LIKE, Inc. has three mainstay businesses: Child-Rearing Support Service where it mainly operates licensed nurseries (generating 48.6% of total revenue and 47.8% of operating profit in FY05/21); Comprehensive Human Resources Service, which provides temporary staffing service (37.4%, 43.4%); and Nursing Care-Related Service centered on the operation of paid assisted-living nursing homes (13.4%, 7.9%).
President Okamoto founded the company in 1993, initially to organize package tours. After shifting course to the operation of mobile phone stores and a staffing service for the telecom industry, LIKE entered the childcare business in 2009 and the nursing care business in 2013.
In the Child-Rearing Support Service business, LIKE operated 243 public childcare facilities (licensed nurseries and after-school clubs; +7.0% YoY) and 133 outsourced childcare facilities (in-hospital/in-office nurseries operated by the company based on a consignment contract with the owner institutions; -8.3% YoY), for a total of 376 childcare facilities in Japan (+1.1% YoY) at end-April 2021. The company has been working to reduce the number of outsourced facilities in favor of public ones.
The nursery business is handled by LIKE Kids, Inc. whose predecessor company was Success Holdings Co., Ltd. (previously listed on the First Section of the Tokyo Stock Exchange), which became LIKE’s consolidated subsidiary in July 2015. Prior to this consolidation, some of the outsourced childcare facilities were in the red because profitability had not been managed on an individual facility level. In an effort to improve profitability, the company renegotiated fees when contracts came up for renewal; it terminated such contracts when negotiations were unsuccessful. By May 2021, most fee negotiations were completed, and all outsourced childcare facilities under LIKE’s management are now operating in the black.
LIKE says it prioritized streamlining the unprofitable facilities and the number of outsourced childcare facilities declined as a result, but it plans to increase the number again in the future. The contracts for outsourced childcare facilities typically cover a period of one to three years, and their renewal involves heavy price competition among rival companies. In contrast, LIKE says it faces less competition in public childcare facilities as they require approval by local governments, raising hurdles for entrants. The company opened 82 licensed nurseries (public facilities) between FY05/17 and FY05/21, more than its rivals did over the same period.
At end-FY05/21, the number of children enrolled in LIKE’s childcare facilities totaled 10,685 (+0.3% YoY); the child count per facility was 28.4 (-0.7% YoY), and annual revenue per child came to JPY2.5mn (+10.9% YoY). The primary source of revenue in the Child-Rearing Support Service business is subsidies provided by local governments. Subsidies vary according to the age of the child in care, and usage fees are shouldered by local governments and users (parents/guardians). Children age three to five receive service free of charge (since October 2019) while usage fees for children up to age two vary depending on the corresponding local governments and users’ income levels.
The cost ratio in the Child-Rearing Support Service business was 79.6% in FY05/21, with personnel costs for nursery teachers being the main component. The SG&A ratio was 12.4%. SG&A expenses were mostly recruiting and education expenses and rent. It typically takes the company four to five years to maximize revenue and operating profit after opening a licensed nursery. This is because children up to age two—for whom the law requires a higher ratio of attending teachers—make up the majority of enrollment at freshly launched nurseries, weighing down the profit margin, which then improves gradually as the average age of children in care rises.
LIKE’s rivals in the Child-Rearing Support Service business are JP-Holdings, Inc. (TSE1: 2749) and Global Kids Company Corp. (TSE1: 6189). JP-Holdings logged an increase of 40 nurseries (mostly licensed nurseries) between FY03/17 and FY03/21, and Global Kids Company increased its licensed nursery count by 65 between FY09/16 and FY09/20. LIKE surpassed its rivals in new launches by opening 82 licensed nurseries between FY05/17 and FY05/21.
In the Comprehensive Human Resources Service business, LIKE mainly provides temporary staffing (accounting for 67.0% of segment revenue in FY05/21) and outsourcing (32.0%). In temporary staffing, the company’s operation falls under the so-called “registered-type dispatching” category, where jobseekers wishing to work as temporary staff first register with the staffing agency. A fixed-term employment contract is concluded between the individual and the agency only when the individual is placed with a client company. By client industry, 59.8% of segment revenue came from the mobile phone industry and 23.2% from the logistics and manufacturing industries. Around the 2000s, the company mainly focused on dispatching sales staff to the telecom industry (mobile phone stores), and set itself apart with its training system for grooming inexperienced staff into work-ready resources. However, as of July 2021, the company says its competitors have adopted a similar approach. LIKE intends to pursue growth in this business by focusing on the logistics, manufacturing, and construction industries and promoting deployment of non-Japanese workforce.
Total revenue in temporary staffing is determined by the number of staff in operation multiplied by revenue per staff. At end-FY05/21, the company had 7,119 staff in operation (+12.4% YoY) and a client base of 648 companies (-17.9% YoY). Revenue per staff was JPY3.0mn (-9.5% YoY). LIKE ranks fourth in market share among the players in the category of marketing and sales support staff. The cost ratio in the Comprehensive Human Resources Service business was about 80%, with personnel costs for temporary staff and social insurance premiums making up the majority of the cost. SG&A expenses were mostly recruiting and education expenses and rent.
In the Nursing Care-Related Service business, LIKE operated 25 facilities in Japan as of end-FY05/21, of which 16 were paid assisted-living nursing homes. Total capacity reached 1,511 residents and occupancy during FY05/21 averaged 91.5%. Revenue per resident was JPY5.5mn. LIKE acquired nursing care facility operator, Sunrise Villa Co., Ltd. (currently LIKE Care, Inc.) in FY05/14. It used its Comprehensive Human Resources Service business to source nurses and care workers for the facilities, and made efforts to improve recruiting and training systems. Thanks to these efforts, occupancy increased from the 60% range at the time of acquisition to over 90% in FY10/16 (Sunrise Villa’s fiscal period prior to change in fiscal year-end). As of FY05/21, occupancy remains firm at over 90%. Notably, most the company’s paid assisted-living nursing homes provide end-of-life care through tie-ups with medical institutions. The cost ratio in the Nursing Care-Related Service business was 87.3% in FY05/21, with the main components being the personnel costs for care workers (over 50% of total) and rent (about 17%). SG&A expenses mainly comprised recruiting and education expenses and rent, and the SG&A ratio came to 7.9%.
In FY05/21, revenue was JPY54.3bn (+6.3% YoY), operating profit was JPY3.6bn (+80.5% YoY), recurring profit was JPY5.3bn (+31.3% YoY), and net income attributable to owners of the parent was JPY3.3bn (+81.9% YoY). Thanks to steady operation of existing childcare facilities and new openings of licensed nurseries, revenue grew YoY in the Child-Rearing Support Service business, which drove overall company performance. Due to the COVID-19 pandemic, the number of licensed nursery openings dropped from 22 in FY05/20 to 12 in FY05/21, cutting down opening costs. Recruiting and education expenses also declined due to greater hiring efficiency. As a result, profits rose substantially YoY.
The company’s earnings forecast for FY05/22 calls for revenue of JPY57.5bn (+5.9% YoY), operating profit of JPY3.8bn (+5.3% YoY), recurring profit of JPY5.5bn (+3.0% YoY), and net income attributable to owners of the parent of JPY3.3bn (+1.2% YoY). By segment, the company projects revenue of JPY28.3bn (+7.2% YoY) in the Child-Rearing Support Service business, JPY21.5bn (+5.9% YoY) in the Comprehensive Human Resources Service business, JPY7.4bn (+2.0% YoY) in the Nursing Care-Related Service business, and JPY300mn (-7.3% YoY) in the multimedia service and other businesses. LIKE has scheduled openings of about 12 nurseries in the Child-Rearing Support Service business.
On January 12, 2021, LIKE unveiled its medium-term business plan spanning FY05/21 to FY05/25. The plan calls for revenue of JPY70.0–83.0bn (CAGR of 6.5–10.2%) and operating profit of JPY5.0–6.5bn (CAGR of 20.1–26.6%) in FY05/25. The company plans to achieve these targets through alone. With added contribution from acquisitions and business alliances, it aspires higher, aiming for total revenue of over JPY100.0bn. In the Child-Rearing Support Service business, the company plans to open 15–20 nurseries per year from FY05/23 onward.
Through its Comprehensive Human Resources Service business, the company can supply hard-to-find nursery teachers and care workers to its Child-Rearing Support Service and Nursing Care-Related Service businesses.
The combination of strong relations with local governments, access to property information, and a working system to secure nursery teachers enables the company to open more licensed nurseries than its peers.
The company has a track record of improving profitability of acquired loss-making subsidiaries through problem analysis and successful execution of recovery plans during post-merger integration.
In the Child-Rearing Support Service business, the company falls behind rivals in expanding revenue sources beyond just government subsidies.
In the Comprehensive Human Resources Service business, the company’s once-unique training system to groom inexperienced staff into work-ready resources is no longer a novelty; as a result, revenue from the mainstay mobile phone industry has declined, and revenue growth lags that of rivals.
