（2462） | Publish:Wed, Oct 10, 2018 IR「BRIDGE REPORT」

BRIDGE REPORT
（2462）

プライム

LIKE Co., Ltd. (2462)

Yasuhiko Okamoto
President

Company	LIKE Co., Ltd.
Code No.	2462
Exchange	Tokyo Stock Exchange, First Section
Industry	Service
President	Yasuhiko Okamoto
HQ Address	Umeda Hankyu Building Office Tower 19F, Kakudamachi 8-1, Kita-ku, Osaka-shi
Year-end	May
Home Page	https://www.like-gr.co.jp/

Share Price	Shares Outstanding (excluding treasury shares)		Market Cap.	ROE (Act.)	Trading Unit
¥1,570	18,846,303 shares		¥29,588 billion	21.3%	100 shares
DPS (Est.)	Dividend Yield (Est.)	EPS (Est.)	PER (Est.)	BPS (Act.)	PBR (Act.)
¥24.00	1.5%	¥74.29	21.1x	¥413.82	3.8x

* Stock price as of the close on August 3, 2018. Number of shares at the end of the most recent term excluding treasury shares.
* BPS is the actual value from the previous term.

Fiscal Year	Sales	Operating Profit	Current Profit	Net Profit	EPS (¥)	DPS (¥)
May 2015	18,067	470	502	331	18.07	30.00
May 2016	31,844	953	1,426	1,795	97.67	40.00
May 2017	40,051	1,524	2,493	810	43.27	36.00
May 2018	45,663	1,915	3,889	1,532	81.49	29.00
May 2019 Est.	51,000	1,940	3,500	1,400	74.29	24.00

* Estimates are those of the Company. From FY5/16, the definition for net profit has been changed to net profit attributable to parent company stockholders (Abbreviated as parent net profit).
* FY5/18 EPS reflects the change made after a 2 for 1 stock split was conducted in September 2017.

This Bridge Report presents details of the fiscal year May 2018 earnings results and full fiscal year May 2019 earnings estimates for LIKE Co., Ltd.

Key Points

Company Overview

Based upon its corporate motto of "Planning the Future - Leveraging Human Resources to Create the Future," LIKE endeavors to create a corporate group structure that is capable of providing vital services at all stages of life in the operating realms of child and nursing care, human resources and other services.

LIKE's business segments are divided into the comprehensive human resources services business, which includes human resources dispatch, business process consignment, dispatched worker for employment and job placement, hiring and training support services, the childcare support services business, which includes consigned operation of public and private childcare facilities, the nursing care services business, which includes nursing facility operations, and the multimedia services business, which includes cellular telephone carrier shop operations.

The LIKE Group is comprised of the holding company LIKE Co., Ltd., five consolidated subsidiaries and one non-equity accounting method affiliate. The consolidated subsidiaries include LIKE Staffing, which provides worker dispatch and business process consignment services to cellular telephone shops within its comprehensive human resources services business, LIKE Works Co., Ltd. providing comprehensive human resources services to the logistics and manufacturing industries, LIKE Kids Next Co., Ltd and its subsidiary LIKE Academy which provides consigned childcare and public childcare operations (i.e. licensed nurseries), and LIKE Care Next Co., Ltd., which provides nursing care facility operation services. In addition to these, a joint venture company called Career Design Academy Co., Ltd., has been created to provide corporate training services with LIKE Staffing Co., Ltd. and T-GAIA Co., Ltd. (Tokyo Stock Exchange, First Section, Stock code: 3738) providing 20% and 80% of the capital, respectively.

In the final year of the current medium term business plan of fiscal year May 2019, LIKE seeks to achieve its targets for sales and current profit of ¥51.0 and ¥3.5 billion respectively. And while current profit targets remain unchanged, the sales target have been revised down by ¥4.2 billion due to the outlook for a loss of sales arising from the prioritization of improvements in profitability by raising operational efficiency of the comprehensive human resources services business. The LIKE Group will endeavor to achieve the dramatic growth called for by the medium term business plan in fiscal year May 2020 and beyond by focusing upon hiring and cultivating staff who can become a driving force for the Company.

LIKE offers a shareholder benefit program including issuance of QUO Card prepaid cards in value of ¥1,000 to holders of between 100 and 500 shares and ¥2,000 to holders of between 500 and 2,000 shares as of the term end in May. Also, discounts on admission to nursing care facilities operated by Sunrise Villa amounting to ¥300,000 (valid for one room per ticket, until the end of August 2020) will be given to holders of over 100 shares.

Fiscal Year May 2018 Earnings Results

Sales, Current Profit Rise 14.0%, 56.0% Year-On-Year

Sales rose by 14.0% year-on-year to ¥45.663 billion on the back of a 12.5% year-on-year rise in sales of the comprehensive human resources services business driven by strong demand from mobile communications, logistics and call center applications, and a 20.7% year-on-year growth in sales of the childcare support services business derived from contract reviews for and increases in the number of consigned childcare facilities. An expansion in floor space of some facilities allowed sales of the nursing care services business to rise by 4.3% year-on-year.

Current profit rose by 56.0% year-on-year to ¥3.889 billion. Improvements in gross profit margin on the back of growth in sales, and the successful absorption of higher sales, general and administrative expenses arising from increases in labor, hiring and advertising costs allowed operating profit to rise by 25.6% year-on-year to ¥1.915 billion. Non-operating profit also rose due to the near doubling of facility subsidies from ¥981 million in the previous term to ¥1.920 billion in the current term booked in the childcare support services business. Consequently, net profit rose by 89.2% due to these factors and a decline in extraordinary losses (Extraordinary loss arising from liquidation of affiliated companies and others amounting to ¥427 million in the previous term).

The improvement in gross profit margin is attributed to a 2.4% point year-on-year improvement in gross profit margin of the childcare support services business resulting from the increase in operational subsidies received. At the same time, gross profit margin of the comprehensive human resources services business deteriorated by 1.4% points year-on-year due to a shortage in operational capacity at some consigned facilities, and gross margin of the nursing care services business also fell by 0.6% points year-on-year due to additional costs associated with the start of work at newly opened facilities. At the same time, advertising to raise the brand and company recognition including television commercials started in January 2018 caused advertising expenses to increase by ¥132 million from the previous term.

With regard to dividends, the ¥5 per share commemorative dividend to celebrate the 25th year of operations of LIKE paid in September 2018 combined with the ¥19 dividend to be paid at the yearend will result in a full year dividend of ¥29 per share, for a dividend payout ratio of 35.6%. After the 2 for 1 stock split undertaken in September 2017 is considered, the actual dividend represents an adjusted dividend of ¥58 per share, or a ¥22 per share increase.

Comprehensive Human Resources Services Business

Sales and operating profit of the comprehensive human resources services business rose by 12.5% and 2.2% year-on-year to ¥21.786 and ¥2.170 billion respectively. Successful efforts to fortify the job matching and work process training structure for workers seeking to take on jobs in new work realms contributed to the higher sales of this segment. However, a shortage of operational capacity in some consigned projects caused earnings to fall shy of initial estimates at the start of the term and caused profit margin to decline.

By category of contracts, sales of dispatched worker contracts (Accounting for 63.0% of this segment's sales), which is a scheme that boasts of the strength of being able to leverage workers without specific skills in a wide range of job and industry applications, rose by 15.7% year-on-year. At the same time, business process consignment (Accounting for 36.3% of segment sales), in which LIKE maintains strong knowledge and experiences in certain industry applications, saw a lower level of sales growth of 7.8% year-on-year due to a shortage of operational capacity in the mobile communications realm. Also, the shift to dispatched worker services caused a decline in sales of headhunting personnel for hire introduction services (Accounting or 0.7% of segment sales) of 10.7% year-on-year.

