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Financial Results for Q1 FY2018

Recruit Holdings Co., Ltd. announces the consolidated financial results for the three months ended June 30, 2018 (April 1, 2018 to June 30, 2018, "Q1 FY2018"). Please see below for the details.

1.Q1 FY2018 Highlights

  • ● Consolidated revenue +8.2%, EBITDA +9.5%, Adjusted EPS +15.9%
    ・Revenue and EBITDA increased in all three segments
       : HR Technology, Media & Solutions, and Staffing

  • ● Strong YoY revenue growth continued in HR Technology
    ・Revenue increase +56.0% in US dollar terms(1)

  • ● Completed the acquisition of Glassdoor, Inc. ("Glassdoor") on June 21
    ・Operating in the HR Technology segment
    ・Profits and losses will impact the consolidated results from July 2018

(1) This is the financial results of operating companies in the HR Technology segment, which differ from the IFRS-based consolidated financial results of Recruit Holdings Co., Ltd.

2.Consolidated Financial Results

(in billions of yen, unless otherwise stated)

FY2017 FY2018
Q1
(Apr. - Jun.)
Q1
(Apr. - Jun.)
YoY
Change
Revenue 524.3 567.2 +8.2%
EBITDA 71.8 78.7 +9.5%
EBITDA margin 13.7% 13.9% +0.2pt
Operating income 56.3 67.8 +20.4%
Profit attributable to owners of the parent 40.2 47.3 +17.8%
Adjusted profit 42.3 49.0 +16.0%
Adjusted EPS(yen) 25.34 29.37 +15.9%

Revenue increased 8.2% year on year to 567.2 billion yen. EBITDA grew 9.5% to 78.7 billion yen, and EBITDA margin was 13.9%.
Operating income increased 20.4% year on year to 67.8 billion yen. This was mainly due to an increase in EBITDA, and a non-recurring gain of 6.3 billion yen resulting from the sale of subsidiaries in Overseas Marketing recorded in the Others subsegment of Marketing Solutions in the Media & Solutions segment in Q1 FY2018.
Adjusted EPS, excluding non-recurring income and losses, grew 15.9% year on year.
To show the Company's earnings capability from operations more accurately, the profits and losses associated with the convertible bond issued by 51job, inc., an equity-method affiliate of Recruit Holdings Co., Ltd. ("Recruit Holdings"), were included in the adjustment items as non-recurring income or losses from this quarter, whereas all of the profits and losses were not included in the previous quarters. The change was made because such profits and losses are originated from the same convertible bond from the same issuer, and the impact from the loss which had not been included in the adjustment items is expected to increase. Assuming this change was applied in Q1 FY2017, adjusted EPS increased 15.5% year on year.

3.Financial Results by Segment

(in billions of yen, unless otherwise stated)

FY2017 FY2018
Q1
(Apr. - Jun.)
Q1
(Apr. - Jun.)
YoY
Change
Revenue
Consolidated results 524.3 567.2 +8.2%
    HR Technology 46.4 71.1 +53.0%
    Media & Solutions 165.2 173.5 +5.0%
    Staffing 318.0 329.1 +3.5%
    Eliminations and Adjustments -5.3 -6.4 -
EBITDA
Consolidated results 71.8 78.7 +9.5%
    HR Technology 7.7 9.4 +21.6%
    Media & Solutions 43.1 47.3 +9.8%
    Staffing 20.6 24.0 +16.7%
    Eliminations and Adjustments 0.3 -2.1 -
EBITDA margin
Consolidated results 13.7% 13.9% +0.2pt
    HR Technology 16.7% 13.3% -3.4pt
    Media & Solutions 26.1% 27.3% +1.2pt
    Staffing 6.5% 7.3% +0.8pt

All three segments delivered an increase in revenue and EBITDA. The increase in the consolidated financial results was mainly driven by the HR Technology segment which continued its strong rate of growth.

