Summary: RIZAP Group<2928>The comprehensive enterprise, which is committed to proving that "people can change" as its unique management philosophy, develops a variety of businesses in the three areas of health creation, health care / beauty, lifestyle, and investment. Under the vision of "Global No.1 in the self-investment industry", it has achieved remarkable growth by actively utilizing M&A under the holding company structure and has grown to include 68 group companies, including 5 listed subsidiaries, and 4,606 consolidated employees. Listed on the Sapporo Stock Exchange's Ambitious Market in 2006, it formulated a medium-term management plan in September 2022, but revised it in February 2024 to achieve an operating profit of ¥400 million (fiscal year ending March 2027) by aggressively expanding the new business "chocoZAP". The fiscal 2024 performance was sales revenue of ¥16,629.8 million (+7.6% YoY), operating loss of ¥594 million (compared to a loss of ¥4948 million in the same period of the previous year), pre-tax loss of ¥4524 million (compared to a loss of ¥7,031 million in the same period of the previous year), and net loss attributable to the owners of the parent of ¥4,300 million (compared to a loss of ¥12,673 million in the same period of the previous year). Due to the black ink conversion of the chocoZAP business, it achieved a black ink of ¥417.5 million on an operating profit basis in the fourth quarter alone. As for sales revenue, the RIZAP-related business (including the chocoZAP business) significantly increased its revenue (+¥201 million) by focusing on expanding the convenience gym "chocoZAP". In existing businesses, there was an increase in revenue, including Antiroza Co., Ltd. (+¥419.8 million), while there was a decrease in revenue due to store structure reform in REXT Co., Ltd., etc. (-¥599.8 million) and the impact of selling the Sikata business under the subsidiary BRUNO<3140>at the end of the previous year (-¥511.1 million). As for operating loss, the group as a whole improved due to the transition of the chocoZAP business to the investment recovery period and the success of business portfolio reform such as REXT.

1. Company Overview and Business Description

Sarendip Holdings <7318> has a mission to make Japanese mid-sized and small manufacturing companies proud of being a 100-year company and supports the management innovation of Japanese mid-sized and small manufacturing companies facing the challenge of business succession. The company has three businesses: In the manufacturing business, they carry out M&A with highly technical manufacturing companies for the purpose of business succession, and strengthen profitability by modernizing management through their expertise. In the Professional Solution business, they provide dispatch of professional management and engineers, contract development of software, and management consulting. In the Investment business, they engage in businesses such as acquiring companies to improve their corporate value and achieve capital gain upon sale, and providing financial advisory services.

2. Business Model

The company's answer to the business succession challenges of mid-sized and small companies is the Business Succession Total Solution. This is based on three foundations: a manufacturing business succession platform constructed with three investment models and alliances such as grouping, flow-type, and mutual funds; a management control base supported by a team of professional managers and back-office operations; and a manufacturing base for improving quality and productivity through visualization, standardization, and manpower reduction. By providing business succession solutions to owners of mid-sized and small manufacturing companies, the company has achieved a business model that simultaneously realizes non-continuous growth through an M&A execution platform and organic growth through management control and manufacturing bases.

3. Medium-Term Management Plan

Based on the construction of such platforms, the company has developed the medium-term management plan "Sarendip Challenge 500". They aim to achieve sales of 50 billion yen, operating profit of 2.5 billion yen, and ROE of 20% by the end of March 2027. For organic growth, they aim to achieve 25 billion yen in sales through globalization and entry into finished product markets in the manufacturing business, 2.5 billion yen in sales through the expansion of IT consulting and collaborative robot businesses in the Professional Solution business, and 0.9 billion yen in sales through financial advisory services in the Investment business. On the other hand, for non-continuous growth through M&A, they aim to achieve rapid sales expansion through large-scale M&A and roll-up type M&A focusing on functions and technologies.

※Roll-up type M&A: An M&A strategy to expand market share by acquiring and integrating multiple companies in the same industry or related industries.

4. Performance Trends

The performance for the fiscal year ending March 2024 showed a revenue of 19,787 million yen (an increase of 30.2% from the previous year) and an operating profit of 477 million yen (an increase of 47.0%). In the Professional Solution business, there was an increase in recruitment expenses, as well as a revenue timing mismatch and upfront expenses. However, the Manufacturing business, which achieved high domestic production for auto manufacturers, and the profitable Investment business, drove the performance. Regarding the forecast for the fiscal year ending March 2025, the first year of the medium-term management plan, the company expects a revenue of 21,800 million yen (an increase of 10.2% from the previous year) and an operating profit of 800 million yen (an increase of 67.4%), continuing the peak update. The significant profit increase is expected due to the elimination of revenue timing mismatch and upfront expenses, as well as the full-year contribution from the newly consolidated Readybird. However, the impact of M&A has not been fully factored into the earnings and expenses.

■Key Points

• As a total solution company for business succession, support the management innovation of small and medium-sized manufacturing businesses.

• Established a medium-term management plan against the backdrop of platform construction, aiming for a revenue of 50 billion yen for the fiscal year ending March 2027.

• With the elimination of revenue timing mismatch and upfront expenses, and the full-year contribution of Readybird, a significant increase in operating profit is expected for the fiscal year ending March 2025.

(Author: FISCO guest analyst Nobumitsu Miyata)