Restoring profitability despite only modest sales growth

FY2027-Q1 revenue rose 0.9% to ¥9,104 million from ¥9,018 million in the same period of the previous year, while operating profit fell 6.4% to ¥2,349 million from ¥2,509 million. Ordinary profit also declined 11.1% year on year to ¥2,252 million, showing that modest top-line growth has not translated into profit growth at the operating level or below. The operating margin calculated from revenue and operating profit fell by approximately 2.0 percentage points, from about 27.8% in the same period of the previous year to about 25.8%.

By segment, revenue from the M&A consulting business exceeded the ¥8,992 million recorded in the same period of the previous year, reaching ¥9,059 million. However, segment profit fell by ¥187 million to ¥2,540 million from ¥2,727 million. The pressure on profit should therefore be examined not as a loss of revenue across the business as a whole, but in terms of the impact of deal mix, cost burdens and investment in sales processes on the core business's margin. Profit from the fund business includes one-off factors and should be assessed separately from the core business's profitability.

The company explained that SG&A expenses increased because of IT-related costs associated with data-driven management and other factors. SG&A expenses were ¥3,144 million in FY2027-Q1. However, the information currently available does not sufficiently break down which IT costs increased, such as systems development, AI adoption, data infrastructure or personnel, or show whether the benefits of the investment appeared in days to convert opportunities into engagements, closing rates or revenue per consultant. In FY2027-H1, it will be necessary to determine whether the increase in costs represents temporary upfront investment or a permanent rise in fixed costs.

The operating margin for FY2026 was 37.3%, down 0.6 percentage points from 37.9% in FY2025. Seasonal patterns differ between quarterly and full-year results, so a simple comparison is not possible, but it will be important to see how much the margin, which fell to 25.8% in FY2027-Q1, recovers in H1. Items to monitor include profit from the M&A consulting business, the amount of IT-related costs within SG&A expenses, the difference between operating profit and ordinary profit, and growth in core profit excluding extraordinary income.