set last year. I want to know that, too. So can you give us an update?

I will start by talking about the challenges we are talking on, taking on and the difficulties we are facing and where we are now. So moving back to the beginning. When we set our goal to reduce the job search duration by half in 2021, there was no data available anywhere in the world on the time it takes to get a job. In other words, no one in the world yet had the answer to this seemingly simple question, "When does the job search begin and end?" For this big challenge, we have been collecting data on the Indeed platform over the years on the goal point, the hired signal. Now we are able to understand the point. So 23 hires per minute was mentioned at the time of the financial results briefing. So that is the hired signal. And now we're able to understand the point the job seeker was hired with a high degree of accuracy. But the starting point is difficult. So the endpoint is hiring, so it's clear, but starting point may differ from person to person. So for example, in my case, if I want to change a job, I will probably update my resume and look for the possible jobs and apply. But my sister -- younger sister, she probably spends more time looking at Indeed than I do. So she frequently browses jobs on Indeed when she has free time. And if she finds a good job, she will apply for it. So the action that indicate the start of the job search are very diverse from person to person. It's hard to identify the starting point with high accuracy. Now by the way, the 15 weeks -- or this baseline duration of 15 weeks, which we want to have, this is done questionnaire-based, survey-based. So we conducted a survey asking users with hired signals flagged about how long it took them to find the job. This is how we derive the basis of the 15 weeks. But we also know that the user survey are not perfect. Users themselves do not always remember exactly how long it took. So this digital signal, how this digital signal can be measured and can this be used for monitoring? We are trying to take multiple approaches. And as of today, we cannot definitively say we will go with this. So stay tuned. But the start and end, along with the measurement of the duration, we say this much reduction using particular product. And we've said that in the financial results briefing. So this is where we stand. So you cannot count -- well, it's too much for 10 years. So please wait. We're working on this very hard. Thank you. Please stay expected.

Let's move on to the next question, the DEI target, which means to achieve gender parity at all levels of employees in group by fiscal year 2030. According to the update in May, it seems like the progress was small or almost none. What is the challenge you are facing now in March, in the HR Technology subsegment, there was a layoff, but does that have an impact?

Currently, these numbers were shared in the earnings call. But the percentage of women among the managers is 39% currently and 22% among senior managers. The challenge and progress varies by SBU to SBU. To explain the challenge, I would like to present the numbers by SBU for the first time. As you can see from the screen, the Staffing SBU has already achieved a 50% women ratio among employees and managers, and the only remaining challenge is senior managers. Therefore, the major challenge as group is how to increase the ratio of managers in Matching & Solutions SBU and HR Technology SBU. First is about our HR Technology SBU. Last year, we analyzed the situation at Indeed, a major subsidiary of the HR Technology SBU. And to our great surprise, the post-employment promotion and resignation rates were almost equal for men and women. So we thought it was most important to achieve diversity at the point of hiring. Achieving gender parity of inflow, that shall be the biggest driver. And therefore, the SBU established a new process, inclusive interview rule for internal and external hiring practices, to ensure a diverse slate of candidates throughout the entire interview process. Interview cannot be initiated unless you meet the requirements in the inclusive interview rule. This was extremely effective. We were able to improve numbers in the first year. But because of the hiring freeze and layoffs in response to the current business forecast, we must aim to increase the ratio of women in the absence of new inflows. This is the reason why there is seemingly no progress on a year-on-year basis. So this has been the challenge.

But you have already created a system.

Yes.

I understand that it is hard to make progress in our overseas locations because of the hiring freeze. But what about the progress in Japan?

It is still fresh in our minds that Japan has ranked 125th place out of 145 countries in the recently released Gender Gap Index, a record low and disappointing result. This data was published from 2006, and 125th place is a record low for Japan. So the situation is worsening. However, I believe there is a positive sign in the Matching & Solutions SBU. Let's look at the current status. In 2006, I joined Recruit. The percentage of women first-line managers was around 10% in 2006. But after taking initiatives to improve the work environment today, the number increased almost threefold to 34%. This is higher than the average among Japanese companies. But our goal is parity. So our starting line was after we made certain efforts.

How can we improve even further?

There are 2 things that are going well. First is SBU worked on clarifying the requirements for managerial positions and set 3-year targets by each division, just like creating a business plan. Strengths and capabilities of Recruit are leveraged in this initiative. The other thing that is also showing a positive sign is clarifying requirements for managerial positions. This was original high already, but we have been able to make even further progress.