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Financial Results

Management's Discussion and Analysis

Adoption of IFRS

The Company has adopted IFRS in place of Japanese GAAP from the beginning of the Fiscal Year 2017. Comparative figures for the previous fiscal year and the previous corresponding period are also prepared in conformity with IFRS.

Consolidated Results of Operations for FY2017

Consolidated Results of Operations
(in billions of yen)
FY2016 FY2017 Variance % change
Revenue *1 1,941.9 2,173.3 231.4 11.9%
   HR Technology 132.7 218.5 85.8 64.7%
   Media & Solutions 658.2 679.9 21.7 3.3%
   Staffing 1,170.8 1,298.8 127.9 10.9%
Operating income 193.5 191.7 (1.7) -0.9%
Profit before tax 198.9 199.2 0.2 0.2%
Profit for the year 137.2 152.3 15.0 11.0%
Profit attributable to owners of the parent 136.6 151.6 15.0 11.0%
Management KPI
(in billions of yen, unless otherwise stated)
EBITDA 232.2 258.4 26.2 11.3%
   HR Technology 16.7 30.6 13.9 83.3%
   Media & Solutions 151.5 156.1 4.6 3.1%
   Staffing 65.6 72.7 7.0 10.8%
Earnings per share -Adjusted (yen) 80.06 86.74 6.68 8.3%
Average exchange rate (yen)
US dollar 108.34 110.85 2.51 2.3%
Euro 118.74 129.66 10.92 9.2%
Australian dollar 81.54 85.77 4.23 5.2%
Exchange rate effects on revenue *2,3
(in billions of yen)
Consolidated - 56.5 - -
Staffing segment: Overseas - 47.6 - -

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: revenue 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.

Management Measures for FY2017

As used herein, the "Group" refers to Recruit Holdings Co., Ltd. and its subsidiaries unless the context indicates otherwise.

Group Reorganization

The Company began operating under a new management structure effective on Apr. 01, 2018, as set out in its Group Reorganization in which each of its three Strategic Business Units ("SBU"s) has respective SBU Headquarters, in order to further promote and accelerate each SBU's own strategies. The new organizational structure enables each of the SBU Headquarters to further strengthen its management capability to execute its independent strategy in a self-sustaining manner. The Company also focuses on its holding company functions and highly efficient group management structure including governance and monitoring of the Group, to further increase its enterprise value. Furthermore, the Group as a whole takes further initiatives to enhance its compliance and risk management capabilities.

For related information, please refer to the following releases:

The Group Reorganization
"Notification of the Group Reorganization and Dividends from Consolidated Subsidiaries," released on Sep. 27, 2017

"Recruit Holdings Co., Ltd. Announces the Group Reorganization and Change in Sub-subsidiary (Update of Disclosure)," released on Feb. 27, 2018

The absorption-type split agreement
"Notification of Execution of Company-split (Absorption-type Split) Agreement with the Company's Subsidiary," released on Nov. 14, 2017

"Notification of Resolution of the Extraordinary General Meeting of Shareholders," released on Jan. 17, 2018

Potential Acquisition of Glassdoor, Inc.

The Company entered into a definitive agreement to acquire Glassdoor, one of the largest and fastest growing job websites in the world, for 1.2 billion US dollar in cash on May 09, 2018. In the mid-term, The Company seeks to further expand its HR Technology business in the United States and globally through both organic growth and M&A investments. The Company foresees significant opportunities for growth as Glassdoor and Indeed explore ways to collaborate to meet challenges faced by both job seekers and employers. This potential acquisition enhances the Company's position as the leader in job search, job aggregation, job seeker and employer matching, and utilizing direct job seeker input to improve the overall job search experience.

For related information, please refer to the following release:
"Announcement of Definitive Agreement for Acquisition of Glassdoor: Expanding capabilities of HR technology platform," released on May 09, 2018

Results of Operations by Segment

HR Technology

This reportable segment consists of the operations of Indeed, an online job search engine and its related businesses.

Revenue in the HR Technology segment was 218.5 billion yen, an increase of 64.7% year on year. This growth was mainly due to a combination of new customer acquisition and expanding spend from existing customers, against the backdrop of a favorable economic environment and strong labor market. Revenue growth for the twelve-month period was 60.7% on a US dollar basis.

