CONSOLIDATED FINANCIAL REPORT FOR THE FISCAL YEAR ENDED MAY 31, 2004

Transcription

1 CONSOLIDATED FINANCIAL REPORT FOR THE FISCAL YEAR ENDED MAY 31, 2004 Pasona Inc. is listed on the First Section of the Tokyo Stock Exchange with the securities code number 4332, and on the Nippon New Market Hercules, Osaka Securities Exchange. Representative: President and COO Muneaki Ueda Head Office: Tokyo For further information contact: Managing Executive Officer Ryuichi Hosokawa Corporate Strategy & Planning Director Tel: URL: Board of Directors Meeting: July 26, 2004 Parent Company Name: Pasona Inc. (Securities code number 4332) U.S. GAAP: Not applied PERFORMANCE (1) Business Results Years ended May 31, 2004 and 2003 (Millions of yen, rounded down) Net Sales Operating Income Ordinary Income Net Income FY ended , , , , FY ended , , , , Net Income per Share Diluted Net Income per Share Return on Equity Ordinary Income to Total Assets Ordinary Income to Net Sales Yen Yen FY ended , , FY ended , Notes: 1. Equity in earnings (losses) of unconsolidated subsidiaries and affiliates FY ended May 31, 2004: (80) million FY ended May 31, 2003: (324) million 2. Average number of shares outstanding (consolidated) FY ended May 31, 2004: 139,575 shares FY ended May 31, 2003: 136,610 shares 3. Changes in accounting policies: None 4. Percentages shown for net sales, operating income, ordinary income, and net income are the rates of increase and decrease from the previous year. This document has been prepared for public circulation and includes information that may constitute forward-looking statements. Such statements are based on management s assumptions and beliefs in light of the information currently available to it and involve risks and uncertainties that may cause actual results to differ materially from forecasts. These uncertainties include, but are not limited to changes in economic conditions and market trends. Accordingly, Pasona does not guarantee the accuracy of the information contained in this document. In addition, this document has not been prepared as an inducement or invitation for investment. We caution readers to undertake investment decisions subject to individual determination.

2 (2) Financial Position As of May 31, 2004 and 2003 (Millions of yen, unless otherwise stated) FY ended 2004 FY ended 2003 Total Assets 37,004 29,425 Shareholders Equity 15,732 8,418 Shareholders Equity to Total Assets Shareholders Equity per Share of Common Stock 110, , Note: Number of shares outstanding at the end of the term (consolidated) As of May 31, 2004: As of May 31, 2003: (3) Cash Flows Years ended May 31, 2004 and ,625 shares 136,610 shares (Millions of yen, rounded down) Operating Activities Investing Activities Financing Activities Cash and Cash Equivalents, End of Year FY ended ,559 (1,406) 1,260 10,426 FY ended ,316 (1,087) (2,525) 6,019 (4) Consolidated Subsidiaries and Application of the Equity Method Number of consolidated subsidiaries: 25 Number of non-consolidated subsidiaries accounted for by the equity method: 0 Number of affiliated companies accounted for by the equity method: 10 (5) Changes in Scope of Consolidation and Application of the Equity Method New consolidated companies: 14 Consolidated companies removed: 1 New companies accounted for by the equity Companies accounted for by the equity method method: 3 removed: 1 FORECAST OF RESULTS FOR FISCAL YEAR ENDING MAY 31, 2005 Fiscal year ending May 31, 2005 (Millions of yen, unless otherwise stated) Net Sales Ordinary Income Net Income Interim Period FY ending May 31, , ,420 2,560 8,060 Reference: Estimated net income per share for the year (consolidated): 9, Note: Estimated income per share is calculated on the basis of 424,875 shares outstanding as of the end of the term. 1,190 4,000

3 INFORMATION ON GROUP COMPANIES The Pasona Group is engaged in services in the areas of Recruiting, Outplacement, Outsourcing, and Other. The following is a list of its 25 consolidated subsidiaries and 10 affiliated companies accounted for by the equity method. Name (Consolidated subsidiaries) Address Capital (Millions of yen) Main business Ratio of voting rights (%) Benefit One Inc. Shinjuku-ku, Tokyo 703 Outsourcing Pasona Tech, Inc. (Note 3) Shibuya-ku, Tokyo 551 Recruiting Pasona career assets Inc. Chiyoda-ku, Tokyo 208 Outplacement Pasona Carent, Inc. (Note 6) Chiyoda-ku, Tokyo 150 Pasona Telemarketing Inc. (Note 5) Recruiting Toshima-ku, Tokyo 100 Outsourcing Pasona Kyoto Inc. (Note 4) Shimogyo-ku, Kyoto 72 Home Computing Network Inc. Recruiting Shibuya-ku, Tokyo 70 Other Pasona Empower Inc. Chiyoda-ku, Tokyo 50 Pasona Okayama Inc. Okayama, Okayama 30 Pasona Sparkle Inc. (Note 7) Chuo-ku, Osaka 30 Pasona Sourcing Inc. (Note 8) Chiyoda-ku, Tokyo 20 Pasona Sun Inc. (Note 9) Chiyoda-ku, Tokyo 20 Pasona Foster Inc. Chiyoda-ku, Tokyo 10 Recruiting Recruiting Recruiting, Other Recruiting Recruiting Recruiting, Other Related information Welfare benefit agency services, 3 concurrent directors Outsourcing services, 3 concurrent directors Outsourcing services, 2 concurrent directors 3 concurrent directors Outsourcing services Royalties, outsourcing services, 2 concurrent directors 3 concurrent directors Outsourcing services, 1concurrent director Royalties, outsourcing services, 2 concurrent directors 1 concurrent director Outsourcing services, 2 concurrent directors 3 concurrent directors 2 concurrent directors

