Future Corporation FY2026 Q2 Earnings Report

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Executive Summary

All four key metrics recorded increases in both revenue and profit during the current period. However, operating income growth (+3.8%) lagged revenue growth (+7.5%), and the operating margin declined slightly due to higher SG&A expenses. Meanwhile, net income accelerated relatively, rising +13.0%, due to the stabilization of the tax burden and improvement in non-operating income and expenses. Revenue was ¥383.2B (¥356.4B in the prior year), operating income was ¥73.8B (¥71.1B in the prior year), ordinary income was ¥76.8B (¥72.1B in the prior year), and net income was ¥51.6B (¥45.7B in the prior year). Growth in the core IT Consulting & Services Business (+9.1%) drove overall performance, while the increase in the SG&A ratio to 28.2% (+0.6pt YoY), primarily due to additional bonus provisions, restrained operating income growth.

Factors Affecting Performance

【Revenue】Revenue was ¥383.2B, representing a +7.5% YoY increase. The core IT Consulting & Services Business grew to ¥346.6B (+9.1%), accounting for approximately 89% of segment revenue and serving as the primary growth driver. Revenue in the Business Innovation Business declined to ¥36.5B (△5.9%), while the Other category grew substantially to ¥6.1B (+79.6%).

【Profit and Loss】Operating income was ¥73.8B (+3.8%), and the operating margin of 19.3% declined by approximately 0.7pt from the prior-year level of over 19.9%. The gross margin was largely unchanged at 47.4%, but the SG&A ratio rose to 28.2% (+0.6pt YoY), apparently mainly due to an additional ¥4.75B in bonus provisions. Ordinary income was ¥76.8B (+6.5%), with improved non-operating income and expenses, including ¥0.4B in foreign exchange gains and ¥1.6B in dividends received, offsetting the slowdown in operating income growth. Net income was ¥51.6B (+13.0%), exceeding ordinary income growth. This was primarily because the ¥1.2B valuation loss on investment securities recorded in the prior year (extraordinary loss and temporary factor) did not recur in the current period, resulting in a clean earnings structure in which pretax income and ordinary income are equal. In conclusion, the company recorded higher revenue and profit, but operating leverage weakened somewhat at the operating level.

Segment Analysis

The IT Consulting & Services Business generated revenue of ¥346.6B (+9.1%) and operating income of ¥75.8B (+4.3%), maintaining high profitability with a 21.9% margin and effectively serving as the pillar of company-wide profits. Although revenue in the Business Innovation Business declined to ¥36.5B (△5.9%), operating income turned profitable at ¥0.7B from a prior-year loss of approximately △¥0.7B, indicating an improvement in its earnings structure. The Other category grew to revenue of ¥6.1B (+79.6%) and operating income of ¥0.3B (+125.4%), albeit from a small base. The company continues to depend on the IT Consulting & Services Business for the majority of its revenue and profit, making the degree of diversification in its business portfolio an ongoing point of focus.

Key Financial Metrics

【Profitability】The operating margin of 19.3% declined by approximately 0.7pt from over 19.9% in the prior year, while the net profit margin improved by approximately 0.7pt from 12.8% to 13.5%, and ROE was 7.8%. 【Cash Quality】Operating cash flow was ¥84.7B, approximately 1.6 times net income, indicating a favorable level of earnings conversion into cash. 【Investment Efficiency】EPS increased to ¥58.24 (+12.9% YoY), while BPS increased to ¥748.73 (+5.8% YoY), with both per-share metrics expanding. 【Financial Soundness】The equity ratio rose to 68.0%, up +3.6pt from 64.4% in the prior year. Cash and deposits stood at ¥363.6B, compared with only ¥107.2B in long-term borrowings, indicating a net cash position and a conservative financial foundation.

Cash Flow Analysis

Operating cash flow increased +23.5% YoY to ¥84.7B, demonstrating a high level of cash-generating capacity equivalent to approximately 1.6 times net income of ¥51.6B. The primary factors behind the increase were progress in collecting trade receivables, which contributed +¥41.0B in cash, and an additional ¥4.75B in bonus provisions. Investing cash flow was △¥14.3B, including capital expenditures of △¥5.9B, a restrained level below depreciation and amortization expense of ¥11.9B. Financing cash flow was △¥35.2B, with dividend payments of ¥20.4B and debt repayments and other items serving as the primary uses of cash. As a result, free cash flow was ¥70.4B, and cash and cash equivalents increased by +¥35.6B from the end of the prior period after fully covering dividends and capital expenditures.

