Edited Transcript of 6098.T earnings conference call or presentation 27-May-20 8:00am GMT

Chiyoda-ku Tokyo-to Jun 30, 2020 (Thomson StreetEvents) — Edited Transcript of Recruit Holdings Co Ltd earnings conference call or presentation Wednesday, May 27, 2020 at 8:00:00am GMT

Recruit Holdings Co., Ltd. – Corporate Executive Officer

Recruit Holdings Co., Ltd. – President, CEO & Representative Director

Recruit Holdings Co., Ltd. – IR Executive

Nomura Securities Co. Ltd., Research Division – Analyst

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [1]

Welcome to Recruit Holdings Fiscal Year 2019 Earnings Conference Call. I am Shen from IR office. Speakers today are Masumi Minegishi, President and CEO; and Junichi Arai, Executive Officer of Capital Market Strategies. Minegishi will briefly go through fiscal year 2019 results we announced at 3:00 p.m. and then proceed to Q&A.

This call is simultaneously translated from the original call in Japanese, and translation is provided for the convenience of investors only.

Now I will turn over the call to Mr. Minegishi.

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [2]

Thank you very much for taking time out of your busy schedule to participate today. I’m Minegishi, President and CEO of Recruit Holdings. Thank you. In the past, we have held the full year financial results briefing at our offices, but this time, we are conducting the presentation as a conference call since our priority is to prevent the further spread of COVID-19. We appreciate your understanding. We are committed to operate our business while making it a top priority to ensure the safety of our employees and their families as well as individual users, enterprise clients, external cooperation partners, while preventing the spread of COVID-19.

In Japan, in response to the Japanese government’s declaration of state of emergency, in principle, the company acted immediately by allowing all employees to work from home and banning all business trips in impacted locations. At each of our global headquarters, we have also worked to ensure the safety of employees.

Now the financial results for the year ending March 2020 has been reported in the earnings release and voluntary disclosure materials. The impact of COVID-19 on consolidated financial results for this fiscal year ’19 was limited. Revenue was JPY 2,399.4 billion, adjusted EBITDA was JPY 325.1 billion, and adjusted net income and adjusted EPS were JPY 199.5 billion and JPY 121.03, respectively, which are the company’s key management targets. The results exceeded the revised full year guidance for the year ended March 31, 2020, of adjusted EBITDA of approximately JPY 320 billion and adjusted EPS growth of high single digits. For further details, please refer to the earnings release and the financial results summary.

Today, I would like to discuss the 4 points. First, impact of the challenging global economic environment on our business due to spread of COVID-19; two, execution of our mid- to long-term strategy under COVID-19 situation; three, update on our recent business operations; and four, flexibility of profit structure and financial health that supports the execution of our mid- to long-term strategy.

First is the impact of a challenging global economic environment on our business due to spread of COVID-19. Over the past 10 years, our business portfolio has made major leap forward from HR and marketing media to become a global business with Indeed as our core. In Japan, we are focusing on the expansion of Air BusinessTools, which helps improve the productivity of enterprise clients. While attempting to further execute on our mid- to long-term strategy, the spread of COVID-19 has had a significant impact on individuals’ job search activities and consumer behavior and on the hiring of business activities of enterprise clients. As a result, our revenue has been significantly impacted.

We have previously stated that our aim is to become the global leader in the HR matching market in the mid to long term. However, the spread of COVID-19 is expected to have a significant impact on the global TAM of the HR matching market, which comprises job advertising and talent sourcing tools, placement and search and temporary staffing. We estimate this will likely shrink in 2020 compared to the previous year.

In addition, revenue of Marketing Solutions and Media & Solutions, which decreased by less than 10% in the fiscal year ended March 2010 right after the Lehman shock, has fallen significantly this time as the bridal, travel and dining businesses have seen reduced demand for advertising services.

