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Financial Results

Results of Operations

Three Months
Ended September 30
Variance % change Six Months
Ended September 30
Variance % change
2016 2017 2016 2017
(in billions of yen) (in billions of yen)
Consolidated operating results
Revenue *1 486.1 538.6 52.5 10.8 924.7 1,063.0 138.3 15.0
   HR Technology 29.9 52.7 22.7 75.8 59.0 99.1 40.1 67.9
   Media & Solutions 161.1 166.7 5,6 3.5 322.5 332.0 9.4 2.9
   Staffing 299.9 324.6 24.6 8.2 552.7 642.6 89.9 16.3
Operating income 67.4 52.0 (15.3) (22.8) 117.4 108.3 (9.1) (7.7)
Profit before tax 68.2 54.1 (14.1) (20.7) 119.3 113.2 (6.1) (5.1)
Profit for the period 49.3 41.9 (7.4) (15.0) 84.3 82.4 (1.8) (2.2)
Profit attributable to the owners of the parent 49.1 41.8 (7.3) (14.9) 83.9 82.0 (1.9) (2.3)
Management KPI
EBITDA 58.6 67.3 8.7 14.8 121.7 139.2 17.4 14.4
   HR Technology 3.9 8.4 4.5 116.1 8.2 16.1 7.9 96.6
   Media & Solutions 37.2 39.0 1.7 4.7 81.4 82.2 0.7 1.0
   Staffing 17.6 20.1 2.4 14.0 32.5 40.7 8.2 25.3
Adjusted EPS (yen) 20.71 22.97 2.26 10.9 43.47 48.30 4.83 11.1
Average exchange rate (yen)
USD - - - - 105.20 111.03 5.83 5.5
EUR - - - - 115.36 126.30 10.94 9.5
AUD - - - - 79.02 85.51 6.49 8.2
Exchange rate effects on revenues *2,3,4
Consolidated - 27.1 - - - 32.5 - -
Staffing segment: Overseas - 22.5 - - - 27.1 - -

(Notes)
1. After deducting corporate expense and eliminations. The total sum of the three segments does not agree with consolidated revenue.
2. The amounts shown are calculated by: revenues for the current period in foreign currency x (foreign exchange rate applied for the reporting period ‒ the rate applied for the same period of the previous year)
3. Monthly average rates are applied to the HR Technology segment.
4. The amount for this second quarter is calculated by deducting the amount for the first quarter from that for the six month period.

Recruit Holdings' consolidated revenue for the three months ended September 30, 2017 (hereinafter quarterly, or the second quarter) was ¥538.6 billion, an increase of 10.8% from the same period of the previous year. This was mainly due to continued favorable growth of its Staffing and HR Technology segments. The effect of the exchange rate fluctuation positively impacted the consolidated revenue during the period by ¥27.1 billion. As a result, consolidated revenue for the six months ended September 30. 2017, was ¥1,063.0 billion, an increase of 15.0% from the same period of the previous year. The growth rate for the six-month period was higher than that for the second quarter as USG People, a wholly owned Staffing subsidiary, started to be consolidated in June 2016 and recorded its operating results for a one-month period in the first quarter of the previous year.

Consolidated operating income for the second quarter of the Fiscal Year 2017 was ¥52.0 billion, a decrease of 22.8% from the same quarter of the previous year. This decline was mainly due to a non-recurring gain from sales of shares of subsidiaries of ¥22.1 billion recorded in the second quarter of the previous year resulting from the transfer of a travel business subsidiary in the Media & Solutions segment. As a result, operating income for the six-month period was ¥108.3 billion, a decrease of 7.7% year on year.

Profit before tax for the second quarter of the Fiscal Year 2017 was ¥54.1 billion, a decrease of 20.7% year on year. This was due primarily to a decline in operating income impacted by the non-recurring gain mentioned above in the prior year. As a result, profit before tax for the six-month period was ¥113.2 billion, a decrease of 5.1% from the same period of the prior year.