4 Pasona Logicom Inc. Chuo-ku, Kobe 10 Recruiting concurrent director Pasona Heartful Inc Chiyoda-ku, Tokyo 10 12,000 PaHuma Consulting thousand (Taiwan) Co., Ltd. Taipei, Taiwan New (Notes 9,10) Taiwan Dollars 500 PaHuma Consulting Orchard Road, thousand (Singapore) Pte. Ltd. Singapore Singapore (Notes 9, 10) Dollars 300 Pasona Canada, Inc. thousand Ontario, Canada (Notes 9,12) Canadian Dollars 7,000 thousand MGR Search and Selection Taipei, Taiwan New Co., Ltd. (Notes 9,11) Taiwan Dollars 1,520 thousand Pelham Search Pacific Ltd. Queensway, Hong Kong Hong (Notes 9) Kong Dollars 1,500 thousand Pasona Education Co. Ltd. Causeway Bay, Hong (Notes 9, 13) Hong Kong Kong Dollars 650 Pasona N A, Inc. thousand New York, USA (Notes 9, 14) U.S. Dollars Employment Agency 6,000 PaHuma Consulting Bangkok, Thailand thousand (Thailand) Co., Ltd. Thai Baht (Notes 9, 10) 320 thousand PaHuma Asia Co., Ltd. Causeway Bay, Hong (Note 9) Hong Kong Kong Dollars 1 Pelham International Ltd. thousand London, UK (Note 9) Pounds Sterling Other Recruiting Recruiting Recruiting Recruiting Recruiting Other Recruiting Recruiting Recruiting Recruiting (100.00) (100.00) (67.00) Outsourcing services, 1concurrent director 1 concurrent director concurrent director (93.33) 1 concurrent director Financial support concurrent director

5 (Affiliated companies) Pasona Nakakyusyu Inc. Kumamoto, Kumamoto 100 Pasona Nagasaki Inc. Recruiting Nagasaki, Nagasaki 70 Recruiting Pasona Niigata Inc. Niigata, Niigata 45 Recruiting Pasona ADP Payroll, Inc. Setagaya-ku, Tokyo 997 Outsourcing Financial Sun Inc. (Note 16) Chiyoda-ku, Tokyo 150 Recruiting e-staffing Co., Ltd. Chiyoda-ku, Tokyo 240 Other Kansai Employment Creation Organization Inc. National Examination Center Inc. (Note 15) Kanto Employment Creation Organization Inc. (Note 15) Cannon Persona Recruitment, Ltd. (Note 15) Kita-ku, Osaka 140 Other Shibuya-ku, Tokyo 50 Outsourcing Chiyoda-ku, Tokyo 200 Other London, UK 40 thousand Pounds Sterling Recruiting Royalties, outsourcing services, 3 concurrent directors Royalties, outsourcing services, 1concurrent director Royalties, outsourcing services, 2 concurrent directors 4 concurrent directors, financial support, debt guarantee Outsourcing services, 1concurrent director Outsourcing services, 1concurrent director 1 concurrent director 1 concurrent director 1 concurrent director Notes: 1. Main business details for consolidated subsidiary and affiliated companies are consistent with the Company s business segment classification. 2. Ratio of voting rights in parentheses represents the percentage of indirect equity holdings. 3. Company recorded in financial statement. 4. Holdings less than 50%, however, a consolidated subsidiary since it is under the control of the Board of Directors. 5. Pasona Telemarketing Inc. (formerly Atento Pasona, Inc.) became a consolidated subsidiary following the acquisition of new shares. 6. Pasona Carent, Inc. (formerly Vacs Inc.) was included as a subsidiary in the scope of consolidation due to its increasing importance to the Pasona Group. 7. Con-Be Inc. changed its name to Pasona Sparkle Inc. 8. NS Personnel Service Co., Ltd. changed its name to Pasona Sourcing Inc. 9. Companies that became consolidated subsidiaries following the acquisition of new shares. 10. Ratio of voting rights held by PaHuma Asia Co., Ltd. 11. Ratio of voting rights held by PaHuma Consulting (Taiwan) Co., Ltd. 12. NEX Canada, Inc. changed its name to Pasona Canada, Inc. 13. PaHuma Education Co., Ltd. changed its name to Pasona Education Co., Ltd. 14. NEX Outsoucing, Ltd. merged to form NEX USA Inc. NEX USA Inc. changed its name to Pasona N A, Inc.

6 15. Companies that became affiliated companies accounted for by the equity method following the acquisition of new shares. 16. Financial Human Planet, Inc. changed its name to Financial Sun Inc.

7 Registered staff, Applicants (Business Flowchart) Contracting and Placement/Recruiting Outplacement Pasona career assets Inc. Outsourcing Other *1 PaHuma Consulting (Taiwan) Co., Ltd. changed its name to Pasona Taiwan Co., Ltd. on June 1, *2 PaHuma Consulting (Singapore) Pte, Ltd. changed its name to Pasona Singapore Pte, Ltd. on June 1, *3 Employment Agency PaHuma Consulting (Thailand) Co., Ltd. changed its name to Pasona Employment Agency (Thailand) Co., Ltd. on June 1, *4 PaHuma Asia Co. Limited changed its name to Pasona Asia Co., Limited on June 1, Pasona Tech, Inc. Pasona Carent, Inc. Pasona Kyoto Inc. Pasona Empower Inc. Pasona Okayama Inc. Pasona Sparkle Inc. Pasona Sourcing Inc. Pasona Foster Inc. Pasona Logicom Inc. Pasona Sun Inc. Pasona Nakakyushu Inc. Pasona Nagasaki Inc. Pasona Niigata Inc. Financial Sun Inc. PaHuma Consulting (Taiwan) Co., Ltd. *1 PaHuma Consulting (Singapore) Pte, Ltd. *2 Pasona Canada, Inc. MGR Search and Selection Co., Ltd. Pelham Search Pacific Ltd. Pasona N A, Inc. Employment Agency PaHuma Consulting (Thailand) Co., Ltd. *3 PaHuma Asia Co., Ltd. *4 Pelham International Ltd. Cannon-Persona Recruitment, Ltd. Pasona Telemarketing Inc. Benefit One Inc. Pasona ADP Payroll, Inc. National Examination Center Inc. Home Computing Network Inc. Pasona Heartful Inc. e-staffing Co., Ltd. Kansai Employment Creation Organization Inc. Kanto Employment Creation Organization Inc. Pasona Education Co. Ltd. Consolidated subsidiary Pasona Inc Equity-method affiliate Customers and companies that need our services