Next is number two, execution of our mid- to long-term strategy under COVID-19 situation. Even during such a challenging business environment, we will continue to make necessary investments, and we’ll reallocate our workforce aggressively in line with our mid- to long-term strategy. In order to capture a larger share of the HR matching market during the recovery period, we are further improving matching efficiency of our services and actively investing in product development to meet new demands. For example, with social distancing practices in places across many of the markets where the company operates, the demand for online hiring and virtual recruiting processes and tools that enable them have increased substantially. In response to these challenges, HR Technology adapted its platforms to help job seekers with additional tools and resources to facilitate finding a job in the current environment and expedited initiatives to help enterprises and public sector organizations who need to hire quickly and effectively at scale. Among these expanded offerings are flexible and scalable hiring solutions, including virtual hiring events, which enables job seekers to schedule interviews, apply and take an interview online and full-service placement services, such as Indeed Hire, targeting at helping employers who had strong demand for hiring essential workers at scale during the pandemic.

In Marketing Solutions and Media & Solutions in Japan through Air BusinessTools, which is the core of our SaaS solutions, we can help clients resume business and reduce costs by using our cashless payment solution, AirPay and other solutions for improving productivity. The relatively flexible cost structure and consolidated balance sheet with a focus on soundness and liquidity that are coming to our 3 business segments are factors that enabled us to execute our long-term strategy even during this uncertain period.

And third, I would like to provide an update on our recent business operations. The spread of COVID-19 around the world has intensified, especially in March, and it is impacting our business performance for the fiscal year ending March 2021. In April, year-on-year, consolidated revenue growth rate decreased by approximately 21%. In HR Technology, the number of paid job advertisements declined significantly due to the slowdown in recruitment activities around the world. Revenue began to stabilize in mid-April, although the future outlook contains significant uncertainty. In Media & Solutions, as the Japanese government requested people to stay home due to the spread of COVID-19, our Marketing Solutions business, especially bridal, travel and dining businesses was affected and which resulted in a decrease in demand for advertising in these businesses. In HR Solutions, enterprise clients reduced demand for hiring due to the deteriorating economic outlook and at the same time, canceled and postponed hiring events, which negatively impacted business performance. In Staffing, COVID-19 impacted overseas operations in Staffing immediately as many countries started to implement social distancing and other restrictions in March. In the Japan operations in Staffing, the impact was limited of April. This is because there were many cases where Staffing contracts were completed before the spread of COVID-19 in Japan. However, we believe that the impact will become apparent in the future. Around the world, we have never experienced the restrictions and lockdowns imposed by government to stop the spread of COVID-19. The effect of this has been significant, and we believe this may result in a further decline in revenue. In Japan, I think the impact will be greater in May. But it could be the bottom of the decline. However, the possibility of a second or third wave of infection remains. So we are carefully monitoring the situation.

What is more challenging compared to estimating the bottom of the decline is to estimate how long it will take to recover, but we are operating our businesses with a range of 1 to 2 years. Under these circumstances, we have decided that it is not appropriate to provide the consolidated financial guidance for the fiscal year ending March 2021 due to the wide variety of uncertainties. Therefore, we do not provide the dividend forecast as well. We would like to inform you as soon as we have an appropriate and rational outlook.

Next, I will talk about the flexibility of the cost structure and current strong consolidated financial position that enable us to execute our mid- to long-term strategy. Firstly, I will discuss the flexibility of the cost structure. Our 3 business segments have been achieving adjusted EBITDA margin at appropriate levels according to their characteristics, growth potential, future outlook or business maturity.

In the fiscal year ended March 31, 2020, adjusted EBITDA margin was 16.8% for HR Technology, 24.2% for Media & Solutions. And the adjusted EBITDA margin on a gross profit basis for Staffing was 37.2%. We will continue to actively invest in the HR matching business and Air BusinessTools, which are at the core of our long-term strategy in order to gain market share around the world during the post COVID-19. And we will reduce marketing expenses at an appropriate level. The consolidated advertising expenses for the fiscal 2019 were about JPY 170 billion, the majority of which are in HR Technology and Media & Solutions.

