Nomura Research Institute,Ltd. FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, Revenue was ¥8,147.1B (YoY +¥499.0B +6.5%), while Operating Income was ¥582.7B (YoY -¥766.3B -56.8%), Ordinary Income/Profit Before Tax was ¥588.5B (YoY -¥745.6B -55.8%), and Net Income was ¥157.8B (YoY -¥786.0B -83.3%), representing a substantial decline in profits. The revenue increase was primarily driven by robust expansion in Financial IT Solutions (+9.1%) and IT Infrastructure Services (+14.9%), supported by price revisions and large projects. The main cause of the profit decline was an impairment loss of ¥975.9B recorded in Industrial IT Solutions, with ¥987.4B recognized in Other Expenses significantly compressing profits at the operating level. Gross profit was ¥3,001.5B with a gross margin of 36.8% (YoY +0.8pp improvement), and SG&A totaled ¥1,456.4B with an SG&A ratio of 17.9% (YoY -0.9pp improvement), indicating improved underlying profitability efficiency; however, the one-off impairment reduced the operating margin to 7.2% (from 17.6% the prior year, -10.4pp). Profit before tax of ¥588.5B incurred income taxes of ¥430.7B (effective tax rate 73.2%), an unusually high level, and the non-taxable nature of the impairment and constraints on deferred tax asset recognition further squeezed Net Income, resulting in a Net Income margin of 1.9% (from 12.3% the prior year, -10.4pp).

Drivers of Performance Variation

[Revenue] Revenue was ¥8,147.1B (YoY +6.5%), maintaining an expansionary trend. By segment, Financial IT Solutions accounted for ¥3,997.9B (+9.1%), comprising the largest share at 49.1% of revenues, supported by system development for securities, insurance, and banking, expansion of shared systems, and price revision effects. IT Infrastructure Services recorded ¥770.4B (+14.9%), achieving double-digit growth driven by increased demand for data center operations/management and IT infrastructure construction services, and new initiatives in advanced technologies. Consulting achieved ¥635.6B (+5.3%) with steady demand for policy proposals and business consulting. Conversely, Industrial IT Solutions was ¥2,712.4B (+1.4%), only a slight increase, with deteriorating project profitability and intensified competition in retail, manufacturing, and public sectors restraining growth. External factors included a foreign exchange translation effect of +¥42.1B contributing to Operating Cash Flow, suggesting a modest yen depreciation tailwind. Regional revenue breakdowns were not disclosed, but increases in contract assets (+¥69.9B) and contract liabilities (+¥36.9B) indicate progression of large development projects and the accumulation of prepaid/maintenance contracts.

[Profitability] At the operating level, Cost of Sales was ¥5,145.6B, yielding Gross Profit of ¥3,001.5B and a gross margin of 36.8% (YoY +0.8pp). SG&A was ¥1,456.4B, with an SG&A ratio of 17.9% (YoY -0.9pp), showing improved base efficiency and good control of operating expenses. However, Other Expenses of ¥987.4B (¥4.7B prior year) included impairment losses of ¥975.9B, resulting in Operating Income of ¥582.7B (prior year ¥1,349.1B, -56.8%). The bulk of the impairment loss, ¥970.6B, was in Industrial IT Solutions, which swung to an operating loss of ¥746.2B (from operating income ¥242.9B prior year). In contrast, Financial IT Solutions generated Operating Income of ¥742.5B (+20.6%), with a margin of 18.6%, maintaining high profitability, and IT Infrastructure Services delivered Operating Income of ¥385.6B (+27.1%) with a margin of 50.1%, demonstrating very high profitability. Consulting produced Operating Income of ¥192.2B (+4.5%) with a margin of 30.2%, remaining stable. Financial income was ¥51.7B and financial expenses ¥46.0B, resulting in net financial income of +¥5.7B; equity-method investment gains were +¥11.0B, leading to Ordinary Income/Profit Before Tax of ¥588.5B (prior year ¥1,334.1B, -55.8%). Income taxes of ¥430.7B on Profit Before Tax of ¥588.5B correspond to an effective tax rate of 73.2%, unusually high due to the non-taxable nature of the impairment and limitations on deferred tax asset recognition, further reducing Net Income to ¥157.8B (prior year ¥943.8B, -83.3%). Comprehensive income was ¥319.4B, and the difference from Net Income (¥161.6B) was due to Other Comprehensive Income (foreign currency translation +¥150.5B, cash flow hedges +¥5.9B, etc.), confirming FX-driven increases in equity. In conclusion, the company experienced revenue growth with profit decline driven by a large one-off impairment.