Impact to Segment EBITDA due to Change in Intra-Group Transactions

Due to the group reorganization, the treatment of intra-group transactions such as management service fees and general administrative fees was changed at the beginning of Q1 FY2018, positively impacting EBITDA in some segments. Excluding this impact, EBITDA of all segments and subsegments increased year on year.
There is no impact on the HR Technology segment and overseas operations of the Staffing segment from this change in treatment of intra-group transactions.

(in billions of yen, unless otherwise stated)

FY2017 FY2018
EBITDA Q1 Results
(A)
Q1
Adjusted (1)
(B)
Q1 Results
(C)
YoY Change
(C)/(A)
YoY Change
Adjusted (1)
(C)/(B)
Consolidated results 71.8 - 78.7 +9.5% -
    HR Technology 7.7 - 9.4 +21.6% -
    Media & Solutions 43.1 44.6 47.3 +9.8% +6.0%
        Marketing Solutions 24.7 25.5 27.9 +13.1% +9.3%
        HR Solutions 20.7 21.1 23.3 +12.4% +10.4%
        Eliminations and Adjustments -2.3 -2.0 -3.9 - -
    Staffing 20.6 21.2 24.0 +16.7% +13.4%
        Japan 11.3 11.9 13.4 +18.1% +12.2%
        Overseas 9.2 - 10.5 +15.0% -
    Eliminations and Adjustments 0.3 -1.7 -2.1 - -

(1) Results assuming the change in intra-group transactions from the beginning of Q1 FY2018 was applied and impact to FY2017 results. Calculated based on managerial accounting figures.

HR Technology

(in billions of yen, unless otherwise stated)

FY2017 FY2018
Q1
(Apr. - Jun.)
Q1
(Apr. - Jun.)
YoY Change
Revenue 46.4 71.1 +53.0%
    Reference: Revenue in US dollars(1)
    (in millions of US dollars)
418 652 +56.0%
EBITDA 7.7 9.4 +21.6%
EBITDA margin 16.7% 13.3% -3.4pt

In the HR Technology segment, revenue was up 53.0% year on year.
This growth was mainly due to new customer acquisition and expanding spend from existing customers against the backdrop of a favorable economic environment and strong labor market. On a US dollar basis, year-on-year revenue growth was 56.0%.

Segment EBITDA increased 21.6% year on year. To support future revenue growth, the HR Technology segment is strategically making investments in its sales force, in marketing activities to acquire new users and customers, and in product enhancements to increase user and customer engagement. These investments will continue to fluctuate throughout the year. Additionally, segment EBITDA was negatively impacted by one-time costs of 1.19 billion yen associated with the acquisition of Glassdoor. As a result, EBITDA margin was 13.3%, remaining within the target range of 10% and 20%. Excluding the impact of the one-time costs associated with the acquisition of Glassdoor, EBITDA margin was 15.0%.
Profits and losses from Glassdoor's operations will impact the HR Technology segment's results from July 2018.

(1) This is the financial results of operating companies in the HR Technology segment, which differ from the IFRS-based consolidated financial results of Recruit Holdings Co., Ltd.

Media & Solutions

(in billions of yen, unless otherwise stated)

FY2017 FY2018
Q1 (Apr. - Jun.) Q1 (Apr. - Jun.) YoY Change
Revenue
Segment total 165.2 173.5 +5.0%
    Marketing Solutions 91.7 93.6 +2.1%
        Housing and Real Estate 24.6 24.2 -1.7%
        Bridal 13.8 13.9 +0.3%
        Travel 13.6 14.0 +2.8%
        Dining 8.8 9.2 +4.6%
        Beauty 15.0 17.2 +14.2%
        Others 15.6 15.0 -4.1%
    HR Solutions 71.2 79.0 +10.9%
        Recruiting in Japan 66.3 70.2 +6.0%
        Others 4.9 8.8 +76.9%
    Eliminations and Adjustments 2.1 0.8 -62.6%
EBITDA
Segment total 43.1 47.3 +9.8%
    Marketing Solutions 24.7 27.9 +13.1%
    HR Solutions 20.7 23.3 +12.4%
    Eliminations and Adjustments -2.3 -3.9 -
EBITDA margin
Segment total 26.1% 27.3% +1.2pt
    Marketing Solutions 27.0% 29.9% +2.9pt
    HR Solutions 29.2% 29.6% +0.4pt

In the Media & Solutions segment, revenue increased 5.0% year on year, EBITDA grew 9.8% and EBITDA margin was 27.3%. Excluding the impact of the change in the treatment of intra-group transactions, EBITDA increased 6.0%.

