NS Solutions Corporation FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, consolidated results were: Revenue ¥3813.4B (YoY +¥430.4B +12.7%), Operating Income ¥442.4B (YoY +¥57.4B +14.9%), Ordinary Income ¥457.3B (YoY +¥63.6B +16.2%), and Net Income Attributable to Owners of Parent ¥308.3B (YoY +¥37.8B +14.0%), achieving double‑digit growth across all profit metrics. Operating margin improved to 11.6%, up 22bp YoY, and net margin rose to 8.1%, up 9bp, indicating operating leverage from revenue growth. Aggressive M&A adding 6 consolidated subsidiaries drove growth, with goodwill at ¥318.2B (YoY +¥289.0B) and intangible assets at ¥325.8B (YoY +¥285.4B) increasing materially. Conversely, cash and cash equivalents declined to ¥1088.0B (YoY -¥841.3B), primarily due to subsidiary acquisitions ¥544.2B, corporate tax payments ¥492.5B, and settlement payments ¥50B. Operating Cash Flow was negative ¥34.1B (from prior year +¥372.1B, a -109.2% swing), but subtotal before working capital changes remained healthy at ¥498.9B, with timing of tax payments a major factor. Equity ratio remained high at 66.9% and ROE at 11.4%, indicating strong financial soundness.

Drivers of Performance

• Revenue: Revenue increased significantly to ¥3813.4B (+12.7%). Growth occurred within a single Information Services segment, but expansion of consolidated scope (addition of 6 subsidiaries) made a large contribution, with cross‑selling from integrations and deeper penetration into existing clients driving performance. Cost of sales was ¥2795.4B, gross profit ¥1018.0B, and gross margin improved to 26.7% (YoY +255bp). This likely reflects a higher mix of high‑value projects, expansion of cloud and operations services, and economies of scale. Contract assets rose to ¥313.4B (YoY +¥86.2B +38.0%), confirming accumulation of percentage‑of‑completion projects, but combined with accounts receivable ¥735.1B, DSO is about 70 days and trending longer, making receivables cycle management a future focus.

• P&L: Operating Income was ¥442.4B (+14.9%), with an operating margin of 11.6% (up 22bp). SG&A rose significantly to ¥580.6B (+¥169.9B +41.4%), but as a percentage of sales was 15.2% (up 1.5pt from 13.7%), with gross margin improvement absorbing much of the SG&A increase. The SG&A increase was mainly due to higher personnel costs (stronger hiring, wage increases), integration‑related expenses, and expense recognition from newly consolidated subsidiaries. Financial income was ¥13.1B (prior year ¥10.2B) and financial expenses ¥2.7B (prior year ¥4.4B), yielding net financial income improvement of ¥10.4B, lifting Ordinary Income to ¥457.3B (+16.2%). Other income ¥7.4B and other expenses ¥2.7B improved YoY, and Profit Before Tax reached ¥452.9B (+15.9%). Corporate income tax expense was ¥131.2B, with an effective tax rate of 29.0% (prior year 28.1%), broadly stable. Net Income was ¥321.7B (+14.6%), with Net Income Attributable to Owners of Parent ¥308.3B (+14.0%) and non‑controlling interests ¥13.4B. In summary, M&A effects and gross margin improvement underpinned revenue and profit growth, producing an operation leverage‑driven earnings structure.

Key Financial Metrics

• Profitability: Operating margin 11.6% (prior 11.4% +22bp), Net margin 8.1% (prior 8.0% +9bp), Gross margin 26.7% (prior 24.2% +255bp), all improved across stages. ROE 11.4% (prior 10.9% +0.5pt), helped by higher net margin and maintenance of total asset turnover. Total asset turnover was 0.913x (prior 0.803x), indicating modest improvement in asset efficiency.
• Cash Quality: Operating CF / Net Income ratio turned negative to -0.11x (prior +1.33x) but subtotal before working capital changes of ¥498.9B remained solid; main drivers of deterioration were corporate tax payments ¥492.5B and settlement payment ¥50B (timing effects). Accrual ratio (Operating CF - Net Income) / Net Income is about -1.11, with contract asset increase ¥76.4B, accounts receivable increase ¥8.1B, and accounts payable decrease ¥16.9B pressuring working capital.
• Investment Efficiency: Capex ¥53.6B (1.4% of sales) modest, but investment CF including M&A reached -¥593.8B due to subsidiary acquisitions ¥544.2B. Goodwill ¥318.2B and intangible assets ¥325.8B total ¥644.0B, representing 22.3% of net assets ¥2,888.1B; recovery of invested capital warrants mid‑to‑long‑term monitoring.
• Financial Soundness: Equity ratio 66.9% (prior 62.0% +4.9pt) is robust. Interest‑bearing debt is limited to lease liabilities ¥251.5B (current ¥62.1B + noncurrent ¥189.4B), with Debt/EBITDA about 0.43x and interest coverage about 164x, reflecting very strong solvency. Current ratio about 294% (current assets ¥2,750.2B / current liabilities ¥933.4B) indicates ample short‑term liquidity.