Segment Analysis

Consulting: Revenue ¥635.6B (YoY +5.3%), Operating Income ¥192.2B (+4.5%), margin 30.2%, showing stable performance. Demand for policy proposals and business transformation consulting remained solid, sustaining high profitability.

Financial IT Solutions: Revenue ¥3,997.9B (YoY +9.1%), Operating Income ¥742.5B (+20.6%), margin 18.6%, the largest contributor to profits. Large development projects for securities, insurance, and banking and expansion of shared systems drove profitability. Price revision effects were also reflected, achieving both revenue and margin improvements.

Industrial IT Solutions: Revenue ¥2,712.4B (YoY +1.4%), a slight increase, but Operating Loss ¥746.2B (turning from Operating Income ¥242.9B prior year) with materially deteriorated profitability. The primary cause was an impairment loss of ¥970.6B, driven by deteriorating project economics and revisions to recoverable value for retail, manufacturing, and public sector projects. Underlying profitability also declined, necessitating urgent portfolio review and stronger margin management.

IT Infrastructure Services: Revenue ¥770.4B (YoY +14.9%), Operating Income ¥385.6B (+27.1%), margin 50.1%, demonstrating very high profitability. Increased demand for data center operations/management and IT infrastructure/network construction services and returns on investment in advanced technologies directly supported earnings, positioning this segment as an ongoing growth driver.

Segment-level impairment losses: Industrial IT ¥970.6B, Financial IT ¥2.6B, IT Infrastructure ¥1.5B, Consulting ¥1.2B, highlighting concentration in Industrial IT.

Key Financial Metrics

[Profitability] ROE was 3.5% (from 22.5% prior year, -19.0pp), a significant decline well below historical levels. Net Income margin was 1.9% (prior year 12.3%), and Operating Margin was 7.2% (prior year 17.6%), with profitability metrics broadly deteriorating. The primary drivers were a one-off impairment of ¥975.9B and high tax burden (effective tax rate 73.2%), while base gross margin of 36.8% (YoY +0.8pp) and SG&A ratio of 17.9% (YoY -0.9pp) improved.

[Cash Quality] Operating Cash Flow (OCF) was ¥1,476.4B, 9.4x Net Income of ¥157.8B; non-cash charges—depreciation & amortization ¥512.8B and impairment losses ¥975.9B—substantially contributed to OCF, indicating strong cash-based earning power. OCF/EBITDA ratio was 1.35x (calculated with EBITDA = Operating Income ¥582.7B + depreciation ¥512.8B = ¥1,095.5B), indicating excellent cash conversion. However, working capital saw negative contributions from Accounts Receivable increase of -¥357.4B and Contract Assets increase of -¥63.6B, partially offset by Accounts Payable increase +¥227.3B. Accounts receivable of ¥2,143.9B rose by ¥560.9B YoY (+35.4%), and DSO (Days Sales Outstanding) is 96 days (= Accounts Receivable ¥2,143.9B ÷ (Revenue ¥8,147.1B ÷365)), indicating elongation and expansion of working capital.

[Investment Efficiency] Total asset turnover was 0.849x (Revenue ¥8,147.1B ÷ Total Assets ¥9,597.9B), slightly up from 0.823x prior year, but ROA on Ordinary Income/Profit Before Tax basis was 6.1% (Ordinary Income ¥588.5B ÷ Total Assets ¥9,597.9B), down from 14.4% prior year (-8.3pp). Goodwill and intangible assets were compressed to ¥2,019.9B (from ¥2,682.3B prior year, -24.7%) due to the impairment, reducing future impairment risk to some extent but indicating stricter recoverability assessments on invested capital.

