INCLUSIVE Holdings Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.95B
• Operating Income: ¥-376M
• Net Income: ¥-65M
• EPS: ¥-24.03

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

INCLUSIVE Holdings reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥1,951 million, down 12.9% year over year, indicating demand softness or a scaling back of certain projects. Gross profit was ¥812 million, implying a gross margin of 41.6%, which is relatively healthy for a services-led model but reflects pressure given the top-line contraction. Operating income was a loss of ¥376 million, broadly flat versus the prior year (YoY +0.0%), signaling that cost base adjustments have not yet matched revenue declines. Ordinary loss was ¥375 million, and net loss was ¥241 million (EPS: -¥24.03), also flat YoY, suggesting limited incremental non-operating impacts. EBITDA was negative ¥306 million with a margin of -15.7%, highlighting ongoing operating leverage against a high SG&A/fixed cost base. Despite losses, the balance sheet remains comparatively resilient: total assets were ¥3,271 million and total equity ¥1,727 million, implying an equity ratio of roughly 52.8% by our calculation (the disclosed 0.0% is treated as unreported). Liquidity appears ample with a current ratio of 300.8% and quick ratio of 291.7%, underpinned by ¥2,748 million in current assets versus ¥914 million in current liabilities. Leverage is moderate with a debt-to-equity ratio of 0.95x, and interest burden is low in absolute terms (¥3.5 million), though coverage is negative due to operating losses. Operating cash flow was -¥44 million, substantially better than net loss of -¥241 million (OCF/NI = 0.18), indicating non-cash items (e.g., ¥70 million D&A) and potential working capital movements helped narrow cash burn. Investing cash flow and cash balance were not disclosed (zeros are treated as unreported), limiting visibility into capex and liquidity runway. The company paid no dividends, consistent with a focus on stabilizing earnings and preserving cash. DuPont analysis shows ROE at -13.95%, driven by a negative net margin (-12.35%) despite moderate asset turnover (0.596x) and leverage (1.89x), reinforcing that profitability, not balance sheet structure, is the primary drag. The revenue decline and flat losses indicate a transitional phase; management likely needs to execute cost realignment or revenue recovery measures to restore breakeven. We note potential seasonality and project-based revenue timing typical for media/digital services; H2 execution and order intake will be critical. Overall, the financial position provides time to execute, but near-term profitability and cash conversion remain the key constraints. Data gaps in cash and investing activities temper confidence and warrant close monitoring of liquidity sources and uses.

Profitability Analysis

ROE of -13.95% is decomposed into: Net Margin -12.35%, Asset Turnover 0.596x, and Financial Leverage 1.89x. The negative margin is the dominant driver of weak ROE, with turnover adequate for an asset-light services profile and leverage not excessive. Operating margin is approximately -19.3% (operating loss ¥376 million on ¥1,951 million revenue), pointing to a cost base significantly above current scale. The gross margin of 41.6% is solid, implying value-add at the gross level, but SG&A and other operating costs absorb more than the gross profit. Implied operating overhead (gross profit less operating income) is about ¥1,188 million in H1, roughly 61% of sales, suggesting a high fixed-cost component and adverse operating leverage when revenue declines. EBITDA margin of -15.7% confirms that even before D&A, the core operations are loss-making. Interest expense is small (¥3.5 million), with interest coverage of -108.8x driven by negative EBIT rather than financial strain. Effective tax appears as a benefit (income tax -¥31.9 million), likely reflecting loss carryforwards or timing, not recurring profit. Margin quality is mixed: gross margin indicates pricing/premiums remain, but the inability to pass through costs or flex SG&A is depressing operating profitability. To restore ROE, the pathway is primarily margin repair via cost resizing, utilization gains, and better absorption of fixed costs.

Growth Assessment

Revenue declined 12.9% YoY to ¥1,951 million in H1, implying weaker demand or slower project starts. Profitability remains negative but flat YoY at the operating and net levels, suggesting stabilization rather than improvement. Sustainability of revenue depends on order backlog, client retention, and cross-sell in digital/media services; these drivers are not disclosed here. Gross margin at 41.6% suggests that underlying service mix still carries value, but top-line softness reduces scale benefits. Near-term profit outlook hinges on H2 seasonality, project delivery timing, and cost control actions; absent a revenue reacceleration, break-even would require meaningful SG&A optimization. The ordinary loss closely mirrors operating loss, indicating limited non-operating headwinds, which supports the view that the core business trajectory will dictate earnings. Given the moderate asset turnover (0.596x) and flat YoY losses, growth investments may be constrained until cash generation improves. We see risk that continued revenue contraction would exacerbate negative operating leverage, while a modest recovery could quickly narrow losses given the existing gross margin. Outlook remains cautious with a need for evidence of pipeline conversion and stabilization in key client spend.

