YAMADA Consulting Group Co.,Ltd. Q2 FY2026 earnings call

Consolidated Financial Results

• The company achieved a record high first half consolidated revenue of 13.367 billion yen. However, gross profit, operating profit (2.09 billion yen, down 0.807 billion yen year-over-year), ordinary profit, and net profit all declined year-over-year. This decline is primarily driven by the absence of 0.7 billion yen in concentrated first half revenue from subsidiary Pinnacle, which was recorded in the prior year period, plus a 0.398 billion yen increase in SG&A (driven by higher personnel costs from 8% average salary increases and 140 new mid-period hires).
• All key profit metrics have a year-to-date progress rate above 50% against the full-year forecast, so management judges overall performance to be on track. The company has also successfully reduced the historic first-half/second-half revenue skew, with first half and second half revenues now nearly balanced after three years of corrective actions.

Cash and Capital Management

• Operating cash flow was positive 0.473 billion yen. A 0.473 billion yen outlay for security deposit for the planned 2028 head office relocation pushed investment cash flow negative. The company raised 3.992 billion yen from financial institutions, then repaid 1 billion yen in early October, leaving current outstanding borrowings at approximately 3 billion yen. Total cash and cash equivalents at interim end were 10.256 billion yen, with 4 billion yen held across dispersed subsidiary entities; management identifies repatriating this cash to the parent for productive investment as a key priority.

Human Resource Strategy

• Total headcount (including overseas) reached 1,144, up 77 year-over-year. 140 new hires joined in the first half, with 63 total departures. A core challenge is higher turnover at overseas subsidiaries, while domestic turnover remains low at 36 departures from 111 new domestic hires.
• Management has implemented multi-pronged retention initiatives aligned with Maslow's hierarchy of needs: these include 100 hours of annual skill development for managers, bi-yearly 2-year cycle 3-person group all-employee meetings with the CEO (now extended to Singapore local staff), 32 company-sponsored club activities for cross-department connection, and flexible work policies including remote work, flextime, and reduced-hour work available until the end of 6th grade of elementary school (far longer than most peer firms). These initiatives have already reduced annual full-time departures from 38 to 23, driven by large drops in early separation for employees with less than 3 years tenure.

Internal Collaboration and Growth Initiatives

• Management is prioritizing reducing the capability gap between the Tokyo hub and regional/overseas locations through strengthened inter-office collaboration, to uniform service quality across all offices.
• The company's overseas business, launched 10 years ago with 10+ fully owned regional locations, is expected to reach break-even for this full fiscal year, with profit contribution targeted starting next fiscal year. Developing local employee capability to support client cross-border expansion is a key priority.

1. Consulting Business: Revenue of 9.647 billion yen, gross profit of 8.68 billion yen, operating profit of 1.107 billion yen. It accounts for 72.2% of total consolidated revenue. Within this segment, the breakdown of gross profit by sub-segment is: Management Consulting 3.481 billion yen, M&A Advisory 3.846 billion yen, Business Succession Consulting 0.843 billion yen, Real Estate Consulting 0.509 billion yen. M&A Advisory is the largest contributor to gross profit within consulting.
2. Investment Business: This segment is performing well, with a total investment balance of 8.8 billion yen as of the interim period. It is broken into two sub-segments: Unlisted Equity Investment has a balance of 7.36 billion yen, while Real Estate Investment has a balance of 1.53 billion yen. Starting this fiscal year, real estate investment exits have begun contributing to segment earnings.

• The full-year 2.93 billion yen operating profit forecast for the consulting business is maintained, as Pinnacle and other overseas subsidiaries are expected to recover full-year performance to offset first half red ink.
• The investment business targets maintaining investment balance while delivering steady earnings, with management expecting long-term performance around the 1 billion yen-plus level.
• The company maintains its 50% payout progressive dividend policy, with an interim dividend of 38 yen per share and planned year-end dividend of 39 yen per share for this fiscal year.
• Investment business will target growing total investment balance towards 10 billion yen, while always prioritizing financial soundness. The company expects to exceed the 10 billion yen target over time.

• Higher turnover at overseas subsidiaries requires additional retention effort, and remains a core operational risk.
• Capability gaps between the Tokyo office and regional/overseas locations are a persistent long-term challenge that risks uniform service quality and client satisfaction.
• Real estate investment carries higher risk than unlisted equity investment, requiring strict risk controls as the company scales this segment.
• If the company fails to shift consultant focus from routine work to high-value client advisory, it faces the risk of being displaced by AI automation in routine research and documentation tasks.

Q: Will the company continue expanding headcount after the strong first half hiring, and what is management's view on AI substitution of consultant work?

A: Management is actively testing AI to improve efficiency and service quality, and expects AI will reach meaningful capability levels within 5-10 years. The company shares a collective sense of urgency that routine due diligence and research work will lose value, so it is shifting all consultants to focus on high-value advisory support for clients' difficult strategic decisions. Hiring will continue to focus on high-quality candidates rather than volume, and full-year annual hiring is expected to be in line with last year, with slower hiring in the second half.

Q: What is Pinnacle's full-year revenue target, and will it resolve its first half deficit this year?

A: Pinnacle's full-year revenue target is 0.45 billion yen, down from 1 billion yen last year. Last year's high revenue was driven by a one-time large long-gestating M&A deal closing, and Pinnacle's historical normal revenue range is 0.3-0.5 billion yen. Management confirms that Pinnacle is on track to hit the 0.45 billion yen target and eliminate its first half deficit by the end of the full fiscal year.

Q: What is the maximum planned investment balance for the investment business, and how much additional capacity does the company have given current outstanding borrowings?

A: The company has an initial target of 10 billion yen for total investment business balance, and expects to exceed this level over time. With current outstanding borrowings at around 3 billion yen, the company has approximately 7 billion yen in additional investment capacity available. All investment decisions will be made cautiously, with case-by-case review of deal size and quality, while maintaining financial health as the top priority.