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Governance & Financials

Financial Results for Q3 FY2018

Recruit Holdings Co., Ltd. ("Recruit Holdings") announces financial results for the nine months ended December 31, 2018 (unaudited).

1.9 Months FY2018 Consolidated Financial Highlights

Consolidated revenue +7.0%, EBITDA +11.3%, Adjusted EPS +23.1%
・Revenue and EBITDA increased in all three segments: HR Technology, Media & Solutions, and Staffing

Strong YoY revenue growth continued in HR Technology
・Revenue increased +57.2% in US dollar terms, assuming accounting policy change was applied in FY2017 (1)

(In billions of yen, unless otherwise stated)

FY2018
Q3 YoY 9M YoY
Revenue 587.0 +6.0% 1,730.4 +7.0%
EBITDA 84.8 +11.1% 240.1 +11.3%
EBITDA margin 14.5% +0.7pt 13.9% +0.5pt
Operating income 65.6 +12.6% 192.1 +15.3%
Profit attributable to owners of the parent 53.3 +14.7% 146.0 +13.6%
Adjusted profit 53.1 +26.3% 151.0 +23.1%
Adjusted EPS (yen) 31.79 +26.3% 90.43 +23.1%

2.Q3 FY2018 Segment Highlights

(Q3 refers to the three-month period from October 1, 2018 to December 31, 2018)

HR Technology Segment:

  • Quarterly revenue increased by 48.4% year on year and by 53.7% in US dollar terms, assuming application of an accounting policy change to the previous year's quarter on a pro forma basis(1); the increase was mainly due to increased sponsored job advertising revenue from new and existing clients at Indeed and the inclusion of Glassdoor, which was acquired during Q1.
  • Quarterly EBITDA increased by 84.9%.
  • Indeed attracts approximately 250 million monthly unique visitors(2) and job seeker traffic continued to grow double digits year on year during the quarter. Indeed had approximately 8,000 employees located in 29 cities in 14 countries as of December 31, 2018.
  • Glassdoor attracts approximately 64 million monthly unique visitors(2) and traffic grew double digits year on year during the quarter. Glassdoor had approximately 800 employees as of December 31, 2018.

Media & Solutions Segment:

  • Quarterly revenue increased by 6.9%, primarily driven by increased revenue in the Housing and Real Estate and Beauty subsegments in Marketing Solutions and in the Recruiting in Japan subsegment in HR Solutions.
  • Quarterly EBITDA increased by 5.5%.
  • Housing and Real Estate revenue grew, primarily driven by improved usability of its online platform, various marketing efforts to attract more users, and sales initiatives to offer solutions to clients.
  • Beauty revenue continued to grow double digits mainly by extending its reach to clients in non-urban areas and the outskirts of metropolitan areas.
  • Recruiting in Japan revenue continued to grow at high single digits, mainly due to the increase in placement revenue, reflecting the extremely tight labor market in Japan.

Staffing Segment:

  • Quarterly revenue decreased by 1.5%. Revenue for Japan operations increased by 7.8% as demand for agency workers continued to be strong. Revenue for Overseas operations decreased by 7.4% mainly due to an uncertain outlook for the European economy, the negative impact of foreign exchange rate movements and the adoption of IFRS 15. Excluding the impact of foreign exchange rate movements and the adoption of IFRS 15, quarterly revenue for Overseas decreased by 2.5%.
  • Quarterly EBITDA increased by 13.4%.
  • Japan operations recorded an increase in placement revenue, which has higher profitability than staffing revenue, as a result of revisions to Japanese laws.
  • Overseas operations continued to focus on profitability improvement and simplifying the operational governance model in Europe.

