TechnoPro Holdings

Executive Officer in Charge of Management Planning Office of TechnoPro Holdings. I started to support TechnoPro together with former CEO, Mr. Nishio, deployed by private equity firm called Cerberus at the time of its investment in March 2008. Since then, as a position in charge of management planning, I promoted Technopro's turnaround initiatives after the global financial crisis in 2008, led its IPO in December 2014 and has contributed to its robust growth as a listed company. Thank you for your time today. Along with the next fiscal year's budget formulation process, we have started discussions on the next medium-term management plan this month. The broad framework of this new plan is to shift growth drivers to higher unit price, reduce SG&A ratio through productivity improvements leveraged by IT digital and raise core OP margin, while regarding the changes in the external environment, such as the current situation of the engineer supply market and the future penetration of AI, not only as risks but also as attractive opportunities. We believe that, following to the first quarter and the second quarter, the third quarter results have achieved the performance which supports this direction. On the other hand, the tariff policies of the Trump administration in the United States have raised concerns about the performance of automotive and other manufacturing industries, leading to an increase in inquiries regarding the impact on our future growth. Firstly, please note that our service specializes in research and development, which are relatively less affected by customer financial performances. Specifically, following the global financial crisis, we have a history of reducing or eliminating areas such as field engineering and manufacturing inspection services, where customer demand is more susceptible to economic fluctuations. Additionally, we would like to emphasize our strength, our management capability to transform the engineer portfolios. Over the past decade, we have increased the composition ratio of IT engineers from 38% to 58%. During that process, we have trained engineers in advance and shift them to other technical fields in response to changes in demand associated with the rise and fall of Japanese product development, such as mobile phones and car navigation systems. The breadth and depth of the impact of the United States' economic policies under the Trump administration on the Japanese economy remain uncertain. Even within the same industry, the effects on individual companies are likely to vary. We intend to respond flexibly to future uncertainties without being overly conservative or optimistic, the same way as our management style so far. When it comes to the impact on the recent business outlook, March, which has the highest proportion of contract renewals, is an extremely important month as it allows us to engage in aggressive price negotiations with customers in anticipation of their new fiscal year budgets. The contract renewal ratio for March this year was 90.2%, the same level as last year, and the total amount of price hike achieved through charge-up and shift-up well exceeded the favorable results of last year. In dispatch contracts, while the increase in labor costs generally tends to precede price pass-on to customers, we will continue business operations with an emphasis on further improvement in unit price and GP margin. taking into account the annual wage hike and promotion for our engineers in July. Now, I will explain the summary of the third quarter financial results, the key KPIs in Japan, and the update of overseas operations. First, let's look at the financial overviews on page 2. Revenue for the year-to-date third quarter totaled 177.7 billion yen, up 9.3% year-in-year, while GP was 48.1 billion yen, plus 4.9 billion yen or up 11.3% year-in-year, and GP margin was 27.1%, an improvement of 0.5 points year-in-year. SG&A expenses for the year-to-date third quarter were 26.3 billion yen, and SG&A ratio was 14.8%, representing an improvement of 0.6 points year-on-year. Since the third quarter has the fewest working days, GP margin was 26.4%, fell below 27%, compared to 28.0% in the second quarter. However, it increased by 0.5 points year-on-year, indicating steady improvement driven by higher unit sales price. Furthermore, the SG&A ratio has remained at 14% level, 14.8% in the third quarter and 14.9% in the second quarter, reflecting progress in streamlining administrative operations to offset increased recruitment and training costs. Core operating profit and operating profit for the year-to-date third quarter were 21.7 billion yen and 22 billion yen, both up 20% year-on-year. Despite operating profit progressing at 81.7% against the full-year guidance, we have not revised the full-year guidance upward due to the following two outlooks. First, the number of new graduates joined TechnoPro in April was increased by 169 from