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.

2024 FY Performance Overview 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. Changes in the ratio of revenues - while the revenue composition ratio increased by 0.8 points from the previous year, 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 factors affecting selling, general and administrative expenses were a drop of 600 million yen in energy costs due to subsidies from rising electricity rates and an increase of 1 billion yen in labor costs due to increases in treatment and education expenses for employees. Depreciation expenses also rose by just under 600 million yen due to increased costs of construction materials and opening new stores. The EBITDA (earnings before interest, taxes, depreciation, and amortization) margin rose 0.1 points from the previous year. Lastly, the reason for the increase in the net income of the parent company's shareholders attributable to the current period was due to the elimination of the 500 million yen for executive retirement bonuses paid in the previous period, the reduction of impairment losses by 455 million yen, and the realization of gains on investment securities of 127 million yen in FY3/2024.

Sarendip Holdings <7318>'s performance for the fiscal year ending in March 2024 was a record high, with sales of 1,978.7 million yen (+30.2% YoY), operating profit of 47.7 million yen (+47.0% YoY), ordinary profit of 59.5 million yen (+71.6% YoY), and net income attributable to parent company shareholders of 51.8 million yen (+66.0% YoY). Compared to the initial forecast, sales exceeded by 2,987 million yen, operating profit exceeded by 30 million yen, ordinary profit exceeded by 225 million yen, and net income attributable to parent company shareholders exceeded by 288 million yen. The increase in net income attributable to parent company shareholders was due to the tax-free amortization of nonperforming loans before the group settlement.

The Japanese economy continued to recover slowly, thanks to the lowering of COVID-19 alert levels, improvements in employment and income environment. However, concerns about lower-than-expected overseas economic conditions, such as inflation, global monetary tightening, and uncertainties surrounding the Chinese economy, persisted. In the company's business area, "Manufacturing" sector, the supply shortage of components, especially semiconductors, resolved and domestic production by auto manufacturers remained at a high level. In the other business area, "Business Succession (Investment)" for medium and small-sized enterprises, the need for M&A as a means of business succession increased further due to the worsening succession problem and the impact of the economic and social stagnation caused by the COVID-19 pandemic. As a result, both sales and profits significantly increased.

However, while both sales and profits exceeded the initial forecast, compared to the revised forecast announced at the time of the second quarter earnings report, sales exceeded by 687 million yen, but operating profit fell short by 122 million yen, ordinary profit fell short by 44 million yen, and net income attributable to parent company shareholders fell short by 1 million yen. This was due to factors such as the occurrence of M&A expenses and the deferral of sales revenue to April 2024 or later, as well as the accelerated maintenance expenses. It is undeniable that there was some over-optimism, including the difficulty in incorporating M&A deals, and managing forecast accuracy will be a future challenge.

In the segment breakdown, in the manufacturing business's automotive supplier sector (manufacturing of automotive interior and exterior parts, automotive precision parts), while the supply shortage of components such as semiconductors was resolved, domestic production by auto manufacturers remained at a high level, and efforts were made to promote multi-skilling of manufacturing staff to improve productivity. FA equipment manufacturing, which saw a recovery in orders in the previous fiscal year, experienced delays in order confirmation throughout the year. The production of prototype parts not only contributed to the full year results due to the consolidation of subsidiary Apex on January 10, 2023, but also received increased demand in the recovery of manufacturing. As a result, sales reached 1,852.2 million yen (+30.2% YoY), and segment profit reached 48.4 million yen (+24.4% YoY) despite the occurrence of Ladybird M&A expenses and prepayments in the fourth quarter.

In the Professional Solution business's consulting division, there was a significant increase in cases of business succession, business revitalization, and IT consulting such as core system reconstruction. The sales of the company's consulting business unit increased by 46.7% compared to the previous fiscal year. In engineering dispatch and contract development, efforts were made to strengthen the management foundation and re-skill engineers, focusing on the development of IoT solutions in collaboration with the consulting business unit and DX. As a result, sales reached 1,437 million yen (+12.8% YoY), but due to aggressive hiring to meet the increased demand for projects, the segment incurred a loss of 124 million yen (compared to a loss of 53 million yen in the previous fiscal year).

In the Investment business, the company actively promoted support services for revitalizing business succession of manufacturing companies, financial advisory services, and other corporate management support. In particular, sales of financial advisory services increased. In addition, income from management fees was received from the "Japan Manufacturing Business Succession Fund No.1 Investment Business Limited Liability Partnership" established in February 2023, contributing to the company's revenue.

(Author: FISCO guest analyst Nobumitsu Miyata)