8 Management Policies 1) Basic Management Policy of the Company Based on the corporate philosophy of providing "Solutions to Society's Problems," the Pasona Group is developing its business while fulfilling its social responsibilities by solving various issues related to people and employment. To realize this vision, the Company is implementing the following basic management measures. 1. By concentrating management resources in the human resource (HR) business, we aim to provide top-class, one-stop services and full support in the main categories of the HR industry. 2. Maximizing Pasona Group s income by utilizing the group s resources, especially the Company s branch network. 3. We aim to provide high-value-added services by optimizing our customers organizational strategies in human resources and by improving the working environment for individual employees. 4. We aim to become a powerful and principled leader in the industry by emphasizing compliance. 2) Policy on Appropriation of Profits Pasona recorded a net loss from amortization of goodwill following a business transfer in June 2000, and recorded recurring losses on a non-consolidated basis through the fiscal year ended May 31, As such, the Company was unable to distribute dividends. Buoyed by a strong operating performance and efforts to reinforce its capital, Pasona plans to declare a year-end dividend of 2,000 per share for the fiscal year ended May 31, With regard to the future, management will adopt a fundamental policy of consistently delivering stable returns to shareholders, based on overall factors including the payout percentage rate and accumulation of sufficient capital reserves. Retained earnings are to be used for investments in new businesses and capital expenditures in order to ensure future growth and increase corporate value over the long term. 3) Reason for Reducing the Trading Unit As of July 20, 2004, Pasona conducted a 3:1 stock split in an aim to enhance share liquidity and broaden the investor base. Recognizing this as an important measure with regard to shareholders' equity; management will decide whether to reduce the trading unit in the future based on market trends, investor opinions, and cost-benefit ratios. 4) Medium- to Long-Term Business Strategy Pasona s fundamental corporate philosophy is to consistently build and deliver new employment infrastructure. At the same time, our medium- to long-term business goals are to earn the unwavering trust from society on a Group-wide basis, enhance our corporate image, increase market share, and to secure a dominant position in the job creation market. To this end, we have identified three key initiatives, namely (1) to strengthen and expand our core Contracting business, (2) to consistently deliver high-value-added services through a balanced and growth-oriented business portfolio, and (3) to maximize corporate value and reinforce our management platform.

9 (1) To strengthen and expand our core Contracting business In addition to the office/clerical staffing segment, Pasona is working to strengthen its business in marketing, sales and IT staffing, fields that are exhibiting rapid growth. At the same time, we are aggressively advancing operations in new areas, earmarked for future deregulation. (2) To consistently deliver high-value-added services through a balanced and growth-oriented business portfolio Having secured a leading position in the outsourcing business, we are actively working to achieve leading positions in other businesses as well. Leveraging our expertise in HR strategies and consulting, we are also endeavoring to build a full line service structure and to reinforce our capabilities to deliver comprehensive consulting and solutions with the aim of providing high-value-added services. (3) To maximize corporate value and reinforce our management platform Continued deregulation and intensified competition has expanded the market. Under these conditions, we are striving to secure a new business network, to expand our business scale, and to maintain industry leading low-cost operations. Our goal is to maximize corporate value and reinforce our management platform. 5. Measures to Improve Corporate Governance 1. Directors, Auditors, Executive Officers, and In-House Control System In principle, the Board of Directors convenes once a month and otherwise, when deemed necessary. The Board determines management policy, deliberates legal decisions and their ramifications as they relate to the Company s operations, determines other matters of importance, oversees the executive function and confirms progress relating to the management plan. In August 2003, an outside director was appointed to the Board of Directors with the aim of further enhancing management transparency. In addition, Pasona introduced an executive officer system. Executive officers are responsible for actively implementing those fundamental policies and guidelines determined by the Board of Directors. Moreover, the Company has established an audit structure comprising three auditors, one of whom is appointed from outside the Company. We have also set up an in-house audit office to determine the relevance and accuracy of business activities including those of affiliated companies. 2. Advisory Board In May 2004, Pasona established an Advisory Board, comprised of leading figures in the business world, to acquire various views concerning the Company s management and to better reflect society s perspective in our initiatives and various business activities. The Board serves as an advisory panel to the Board of Directors. In principle, the term of Advisory Board members is one year. The Advisory Board meets once every three months for a total of four times each year.

