Revenue increased, but margins declined sharply; confirming the resolution of unprofitable projects is the top priority

Company-wide revenue in FY2026-H1 increased 2.3% to ¥3,695.899 million from ¥3,613.867 million in the same period of the previous year, while operating profit declined by ¥198.599 million, from ¥637.168 million to ¥438.569 million. The operating margin fell approximately 5.7 percentage points, from around 17.6% in the same period of the previous year to 11.9%, indicating that growth in revenue has not translated into profit. Ordinary profit was ¥468.087 million, down 29.4%, while interim net profit was ¥325.846 million, down 29.6%.

By segment, revenue in the Solutions Services business increased 2.8% year on year to ¥2,618.176 million, while segment profit fell 15.3% to ¥433.572 million. The segment margin was 16.6%, with profit moving in the opposite direction to revenue growth. The Engineering Services business also saw revenue rise only 1.0% to ¥1,077.723 million, while segment profit declined 22.7% to ¥285.606 million, producing a 26.5% margin. Since profit declined in both businesses, the deterioration in company-wide profit is not an issue confined to a single segment.

The company explained that some unprofitable projects arose in the Solutions Services business, temporarily depressing segment profit. It also stated that the risk of additional losses is limited and that a certain degree of visibility has been achieved toward resolving the projects. However, it has not disclosed the number of unprofitable projects, project-by-project losses, or the impact on provisions and cost estimates. In the past, increased man-hours, delivery delays, quality deterioration and projects becoming unprofitable due to inadequate project management have also been identified as risks. In Q3, it will be necessary to confirm whether additional losses have occurred, rather than relying solely on the qualitative explanation that the projects have been resolved.

The key issue in Q3 is not revenue recovery itself, but whether the increase in revenue is accompanied by normal project profitability. Specific benchmarks will be whether company-wide operating profit reaches the simple progress-line benchmark of ¥825 million, whether the Solutions Services business recovers its 16.6% margin, and whether the Engineering Services business remains at or above a 26.5% margin. It will also be important to confirm at which stages, including estimates, order intake and projects in progress, the strengthened project management framework has functioned, and whether numerical targets have been set for preventing a recurrence of projects with deteriorating profitability.