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.
(3) Financial situation. As of the end of March 2024, the financial situation of Valtes Holdings <4442> showed that current assets amounted to 352.6 million yen (an increase of 63.2 million yen from the previous period), mainly due to an increase in cash and deposits of 225 million yen and an increase in accounts receivable and contract assets of 136 million yen. Fixed assets amounted to 1,869 million yen (an increase of 674 million yen ), mainly due to an increase in tangible fixed assets of 12 million yen, an increase in intangible fixed assets of 544 million yen due to the recognition of goodwill, etc., and an increase in investments and other assets of 117 million yen. As a result, the total assets amounted to 5,396 million yen (an increase of 1,306 million yen from the same period last year).
Total liabilities amounted to 2,569 million yen (an increase of 887 million yen from the previous period), mainly due to a decrease of 48 million yen in accounts payable and an increase of 735 million yen in short- and long-term borrowings. Total shareholders' equity amounted to 2,826 million yen (an increase of 419 million yen), mainly due to an increase in retained earnings of 518 million yen attributable to the current net income of the parent company's shareholders. As a result, the capital adequacy ratio as of the end of March 2024 was 52.3% (compared to 58.9% at the end of the previous period).
(4) Cash flow status. Cash flow from operating activities for the year ending March 2024 was an income of 457 million yen. The main sources of income were the recognition of pre-tax net income of 820 million yen and depreciation expenses of 101 million yen. The main expenses were an increase in accounts receivable and contract assets of 59 million yen, a decrease in accounts payable of 55 million yen, and payment of corporate taxes and other expenses of 448 million yen. The cash flow from investment activities was an expenditure of 859 million yen, mainly due to an expenditure of 77 million yen for the acquisition of tangible fixed assets, an expenditure of 50 million yen for the acquisition of investment securities, and an expenditure of 622 million yen for the acquisition of subsidiary stocks involving changes in the scope of consolidation. The cash flow from financing activities was an income of 625 million yen, mainly due to an income of 827 million yen from an increase in long-term borrowings. As a result, the balance of cash and cash equivalents increased by 225 million yen, and the balance at the end of March 2024 was 1,740 million yen.
2. Segment status for the year ending March 2024. (1) Software testing services business. Revenue was 907.4 million yen (an increase of 10.6% from the previous year), segment profit was 85.1 million yen (a decrease of 12.9% from the previous year), and the operating margin was 9.4% (a decrease of 2.5 points from the previous year). The number of projects increased steadily to 3,384 projects (an increase of 13.3% from the previous year), but fell short of the initial plan. The main factors for the increase in projects were the participation of many PMOs※1 and QMOs※2 in the upstream process of new large-scale reconstruction projects, an increase in the acquisition of migration※3 projects, and a good approach to target industries (finance, etc.). ※1 PMO stands for Project Management Office, which refers to a department or structure system that provides support for individual project management across the organization. ※2 QMO stands for Quality Management Office, which refers to a department or structure system that provides support for individual quality management across the organization. ※3 Migration refers to the movement of software, systems, and data to another environment or the switching to a new environment. The average unit price was 765,000 yen (an increase of 25,000 yen from the previous year). The main reasons for this were the increase in sales proportion in the enterprise domain, the favorable continuation of existing customers, and active proposals for introduction of test automation support. The number of operating personnel decreased to 972 (a decrease of 26 from the previous year), mainly due to a focus on hiring and education of regular employees this year, while the previous year focused on utilizing business partners for the testing business. In addition, the size of projects increased, and revenue from projects with sales of more than 100 million yen was 5,123 million yen (an increase of 24.4% from the previous year and 106.7% from the year before that), increasing steadily. (2) Web/mobile application development services business.
The cash flow from operating activities in March 2024 was an income of 457 million yen. The main income was due to recording the net income before tax adjustment for the current period of 820 million yen and depreciation expenses of 101 million yen, etc., and the main expenses were an increase in accounts receivable and contract assets of 59 million yen, a decrease in accounts payable of 55 million yen, and corporate income tax payments of 448 million yen. The cash flow from investing activities was an expenditure of 859 million yen, but the main expenses were expenditure of 77 million yen due to the acquisition of tangible fixed assets, expenditure of 50 million yen due to the acquisition of investment securities, and expenditure of 622 million yen due to the acquisition of subsidiary shares involving a change in the scope of consolidation. The cash flow from financing activities was an income of 625 million yen, mainly due to an income of 827 million yen from an increase in long-term borrowings. As a result, cash and cash equivalents increased by 225 million yen, and the balance at the end of March 2024 was 1,740 million yen.
(1) Software testing services business.