In the Child-Rearing Support Service business, the company is susceptible to wider revenue fluctuation versus rivals because of a greater proportion of outsourced nurseries that undergo contract renewal every one to three years.
|Gross profit margin||16.1%||17.0%||16.0%||16.0%||16.8%||17.1%||17.3%||16.4%||16.4%||18.0%|
|Operating profit margin||5.2%||5.3%||2.0%||2.6%||3.0%||3.8%||4.2%||3.7%||3.9%||6.7%||6.6%|
|Recurring profit margin||6.0%||6.0%||2.5%||2.8%||4.5%||6.2%||8.5%||7.9%||8.0%||9.8%||-|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)||19,576||19,612||19,612||19,612||19,962||20,037||20,121||20,203||20,302||20,388|
|Treasury shares ('000)||632||632||637||637||637||637||1,274||1,275||1,275||1,275|
|EPS (fully diluted; JPY)||32.9||32.7||14.1||18.1||95.5||85.1||80.1||83.5||93.7||170.2|
|Dividend per share (JPY)||12.5||15.0||15.0||15.0||20.0||36.0||29.0||26.0||28.0||50.0||-|
|Book value per share (JPY)||251||273||261||269||355||700||414||469||530||625|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||1,844||2,246||2,075||2,434||5,273||5,915||7,304||7,629||13,092||9,536|
|Total current assets||4,784||4,175||4,197||4,735||9,755||11,314||12,355||13,089||19,618||16,127|
|Tangible fixed assets||69||59||637||580||5,382||6,443||8,246||10,099||13,347||15,069|
|Investments and other assets||1,365||1,946||2,862||3,372||3,503||3,811||4,609||5,141||5,305||5,431|
|Total current liabilities||1,671||1,174||2,350||2,430||6,863||10,011||10,301||10,375||16,427||11,215|
|Total fixed liabilities||-||40||1,570||1,907||7,751||6,711||7,446||7,893||9,243||14,555|
|Total net assets||4,599||5,011||4,638||4,942||7,685||7,921||9,963||12,041||14,155||11,941|
|Total liabilities and net assets||6,270||6,226||8,558||9,279||22,299||24,642||27,710||30,309||39,825||37,711|
|Total interest-bearing debt||-||-||1,276||883||8,227||9,233||9,995||10,552||17,373||16,737|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||333||429||144||977||1,644||2,859||3,969||3,455||3,451||5,695|
|Cash flows from investing activities||129||248||264||-419||-1,674||-1,737||-2,991||-2,903||-3,655||-1,807|
|Cash flows from financing activities||-228||-274||-92||-299||2,949||-480||411||-228||5,668||-7,444|
|Total asset turnover||280.8%||243.2%||202.3%||202.6%||201.7%||170.6%||174.4%||164.8%||145.6%||140.0%|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Gross profit margin||18.1%||16.4%||16.1%||18.0%||15.9%|
|Operating profit margin||6.4%||4.5%||4.6%||6.7%||5.6%||6.6%|
|Recurring profit margin||8.3%||6.6%||6.8%||9.8%||7.5%||9.6%|
|Gross profit margin||18.1%||14.6%||15.7%||22.9%||15.9%|
|Operating profit margin||6.4%||2.7%||4.8%||11.9%||5.6%|
|Recurring profit margin||8.3%||4.9%||7.3%||17.8%||7.5%|
|Operating expenses (cumulative)||FY05/21||FY05/22|
|Cost of revenue||10,774||21,855||32,925||44,496||11,347|
|Total SG&A expenses||1,550||3,093||4,519||6,167||1,394|
|Recruiting and education expenses||176||420||590||914||183|
|Amortization of goodwill||111||222||333||444||111|
|Operating expenses (quarterly)||FY05/21||FY05/22|
|Cost of revenue||10,774||11,081||11,070||11,571||11,347|
|Total SG&A expenses||1,550||1,543||1,426||1,648||1,394|
|Recruiting and education expenses||176||244||170||324||183|
|Amortization of goodwill||111||111||111||111||111|
|By segment (cumulative)||FY05/21||FY05/22||FY05/22|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Child-Rearing Support Service||6,209||12,157||18,360||26,396||6,469||22.9%||28,300|
|Comprehensive Human Resources Service||5,062||10,204||15,214||20,302||5,104||23.7%||21,500|
|Nursing Care-Related Service||1,819||3,625||5,452||7,253||1,864||25.2%||7,400|
|Child-Rearing Support Service||412||428||675||2,118||376|
|Operating profit margin||6.6%||3.5%||3.7%||8.0%||5.8%|
|Comprehensive Human Resources Service||527||997||1,413||1,922||424|
|Operating profit margin||10.4%||9.8%||9.3%||9.5%||8.3%|
|Nursing Care-Related Service||98||160||281||348||117|
|Operating profit margin||5.4%||4.4%||5.2%||4.8%||6.3%|
|Operating profit margin||9.9%||9.7%||12.6%||12.6%||-1.1%|
|By segment (quarterly)||FY05/21||FY05/22|
|Child-Rearing Support Service||6,209||5,947||6,203||8,036||6,469|
|Comprehensive Human Resources Service||5,062||5,141||5,010||5,088||5,104|
|Nursing Care-Related Service||1,819||1,806||1,827||1,801||1,864|
|Child-Rearing Support Service||412||17||247||1,443||376|
|Operating profit margin||6.6%||0.3%||4.0%||18.0%||5.8%|
|Comprehensive Human Resources Service||527||470||416||509||424|
|Operating profit margin||10.4%||9.1%||8.3%||10.0%||8.3%|
|Nursing Care-Related Service||98||62||121||67||117|
|Operating profit margin||5.4%||3.4%||6.6%||3.7%||6.3%|
|Operating profit margin||9.9%||9.4%||17.4%||12.4%||-1.1%|
Revenue grew YoY in the three main segments: Child-Rearing Support Service, Comprehensive Human Resources Service, and Nursing Care-Related Service. Operating and recurring profits declined YoY because one-off transactions and cost reduction efforts associated with the spread of COVID-19 in Q1 FY05/21 have tapered off. The company no longer posts net income attributable to non-controlling interests on its consolidated income statement, as it made LIKE Kids a wholly owned subsidiary in FY05/21. As a result, net income attributable to owners of the parent increased YoY.
Along with the Q1 results, the company disclosed its full-year FY05/22 revenue forecast by segment. According to its projections, the total revenue target of JPY57.5bn (+5.9% YoY) breaks down to revenue of JPY28.3bn (+7.2% YoY) in the Child-Rearing Support Service business, JPY21.5bn (+5.9% YoY) in the Comprehensive Human Resources Service business, JPY7.4bn (+2.0% YoY) in the Nursing Care-Related Service business, and JPY300mn (-7.4% YoY) in the multimedia service and other businesses. Q1 achievement versus these segment revenue targets was 22.9% in the Child-Rearing Support Service business, 23.7% in the Comprehensive Human Resources Service business, 25.2% in the Nursing Care-Related Service business, and 21.1% in other businesses.
On a consolidated basis, Q1 achievement was 23.5% for revenue, 20.0% for operating profit, 18.4% for recurring profit, and 19.1% for net income attributable to owners of the parent. In the Child-Rearing Support Service business that makes up a large share of the overall revenue and profit compositions, profit margins tend to be high in Q1 and Q4 when the company receives the bulk of subsidy income. The amount and timing of the subsidies it receives vary depending on the local government or the type of subsidy, so the company does not receive a fixed amount of subsidy income each month. Subsidies are generally recognized as revenue on an accrual basis, but some are booked at the time of cash payment, in which case revenue recognition could delay into the next quarter. In Q1 FY05/22, the company posted non-operating income of JPY252mn in subsidy for capital expenditure. In the Comprehensive Human Resources Service business, the company typically sees staffing demand increase in the mobile phone and logistics industries in Q3 as client companies prepare for the holiday-season boost at year end. Since the company incurs significant hiring expenses in Q2 in anticipation of this demand hike, Q2 operating profit margin tends to be relatively low. Meanwhile, segment revenue tends to increase in Q4, owing to robust activities in the mobile phone and other industries, fueled by consumers preparing for life events (such as new schools and new jobs) in April, when the new year begins for many schools and companies in Japan. The Nursing Care-Related Service business is not affected by seasonality.
LIKE said that while Q1 results were in line with its plan, performance in the Comprehensive Human Resources Service business may affect results from Q2 onward, noting that a rebound in COVID-19 cases could soften staffing demand and negatively impact the business. In contrast, variable factors are limited in the Child-Rearing Support Service and Nursing Care-Related Service businesses, since the number of facility launches has been essentially fixed for the fiscal year. For the sake of reference, in the Child-Rearing Support Service business, a reduction of new facility openings by one location will boost operating profit (on elimination of opening cost) but also push down non-operating income as the company will not be receiving subsidy for capital expenditure.
LIKE also unveiled new initiatives toward achieving its SDG targets. In December 2020, the company announced a plan to source all electricity used in its business operations from renewable energy by 2050. At the time of the Q1 earnings announcement, the company made an additional commitment to shift to renewable energy gradually at 82 of its childcare and nursing care facilities from as early as October 2021. It expects this change to bring the ratio of renewable energy used in its operations to roughly 75%, significantly outpacing the medium-term goal set in December 2020 of achieving 40% renewable electricity by 2030.
The cost ratio increased 2.2pp YoY to 84.1%, mainly driven by the rise in salaries and other labor costs from new facility openings in the Child-Rearing Support Service business. Meal service cost also increased YoY in the segment, as nurseries returned to full-scale operation following the COVID-related state of emergency period when fewer children used the facilities.
The SG&A ratio improved 1.5pp YoY to 10.3%. Roughly half of the JPY156mn decline in SG&A expenses stemmed from the absence of one-off expenses associated with the company’s takeover bid for the remaining shares of LIKE Kids in Q1 FY05/21.
In Q1 FY05/21, the capacity utilization of LIKE’s childcare facilities fell, since many children stayed home as COVID-19 ran rampant. Since the facilities have returned to full-scale operation in Q1 FY05/22, meal service and other costs increased YoY.
The lower capacity utilization in Q1 FY05/21 owing to the pandemic reduced costs by about JPY115mn. Excluding this factor, the year-ago operating profit margin in this segment would have been 4.8%, which means that the 5.8% operating profit margin in Q1 FY05/22 reflects steady improvement. The JPY115mn cost decline a year earlier mainly resulted from lower meal service cost. The company receives operational subsidies including for meal services, even when children stay home. Other factors that reduced costs a year earlier were the decreases in overtime of head office staff and utility expenses at nurseries that suspended operation amid the pandemic. While not many nurseries suspended operation in Q1 FY05/21, those that did were closed for a longer period compared to Q1 FY05/22. Nurseries need to close temporarily when a case of COVID-19 is detected within the facility. Now that the nurseries have gotten used to handling the COVID-19 protocols, even when they have to close, they are only closed for a short period.
As of October 1, 2021, the company operated 137 outsourced childcare facilities (+4 from end-April 2021), of which 117 were at hospitals (+2) and 20 were at offices of companies and other institutions (+2). Public childcare facilities operated by the company totaled 243 (no change from end-April 2021), comprising 157 licensed nurseries (no change) and 86 after-school clubs (no change). As of July 2021, there were 10,679 children (-6 from end-April 2021) using the company’s 375 childcare facilities (-1).
LIKE plans to open about 12 nurseries in FY05/22. All are public childcare licensed nurseries, mostly set to open in April 2022. If the company opens new outsourced childcare facilities as well, those would be counted as additions to the current plan. Since the company finished streamlining the unprofitable outsourced facilities, it intends to ramp up efforts in expanding the outsourced childcare business again going forward. As of October 1, 2021, the number of outsourced childcare facilities increased by four locations from end-April 2021 on a net basis; these included five openings and one contract termination of an in-hospital nursery. The termination was due to the hospital’s decision to run the facility on its own, and not a result of LIKE losing against a rival in the contract renewal process.
