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.

Genie <6562> develops and provides a platform service that instantly selects and displays advertisements tailored to viewers on the internet. Actively utilizing AI technology, it is a technology and AI company in the marketing field that promotes AI technology-related introduction consulting, product provision, and research and development. It aims to create a world where everyone can be successful in marketing as its business purpose and aims to become a globally recognized technology company originating from Japan, contributing to Japan and Asia as its raison d'être.

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, sales revenue landed at 80.12 billion yen (a 24.1% increase from the previous year), gross profit at 61.38 billion yen (an increase of 19.4% from the previous year), operating profit at 15.38 billion yen (a decrease of 37.4% from the previous year), pre-tax profit at 12.77 billion yen (a decrease of 44.0% from the previous year), current profit at 10.35 billion yen (a decrease of 51.0% from the previous year), and current profit attributable to the parent company's owners at 10.31 billion yen (a decrease of 51.2% from the previous year). Although income below operating profit decreased, the main reasons were due to the reversion of fair value gains related to the subsidiary consolidation of Zelto, Inc. in the previous year, as well as investments in growth such as personnel expenses, outsourcing fees, advertising and publicity costs, and promotional expenses. After adjusting for the one-time loss or gain of Zelto and the reduction of obligations to former shareholders, the adjusted operating profit was approximately 87 million yen, a 22% decrease from about 111 million yen in the previous year. On the revenue side, the performance of the video area in the supply-side business of the main advertising platform business expanded, and there was also revenue growth from the development of enterprise layer customers in the marketing SaaS business.

※ After the M&A execution, it refers to the obligation to pay additional consideration based on specific conditions. Within a certain period after the M&A execution, additional payment will be made based on the agreed calculation method if the acquisition target seller company or business achieves the specified goals.

2. Summary of performance for the first quarter of the fiscal year ending in March 2025

The financial results for the first quarter of the fiscal year ending in March 2025, announced on August 13, 2024, showed sales revenue at 22.65 billion yen (a 26.2% increase from the same period last year), gross profit at 17.40 billion yen (a 26.5% increase from the same period last year), operating profit at 8.15 billion yen (a 633.7% increase from the same period last year), pre-tax profit at 7.48 billion yen (compared to 8 million yen for the same period last year), quarterly profit at 6.70 billion yen (the same as the previous year), and quarterly profit attributable to the parent company's owners at 6.72 billion yen (4 million yen increase from the same period last year). The increase in operating profit includes one-time profits related to the dissolution of the earn-out for Zelto's M&A. Excluding this, on a normal basis, it reached 1.70 billion yen (an increase of 53.2% from the same period last year), showing a smooth start in both sales and profits. In terms of segment situation, the main advertising platform business saw a favorable performance in the supply-side business from the previous year. In the marketing SaaS business, the delivery of a large project in the fiscal year ending March 2024 was completed, progressing to monthly revenue acquisition, and customer development in the enterprise area advanced. In overseas business, there is ongoing management strengthening for Zelto, promoting business integration with the company.

3. Performance outlook for the year ending March 2025

The consolidated performance forecast for the fiscal year ending March 2025 is expected to have sales revenue of 10,200 million yen (+27.3% year-on-year), gross profit of 8,000 million yen (+30.3% yoy), operating profit of 2,300 million yen (+49.4% yoy), pre-tax profit of 2,200 million yen (+72.3% yoy), net income of 1,700 million yen (+64.2% yoy), and net income attributable to owners of the parent company of 1,700 million yen (+64.7% yoy). The amount of Social Wire <3929>, which was acquired as a subsidiary in July 2024, is not included in the performance forecast. While synergy and other factors are currently not taken into account, if the external disclosure-based amount of Social Wire is added to sales revenue and profit at each stage as the Digital PR segment, the performance forecast would be sales revenue of 12,400 million yen (+54.8% yoy), gross profit of 9,400 million yen (+53.1% yoy), operating profit of 2,370 million yen (+54.0% yoy), and net income attributable to owners of the parent company of 1,740 million yen (+68.6% yoy). The company will continue to focus on deepening transactions with enterprise customers in its core advertising platform business, and will also aim for business expansion through collaboration with Social Wire, in addition to strategies centered around acquiring enterprise customers in the growing Marketing SaaS business as a second pillar.

4. Medium-term Management Plan The company has started its three-year medium-term management plan (fiscal year ending in March 2023 to fiscal year ending in March 2025) with the aim of entering a new era with "smart gaming machines." Based on the visibility of the activation of equipment investment in the gaming machine market and pachinko halls, the company has significantly revised the numerical targets for the final year, as the performance for the fiscal year ending in March 2024 far exceeded the plan. However, there is no change in the strategic approach. The company will continue to capture demand associated with the popularization of smart gaming machines, build the industry's only platform utilizing cloud servers, and expand the "MIRAIGATE Service" (hereinafter referred to as "MG Service") to facilitate the transition to a stock-based business. The company will also work on the development of smart pachislot machines under its own brand (scheduled for market introduction in the fiscal year ending in March 2025). Furthermore, as a medium- to long-term growth strategy, the company has indicated the direction of aiming to become a DX leader in the pachinko industry by leveraging the latest technologies such as AI and big data.

In May 2023, a 3-year medium-term management plan '～First Magic 2025 Towards 2030 Vision～' was formulated for the period from the fiscal year ending March 2024 to the fiscal year ending March 2026. Setting three phases to achieve the company's purpose 'Creating a world where everyone can succeed in marketing' domestically by 2030. Positioned as 'Phase1', this medium-term management plan aims to create a new growth trajectory by strengthening the domestic and international ad technology business. The numerical targets set for the fiscal year ending March 2026 are sales revenue of 162 to 202 billion yen, gross profit of 132 to 164 billion yen, operating profit of 45 to 55 billion yen, and net income attributable to owners of the parent company of 30 to 37 billion yen. However, future performance trends based on the integration effects with Social Wire and PMI progress with Zelto will be considered for a revision of the plan.

■Key Points

Achieving customer value enhancement through the development of cutting-edge AI solution.

In the fiscal year ending March 2024, sales revenue and gross profit steadily increased, while stage profit decreased due to temporary profit backlash.

Acquisition of Social Wire as a consolidated subsidiary.

Expecting significant growth in sales revenue and profit at each stage for the fiscal year ending March 2025.

Actively explore projects in the video field.

(Writer: FISCO analyst Tomoichi Murase)