Global Kids Company Corp. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥27.00B
• Operating Income: ¥858M
• Net Income: ¥72M
• EPS: ¥7.65

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Core operations improved modestly, but bottom line plunged due to large extraordinary losses, resulting in weak ROE and ROIC despite strong cash generation. Revenue rose 2.1% YoY to 269.97, while operating income grew 8.7% YoY to 8.58, indicating mild operating leverage. Ordinary income slipped 1.5% YoY to 8.08, reflecting higher non-operating costs net of small non-operating income. Profit before tax collapsed to 1.30, implying approximately 6.8 of extraordinary losses under JGAAP (not itemized), which drove net income down 71.7% YoY to 0.72. Gross margin stood at 9.9%, operating margin at 3.2%, and net margin at 0.3%, with the operating margin expanding roughly 19 bps YoY (estimated) but net margin compressing about 69 bps due to the one-off loss. EBITDA was 16.88 (6.3% margin), and interest coverage was strong at 16.82x, underscoring solid debt-servicing capacity. The OCF/NI ratio was 22.7x, signaling earnings significantly cushioned by non-cash charges and/or working capital inflows; operating cash flow of 16.37 contrasted sharply with the low net income. Free cash flow was negative at -4.68 due to substantial investing outflows (-21.05) despite small reported capex (-0.45), suggesting M&A/lease/other investment outlays. Liquidity was adequate (current ratio 137.6%) and leverage was moderate-high (D/E 1.60x), with cash of 26.41 and short-term loans of 5.50 limiting near-term refinancing risk. ROE was 0.9% (DuPont: NPM 0.3% × AT 1.345 × leverage 2.60x), and reported ROIC was 4.3%, below the 5% warning threshold, highlighting capital efficiency issues. The effective tax rate was elevated at 44.6%, but the primary earnings drag appears to be extraordinary losses rather than taxes. Given strong OCF and resilient operating margin, the earnings trough looks driven by non-recurring items; if so, a rebound in reported net profit is plausible. However, with ROIC below target and visible goodwill/intangibles, the risk of further impairments remains. Forward-looking, watch normalization of extraordinary items, stability of operating margin amid wage inflation, and trajectory of ROIC back toward 7–8%. Data gaps (dividends breakdown, SG&A components, extraordinary items) limit granularity, but available data supports the view of steady core operations offset by one-time charges.

Profitability Analysis

ROE decomposition (DuPont): ROE 0.9% = Net Profit Margin 0.3% × Asset Turnover 1.345 × Financial Leverage 2.60x. The component that changed most vs last year was Net Profit Margin, given net income fell 71.7% YoY while revenue rose 2.1% (estimated prior net margin ~0.96% vs current 0.27%, ~69 bps compression). Business drivers: a sizeable extraordinary loss (~6.8) under JGAAP reduced profit before tax from the ordinary income level (8.08) to 1.30; non-operating balance was also slightly negative (0.09 income vs 0.60 expenses), and the effective tax rate was high (44.6%). Operating efficiency shows modest improvement: operating income +8.7% on revenue +2.1% suggests operating margin expanded roughly 19 bps YoY (approx. from ~3.0% to ~3.2%), likely from scale benefits and cost control offsetting labor and rent pressures. Asset turnover at 1.345 appears stable and consistent with an asset-heavy model (goodwill 19.68, intangibles 21.62). Leverage at 2.60x supported reported ROE despite slim margins. Sustainability: the operating margin improvement seems incremental and potentially sustainable if wage inflation is managed against rising subsidies/pricing; however, the margin level remains low-single digits. The net margin collapse looks one-time if driven by impairments/extraordinary costs; normalization would materially lift ROE. Flagged trends: net profit contraction despite stronger OI; we cannot verify SG&A growth vs revenue due to unreported breakdown, but the OI uplift implies SG&A was controlled relative to gross profit.

Growth Assessment

Top-line growth was modest at +2.1% YoY to 269.97, consistent with steady enrollment/capacity and regulated fee dynamics. Operating income growth outpaced revenue (+8.7% YoY to 8.58), indicating positive operating leverage and disciplined cost management. Ordinary income fell 1.5% YoY as non-operating expenses outweighed small non-operating income. Net income declined 71.7% YoY to 0.72 due to significant extraordinary losses (~6.8), overshadowing core improvement. EBITDA of 16.88 (6.3% margin) and strong interest coverage (16.82x) underpin resilient operating cash flows. ROIC at 4.3% signals underwhelming capital productivity versus a 7–8% management target typical in the sector. Near-term outlook depends on the absence of further extraordinary losses and maintaining operating margin near or above 3%. Watch wage inflation and subsidy revisions impacting unit economics; pricing flexibility is limited. Investment CF (-21.05) suggests growth investments/M&A; execution quality will drive future ROIC and earnings. With OCF strong and leverage moderate, the company has capacity to stabilize earnings if one-offs subside.

Financial Health

Liquidity: Current ratio 137.6% and quick ratio 137.6% indicate adequate near-term coverage, albeit slightly below the 150% benchmark. Working capital of 18.07 and cash of 26.41 cover short-term loans of 5.50 comfortably; no warning on Current Ratio < 1.0. Solvency: Debt-to-equity 1.60x is above the 1.5x conservative benchmark but below a high-risk threshold (D/E > 2.0); interest coverage is strong at 16.82x, mitigating servicing risk. Structure: Total liabilities 123.51 vs total assets 200.66 yields equity 77.14, with leverage 2.60x per DuPont. Maturity mismatch risk appears contained: current liabilities 48.05 vs current assets 66.12; cash and OCF provide buffers. Asset quality: Significant goodwill (19.68) and intangibles (21.62) heighten impairment risk, consistent with the period’s extraordinary losses. Off-balance sheet obligations: Not disclosed in the provided data; none can be assessed.

Cash Flow Quality

OCF/Net Income of 22.74x indicates very high cash conversion relative to reported earnings, consistent with large non-cash charges (depreciation 8.30) and/or working capital inflows. Free cash flow was -4.68 as robust OCF (16.37) was outweighed by investing CF (-21.05); reported capex was small (-0.45), implying investment outflows likely relate to M&A, deposits, or intangible additions under JGAAP. Earnings quality is acceptable from a cash perspective despite low GAAP net income, suggesting the NI decline is driven by non-cash extraordinary items. FCF sustainability for dividends and capex: with negative FCF and unknown dividend outlay (unreported), coverage appears weak in this period; reliance on financing CF (18.68) bridged the gap. Working capital manipulation signs are not evident from available summary data; the magnitude of OCF vs NI likely reflects non-cash items rather than aggressive WC optimization.

Dividend Sustainability

Dividend data are largely unreported (DPS and total dividends not disclosed). The calculated payout ratio of 462.8% conflicts with the reported 1.3%, indicating data mapping differences rather than true payouts. Given NI of 0.72 and negative FCF of -4.68, organic coverage for any cash dividends would be poor in this period without drawing on cash or financing inflows. Policy outlook cannot be inferred from the data provided; many childcare operators target stable dividends but adjust when extraordinary losses occur. Until extraordinary items normalize and ROIC improves above 5%, dividend growth capacity appears constrained. Conclusion: Insufficient disclosed data to assess DPS precisely; FCF coverage this term is negative, implying limited headroom absent balance sheet support.

Risk Assessment

Business Risks:

• Labor cost inflation for childcare workers pressuring margins in a regulated fee environment
• Regulatory/subsidy changes affecting revenue per child and occupancy economics
• Enrollment/occupancy volatility due to demographics and competitive supply
• Execution risk on growth investments/M&A reflected in large investing CF and elevated intangibles/goodwill
• Potential further extraordinary losses (e.g., impairments, restructuring) under JGAAP

Financial Risks:

• Moderate-high leverage (D/E 1.60x) with ROIC at 4.3% below cost-of-capital benchmarks
• Goodwill (19.68) and intangibles (21.62) increase impairment susceptibility
• Dependence on financing CF (18.68) to fund negative FCF this period
• High effective tax rate volatility (44.6%) impacting bottom line

Key Concerns:

• Extraordinary loss of roughly 6.8 driving NI down 71.7% YoY
• ROE 0.9% and ROIC 4.3% indicate weak capital efficiency
• Net margin compressed ~69 bps YoY to 0.3%, masking an otherwise improving operating margin
• Data limitations: lack of SG&A breakdown, extraordinary item details, and dividend disclosures

Investment Implications

Key Takeaways:

• Core operating performance improved (OI +8.7% YoY; operating margin ~3.2%) despite cost pressures
• Bottom-line weakness is primarily non-recurring (extraordinary losses), not operational deterioration
• Cash generation remains strong (OCF 16.37; OCF/NI 22.7x), supporting liquidity
• Capital efficiency is subpar (ROIC 4.3%, ROE 0.9%), requiring better returns on recent investments
• Leverage is manageable but above conservative levels (D/E 1.60x); interest coverage is robust

Metrics to Watch:

• Extraordinary items and impairment charges normalization
• Operating margin trend versus wage inflation and subsidy adjustments
• ROIC progression toward 7–8% target range
• Free cash flow after investments and working capital
• Goodwill/intangible balances and potential impairment triggers
• Debt/EBITDA and interest coverage resilience

Relative Positioning: Within Japan’s childcare/education services peers, the company shows steadier core operations but weaker capital efficiency, with leverage slightly elevated and a higher-than-usual incidence of extraordinary losses this term; normalization of one-offs and ROIC improvement are needed to close the gap with best-in-class operators.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis