FY2017 Full-year Financial Results

1. Highlights of Financial Results for the year Ended March 31, 2018

• Revenue, EBITDA and Adjusted EPS: Record- high results.

• Strong revenue growth continued in HR Technology with +60.7% increase in US dollar terms*¹.

• Overseas revenue increased to 46% in FY2017, from 43% in FY2016, of total revenue

• Group Reorganization to accelerate the strategic execution of each SBU

2. Consolidated Financial Results for the year Ended March 31, 2018

	FY2016	FY2017
	Full-year	Full-year Forecasts*¹	Full-year Results	YoY Change
Revenue	1,941.9	2,166.0	2,173.3	+11.9%
EBITDA	232.2	258.0	258.4	+11.3%
EBITDA margin	12.0%	11.9%	11.9%	-0.1pt
Adjusted profit	133.7	142.5	144.9	+8.3%
Adjusted EPS(JPY)	80.06*²	85.30	86.74	+8.3%
Dividend per share(JPY)	21.67*²	22.00	23.00	-

3. Operating Results by Segment for the Fourth Quarter Ended March 31, 2018

Overview of Operating Results by segment

	FY2016	FY2017
	Q4(Jan.-Mar.)	Q4(Jan.-Mar.)	YoY Change	Full-year	YoY Change
Revenue
Consolidated results	518.9	556.4	+7.2%	2,173.3	+11.9%
HR Technology	39.3	61.9	+57.5%	218.5	+64.7%
Media&Solutions	175.9	181.2	+3.0%	679.9	+3.3%
Staffing	309.4	319.9	+3.4%	1,298.8	+10.9%
Corporate Expenses/ Elimination	-5.7	-6.6	-	-24.0	-
EBITDA
Consolidated results	42.6	42.7	+0.2%	258.4	+11.3%
HR Technology	3.7	7.3	+94.1%	30.6	+83.3%
Media&Solutions	24.5	27.8	+13.5%	156.1	+3.1%
Staffing	15.4	9.8	-36.2%	72.7	+10.8%
Corporate Expenses/ Elimination	-1.0	-2.2	-	-1.0	-

	FY2016	FY2017
	Q4(Jan.-Mar.)	Q4(Jan.-Mar.)	YoY Change	Full-year	YoY Change
Revenue
HR Technology	39.3	61.9	+57.5%	218.5	+64.7%
Reference: Revenue in US Dollars*¹	355	572	+61.1%	1,976	+60.7%
EBITDA
HR Technology	3.7	7.3	+94.1%	30.6	+83.3%

	FY2016	FY2017
	Q4(Jan.-Mar.)	Q4(Jan.-Mar.)	YoY Change	Full-year	YoY Change
Revenue
Media&Solutions	175.9	181.2	+3.0%	679.9	+3.3%
Marketing Solutions	97.1	96.4	-0.6%	378.5	+2.4%
Housing and Real Estate	25.5	24.7	-2.9%	98.1	-1.4%
Bridal	13.0	13.1	+0.7%	55.4	+1.6%
Travel	13.9	14.2	+1.6%	58.8	+0.8%
Dining	9.5	9.7	+2.1%	37.3	-0.3%
Beauty	14.6	16.8	+14.7%	63.8	+12.4%
Others	20.3	17.8	-12.5%	64.8	+3.2%
HR Solutions	78.3	83.0	+6.0%	294.4	+4.4%
Domestic Recruiting	72.9	76.8	+5.4%	270.6	+4.0%
Others	5.3	6.1	+14.0%	23.7	+9.9%
Corporate Expenses/ Eliminations	0.4	1.7	+287.3%	7.0	+7.0%
EBITDA
Media&Solutions	24.5	27.8	+13.5%	156.1	+3.1%
Marketing Solutions	10.8	15.5	+43.5%	95.2	+9.4%
HR Solutions	19.5	16.4	-15.9%	74.5	-0.4%
Corporate Expenses/ Eliminations	-5.8	-4.1	-	-13.6	-

	FY2016	FY2017
	Q4(Jan.-Mar.)	Q4(Jan.-Mar.)	YoY Change	Full-year	YoY Change
Revenue
Staffing	309.4	319.9	+3.4%	1,298.8	+10.9%
Japan	122.7	128.9	+5.1%	509.2	+9.9%
Overseas	186.6	190.9	+2.3%	789.5	+11.6%
EBITDA
Staffing	15.4	9.8	-36.2%	72.7	+10.8%
Japan	7.2	2.7	-62.6%	33.8	+15.0%
Overseas	8.1	7.1	-12.7%	38.9	+7.4%

4. Mid-term Strategy

We aim to provide better services for both individual users and clients with our unique business model of providing Matching Platforms, to eliminate inconvenience and dissatisfaction from societies and individuals around the world.