Revenue was 907.4 million yen (an increase of 10.6% from the previous year), segment profit was 85.1 million yen (a decrease of 12.9% from the previous year), and the operating margin was 9.4% (a decrease of 2.5 points from the previous year).
The number of projects increased steadily to 3,384 projects (an increase of 13.3% from the previous year), but fell short of the initial plan. The main factors for the increase in projects were the participation of many PMOs※1 and QMOs※2 in the upstream process of new large-scale reconstruction projects, an increase in the acquisition of migration※3 projects, and a good approach to target industries (finance, etc.). ※1 PMO stands for Project Management Office, which refers to a department or structure system that provides support for individual project management across the organization. ※2 QMO stands for Quality Management Office, which refers to a department or structure system that provides support for individual quality management across the organization. ※3 Migration refers to the movement of software, systems, and data to another environment or the switching to a new environment. The average unit price was 765,000 yen (an increase of 25,000 yen from the previous year). The main reasons for this were the increase in sales proportion in the enterprise domain, the favorable continuation of existing customers, and active proposals for introduction of test automation support. The number of operating personnel decreased to 972 (a decrease of 26 from the previous year), mainly due to a focus on hiring and education of regular employees this year, while the previous year focused on utilizing business partners for the testing business. In addition, the size of projects increased, and revenue from projects with sales of more than 100 million yen was 5,123 million yen (an increase of 24.4% from the previous year and 106.7% from the year before that), increasing steadily.
※1 PMO stands for Project Management Office, which refers to a department or structure system that provides support for individual project management across the organization.
※2 QMO stands for Quality Management Office, which refers to a department or structure system that provides support for individual quality management across the organization.
※3 Migration refers to the movement of software, systems, and data to another environment or the switching to a new environment.
The average unit price was 765,000 yen (an increase of 25,000 yen from the previous year). The main reasons for this were the increase in sales proportion in the enterprise domain, the favorable continuation of existing customers, and active proposals for introduction of test automation support. The number of operating personnel decreased to 972 (a decrease of 26 from the previous year), mainly due to a focus on hiring and education of regular employees this year, while the previous year focused on utilizing business partners for the testing business. In addition, the size of projects increased, and revenue from projects with sales of more than 100 million yen was 5,123 million yen (an increase of 24.4% from the previous year and 106.7% from the year before that), increasing steadily.
(2) Web/mobile application development services business.
Revenue was 1256 million yen (an increase of 54.4% compared to last year), segment profit was 30 million yen (a 56.9% decrease compared to last year), and the operating margin was 2.5% (a decrease of 6.3 points compared to last year). The number of cases increased by 1077 (an increase of 40.6%) due to the addition of Sympo, and sales also increased significantly, but the Bartes segment decreased. Therefore, the overall profit margin decreased and the segment profit decreased.
(3) Offshore Services Business Revenue was 31 million yen (a 23.1% decrease compared to last year) and the segment loss was 24 million yen (compared to a profit of 0 million yen in the previous year). Although inquiries from local Japanese companies in the Philippines increased, the impact of the corona pandemic remained and the transaction size decreased, resulting in a decrease in the number of cases by 68 (a decrease of 30.6%) and a deficit in profit and loss.
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3. Topics for the Fiscal Year Ending March 2024
(1) Transition to a holding company system
In order to achieve sustainable growth and promote the optimization of management resources, the company transitioned to a holding company system in October 2023.
The company cites the strengthening of (1) business value creation for improving software quality, (2) group governance, and (3) the nurturing of management talent as goals for the transition.
(2) Obtained the Platinum Rank of White Enterprise Certification
The company obtained the highest Platinum Rank in the "White Enterprise Certification System" developed by the Foundation for Japan's Next Generation Enterprise and Innovation.
Scored full marks in talent development and job satisfaction, risk management, and health management.
Scored 90% in work-life balance and business model/productivity.
Scored a 57% increase in diversity and inclusion.
(3) Selected for the first time in "Asia’s 200 Best Under A Billion" released by Forbes Asia
"Asia’s 200 Best Under A Billion" is a selection of 200 companies in the Asia-Pacific region with annual sales of over 10 million dollars and less than 1 billion dollars that are expected to have sustained steady growth in the long term out of over 20,000 listed companies. 26 Japanese companies, including the company, were selected. The evaluation criteria mainly consisted of indicators such as "sales in the past year and three years," "governance," "earnings per share (EPS) per share," "management quality," and "return on equity (ROE)."
Mainly evaluated on indicators such as annual sales in the past year and three years, governance, earnings per share (EPS), management quality, and return on equity (ROE).
(Written by FISCO guest analyst Noboru Terashima)