Segment revenue rose YoY thanks to the increase in staff deployment accompanying the launch of large logistics facilities. Meanwhile, operating profit fell YoY on the disappearance of the special demand for paperwork processing during Q1 FY05/21, when the Japanese government rolled out a COVID-19 financial aid program offering cash payment to all residents in the country. This special demand in Q1 a year earlier generated roughly JPY200mn in revenue and JPY70mn in gross profit.
Segment revenue rose 0.8% YoY to JPY5.1bn. By client industry, revenue increased in logistics and manufacturing (revenue of JPY1.3bn; +30.3% YoY), call centers (JPY539mn; +0.4% YoY), and construction (JPY60mn; +39.5% YoY), and fell in mobile phone (JPY2.8bn; -2.6% YoY), childcare (JPY76mn; -10.5% YoY), nursing care (JPY36mn; -43.3% YoY), and others (JPY217mn; -45.0% YoY).
In the mobile phone industry, the introduction of a series of new devices and diversification of price plans have for some time spurred demand for sales staff with good explanation skills. In addition, the saturation of the mobile phone market leaves little room for growth compared to the past. The company says these factors are having downward impact on segment revenue in this industry. Further, the incentive programs offered to certain mobile phone stores were changed in the spring of 2021, putting the sales strategy at these stores in disarray. Many in-store promotional campaigns were cancelled in Q1 FY05/22 due to rising COVID-19 cases. These factors have also weighed down LIKE’s performance.
In the logistics and manufacturing industries, staffing demand remained robust thanks to the launch of large logistics facilities. The company expects the strong demand to continue in Q2 as client companies prepare for the year-end shopping season.
Revenue grew 39.5% YoY in the construction industry, although the revenue amount remained small. LIKE is keeping a close eye on the temporary staffing demand stemming from the resource shortage in the construction industry. By revising the hiring plan for this industry, the company aims for further revenue growth from Q2 onward.
The number of staff in operation at end-August 2021 was 7,412 (+795 YoY). The breakdown by client industry came to 2,289 (-25) in mobile phone, 3,791 (+1,149) in logistics and manufacturing, 1,059 (-262) in call centers and others, 163 in childcare (-14), 75 in nursing care (-51), and 35 in construction (-2). Of the total, 3,438 were regular staff working five days a week (-47) and 3,974 were short-term staff (+842). The rise in short-term staff resulted from the staff increase in the logistics and manufacturing industries, which have a high composition of workers employed for short periods.
Some of LIKE’s nursing care facilities were slow to acquire new residents because of the pandemic, but average occupancy held firm at over 90%. While the nursing care industry recently began easing restrictions, facility visits had been strictly limited when the number of COVID-19 cases was high, and new residents were slow to come as a result. With the decline in cases in Q2 FY05/22, the number of potential residents and their families who visit the company’s facilities is on the rise.
On average, the residents of LIKE’s facilities are at around care level 3 under Japan’s Long-Term Care Insurance System. According to data provided by the Ministry of Health, Labour and Welfare (MHLW), the average care level of residents at paid assisted-living nursing homes was 2.16 in 2013. Since the company provides end-of-life care, its residents tend to be in the higher care levels and in greater need of residential nursing care facilities, a reason why LIKE has been able to maintain high occupancy.
In March 2021, the company opened Sunrise Villa Yokohama Higashiterao. With occupancy already exceeding 70%, the company aims to turn a profit at this facility during FY05/22.
The company runs a multimedia service business, in which it operates one mobile phone store for the purpose of improving services for mobile phone industry clients in the Comprehensive Human Resources Service business. Even with just one store, managing the operation on its own allows the company to grasp the trends of mobile phone stores where it deploys resources in the Comprehensive Human Resources Service business. The venue also functions as a training site for temporary staff.
By segment, LIKE projects revenue of JPY28.3bn (+7.2% YoY) in the Child-Rearing Support Service business, JPY21.5bn (+5.9% YoY) in the Comprehensive Human Resources Service business, JPY7.4bn (+2.0% YoY) in the Nursing Care-Related Service business, and JPY300mn (-7.3% YoY) in the multimedia service and other businesses. The company aims for a consolidated dividend payout ratio of roughly 30% at a dividend per share of JPY52 in FY05/22.
In 2020, the number of births in Japan was down to roughly 840,000, hitting a record low since the first vital statistics disclosure. Nevertheless, births are projected to grow in the Tokyo metropolitan area where LIKE operates its childcare facilities. The number of children waitlisted to enter nurseries is also on the decline nationwide, but demand remains firm in the Tokyo metropolitan area. The job-to-applicant ratio for nursery teachers fell from 2.94 in January 2021 to 2.04 in April 2021. However, the ratio is still higher than the all-profession average of 1.04, so the company thinks facility operators with strong hiring capability are at an advantage. LIKE plans to open about 12 nurseries during FY05/22.
Companies are revamping their logistics facilities to accommodate e-commerce growth, and LIKE expects staffing demand in the logistics and manufacturing industries to expand, backed by the launch of large logistics facilities at its clients, among other factors. The company also focuses on the construction and nursing care industries. The report on “Current Status and Issues of the Construction Industry” released by the Ministry of Land, Infrastructure, Transport and Tourism estimates a resource shortage of 470,000–930,000 skilled workers in FY2025. The aging workforce is a serious problem in the construction industry, and the company sees a strong resource demand. The nursing care industry also displays robust demand for staffing. Here, the company intends to fill the demand-and-supply gap by recruiting foreign nationals with Specified Skilled Worker residence status. Since Japan’s borders have been mostly closed as of July 2021 due to the pandemic, LIKE focuses on strengthening staffing services that deploy foreign nationals (Specified Skilled Workers) who are already in Japan.
The company does not plan on opening new paid assisted-living nursing homes in FY05/22, but expects to roll out three to five facilities per year in the Tokyo metropolitan area from FY05/24.
|Results vs. Initial Est.||FY05/12||FY05/13||FY05/14||FY05/15||FY05/16||FY05/17||FY05/18||FY05/19||FY05/20||FY05/21|
|Revenue (Initial Est.)||18,000||19,500||15,000||18,500||29,500||38,300||47,000||51,000||53,500||54,000|
|Results vs. Initial Est.||-2.7%||-22.1%||-0.3%||-2.3%||7.9%||4.6%||-2.8%||-6.3%||-4.5%||0.5%|
|Operating profit (Initial Est.)||1,075||1,150||800||340||700||1,600||1,780||1,940||2,200||2,150|
|Operating profit (Results)||915||799||304||470||954||1,525||1,915||1,746||2,000||3,610|
|Results vs. Initial Est.||-14.9%||-30.5%||-62.0%||38.3%||36.3%||-4.7%||7.6%||-10.0%||-9.1%||67.9%|
|Recurring profit (Initial Est.)||1,180||1,228||920||400||910||2,200||3,250||3,500||4,000||4,100|
|Recurring profit (Results)||1,045||906||374||503||1,426||2,493||3,890||3,753||4,068||5,341|
|Results vs. Initial Est.||-11.5%||-26.2%||-59.3%||25.7%||56.8%||13.3%||19.7%||7.2%||1.7%||30.3%|
|Net income (Initial Est.)||625||720||600||260||450||900||1,400||1,400||1,750||1,900|
|Net income (Results)||603||599||260||331||1,796||810||1,533||1,596||1,793||3,262|
|Results vs. Initial Est.||-3.5%||-16.7%||-56.7%||27.4%||299.0%||-10.0%||9.5%||14.0%||2.5%||71.7%|
On January 12, 2021, LIKE unveiled its medium-term business plan spanning FY05/21 to FY05/25. The plan calls for revenue of JPY70.0–83.0bn (CAGR of 6.5–10.2%) and operating profit of JPY5.0–6.5bn (CAGR of 20.1–26.6%) in FY05/25. The company plans to achieve these targets through organic growth alone. With added contribution from acquisitions and business alliances, it aspires higher, aiming for total revenue of over JPY100.0bn.
The targets are indicated in ranges to give room for uncertainties surrounding the COVID-19 pandemic. New openings of licensed nurseries have already been affected, since new facilities need to be approved by the local governments whose priority has been to control the pandemic. Further, when electronics mass retailers close their stores under the state of emergency, staff dispatched to these locations are at times placed on standby at their homes. The company released the targets in ranges, thinking that not all such external factors can be cleared by extra effort on its part. It has not disclosed targets by segment.
The company plans to open about 12 nurseries in FY05/22, expanding the number to 15–20 per year from FY05/23 while taking into account the impact of the pandemic.
The pandemic can delay nursery openings by six to 12 months. The company intends to communicate closely with the relevant local governments and make efforts to open facilities on schedule.
As of October 1, 2017, the majority of licensed nurseries in Japan were operated by non-profit corporations, and those run by for-profit entities such as joint stock companies accounted for only 6.2% of the total. When competition intensifies in the future, LIKE plans to acquire small operators with just a few nurseries or win outsourcing contracts from them in order to sustain growth. The company thinks M&A activities will accelerate in the childcare industry in three to five years. To expand its corporate value through acquisitions, the company plans to build its track record and expertise in M&A and at the same time strengthen its appeal as a childcare service provider.
Until its listing in 2005, all of the company’s revenue came from its staffing service for the telecom industry. The company’s sales bases in this segment grew from six locations in FY05/06 to 15 locations as of end-May 2021. The number of staff in operation totaled 7,119 at end-May 2021, and the client count stood at 648 companies, not just limited to telecom but spanning a range of industries. LIKE ranks fourth in market share among players in the category of marketing and sales support staff.
Companies are revamping their logistics facilities to accommodate e-commerce growth, and LIKE expects staffing demand in the logistics and manufacturing industries to expand, backed by the launch of large logistics facilities at its clients, among other factors. The company also focuses on the construction industry, which seeks to draw in young workers in response to the aging workforce. The report on “Current Status and Issues of the Construction Industry” released by the Ministry of Land, Infrastructure, Transport and Tourism estimates a resource shortage of 470,000–940,000 skilled workers in FY2025. The aging workforce is a serious problem in the construction industry, and the company sees a strong resource demand.
LIKE operates 25 nursing care facilities mainly in Tokyo and Kanagawa Prefecture, with users totaling approximately 1,400. Sixteen of the 25 facilities are paid assisted-living nursing homes. After acquiring the Nursing Care-Related Service business, the company has worked to develop synergies with the Comprehensive Human Resources Service business. Consequently, the occupancy of the nursing homes improved to over 90% from the 60% range at the time of acquisition. The segment logged an operating loss of JPY217mn in FY05/14, when the business was first included in LIKE’s scope of consolidation. In FY05/21, the segment recorded operating profit of JPY348mn. Notably, most of the company’s paid assisted-living nursing homes provide end-of-life care through tie-ups with medical institutions. For facilities without end-of-life care, the company has in place a system to transfer residents to nearby facilities that provide such care.
