Advance Create Co.,Ltd. FY2025 FY Earnings Report

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Executive Summary

Although the operating loss narrowed despite lower revenue, the net loss improved only modestly from the previous year due to the recognition of extraordinary losses, leaving the company with a vulnerable financial structure. Revenue was ¥69.2B (¥81.4B in the previous year, YoY -14.9%), while the operating loss was ¥-2.9B (¥-3.9B in the previous year, YoY +26.7%), representing a narrowing of the loss. Meanwhile, Ordinary Income deteriorated to ¥-5.7B (¥-4.5B in the previous year, YoY -25.4%), affected by increases in interest expense and foreign exchange losses. Net Income improved to ¥-11.8B (¥-18.1B in the previous year, YoY +34.7%), but extraordinary losses of ¥5.9B, including an impairment loss of ¥2.2B, pushed up the final net loss. The primary cause of the revenue decline was the downturn in the core InsuranceAgent business, which accounted for 64.4% of the revenue mix, highlighting the concentration risk in the earnings base.

Factors Affecting Performance

【Revenue】Revenue was ¥69.2B, a year-on-year decline of -14.9%. The core InsuranceAgent segment was ¥51.0B (64.4% of the revenue mix, YoY -13.2%) and was the primary cause of the company-wide revenue decline, while Mediarepp (-32.1%) and MediaAgency (-33.9%) also recorded significant decreases in revenue. In contrast, ASPSegments was ¥3.1B (+2.5%), the only segment to secure revenue growth.

【Profit and Loss】The operating loss improved from the previous year to ¥-2.9B. However, while the gross margin was 79.9% (an improvement of approximately +4.8pt year on year), the SG&A ratio was 84.1% (a deterioration of approximately +4.3pt), indicating that distortions remain in the cost structure. At the Ordinary Income level, interest expense of ¥0.6B, commission fees of ¥2.0B, and foreign exchange losses of ¥0.3B were the primary contributors to non-operating expenses of ¥3.4B, causing Ordinary Income to deteriorate to ¥-5.7B. After extraordinary losses of ¥5.9B, including an impairment loss of ¥2.2B, Net Income was ¥-11.8B. The results can be characterized as lower revenue and lower profit at the Ordinary Income level, with improvement at the operating level being offset by non-operating expenses and extraordinary losses.

Segment Analysis

While 3 of the 5 segments secured profitability, the core InsuranceAgent segment recorded an operating loss of ¥-6.9B (margin -13.5%), significantly weighing on company-wide earnings. ASPSegments maintained high profitability with a margin of 40.3%, while MediaAgency remained solid at 19.7%. Reinsurance posted a profit of ¥0.8B, but profit declined by YoY -21.9%, while Mediarepp fell into a loss of ¥-0.4B (YoY -165.4%). InsuranceAgent accounted for 64.4% of the revenue mix, making the improvement of profitability in this business the key to company-wide performance.

Key Financial Indicators

【Profitability】The operating margin improved slightly to -4.1% (previous year -4.8%), but the Ordinary Income margin deteriorated to approximately -8.2%, indicating that improvement at the operating level was offset by non-operating expenses. The net profit margin was -17.1%, reflecting the substantial impact of extraordinary losses.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥-39.0B, a cash outflow substantially exceeding the net loss of ¥-11.8B. An increase in trade receivables of ¥-6.6B placed pressure on working capital, indicating weak underlying cash-generation capacity.【Investment Efficiency】ROE was -263.6%, but this was primarily due to the amplified volatility resulting from the small denominator of net assets at ¥4.5B; in substance, the impact of financial leverage is dominant.【Financial Soundness】The Equity Ratio remained low at 4.4% (improving from -80.5% in the previous year due to a capital restructuring), while the financial structure continued to exhibit a high dependence on short-term borrowings.