10 Members of the Advisory Board as of the date of this report were as follows (listed in order of Japanese syllabary). Nobuo Ishihara Yukiharu Kodama Research Institute for Local Government Japan Information Processing Development Corporation President President Ken Moroi Taiheiyo Cement Corporation Counselor Etsuya Washio National Federation of Workers and Consumers Insurance Cooperatives President Hironori Aihara Yasuyuki Nambu Muneaki Ueda External Director of the Company, Chairman of Space Communications Corporation Group CEO of the Company President and COO of the Company 3. Strict Observance of Relevant Laws and Regulations Pasona aims to improve transparency in management through proactive information disclosure and strict observance of laws relevant to its industry in order to ensure the sound development of the HR industry, which is in a growth phase. In strictly observing relevant laws and regulations, Pasona is making every effort to gain the understanding and cooperation of its corporate and individual customers regarding the spirit of the law. In response to the growing concern for temporary staff not registering in the social health insurance system, the Company has aggressively engaged in full coverage of social insurance for all qualified temporary staffs. In addition, Pasona is implementing a cross-divisional compliance program centered on the CS (Customer Satisfaction) Promoting Division and Contract & Personnel Management Division. We are making concerted efforts to offer high-quality services from a compliance perspective by continuing employee training and education programs and checking the status of compliance Companywide on a daily basis. 4. Protection of Personal Data Due to the nature of our business, the protection of personal data is of paramount importance and is positioned as a priority issue by management. Pasona bases its policies regarding the protection of personal data on JISQ15001 of the Japan Industrial Standards code, which outlines a compliance program and requirements relating to the protection of personal data. In addition, we have appointed a Compliance Officer and a Compliance Audit Officer, periodically to conduct staff training, monitor the implementation and improvement of guidelines, and ensure that personal data is adequately protected Companywide. 6. Management Indicators Recognizing that the HR business is a growth market in the medium term, our primary focus is to expand sales and at the same time to improve our profit margin while enhancing management efficiency. Specifically, our goals are to secure double-digit sales growth each year over the medium term, to cultivate

11 high-earnings businesses, and ensure low-cost operations. Ultimately, we are working toward an operating profit margin in excess of 5%. Business Performance (1) Results During the fiscal year ended March 31, 2004, the Japanese economy remained on a steady recovery with broad-based signs of improved corporate earnings. In a survey of labor economy trends by the Ministry of Health, Labor and Welfare, the labor D.I. (the number of companies replying there is excess workforce deducted from the number of companies replying the opposite) has remained at a high level since the November 2000 survey, highlighting the tight supply/demand conditions in the labor market. In Contracting, a turnaround in the operating environment became clearer in the second half of the fiscal year under review, and demand recovered faster than initially expected. Accordingly, Contracting was robust, contributing to earnings expansion. As a result, sales grew 15.7% year-on-year to 156,979 million. Ordinary income was 7,329 million, an increase of 36.4% year-on-year, owing to higher profits alongside sales growth, and a decline in costs in accordance with revisions to the social insurance system. Net income totaled 3,647 million, up 79.9% from a year earlier, reflecting extraordinary gains of 161 million from a constructive gain from a change in equity, as well as an extraordinary loss of 238 million on losses related to the sale of a subsidiary. A breakdown of results by business, prior to eliminations of intra-segment transactions, is as follows. 1. Recruiting Contracting Sales of Contracting were 143,409 million, an increase of 14.5% year-on-year. Overall business conditions were favorable, buoyed by renewed economic vitality. Demand began to expand for high-volume clerical and technical work such as telemarketing and trade, in the second half of the fiscal year under review, contributing substantially to overall earnings growth. By industry type, demand was particularly strong in the financial, communications and manufacturing industries, while other industries bottomed out and headed toward a recovery. Moreover, supply/demand tightened for some job types, reflecting an upturn in the labor market, slowing the year-on-year pace of decline in prices for staffing requests and payments. Placement/Recruiting Sales of Placement/Recruiting climbed 102.8% to 1,996 million. As with the temporary staffing and contracting market, placement and recruiting expanded on the back of stronger incentives to hire personnel at corporations. At Pasona, demand continued to increase at companies in mainly the IT, distribution, service and financial sectors. In addition, the overseas subsidiaries we acquired in Asia, the United Kingdom and the United States in August and September 2003 began to contribute to sales in the second half of the fiscal year under review. In October 2003, Placement/Recruiting division was incorporated as Pasona Carent, Inc. to accelerate decision-making and establish a strong brand in the market as well as reinforcing the Company s business structure.

12 As a result of the above activities, net sales in the Recruiting segment rose 15.2% to 145,405 million. Operating income advanced 62.0% to 6,013 million, owing to higher sales and improved costs in accordance with revisions to the social insurance system. 2. Outplacement In the fiscal year under review, large-scale corporate restructuring ran its course, and personnel hiring entered a cyclical upturn. As a result, order volume in the outplacement market declined overall. Pasona positions its Outplacement business as a crucial component of comprehensive personnel services. Despite these difficult market conditions, we strove to acquire orders by enhancing our market reputation through concerted efforts to outplace personnel while maintaining the quality and quantity of our consultants based on our medium-term business expansion plan. As a result, in terms of the number of companies we deal with and the number of outplacement orders received, performance was significantly better than the previous fiscal year. Pasona acquired orders in mainly the manufacturing industry, including machinery and electric equipment sectors, as well as the financial and retail industries. However, order value declined due to a decrease in order volume per company and lower overall prices in the industry. Outplacement net sales declined 5.0% to 3,133 million, reflecting fewer orders on hand at the beginning of the fiscal year compared with the previous fiscal year. Operating income fell 37.4% to 745 million, owing to a decline in profit margins from lower prices. 3. Outsourcing The benefit outsourcing company, Benefit One Inc., worked to improve the convenience of the transaction settlement system, to expand the range of services offered to acquire new customers, to meet increasing demand for cafeteria plan (selective benefit system). In addition, in August 2003, we launched measures to expand operations for individuals by acquiring goodwill of Fukuri Koseika Ka, which has experience in providing services to individuals. At the call center outsourcing business of Pasona Telemarketing Inc., we focused efforts on restructuring, including a review of expenses, after acquiring additional shares in the company and turning it into a subsidiary at the start of the fiscal year under review. As a result, we were able to improve earnings. As a result of the above, Outsourcing posted net sales of 7,260 million, an increase of 48.6% year-on-year. Operating income rose 27.0% to 700 million. Pasona sold all of its shareholdings in Pasona Telemarketing Inc. to a third party engaged mainly in call/contact center operations on June 30, Other Net sales in this segment, including PC training classes and child-care business, rose 24.8% to 1,890 million, while operating income decreased 12.7% to 189 million. (2) Cash Flows On a consolidated basis, cash and cash equivalents totaled 10,426 million as of May 31, 2004, an increase of 4,392

