CREO CO.,LTD. Q4 FY2025 earnings call

Mid-Term Management Plan (FY2024-FY2026) Framework

• Core strategic pillars are: expanding recurring stock-based business, strengthening human capital, enhancing group-wide synergies, and increasing strategic investment.
• Targets for the mid-term period: 18 billion yen in total revenue, 8.0% CAGR revenue growth, 1.5 billion yen in operating profit, and 8.3% operating profit margin.

Market Positioning and Segment Strategic Priorities

• Overall market trends: Steady IT investment continues, driven by widespread DX adoption, cloud service penetration, and growing AI utilization. Long-term structural challenges include labor shortages, especially for skilled technical workers, rising cyber security threats, and the need for specialized technical talent development.
  • Solution Service: Growing demand in the HR Tech market (driven by labor force decline and work style reform), with rising expectations for AI-powered HR efficiency tools. Key priority is expanding HR tech adjacent offerings, differentiating from competitors, and scaling data-driven DX consulting to improve customer experience.
  • Contracted Development: Key priority is upskilling engineers to leverage new development models including AI agents, and expanding customer channels beyond core clients.
  • System Operation & Service: Leverage long-standing operation monitoring expertise to capture growing client demand for cyber security services and strengthen order capture.
  • Support Service: Complete the transformation from labor-dependent service roles to cloud-focused engineering roles via reskilling, and expand the segment's addressable market.

Group Growth Strategy and Organizational Changes

• Growth is built on cross-segment cross-partner integration: acquire customers via Solution Service, drive cross-selling across the group and with external partners, convert new customers to repeat/loyal customers, and maximize customer value via the CDX integration platform.
• The CDX (CREO Integration Platform for DX) integrates cloud ERP, front-end DX services, and cloud BI tools to deliver end-to-end value and enable data-driven management visibility for clients.
• A new Group Strategy Promotion Office has been established to drive cross-group integration, build a sustainable business model, accelerate decision-making for product investment, AI R&D, and business/structural restructuring, aligned with VISION2030.

Human Capital Investment

• Prioritize upskilling and reskilling for next-generation cloud, DX, and AI-focused engineers, alongside leadership succession planning and group-wide talent rotation.
• Moving toward unified group-wide compensation structures, and increasing investment in training and education to develop skilled, market-competitive technical talent and improve employee engagement.

1. Solution Service Business: Revenue grew 7.4% year-over-year, with segment profit growing 23.5% year-over-year. Growth was driven by the shift from a license model to a usage-based cloud service model, which expanded recurring (stock-based) revenue. This is the company's core growth segment, with a planned 11.5% year-over-year revenue increase for FY2026, targeting double-digit growth.
2. Contracted Development Business: Segment profit decreased 7.6% year-over-year due to high-cost large projects in Q1 FY2025 that generated a 74 million yen loss. A 6.6% year-over-year revenue decrease is planned for FY2026, as resources are reallocated to strengthen Solution Service product development.
3. System Operation & Service Business: Revenue was broadly flat year-over-year. While orders from existing key clients (led by LINE Yahoo) declined slightly, new client acquisition (led by the PayPay Group) progressed. Operating profit increased due to improved utilization at nearshore locations.
4. Support Service Business: Revenue declined 4.7% year-over-year, and operating profit declined 15.9% year-over-year. The decline resulted from major clients' internal restructuring and in-sourcing initiatives that led to reduced orders and early termination of long-term projects. Approximately 10% of the segment's employees have completed reskilling to obtain cloud certifications, with a planned shift to cloud-focused business starting in FY2026.

Total consolidated revenue for FY2025 was 14.52 billion yen (up 1.2% YoY), operating profit was 1.13 billion yen (up 4.2% YoY), and net income was 690 million yen (down 2.9% YoY due to impairment charges).

• For FY2026 (ending March 2026), management guidance calls for 4% year-over-year revenue growth to 15.1 billion yen, 0.9% year-over-year operating profit growth to 1.14 billion yen, and 6.2% year-over-year net income growth to 740 million yen. This guidance is unchanged from prior mid-term plan projections.
• Management aims to achieve record-high operating profit, EBITDA, EPS, and dividend per share in FY2026. Profit growth is kept modest despite revenue growth to allow for increased product development investment to support future expansion of the Solution Service segment.
• Solution Service is targeted to deliver 11.5% year-over-year revenue growth (double-digit growth), while Contracted Development revenue is expected to decline 6.6% year-over-year as resources are reallocated to growth areas.
• A 9th consecutive year of dividend increases is planned, with a 52 yen per share dividend and a 54.4% payout ratio. Total shareholder return for FY2025 was 662 million yen (approximately 100% total payout ratio), including 248 million yen in share repurchases. FY2026 share repurchase plans are yet to be finalized, but will follow the mid-term management plan framework.

• Industry-wide structural risk: Ongoing labor shortages, especially for skilled technical workers with cloud, AI, and cyber security expertise, which constrains growth capacity.
• Segment-specific risks:
  • Solution Service faces pressure to differentiate its offerings from competitors and scale data-driven customer value added services to meet growing market expectations.
  • Contracted Development faces risk from a shortage of engineers skilled in AI and new development methodologies, which could hurt competitiveness.
  • Support Service faces ongoing demand decline as major clients pursue internal restructuring and in-sourcing, requiring costly reskilling and business model transformation.
  • System Operation & Service faces gradually declining orders from long-term core clients, requiring successful new client acquisition to offset losses.
• A specific operational risk occurred in FY2025: Q1 high-cost overruns on a large contracted development project generated a 74 million yen loss, reducing full year segment profit.

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