Revenue in Marketing Solutions increased 2.1%, and EBITDA increased 13.1% year on year with an EBITDA margin of 29.9%. Excluding the impact of the change in the treatment of intra-group transactions, EBITDA increased 9.3%.
Revenue in the Beauty business, the fastest growing subsegment in Marketing Solutions, increased 14.2% year on year, due to an increase in the number of online beauty salon reservations made through the platform, as well as an increase in the number of beauty salon clients located in non-urban areas and the outskirts of metropolitan areas.
In the Dining business, restaurant operators continued to face a challenging environment, mainly due to the workforce shortage in Japan. In these conditions, the Dining business focused on strengthening relationships with clients by offering operational solutions such as Air Series, a cloud-based operational support package. As a result, revenue in the Dining business increased 4.6% year on year.
Revenue in the Travel business increased 2.8% year on year, driven by an increase in both the number of hotel guests and the price per night of hotels booked through the online reservation platform.
In Housing and Real Estate, revenue in the independent housing and leasing divisions grew as a result of the sales initiatives to offer solutions to clients and efforts to attract more users to the platform. Meanwhile, overall subsegment revenue declined by 1.7% year on year, primarily due to the sale of a subsidiary during the third quarter of FY2017. Excluding this one-time impact, revenue was up 5.5% year on year.
Revenue of the Others subsegment decreased 4.1% year on year, primarily due to the sale of subsidiaries in Overseas Marketing. Excluding the one-time impact of the sale of the subsidiaries, revenue increased by 5.6% year on year.

In HR Solutions, revenue increased 10.9% year on year, EBITDA increased 12.4%, and EBITDA margin was 29.6%. Excluding the impact of the change in the treatment of intra-group transactions, EBITDA increased 10.4%.
In the Recruiting in Japan subsegment, the professional recruiting businesses saw particularly strong performance supported by the continued favorable business environment in the Japanese labor market. Revenue in Recruiting in Japan of HR Solutions was affected by two one-time factors. The first factor had a negative impact on revenue due to the transfer of the recruiting assessment business, which was previously managed in the Recruiting in Japan subsegment, to the Others subsegment during the first quarter. The second factor positively impacted revenue due to the transfer of the placement business for the medical industry to the Recruiting in Japan subsegment, which was previously recorded in Corporate Expenses / Elimination (renamed this quarter to Eliminations and Adjustments) in Media & Solutions. Excluding these one-time factors, revenue increased 8.6%.
The Others subsegment in HR Solutions increased 76.9% due to the transfer of the recruiting assessment business to this subsegment.

Staffing

(in billions of yen, unless otherwise stated)

FY2017 FY2018
Q1
(Apr. - Jun.)
Q1
(Apr. - Jun.)
YoY
Change
Revenue
Segment total 318.0 329.1 +3.5%
    Japan 125.7 135.6 +7.9%
    Overseas 192.3 193.4 +0.6%
EBITDA
Segment total 20.6 24.0 +16.7%
    Japan 11.3 13.4 +18.1%
    Overseas 9.2 10.5 +15.0%
EBITDA margin
Segment total 6.5% 7.3% +0.8pt
    Japan 9.1% 9.9% +0.9pt
    Overseas 4.8% 5.5% +0.7pt

Staffing revenue was up 3.5% year on year, EBITDA increased 16.7%, and EBITDA margin was 7.3%. Excluding the impact of the change in the treatment of intra-group transactions, EBITDA increased 13.4%.

