Nareru Group Inc. Q1 FY2025 earnings call

Overall Financial Performance

• Total consolidated revenue was 5.89 billion yen, up 18.2% year-over-year, hitting a new all-time high for a first quarter
• Total consolidated operating profit was 0.9 billion yen, up 20.9% year-over-year, and significantly exceeded the initial plan because some growth investments (recruitment and training costs) were pushed back to the second quarter or later
• Revenue hit the initial plan target, driven by higher operating personnel volumes and increased contract unit prices that offset lower-than-planned new technical staff recruitment
• Operating cash flow generated 150 million yen in inflows (driven by higher quarterly profit), while financing cash flow had 720 million yen in outflows (driven by prior term end dividend payments in January)

Core Operational Initiatives

• Construction Solutions: Continued technical staff training and retention support, expanded dispatching primarily for the plant engineering industry, and advanced development of new services such as construction DX consulting
• IT Solutions: Improved both sales capability and engineer technical skills to increase acquisition of higher-value upstream system development projects
• **Key Strategic Priorities for 2025 October Term (unchanged from prior guidance):
  • Strengthen core processes (sales, recruitment, career design) to improve operating rate and reduce staff turnover
  • Develop and strengthen an in-house recruitment media platform
  • Expand new services led by construction DX consulting: the company plans to enrich training content, scale up consultant/support staff training, and launch multi-person team dispatching to grow project volumes; the service performed solidly in Q1
  • Develop a new medium-term management plan, with internal discussions currently underway covering desired long-term positioning, environmental analysis, business strategy and human capital strategy; disclosure timing is not yet finalized

Key Operational Updates

• Career support initiatives for technical staff have delivered visible results: turnover for World Corporation was below plan in Q1, with total turnover holding steady at 29.8% year-over-year, matching plan levels
• Overall utilization rate continues an improving trend, though regional locations still face utilization challenges
• New technical staff recruitment missed both plan and prior year levels, with higher-than-expected post-offer candidate withdrawals in January as the direct cause; the company is facing broader challenges building candidate pools and current recruitment conditions remain tight

1. Construction Solutions Segment: Revenue increased 18.8% year-over-year, operating profit increased 20.8% year-over-year. For its primary subsidiary World Corporation, average monthly operating personnel rose 480 people year-over-year to 3,074, average contract unit price increased 12 thousand yen year-over-year, and total registered personnel hit 3,273 as of January 2025, up 444 people year-over-year. This segment contributes the majority of Nareru Group's total consolidated revenue, though exact revenue contribution percentage was not disclosed. 2. IT Solutions Segment: Revenue increased 13% year-over-year, operating profit increased 9.1% year-over-year. For its core subsidiary ATJC, registered and operating personnel stayed near plan, but the company missed planned retirement rate reduction targets due to a temporary increase in departures.

• Full-year 2025 October Term consolidated earnings guidance, originally announced in December 2024, is maintained with no upward or downward revisions
• Full-year annual dividend guidance is also maintained with no changes from prior announcements
• The delayed Q1 growth investments (recruitment and training costs) are still planned to be deployed starting in Q2

• Tight labor competition for technical staff has led to persistent challenges with new recruitment, including lower candidate pool formation and higher post-offer candidate withdrawals that caused Q1 recruitment to miss plan targets
• Utilization rate at regional construction solutions business locations remains a key unresolved challenge
• IT Solutions segment failed to meet planned retirement rate reduction targets in Q1 due to a temporary spike in departures, and appropriate turnover reduction remains a core priority for both business segments

Q: What factors have driven the increase in post-offer candidate withdrawals, and what countermeasures is Nareru Group implementing?

A: While the full transcript of the answer is not included in the provided text, management confirmed in the opening statement that higher-than-expected January withdrawals were the direct cause of Q1 recruitment misses, paired with broader ongoing difficulties building candidate pools. The company has implemented immediate adjustments including revising recruitment terms and methods, improving full recruitment processes (adding enhanced post-offer candidate follow-up), and strengthening the recruitment department structure. It is also evaluating long-term measures as part of the medium-term plan, including building a stronger recruitment brand and improving the work environment to boost competitiveness in hiring. / Q: What is the outlook for future recruitment volumes and when does management expect recruitment performance to recover?

A: A full answer is not included in the provided transcript snippet, but management has stated it is prioritizing early improvements to the recruitment system to compete more effectively in technical talent hiring, and will continue refining processes to address current challenges. / Q: What is the outlook for contract unit prices in the construction solutions business?

A: A full answer is not provided in the available transcript, but management noted in the opening that active sales work including proactive price negotiations delivered a 12 thousand yen year-over-year increase in average Q1 contract prices, with the company seeing strong momentum from its pricing and contract management efforts. / Q: What early results has the company seen from its technical staff career support initiatives?

A: A full answer is not included in the available text, but management highlighted that career support initiatives reduced total turnover below plan for the construction solutions segment in Q1, with turnover holding at a stable 29.8% matching plan levels, and the company reports clear positive momentum from this work.