Update on Progress 2168 JT Equity: Pasona Group Inc. October 15, 2018 - Squarespace
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Update on Progress
2168 JT Equity: Pasona Group Inc.
October 15, 2018
1
Nambu-san Stated to Focus on Profit at the AGM
Oasis’s statements at the August 17, 2018 AGM
“A sustainable company would make profits. A sustainable company recognizes when there are
wastes of corporate resources that can be better used for new business ventures and growth.
Profits would help secure the company for the future for everyone…We believe this is only a matter
of choice for Pasona to make more profits. Cutting the wasteful expense is easy. We ask you, as a
matter or your responsibly to your employees and all stakeholders to make that decision.”
Nambu-san’s statements at the August 17, 2018 AGM
“In response to all the shareholder questions, the CEO has now made a public commitment that he
will focus on profit for next year and it will be a big focus of his personally.”
2
Our Message to the Board and Management
• Our Investment Theses for Pasona Group Inc. (“Pasona”) remain
unchanged from what we have presented on November 9, 2017 in
“A Better Pasona”
• Nambu-San has pledged this year to focus on profits. We applaud
that, yet progress to date has been slow. We are releasing our
updated presentation as a reminder to Nambu-san and the board
what can and should be done
• Progress to date is not sufficient
• Over the past year, Pasona has gotten cheaper for shareholders.
Benefit One, its listed subsidiary, has outperformed Pasona by
63%
• Today Pasona trades at a 149% discount to its holdings in Benefit
One. The market applies a NEGATIVE Value to Pasona’s business.
• We strongly request that the board and management of Pasona
execute on what we have proposed and demonstrate progress to
the market, in order to unlock the value of Pasona
3
Table of Contents
• Executive Summary
• Stock Price Movement of Pasona
• Pasona’s Problem Continues
• Updates on Oasis Suggestions
– Oasis Suggestion 1: Efficient Capital Allocation
– Oasis Suggestion 2: Improved Cost Management
– Oasis Suggestion 3: Rebuilt Governance Structure
• Upside to Pasona Share Price
• (Ref.) Japanese Staffing Industry Overview
4
Executive Summary
5Executive Summary
• Pasona has not shown meaningful progress on our
proposals, which led to a plunge in the stock price
• Pasona’s value discount from the value of the Benefit One
stake which Pasona owns is even more severe
(62% (November 7, 2017)⇒ 149% (October 12,2018))
– This shows that the equity market does not appreciate the
movement of Pasona to date
• Pasona’s margin level is still very low compared to its peers
– Pasona has not yet announced any cost management plan
– We are waiting
• We have yet to see signs of Corporate Governance
improvement at Pasona
6Our Suggestions and Progress to Date
• Please refer to “A Better Pasona” Presentation dated November 9, 2017 for the further details of our proposal
Meaningful
Our Suggestion Detail Progress
1 Efficient A Increase • Organic and inorganic investment into profitable business models
a
Capital Investment (recruitment agency online platform and specialist staffing business) ✗
Allocation • Organic and inorganic investment into online platform for general
b
staffing (=Expert Service, Insourcing etc. segment) ✗
B Reduce • Stop or reduce acquisitions of staffing subsidiaries from large
a
Investment Japanese companies ✗
• Stop investment into outplacement businesses immediately and
b
shut them down ✗
• Stop investment into Public Solution segments immediately and
c
shut them down ✗
C Other • Crystalize and disclose investment KPI
a ✗
2 Improved
Cost
A Cost
Restructuring
• Review the cost structure
a ✗
• Implement an aggressive cost management plan targeting 5%
Management b
operating margin at minimum ✗
B Improve
Disclosure and
• Disclose a detailed cost management plan
a ✗
Transparency • Disclose breakdown of corporate overhead costs
b ✗
3 Rebuilt
Governance
A Rebuild
Corporate
• Review board structure
a ✗
Structure Governance • Form a nomination committee and remuneration committee
b ✗
Structure • Employ cumulative voting system (Ruiseki Tohyo Seido)
c ✗
• Disclose detailed information about Komon and Sodan-yaku
d ✗
B Modern
Compensation
• Employ stock based compensation more broadly
a ✗
Structure • Give substance to stock based compensation
b ▲
• Redesign performance measurement metrics
c ▲
7Stock Price Movement of Pasona Since Campaign
Launch
• Pasona’s stock rallied after our campaign launch. In January, Pasona’s stock price was up +57% compared to the stock price before
our campaign launch
• This indicates that the equity market appreciates our proposal to the board / management of Pasona
• Recently, the stock price plunged as Pasona showed no progress on our proposal. It is critical for the board / management of
Pasona to execute our Value-Enhancement Plan in order to maximize the value of the company
2,000,000
2017/11/9 2018/1/15
Oasis Campaign Launch Highest price since launch of campaign 1,800,000
2,800 (+57% from stock price as of 2017/11/8)
1,600,000
1,400,000
(Closing Price (JPY))
1,200,000
(Volume)
1,000,000
2,100
800,000
600,000
400,000
200,000
1,400 0
11/16/2017
11/24/2017
12/15/2017
12/22/2017
12/29/2017
11/9/2017
12/1/2017
12/8/2017
1/11/2018
1/18/2018
1/25/2018
2/16/2018
2/23/2018
3/16/2018
3/26/2018
4/16/2018
4/23/2018
5/10/2018
5/17/2018
5/24/2018
5/31/2018
6/14/2018
6/21/2018
6/28/2018
7/12/2018
7/20/2018
7/27/2018
8/10/2018
8/17/2018
8/24/2018
8/31/2018
9/14/2018
9/25/2018
10/2/2018
2/1/2018
2/8/2018
3/2/2018
3/9/2018
4/2/2018
4/9/2018
5/1/2018
6/7/2018
7/5/2018
8/3/2018
9/7/2018
Volume Closing Price
8Pasona is Deeply Undervalued from the
Value of the Benefit One Stake Pasona Owns
Source: Bloomberg and company disclosures
Note: Excludes treasury stock from calculations of market capitalization and Pasona’s ownership stake. Market data as of October 12, 2018.
• Pasona owns 53.15% of Benefit One valued at JPY148bn, which exceeds the market capitalization of Pasona by 149%
• Current valuation of Pasona excluding Benefit One implies substantial negative value of its business
277,920
Stake owned by
minority
130,198 Shareholders
of Benefit One
(JPY in millions)
+149%
Stake owned by
147,723 Pasona Group
(53.15%)
59,325
Pasona Benefit One
Market Capitalization Market Capitalization
9Pasona’s Operating Margin Only Improved by 0.5% in the
last Fiscal Year and 0.3% in the last Quarter…
Net Sales Operating Income (loss) Operating Income Margin
FY17/5 FY18/5 FY18/5Q1FY19/5Q1 FY17/5 FY18/5 FY18/5Q1FY19/5Q1 FY17/5 FY18/5 FY18/5Q1FY19/5Q1
Expert
Service 142,662 159,851 37,172 43,626 - - - - - - - -
Expert Insourcing
77,100 84,429 19,449 22,094 - - - - - - - -
Service,
Insourcin
HR
g etc.