Revenue

(In billions of yen)

FY2017 FY2018
Q3 Q3 YoY 9M YoY
Consolidated results 553.8 587.0 +6.0% 1,730.4 +7.0%
HR Technology 57.4 85.1 +48.4% 236.9 +51.3%
Reference: (In millions of US dollars)
Revenue in US dollars
with accounting policy change applied(1)
490 754 +53.7% 2,128 +57.2%
Media & Solutions 166.7 178.2 +6.9% 527.6 +5.8%
Marketing Solutions 93.4 100.7 +7.9% 295.2 +4.7%
Housing and Real Estate 23.5 26.5 +12.8% 76.0 +3.6 %
Bridal 14.4 14.1 -2.2% 41.9 -0.9%
Travel 14.0 15.0 +6.7% 46.7 +4.6%
Dining 9.9 10.2 +3.4% 28.7 +4.2%
Beauty 16.2 18.3 +13.1% 53.3 +13.5%
Others 15.1 16.3 +8.3% 48.3 +2.8%
HR Solutions 71.3 76.7 +7.5% 230.2 +8.9%
Recruiting in Japan 65.1 69.0 +5.9% 205.7 +6.2%
Others 6.1 7.7 +24.7% 24.4 +38.8%
Eliminations and Adjustments 1.9 0.7 -62.1% 2.2 -58.1%
Staffing 336.2 331.1 -1.5% 986.1 +0.7%
Japan 130.6 140.8 +7.8% 409.0 +7.6%
Overseas 205.6 190.3 -7.4% 577.0 -3.6%
Eliminations and Adjustments (6.6) (7.4) - (20.2) -

EBITDA

(In billions of yen)

FY2017 FY2018
Q3 Q3 YoY 9M YoY
Consolidated results 76.4 84.8 +11.1% 240.1 +11.3%
HR Technology 7.0 13.1 +84.9% 36.8 +58.4%
Media & Solutions(3) 46.1 48.6 +5.5% 140.1 +9.2%
Marketing Solutions(3) 29.7 33.1 +11.6% 90.9 +14.1%
HR Solutions(3) 19.8 19.7 -0.2% 61.3 +5.6%
Eliminations and Adjustments (3.3) (4.2) - (12.1) -
Staffing(3) 22.1 25.1 +13.4% 69.2 +10.1%
Japan(3) 10.6 13.4 +26.6% 36.3 +17.0%
Overseas 11.5 11.6 +1.2% 32.8 +3.4%
Eliminations and Adjustments 1.0 (2.0) - (6.1) -
EBITDA margin
Consolidated results 13.8% 14.5% +0.7pt 13.9% +0.5pt
HR Technology 12.3% 15.4% +3.0pt 15.6% +0.7pt
Media & Solutions 27.7% 27.3% -0.4pt 26.6% +0.8pt
Marketing Solutions 31.8% 32.9% +1.1pt 30.8% +2.5pt
HR Solutions 27.8% 25.8% -2.0pt 26.6% -0.8pt
Staffing 6.6% 7.6% +1.0pt 7.0% +0.6pt
Japan 8.1% 9.5% +1.4pt 8.9% +0.7pt
Oversea 5.6% 6.1% +0.5pt 5.7% +0.4pt

(1) The Group adopted IFRS 15 in Q1 FY2018, and changed its accounting policy. Revenues from certain customers which were previously presented on a gross basis with agent commissions classified in cost of sales are now presented on a net basis. FY2017 numbers assume the same accounting policy change was applied on a pro forma basis.
(2) Internal data based on Google Analytics, Monthly Unique Visitors, October 2018
(3) The treatment of cost allocations in intra-group transactions was changed at the beginning of Q1 FY2018, resulting in a positive impact to segment EBITDA for Q3 and the nine-month period of FY2018. Please refer to "Financial Results Summary" of Q3 FY2018 for the details.
(4) For adjusted items for EBITDA and Adjusted Profit, please refer to "Financial Results Summary" of Q3 FY2018.
*Figures in US Dollars are the financial results of operating companies in HR Technology segment, which differ from the consolidated financial results of Recruit Holdings.

3.FY2018 Full Year Consolidated Financial Forecast

There is no revision to the financial forecasts for FY2018 due to the possibility of variances to forecasts in Q4 FY2018. In view of the recent performance, the financial results for FY2018 are expected to exceed the original forecasts previously announced on May 15, 2018.

(In billions of yen, unless otherwise stated)

FY2017 FY2018
Full-year Full-year YoY
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 -

4.FAQ's for Q3 FY2018

Financial Results for Q3 FY2018

* We refer to the financial results for Q3 FY2018, unless otherwise stated.

Consolidated Results

Q1:

Why was the year-on-year growth rate of profit before tax (23.7%) higher than that of operating income (12.6%) in Q3 FY2018?

