Summary: RIZAP Group<2928>The comprehensive enterprise, which is committed to proving that "people can change" as its unique management philosophy, develops a variety of businesses in the three areas of health creation, health care / beauty, lifestyle, and investment. Under the vision of "Global No.1 in the self-investment industry", it has achieved remarkable growth by actively utilizing M&A under the holding company structure and has grown to include 68 group companies, including 5 listed subsidiaries, and 4,606 consolidated employees. Listed on the Sapporo Stock Exchange's Ambitious Market in 2006, it formulated a medium-term management plan in September 2022, but revised it in February 2024 to achieve an operating profit of ¥400 million (fiscal year ending March 2027) by aggressively expanding the new business "chocoZAP". The fiscal 2024 performance was sales revenue of ¥16,629.8 million (+7.6% YoY), operating loss of ¥594 million (compared to a loss of ¥4948 million in the same period of the previous year), pre-tax loss of ¥4524 million (compared to a loss of ¥7,031 million in the same period of the previous year), and net loss attributable to the owners of the parent of ¥4,300 million (compared to a loss of ¥12,673 million in the same period of the previous year). Due to the black ink conversion of the chocoZAP business, it achieved a black ink of ¥417.5 million on an operating profit basis in the fourth quarter alone. As for sales revenue, the RIZAP-related business (including the chocoZAP business) significantly increased its revenue (+¥201 million) by focusing on expanding the convenience gym "chocoZAP". In existing businesses, there was an increase in revenue, including Antiroza Co., Ltd. (+¥419.8 million), while there was a decrease in revenue due to store structure reform in REXT Co., Ltd., etc. (-¥599.8 million) and the impact of selling the Sikata business under the subsidiary BRUNO<3140>at the end of the previous year (-¥511.1 million). As for operating loss, the group as a whole improved due to the transition of the chocoZAP business to the investment recovery period and the success of business portfolio reform such as REXT.

Waseda Academy <4718> operates proprietary cram schools such as Waseda Academy for elementary, junior high and high school students in the Tokyo metropolitan area, Noda Cruze, a medical and dental specialty university preparatory school operated by its subsidiary Noda Gakuen, and Mito Academy for elementary and junior high school students in Ibaraki Prefecture. They also operate one school each for Japanese children in the USA and the UK. As of the end of March 2024, the group had 188 directly operated schools (and 25 franchise schools), and the average number of students enrolled during the term was more than 47,000.

2024 FY Performance Overview Consolidated performance for FY3/2024 of G-7 Holdings <7508> was 192,992 million yen in increased operating income of 9.1% over the previous year, and increased ordinary income of 7.4% to 7,318 million yen, and attributed to the parent company's net income of 5,175 million yen, an increase of 35.3% over the previous year. Sales were driven by the Business Supermarket Business and the Meat Business, and continued to set a new record high, exceeding the company's plan by 4.3%. However, in terms of profits, the automobile-related business was affected by a decrease in profits due to poor sales of winter tires due to a warm winter, and could not reach the company's plan, it turned to a profit increase for the second time due to the growth of other businesses centered on the Business Supermarket business. The sales cost ratio has increased by 0.8 points over the previous year due to changes in the sales composition ratio; however, the selling, general and administrative expense ratio decreased by 0.7 points due to the effect of increased earnings, and the operating margin decreased by 0.1 points to 3.6%. The main reasons for the increase/decrease of selling, general and administrative expenses were a decrease of 600 million yen in energy costs due to subsidies from rising electricity prices, and an increase of 1 billion yen in labor costs due to improvements in employee treatment and increased education costs. In addition to this, depreciation expenses increased by nearly 600 million yen due to rising construction material costs and rising costs of opening stores etc. The EBITDA margin has increased by 0.1 points from the previous year. Also, the reason for the large increase in the net income of the parent company's shareholders attributable to the current period is due to the elimination of 500 million yen in retirement benefits paid to executives that were recorded as special losses in the previous year, a decrease of 455 million yen in impairment losses, and a gain of 127 million yen on the sale of investment securities in FY3/2024. Changes in the ratio of revenues - while the revenue composition ratio increased by 0.8 points from the previous year, the selling, general and administrative expense ratio decreased by 0.7 points due to the effect of increased earnings, and the operating margin decreased by 0.1 points to 3.6%. The main factors affecting selling, general and administrative expenses were a drop of 600 million yen in energy costs due to subsidies from rising electricity rates and an increase of 1 billion yen in labor costs due to increases in treatment and education expenses for employees. Depreciation expenses also rose by just under 600 million yen due to increased costs of construction materials and opening new stores. The EBITDA (earnings before interest, taxes, depreciation, and amortization) margin rose 0.1 points from the previous year. Lastly, the reason for the increase in the net income of the parent company's shareholders attributable to the current period was due to the elimination of the 500 million yen for executive retirement bonuses paid in the previous period, the reduction of impairment losses by 455 million yen, and the realization of gains on investment securities of 127 million yen in FY3/2024.