Segment EBITDA was 30.6 billion yen, an increase of 83.3% year on year. EBITDA grew largely in line with revenue. To support future revenue growth, the HR Technology segment continued to invest in sales and marketing activities to acquire new users and customers, and in product enhancements to increase user and customer engagement. The timing of these investments fluctuates throughout the year.

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

(in billions of yen) FY2016 FY2017 Variance % change
Segment revenue 132.7 218.5 85.8 64.7%
Segment EBITDA 16.7 30.6 13.9 83.3%
Reference: Net sales of Indeed
(in millions of US dollars) *
1,229 1,976 746 60.7%

Note:
This is the financial results of Indeed, which differ from the IFRS-based consolidated financial results of the Company due to differences in consolidation methodologies.

Media & Solutions

In this reportable segment, a number of vertical platforms and related businesses are operated in two major operations: Marketing Solutions,which mainly offers solutions for clients' user attraction and their business operations, and HR Solutions, which provides a full-range of HR services, mainly supporting enterprise clients' recruiting activities.

Revenue in the Media & Solutions segment was 679.9 billion yen, an increase of 3.3% year on year. This was primarily driven by favorable performance in the Beauty business in Marketing Solutions, and solid performance in HR Solutions in Japan.

Segment EBITDA was 156.1 billion yen, an increase of 3.1% year on year. This was mainly due to the increased profit in Marketing Solutions.
The breakdown of the segment EBITDA was as follows: 95.2 billion yen, a year-on-year increase of 9.4% in Marketing Solutions, and 74.5 billion yen, a year-on-year decrease of 0.4% in HR Solutions. This decrease in HR Solutions was mainly due to increased marketing investment to attract users.

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

(in billions of yen) FY2016 FY2017 Variance % change
Segment revenue 658.2 679.9 21.7 3.3%
   Marketing Solutions 369.6 378.5 8.8 2.4%
      Housing and Real Estate 99.5 98.1 (1.4) -1.4%
      Bridal 54.6 55.4 0.8 1.6%
      Travel 58.4 58.8 0.4 0.8%
      Dining 37.4 37.3 (0.1) -0.3%
      Beauty 56.8 63.8 7.0 12.4%
      Others 62.8 64.8 2.0 3.2%
   HR Solutions 281.9 294.4 12.4 4.4%
      Domestic Recruiting 260.3 270.6 10.3 4.0%
      Others 21.6 23.7 2.1 9.9%
   Corporate expenses/eliminations 6.5 7.0 0.4 7.0%
Segment EBITDA 151.5 156.1 4.6 3.1%
   Marketing Solutions 87.0 95.2 8.1 9.4%
   HR Solutions 74.7 74.5 (0.2) -0.4%
   Corporate expenses/eliminations (10.3) (13.6) (3.2) -
FY2016 FY2017
Business KPIs Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
   Online restaurant seat reservations (Dining) *1,2 9.63 19.40 36.92 51.53 14.48 28.28 52.75 71.21
   Online salon reservations (Beauty) *1,2 13.88 29.44 44.93 61.38 18.24 37.95 57.58 78.23
   AirREGI registered accounts *3 244 255 267 279 292 305 318 333
   Paid Study Sapuri users
(Others, Marketing Solutions)*3
215 230 237 244 318 333 336 339
Market data
   Number of new housing starts *4 (Housing) 247,079 253,072 250,696 223,290 249,916 246,924 244,511 205,045
   Job-offers to applicants ratio *5 (Domestic Recruiting) 1.35 1.37 1.41 1.44 1.49 1.52 1.57 1.59

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

In the Housing and Real Estate business, revenue in the independent housing and leasing divisions grew as a result of sales initiatives to offer solutions to its clients and efforts to attract more users to its platform, while the condominium apartment market in Japan experienced a slowdown in the number of new construction starts. Meanwhile, overall subsegment revenue for FY2017 declined year on year, primarily due to asale of a subsidiary during the third quarter in Fiscal Year 2017, and the absence of a one-time revenue increase associated with the change in the in-person consultation services during the first quarter of FY2016.

As a result, revenue decreased by 1.4% to 98.1 billion yen from the previous fiscal year. Excluding the one-time factors mentioned above, revenue increased by 4.8% (*1) year on year.

Bridal

Although the number of marrying couples has been declining in Japan, the Bridal subsegment focused on responding to the high demand by major wedding venue operators to attract marrying couples. As a result, revenue was 55.4 billion yen, a steady increase of 1.6% year on year.

Travel

While the number of hotel guests booked through its online reservation platform increased, the revenue growth rate was negatively impacted by the absence of a one-time revenue increase resulting from the sale of a subsidiary in the second quarter of FY2016. As a result, revenue was 58.8 billion yen, an increase of 0.8% from the previous fiscal year. Excluding the one-time impact of the sale of the subsidiary, revenue increased by 5.2% year on year.

Dining

As dining and restaurant operators have been facing a challenging environment mainly due to the workforce shortage in Japan, a few large clients were forced to limit their spending on sales promotion in FY2017. Meanwhile, the subsegment focused on strengthening its relationship with clients by offering operational solutions such as Air Platform, cloud-based operational support services. Revenue was 37.3 billion yen, a decrease of 0.3% year on year.

Beauty

In the Beauty subsegment, the number of online beauty salon reservations made through its platform, Hot Pepper Beauty, continued to show solid growth. This growth was a result of improved usability in addition to increased adoption of SALON BOARD, a cloud-based beauty salon vacancy management and support service, by its beauty salon clients. In addition, with a continued effort to extend its reach to non-urban areas,the number of beauty salon clients recorded a solid increase year on year. As a result, revenue was 63.8 billion yen, a strong growth of 12.4% year on year.

Others

Others subsegment includes Automobile, Post-secondary Education, Overseas Marketing, and Air Platform businesses. Revenue was 64.8 billion yen, a steady increase of 3.2% year on year.

Note1: Calculated based on the managerial accounting numbers.

HR Solutions

Domestic Recruiting

The Japanese labor market remained extremely tight, as evidenced by the rising number of job-offers to applicants ratio and of job advertisements. In this environment, both full-time and part-time recruitment divisions achieved solid growth by enhancing their brand values,strengthening user attractiveness, and reinforcing their sales structure. As a result, revenue was 270.6 billion yen, a steady increase of 4.0% from the previous fiscal year.

Others

Others subsegment includes HR development business in Japan and placement service in Asia. Revenue was 23.7 billion yen, a strong growth of 9.9% year on year.

Staffing

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

Revenue in the Staffing segment was 1.29 trillion yen, an increase of 10.9% from the previous fiscal year. This was mainly due to higher revenue from the Japan operations, which was supported by a favorable market environment. In addition, movements in foreign exchange rates positively impacted revenue from the overseas operations.

Segment EBITDA was 72.7 billion yen, an increase of 10.8% year on year. This was mainly due to increased revenue from both Japan and overseas operations. The breakdown of segment EBITDA is as follows: 33.8 billion yen from Japan operations, an increase of 15.0% year on year, and 38.9 billion yen from overseas operation, an increase of 7.4%.

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

(in billions of yen) FY2016 FY2017 Variance % change
Segment revenue 1,170.8 1,298.8 127.9 10.9%
   Japan 463.4 509.2 45.8 9.9%
   Overseas 707.4 789.5 82.1 11.6%
Segment EBITDA 65.6 72.7 7.0 10.8%
   Japan 29.4 33.8 4.4 15.0%
   Overseas 36.2 38.9 2.6 7.4%
FY2016 FY2017
Statistic data Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
   Average number of active agency workers in Japan* 309,332 317,955 332,504 341,296 343,260 343,857 350,734 -

Source: Japan Staffing Services Association.

Japan

The Japanese staffing market continues to expand as evidenced by the continued increase in the number of active agency workers. In this environment, the Japan operations focused on extending existing staffing contracts and increasing the number of new staffing contracts. As a result, revenue was 509.2 billion yen, demonstrating strong growth of 9.9% year on year.

Overseas

Revenue was 789.5 billion yen, an increase of 11.6% from the previous fiscal year. This was mainly due to the full year contribution of Recruit Global Staffing B.V., renamed from USG People B.V. in Jan. 2018, which started to be consolidated in Jun. 2016, and the positive impact of foreign exchange rate movements of 47.6 billion yen. Excluding the impact of foreign exchange rate movements, revenue increased by 4.9% year on year. Also, excluding the impact of Recruit Global Staffing B.V. consolidation and foreign exchange rate movements, revenue declined by 2.6% year on year. This was primarily due to adopting Unit Management System, which mainly focuses on profitability improvement. In addition, the overseas operations experienced a decrease in transactions with existing clients due to the challenging business environment in some industries in the United States.