To accommodate business expansion from new facility openings and rising demand for nursing care, LIKE intends to further develop the synergies between its Comprehensive Human Resources Service and Nursing Care-Related Service. The company thinks recruiting Japanese nationals for care worker positions will remain difficult, and sees a solution in hiring foreign nationals for the job. It is currently leveraging its Comprehensive Human Resources Service business to actively secure non-Japanese care workers.
LIKE does not plan to open any paid assisted-living nursing homes in FY05/22. The opening of one such facility is confirmed for FY05/23, and the company plans to open three to five facilities a year in the Tokyo metropolitan area from FY05/24. The plan as of January 2021 had been to open one to three facilities a year. LIKE expanded this number to three to five facilities per year in July 2021, taking into account its success over the past few years in developing internal resources. The company says it has enough suitable resources, including facility managers, to send to new facilities. There is currently no plan to open new facilities in regional areas. However, the company intends to aggressively pursue acquisitions and expand business in the future.
LIKE thinks the task at hand is to improve the skillsets of its head office employees. The company’s businesses are not guarded by patents or actual products. Effective launch and operation of multiple nurseries, for example, not only hinge on the proper training of on-site nursery directors and teachers, but depend largely on the training of head office staff who manage and guide the on-site personnel.
To promote the use of digital technologies, through FY05/21, LIKE focused on identifying each operating company’s challenges that can be resolved by technological enhancements. In FY05/22, the company plans to overhaul its core system and introduce an in-house developed smartphone app, Nanapocke, for use at its nurseries. One of the main features of the app is the communication log function, enabling the exchange of comments between nursery teachers and parents/guardians. Previously, nurseries depended on paper-based correspondence notebooks, but the younger nursery teachers are much faster at inputting comments on their smartphones than handwriting them. Bringing the notebook online can reduce the time required for the task and help reduce overtime. Parents/guardians previously had to step out of their offices to make phone calls about pick-up delays and other matters. With a smartphone app, they can simply send messages to the nurseries from their desks.
The company thinks services using the Nanapocke app can be expanded, and is considering several ideas. One option is the resale of children’s clothing in the safe and closed environment of LIKE’s nursery network. Partnering with a manufacturer to home-deliver heavy and bulky items such diapers is another plan under consideration. The company also contemplates rolling out Nanapocke to small and medium-sized nursery operators that cannot develop their own apps, and earn advertising revenue from ad placements in the app.
As of July 2021, operating profit from selling photos to parents/guardians comes to roughly JPY30mn. The photos are taken by the nursery teachers, but further down the road, the company is thinking of introducing a robot camera, which uses a sensor for facial recognition to take pictures.
LIKE has three mainstay businesses: Child-Rearing Support Service (centered on the operation of licensed nurseries), Comprehensive Human Resources Service (including temporary staffing business), and Nursing Care-Related Service (mainly the operation of paid assisted-living nursing homes).
In the Child-Rearing Support Service business, the company managed 133 outsourced childcare facilities (-8.3% YoY) and 243 public childcare facilities (+7.0% YoY) in Japan at end-April 2021. The outsourced childcare facilities comprised 115 in-hospital nurseries (-10.2% YoY) and 18 in-office nurseries (+5.9% YoY). Of the 243 public childcare facilities, 157 were licensed nurseries (+6.8% YoY) and 86 were after-school clubs (+7.5% YoY).
Outsourced childcare involves nurseries, which entities such as hospitals, companies, and universities create on their own premises. In this arrangement, service users sign a contract with the entities to receive childcare, and the entities outsource the service to LIKE, paying the company a consignment fee. Meanwhile, under public childcare, users sign a contract with local governments, and LIKE provides the childcare service and receives government subsidies as compensation.
Licensed nurseries fall under public childcare. They are a “child welfare institution” defined in the Child Welfare Act of Japan, and have cleared certain standards (facility size, number of staff including nursery teachers, kitchen for meal services, and other requirements) to receive a license from local governments. Licensed nurseries are categorized into those built and operated by the government, those built by the government but operated by the private sector, and those built and operated by the private sector. LIKE mainly operates nurseries in the third category.
Subsidies received from local governments are the primary source of revenue in this business. Subsidy calculations are based on what is called the government-designated “official unit price,” varying in amount depending on the age of the child receiving care and the governing region. Some local governments add their own subsidies, such as an additional operational subsidy, to supplement the official unit price. Local governments are in charge of subsidy payment, but the funding comes from several sources. In the case of private licensed nurseries, 50% of the official unit price is borne by the central government, and the remaining 50% is evenly shouldered by the corresponding prefectural government and municipality (cities, towns, and villages). Service users pay a usage fee to the local governments. Children age three to five receive service free of charge (since October 2019) while usage fees for children up to age two vary depending on the corresponding local government and users’ income levels.
After-school clubs are another type of public childcare facility. These facilities take in elementary school children who would otherwise be alone at home after school, such as children of working parent(s), providing them a safe place to play and spend time.
In the Comprehensive Human Resources Service business, the company handles temporary staffing (67.0% of segment revenue in FY05/21), outsourcing (32.0%), and employment agency work including temp-to-perm staffing and full-time job referrals (1.0%).
In temporary staffing, LIKE matches jobseekers (staff) with employers (client companies), and when matches are made, it dispatches the staff to work at the client companies. LIKE and the companies sign a dispatch contract based on which the companies are billed for the staff’s work. LIKE concludes an employment contract with the staff and pays them salaries.
In outsourcing (contract work), LIKE and the client companies sign an outsourcing contract, and the companies pay LIKE a fee for the outsourced work. LIKE concludes an employment contract with jobseekers (those performing the work), and assumes the responsibility of giving them directives.
In employment agency work, LIKE introduces employment opportunities to jobseekers, and when the client companies decide to hire them as permanent employees, the employers pay LIKE a referral fee. Under this scheme, the employment contract is concluded directly between the jobseeker and the employer.
In the Nursing Care-Related Service business, the company operated 25 facilities in Japan at end-FY05/21. By format, these facilities broke down to paid assisted-living nursing homes (16), paid residence-type nursing homes (four), serviced housing for the elderly (two; of which one had an adjoining paid assisted-living nursing home), group home (one), and day service facilities (three).
Paid assisted-living nursing homes are designated by prefectural authorities as providers of “daily-life long-term care to residents of specified facilities” under Japan’s Long-Term Care Insurance System. The services offered range from meal preparation, laundry, housecleaning, and other day-to-day support to physical care such as assistance with bathing and toilet use.
Paid residence-type nursing homes are elderly homes offering only daily-life support services such as meal preparation, laundry, and housecleaning. Once residents become certified as requiring long-term care under the Long-Term Care Insurance System, they sign a contract with in-home service providers to receive home-visit care while living at the nursing home.
Serviced housing for the elderly refers to housing leased to the elderly who are capable of living independently (no care certification under the Long-Term Care Insurance System) or require only limited care (certified in the lower care levels).
Group homes are shared living facilities dedicated to elderly individuals with dementia. Residents jointly take on housekeeping tasks, in part to delay the progress of their dementia.
Day service is the commonly used term for “outpatient long-term day care” under the Long-Term Care Insurance System. Users visit day service facilities to receive support on daily-life activities such as having meals and bathing. These facilities also provide functional training and oral function care to enhance users’ ability to perform day-to-day activities.
The fiscal years of LIKE’s consolidated subsidiaries in the Child-Rearing Support Service and Nursing Care-Related Service businesses end in April. The May–April results of these subsidiaries are reflected in the company’s June–May consolidated results.
|Child-Rearing Support Service||10,542||14,725||17,777||20,534||22,967||26,396|
|% of total||0.0%||0.0%||0.0%||0.0%||33.1%||36.8%||38.9%||43.0%||45.0%||48.6%|
|Comprehensive Human Resources Service||16,990||14,570||12,024||12,541||15,621||19,368||21,787||20,681||20,814||20,302|
|% of total||97.0%||95.9%||80.4%||69.4%||49.1%||48.4%||47.7%||43.3%||40.8%||37.4%|
|Nursing Care-Related Service||2,262||4,542||4,957||5,295||5,525||6,176||6,984||7,253|
|% of total||0.0%||0.0%||15.1%||25.1%||15.6%||13.2%||12.1%||12.9%||13.7%||13.4%|
|% of total||3.0%||4.1%||4.5%||5.5%||2.3%||1.7%||1.3%||0.9%||0.6%||0.6%|
|Operating profit margin||5.2%||5.3%||2.0%||2.6%||3.0%||3.8%||4.2%||3.7%||3.9%||6.7%|
|Child-Rearing Support Service||-||-||-||-||154||-76||388||670||514||2,118|
|Operating profit margin||-||-||-||-||1.5%||-||2.2%||3.3%||2.2%||8.0%|
|% of total||-||-||-||-||9.9%||-3.4%||14.5%||27.5%||18.7%||47.8%|
|Comprehensive Human Resources Service||-||-||896||935||1,631||2,124||2,170||1,774||1,902||1,922|
|Operating profit margin||-||-||7.5%||7.5%||10.4%||11.0%||10.0%||8.6%||9.1%||9.5%|
|% of total||-||-||129.9%||100.3%||104.4%||95.5%||81.2%||72.9%||69.2%||43.4%|
|Nursing Care-Related Service||-||-||-217||-313||-64||154||91||-45||298||348|
|Operating profit margin||-||-||-||-||-||2.9%||1.6%||-||4.3%||4.8%|
|% of total||-||-||-31.4%||-33.6%||-4.1%||6.9%||3.4%||-1.8%||10.8%||7.9%|
|Operating profit margin||-||-||1.7%||31.6%||5.0%||3.6%||4.3%||9.1%||10.7%||12.7%|
|% of total||-||-||1.6%||33.4%||2.3%||1.1%||0.9%||1.5%||1.2%||0.9%|
|Child-Rearing Support Service||FY05/16||FY05/17||FY05/18||FY05/19||FY05/20||FY05/21|
|Number of children in care (year-end)||8,071||8,262||8,915||9,934||10,648||10,685|
|Number of facilities (year-end)||302||316||333||349||372||376|
|% of total||60.3%||52.2%||46.2%||46.1%||39.0%||35.4%|
|% of total||49.7%||42.1%||37.5%||37.0%||34.4%||30.6%|
|% of total||10.6%||10.1%||8.7%||9.2%||4.6%||4.8%|
|% of total||39.7%||47.8%||53.8%||53.9%||61.0%||64.6%|
|% of total||20.9%||23.7%||28.2%||33.0%||39.5%||41.8%|
|% of total||18.9%||24.1%||25.5%||20.9%||21.5%||22.9%|
|Revenue per child||-||1.8||2.1||2.2||2.2||2.5|
|Revenue per facility||-||47.7||54.8||60.2||63.7||70.6|
|Number of children per facility||26.7||26.1||26.8||28.5||28.6||28.4|
In July 2015, the company made nursery operator Success Holdings Co., Ltd. (then listed on the First Section of the Tokyo Stock Exchange; currently LIKE Kids, Inc.) a consolidated subsidiary. At end-April 2016, LIKE’s outsourced childcare facilities and public childcare facilities totaled 182 and 120, respectively, but since then, the company—under the leadership of President Okamoto—took on a policy of reducing the number of outsourced facilities while increasing the public ones. At end-April 2021, outsourced childcare facilities were down to 133 (-8.3% YoY), while public childcare facilities grew to 243 (+7.0% YoY).