A1:

This is primarily due to an increase in share of profit of associates and joint ventures of Recruit Holdings in Q3 FY2018, mainly resulting from an increase in net income of 51job, Inc., an equity-method affiliate of Recruit Holdings. 51job, Inc. recognized a non-cash gain associated with a change in fair value of its convertible senior notes mainly resulting from changes in its stock price.

Q2:

Why was the year-on-year growth rate of adjusted profit (26.3%) higher than that of profit attributable to owners of the parent (14.7%) in Q3 FY2018?

A2:

This is mainly due to the lower tax exemption amount in Q3 FY2018. The tax exemption amount was higher in Q3 FY2017 mainly resulting from tax reforms in the US and European countries. This led to higher growth rate in adjusted profit in Q3 FY2018 due to tax reconciliation compared to 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

Q3:

How did the acquisition of Glassdoor impact the consolidated balance sheet at the end of Q3 FY2018?

A3:

The completion of the acquisition of Glassdoor during Q1 FY2018 resulted in an increase in goodwill of 132.3 billion yen in the consolidated financial statement as of the end of Q1 FY2018. Recruit Holdings further evaluated the fair value based on the additional information it obtained during Q3 FY2018 and the amount of goodwill was changed to 99.6 billion yen tentatively at the end of Q3 FY2018. Recruit Holdings plans to complete the allocation of consideration paid for the acquisition (including the classification of goodwill) based on the fair value by the end of FY2018.

Q4:

How did foreign exchange rate movements impact consolidated revenue in Q3 FY2018?

A4:

The negative impact of foreign exchange rate movements on the consolidated revenue for Q3 FY2018 was 6.3 billion yen. Foreign exchange rate movements negatively impacted consolidated revenue by 5.6 billion yen for FY2018 nine-month period.

HR Technology

Q5:

Why did quarterly revenue on a US dollar basis continue to grow strongly in Q3 FY2018?

A5:

The strong revenue growth continued mainly due to increased sponsored job advertising revenue from new and existing customers at Indeed, against the backdrop of a favorable economic environment and strong labor market. In addition, revenue from Glassdoor, which was acquired during Q1 FY2018, positively impacted the revenue growth rate this quarter. As a result, revenue for Q3 FY2018 on a US dollar basis increased 48.2% year on year. Assuming the reassessed identification of a customer due to the IFRS 15 definition (*) was applied in the previous fiscal year on a pro forma basis, revenue increased 53.7% year on year on a US dollar basis.
(*) Please refer to FAQ No.5 for Q2 FY2018 for details:
 https://recruit-holdings.co.jp/ir/library/upload/report_201902_fq_en.pdf

Q6:

Why did quarterly EBITDA increase 84.9% year on year? Why did EBITDA margin increase 300 basis points to 15.4% year on year?

A6:

EBITDA growth was primarily a result of the strong revenue growth. In Q3 FY2018, Indeed gained scale in its sales, marketing and customer support functions, while continuing to invest aggressively in product and engineering to build enhanced functionality for job seekers and employers. As a result, EBITDA margin increased by 300 basis points year on year. The reassessed identification of a customer due to the IFRS 15 definition did not impact EBITDA, while negatively impacting revenue. While the EBITDA margin of the HR Technology segment is expected to fluctuate throughout the year depending on the timing of investments, it is expected to remain within the target range of 10% to 20% on an annualized basis.

Q7:

What was the difference in revenue growth rate between the US and Non-US business of the HR Technology segment?

A7:

The HR Technology segment continued to achieve strong revenue growth in the US, but, due to the earlier stages of market penetration, the revenue growth rate outside the US in aggregate continued to outpace that of the US, driven by key markets such as Japan, UK, Canada and Germany. We do not disclose revenue by regions.

Q8:

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

A8:

Indeed attracted approximately 250 million monthly unique visitors and job seeker traffic grew double digits year on year in Q3 FY2018. Indeed's resume database grew year on year, with over 150 million resumes uploaded to its site as of the end of December 2018. As of the end of Q3 FY2018, Indeed had approximately 8,000 employees located in 29 cities in 14 countries.

Q9:

How many unique visitors did Glassdoor reach? Please also provide an update on the number of employees.

