4434.T

Overall Business Overview

• The first year of the medium-term management plan missed targets due to unprofitable projects at both Serverworks and G-gen, but underlying market demand remains strong and the business foundation is stable.
• The company expects to return to profit growth quickly after resolving issues from unprofitable projects.

Strategic Collaboration & Partnerships

• The Strategic Collaboration Agreement (SCA) with AWS is progressing well, with all KPIs on track and discussions for SCA 2.0 renewal already underway. The SCA has accelerated new project acquisition, and AWS' "Partner Everywhere" strategy is expected to continue supporting long-term growth.
• A formal reseller agreement was signed with Anthropic to offer Claude generative AI services via AWS, and the company earned the high-difficulty AWS AI Competency (Generative AI category) certification.

Strategic Updates

• AI Strategy: Generative AI is viewed as a major growth driver, not a substitution risk. Corporate adoption of generative AI requires data aggregation on cloud platforms (predominantly AWS), and the shift from SaaS to custom generative AI applications will further increase cloud consumption. The company is already running pilot projects for this trend.
• Resale Strategy Shift: Changed the strategic goal from improving profit margins to increasing absolute profit. To capture long-term generative AI-driven growth, the company will prioritize market share expansion via strategic pricing over near-term margin gains.
• Security Strategy: Established Serverworks Smart Operations to integrate SOC and NOC capabilities, building a 24/365 in-house network and security operation framework. Earned AWS MSSP Competency and strengthened partnership with CrowdStrike to expand market presence.
• Overseas Expansion: Launched a Bangkok base in partnership with IIJ Global Solutions, and plans to hire local sales staff in FY2027.

Financial & Shareholder Strategy

• Executed 1.1 billion yen in share buybacks in FY2026, and initiated direct shareholder returns with an inaugural dividend policy announced in October 2025. Shareholder returns are a top priority going forward.
• Pursues ROE improvement by balancing working capital and growth investment, and has initiated reviews of treasury stock holdings and policy-owned shares.

• For FY2027 (February 2027), the company guides consolidated revenue of 47.184 billion yen, operating profit of 1.31 billion yen, and ordinary income of 1.398 billion yen.
• The guidance uses an average exchange rate of 150.22 yen/USD, compared to 152.75 yen/USD used in the original medium-term plan. The stronger yen creates downward pressure on revenue and gross profit, but cost control of selling, general and administrative expenses will keep ordinary income near the originally planned level.
• No large changes to the overall medium-term management strategy, but tactical adjustments have been made to prioritize market share expansion to maximize long-term generative AI revenue.
• The company will not update the FY2028 (February 2028) target at this time due to high uncertainty around the pace of generative AI development and its market impact, and will release an update once visibility improves. The FY2029 and beyond plan will also be updated at an appropriate future timing.
• Prime market listing remains a goal, and the company will carefully evaluate and wait for the optimal timing to demonstrate sustained growth and corporate value to the market.

1. Cloud Integration (Serverworks standalone): Operating profit of 937 million yen, down 17.1% YoY due to the impact of a large unprofitable project. The negative impact of the unprofitable project limited overall sales growth, but average projects per enterprise customer grew steadily as enterprise order volume increased.
2. Cloud Integration (G-gen subsidiary): Operating loss of 239 million yen due to unprofitable projects, including a total 484 million yen gross profit loss from these projects. This led to full goodwill impairment for G-gen in the period.
3. Resale: AWS account count grew steadily, ARPU was well controlled, and AWS usage revenue grew steadily in USD terms even after absorbing a 1.5 billion yen large customer cancellation in Q1. Resale and MSP segments offset the sales slowdown from cloud integration's unprofitable projects. Overall consolidated: Total revenue of 40.006 billion yen, up 12.0% YoY; consolidated operating profit of 625 million yen, down 41.7% YoY; net loss of 600 million yen.

• Unprofitable projects at both Serverworks and G-gen led to a large year-over-year decline in operating profit, a consolidated net loss, and full goodwill impairment for G-gen.
• A 1.5 billion yen large customer cancellation at the start of FY2026 created significant early-period headwinds for revenue.
• Yen appreciation created a negative impact of approximately 600 million yen on operating profit and 6 billion yen on revenue relative to plan.
• G-gen's unprofitable project is not expected to be fully completed until fall 2026, and still carries unresolved uncertainty despite completed loss provisioning.
• Exchange rate volatility remains an ongoing uncertainty for business performance.

Q: What is the current status of unprofitable/loss projects, and what new risk mitigation measures are in place?

A: The unprofitable project at Serverworks standalone is nearly complete. G-gen's unprofitable project is targeted for completion by fall 2026, and while results are still uncertain, all required loss provisions were already booked in FY2026, so additional impact on FY2027 performance is expected to be minor. The company is building new risk management systems that use generative AI to review proposals for risk before client submission, and to track project progress in real time to address issues early before losses grow.

Q: What is the company's top priority for FY2027?

A: The top priority is capturing market share in the fast-growing generative AI market to maximize long-term AI revenue. Generative AI is creating massive new demand for cloud infrastructure, and the company's existing partnerships with AWS and Anthropic, plus its industry expertise, position it well to gain share in this high-growth segment, which will drive profit growth over the medium term.

Q: How is the overseas expansion with IIJ Global Solutions progressing?

A: The partnership is on track: the Bangkok base was launched in FY2026, and the next step is to hire local sales staff to build out on-the-ground operations in the new market, aligned with the company's medium-term overseas expansion roadmap. The partnership with IIJ Global Solutions provides foundational support for the company's regional growth plans.

Q: What impact will the government cloud opportunity have on performance?

A: (Transcript does not include management's full answer to this question, but the topic is highlighted as a key industry growth opportunity aligned with the company's cloud-focused business strategy.)