| Metric | Current Period | Prior Year | YoY |
|---|---|---|---|
| Revenue | ¥70.1B | ¥80.0B | -12.4% |
| Operating Income | ¥17.2B | ¥26.1B | -33.9% |
| Ordinary Income | ¥16.9B | ¥26.1B | -35.1% |
| Net Income | ¥10.2B | ¥22.2B | -53.9% |
| ROE | 15.3% | 34.8% | - |
For FY2026 Revenue was ¥70.1B (YoY -¥9.9B -12.4%), Operating Income ¥17.2B (YoY -¥8.9B -33.9%), Ordinary Income ¥16.9B (YoY -¥9.2B -35.1%), and Net Income ¥10.2B (YoY -¥12.0B -53.9%), resulting in a decline in both sales and profits. Gross margin declined to 41.1% (prior year 48.4%) a -7.3pt decrease despite the revenue decline; SG&A ratio rose to 16.5% (prior year 15.9%) a +0.6pt increase, compressing operating margin to 24.6% (prior year 32.6%) a -8.0pt contraction. Extraordinary losses of ¥0.7B (impairment ¥0.5B, disposal ¥0.2B) pressured Net Income, and an effective tax rate of 31.8% further reduced Net Income to approximately half. ROE remained in double digits at 15.3% but profitability deterioration is evident, and cash conversion weakened with Operating Cash Flow (OCF) of ¥7.8B (0.76x of Net Income). Balance sheet is very strong with cash of ¥52.9B and an Equity Ratio of 90.5%, but Free Cash Flow (FCF) of ¥7.5B versus dividend payments of ¥8.1B gives a coverage of 0.93x, indicating recovery of cash generation is a challenge.
[Revenue] Revenue was ¥70.1B (prior year ¥80.0B, -12.4%), a significant decline. The cause appears to be fewer projects or lower pricing in the single segment (WEB Marketing Business). Work in progress increased to ¥0.71B from ¥0.14B a +¥0.57B (+409%), suggesting potential delays in acceptance/recognition timing of orders. Cost of sales remained flat at ¥41.3B (prior year ¥41.3B), but due to the revenue decline gross margin fell to 41.1% (prior year 48.4%) a -7.3pt decrease, implying pressures from price competition, negative mix, and rising subcontracting costs.
[Profitability] SG&A was ¥11.6B (prior year ¥12.7B, -8.7%) achieving cost reductions exceeding revenue decline, but the large gross profit drop (¥-10.0B) could not be fully absorbed, resulting in Operating Income of ¥17.2B (prior year ¥26.1B, -33.9%) and Operating Margin of 24.6% (prior year 32.6%) a -8.0pt decline. Non-operating expenses of ¥0.4B occurred at the ordinary level, yielding Ordinary Income of ¥16.9B (prior year ¥26.1B, -35.1%). Extraordinary losses of ¥0.7B (impairment ¥0.5B, disposal of fixed assets ¥0.2B) temporarily depressed profits; Pre-tax profit was ¥16.2B (prior year ¥26.1B), and after a 31.8% effective tax burden Net Income declined to ¥10.2B (prior year ¥22.2B, -53.9%). In conclusion, the combination of lower gross margin from reduced sales and the extraordinary losses resulted in substantial year-on-year profit decline.
[Profitability] Operating Margin of 24.6% worsened by -8.0pt from 32.6% last year, primarily due to the decline in gross margin. Net Margin fell to 14.6% (prior year 27.8%) a -13.2pt decrease, impacted by extraordinary losses and tax burden. ROE at 15.3% remains double-digit though down from the prior high.
[Cash Quality] Operating Cash Flow was ¥7.8B, only 0.76x of Net Income ¥10.2B, with concentrated tax payments of ¥8.8B and working capital movements weakening cash conversion. FCF was ¥7.5B and capital expenditures were curtailed to ¥0.0B, resulting in dividend coverage of 0.93x against dividend payments of ¥8.1B; current cash generation slightly below dividend outlay. Total asset turnover declined to 0.95x (prior year 1.06x) due to the revenue decrease.
[Financial Health] Equity Ratio improved to 90.5% (prior year 84.8%), current ratio 983%, and cash ¥52.9B provides very solid liquidity. Interest-bearing debt is effectively zero, leaving substantial financial flexibility.
OCF was ¥7.8B (prior year ¥19.9B, -61.1%), a large decline and only 0.76x of Net Income ¥10.2B. OCF subtotal (before working capital changes) was ¥16.4B, with concentrated corporate tax payments of ¥8.8B the largest downward factor. In working capital, a decrease in accounts receivable of ¥1.7B contributed positively to cash, while decreases in payables and tax-related liabilities acted as a headwind. Investing CF was -¥0.2B, as capital expenditures were restrained to ¥0.0B to minimize cash outflow. FCF was ¥7.5B, roughly maintaining prior-year level, while Financing CF was -¥8.1B (dividend payments ¥8.1B), producing an FCF coverage of 0.93x — dividend funding was almost covered by current cash generation, but sustainability requires recovery in OCF. Ending cash was ¥52.9B, ample with no short-term liquidity concerns.
Recurring earnings are centered on Operating Income ¥17.2B, with non-operating income of ¥0.1B (interest income ¥0.1B) representing less than 0.2% of Revenue and thus immaterial. One-off items included extraordinary gains of ¥0.1B (gain on sale of investment securities) and extraordinary losses of ¥0.7B (impairment ¥0.5B, disposal of fixed assets ¥0.2B), which reduced Net Income by approximately ¥0.6B pre-tax. The gap between Ordinary Income ¥16.9B and Net Income ¥10.2B (-39.6%) is primarily due to the 31.8% effective tax rate and the extraordinary losses. Accrual (Net Income - OCF) was ¥2.4B, or 23.5% of Net Income, affected by concentrated tax payments and working capital movements; however, accounts receivable collections have progressed and cash realization of earnings is generally healthy. Extraordinary losses are viewed as one-time, and core earning power should be assessed at the Operating Income level.