Financial Health

Total assets ¥3,271 million and total equity ¥1,727 million imply an equity ratio around 52.8% (our computation), indicating a solid capitalization relative to liabilities of ¥1,634 million. Current assets ¥2,748 million vs current liabilities ¥914 million deliver a current ratio of 300.8% and quick ratio of 291.7%, signaling comfortable short-term liquidity. Working capital is ¥1,834 million, providing operational flexibility. Debt-to-equity of 0.95x suggests moderate leverage; however, the interest burden is low (¥3.5 million), mitigating near-term solvency pressures. Inventories are small (¥83 million), consistent with a services-centric model and limited working capital risk from stock. The undisclosed cash balance limits precision in assessing immediate liquidity buffers; receivables likely compose a sizable share of current assets. Negative operating income remains the principal financial health risk, not the balance sheet structure. Overall solvency appears sound, but sustained losses could erode equity over time and eventually stress liquidity if unaddressed.

Cash Flow Quality

Operating cash flow was -¥44 million against a net loss of -¥241 million, yielding an OCF/NI ratio of 0.18. While still negative, OCF is markedly better than NI, indicating material non-cash add-backs (e.g., ¥70 million D&A) and/or favorable working capital movements. EBITDA at -¥306 million and OCF at -¥44 million imply working capital release and non-cash items offset a large portion of the EBITDA deficit in H1. Investing cash flow was undisclosed (reported as 0), so capex and acquisition spend cannot be assessed; accordingly, free cash flow cannot be reliably calculated (the reported FCF 0 should be treated as unreported). Financing cash flow of -¥4 million suggests minor repayments or lease outflows with no major capital actions this period. Earnings quality remains weak given negative EBITDA and operating loss; cash conversion is better than earnings but still negative, and may be influenced by timing of collections/payables. Working capital management appears supportive in H1, but sustainability is uncertain absent revenue stabilization. Overall, cash burn is lower than the income statement suggests, but visibility into capex and cash reserves is limited due to disclosure gaps.

Dividend Sustainability

The company paid no dividend (DPS ¥0.00) with a payout ratio of 0.0%, appropriate given current losses and negative operating cash flow. With EBITDA and operating income negative, internal coverage for distributions is not present. Free cash flow data are not disclosed; hence FCF coverage cannot be assessed. Policy-wise, preservation of liquidity and reinvestment into profitability restoration likely take precedence over shareholder distributions. Resumption of dividends would require a return to sustained positive operating cash flow and earnings, alongside confirmation of adequate liquidity buffers.

Risk Assessment

Business Risks:

• Revenue concentration in project-based or client-driven spend heightens volatility during demand slowdowns
• Negative operating leverage due to high fixed SG&A burden when revenue declines
• Potential pricing pressure in digital/media services impacting gross margin sustainability
• Execution risk in cost-reduction and resource utilization initiatives
• Seasonality and timing of large projects can skew quarterly/half-year results

Financial Risks:

• Sustained operating losses eroding equity and pressuring liquidity over time
• Limited visibility on cash and investing flows due to undisclosed cash and capex
• Negative interest coverage driven by operating losses (ICR -108.8x)
• Working capital timing risk if receivables collections slow
• Potential need for external financing if losses persist and OCF remains negative

Key Concerns:

• Top-line decline of 12.9% YoY with flat but sizable operating loss (¥376 million)
• High operating cost base implied by SG&A consuming the entirety of gross profit and more
• Negative EBITDA (-¥306 million) indicating core operations remain loss-making
• Data gaps for cash balance and investing cash flows impede liquidity assessment
• ROE of -13.95% driven by a negative net margin, not capital structure

Investment Implications

Key Takeaways:

• Revenue contraction and negative operating leverage are the primary earnings headwinds
• Balance sheet capitalization appears solid (~53% equity ratio by our calculation) with ample working capital
• Cash burn is present but smaller than net loss; OCF benefited from non-cash items and working capital
• Interest burden is low; solvency risk hinges on duration of operating losses, not debt load
• Visibility into cash and capex is limited; monitoring liquidity is essential into H2

Metrics to Watch:

• Revenue trajectory and order intake/backlog into H2
• Gross margin stability and mix by service/client
• SG&A-to-sales ratio and progress on cost actions
• EBITDA and operating cash flow inflection toward breakeven
• Receivables days and working capital swings
• Cash and cash equivalents disclosure; capex/investing outlays

Relative Positioning: Within Japan-listed digital/media service peers, INCLUSIVE exhibits decent gross margins but weaker operating efficiency and negative EBITDA, counterbalanced by a comparatively solid equity base and strong liquidity metrics; near-term positioning depends on restoring scale and lowering fixed costs to improve operating leverage.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis