CRG HOLDINGS CO.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥16.42B
• Operating Income: ¥279M
• Net Income: ¥153M
• EPS: ¥27.73

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: A mixed quarter—operating recovery on tighter SG&A control, but liquidity and leverage risks remain elevated and cash flow quality was weak. Revenue declined 3.9% YoY to 164.2, while operating income improved to 2.79 (+210% YoY), lifting operating margin to 1.7%. Ordinary income rose to 2.10 (+377.8% YoY), but net income fell 34.8% YoY to 1.53, implying a net margin of 0.9%. Gross margin stood at 25.0% (gross profit 41.05), indicating reasonable pricing/mix versus labor cost, but not enough to absorb SG&A of 38.26. Operating margin expanded by roughly 117 bps versus last year (from ~0.5% to 1.7%), while net margin improved vs the loss shown in the comparison table, though the headline YoY % for NI indicates a decline—this discrepancy suggests non-recurring items or data definitional differences. Earnings quality is a concern: OCF was -0.13 against positive net income of 1.53 (OCF/NI -0.08x), and cash conversion from EBITDA was -0.03x, indicating heavy working capital outflows or timing effects. Free cash flow printed at 19.11, but this was driven by large investing inflows (Investing CF +19.24), likely non-recurring asset sales; underlying FCF (OCF - Capex) would be negative. Leverage is high with D/E 2.10x and Debt/EBITDA 10.3x; interest coverage (EBIT basis) is 4.1x—adequate but with little cushion if earnings slip. Liquidity is tight: current ratio 0.98 and cash/short-term debt 0.94x, with 88.5% of debt maturing short term, elevating refinancing risk. Asset efficiency is reasonable (asset turnover 1.81x), but low margins cap returns, yielding an ROE of 5.2%—below the 8% threshold that would be considered acceptable. ROIC is 4.9%, just below the 5% caution line, signaling limited value creation after financing costs. Capex at 1.84x depreciation suggests continued investment, which heightens the need for stronger OCF to fund it sustainably. Strategic implication: the company must prioritize working capital discipline and debt tenor extension to stabilize liquidity while sustaining the SG&A efficiency gains. Near-term share-holder returns appear deprioritized (DPS zero), consistent with balance sheet preservation. Overall, the quarter shows progress on operations but underscores an urgent need to normalize cash generation and reduce refinancing exposure.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.2% = Net Profit Margin 0.9% × Asset Turnover 1.812 × Financial Leverage 3.10x. The biggest driver remains low net margin; leverage is high and asset turnover is decent, but margin is the bottleneck. Operating income margin is 1.7%, and after interest (interest burden 0.854) and taxes (tax burden 0.642), the net margin compresses to 0.9%. The largest YoY change is the operating margin improvement (+~117 bps), stemming from cost discipline within SG&A against a slightly lower revenue base; depreciation is modest (1.32), so efficiency gains likely reflect mix/pricing and headcount/productivity management. Sustainability: some SG&A restraint can persist, but with revenue contracting, operating leverage is limited; maintaining 1.7% EBIT margin will require continued mix improvement and utilization gains in staffing/BPO. Concerning trends: SG&A remains heavy versus gross profit (SG&A/GP ~93%), leaving a thin operating buffer; and interest expense (0.67) consumes ~24% of EBIT, capping ordinary income. Watch for any period-end cost deferrals given the weak OCF relative to NI.

Growth Assessment

Top-line declined 3.9% YoY to 164.2, pointing to softer demand or client rationalization in staffing/BPO. Despite the revenue drop, operating income improved to 2.79 (+210% YoY), reflecting SG&A efficiency and perhaps improved gross mix (25.0% GPM). The ordinary income surge (+377.8% YoY) shows improved core profitability pre-tax, but net income fell 34.8% YoY per the headline metric—likely influenced by a higher effective tax rate (35.7%) and interest burden; note the comparison table indicates a prior-period loss, suggesting a definitional discrepancy. On a margin basis, operating margin expanded ~117 bps to 1.7%, but net margin remains sub-1%, below industry comfort levels (>3%). EBITDA was 4.11 (margin ~2.5%), leaving little room for error. Near-term growth sustainability hinges on stabilizing revenue and further improving utilization and pricing; macro labor demand and client BPO pipelines will be key. Without a return to top-line growth, margin expansion may stall given wage inflation risks. Medium-term outlook requires deleveraging to reduce interest drag and protect ordinary income. Pipeline visibility and order intake data were not disclosed, limiting the forward view; however, capex at 1.84x depreciation suggests management is investing for capacity/automation, which could underpin future operating leverage if demand recovers.

