HITO-Communications Holdings,Inc. Q4 FY2025 earnings call

Overall Financial Performance

• Total reported revenue reached 63.596 billion yen, hitting 107.8% of the initial full-year plan and 102% of the twice upward-revised plan, growing 108.6% YoY. Excluding remaining COVID-19 countermeasure business revenue from 2024, core revenue grew 112.9% YoY, adding 7.273 billion yen year-over-year.
• Operating profit reached 2.495 billion yen, growing 159.1% YoY. Excluding COVID-related profit from 2024, core operating profit grew 212.2% YoY, adding 1.319 billion yen, hitting 113.4% of the revised operating profit plan.
• Gross profit margin hit 20.3% this period, down 0.4pp from last year, but the company achieved 815 million yen in gross profit growth YoY, beating the revised plan, after company-wide negotiation mitigated rising labor cost pressure. Selling, general and administrative expenses were cut by 112 million yen YoY via cost control.
• Net income attributable to parent shareholders missed plan slightly, due to a 540 million yen special loss booked for goodwill impairment and intercompany loan provisions for underperforming small startup group companies.

Key Operational Developments

• Airport Business: Successfully expanded hubs at major Japanese airports (Chitose, Kansai International, Narita), focused on foreign airline ground handling services. Completed capital investment in required ground support equipment (pushback tractors, deicing trucks, air starters etc.), which is a major barrier to entry for the industry, and now offers integrated one-stop service for both restricted and non-restricted airport zones.
• Wholesale Business: Leveraged the 'Oshi-katsu' (fan activity supporting favorite idols/characters) trend to rapidly grow IP-licensed merchandise, expanded into toys and stationery, and launched successful pop-up IP shops (including a high-performing location at SHIBUYA109).
• Balance Sheet & Cash Flow: Total assets grew 719 million yen YoY to 40.822 billion yen. The company maintains a healthy balance sheet: debt-to-equity ratio of 0.47x, cash and deposits of 121 billion yen exceed total interest-bearing debt of 80 billion yen, and equity ratio remains at 42.6%. Operating cash flow was 3.406 billion yen; investing cash flow was -3.6 billion yen, driven by GSE equipment investment, PFI project asset purchases, and affiliate share acquisitions. Free cash flow was -194 million yen.

Medium-term Plan (2025-2029) Progress

• The 5-year plan set a 2025 target of 59 billion yen in non-COVID revenue and 2 billion yen in operating profit. The company hit 63.6 billion yen in revenue and 2.49 billion yen in operating profit this year, outperforming the plan. The 2029 end targets are 71 billion yen in revenue and 4 billion yen in operating profit, and the company is on track to potentially reach these targets early and may revise the plan upward if performance continues.

• Sports & Entertainment: +1.783 billion yen year-over-year, grew 162.5% YoY, contributed 27.8% of total non-COVID adjusted revenue. Includes 800 staff deployed for Osaka-Kansai Expo, which drove strong growth this period.
• Airport (Airport): Grew 160.8% YoY, added over 3 billion yen in revenue YoY, reached near 10 billion yen in total revenue, contributed 15.7% of total non-COVID adjusted revenue.
• Wholesale: Grew 130.5% YoY, added 3.907 billion yen in revenue YoY, contributed ~24% of total non-COVID adjusted revenue.
• Digital Sales Support: -665 million yen YoY.
• Sales-based Sales Support (core legacy business): +30 million yen YoY, grew to 103% of last year's revenue, ending a multi-year period of decline, contributed ~24.2% of total non-COVID adjusted revenue.

• For the 2026 August fiscal year, the company guides total revenue of 66.28 billion yen, +4.2% YoY, and operating profit of 2.8 billion yen, +12.2% YoY (double-digit growth). The guidance is intentionally conservative for the airport business due to inherent variability in airline schedule changes, though current contract negotiations are progressing very well, and the company expects to revise guidance upward if performance stays on track.
• Planned segment growth: Outsourcing (including airport) +14.6% YoY to 3.779 billion yen; dispatch services +7.4% YoY to 653 million yen; new logistics business projected to grow 146.6% YoY to 1.24 billion yen; airport segment +1.49 billion yen YoY to 9.433 billion yen; digital segment +905 million yen YoY to 12.903 billion yen; sales-based sales support +4.6% YoY to 15.447 billion yen, returning to growth after years of decline.
• Wholesale segment guides an 879 million yen revenue decline YoY to solidify operations and address inventory/delivery issues after 30%+ growth this period, but the company still expects to maintain over 1 billion yen in profit from the segment, so the impact on overall earnings will be minimal.
• The company maintains a progressive dividend policy, guiding 7 consecutive years of dividend increases: full-year dividend of 37.5 yen per share, 50 sen increase from last year, for a 51.7% payout ratio, marking 15 consecutive years of increases since listing.

• The airport business faces inherent uncertainty: airline route schedules can change unexpectedly (e.g., routes may be shifted away from Japan due to aircraft shortages or demand changes), leading to missed revenue projections.
• Labor costs have risen sharply, putting ongoing pressure on gross margins, even though the company achieved partial mitigation via negotiation this period.
• Small startup group companies have missed earnings targets, requiring 540 million yen in impairment and provisions this period, and these businesses will require more time to reach profitability.
• The wholesale business faces operational risks including inventory management issues, delivery delays, and unfulfilled orders after very rapid growth, requiring a period of consolidation.
• Inbound tourism faces headwinds from visa policy changes that have increased Chinese visitor travel to China instead of Japan, putting pressure on tourism-related revenue.
• The company was below the Prime Market listing standard for circulating market capitalization as of August 2024, and is still waiting for formal exchange confirmation that it meets the standard as of August 2025.

Q: Why has Hito Communications won large global event contracts (like Osaka Expo, Rugby World Cup, Tokyo Olympics) that other firms rarely secure, and will this continue? / A: Management notes that deep industry expertise and a track record of successful execution are the core competitive advantages. The company's CEO has a long personal background in sports, and the firm built its reputation starting with the 2019 Rugby World Cup, where it handled almost all back-office operations. It has steadily added large event contracts one after another, with each successful execution building trust that leads to new opportunities. The company has already secured a contract to handle volunteer management for the upcoming Asian Games, so this growth trajectory will continue.

Q: Will growing inbound tourism benefit the airport ground handling business, and how will expansion to major airports change the business? / A: Management confirms inbound growth is a strong tailwind: global airlines (especially LCCs across Asia) have a continuous backlog of requests for landing slots in Japan, and foreign carrier ground handling is growing rapidly. With the 2030 target of 60 million annual visitors to Japan, more regional airports are expected to upgrade to international status, which will create more expansion opportunities for the company's ground handling business.

Q: Does investing in airport equipment mean the company is shifting its business model from human-centric outsourcing to asset-heavy operations, and what is the long-term group strategy? / A: Management explains the core mission remains outsourcing to solve customer problems, and there is no strategic shift. The company already had a large volume of non-restricted zone airport businesses (lounge operations, retail, bus operations) before entering ground handling. Integrating restricted and non-restricted zone operations into a one-stop service just improves efficiency for clients. Required equipment is often requested and ultimately paid for by client airlines, so this is just an extension of the existing outsourcing model, not a change in the company's core results-driven support business model.

Q: What synergies exist between group companies in the ground handling business, and how does the recent management change support this? / A: Management notes multiple cross-group synergies: the parent company handles all recruitment and training for ground handling staff (which requires 6+ months of training), leveraging the group's existing human resources expertise. The group's existing service business can take on additional service contracts requested by the ground handling subsidiary, and the digital arm BBF leverages the group's nationwide branch network to help small underperforming EC businesses improve sales, creating cross-group collaboration. All group businesses are intertwined, and the company is actively working to maximize these synergies.