Over the mid-term, positioning HR Technology as the highest growth segment, we will expand our businesses further in each of the three segments.

Mid-term Strategy by Segment

In the HR technology segment, we will look for opportunities to expand into other HR related businesses beyond job advertising by contributing to the efficiency of overall HR processes such as recruiting and hiring, while continuing to aggressively invest in our existing business to drive future growth.

In the Media & Solutions segment, we look to achieve sustainable revenue growth while maintaining a strong EBITDA margin. Toward this objective, we focus on strengthening our existing business further by expanding the operational support services to our clients, which enables them to reduce their workload, while enabling us to strengthen our relationship with them.

In the Staffing segment, we target stable growth in EBITDA on a global scale through our unique management methodology, Unit Management System.

HR Technology

In the HR technology segment, we recorded continuous strong revenue growth, expecting to achieve the FY2018 revenue objective of more than 2 billion US dollars almost one year ahead of schedule.

We look to establish efficient recruiting and hiring processes both for employer clients and job seekers by expanding other HR related businesses beyond job advertising. We believe strong opportunities exist to innovate other parts of the HR processes, by eliminating inconvenience and dissatisfaction in recruiting from companies, and in seeking a job from individuals.

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.

As announced on May 9, 2018, we signed a definitive agreement to acquire Glassdoor, Inc. (Glassdoor),headquartered in the United States, operating one of the fastest growing jobs and recruiting sites in the world. Glassdoor was established in 2007, with revenue of roughly 18.0billion yen translated from US dollar for the fiscal year ended in March 2018, and 59 million monthly unique users as of January 2018. The most remarkable feature of Glassdoor is its database of more than 40 million reviews and insights, which has a high profile especially in the United States.

Glassdoor's revenue comes from employers who are looking to recruit and hire. Glassdoor offers employers opportunities to advertise jobs through Cost-Per-Click or subscription model, and to promote their brand to potential candidates through subscription model.

The HR technology SBU will be strengthened by welcoming a trusted and well-known brand. In addition, the Glassdoor team brings an experienced and outstanding team to join the Recruit Group. This potential acquisition will allow us to further strengthen, deepen and expand services provided to both job seekers and companies.

This is the governance structure after the potential acquisition. Glassdoor, together with Indeed, is planned to operate under the HR Technology segment of Recruit Holdings Co., Ltd., and we are not planning to send management from companies in the Recruit Group to Glassdoor. Glassdoor management will report to the CEO of HR Technology SBU Headquarters. This means Glassdoor will be managed in similar manner to Indeed from a governance perspective.

Media & Solutions

Media & Solutions business has achieved stable revenue growth by strengthening existing businesses and creating new businesses.

We expect to maintain a strong EBITDA margin within a range of 20% to 25%, including the impact of any future investment in new businesses we aim to accelerate.

In Media & Solutions, we offer media services, and business solutions, such as Matching Platforms connecting corporate clients and individual users, and operational support services for corporate clients.
Our competitive advantage in Media & Solution segment relies on the volume and quality of real-time information such as hotel room vacancy and availability of hair salon stylists provided by clients to our Matching Platforms, which we call "inventory information". We therefore focus on expanding operational support services, which enable us to grow our unique database of information more efficiently, and particularly to help our clients reduce their workload and improve operational efficiency, mainly for small and mid-sized companies which comprise the majority of our clients.

Currently, the number of restaurant operators using our cloud-based operational support services, Air Platform, is steadily growing. To expand the lineup of Air Platform services further, we also launched new services such as Air Shift, which is designed to help restaurant operators create, edit and share work schedules of their staff and Air MATE, which is an operational management support service for restaurant operators.

Staffing

In Japan operations of the Staffing business, revenue grew 9.9%, and EBITDA increased 15.0% year on year, supported by a favorable market environment.
In overseas operations, revenue increased 11.6%, mainly due to the full year contribution of Recruit Global Staffing B.V. (formerly USG People B.V.) headquartered in the Netherlands, which started to be consolidated in June 2016.

EBITDA increased 7.4%, with a slower growth rate than revenue, mainly resulting from a decrease in transactions with existing clients due to the challenging business environment in some industries in the United States. In Japan, demand for agency workers remains solid supported by a favorable market environment with a steady economic environment and workforce shortage due to a declining birthrate. In overseas, demand for agency workers remains steady, against a backdrop with strong economic environment in the United States, and solid economic environment in Europe which recovered from the economic crisis. We will continuously focus on EBITDA growth based on our unique management methodology, Unit Management System.

Group Reorganization

With the approval at Extraordinary General Meeting of Shareholders held in January 2018, we established new management structure.

Recruit Group carried out the Group Reorganization, establishing independent SBU Headquarters for each SBU, which executes the independent strategies of each SBU in a self-sustaining manner. Concretely, we have three SBUs; HR Technology SBU, which operates HR Technology related companies such as Indeed, an online job search engine and its related businesses. Media & Solutions SBU, which operates companies in Marketing Solutions and HR Solutions both in Japan and globally. Staffing SBU, operating companies in Staffing business in Japan and overseas

New management structure

This new structure enables each SBU Headquarters to strengthen its management capability to accelerate execution of its own independent strategy and expand its businesses further quickly. Also, this enables our holding company to allocate its resources to plan strategies to increase long-term enterprise value such as long-term operational portfolio, as well as monitoring the group companies through its governance system and risk management structure.

Also, we will make changes to our Board of Directors, with some new Board Directors, subject to the approval at the Ordinary General Meeting of Shareholders scheduled in June 2018. We appointed Mr. Naoki Izumiya, Chairman of Asahi Group Holdings, Ltd. and Mr. Hiroki Totoki, CFO of Sony Corporation as new External Board Directors, and Mr. Rony Kahan, co-founder of Indeed, Inc., as a new Non-Executive Board Director.
We aim to create a sustainable increases in shareholders value under the new Board structure.

5. Consolidated Financial Forecasts for FY2018

	FY2017	FY2018
	Full-year*¹	Full-year Forecasts	YoY Change
Revenue	2,173.3	2,302.0	+5.9%
EBITDA	258.4	285.0	+10.3%
EBITDA margin（%）	11.9%	12.4%	+0.5pt
Adjusted profit	144.9	170.0	+17.3%
Adjusted EPS(JPY)	86.74	101.76	+17.3

6. Financial Policy & Shareholder Returns

Lastly, I would like to explain our financial policy and shareholder returns.

We set a high single digit CAGR for adjusted EPS over the three years from FY2016 as a key management target. We expect the CAGR target set in the mid-term management strategy to be achieved in FY2018 as planned, as our 3-year CAGR is expected to be 13.5% from FY2016 to FY2018, derived from adjusted EPS forecast of 101.76 yen for FY2018.

For capital efficiency, we achieved ROE of 19.3% in FY2017, exceeding 15% set in our basic policy. We intend to maintain ROE of approximately 15% continuously.

For shareholder returns, we will pay annual dividends of 23 yen per share for FY2017, consisting of an interim dividend of 11 yen per share and a year-end dividend of 12 yen per share. The year-end dividend was increased by 1 yen per share from the amount originally forecasted.
Annual dividends forecasted for FY2018 is expected to be 27 yen per share, a year-on-year increase of 4 yen per share, consisting of an interim dividend of 13.5 yen per share and a year-end dividend of 13.5 yen per share.

7. FAQ for Q4 and FY2017

Financial Results for FY2017

Consolidated Results

Q1:
Why did consolidated operating income in FY2017 decrease 0.9% year on year, although consolidated EBITDA increased 11.3%?

A1:
This was mainly due to a non-recurring gain of 21.9 billion yen resulting from the sale of a subsidiary, Yuko Yuko corporation, recorded in other operating income in FY2016. Due to this effect, other operating income in FY2016 was 24.3 billion yen, while other operating income in FY2017 was 5.7 billion yen, which led to a lower year-on-year growth rate in consolidated operating income. Adjusted operating income excluding this one-time impact increased 11.2% year on year.

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Q2:
Why did profit attributable to owners of the parent for FY2017 increase 11.0% year on year, although operating income for the year decreased 0.9%?

A2:
Profit attributable to owners of the parent benefited from lower income tax expense mainly resulting from tax reforms in the United States and European countries, and a sale of subsidiaries.

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Q3:
What is the reason for slower EBITDA growth of 0.2% year on year in Q4 FY2017 compared to previous quarters of the fiscal year?

A3:
Reflecting the strong performance for the nine months in FY2017, marketing investments were accelerated in Q4 for further growth, mainly in Japan operations of the Staffing business.

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Q4:
Why did consolidated operating income decrease 1.7% year on year in Q4, although consolidated EBITDA increased 0.2%?

A4:
This is mainly due to an increase in depreciation and amortization expense by 10.2% year on year in Q4. This is primarily related to an increase in capital expenditure on new offices in the HR Technology segment, and increased software investment in the Media & Solutions segment.

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Q5:
Why did profit attributable to owners of the parent for Q4 increase 30.6% year on year, although operating income decreased 1.7%?

A5:
Profit attributable to owners of the parent for Q4 benefited from lower income tax expense mainly resulting from tax reforms in the United States and European countries, and a sale of subsidiaries.

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Q6:
Why was year-on-year growth rate in adjusted profit slower than profit attributable to owner of the parent in Q4?

A6:
This was mainly due to a higher tax exemption amount in Q4, which led to lower Adjusted profit due to tax reconciliation compared to the same period of the last fiscal year.

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 by acquisitions ± non-recurring income/losses

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Q7:
Why did advertising expense increased year on year in Q4?

A7:
The increase in advertising expense mainly resulted from ongoing investment in marketing activities in the HR Technology segment to acquire new users and customers, and in the Staffing segment to increase the number of registered agency workers in Japan operations.

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Q8:
How much was the impact of foreign exchange rate movements on consolidated revenue?

A8:
The positive impact of foreign exchange rate movements on Q4 revenue was 4.9 billion yen. The positive impact on full-year revenue was 56.5 billion yen in FY2017.

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HR Technology

Q9:
Revenue for FY2017 on a US dollar basis increased 60.7% in HR Technology. What drove continued strong revenue growth?

A9:
The strong revenue growth was mainly driven by a combination of new customer acquisition and expanding spend from existing customers, against the backdrop of a favorable economic environment and strong labor market.

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Q10:
What is the difference in revenue growth rates between the US and Non-US in FY2017?

A10:
HR Technology continued to achieve strong revenue growth in the US. However, the revenue growth rate in non-US markets was higher than in the US, particularly 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.

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Q11:
Why did Q4 EBITDA margin in HR Technology decrease sequentially to 11.9% compared to Q3？

A11:
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. We expect EBITDA margins will fluctuate each quarter based on timing of these investments for growth, but FY2017 EBITDA margin was 14.0%, which is within the target range of 10% to 20% on an annualized basis, as was previously communicated.

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Q12:
How many unique visitors did Indeed reach? Please also provide an update on the number of resumes, employees and offices.

A12:
The number of unique visitors reached a significant milestone of 250 million in January 2018. The number of resumes uploaded to its platform was approximately 120 million as of March 2018. Indeed had more than 6,100 employees and 27 offices globally as of the end of March 2018.

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Q13:
Was there any change in competitive environment in HR Technology in Q4?

A13:
There was no significant change in business performance and operational trend in Q4, as evidenced by year-on-year revenue growth of 61.1% on a US dollar basis.

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Media & Solutions

Q14:
Why did EBITDA for HR solutions decrease 0.4% in FY2017 and 15.9% in Q4?

A14:
Reflecting favorable growth trend for the nine months in FY2017, HR Solutions made strategic investments actively to acquire more users in domestic recruiting business for future growth given the favorable employment environment in Japan, which led to the decrease in EBITDA both in Q4 and the full year.