The Japanese staffing market continued to expand as evidenced by the continued strong demand for agency workers and the number of active agency workers remained at a high level. In this environment, the Japan operations focused on extending new and existing staffing contracts. There was also the positive impact of investment to attract more agency workers in Q4 FY2017. As a result, revenue in the Japan operations increased 7.9% year on year.
EBITDA in the Japan operations increased 18.1% year on year, and EBITDA margin was 9.9%. Excluding the impact of the change in the treatment of intra-group transactions, EBITDA increased 12.2%.
In the overseas operations, revenue increased 0.6%, EBITDA increased 15.0% and EBITDA margin was 5.5%. The positive effect of foreign exchange rate movements on overseas staffing revenue during the first quarter was 4.6 billion yen. Excluding this impact, quarterly revenue decreased 1.8% year on year, primarily due to the application of IFRS 15, where a portion of revenue from some subsidiaries is recognized on a net basis as opposed to a gross basis.
On the other hand, EBITDA margin increased in the overseas operations due to its operating focus on profitability based on the Unit Management System, and a positive impact from the application of IFRS 15.

4.FY2018 Consolidated Financial Forecast

The FY2018 full year forecast has not changed since the announcement on May 15, 2018.

(in billions of yen, unless otherwise stated)

FY2017 FY2018
Full-year Full-year YoY Change
Revenue 2,173.3 2,302.0 +5.9%
EBITDA 258.4 285.0 +10.3%
Operating income 191.7 210.0 +9.5%
Profit attributable to owners of the parent 151.6 153.0 +0.9%
Adjusted profit 144.9 170.0 +17.3%
Adjusted EPS(yen) 86.74 101.76 +17.3%
Profit available for dividends 131.8 153.0 +16.1%
Dividend per share(yen) 23.00 27.00 -

Even though the acquisition of Glassdoor was completed during Q1 FY2018 which is earlier than previously anticipated, the full-year forecast for FY2018 has not changed since the announcement on May 15, 2018.

* Assumed foreign exchange rates for FY2018: 106 yen per US dollar, 131 yen per Euro, 84 yen per Australian dollar.

5.FAQ's for Q1 FY2018

Financial Results for Q1 FY2018

Consolidated Results

Q1:

Why did consolidated operating income increase 20.4% year on year, while consolidated EBITDA increased 9.5%?

A:

This was mainly due to an increase in other operating income of 6.6 billion yen, which consists mainly of a non-recurring gain of 6.3 billion yen resulting from the sale of subsidiaries in Overseas Marketing in the Others subsegment in Marketing Solutions in Media & Solutions. Please refer to the following link for further details on the sale of subsidiaries.

Notification of Change in Consolidated Subsidiary (Transfer of Shares and Holdings) (January 5, 2018)
https://recruit-holdings.com/ir/ir_news/2018/0105_8093.html

Q2:

Why did year-on-year growth rate of EBITDA increase to 9.5% in Q1 FY2018, while year-on-year growth rate of EBITDA was 0.2% in Q4 FY2017?

A:

The year-on-year EBITDA growth rate was higher in Q1 FY2018 compared to Q4 FY2017, mainly due to an accelerated level of investment in advertisements to attract users during Q4 FY2017, to drive future growth.

Q3:

Why was year-on-year growth rate of adjusted profit lower than that of profit attributable to owners of the parent in Q1 FY2018?

A:

This was mainly due to a non-recurring gain resulting from the sale of subsidiaries in Overseas Marketing in Q1 FY2018, which led to lower growth rate of adjusted profit compared to that of profit attributable to owners of the parent.

Please refer to the following definition of adjusted profit and adjustment items;
●Adjusted profit = profit attributable to owners of the parent ± adjustment items* (excluding non-controlling interests) ± tax reconciliation related to certain adjustment items
 *Adjustment items = amortization of intangible assets arising due to business combinations ± non-recurring income/losses

Q4:

What was the impact of the completion of the acquisition of Glassdoor Inc. ("Glassdoor") to the consolidated financial results for Q1 FY2018.

A:

Glassdoor was consolidated as of the end of Q1 FY2018, resulting in an increase in goodwill of 132.4 billion yen in the consolidated financial statement. Recruit Holdings, Co., Ltd. ("Recruit Holdings") plans to complete the classification of intangible assets and goodwill related to the acquisition during Q2 FY2018, based on the fair value.
Profits and losses from Glassdoor's operations will impact the HR Technology segment's results from Q2 FY2018. One-time costs of 1.19 billion yen associated with the Glassdoor acquisition were recorded in the consolidated financial statement in Q1 FY2018.