Cash Flow Analysis

Operating CF was -¥34.1B (from prior year +¥372.1B, a negative swing of ¥406.2B), but subtotal before working capital changes was stable at ¥498.9B (prior ¥504.2B, -¥5.3B). Main causes of deterioration were corporate tax payments ¥492.5B (prior ¥140.4B), settlement payments ¥50B, and contract asset increases ¥76.4B. Last year accrued corporate tax payable of ¥318.6B decreased to ¥33.7B this year (‑¥285.0B), so tax payment timing is a large factor. Investment CF was -¥593.8B (prior +¥702.5B), primarily due to subsidiary share acquisitions -¥544.2B, capex -¥53.6B, and other financial asset purchases -¥20.3B. Free CF was -¥627.9B (prior +¥1,074.6B), largely a temporary consequence of concentrated M&A activity. Financing CF was -¥216.2B (prior -¥188.1B), mainly dividend payments ¥141.8B and lease liability repayments ¥69.7B. Cash and cash equivalents decreased by ¥841.3B from beginning ¥1,929.3B to ending ¥1,088.0B, including foreign exchange impact +¥2.8B. Cash balance remains ample, and normalization of Operating CF with realization of integration benefits should limit financial risk.

Quality of Earnings

Most revenue derives from recurring contracted development and operation/maintenance in the Information Services business. Non‑operating income is small: financial income ¥13.1B (0.3% of sales) and other income ¥7.4B (0.2% of sales). A one‑time item is settlement payment ¥50B in cash flows, but impact on P&L is limited, with other expenses ¥2.7B (prior ¥25.1B) substantially reduced. Financial income mainly comprises interest received ¥10.3B and dividends received ¥0.8B, and after deducting financial expenses ¥2.7B (including interest paid ¥2.1B), net financial position is +¥10.4B and healthy. The difference between Ordinary Income ¥457.3B and Profit Before Tax ¥452.9B is equity‑method income ¥0.3B and other items -¥4.7B, showing no structural distortion. On accruals, contract asset increase ¥76.4B and accounts receivable increase ¥8.1B contrast with negative Operating CF, highlighting timing gaps between accounting profit and cash realization—driven by accumulation of percentage‑of‑completion projects and acceptance timing; post‑completion collections are key. Comprehensive income was ¥335.6B; the ¥14.0B difference from Net Income ¥321.7B stems from other comprehensive income: foreign currency translation differences ¥3.0B, remeasurement of defined benefit plans ¥7.2B, and fair value changes of financial assets ¥3.8B, which are qualitatively unproblematic. Overall, earnings quality is high, with cash conversion timing differences the primary area of focus.

Outlook & Guidance

Full‑year guidance: Revenue ¥4,170.0B, Operating Income ¥475.0B (YoY +7.4%), Net Income Attributable to Owners of Parent ¥316.0B (YoY +2.5%), and basic EPS ¥172.70. Relative to FY results (Revenue ¥3,813.4B, Operating Income ¥442.4B, Net Income ¥308.3B), the guidance implies Revenue +9.3%, Operating Income +7.4%, Net Income +2.5%, with progress rates at Revenue 91.4%, Operating Income 93.1%, Net Income 97.6%, indicating generally steady progress. Forecasted operating margin is 11.4%, slightly below this year’s 11.6%, reflecting a conservative plan incorporating integration costs and rising personnel expenses. Dividend forecast is ¥43.5 per share (this year ¥85.0), implying a payout ratio of approximately 25.2% against forecast EPS ¥172.70, a significant decrease from this year’s 50.1%; this may be a provisional figure assuming a change in the year‑end dividend, so final dividend policy confirmation is required.