Consulting 6,133 7,283 1,580 1,857 - - - - - - - -
Global
Sourcing 6,388 7,216 1,724 1,961 - - - - - - - -
Sub Total 232,285 258,781 59,926 69,540 2,297 5,075 851 1,162 1.0% 2.0% 1.4% 1.7%
Career
15,008 16,638 4,004 4,568 1,992 3,020 670 863 13.3% 18.2% 16.7% 18.9%
Solutions
Outsourcing 29,893 32,656 7,775 7,933 5,782 6,211 1,184 1,684 19.3% 19.0% 15.2% 21.2%
Life Solution 4,657 5,129 1,250 1,355 237 268 49 18 5.1% 5.2% 3.9% 1.4%
Public Solutions 1,670 2,277 462 756 (450) (1,536) (124) (389) - - - -
Eliminations and (3,119) (4,071) (961) (1,157) (5,370) (6,500) (1,597) (1,887) - - - -
Corporate
Total 280,395 311,410 72,458 82,997 4,488 6,539 1,033 1,451 1.6% 2.1% 1.4% 1.7%
10
+0.5% +0.3%…Pasona Forecasts 2.4% Margin in FY19/5 which is
Only 0.3% Increase from FY18/5
Net Sales Operating Income (loss) Operating Income Margin
FY18/5 FY19/5 CoE FY18/5 FY19/5 CoE FY18/5 FY19/5 CoE
Expert
Service 159,851 172,800 - - - -
Expert Insourcing
Service, 84,429 91,800 - - - -
Insourcing HR
etc. Consulting 7,283 8,900 - - - -
Global
Sourcing 7,216 8,100 - - - -
Sub Total 258,781 281,600 5,075 5,900 2.0% 2.1%
Career
16,638 18,800 3,020 2,880 18.2% 15.3%
Solutions
Outsourcing 32,656 37,600 6,211 7,540 19.0% 20.1%
Life Solution 5,129 5,900 268 170 5.2% 2.9%
Public Solutions 2,277 3,200 (1,536) (1,300) - -
Eliminations and (4,071) (4,100) (6,500) (6,890) - -
Corporate
Total 311,410 343,000 6,539 8,300 2.1% 2.4%
11Recent Presentation by Pasona: Enhance business
efficiency and strengthen earning capacity
Source: Company disclosures
• Pasona presented “Enhance
business efficiency and
strengthen earning capacity”
which shows no financial
commitment
• Pasona should commit the
medium term margin target
along with a concrete cost
management plan to
shareholders
• Oasis is in continuous dialogue
with management in order to
enhance the margin
12Nambu-san Stated a Focus on Profit at the AGM
Oasis’s statements at the August 17, 2018 AGM
“A sustainable company would make profits. A sustainable company recognizes when there are
wastes of corporate resources that can be better used for new business ventures and growth.
Profits would help secure the company for the future for everyone…We believe this is only a matter
of choice for Pasona to make more profits. Cutting the wasteful expense is easy. We ask you, as a
matter or your responsibly to your employees and all stakeholders to make that decision.”
Nambu-san’s statements at the August 17, 2018 AGM
“In response to all the shareholder questions, the CEO has now made a public commitment that he
will focus on profit for next year and it will be a big focus of his personally.”
13Indicated operating margin of Pasona as a whole
from sum-of-the-parts analysis is 6.3%
Source: Company disclosures
Note: Analysis based on the company’s guidance FY2019/5 segment revenues and corporate overhead costs.
• We believe that Pasona’s profitability will improve significantly by carrying out our suggested implementations
7,540 307 0 (4,000)
25,000
21,671
20,000
3,760
(JPY in millions)
15,000 14,064
10,000
8,300
5,000
0
Expert Service, Career Outsourcing Life Solution Public Solution Corporate Total Company
Insourcing etc. Solution Segment Segment Segment Overhead Guidance
Segment Segment
Indicative
Operating 5.0% 20.0% 20.1% 5.2% 0.0% 6.3% 2.4%
Margin %
14Change in Corporate Governance since the
Campaign Launch
Source: Company disclosures
• Since our campaign launch, the title of the board members changed, but without any material change
• We still think the current governance structure is weak and lacks effective control over the CEO's management decisions
• The company’s continuous decision to invest in the loss-making business, Public Solution segment, is indicative of such weak
governance structure and lack of control
Board Member Since
Yasuyuki Nambu Yasuyuki Nambu 1976
Chief Executive Officer Chief Executive Officer
Heizo Takenaka Heizo Takenaka 2009
Chief Encourage Officer Chairman & Director
Junko Fukazawa
Junko Fukazawa Executive Officer & Vice President, General Manager of
Chief Philosophy Officer the Human Resources & Planning Headquarters,
1990
responsible for the Social Contribution Department
Kinuko Yamamoto
Executive Officer & Vice President, General Manager of
Kinuko Yamamoto
Chief Innovation Officer
the New Business Development Headquarters, 1990
General Manager of the Smart Life Initiative
Headquarters
Hirotaka Wakamoto
Hirotaka Wakamoto Executive Officer & Vice President, General Manager
Chief Strategy Officer of the Corporate Planning & Administration 2006
Headquarters
15Execution of Our Proposals Will Create Significant
Increases in the Value of the Company
Source: Bloomberg, street estimates and company disclosures
Note: Market data as of October 12, 2018. Comparable companies includes Recruit Holdings, Persol Holdings, DIP, En-Japan, Quick, JAC Recruitment, Meitec, TechnoPro, WDB Holdings, Altech,
Outsourcing, World Holdings, UT Group, Trust Tech, Like, Hito Communication and Fullcast. Assumes 4.4% operating profit margin for Oasis Conservative Case, by using 3.0% operating profit margin for
Expert Services, Insourcing etc. segment, 17.5% operating profit margin for Career Solution segment and JPY4,500 million of corporate overhead cost. Assumes 6.3% operating profit margin for Oasis Base
Case which is calculated on P. 51. Assumes 30.86% corporate tax rate.
