Advance Create Co.,Ltd. FY2025 Q1 Earnings Report

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Executive Summary

The key point for the quarter was the company’s shift into an operating loss as declining revenue coincided with persistently high fixed costs. Revenue was ¥14.8B (¥22.4B in the same period of the previous year, YoY -34.0%), Operating Income was ¥-3.7B (¥0.2B in the previous year), Ordinary Income was ¥-4.4B (¥0.0B in the previous year), and Net Income was ¥-7.2B (¥-1.9B in the previous year, YoY -277.2%). The primary cause of the decline in revenue was the downturn in the core InsuranceAgent segment. Although the gross margin was maintained at 75.5%, profitability deteriorated significantly as SG&A expenses remained at a level exceeding revenue (SG&A ratio: 100.8%).

Factors Affecting Financial Performance

【Revenue】Revenue was ¥14.8B, representing a YoY decline of -34.0%. InsuranceAgent, which accounted for 58.0% of the revenue mix, experienced a substantial decline of -39.4%, weighing on overall performance. While Mediarepp also declined by -47.3%, ASPSegments secured a modest increase of +7.8%.

【Profit and Loss】Operating Income fell into the red at ¥-3.7B (¥0.2B in the previous year), and the Operating Margin deteriorated substantially to -25.3% (approximately 1.0% in the previous year). The primary cause was that SG&A cost reductions failed to keep pace with the decline in revenue, causing fixed-cost leverage to work in reverse. Below operating income, foreign exchange losses of ¥0.4B and interest expenses weighed on ordinary income, which came to ¥-4.4B. In addition, the company recorded extraordinary losses of ¥2.5B, including an impairment loss of ¥0.9B, causing Net Income to decline further to ¥-7.2B. This represents a decline in both revenue and profit.

Segment Analysis

The core InsuranceAgent segment (revenue of ¥10.3B, revenue mix of 58.0%) was the largest factor weighing on performance, reporting an operating loss of ¥-4.7B (YoY -345.8%). AdvertisingAgency turned profitable, reporting revenue of ¥2.9B (YoY -26.0%) and Operating Income of ¥0.6B (YoY +1,065.9%), supporting the company overall with a 20.4% margin. Reinsurance remained relatively solid, with revenue of ¥2.5B (YoY -12.9%), Operating Income of ¥0.3B (YoY -42.0%), and a 12.3% margin. Mediarepp remained in a difficult situation, with revenue of ¥1.4B (YoY -47.3%) and an operating loss of ¥-0.3B. ASPSegments maintained high profitability, with revenue of ¥0.7B (YoY +7.8%) and a 36.7% margin, indicating a significant disparity in profitability among segments.

Key Financial Indicators

【Profitability】The Operating Margin declined to -25.3% (approximately 1.0% in the previous year), while the Net Profit Margin fell to approximately -48.8%, indicating a significant deterioration in the earnings structure.【Cash Quality】Accounts receivable and notes receivable totaled ¥20.3B, approximately 1.4 times revenue of ¥14.8B, indicating a significant timing gap between revenue recognition and cash conversion.【Investment Efficiency】With total assets of ¥61.7B against revenue of ¥14.8B, asset efficiency remained low, with total asset turnover limited to 0.24x.【Financial Soundness】The Equity Ratio was -98.9%, while net assets were ¥-61.0B (¥-54.4B in the previous year), indicating an expansion of effective insolvency and the continued weakness of the financial foundation.

Cash Flow Analysis

Although the company has not disclosed a cash flow statement, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits declined to ¥4.8B, a substantial decrease from the previous year. Current assets of ¥50.8B compared with current liabilities of ¥59.0B resulted in negative working capital. Short-term borrowings stood out at ¥30.4B, while cash remained limited, indicating increased short-term funding pressure. Accounts receivable and notes receivable remained high at ¥20.3B, suggesting that the company’s cash-generation capacity through operating activities may be limited.

Quality of Earnings

Recurring earnings power has been significantly impaired by the ¥3.7B operating loss. Below operating income, foreign exchange losses of ¥0.4B, interest expenses of ¥0.1B, and commission expenses of ¥0.3B weighed on ordinary income, resulting in an ordinary loss of ¥-4.4B. The primary cause of the gap between the ordinary loss and the net loss was the recognition of extraordinary losses of ¥2.5B, including an impairment loss of ¥0.9B, with temporary factors significantly worsening final earnings. Non-operating income was limited to ¥0.1B, or less than 1% of revenue, providing little support to earnings at the ordinary income level. The expansion of accounts receivable and the tendency toward longer collection periods should be noted as factors delaying the conversion of reported earnings into cash.

Earnings Forecast and Guidance

Against the full-year revenue plan of ¥74.0B, Q1 actual revenue was ¥14.8B, representing progress of 20.0%, below the 25% benchmark for evenly distributed quarterly progress. Against the full-year Operating Income forecast of ¥0.5B, Q1 recorded a loss of ¥-3.7B, making substantial earnings improvement over the remaining three quarters a prerequisite. Against the full-year Net Income forecast of ¥-8.4B, the company recorded ¥-7.2B in Q1, representing progress of approximately 86%. The earnings forecast was revised during the quarter, and progress in reviewing the cost structure toward the second half of the fiscal year will be the focus of performance assessment.

Risk Factors

1. Deterioration in the profitability of the core business: The InsuranceAgent segment recorded an operating loss of ¥-4.7B (YoY -345.8%), weakening company-wide earnings.

2. Liquidity and financial soundness risk: Net assets remained negative at ¥-61.0B, indicating continued effective insolvency, while cash stood at only ¥4.8B against short-term borrowings of ¥30.4B. Current liabilities of ¥59.0B exceeded current assets of ¥50.8B, resulting in high short-term funding pressure.

3. Risk of expansion in trade receivables: Accounts receivable and notes receivable of ¥20.3B reached approximately 1.4 times revenue, and longer collection cycles could potentially constrain cash-generation capacity.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

The company’s profitability was in negative territory for both the Operating Margin and Net Profit Margin, representing an underperforming level even compared with the reference values.

Growth and Capital Efficiency

There was a significant gap between the reference Revenue Growth Rate and the company’s actual performance (current-period YoY -34.0%), with the company experiencing a decline in revenue during the period, contrary to industry trends.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The deterioration in profitability at the core InsuranceAgent segment weighed on company-wide earnings, making the correction of the segment’s cost structure the focus for restoring profitability.

2. Progress toward the full-year Net Income forecast had reached approximately 86% as of Q1, confirming from the financial results data that the gap from the initial plan has widened.

3. Accounts receivable had expanded to approximately 1.4 times revenue, clearly demonstrating in the financial data the timing gap between revenue recognition and cash conversion.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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