Four, in addition, we are committed to maintaining our strong financial position. As of the end of March 2020, cash and deposits on our balance sheet were JPY 421.2 billion, and net cash after deducting interest-bearing debt was JPY 284.5 billion. At present, even if we assume that the business environment in April, which I discussed earlier, continues for 1 year or more, we believe that the decline in revenue will not impact our ability to implement our business strategy and investments in accordance with our mid- to long-term strategy. We recently signed a commitment line agreement totaling approximately JPY 400 billion, but there is no loan outstanding under this commitment line agreement as of today. Going forward, we will continue to promptly consider and implement appropriate means of financing as necessary.

Lastly, we are focused on providing Matching Solutions, which is more convenient and efficient in line with changes in individual users, job searching activities and consumption behavior as well as changes in enterprise clients, hiring methods and business activities, which are envisioned in the world post COVID-19. In order to achieve long-term business growth and increase enterprise value, we will continue to actively invest in priority areas even under these circumstances. To that end, we will ensure that we have a strong balance sheet, so that it does not hinder immediate execution of our strategy.

We are grateful for the understanding and support of our shareholders, capital market participants and all of our stakeholders.

That concludes my prepared remarks. Now I or Mr. Arai, who is in charge of the Capital Market Strategy, will take your questions. Thank you.

================================================================================

Questions and Answers

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [1]

——————————————————————————–

Now we would like to proceed to the Q&A session. For the Japanese — for English line participants, please send email to the IR address provided in the invitation email. Nomura Securities, Mr. Nagao, please.

——————————————————————————–

Yoshitaka Nagao, Nomura Securities Co. Ltd., Research Division – Analyst [2]

——————————————————————————–

Do you hear me?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [3]

——————————————————————————–

Yes we do.

——————————————————————————–

Yoshitaka Nagao, Nomura Securities Co. Ltd., Research Division – Analyst [4]

——————————————————————————–

So you said 2 questions per person?

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [5]

——————————————————————————–

Yes, that’s right.

——————————————————————————–

Yoshitaka Nagao, Nomura Securities Co. Ltd., Research Division – Analyst [6]

——————————————————————————–

Okay. So I will ask 2 questions. First, revenue. April update is difficult, but you said that you will — you have the flexible cost structure. This year, how much room for cost reduction do you have?

Personnel costs, and you mentioned the numbers on the advertisement expense. This is JPY 170 billion. I think that will be the target. So cost reduction, how much room do you have? Flexibility do you have? President, Minegishi? Could you explain this one? This is my first question.

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [7]

——————————————————————————–

Could you ask your second question first? We will answer them together.

——————————————————————————–

Yoshitaka Nagao, Nomura Securities Co. Ltd., Research Division – Analyst [8]

——————————————————————————–

Okay. Second question is on HR technology. So if you could elaborate on the current situation. So the number of job application is — job search is lower or the traffic, the user is on the decline. So minus 30% in revenue in April. So if you could break this down, please?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [9]

——————————————————————————–

So first question, room for further cost reduction. As I alluded to earlier, we have around JPY 170 billion in advertisement and marketing expenses as a group. So this is a sizable amount. We will appropriately reduce cost according to the circumstances, and we have room to do that. And for HR, of course, it depends on the recruiting situation from country to country, as the entire group, restructuring or headcount reduction is not being planned as a group. So we have the SBU-based business, and each country will adjust the headcount accordingly on a country-by-country basis. Our talent, especially in technology area, will be crucial in the post-corona period. So the key is how we can increase our market share in the post-corona period. So the technology-based talent and the development and the sales promotion personnel will contribute to that. So we will be very careful in our talent planning. So we will take appropriate measures.