13 million ( 703 million increase in the previous fiscal year). The major components of cash flows were as follows. Cash Flows from Operating Activities Income before income taxes rose 2,173 million to 7,154 million year-on-year. However, accounts receivable increased 2,074 million, trade liability increased 744 million, and tax payments were 2,761 million. As a result, net cash provided by operating activities totaled 4,559 million, compared with 4,316 million a year ago. Cash Flows from Investing Activities Net cash used in investing activities was 1,406 million, compared with 1,087 million in the previous fiscal year. The main uses of cash included 399 million for the purchase of property and equipment, such as building fixtures, 369 million for purchase of intangible assets, including software, and 360 million for acquisition of subsidiary stock in accordance with the addition of 11 overseas subsidiaries to the scope of consolidation. Cash Flows from Financing Activities Pasona procured 3,698 million from the issuance of shares in October 2003, and used 2,070 million for the repayment of long-term debt. As a result, net cash provided by financing activities totaled 1,260 million, compared with net cash used in financing activities of 2,525 million in the previous fiscal year. Cash Flow Benchmarks FY ended 2001 FY ended 2002 FY ended 2003 FY ended 2004 Shareholders equity ratio Shareholders equity ratio based on market Years to redemption of liabilities Interest coverage ratio Notes: Shareholders equity ratio: Shareholders equity / total assets Shareholders equity ratio based on market capitalization: Market capitalization / total assets Years to redemption of liabilities: Interest-bearing debt / cash flow from operating activities Interest coverage ratio: Cash flow from operating activities / interest payments *Each benchmark is calculated based on the consolidated financial statements. *Market capitalization is calculated by multiplying the closing share price with the number of outstanding shares at fiscal year-end *Cash flow from operating activities uses net cash provided by operating activities on the consolidated statements of cash flows. Interest-bearing debt includes all interest-bearing debt under liabilities recorded on the consolidated balance sheets. Interest payments use the amount of interest paid on the consolidated statements of cash flows. * represents data with no applicable figure.

14 (3) Outlook There are signs of a broad-based recovery in corporate earnings, spurring managers to hire personnel in Japan s economy. Accordingly, we expect the market to continue expanding for Contracting as well as Placement/Recruiting. Based on this assumption, we are prioritizing the strengthening of operations in the mainstay temporary staffing field and shoring up our marketing organization by placing an executive officer in charge of strategically important branch while expanding base functions and clarifying responsibilities. In addition, we aim to boost overall staffing transaction volume by focusing efforts on aggressively expanding budgets for mainly recruitment expenses and branch-related costs in order to ensure sufficient quality and quantity of registered staff that qualify to fulfill positions in orders received. In Placement/Recruiting, Pasona is expanding and upgrading business infrastructure under its ongoing priority to expand business scale, such as by launching full-scale operations in the Nagoya region, and investing in personnel. In Outplacement, amid general economic expansion, the operating environment remains cloudy, but near-term orders have been relatively strong. Accordingly, we aim to expand our share of orders while working to streamline expenses in order to establish a foundation for growth over the medium and long term. In Outsourcing, Pasona sold its entire stake in Pasona Telemarketing Inc. in June 2004, removing it from the scope of consolidation. Accordingly, we expect revenues to decrease by an amount relevant to Pasona Telemarketing, Inc. As a result of the above, for the fiscal year ending May 31, 2005, Pasona expects consolidated net sales to increase 13.7% to 178,420 million year-on-year. During the fiscal year under review, revisions to the social insurance system in April 2003 contributed to an improvement in profitability. In the fiscal year ending May 31, 2005, we do not forecast any major changes to earnings due to similar external factors. In addition, we anticipate a certain amount of increase in expenses in line with our aggressive expansion plans for the mainstay Contracting, as stated above. For the fiscal year ending May 31, 2005, we estimate consolidated ordinary income to grow 10.0% to 8,060 million and net income to rise 9.7% to 4,000 million.

15 CONSOLIDATED BALANCE SHEETS As of May 31, 2003 and May 31, 2004 (Millions of yen) May 31, 2003 May 31, 2004 Increase (Decrease) Current assets: ASSETS (%) (%) (%) 1 Cash and deposits 5,591 10,149 4,558 2 Notes and accounts receivable trade 13,561 16,078 2,517 3 Marketable securities Inventories (11) 5 Deferred tax assets Income tax receivable Other current assets 1,077 1, Fixed assets: Less allowance for doubtful receivables (83) (79) 3 Total current assets 21, , ,489 1 Property and equipment:*1 (1) Buildings 736 1, (2) Land (3) Other tangibles Total tangible fixed assets 1, , Intangible assets: (1) Software 1,193 1,110 (82) (2) Goodwill (2) (3) Other intangibles Total intangible fixed assets 1, , (77) 3 Investments and other assets: (1) Investment securities* (32) (2) Long-term loans (3) Deferred tax assets 1,806 1,220 (585) (4) Lease guarantee deposits 1,916 2, (5) Other investments Less allowance for doubtful accounts Total investments and other assets (95) (69) 25 4, , (254) Total fixed assets 7, , Total assets 29, , ,578

