Tokio Marine & Nichido Alliance Already Delivering 100 Referrals; Mid-Sized Enterprise Transformation Consulting Up 112.0% Emerges as New Growth Driver

Summary

1H FY12/2026 revenue came in at JPY 16,825M (+4.9%) with operating income of JPY 4,736M (+1.1%), both record highs for a first half. The company absorbed office investment tied to the Osaka headquarters relocation as well as human capital investment, securing 52.0% progress against the full-year operating income plan. On the call, management disclosed that the capital and business alliance with Tokio Marine & Nichido Fire Insurance, signed in July, has already generated roughly 100 consulting referrals, and that consultant attrition improved from 9.9% to 7.5%. Revenue fell 3.9% short of the company plan, which management attributed to three factors: sluggish growth in small-scale markets such as professional services firms, the strategic downsizing of 3PL/BPO, and weakness in the HR advertising agency business.

Key Points (Results Highlights and Growth Actions)

• Management Strategy and Market View
  • The medium-term management plan (2026-2028) targets FY2028 revenue of JPY 46.0B, operating income of JPY 11.5B, and ROE of 30%.
  • Growth is broken down into core businesses (monthly retainer support and management study groups) +5-10%, priority areas +15-20%, and M&A +10-15%.
  • Management views AI adoption by client companies as fundamentally positive. For mid-sized and SME clients, AI is a first-time initiative, and the overwhelming majority of inquiries seek case studies and information.
  • Risk of AI displacing consulting is judged limited. Management sees value creation in walking alongside owner-managers to validate and operationalize the direction they have already set.
• Recent Business Progress and Drivers
  • Standalone 2Q (Apr-Jun) revenue rose 7.4% with operating income up 10.9%, a double-digit gain, recovering from a soft 1Q start.
  • The revenue shortfall versus plan stemmed from three areas: industries with small company sizes and limited market growth such as professional services firms; the strategic downsizing of the 3PL/BPO business; and the advertising agency business within Human Capital Consulting.
  • Manufacturing +43.0% and distribution/retail +41.4%. Distribution/retail benefited from the client bases of ApparelWeb and Logi Create.
  • Revenue per employee fell 2.3% and operating income per employee fell 5.8%, driven by aggressive consultant hiring and Osaka headquarters relocation costs. Management notes both are up versus two years ago and expects improvement in the near term.
• Key Strategic Initiatives and Inflection Points
  • The capital and business alliance with Tokio Marine & Nichido is already operational, with roughly 100 project referrals received. Tokio Marine's client base aligns closely with the target segment for mid-sized enterprise transformation consulting.
  • M&A revenue rose 128.4%. The team numbers 70-80 including staff with dual roles, closing roughly 20 deals per half. Organizational build-out and division of labor have improved capacity for larger deals, and the service has expanded from a third-party sale focus to business succession more broadly.
  • The company agreed to establish Funai Soken JAIC Capital as a joint venture with Japan Asia Investment. It plans to launch a first fund of JPY 2-3B targeting the mobility sector.
  • MTUS joined the group, strengthening workplace consulting. This is the second group addition this fiscal year following Logi Create.

Outlook and Strategy

• Full-year guidance is unchanged at revenue of JPY 37,000M (+11.0%) and operating income of JPY 9,100M (+3.3%). Operating income progress of 52.0% is in line with 52.6% a year ago, tracking well toward the target.
• Mid-sized enterprise transformation consulting (JPY 10B-scale company transformation, M&A, subsidies) generated JPY 1,408M (+112.0%) in 1H. Management describes this as a new growth driver with solid traction.
• In IPO support, the company obtained advisor qualification for the Sapporo Pro Market following Tokyo and Fukuoka, completing nationwide coverage. Joint JPY 10B-scale company transformation seminars with regional banks (CCI Group, Fukui Bank, 77 Bank, etc.) are also expanding.
• The AI Management Forum serves as an entry point leading into company-specific AI consulting. Implementation cases are emerging, including a live rollout of advertising review AI at Marunouchi Soleil Law Office.
• On shareholder returns, the annual dividend is set at JPY 48 (+JPY 5.5), marking a planned 16th consecutive year of increases. Policy is a total return ratio of 65%+ and a payout ratio of 60%+.
• Fixed costs will rise roughly JPY 600M annually in 2026 due to the Osaka headquarters relocation. From 2027 onward, the company plans to return to operating income growth in the 12% range.

Positive Factors

• Recurring revenue is expanding. Monthly retainer support reached JPY 9,367M (+9.9%) and management study group fees JPY 1,674M (+8.2%).
• Unit prices continue to rise. Monthly retainer support pricing was JPY 288,753 per month (+6.2%) and management study group pricing JPY 31,025 per month (+4.9%), both near record levels.
• Consultant attrition improved to 7.5% from 9.9% a year earlier. New graduate hiring reached 163 by April, in line with 161 last year.
• Roughly 100 referrals have already been received from Tokio Marine & Nichido.
• Management study group membership hit a record 8,300 (+4.8%). Seminars held rose to 910 (+10.4%), broadening the top of the client acquisition funnel.
• With an equity ratio of 78.0% and 1H operating cash flow of JPY 2,853M, the balance sheet remains healthy, preserving capacity for M&A and fund investments.

Concerns and Risks

• Revenue progress of 45.5% trails last year's 48.6%, requiring a second-half catch-up against the JPY 37.0B full-year revenue plan.
• Cross-sell and BPO areas are contracting: logistics BPO -31.0%, ad operations -2.9%, and projects -4.2%. The logistics BPO decline is policy-driven, but the revenue erosion continues.
• Some verticals declined, with restaurants/food down 54.2% and professional services firms down 3.3%. Sluggish growth in small-scale markets such as professional services is weighing on top-line growth.
• Seminar attendees fell to 11,972 (-3.5%) and the number of management study groups to 198 (-4.3%), both below year-ago levels on a volume basis.
• If productivity per employee continues to decline, headcount growth (employees +7.4%) could pressure margins.
• M&A revenue is sensitive to the timing of large deal closings and can drive quarterly earnings volatility.

Performance Highlights

1H revenue was JPY 16,825M (+4.9% YoY) with operating income of JPY 4,736M (+1.1% YoY), record highs for a first half on both lines. Versus guidance, revenue came in 3.9% below plan while operating income was 0.8% above and recurring profit 4.3% above, with profits exceeding plan. Interim net income attributable to owners of parent of JPY 3,218M (+94.9%) reflects the base effect of a JPY 2,155M extraordinary loss booked a year earlier on the sale of the Gotanda office.

Segment Results *From this fiscal year, operations have been consolidated into a single Management Consulting segment. Below are revenues by main service category (operating income is not disclosed by category).

• Employees: 1,793 (+7.4% YoY)
• Consultant headcount: 1,195 (+7.6% YoY), consultant ratio 66.6% (+0.1pt)
• Revenue per employee: JPY 9,383K (-2.3% YoY)
• Operating income per employee: JPY 2,641K (-5.8% YoY)
• Management study group members: 8,300 (+4.8% YoY), number of groups 198 (-4.3% YoY)
• Management seminars held: 910 (+10.4% YoY), attendees 11,972 (-3.5% YoY)
• Monthly retainer consulting price per month: JPY 288,753 (+6.2% YoY)
• Management study group price per month: JPY 31,025 (+4.9% YoY)
• Mid-sized enterprise transformation consulting revenue: JPY 1,408M (+112.0% YoY)
• Equity ratio: 78.0%

Q&A List

• Q: Could you explain why revenue is running slightly behind the company plan?
  A: First, within the operating companies, at Funai Soken itself, industries where the market is not growing much and where company sizes tend to be small — professional services firms, for example — are showing fairly tough growth. Beyond that, at what was Funai Soken Logi through last year, now renamed Funai Soken Supply Chain Consulting, the 3PL and BPO businesses have proven difficult to generate synergies with consulting and profitability has been challenging, so we are strategically shrinking them. In addition, at Funai Soken Human Capital Consulting, formerly HRForce, the advertising agency business is also struggling somewhat. These are the main factors. The core consulting business is performing relatively solidly, and within that, consulting aimed at mid-sized enterprises and M&A support are growing substantially, as explained earlier. That said, we see the weaker revenue growth in these structurally challenged themes as one reason for the shortfall.
• Q: Any change in hiring progress or attrition trends?
  A: On attrition, consultant turnover was 9.9% in the same period last year and has improved significantly to 7.5%. As a result, both total headcount and consultant headcount are up year on year. On new graduates, we hired roughly 162 new graduate consultants over the full year last year, and we have already hired essentially the same number, 163, by April this year. Retention has improved and new graduate hiring is on par with last year. For mid-career hiring, we are moderating the pace slightly; last year we hired 90 mid-career professionals over the full year, and this year it will likely be in the 70-80 range. In any case, please understand that both attrition and hiring conditions remain favorable versus last year.
• Q: What synergies do you expect from the capital and business alliance with Tokio Marine & Nichido Fire Insurance?
  A: The alliance has already started, and we have received roughly 100 consulting project referrals to date. Tokio Marine & Nichido has a deep client base with many high-quality clients, so we believe these referrals carry significant impact. We are also working to expand consulting for mid-sized enterprises and mid-sized enterprise transformation, and Tokio Marine's client base is a precise fit for that target, making these referrals especially valuable. Going forward we also intend to jointly develop services and propose them to each other's clients, so we expect fairly direct and near-term synergies.
• Q: Revenue and operating income per employee are declining. What is your outlook?
  A: Profit this year is below last year partly due to temporary factors such as the Osaka office investment, but even so it is up versus two years ago. We therefore expect both revenue and profit per employee to improve in the fairly near future.
• Q: Is the recent acceleration in AI adoption among client companies a positive for you, or is it having a negative impact in some areas?
  A: For mid-sized and small companies, AI is still a first-time initiative, and the overwhelming majority of cases involve clients coming to us wanting more information and case studies. In that sense it is fundamentally positive. There is also the widely discussed "AI effect" argument that parts of the consulting industry may become unnecessary. But our clients are mid-sized and small companies, largely led by owner-managers. In advising such executives, the point is not simply to provide the probabilistically correct answer. It is to work alongside them, sweating the details, to determine how the direction the owner has already set can be made to work. Given that nature of our work, we are not really seeing negative effects, and we expect the positives to outweigh the negatives going forward.
• Q: M&A revenue is growing sharply. Could you elaborate on the drivers and sustainability?
  A: M&A grew 128% versus last year this period. There are two main drivers. First, we have built out and organized the M&A structure in terms of both headcount and framework. When headcount was small, individuals inevitably had to source and close deals entirely on their own. With more people, we have finally been able to organize and divide labor, raising both the volume and quality of our consulting. Second, that organizational strength has allowed us to take on larger deals this year. Historically our M&A work centered on third-party sales, but we have expanded to serve business succession more broadly, and such succession deals have increased. With larger deal sizes and a strengthened structure, we have been able to grow performance solidly.
• Q: How many deals have you been closing, and what is the typical deal size?
  A: We cannot disclose exact figures on deal counts, but it is around 20 per half.
• Q: How large is the M&A organization in terms of headcount?
  A: Precise numbers are difficult since some members hold dual roles, but we are operating with roughly 70 to 80 people.