For the consolidated financial results of the fiscal year ending March 2024, sales increased by 7.0% compared to the previous year to JPY 32,867 million, and ordinary profit increased by 21.4% to JPY 2,951 million, marking the 13th consecutive year of sales growth and the third consecutive year of record profit. The average number of students enrolled during the term increased by 0.9% to 47,355 students, primarily in the elementary school division, and the increase in tuition fees was a contributing factor to growth in sales. Profits were boosted by the absorption of increased expenses such as personnel and advertising and publicity costs with sales growth. In terms of campus development, the existing schools were relocated or expanded and renovated, which increased the number of students attending the cram schools, and one Quard school for elementary, junior high and high school students in Chiba Prefecture and five franchised individual tutoring schools for Waseda Academy were opened. To explore new areas for university preparatory school admissions, the company joined Nagase <9733>'s satellite preparatory school network for the National Center Test and the junior high school entrance exam, East Net, and established four new schools in March 2024. In addition, they also acquired Yoji Mirai Education Co., Ltd., which operates three preschools in the Tokyo metropolitan area, in January 2024 as a new endeavor.

2. Financial forecast for the March 2025 period.

For the consolidated financial results of the fiscal year ending March 2025, it is expected to see an increase of 5.7% compared to the previous year, with sales of JPY 34,741 million and ordinary profit of JPY 3,003 million, which is a 1.8% increase. The sales increase will be due to a 1.8% increase in the average number of students enrolled during the term, an increase in the sales unit price per student achieved by changes in the grade composition ratio and a minor tuition fee increase. Despite increased costs such as personnel expenses, advertising and publicity costs, and investment in digital transformation and other growth investments, they anticipate an increase of profits at the ordinary profit stage. However, for the net income attributable to the parent company's shareholders, it is expected to decrease by 9.6% to JPY 1,927 million due to an expected decrease in the tax deduction amount from the promotion of wage increases. Regarding campus development, they plan to open two standard schools, three individual tutoring schools, and three to four satellite preparatory schools. As the number of passing students for junior high school and high school admissions exams significantly increased in the 2024 spring, their reputation as a university preparatory school is growing stronger. The newly created services such as "Waseda Aka DUAL" (a service where students can choose to attend either a face-to-face class at a Waseda Academy DUAL school or an interactive web class), and the web service "Waseda Academy Online" which provides various functions such as schedule management, attendance reports, applications for practice exam, and results checking, as well as online classes, have been well received and is expected to lead to an improvement in customer satisfaction and sustain strong performance for the fiscal year ending March 2025.

"Waseda Aka DUAL" is a service where students can choose to attend either a face-to-face class at a Waseda Academy DUAL school or an interactive web class.

"Waseda Academy Online" is a web service that provides various functions such as schedule management, attendance reporting, practice exam applications and results checking, and online classes, among others.

3. Progress Status of Mid-term Management Plan

In March 2024, the company started a new mid-term management plan for three years. The performance target for FY March 2026 is to achieve JPY 35.34 billion in sales and JPY 3.00 billion in ordinary profit. While no significant change has been made to their growth strategy in the university preparatory school admissions and the individual tutoring divisions, they aim to maximize Life Time Value (LTV) by strengthening their focus on new endeavors such as the university preparatory school division with Nagase <9733>'s satellite preparatory school and entering the pre-school education business. The shareholder return policy aims for a consolidated dividend payout ratio of more than 35%, and they plan to continue increasing the dividends, with dividends per share planned to increase by JPY 5.0 to JPY 45.0, representing a 44.2% payout, in fiscal year 2025. In addition, they offer a shareholder benefit of QUO card and shareholder benefit tickets based on the time held, and the investment return for unit shareholders, including shareholder benefits, was 7% at the closing price on May 24 (JPY 1,504), and for shareholders who have held the shares continuously for more than 3 years, it is expected to be 11%.

■Key Points

We anticipate revenue growth in the 2025 fiscal year due to an increase in the number of enrolled students and a rise in unit prices.

By developing the infant education business in addition to the university entrance exam department and the individual guidance department, we aim to maximize LTV and achieve sustained growth. The medium-term management plan is progressing smoothly.

For the 2025 fiscal year, we plan to pay a dividend of 45.0 yen, a 5.0 yen increase from the previous year. Our company is attractive to shareholders due to our shareholder benefits.

(Written by FISCO guest analyst, Jo Sato)