WILL GROUP (6089) FY2027 Q1 Earnings Report

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Executive Summary

The key feature of the current quarter was that, while capturing demand for human resources support both domestically and overseas, Operating Income expanded at a pace substantially exceeding Revenue growth in addition to the increase in Revenue. Revenue was ¥403.6B (+14.6% YoY), Operating Income was ¥9.3B (+135.6%), and Net Income was ¥5.2B (+86.7%; of which ¥5.0B was attributable to owners of the parent, +78.3%). The improvement in the gross profit margin absorbed the increase in SG&A expenses, resulting in higher Revenue and higher profit.

Factors Driving Earnings Changes

【Revenue】Revenue was ¥403.6B, up +14.6% YoY. The Domestic Working Business generated ¥233.7B (+10.3%), while the Overseas Working Business generated ¥169.7B (+21.2%), with strong growth in the overseas business driving the overall performance. The overseas business has expanded to account for 42.1% of consolidated Revenue, indicating an ongoing shift in the growth mix.

【Profit and Loss】Gross profit was ¥93.5B, and the gross profit margin improved to 23.2% from 21.0% in the same period of the previous year, an improvement of +2.2pt. SG&A expenses increased to ¥84.5B (+20.1%), exceeding the pace of Revenue growth; however, the increase in gross profit exceeded the increase in SG&A expenses. As a result, Operating Income improved to ¥9.3B (+135.6%), and the Operating Income margin improved to 2.3% (+1.2pt). Corporate income taxes and other taxes of ¥3.6B were recorded against Profit Before Tax of ¥8.8B, resulting in a high effective tax rate of 40.7%; the tax burden restrained Net Income growth. Expansion in segment profits in both the domestic and overseas businesses, together with control of company-wide expenses, resulted in higher Revenue and higher profit.

Segment Analysis

The Domestic Working Business was the primary contributor to segment profit, accounting for 55.5% of total segment profit of ¥15.8B. The Domestic Working Business generated Revenue of ¥233.7B (+10.3%), profit of ¥8.8B (+50.6%), and a profit margin of 3.8% (up +1.0pt from 2.8% in the same period of the previous year). The Overseas Working Business generated Revenue of ¥169.7B (+21.2%), profit of ¥7.0B (+49.5%), and a profit margin of 4.1% (up +0.7pt from 3.4% in the same period of the previous year), driving growth with a profit margin exceeding that of the domestic business. Company-wide expenses (adjustments) were ¥5.7B, down from ¥5.9B in the same period of the previous year, and control of indirect expenses during the period of Revenue growth contributed to the improvement in the profit margin.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 2.3% from 1.1% in the same period of the previous year, an improvement of +1.2pt; however, it remains low compared with general levels, leaving room for further improvement in profitability. The Net Income margin was 1.2% (based on consolidated quarterly profit), improving from 0.8% in the same period of the previous year.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥6.2B, or 1.23 times profit attributable to owners of the parent of ¥5.0B, indicating good cash conversion. Trade receivables increased by ¥4.7B from the beginning of the period, expanding the funding burden from working capital, while the increase in trade payables provided an offset.【Investment Efficiency】ROE (annualized) was 10.4%, indicating a business structure in which high total asset turnover compensates for low profitability.【Financial Soundness】The Equity Ratio was 36.0% (a modest improvement from 35.8% in the same period of the previous year). Against cash and deposits of ¥64.9B, short-term borrowings were ¥30.1B and total interest-bearing debt was ¥52.5B, indicating a structure in which short-term borrowings account for more than half of interest-bearing debt. Goodwill of ¥99.6B accounted for 50.0% of net assets of ¥199.4B, representing a point requiring attention in the capital structure.

Cash Flow Analysis

Operating Cash Flow (OCF) doubled to ¥6.2B from ¥2.98B in the same period of the previous year. Depreciation and amortization of ¥6.0B and an increase in trade payables of ¥7.2B supported cash generation, while an increase in trade receivables of ¥5.6B pressured cash flow. Payments of corporate income taxes and other taxes of ¥6.8B were large enough to account for more than half of OCF, constraining cash-generating capacity. Investing Cash Flow (ICF) was an outflow of ¥0.9B, primarily consisting of capital expenditures of ¥0.9B; the investment scale was small and limited to maintenance and replacement of existing assets. Free Cash Flow was secured at a surplus of ¥5.2B. Financing Cash Flow was an outflow of ¥20.7B, primarily due to a ¥3.0B reduction in short-term borrowings, ¥4.3B repayment of long-term borrowings, ¥3.6B repayment of lease liabilities, and ¥10.0B payment of dividends. Consequently, cash and cash equivalents decreased by ¥14.9B from the beginning of the period to ¥64.9B. Free Cash Flow was below the dividend payment amount, indicating that, on a quarterly standalone basis, a portion of cash on hand was allocated to dividends and debt repayments.

Quality of Earnings

Against Operating Income of ¥9.3B, other income of ¥0.5B, other expenses of ¥0.1B, financial income of ¥0.1B, and financial expenses of ¥0.7B were added or deducted, resulting in Profit Before Tax of ¥8.8B. Non-operating income and expenses were small at approximately 0.2% of Revenue, indicating limited dependence on temporary income. Profit attributable to owners of the parent of ¥5.0B was 42.7% below Profit Before Tax of ¥8.8B, primarily due to corporate income taxes and other taxes of ¥3.6B (effective tax rate of 40.7%); tax-related factors separate from recurring business profit compressed Net Income. Comprehensive income of ¥7.8B exceeded quarterly profit of ¥5.2B, but most of the difference was attributable to foreign currency translation adjustments of ¥2.5B related to foreign operations and does not represent the underlying earning power of the business. OCF exceeded Net Income, and no significant concerns were identified regarding earnings quality from an accrual perspective (the difference between accounting profit and cash).

Earnings Forecast and Guidance

The full-year company forecast is Revenue of ¥1,570.0B, Operating Income of ¥34.0B (+3.7% compared with the previous fiscal year), and Net Income of ¥22.2B (-4.6%). The Q1 progress rates of 25.7% for Revenue and 27.4% for Operating Income are ahead of the standard quarterly progress rate of 25%, while Net Income was 22.7%, below the standard level due to the impact of the tax burden. The forecast full-year Operating Income margin is 2.2%, close to the Q1 result of 2.3%, indicating that the company plan does not assume a significant improvement over Q1 profitability. The fact that the earnings forecast was revised during the current quarter should be noted as a review reflecting changes in the business environment.

Shareholder Returns

The full-year dividend forecast is ¥44.00 per share, and the Payout Ratio against forecast full-year EPS of ¥96.37 is 45.7%. The dividend payment amount during Q1 was ¥10.0B, maintaining approximately the same level as the dividend payment amount in the same period of the previous year. Although current-quarter Free Cash Flow of ¥5.2B was below the dividend payment amount, given cash and cash equivalents of ¥64.9B and interest-bearing debt of ¥52.5B, the shortfall in a single quarter does not immediately constrain the continuation of dividends. No revision was made to the dividend forecast during the current quarter.

Risk Factors

1. Low-profitability structure: Although the Operating Income margin of 2.3% is trending upward, it remains low compared with general levels, and the structure is such that even small fluctuations in personnel expenses or customer unit prices can have a substantial impact on profit.

2. Reliance on goodwill in the asset structure: Goodwill of ¥99.6B accounts for 50.0% of net assets of ¥199.4B. If the earning power of acquired businesses deteriorates, impairment losses could affect capital and profit.

3. Short-term funding structure and working capital: Short-term borrowings of ¥30.1B account for 57.3% of interest-bearing debt of ¥52.5B, indicating sensitivity to changes in the refinancing environment. In addition, trade receivables increased by ¥4.7B from the beginning of the period, and collection trends may affect OCF.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Income margin and Net Income margin are below the industry median, placing the company in the lower tier of the industry in terms of profitability.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median, placing the company in the upper tier of the industry in terms of growth.

※Source: Company analysis

Key Points from the Earnings Results

1. Quality of higher Revenue and higher profit: Against Revenue growth of +14.6%, Operating Income increased +135.6%, with the profit growth rate substantially exceeding Revenue growth due to the improvement in the gross profit margin (+2.2pt) and control of company-wide expenses. Whether this improvement in profitability is attributable to temporary factors or a structural improvement needs to be confirmed through trends in the gross profit margin and SG&A expense ratio in subsequent periods.

2. Increased contribution from overseas business growth: The Overseas Working Business grew at a pace exceeding that of the domestic business, with Revenue up +21.2%, profit up +49.5%, and a profit margin of 4.1%, increasing its contribution to consolidated profit. In light of the impact of foreign currency translation adjustments on Comprehensive Income, changes in the regional mix may influence consolidated profitability going forward.

3. Full-year progress and tax burden: While the full-year progress rate for Operating Income of 27.4% is favorable, the effective tax rate of 40.7% is pushing down the Net Income progress rate to 22.7%. The fact that full-year forecast Net Income is expected to decline -4.6% YoY indicates that the significant increase in Q1 profit is not assumed to be reflected directly in the full-year results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥892–¥943 at Cost of Equity ±1%, and ¥916–¥919 at ω±0.1.

Notes:

• The goodwill-to-net-assets ratio is high, and the assumptions would change significantly if impairment losses were recognized.
• Net assets as of the quarter-end 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 using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does 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 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 responsibility, after consulting a professional as necessary.

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