Cash Flow Analysis

Operating Cash Flow (OCF) recorded a substantial outflow of ¥-39.0B, a cash outflow significantly exceeding the net loss of ¥-11.8B. The primary factor was deterioration in working capital, including an increase in trade receivables of ¥-6.6B, and the company’s cash-generation capacity from its core business remained weak even after considering non-cash adjustments for tax refunds and impairment losses. Investing Cash Flow was limited to ¥-1.4B, with virtually no capital expenditures. Financing Cash Flow was ¥+84.2B, representing a substantial excess of funds raised, as financing through share issuance and an increase in short-term borrowings offset negative free cash flow (-¥40.4B). Cash and deposits accumulated to ¥53.4B; however, this was the result of dependence on external financing rather than cash generation from the core business, requiring monitoring from the perspective of the sustainability of the company’s funding position.

Quality of Earnings

This was a set of results characterized by a significant divergence between recurring earnings capacity and non-recurring factors. While Ordinary Income was ¥-5.7B, Net Income deteriorated to ¥-11.8B, with the difference primarily attributable to extraordinary losses of ¥5.9B, including an impairment loss of ¥2.2B. Non-operating income was limited at ¥0.6B, while non-operating expenses were substantial at ¥3.4B (interest expense of ¥0.6B, commission fees of ¥2.0B, and foreign exchange losses of ¥0.3B), absorbing the improvement at the operating level. The fact that OCF was an outflow of ¥-39.0B, substantially exceeding the net loss, indicates a gap between accounting earnings and cash generation and warrants monitoring from a quality-of-earnings perspective. Comprehensive Income was ¥-11.8B, broadly in line with Net Income, indicating that additional divergence from other comprehensive income items was limited.

Earnings Forecasts and Guidance

The FY2026 Full-Year forecast calls for Revenue of ¥79.5B (YoY +20.3%), Operating Income of ¥6.5B, Ordinary Income of ¥5.5B, and Net Income of ¥4.5B (EPS ¥6.51), representing a plan for a substantial turnaround from the FY2025 results to profitability. The transition from the FY2025 operating loss of ¥-2.9B to forecast Full-Year Operating Income of ¥6.5B requires an improvement of approximately +¥9.4B. Achievement of the forecast will depend on restoring profitability in the core InsuranceAgent business, reducing SG&A expenses, and improving capital efficiency through better working capital management, particularly trade receivables.

Shareholder Returns

The company paid no dividend for the current period, and the Payout Ratio cannot be calculated. The dividend for the fiscal year ending September 2026 is also undecided as of the present time. Given the continuing net loss and negative OCF, the company’s dividend capacity is effectively limited, and the normalization of future earnings and its funding position will be a prerequisite for the resumption of shareholder returns.

Risk Factors

1. Business concentration risk: The core InsuranceAgent business, which accounts for 64.4% of the revenue mix, continues to underperform with an operating loss of ¥-6.9B. Delays in improving profitability in this business constitute a structural risk that could determine company-wide performance.

2. Liquidity and leverage risk: The Equity Ratio remains at only 4.4%, while short-term borrowings have increased to ¥46.4B. With OCF negative at ¥-39.0B, the company depends on financing through Financing Cash Flow (+¥84.2B), leaving it with limited resilience to changes in the refinancing environment.

3. Working capital deterioration risk: While Revenue has declined, trade receivables have increased to ¥26.7B (up +33.1% year on year), raising the possibility that a lengthening collection cycle will continue to pressure cash generation.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

The company’s operating and net profit margins are both negative, suggesting that its profitability is positioned at the lower end of the industry.

Growth and Capital Efficiency

The company’s revenue growth rate is in negative territory, and the revenue decline in its core business is notable even within the industry.

※Source: Company research

Key Points of Note in the Results

1. Although operating results improved from the previous year, the deterioration at the Ordinary Income and extraordinary loss levels limited the improvement in Net Income. The continued structure in which improvement at the operating level is offset by non-operating expenses and non-recurring factors is noteworthy when evaluating the quality of the results.

2. Through a capital restructuring (deficit compensation through a reduction in capital and a capital increase), the Equity Ratio improved from -80.5% in the previous year to 4.4%. However, dependence on short-term borrowings remains high, and the structure of dependence on financing while OCF is negative has not changed.

3. The FY2026 forecast calls for Revenue growth of +20.3% and a return to profitability. However, the gap from the actual results is substantial, and progress in restoring profitability in the core business and improving working capital will be key factors in assessing future progress.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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