Operating margin improved despite the pullback from large projects; the next question is whether margins can hold as project activity normalizes

Revenue in the first quarter of the fiscal year ending March 2027 was ¥6,145 million, down ¥169 million, or 2.7%, from ¥6,315 million in the same quarter of the previous year. Operating profit, by contrast, was ¥622 million, up approximately ¥10 million, or 1.6%, from ¥612 million. On a simple calculation, the operating margin was approximately 10.1% in the current quarter versus approximately 9.7% in the same quarter of the previous year, an improvement of approximately 0.4 percentage points. The issue now is therefore not only a recovery in revenue, but whether the factors that enabled the company to secure profit despite lower revenue will recur from the second quarter onward.

The breakdown by product category in the supplementary materials shows consulting revenue of ¥505 million, down ¥47 million year on year, and development revenue of ¥4,192 million, down ¥126 million. By contrast, operations revenue was ¥1,447 million, up ¥5 million, while product sales were ¥0 million, unchanged year on year. The company attributes the decline in revenue to the pullback from large projects recorded in the previous year and the increase in operating profit to the resolution of unprofitable projects in the previous fiscal year. However, it has not disclosed the amount of improvement in profitability by project or the amount by which the completion of individual projects affected profit.

First-quarter gross profit was ¥1,405 million and selling, general and administrative expenses were ¥783 million. SG&A expenses increased approximately 5.7%, or ¥42 million, from ¥741 million in the same quarter of the previous year, so the improvement in operating margin cannot be explained solely by lower SG&A expenses. As the breakdown of cost of sales, gross margin by project, losses on unprofitable projects and the amount of improvement from their resolution have not been provided, it is not yet possible to determine whether the margin improvement is structural or attributable to temporary project factors.

The accounting reporting structure consists of a single information services segment. Although revenue by service category is disclosed, operating profit by category and order backlog are not. At the next results announcement, in addition to second-quarter standalone revenue and operating profit, it will be necessary to assess the recovery in development and consulting revenue, cumulative first-half gross profit and SG&A expenses, and the number of millions of yen by which the resolution of unprofitable projects lifted operating profit.