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Q15:
Why did EBITDA in Marketing Solutions increase 43.5% year on year in Q4?

A15:
Quarterly EBITDA for Marketing Solutions increased mainly due to lower marketing expense to attract users in the Media & Solutions, and increased EBITDA primarily in the Beauty subsegment, compared to the same period of the previous fiscal year.

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Q16:
What was the reason behind the year-on-year decrease in revenue in the Housing and Real Estate business both in Q4 by 2.9% and in the full year by 1.4%?

A16:
The decrease in Q4 revenue year on year was primarily due to the absence of revenue from Recruit Forrent Insure Co., Ltd., a subsidiary in Housing and Real Estate business which was sold in October 2017. Excluding the impact of the sale of approximately 1.6 billion yen quarterly revenue in Q4 increased 3.9% year on year. Full-year revenue also decreased year on year, mainly due to the impact of the sale of the subsidiary mentioned above of approximately 3.3 billion yen, as well as the absence of a one-time revenue increase of 2.6 billion yen associated with the contract change in Q1 FY2016. Excluding these one-time factors, revenue for the full year increased 4.8% year on year.

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Q17:
Why did full-year revenue in the Travel business increase only 0.8% year on year？

A17:
This was mainly due to a non-recurring gain recorded in July 2016 resulting from the sale of a subsidiary, Yuko Yuko corporation. Excluding the impact of the sale of 2.4 billion yen, full-year revenue increased 5.2% year on year.

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Q18:
Why did Q4 revenue in the Travel business grow slower at 1.6% year on year compared to 5.3% in Q3?

A18:
Travel business carried out marketing promotions to attract customers in Q4 in both FY2017 and FY2016. However, the timing of promotions in Q4 F2017 was slightly delayed along with the associated impact which resulted in a slower year on year growth rate in Q4 FY2017.

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Q19:
Why did full-year revenue in the Dining business decrease 0.3% year on year?

A19:
Restaurant operators faced a challenging environment mainly due to the workforce shortage in Japan throughout the fiscal year. Under such environment, a few large clients were forced to limit their spending on sales promotion which led to a decrease in full-year revenue. However, the number of the paid clients for Operational Support Package in the Dining business exceeded 18,000 as of the end of March 2018, showing steady growth. The revenue from Operational Support Package, one of the services provided for restaurant operators through Air Platform, is recorded in Others subsegment in Marketing Solutions. Full-year revenue combining the Dining and operational support package business increased approximately 7.9% year on year.

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Q20:
Why did Q4 revenue in the Dining business increase 2.1% year on year, reversing a downward trend in the earlier quarters in FY2017?

A20:
The business environment for restaurant operators continues to be challenging. Meanwhile, the Dining business strengthened its relationship with clients by focusing on solution driven sales, by promoting Air Platform, a cloud-based operational support services, and by providing clients with analysis of data accumulated on its online platform, Hot Pepper Gourmet. As a result, there were signs of clients returning to use paid advertisements on its platform which led to the revenue increase year on year. The revenue from Operational Support Package, one of the services provided for restaurant operators through Air Platform, is recorded in Others subsegment in Marketing Solutions. Q4 revenue combining the Dining and operational support package business increased approximately 10.3% year on year.

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Staffing

Q21:
What was the reason for slower quarterly revenue growth rate of 5.1% in Q4 in Japan operations in Staffing, compared to double digit growth in the nine-month period of FY2017?

A21:
The Japanese staffing market continues to expand as evidenced by the increasing number of active agency workers, which grew 5.5% from October to December 2017, compared to the same period of the previous year. In this environment, the number of active agency workers registered with the Staffing business also increased, which led to the revenue increase in Q4. The revenue growth decreased sequentially in Q4 primarily due to the fact that there were two fewer business days in the quarter compared to the same period of the previous year.

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Q22:
Why did quarterly EBITDA for the Japan operations decrease significantly in Q4, and why did quarterly EBITDA margin also decrease?

A22:
This was mainly due to accelerated investment in advertisement to increase the number of registered agency workers in the Japan operations, leveraging the favorable market environment.

