Nihon Enterprise Co.,Ltd. Q2 FY2025 earnings call

External Business Environment

• Domestic DX market is projected to grow to over 8 trillion yen by 2030, as population decline increases demand for IT-driven efficiency and sustainability.

Creation Business Operational Updates

• Content Services:
  • Launched the professional ATIS Traffic Information app at Toyota Motor Corporation's Tokyo headquarters
  • Launched new English education subscription content Speak Lab for Sugotoku
  • Improved existing subscription sites BOOKSMART and Lucky Station and increased advertising investment
  • Strategy focuses on expanding the subscription (monthly fixed-rate) model, with interim period preparation to accelerate growth in the second half
• Business Support Services:
  • Kitting-One, an RPA tool for automating smartphone/PC device setup, continues to expand service and distribution; rollout is slightly behind initial plan but large untapped demand remains
  • Expanded traffic information service to Ryukyu Broadcasting starting November 2024, targeting active expansion to ~300 radio stations nationwide; growing inquiry volume driven by increased demand after recent natural disasters
  • Expanding IP-PBX internet-based phone services via strengthening partnerships with existing carriers and acquiring new partners, including expanding OEM offerings
  • Launched the Nihon Open Market, an open-type procurement support service for small and medium-sized enterprises (complementing the existing closed-type ProFair service), which allows pay-per-use starting from 1 project; plans to intensify go-to-market activities in the second half
• Renewable Energy:
  • Operating a utility-scale solar power plant in Yamaguchi with ongoing revenue from power sales; long-term strategy includes developing new regional revitalization services combining power generation and technical capabilities

Solution Business Operational Updates

• System Development Services:
  • Leverages in-house content development expertise to accept diverse development projects, with involvement from planning/consulting through delivery and operation; focuses on growing recurring, long-term stock-type revenue rather than one-time subcontract work, targeting deeper penetration with existing clients and new client acquisition
• Business Support Services:
  • Specializes in high-skilled IT talent support centered on major telecom carriers, with continuously strong market demand amid broad industry IT talent shortages; invests in talent training and expands sales to new client segments, offering tailored needs-aligned support rather than simple staffing
• Other Services:
  • Focuses on used terminal buying, refurbishment, and resale, including certified data erasure; sees long-term growth driven by expanding secondary device markets and industry-wide terminal shortages, and plans to continue investment in this segment

Cross-Segment Capabilities

• Core legacy capability is providing content to telecom carrier platforms via subscription models, which has enabled expansion into enterprise solutions; strategy emphasizes leveraging end-to-end consulting through operation capabilities to support client platform growth and strengthen long-term partnerships

Overall consolidated net sales for the interim period was 2.154 billion yen, a 2.2% decrease year-over-year. Operating profit was 12 million yen, an 89.5% decrease year-over-year; ordinary profit was 27 million yen, a 79.2% decrease; and net profit attributable to parent company shareholders was a net loss of 8 million yen.

1. Creation Business: Total net sales of 835 million yen, +4.7% YoY, accounting for 38.8% of total consolidated revenue:

   • Content Services: 496 million yen, +10.5% YoY, driven by strong growth in fixed-rate subscription content
   • Business Support Services: 306 million yen, -3.4% YoY; higher-margin kitting support tool sales and traffic information increased, but lower-margin kitting project contracting was delayed, leading to an overall decline
   • Renewable Energy: 32 million yen, +1.6% YoY; this is the solar power generation business in Ube, Yamaguchi, with a slight increase due to good weather

2. Solution Business: Total net sales of 1.318 billion yen, -6.1% YoY, accounting for 61.2% of total consolidated revenue:

   • System Development Services: 944 million yen, -11.1% YoY; while demand for DX promotion remains strong and SES and operation maintenance increased, a decline came from the completion of a cycle of large contracted and lab-based development projects
   • Business Support Services: 337 million yen, +31.7% YoY, driven by strong growth in high-skilled IT talent support services for client DX promotion
   • Other Services: 35 million yen, -57.7% YoY; while glass coating agent sales grew, the loss of prior-year special demand for solution-related equipment product sales led to an overall decline

• Management maintains the original full-year FY2025 May consolidated earnings guidance, with no upward or downward revision: full-year net sales target of 5.31 billion yen, operating profit target of 295 million yen, and ordinary profit target of 300 million yen
• The 3 yen per share full-year dividend guidance is also maintained, with a planned payout ratio of 62.5%; the company's core policy is stable dividends, with plans to increase dividends gradually alongside long-term earnings growth
• Management justifies maintaining guidance based on: strong ongoing performance of fixed-rate subscription content, newly launched content titles, and expected expansion of existing services starting in the second half; expected steady expansion of kitting support distribution in the second half; and expected continued strong growth of business support services within the solution business, with new project acquisition expected in the seasonally stronger second half

• The business has a pronounced second-half weighted revenue and profit trend, which led to weaker-than-expected interim profit performance despite the full-year plan remaining on track
• Kitting support tool rollout in the business support service segment is slightly behind original plans
• Large contracted development projects in the system development service segment completed their cycle in the interim period, leading to a near-term revenue decline despite sustained long-term demand
• Lower-margin kitting contracting demand has been delayed, dragging down business support service interim revenue

The provided transcript does not include a disclosed question and answer section.