Quarterly profit was ¥41.9 billion, a decrease of 15.0%, and profit for the six-month period was ¥82.4 billion, a decrease of 2.2% year on year. Quarterly profit attributable to owners of the parent was ¥41.8 billion, a decrease of 14.9% year on year, and that for the six month period was ¥82.0 billion, a decrease of 2.3% year on year. Both quarterly profit and quarterly profit attributable to owners of the parent declined accompanied by a decline in quarterly operating income as mentioned above.

Quarterly consolidated EBITDA for the second quarter was ¥67.3 billion, an increase of 14.8% year on year. This was mainly a result of the increased segment profit in all the three segments, the HR Technology, Media & Solutions and Staffing. Consolidated EBITDA for the six-month period was ¥139.2 billion, an increase of 14.4% from the same period of the prior year.

Adjusted EPS for the second quarter was ¥22.97, an increase of 10.9% year on year, and adjusted EPS for the six-month period was ¥48.30, an increase of 11.1% year on year. Quarterly profit available for dividends was ¥35.2 billion, an increase of 13.5% year on year, and that for the six month period was ¥74.4 billion, an increase of 10.7% year on year.

Quarterly consolidated revenues and EBITDA which exclude the effect of acquisitions or dispositions were the same as those stated above in the Overview section since there were no items that were excluded for this reporting period. These figures correspond to the stated revenue and EBITDA.

Management Measures during the Second Quarter of the Fiscal Year 2017

The Group Reorganization

The Company announced that its Board of Directors has resolved on September 27 and November 14 of 2017 on a reorganization of its consolidated subsidiaries including the Company's company-split (collectively, the "Group Reorganization"), which was previously mentioned as a significant subsequent event in the "Consolidated Financial Results for the Year Ended March 31, 2017 [Japanese GAAP]" dated May 12, 2017.
According to these resolutions, the Company released timely disclosures regarding the disclosed matters respectively.
In those disclosures, the Company announced its intention to reorganize the Group by establishing consolidated groups under the Company based on its three strategic business units: HR Technology, Media & Solutions, and Staffing.
In addition, since this planned reorganization requires a company-split, an extraordinary general meeting of shareholders will be held to submit this bill on January 17, 2018, setting October 31, 2017 as the record date for voting rights execution.

For further details, please refer to the following news releases.
Announcement on September 27, 2017:
http://www.recruit-rgf.com/ir/ir_news/2017/0927_7911.html
Announcement on November 14, 2017:
http://www.recruit-rgf.com/ir/ir_news/2017/1114_7916.html

Interim Dividend Payment

The Company has changed its dividend policy to start interim dividend payments from the Fiscal Year 2017 in order to increase opportunities to return profits to its shareholders. Under this policy, on November 14, 2017 the Board of Directors has declared an interim dividend of ¥11 per share. The record date for the interim dividends is on September 30 of each year as stipulated in its articles of incorporation.

Results of Operations by Segment 1. - HR Technology

This reportable segment consists of a single business operation, namely, "Indeed," a job search engine website and its related businesses.

Quarterly revenue in the HR Technology segment was ¥52.7 billion, an increase of 75.8% year on year. This growth was mainly due to a combination of new customer acquisition and expanding spend per account. Revenue for the six-month period was ¥99.1 billion, an increase of 67.9% year on year. On a US dollar basis, year-on-year revenue growth was 60.1% for the second quarter, and 59.3% for the six-month period.

Quarterly segment EBITDA was ¥8.4 billion, an increase of 116.1% year on year. This growth was primarily due to the revenue growth, which outpaced growth in expenses during the quarter. To support its revenue growth, the HR Technology segment continued to invest in its sales force and in marketing activities, the timing of which fluctuates throughout the year. Segment EBITDA for the six-month period was ¥16.1 billion, an increase of 96.6% year on year.

The operating results of this reportable segment and its relevant data are as follows:

Three Months
Ended September 30
Variance % change Six Months
Ended September 30
Variance % change
2016 2017 2016 2017
(in billions of yen) (in billions of yen)
Segment revenue 29.9 52.7 22.7 75.8 59.0 99.1 40.1 67.9
Segment EBITDA 3.9 8.4 4.5 116.1 8.2 16.1 7.9 96.6
Indeed net sales(in millions of USD) 297 476 178 60.1 561 894 333 59.3

Results of Operations by Segment 2. - Media & Solutions

This reportable segment includes media and its related services of Marketing Solutions and HR Solutions.

