CFO Message

Article for Annual Report 2018 (October, 2018)

Achieved Record-Setting Profits and Aiming for Enterprise Value Expansion through Further Structural Reinforcement

Keiichi Sagawa

Keiichi Sagawa

CFO, CRO, Senior Managing Corporate Executive Officer, and Board Director

Record-Setting Performance in FY2017

In FY2017, Recruit Holdings' consolidated revenue was 2,173.3 billion yen, up 11.9% and EBITDA was 258.4 billion yen, an increase of 11.3% year on year. This represented our best performance since we started reporting consolidated results in FY2007. We also recorded year-on-year growth of 8.3% in adjusted EPS, one of our management key performance indicators. Revenue and EBITDA grew in all three segments, with significant contribution from HR Technology and Staffing.

In the HR Technology segment, revenue increased 64.7% year on year and 60.7% on a US dollar basis. This continuous growth was mainly due to a new customer acquisition and expanding spend from existing customers.

The Media & Solutions segment achieved stable growth, with revenue increasing 3.3% and EBITDA increasing 3.1% year on year, primarily driven by growth in the Beauty sub segment in Marketing Solutions and Recruiting in Japan sub segment in HR Solutions.

In the Staffing segment, we focused mainly on the extension of existing staffing contracts and an increase in the number of new staffing contracts, supported by a favorable business environment in Japan. In addition, the full-year contribution of Recruit Global Staffing (formerly USG People), which joined Recruit Group from the previous fiscal year, had a positive impact on our performance. As a result, revenue increased 10.9%, and EBITDA increased 10.8% year on year.

Mid-term Management Strategy

We are currently executing business strategies aimed at achieving the targets in our three-year mid-term management strategy ending in FY2018. We are making daily efforts to hone our businesses in three segments, to provide better services for both individual users and clients with our unique business model of providing Matching Platforms. Over the mid-term, positioning HR Technology as the highest growth segment, we will expand our businesses further in each of the three segments.

In the HR Technology segment, we will look for opportunities to expand into other HR related businesses beyond job advertising. The HR Technology segment aims to drive future growth by investing in R&D or through M&A to create new and innovative ways to drive efficiencies in recruiting and hiring processes. In line with this strategy, in June 2018 we completed the acquisition of Glassdoor, which manages one of the world's largest and fastest-growing job websites with company reviews and insights. Indeed and Glassdoor will work together to drive efficiency in recruiting and hiring processes, potentially combining Glassdoor's information about companies with the advanced technologies of Indeed.

In the Media & Solutions segment, we have achieved stable revenue growth by strengthening existing businesses and creating new businesses. Looking forward, we aim to achieve sustainable revenue growth while maintaining a strong EBITDA margin. Toward this objective, we focus on strengthening our relationship with both existing and new corporate clients by investing in development of new businesses.

In the Staffing segment, solid growth in corporate earnings coupled with structural labor shortages due to the declining birthrate are supporting continued stable demand in the staffing industry in Japan. In overseas, the US economy is strong and Europe is in a healthy economic situation having emerged from the economic crisis, contributing to stable global demand for the staffing industry. In this business environment, we will aim for stable growth through our unique management methodology, the Unit Management System.

Financial Policy and Shareholder Returns

To realize mid- to long-term profit growth, we will continue to invest across the business while opportunistically utilizing M&A to support further growth. In addition, we are focusing primarily on increasing shareholder value, and set a high single digit CAGR for adjusted EPS over the three years from FY2016 to FY2018 as a key management target. For FY2018, the final year of the targeted period, we forecast adjusted EPS of 101.76 yen, up 17.3% year on year. Including this in the calculation, our projected CAGR for the three years is 13.5%, exceeding the target in the mid-term management strategy. With regard to capital efficiency, ROE for FY2017 was 19.3%, exceeding 15% set in our basic policy. We intend to maintain ROE of approximately 15% going forward.

We are also focused on returning capital back to shareholders through dividends. As a result, we set a consolidated payout ratio target of approximately 30% of profit attributable to owners of the parent, and annual dividends for FY2017 was 23 yen per share comprising an interim dividend of 11 yen and a year-end dividend of 12 yen. For FY2018, we forecast an interim dividend of 13.5 yen and a year-end dividend of 13.5 yen, increasing the annual dividend by 4 yen from the previous fiscal year to 27 yen per share.

Fund Raising Policy

Our financial principle is to maintain a strong consolidated balance sheet by utilizing capital raised through borrowings, considering the ratings from Japanese domestic rating agencies as important references. For capital efficiency, we implement strict criteria for various kinds of investment.

Recruit Group's primary source of liquidity for working capital and investments is cash flow from operations. However, we may utilize external financing when various conditions are deemed favorable, such as demands for capital, interest rate trends, repayment amount and redemption period of existing interest-bearing debt. For short-term working capital, we primarily utilize borrowings from financial institutions and/or commercial paper. For long-term capital needs, we raise funds mainly through borrowings from financial institutions and/ or bonds.