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Q23:
What was normalized revenue in overseas operations in the Staffing segment, excluding the effect of foreign exchange rate movements and acquisitions?

A23:
Foreign exchange rate movements had a positive impact on quarterly revenue of 4.9 billion yen in Q4. Since there was no acquisition in Q4, normalized revenue excluding the positive effect of exchange rate movements decreased 0.7% year on year. This was primarily due to its operating focus on profitability, and a decrease in transactions with existing clients resulting from the challenging business environment especially in the Oil & Gas industries in the United States.

For the full year, normalized revenue in overseas operations of the Staffing segment declined 2.6% year on year, excluding the positive impact of foreign exchange rate movements of 47.6 billion yen, and the positive impact of 52.7 billion yen due to the full year contribution of Recruit Global Staffing B.V. (former USG People B.V.) which started to be consolidated in June 2016.

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Q24:
Why did quarterly EBITDA for the overseas operations decrease in Q4 year on year, and why did quarterly EBITDA margin also decrease?

A24:
The overseas operations continue to focus on profitability improvement based on Unit Management System. However, quarterly EBITDA margin for Q4 decreased due to a decrease in transactions with existing clients resulting from the challenging business environment in the United States.

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Full-Year Forecasts for FY2018

Q25:
Why is year on year revenue growth rate in FY2018 forecast expected to be 5.9%, lower than 11.9% in FY2017?

A25:
This is mainly due to the impact of new acquisitions. Revenue for FY2017 had a positive impact of 52.7 billion yen due to full year contribution of Recruit Global Staffing B.V. (former USG People B.V.), which was consolidated from June 2016. In FY2018, on the other hand, positive impact on revenue due to the planned acquisition of Glassdoor, Inc. is expected to be approximately 16.0 billion yen.

Also, difference in foreign exchange rate affects the consolidated revenue growth rate forecast. Assumed foreign exchange rate for FY2018 forecasts is 106 yen per US dollar, while exchange rate effects on revenue for FY2017 was 110.85 yen per US dollar, which has negative impact on translation of US dollar revenue into in the yen-based consolidated revenue.

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Q26:
Why is year-on-year EBITDA growth rate for FY2018 expected to be 10.3%, higher than revenue growth rate forecast of 5.9%?

A26:
This is mainly due to revenue ratio from the segments with higher EBITDA margin, HR Technology and Media & Solutions, is expected to increase in FY2018, compared to FY2017. Also, SG&A ratio is expected to be lower in FY2018 resulting from lower advertising expense, while marketing investments were accelerated in FY2017 primarily in the Japan operations of the Staffing segment to attract new agency workers.

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Q27:
Why is profit attributable to owners of the parent is expected to increase 0.9% year on year, while operating income is forecasted to increase 9.5%?

A27:
This is due to expected higher tax expense in FY2018, compared to the previous fiscal year. In FY2017, profit attributable to owners of the parent benefited from lower income tax expense mainly resulting from tax reforms in the United States and European countries, and a sale of subsidiaries. As no such impact is assumed, income tax expense is expected to rise in FY2018.

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Q28:
What is the outlook by segment for FY2018?

A28:
In the HR Technology segment, it is difficult to predict future growth rates due to the rapidly evolving Internet business. We are investing aggressively to continue growing significantly on an annual basis assuming the favorable economic environment continues, but the growth rate may be lower than last year given the current size of the segment. EBITDA margin is expected to stay within a range of 10% to 20% on an annual basis. The impact of the planned acquisition of Glassdoor, Inc. includes estimated revenue of approximately 16.0 billion yen, and EBITDA of approximately -3.0 billion yen for FY 2018. -3.0 billion yen.

In the Media & Solutions, revenue is expected to increase low to mid single digits year on year, and EBITDA is expected to increase high single digits.

Revenue in the Staffing business is expected to increase low single digits year on year, and EBITDA is expected to increase high single digits.

8. Video

9. Results Materials

Latest Investors' Kit（3.0 MB）（ZIP）

Earnings Release (1 MB)

Presentation Material (2 MB)

Supplemental Financial Data（313 KB）（Excel）

Questions at Earnings Results (185 KB)