Next, HR Technology was your second question. This COVID-19 is impacting the consumption because countries are doing lockdown and the stay home measures and restrictions. And so the consumption is plunging in a very short period of time. During Lehman crisis, GFC, it was a financial crisis and the impact spread gradually over the course of 1 year. But this time around, it came suddenly. So stay home and the restrictions on movement in travel is impacting various industries and many businesses are shut down, and the consumption is plunging. And so the revenue is declining accordingly. On the other hand, those on leave due to business closure is receiving a big benefit and support. So they are protected for the short period of time. In the U.S. unlike Japan, the employment practice is different. So there’s layoff and more unemployment. But there is a big benefit being paid for that. So while this benefit is being paid for a few months, the job seekers are also taking a wait-and-see attitude. But in our case, HR Technology, we are being paid from the enterprise clients. So the recovery of the job post will lead to the recovery in our revenue. Thank you. I hope that answers the question.

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [10]

——————————————————————————–

Kinoshita, Merrill Lynch, please?

——————————————————————————–

Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division – Research Analyst [11]

——————————————————————————–

Yes, this is Kinoshita speaking. Can you hear me? Can you hear me clearly?

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [12]

——————————————————————————–

Yes.

——————————————————————————–

Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division – Research Analyst [13]

——————————————————————————–

In relation to the previous question, first of all, regarding the HR Technology, in your earlier comments, you mentioned from middle of April, the decrease has come down to stabilize to some extent. How should we interpret this? So from mid-April, the reduction has been a slowdown? Or should we interpret as that it was in the negative, but you have seen some recovery from the negative? In that sense, you said that the decrease was stabilized. So I wasn’t sure how to interpret that. So if you could elaborate, I would appreciate. You mentioned minus 35%. And in the earlier section, it was minus 70%. And then in the latter half, it was 0 or did I understand that correctly? So that’s the first question.

And the second question, regarding advertising and marketing expenses, you have mentioned that you will try to appropriately control these expenses. And in making decisions for controlling expenses, I would like to know more about your approach. For example, would you look at the share of each business and try to spend advertising and marketing expenses as to maintain that share? Or would you focus more on the profits? So even in short term, share may be reduced, but you will try to still decrease expenses to the extent possible. So how should we interpret when you say appropriately control expenses? What will be the criteria that you would be referring to in making those decisions?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [14]

——————————————————————————–

Thank you for your questions. Regarding HR Tech, core is Indeed. The decrease became stabilized, so the job post and revenue are correlated, as I mentioned before. So in line with the job post, we have also seen some recovery in revenue. We have seen negative numbers, but we believe we hit the bottom. However, this recovery that we are seeing, it could be that it recovers, but then tends to declining trend again or that it doesn’t recover as much, but remains flat or it gradually recovers 100 or it rather takes a sudden recovery. There are various cases. But looking at the data from around middle of April, we have seen stop to the decline. And going forward, uncertainties still remain.

As for the second point, advertising, marketing costs and how we will appropriately control these expenses. In principle, we have the mid- to long-term strategy, HR Tech, and Air BusinessTools as our target. And in the post-COVID world, we would like to focus on market share. So without holding back investments, we will try to increase share. In the subordinate situation in post COVID, in line with the decrease in revenue, there is a possibility that we will have to implement rather a bold cost cuts. In other words, I will take a more varied approach to resource allocation.

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [15]

——————————————————————————–

Mitsubishi UFJ Morgan Stanley, Mr. Nakamura, please.

——————————————————————————–

Haruo Nakamura, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. – Deputy President & Director [16]

——————————————————————————–

Can you hear me?

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [17]

——————————————————————————–

Yes.

——————————————————————————–

Haruo Nakamura, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. – Deputy President & Director [18]

——————————————————————————–

I have 2 questions. So in this period, in terms of aggressive active investment, do you think this is an M&A opportunity? So do you think because we are in this situation, it may be an M&A opportunity? Do you think this is an opportunity? Is there any difference in stance, change in your stance?

And second question. So cost of goods and SG&A combined, in your case, is JPY 2.15 trillion. So if you break this down to fixed cost and variable cost, what is the breakdown? And in the fixed cost, there may be variable costs like fixed cost. So what is the breakdown, roughly speaking?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [19]

——————————————————————————–

Yes. So mid- to long-term strategy remains unchanged. And we are foreseeing the post-corona period and want to increase our market shares, then. So of course, it includes P&L type investment and the personnel allocation and M&A. So our policy remains unchanged. So that is my first answer.

