Wellco Holdings Corporation FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥8.48B
• Operating Income: ¥-623M
• Net Income: ¥-826M
• EPS: ¥-39.75

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Wilco Holdings (78310) reported FY2025 Q4 consolidated results under JGAAP with revenue of 84.78 and a 1.4% YoY decline, indicating a soft top line. Gross profit was 12.09 (14.3% margin), insufficient to cover SG&A of 18.33, resulting in an operating loss of -6.23. Despite the loss, operating income improved 24.5% YoY, signaling initial traction from cost control or mix improvement. Ordinary loss was -6.51, reflecting modest non-operating income (1.00) more than offset by non-operating expenses (1.28), including interest expense of 0.30. Net income was -9.48, with total comprehensive income at -11.72, suggesting additional OCI losses likely from investment securities or FX. The DuPont breakdown shows a net margin of -11.2%, asset turnover of 1.07x, and high financial leverage of 5.59x, leading to a deeply negative ROE of -66.9%. EBITDA was -3.01 and EBITDA margin -3.6%, underscoring structurally thin gross margin and limited operating leverage. Cash generation remains weak: operating cash flow was -6.69 and free cash flow -7.55, though OCF was less negative than net income (OCF/NI = 0.71x), indicating some non-cash charges cushioning cash burn. Liquidity is tight with a current ratio of 74.3% and quick ratio of 69.2%, and working capital is negative at -11.40. The balance sheet is highly leveraged (debt-to-equity 4.59x) with an equity ratio of roughly 17.9% (equity 14.17 on assets 79.24), leaving limited shock absorption capacity. Cash and deposits of 11.21 are close to short-term loans of 10.00, leaving limited headroom when considering other current liabilities of 44.34. Notably, the company executed share repurchases of -9.80 despite losses and negative FCF, contributing to financing CF of -6.52 and placing additional pressure on liquidity. Retained earnings are negative (-11.61), partially offset by a sizable capital surplus (23.38), which preserves positive equity for now. Reported operating margin (-0.1%) appears inconsistent with the P/L (-7.35% on our calculation), so we rely on calculated margins using disclosed line items. With goodwill and intangibles totaling 5.68, impairment risk exists if profitability does not recover. Overall, FY2025 Q4 shows modest operational improvement from a low base but ongoing structural profitability, cash flow, and balance sheet challenges that constrain flexibility.

Profitability Analysis

ROE is -66.9% driven by a -11.2% net margin, 1.07x asset turnover, and 5.59x leverage. Calculated operating margin is -7.35% (operating income -6.23 on revenue 84.78), versus reported -0.1% which likely reflects differing XBRL definitions; we use the calculated figure. Gross margin at 14.3% is thin for the business model, leaving limited room to absorb SG&A (SG&A/gross profit = 152%), hence persistent operating losses. EBITDA of -3.01 indicates insufficient operating scale; D&A of 3.22 provides a non-cash buffer but not enough to reach breakeven. Non-operating items are modest (income 1.00, expenses 1.28) and do not materially change the loss profile; interest expense of 0.30 is meaningful given negative EBIT (operating income-based interest coverage ≈ -20.8x; EBITDA-based ≈ -10.0x). Operating leverage remains unfavorable: a low gross margin and relatively fixed SG&A suggest that revenue recovery must be material to restore profitability. The 24.5% YoY improvement in operating loss implies some cost discipline or better mix, but the current margin structure remains loss-making.

Growth Assessment

Revenue declined 1.4% YoY to 84.78, indicating soft demand or price pressure. The improvement in operating income (less negative by 24.5% YoY) points to early progress in cost control, but not yet to structural profitability. Gross margin at 14.3% suggests continued input cost pressure and/or pricing constraints. Ordinary income of -6.51 and net income of -9.48 reflect limited contribution from non-operating gains to offset core weakness. The negative comprehensive income (-11.72) implies additional headwinds from OCI items (e.g., securities valuation), which could persist if markets remain volatile. Asset turnover of 1.07x is moderate, indicating utilization is not the primary constraint; margin quality is the core issue. Near-term growth sustainability hinges on improving unit economics—raising gross margin and reducing SG&A intensity—more than on top-line expansion. Without visibility on order backlog, segment mix, or R&D, we assume growth normalization will be constrained by market conditions and internal restructuring. Outlook: cautiously stable to slightly improving if cost actions continue, but recovery to profitability requires material margin expansion and/or mix shift.

Financial Health

Total assets are 79.24, equity is 14.17, implying an equity ratio of about 17.9% and leverage (A/E) of 5.59x, which is high. Total liabilities are 65.06 with current liabilities of 44.34 versus current assets of 32.94, yielding a current ratio of 74.3% and quick ratio of 69.2%; working capital is negative (-11.40). Cash and deposits of 11.21 roughly match short-term loans of 10.00, but the broader current liability base tightens near-term liquidity. Long-term loans are 5.72; total interest-bearing debt disclosed is at least 15.72, implying net debt of roughly 4.51 when offsetting cash (excluding undisclosed debt-like items). Interest expense of 0.30 versus negative EBIT points to weak coverage and potential refinancing risk if credit conditions tighten. Retained earnings are negative (-11.61), though capital surplus (23.38) sustains positive net assets. Intangibles (goodwill 1.98 and other intangibles 3.70) total 5.68, presenting potential impairment risk if losses persist. Overall solvency is pressured but not yet critical given positive equity; however, low equity cushion heightens sensitivity to further losses.