A9:

Glassdoor attracted approximately 64 million monthly unique visitors and traffic grew double digits year on year in Q3 FY2018. As of the end of Q3 FY 2018, Glassdoor had approximately 800 employees.

Media & Solutions

Q10:

Why did quarterly revenue and EBITDA in Marketing Solutions increase 7.9% and 11.6% year on year, respectively?

A10:

Revenue growth was primarily driven by increased revenue in the Housing and Real Estate and Beauty subsegments. EBITDA growth was largely driven by increased revenue. In addition, there was a positive impact on quarterly EBITDA because 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 implemented from last year. Excluding the impact of the change in the treatment of intra-group transactions, EBITDA increased 8.5% year on year.

Q11:

Why did quarterly revenue in the Housing and Real Estate subsegment increase 12.8% year on year?

A11:

There was no impact from the sale of a subsidiary in the Housing and Real Estate subsegment in Q3 FY2017. Revenue growth in the independent housing division and leasing division was primarily a result of continued improvements to the user experience on its online platform, marketing efforts to attract more users to the platform, and sales initiatives to offer solutions to clients.

Q12:

Why did quarterly revenue and EBITDA in HR Solutions increase 7.5% and decrease 0.2% year on year, respectively?

A12:

Revenue increased in the Recruiting in Japan subsegment as a result of solid performance in the professional recruiting business. EBITDA growth rate was lower than revenue growth rate for Q3 FY2018, mainly due to the increased investments in advertising and in the sales force to strengthen competitiveness.
Excluding the impact of the change in intra-group transactions described in FAQ No.10, quarterly EBITDA decreased 2.1% year on year.

Q13:

Revenue in the Recruiting in Japan increased 5.9% year on year, but what is the revenue growth rate excluding the impact of special factors?

A13:

The transfer of the placement business for the medical industry to the Recruiting in Japan subsegment from Eliminations and Adjustments in the Media & Solutions segment contributed to the revenue increase in the Recruiting in Japan subsegment. Meanwhile, there were two factors that negatively impacted year on year revenue growth in Q3 FY2018: 1) the transfer of the recruiting assessment business from the Recruiting in Japan subsegment to the Others subsegment in HR Solutions from Q1 FY2018 and 2) the sale of a subsidiary in August 2018.
Excluding the impact of all the factors above, revenue increased 8.2% year on year.

Staffing

Q14:

Why did quarterly revenue and EBITDA in Japan operations increase 7.8% and 26.6% year on year, respectively?

A14:

In the Japanese labor market, the number of active agency workers remained at a high level and the demand for agency workers continued to be strong. In this environment, Japan operations focused on increasing the number of its registered agency workers and new staffing contracts. As a result, quarterly revenue increased year on year.
EBITDA grew as a result of revenue growth in the staffing business and an increase in placement fee revenue, which has higher profitability than staffing revenue, as a result of revisions to Japanese laws which encouraged corporate clients to hire agency workers directly. In addition, Japan operations were affected by the change in the treatment of intra-group transactions, which also impacted the Media & Solutions segment. Excluding the impact of the change in the intra-group transactions, EBITDA increased 19.8% year on year.

Q15:

Why did quarterly revenue and EBITDA in overseas operations decrease 7.4% and increase 1.2% year on year, respectively?

A15:

Revenue decreased primarily due to an uncertain outlook for the European economy, the negative impact of foreign exchange rate movements and the adoption of IFRS 15 of 6.1 billion yen and 4.0 billion yen, respectively. Excluding the impacts of foreign exchange rate movements and the adoption of IFRS 15, the quarterly revenue decreased 2.5% year on year.
EBITDA grew as a result of the continued focus on decreasing costs and increasing productivity.

Consolidated Financial Forecast for FY2018

Q16:

Please describe the current expectation for the full-year financial forecasts for FY2018, based on favorable Q3 results.

A16:

There is no revision to the financial forecasts for FY2018 due to the possibility of variances to forecasts in Q4 FY2018. In view of the recent performance, the financial results for FY2018 are expected to exceed the original forecasts previously announced on May 15, 2018.

5. Results Materials

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. Reported results should not be considered as an indication of future performance. Forward-looking statements in this press release are based on information available to us on the date hereof. We undertake no duty to update this information unless required by law.