And second question, that will be in the advertisement and marketing expense, the breakdown between fixed and variable cost. Is that your question?

——————————————————————————–

Haruo Nakamura, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. – Deputy President & Director [20]

——————————————————————————–

No, it’s rather in your company-wide structure, the cost of goods sold and SG&A combined is over JPY 2.1 trillion. So if this overall cost is broken down to fixed and variable costs, what is the rough breakdown? That’s my question.

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [21]

——————————————————————————–

We do not disclose the numbers. So I cannot be specific, but advertisement and marketing expenses is JPY 170 billion, and that number we disclosed. So profit structure and our EBITDA margin, we have flexible profit structure. And so I hope you could understand our structure from those numbers and what we disclosed.

——————————————————————————–

Junichi Arai, Recruit Holdings Co., Ltd. – Corporate Executive Officer [22]

——————————————————————————–

So JPY 2.4 trillion revenue. As Minegishi-san said in his presentation, for Staffing, gross profit based profit will be closer to the reality. So JPY 2.4 trillion, it’s rather JPY 1.3 trillion. So if you could use that as a number to look at the breakdown, JPY 170 billion is the advertisement and marketing expense, which is sizable, and this is the portion we can control. So that’s what we mean by the flexible — flexibility we have.

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [23]

——————————————————————————–

Mr. Kishimoto-san of Mizuho Securities.

——————————————————————————–

Akitomo Kishimoto, Mizuho Securities Co., Ltd., Research Division – Research Analyst [24]

——————————————————————————–

Yes, this is Kishimoto. I just have 1 question. In Japan, you mentioned the impact was rather small in April, and do you expect the impact to be bigger in May. And you believe that right in May, you will hit bottom, what is the basis of rationale for thinking that? Have you seen the similar trend in the U.S.? Or have you referred to send data in saying that in May, you will bottom up? Or are you giving us an optimistic projection? So please tell us the rationale why you think in May, you’ll hit the bottom?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [25]

——————————————————————————–

You’re asking about the Japan operations?

——————————————————————————–

Akitomo Kishimoto, Mizuho Securities Co., Ltd., Research Division – Research Analyst [26]

——————————————————————————–

Yes.

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [27]

——————————————————————————–

For the SBU, I mentioned that for Media & Solutions May impact will be bigger. The basis or rationale for saying that is based on some data that we referenced. It’s wishful thinking that in May that we will hit bottom. For M&S, SBU, impact in April, of course, was in the negative to May, as you have seen in the summary of financial results, especially in bridal, Zexy, Jalan or travel business. Because of the state of emergency and certain restrictions imposed, these businesses were affected significantly. However, in advertising business, as an orders are received for April and therefore, the reduction may be smaller in May because of that. In May, under this COVID-19 situation, the orders received for advertising for May have already received despite this impact coming from COVID. Therefore, we predict that the impact may be bigger in May. Because of the lockdowns and the state of emergency being eased gradually, generally speaking, people believe that May will be a worse hit.

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [28]

——————————————————————————–

So Mr. Moody?

——————————————————————————–

Unidentified Analyst, [29]

——————————————————————————–

I will ask you 2 questions. First is regarding Indeed. When we break this down to U.S. and non-U.S., the magnitude of the impact and the current situation, how are they different? So that’s my first question. And if possible, U.S. breakdown — rough breakdown would be appreciated for the year ending March 2020? And next, Media & Solutions, the recoverability anticipating post corona. So it seems that the profit contribution will be further down the road. There are various businesses in Media & Solutions. During with corona, there are many areas that will probably suffer from impact. So overall, recovering to the EBITDA level of the year ending March 2020, it seems that the recovery will take time. So as you mentioned earlier, you will control your costs depending on the circumstances of the business and expand share. And by doing so, you do not need to wait for the SaaS contribution for profit to recover. It will not take that long. So could you elaborate on your current view of the recoverability, please?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [30]