Quarterly revenue in the Media & Solutions segment was ¥166.7 billion, an increase of 3.5% year on year. This was mainly due to a solid trend especially in the Beauty, Housing and Real Estate businesses in Marketing Solutions, and continued steady revenue growth in HR Solutions. As a result, revenue for the six-month period was ¥332.0 billion, an increase of 2.9% from the same period of the previous year.

Quarterly segment EBITDA was ¥39.0 billion, an increase of 4.7% year on year. This was mainly due to the increased segment revenue. The breakdown of the increase is as follows: ¥25.2 billion, an increase of 8.1% year on year in Marketing Solutions, and ¥17.4 billion, an increase of 8.8% year on year in HR Solutions. As a result, segment EBITDA for the six-month period was ¥82.2 billion, an increase of 1.0% from the same period of the previous year. The lower growth rate for the six-month period compared to the three- month period was due to lower revenue growth in the first quarter of this fiscal year. In the first quarter of the previous fiscal year, a one-time revenue increase was recorded accompanied by the contract change in the over-the-counter service in the Housing and Real Estate business. The breakdown of segment EBITDA is ¥50.0 billion, an increase of 1.4% year on year, in Marketing Solutions, and ¥38.2 billion, an increase of 10.4% year on year, in HR Solutions.

The operating results of this reportable segment and its relevant data are as follows:

Three Months
Ended September 30
Variance % change Six Months
Ended September 30
Variance % change
2016 2017 2016 2017
(in billions of yen) (in billions of yen)
Segment revenue 161.1 166.7 5.6 3.5 322.5 332.0 9.4 2.9
   Marketing Solutions 91.9 96.8 4.9 5.4 182.5 188.6 6.0 3.3
      Housing and Real Estate 23.9 25.1 1.2 5.4 49.6 49.8 0.1 0.4
      Bridal 13.7 13.9 0.2 1.6 27.3 27.8 0.5 1.9
      Travel 16.9 16.9 (0.0) (0.1) 31.0 30.5 (0.4) (1.5)
      Dining 8.9 8.8 (0.0) (1.1) 17.8 17.6 (0.1) (1.0)
      Beauty 14.1 15.7 1.5 11.0 27.9 30.7 2.8 10.4
      Others 14.2 16.2 1.9 13.9 28.8 31.9 3.0 10.6
   HR Solutions 67.6 68.7 1.1 1.7 135.7 140.0 4.3 3.2
      Domestic Recruiting 61.4 62.2 0.8 1.4 125.0 128.5 3.5 2.8
      Others 6.2 6.4 0.2 4.1 10.6 11.4 0.7 7.2
   Corporate Expenses / Eliminations 1.5 1.1 (0.3) (24.5) 4.2 3.3 (0.9) (21.6)
Segment EBITDA 37.2 39.0 1.7 4.7 81.4 82.2 0.7 1.0
   Marketing Solutions 23.3 25.2 1.8 8.1 49.3 50.0 0.6 1.4
   HR Solutions 16.0 17.4 1.4 8.8 34.6 38.2 3.6 10.4
   Corporate Expenses / Eliminations (2.1) (3.6) (1.5) - (2.5) (6.0) (3.4) -
FY2016 FY2017
Q1 Q2 Q3 Q4 Q1 Q2
Business KPI
   Online restaurant seat reservations (Dining) *1,2 9.63 19.40 36.92 51.53 14.48 28.28
   Online salon reservations (Beauty) *1,2 13.88 29.44 44.93 61.38 18.24 37.95
   AirREGI registered accounts *3 244 255 267 279 292 305
   Paid Study Sapuri users (Others, Marketing Solutions) *3 215 230 237 244 318 333
Statistical data
   Number of new housing starts *4 (Housing) 247,079 253,072 250,696 223,290 249,916 246,924
   Job-offers to applicants ratio *5 (Domestic Recruiting) 1.35 1.37 1.41 1.44 1.49 1.52

