Future (4722) FY2026 Q2 Earnings Report

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Executive Summary

This earnings period delivered increases in both revenue and profit, driven by higher revenue in the IT Consulting & Services Business, although the operating profit margin declined slightly against a backdrop of higher selling, general and administrative expenses (SG&A). Revenue was ¥383.2B (up +7.5% YoY), Operating Income was ¥73.8B (up +3.8%), Ordinary Income was ¥76.8B (up +6.5%), and interim Net Income attributable to owners of the parent was ¥51.6B (up +13.0%). The primary reason profit growth was somewhat slower than revenue growth was that SG&A, including goodwill amortization and training expenses, increased 9.7%, outpacing revenue growth. Meanwhile, the Net Income margin improved as special losses recorded in the same period of the previous year did not recur.

Factors Affecting Earnings

【Revenue】Revenue was ¥383.2B, up +7.5% YoY. The core IT Consulting & Services Business led overall performance with revenue of ¥346.6B (90.5% of total revenue, up +9.1%), while the Business Innovation Business posted lower revenue of ¥36.5B (9.5% of total revenue, down -5.9%). Other Businesses remained small at ¥6.1B but achieved strong growth of +79.6%.

【Profit and Loss】Operating Income was ¥73.8B (up +3.8%). While the gross profit margin was nearly flat at 47.4% (47.6% in the previous year), SG&A rose to ¥107.9B (up +9.7%), exceeding the rate of revenue growth, and the operating profit margin declined to 19.3% (19.9% in the previous year). Ordinary Income was ¥76.8B (up +6.5%), supported by non-operating income and expenses, including dividend income of ¥1.6B and foreign exchange gains of ¥0.4B. Net Income was ¥51.6B (up +13.0%), boosted by the absence of special losses, including impairment losses on investment securities, recorded in the same period of the previous year. Overall, the Company achieved higher revenue and profit.

Segment Analysis

The IT Consulting & Services Business generated revenue of ¥346.6B (up +9.1%) and segment profit of ¥75.8B (up +4.3%). Its segment profit margin declined to 21.9% from 22.9% in the same period of the previous year, and it is the core business, accounting for 98.7% of consolidated profit. Although the Business Innovation Business recorded lower revenue of ¥35.3B (down -5.9%), segment profit was ¥0.7B, representing a turnaround from a loss in the same period of the previous year. Other Businesses, including handball team operations, remained small at revenue of ¥6.1B and profit of ¥0.3B but achieved strong growth. The decline in the core business’s profit margin is consistent with the decline in the consolidated profit margin, making the absorption of upfront costs such as personnel and outsourcing expenses a key focus going forward.

Key Financial Indicators

【Profitability】The Company maintained a high level of profitability, with an operating profit margin of 19.3% (19.9% in the previous year), a Net Income margin of 13.5% (12.8% in the previous year), and annualized ROE of 15.5%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥84.7B, or 1.64 times Net Income, indicating cash generation exceeding accounting profit. However, OCF included a temporary working capital inflow resulting from a ¥41.0B decrease in accounts receivable, which should be evaluated separately from sustainable levels. Free Cash Flow was ¥70.4B. 【Investment Efficiency】Research and development expenses were ¥7.3B, equivalent to 1.9% of revenue, while capital expenditures were ¥5.9B, only 0.50 times depreciation and amortization expenses of ¥11.9B, indicating relatively low investment intensity. 【Financial Soundness】The Equity Ratio was 68.0%, cash and deposits were ¥363.6B, and the current ratio was approximately 389%, calculated as current assets of ¥570.2B divided by current liabilities of ¥146.5B, representing a high level. Interest payment obligations were modest relative to long-term borrowings of ¥107.2B.

Cash Flow Analysis

Operating Cash Flow was ¥84.7B, up +23.5% YoY, generating cash equivalent to 1.64 times Net Income of ¥51.6B. The primary driver of this increase was a ¥41.0B decrease in trade receivables, and it should be noted that this included a temporary working capital inflow resulting from progress in collections. Investing Cash Flow was an outflow of ¥14.3B, primarily due to capital expenditures of ¥5.9B and the acquisition of intangible assets. Financing Cash Flow was an outflow of ¥35.2B, mainly attributable to dividend payments of ¥20.4B and repayments of long-term borrowings of ¥14.3B. Free Cash Flow was a high ¥70.4B, enabling the Company to maintain dividends and deleverage within the scope of operating cash generation.

