4812.T

• Overall 2025 Performance

  • Dentsu Soken delivered 10 consecutive years of revenue growth, and 8 consecutive years of record-high operating and net profit, driven by the Business Solutions and Communication IT segments. Operating profit was broadly in line with forecasts despite missing revenue targets, thanks to gross margin improvements and selling, general and administrative (SG&A) expense control. Ordinary profit and net profit exceeded plan.
  • Order performance was strong: Q4 2025 orders grew 19.4% year-over-year centered on Business Solutions, and full-year 2025 orders grew 14.3% year-over-year. End-of-period order backlog grew 27.5% year-over-year across all segments, creating a strong foundation for 2026 performance.
  • ROE remained at a strong 17.1%, well above the cost of capital despite a 0.3 percentage point decline year-over-year. Headcount grew 4.6% year-over-year, below hiring plan, as the company prioritized existing employee growth and utilization optimization, with no operational constraints as younger hires have increasingly become productive.
  • The company will increase year-end dividend by 4 yen per share from the initial forecast, bringing full-year 2025 dividend to 120 yen per share (12 yen higher year-over-year), marking 13 consecutive years of dividend increases with a payout ratio of 47.7%.
  • 2025 was the first year of the medium-term management plan. While the company missed the initial full-year plan, it has steadily returned to a growth track. The organizational reform from a division system to a unified headquarter system integrating sales and technology has increased employee alignment on customer value propositions and priority resource allocation, expanding business opportunities.

• 2026 Key Strategic Priorities

  • 1. Productivity doubling reform for the software product business: The company targets cutting product implementation lead time in half by applying AI across all processes from requirement definition through testing for large implementations, which will double the number of implementations per period. It will also apply 100% AI-driven development to all new product development to improve both speed and quality. The combined goal is to increase the software product business growth rate to 19.5%, and targets 75 billion yen in software product revenue by 2030 as part of the 300 billion yen total revenue target for 2030.
  • 1. Definition of a new data and AI-driven product development process: To capitalize on shifting manufacturing needs amid electrification, software-defined products, stricter regulations, and intensifying global competition, the company is partnering with Fraunhofer IEM (a leading European applied research institute) to co-develop a new AI-native product design and development process model and digital platform. The goal is to enable real-time reflection of market data in development to deliver new customer value faster, minimize product development lead time, and offer this solution to manufacturing customers centered on the automotive industry. Management is confident in the long-term potential of the manufacturing solution business despite near-term sluggish growth.
  • 1. Strengthen financial industry solutions and enter the programmable payment market: Amid rising interest rates and growing digital currency adoption, the company will strengthen its core product BANK・R to improve support for financial institutions' core operations. It has formed an exclusive partnership with UK-based fintech Quant Network to enter the programmable payment market, leveraging the unique capability of digital currencies to program payment conditions and execution. In the future, the company plans to integrate programmable payment functionality with its existing Ci*X and POSITIVE solutions to deliver cross-segment solutions that address management challenges for both financial institutions and non-financial corporates in areas like digital payroll and inter-company payments.

• Corporate Initiatives

  • The company announced it will expand office space by adding a new office in Torch Tower (under construction in Otemachi, Tokyo) in 2028, when the final medium-term plan targeting 300 billion yen revenue begins. This expansion accommodates continued headcount growth, strengthens customer engagement, and enhances brand visibility, and has already improved employee morale.

• Full-year 2026 (ending December 2026) targets over 10% growth for both revenue and operating profit: it forecasts total consolidated revenue of 182.0 billion yen, operating profit of 25.5 billion yen, ordinary profit of 26.1 billion yen, and net profit attributable to parent company shareholders of 18.0 billion yen.
• The 2026 plan reflects large-scale strategic investments to develop proprietary solutions and services, while pursuing strong growth. Headcount is planned to increase 6.1% year-over-year, continuing the company's strategy of selective hiring of high-quality talent.
• Following a stock split implemented January 1, 2026, the full-year 2026 dividend forecast is 45 yen per post-split share, a 5 yen per share increase year-over-year on a post-split basis, with an expected payout ratio of 48.8%.
• Operating profit is targeted to increase 2.61 billion yen year-over-year. The breakdown is: +6.27 billion yen from revenue growth, +0.65 billion yen from gross margin improvement, and -4.31 billion yen from increased SG&A. The company targets a 0.4 percentage point improvement in gross margin to 37.0%, driven by revenue growth and improved profitability from software products and contracted system development. SG&A is planned to increase primarily for research and development, personnel/recruiting costs, and outsourcing expenses.
• By segment: Management expects stable growth from the previously strong Business Solutions and Communication IT segments, and a full recovery for Financial Solutions. Manufacturing Solutions is expected to carry some of its prior weakness into the first half of 2026, but the company targets revenue and profit growth across all segments for the full 2026 fiscal year.
• By service category: The company expects growth across all service categories, centered on software products in Business Solutions and contracted system development in Financial Solutions.
• First half 2026 forecast: Revenue of 87.0 billion yen, operating profit of 12.0 billion yen. This represents 47.8% of full-year revenue and 47.1% of full-year operating profit, a slightly more conservative progress rate than historical levels, reflecting the expectation that Manufacturing Solutions will remain weak in the first half.
• The company expects Business Solutions and Communication IT to start the year strongly, carrying forward 2025's momentum. Financial Solutions has a strong end-2025 order backlog that will be reflected in first half 2026 revenue, so recovery is highly likely. Manufacturing Solutions is expected to be somewhat soft in the first half due to lingering SAP reactionary decline, but is expected to recover in the second half as new ALM, PLM, and AI-related projects ramp up.

1. Financial Solutions: Achieved revenue and profit growth, driven by expanding contracted system development projects for megabanks and trust banks, and growing BANK・R implementation projects for government-affiliated financial institutions and major credit unions amid a recovery in IT investment from financial institutions. It missed full-year revenue targets despite strong Q4 sales growth.
2. Business Solutions: Achieved significant revenue and profit growth, driven by expanding STRAVIS implementation projects centered on trading companies, and expanding POSITIVE implementation projects for the electric/gas industry and retail industry. It exceeded the full-year revenue plan.
3. Manufacturing Solutions: Achieved revenue growth driven by expanding CAE and PLM sales for the transportation equipment industry that offset a decline in SAP-related business. It recorded a profit decline due to a reduction in high-margin software development projects and increasing personnel costs. It missed the full-year revenue plan, as SAP-related weakness persisted longer than expected and some customers implemented investment restrictions amid impacts like semiconductor shipment suspensions. In Q4 2025, it recorded both revenue and profit decline due to continued SAP reactionary decline and insufficient new projects.
4. Communication IT: Achieved revenue and profit growth, driven by expanding business for the public sector and Dentsu Group, plus contributions from the acquired Mitsue-Links. It exceeded the full-year revenue plan.

By service category: Contracted system development, software products, outsourcing, and information equipment all recorded double-digit growth. Consulting services and software products underperformed and missed revenue forecasts: consulting services was impacted by investment restrictions from some customers centered on the transportation equipment industry, while software products saw continued weakness in Oracle and SAP business after large project completion and underperformance in the engineering segment. Revenue from Dentsu Group and its subsidiaries grew due to expanding business with the Dentsu Group.

Full-year 2025 total consolidated revenue was 164.8 billion yen, an 8.0% increase year-over-year, 3.1 billion yen below the revised forecast. Full-year operating profit was 22.88 billion yen, an 8.8% increase year-over-year, 0.11 billion yen below the revised forecast, roughly in line with expectations. Q4 2025 consolidated revenue grew 8.2% year-over-year, and operating profit grew 0.5% year-over-year to 6.61 billion yen.

• Manufacturing Solutions has faced extended weakness in SAP-related business, and some manufacturing customers have implemented investment restrictions due to impacts such as semiconductor shipment suspensions, leading to Manufacturing Solutions missing its 2025 revenue and profit targets, with weakness expected to persist into the first half of 2026.
• Consulting services and software products underperformed 2025 forecasts due to customer investment restrictions, with some delayed projects shifting into 2026.
• Intensifying global competition in manufacturing, particularly from Chinese firms in advanced sectors like automotive and semiconductors, creates pressure on Japanese manufacturing customers that may impact their IT investment spending.
• There is broad market concern that system integration work will be displaced by AI, which could create near-term uncertainty for customer investment decisions.

Q: Why were consulting service sales and orders weak in Q4, and what is the current demand environment?

A: Weakness was concentrated in the Manufacturing Solutions segment, driven by temporary investment restrictions from some companies centered on the transportation equipment industry, due to factors including semiconductor supply constraints. However, there is no shortage of project inquiries, and the investment restrictions are temporary, with project timelines simply shifted into the 2026 fiscal year. The company is seeing strong demand across engineering, accounting, marketing, and AI application areas.

Q: Why is the 2026 gross margin target set at 37.0%? Could this margin be higher than forecast?

A: The company projects a 0.4 percentage point improvement year-over-year, driven by revenue growth and improved profitability from contracted system development and software products. While AI-driven development is being expanded further in 2026, the company has taken a conservative approach to estimating the profitability impact from this initiative in the 2026 plan.

Q: What explains the large 4.3 billion yen planned increase in SG&A for 2026?

A: The increase is primarily driven by large-scale research and development investments, most notably the joint development of manufacturing solutions with Fraunhofer IEM, plus higher personnel costs associated with planned headcount growth.

Q: Can the company secure enough personnel resources to support its expanded research and development investments while maintaining strong core business operations?

A: Personnel resources for these strategic growth investments have already been secured as part of intentional management planning for long-term growth.

Q: Can you share the 2026 segment outlook including first half/second half balance based on the current order backlog?

A: Business Solutions and Communication IT are expected to start 2026 strongly, continuing 2025's good performance. Financial Solutions has a high end-2025 order backlog that will flow into first half 2026 revenue, so the recovery has high certainty. Manufacturing Solutions is expected to be soft in the first half due to lingering SAP reactionary decline, but is expected to recover in the second half as ALM, PLM, and AI-related projects ramp up.

Q: How does the company envision its programmable payments business model?

A: The core value proposition of programmable payments is the ability to program payment conditions and execution, in addition to simple value transfer, which the company will add to its existing solution portfolio to create unique added value. In the future, the company plans to integrate this capability with existing products such as Ci*X (cash management) and POSITIVE (payroll functionality) to offer combined solutions to financial institutions and non-financial corporates.

Q: What is the expected relocation cost for the Torch Tower office expansion?

A: Lease costs will begin in 2028, but the company does not disclose this information at present. The Torch Tower project is an office expansion that keeps the existing Shinagawa headquarters, so it does not require a very large increase in costs. Any additional costs will be absorbed by future business growth.

Q: What is the company's perspective on widespread market concern that AI will displace SIer work?

A: The company recognizes that the spread of generative AI has created structural concern across the IT industry that specialized work will be replaced by AI. However, the company believes that while AI can automate individual task processing, it cannot end-to-end autonomously complete all required work including enterprise governance, existing data preparation, and integration with legacy systems. Going forward, IT investment will shift from traditional efficiency improvements to rearchitecting business workflows around AI, and designing which tasks are assigned to AI and which require human judgment is an area where the company's existing strengths are highly valuable. For this reason, AI does not erode the company's added value, and instead increases the value the company can provide.