By industry, the main mobile communications industry application sales (Accounting for 77.8% of segment sales) rose by 10.3% year-on-year, apparel industry sales (Accounting for 7.2% of segment sales) rose by 17.2%, logistics industry sales (Accounting for 6.4% of segment sales) rose by 64.9%, call center industry sales (Accounting for 4.2% of segment sales) rose by 13.0%, and sales of all other industry applications rose. Demand from logistics and call center industry applications remained strong on the back of the shift in the flow of goods from "bricks and mortar stores" to the Internet. And while mobile communications industry demand remained strong, operational capacity shortages limited growth in orders. Despite the small segment sales composition of childcare services (Accounting for 1.4% of segment sales) and nursing care services (Accounting for 0.3% of segment sales), sales rose by 20.0% and 38.3% year-on-year respectively. LIKE Kids Next Co., Ltd. booked a ¥21 million rise in sales to ¥164 million within the childcare support services business, LIKE Care Next Co., Ltd. saw a ¥43 million rise in sales to ¥171 million within the nursing care services business.

Childcare Support Services Business

Sales rose by 20.7% year-on-year to ¥17.776 billion and operating profit recovered from a ¥76 million loss in the previous term to a ¥387 million profit in the current term. In addition to an increase in number of employed childcare providers and childcare provider retention rates made possible through collaboration with LIKE Staffing Co., Ltd. and improvements in care provider employment conditions, an additional ¥200 million in operational subsidies from Government certified childcare facilities during the first quarter and reviews of consigned childcare facilities (Despite a decline in facilities resulting from the cancelation of contracts with those facilities with which contract negotiations were unsuccessful) allowed for profitability to improve.

Nursing Care Services Business

Sales rose by 4.3% year-on-year to ¥5.525 billion, while operating profit fell by 40.8% year-on-year to ¥90 million. Improvement in service quality was realized by relieving the shortage of nursing care providers made possible by outsourcing of the hiring tasks to LIKE Staffing. However, expenses arising from the opening of new facilities in May and July 2018, and the expansion of floor space of the Sunrise Villa Fujisawa Haneshima facility in June 2017 caused profits to decline.

Total assets rose by ¥3.095 billion from the end of the previous term to ¥27.738 billion at the end of the current term due in part to increases in cash and deposits and noncurrent tangible assets arising from new facility openings. Capital adequacy ratio rose from 26.6% at the end of the previous term to 28.1% at the end of the current term.

Fiscal Year May 2019 Earnings Estimates

Estimates Call for Sales to Rise 11.7%, Current Profit to Fall 10.0% Year-On-Year

Sales of the all three main business segments are expected to rise. However, sales growth of the comprehensive human resources services business is expected to remain subdued due to restraint in order taking activities caused by prioritization of improvements in operational strengths. At the same time, the LIKE Group will see limited growth in operating profit as it opens new childcare and nursing care facilities, and makes anticipatory investments in new staff hiring and training to become the leaders of the Group in order to achieve the dramatic growth called for by the new medium term business plan to begin from fiscal year May 2020.

The ¥5 per share commemorative dividend is expected to be eliminated, bringing the full year dividend payment to ¥24 per shares (¥12 per share dividends paid at the ends of the first half and full year, for a dividend payout ratio of 32.3%).

(2) Strategy by Business Segments

Comprehensive Human Resources Services Business

The securing of human resources is an important management issue for companies in all industries. LIKE has highly flexible solutions responding to the needs of job seeking workers including the ability to propose job matching services which cover a wide range of diversified clients and provide flexible working conditions including three day work weeks and shorter working hours. At the same time, the Company endeavors to increase the working population by leveraging the unique knowhow of its Group to turn inexperienced workers into fully contributing workers, raising the job retention rates by close follow up after employment, and by providing classroom and on the job training led by experienced staff. Also, skill evaluation and training will be applied to workers from overseas, whose numbers are expected to grow in the future, in order to quickly turn them into productive resources.