16 CONSOLIDATED BALANCE SHEETS As of May 31, 2003 and May 31, 2004 (Millions of yen) May 31, 2003 May 31, 2004 Increase (Decrease) (%) (%) (%) LIABILITIES Current liabilities: 1 Accounts payable trade Short-term loans payable 2,665 1,460 (1,204) 3 Accounts payable other 1,565 1, Accrued expenses 6,408 7, Income taxes payable 1,664 1, Consumption taxes payable 1,638 2, Reserve for bonus 958 1, Other current liabilities 1,983 1,835 (148) Total current liabilities 17, , Long-term liabilities: 1 Long-term debt 1,065 (1,065) 2 Long-term payables other (139) 3 Deferred tax liabilities 5 5 (0) 4 Allowance for employees severance retirement benefits Allowance for directors retirement benefits Other long-term liabilities Total long-term liabilities 2, , (809) Total liabilities 19, , (276) MINORITY INTERESTS Minority interests 1, , SHAREHOLDERS EQUITY Common stock *4 6, , ,849 Capital surplus 5, , ,849 Retained earnings (loss) (2,841) (9.7) ,637 Net unrealized holding gain on other securities (0) (0.0) Foreign currency translation adjustment (22) (0.1) (22) Total shareholders equity 8, , ,314 Total liabilities, minority interests and shareholders equity 29, , ,578

17 CONSOLIDATED STATEMENTS OF INCOME Years ended May 31, 2003 and 2004 (Millions of yen) FY Ended May 31, 2003 FY Ended May 31, 2004 Increase (Decrease) (%) (%) (%) Net sales 135, , , Cost of sales 108, , , Gross profit 26, , , Selling, general and administrative expenses *1 21, , , Operating income 5, , , Non-operating income: (41) (27.7) 1 Interest income Subsidy from government (12) 3 Insurance fund receivable Termination fees receivable Refund of payments to disabled employees tax 59 (59) 6 Other income (16) Non-operating expenses: (36) (7.9) 1 Interest expenses (33) 2 Amortization of new share issuance expenses IPO-related expenses Investment loss on equity method (244) 5 Other expenses Ordinary income 5, , , Extraordinary gains: , Gain on sales of fixed assets * Gain on sales of investment securities 3 Gain on sales of investment in affiliated companies 4 Constructive gain on change in equity (6) Extraordinary loss: (13) (3.4) 1 Loss on disposal of fixed assets* Amortization of goodwill 328 (328) 3 Valuation loss of investment securities 4. Loss on sales of investment securities 5 Loss on sales of investment in affiliated companies (21)

18 6 Loss relating to sales of affiliated companies * Constructive loss on change in equity 14 (14) 8 Amortization of business rights Income before income taxes and minority interests 4, , , Income taxes current 2, , Income taxes deferred (160) (36.9) Minority interests Net income 2, , ,

19 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Years ended May 31, 2003 and 2004 (Millions of yen) FY Ended May 31, 2003 FY Ended May 31, 2004 CAPITAL SURPLUS Capital surplus at the beginning of the period 5,197 5,197 Increase in capital surplus: Increase due to new share issuance 1,849 1,849 Capital surplus at the end of the period 5,197 7,046 RETAINED EARNINGS Retained earnings at the beginning of the period (4,873) (2,841) Increase in retained earnings: Net income 2,027 3,647 Increase due to merger 7 2,034 3,647 Decrease in retained earnings: Bonuses for directors 2 3 Decrease due to the increase in consolidated subsidiaries Retained earnings at the end of the period (2,841) 796

20 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended May 31, 2003 and 2004 (Millions of yen) FY Ended May 31, 2003 FY Ended May 31, 2004 Cash Flows from Operating Activities: Income before income taxes 4,980 7,154 Depreciation Amortization of others Amortization of goodwill (excess of costs over assets acquired) Increase (decrease) in allowance for doubtful accounts 48 (44) Increase (decrease) in reserve for bonus Increase (decrease) in allowance for employees severance retirement benefits Increase in allowance for directors retirement benefits Interest and dividend income (4) (11) Interest expenses Foreign exchange loss (gain) (0) 6 Investment loss on equity method Constructive loss on change in equity (gain) 14 (161) Gain on sale of fixed assets (1) (43) Loss on sale and disposal of fixed assets Gain on sale of investment securities (8) Loss on sale of investment securities 2 Valuation loss on investment securities 0 13 Loss on sales of shares of affiliates 15 Loss relating to loss on sales of shares of affiliates 238 Increase in accounts receivable trade (1,099) (2,074) Decrease (increase) in inventories (78) 13 Decrease (increase) in other current assets (146) 76 Increase (decrease) in accounts payable trade (206) 744 Increase (decrease) in consumption tax payable (809) 482 Increase (decrease) in other current liabilities 939 (573) Directors bonuses paid (4) (7) Subtotal 5,161 7,405 Interest and dividends received 7 15 Interest paid (131) (99) Income taxes paid (721) (2,761) Net cash provided by operating activities 4,316 4,559

