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.

E-Garanty <8771> specializes in providing credit risk guarantee services for corporate accounts receivable. Its main business model is a stock-based model where 'guaranteed debt x guarantee fee rate' becomes the revenue. The company's strength lies in its ability to collect and evaluate information on over 0.03 million companies monthly, enabling it to set optimal guarantee fee rates. It acquires new customers primarily through affiliated financial institutions and maintains a repeat rate of over 90%, leading to continued growth by accumulating guaranteed debts.

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.

For the consolidated financial results for the fiscal year ending March 2024, revenue increased by 7.9% year-on-year to 91.65 billion yen, and operating income increased by 15.9% to 49.02 billion yen, marking the 22nd consecutive year of increasing revenue and profit. Due to the increasing number of corporate bankruptcies, there was a rising demand from customers, leading to the expansion of guarantee debt balance at the end of the period to 751.8 billion yen, a 10.4% increase from the previous period. Although the revenue growth rate fell below 10% due to a review of the risk portfolio for high-risk industries that slightly lowered the average guarantee fee rate compared to the previous period, the operating profit margin increased from 49.8% to 53.5%, reaching the 50% mark for the first time, driven by improvements in cost rates and operational efficiency.

The total actual guarantee balance (the total guarantee framework set for each guaranteeee (or for each contract if the guaranteee cannot be identified) increased by 31.3% to 1.4132 trillion yen compared to the previous period. However, the number of cases where multiple entities are grouped together as guarantee targets is increasing, causing a growing gap between the guarantee debt amounts affecting revenue and the actual revenue.

2. Financial forecast for the March 2025 period.

It is expected that the consolidated financial results for the fiscal year ending March 2025 will see revenue increase by 10.2% to 101 billion yen and operating income increase by 6.1% to 52 billion yen. Revenue is expected to continue growing due to accelerated accumulation of guarantee debts. On the other hand, an increase of approximately 0.3 billion yen in personnel costs is anticipated due to enhancements in the operational structure, which could contribute to a decrease in profit margins. The performance for the first quarter saw revenue of 24.06 billion yen, operating income of 11.87 billion yen (a 7.4% increase and a 1.5% increase, respectively, from the same period last year), and guarantee debts reaching 780.2 billion yen, progressing as planned. The revenue growth rate is expected to expand in the second half as guarantee fee rates are expected to rise.

3. Medium-Term Management Plan

The company announced its medium-term management plan 'Accelerate2028' from June 2024 to March 2028. Anticipating a further increase in the need for corporate guarantees due to changes in the external environment such as the increase in corporate bankruptcies, rising interest rates, and decreasing labor force, the company sees it as an opportunity for dramatic growth and has set out a policy to actively pursue business expansion. Mainly backed by a rich corporate database, the company plans to actively underwrite risks, actively allocate sales resources, expand its product lineup, and achieve efficient revenue growth through DX promotion, aiming for a revenue of 200 billion yen and an operating profit of 100 billion yen by March 2028. The annual growth rate of operating profit is expected to be 19.5%, exceeding the recent four-year performance of 15.5%, but profits are planned to accelerate in the latter half as the company implements upfront investments to strengthen its growth foundation.

4. Shareholder return policy

The shareholder return policy aims to implement dividends with a target consolidated dividend payout ratio of over 50%, considering the financial situation and future business development comprehensively, with the basic policy of sustainably increasing the total amount of dividends. Based on this policy, the dividend per share for the fiscal year ending March 2025 is planned to be 37.0 yen with a 2.0 yen increase from the previous period (dividend payout ratio 51.1%), continuing the trend of increased dividends since the company went public.

■Key Points

・Against the background of the increasing number of corporate bankruptcies, the demand for accounts receivable guarantee services is expanding. The company achieved increased revenue and profit for the 22nd consecutive term in the fiscal year ending in March 2024.

・Perceiving the changing market environment as an opportunity, the company aims to achieve an operating profit of 10 billion yen by the end of March 2028 through aggressive business expansion, more than doubling compared to the fiscal year ending in March 2024.

・Although the profitability rate temporarily slows down in the fiscal year ending in March 2025 due to an increase in personnel expenses, it is expected to return to double-digit growth trend from the fiscal year ending in March 2026 onwards.

(Written by FISCO guest analyst, Jo Sato)