Full-year guidance calls for Revenue ¥72.0B (YoY +2.7%), Operating Income ¥18.0B (YoY +4.6%), Ordinary Income ¥17.6B (YoY +4.0%), and Net Income ¥12.0B (YoY +8.1%) — projecting revenue and earnings growth. Achievement rates versus guidance were Revenue 97.4%, Operating Income 95.6%, Ordinary Income 96.0%, and Net Income 85.0%; generally on track but Net Income missed due to extraordinary losses. Full-year plan execution assumes stabilization of gross margin and realization of work-in-progress into revenue; booking of ¥0.7B WIP into revenue and progress on price revisions and subcontract cost control are key to improving achievement rates.
A year-end dividend of ¥70 per share (total dividends ¥8.1B) was paid, producing a payout ratio of 79.3% (total dividends ÷ Net Income ¥10.2B), a high level. Prior-year payout ratio was 36.5%; maintaining dividend levels despite the large drop in Net Income resulted in a doubling of payout ratio. With FCF ¥7.5B and dividend payments ¥8.1B, coverage was 0.93x, nearly covered by current cash generation, but if OCF does not recover attention to medium-term sustainability is necessary. Ample cash of ¥52.9B provides very strong short-term capacity to pay, and continuation of stable dividends is possible, though normalization of cash generation is a prerequisite for dividend policy. No share buybacks were executed; dividends are the sole shareholder return measure.
Structural risk of sustained gross margin decline: Gross margin fell to 41.1% (prior year 48.4%) a -7.3pt drop, showing effects of price competition, negative mix, and rising subcontract costs. Cost of sales ¥41.3B was flat year-on-year while Revenue fell 12.4%, indicating a potentially fixed-cost cost structure or higher subcontract unit costs. If gross margin remains at current levels, maintaining Operating Margin of 24.6% will require continued SG&A reductions, which may constrain capacity for growth investment.
Deterioration in cash conversion efficiency: OCF was ¥7.8B, 0.76x of Net Income ¥10.2B, driven by concentrated tax payments of ¥8.8B and working capital fluctuations. WIP rose to ¥0.7B (+409% YoY), and delays in acceptance/recognition timing are creating period mismatches in both revenue and cash. If the OCF/Net Income ratio remains below 1.0x, the balance with dividend payments ¥8.1B raises the risk of cash decline and challenges the sustainability of a 79.3% payout ratio.
Single-segment concentration risk: The WEB Marketing Business, a single segment, saw Revenue down -12.4%, amplifying volatility possibly due to customer industry concentration, project size skew, or high sensitivity to economic conditions. The increase in WIP suggests delays in specific large projects, risking revenue volatility when acceptances are concentrated. Smoothing revenue and diversifying the customer base are key to reducing variability risk.
Profitability & Return
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 24.6% | 8.1% (3.6%–16.0%) | +16.5pt |
| Net Margin | 14.6% | 5.8% (1.2%–11.6%) | +8.8pt |
Operating Margin 24.6% exceeds the industry median 8.1% by +16.5pt, maintaining a top-tier profitability position within the IT & Communications sector.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -12.4% | 10.1% (1.7%–20.2%) | -22.5pt |
Revenue Growth -12.4% is -22.5pt below the industry median +10.1%, indicating the company’s revenue contraction is relatively severe and growth underperformance versus peers.
※ Source: Company compilation
Stabilization of gross margin and normalization of cash conversion are the focal points for next-period evaluation. The gross margin decline to 41.1% (prior year 48.4%, -7.3pt) pushed Operating Margin to 24.6% (prior year 32.6%, -8.0pt) and weakened OCF to ¥7.8B (0.76x of Net Income), lowering dividend coverage to 0.93x. Realizing the ¥0.7B WIP into revenue and progress on price revisions and subcontract cost control are keys to simultaneous recovery in profitability and cash generation. If OCF/Net Income recovers above 1.0x, sustainability of the high payout ratio 79.3% will improve.
While maintaining top-tier profitability within the industry, lagging growth is a concern. Operating Margin 24.6% outperforms the industry median 8.1% by +16.5pt, and Net Margin 14.6% exceeds the median 5.8% by +8.8pt, but Revenue Growth -12.4% lags the industry median +10.1% by -22.5pt. High profitability during a revenue downcycle is commendable, but without top-line recovery operating leverage could reverse and risk a structural decline in margins. Achieving the full-year plan (Revenue +2.7%, Operating Income +4.6%) requires smoothing of acceptance timing and order expansion to return to growth.
Financial strength and abundant cash cushion downside scenarios. Equity Ratio 90.5%, cash ¥52.9B, and effectively zero interest-bearing debt provide an extremely strong balance sheet that supports dividend maintenance and business continuity during the margin and revenue downturn. Capex was restrained to ¥0.0B to preserve cash, but medium-to-long-term reinitiation of growth investment will be necessary. Continued suppression of investment versus depreciation ¥0.6B risks competitiveness, so restoring cash generation before resuming investment levels is a condition for sustainable growth.
This report is an earnings analysis document automatically generated by AI from XBRL earnings release data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company from public financial statements. Investment decisions are your own responsibility; consult a professional if necessary.