(Notes)
1. Pre-cancellation reservation acceptance basis, stating the cumulative total from the beginning of each fiscal year
2. Figures are shown in millions.
3. Figures are shown in thousands.
4. Source: Statistical Survey of Construction Starts, Ministry of Land, Infrastructure, Transport and Tourism of Japan
5. Source: Ministry of Health, Labour and Welfare of Japan

Marketing Solutions

Housing and Real Estate

Despite a slowdown in the number of new construction starts of condominium apartments in Japan, leasing divisions grew as a result of the sales initiatives to offer solutions to its clients and to attract more users to its platform. As a result, quarterly revenue was favorable at ¥25.1 billion, an increase of 5.4% year on year. Revenue for the six-month period amounted to ¥49.8 billion, an increase of 0.4% from the same period in the previous year. The growth ratio for the six-month period was lower than the quarterly figure due to the absence of one-time revenue realized in the prior year as mentioned above. Excluding this factor, revenue for the six-month period, on a managerial accounting basis, increased by 6.0% from the same period of the previous year.

Bridal

Although the number of marrying couples and the number of couples who hold wedding receptions have been declining in Japan, the Bridal subsegment focused on responding to the high demand by major wedding venue operator clients to attract marrying couples. As a result, quarterly revenue was solid at ¥13.9 billion, an increase of 1.6% year on year. Revenue for the six-month period was ¥27.8 billion, an increase of 1.9% year on year.

Travel

The total number of hotel guests who made reservations on the Travel subsegment platform increased as the subsegment carried out campaigns to promote its usage. Meanwhile, the year-on-year quarterly revenue growth rate for this second quarter declined due to a sales of a subsidiary in the second quarter of the previous year. As a result, quarterly revenue was ¥16.9 billion, a decrease of 0.1% year on year. Revenue for the six-month period was ¥30.5 billion, a decrease of 1.5% year on year. Excluding the impact of the divestiture, revenue increased by 7.1% year on year, calculated using the figure subtracting the subsidiary's revenue from the subsegment revenue for the same period of the previous year.

Dining

Dining and restaurant operators have been facing a challenging environment mainly due to the workforce shortage in Japan. Additionally, a few of the Dining subsegment's major clients were forced to reduce their spending on sales promotion. Meanwhile, the subsegment intensively focused its efforts to promote Air Platform, a cloud-based operational support package, and strengthened its relationship with clients by providing operational solutions to them. As a result, quarterly revenue stagnated at ¥8.8 billion, a decrease of 1.1% year on year. Revenue for the six-month period was ¥17.6 billion, a decrease of 1.0% year on year.

Beauty

Online beauty salon reservations on the Beauty subsegment platform, Hot Pepper Beauty, continued to show solid growth as a result of an increase in the number of clients using SALON BOARD, a cloud-based beauty salon vacancy management and other support package, while improving its functionality. In addition, as a result of its efforts to extend its reach to non-urban salons, the number of its clients has further increased. As a result, quarterly revenue was favorable at ¥15.7 billion, an increase of 11.0% year on year. Revenue for the six-month period was ¥30.7 billion, an increase of 10.4% year on year.

Others

Revenues from the Automobile, Post-secondary Education, Overseas Marketing, and Air Platform businesses were included in this subsegment. Quarterly revenues were strong at ¥16.2 billion, an increase of 13.9% year on year. Revenues for the six-month period were ¥31.9 billion, an increase of 10.6% year on year.

HR Solutions

Domestic Recruiting

The Japanese domestic labor market has remained very tight as evidenced by the rise in the ratio of job-offers to applicants and a continued increase in the number of job advertisements. In this environment, both Full-time and Part-time Recruitment divisions have achieved solid growth as a result of enhancing their brand values, strengthening user attractiveness, and reinforcing their sales structure. As a result, quarterly revenue was solid at ¥62.2 billion, an increase of 1.4% year on year. Revenue for the six-month period was ¥128.5 billion, an increase of 2.8% year on year.