[Financial Soundness] Equity Ratio was 45.2% (prior year 46.7%), Debt/Equity ratio 1.19x (interest-bearing debt ¥5,217.9B ÷ shareholders’ equity ¥4,380.0B), maintaining a conservative capital structure. Bonds and borrowings comprised current ¥121.5B and non-current ¥1,922.5B totaling ¥2,044.0B; including lease liabilities totaling ¥317.4B, effective interest-bearing debt is approximately ¥2,361.4B. Cash and deposits of ¥1,326.2B result in net interest-bearing debt of about ¥1,035.2B. Debt/EBITDA ratio is about 1.9x (interest-bearing debt ¥2,044.0B ÷ EBITDA ¥1,095.5B), and interest coverage is approximately 13.0x (EBITDA ¥1,095.5B ÷ interest expense ¥44.8B), both healthy. Current ratio is 183.5% (current assets ¥5,010.6B ÷ current liabilities ¥2,730.2B), indicating sufficient short-term liquidity.

Cash Flow Analysis

OCF was ¥1,476.4B (YoY +¥134.5B +13.4%), a solid increase. OCF before working capital changes (subtotal) was ¥1,920.7B: Profit Before Tax ¥588.5B plus depreciation ¥512.8B and impairment losses ¥975.9B and other non-cash charges revealed strong cash-based earnings. Working capital changes included Accounts Receivable increase -¥357.4B and Contract Assets increase -¥63.6B consuming cash, partially offset by Accounts Payable increase +¥227.3B and Contract Liabilities increase +¥35.4B, resulting in net working capital outflow of -¥158.3B. After tax payments -¥436.4B, interest payments -¥44.8B, and lease payments -¥113.2B, OCF remained ¥1,476.4B.

Investing Cash Flow was -¥970.5B, with major items including time deposits placement -¥761.0B and withdrawals +¥302.1B netting -¥458.9B, intangible asset acquisitions -¥404.7B, tangible fixed asset acquisitions -¥58.4B, and subsidiary acquisitions -¥45.1B. The increase in time deposits appears to reflect temporary cash management; substantive business investment centered on ¥404.7B in intangible assets. Free Cash Flow (FCF) was ¥505.9B (OCF ¥1,476.4B + Investing CF -¥970.5B), remaining positive and sufficient to cover dividend payments of ¥395.2B, with underlying FCF excluding time deposit increases being even more ample.

Financing Cash Flow was -¥907.8B, driven by dividend payments -¥395.2B, long-term borrowings repayments -¥428.8B, lease liabilities repayments -¥113.2B, and net short-term borrowings decrease -¥28.5B, partially offset by sales of treasury shares +¥61.9B. Cash and cash equivalents at period-end were ¥1,326.2B (YoY -¥359.8B); even accounting for FX translation effect +¥42.1B, cash decreased, but OCF generation remains strong and there is no short-term liquidity concern.

Quality of Earnings

Earnings quality is heavily influenced by one-off factors. At the operating level, gross margin of 36.8% (YoY +0.8pp) and SG&A ratio of 17.9% (YoY -0.9pp) indicate improving fundamental earnings structure, with price revisions and cost control effective. However, Other Expenses of ¥987.4B (prior year ¥4.7B), which included impairment losses of ¥975.9B as a one-off, depressed Operating Income and resulted in Ordinary Income/Profit Before Tax of ¥588.5B (prior year ¥1,334.1B). Non-operating items showed financial income ¥51.7B and financial expenses ¥46.0B roughly balanced, and equity-method gains +¥11.0B slightly boosted Ordinary Income. The difference between Comprehensive Income ¥319.4B and Net Income ¥157.8B (¥161.6B) arose from Other Comprehensive Income (foreign currency translation +¥150.5B, cash flow hedges +¥5.9B, etc.), indicating FX uplift to equity. OCF ¥1,476.4B is 9.4x Net Income ¥157.8B, reflecting significant non-cash charges (impairment, depreciation) and sustaining high cash-based earning power. Nevertheless, Accounts Receivable increase -¥357.4B and DSO of 96 days suggest a timing mismatch between revenue recognition and cash collection from an accrual perspective; improving working capital efficiency is key to sustaining earnings quality. The effective tax rate of 73.2% is extremely high due to non-taxability of the impairment and deferred tax asset recognition limits; normalization of tax burden (toward ~40%) will be pivotal for Net Income recovery next fiscal year. Overall, core businesses (Financial IT and IT Infrastructure) show strong recurring earnings power, while the Industrial IT impairment and high tax burden temporarily depressed Net Income; the removal of these special factors is expected to normalize earnings quality from next fiscal year onward.

