Honyaku Center, Japan’s largest Language Service Provider, reported results for the first half of its fiscal 2015 (which ends on March 31st 2016). The Tokyo-headquartered company reported revenues of JPY 4.262bn ($34.6M) for the six month ending on September 30, 2015. This is down by a little over 2% compared to the same period in 2014. Gross margins also fell slightly from an est. 44.2% to 42.3%. Honyaku Center managed to cushion the impact of the reduced topline and gross margin by taking out JPY 104M ($845,000) in SG&A expenses, leaving the company with a net income of JPY 61M ($495,000), which is slightly down from last year’s JPY 86M ($698,000).
Honyaku Center’s core translation services business, however, was not to blame for the lagging performance.
The unit, which accounts for around 75% of revenues, notched up a respectable 5% growth year-on-year (YoY). What pulled down the results was the poor performance in its other, smaller business units. Temporary Staffing was down 35.8% YoY, which the company attributed to the sale of one of its subsidiaries in the recruitment business. Interpretation declined by 2% to JPY 445M ($3.6M), which came despite the company’s assertion that activity in the Investor Relations area picked up. Honyaku Center’s Language Education arm generated JPY 106M ($860,000M), which represents a more substantial drop of 6.7%. The company reported an even bigger 8.3% decline to JPY 136M ($1.1M) in its Convention business, and this despite the substantial contract in Q1 for the “The 7th Pacific Islands Leaders Meeting”. In the Other category, Honyaku posted a healthy 42.5% jump in revenues to JPY 72M ($584,000M), which is mainly thanks to a boost in the company’s patent applications support business.
Within the translation segment, the clear winner was the Financial and Legal unit, growing at a strong 25.3% to JPY 331M ($2.6M). Honyaku pointed to a major pick-up in Investor Relations related translation work, which is consistent with a Slator article in August 2015 on the positive impact of the new Japanese Corporate Governance Code on the translation industry. The Patent unit, meanwhile, produced JPY 875M ($7.1M) in revenues in the six month, which represents a growth of 3.5%. According to Honyaku Center the unit profited from regulatory developments in the US (America Invents Act). Finally, the Medical unit clocked up growth of 3.1% to JPY 1,097bn ($8.9M) on the back of stronger orders from domestic buyers, while the unit that serves industrial clients managed to eke out a gain of 2.7% to JPY 902M ($7.3M).
Honyaku Center’s results confirm a trend that can be seen in a number of other listed language service providers like SDL, Lionbridge, and RR Donnelley: while many ancillary, non-core, or technology related business segments are struggling, the core translation services units are faring very well.
For the full year 2015, which ends on March 31 2016, the company projected in its Q1 2015 earnings release that it will achieve a record JPY 9.5bn ($77.1M) in revenues and JPY 550M ($4.4M) in operating income. However, to meet this target Honyaku Center will need to report a significantly stronger second half of fiscal 2015.