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.

Veru Inc. <6183> is a leading domestic contact center listed on the Tokyo Stock Exchange's Prime Market, with six subsidiary companies under its umbrella. The company primarily focuses on CRM (Customer Relationship Management) as its main business, expanding its operations nationwide. As of the end of February 2024, the company has 37 locations nationwide, approximately 30,000 employees, and the largest CRM cloud infrastructure in the country (integrating multiple locations into a virtual call center using advanced cloud technology to achieve both high reliability and cost benefits, a cloud-based call center system). By fully utilizing capital and business alliances with ITOCHU Corporation <8001> and TOPPAN PRINTING CO., LTD. <7911>, Veru Inc. aims to further enhance its corporate value through the promotion of its "Mid-term Management Plan 2025."

1. Summary of Performance for the Second Quarter of the Fiscal Year Ending February 2025

The consolidated performance for the second quarter (interim period) of the fiscal year ending February 2025 resulted in net sales revenue of 72,040 million yen (a decrease of 6.1% from the same period last year), operating profit of 4,810 million yen (a decrease of 26.3%), pre-tax profit of 4,665 million yen (a decrease of 27.4%), and net income attributable to the parent company's owners of 3,024 million yen (a decrease of 32.8%). The progress against the full year forecast for the fiscal year ending February 2025 showed lower than expected results in net sales revenue (47.1%), operating profit (38.5%), pre-tax profit (38.2%), and net income attributable to the parent company's owners (37.8%), resulting in a challenging financial report. Despite an overall decline in sales revenue, basic business operations saw a slight increase underperforming expectations due to a decrease in large-scale projects although new projects were on the rise. Additionally, there was a significant decrease in government-related operations (including economic activities related to measures to counter high prices in addition to COVID-related activities), due to the decline in vaccine-related activities, aligning with expectations. Similarly, each stage of profit below operating profit experienced a decline for similar reasons. While there were some reductions in income related to equity-method investments, the impact from the decrease in operating profit resulted in an overall reduction in net income attributable to the parent company's owners. Consequently, the operating profit margin decreased to 6.7% compared to the same period last year. On the financial side, the self-capital ratio (parent company owner's attributable equity ratio) increased to 38.8% (a 0.8 point increase from the previous period). This surpassed the average operating profit margin of 5.3% and self-capital ratio of 5.9% for the services sector on the Tokyo Stock Exchange's Prime Market in March 2024, indicating very high profitability and safety for the company. Despite the decline in earnings, the interim dividend per share was maintained at 30 yen, indicating a shareholder-oriented management approach.

2. Performance outlook for the fiscal year ending February 2025

The consolidated performance for the fiscal year ending February 2025 has been maintained in line with the initial forecast, projecting an increase in net sales revenue to 153,000 million yen (a 2.9% increase from the previous year), operating profit of 12,500 million yen (an 8.9% increase), pre-tax profit of 12,200 million yen (an 8.7% increase), and net income attributable to the parent company's owners of 8,000 million yen (a 6.0% increase). The increase in revenue and profit is expected, driven by the expansion of outsourced demand due to labor shortages and new services such as DX solutions, while a substantial decrease is anticipated in government-related activities like COVID-19, which are expected to wind down. Operating profit is expected to increase due to revenue growth in basic business operations, improved performance by consolidated subsidiaries, and cost-saving measures that are expected to contribute to an increase in gross profit. Similar improvements are expected in net income attributable to the parent company's owners, aligning with the increase in operating profit. While progress in performance has been slow up to the interim period, plans are in place to achieve forecasted results driven by factors such as the recovery from the COVID-19 pandemic, investments in subsidiary companies entering the recovery stage in the second half, visible outcomes from heightened organizational adjustments in response to the pandemic, and plans for new M&A activities. The general election held in October 2024 is also expected to contribute to the performance in the latter half of the year. The annual dividend per share is forecasted to be maintained at 60 yen, keeping the dividend payout ratio at 55.0% (a 3.5 point decrease), surpassing the average of 39.0% for the services sector on the Tokyo Stock Exchange's Prime Market in March 2024, demonstrating a positive approach to shareholder returns. The company's dividend policy aims to maintain a minimum 50% payout ratio, ensuring dividends do not fall below the previous year's levels.

3. Medium-Term Management Plan

In the 'Mid-term Management Plan 2025' (fiscal years 2024-2026), Veru Inc. has set targets for the final year, including net sales revenue of 180 billion yen, operating profit of 16.5 billion yen (operating profit margin of 9.2%), post-tax profit of 11 billion yen, ROE of 14.4%, and a 50% dividend payout ratio. The plan targets an average annual growth rate of 4.9% for net sales revenue, 3.4% for operating profit, and 5.6% for post-tax profit over the three-year period. The key initiatives to achieve these quantitative targets include: 1) Human resources: maximizing the efforts of 40,000 employees, 2) Digitization: enhancing data utilization capabilities, and 3) Co-creation: exploring new areas in the NEW BPO field. The initial performance of the Mid-term Management Plan falls short of expectations, setting a challenging start for the first year, with hopes for a recovery in the second year onwards. As part of new initiatives, progress has been steady in areas such as AI generation (creating new data like text and images based on training data) and providing DX services for local governments. With the Japanese economy moving towards recovery from the COVID-19 pandemic and increasing concerns about labor shortages among companies, many businesses are unable to handle phone inquiries adequately, indicating that the company's traditional phone response services are expected to grow over the next 5 to 10 years. During this period, it is essential to focus on developing and expanding new growth drivers such as AI generation business and nurturing new BPO areas, making progress in these initiatives crucial. Actively pursuing human capital strategies and sustainability initiatives, the company is aligning with the trend of expanding ESG investments, showing commitment to responsible actions.

※1 BPO: Business Process Outsourcing. It refers to outsourcing business processes.

※2 ESG: Refer to page 19.

■Key Points

- A leading contact center with nationwide business expansion, leveraging capital business alliances with Itochu Corporation and Toppan Holdings to the maximum.

- In the second quarter of the fiscal year ending February 2025, the impact of reduced revenue and profit due to the decrease in state-related businesses such as COVID-19 was observed. The operating profit margin and equity ratio significantly surpassed the average of the Tokyo Stock Exchange Prime Market service industry, demonstrating very high profitability and safety. The company implemented an interim dividend at the same level as the previous period, showing due consideration for shareholder returns.

- The fiscal year ending in February 2025 aims to achieve planned results through basic operations, contributions from consolidated subsidiaries, and M&A activities. The planned dividend is at the same level as the previous period with a consolidated dividend payout ratio of 55.0%, significantly exceeding the average of the Tokyo Stock Exchange Prime Market service industry.

- The 'Mid-term Management Plan 2025' aims for an average annual growth rate of 4.9% in sales revenue and 3.4% in operating profit. While traditional telephone answering services are expected to grow for the next 5-10 years, efforts will be made to develop and expand new business areas that will become new driving forces during this period. Efforts such as the introduction of advanced AI and the provision of DX services for local governments are already yielding results.

(Written by FISCO guest analyst Nozomi Kokushige).