• Pasona is currently trading substantially below its holding value in Benefit One stake
• We see at least +174% upside to the current stock price by carrying out our value-enhancement plan
Oasis Conservative Case Oasis Base Case
Implied Stock Price Implied Stock Price
+419%
+379% +381%
+330% 7,871
7,266 7,302
+230%
6,517
+205% +207%
+174%
5,013
4,628 4,651
4,151
3,777 3,777
1,517 1,517
Current Benefit One 1st Quartile Median Average 3rd Quartile Current Benefit One 1st Quartile Median Average 3rd Quartile
Stock Price Value Stock Price Value
per Share per Share
Comparable Companies FY1 P/E Multiple Comparable Companies FY1 P/E Multiple
16Stock Price Movement of Pasona
17Stock Price Movement of Pasona Since Campaign
Launch
• Pasona’s stock rallied after our campaign launch. In January, Pasona’s stock price was up +57% compared to the stock price before
our campaign launch
• This indicates that the equity market appreciates our proposal to the board / management of Pasona
• Recently, the stock price plunged as Pasona showed no progress on our proposals. It is critical for the board / management of
Pasona to execute our Value-Enhancement Plan in order to maximize the value of the company
2,000,000
2017/11/9 2018/1/15
Oasis Campaign Launch Highest price since launch of campaign 1,800,000
2,800 (+57% from stock price as of 2017/11/8)
1,600,000
1,400,000
(Closing Price (JPY))
1,200,000
(Volume)
1,000,000
2,100
800,000
600,000
400,000
200,000
1,400 0
11/16/2017
11/24/2017
12/15/2017
12/22/2017
12/29/2017
11/9/2017
12/1/2017
12/8/2017
1/11/2018
1/18/2018
1/25/2018
2/16/2018
2/23/2018
3/16/2018
3/26/2018
4/16/2018
4/23/2018
5/10/2018
5/17/2018
5/24/2018
5/31/2018
6/14/2018
6/21/2018
6/28/2018
7/12/2018
7/20/2018
7/27/2018
8/10/2018
8/17/2018
8/24/2018
8/31/2018
9/14/2018
9/25/2018
10/2/2018
2/1/2018
2/8/2018
3/2/2018
3/9/2018
4/2/2018
4/9/2018
5/1/2018
6/7/2018
7/5/2018
8/3/2018
9/7/2018
Volume Closing Price
18As of November
Pasona Stock Underperformed the Sector 7, 2017
Source: Bloomberg
Note: Market data as of November 7, 2017. Excludes Recruit Holdings and TechnoPro Holdings as these companies went public during the time used in the stock price chart. Excludes DIP Corporation as
the company’s stock price gained close to 2,000% during this period.
Indexed Stock Price Performance of Pasona vs. Comparable Companies
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17
Pasona Persol Meitec WDB Holdings Altech
Outsourcing World Holdings UT Group Trust Tech En-Japan
Quick JAC Recruitment Like Hito Comm. Fullcast
19Pasona Stock Underperformed the Sector Updated
Source: Bloomberg
Note: Market data as of October 12, 2018. Excludes Recruit Holdings and TechnoPro Holdings as these companies went public during the time used in the stock price chart. Excludes DIP Corporation as
the company’s stock price gained close to 2,000% during this period.
Indexed Stock Price Performance of Pasona vs. Comparable Companies
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18
Pasona Persol Meitec WDB Holdings Altech
Outsourcing World Holdings UT Group Trust Tech En-Japan
Quick JAC Recruitment Like Hito Comm. Fullcast
20As of November
Pasona is Deeply Undervalued from the 7, 2017
Value of the Benefit One Stake Pasona Owns
Source: Bloomberg and company disclosures
Note: Excludes treasury stock from calculations of market capitalization and Pasona’s ownership stake. Market data as of November 7, 2017.
• Pasona owns 55.13% of Benefit One valued at JPY93bn, which exceeds market capitalization of Pasona by 62%
• Current valuation of Pasona excluding Benefit One implies substantial negative value of its business
169,504
Stake owned by
minority
76,056
Shareholders
(JPY in millions)
of Benefit One
+62%
Stake owned by
93,448 Pasona Group
(55.13%)
57,802
Pasona Benefit One
Market Capitalization Market Capitalization
21Pasona is Deeply Undervalued from the Updated
Value of the Benefit One Stake Pasona Owns
Source: Bloomberg and company disclosures
Note: Excludes treasury stock from calculations of market capitalization and Pasona’s ownership stake. Market data as of October 12, 2018.
• Pasona owns 53.15% of Benefit One valued at JPY148bn, which exceeds market capitalization of Pasona by 149%
• Current valuation of Pasona excluding Benefit One implies substantial negative value of its business
277,920
Stake owned by
minority
130,198 Shareholders
of Benefit One
(JPY in millions)
+149%
Stake owned by
147,723 Pasona Group
(53.15%)
59,325
Pasona Benefit One
Market Capitalization Market Capitalization
22Pasona’s Problem Continues
23Pasona’s Market Capitalization is Extremely Small
Despite the Size of Their Sales…
As of November
7, 2017
Source: Bloomberg, street estimates and company disclosures
Note: Market data as of November 7, 2017.
• Despite the fact that Pasona’s sales volume in the Japanese staffing market is #3 after Recruit Holdings and Persol Holdings, by
market capitalization, it is categorized as a small-cap company, which is evidence that the market is not giving credit to their
operations
FY1 Sales Volume Benchmark Analysis
2,163
670
(JPY in billions)
317
220
127 111 93 80 63 51 47 40 39 38 32 29 16 16
Persol
Meitec
Altech
Outsourcing
Quick
Recruit
Pasona
Like
DIP
Holdings
Trust Tech
En-Japan
Fullcast
Hito Comm.
Recruitment
UT Group
WDB Holdings
TechnoPro
World
JAC
Market Capitalization Benchmark Analysis
4,582
662 800.0
700.0
(JPY in billions)
(JPY in billions)
600.0
500.0
400.0
300.0
202 183
200.0 158 152 147
100.0 83 81 80 68 58 54 51 40 38 35 32
0.0
Trust Tech
Persol
Comm.
Altech
Meitec
DIP
Quick
Pasona
Outsourcing
JAC Like
En-Japan
Fullcast
UT Group
WDB Holdings
JAC Recruitment
TechnoPro
World Holdings
Persol
Altech
Meitec
Outsourcing
DIP
Recruit
En-Japan
Like
Quick
Pasona
Fullcast
Tech
UT Group
Holdings
TechnoPro
Recruitment
Hito Comm.
World Holdings
Trust
WDBHito
General Staffing Recruitment Agency Online Platform Specialist Staffing Other Staffing
24Pasona’s Market Capitalization is Extremely Small
Despite the Size of Their Sales… Updated
Source: Bloomberg, street estimates and company disclosures
Note: Market data as of October 12, 2018.
• Despite the fact that Pasona’s sales volume in the Japanese staffing market is #3 after Recruit Holdings and Persol Holdings, by
market capitalization it is categorized as a small-cap company, which is evidence that the market is not giving credit to their
operations
FY1 Sales Volume Benchmark Analysis
2,352
935
(JPY in billions)
341 301
145 138 105 98 82 65 50 49 43 43 38 33 23 19
Persol
Meitec
Altech
Outsourcing
Quick
Like
DIP
Recruit
Pasona
En-Japan
Fullcast
Trust Tech
UT Group
WDB Holdings
Recruitment
Hito Comm.
World Holdings
TechnoPro
JAC
Market Capitalization Benchmark Analysis
5,795
800.0
700.0
(JPY in billions)
556
(JPY in billions)
600.0
500.0
400.0
245 237
300.0
200.0 161 157 148 141
100.0 95 89 81 70 59 52 50 36 32 31
0.0
Trust Tech
Persol
Comm.
Altech
Meitec
DIP
Quick
Pasona
Outsourcing
Like
En-Japan
Fullcast
UT Group
WDB Holdings
JAC Recruitment
TechnoPro
World Holdings
Persol
Meitec
Altech
Outsourcing
Quick
Like
Recruit
DIP
En-Japan
Fullcast
Pasona
Trust Tech
UT Group
WDB Holdings
TechnoPro
Recruitment
Hito Comm.