21 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended May 31, 2003 and 2004 (Millions of yen) FY Ended May 31, 2003 FY Ended May 31, 2004 Cash Flows from Investing Activities: Payments for time deposits (0) (51) Payments for purchases of fixed assets (149) (399) Proceeds from sale of fixed assets 3 81 Payments for purchases of intangible assets (357) (369) Proceeds from sale of intangible assets Payments for purchases of investment securities (208) (104) Proceeds from sale of investment securities Payments for acquisition of securities of subsidiaries *2 (194) (360) Proceeds from sale of securities of subsidiaries *3 (4) Payments for additional purchases of securities of subsidiaries (72) (46) Payments for increase in loans receivable (36) (19) Proceeds from collection of loans receivable Proceeds from other investment securities Payments for other investment securities (349) (602) Net cash used in investing activities (1,087) (1,406) Cash Flows from Financing Activities: Increase (decrease) in short-term loans payable trade (200) (516) Proceeds from long-term debt 30 Repayment of long-term debt (2,156) (2,070) Repayment of financial lease (213) (233) Proceeds from issuance of shares 3,698 Proceeds from issuance of shares to minority shareholders Payments for dividends to minority shareholders (2) (27) Net cash (used in) provided by financing activities (2,525) 1,260 Effect of Exchange Rate Changes on Cash and Cash Equivalents 0 (21) Net (Decrease) Increase in Cash and Cash Equivalents 703 4,392 Cash and Cash Equivalents at Beginning of the Year 5,316 6,019 Increase (Decrease) in Cash and Cash Equivalents due to Change in Scope of Consolidation 13 Cash and Cash Equivalents at End of the Year *1 6,019 10,426

22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Basis of preparation of consolidated financial statements FY ended 2003 (June 1, 2002 to May 31, 2003) 1. Scope of Consolidation (1) Consolidated subsidiaries: 12 companies Names of consolidated subsidiaries: Benefit One Inc. Pasona Tech, Inc. Pasona career assets Inc. Pasona Kyoto Inc. Home Computing Network Inc. Pasona Empower Inc. Pasona Okayama Inc. Con-Be Inc. NS Personnel Service Co., Ltd. Pasona Foster Inc. Pasona Logicom Inc. Pasona Heartful Inc. Pasona Empower Inc., Con-Be Inc. and Pasona Logicom Inc. became consolidated subsidiaries through the acquisition of stock. Pasona Heartful Inc. became a consolidated subsidiary following a corporate spin-off. The Company increased its shareholding in Pasona Kyoto Inc. through the additional purchase of stock and effectively controls that company s board of directors. Accordingly, Pasona Kyoto Inc. has been included in the scope of consolidation. Home Computing Network Inc. and Osaka Home Computing Network Inc. merged. Accordingly, Osaka Home Computing Network Inc. has been excluded from the scope of consolidation. Pasona Caregiver Inc. was excluded from the scope of consolidation following the sale of its shares. FY ended 2004 (June 1, 2003 to May 31, 2004) (1) Consolidated subsidiaries: 25 companies Names of consolidated subsidiaries: Benefit One Inc. Pasona Tech, Inc. Pasona career assets Inc. Pasona Carent, Inc. Pasona Telemarketing Inc. Pasona Kyoto Inc. Home Computing Network Inc. Pasona Empower Inc. Pasona Okayama Inc. Pasona Sparkle Inc. Pasona Sourcing Inc. Pasona Sun Inc. Pasona Foster Inc. Pasona Logicom Inc. Pasona Heartful Inc. PaHuma Consulting (Taiwan) Co., Ltd. PaHuma Consulting (Singapore) Pte, Ltd. Pasona Canada, Inc. MGR Search and Selection Co., Ltd. Pelham Search Pacific Ltd. Pasona Education Co. Ltd. Pasona N A, Inc. Employment Agency PaHuma Consulting (Thailand) Co., Ltd. PaHuma Asia Co., Ltd. Pelham International Ltd. Pasona Telemarketing Inc. (formerly Atento Pasona, Inc.) became a consolidated subsidiary through the acquisition of additional stock. Pasona Carent, Inc. (formerly Vacs Inc.) became a consolidated subsidiary due to its increasing importance to the Pasona Group. Pasona Sun Inc. was newly incorporated as a consolidated subsidiary. Con-Be Inc. changed its name to Pasona Sparkle Inc. NS Personnel Service Co., Ltd. changed its name to Pasona Sourcing Inc.

23 FY ended 2003 (June 1, 2002 to May 31, 2003) (2) Non-consolidated subsidiary Vacs Inc. (Reason for exclusion from the scope of consolidation) This company is excluded from the scope of consolidation because the amounts of its total assets, net sales, and net income equivalent to its ownership and retained earnings are small and have an immaterial impact on consolidation. 2. Application of the Equity Method (1) Affiliated companies that are accounted for by the equity method: 8 companies Pasona Nakakyusyu Inc. Pasona Nagasaki Inc. Pasona Niigata Inc. Atento Pasona, Inc. Pasona ADP Payroll, Inc. Financial Human Planet Inc. e-staffing Co., Ltd. Kansai Employment Creation Organization Inc. e-staffing Co., Ltd. and Kansai Employment Creation Organization Inc. became affiliated companies accounted for by the equity method through the acquisition of stock. Pasona Kyoto Inc. became a consolidated subsidiary through the additional purchase of stock and was excluded from the scope of consolidation as an affiliated company accounted for by the equity method. FY ended 2004 (June 1, 2003 to May 31, 2004) PaHuma Consulting (Taiwan) Co., Ltd. and 10 other overseas subsidiaries became consolidated subsidiaries through the acquisition of additional stock. NEX Outsourcing, Ltd. merged with NEX USA Inc., with the latter company remaining as the surviving company. NEX USA Inc. changed its name to Pasona N A, Inc. PaHuma Education Co., Ltd. changed its name to Pasona Education Co., Ltd. NEX Canada, Inc. changed its name to Pasona Canada, Inc. (1) Affiliated companies that are accounted for by the equity method: 10 companies Pasona Nakakyusyu Inc. Pasona Nagasaki Inc. Pasona Niigata Inc. Pasona ADP Payroll, Inc. Financial Sun Inc. e-staffing Co., Ltd. Kansai Employment Creation Organization Inc. National Examination Center Inc. Kanto Employment Creation Organization Inc. Cannon-Persona Recruitment, Ltd. National Examination Center Inc., Kanto Employment Creation Organization Inc., and Cannon-Persona Recruitment, Ltd. became affiliated companies accounted for by the equity method following the acquisition of shares.

