Financial summary
1. Overview of the first-half settlement of the fiscal year ending October 2024.
The consolidated results of CAICA Digital <2315> for the first half of the fiscal year ending October 2024 were sales of ¥2,866 million, up 5.2% from the same period last year, operating loss of ¥196 million (compared to a loss of ¥1,397 million in the same period last year), ordinary loss of ¥320 million (compared to a loss of ¥1,534 million in the same period last year), and net loss attributable to parent company shareholders of ¥425 million (compared to a loss of ¥1,350 million in the same period last year), with significant improvement in losses due to increased revenue and profitability. Although the company did not turn a profit in the first half due to write-downs of its cryptocurrency assets, it did turn positive in operating cash flow.
Sales were boosted by a favorable order environment in the IT services business. However, the financial services business fell short of the previous year's results due to restructuring but was as expected. Progress has been made in the sale of some of the company's own KAIKA coins and original NFTs.
On the profit side, a significant increase in profit was achieved due to the growth of the IT services business and the acquisition of high-profit projects. However, the failure to turn a profit was primarily due to write-downs of its cryptocurrency assets, despite prior planned investments in the financial services business.
*The company recorded a valuation loss of ¥273 million as cost of sales for most of its cryptocurrency assets, which do not have an active market, by using their fair value as their cost value except for some of them.
The company's total assets decreased by 8.7% from the previous period end to ¥2,714 million due to decreases in cash and deposits and write-downs of its cryptocurrency assets. The company's equity also decreased by 18.8% to ¥1,767 million due to decreases in retained earnings, resulting in a decrease in the equity ratio to 65.1% (compared to 73.2% at the previous period end).
*Due to the acquisition of shares in FISCO <3807> (details below).
The performance and activity results of each business are as follows.
(1) IT Services Business This is the main business since its founding and is carried out by CAICA Technologies, which boasts over 50 years of experience. They are involved in a) IT services business, b) system integration business, and c) DX solution service business. The core b) system integration business handles system construction in a wide range of industries such as banks, securities, insurance, and other financial institutions (including consulting and maintenance and operation), as well as retail and telecommunications industries. In particular, system development for the finance industry accounts for about 65% and is the source of strength for the entire group. They have received core partner recognition from major SIers and mainly receive orders through them (as subcontractors), but the financial institutions that are responsible for the core systems have high continuity rates, ensuring stable business foundations. In addition, orders from large corporations as primary contractors are increasing, further increasing stability. On the other hand, a) IT services business sells its own IT services developed using cutting-edge technologies such as blockchain. Specifically, they offer an enterprise "security consulting service" that provides one-stop service from vulnerability diagnosis, including security attacks from outside, to problem solutions and maintenance operation. They also provide "CAICA Security Training / targeted mail training service," which improves the security literacy of end-users. In addition, they are actively expanding into the Web3 business sector with services such as the development of semi-order NFT marketplace development services and the provision of "Web3-type data storage services" that support companies that participate in Web3 business. c) They partner with vendors that handle development of DX solutions using AI and sell DX solutions and contribute to the added value of the b) system integration business. (2) Financial Services Business The "financial services business," which is undergoing business reorganization, includes a) operation of "Zaif INO," b) customer development business, and c) cryptocurrency issuance and operation business.
Sales (including in-house transactions) increased by 6.4% year-on-year to ¥2,845 million, and segment profit increased by 130.1% to ¥334 million, with increased revenue and profit. The system development sector for financial institutions showed strong performance for both banks and insurance companies. In particular, the company experienced growth in primary contractor projects for insurance companies and megabank projects from primary vendors. The non-financial system development sector also continued to have high customer investment willingness and is performing well with orders from major Sler, among others. However, the company's own-brand products related to Web3 businesses have not made a significant contribution to earnings. From a profit perspective, the company achieved a significant improvement in profits through price negotiations with customers and the acquisition of high-profit projects, securing a high segment profit margin of 11.7% (compared to 5.4% in the same period last year). On the activity side, the company partnered with HCL Software (India), which owns a DX solution utilizing AI, and concluded a partnership with Pegasystems (U.S.) to provide consulting, solution introduction, and maintenance services from one-stop to establish a system to acquire high-profit upstream processes. As a result, there seems to have been an increase in inquiries for DX consulting and SI services and system development tailored to customer needs from various industries.
*The company is expanding services such as CAICA Security Training / targeted e-mail training services to improve end-user security literacy, and services to support companies entering Web3 businesses (semi-order type NFT marketplace development services and Web3 data storage services).
(2) Financial Services Business The "financial services business," which is undergoing business reorganization, includes a) operation of "Zaif INO," b) customer development business, and c) cryptocurrency issuance and operation business.
Revenue (including internal transactions) was 240 million yen (compared to 480 million yen in the same period last year), and segment losses improved significantly, with a loss of 359 million yen (up from a loss of 1.363 billion yen in the same period last year). While working on a radical reorganization, the company achieved results through the sale of cryptocurrency and the operation of the NFT marketplace "Zaif INO," as well as sales of original NFTs by illustrators in areas other than gaming. However, it has not yet reached the stage of significant contribution to performance (although progress is within expectations). On the other hand, on the profit side, the company achieved a significant improvement in its profit and loss by eliminating costs such as those associated with operating the cryptocurrency exchange "Zaif," which had been a burden until the previous period. However, while investments in the "Zaif INO" operating business and customer development business for the future were within the initial plan, the evaluation downgrade of owned cryptocurrencies (a valuation loss of 273 million yen) became an unforeseen factor affecting profits. Nonetheless, it should be noted that this is purely a valuation item and has no impact on cash flow, and that the remaining balance of cryptocurrency after this matter is reduced to 66 million yen, limiting the potential for further markdowns, which is a positive development. On the activity side, in order to improve the utility of NFTs, the company has begun selling NFTs in card format that can be confirmed by simply presenting the card after purchase (details will be provided later). In addition, the company has entered the South Korean gaming market by partnering with SevenlineLabs, a Web3 company in Korea (details will be provided later).
2. Summary of the first half of the fiscal year 2024.
When summarizing the first half of the fiscal year 2024, it should be noted that although the impact of the downgrade in the evaluation of cryptocurrencies was unforeseen, the company achieved a significant improvement in its profit and loss, and points to consider include the possibility of a turnaround to a profit for the full year, and a positive turnaround in operating cash flow. As for the downgrade in the evaluation of cryptocurrencies, it was based on consideration of the current market liquidity of Kaikacoin, and does not negate the potential of Web3 business in the future, and can be seen as a measure to ensure financial security. We were paying attention to how the restructuring of the "financial services business," including the transfer of "Zaif" at the end of the previous period, would affect finance and profit and loss. However, we were able to confirm that the slimming of finance and improvement of profit and loss were almost as expected. In addition, there were developments to be noted towards future initiatives, such as the acquisition of high-priced DX consulting projects and the expansion of the Web3 business.
(Written by Fisco Guest Analyst Ikuo Shibata)