Quality of Earnings

No extraordinary gains or losses were recorded in the current period, and pretax income of ¥76.8B was equal to ordinary income, indicating that recurring business earnings were the core of profitability. By contrast, the same period of the prior year included a ¥1.2B valuation loss on investment securities (extraordinary loss). Accordingly, the +13.0% net income growth rate includes a boost from the disappearance of the extraordinary item, which warrants attention. Non-operating income of ¥4.3B was only approximately 1.1% of revenue, consisting primarily of foreign exchange gains of ¥0.4B and dividends received of ¥1.6B, and was not large enough to materially distort the earnings structure. Comprehensive income was ¥56.2B, exceeding net income of ¥51.6B by ¥4.6B. The primary source of the difference was a ¥4.5B gain in the valuation difference on investment securities, a market-related factor separate from business earnings. The fact that operating cash flow reached approximately 1.6 times net income also demonstrates the strong cash-generating capacity supporting reported earnings.

Earnings Forecasts and Guidance

Progress toward the full-year earnings forecasts was 47.5% for revenue (¥383.2B/¥806.0B), broadly in line with the 50% benchmark expected at the half-year point. Operating income was 42.2% (¥73.8B/¥175.0B), while net income was 43.8% (¥51.6B/¥118.0B), both slightly below revenue progress. This reflects the somewhat delayed progress in operating profit due to front-loaded SG&A expenses in the first half, including additional bonus provisions. There were no revisions to the earnings forecasts for the current quarter (revenue and profit), and attention will focus on whether normalization of the SG&A ratio and expansion of revenue in the second half can lead to a recovery in progress toward the full-year targets.

Shareholder Returns

The interim dividend was ¥24 per share, an increase of +¥1 from ¥23 in the prior year. The total interim dividend, calculated based on the average number of shares outstanding, was approximately ¥21.3B, resulting in a payout ratio of approximately 41.2% against current-period interim net income of ¥51.6B. Free cash flow of ¥70.4B substantially exceeded the total interim dividend, indicating ample capacity for shareholder returns. However, the year-end dividend forecast has been revised to no dividend, and the annual shareholder return is therefore expected to consist solely of the interim dividend. Although the company appears to have sufficient capacity for shareholder returns based on its earnings power and cash flow, future disclosures regarding the capital allocation policy underlying the year-end dividend revision, including the retention of internal funds and securing investment funds, will warrant attention.

Risk Factors

1. Business Segment Concentration Risk: The IT Consulting & Services Business accounts for approximately 89% of revenue and the majority of operating income, resulting in a high degree of dependence on a specific business. Changes in supply and demand for this business could have a significant impact on company-wide performance.

2. Rising SG&A Ratio and Declining Operating Leverage: The SG&A ratio rose to 28.2%, up +0.6pt YoY, primarily due to an additional ¥4.75B in bonus provisions (+143%). SG&A expense growth of +9.7% exceeded revenue growth of +7.5%, and progress in absorbing costs during the second half will affect the recovery of the operating margin.

3. Uncertainty Associated with Changes to the Dividend Policy: The year-end dividend forecast has been revised to no dividend, and the annual dividend is expected to consist solely of the interim dividend of ¥24. Although no issues are apparent with earnings power or cash flow, additional information is required regarding the background to the change in capital allocation policy and the company’s future shareholder return policy.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability exceeds the industry median, with both the operating margin and net profit margin ranking in the upper tier of the industry.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, indicating that growth is relatively moderate compared with the company’s high profitability.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. The operating margin declined by approximately 0.7pt YoY to 19.3%, primarily due to the increase in the SG&A ratio, including additional bonus provisions. SG&A growth exceeding revenue growth is an important point to monitor when assessing cost absorption in the second half.

2. Progress toward the full-year forecast was somewhat behind, with revenue at 47.5% versus operating income at 42.2% and net income at 43.8%. Front-loaded expenses in the first half appear to be the cause, and the extent of the recovery in progress during the second half will be an important factor in assessing the quality of the earnings results.

3. The year-end dividend forecast has been revised to no dividend, and the annual dividend is expected to consist solely of the interim dividend of ¥24. Financial soundness, including an equity ratio of 68.0%, and free cash flow of ¥70.4B remain favorable. Future disclosures will need to clarify whether the revision represents a temporary capital allocation decision or a change in policy.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥979–¥1,042 at ±1% for the cost of equity, and ¥1,003–¥1,021 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥10.7 per share has been added back to earnings (as a non-cash expense and for comparability with IFRS companies).
• Net assets as of the quarter-end have been used (there is a timing gap relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This figure is not intended to predict or guarantee the future share price)

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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 available earnings data. Investment decisions should be made at your own responsibility, after consulting a professional advisor as necessary.

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