Performance Trend 1. Overview of performance for FY3/2024 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.

2. Performance trend for the year ending March 2024

For the March 2024 performance, orders increased by 5.1% to 410.71 billion yen compared to the previous year, sales increased by 13.4% to 388.94 billion yen, operating profit increased by 38.8% to 624.8 million yen, ordinary profit increased by 37.1% to 632.4 million yen, and net income attributable to the parent company's shareholders increased by 47.5% to 467.2 million yen, showing a double-digit increase in revenue and profit. The performance was very strong, exceeding the initial performance estimate, with sales exceeding by 38.94 billion yen, operating profit by 169.8 billion yen, ordinary profit by 167.4 billion yen, and net income attributable to parent company shareholders by 147.2 billion yen.

The Japanese economy had been facing uncertain conditions due to the global tightening of finance, slowing overseas economy, and rising prices. However, with the normalization of economic and social activities from the COVID-19 pandemic, a moderate recovery trend has been observed. In the construction industry, public investment has led to a stable development, and private facility investment has shown signs of recovery mainly focused on information investment and environment-responsive investment aimed at decarbonization. Under these circumstances, Nihon Dengi (1723) has been working on issues such as the comprehensive implementation of the company’s guidelines and acceptance of orders for existing work that leads to proposed business solutions and maintenance business, establishing a revenue foundation, expanding the business in combination with group companies related to industrial systems, and constructing a business structure that allows for these objectives.

The company's order situation is in a situation where new construction orders are continuing to do well, including semiconductor factories, and redevelopment projects, and there is a growth trend up to 2027, including in local areas. In addition, for existing work, renovations aimed at energy conservation and reducing CO2 emissions have been steady, and properties have also become larger. In such an environment, even though it is in a busy state, Nihon Dengi has been selectively accepting new construction orders that lead to existing work that can be a long-standing income stock, which is even more profitable and less susceptible to fluctuations. Furthermore, in response to achieving full operation in time for the 2024 problem※, it aimed to improve productivity and established a DX promotion office to promote operational efficiency and has already taken steps towards medium and long-term measures to deal with labor shortages.

※ 2024 Problem: an effort to improve labor conditions such as the normalization of long working hours that has been observed in various industries due to the Working Reform Related Law, but labor shortages are also a concern.

Although it was a busy situation, orders have been steady, especially for the air conditioning equipment-related business. Sales increased steadily as completion of large-scale projects in new construction such as redevelopment projects in the metropolitan area and semiconductor plants in rural areas, and large-scale work in existing buildings overlapped. Although profits increased significantly due to the increase in sales, the gross profit margin of sales increased significantly due to the progress of prioritizing order selection and the increase of highly profitable projects, despite rising costs of raw materials, labor costs due to improved working conditions and increased outsourcing expenses. This situation is expected to continue for a while during the next midterm plan. Sales promotion expenses have been reduced by promoting efficiency in business through the advancement of DX and the utilization of field offices (satellite offices), but labor costs due to improved working conditions have increased. Although sales and operating profit significantly exceeded the initial performance estimates, the reasons for the difference in sales were due to the good performance of the air conditioning equipment-related business in new construction, the increase in large-scale projects in existing work, and sales being recorded earlier than expected due to progress standards. As for profits, an improvement in the gross profit margin of construction work due to selective orders and exceeding sales had been observed.

(Author: FISCO guest analyst Nobumitsu Miyata)