——————————————————————————–

First, starting with, Indeed, U.S. and non-U.S. The degree of impact are pretty much similar. There was a sudden decline around the world. In April, we saw the bottom and seeing a gradual recovery. In Japan, the state of emergency declaration was April. So the negative decline started later, and recovery will also be later compared to the western countries. So — but sudden drop and the gradual recovery is the same as U.S. and Europe. And 70-30 is the breakdown.

Next, M&S, SBU. Before corona, from pre-corona, we said, we will aim to become a SaaS company. So Air BusinessTools as a center, we’ve been reinforcing this business. And so increase in investment, in people and sales force, we’ll be selling Air BusinessTools. And we will see how this can be sold. We have not decided and implemented it yet, but sales force will be reinforced across businesses, and that is the structure we have already. That is how much focus we have on this business, and this started before corona broke out. And with this as a trigger, it will accelerate, especially AirPay. This is contactless. So in hospitals and pharmacies, which was difficult for us to acquire in the past is now being increasing. And so we have more possibility of acquiring customers with Air BusinessTools. And in other basic businesses, in housing and real estate and beauty in sales, more than JPY 100 billion in housing and real estate and JPY 80 billion in beauty. These are not dropping that significantly. They’re maintained. The job advertisement and bridal and dining are suffering the impact. In the job advertisement, we will see an increase as the economy recovers, as we saw in the past. But in bridal and travel and dining, of course, we’re seeing a negative impact in corona. But in post-corona, will it recover to JPY 100 billion? We don’t know. So if it recovers, we — our structure is such that we will recover accordingly, but we don’t know when, at what degree this recovery will materialize. So in post corona, HR Technology and U.S. Air BusinessTools will be the focus, and acquiring market share will be the focus in the post-corona era.

——————————————————————————–

Unidentified Analyst, [31]

——————————————————————————–

So I have a quick follow-up question, if I may. So in the job advertisement in Japan, with this corona as a trigger, Recruit side on Indeed, using this as a catalyst as a trigger. Do you anticipate a change in mix or some adjustments in your strategy with this corona as a trigger?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [32]

——————————————————————————–

The synergy among our SBUs will accelerate further. In HR, in Japan, Indeed, in Media & Solutions, HR and Media & Solutions, SBU, this synergy will accelerate. We have products, too. [Owned Pack] is one Indeed product we have. This is for SMEs, website creation. Indeed will be included in this package and Townwork will sell this. So Indeed and Japan’s Media & Solutions, synergy will accelerate.

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [33]

——————————————————————————–

Mr. [Takeuchi-san of Kettering Securities].

——————————————————————————–

Unidentified Analyst, [34]

——————————————————————————–

Yes. I have 2 questions. The first, regarding HR Technology in the post-COVID world, you have with corona and post corona, global recruitment activities that will be impacted, and I would like to know about changes that you anticipate in global recruitment activities. And in those circumstances, Recruit’s — functions that Recruit’s strength, how will they be leveraged in the — with or post-corona world in order to increase share? If you have a certain vision of post-corona or with corona world, please share with us. And also M&S for domestic operations in with corona world in order to achieve a stable revenue growth, what is your strategy? In the past, the domestic M&S has been growing its revenue in a stable manner. It capitalized the company’s ability and also the agency capabilities. And also, in these circumstances going forward, face-to-face sales may be difficult. So with this in view, without restructuring or changes to operation, would you still be able to achieve revenue growth for domestic Media & Solutions?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [35]

——————————————————————————–

Regarding HR Technology, in a post-COVID world, for us to capture a huge market share expansion, we are currently focusing on our targets in the mid- to long-term plan. I think the most important thing is, first of all, Indeed, and its services are quite efficient for job seekers as well as recruiting companies. These services enhance the speed of matching, volume of matching and also it reduces hiring costs. So these are excellent services.

In terms of the time line, if we have unlimited time line, then Indeed platform is going to capture considerable share in the world or that’s what we thought. However, with this corona situation, it was a matter of time. But even with corona, the management is now revisiting their costs and bringing the costs back to 0 basis. That is huge impact. Especially the HR department of a company or any department that is responsible for hiring, they are the same regardless of geographical locations. They are not core business of a company. Therefore, the management or the CEO is not so much interested in cost performance of HR departments or does not set KPIs. In the past, the TV commercials were the mainstream, and they have a certain amount of advertising and marketing costs that go into these advertising activities. Therefore, the HR departments have become quite rigid in their performance. It’s not fully assessed by the management. With COVID, I believe, not only the HR department, but overall, companies will be more keen to review their costs. In the past, steps taken was slow, but even in the areas of recruitment and hiring, companies will place more importance on costs and become more cost-conscious. I think there were some changes that we can expect in post-COVID. HR departments used to be a lot of conservative, but I think they will turn to be more aggressive in providing their services. They will take time, usually, for certain services to take route. But with COVID, I think more companies will choose the kind of services that we provide, particularly Indeed Hire for us, this is Indeed CPC model. The conventional Indeed model targeted large companies, but Indeed Hire targets from SMBs to large companies and replaces the conventional hiring. What used to be conservative in the past, where management of a company had difficulty making rational decisions. But as they review their costs in a comprehensive manner, I think this is certainly one area that they will be tackling. With corona and in post-COVID world, I think this will be the biggest trigger for such change.

For M&S, conventionally, we had advertising model by genre. But from that centered on SaaS, we have embarked on a transformative journey to become a company that supports operations of clients’ enterprises. That is our mid- to long-term strategy. So as a company, with corona as a trigger, we would like to transform into a technology company centered on Air BusinessTools along with changes to our structure. This is an opportunity that we see. And we have steered in that direction.

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [36]

——————————————————————————–

Citi Group Securities, [Tsino-san], please?

——————————————————————————–

Unidentified Analyst, [37]

——————————————————————————–

Do you hear me?

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [38]

——————————————————————————–

Yes.

——————————————————————————–

Unidentified Analyst, [39]

——————————————————————————–

First question is, again, Indeed, if I may, and probably, frequently asked. So Indeed, I can complete the business online. So as of the beginning of April, how — what was the decline? And what was the decline at the end of April? You said stabilizing. So it is negative, but the negative is probably becoming smaller. And what is the situation around the world? If you could quantify, I appreciate it. That will help us be more confident about the trend from May onward. And what is the driver? So the price has remained unchanged? Or for those offering similar services, you’re not losing share? Or are you increasing share? I’m sure it’s difficult to capture, but as much as possible.

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [40]

——————————————————————————–

So Indeed, revenue recovery or revenue status is unfortunately not disclosed. So I cannot mention that. But Indeed website shows hiring level site. And it shows Indeed job post tracking, job post count, number of job posts. It’s shown in a graph. So if you could take a look at that, it will be a good reference.

——————————————————————————–

Unidentified Analyst, [41]

——————————————————————————–

So your unit price and market share, how do you see it?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [42]

——————————————————————————–

So market share, we do not track concrete data, but with the concept that I mentioned earlier, we will increase our market share in post-corona era. So for example, essential workers or the public sector we offer this for free of charge and pricing for new services, we offer the pricing. That is easy to build. So it’s not the height, the size of the pricing, the key is how much market share we can gain in the post-corona period.

——————————————————————————–

Unidentified Analyst, [43]

——————————————————————————–

Understood. So that was my first question. Moving on to the second question, could I? I will be very brief.

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [44]

——————————————————————————–

Yes.