Prior to the 2015 consolidation, some of Success Holdings’ outsourced childcare facilities were in the red because their profitability had not been managed on an individual facility level. In an effort to improve profitability, LIKE negotiated to raise the consignment fees of loss-making facilities when contracts came up for renewal; it terminated such contracts when negotiations were unsuccessful. By May 2021, most fee negotiations were completed, and all outsourced childcare facilities under the company’s management are now operating in the black. LIKE says it prioritized streamlining the unprofitable facilities and the number of outsourced childcare facilities declined as a result, but it plans to expand the number of these facilities again. The contracts for outsourced childcare facilities typically cover a period of one to three years, and their renewal involves heavy price competition among rival companies. In contrast, public childcare facilities require approval by local governments, and it is important to open a well-located facility ahead of the competition. As long as the company can be the first to open a licensed nursery in a good location (e.g., close to a station or has room for a spacious playground), rivals will not be granted a license to open another facility nearby, unless the number of children in the area increases. For this reason, the company has been stepping up efforts to launch more public childcare facilities. In August 2020, the company acquired the remaining shares in LIKE Kids and made it a wholly owned subsidiary.
LIKE plans to open about 12 nurseries in FY05/22, expanding the number to 15–20 nurseries per year from FY05/23 while taking into account the impact of the COVID-19 pandemic. Schedules for licensed nurseries become fixed at least a year before their launch, although the timing varies from project to project.
At end-FY05/21, the number of children enrolled in LIKE’s childcare facilities totaled 10,685 (+0.3% YoY); the child count per facility was 28.4 (-0.7% YoY), and annual revenue per child came to JPY2.5mn (+10.9% YoY). Note that child count per facility is calculated by simply dividing the number of children enrolled at fiscal year-end by the number of facilities at fiscal year-end. The number of children enrolled excludes those using after-school clubs and children’s centers. The capacity per facility is approximately 70 children for public childcare facilities (licensed nurseries; excluding after-school clubs and children’s centers), and about 20 children for outsourced childcare facilities.
In outsourced childcare, users (parents/guardians) sign a contract with the owner entities such as hospitals to enroll their children, while local governments are the counterparty of the contract in the case of public childcare. In both cases, LIKE provides childcare services. Service users sending their children to public facilities pay a usage fee to the relevant local government. Children age three to five receive services free of charge (since October 2019) while usage fees for children up to age two vary depending on the corresponding local governments and users’ income levels (free for low-income households). Users pay extra for school bus, meals, and events. The total outlay per child (paid by users to local governments) generally ranges from several thousand yen to around JPY70,000 per month. LIKE’s revenue in this business depends on the number of children enrolled in its facilities and the number of nursery teachers it employs. To maximize revenue, the facilities need to operate at full capacity. While the law stipulates a set number of nursery teachers per facility, some local governments require added staffing for better care, and this translates to additional subsidy for the company. The vast majority of LIKE’s revenue is subsidy income from the local governments, and direct fee income from the users (such as overtime care fees and photo sales) only amounts to roughly 1% of the total.
The process of opening a licensed nursery begins with public bidding where three to four companies typically enter bids after securing an appropriate plot of land. LIKE works with major real estate agencies that have access to information on potential properties. The company maintains that its track record in opening licensed nurseries has helped it build close relationships with the agencies, resulting in preferential access to properties. Further, the company has not experienced any major trouble in opening nurseries in the past, and says its track record has helped foster the deep trust of local governments. According to LIKE, the combination of good relationships with the local governments that make decisions, access to land information, and the ability to secure sufficient nursery teachers has been key to its success in launching childcare facilities at good locations.
In terms of enrollment, the local governments are in charge of allocating the children to licensed nurseries. The parents/guardians submit a list indicating their first to ninth choices, and when applications exceed capacity for certain nurseries, the local governments determine enrollment via lottery. The company encourages facility visits by potential users and uses other means to get its nurseries listed among the parents/guardians’ top choices. However, it does not have a direct say in enrollment.
The ability to secure nursery teachers is critical in launching nurseries. To recruit, foster, and retain its teachers, LIKE leverages its expertise in the staffing service, its founding business. The company thinks that nursery teachers leave their jobs, not because of low salary, but due to difficult interpersonal relations. The salary of nursery teachers fresh out of school is commensurate to the average salary in the private sector, although the difference may widen in ten years’ time. Meanwhile, nurseries can be a very closed environment involving the same people every day, without much contact with the outside world. For example, it becomes difficult for teachers to continue working if they are on bad terms with the nursery directors. Previously at Success Holdings (currently LIKE Kids), nursery teachers could not send in transfer requests without going through the nursery directors. LIKE changed the protocol, introducing a supervisor system that allowed teachers to submit transfer requests directly to head office staff.
In the past, recruiting activities were also left up to the nursery directors. LIKE observed that while the directors were experts in childcare, they were not professionals in HR management, so hiring tended to depend on their personal choices. LIKE consequently changed the system to have HR specialists from the head office participate in the hiring process, and also began training the directors. If the company can raise the retention rate and train the staff into experienced nursery teachers instead, replacement efforts can be kept to a minimum. When opening new nurseries, experienced resources can be transferred from nearby facilities to ensure a smooth start. The company thinks such initiatives will lead to customer satisfaction.
In FY05/21, the turnover rate hovered around 12%, down roughly 3pp from FY05/17. The length of service averaged 3.4 years for public childcare facilities and 5.0 years for outsourced childcare facilities (versus 3.5 years and 5.0 years, respectively, in FY05/17). According to the company, the increase in the number of full-time employees by several hundred each year has prevented the average length of service from growing. The salary of non-manager level teachers at LIKE’s licensed nurseries was JPY235,000 per month in FY05/21, up from JPY216,000 in FY05/17.
Capital expenditure per facility (mainly on interior construction and auxiliary equipment) generally amounts to about JPY150mn, depreciated over three to 22 years.
The cost ratio in the Child-Rearing Support Service business was 79.6% in FY05/21. Personnel costs for nursery teachers were the largest component at over 70% of the cost of revenue, followed by rent. Food costs for meals were also included. The company leverages its nationwide nursery network to obtain economies of scale in food procurement. SG&A expenses mainly comprised recruiting and education expenses and rent. The SG&A ratio was 12.4% in FY05/21.
Profitability is lower for services to the younger age groups, since nurseries are required to have more nursery teachers attending to very young children. The national standard is 1:3 [one teacher to three children] for children under one year old, 1:6 for children age one and two, 1:20 for children age three, and 1:30 for children age four and above. Freshly launched nurseries can only fill the openings for children up to age two, because children age three to five rarely leave already established relationships and move to another nursery. The operating profit margin of new nurseries improves steadily over time, since profitability rises as the children in care get older.
Earnings model of a large-capacity licensed nursery
In the case of public childcare facilities, in addition to the earnings outlined above, the company receives subsidy for capital expenditure (recorded as non-operating income). In outsourced childcare, the companies and hospitals that open the nurseries make the capital investment, so LIKE bears no such expenditure. Spending associated with the land and building for public childcare facilities is shouldered by property owners with whom LIKE enters into a leasehold agreement for 20–30 years, so the company mainly bears the cost of interior construction and equipment, which amounts to about JPY150mn per facility. While the coverage ranges depending on the local governments involved, the company typically receives a capital expenditure-related subsidy (mostly on interior construction) of about JPY100mn per facility.
In FY05/21, revenue per facility stood at JPY70.6mn, up from JPY47.7mn in FY05/17. The company attributes this increase to the organic revenue growth at newly established licensed nurseries and the higher ratio of public childcare facilities. The percentage of public childcare facilities operated by LIKE rose from 47.8% of the total in FY05/17 to 64.6% in FY05/21, while the percentage of outsourced childcare facilities fell from 52.2% to 35.4% during the same period. 85% of FY05/21 revenue in Child-Rearing Support Service came from public childcare, and the remaining 15% from outsourced childcare. Based on Shared Research estimates, this translates to revenue per facility of JPY92.3mn for public childcare and JPY29.8mn for outsourced childcare. While the company does not disclose the capacity utilization rate of its facilities, we understand that licensed nurseries generally operate at full capacity, given that they have been established in consideration of the number of waitlisted children in the area. In contrast, the number of children that outsourced childcare facilities take in varies from day to day.
