Revenue growth has not prevented a wider operating loss, making the ability to absorb investment costs the key focus for FY2027-H1

First-quarter revenue increased 24.1% year on year to ¥1,242 million, but operating income was a loss of ¥79 million. The operating loss widened by ¥15 million from ¥64 million a year earlier, showing that revenue growth has not translated directly into profit growth. Progress against the full-year revenue forecast of ¥5,700 million was 21.8%, below the 25% passage of the fiscal year, while quarterly operating income remained negative, creating a clear gap between revenue and profit progress.

The earnings presentation reported first-quarter gross profit of ¥419 million and selling, general and administrative expenses of ¥499 million. In addition to higher personnel costs and employee recruitment expenses associated with investment in human capital, and higher outsourcing costs including subcontracting, investments in new tool development and AI put pressure on profit. The company also explained that personnel costs for employees in training, which had been recorded in SG&A in the previous year, were transferred to cost of sales this year, reducing gross profit by approximately ¥60 million. The next update therefore needs to assess the underlying personnel burden, including the reclassification of expenses, rather than relying solely on the SG&A ratio.

The year-on-year change in operating profit included positive contributions of ¥5 million from the Salesforce business, ¥3 million from the Global and AI business, ¥8 million from the SaaS AGAVE business and ¥21 million from the ServiceNow business. These were offset by ¥40 million of AI-related investment and ¥12 million of other costs. The key point to assess in the first-half results is whether ServiceNow and AGAVE, the main drivers of revenue growth, have begun contributing to profit, or whether their contribution is being offset by higher AI investment and new tool development costs.

The revised first-half forecast announced on 22 October calls for revenue of ¥2,611 million, an operating loss of ¥101 million, an ordinary loss of ¥83 million and a net loss attributable to owners of the parent of ¥55 million. If the operating loss is limited to ¥101 million in the first half from ¥79 million in the first quarter, the second-quarter loss would narrow on a simple calculation. However, maintaining full-year operating profit of ¥570 million would require operating profit of ¥671 million in the second half alone. In FY2027-H1, it will be important to disclose not only whether the full-year forecast is maintained, but also when investment costs are expected to run their course, the rate of increase in recruitment and outsourcing costs, and order intake and utilization supporting the required second-half profit.