Advance Create Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥6.61B
• Operating Income: ¥-606M
• Net Income: ¥-1.59B
• EPS: ¥-59.80

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

Advance Create (TSE: 8798) reported FY2025 Q4 consolidated results under JGAAP characterized by contracting topline and deep operating losses. Revenue fell 15.9% YoY to ¥6.61bn, and the company posted an operating loss of ¥0.61bn, effectively unchanged YoY, indicating limited progress on cost right-sizing against a lower revenue base. Net loss widened to ¥1.54bn, driving a calculated ROE of -275.3% via DuPont, reflecting the combined effect of negative margins, modest asset turnover, and very high leverage. Gross margin is reported at an unusually high 87.5%, consistent with a commission/fee-heavy model, but the firm is clearly struggling with operating leverage as revenue softness translates disproportionately into losses. EBITDA was negative at ¥0.52bn and interest coverage stood at -17.9x, underscoring pressure from fixed costs and financial expenses. Operating cash flow was deeply negative at ¥3.90bn, exceeding the accounting net loss, which suggests significant working capital outflows and/or cash costs not captured in net income. Free cash flow was -¥4.04bn after ¥0.14bn of investing cash outflows. The company relied on substantial financing cash inflows of ¥8.42bn to support liquidity and operations. Liquidity is tight but positive on paper, with a current ratio of 102.4% and working capital of ¥0.14bn; however, solvency metrics are stretched with debt-to-equity at 21.7x. The balance sheet figures provided imply high leverage and a thin equity cushion, amplifying earnings volatility on a small capital base. Ordinary income of -¥0.92bn indicates that non-operating items (likely interest and other financial effects) further weighed on earnings. Dividend payments were suspended (DPS ¥0) with a payout ratio of 0%, appropriate given negative earnings and FCF. Asset turnover of 0.642x is modest for a fee-driven distributor, pointing to underutilized assets or a depressed sales environment. While several headline ratios are internally consistent (e.g., gross margin, interest coverage, DuPont ROE), some line-item relationships may reflect classification differences; analysis focuses on the provided non-zero metrics as directed. Overall, the profile is one of a high gross margin, asset-light distributor experiencing sharp negative operating leverage, requiring external financing to bridge losses and working capital needs. Near-term recovery hinges on revenue stabilization, SG&A discipline, and improved cash conversion.

Profitability Analysis

ROE decomposition (DuPont): Net margin -23.29% × asset turnover 0.642 × financial leverage 18.40 = -275.31% ROE. The primary driver of negative ROE is the deeply negative net margin, which overwhelms modest asset turnover. Financial leverage is extremely high, magnifying losses relative to equity. Margin quality: reported gross margin is 87.5%, consistent with a commission-based or platform intermediary model; however, the translation to EBITDA (-¥524m, -7.9% margin) and operating income (-¥606m) shows SG&A intensity and fixed costs offsetting gross profitability. Ordinary income of -¥924m indicates non-operating burdens (including ¥33.9m interest) exacerbated operating weakness. Operating leverage: a 15.9% YoY revenue decline coincided with a sustained operating loss (flat YoY), implying that fixed costs remain high relative to the post-decline revenue base; incremental margins are negative. Tax impact is negligible with an effective tax rate near 0% given losses. Overall profitability remains under pressure, with limited buffer against revenue volatility.

Growth Assessment

Revenue contracted 15.9% YoY to ¥6.61bn, indicating demand softness and/or lower monetization (e.g., commission rates, product mix). Given the fee-heavy model, revenue declines have an outsized effect via operating leverage. Profit quality is weak: EBITDA and operating income are negative, and ordinary income is further depressed by financial costs. With no evidence of non-recurring gains, the loss profile appears largely operational. Sustainability: without stabilization in topline drivers, current cost structure will likely keep operating margins negative. Outlook hinges on restoring policy acquisition volumes, improving take rates, and tightening SG&A. Near-term growth visibility is limited given the large negative OCF and reliance on financing; execution on cost control and revenue recovery is crucial for inflection.

