Technopro Hldgs Sp/Adr

I am Hagiwara, CEO of Technopure Holidays. Thank you for coming today. The situation in Ukraine has increased the geopolitical risk, pushing up energy and the crop prices causing inflation. There's also a concern for global recession. As for our company, a huge number of contracts were renewed in March, and many new graduates joined in April. And we haven't seen any impact on our business so far. Judging from the situation of our customers who started a new fiscal year in April, they seem to have secured their R&D budget as planned to increase their competitiveness looking forward post-COVID. The renewal ratio of contracts in March was 90.5%, landing almost the same level as the last year. We also gained the charge up as expected. In addition, against the backdrop of strong demand, there have been many shoot-ups in which our company has not renewed the contracts, but has redeployed to project with higher unit sales price. Without this, the renewal ratio would have exceeded 92% in real terms. On the other hand, the utilization ratio dropped for a moment in April due to the engineers who have returned from their previous assignments and the new graduates. But the reassignment process is progressing smoothly. This fiscal year marks the first year of the new midterm management plan. And I believe that we have made a good start in terms of both strategic and financial performance. However, we will make up for the lack of progress in Q4 and firmly lead to the next year. Now, I would like to explain the overview of Q3 financial results and many main KPIs using SADS.

First, page two shows financial overview.

The revenue of three quarters of nine months was 131.7 billion yen, up 9.6% year-on-year. GP was saved 34.2 billion yen, up 18.7% year-on-year. The growth is mainly due to the increased number of active engineers, expansion of project assignments, and the addition of Indian subsidiary of Microsoft to the consolidated P&L. In the medium-term management plan, a continuous growth of GP margin is one of the key factors. GP margin in three alone was 27.3%, making a record high on a quarterly basis. Co-operating profit was 14.4 billion yen, up 9.6% year-on-year basis, absorbing a huge increase of higher end costs. On the other hand, operating profit was 16.5 billion yen, up 11.0% year-on-year. This includes 1.8 billion yen of our Singaporean subsidiary Helios Put Options Liability in Barcelona. As this gain is not taxable, the estimated effective tax rate was reduced to 27.0%, making the net profit of 12 billion yen up 17.8% year-on-year. Based on the progress rate up to Q3 and the current KPIs, we believe that previously revised full-year guidance is sufficiently achievable. Page 3 shows operating profit bridge year-on-year. In the upper graph of returning to normality, results of nine months, Improvement of GP offsets the hiring and other costs, as well as dissipation of governmental subsidy for continuous employment, making pro forma operating costs, including the spending to execute midterm management plan exceeds the previous year. Expenses recorded to implement our midterm management plan remains at 55% at the end of the Q3. Compared to the first half of this year, we have made some progress in recruiting and training for the solution business. However, we may not be able to complete all of this year's investment budget, and some of them may be carried over to the next year. The first two years of the new term management plan are positions as the foundation building period, and we plan to achieve high growth in the latter three years. Therefore, we plan to make steady investments necessary for the evolution of our company's business. Considering the characteristics of the human resources businesses, The return on investment is high and the payback period is short. Therefore, as long as we focus on pure play in the technology area, we believe the risk of damaging the shareholders' value is low. Page 4 shows quarterly performance of revenue and operating profit and GP and SGA and core operating profit on page 5. The table under the revenue graph shows the main KPI results of domestic business, as well as Q4 and full-year guidance. Since 550 more graduates joined compared to the same period last year, utilization ratio of Q4 becomes 93.0%, lower than last year's 94.7%, making GP margin for Q4 decreased year-on-year for the first time this fiscal year. Historical results of KPIs up to FY20 were digitized in the Excel file of Factbook, which are uploaded to our website. Please have a look. Page six shows Q3 results year-to-date, and page seven shows Q3 results for three months. In R&D outsourcing, revenue on the GP increased year-on-year, whereas operating profit decreased year-on-year. However, governmental subsidy for continuous employment was included in the special item of last year's operating profit. In addition, our company allocate all SG&A expenses incurred by the holding company to each segment of domestic business. With the largest amount allocated around the third segment, in this fiscal year, head office expenses increased due to the cost of implementing the mixed-term management plan. Therefore, the negative operating profit compared to the previous fiscal year was also affected by this. Please note that the profit margin of each segment differs depending on where the holding company's head office expenses are paid. Please be careful when comparing with competitors in the same industry. Construction management outsourcing, which made a slow start in the first half, turned back to the path of growth, with operating profit of a single to three, positive year on year. Also, domestic and other segments to which profitable replacement business belongs, remains strong, with a strong hiring demand in the fields of digital, IT, and semiconductors, although the contribution to the entire consolidated result is small. The overseas segment, which has consolidated Robosoft in Q2, shows improvement of GP margin most significantly, and GP margins have been disclosed since the previous presentation. Robosoft makes a contribution to the growth of other overseas subsidiaries. On the other hand, businesses in China, which has one of the offices in Shanghai, are expected to face negative impact in Q4 performance due to the strict lockdown by zero COVID measures. Page eight shows balance sheet and cash flow. British Orions put option liability in sterling and Indian Robosoft's share acquisition obligation in rupees amount to 4.5 billion yen. However, prior to the recent sharp depreciation of the yen, more than half of the exposure was hedged, thereby mitigating the negative impact.

Page 9 onward shows main KPIs of domestic business.

As of the end of March this year, the number of engineers was 21,054, exceeding the peak of 21,453 two years ago in April. when 851 new graduates were hired. In June of the fiscal year, the number of engineers is expected to be 22,000, compared with the initial forecast of 21,600 and the previously revised forecast of 21,800. The next fiscal year is expected to be a launchpad for record high resources

starting an increasing trend.

The cumulative three quarters average utilization ratio was 95.7% and the full year average is expected to be 95.0%. The number of new graduates assigned to this position is also progressing smoothly with 60% assigned by May and more than 70% assigned by June. This year, we plan to conduct over three months of strategy training for about 20% of new graduates. Therefore, the return to normal utilization ratio of 95.0% will be delayed until July, but this is part of our strategy to expand our solution business centered on digital domain.

Next, I will explain recruitment and turnover. Also, the new mid-term management plan focuses on quality rather than quantity.

We were able to hire 772 mid-career engineers in PUC. However, the environment for hiring talented engineers who are ready to work is becoming increasingly difficult. Therefore, in addition to hiring inexperienced construction management engineers, we are gradually starting to hire potential candidates for education and training aimed at developing human resources in the digital domain. In March of this year, we were certified as AWS Human Resources Services Partners by Amazon. And in the next three years, we have formulated a plan to acquire a total of 3,000 AWS-related qualifications. With the support of AWS training content, our group has planned to leverage its engineering training infrastructure to significantly develop and increase the number of engineers capable of responding to increasingly demand for cloud technologies. In addition, global recruitment, which had been temporarily suspended due to the COVID-19 pandemic, has resumed, and approximately 40 foreign IT engineers are expected to come to Japan from India and Sri Lanka by the end of June this year. While it may take some time to build up applicant pool before we can fully resume our global recruitment efforts, this initiative is becoming increasingly important to overcome the supply constraints of Japanese engineers. On the other hand, in Q3 of the fiscal year under review, the turnover ratio of permanent employees was 7.4%, and the NTM ratio was 7.6%. We plan to make major revision to its employee compensation system for engineers from July this year in order to ensure that it is in line with the strategy set out in the new midterm management plan. Under the new personal compensation system, market value is used more than ever as a basis for evaluation and compensation. In addition, with the expansion of solution business, the company has provided career paths for consulting and project managers. We believe that this will not only increase retention and the motivation of existing engineers, but also contribute to the recruitment of talented human resources. And I think we'll be able to talk more specifically about this in our full year financial results presentation. Page 11 shows assigned engineers by technology And the page 12 shows assigned engineers by industry. For the first time in seven quarters, the number of assigned engineers in embedded control assistance by technology sector and the transportation equipment by industry sector turned positive in their own year. Major Japanese automakers are also planning to invest heavily in R&D for EVs and software, and their growth is expected to continue. On the other hand, there may be some customers who press orders but are cautious about signing contracts. Although the impact on new orders due to the situation of Ukraine has not yet been seen, it is common to delay the timing of budget execution in terms of uncertainty.

So our company will keep a close eye on our customer trends.

The next slide was the monthly average unit sales price, which goes by 4.0% year-on-year to 607,000 yen in the cumulative three quarters. This is due to the additional subsidiaries with relatively high unit sales price from fiscal year. But even extending Excluding this, unit sales price increased 2.7% to 649,000 yen. By the way, the difference of the unit sales price of 8,000 yen is included in the others of bridge plus 21,000 yen. In addition, the contract price of existing temporary engineers has increased by 2.4% from a year ago, and the ratio of increase has been improving. The impact of charge-ups and shift-ups obtained in the contract negotiation in March this year will be seen in the figures at the end of Q4.

On page 14 is the situation of RoboSoft.

The company that closed in March, revenue for the most recent one year was approximately 4.6 billion yen, up 66% year-on-year. EBITDA, after adjusting for transaction costs borne by the seller, was approximately 1.6 billion yen, up 43% year-on-year, and EBITDA margin was 34.4%. in consolidated cumulative three quarters, robots of P&L for the six months from October to March were included. And after deduction of 250 million yen in seller's expense and 150 million yen in amortization PPA assets, a total of 440 million yen hit our company's consolidated operating profit as shown in the bridge chart on page 3. The cost to be borne by the seller will be preliminary recorded by RoboSoft, but will be deducted from the purchase price of the remaining 20% of the shares, so there will be no material cost to our company. As I mentioned in the previous financial results presentation, we have started joint sales for Japanese customers and also hiring bilingual pre-sales and bridge engineers. We have built up a pipeline of potential projects, and I think we will start to see a result in the next fiscal year. On the other hand, we do not believe that Robosoft's profit margin of more than 30% is sustainable, and it is a result of the company's ability to save operating expenses during the COVID-19 pandemic, supported by strong digital demand from existing customers. By the way, the operating margin of major global payers, mainly offshore delivery companies, is in the mid-20% range. Robosoft's new fiscal year budget, which began in April, aimed to expand its sales organization with the aim of developing new customers in the United States and Japan. In addition, RoboSoft plans to make significant upfront investments by actively acquiring personnel in advanced technology field to meet some demands such as metaverse. In addition, with the rising wages and the turnover ratio of highly qualified engineers in India, a slight deterioration in GP margins is inevitable due to keeping retention rate and acquiring new talents. However, we have strong ongoing orders from existing customers and are starting to receive new orders from potential customers.

So we are aiming for double digit revenue and profit growth in the new fiscal year. Page 15 and page 16 show

through your guidance on the segmented guidance. The P&L has not been revised since the last time, and only major KPIs have been updated based on the Q3 results. Since the announcement of the previous financial results, we have received many opinions Haruki Nishimura, that the guidance for the second half may be too conservative and fully understand that we expect a further upward revision of the full year guidance based on the full year progress rate in today's Q3 financial results. Haruki Nishimura, Although it is difficult to achieve year-on-year increase in operating profit excluding special items, In the second half, we will strive to at least exceed the result of the previous fiscal year. The shareholder return on page 17 is the same slide as the previous one, as we have committed to dividend payout ratio of 15%. If net profit exceeds the full year guidance, the year end dividend will increase accordingly. The materials on the progress of the term management plan disclosed at the time of the Q2 financial results. show new KPIs and strategic initiatives which are used for dialogues with investors. We will make every effort to disclose information in a transparent manner in the next four year fiscal results, while referring to the advice and the insights we have received. In this briefing, we also mentioned the contract renewal ratio in March which is not mentioned in the slide. You can also check the fact book which is published information and today's script will be posted on our company website without delay. That's all for my explanation. Thank you very much.