Executive summary

Business overview

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%.

Earnings trends

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.

Strengths and weaknesses

Strengths

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.

Weaknesses

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.

Key financial data

Trends and outlook

Quarterly trends and results

Q1 FY05/22 results

Summary

• Revenue: JPY13.5bn (+2.6% YoY)
• Operating profit: JPY758mn (-9.6% YoY)
• Recurring profit: JPY1.0bn (-7.2% YoY)
• Net income attributable to owners of the parent: JPY632mn (+50.4% YoY) 
  

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.

Operating expenses:

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.

Results by segment

Child-Rearing Support Service

• Revenue: JPY6.5bn (+4.2% YoY)
• Operating profit: JPY376mn (-8.7% YoY) 
  

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.

Comprehensive Human Resources Service

• Revenue: JPY5.1bn (+0.8% YoY)
• Operating profit: JPY424mn (-19.5% YoY) 
  

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.

Nursing Care-Related Service

• Revenue: JPY1.9bn (+2.5% YoY)
• Operating profit: JPY117mn (+18.4% YoY) 
  

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.

Other businesses

• Revenue: JPY63mn (-13.4% YoY)
• Operating loss: JPY1mn (operating profit of JPY7mn in Q1 FY05/21) 
  

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.

Company forecast for FY05/22

• Revenue: JPY57.5bn (+5.9% YoY)
• Operating profit: JPY3.8bn (+5.3% YoY)
• Recurring profit: JPY5.5bn (+3.0% YoY)
• Net income attributable to owners of the parent: JPY3.3bn (+1.2% YoY) 
  

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.

Child-Rearing Support Service

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.

Comprehensive Human Resources Service

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.

Nursing Care-Related Service

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.

Initial forecasts versus actual results

Medium-term business plan

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.

Child-Rearing Support Service

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.

Comprehensive Human Resources Service

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.

Nursing Care-Related Service

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.

Digital transformation (DX) initiatives

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.

Business

Business model

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.

Revenue and operating profit by segment

Business by segment

Child-Rearing Support Service

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.

Business model

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.

Cost structure

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

• First year: Revenue of JPY10mn, operating loss of JPY50mn
• Second year: Revenue of JPY140mn, operating profit of JPY12mn
• Third year: Revenue of JPY170mn, operating profit of JPY23mn
• Fourth year: Revenue of JPY175mn, operating profit of JPY24mn
• Fifth year: Revenue of JPY172mn, operating profit of JPY24mn 
  

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.

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.

Comprehensive Human Resources Service

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.