Q5:

How much was the impact of foreign exchange rate movements on consolidated revenue?

A:

The positive impact of foreign exchange rate movements on the consolidated revenue for Q1 FY2018 was 3.5 billion yen.

Q6:

What was the reason for the change in adjustment items to calculate adjusted profit and adjusted EPS? Why were adjusted profit and adjusted EPS in the previous quarters not changed retroactively?

A:

The convertible bond which was issued by 51job, Inc. ("51job"), an equity-method affiliate of Recruit Holdings from 2006, of which we own 37.8% shares as of the end of FY2017, can be converted to equity after October 2018 for market price of 51job at the time of conversion. This may result in an increase in our shareholding ratio which would positively impact to profit, which will be recorded as non-recurring income in the adjustment items.

On the other hand, 51job recorded a significant level of revaluation loss due to an increase in 51job's share price recently. Recruit Holdings recorded this revaluation loss in proportion to its shareholding ratio in 51job under the equity-method, but this loss was not included in the adjustment items in the previous quarters.
This profit and loss above are originated from the same convertible bond from the same issuer, and the record of revaluation loss is associated with a possible increase in profit upon conversion. Therefore, we decided to include the loss related to revaluation of the convertible bond issued by 51job in the adjustment items as non-recurring loss, considering the loss is originated from the same origin as the profit we have already included in the adjustment items, and the impact from the loss which had not been included in the adjustment items is expected to increase.
While this change was reflected to the adjustment items for Q1 FY2018, adjusted profit and adjusted EPS for FY2017 were not changed retroactively as the impact of this change was not significant in the previous fiscal year.


[reference: adjusted EPS assuming the change was applied in the previous years]
●FY2016: 80.32 yen, an increase of 0.3% from 80.06 yen as disclosed.
●FY2017: 88.61 yen, an increase of 2.2% from 86.74 yen as disclosed.

[reference: adjusted EPS in Q1 FY2018]
●Q1 FY2018: 29.37 yen, an increase of 8.3% from 27.12 yen, adjusted in the same items as the previous quarters

HR Technology

Q7:

Quarterly revenue on a US dollar basis increased 56.0% year on year in HR Technology. What drove the continued strong revenue growth?

A:

The strong revenue growth was mainly due to new customer acquisition and expanding spend from existing customers, against the backdrop of a favorable economic environment and strong labor market.

Q8:

Why did quarterly EBITDA margin in HR Technology decrease to 13.3%, compared to 16.7% in Q1 FY2017.

A:

EBITDA for Q1 FY2018 was negatively impacted by one-time costs of 1.19 billion yen associated with the acquisition of Glassdoor, which was completed on June 21, 2018. Excluding this one-time impact, EBITDA margin in HR Technology for Q1 FY2018 was 15.0%. While we expect EBITDA margins will fluctuate throughout the year based on the timing of investments, our expected target range remains 10% to 20% on an annualized basis.

Q9:

What was the difference in revenue growth rates between the US and Non-US?

A:

HR Technology continued to achieve strong revenue growth in the US. Additionally, due to the earlier stages of the market development, the revenue growth rate in non-US markets continued to outpace the US, driven by strong performance in Japan, UK, Canada and Germany. Overall, the Non-US revenue growth rate is following a similar trajectory to what the US experienced a few years ago. We do not disclose revenue by regions.

Q10:

How many unique visitors did Indeed reach? Please also provide an update on the number of resumes, employees and offices.

A:

Indeed attracts more than 200 million unique visitors per month and continued to extend its traffic leadership position, achieving double digit traffic growth year on year in Q1 FY2018. Indeed's resume database grew year on year with over 120 million resumes uploaded to its platform. As of the end of June 2018, Indeed had 6,700 employees and 27 offices globally.

Media & Solutions

Q11:

Why did quarterly EBITDA in Marketing Solutions increase 13.1% year on year?

