2138.T

• Post-structural reform strategic focus

  • The company has completed structural reform, exited all legacy unprofitable businesses including prior gaming and SHOPLIST operations, and has narrowed focus to growing IT outsourcing (including the care welfare human resources business) as its core main business for the next 3-5 years. There are no plans to launch new greenfield businesses in unrelated segments. The CEO has shifted to a holding company oversight role, delegating decision-making authority to subsidiary management to speed up execution.
  • The company will continue to pursue pure investment in central Tokyo real estate and maintain its existing venture capital portfolio, with no new additional venture investments planned.

• Core business operational priorities

  • For IT outsourcing/SES, the primary priority is maximizing the number of working engineers rather than targeting higher engineer unit pricing; the company sees growth opportunity in expanding into care-related IT roles, with no plans to prioritize other specialized high-unit-price niches at this stage. Top-line growth is tied to net increases in working engineer headcount multiplied by average unit pricing.
  • The strong growth of the care welfare human resources business is driven by the company's existing recruitment expertise and knowhow from its group's recruitment advertising and SES businesses; the company focuses on controlling recruitment cost per hire while steadily sourcing qualified care staff, a model that supports sustainable growth.
  • Ada. is a mature profitable business with no meaningful synergy with the core IT outsourcing business, and is not a strategic priority going forward.

• Engineering recruitment strategy

  • The company focuses on building an attractive workplace that meets diverse engineer needs (competitive pay, career paths, work-life balance) to improve acceptance rates. It has implemented process improvements including 3-minute response to all candidate applications and pre-onboarding career check-ins for accepted offers, which has yielded much higher recruitment conversion from job boards versus peer competitors. The company combines structured, process-driven operations with personal, candidate-centric outreach to improve retention and conversion.

• Management maintains the target of 13 billion yen in total revenue and 1.5 billion yen in operating profit. IT outsourcing has already passed break-even, so profit will grow proportionally with top-line growth, and operating margin will improve materially once the early investment losses from the care business fade.
  • Management expects that investments made over the past 4-5 years (including real estate and core business scaling) will begin to deliver clear positive results starting next year, with substantial growth in profit and business scale over the coming years.
  • The company targets 830 total working engineers for the full fiscal year, up from 674 at the end of the second quarter.
  • Management expects 2-3 additional venture portfolio companies to go public within the next 3-4 years, which would generate positive returns.
  • The company expects to return to sustained black ink operating profit on an ongoing basis this fiscal year, with large profit growth starting from next fiscal year.

1. IT Outsourcing including SES services: Quarterly revenue reached an all-time high, with 154.3% year-over-year growth. The segment as a whole has passed its break-even point, but overall profit growth is muted in the short term because of investment in the care business. 2. Care Welfare Human Resources Services: Revenue grew 267% year-over-year in the quarter, and is currently in an investment phase with near-term operating losses, with investments focused on staff recruitment to scale the business. 3. Ada. business: Growth slowed to 120% year-over-year in Q2, down from 171% in Q1; the business is currently profitable, but is not a core focus for the company at this stage. 4. Pure Investment segment: The company holds 12 billion yen of real estate assets (all in prime central Tokyo 5 wards) focused on long-term value appreciation, and also maintains a portfolio of venture capital investments. No revenue contribution percentages are provided in the transcript.

• Interest rate risk for leveraged real estate investment: A 1% change in interest rates would change annual interest expense by 100 million yen on a 10 billion yen investment; the company acknowledges that rising rates could pressure net operating income for the real estate portfolio, but notes this is a relatively small impact relative to the expected long-term capital appreciation of the portfolio.
  • Sustained low share price: Management acknowledges that repeated shifts in core business over the past decade have eroded market confidence and left the current share price undervalued relative to the company's underlying business strength.
  • Retention risk: While retention initiatives have delivered some progress, reducing voluntary turnover remains a long-term challenge that the company will continue to address incrementally.
  • Investment execution risk: Real estate investment is subject to risks including latent asset defects, unexpected maintenance costs, and prolonged vacancy; the company mitigates this with a strict 200+ point due diligence checklist and only invests in pre-defined prime central Tokyo areas, and will not purchase any asset that does not meet all screening criteria. Venture investment returns are uncertain and dependent on market conditions for exit.

Q: Why is operating profit growth slower than revenue growth for the overall IT outsourcing segment? / A: The slowdown comes from the 267% year-over-year growth of the care welfare human resources business, which is still in an aggressive investment phase, leading to large near-term operating losses. This is a temporary situation; as the business scales, investments will be recouped and profit growth will accelerate to match top-line growth.

Q: With 13 billion yen in revenue, is the 1.5 billion yen operating profit target still achievable, and did retention initiatives fail? / A: The IT outsourcing segment as a whole has passed break-even, so profit will grow proportionally as revenue expands, and margin will improve once the care business' early losses end. Retention initiatives have delivered modest progress, but results are not yet strong enough to highlight publicly; reducing turnover is a long-term challenge the company continues to address.

Q: What is the company's approach to risk management and investment strategy for its pure investment portfolio? / A: For venture capital, the company has no new planned investments, and expects 2-3 portfolio companies to go public in the next 3-4 years. For real estate, all staff involved in investments are licensed real estate agents, the company only invests in pre-approved central Tokyo areas, and requires completion of a 200+ point due diligence checklist covering risks like future maintenance costs, vacancy, and title issues before any purchase; no assets that fail screening are purchased.

Q: What does management think about the company's current share price? / A: Management acknowledges that repeated shifts in core business over the past 10 years have eroded market confidence and left the current share price depressed, which the company recognizes. After completing structural reform and narrowing focus to core IT outsourcing, management believes the current share price does not reflect the company's underlying strength, and is committed to growing the business and delivering returns to long-term shareholders over the coming years.