| Metric | Current Period | Prior-Year Period | YoY |
|---|---|---|---|
| Revenue | ¥819.77B | ¥715.66B | +14.5% |
| Operating Income | ¥58.77B | ¥35.39B | +66.1% |
| Profit Before Tax | ¥56.53B | ¥32.10B | +76.1% |
| Net Income | ¥49.98B | ¥19.46B | +156.9% |
| ROE | 2.2% | 0.9% | - |
In the April–June 2026 period (Q1), NEC reported double-digit revenue growth and substantial profit growth, resulting in strong earnings driven by both the IT Services and Social Infrastructure segments. Revenue was ¥819.77B (+14.5% YoY), Operating Income was ¥58.77B (+66.1%), Profit Before Tax was ¥56.53B (+76.1%; because the company applies IFRS, Profit Before Tax is used instead of Ordinary Income), and quarterly Net Income attributable to owners of the parent was ¥49.698B (+157.4%). The primary drivers of profit growth were an improvement in the gross margin (32.7%, +2.5pt YoY) and a substantial decline in the effective tax rate (11.6%, versus 39.4% in the prior year). In addition, the sharp increase in goodwill associated with large-scale M&A (+89.8% versus the end of the prior period) will be a key focus in terms of future asset efficiency and impairment management.
【Revenue】Revenue was ¥819.77B, representing growth of +14.5% YoY. By segment, IT Services accounted for 75.8% of the revenue mix (¥621.46B, +9.6%) and drove overall performance as the core business, while Social Infrastructure, with a 20.2% mix (¥165.28B), recorded strong growth of +37.3%. By region, Japan remained resilient at ¥59.81B (+6.1%), while North and Central/South America grew +148.9% and Europe, the Middle East and Africa grew +49.6%, indicating strong overseas growth. The overseas revenue ratio expanded to 27.0% from 21.2% in the prior year.
【Profit and Loss】The gross margin improved by +2.5pt YoY to 32.7%, while the SG&A ratio declined by -0.3pt to 25.4%, resulting in an improvement in the Operating Income margin to 7.2% (+2.2pt). Reported segment profit (Non-GAAP Operating Income) totaled ¥77.28B (+55.3% YoY). However, after deducting amortization of intangible assets recognized through acquisitions of ¥5.75B, M&A-related expenses of ¥7.47B (a sharp increase from ¥0.001B in the prior year), and restructuring and impairment charges of ¥2.07B, among other one-time factors, GAAP Operating Income was ¥58.77B. Despite Profit Before Tax of ¥56.53B (+76.1%), the substantial decline in the effective tax rate to 11.6% from 39.4% in the prior year was one factor that boosted Net Income growth (+157.4%). Both revenue and profit expanded, and excluding the temporary increase in M&A-related expenses, the improvement in the profitability of the core business is clearly evident.
IT Services generated revenue of ¥621.46B (75.8% mix, +9.6%) and reported segment profit of ¥57.80B (+41.6%, 9.3% margin), making it the core contributor to company-wide profit. Social Infrastructure generated revenue of ¥165.28B (20.2% mix, +37.3%) and segment profit of ¥16.09B (+428.1%, 9.7% margin), representing a significant rebound from the low level recorded in the prior year. Other Businesses generated revenue of ¥33.04B (4.0% mix, +17.4%) and segment profit of ¥3.39B (+832.1%, 10.3% margin). Although profit margins across all three categories are converging within the range of 9.3–10.3%, IT Services accounts for approximately 75% of profit contribution in absolute terms, indicating that the company remains highly dependent on this business.
External revenue by region was ¥59.81B in Japan (+6.1%), ¥5.36B in North and Central/South America (+148.9%), ¥11.25B in Europe, the Middle East and Africa (+49.6%), and ¥5.55B in China, East Asia and Asia-Pacific (+1.1%). The overseas revenue ratio increased to 27.0% from 21.2% in the prior year. The strong growth in North and Central/South America and EMEA may include the impact of additional acquisitions of consolidated subsidiaries (+89.8% goodwill). While geographic diversification overseas is progressing, profit concentration in IT Services continues.
【Profitability】The Operating Income margin improved by +2.2pt to 7.2% from 5.0% in the prior year, while the gross margin rose to 32.7% (+2.5pt) and the Net Income margin attributable to owners of the parent increased significantly to 6.1% from 2.7% in the prior year.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥160.18B, approximately 3.2 times Net Income attributable to owners of the parent of ¥49.698B, indicating a favorable level of earnings cash conversion.【Investment Efficiency】ROE was 2.2% (quarterly result; not annualized). Total assets were ¥4,506.83B, net assets were ¥2,319.72B, and basic quarterly EPS was ¥37.47 (versus ¥14.49 in the prior year). Since Net Income growth substantially exceeded total asset growth (+0.9%), future trends should be monitored from an asset-efficiency perspective, including the impact of the increase in goodwill.【Financial Soundness】The Equity Ratio remained stable at 49.6% (versus 49.2% in the prior year). Total bonds and borrowings were ¥401.96B (current ¥94.48B and non-current ¥307.49B), while cash and cash equivalents were ¥434.70B, meaning that the company maintained a net cash position on a bonds-and-borrowings basis.