In December 2009, LIKE made Success Academy Co., Ltd. (currently LIKE Academy, Inc.) an equity-method affiliate. In November 2010, Success Holdings Co., Ltd. (currently LIKE Kids, Inc.) was established via share transfer, and Success Academy became a consolidated subsidiary of Success Holdings. In August 2012, Success Holdings was listed on JASDAQ. It changed its listing to the Second Section of the Tokyo Stock Exchange in April 2013, and moved to the First Section in April 2014. Success Holdings became LIKE’s consolidated subsidiary in July 2015, and changed its name to LIKE Kids, Inc. in October 2019. LIKE Kids was delisted when it became a wholly owned subsidiary of LIKE in August 2020.
|Gross profit margin||18.7%||18.1%||16.0%||14.8%||18.0%||15.2%||17.0%||17.7%||16.8%|
|Operating profit margin||4.9%||5.6%||2.3%||1.0%||2.2%||0.4%||2.6%||4.0%||2.6%|
|Recurring profit margin||8.3%||7.3%||5.4%||5.1%||10.2%||6.9%||13.5%||13.4%||11.3%|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||2,228||1,874||2,291||3,120||2,624||2,527||3,454||3,811||5,379|
|Total current assets||2,855||2,607||3,141||4,397||4,397||4,686||5,504||6,200||8,888|
|Tangible fixed assets||1,561||2,258||3,575||4,415||4,849||5,932||7,716||9,563||12,681|
|Investments and other assets||452||625||968||1,237||1,342||1,525||2,181||2,597||2,918|
|Total current liabilities||1,967||2,018||2,536||2,841||3,379||4,168||5,483||5,694||7,931|
|Total fixed liabilities||1,588||1,876||3,367||5,447||5,168||5,306||5,647||6,393||8,516|
|Total net assets||1,363||1,643||1,824||1,885||2,172||2,762||4,367||6,361||8,170|
|Total liabilities and net assets||4,918||5,537||7,727||10,173||10,718||12,235||15,497||18,448||24,617|
|Total interest-bearing debt||1,945||2,057||3,425||5,419||5,077||5,741||6,991||7,757||11,304|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||774||541||805||472||544||1,134||2,559||2,396||1,686|
|Cash flows from investing activities||-508||-912||-1,589||-1,440||-607||-1,764||-2,801||-2,774||-3,629|
|Cash flows from financing activities||659||17||1,201||1,797||-434||534||1,168||735||3,511|
|Total asset turnover||172.8%||165.9%||152.5%||131.5%||43.4%||129.1%||128.6%||121.1%||106.7%|
The declining birthrate in Japan is bringing an end to the problem of children waitlisted to enter nurseries. Nevertheless, the company projects market growth until about 2026, fueled by the migration of young people to Tokyo and Kanagawa Prefecture and the accompanying growth in child population in these areas. Thereafter, LIKE plans to focus on M&A activities and outsourced operations. Among the smaller nursery operators are those that suffer low profitability from high turnover (caused by difficult interpersonal relations) and increasing recruitment costs, and those that face business succession issues. LIKE intends to pursue these types of nurseries as its acquisition targets.
A breakdown of operators by number of nurseries indicates that, as of October 1, 2017, 90% of all licensed nurseries were managed by small to medium-sized social welfare corporations. For-profit entities such as joint stock companies accounted for only 6.2% of operators. FY2019 data on business performance of nurseries, provided by the Welfare and Medical Service Agency, revealed that 21.6% of nurseries run by social welfare corporations operated in the red. LIKE is also considering the possibility of dispatching nursery teachers to these social welfare corporations to provide support. Further, many of the joint stock companies operating nurseries are small or medium-sized, and will likely be consolidated with the major players through market reorganization. LIKE thinks the enhancement of its content offerings would be critical in attracting such companies to the group when the time comes.
In food procurement for nursery meal services as well, LIKE enjoys the cost benefit of wholesale purchasing while small and mid-sized operators purchase at retail price. As such, the company plans to form alliances for joint procurement and use the opportunity to win outsourcing contracts.
Revenue in the Comprehensive Human Resources Service business was JPY20.3bn (-2.5% YoY) in FY05/21. Temporary staffing accounted for 67.0% of the total, outsourcing 32.0%, and employment agency work (temp-to-perm staffing and full-time job referrals) 1.0%.
There are two approaches to temporary staffing: “registered-type dispatching” and “regularly employed-type dispatching.” LIKE engages in the former.
In registered-type dispatching, jobseekers wishing to work as temporary staff register with a staffing agency in advance. A fixed-term employment contract is concluded between the staff and the staffing agency only when the staff is placed with a client company. The fixed term contract is terminated at the end of the dispatch period.
In regularly employed-type dispatching, the staffing agency hires the workers for an indefinite term, so their employment with the agency continues even when the dispatch period ends.
While LIKE does not disclose the number of workers registered with the company, we understand that in temporary staffing, outsourcing, or temp-to-perm staffing (temporary staffing with the possibility of moving to direct employment), the company does not pay wages unless the workers are deployed.
LIKE’s operating profit margin in outsourcing is higher than that in temporary staffing, because under outsourcing contracts, the company is tasked with giving directives to the staff deployed. The bulk of the company’s outsourcing contracts is with clients in the mobile phone industry, where the gross profit margin is about 2pp higher than for temporary staffing. For outsourcing, the company puts the staff through a five-day classroom training program prior to stationing them at their respective posts.
|Comprehensive Human Resources Service||FY05/12||FY05/13||FY05/14||FY05/15||FY05/16||FY05/17||FY05/18||FY05/19||FY05/20||FY05/21|
|% of total||63.1%||63.9%||75.2%||78.5%||66.0%||61.2%||63.0%||70.4%||71.3%||67.0%|
|% of total||36.6%||34.5%||21.9%||19.5%||32.6%||37.9%||36.3%||28.7%||28.0%||32.0%|
|Temp-to-perm staffing and full-time job referrals||40||235||344||248||212||171||152||174||150||203|
|% of total||0.2%||1.6%||2.9%||2.0%||1.4%||0.9%||0.7%||0.8%||0.7%||1.0%|
|Comprehensive Human Resources Service||FY05/12||FY05/13||FY05/14||FY05/15||FY05/16||FY05/17||FY05/18||FY05/19||FY05/20||FY05/21|
|% of total||92.3%||88.5%||82.6%||77.6%||78.8%||79.3%||77.8%||69.2%||61.5%||59.8%|
|% of total||4.8%||8.3%||9.1%||9.2%||6.3%||6.9%||7.2%||7.5%||5.3%||-|
|% of total||0.1%||0.3%||0.6%||1.0%||1.2%||1.3%||1.4%||1.9%||1.8%||1.6%|
|% of total||0.1%||0.3%||0.4%||0.4%||0.3%||0.3%||0.3%||0.9%||1.3%||1.1%|
|% of total||3.7%||4.2%||4.2%||7.0%||8.0%||6.8%|
|Logistics and manufacturing||623||837||1,380||2,304||3,821||4,716|
|% of total||4.0%||4.3%||6.3%||11.1%||18.4%||23.2%|
|% of total||0.4%||0.5%||1.1%||1.4%|
|% of total||0.6%||1.0%|
|% of total||2.4%||2.1%||6.1%||10.4%||5.6%||3.6%||2.7%||2.3%||3.2%||6.5%|
|Intersegment eliminations (not included in revenue)|
|Revenue to LIKE Kids||74||142||164||258||296||259|
|Revenue to LIKE Care||102||108||128||171||232||206||218|
In the Comprehensive Human Resources Service business, the mobile phone industry topped the client industry breakdown by revenue, generating 59.8% of the segment total in FY05/21. The company says the billing rate for its staff in this industry is roughly JPY2,000 per hour while it pays the staff an hourly wage of about JPY1,500. After deductions of social insurance premiums and other expenses, the operating profit margin comes to just under 10%. The logistics and manufacturing industries combined had the second largest share at 23.2%. The billing rate in these industries is around JPY1,300, the hourly wage around JPY1,050, and the operating profit margin after deductions is 5–6%.
LIKE’s clients in the mobile phone industry include the four major carriers in Japan—NTT Docomo, Inc. (subsidiary of Nippon Telegraph and Telephone Corporation), KDDI Corporation (TSE1: 9433), SoftBank Corp. (TSE1: 9434), and Rakuten Mobile, Inc. (subsidiary of Rakuten Group, Inc.)—and other telecom companies and distributors. Clients in the logistics industry are mainly third-party logistics providers handling e-commerce merchandise, along with domestic transport companies. LIKE also has contracts with major players in the call center industry. It does not overly rely on a single client company to generate revenue. On the flip side, LIKE understands that clients in the mobile phone industry place orders with several staffing agencies, limiting their per-agency orders to a maximum of 20% of required staffing. Logistics and call center clients also disperse their risks by using more than one staffing agency.
|Comprehensive Human Resources Service||FY05/14||FY05/15||FY05/16||FY05/17||FY05/18||FY05/19||FY05/20||FY05/21|
|Number of staff in operation||4,097||4,647||4,911||5,946||6,175||6,148||6,333||7,119|
|Revenue per staff member||3.0||2.9||3.3||3.6||3.6||3.4||3.3||3.0|
|Number of client companies||697||722||747||895||839||789||648|
|Revenue per client company||22.0||26.4||26.5||23.9||25.6||28.3|
At end-FY05/21, the number of staff in operation totaled 7,119 (+12.4% YoY), and revenue per staff was JPY3.0mn (-9.5% YoY). The ratio of clients in the high-billing-rate mobile phone industry declined from 63.0% in FY05/20 to 59.8% in FY05/21, while rising from 18.4% to 23.2% in the low-billing-rate logistics and manufacturing industries. These changes caused overall revenue per staff to fall YoY.
Clients totaled 648 companies in FY05/21 (-17.9% YoY), and revenue per client company was JPY28.3mn (+10.5% YoY). During FY05/21, LIKE stopped servicing clients in the ailing apparel industry, which suffered significant damage from the spread of COVID-19. This move has resulted in YoY decline in client count. The company views the net change in staff count (number of staff in operation) as its key performance indicator, rather than the net change in client count. According to LIKE, there are plenty of staffing agencies covering sales support positions in the mobile phone industry and at call centers. The employers also prefer to disperse their staffing orders to several agencies, so LIKE’s client base in these areas tends to expand organically without the company having to make active marketing efforts.
A distinctive feature of the company in the Comprehensive Human Resources Service business is its ability to deploy its staff to the group’s operating companies in the childcare and nursing care businesses. In FY05/21, the company booked intersegment revenue (eliminations) of JPY478mn, which breaks down to JPY259mn (-12.5% YoY) from the childcare business and JPY218mn (+5.8% YoY) from the nursing care business.
In 2018, former Prime Minister Yoshihide Suga (chief cabinet secretary at the time) made a comment that Japan’s mobile phone fees were high by international standards and could be cut by 40%. Since then, price-cutting competition among the carriers has intensified, and the mobile phone industry expects further pressure to lower communication fees in the future. Nevertheless, LIKE thinks carriers will need to maintain their market share even under these circumstances, so demand for staffing services to mobile phone stores and mass retailers will persist.
