Table of Contents

■ Cast

■Financial results briefing

■ Cast

Sunny Side Up Group Co., Ltd. Vice President Tokuto Watanabe

■Financial results briefing

■Sunny Side Up Group Watanabe

This is Tokuto Watanabe, Vice President of Sunny Side Up Group Co., Ltd. <2180>.

Let me explain the first quarter financial results for the period ending June 2025. Thank you.

First, here is the agenda. Company overview, review of the consolidated financial results for the first quarter of the period ending June 2025, business situation, and finally, the progress of the mid-term growth global strategy.

We are presenting the performance trend in a graph. Our company was founded in July 1985, marking its 40th anniversary this year, but transitioned to a holding company structure in January 2020. Since the COVID-19 pandemic, efforts have been made to improve the business portfolio, completing the withdrawal from low-profit businesses. In line with the medium to long-term management policy, we are accelerating efforts to improve profitability, aiming for a consolidated operating profit of 2 billion yen in the period ending June 2026.

The operating margin was 0.4% in the period ending June 2014, falling to -0.7% in the next period, but then increased from 3.0% in the period ending June 2020 to 3.4%, 4.7%, and 6.8%, reaching 8.2% in the period ending June 2024.

The business overview consists of three areas: two existing businesses and one new business expanding the group's business domain. In the core business of brand communications services, we provide PR-centric communications services primarily to domestic and overseas companies, and local governments. In addition, in the food branding business, we are involved in the branding of 'bills', an all-day dining restaurant originating from Sydney, Australia, and operate it directly.

We list the logos and company names of group companies involved in the brand communications business. This business provides communications services centered on PR, branding, sports marketing, and digital/SNS utilization, in addition to promotional strategies utilizing talents and characters, and planning product campaigns.

In September 2023, the absorption merger of three subsidiaries was completed with Sunny Side Up Inc. (hereafter referred to as Sunny Side Up) as the surviving company, working to enhance operational efficiency and synergies. Additionally, Steady Study Inc. (hereafter referred to as Steady Study), which was made a subsidiary in March 2020, is expected to act as the next growth driver following Sunny Side Up, with plans for recruitment enhancement and office expansion.

In the food branding business, we handle the branding of 'bills' domestically and manage licensing and store operations in south korea, currently operating seven stores directly in Japan and two stores in south korea.

The business development segment is composed of TKG Consulting Inc. (hereafter referred to as TKG Consulting) and Good And Company Inc. TKG Consulting changed its name from Sunny Side X Inc. on October 1, 2024, and has begun the process of commercializing its consulting operations.

In terms of revenue structure, the brand communications segment is the core of the group. For the six-month period ending June 2024, revenue was 17.9 billion yen and operating profit was 1.4 billion 60 million yen, with the brand communications segment accounting for approximately 80% of revenue and about 90% of operating profit.

Next, the consolidated financial review for the first quarter of the fiscal year ending June 2025 shows double-digit revenue growth. The revenue of the core brand communications segment increased by 20%, exceeding the mid-term revenue growth target.

To improve predictability, the bonus-related expenses that were previously recorded in the second and fourth quarters based on performance progress have been amended to be normalized quarterly. As a result, 0.1 billion 10 million yen worth of bonus-related expenses was recorded in the first quarter, leading to a decrease in operating profit. However, excluding the impact of this cost normalization, an increase in profit has been secured. The profit progress rate against the full-year performance forecast is in line with the same conditions as the previous year and aligns with the company's expectations. Although the normalization and recording of bonus-related expenses has resulted in a decline in profit, performance has been maintained compared to the previous year.

Here is a summary of the consolidated performance. Double-digit revenue growth has been achieved. Orders for promotional measures directed at major convenience stores, which were proposed earlier than last year, contributed to this growth. In the first quarter of the previous year, there were few recorded promotional measures, impacting performance; however, this quarter has seen an increase in revenue from promotional measures from the first quarter. The quarterly net profit attributable to the parent company's shareholders increased by 32.4% compared to the same period last year, influenced by a decrease in one-time tax burdens such as the adjustments for corporate tax recorded in the previous year's first quarter. The profit progress rate against the full-year performance forecast is on par with the same conditions as the previous year and is generally in line with the company's expectations.

