WILL GROUP,INC. FY2027 Q1 Earnings Report

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Executive Summary

The most important takeaway from this earnings period is the emergence of operating leverage alongside revenue growth, profit growth, and an improved gross margin. Revenue was ¥403.6B (+14.6% YoY), Operating Income was ¥9.3B (+135.6%), and Net Income was ¥5.2B (+86.7%). Double-digit revenue growth in both the domestic and overseas Working segments, together with a +2.2pt improvement in gross margin, drove the substantial increase in Operating Income. However, the effective tax rate was high at approximately 41%, which relatively restrained the growth in Net Income compared with Operating Income.

Factors Affecting Earnings

【Revenue】Revenue of ¥403.6B increased +14.6% YoY. The domestic Working Business, which accounted for 57.9% of the revenue mix, generated ¥233.7B (+10.3%), while the overseas Working Business, which accounted for 42.0%, generated ¥169.7B (+21.2%). Both segments contributed to revenue growth, with the overseas growth rate lifting the overall result.

【Profit and Loss】Operating Income increased substantially to ¥9.3B (+135.6% YoY). Gross margin improved by +2.2pt YoY to 23.2%, primarily because revenue growth (+14.6%) exceeded the increase in cost of sales (+11.5%). SG&A expenses increased to ¥84.5B (+20.1%), outpacing revenue growth, and the SG&A ratio rose by +1.0pt to 20.9%; however, this was absorbed by the improvement in gross profit. Segment Operating Income expanded across both businesses, reaching ¥8.8B (+50.6%) in the domestic business and ¥7.0B (+49.5%) overseas. Corporate income taxes of ¥3.6B were recorded against Profit Before Tax of ¥8.8B, representing an effective tax rate of approximately 40.7%, resulting in Net Income of ¥5.2B (+86.7%). Revenue and profit both increased.

Segment Analysis

The domestic Working Business recorded revenue of ¥233.7B (+10.3%), Operating Income of ¥8.8B (+50.6%), and a profit margin of 3.8% (+1.1pt YoY). The overseas Working Business recorded revenue of ¥169.7B (+21.2%), Operating Income of ¥7.0B (+49.5%), and a profit margin of 4.1% (+0.9pt YoY), exceeding the domestic business in both revenue growth and profit margin. Other Businesses recorded revenue of ¥0.2B and an Operating Loss of ¥0.8B, remaining in the upfront investment phase as businesses under development. Consolidated Operating Income was ¥9.3B after deducting ¥0.6B in company-wide expenses. While the domestic business made the largest contribution in absolute profit, the overseas business’s higher growth rate and profit margin could drive future improvements in consolidated profitability.

Key Financial Indicators

【Profitability】The Operating Income margin improved by +1.2pt to 2.3% from 1.1% in the previous year, while the Net Income margin improved by +0.5pt to 1.3% from 0.8% in the previous year; however, both remain low in absolute terms. The improvement in gross margin to 23.2% from 21.0% in the previous year was the primary driver of improved profitability.【Cash Quality】Operating Cash Flow (OCF) of ¥6.2B exceeded Net Income of ¥5.2B, with OCF/Net Income at approximately 1.2x, indicating generally sound cash conversion. However, the increase in accounts receivable (-¥5.6B) partially constrained cash conversion.【Capital Efficiency】ROE was 2.6%, and basic EPS was ¥21.88 (+78.3% from ¥12.27 in the previous year). Total asset turnover was approximately 0.73x, remaining at an industry-average level.【Financial Soundness】The Equity Ratio was 36.0%, broadly unchanged from 35.8% in the previous year. Current liabilities were close in scale to current assets, with a current ratio of approximately 1.04x, indicating a relatively high degree of dependence on short-term funding.

Cash Flow Analysis

Operating Cash Flow was ¥6.2B, doubling from ¥3.0B in the previous year and remaining above Net Income of ¥5.2B. From a working capital perspective, the increase in trade receivables (-¥5.6B) constrained cash conversion, while the increase in trade payables (+¥7.2B) partially offset this effect. Investing Cash Flow was -¥0.9B, indicating a limited burden from capital expenditures, and Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was positive at ¥5.2B. Financing Cash Flow was -¥20.7B, with dividend payments (-¥10.0B), repayments of short- and long-term borrowings, and lease payments (-¥3.6B) serving as the primary drivers of cash outflows. As a result, cash and cash equivalents decreased by ¥14.9B from the end of the previous fiscal year to ¥64.9B. Although Free Cash Flow alone was below the combined amount of dividends and capital expenditures, the company appears to be maintaining shareholder returns and funding needs through its cash holdings and borrowings.

Quality of Earnings

Current-period earnings were primarily derived from the core business. Other income of ¥0.5B and other expenses of ¥0.1B indicate that the impact of nonrecurring factors was limited, while the increase in Operating Income to ¥9.3B was mainly supported by recurring factors, namely revenue expansion and gross margin improvement. Net financial items also remained only slightly negative, with financial income of ¥0.1B and financial expenses of ¥0.7B; the difference between Profit Before Tax of ¥8.8B and Operating Income was therefore mainly attributable to financial expenses. Meanwhile, corporate income taxes of ¥3.6B, representing an effective tax rate of approximately 40.7%, were a significant burden relative to Profit Before Tax and compressed Net Income to ¥5.2B. The fact that Operating Cash Flow exceeded Net Income supports earnings quality from an accrual perspective. However, if the increase in trade receivables continues, the lag in cash conversion could widen, requiring monitoring of future developments.

Earnings Forecast and Guidance

Progress against the Full-Year plan in Q1 was 25.7% for Revenue (plan: ¥1,570B), 27.4% for Operating Income (plan: ¥34.0B), and 22.7% for Net Income (plan: ¥22.2B, attributable to owners of the parent). Compared with the standard quarterly progress pace of 25%, Revenue and Operating Income are progressing ahead of schedule, while Net Income is slightly behind, apparently reflecting the high effective tax rate. The Full-Year plan calls for Operating Income growth of +3.7% YoY and Net Income growth of -4.6% YoY; Q1 results therefore represent a generally solid start toward these targets.

Shareholder Returns

The annual dividend forecast announced by the company is ¥44.00, implying a Payout Ratio of approximately 45.7% against the Full-Year EPS forecast of ¥96.37. Dividend payments in Q1 were ¥10.0B, broadly in line with ¥10.0B in the same period of the previous year, and no revision was made to the dividend forecast during the quarter. Free Cash Flow of ¥5.2B as of Q1 was below the annual total dividend amount on a standalone basis. However, considering the accumulation of Operating Cash Flow over the Full Year and the limited capital expenditure burden, securing the annual dividend funding will depend on business cash flow conditions. No disclosure regarding share buybacks was identified; accordingly, this report evaluates only the Payout Ratio.

Risk Factors

1. Working Capital and Collection Risk: Trade and other receivables amounted to ¥207.7B, increasing +2.3% from the end of the previous fiscal year, while changes in operating receivables resulted in a cash outflow of -¥5.6B. If the collection cycle continues to lengthen, it could affect the company’s ability to generate Operating Cash Flow.

2. Short-Term Funding Dependence Risk: Current liabilities of ¥280.3B were close in scale to current assets of ¥290.8B, and the current ratio remained at approximately 1.04x. A substantial portion of borrowings is short-term in nature, making funding management relatively important.

3. Goodwill Balance Risk: Goodwill amounted to ¥99.6B, representing approximately 50% of net assets of ¥199.4B, and increased +1.1% from the end of the previous fiscal year. As the scope of consolidation expands alongside the growth of the overseas Working Business, potential impairment arising from changes in the business environment should be closely monitored.

Industry Benchmark (Reference; Prepared by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

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

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median, placing the company relatively high within the industry in terms of growth.

※Source: Prepared by the Company

Key Takeaways from the Earnings Results

1. The +2.2pt improvement in gross margin was the primary driver of the +135.6% increase in Operating Income. Whether structural improvements in the personnel mix and pricing continue will be a key focus in assessing future profitability trends.

2. The Operating Income margin of 2.3% is below the industry median of 8.1%. The fact that SG&A expense growth (+20.1%) exceeded revenue growth (+14.6%) warrants attention as an indicator of the company’s management of fixed-cost increases accompanying scale expansion.

3. Full-Year progress was generally solid, with Revenue at 25.7%, Operating Income at 27.4%, and Net Income at 22.7%. However, the high effective tax rate of approximately 40.7% is structurally suppressing growth at the Net Income level, making the trend in the tax burden a key item to monitor in future earnings data.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed 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 of any specific investment action.

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

Notes:

• Goodwill represents a high proportion of net assets, and the assumptions would change materially if impairment occurred.
• Net assets as of the quarter-end are used; there is a timing difference relative to the Full-Year forecast.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This figure does not forecast 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 with professionals as necessary.

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