Future Corporation FY2026 Q1 Earnings Report

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Executive Summary

The Company recorded increases in both revenue and income, driven by higher revenue from its core IT Consulting & Services Business. However, the operating margin declined slightly, indicating that the quality of earnings growth was partly supported by an improvement in non-operating income and a lower tax burden. Revenue was ¥182.6B (+5.4% YoY), Operating Income was ¥34.3B (+3.0%), Ordinary Income was ¥35.1B (+7.9%), and Net Income was ¥23.6B (+18.0%). The operating margin declined to 18.8% from 19.3% in the same period of the previous year, as an improvement in the SG&A ratio partially offset the deterioration in the gross margin. The significantly higher growth in Net Income than in Operating Income was attributable to the shift from a foreign exchange loss to a foreign exchange gain and the lower effective tax rate.

Factors Affecting Results

【Revenue】Consolidated Revenue was ¥182.6B, an increase of +5.4% YoY. The core IT Consulting & Services Business, which accounted for 90.6% of the revenue mix, grew by +6.5% to ¥165.4B and led overall growth, while the Business Innovation Business declined by -5.1% to ¥16.9B. The Company secured a level close to its full-year revenue growth target of +6.1%.

【Profit and Loss】Operating Income increased by +3.0% to ¥34.3B, but remained limited because cost of sales increased by +7.4%, exceeding Revenue growth. Accordingly, the gross margin declined to 45.9% from 46.9% in the previous year. The SG&A ratio improved to 27.1% from 27.6%, partially absorbing the deterioration in profitability. Ordinary Income increased by +7.9% to ¥35.1B, supported by the shift from a foreign exchange loss of ¥0.5B in the previous year to a foreign exchange gain of ¥0.2B in the current period. Net Income increased by +18.0% to ¥23.6B, with the decline in the effective tax rate to 32.8% from 38.6% in the previous year boosting the earnings growth rate. Although the Company achieved higher revenue and income, the growth rate at the operating level was limited, while growth at the Ordinary Income and Net Income levels was significantly supported by temporary and non-recurring factors.

Segment Analysis

The IT Consulting & Services Business recorded Revenue of ¥165.4B (+6.5% YoY) and Operating Income of ¥35.4B (-0.4%), with its margin declining to 21.4% from 22.9% in the previous year. Despite higher revenue, profit declined slightly, apparently reflecting changes in project profitability and the composition of personnel utilization. The Business Innovation Business recorded Revenue of ¥16.9B (-5.1%), while its Operating Loss narrowed to ¥0.2B from a loss of ¥1.2B in the previous year, indicating an improvement in the deficit. The Other Segments recorded Revenue of ¥3.0B (+82.4%) and Operating Income of ¥0.4B, turning profitable from a loss in the previous year. However, because these segments include businesses related to securities investments, the sustainability of earnings requires careful verification by business line.

Key Financial Indicators

【Profitability】The Operating Margin of 18.8% and Net Profit Margin of 12.9% were both high, but the Operating Margin declined by approximately 50bp from 19.3% in the same period of the previous year, mainly due to the deterioration in the gross margin (45.9% versus 46.9% in the previous year). 【Cash Quality】Accounts Receivable were ¥217.8B, accounting for 23.2% of total assets, and annualized DSO had lengthened to 109 days. Whether revenue growth is accompanied by cash conversion will be a key point for future monitoring. Inventories were small at ¥5.2B, indicating that the risk of inventory accumulation is limited. 【Investment Efficiency】Annualized ROE was 14.9%, achieved through the combination of the Net Profit Margin, total asset turnover, and financial leverage. Capital efficiency under low leverage was favorable. R&D expenses were ¥3.4B, equivalent to only 1.8% of Revenue. 【Financial Soundness】The Equity Ratio of 67.4% and Current Ratio of 390.6% indicate a conservative and robust capital structure and short-term liquidity position. Long-term borrowings were ¥114.3B, while the debt-to-equity ratio remained low at approximately 0.48x.

Cash Flow Analysis

Although the Company does not disclose a cash flow statement, its funding trends can be assessed from changes in the balance sheet. Cash and deposits declined by ¥47.7B to ¥280.3B from ¥328.0B in the same period of the previous year, while current liabilities declined by ¥34.5B to ¥136.0B, suggesting that funds may have been allocated to payments of accounts payable and repayment of borrowings. Accounts Receivable were ¥217.8B, an increase of ¥0.7B YoY and broadly stable. The fact that Accounts Receivable did not increase sharply relative to revenue growth can be interpreted positively from a cash-efficiency perspective. Investment securities increased by ¥11.4B to ¥136.9B, indicating that part of the asset composition has shifted toward marketable assets alongside the expansion of valuation differences. Although cash and deposits declined, they remained at approximately 2.1 times current liabilities, and short-term funding capacity remained substantial.

Earnings Quality

The 7.9% growth rate in Ordinary Income exceeded the 3.0% growth rate in Operating Income, with the difference attributable to an improvement in non-operating income and expenses. Non-operating income was ¥1.4B, including a foreign exchange gain of ¥0.2B, while non-operating expenses were ¥0.7B, benefiting from the absence of the ¥0.5B foreign exchange loss recorded in the previous year. Accordingly, growth in Ordinary Income includes a certain degree of non-recurring foreign exchange-related contribution. Furthermore, the 18.0% growth rate in Net Income substantially exceeded the growth rate in Ordinary Income, mainly because the effective tax rate declined to 32.8% from 38.6% in the previous year. The 3.0% growth rate in Operating Income is the indicator most closely reflecting the underlying business conditions. Since growth at the Ordinary Income and Net Income levels was amplified by non-operating and tax-related factors, Operating Income trends should be prioritized when evaluating the sustainability of earnings growth.

Earnings Forecasts and Guidance

The full-year Company forecasts are Revenue of ¥806.0B (+6.1% YoY) and Operating Income of ¥175.0B (+8.2%). The Q1 progress rates were 22.7% for Revenue and 19.6% for Operating Income, both below the standard one-quarter level of 25%. In particular, the delay in Operating Income progress means that the full-year target Operating Margin of 21.7% is approximately 290bp above the Q1 result of 18.8%, making margin improvement over the remaining quarters a prerequisite for achieving the plan. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥48.00 per share, and the Payout Ratio based on the full-year EPS forecast of ¥133.07 is approximately 36.1%, a level below the benchmark for sustainability. Q1 EPS was ¥26.59, representing a progress rate of 20.0% against the full-year forecast and slightly below the standard progress rate of 25%. The Company holds ¥21.7B in treasury stock, but no share repurchase results for the current period could be confirmed. Therefore, the Payout Ratio is evaluated based solely on dividends. The financial foundation of ¥280.3B in cash and deposits and an Equity Ratio of 67.4% supports the continuation of dividends.

Risk Factors

1. Decline in the profitability of the core business: The IT Consulting & Services Business is the core business, accounting for 90.6% of the revenue mix. While Revenue increased by +6.5%, segment profit declined by -0.4%, and the margin fell to 21.4% from 22.9% in the previous year. If deterioration in project profitability or utilization rates continues, it may place pressure on the achievement of the full-year target margin of 21.7%.

2. Lengthening collection period for Accounts Receivable: Annualized DSO was 109 days, while Accounts Receivable increased by approximately the same level (+0.3%) as Revenue growth of 5.4%. Continued monitoring is necessary because the timing of acceptance and billing for large projects may cause fluctuations in Operating Cash Flow.

3. Level of R&D investment: R&D expenses were only 1.8% of Revenue. Given the importance of technology investment in the information and communications industry, trends in the level of investment warrant monitoring in terms of medium- to long-term competitiveness.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Profitability exceeds the industry median and ranks among the higher performers in the IT and communications industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, indicating a relatively weaker position in terms of growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Although the Company achieved higher revenue and income, the growth rate of Operating Income (+3.0%) was below those of Ordinary Income (+7.9%) and Net Income (+18.0%). The lower-level earnings growth was partly supported by non-recurring factors, namely the shift to a foreign exchange gain and the decline in the effective tax rate.

2. The core IT Consulting & Services Business recorded higher revenue, but segment profit declined slightly and its margin fell from the previous year. The full-year plan assumes an Operating Margin of 21.7%, and the gap with the Q1 result of 18.8% indicates room for profitability improvement going forward.

3. Financial soundness remained conservative, with an Equity Ratio of 67.4% and Current Ratio of 390.6%. The Payout Ratio of 36.1% is within a reasonable range relative to the level of earnings.

Theoretical Share Price (Reference Value)

Sensitivity: ¥900–¥953 at a ±1% change in the cost of equity, and ¥921–¥934 at a ±0.1 change in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these figures do not constitute a forecast of the market share price or a recommendation of any specific investment action, and do not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional advisor as necessary.

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