the previous year, and we implemented a special increment of salary this April for new graduates who joined in recent years so that the salary inversion among generations, which was created by the significant raise of starting salaries for this April, can be eliminated. Although the amount of the base charge at the first assignment and the speed of allocation of new graduates are progressing smoothly, we are preparing for the negative impact on GP in the fourth quarter than in previous years, due to the temporary decline in the utilization ratio, which might be caused by over three-month strategic training that is offered to over 20% of new graduates in order to groom digital solution talent. Secondly, considering the third-quarter performance of the overseas business and the latest momentum of customers' demand, we cannot be optimistic about the outlook of our overseas performance. Pages 3 and 4 show the quarterly performance of each P&L item and key KPIs in Japan, along with the updated KPIs outlook for the fourth quarter in this year. We have updated the key KPIs for the full year based on the results for the year-to-date third quarter and the latest forecasts for the fourth quarter. Pages 5 and 6 show the performance by segment for the year-to-date third quarter and the three-month period third quarter in this year, respectively. The R&D outsourcing remains strong, with GP margin continuing to expand and SG&A ratio declining because of the operating leverage benefits. The solution business, which includes services related to digital technologies and solutions that we focus on, made an increase of 23.9% in the second quarter revenue year-on-year, 19.1% increase in allocation of dispatch engineers and 4.1% increase in unit sales price. Revenue in the third quarter continued to grow steadily, up 19.7% year-in-year, 15.8% increase in allocation of dispatch engineers and 3.3% increase in unit sales price. Additionally, as mentioned earlier, we achieved improvements in unit sales price through charge-up and shift-up efforts during the contract renewal in March this year, which will contribute to next fiscal year's performance. We will continue to focus on training engineers and promoting sustainable improvement in unit sales price, considering the supply-demand gap and wage trends. In the construction management outsourcing, it is within the realm of expectation that GP margin for this year would worsen slightly due to the full implementation of work-style reform after the grace period ended. Unlike the R&D outsourcing, the construction management outsourcing has switched to a headcount-driven strategy, actively recruiting inexperienced talents. In the third quarter, the revenue growth rate year-on-year has slightly slowed due to decreased working days. For inexperienced talents, while the base charge is low, it is easier to increase the unit price once they gain a certain level of experience. Therefore, we will continue to accelerate inexperienced hires while promoting shift up and charge up for those with experience to improve the top-line growth rate and GP margin. The other businesses in Japan, turned to a loss in the second quarter, posted a deficit again due to the underperformance in the engineer training business, despite the slight improvement in the placement business. The training business will be one of critical themes in the next medium-term management plan, since the training of engineers is the foundation of our group to support its sustainable growth, and moreover the contributor to promote innovation to solve social agenda. In the overseas, I will explain the update of each foreign subsidiary later. Page 7 shows balance sheet and cash flows. There are no major updates to note for the third quarter. From page 8 onward, we will look at the key KPIs for our domestic operations. The number of engineers at the end of March this year was 26,808, up 1,882 or 7.6% year-on-year. While hiring has been strong, headcount growth to fall below 8% level year-on-year impacted by increased resignation. Based on the updated full-year hiring outlook, we have revised our forecast for the number of engineers at the end of June 2025 to 28,000, or up 7.5% year-on-year, an upward revision of 150 from the second quarter revised guidance. In the latest update of the key KPIs, the addition of hires, as mentioned later, is 100, which means that the number of resignations has decreased by 50 compared to the previous forecast. The average utilization ratio for the year-to-date third quarter was 95.5%, slightly decreased year-in-year, but the average full-year utilization ratio of 94.7% is the same level as the initial guidance. This is because of strategically extending the training periods for new graduates who joined TechnoPro this April to jack up the price of their first assignment. Page 9 shows the distribution and year-in-year growth rate of assigned engineers by technology and industry. I'll spare you the details. The trend from the second quarter in this year has continued year-in-year. The next topic is the status of recruitment and turnover. In the third quarter, we recruited 965 mid-careers, up 10.2% year-on-year. Following the second quarter, we have revised the full-year hiring plan upward to 5,000, up 100 from the second quarter revised guidance. We have been accelerating hires to hedge against a potential downside risk of more resignations than our estimate. On the contrary, the turnover ratio in the third quarter was 10.9%, exceeding 10% for the first time since the fourth quarter of the last year. Looking at the LTM-based turnover ratio, it was 10.1%, surpassing the budgeted full-year one of 9.8%, primarily due to the worsening turnover ratio in the construction management outsourcing. Since nearly half of our resignations are in their 20s, we plan to closely monitor the impact of salary increment on younger generations. Page 11 shows the change and its waterfall chart in unit sales price. The average monthly unit sales price for the year-to-date third quarter was 698,000 yen, plus 22,000 yen or up 3.3% year-in-year. Based on the progress of the year-to-date third quarter, we revised the guidance for the full-year average upward to 700,000 yen per month. compared to the revised forecast of 698,000 yen in the second quarter. Please note that the base charge for our existing dispatch engineers at the end of March 2025, which is not affected by working days or overtime hours, increased by 4.6% compared to a year ago. The progress has been made in passing our incremental cost on to customers. Additionally, the unit sales price increase in the contract renewal in March will be applied as of April 2025 and will be reflected in the data at the end of the fourth quarter. Next is the update of our overseas subsidiaries. First of all, OP for the overseas for the year-to-date third quarter was up 41.0% year-in-year, and OP margin was 8.1%, improved by 2.6 points. However, OP growth rate for the third quarter was down 9.6% year-on-year. We do not expect meaningful improvements in the fourth quarter, and the business environment remains uncertain. For RoboSoft, although its GP margin has managed to maintain 40% through bench control, it has not overcome the challenges of top-line growth yet, and its revenue in the third quarter was down 12% quarter-on-quarter. The total contract value of new projects in the third quarter fell to about 70% of the second quarter's level, and it is expected to take some time to get back on a growth trajectory. Given the looming recession in the United States, which accounts for about 60% of its customer base, RoboSoft's performance is also expected to be weak in the next fiscal year, and we recognize the risk of its goodwill impairment is emerging. Therefore, we have undertaken a fundamental reform of its leadership team to agilely and steadily execute a business turnaround. In the China business, despite concerns about the economy and geopolitical risks, its year-to-date third quarter results exceeded the previous year and the budget. As in previous years, profitability in the fourth quarter would be lower than in the other quarters due to the upfront investment for the next fiscal year, but we expect to achieve sufficient earnings growth on a full-year basis for this year. Helios's financial performance in the third quarter remained the same level as the second quarter due to the stagnant digital expenditures in the financial sector of Southeast Asia, where Helios operates, and the changes to Singapore's work visa standards. the situation is assumed to remain challenging in the fourth quarter as well. UK-based Orion's OP for the third quarter was significantly down quarter-on-quarter, because there is weak demand for permanent employment, and the higher-margin placement business has been sluggish. However, due to the effect of expanding new customers, a slight improvement in profit level is expected in the fourth quarter. Page 13 is the guidance for this year, and page 14 is a breakdown by segment. As explained so far, there are no changes to the full-year earnings forecast, and only the domestic key KPIs have been updated. I would like to emphasize that the domestic engineer staffing and solution businesses, which account for around 90% of our revenue and operating profit, have achieved the year-to-date third quarter results in excess of their initial budget and fourth-year target of medium-term plan, and continue to be the driver of our value creation in the next medium-term management plan. Finally, please see page 15. The year-end dividend for this year is still forecasted to be 60 yen, bringing the total for the full year to 90 yen, and the annual dividend payout ratio to 50.9%. Given share buyback, the total payout ratio for this year is expected to be 77.7%. That's all for my presentation. Thank you very much.