This highlights the impact of the normalization of employee bonus-related expenses on quarterly performance. Traditionally, incentives have been provided based on the achievement of performance goals. Bonus-related expenses were recorded in the second and fourth quarters based on performance progress, and the amount was determined by individual notifications by the end of the period. In the previous term, bonus-related expenses were also recorded in the second and fourth quarters based on performance progress, but the timing of individual notifications was changed. This timing change resulted in non-deductible expenses, leading to an increase in corporate tax. Following a review over the past two years, this quarter, bonus-related expenses are being normalized each quarter. The same expenses are recorded in two business segments and adjustments.

The consolidated financial statements (balance sheet) are as shown.

Next, looking at the quarterly revenue trends, the first quarter of the fiscal year ending June 2025 saw a 13.4% increase compared to the same period last year, with orders for promotional measures contributing to the brand communications segment.

Next, here is the trend of quarterly operating profit. Although there was a decrease in profit due to the recording of bonus-related expenses, excluding this impact, there was a 4.6% increase in profit compared to the same period last year.

Segment performance shows that the brand communications business experienced a 20% increase in revenue compared to the same period last year, and excluding the recording of bonus-related expenses, profits have also been progressing smoothly.

The food branding business experienced a decrease in both revenue and profit. While the average spending per customer remains high, it being a restaurant means that there has been some impact on the number of customers in August 2024 due to differences in weather compared to last year. However, recently, favorable weather has contributed to positive progress.

Additionally, in the business development sector, one subsidiary is converting its main business, thereby initiating business development in marketing strategy support and consulting by tracing back upstream. There was a decrease in revenue due to the contraction of existing businesses, but there is a desire to expand in the consulting area.

Regarding the factors of operating profit volatility, after excluding the impact of bonus-related expense leveling, there was an increase of 4.6% compared to the same period last year. In the brand communications business, the efficiency improvements in promotional measures contributed significantly due to the increased orders.

The full-year financial estimates for the fiscal year ending June 2025 are forecasted to be 18.5 billion yen in revenue, a 3.3% increase compared to the previous term, and 1.6 billion 50 million yen in operating profit, a 12.6% increase, with an operating margin of 8.9%. Ordinary profit is expected to be 1.6 billion 60 million yen, a 10.6% increase. For reference, this is compared to before considering the costs associated with the office relocation of the group company, Steady Study, but excluding relocation costs, operating profit is expected to be 1.7 billion 28 million yen.

Next, regarding the business situation. In the brand communications business, the revenue increased by 20% compared to the same period last year. Orders for promotional measures directed towards major convenience stores contributed, particularly related to movie characters which performed well. While PR efforts advanced in maintaining and developing client relationships, orders from clients at overseas locations were somewhat weak.

For the revenue composition by industry of PR within the brand communications business, it is shown in a pie chart. Mainly, orders from cosmetics and fashion sectors performed well, and PR orders for new product launches in cosmetics increased. Furthermore, PR services have been provided for commercial facilities and hotel openings, with ongoing orders received for PR after opening. Regarding the strengthening of regional revitalization, additional company executives were appointed as part of the management structure enhancement to strengthen proposals.

This is the trend of productivity in the brand communication business. A year has passed since the merger of three consolidated subsidiaries. Although the number of PR clients for the integrated three companies has slightly increased, the focus is on proposals that lead to upselling and cross-selling. As new graduate recruitment is progressing smoothly, efforts are being directed towards human resource training and mid-career recruitment of specialized personnel to improve productivity. In the field of education, a training system for sales personnel transitioning roles has been established, and support for acquiring sales know-how is being provided through the in-house training program "SUNNY UNIVERSITY." By expanding education, there are plans to increase the average operating profit per employee.

This is the status of the food branding business. In the first quarter, normal operations were conducted, with store renovations implemented in the second quarter of the fiscal year ending June 2023, and in the second and third quarters of the fiscal year ending June 2024. Although revenue and profit decreased due to adverse weather conditions, favorable weather has emerged recently, and inbound demand remains robust.

The business development sector is positioned to expand the group’s business areas through the development and creation of new enterprises. The main business of a subsidiary has been transformed, and the consulting business will begin operations in October 2024. Additionally, by transferring the functions of the XR studio to external parties in the fourth quarter of the previous year, existing businesses have been curtailed, resulting in a decrease in revenue, but it is expected to enhance profitability in the consulting business moving forward.

Sunny Side Up Group: Continuation of the transcript for the first quarter financial results briefing for the fiscal year ending June 2025 Vol.2.