Forecasts & Guidance

Full-year guidance assumes Revenue ¥8,500.0B (YoY +4.3%), Operating Income ¥1,750.0B (YoY +200.3%), EPS ¥207.17 (from ¥26.62 prior year, +¥180.55), and dividend ¥42.00. Revenue is expected to continue steady growth, while Operating Income is assumed to recover sharply as this year’s impairment loss of ¥975.9B drops out, projecting a V-shaped recovery. The forecasted >+200% YoY increase in Operating Income assumes normalization of Industrial IT Solutions profitability (one-off impairment drop-out and strengthened project margin management) and normalization of tax burden (effective tax rate returning to around 40%). Progress rate (current results / full-year guidance) is 95.8% for Revenue and 33.3% for Operating Income, indicating significant recovery is required in H2 to meet the Operating Income target; however, management maintains initial full-year assumptions and expresses confidence in recovery of the earnings base post-impairment. The EPS forecast of ¥207.17 versus dividend guidance ¥42.00 implies a Payout Ratio of 20.3%, a reasonable level and a substantial decline from this year’s Payout Ratio of 293% (based on current period DPS ¥77), reflecting a return to sustainable payout levels after earnings normalize. Key drivers for achieving guidance are improvement in Industrial IT Solutions project profitability, continued growth in Financial IT and IT Infrastructure, tax burden normalization, and DSO reduction (working capital efficiency).

Shareholder Returns

This period’s dividend was interim ¥35 and year-end ¥42, totaling ¥77, a large increase of ¥48 (from ¥29 prior year, +165.5%). Based on current period Net Income, the Payout Ratio is 293%, extremely high, reflecting that Net Income was severely compressed by a one-off impairment, producing a formal payout ratio outlier. Total dividends attributable to owners of the parent were ¥399.3B; with FCF of ¥505.9B, FCF coverage of dividends is 1.27x (FCF ÷ total dividends), indicating dividends are well covered by cash flow. Cash and cash equivalents ¥1,326.2B and current ratio 183.5% indicate ample liquidity, and there is no short-term concern over dividend maintenance. Retained earnings of ¥3,540.6B provide ample internal reserves as dividend funding. Share buybacks were essentially not executed this period (treasury share acquisitions ¥0.0B); shareholder returns are dividend-centric. Next fiscal year guidance plans dividend ¥42.00 against EPS ¥207.17 (Payout Ratio 20.3%), implying a reversion to sustainable payout levels as earnings normalize. Dividend policy appears to prioritize stable dividends; the company increased the dividend despite profit decline this period, signaling continued commitment to shareholder returns. Total shareholder return (dividends + buybacks) is currently dividends only, resulting in a Total Return Ratio of 293%, which is expected to decline to sustainable levels with profit recovery.

Risk Factors

1. Deterioration in Industrial IT Solutions profitability and risk of additional impairments: Industrial IT Solutions recognized a large impairment of ¥970.6B this period, driven by deteriorated project economics and intensified competition in retail, manufacturing, and public sectors. The segment swung to an operating loss of ¥746.2B, and urgent portfolio review and margin management are required. Risks include cost overruns on fixed-price development, inaccuracies in margin estimates at order intake, delays in large project progress, and potential continuation of low-margin projects; additional impairments or low-profit projects may occur in future periods. Goodwill and intangible assets after impairment are compressed to ¥2,019.9B (YoY -¥662.4B), but recoverability assessments for the Industrial IT segment require ongoing monitoring.