World Holdings
JAC
Hito
General Staffing Recruitment Agency Online Platform Specialist Staffing Other Staffing
25…Primary Reason Behind the Low Valuation is Their
As of November
Weak Profitability 7, 2017
Source: Bloomberg, street estimates and company disclosures
Note: Market data as of November 7, 2017.
• Pasona’s profitability is the weakest among its peers and this is the primary reason for the company’s stock price underperforming
against its peers
• Major companies operating general staffing businesses produce more than 5% operating profit margin at least, and this figure is
even higher for companies dedicated to more profitable business models
Latest FY Operating Margin Benchmark Analysis
34.1%
27.5%
21.6%
13.7% 12.4% 11.4% 10.7% 10.4% 9.6% 7.9% 7.5% 7.5% 6.9% 5.9% 5.6% 4.2% 3.8%
1.6%
Persol
Meitec
Altech
Quick
Outsourcing
Like
DIP
Recruit
En-Japan
Fullcast
Pasona
Trust Tech
JAC Recruitment
WDB Holdings
UT Group
TechnoPro
Hito Comm.
World Holdings
Latest FY Net Income Margin Benchmark Analysis
23.6%
800.0
18.6% 700.0
(JPY in billions)
12.6% 600.0
500.0
10.0% 9.5% 8.8%
400.0 7.7% 7.4% 6.3%
4.6% 4.5% 4.4% 4.2% 3.5%
300.0 3.0% 2.3% 2.0%
200.0
100.0
0.0%
0.0
Trust Tech
Persol
Hito Comm.
Altech
Meitec
Pasona
Outsourcing
DIP
Quick
Like
En-Japan
Fullcast
UT Group
WDB Holdings
JAC Recruitment
TechnoPro
World Holdings
Persol
Meitec
Altech
Quick
Outsourcing
DIP
Like
Recruit
En-Japan
Fullcast
Trust Tech
Hito Comm.
Pasona
JAC Recruitment
WDB Holdings
UT Group
TechnoPro
World Holdings
General Staffing Recruitment Agency Online Platform Specialist Staffing Other Staffing
26…Primary Reason Behind the Low Valuation is Their
Weak Profitability Updated
Source: Bloomberg, street estimates and company disclosures
Note: Market data as of October 12, 2018.
• Pasona’s profitability is the weakest among its peers and this is the primary reason for the company’s stock price underperforming
against its peers
• Major companies operating general staffing businesses produce more than 5% operating profit margin at least, and this figure is
even higher for companies dedicated to more profitable business models
Latest FY Operating Margin Benchmark Analysis
33.1%
28.4%
23.7%
13.8% 13.1% 12.2% 11.0% 10.7% 9.6% 8.8%
6.6% 6.4% 5.6% 5.0% 4.9% 4.3% 4.2%
2.1%
Persol
Altech
Meitec
DIP
Outsourcing
Quick
Recruit
Like
En-Japan
Pasona
Fullcast
Trust Tech
JAC Recruitment
WDB Holdings
UT Group
TechnoPro
Hito Comm.
World Holdings
Latest FY Net Income Margin Benchmark Analysis
23.0%
19.8% 800.0
15.6% 700.0
(JPY in billions)
600.0
500.0
9.7% 9.3% 8.9% 8.7%
400.0 7.8% 7.3% 7.0%
300.0
4.3% 3.9% 3.6% 3.4%
200.0 2.7% 2.4%
100.0 1.1% 0.4%
0.0
Trust Tech
Persol
Hito Comm.
Altech
Meitec
Persol
Pasona
Outsourcing
DIP
Quick
Like
Meitec
Altech
En-Japan
Fullcast
UT Group
WDB Holdings
Like
JAC Recruitment
Outsourcing
DIP
Quick
TechnoPro
Recruit
En-Japan
Fullcast
Pasona
World Holdings
Trust Tech
JAC Recruitment
WDB Holdings
UT Group
TechnoPro
Hito Comm.
World Holdings
General Staffing Recruitment Agency Online Platform Specialist Staffing Other Staffing 27Core Businesses Excl. Benefit One Barely Producing
Profit while Non-Core Business Incurring Losses
Source: Company disclosures
Note: Financials of the latest fiscal year ending May-2017. As of November 7, 2017
• Pasona’s current profit is largely sourced from the Outsourcing segment operated by Benefit One
• Expert Service, Insourcing and Career Solution are other segments contributing to profits; however, profits produced by these
segments are smaller than internal adjustments (=corporate overhead cost)
• The Public Solution segment, where the company has recently been making its largest investments across all segments, is barely
making revenue, and even worse, they are incurring losses
29,893 4,660 1,667 (3,116) 280,395
(JPY in millions)
15,008
77,100 6,133 6,388
142,662
Sales
Breakdown
Solution
Solution
Solution
Adjustment
Consulting
Total
Insourcing
Outsourcing
Service
Sourcing
Expert
Career
Public
Global
Internal
Life
HR
Expert Service, Insourcing etc.
5,782 237 (450)
(5,370)
(JPY in millions)
Operating Profit 1,992 4,488
Breakdown
2,297
Expert Service, Career Solution Outsourcing Life Solution Public Solution Internal Total
Insourcing etc. Adjustment
Operating
Margin % 1.0% 13.3% 19.3% 5.1% 1.6%
28Core Businesses Excl. Benefit One Barely Producing
Profit while Non-Core Business Incurring Losses
Source: Company disclosures
Note: Financials of the latest fiscal year ending May-2018. Updated
• Pasona’s current profit is largely sourced from the Outsourcing segment operated by Benefit One
• Expert Service, Insourcing and Career Solution are other segments contributing to profits
• The Public Solution segment, where the company has recently been making its largest investments across all segments, is barely
making revenue, and even worse, they are incurring losses
32,656 5,129 2,277 (4,071) 311,410
16,638
(JPY in millions)
84,429 7,283 7,216
159,851
Sales
Breakdown
Solution
Solution
Solution
Consulting
Adjustment
Insourcing
Total
Service
Sourcing
Outsourcing
Expert
Career
Public
Global
Internal
Life
HR
Expert Service, Insourcing etc.
6,211 268 (1,536)
(6,500)
(JPY in millions)
3,020
Operating Profit 6,539
Breakdown 5,075
Expert Service, Career Solution Outsourcing Life Solution Public Solution Internal Total
Insourcing etc. Adjustment
Operating
Margin % 2.0% 18.2% 19.0% 5.2% 2.1%
29Poor Operations is the Main Reason Behind the
As of November
Weak Margin Profile 7, 2017
Source: Bloomberg, street estimates and company disclosures
Note: JAC Recruitment includes corporate overhead cost since the company does not disclose segment profit.
