| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥1048.8B | ¥988.4B | +6.1% |
| Operating Income | ¥46.7B | ¥45.4B | +2.8% |
| Ordinary Income | ¥44.5B | ¥42.1B | +5.7% |
| Net Income | ¥21.6B | ¥25.4B | -15.0% |
| ROE | 3.5% | 4.3% | - |
For FY2026 ending March Q2, Revenue was ¥1,048.8B (YoY +¥60.4B +6.1%), Operating Income was ¥46.7B (YoY +¥1.3B +2.8%), Ordinary Income was ¥44.5B (YoY +¥2.4B +5.7%), and Net Income was ¥21.6B (YoY -¥3.8B -15.0%). Revenue increased for the second consecutive period driven by accelerated overseas expansion in the education segment and expanded operations in the medical & welfare segment. On an operating basis the company achieved revenue and operating profit growth, but a high effective tax rate (45.1%) and recognition of special losses of ¥7.7B (impairment ¥2.9B, impairment on available-for-sale securities ¥2.5B, etc.) reduced Net Income by 15.0% year-on-year. JGAAP goodwill amortization of ¥6.1B structurally compresses Net Income; EBITDA was ¥64.3B (margin 6.1%) and should be emphasized as an indicator of underlying earnings power. Progress toward the full-year forecast is standard at Revenue 51.2%, Operating Income 55.0%, and Net Income 54.0%.
[Revenue] Revenue was ¥1,048.8B, up +6.1% YoY. By segment, Education accounted for ¥571.6B (share 54.5%, YoY +3.7%) and remained the core, aided by the acquisition of a subsidiary stake in DTP Education Solutions JSC and consolidation effects from segment reorganization capturing overseas operations. Medical & Welfare recorded ¥463.1B (share 44.1%, YoY +9.3%), showing strong growth driven by higher utilization rates and unit expansions at childcare and nursing-care facilities. Other businesses contracted to ¥47.6B (share 4.5%, YoY -10.8%). Gross profit was ¥285.9B with a gross margin of 27.3% (up +0.5pt from 26.8% the prior year), benefiting from pricing measures and a shift to higher value-added services.
[Profitability] SG&A was ¥239.2B (SG&A ratio 22.8%), up ¥14.7B YoY, outpacing revenue growth. As a result, Operating Income was ¥46.7B (Operating margin 4.5%), up +2.8% YoY with slower growth momentum. Education segment Operating Income was ¥40.3B (margin 7.1%) and remained the main contributor but declined -3.8% YoY; Medical & Welfare posted ¥12.8B (margin 2.8%), up +7.3% YoY. At the ordinary level, non-operating expenses totaled ¥5.2B (including interest expense ¥3.1B) but were partly offset by non-operating income of ¥3.0B (dividends received ¥0.5B, etc.), resulting in Ordinary Income of ¥44.5B (+5.7%). Special gains of ¥2.5B (gain on sale of available-for-sale securities ¥2.4B) were more than offset by special losses of ¥7.7B (impairment ¥2.9B, valuation loss on available-for-sale securities ¥2.5B, loss on disposal of fixed assets ¥1.2B), compressing pre-tax income to ¥39.4B (YoY -10.3%). After corporate taxes of ¥17.8B (effective tax rate 45.1%) and attributable non-controlling interests of ¥0.7B, Net Income attributable to owners of the parent was ¥21.6B (Net margin 2.1%), down -15.0% YoY. In conclusion, while revenue growth was secured, the high tax burden and special losses led to lower Net Income.
The Education segment posted Revenue of ¥571.6B (share 54.5%, YoY +3.7%) and Operating Income of ¥40.3B (margin 7.1%, YoY -3.8%); revenue increased but margin contracted -0.5pt from 7.6% the prior year, resulting in lower profit. Consolidation of Gakken Cocofun Nursery Co., Ltd. through segment reorganization and the consolidation of overseas subsidiaries contributed to revenue growth, but increased SG&A (overseas expansion costs, labor costs, etc.) pressured profitability. Medical & Welfare reported Revenue of ¥463.1B (share 44.1%, YoY +9.3%) and Operating Income of ¥12.8B (margin 2.8%, YoY +7.3%), achieving revenue and profit growth. Improved facility utilization and higher unit prices contributed to margin improvement (+0.2pt from 2.6% the prior year). Other businesses posted Revenue of ¥47.6B (share 4.5%, YoY -10.8%) and Operating Income of ¥1.6B (margin 3.4%, YoY -34.8%), contracting in scale and profitability. Corporate adjustments were -¥8.1B (prior year -¥11.0B), with a reduced burden due to more efficient allocation of headquarters costs. The high concentration remains with Education accounting for 86.4% of Operating Income; the margin gap between Education (7.1%) and Medical & Welfare (2.8%) is 4.3pt, remaining significant.
[Profitability] Operating margin was 4.5%, down -0.1pt from 4.6% the prior year, impacted by the higher SG&A ratio. ROE was 3.5%, down from 4.0% the prior year, primarily due to the low Net margin of 2.1%. On a Net Income basis including goodwill amortization of ¥6.1B, profitability is suppressed; refer to EBITDA margin 6.1% (EBITDA ¥64.3B) as a measure of underlying earnings power. [Cash Quality] Operating Cash Flow (OCF) was ¥6.9B, only 0.32x of Net Income ¥21.6B, with deterioration in working capital driven by an increase in accounts receivable (-¥47.5B). Sum of OCF before working capital changes was ¥30.2B, indicating underlying cash generation, but DSO 109 days (accounts receivable ¥313.9B ÷ daily sales ¥9.4B × days) and CCC 140 days reflect weakened collection efficiency that pressures OCF. [Investment Efficiency] Total asset turnover was 0.70x (annualized 1.41x), and tangible fixed asset turnover was 6.27x, indicating standard turnover efficiency. Goodwill stood at ¥93.3B (15.3% of equity), with continued amortization burden. [Financial Soundness] Equity Ratio was 40.8%, down from 42.7% the prior year. Interest-bearing debt was ¥305.5B (Debt/Equity 0.60x), an acceptable leverage, but Debt/EBITDA was elevated at 4.75x. Interest coverage was 15.2x (Operating Income ¥46.7B ÷ interest expense ¥3.1B), indicating adequate current interest payment capacity. Current ratio 162.7% and quick ratio 140.0% show sound short-term liquidity.
OCF was ¥6.9B, down -44.9% from ¥12.5B in the prior year, and only 0.32x of Net Income ¥21.6B, indicating weak cash conversion. OCF before working capital changes was ¥30.2B, confirming solid underlying cash generation, but a major driver of working capital deterioration was an increase in accounts receivable of -¥47.5B (YoY increase in accounts receivable of ¥53.4B), resulting in prolonged DSO 109 days and CCC 140 days. Corporate tax payments of -¥21.9B also accelerated cash outflows. Investing Cash Flow was -¥43.1B, mainly due to investments in tangible/intangible assets of -¥16.1B and acquisition of investment securities of -¥23.5B. Proceeds from subsidiary acquisitions amounted to ¥19.7B (related to DTP Education Solutions JSC), partially offsetting outflows, but net investing cash outflow predominated. Free Cash Flow was negative at -¥36.3B. Financing Cash Flow was +¥56.7B, funded by increases in short-term borrowings +¥86.0B and proceeds from bond issuance ¥69.6B, which covered long-term borrowings repayments of -¥42.1B and dividend payments -¥5.4B. Cash and cash equivalents were ¥233.3B, up ¥23.1B YoY, reflecting liquidity secured through short-term funding; however, FCF coverage is negative, revealing dependence on external financing.
There is a significant divergence between Ordinary Income ¥44.5B and Net Income ¥21.6B, mainly due to high tax expense ¥17.8B (effective tax rate 45.1%) and recognition of special losses ¥7.7B. Special losses comprised impairment ¥2.9B, valuation loss on investment securities ¥2.5B, and loss on disposal of fixed assets ¥1.2B; impairment is characterized as a one-off arising from asset selection, and valuation losses on securities are regarded as non-recurring items due to market fluctuations. Special gains of ¥2.5B (gain on sale of available-for-sale securities ¥2.4B) were outweighed by special losses, compressing Net Income. Non-operating income of ¥3.0B consisted of dividends received ¥0.5B and other income ¥1.4B, relatively small recurring items. Of non-operating expenses ¥5.2B, interest expense ¥3.1B reflects recurring costs associated with interest-bearing debt ¥305.5B, while the composition of the remaining ¥2.1B requires further scrutiny. Comprehensive income was ¥29.0B, ¥7.4B above Net Income ¥21.6B, mainly due to foreign currency translation adjustments +¥8.9B reflecting yen depreciation benefits for overseas subsidiaries, partly offset by valuation differences on available-for-sale securities -¥1.4B. From an accrual perspective, the large gap between OCF ¥6.9B and Net Income ¥21.6B is notable, with accounts receivable increase -¥47.5B worsening working capital and expanding the timing mismatch between revenue recognition and cash collection.
Full-year guidance is maintained at Revenue ¥2,050.0B (YoY +3.0%), Operating Income ¥85.0B (YoY +3.2%), Ordinary Income ¥83.0B (YoY +6.3%), and Net Income ¥40.0B. First-half progress rates are Revenue 51.2%, Operating Income 55.0%, Ordinary Income 53.6%, and Net Income 54.0%, all ahead of the standard 50% pace. The higher-than-average Operating Income progress reflects seasonality concentrated in the first half for the Education segment; achieving the full-year targets will depend on expanded contribution from Medical & Welfare in the second half and rigorous cost control. Against the full-year Net Income target of ¥40.0B, first-half Net Income was ¥21.6B (progress 54.0%); the company assumes Net Income of ¥18.4B in the second half, premised on normalization of tax burden (lower effective tax rate) and reduced special losses. If the high first-half tax burden and special losses are temporary, the guidance is achievable, but improvement in working capital (accounts receivable collections) and recovery of OCF in H2 are essential for second-half financial stability. No revisions to the forecast have been made; the company expresses confidence in achieving guidance.
An interim dividend of ¥14.5 per share was paid (prior year ¥13.0). The full-year dividend is expected to remain at ¥14.5 per share, the same as the prior year, with a policy of zero year-end dividend (interim lump-sum). Total dividends amount to approximately ¥6.0B (based on 41,538 thousand shares outstanding), implying a payout ratio relative to Net Income attributable to owners of the parent of about 28%, a conservative level. However, with Free Cash Flow at -¥36.3B and dividend payments of ¥5.4B made, FCF coverage is -6.72x, indicating dividends are not funded from internal cash generation. The interim dividend was supported by increased short-term borrowings +¥86.0B and a drawdown of cash and deposits ¥252.1B; sustainability depends on OCF recovery in the second half. If working capital normalizes over the full year and OCF exceeds Net Income, dividend sustainability should improve. No share buybacks were confirmed; shareholder returns are focused on dividends.
Working capital expansion risk: Accounts receivable increased substantially to ¥313.9B (YoY +¥53.4B +20.5%), lengthening DSO to 109 days and CCC to 140 days and reducing OCF to 0.32x of Net Income. Credit expansion linked to revenue growth and collection delays have materialized; if collections do not progress in H2, liquidity risk and the need for additional financing will increase.
Segment concentration and mix risk: The Education segment accounts for 86.4% of Operating Income, and a decline in that segment’s profit (-3.8%) has a direct impact on consolidated profit. The Medical & Welfare segment has a low margin of 2.8%, widening the gap with Education at 7.1% by 4.3pt; an increase in the proportion of Medical & Welfare revenue (44.1%) could dilute consolidated margins.
High leverage and funding risk: Debt/EBITDA at 4.75x is high, and a rapid increase in short-term borrowings to ¥113.5B (+¥86.0B) raises refinancing risk and sensitivity to interest rate increases. While interest coverage at 15.2x currently affords interest payment capacity, a deterioration in the interest-rate environment could increase financing costs.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 4.5% | 14.0% (3.8%–18.5%) | -9.5pt |
| Net Margin | 2.1% | 9.2% (1.1%–14.0%) | -7.2pt |
Profitability is well below the industry median: Operating Margin 4.5% is -9.5pt vs median 14.0%, and Net Margin 2.1% is -7.2pt vs median 9.2%, placing the company in the lower tier.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 6.1% | 21.0% (15.5%–26.8%) | -14.9pt |
Revenue growth of 6.1% is materially below the industry median of 21.0%, indicating a growth pace below the sector average.
※ Source: Company compilation
Progress in accounts receivable collections and shortening of CCC is the H2 focus: Deterioration in working capital in H1 (DSO 109 days, CCC 140 days) caused low cash conversion (OCF/Net Income 0.32x). If accounts receivable collections advance in H2 and working capital normalizes, OCF could exceed Net Income, enabling a return to positive FCF and improved financial stability. Progress should be monitored via quarterly CCC trends.
Establishing and sustaining Operating Margin above 5% and improving Medical & Welfare margins: The current Operating Margin of 4.5% is well below the industry median of 14.0% and has remained under 5% historically. Education margin of 7.1% is relatively high, but the 2.8% margin in Medical & Welfare drags the consolidated average down; improving unit prices and utilization in Medical & Welfare is essential to anchor consolidated Operating Margin above 5%.
Improvements in both leverage and cash generation will determine sustainability of shareholder returns: High leverage (Debt/EBITDA 4.75x) and negative FCF of -¥36.3B were recorded. Although the payout ratio of 28% is conservative, negative FCF coverage indicates reliance on external funding. If H2 OCF improves and investments are optimized to deliver positive FCF, dividend sustainability will strengthen and potential for future dividend increases will expand.
This report was automatically generated by AI analyzing XBRL earnings release data. It is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company based on publicly disclosed financial statements. Investment decisions are your responsibility; please consult a professional advisor as needed.