Cash Flow Quality

Operating cash flow was -6.69 versus net income of -9.48, giving an OCF/NI of 0.71x; cash burn is narrower than the accounting loss due to non-cash charges (D&A 3.22) and working capital movements. Free cash flow was -7.55 (OCF -6.69 plus investing CF -0.86), indicating continued external funding needs or cash drawdown. Capex of -1.64 suggests restrained investment, but even reduced capex does not bring FCF to breakeven at current earnings levels. Financing CF was -6.52, driven in part by share repurchases of -9.80 and likely some debt movements; this shareholder return choice consumed liquidity during a loss-making period. Working capital appears a drag near-term given negative WC (-11.40) and a quick ratio below 1.0; the receivables balance (14.11) versus payables (5.54) suggests cash conversion risk if collections lengthen. Earnings quality is mixed: non-cash D&A supports OCF relative to NI, but persistent operating losses and negative FCF point to unsustainable cash dynamics without improvement in margins or funding.

Dividend Sustainability

Dividends are unreported for the period, and DOE is 0.0%; reported payout ratio of 0.3% appears mechanical and not economically meaningful given negative earnings. With net loss (-9.48) and negative FCF (-7.55), sustainable cash dividends would require drawing on cash, reducing capex further, or increasing debt—none of which is structurally sound absent a turnaround. Share repurchases of -9.80 indicate capital returns occurred despite losses, raising questions about capital allocation priorities and liquidity headroom. Given negative retained earnings (-11.61) and a low equity ratio (~17.9%), maintaining or initiating cash dividends at a material level would be challenging without earnings recovery. Policy outlook likely prioritizes stabilization of earnings and cash flow; any shareholder returns should be contingent on clear progress to positive OCF and operating profit.

Risk Assessment

Business Risks:

• Structural margin pressure given 14.3% gross margin and high SG&A intensity.
• Demand softness reflected in -1.4% YoY revenue decline.
• Pricing power limitations in end markets, increasing sensitivity to input cost inflation.
• Execution risk on cost-reduction and restructuring needed to reach breakeven.
• Goodwill and intangible impairment risk (total 5.68) if cash flows do not improve.
• Customer concentration or cyclicality risk typical of printing/media-related businesses.
• Supply chain and raw material (e.g., paper, energy) price volatility.

Financial Risks:

• Tight liquidity with current ratio 74.3% and quick ratio 69.2%.
• High leverage: debt-to-equity 4.59x; equity ratio ~17.9%.
• Weak interest coverage (operating income/interest ≈ -20.8x; EBITDA/interest ≈ -10.0x).
• Negative FCF (-7.55) and ongoing cash burn requiring funding or cash drawdowns.
• Refinancing risk on short-term loans (10.00) amid negative earnings.
• Potential covenant pressure if lenders require profitability or minimum net assets.
• OCI volatility impacting equity (comprehensive loss -11.72).

Key Concerns:

• Sustained operating losses and negative FCF despite modest YoY improvement.
• Low equity buffer and negative retained earnings constraining flexibility.
• Share repurchases during a loss-making period reducing liquidity.
• Need for material margin expansion to reach breakeven given current cost structure.

Investment Implications

Key Takeaways:

• ROE sharply negative at -66.9% driven by -11.2% net margin and high leverage.
• Operating margin -7.35% (calculated) with thin 14.3% gross margin.
• OCF -6.69 and FCF -7.55 indicate ongoing cash burn.
• Liquidity tight: current ratio 74.3%, quick ratio 69.2%, working capital -11.40.
• Leverage elevated: equity ratio ~17.9%, debt-to-equity 4.59x; interest coverage weak.
• Ordinary loss -6.51 and comprehensive loss -11.72 reflect broader pressure beyond core ops.
• Share repurchases of -9.80 despite losses constrained financing flexibility.
• Retained earnings negative (-11.61) with risk of further capital erosion absent turnaround.

Metrics to Watch:

• Gross margin trajectory and SG&A-to-sales ratio for breakeven visibility.
• Operating cash flow and OCF/NI ratio to gauge earnings quality.
• Working capital turns (DSO, DPO, inventory days) and collection trends.
• Interest coverage and refinancing schedule for short-term loans.
• Equity ratio and comprehensive income (OCI swings) impacting net assets.
• Capex discipline versus maintenance needs and potential asset disposals.
• Order backlog and pricing/mix indicators for revenue sustainability.

Relative Positioning: Relative to domestic peers in printing/media-adjacent segments, Wilco exhibits weaker profitability (negative operating and EBITDA margins), higher financial leverage (equity ratio ~18% vs. higher peer averages), tighter liquidity (sub-1.0 current ratio), and more aggressive capital returns (buybacks) despite losses, leaving it more vulnerable to market and funding shocks until profitability normalizes.

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