Funai Soken Holdings Incorporated (9757) Q2 2026 Earnings Call Transcript

I am Nakatani, President of Funai Soken Holdings. Thank you very much for your continued support of our group. I'd like to walk you through the financial results for the second quarter of the fiscal year ending December 2026, which we have announced today at 12 p.m. Japan Standard Time. Since our time is limited, I will explain the financial results by referring to selected slides from the materials. I will start with a summary of our results and business overview. Following that, Director Haruta will report on our financial position and key topics from the second quarter. Finally, I will discuss our earnings forecasts and growth strategy. First, I would like to explain the key points of our financial results for the second quarter of the fiscal year ending December 2026. In the second quarter, we achieved record high results for a second quarter in both net sales and operating income. We were able to successfully absorb costs related to investments in future growth, including office investments associated with the relocation of our Osaka headquarters, as well as investments in human resources and M&A. On that basis, operating income has reached 52% of the full-year target, demonstrating steady progress for the interim period. On the business front, our core monthly support consulting services grew by 9.9%, and our management workshops saw an 8.2% increase, both showing steady performance. Furthermore, our consulting services for mid-market aspirants, centered on helping clients become 10 billion Japanese yen companies, as well as on M&A and subsidy consulting, recorded significant growth of 112%. In terms of key KPIs, our consultant headcount increased by 7.6%, bringing the total to approximately 1,200. The management workshop membership and its monthly revenue per contract have both reached record highs. Our full-year earnings outlook remains unchanged, and we plan to set new record highs with net sales of 37 billion Japanese yen and operating income of 9.1 billion. For shareholder returns, we plan to increase dividends for the 16th straight year, aiming for a dividend payout ratio of at least 60% and a total return ratio of at least 65%. For topics, in July we entered into a capital and business alliance with Tokyo Marine and Nichito Fire Insurance Company Limited. Next, I will explain our consolidated income for the second quarter on a year-to-date basis. Net sales were 16,825 million Japanese yen, up 4.9% year-on-year. Operating income was $4,736 million, up 1.1%. And ordinary income was $4,902 million, up 4.6%. Net income attributable to owners of the parent was $3,218 million, up 94.9%, and we achieved both higher sales and higher profits. Although the first quarter got off to a somewhat slow start, looking at the second quarter alone, net sales increased by 7.4% year-on-year, and operating income rose by 10.9%, marking double-digit growth in operating income. When compared to the previously announced earnings forecasts, while net sales were down 3.9% from the forecast, operating income was up 0.8%, and ordinary income was up 4.3%, indicating that profits exceeded the plan. The progress rate against full-year forecasts is 45.5% for net sales, 52% for operating income, 53.9% for ordinary income, and 49.1% for net income. Although sales are slightly behind, income figures are maintaining the same level of progress as last year, and we are making steady progress toward achieving our full-year targets. Next, I will explain the trends in key KPIs related to human capital, which forms the foundation of our business. The total headcount across our group increased by 7.4% year-on-year to 1,793. Of this total, the number of consultants increased by 7.6% to 1,195. Average sales and operating income per employee for the second quarter cumulative decreased by 2.3% and 5.8%, respectively. This is due to investment costs incurred in connection with the aggressive hiring of consultants to support future sustainable growth and the relocation of our Osaka headquarters. Going forward, as we continue to develop and integrate our new hires into the workforce, we will strive to further improve productivity and increase profitability. Next, I will explain the trends in the performance of our management seminars and management workshops. First, regarding the management seminars, the number of seminars held increased by 10.4% year-on-year to 910, but the number of attendees decreased slightly by 3.5%. Regarding the Management Workshops, which serve as our group's stable customer base, membership increased by 4.8% to 8,300, setting a new record high and continuing to grow. Next, I will explain the trends in per-contract revenue for the Management Workshops and monthly support consulting services. As shown on the left slide, per-contract monthly revenue for the Management Workshop increased by 4.9% year-on-year. On the right side, per-contract monthly revenue for the monthly support consulting services increased by 6.2%, indicating that revenue per contract is steadily increasing for both services. This shows the trends in the number of clients. Due to the impact of ongoing price increases, while there was one month in which results fell short of the previous year's levels, results for all other months have remained above the previous year's levels. From here on, I will discuss the financial results for the second quarter of fiscal 2026 in detail first results of sales by service category since we have consolidated our business segments into a single segment of consulting starting this fiscal year we are including last year's full year figures for reference for comparison with the same period last year please take a look at the dark gray and dark blue sections regarding stock revenue as our group's stable revenue base subscription fees for the management workshop increased by 8.2 percent year-on-year, and monthly support rose by 9.9%, with both showing strong performance. In the cross-selling areas, while projects fell by 4.2%, and advertising management fell by 2.9%, both slightly below the previous year's levels, M&A grew significantly, rising 128.4%. Logistics BPO saw a 31% decrease, partly due to policy-driven contraction, but the steady accumulation of our core recurring revenue contributed to strong financial results as a whole. Next, results of operations by sector. The housing, real estate, and construction sector, which accounts for a large share of the total, increased by 3.4 percent, followed by the health care, nursing care, and welfare sector, which increased by 8.4 percent, demonstrating steady growth. In addition, during this second quarter, the manufacturing sector saw significant growth of 43 percent, driven by growth in M&A and subsidy consulting. Distribution and retail also grew significantly. This is attributable to the large customer bases of ApparelWeb, which joined our group in Q2 last year, and LogiCreate, which joined our group in January of this year. This is a new disclosure document starting this year. As a key focus area of our new medium-term business plan, it shows the sales trends over the past three years for our consulting services for mid-market aspirants, including 10 billion Japanese yen projects, M&A related, and subsidy consulting. As shown in this graph, sales in these fields have continued to grow year after year. in the second quarter as well we recorded significant growth of 112 percent year on year more than doubling the previous year's figure demand for this initiative which supports the further growth of mid-sized and sme businesses is extremely high and we see solid signs that it will serve as a new growth driver for our company now haruta will take over and continue the explanation hello everyone i am haruta of funai soken holdings i would like to begin by explaining our consolidated financial position. In terms of major changes, current assets decreased and investments and other assets increased due to the acquisition of investment securities and an increase in long-term deposits as part of surplus fund management. Current liabilities have decreased mainly due to the payment of income taxes and office relocation expenses, resulting in a reduction in accounts payable. As a result, total net assets amounted to 27,258 million Japanese Yen, and the equity ratio stood at 78%, maintaining a sound financial foundation. Next, status of our cash flow, net cash provided by operations, has remained consistently positive. Net cash used in investments reflects expenditures related to the acquisition of investment securities and fixed assets, as explained earlier. Next, I would like to highlight several key topics from the first half. First, the Capital and Business Alliance with Tokyo Marine and Nichito Fire Insurance Company Limited. We will leverage their extensive of customer base and offer a diverse range of solutions that combine the strengths of both companies, and we aim to further expand our consulting business. Second, our first inclusion in the FTSE JPX Blossom Japan Index. This is one of the Japanese stock market indices for ESG adopted by the GPIF, and we view this as a result of the high regard in which our outstanding efforts in environmental, social, and governance matters are held. With this inclusion, we have now been selected for five of the six Japanese equity ESG indices adopted by the GPIF. Third, the group inclusion of MTUS Inc., which aims at strengthening our workplace consulting services. With this company's expertise in office and retail store design, we will drive the sustainable growth of our client companies through a dual approach of management and design, from workplace optimization to branding. Fourth, the agreement to establish Funai Soken jaic capital a joint venture with jaic japan asia investment company limited through this we will make a full-scale entry into the business succession support fund sector and by leveraging the strengths of both companies plan to form our first fund for the mobility industry sized at around 2 to 3 billion japanese yen fifth our initiative to expand our ipo support services nationwide following tokyo and fukuoka we have now obtained the s advisor certification from Sapporo PRO Frontier Market. As a result, we are further strengthening our comprehensive support system to meet the diverse needs of local companies seeking to go public. Sixth, Enhanced Partnership with Regional Banks. In collaboration with regional financial institutions such as CCI Group, Fukui Bank, and the 77 Bank, we will support the sustainable growth of mid-sized and small and medium-sized businesses nationwide by hosting joint seminars and management workshops on how to become a 10 billion Japanese yen company. as the last news, the growing adoption of AI in consulting practice. Starting with communities of business executives and owners that we organize, such as the AI Business Forum, we are moving forward with the implementation of customized AI consulting services for individual companies. While Maranucci-Solei Law Office, featured here, is just one specific example, this demonstrates how concrete results are being achieved in solving on-the-ground challenges. Moving forward, we will continue to expand our industry-specific AI consulting services using challenges on the front lines as our starting point. That concludes my report. I will now take the floor to explain our future earnings forecasts and growth strategy. First, the progress toward the medium-term business plan. As the first year of our new medium-term plan, we have set targets of 37 billion Japanese yen in net sales and 9.1 billion in operating income this year. As mentioned earlier, at the end of the second quarter, net sales reached 45.5% and operating income reached 52% of the annual targets. Looking ahead, we project organic growth of 5% to 10% driven by our existing core businesses, such as monthly support consulting services and management workshops. On top of that, by combining key initiatives such as mid-market consulting and AI transformation and digital transformation services, with proactive investments including M&A, we aim to add a further 15% to 20% growth, targeting sustained overall growth of more than 10% per year. We plan to achieve group-wide net sales of $46 billion and operating income of $11.5 billion in 2028, the final year of our medium-term business plan. To conclude my presentation, I would like to discuss our group's growth trajectory to date and our strategy. Since becoming a holding company in 2014, we have expanded our business scope through proactive M&A and the establishment of new companies and have continued to grow steadily. Specifically, the business in 2014 had net sales of 12.4 billion Japanese yen and operating income of 2.9 billion. Having overcome the challenges of the COVID-19 pandemic, under the 2026 plan, it is set to expand significantly, with net sales of 37 billion and operating income of 9.1 billion. To date, we have welcomed new members from companies with a wide range of expertise, including those in IT, digital transformation, logistics, HR, M&A and finance, as well as LogiCreate and MTUS, which joined our group this year. Going forward, we will continue to vigorously combine organic growth with M&A to further enhance our corporate value and achieve sustainable growth. That concludes our presentation on the financial results for the first half of fiscal 2026. Thank you.