A:

There was a positive impact on quarterly EBITDA since the treatment of intra-group transactions such as management service fees and general administrative fees was changed at the beginning in Q1 FY2018, due to the group reorganization which was put into action from last year. EBITDA was also driven by increased EBITDA in each subsegment in Marketing Solutions. Excluding the impact of the change in the treatment of intra-group transactions, EBITDA increased 9.3% year on year.

Q12:

Why did quarterly revenue and EBITDA in HR Solutions increase 10.9% and 12.4% year on year, respectively?

A:

Revenue increased in Recruiting in Japan as a result of solid performance in the professional recruiting business. In addition, quarterly revenue and EBITDA increased due to the transfer of the placement business for the medical industry to the Recruiting in Japan subsegment, which was previously recorded in Corporate Expenses / Elimination (renamed this quarter to Eliminations and Adjustments). Excluding the impact of the change in intra-group transactions described in Q11, quarterly EBITDA increased 10.4% year on year.

Q13:

Why did quarterly revenue in the Housing and Real Estate subsegment decrease by 1.7% year on year?

A:

While revenue in the independent housing division and leasing division increased, quarterly revenue in this subsegment decreased primarily due to the absence of revenue from Recruit Forrent Insure Co., Ltd., a subsidiary which was sold in October 2017. Excluding this one-time impact of 1.6 billion yen, quarterly revenue increased 5.5% year on year.

Q14:

Why did quarterly revenue in the Others subsegment in Marketing Solutions decrease 4.1% year on year?

A:

As mentioned in Q1, the sale of subsidiaries in Overseas Marketing in this subsegment impacted quarterly revenue negatively. Excluding this one-time impact of 1.4 billion yen, quarterly revenue increased 5.6% year on year.

Q15:

Why did quarterly revenue in the Others subsegment in HR Solutions increase 76.9% year on year?

A:

This increase was mainly due to the transfer of the recruiting assessment business, which was previously managed in the Recruiting in Japan subsegment, to the Others subsegment in HR Solutions.

Staffing

Q16:

Why did quarterly EBITDA increase 18.1% year on year in Japan operations in Staffing, while revenue in Japan operations increased 7.9%?

A:

This was mainly due to the improvement of productivity in the business operation, and the change in the treatment of intra-group transactions as mentioned in Q11. Excluding the impact of the change in intra-group transactions, EBITDA increased 12.2%.

Q17:

Why did quarterly revenue in overseas operations in Staffing increased 0.6% year on year?

A:

The application of IFRS 15 resulted in a negative impact on quarterly revenue in some overseas subsidiaries, which was recognized on a net basis instead of a gross basis. Revenue was also impacted by a decrease in transactions with existing clients due to the ongoing focus on increasing productivity and profitability by executing the principles of the Unit Management System, and the challenging business environment in the Staffing market in the United States, resulting in year-on-year revenue increase of 0.6%.
Additionally, foreign exchange rate movements positively impacted quarterly revenue by 4.6 billion yen. Excluding this impact, quarterly revenue decreased 1.8% year on year.

Q18:

Why did quarterly EBITDA in overseas operations in Staffing increase 15.0% year on year?

A:

EBITDA increased year on year due to a focus on cost reduction driven by the implementation and execution of the Unit Management principles and guidelines that prioritize productivity and profitability over a focus on revenue growth. As a result, although revenue increased by only 0.6%, EBITDA increased by 15.0% due to improved operating leverage. EBITDA margin also expanded year on year.

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Disclaimer
In preparing these materials, Recruit Holdings Co., Ltd. relies upon and assumes the accuracy and completeness of all available information. However, we make no representations or warranties of any kind, express or implied, about the completeness and accuracy. This presentation also contains forward-looking statements. Actual results, performance and achievements are subject to various risks and uncertainties. Accordingly, actual results may differ significantly from those expressed or implied by forward-looking statements. Readers are cautioned against placing undue reliance on forward-looking statements.
Third parties are not permitted to use and/or disclose this document and the contents herein for any other purpose without the prior written consent of Recruit Holdings Co., Ltd.