Financial Health

Liquidity: Current ratio 0.98 and quick ratio 0.98—below 1.0 is a warning; working capital is -1.15, indicating tight liquidity. Cash and deposits 35.12 versus short-term loans 37.44 yield cash/short-term debt of 0.94x; accounts receivable 16.20 provide some coverage but collection timing is critical. Solvency: D/E 2.10x (aggressive) and Debt/Capital 59.2% (near concern threshold); interest-bearing debt totals 42.31 with 88.5% short-term—significant maturity mismatch. Interest coverage is 4.14x (EBIT/interest), adequate but vulnerable to earnings volatility. Noncurrent liabilities are modest (5.07), underscoring the overreliance on short-term funding. Asset base includes goodwill (3.89) and intangibles (4.89), small relative to equity (29.20), so intangible impairment risk is limited near term. No off-balance sheet obligations were reported; lease or guarantee exposures not disclosed may exist but are not visible in the data.

Cash Flow Quality

OCF was -0.13 despite positive NI of 1.53, yielding OCF/NI of -0.08x—flagging weak earnings cash conversion. Cash conversion (OCF/EBITDA) is -0.03x, indicating significant working capital consumption or timing effects; details by receivables/payables/inventory not disclosed. Investing CF was +19.24, likely from asset or investment sales, inflating reported FCF to 19.11; underlying FCF defined as OCF - Capex would be approximately -2.57, which is not sustainable for debt service. Capex of 2.44 exceeds depreciation (1.32), implying proactive investment; with OCF negative, this must be funded by asset sales or financing. No explicit signs of working capital manipulation can be determined from the limited disclosure, but the divergence between NI and OCF warrants monitoring of DSO and payable terms. Dividend cash flows were unreported; DPS was zero during Q2 and year-end, consistent with liquidity preservation.

Dividend Sustainability

Reported dividends were effectively nil (Q2 and year-end DPS ¥0; DOE 0%), aligning with the balance sheet constraints. Given OCF was negative and leverage high (Debt/EBITDA 10.3x), reinstating dividends would not be covered by organic cash flow. Even if we take reported FCF at 19.11, it is driven by non-recurring investing inflows; sustainable FCF coverage for dividends is therefore inadequate. Payout ratio is not calculable from disclosures but implied near-zero, which is appropriate until OCF normalizes and short-term debt reliance is reduced. Policy outlook likely remains conservative with cash retained for refinancing and deleveraging.

Risk Assessment

Business Risks:

• Low operating margin (EBIT 1.7%) leaves minimal buffer against wage inflation or pricing pressure.
• Revenue contraction (-3.9% YoY) amid potentially soft client demand in staffing/BPO.
• Execution risk on SG&A efficiency required to sustain operating gains.
• Dependence on working capital efficiency; cash conversion currently negative.

Financial Risks:

• High leverage: D/E 2.10x and Debt/EBITDA 10.3x.
• Liquidity risk: current ratio 0.98; cash/short-term debt 0.94x.
• Refinancing risk: 88.5% of debt is short-term.
• Interest rate risk: interest expense 0.67 consumes ~24% of EBIT; coverage 4.1x could weaken if rates or earnings move unfavorably.

Key Concerns:

• Earnings quality: OCF/NI -0.08x and OCF/EBITDA -0.03x indicate weak cash realization.
• Capital efficiency: ROIC 4.9% below cost of capital proxy; ROE only 5.2%.
• FCF reliance on asset sales (Investing CF +19.24) is not repeatable.
• Data limitations around segment mix and working capital drivers obscure root causes of cash shortfall.

Investment Implications

Key Takeaways:

• Operational recovery with operating income up 210% YoY and margin up ~117 bps to 1.7%.
• Liquidity and leverage are the primary constraints (CR 0.98; D/E 2.10x; Debt/EBITDA 10.3x).
• Cash flow quality is weak; OCF negative versus positive NI, with FCF boosted by non-recurring investing inflows.
• Refinancing risk elevated due to 88.5% short-term debt and cash/STD below 1.0x.
• ROE 5.2% and ROIC 4.9% indicate subpar returns; margin expansion and deleveraging are needed to re-rate fundamentals.

Metrics to Watch:

• OCF/NI and OCF/EBITDA recovery in the next quarter.
• Current ratio and cash/short-term debt; progress on extending debt maturities.
• Debt/EBITDA and interest coverage trajectory as operating profit improves.
• Gross margin and SG&A/GP ratio for sustained operating leverage.
• DSO and payable days to diagnose working capital stress.
• Capex discipline vs. growth returns (Capex/Depreciation and post-investment EBITDA).

Relative Positioning: Versus Japan staffing/outsourcing peers, profitability is below average (EBIT margin ~1.7% vs. peers typically 3–8%), leverage is higher than most listed peers (many operate near net cash or low leverage), and liquidity is tighter. Execution on cash conversion and deleveraging is needed to close the gap.

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
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