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) Three bottle necks and solutions As previously stated, the consolidated results for the fiscal year ending in March 2024 were expected to be profitable, but the internal capacity problems (bottle necks) were exposed after the second half of the year began, and the target was not reached. According to an analysis by Valtes Holdings <4442>, there are mainly three bottle necks, and countermeasures have already been taken.

As mentioned earlier, the consolidated performance for the fiscal year ending in March 2024 was expected to improve until the midpoint, but during the latter half of the year, the internal capacity problems (bottle necks) were revealed and the target was not achieved. According to an analysis by Valtes Holdings <4442>, there are mainly three bottle necks and countermeasures have already been executed.

1) Shortage of project promoters such as PM layers/high layers Some projects were lost due to a shortage of technicians to manage and promote projects. The following measures have been implemented to resolve this issue. (PM = Project Manager) (organization establishment/recruitment strengthening) A new independent organization has been established within the Holdings for the recruitment of PM layers/High-level staff. Offers with a sense of satisfaction can now be made to PM layers/High layers without being confined by the old salary table. (High-skill education system construction) An education system for the promotion of PM layers/High layers has been constructed. An education program including OJT has been developed to promote PM layers/High layers among existing engineers. (Group-wide education/rotation) PM layers/High layers within the company group are utilized through group-wide rotation. Educational programs are provided for PM layers/High layers at in-house development companies to provide test education services or to aim for rotations to the same business. As a result of such measures, the number of PM layer/High-layer technicians has increased by 6 (as of May 14, 2024, compared to December 2023). 2) Increase in workload of sales keymen due to departure/lack of sales personnel Despite a rapid increase in revenue, the sales staff was not strengthened, and the workload of sales keymen increased, resulting in the loss of some projects. In the future, we will aim to optimize sales efficiency through strengthening the sales staff. By supporting new sales personnel, we aim to reduce the workload of sales keymen and increase communication with customers and the number of proposals. The sales staff has increased by 4 (same) people so far. 3) Disparity between business expansion speed and organizational structure Looking back at the growth and organization over the past four years, ・Revenue doubled, but the sales organization remains a one-executive structure without changing key people. ・The number of engineers has doubled, but the departmental organization remains a one-executive structure with the same number of department managers. ・Subsidiaries increased by four, but the cross-group sales organization was small. ・Four types of tools were added, but other service sales teams were also assigned. To address these issues, the following measures have been taken.

We lost some projects due to a shortage of technical professionals to manage and promote the projects. To address this, we are implementing the following measures (PM=Project Manager):

(Establishment of new organizations and strengthening of recruitment)

PM layer/High layer recruitment is conducted by a new organization that is suitable for PM layer/High layer recruitment within the Holdings. Offers with a sense of satisfaction can now be made to PM layers/High layers without being confined by the old salary table.

An education system for the promotion of PM layers/High layers has been constructed. An education program including OJT has been developed to promote PM layers/High layers among existing engineers.

PM layers/High layers within the company group are utilized through group-wide rotation. Educational programs are provided for PM layers/High layers at in-house development companies to provide test education services or to aim for rotations to the same business.

(Education and rotation within the group)

Some projects were lost due to a shortage of technicians to manage and promote projects. The following measures have been implemented to resolve this issue. (PM = Project Manager) (organization establishment/recruitment strengthening) A new independent organization has been established within the Holdings for the recruitment of PM layers/High-level staff. Offers with a sense of satisfaction can now be made to PM layers/High layers without being confined by the old salary table. (High-skill education system construction) An education system for the promotion of PM layers/High layers has been constructed. An education program including OJT has been developed to promote PM layers/High layers among existing engineers. (Group-wide education/rotation) PM layers/High layers within the company group are utilized through group-wide rotation. Educational programs are provided for PM layers/High layers at in-house development companies to provide test education services or to aim for rotations to the same business. As a result of such measures, the number of PM layer/High-layer technicians has increased by 6 (as of May 14, 2024, compared to December 2023).

Despite a rapid increase in revenue, the sales staff was not strengthened, and the workload of sales keymen increased, resulting in the loss of some projects. In the future, we will aim to optimize sales efficiency through strengthening the sales staff. By supporting new sales personnel, we aim to reduce the workload of sales keymen and increase communication with customers and the number of proposals. The sales staff has increased by 4 (same) people so far.

Increased burden on sales key persons due to turnover and shortage of sales personnel.

Looking back at the growth and organization over the past four years, despite the doubling of revenue, the sales organization remains a one-executive structure without changing key people. The sales staff was not strengthened, although the number of engineers has doubled. The workload of sales keymen increased resulting in the loss of some projects. In the future, we will aim to optimize sales efficiency through strengthening the sales staff. By supporting new sales personnel, we aim to reduce the workload of sales keymen and increase communication with customers and the number of proposals. The sales staff has increased by 4 (same) people so far.

Looking back at the growth and organization over the past four years, despite the doubling of revenue, the sales organization remains a one-executive structure without changing key people. The sales staff was not strengthened, although the number of engineers has doubled. The workload of sales keymen increased resulting in the loss of some projects. In the future, we will aim to optimize sales efficiency through strengthening the sales staff. By supporting new sales personnel, we aim to reduce the workload of sales keymen and increase communication with customers and the number of proposals. The sales staff has increased by 4 (same) people so far.

Looking back at the past four years of growth and organization,

Revenue doubled, but the sales organization remains a one-executive structure without changing key people.

The number of engineers has doubled, but the departmental organization remains a one-executive structure with the same number of department managers.

Although the number of subsidiaries has increased by four, the cross-group sales organization remains small.

Although four types of tools were added, other service sales teams were also assigned.

To address these issues, the following measures have been taken.

(Expansion and diversification of sales organization)

The sales organization will be expanded in step with the speed of business expansion. External personnel will be recruited to improve sales strategies. By recruiting the head of the sales department externally, the sales organization will be divided into two departments and expanded. While placing emphasis on the company's culture, new perspectives and strategies will be introduced by external personnel in order to promote moderate competition and metabolism, and avoid organizational rigidity.

External personnel have already been recruited, and the current sales executives are in a two-person system.

(Expansion and diversification of Test Business Division)

The Test Business Division will be diversified in step with the speed of business expansion. With a two-person executive structure, management will be enhanced. By promoting from within the company, executives will be increased and the Test Business Division will be divided into two departments. By enhancing the management of engineers who have doubled in number in 4 years due to business expansion, an increase in orders will be aimed for.

The Test Business Division's executive management is already in a two-person system.

(Expansion of specialized organization)

The tool sales organization will be established and strengthened, and the group sales department will be strengthened and expanded. External management personnel will be recruited for each department to improve policies and scale. By inviting the head of the sales department from outside, expansion of appropriate policies and education and development of appropriate sales personnel will be promoted for each department.

External management personnel have already been recruited for both departments, and operations have begun.

(Written by FISCO guest analyst Noboru Terashima)