First-half results test whether profit is lagging sales progress

First-quarter revenue was ¥4,711 million, up ¥328 million from ¥4,383 million in the same period last year. Progress against the full-year forecast of ¥18,300 million was 25.7%, 0.7 percentage points above a simple one-quarter benchmark. Revenue was supported by IT operations and maintenance outsourcing in the manufacturing sector and new orders in the public and social sectors, indicating a start broadly in line with demand expectations.

Operating profit was ¥212 million, ordinary profit was ¥224 million, and profit attributable to owners of the parent was ¥141 million, down 3.4%, 4.7%, and 7.4%, respectively, year on year. Operating profit progress against the full-year forecast of ¥1,260 million was only 16.8%, 8.9 percentage points below revenue progress. The first-quarter operating margin was approximately 4.5%, down 0.5 percentage points from approximately 5.0% in the same period last year, meaning that higher revenue has not translated directly into profit.

The company attributed the decline in profit to investment in human resources, including improved employee compensation, stepped-up hiring, and training, as well as the fact that measures to improve profitability are taking longer than expected to deliver results. The full-year forecasts remain unchanged at revenue of ¥18,300 million, operating profit of ¥1,260 million, ordinary profit of ¥1,285 million, and net profit of ¥856 million, but no standalone first-half targets or cost plans have been disclosed. Accordingly, first-half revenue of ¥9,150 million and operating profit of ¥630 million are not company targets, but benchmarks derived mechanically by taking half of the full-year forecasts.

In the next earnings release, we will check whether cumulative first-half operating profit is approaching ¥630 million and whether the standalone second-quarter margin improves. In particular, it will be important to see how much was incurred in the first half for investment in human resources and hiring, solution development, and strengthening head-office functions, and whether the improvement from profitability initiatives is disclosed in monetary terms. If operating profit progress does not approach revenue progress, improvement in second-half profitability will be required to achieve the forecast 15.4% increase in full-year operating profit.