Given that Japan’s working-age population (15–64 years old) will continue to decline, LIKE sees the need to recruit foreign nationals to its services. While Japan’s borders have been mostly closed due to the pandemic as of July 2021, the company has plans to bring in 3,000–4,000 workers per year from Vietnam and other Asian countries. In addition to stationing these workers in its own nursing care facilities, the company intends to introduce them to other nursing care providers via its staffing service channel. About 35 non-Japanese workers have been placed with nursing care facilities (LIKE’s own and others) as of July 2021. The company also provides training to raise individual competency and foster personnel who can lead the non-Japanese workers.
In April 2019, the Japanese government introduced the Specified Skilled Worker status as a new status of residence in Japan. A Specified Skilled Worker status is granted to non-Japanese nationals who work in jobs requiring considerable knowledge and/or experience in specified industry fields, one of which is the field of care workers (nursing care). Under this status, workers can stay in the country for up to five years. If the workers go on to obtain the qualification for certified care worker, they can apply for a working visa in nursing care and stay beyond the five-year period. Specified Skilled Workers earn wages equivalent to or higher than those paid to Japanese employees. LIKE has been developing a service to support these workers. It has already completed a pilot project and plans to launch the service when the pandemic subsides.
To attract workers to Japan, LIKE is developing business partnerships in a number of Asian countries. The company sees more benefit in partnering with local companies (major agencies and those affiliated with conglomerates) to ensure stable sourcing, rather than establishing local subsidiaries with just a few staff. Going forward, the company thinks alliances and joint ventures are options as well.
The cost ratio in the Comprehensive Human Resources Service business is roughly 80%. Costs mainly include salaries paid to staff and social insurance premiums. The main components of SG&A expenses are recruiting and education expenses and rent. The company attracts jobseekers through job listings, its own website, and friend referral programs.
At end-FY05/21, LIKE operated 25 facilities in Japan. By format, these facilities broke down to paid assisted-living nursing homes (16), paid residence-type nursing homes (four), serviced housing for the elderly (two; of which one had an adjoining paid assisted-living nursing home), group home (one), and day service facilities (three). The company plans mainly to develop paid assisted-living nursing homes in the future.
|Nursing Care-Related Service||FY05/14||FY05/15||FY05/16||FY05/17||FY05/18||FY05/19||FY05/20||FY05/21|
|Number of facilities (year-end)||21||21||21||23||24||24||25|
|Occupancy rate (average)||72.1||82.8||95||97.2||97||88.3||91.5|
|Number of residents||810||930||1,098||1,283||1,399||1,271||1,383|
|Revenue per child||5.7||5.2||4.6||4.6||5.2||5.5|
|Revenue per facility||236.0||252.1||251.1||262.8||291.0||296.0|
Earnings model per facility (capacity of 72 rooms)
The occupancy rate varies depending on the location. Since the company does not conduct major ad campaigns, its facilities generally take about three years to reach 85% occupancy.
In the business model above, annual revenue per resident comes to JPY3.3mn. Roughly 60% of the company’s revenue in this business is direct payments from the residents to cover the rent (about 20%) and administrative expenses and meals (20%). The remaining 40% is income from Japan’s Long-Term Care Insurance System. Operators of paid assisted-living nursing homes receive long-term care compensation (a fixed service fee) based on the residents’ care levels certified under the Long-Term Care Insurance System. The system undergoes a price revision every three years. In 2015, the revision rate of long-term care compensation was -2.27% for nursing care services as a whole, and in 2018, the revision rate was +0.54%.
For paid residence-type nursing homes, the company does not receive a fixed compensation based on residents’ care levels. Revenue (and the sum borne by the residents) thus varies depending on the services it provides.
Many of the residents in the company’s paid assisted-living nursing homes are in the higher care levels, since these facilities provide end-of-life care and have nurses stationed 24/7 in some cases. About 70% of residents make their way to these homes via referrals from hospitals. The average stay per resident was two years and 11 months in FY05/21. (Note: the duration is based on end-FY05/21 data collected from 22 facilities: 16 paid assisted-living nursing homes, four paid residence-type nursing homes, two serviced housing for the elderly including one with an adjoining paid assisted-living nursing home, and one group home.)
At the time of contract, residents can choose from fee plans with or without upfront payment. Residents choosing the plan without upfront payment are charged a monthly usage fee of JPY196,000–338,000. The plan with upfront payment requires a one-time payment of JPY1.2–8.9mn. 30% of the upfront payment is immediately recorded as revenue, and the remaining 70% is booked over a five-year period. In FY05/21, about 24% of the company’s new residents chose the plan with upfront payment.
LIKE says it has no problem with hiring care workers. While the hiring market is tight for care workers and nurses, the company benefits from its expertise in childcare and staffing services. As in the childcare business, the company opens multiple nursing care facilities in one region to develop a dominant position there. LIKE maintains that it has been able to hire efficiently thanks to this development strategy.
The company’s nursing care facilities are mainly located in Tokyo and Kanagawa Prefecture. Based on data released by Japan’s Cabinet Office, the percentage of Tokyo’s population age 65 or older is projected to grow from 23.1% in 2018 to 30.7% (+7.6pp) in 2045. In Kanagawa Prefecture, this figure is expected to rise from 25.1% to 35.2% (+10.1pp) during the same period.
At the time LIKE made Sunrise Villa Co., Ltd. a consolidated subsidiary in 2013, the occupancy of Sunrise Villa facilities hovered in the 60% range, since some 30% of the capacity was left unfilled due to care worker shortage. To raise occupancy rates, LIKE endeavored to improve the work environment and employee treatment, encouraged personnel exchanges through the staffing service business, and revamped the hiring system. As a result, the Sunrise Villa facilities have managed to maintain occupancy in the 90% range since November 2015. According to LIKE, the end-of-life care in its service portfolio sets the company apart from rivals. Many of the facilities have nurses around the clock and are able to accept residents in the higher care levels. Other facilities also provide end-of-life care through cooperation with medical institutions.
End-of-life care is intended to alleviate the physical and psychological pain of those nearing the end of their lives and help them live their final days with dignity.
According to Nomura Research Institute’s “Survey on Escalating Needs for Dementia Care, End-of-Life Care, and Medical Care at Elderly Housing” (released 2017), of the participating facilities (including paid residence-type nursing homes, paid assisted-living nursing homes, and serviced housing for the elderly), 70% said they were willing to accept elderly people who wish to pass away at care facilities. 23% answered that in principle, they did not accept such individuals. (The remaining facilities did not give an answer.) The top reason for not accepting was “not having night-time nurses,” followed by “shortage of nurses,” and “not intended as a facility that provides end-of-life care.”
The company understands that profitability would be higher if they did not provide end-of-life care, because without predetermined departure dates, vacancies become unavoidable. Facilities that provide end-of-life care must also employ skilled nurses who can conduct phlegm suctioning and enteral feeding, which are considered medical treatments. LIKE’s facilities have an entire floor dedicated to residents who require enteral feeding. The doors to individual rooms are left open so that staff can regularly check patients and keep watch over their conditions. While this is costly, the company intends to answer the needs of many residents who consider the care facilities to be their second home and wish to spend their final days there.
An article in the January 20, 2017 edition of Shukan Post magazine titled “The Nursing Homes Hand-Picked by Professionals Who Would Be Happy for Their Parents to Live There (in the Kanto Area in 2017)” ranked LIKE’s facility (Ferie-de Yokohama Kamoi) number one. Factors underpinning the ranking included “safety, thanks to the nurses on post around the clock,” “ample recreational options,” and “manager’s sincere personality and philosophy, which are also reflected in the actions of all staff.”
Unlike the enrollment procedure at childcare facilities, nursing care facilities are chosen directly by customers. Therefore, the company thinks reputation has a particularly important role. Generally speaking, customers choose from facilities near their homes. Before making a selection, potential residents and their families consult LIKE’s nursing care staff or families of actual residents. They sometimes choose to consult an agency that specializes in nursing care facilities. Reputation becomes key in these situations. LIKE explains that its good reputation is founded on its ability to properly care for residents even in their final days, as well as other intangible aspects including staff demeanor. To raise the quality of intangible aspects, LIKE says it is stepping up efforts to improve employee treatment, based on the thinking that employees themselves must be satisfied in order to provide tender care.
The cost ratio in the Nursing Care-Related Service business was 87.3% in FY05/21. Care worker and other personnel costs accounted for over 50% of the cost of revenue, followed by rent at around 17%. Other costs included those for outsourcing dining room operations. The SG&A ratio was 7.9%. SG&A expenses mainly constituted recruiting and education expenses, personnel expenses of the administrative division, and rent. The company owns neither land nor buildings; instead, it concludes a leasing contract with land and building owners, generally for about 20 years, although the duration depends on the facility. Capital expenditure per facility typically comes to approximately JPY50mn, depreciated over three to 22 years.
Statistics released by the Ministry of Health, Labour and Welfare (MHLW) showed a total of 37,652 licensed nurseries in Japan with combined capacity of 2.97mn children versus enrollment of 2.74mn children, as of April 1, 2020. This works out to capacity utilization of 92.2%. Capacity utilization rates have been declining since 2015, largely due to the shortage of nursery teachers, as discussed below.
|As of April 1||2005||2006||2007||2008||2009||2010||2011||2012|
|Number of children enrolled||('000)||1,994||2,004||2,015||2,022||2,041||2,080||2,123||2,177|
|Number of nurseries||(Facilities)||22,570||22,699||22,848||22,909||22,925||23,069||23,385||23,711|
|As of April 1||2013||2014||2015||2016||2017||2018||2019||2020|
|Number of children enrolled||('000)||2,220||2,267||2,374||2,459||2,547||2,614||2,680||2,737|
|Number of nurseries||(Facilities)||24,038||24,425||28,783||30,859||32,793||34,763||36,345||37,652|
The childcare market was valued at JPY1.5tn in FY2017 (+17.6% YoY) according to MHLW’s “Current Status and Initiatives in the Childcare Domain” report.
|Nursery operating costs (JPYbn)||6,553||6,662||7,067||7,488||7,924||8,853||9,705||11,679||12,776||15,020|
In 1947, not long after the end of World War II, the Japanese government enacted the Child Welfare Act and began establishing the so-called child welfare institutions to provide child-rearing support. In addition to nurseries, these facilities included infant homes, which provided round-the-clock care to children, especially orphans. Nurseries and infant homes accommodated a large number of infants and young children who were left without a parent or suffered from desperate poverty as a result of the war. In the years thereafter, following a period of rapid economic growth, more and more women joined the labor force, dual-income households increased, and accordingly, the minimum age for nursery enrollment was lowered. Nurseries expanded their role beyond simply providing aid for indigent families and have become an increasingly essential part of Japan’s social infrastructure.
In 1986, the percentage of women in the Japanese labor force was 53.1% for the 15–64 age group and 57.1% for the 25–44 age group. The female labor force participation rate rose sharply in the bubble economy years that followed, then plateaued in the 1990s, and started moving up again after the year 2000, rising to 70.6% for women age 15–64 and 77.4% for women age 25–44 in 2020. The number of dual-income households exceeded the number of single-income households (where the female partner does not work) for the first time in 1992, and has since trended upward, reaching 12.4mn households in 2020. The rise in the female labor force participation rate has been in sync with this growth, and the statistics indicate that Japanese women are still actively entering the workforce.
|Ages 15–64 (female)||53.1||53.2||53.8||54.8||55.7||56.6||56.9||56.6||56.5||56.5||56.8||57.5|
|Ages 25–44 (female)||57.1||57.8||58.4||59.5||60.5||61.4||61.6||61.1||60.8||60.5||61.1||62|
|Ages 15–64 (male)||80.7||80.2||80.4||80.6||81.1||81.6||82.1||82.2||81.9||81.8||82.1||82.4|
|Ages 15–64 (female)||57.2||56.7||56.7||57||56.6||56.8||57.4||58.1||58.8||59.5||59.8||59.8|
|Ages 25–44 (female)||61.4||61.1||61.2||62||62||62.6||63.5||64||64.9||65.5||65.8||66.1|
|Ages 15–64 (male)||81.7||81.1||81||80.5||79.9||79.8||80||80.4||81||81.7||81.6||80.2|
|Ages 15–64 (female)||60.1||60.2||60.7||62.4||63.6||64.6||66||67.4||69.6||70.9||70.6|
|Ages 25–44 (female)||66.5||67||67.7||69.5||70.8||71.6||72.7||74.3||76.5||77.7||77.4|
|Ages 15–64 (male)||80||80.1||80.3||80.8||81.5||81.8||82.5||82.9||83.9||84.2||83.8|
|(Only one spouse is employed)||YoY||0.0%||-2.0%||1.4%||-1.7%||-3.5%||-1.0%||1.7%||1.3%||1.6%||2.7%||-1.9%||-1.7%|
|(Both spouses are employed)||YoY||-0.3%||3.9%||3.1%||1.6%||5.1%||6.6%||4.2%||1.6%||1.5%||-3.7%||2.1%||2.4%|
|(Only one spouse is employed)||YoY||-3.5%||2.6%||0.4%||-2.8%||0.4%||-2.7%||0.6%||-1.4%||-1.0%||-0.4%||-3.1%||0.7%|
|(Both spouses are employed)||YoY||0.7%||-2.8%||1.4%||1.0%||0.0%||-0.2%||1.3%||2.8%||-1.1%||3.7%||-0.2%||-1.6%|
|(Only one spouse is employed)||YoY||-4.1%||-3.0%||1.8%||-5.3%||-3.4%||-4.6%||-3.3%||-3.5%||-5.5%||-4.0%||-1.9%|
|(Both spouses are employed)||YoY||1.7%||-2.5%||6.8%||1.0%||1.1%||3.4%||1.3%||5.2%||2.6%||2.1%||-0.4%|
The barriers to entry are high in the heavily regulated childcare business. A government license is generally required to start the business, and childcare facilities operate under the jurisdiction of the Cabinet Office and the Ministry of Health, Labour and Welfare (MHLW) based on stringent regulations that call for collaboration and coordination with local governments. Since the year 2000 when the first joint-stock companies became authorized to operate childcare facilities, a steady stream of for-profit companies—major corporations and players from a range of industries—have entered the business. Still, as of October 1, 2017, most licensed nurseries were being operated by social welfare corporations, and those run by for-profit entities such as joint-stock companies accounted for only 6.2% of the total. Social welfare corporations are for the most part tax exempt (although income from profit-generating business, if any, is taxable) and receive preferential treatment in terms of capital expenditure subsidies.
The supply of nursery teachers is not keeping pace with the demand for childcare services, which continues to grow. The personnel shortage is due in part to the large number of so-called latent nursery teachers, who are certified for childcare work but are not working at childcare facilities. The number of such latent resources reached roughly 930,000 in 2016.
According to a 2013 survey of jobseekers not wanting to work as a nursery teacher despite being certified to do childcare work (conducted by MHLW’s Employment Security Bureau), the most common reason given for not working in the childcare industry was “the wages do not meet jobseekers’ expectations.” MHLW statistics showed that the average starting salary (average of all industries) in 2019 was JPY210,000/month for college graduates and JPY184,000/month for graduates of technical schools and junior colleges. In contrast, according to Welfare and Medical Service Agency statistics, the starting salary of nursery employees was JPY188,000/month for college graduates (10.4% lower than the MHLW all-industry average) and JPY179,000/month for graduates of technical schools and junior colleges (2.7% lower). Further, based on MHLW’s Basic Survey on the Wage Structure, the average monthly salary of nursery teachers was JPY238,000 in 2019, falling behind the all-job-category average of JPY308,000 by 22.7%.
Average wages at private licensed nurseries are low because wage increases are small. Starting salaries for full-time positions at private licensed nurseries are typically around JPY200,000 per month, not much different from the starting salary levels of college graduates in other industries. However, pay levels of nursery teachers do not increase in tandem with more experience, since the revenue of licensed nurseries, which comprises government subsidies, is determined by the number of children enrolled multiplied by the unit price for childcare.
The unit price for childcare is the per-month cost incurred by the facility to care for one child, and is based on the government-designated official unit price table that sets prices for each age group. The number of children per nursery teacher is also determined by age group. (The national standard is 1:3 [one teacher to three children] for children under one year old, 1:6 for children age one and two, 1:20 for children age three, and 1:30 for children age four and above. Stricter rules apply under some local governments.) For this reason, the number of children a facility can accommodate depends on the number of nursery teachers it employs, and the facility’s revenue also hinges on the number of nursery teachers rather than their individual skills and experiences. Although facilities can apply for a maximum of 12% additional subsidies if their teachers have many years of service, most nurseries prioritize hiring more teachers to increase enrollment.
The growth in dual-income households and women wishing to continue working after having children has boosted the demand for nurseries in Japan. However, some local governments have been unable to offer enough facilities mainly due to the shortage of nursery teachers. The supply and demand mismatch resulted in the so-called waiting-list problem, particularly in urban centers.
The Ministry of Health, Labour and Welfare (MHLW) defines “waitlisted children” as “children certified as requiring childcare (class 2 or 3 certification) and who have applied for the use of specified educational or childcare facilities or specified municipal-level childcare services, but are not using any.” Until year 2000, the definition of waitlisted children included children enrolled in non-licensed nurseries as the licensed nurseries were full, but these children have been excluded from the count since 2001. Also to be noted is that methods of keeping track of the number of waitlisted children are left to the judgement of local governments, and their criteria for inclusion to the list have varied to date. This has led to variance between the actual number of children unable to attend licensed nurseries and the officially reported waiting-list figures (details on latent waitlisted children to follow).
The national total of children on waiting lists (total of figures released by individual local governments) has been on a downtrend since 2018, falling to 12,439 as of April 1, 2020 (-4,333 YoY). Tokyo had the highest number of waitlisted children at 2,343, accounting for 18.8% of the total in 2020.
|Of which, Tokyo||8,435||7,855||7,257||8,117||8,672||7,814||8,466||8,586||5,414||3,690||2,343|
In December 2020, MHLW unveiled its New Child-Rearing Security Plan, calling for capacity enhancement that will make childcare services available to approximately 140,000 additional children in the four years from FY2021 to FY2024. The objectives of the plan were to resolve the wait-listing problem as soon as possible, and to raise the employment rate of women age 25–44. The employment rate of women in this age group was 77.7% in FY2019 (when the plan was being drafted) and 77.4% in FY2020; the Japanese government targets an increase to 82% by FY2025. While the number of waitlisted children is declining, more women are expected to join the labor force in the future, so the shortage in childcare services remains an impending issue.
The Plan for Accelerated Resolution of Wait-listing Problem implemented from FY2013 through FY2017 achieved capacity enhancement of 535,000 against the target of 500,000. The initial Child-Rearing Security Plan from FY2018 through FY2021 targeted total capacity enhancement of 320,000, and achievement as of end-FY2019 was 201,000.
According to an article in the Tokyo Shimbun newspaper dated September 7, 2019, the so-called “latent waitlisted children” not enrolled in childcare facilities but excluded from the count of waitlisted children totaled 73,927, logging a record high since 2015 when the figure was first released. The article said more than half of these children were waiting for openings in a specific facility. The remainder were enrolled in facilities that municipalities operated on a stand-alone basis, or were being cared for at home by parents taking childcare leave or taking time off from job searches. Since FY2001, children waiting to get enrolled in their top-choice nursery (despite openings available in other facilities) have been omitted from the MHLW statistics on waitlisted children. For this reason, the actual number of children not enrolled in childcare facilities is deemed higher than the official statistical figure, and the children falling into this gap are often referred to as latent waitlisted children.
In temporary staffing, temporary workers sign an employment contract with a staffing agency, and work at the latter’s client companies to which they are dispatched. The staffing agency introduces jobs to the workers, pays them salaries, and provides employee benefits. In temp-to-perm staffing, workers are placed with client companies in a temporary role but with the possibility of shifting to permanent positions after a given period. If the employer and the worker agree at the end of the dispatch period, the employer hires the worker as a permanent employee or a direct contract employee.
According to MHLW statistics, the market for worker dispatching services was valued at JPY7.87tn (+23.3% YoY) in 2019, marking a five-year CAGR of 8.5%. Historically, temporary staffing had been categorized into general worker dispatching (license from MHLW required) and specified worker dispatching (system under which the agencies employed the dispatched workers on a permanent basis; only notification to MHLW required). Specified worker dispatching was abolished in 2015, and the transitional period to total abolition ended on September 29, 2018.
|Market size of worker dispatching services||3,591||3,906||4,034||5,183||5,491||6,382||7,869|
|Market size of specified worker dispatching services||1,514||1,534||1,644||1,397||1,008||-||-|
The number of dispatched workers totaled roughly 1.8mn (+9.1% YoY) in FY2019.
|Number of dispatched workers||1,716,220||1,799,187||1,197,551||1,504,510||1,559,037||1,682,531||1,835,925|
|Number of specified dispatched workers||275,738||279,462||306,505||266,514||-||-||-|