FULLCAST HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Quick View

Executive Summary

During the period, Revenue increased substantially by +44.0% YoY, while Operating Income and Net Income declined, resulting in earnings that highlighted challenges regarding the quality of the Revenue growth. Revenue was ¥500.5B (¥347.5B in the previous year, +44.0%), Operating Income was ¥41.5B (¥42.0B in the previous year, -1.4%), Ordinary Income was ¥40.7B (¥42.6B in the previous year, -4.5%), and Net Income was ¥27.9B (¥28.4B in the previous year, -2.0%). As the gross margin declined to 33.3% from the previous year, SG&A expenses almost entirely offset the increase in gross profit, causing the Operating Income margin to decline to 8.3% (approximately 12.1% in the previous year).

Factors Affecting Earnings

【Revenue】Revenue increased substantially to ¥500.5B, up +44.0% YoY. The core Short-Term Workforce Support Business led the overall increase, with Revenue of ¥371.4B (74.1% composition ratio, +47.7%), while the Global and Long-Term Workforce Support Business made a new contribution of ¥11.5B (+4900.0%) due to the effects of M&A and business restructuring. The HR Tech Business expanded to ¥22.0B (+28.3%), while the Food Service Business increased to ¥39.5B (+11.9%) and Other Businesses increased to ¥56.7B (+30.2%), with each segment contributing to Revenue growth.

【Profit and Loss】Operating Income was ¥41.5B, essentially flat at -1.4% YoY. The gross margin declined to 33.3%, while SG&A expenses increased to ¥125.1B (+45.8% YoY), almost entirely absorbing the increase in gross profit. By segment, the core Short-Term Workforce Support Business secured higher profit with Operating Income of ¥37.7B (+7.0%), while Other Businesses recorded a substantial decline in profit to ¥2.9B (-48.4%), putting pressure on the Company-wide profit margin. Ordinary Income was ¥40.7B (-4.5%), also affected by an increase in interest expense (¥1.3B). Net Income was supported by extraordinary income of ¥3.3B (including ¥2.9B in gains on sales of non-current assets, among other items), resulting in ¥27.9B (-2.0%), a smaller decline than that of Ordinary Income. In conclusion, the Company recorded higher Revenue but lower profit.

Segment Analysis

The Short-Term Workforce Support Business, the core business accounting for 74.1% of Revenue and the majority of Operating Income, achieved higher Revenue and profit (Revenue +47.7%, Operating Income +7.0%, profit margin 10.1%). The HR Tech Business has the highest profitability among all businesses, with a profit margin of 27.4%; however, despite Revenue growth of +28.3%, Operating Income declined by -10.4%, suggesting a phase of investment ahead of returns. The Global and Long-Term Workforce Support Business was launched as a new segment and recorded Revenue of ¥11.5B and a profit margin of 8.8%. Despite Revenue growth of +30.2%, Other Businesses recorded a substantial decline in Operating Income of -48.4% (profit margin 5.1%), making it one of the primary causes of the decline in the Company-wide margin. The Food Service Business achieved only modest growth in both Revenue and profit, with Revenue up +11.9% and Operating Income up +3.8%.

Key Financial Metrics

【Profitability】The Operating Income margin was 8.3%, down from approximately 12.1% in the previous year. The Net Income margin also deteriorated to approximately 5.6% from approximately 8.2% in the previous year, primarily due to the decline in the gross margin to 33.3% and the increase in SG&A expenses.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥50.8B, approximately 1.8 times Net Income of ¥27.9B, indicating a favorable level of earnings conversion into cash.【Investment Efficiency】ROE was 8.1%, with improvements in total asset turnover, together with financial leverage, supporting ROE at a certain level.【Financial Soundness】The Equity Ratio declined to 49.9% (approximately 56.5% in the previous year) but remained at a high level. Cash and deposits of ¥283.5B were close to current liabilities of ¥288.6B, indicating ample liquidity.

Cash Flow Analysis

The Company’s cash flow for the period was characterized by sufficient cash backing for the profits earned. OCF was ¥50.8B, a substantial improvement from the previous year and approximately 1.8 times Net Income of ¥27.9B. From a working capital perspective, a decrease in trade receivables (+¥13.4B) contributed, while income taxes paid amounted to ¥13.5B. Investing Cash Flow was positive at ¥7.4B; although capital expenditures of ¥5.5B were incurred, proceeds from the sale of non-current assets and receipts related to subsidiaries contributed to the increase. Financing Cash Flow was positive at ¥14.2B, as the Company proceeded with financing through long-term borrowings while also paying dividends and conducting share repurchases of ¥1.9B. As a result, free cash flow reached ¥58.2B, a level sufficient to cover dividends, investments, and shareholder returns.

Quality of Earnings

It should be noted that, in addition to operating activities, extraordinary income of ¥3.3B (including a ¥2.9B gain on sales of non-current assets and a ¥0.2B gain on sales of investment securities) supported Net Income during the period. Extraordinary losses amounted to ¥1.4B (including losses on disposal of non-current assets), resulting in a net increase of approximately ¥1.9B from extraordinary items. Non-operating income was ¥1.8B, immaterial relative to Revenue, and primarily comprised items such as dividend income of ¥0.2B. Meanwhile, non-operating expenses were ¥2.5B, with interest expense increasing from the previous year to ¥1.3B and putting pressure on income at the Ordinary Income level. As OCF exceeded Net Income, accrual quality was favorable from the perspective of earnings conversion into cash, while the difference between Ordinary Income and Net Income can be explained primarily by extraordinary items and the tax burden.

Earnings Outlook and Guidance

Progress against the full-year plan was 47.8% for Revenue (¥500.5B/¥1047.0B), 47.7% for Operating Income (¥41.5B/¥87.0B), and 46.3% for Ordinary Income (¥40.7B/¥87.8B), slightly below the 50% benchmark generally expected at the end of the first half. Neither the earnings forecast nor the dividend forecast was revised. For the full year, the Company expects higher Revenue and profit, with Revenue of +35.5%, Operating Income of +9.2%, and Ordinary Income of +12.9%. Whether the profit margin, which declined in the first half, recovers toward the second half will be key to achieving the plan.

Shareholder Returns

An interim dividend of ¥32 (up ¥1 YoY) was paid, and the full-year dividend forecast is ¥64, presented as the annual policy compared with the previous year (no applicable data). Based on interim Net Income, the Payout Ratio is estimated to be in the low-40% range. Assuming full-year forecast Net Income of ¥54.3B and a dividend forecast of ¥64, the Payout Ratio is estimated to be in the mid-40% range. The Company also conducted share repurchases of ¥1.9B, and total shareholder returns, including dividends and share repurchases, are sufficiently covered by cash generation capacity (free cash flow of ¥58.2B).

Risk Factors

1. Dependence on the core business: The Short-Term Workforce Support Business accounts for 74.1% of Revenue and the majority of Operating Income, creating a structure in which changes in supply, demand, and pricing in this business are likely to have a direct impact on Company-wide performance.

2. Declining profit margins: The gross margin declined to 33.3%, while the increase in SG&A expenses (+45.8%) almost entirely offset the increase in gross profit, causing the Operating Income margin to decline by approximately 3.8 points from the previous year. If delays in improving pricing and business mix continue, the impact on profitability may persist.

3. Dependence on short-term debt and interest burden: Interest expense increased to ¥1.3B, raising the interest burden from the previous year. A funding structure with a high degree of dependence on short-term borrowings has relatively high sensitivity to changes in the interest-rate environment.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability metrics are below the industry median, placing it relatively low within the industry in terms of profit margins.

Growth and Capital Efficiency

The Revenue growth rate is substantially above the industry median, representing a top-tier growth pace within the industry.

※Source: Company analysis

Key Points in the Earnings Results

1. While Revenue showed high growth of +44.0%, the Operating Income margin declined to 8.3%, highlighting that growth was not sufficiently converted into profit growth during the period.

2. The core Short-Term Workforce Support Business led the Company with higher Revenue and profit, but Operating Income at Other Businesses declined substantially by -48.4%, causing profitability dispersion across the business portfolio to widen.

3. OCF was approximately 1.8 times Net Income, maintaining a favorable position from the perspective of earnings conversion into cash. Full-year progress for both Revenue and profit was slightly below the plan benchmark, and trends in the profit margin during the second half will be closely watched.

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 period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,223–¥1,295 at ±1% for the cost of equity, and ¥1,252–¥1,269 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥24.6 per share is added back to profit (due to its nature as a non-cash expense and to enhance comparability with IFRS companies).
• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict or guarantee the future share price)

---

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 responsibility, after consulting professionals as necessary.

---End of Report---