2. Working capital expansion and collection delay risk: Accounts Receivable increased substantially to ¥2,143.9B (YoY +35.4%), and DSO of 96 days has lengthened. The pace of Accounts Receivable growth far exceeds Revenue growth (+6.5%), suggesting changes in contract terms (extended payment terms) or collection delays, posing a risk of worsening working capital efficiency and cash flow pressure. Contract Assets also increased to ¥654.3B (YoY +11.9%), reflecting accumulation of unbilled receivables from large development projects. If customer cash flow deteriorates or payment delays emerge, OCF generation may decline and require increased allowances for doubtful accounts or further impairments. Shortening DSO (targeting the 60-day range) and revising contract terms are urgent.

3. Continued high tax burden and pressure on Net Income: This period’s effective tax rate of 73.2% is unusually high due to the non-taxable nature of the impairment and limitations on deferred tax asset recognition. The next fiscal year’s guidance assumes tax burden normalization (return to ~40%), but if Industrial IT recovery lags or additional one-off losses occur, recoverability of deferred tax assets may be constrained, and high tax burden could persist. Additionally, international tax developments (e.g., global minimum taxation) or domestic tax law changes could raise future effective tax rates. Delayed normalization of tax burden would slow recovery of ROE and EPS and could affect the sustainability of dividend payout and shareholder returns.

Industry Benchmarking (Reference; Company Analysis)

Profitability & Returns

Profitability metrics are below industry medians, with one-off impairment and high tax burden as primary downward drivers.

Growth & Capital Efficiency

Revenue growth is slightly below the industry median, with Industrial IT slowdown restraining overall growth; core businesses (Financial IT, IT Infrastructure) maintain solid growth momentum.

※Source: Company aggregation

Key Points to Watch in the Financial Results

1. The earnings power of core businesses is solid: Financial IT Solutions (Operating Income ¥742.5B, margin 18.6%) and IT Infrastructure Services (Operating Income ¥385.6B, margin 50.1%) maintain high profitability, with systems for securities/insurance/banking and data center businesses forming a sustainable earnings base. This period’s large profit decline was primarily due to a one-off impairment loss of ¥975.9B in Industrial IT Solutions; the improvement in gross margin to 36.8% (YoY +0.8pp) and SG&A ratio to 17.9% (YoY -0.9pp) suggests the underlying earnings structure remains healthy. OCF ¥1,476.4B is 9.4x Net Income and, together with depreciation ¥512.8B and the non-cash nature of the impairment, underpins strong cash generation. Next fiscal year guidance (Operating Income ¥1,750.0B, >+200% YoY) assumes impairment drop-out and tax burden normalization; if Industrial IT project margin management and continued growth in Financial IT/IT Infrastructure are realized, ROE could recover into double digits.

2. Improving working capital efficiency and shortening DSO are near-term priorities. Accounts Receivable ¥2,143.9B (YoY +35.4%) and DSO 96 days are lengthened, locking up cash at a pace far exceeding Revenue growth (+6.5%), requiring revision of contract terms and stronger collection management. Contract Assets ¥654.3B are also increasing, reflecting accumulation of unbilled receivables from large development projects. If customer payment delays or project elongation occur, OCF generation could weaken, affecting dividend sustainability and growth investment capacity. Achieving DSO in the 60-day range and normalizing working capital should expand FCF and shareholder return capacity. This period’s dividend ¥77 (Payout Ratio 293%) is formally high but covered by FCF with FCF coverage 1.27x; a return to next fiscal year guidance (dividend ¥42, Payout Ratio 20.3%) would establish a sustainable return policy.

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This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the firm from publicly disclosed financial statements. Investment decisions are your responsibility; consult a professional if necessary.