Others

Revenues from the HR development service in Japan and placement service in the Asian region were recorded in this subsegment. Quarterly revenues were favorable at ¥6.4 billion, an increase of 4.1% year on year. Revenues for the six-month period was ¥11.4 billion, an increase of 7.2% year on year.

Results of Operations by Segment 3. - Staffing

In this reportable segment, there are two major regional operations; Japan and Overseas.

Quarterly revenue in the Staffing segment was ¥324.6 billion, an increase of 8.2% year on year. This was mainly because of the increased revenue from the operations in Japan supported by a solid market environment. In addition, revenue from the overseas operation increased as a result of the impact of foreign exchange rate movements in this quarter. As a result, revenue for the six-month period was ¥642.6 billion, an increase of 16.3% year on year. The growth rate for the six-month period was higher than that for this second quarter as USG People started to be consolidated in June 2016.

Quarterly segment EBITDA was ¥20.1 billion, an increase of 14.0% year on year. This was mainly due to the increased revenue from the Japanese operations. The breakdown of segment EBITDA was as follows: ¥9.0 billion from the Japanese operations, an increase of 27.5% year on year, and ¥11.0 billion from the overseas operations, an increase of 4.8% year on year. As a result, segment EBITDA for the six-month period was ¥40.7 billion, an increase of 25.3% year on year. The growth rate for the six-month period was higher than the quarterly figure due to the timing of USG People's consolidation as mentioned above. Segment EBITDA was comprised of ¥20.4 billion from the Japanese operations, an increase of 40.2% year on year, and ¥20.2 billion from the overseas operations, an increase of 13.2% year on year.

The operating results of this reportable segment and its relevant data are as follows:

Three Months
Ended September 30
Variance % change Six Months
Ended September 30
Variance % change
2016 2017 2016 2017
(in billions of yen) (in billions of yen)
Segment revenue 299.9 324.6 24.6 8.2 552.7 642.6 89.9 16.3
   Japan 112.2 123.9 11.7 10.4 223.9 249.6 25.7 11.5
   Overseas 187.7 200.6 12.9 6.9 328.8 392.9 64.1 19.5
Segment EBITDA 17.6 20.1 2.4 14.0 32.5 40.7 8.2 25.3
   Japan 7.1 9.0 1.9 27.5 14.6 20.4 5.8 40.2
   Overseas 10.5 11.0 0.5 4.8 17.9 20.2 2.3 13.2
FY2016 FY2017
Q1 Q2 Q3 Q4 Q1 Q2
Statistical data
   Average number of active agency workers in Japan* 309,332 317,955 332,504 341,296 343,260 -

(Notes)
Source: Japan Staffing Services Association. The figure for the quarter earnings release has been omitted since the data has not been disclosed at the time of release of this document.

Japan

The Japanese staffing market continues to expand moderately as evidenced by the continued increase in the number of active agency workers. Under this environment, the Japanese operations focused on extending existing staffing contracts and increasing the number of new staffing contracts. As a result, quarterly revenue was favorable at ¥123.9 billion, an increase of 10.4% year on year. Revenue for the six-month period was ¥249.6 billion, an increase of 11.5% year on year.

Overseas

Quarterly revenue was ¥200.6 billion, an increase of 6.9% year on year. The positive effect of foreign exchange rate movements on its revenue during this quarter was ¥22.5 billion. Excluding this effect, the quarterly revenue declined by 4.4% year on year. This was primarily due to its operating focus on profitability based on the Unit management system. In addition, the operations experienced a decrease in transactions with existing clients who limited their spending owing to the challenging business environment in some industries in the United States. As a result, revenue for the six-month period was ¥392.9 billion, an increase of 19.5% year on year. The reason for higher growth rate for the six- month period than the quarterly growth rate was the timing of USG People's consolidation as mentioned above. Effects of foreign exchange rate movements for the six-month period positively impacted revenue by ¥27.1 billion. Normalized revenue for the six-month period, excluding factors of USG People's consolidation and applied foreign exchange rates, declined by 4.4% year on year for the same reason as the quarterly revenue growth rate.