Financial Health

Liquidity: Current assets ¥5.91bn vs current liabilities ¥5.77bn yields a current ratio of 102.4% and working capital of ¥140m—positive but thin. Quick ratio matches current ratio (no inventories reported), underscoring reliance on receivables and cash inflows. Solvency: Total liabilities ¥12.15bn versus total assets ¥10.29bn indicate high leverage; reported debt-to-equity is 21.73x and DuPont leverage 18.40x, both pointing to a very small equity base supporting a large balance sheet. Interest expense of ¥33.9m with negative EBIT gives an interest coverage of -17.9x, highlighting limited cushion to service debt from operations. Capital structure is fragile: with equity of ¥559m reported alongside high liabilities, even modest losses materially erode capital. Overall, balance sheet resilience is weak and sensitive to earnings recovery and external funding access.

Cash Flow Quality

Earnings quality is poor in cash terms: Operating CF of -¥3.90bn is substantially worse than net loss of -¥1.54bn, yielding an OCF/NI ratio of 2.54 (negative-to-negative)—this indicates that accrual earnings overstate cash performance, likely due to working capital outflows (e.g., receivables growth or payables reduction). Free cash flow was -¥4.04bn after modest investing outflows of -¥135m, implying the core issue is operating-related, not capex. With financing inflows of ¥8.42bn, the company funded both the operating deficit and maintained liquidity. Working capital dynamics are a key swing factor; absent improvement, cash burn may persist even if accounting losses narrow. Depreciation and amortization is only ¥81.9m, confirming low capital intensity; the problem is revenue/SG&A balance, not capex load.

Dividend Sustainability

Dividend per share is ¥0, with a payout ratio of 0% and FCF coverage of 0.00x. Given negative net income and deeply negative FCF, distributions are currently unsustainable without balance sheet strain. Policy outlook: until the company demonstrates sustained positive OCF and a return to profitability, reinstating dividends would be imprudent. Any future resumption likely requires multiple quarters of improved operating margin, reduced cash burn, and stronger leverage metrics.

Risk Assessment

Business Risks:

• Revenue cyclicality and sensitivity to insurance demand/product mix in a fee-based distribution model
• Negative operating leverage due to high fixed SG&A on a reduced revenue base
• Competition in online and offline insurance intermediation pressuring commission rates
• Customer acquisition cost inflation and lower conversion impacting unit economics
• Dependence on counterparties’ product terms and potential regulatory changes affecting commission schemes

Financial Risks:

• Very high leverage (D/E 21.73x; DuPont leverage 18.40x) magnifies losses and solvency risk
• Weak interest coverage (-17.9x) and reliance on external financing (¥8.42bn inflow) to fund operations
• Thin liquidity buffer (current ratio 102.4%, working capital ¥140m) vulnerable to working capital swings
• Sustained negative OCF (-¥3.90bn) and FCF (-¥4.04bn) increasing refinancing and covenant risks

Key Concerns:

• Topline decline of 15.9% YoY with no visible cost absorption improvement
• Large cash burn relative to equity base, stressing balance sheet durability
• Ordinary loss indicates financial items exacerbate operating challenges
• Dividend suspension reflects capital preservation priority amid losses

Investment Implications

Key Takeaways:

• Topline contraction (-15.9% YoY) and negative operating leverage drove an unchanged operating loss (-¥606m)
• ROE of -275.3% is primarily margin-driven, amplified by extreme leverage (18.4x)
• Cash generation is materially weaker than accrual earnings (OCF -¥3.90bn vs NI -¥1.54bn)
• Liquidity is narrowly positive but fragile; solvency metrics are stretched (D/E 21.7x)
• Dividend remains suspended; restoration requires a turnaround in OCF and earnings

Metrics to Watch:

• Quarterly revenue trajectory and take-rate/commission trends
• SG&A as a percentage of revenue and fixed-cost reduction progress
• Operating cash flow and working capital movements (receivables and payables)
• Leverage and interest coverage, including any covenant headroom
• Ordinary income trend (impact of non-operating items) and financing dependence

Relative Positioning: Versus domestic insurance agency/platform peers, Advance Create retains a high reported gross margin profile but currently exhibits weaker profitability, significantly worse cash conversion, and substantially higher leverage, leaving the company more exposed to revenue shocks and funding conditions.

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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