Management Solutions (7033) FY2025 FY Earnings Report

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Executive Summary

The Company posted lower revenue and lower earnings for the current period, bringing its growth trajectory to a temporary standstill. Revenue was ¥230.7B (down -0.9% year on year), Operating Income was ¥27.4B (down -2.3%), Ordinary Income was ¥27.4B (down -2.5%), and Net Income was ¥18.2B (down -12.8%). SG&A expenses increased by more than the decline in revenue, slightly squeezing the Operating Income margin. In addition, the recognition of extraordinary losses and an increased tax burden widened the decline in Net Income.

Factors Affecting Performance

【Revenue】Revenue was ¥230.7B, representing a nearly flat 0.9% year-on-year decline. Cost of sales decreased slightly to ¥134.8B (down -1.5%), while Gross Profit remained almost flat year on year at ¥95.8B (Gross Margin: 41.5%, up +0.3pt year on year). The ability to maintain Gross Profit despite the decline in revenue suggests support from project profitability or cost management.

【Profit and Loss】SG&A expenses increased 0.9% year on year to ¥68.4B, and the increased fixed-cost burden amid declining revenue weighed on Operating Income. Operating Income was ¥27.4B (down -2.3%), and the Operating Income margin declined to 11.9% from approximately 12.1% in the previous year. Non-operating income and expenses were almost balanced, resulting in Ordinary Income of ¥27.4B (down -2.5%), nearly the same level as Operating Income. However, the recognition of ¥0.9B in extraordinary losses (including losses on disposal of fixed assets) and the increase in the effective tax rate caused Net Income to decline more than earnings at the operating level, to ¥18.2B (down -12.8%). In conclusion, the Company posted lower revenue and lower earnings for the current period.

Key Financial Indicators

【Profitability】The Operating Income margin of 11.9% and Net Income margin of 7.9% both declined slightly from the previous year. Gross Margin improved from the previous year to 41.5%, indicating resilience in cost management. However, the increase in SG&A expenses amid declining revenue caused operating leverage to work in the opposite direction.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥22.6B, or 1.26 times Net Income of ¥18.2B, indicating favorable cash conversion. However, accounts receivable increased +21.1% year on year, and the decline in tax payments also contributed to the improvement in OCF. Accordingly, the sustainability of cash conversion under normal conditions requires monitoring.【Investment Efficiency】ROE was high at 30.1%; however, it should be noted that the high Total Asset Turnover and capital reduction through share repurchases made significant contributions, rather than improvement in the profit margin.【Financial Soundness】The Equity Ratio was high at 69.2%, while interest-bearing debt was small relative to total assets. Current assets of ¥69.5B compared with current liabilities of ¥25.1B indicate ample liquidity, and the overall financial foundation is conservative.

Cash Flow Analysis

Operating Cash Flow (OCF) increased significantly by +69.8% year on year to ¥22.6B, exceeding Net Income of ¥18.2B and indicating favorable cash conversion. However, this increase was partly attributable to a substantial decline in income taxes and other taxes paid, from ¥11.4B in the previous year to ¥3.7B. This factor should therefore be distinguished from recurring earnings growth. Trade receivables represented a ¥6.3B use of funds, and the increase in accounts receivable amid declining revenue is a point of concern from a working capital perspective. Investing Cash Flow was -¥4.0B, primarily reflecting ¥1.3B in capital expenditures, resulting in positive Free Cash Flow of ¥18.6B. Financing Cash Flow was -¥16.1B, including ¥9.5B in share repurchases; however, shareholder returns were funded within the scope of Free Cash Flow.

Earnings Quality

Extraordinary losses of ¥0.9B (including losses on disposal of fixed assets) intervened between Ordinary Income and Net Income, causing the decline rate in Net Income (-12.8%) to exceed the decline rates in Operating Income and Ordinary Income (-2.3% and -2.5%, respectively). Non-operating income was ¥0.3B, equivalent to approximately 0.1% of Revenue, and the divergence between Operating Income and Ordinary Income was limited. The recurring earnings structure is therefore largely based on the core business. Comprehensive Income was ¥18.2B, nearly the same level as Net Income attributable to owners of the parent, indicating that the impact of other comprehensive income items, such as foreign currency translation adjustments, was small and that the divergence between Net Income and Comprehensive Income was immaterial. OCF at 1.26 times Net Income indicates limited concern regarding accrual quality. However, the inclusion of the temporary factor of lower tax payments should be considered when evaluating earnings quality.

Earnings Forecast and Guidance

For FY2026, the Company announced full-year forecasts of Revenue of ¥260.0B (up +12.7% year on year), Operating Income of ¥30.0B (up +9.4%), and Ordinary Income of ¥30.0B (up +9.4%). The forecast Operating Income margin is 11.5%, slightly below the current-period actual result of 11.9%, indicating that the plan does not incorporate an immediate improvement in the profit margin during the revenue expansion phase. Forecast EPS is ¥129.75 and the forecast dividend is ¥50.00, with both expected to increase from the current-period actual results (EPS of ¥111.86 and dividend of ¥32.00). As the Company posted lower revenue and lower earnings for the current period, the realization of revenue growth through project recovery and improved utilization will be the key to achieving the full-year plan.

Shareholder Returns

The annual dividend for the current period was ¥32.00 per share, and the Payout Ratio was 28.6%, substantially below the 60% guideline, indicating high standalone dividend sustainability. Meanwhile, total shareholder returns, including ¥9.5B in share repurchases, amounted to approximately ¥14.5B, resulting in a Total Return Ratio of approximately 81% relative to Net Income attributable to owners of the parent. Returns were funded within Free Cash Flow of ¥18.6B, indicating limited short-term funding constraints. However, continued share repurchases of a similar scale would presuppose the sustainability of earnings and OCF. The Company plans to increase its forecast dividend to ¥50.00.

Risk Factors

1. Risk of failing to achieve revenue growth: Revenue declined -0.9% year on year in the current period, and achieving the Company’s Revenue target of ¥260.0B (up +12.7% year on year) will require project recovery and improved utilization. A slowdown in demand for PMO and DX support or delays in customers’ IT investments could be downside factors.

2. Pressure on profit margins from higher SG&A expenses: SG&A expenses increased +0.9% year on year, and together with the decline in revenue, caused the Operating Income margin to fall from approximately 12.1% in the previous year to 11.9%. Intensifying hiring competition and rising personnel expenses in the labor-intensive business could continuously pressure Gross Margin and the Operating Income margin.

3. Working capital burden from increased trade receivables: Accounts receivable increased +21.1% year on year to ¥36.1B, accounting for 41.3% of total assets. Deterioration in collection terms or delays in acceptance inspections could place pressure on OCF.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s profitability was below the industry median for both metrics, placing it in the middle to lower range of the industry.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median, highlighting the Company’s relative weakness in growth during the current period.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Operating Income margin of 11.9%, ROE of 30.1%, and Gross Margin of 41.5% indicate the earnings efficiency of an asset-light business model. However, a defining feature of the current-period results was that operating leverage worked in the opposite direction as declining revenue coincided with higher SG&A expenses.

2. OCF was 1.26 times Net Income, indicating favorable cash generation. However, this included the temporary factor of lower tax payments, while changes in working capital also occurred through increased trade receivables.

3. The Payout Ratio was low at 28.6%, but the Total Return Ratio, including share repurchases, reached approximately 81%. Accordingly, the degree to which the revenue and earnings growth projected in the full-year plan is achieved will determine the sustainability of the scale of future shareholder returns.

Theoretical Share Price (Reference Value)

Sensitivity: ¥715–¥759 at cost of equity ±1%, and ¥726–¥752 at ω±0.1.

Notes:

• Amortization of goodwill of ¥5.7 per share has been added back to earnings (due to its non-cash nature and for comparability with IFRS companies).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations of any specific investment action, and do not predict or guarantee future share prices.)

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This report is a financial results analysis document automatically generated by AI based on XBRL financial results 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 financial results data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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