Operating Cash Flow was ¥160.18B, down -36.7% from ¥253.07B in the prior year. This decline was caused by working capital and tax-related factors, including an increase in inventories (a cash outflow of -¥77.87B) and higher income taxes paid (-¥107.12B, versus -¥55.56B in the prior year), which outweighed the growth in Net Income. Investing Cash Flow recorded a substantial outflow of -¥401.36B, primarily due to ¥413.36B in expenditures for the acquisition of subsidiaries, while ordinary capital expenditures were limited to -¥13.46B. Financing Cash Flow turned positive at ¥12.01B (versus -¥310.22B in the prior year). The issuance of ¥50.00B in bonds and a net increase in short-term borrowings of ¥4.17B contributed to securing funds, while dividend payments resulted in an outflow of ¥28.96B. As a result, Free Cash Flow was -¥241.18B, and cash and cash equivalents declined by -¥224.34B from ¥659.03B at the beginning of the period to ¥434.70B at period-end. The Free Cash Flow deficit was primarily attributable to the temporary factor of large-scale M&A rather than recurring business activities, and the cash-generating capacity of OCF itself remained sufficient relative to Net Income.
Current-period earnings consisted primarily of recurring business activities. Financial income of ¥4.26B and financial expenses of ¥6.72B were each less than 1% of revenue, and the contribution of non-operating income and expenses to profit was limited. Meanwhile, the reconciliation from reported segment profit (Non-GAAP Operating Income) of ¥77.28B to GAAP Operating Income of ¥58.77B included deductions for amortization of acquisition-related intangible assets of ¥5.75B, M&A-related expenses of ¥7.47B, restructuring and impairment charges of ¥2.07B, and share-based compensation of ¥0.68B as one-time factors. These items increased in scale compared with the prior-year period. Comprehensive Income was ¥67.64B (¥66.91B attributable to owners of the parent), exceeding Net Income of ¥49.98B (¥49.70B attributable to owners of the parent). This divergence was primarily attributable to foreign currency translation adjustments for foreign operations of +¥14.19B, a temporary component reflecting the foreign-exchange impact on overseas assets. OCF being 3.2 times Net Income indicates low accruals and favorable earnings quality, while the buildup of inventories remains a monitoring point for future working capital efficiency.
Against the full-year revenue forecast of ¥3,540.0B, Q1 revenue of ¥819.77B represented a progress rate of 23.2%. Although this was slightly below the 25% benchmark for an evenly distributed quarterly progression, it can be considered within an acceptable range given the business characteristics, which tend to be weighted toward the second half. The fact that an earnings forecast revision is indicated as “Yes” suggests the possibility of an updated outlook reflecting the consolidated impact of large-scale M&A. The annual dividend forecast is ¥20 (versus ¥16 in the prior fiscal year), indicating a plan to increase the dividend.
The annual dividend forecast is ¥20, representing a planned increase of +25.0% from the prior fiscal year’s actual dividend of ¥16. Dividend payments during Q1 were ¥28.96B (¥29.23B attributable to owners of the parent), corresponding to approximately 58.8% of Net Income attributable to owners of the parent of ¥49.698B. However, this payment was based on the prior fiscal year’s results and does not correspond precisely to current-quarter profit. Share repurchases were minimal at ¥0.006B, and dividends comprised the majority of shareholder returns during the period. OCF of ¥160.18B substantially exceeded dividend payments, supporting the sustainability of dividends funded by internal resources.
Impairment risk associated with the increase in goodwill: Goodwill was ¥855.13B, up +89.8% from ¥450.50B at the end of the prior fiscal year, and represented 38.3% of equity attributable to owners of the parent of ¥223.41B. The expansion of assets through large-scale M&A increases the sensitivity to future impairment charges depending on the progress of integration.
Business segment concentration risk: IT Services accounted for 75.8% of revenue and 74.9% of reported segment profit (Non-GAAP Operating Income) (¥57.80B/¥77.28B), indicating a structure with a high degree of dependence on a single segment.
Working capital and cash position volatility: Inventories were ¥250.79B, up +46.5% from ¥171.18B at the end of the prior fiscal year. Cash and cash equivalents declined from ¥659.03B at the beginning of the period to ¥434.70B at period-end due to the substantial investing cash outflow (-¥401.36B).
Profitability and Return
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 7.2% | 8.8% (4.4%–14.3%) | -1.7pt |
| Net Income Margin | 6.1% | 7.3% (3.3%–10.6%) | -1.2pt |
Both the Operating Income margin and Net Income margin were slightly below the industry median, placing profitability around the middle of the industry range.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 14.5% | 6.6% (-0.3%–14.8%) | +7.9pt |
The revenue growth rate reached the upper-IQR level for the industry, indicating relatively high growth compared with industry peers.
※Source: Compiled by the Company
The improvement in the gross margin (+2.5pt) and Operating Income margin (+2.2pt) indicates enhanced profitability in the core business. At the same time, the expansion of M&A-related expenses (¥7.47B) and amortization of intangible assets has widened the gap between Non-GAAP Operating Income and GAAP Operating Income, requiring continued monitoring of the temporary nature of integration costs.
Goodwill increased +89.8% from the end of the prior fiscal year to reach 38.3% of equity attributable to owners of the parent. This indicates the full-scale commencement of growth investment through large-scale acquisitions, while the progress of integration and trends in asset efficiency will remain key medium-term points of focus.
OCF declined -36.7% YoY, creating a divergence in direction from Net Income growth (+157.4%). The primary causes were the increase in inventories and higher income tax payments, making future trends in cash-generating capacity a key monitoring point.
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 and, where necessary, after consulting with a professional advisor.
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These are mechanically computed values based on a residual income model. They are not a forecast of market prices or a recommendation of any investment action, and do not predict or guarantee future share prices. Per-share values are adjusted to the latest share basis for stock splits. Historical values are computed retrospectively using current guidance-achievement statistics.