Quality of Earnings

The Net Income margin improved to 13.5% from 12.8% in the same period of the previous year, partly because the special losses of ¥1.2B, including impairment losses on investment securities, recorded in the same period of the previous year did not recur in the current period. Non-operating income was ¥4.3B, consisting of dividend income of ¥1.6B, foreign exchange gains of ¥0.4B, and other items, and had a nature close to recurring earnings. OCF was 1.64 times Net Income, exceeding accounting profit, indicating sound cash support for earnings. However, the primary driver was the temporary working capital factor of ¥41.0B in collections of accounts receivable, resulting in a negative accrual ratio. The increase in SG&A, including goodwill amortization of ¥4.8B, is putting pressure on the operating profit margin of the core business and should be closely monitored as a change in the recurring earnings structure.

Earnings Forecast and Guidance

The full-year Company plan calls for Revenue of ¥806.0B (up +6.1% YoY) and Operating Income of ¥175.0B (up +8.2%). First-half progress rates were 47.5% for Revenue, 42.2% for Operating Income, and 43.8% for Net Income, all below the standard first-half progress rate of 50%. The delay in progress toward the Operating Income target is particularly notable. Achieving the full-year plan will require second-half Operating Income of ¥101.2B and a second-half operating profit margin of 23.9%, approximately 4.6 percentage points above the first-half result of 19.3%. No revisions to the earnings forecast were made during the current quarter.

Shareholder Returns

The Q2 (interim) dividend was ¥24.00 per share. The Payout Ratio based solely on dividends relative to interim Net Income (¥51.6B) was approximately 44.3%, while dividend coverage relative to Free Cash Flow of ¥70.4B was approximately 3.08 times, indicating sufficient cash support. However, the forecast for the year-end dividend has been revised to zero, and attention should be paid to the fact that the dividend forecast revision for the current quarter is marked as “Yes.” The annual dividend of ¥24.00 per share implies an estimated Payout Ratio of approximately 18% based on forecast full-year Net Income of ¥118.0B.

Risk Factors

1. Concentration of profit in the core business: Segment profit of the IT Consulting & Services Business was ¥75.8B, accounting for 98.7% of total segment profit. The structure is such that utilization rates and pricing trends in this business have a significant impact on consolidated performance.

2. Decline in the core business’s profit margin: The segment profit margin of the IT Consulting & Services Business declined from 22.9% in the same period of the previous year to 21.9%, while the consolidated operating profit margin contracted from 19.9% to 19.3%. SG&A growth is exceeding revenue growth, making cost absorption capacity a key focus going forward.

3. Trends in investment levels and collection cycles: Capital expenditures of ¥5.9B were only approximately 0.50 times depreciation and amortization expenses of ¥11.9B, indicating relatively low investment intensity. In addition, the length of the collection cycle associated with accounts receivable of ¥176.0B requires monitoring, together with the fact that the increase in first-half OCF depended on a decrease in accounts receivable.

Industry Benchmark (Reference; Prepared by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the operating profit margin and Net Income margin exceed the industry median, placing the Company’s profitability at a relatively high level within the industry.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry median, placing the Company at a relative disadvantage in top-line growth despite its high profitability.

※Source: Prepared by the Company

Key Points from the Earnings Results

1. First-half progress toward the full-year Operating Income plan was 42.2%, below the standard progress rate of 50%, requiring an improvement in the profit margin to 23.9% in the second half. This progress gap is the primary point of verification in evaluating second-half performance.

2. The increase in OCF included a temporary working capital inflow resulting from the ¥41.0B decrease in accounts receivable. Before regarding the high level of first-half cash generation as sustainable, it is necessary to confirm trends in the accounts receivable balance and DSO during the second half.

3. The investment level, consisting of an R&D expense-to-revenue ratio of 1.9% and a capital expenditures-to-depreciation ratio of 0.50 times, should be noted as a structural issue from the perspective of future technological competitiveness and renewal of the development base in the IT-related business.

Theoretical Share Price (Reference Value)

Sensitivity: ¥966–¥1,025 at Cost of Equity ±1%, and ¥988–¥1,005 at ω±0.1.

Notes:

• Goodwill amortization of ¥10.7 per share is added back to profit (to account for a non-cash expense and comparability with IFRS companies).
• 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 are not forecasts of the market share price or recommendations of specific investment actions, nor do they 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 summary 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 as necessary.

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