• Profitability of Pasona’s core segments (Expert Service, Insourcing and Career Solution) is exceptionally weaker than that of peers
despite the fact that the there is no substantial difference in the products that Pasona is offering versus its competitors
• We strongly believe the reason behind the weak margin profile for the respective segments are as follows:
– Expert Service, Insourcing etc. Segment: Lack of decent cost management and engaging in low profit transactions (i.e. staffing
business provided by a Pasona-acquired company that used to be an exclusive staffing service provider and a subsidiary of
Japanese large company) and weak online platform implementation
– Career Solution Segment: Weak online platform implementation and outplacement businesses that provide career agency
services for non-performing employees of Japanese major companies are not profitable
Expert Service, Insourcing etc. Segment Career Solution Segment
Operating Margin Benchmark Analysis Operating Margin Benchmark Analysis
39.5%
5.9% 37.0%
5.6% 34.1%
31.4%
4.7%
4.3% 23.0%
20.7% 20.4%
20.3%
17.9%
13.3%
7.0%
6.0%
0.9% 1.0%
(Media Seg.)
(Recruiting Seg.)
JAC Recruitment
(HR Service + Recruiting Seg.)
(Career Solution Seg.)
5.0%
4.0%
En-Japan
DIP
3.0%
Pasona
2.0%
Insourcing etc. Seg.)
(Staffing Seg.)
(Staffing / BPO Seg.)
1.0%
(Expert Service,
Quick
Recruit
0.0%
(Expert Service,
(Staffing Seg.)
(Staffing / BPO
Pasona
Insourcing etc.
Persol
Recruit
Pasona
Persol
Seg.)
Seg.)
FY-1 Latest FY
30Poor Operations the Main Reason Behind the Weak
Margin Profile Updated
Source: Bloomberg, street estimates and company disclosures
Note: JAC Recruitment includes corporate overhead cost since the company does not disclose segment profit. Recruit had a business segment change in the latest FY.
• Profitability of Pasona’s core segments (Expert Service, Insourcing etc. and Career Solution) is exceptionally weaker than that of
peers despite the fact that the there is no substantial difference in the products that Pasona is offering versus its competitors
• We strongly believe the reason behind the weak margin profile for the respective segments are as follows:
– Expert Service, Insourcing etc. Segment: Lack of decent cost management and engaging in low profit transactions (i.e. staffing
business provided by a Pasona-acquired company that used to be an exclusive staffing service provider and a subsidiary of
Japanese large company) and weak online platform implementation
– Career Solution Segment: Weak online platform implementation and outplacement businesses that provide career agency
services for non-performing employees of Japanese major companies are not profitable
Expert Service, Insourcing etc. Segment Career Solution Segment
Operating Margin Benchmark Analysis Operating Margin Benchmark Analysis
5.6% 5.6% 39.5%
38.3% 34.1%
4.7% 33.1%
4.6%
23.0%24.4%
20.4% 19.2%
18.2%
13.3%
2.0%
7.0%
1.0% 6.0%
(Media Seg.)
(Recruiting Seg.)
JAC Recruitment
(HR Service + Recruiting Seg.)
(Career Solution Seg.)
5.0%
4.0%
En-Japan
DIP
3.0%
Pasona
2.0%
Insourcing etc. Seg.)
(Staffing Seg.)
(Staffing / BPO Seg.)
1.0%
(Expert Service,
Quick
Recruit
0.0%
(Expert Service,
(Staffing Seg.)
(Staffing / BPO
Pasona
Insourcing etc.
Persol
Recruit
Pasona
Persol
Seg.)
Seg.)
FY-1 Latest FY
31As of November
Excessive Corporate Overhead Costs 7, 2017
Source: Bloomberg, street estimates and company disclosures
Note: All corporate overhead cost excludes depreciation, amortization and other immaterial items. Pasona corporate overhead cost includes incubation expenses used for new business. Excludes En-Japan,
JAC Recruitment, Meitec, TechnoPro. Altech, Outsourcing and Trust Tech as these companies allocate overhead costs to each segments. In addition, UT Group and Hito Communication are excluded since
the numbers disclosed don’t seem relevant.
• Pasona’s corporate overhead costs are exceptionally higher than that of peers
• Combination of low segment profits and robust corporate overhead costs result in the company’s weak margin profile
Latest FY Corporate Overhead Costs as a percentage of
Pre-Internal Adjustment Operating Profits
48%
31%
28%
23%
16%
14% 13%
11%
800.0
700.0
7%
(JPY in billions)
600.0
500.0
400.0
300.0
200.0
Like
DIP
Fullcast
Pasona
Quick
Recruit
Persol
World Holdings
WDB Holdings
100.0
0.0
Trust Tech
Persol
Hito Comm.
Altech
Meitec
DIP
Quick
Pasona
Outsourcing
Like
En-Japan
Fullcast
UT Group
WDB Holdings
JAC Recruitment
TechnoPro
World Holdings
General Staffing Recruitment Agency Online Platform Specialist Staffing Other Staffing
32Excessive Corporate Overhead Costs Updated
Source: Bloomberg, street estimates and company disclosures
Note: All corporate overhead cost excludes depreciation, amortization and other immaterial items. Pasona corporate overhead cost includes incubation expenses used for new business. Excludes En-Japan,
JAC Recruitment, Meitec, TechnoPro. Altech, Outsourcing, Recruit and Trust Tech as these companies allocate overhead costs to each segments. In addition, UT Group and Hito Communication are
excluded since the numbers disclosed don’t seem relevant.
• Pasona’s corporate overhead costs are exceptionally higher than that of peers
• Combination of low segment profits and robust corporate overhead costs result in the company’s weak margin profile
Latest FY Corporate Overhead Costs as a percentage of
Pre-Internal Adjustment Operating Profits
45%
28%
26%
22% 22%
21%
15%
800.0
700.0 8%
(JPY in billions)
600.0
500.0
400.0
300.0
200.0
Like
DIP
Fullcast
Pasona
Quick
Persol
World Holdings
WDB Holdings
100.0
0.0
Trust Tech
Persol
Hito Comm.
Altech
Meitec
DIP
Quick
Pasona
Outsourcing
Like
En-Japan
Fullcast
UT Group
WDB Holdings
JAC Recruitment
TechnoPro
World Holdings
General Staffing Recruitment Agency Online Platform Specialist Staffing Other Staffing
33Updates on Oasis Suggestions
34Oasis Suggestion 1:
Efficient Capital Allocation
35Our Suggestions and Progress to Date
Meaningful
Our Suggestion Detail Comment Progress
1 Efficient A Increase •a Organic and inorganic • No meaningful move on enhancing
Capital Investment investment into recruitment agency online platform and
Allocation profitable business specialist staffing business
models (recruitment • Continue the low margin “Strategic M&A ✗
agency online platform including in-house firms of major corporations
and specialist staffing and shared companies” strategy
business)
• Organic and inorganic
b • No meaningful organic and inorganic
investment into online investment into online platform for general
platform for general staffing
staffing (=Expert • Continue the low margin “Strategic M&A ✗
Service, Insourcing etc. including in-house firms of major corporations
segment) and shared companies” strategy
B Reduce •a Stop or reduce • As mentioned in the recent presentation,
Investment acquisitions of staffing Pasona will continue the low margin
subsidiaries from large “Strategic M&A including in-house firms of ✗
Japanese companies major corporations and shared companies”
strategy
• Stop investment into
b • Will not shut down outplacement business
outplacement but rather integrate it with Placement /
businesses immediately Recruiting business ✗
and shut them down
•c Stop investment into • Annual report as of May 2018 shows
Public Solution JPY340bn investment plan in the Public
segments immediately Solution segments ✗
and shut them down
C Other •a Crystalize and disclose • Pasona’s ROIC is the lowest among the
investment KPI peers while no KPI related to Pasona’s ✗
investment is disclosed
36,1 A b , 1 B a
1 A a
Recent Pasona Presentation：M&A
Source: Company disclosures
• Pasona is still focused on
“Strategic M&A including in-
house firms of major
corporations and shared
companies” which will
pressure its margin
• Pasona should stop
considering M&A in the low
margin Expert Service,
Insourcing etc. Seg. and
should consider investment in
a recruitment agency online
platform and specialist staffing
business or online platform for
general staffing
371 B b
Recent Pasona Presentation：Outplacement
Source: Company disclosures
• Pasona will not shut down the
Outplacement business, but
rather, integrate it with
Placement / Recruiting
business
• We request that the company
shut down the high fixed cost
business, and reallocate
these business resources to
other businesses where the
company can produce profits
38Loss-Making Investment Hidden Behind the
1 B c
As of November
Sublime Principles 7, 2017
Source: Company disclosures
• We respect Pasona’s board and management’s sublime principles of challenging social issues; however, Pasona’s recent brown-
field investment into theme parks in rural Japan was excessive
• In its latest annual report, Pasona disclosed that the company is planning to invest more than JPY 3,549 million into the Public
Solution segment, which is the largest across all business segments
– Pasona estimates operating losses of JPY 1.1 billion from Public Solutions segment for FY2018/5
• We request that Pasona stop this investment immediately, and moreover, consider 1.) selling the business and facilities or 2.) at a
minimum, entering into a partnership with the theme park operator to manage the business instead of Pasona solely managing and
allocating its resources to this business
Public Solution Segment
Pasona’s Capex Plan for FY2018/5 Recent Major Investments
Capex planned for
Public Solution Segment
990
2,200
(JPY in millions)
Tango-Oukoku
Food theme-park located at
6,475 northern Kyoto prefecture
1,400
1,885
Nijigen-no-Mori
Cool Japan x Nature x Tech
Pasona Group Pasona Group Nijigen-no-Mori Benefit One Total
(Corporate (Public (Public (Outsourcing) theme park located
Function) Solution Solution at Awaji-island
Segment) Segment)
39Loss-Making Investment Hidden Behind the
1 B c
Sublime Principles Updated
Source: Company disclosures
• We respect Pasona’s board and management’s sublime principles of challenging social issues; however, Pasona’s recent brown-
field investment into theme parks in rural Japan was excessive
• In its latest annual report, Pasona disclosed that the company is planning to invested JPY 3,400 million into the Public Solution
segment, which is the largest across all business segments
– Pasona estimates operating losses of JPY 1.3 billion from Public Solutions segment for FY2019/5
• We request that Pasona stop this investment immediately, and moreover, consider 1.) selling the business and facilities or 2.) at a
minimum, entering into a partnership with the theme park operator to manage the business instead of Pasona solely managing and
allocating its resources to this business
Public Solution Segment
Pasona’s Capex Plan for FY2019/5 Recent Major Investments
Capex planned for
Public Solution Segment
1,124
(JPY in millions)
3,400
7,334
500
2,310
Nijigen-no-Mori
Cool Japan x Nature x Tech
Pasona Group Job-Hub Nijigen-no-Mori Benefit One Total
(Corporate (Expert Service, (Public (Outsourcing) theme park located
Function) Insourcing etc. Solution at Awaji-island
Segment) Segment)
401 C a
As of November
Crystalize and Disclose Investment KPI 7, 2017
Source: Bloomberg, company disclosures and Ito Review of Competitiveness and Incentives for Sustainable Growth – Building Favourable Relationships between Companies and Investors-
Note: ROIC = (LTM Operating Profit * (1 – 30.86%)) / (Latest Net Assets + Latest Total Debt)
• Pasona’s track record of investments is far from effective and its ROIC is one of the lowest among its peers
• We request that the company crystalize key performance indicators (“KPI”) when making investments and publicly disclose KPI as a
commitment by the management
• We believe an ROIC target of 8% is the lowest bar for the company by referencing the Ito Report published in August 2014, and
Pasona should aim to increase to the industry median level
ROIC Benchmark Analysis
40%
35%
30%
25%
Industry ROIC Median :
20% 18.3%
15%
ROE Target of 8%
10% Mentioned in Ito Report
5%
0%
Altech
Like
Fullcast
Meitec
WDB Holdings
DIP
UT Group
Persol
Pasona
JAC Recruitment
En-Japan
Quick
Trust Tech
Recruit
Outsourcing
TechnoPro
Hito Comm.
World Holdings
General Staffing Recruitment Agency Online Platform Specialist Staffing Other Staffing
411 C a
Crystalize and Disclose Investment KPI Updated
Source: Bloomberg, company disclosures and Ito Review of Competitiveness and Incentives for Sustainable Growth – Building Favourable Relationships between Companies and Investors-
Note: ROIC = (LTM Operating Profit * (1 – 30.86%)) / (Latest Net Assets + Latest Total Debt)
• Pasona’s track record of investments is far from effective and its ROIC is one of the lowest among its peers
• We request that the company crystalize key performance indicators (“KPI”) when making investments and publicly disclose KPI as a
commitment by the management
• We believe an ROIC target of 8% is the lowest bar for the company by referencing the Ito Report published in August 2014, and
Pasona should aim to increase to the industry median level
ROIC Benchmark Analysis
40%
35%
30%
25%
Industry ROIC Median :
18.5%
20%
15%
ROE Target of 8%
Mentioned in Ito Report
10%
5%
0%
Altech
Like
Fullcast
UT Group
Meitec
WDB Holdings
DIP
Persol
JAC Recruitment
Trust Tech
Pasona
En-Japan
Quick
World Holdings
Hito Comm.
Recruit
Outsourcing
TechnoPro
General Staffing Recruitment Agency Online Platform Specialist Staffing Other Staffing
42Oasis Suggestion 2:
Improved Cost Management
43Our Suggestions and Progress to Date
Meaningful
Our Suggestion Detail Comment Progress
2 Improved A Cost a• Review the cost structure • Pasona announced “Enhance
Cost Restructuring business efficiency and
Management strengthen earning capacity”
which shows no commitment to ✗
financials
• No cost management plan
announced to date
b• Implement an aggressive cost • Same as above
management plan targeting 5% ✗
operating margin at minimum
B Improve a• Disclose a detailed cost • Same as above
Disclosure management plan ✗
and b• Disclose breakdown of corporate • No disclosure regarding
Transparency overhead costs Overhead Costs which is 45% of
Pre-Internal Adjustment
Operating Profits ✗
• The “Incubation Cost” is
estimated to increase
442 A a 2 A b 2 B a
, , Recent Pasona Presentation:
Enhance business efficiency and strengthen earning capacity
Source: Company disclosures
• Pasona presented “Enhance
business efficiency and
strengthen earning capacity”
which shows no financial
commitment
• Pasona should commit the
medium term margin target
along with a concrete cost
management plan to
shareholders
• Oasis is in continuous dialogue
with management in order to
enhance the margin
452 B b
Recent Pasona Presentation: Overhead Cost
Source: Company disclosures
• Pasona expects an increase in
overhead cost in FY19/5
• Incubation costs and Group
costs have been continuously
increasing since FY14/5
• Pasona should disclose in
detail what they are spending
on the overhead cost accounts
for 45% of Pre-Internal
Adjustment Operating Profits
46The Operating Margin of Pasona Only Improved by 0.5% in
the last Fiscal Year and 0.3% in the last Quarter…
Net Sales Operating Income (loss) Operating Income Margin
FY17/5 FY18/5 FY18/5Q1FY19/5Q1 FY17/5 FY18/5 FY18/5Q1FY19/5Q1 FY17/5 FY18/5 FY18/5Q1FY19/5Q1
Expert
Service 142,662 159,851 37,172 43,626 - - - - - - - -
Expert Insourcing
77,100 84,429 19,449 22,094 - - - - - - - -
Service,
Insourcin
HR
g etc.
Consulting 6,133 7,283 1,580 1,857 - - - - - - - -
Global
Sourcing 6,388 7,216 1,724 1,961 - - - - - - - -
Sub Total 232,285 258,781 59,926 69,540 2,297 5,075 851 1,162 1.0% 2.0% 1.4% 1.7%
Career
15,008 16,638 4,004 4,568 1,992 3,020 670 863 13.3% 18.2% 16.7% 18.9%
Solutions
Outsourcing 29,893 32,656 7,775 7,933 5,782 6,211 1,184 1,684 19.3% 19.0% 15.2% 21.2%
Life Solution 4,657 5,129 1,250 1,355 237 268 49 18 5.1% 5.2% 3.9% 1.4%
Public Solutions 1,670 2,277 462 756 (450) (1,536) (124) (389) - - - -
Eliminations and (3,119) (4,071) (961) (1,157) (5,370) (6,500) (1,597) (1,887) - - - -
Corporate
Total 280,395 311,410 72,458 82,997 4,488 6,539 1,033 1,451 1.6% 2.1% 1.4% 1.7%
47
+0.5% +0.3%…Pasona Forecasts 2.4% Margin in FY19/5 which is
Only 0.3% Increase from FY18/5
Net Sales Operating Income (loss) Operating Income Margin
FY18/5 FY19/5 CoE FY18/5 FY19/5 CoE FY18/5 FY19/5 CoE
Expert
Service 159,851 172,800 - - - -
Expert Insourcing
Service, 84,429 91,800 - - - -
Insourcing HR
etc. Consulting 7,283 8,900 - - - -
Global
Sourcing 7,216 8,100 - - - -
Sub Total 258,781 281,600 5,075 5,900 2.0% 2.1%
Career
16,638 18,800 3,020 2,880 18.2% 15.3%
Solutions
Outsourcing 32,656 37,600 6,211 7,540 19.0% 20.1%
Life Solution 5,129 5,900 268 170 5.2% 2.9%
Public Solutions 2,277 3,200 (1,536) (1,300) - -
Eliminations and (4,071) (4,100) (6,500) (6,890) - -
Corporate
Total 311,410 343,000 6,539 8,300 2.1% 2.4%
48As of November
Target Operating Margin by Segments 7, 2017
Source: Company disclosures
• Given that marginal profit as a percentage of sales in this business is very low, we believe that
Expert Service, the company can get close to operating at a level of profitability comparable to Persol Holding’s
Insourcing etc. Staffing / BPO segment, which was 4.7% in the latest FY
Segment • Persol Holding is allocating its corporate overhead costs to each segment, which is not the case
for Pasona; thus, we expect Pasona to reach the higher segment operating margin level
• Given that marginal profit as a percentage of sales in this business is very high, we believe the
company can improve its segment operating margin by up to 20%, which is slightly north of the
segment operating margin of FY2016/5, by allocating its business resources and capital from the
Career Solution outplacement business to the recruitment agency online platforms
Segment
Segment • We acknowledge that the company may be forced to spend advertisement and marketing costs
Operating to enhance its online platform, but even after taking this into consideration, we believe this is an
Margin achievable target
Outsourcing • Benefit One is producing stable and strong profits and we want the company to continue its
Segment efforts to further develop its business
• We request that the company put forth its efforts to maintain its profitability from FY2017/5 as a
Life Solution bottom line commitment
Segment
– Company estimates that operating profit margin will decrease by 2.2% in FY2018/5 to 2.9%
• The Pasona board and management should bring this business to the breakeven point at a
Public Solution
minimum in the short term by reducing investment and costs, and ultimately shutting down this
Segment
business
• We believe that the company can reduce corporate overhead costs down to JPY4.0bn, which is a
decrease of JPY1.6bn compared to the company’s plan for FY2018/5
– Overhead costs have increased by JPY0.6bn despite the fact that the number of employees
Corporate between FY2016/5 and FY2017/5 has not changed significantly (only 20 people increased in
Overhead corporate headquarters)
Costs – We acknowledge that part of this is because the company has expended incubation
expenses for new businesses and that these expenses were excessive
– We are confident that the management will find areas of cost reduction and reduce
overhead costs to a lower level than FY2016/5
49As of November
7, 2017
Sum-of-the-Parts Target Operating Profit Analysis
Source: Company disclosures
Note: Analysis based on the company’s guidance FY2018/5 segment revenues and corporate overhead costs.
• We believe that Pasona’s profitability will improve significantly by carrying out our suggested implementations
• Indicated operating margin of Pasona as a whole from sum-of-the-parts analysis is 5.9%
25,000
6,970 268 0 (4,000)
20,000 18,989
3,300
(JPY in millions)
15,000
12,450
10,000
5,650
5,000
0
Expert Service, Career Outsourcing Life Solution Public Solution Corporate Total Company
Insourcing etc. Solution Segment Segment Segment Overhead Guidance
Segment Segment
Indicative
Operating 4.7% 20.0% 19.6% 5.1% 0.0% 5.9% 1.7%
Margin %
50Target Operating Margin by Segments Updated
Source: Company disclosures
• Given that marginal profit as a percentage of sales in this business is very low, we believe that
Expert Service, the company can get close to operating at a level of profitability comparable to Persol Holding’s
Insourcing etc. Staffing / BPO segment, which was 5.0% in the latest FY
Segment • Persol Holding is allocating its corporate overhead costs to each segment, which is not the case
for Pasona; thus, we expect Pasona to reach the higher segment operating margin level
• Given that marginal profit as a percentage of sales in this business is very high, we believe the
company can improve its segment operating margin by up to 20%, which is slightly north of the
segment operating margin of FY2016/5, by allocating its business resources and capital from the
Career Solution outplacement business to the recruitment agency online platforms
Segment
Segment • We acknowledge that the company may be forced to spend advertisement and marketing costs
Operating to enhance its online platform, but even after taking this into consideration, we believe this is an
Margin achievable target
Outsourcing • Benefit One is producing stable and strong profits and we want the company to continue its
Segment efforts to further develop its business
• We request that the company put forth its efforts to maintain its profitability from FY2018/5 as a
Life Solution bottom line commitment
Segment
– Company estimates that operating profit margin will decrease by 2.3% in FY2019/5 to 2.9%
• The Pasona board and management should bring this business to the breakeven point at a
Public Solution
minimum in the short term by reducing investment and costs, and ultimately shutting down this
Segment
business
• We believe that the company can reduce corporate overhead costs down to JPY4.0bn which is a
decrease of JPY2.9bn compared to the company’s plan for FY2019/5
– Overhead costs have increased by JPY1.1bn despite the fact that the number of employees
Corporate between FY2017/5 and FY2018/5 has not changed significantly (only 30 people increased in
Overhead corporate headquarter)
Costs – We acknowledge that part of this is because the company has expended incubation
expenses for new businesses and that these expenses were excessive
– We are confident that the management will find areas of cost reduction and reduce
overhead costs to a lower level than FY2016/5
51Updated
Sum-of-the-Parts Target Operating Profit Analysis
Source: Company disclosures
Note: Analysis based on the company’s guidance FY2019/5 segment revenues and corporate overhead costs.
• We believe that Pasona’s profitability will improve significantly by carrying out our suggested implementations
• Indicated operating margin of Pasona as a whole from sum-of-the-parts analysis is 6.3%
7,540 301 0 (4,000)
25,000
21,665
20,000
3,760
(JPY in millions)
15,000 14,064
10,000
8,300
5,000
0
Expert Service, Career Outsourcing Life Solution Public Solution Corporate Total Company
Insourcing etc. Solution Segment Segment Segment Overhead Guidance
Segment Segment
Indicative
Operating 5.0% 20.0% 20.1% 5.2% 0.0% 6.3% 2.4%
Margin %
52Oasis Suggestion 3:
Rebuilt Governance Structure
53Our Suggestions and Progress to Date
Meaningful
Our Suggestion Detail Comment Progress
3 Rebuilt A Rebuild • Review board structure
a • The title name of the board
Governance Corporate member changed but no ✗
Structure Governance substantial structure review
Structure • Form a nomination committee
b • Not formed
and remuneration committee ✗
• Employ cumulative voting
c • Not employed
system (Ruiseki Tohyo Seido) ✗
• Disclose detailed information
d • No detail disclosed
about Komon and Sodan-yaku ✗
B Modern • Employ stock based
a • Did not introduce stock based
Compensation compensation more broadly compensation other than for the ✗
Structure board member
• Give substance to stock based
b • Increased stock based
compensation compensation to certain extent ▲
• Redesign performance
c • Disclosed performance linked
measurement metrics stock compensation in the latest ▲
securities report
54Change in Corporate Governance since the
3 A a
Campaign Launch
Source: Company disclosures
• Since our campaign launch, the title of the board members changed, but no material changes
• We still think the current governance structure is weak and lacks effective control over the CEO's management decisions
• The company’s continuous decision to invest in the loss-making business, Public Solution segment, is indicative of such weak
governance structure and lack of control
Board Member Since
Yasuyuki Nambu Yasuyuki Nambu 1976
Chief Executive Officer Chief Executive Officer
Heizo Takenaka Heizo Takenaka 2009
Chief Encourage Officer Chairman & Director
Junko Fukazawa
Junko Fukazawa Executive Officer & Vice President, General Manager of
Chief Philosophy Officer the Human Resources & Planning Headquarters,
1990
responsible for the Social Contribution Department
Kinuko Yamamoto
Executive Officer & Vice President, General Manager of
Kinuko Yamamoto
Chief Innovation Officer
the New Business Development Headquarters, 1990
General Manager of the Smart Life Initiative
Headquarters
Hirotaka Wakamoto
Hirotaka Wakamoto Executive Officer & Vice President, General Manager
Chief Strategy Officer of the Corporate Planning & Administration 2006
Headquarters
55Upside to Pasona Share Price
56Execution of Our Proposal Will Create Significant
Increases in the Value of the Company
Source: Bloomberg, street estimates and company disclosures
Note: Market data as of October 12, 2018. Comparable companies includes Recruit Holdings, Persol Holdings, DIP, En-Japan, Quick, JAC Recruitment, Meitec, TechnoPro, WDB Holdings, Altech,
Outsourcing, World Holdings, UT Group, Trust Tech, Like, Hito Communication and Fullcast. Assumes 4.4% operating profit margin for Oasis Conservative Case, by using 3.0% operating profit margin for
Expert Services, Insourcing etc. segment, 17.5% operating profit margin for Career Solution segment and JPY4,500 million of corporate overhead cost. Assumes 6.3% operating profit margin for Oasis Base
Case which is calculated on P. 51. Assumes 30.86% corporate tax rate.
• Again, Pasona is currently trading below its holding value in its Benefit One stake
• We see at least +174% upside to the current stock price by carrying out our value-enhancement plan
Oasis Conservative Case Oasis Base Case
Implied Stock Price Implied Stock Price
+419%
+379% +381%
+330% 7,871
7,266 7,302
+230%
6,517
+205% +207%
+174%
5,013
4,628 4,651
4,151
3,777 3,777
1,517 1,517
Current Benefit One 1st Quartile Median Average 3rd Quartile Current Benefit One 1st Quartile Median Average 3rd Quartile
Stock Price Value Stock Price Value
per Share per Share
Comparable Companies FY1 P/E Multiple Comparable Companies FY1 P/E Multiple
57(Ref.) Japanese Staffing Industry
Overview
58Labor Force Needs in Japan are Real
Source: Bank of Japan and Ministry of Internal Affairs and Communications
Note: Market data as of October 12, 2018.
• Labor force imbalance in Japan is getting more serious according to the employment diffusion index (“DI”) published by Bank of
Japan in its statistical survey in Japan (“Tankan”).
• Even worse, the Japanese labor force is generally trending downwards because of the decreasing working age population
Bank of Japan Tankan – Employment DI Japanese Population Trend
0 140,000 75%
-5
120,000
70%
-10
100,000
-15
65%
-20 80,000
(‘000)
60%
-25
60,000
-30
55%
40,000
-35
-40 50%
20,000
-45
Jun-16
Jun-17
Jun-18
Mar-16
Mar-17
Mar-18
Sep-16
Sep-17
Sep-18
Dec-16
Dec-17
0 45%
1990
2045
1970
1975
1980
1985
1995
2000
2005
2010
2015
2020
2025
2030
2035
2055
2065
All Corporations Large Size Corporations
Age: 0~14 Age: 15~64 Age: 65+ 15~64 % of Total
Medium Size Corporations Small Size Corporations
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