Q1 revenue was flat, but the operating margin declined as growth investments and project timing weighed first

FY2027-Q1 revenue was ¥1,534 million, down ¥10 million, or 0.6%, from ¥1,544 million in the same quarter of the previous year. Operating profit was ¥316 million, down ¥54 million from ¥370 million, while profit before tax was ¥298 million and profit for the quarter attributable to owners of the parent was ¥193 million. Although the decline in revenue was limited, the decline in profit was relatively large. The starting point for the next results is that maintaining revenue at its current level has not been enough to maintain profit.

The deterioration is also evident in margins. The operating margin fell 3.4 percentage points, based on a simple calculation, from approximately 24.0% in the same quarter of the previous year to 20.6%, while the gross margin fell 1.4 percentage points year on year to 42.8%. SG&A expenses were ¥346 million, equivalent to 22.6% of revenue, up 12.3% year on year. The company cited the expansion of its management team, the rollout of locations to support technology acquisition and recruitment, and systems investments as factors behind the decline in profit, but it has not disclosed a factor-by-factor bridge showing how many millions of yen each factor reduced operating profit.

By business type, solution business revenue was ¥873 million, up 0.3% year on year, while gross profit was ¥453 million, down 6.2%. Digital twin business revenue was ¥74 million, down 9.8%, while gross profit was ¥47 million, up 2.2%. Engineering business revenue was also down 0.8% at ¥586 million, but gross profit rose 1.3% to ¥155 million. The decline in company-wide profit therefore reflects not simply lower revenue, but a combination of lower gross margins in the solution business, higher SG&A expenses and shifted project acceptance timing.

In FY2027-H1, we will check whether project acceptance actually progresses from Q2 onward and whether the gross and operating margins turn upward. Specific points to verify include whether the operating margin recovers from 20.6% to at least approximately 24%, the level seen in the same quarter of the previous year; whether solution business gross profit of ¥453 million turns from a year-on-year decline to an increase; and whether the rate of increase in SG&A expenses of ¥346 million slows. We will also watch whether the company discloses standalone Q2 revenue and operating profit, as well as the amounts attributable to delayed project acceptance and organizational investment.