——————————————————————————–

Unidentified Analyst, [45]

——————————————————————————–

This is about the overseas staffing. Unlike Japanese market, the labor market, I don’t know about that, how they are different to Japan, but — so the timing of hitting the bottom, when do you think the timing will be? The other areas, we are seeing the possibility of hitting the bottom. So in Japan, there are various supports offered. But in typical representative markets overseas, how are they? Are there supports that can offset the decline that you’re seeing or not?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [46]

——————————————————————————–

In the overseas markets, the weak marginalized workers, safety net is offered for the staffing workers, temporary workers. There are safety net or support offered in Europe. Now our revenue, the timing of the bottom, as I mentioned earlier, is difficult to ascertain. The lockdown is taking place. And so the jobs disappeared suddenly. So the bottom, the depth will be alleviated going forward. And so the 1 or 2 months during lockdowns can be viewed as a bottom for now. So that is the first point on the depth of the bottom. But we don’t know how long this will be. So in overseas market, overseas staffing in April, we suddenly saw this impact.

——————————————————————————–

Tetsuro Tsusaka, Morgan Stanley, Research Division – Research Analyst [47]

——————————————————————————–

Tsusaka-san of MF. I apologize, that you might have received too many Indeed questions. But I don’t know if the piece of information I have is correct or not. But according to data that we have, the first week of May, the U.S. hit the bottom. And towards the end of May, at considerable speed, we have seen recovery or so it appears. Do you also share this assessment? That is the first point.

The second question is regarding overall management. In the previous global financial crisis, first, the financial institutions had difficulty. And then there was a time lag before the impact manifested throughout, that’s a difference from this time. I think we have seen impact suddenly manifest at this time. And as the CEO mentioned in his opening remarks, last time during the crisis, marketing media were not as affected much. But of course, this time, we are seeing impacts on consumption and consumer behavior. In the global financial crisis, it took 1 year for the financial performance to bottom out. So hopefully, you will give us a general view. How do you see the difference from the previous global financial crisis? And also profit management. Is there anything that you are currently emphasizing or prioritizing in order to manage EBITDA level? If the experience you gained from last time would be useful, then that’s fine. If not, under this new norm, what would be the measures that you will implement in managing your profit level?

——————————————————————————–

Masumi Minegishi, Recruit Holdings Co., Ltd. – President, CEO & Representative Director [48]

——————————————————————————–

Regarding the first question on Indeed, recovering towards the end of May, of course, I believe I understand the data, but this is not something I can talk about. As I’ve repeatedly mentioned, again, I will refer to the same comments I gave earlier. On the second point, I agree with you. As for the difference from the global financial crisis, the shock or the impact came rather suddenly. Lockdowns and other restrictions are imposed. This created adverse impact in a short period of time. How to control the impact and ease those restrictions in a gradual manner will be key. Do we stay at the bottom for a prolonged period of time? That will be the biggest problem or the worst problem. So as for the depth of this impact, I think we now have a good idea in assessing the degree of this impact or the depth of this impact. But as for how long this will last, there remains some uncertainties, and it’s difficult for me to say how long this is expected to last. The biggest risk, I would say, is there have been various economic measures implemented. But consumers afraid of being infected would not turn to consuming or consumption activities. And this leads to — or this deters economic recovery. So value chain B2B, large companies, to financial institutions impact spreads. So as lockdowns measures are being eased, the same for Japan, restrictions on consumption are being relocked. And with the requirement that infection does not reemerge, then consumption can resume. Therefore, we believe that recovery will be gradual towards 100% recovery. So the next few months will be key in ascertaining the depth and the length of this impact. Whether it will be 1 year or 2 year? We don’t know. But at the very least, recovery is expected, and that will be used as a basis for our operations. In the medium to long term, in the post-coronavirus world, as we aim to expand our shares, our mid- to long-term strategy will be implemented, and we will be investing in services that will help expand our share. Thank you.

——————————————————————————–

Mizuho Shen, Recruit Holdings Co., Ltd. – IR Executive [49]

——————————————————————————–

Thank you. We still have a little time left, but we took your questions. So we will end here. Thank you very much again for your attendance. Thank you very much.

Source Article

Author: