HONYAKU Center Inc. Q2 FY2026 earnings call

• Market Position & Growth Priority

  • The domestic Japanese translation/interpretation market is 29 billion yen in size, and Honyaku Center holds less than 4% market share, leaving significant room for domestic growth; the company will prioritize domestic expansion for the near term
  • The 6th medium-term management plan sets 2028 March term targets of 13 billion yen revenue, 1.2 billion yen operating profit, 0.8 billion yen net income attributable to parent shareholders, and ROE of 10% or higher

• Core Strategic Priorities

  1. Strengthen business competitiveness via AI and data utilization
     • Integrate machine translation (MT) and large language models (LLM) to improve QCD (Quality, Cost, Delivery) for core translation services, building on years of existing MT investment
     • Key competitive advantages: long-standing trusted relationships with translators that enable smooth workflow adaptation for AI tools, in-house proprietary AI engines enabled by larger scale and investment capacity, and accumulated specialized bilingual language assets not available publicly
     • Plans to increase utilization of customer purchase behavior data in sales and marketing to expand repeat business with a broader customer base
  2. Promote operational efficiency
     • Translation work by translators is already top-tier in efficiency industry-wide; current focus is on BPR (Business Process Re-engineering) to improve internal management workflows, especially project management, to reduce selling, general and administrative expenses
  3. Establish a stable revenue base
     • Optimize the group business portfolio to improve capital efficiency, focusing on streamlining subsidiary management, selective concentration on high-competitiveness businesses, and improved management practices
     • Actively pursue M&A to expand translation market share, target acquisitions of compatible peer companies, and enter new growth business areas (M&A is prioritized for new segments where the company has limited in-house experience)

• Recent Completed Strategic Actions

  1. Absorption merger of FIPAS, a foreign patent filing agency
     • Goals: reduce management costs by integrating the former subsidiary into the core patent translation segment, and offer one-stop services from translation through foreign patent filing to existing and new corporate clients to unlock unmet translation demand
  2. Full share acquisition and M&A of Citrus Japan, a small multilingual website production firm with specialized expertise
     • Goals: expand business scope from only web text translation to end-to-end multilingual website development, eliminating the need for clients to separately hire translation and production vendors, reduce client friction to increase order volume, and add a new high-potential document/ service category to the company's portfolio

Translation Business Segments:

1. Patent field: 1.491 billion yen revenue, +0.3% YoY, contribution 27.9% of total revenue
2. Pharmaceutical field: 1.284 billion yen revenue, +5.0% YoY, contribution 24.0% of total revenue
3. Industrial & Localization field: 0.891 billion yen revenue, -16.6% YoY, contribution 16.7% of total revenue
4. Finance & Legal field: 0.299 billion yen revenue, -10.2% YoY, contribution 5.6% of total revenue Total Translation Business segment profit: -19.4% YoY

Other Business Segments:

1. Dispatch Business: 0.566 billion yen revenue, -2.9% YoY, contribution 10.6% of total revenue; segment profit +74.0% YoY (base was small, results are flat overall)
2. Interpretation Business: 0.654 billion yen revenue, +9.7% YoY, contribution 12.2% of total revenue; segment profit +33.8% YoY
3. Other segments: Swung from deficit to net profit

Total company interim revenue: 5.345 billion yen, -2.2% YoY

• Full year 2026 March term guidance is maintained, with targets of 0.9 billion yen operating profit, 0.92 billion yen ordinary profit, and 0.63 billion yen net income attributable to parent shareholders; management notes the operating profit target remains achievable with ongoing SG&A cost cutting
• Pharmaceutical and interpretation segments are on track to meet full-year forecasts; dispatch business is progressing largely in line with plan
• Patent segment performance is not weak, and the company is working to recover to meet its initial full-year forecast
• The translation business overall is currently below initial forecast (which called for 1.6% full-year revenue growth), and recovery of performance in the second half is the key remaining challenge
• Annual dividend per share is maintained at 75 yen, consistent with the prior year, in line with the company's 35% target payout ratio

• US tariff concerns have led manufacturing (especially automotive) clients across industrial, localization and finance/legal segments to cut back on orders and marketing spending, causing larger-than-expected revenue declines; while underlying demand has not disappeared, a recovery depends on an improvement in the external macroeconomic environment
• The industrial & localization segment has seen a larger revenue decline than already expected, and the finance & legal segment has posted an unexpected revenue decline (despite expected growth from IR services), creating pressure on full-year performance
• Growth rates for the interpretation business are on a downward trajectory, and growth is expected to moderate further going forward

No substantive Q&A section was included in the provided transcript.