SEPTENI HOLDINGS CO.,LTD. Q4 FY2024 earnings call

• Overall FY2024 Results • Consolidated revenue reached 28.3 billion yen (+2.2% YoY, all-time high), total sales grew 5.8% YoY to an all-time high. Non-GAAP operating profit was 3.2 billion yen (-20% YoY), as revenue conversion from recent headcount growth lagged plan. Profit attributable to owners of the parent was 5.5 billion yen (almost 1.5x YoY increase) driven by a 2.2 billion yen gain from subsidiary share sale and 1.6 billion yen equity method investment income (+30% YoY). • EPS hit 26.65 yen (+8.7 yen YoY), with planned full-year dividend of 31.35 yen per share, representing a 117.6% payout ratio, significantly expanded shareholder returns. • Quarterly revenue-to-sales ratio improved sequentially from a Q1 2024 low, rising 1.1 percentage points to just under 20% by Q4.

• Operational Initiatives • Implemented productivity improvements including increased in-office workdays and company-wide rollout of internally developed "FUKURO AI Chat", with over 50% monthly active users as of year-end and positive projected man-hour reduction results. • Launched generative AI-powered creative generation product for clients that automatically creates ad creatives (avatars, banners) based on data to maximize ad effectiveness. • Began portfolio reshuffling under new business continuation criteria, completed deconsolidation of two underperforming Media Platform subsidiaries. • Adjusted mid-career hiring pace, started internal workforce reallocation to improve productivity, and increased in-house production to manage external creative outsourcing costs.

• Strategic and Organizational Changes • Discontinued rolling 3-year medium-term management plans due to high uncertainty from fast-changing business conditions, replaced with a long-term vision to achieve 10 billion yen in net profit by 2030. • Retained the medium-term theme "Focus & Synergy", changed reporting segments from 2 to 3 segments (Marketing & Communication, Direct Business, Data & Solution) starting FY2025 to align organizational structure with strategic priorities. • Announced two new strategic initiatives: a capital and business alliance with B-Bit for UX consulting (to expand high-value consulting capabilities), and the establishment of Septeni Sports & Entertainment to grow the sports and entertainment marketing space, in partnership with Dentsu Group.

1. Digital Marketing Business (FY2024): Revenue was 7.1 billion yen, up 3.2% year-over-year; Non-GAAP operating profit was 1.9 billion yen, down 8.5% year-over-year. Total sales was 36.9 billion yen, flat year-over-year, and revenue-to-sales ratio improved 0.7 percentage points year-over-year. Collaboration with Dentsu Group grew to 32.7 billion yen in total collaboration sales (all-time high), with 39 additional collaborative clients bringing the total to 216. This segment contributed 25.1% of total consolidated revenue in FY2024.
2. Media Platform Business (FY2024): The segment recorded a year-over-year decrease in revenue and an expanded deficit. In 4Q FY2024, two subsidiaries (men's cosmetics business and childcare platform business) were deconsolidated, leading to revenue decline, though cost review slightly narrowed the deficit. This was the final reporting period for this segment as it will be reclassified into other segments from FY2025.

• FY2025 (December 2025) consolidated guidance: • Revenue is projected at 30.3 billion yen, +7.1% year-over-year. • Non-GAAP operating profit is projected at 4.0 billion yen, +25.1% year-over-year, targeting a V-shaped recovery through profitability and productivity improvements. • Profit attributable to owners of the parent is projected at 3.8 billion yen, representing +15% year-over-year growth after excluding one-time FY2024 gains. • The dividend policy retains the target payout ratio of 50% or higher, but the full-year dividend forecast is currently undisclosed, to be announced later based on actual business performance and progress of growth investments.

• Long-term guidance (to 2030): • Target combined segment operating profit of 10 billion yen across the three new segments: 10 billion yen for Marketing & Communication, 2.0 billion yen for Direct Business, 1.5 billion yen for Data & Solution. This will translate to 10 billion yen in net profit after including equity method investment gains, targeting steady EPS growth to the 40 yen range.

• Fast-changing business market conditions create high uncertainty for medium-term projections, which led the company to abandon rolling 3-year planning. • Revenue conversion and monetization from recent headcount growth has lagged original plans, putting pressure on near-term profitability. • External creative outsourcing costs have increased in the direct business segment, creating margin pressure that requires ongoing internal capacity building to address. • Shifts in mass media advertising allocation are still in early stages, with no clear long-term trend data yet, creating uncertainty for near-top line growth projections.

Q: Why is revenue growth projected faster than sales growth in the FY2025 plan, and which segment expects take-rate changes? / A: The company intentionally prioritized revenue growth over top-line sales growth in FY2025 to address the 2024 issue of revenue growth lagging sales expansion from market share gain efforts. The core Marketing & Communication segment, which represents the largest share of group revenue, is the main focus for revenue margin improvements, so no segment is planning for take-rate deterioration. This plan intentionally delivers higher revenue growth than sales growth to improve overall profitability.

Q: What are the key drivers of the recent sequential take-rate improvement, and will this improvement continue in FY2025? / A: Two main factors drove the sequential improvement starting from the Q1 2024 low. First, the company proactively renegotiated terms with existing advertising clients to secure appropriate margins based on delivered ad performance. Second, the share of higher-margin solution sales (vs low-margin ad inventory brokerage) has been steadily increasing: solution sales carry margins of 30% to 100%, far above the 10-15% margin for core ad brokerage. Both initiatives will continue in FY2025, so take-rate improvement is baked into the current plan.

Q: Could you explain the medium-term growth strategy for each of the new segments? / A: Marketing & Communication remains the core of the company, centered on digital advertising, with growth driven by the new B-Bit alliance and solution expansion to maximize client marketing outcomes; investments here will continue with a close focus on productivity. Direct Business is focused on the mature direct-to-consumer e-commerce market targeting senior users, with a strategy focused on gaining higher profit share rather than rapid top-line growth. Data & Solution was originally an internal development organization, and will now push external sales: it has particular strength in ad and marketing development, and cross-selling with the other two segments for client in-house digital transformation demand is expected to drive growth, with organizational buildout currently ongoing.

Q: What is the outlook for a shift in ad budget from mass media to digital internet advertising, and how will this impact Septeni? / A: Current budget shifts are concentrated in branding and promotional advertising budgets, with shifts both within mass media and from mass media to digital. Septeni primarily serves performance marketing (sales promotion) budgets, so large-scale shifts from mass to performance digital have not yet materialized. However, client interest in moving branding budgets to digital is growing, and a portion of this new digital budget is already flowing to Septeni; the industry is still watching how KPIs for digital branding will change as this shift progresses, so it is too early to call for an accelerated shift to 60% digital share just yet.