Various Efforts

Amidst the demographic trends of the ninth consecutive year of declines in the Japanese population, and the fall in the share of the Japanese population between the ages of 15 to 64 to below 60% (As of January 1, 2018 Population Survey), there is a need to promote diversification of work styles where jobs applicants of various backgrounds regardless of education, work experience, life experience, job format, working hours, nationality and other factors can be hired for various jobs. Furthermore, there is an absolute need for operations that allow for companies to provide detailed human resources services that match the needs of both the job applicants and hiring companies.
LIKE has reduced its growth rates for sales in fiscal year May 2019 from initial plans as it prioritizes increases in profitability through improvements in its operational capability with a view to the dramatic growth called for in the new medium term business plan starting in fiscal year May 2020.

Strengthening Services Provided to Logistics, Manufacturing Industries

The services provided to the logistics and manufacturing industries were spun off from LIKE Staffing Co., Ltd. in June 2018 to become an independent company called LIKE Works Co., Ltd. with a goal of expanding these services. This new company provides a wide range of services matching customers' needs, including human resources dispatching services to the logistics and manufacturing industries in response to the rapid rise in demand for parcel picking and packaging applications, and provides business process consignment for call center and storefront sales applications leveraging its experiences with major electronic commerce operating companies. In addition, LIKE will collaborate with LIKE Kids Next Co., Ltd. for the provision of staff to childcare facilities.

Childcare Support Services Business

LIKE operates 154 childcare facilities within companies, hospitals and universities and 179 certified nursery schools, school clubs, and children's museums throughout Japan. 39 new facilities were opened during fiscal year April 2018 (Fiscal year for subsidiaries end in April), including 19 certified nursery schools, 10 school clubs, 10 consigned childcare facilities (Because of the elevation of a specified facility to become a publicly operated childcare facility, the total number of actual publicly operated childcare facilities newly opened is 20, bringing the total to 40).

LIKE is implementing efforts to resolve the severe and chronic shortage of childcare facilities arising from shortages of both facilities and childcare providers by improving the quality of its childcare services provided, increasing the number of childcare facilities operated and securing adequate numbers of childcare providers. At the same time, LIKE seeks to achieve sustained growth in both sales and profits, and to become Japan's top provider of childcare services.

Increase in Childcare Facilities

With regards to the consigned operation of childcare facilities, the LIKE Group will review various projects from its long list of customers and select the most promising projects with the strongest potential to yield high levels of profitability. At the same time, LIKE seeks to create new childcare facilities that will continue to be chosen by parents even after the problem of children who cannot gain entrance to publicly operated nursery school or preschools is resolved. In addition, efforts will be conducted to fortify childcare service contents. LIKE maintains a target of operating 20 new certified nursery school facilities (four were newly opened during the first half) within fiscal year May 2018.

Securing Childcare Providers

Knowhow regarding hiring and post hiring training of childcare providers accumulated by LIKE Staffing will be leveraged to strengthen the hiring capability and retention rates of childcare providers. Specifically, knowhow will be shared through personnel exchange, matching will be strengthened, and training contents will be shared within the Group.

Moreover, LIKE has joined the non-profit organization "Iku-Boss Kigyo Domei" (Literally "Childcare Conscious Boss Corporate Alliance") in February 2016 as part of its efforts to facilitate an environment that makes working easier for parents and childcare providers. "Iku-Boss" is a concept that calls for companies to create a work environment with a favorable work-life balance, allowing for support of both career and private lifestyles while at the same time allowing workers to realize results in the workplace and enjoying their private life (Non-profit Organization Fathering Japan).

Nursing Care Services Business (Operating 23 Facilities with 1,320 Rooms including 3 Day Care Facilities)

Paid-for nursing care facilities including end-of-life care nursing facilities are operated in the Tokyo, Kanagawa, and Saitama regions. Strengths of this business include facilities staffed with helpers and nursing care staff 24 hours a day, 365 days a year, an established track record of high quality nursing care service provision, and daily provision of high quality food services.

LIKE pursues the provision of high quality nursing care services that are highly differentiated, and seeks to secure adequate nursing care providers. LIKE also seeks to differentiate its services by stationing nursing care providers at its facilities 24 hours a day, and collaborates with medical institutions for end-of-life nursing care (Provision of responses meeting nearly 100% of clients' requirements) to become the nursing care facility operator of choice. Collaboration will also be conducted with LIKE Staffing to turn inexperienced workers into productive nursing care providers as part of its efforts to secure adequate nursing care staff numbers, and to raise the working population by improving job retention rates. In addition, LIKE is fortifying its training program contents for workers from overseas in light of the "Technical Training Law" and "Revised Immigration Law" implemented on November 28, 2016.

Conclusions

The number of childcare facilities operated under consignment within the childcare support services exceeded a peak of 180, but the margin of losses at the some 30% of these "facilities operating at losses have declined to insignificant levels" according to President Okamoto. Furthermore, the cancelation of consignment projects for facilities where contract negotiations were unsuccessful have been reflected in the fiscal year May 2018 earnings results. While renewal negotiations with some facilities with long term contracts with some facilities have yet to begin, all remaining contract negotiations are expected to be completed by March 2019. The LIKE Group will endeavor to cultivate new business with its existing customers to capture strong demand from corporate operated childcare facilities as a means of securing profits. At the same time, LIKE is steadily expanding the number of consigned publicly operated childcare facilities. The Company will promote efforts to resolve the issue of securing adequate numbers of childcare providers through exchange of information with regional government bodies. In addition, the LIKE Group will implement unique measures including the hiring of childcare providers as "comprehensive childcare providers" with the ambition of taking on supervisory responsibilities. LIKE will hire childcare providers as comprehensive workers with potential to become supervisory staff. Also, new measures to support career establishment of staff including new compensation schemes and training systems will also be implemented.

<Reference: Regarding Corporate Governance>

◎Corporate Governance Report Updated on August 27, 2018

Basic Policy

Our company aims to be a corporate group that is indispensable to society at any stage of life with a group mission of "…planning the future - Developing people and creating the future -" and recognizes the initiatives for corporate governance as an essential management task. For its realization, we make use of our holding company structure and consolidate the compliance system in the holding company so that executives, employees and service users of our group can take fair and efficient actions at all times, and attempt to strengthen corporate governance of the whole group by centralizing the functions of the holding company by the management of the entire group.

1. Ensuring the rights and equality of shareholders
We take appropriate measures so that the rights of shareholders, including the voting rights at the general shareholders meeting, are substantially ensured.
2. Appropriate cooperation with stakeholders excluding shareholders
On the basis of our group mission, we will continue to enhance our corporate value by acting in good faith with all stakeholders including service users, clients, shareholders and employees, keeping in mind the Code of Conduct and principles of action.
3. Appropriate disclosure of information and ensuring transparency
We will make appropriate disclosure of information based on laws and ordinances and actively provide non-financial information and information other than the information disclosed based on laws and ordinances.
4. Responsibilities of the Board of Directors and others
The board of directors formulates the basic policy and strategies for the management of the group and manages and supervises the business firm. It operates as a body that supervises the management decision-making in the entire group and the business execution by the board of directors. In addition, the independent outside director works to strengthen the management discipline and increase the transparency further.
5. Dialogue with shareholders
We put importance on dialogue with shareholders to maximize the corporate value of the group, and respond to requests for dialogue from shareholders at any time. The dialogue with shareholders is carried out by the department in charge of IR, executives in charge of IR and the management executives as necessary.

【Principle 5-1】

Our company has designated a director and established a department, both of which are in charge of overall IR activities for our corporate group, in order to encourage constructive dialogue with shareholders.

Our company exerts ourselves to disclose information in a fair, timely, and proper manner in accordance with "Disclosure Policy" that we have set forth to organize our basic ideas.

Our company discloses Disclosure Policy on our website (https://www.like-gr.co.jp/ir/policy.html).

The details of our IR activities are as described in the second section of "Implementation Status of Policies regarding Shareholders and Other Stakeholders" in this report.

Tokyo Stock Exchange Corporate Governance Information Service：http://www2.tse.or.jp/tseHpFront/CGK010010Action.do?Show=Show

Disclaimer

This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
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