24 3. Year-End Financial Statements of Consolidated Subsidiaries 4. Accounting Policies (1) Valuation standard and valuation method of important assets FY ended 2003 (June 1, 2002 to May 31, 2003) Jinzai Haken Hokuriku Inc. was excluded from the scope of consolidation as an affiliated company accounted for by the equity method following the sale of its shares. Industrial Outsourcing Inc. became an affiliated company accounted for by the equity method, however was later excluded from the scope of consolidation following the sale of its shares. (2) Non-consolidated subsidiary not accounted for by the equity method Vacs Inc. (Reason for exclusion from being accounted for by the equity method) Investment in this affiliated company is not accounted for by the equity method because the amounts of its net income and retained earnings equivalent to its ownership are small compared with net income and retained earnings of affiliated companies accounted for by the equity method. The fiscal year-end of Pasona Tech, Inc. and 11 other consolidated subsidiaries is March 31. These financial statements of the respective year-ends are used in the preparation of the consolidated financial statements. Where significant transactions have occurred during the period between these year-ends and the consolidated fiscal year-end, the consolidated financial statements are adjusted accordingly. A. Securities (other securities) 1. Securities with quoted market values FY ended 2004 (June 1, 2003 to May 31, 2004) Atento Pasona, Inc. became a consolidated subsidiary through the additional purchase of stock and was excluded from the scope of consolidation as an affiliated company accounted for by the equity method. The company changed its name to Pasona Telemarketing Inc. Financial Human Planet Inc. changed its name to Financial Sun Inc. The fiscal year-end of Pasona Tech, Inc. and 24 other consolidated subsidiaries is March 31. These financial statements of the respective year-ends are used in the preparation of the consolidated financial statements. Where significant transactions have occurred during the period between these year-ends and the consolidated fiscal year-end, the consolidated financial statements are adjusted accordingly. A. Securities (other securities) 1. Securities with quoted market values

25 (2) Depreciation of important depreciable assets (3) Accounting policies for important provisions FY ended 2003 (June 1, 2002 to May 31, 2003) Securities with quoted market value are stated at fair value on the closing date. (Net unrealized gains and losses on other securities are reported, directly to shareholders equity. Cost of these securities is calculated based on the moving-average cost method.) 2. Securities without quoted market values Securities without quoted market value are stated on a cost basis using the moving-average cost method. B. Inventories 1. Merchandise: cost basis using the identified cost method 2. Stored goods: cost basis at last invoice cost method A. Tangible fixed assets Buildings (excluding associated equipment and facilities): Straight-line method B. Intangible fixed assets Software: Straight-line method over the useful life of the asset estimated by the Company (within five years) A. Allowance for doubtful accounts The Company and its consolidated subsidiaries provide for doubtful receivables based on the historical deterioration rate as for normal loans, and the amount deemed necessary to cover individual accounts estimated to be uncollectible. B. Reserve for bonus The Company and its consolidated subsidiaries provide for employee bonus payment at an estimated amount to be paid for the period. C. Allowance for employees severance retirement benefits The Company and its consolidated subsidiaries provide an allowance for severance retirement benefits for FY ended 2004 (June 1, 2003 to May 31, 2004) As left. 2. Securities without quoted market values As left. B. Inventories 1. Merchandise: As left. 2. Stored goods: As left. A. Tangible fixed assets Buildings (excluding associated equipment and facilities): As left. B. Intangible fixed assets Software: As left. A. Allowance for doubtful accounts As left. B. Reserve for bonus As left. C. Allowance for employees severance retirement benefits As left.

26 FY ended 2003 (June 1, 2002 to May 31, 2003) employees based on the calculated amount of accrued retirement funds and accrued pension assets as of the end of the fiscal period. Actuarial gains and losses are recognized in expenses in the next fiscal year. D. Allowance for directors retirement benefits The Company and its consolidated subsidiaries provide an allowance for retirement benefits for directors and corporate officers in conformity with bylaws to meet obligations as of the end of the fiscal period. (4) Accounting for lease transactions Finance leases in which ownership is not transferred to a lessee are accounted for in the same manner as operating leases. (5) Other significant accounting policies for preparing consolidated financial statements A. Consumption taxes Consumption taxes are separately recorded. B. Accounting standard for treasury stock and reversal of legal reserves Effective April 1, 2002, the Company has applied Accounting Standard No. 1 Accounting Standard for Treasury Stock and Reversal of Legal Reserves. There was no effect on income from the adoption of this standard in the fiscal year ended May 31, Effective May 31, 2003, the shareholders equity section of the consolidated balance sheet has been prepared in accordance with amendments to standards for the preparation of consolidated financial statements. C. Per share information Accounting Standard for Earnings per Share (Accounting Standards Board of Japan, Accounting Standard No. 2) and Implementation Guidance for Accounting Standard for Earnings per Share (Accounting Standards Board of Japan Implementation Guidance No. 4) have been applied to the Company s consolidated financial statements commencing April 1, The effects of the application of this standard and FY ended 2004 (June 1, 2003 to May 31, 2004) D. Allowance for directors retirement benefits As left. As left. A. Consumption taxes As left. B. Accounting standard for treasury stock and reversal of legal reserves As left. C. Per share information As left.