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. Segment performance trends for the fiscal year ending September 2024.

For the third quarter of the fiscal year ending September 2024 for FCE <9564>, segment performance shows that revenue for the DX promotion business was 19.12 billion yen (+22.5% year-on-year), segment profit was 4.86 billion yen (+53.6% year-on-year), revenue for the education and training business was 16.95 billion yen (+14.4% year-on-year), and segment profit was 2.87 billion yen (+35.8% year-on-year), both main products in both businesses performed well, achieving double-digit growth in revenue and profit.

In the DX promotion business, efforts to expand the main product 'RPA Robo-Pat DX' were made internally and externally. While continuously improving 'RPA Robo-Pat DX' by pursuing business flows and necessary functions on-site, accelerating customer referrals between the education and training business due to the development of talent and the elimination of the pure holding company system in the background. Additionally, advertising was intensified, and in order to strengthen talent development, the number of participants in the 'Robo-Pat Master Certification Program' was continuously increased (with 2,414 certified individuals as of the end of June 2024). As a result, the number of implementing companies as of the end of June 2024 exceeded the target of 1,250 companies or more for the fiscal year ending September 2024, reaching 1,364 companies (+19.3% year-on-year), and ARPU increased by about 5% to 0.165 million yen, leading to a significant increase in revenue. On the profit side, due to the more prominent features of a stock-based business with the increase in revenue, profits accumulated more than fixed costs, resulting in even greater growth in segment profits.

In the education and training business, in the education business, Japan Cosmotopia was consolidated as a subsidiary in January 2024, and in the training business, proactive sales were conducted as the e-learning market grew. In particular, 'Smart Boarding' performed well, with the number of implementing companies significantly surpassing the target of 670 companies or more for the fiscal year ending September 2024, reaching 892 companies (+61.9% year-on-year as of the end of June 2024). ARPU increased by about 2% to 0.044 million yen, revenue saw a double-digit increase. Furthermore, similar to the DX promotion business, the profit margin improved due to the characteristic of a stock-based business, resulting in segment profits growing beyond revenue.

Forecasting substantial profit increase after two upward revisions.

3. Outlook for the fiscal year ending September 2024.

Regarding the performance for the fiscal year ending September 2024, the company anticipates revenue of 50.00 billion yen (+19.8% year-on-year), operating profit of 7.07 billion yen (+21.5% year-on-year), ordinary profit of 7.05 billion yen (+22.5% year-on-year), and net income attributable to parent company shareholders of 5.00 billion yen (+56.8% year-on-year), expecting double-digit revenue and profit growth. The company has raised its performance forecast twice up to the third quarter due to the sustained strong performance.

The first upward revision was made during the first quarter earnings report in February 2024, due to the impact of Japan's acquisition of Cosmotopia subsidiary and the successful launch of 'RPA Robo-Pat DX' and 'Smart Boarding'. As a result, revenue was raised from 44.64 billion yen to 46 billion yen, operating profit from 702 million yen to 707 million yen, ordinary profit from 700 million yen to 705 million yen, and net income attributable to the parent company shareholder from 450 million yen to 454 million yen. The second upward revision was made during the third quarter earnings report in August, due to the continued success of 'RPA Robo-Pat DX' and 'Smart Boarding' and the higher-than-expected contribution of Japan Cosmotopia's revenue. Consequently, revenue was upwardly revised from 50 billion yen to 50,000 million yen, while operating profit and ordinary profit remained unchanged. The reason being that although the increase in revenue significantly boosted profits, expenses incurred for new businesses such as 'FCE Prompt Gate' and upfront costs for advertising and personnel expenses for the next fiscal year offset these gains. Additionally, due to the tax effect accounting resulting from the absorption merger of subsidiaries due to the dissolution of the pure holding company system, net income attributable to the parent company shareholder was upwardly revised from 454 million yen to 500 million yen.

While the Japanese economy continues to face uncertain prospects, there is a steady demand for RPA and e-learning. In such an environment, the company plans to actively expand its business while aiming to improve its performance by adapting to changing circumstances. Regarding revenue, the introduction of 'RPA Robo-Pat DX' and 'Smart Boarding' has exceeded the anticipated number of adopters in the third quarter and is expected to progress smoothly thereafter. Furthermore, as a stock-type revenue, it is projected that operating profit will increase more than revenue. The company's full-year performance forecast may seem conservative, as part of the profits exceeding the plan may be allocated to upfront costs for growth from the fourth quarter of the previous year, as was the case in the previous year. The final result is likely to slightly exceed the revised forecast at the third quarter. With strong performance and new initiatives set to drive growth, there is a possibility of the growth trend diverging upwards in the medium to long term. Expectations are high for the next medium-term management plan.

(Author: FISCO guest analyst Nobumitsu Miyata)