Shareholder Returns

Annual dividend is ¥85.0 per share (interim ¥40.0, year‑end ¥45.0), total dividend cash outflow ¥146.0B (cash paid ¥141.8B), with a payout ratio of 50.1%. This represents a large increase from prior year dividend ¥36.5 (payout ratio 50.1%), an absolute increase of ¥48.5 and a raise of +132.9% in dividend per share, strengthening shareholder returns. Share buybacks were ¥0.6B (prior ¥0.6B), minor, so total return ratio roughly aligns with payout ratio. Although Operating CF was negative ¥34.1B this year, dividend payments ¥141.8B can be comfortably covered by opening cash ¥1,929.3B accumulated previously. Free CF was -¥627.9B due to M&A and tax timing, but given underlying Operating CF generation capacity (subtotal before working capital changes ¥498.9B) and a strong balance sheet (equity ratio 66.9%, cash ¥1,088.0B), dividend sustainability is judged high over the medium term. The next fiscal year dividend forecast ¥43.5 is a large cut of ¥41.5 from this year, but may be provisional and subject to final policy confirmation.

Risk Factors

1. M&A integration risk: Addition of 6 new consolidated subsidiaries recorded goodwill ¥318.2B and intangible assets ¥325.8B, totaling ¥644.0B (22.3% of net assets). Delays in realizing integration synergies, emergence of duplicated costs, loss of key personnel, or cultural integration failures could cause expected earnings shortfalls and raise impairment risk. Goodwill / EBITDA ratio (~0.55x) is not excessive, but impairment testing requires attention under deteriorating business conditions.

2. Project collection / acceptance delay risk: Contract assets ¥313.4B (YoY +38.0%) and accounts receivable ¥735.1B result in DSO around 70 days and a lengthening trend. If acceptance, billing processes, or client recognition diverge for percentage‑of‑completion projects, deferred revenue recognition or bad debt risk may materialize. Operating CF / Net Income -0.11x flags a quality issue, and improving cash conversion is an urgent priority.

3. Rising personnel costs and recruitment competition risk: SG&A rose to ¥580.6B (+41.4%), increasing to 15.2% of sales. Continued intense competition for IT talent, wage pressure, and upfront integration personnel investments could slow gross margin improvement and pressure operating margins. Higher turnover or deterioration in project quality could also impair profitability.

Industry Benchmark (Reference, Company Estimates)

Profitability & Return

Profitability exceeds industry medians across all measures, with operating margin +3.5pt and net margin +2.6pt, and gross margin improvement contributing to higher profitability.

Growth & Capital Efficiency

Revenue growth is +2.6pt above the median, placing the company among the industry leaders, driven by M&A and deeper engagement with existing clients.

※ Source: Company compilation

Key Points to Monitor in Financial Results

1. Progress of post‑M&A integration and realization of synergies is the primary focus. Given invested capital of ¥644.0B in goodwill and intangibles, gross margin improvement of +255bp and operating margin improvement of +22bp are encouraging in the early stage, but confirmation of quantitative cross‑sell revenue, duplicate cost elimination, and hiring efficiency gains is critical. Disclosure of integration KPIs (turnover, average project pricing, backlog turnover) is expected.

2. Normalization of cash flow quality is a near‑term focal point. With Operating CF / Net Income -0.11x, contract asset increase ¥76.4B, and DSO ≈70 days, accelerating project completion/acceptance and shortening billing cycles are necessary. Next fiscal year, tax payment normalization and the conclusion of settlement payments should support recovery of Operating CF (toward Net Income), and a return to positive Free CF is directly linked to dividend sustainability and capacity for additional investment.

3. Forecast (Operating Income +7.4%, Net Income +2.5%) is conservative; there is upside from integration effects but downside risk from rising personnel costs and recruitment competition. Maintaining and improving gross margin and controlling SG&A ratio will determine sustainability of profit margins, and improved disclosure of orders backlog and backlog turnover will enhance transparency of growth prospects.

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This report is an AI‑generated financial analysis produced by analyzing XBRL earnings filing data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company from public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed.