Scroll Corporation Q4 FY2025 earnings call

Company-Wide Financial & Macro Update

• Over 99% of revenue is generated domestically in Japan, so the firm faces no direct impact from U.S. tariff policy. The firm imports $85-90 million annually, so yen appreciation would deliver a net benefit, and existing 1-year-old foreign exchange hedging limits short-term volatility.
• The main expected macro risk is slowing consumer demand stemming from negative impacts of trade tensions on Japanese core export industries, which is already being observed in market trends.
• Full-year monthly sales were above prior-year levels overall: the first half was led by the mail-order business, while the second half saw the mail-order business miss prior-year results in 4 of 6 months, with the solution business offsetting this weakness to deliver full-year growth.
• ROE increased 1 percentage point to 12.2%. The equity ratio improved slightly, ending the period with healthy balance sheet stability, and cash and cash equivalents totaled 5.6 billion yen (560 million yen) at period end, generated by strong operating cash flow.

Strategic Vision Updates

• The firm shifted from annual rolling 3-year medium-term plans to a 3- to 5-year long-term vision focused on targeted long-term investment, moving away from over-emphasis on near-term results. The stated vision is to become a "true unique, high-profit Marketing Solution Company (MSC)" that builds unique capabilities and delivers high added-value customer solutions.
• The 5-year (2029 fiscal year, 90th founding anniversary) quantitative targets are consolidated net profit of 6 billion yen (600 million yen) or higher, and ROE of 15% or higher.

FY2025 (April 2025-March 2026) Priorities

• Strengthen profitability via pursuing uniqueness: For the solution business, focus management resources on core LPB (Logistics, Payment, BPO) services, actively pursue M&A for expansion, and improve debt screening processes. For the mail-order business, adapt to rapidly shifting market conditions, adjust catalog strategy, improve productivity and maintain profit margins amid broader market contraction. For the e-commerce business, continue one more year of trial and error to exit intense price competition and achieve sustainable restructuring.
• Transform business portfolio: Continue to prioritize expansion of the solution business with concentrated management resource allocation, with the mail-order business remaining a core cash generating supporting segment.
• Promote agile responsible management: Respond quickly to increasing regulatory and market expectations for corporate governance (such as timely disclosure), progress on stated environmental and decarbonization targets, and advance diversity initiatives: the 30% female manager target was achieved one year early in April 2025, with formal DEI targets now being set and rolled out.

Shareholder Return Updates

• The shareholder return policy was updated: maintain a 4% DOE (Dividend on Equity) floor, increase the target consolidated payout ratio to 50% starting FY2025 (up from 40% previously), and target a total payout ratio of approximately 60% by 2029.
• The full-year FY2025 dividend is forecast at 59 yen per share (29.5 yen for interim, 29.5 yen for year-end). Just over 680 thousand treasury shares were retired after the period to increase the free float ratio.

1. Solution Business: Revenue increased by 6.2 billion yen (620 million yen) year-over-year, achieving 30.1 billion yen (3.01 billion yen) in revenue, contributing ~35.8% of total consolidated revenue. The segment reported a decrease in profit, driven by higher bad debt allowance requirements from deteriorated non-payment rates for utility sector payment services. 2. Mail-Order Business: Revenue decreased year-over-year to 41.8 billion yen (4.18 billion yen), contributing ~49.8% of total consolidated revenue. The segment reported a decrease in profit, with a 3.1% profit margin decline year-over-year, but still managed to secure 5.2 billion yen (520 million yen) in ordinary profit via controlled promotional spending despite Q4 2025 sales weakness. 3. e-Commerce Business: Revenue decreased 2.2 billion yen (220 million yen) year-over-year to 12.1 billion yen (1.21 billion yen), contributing ~14.4% of total consolidated revenue. The segment returned to profitability (black ink) for the first time after restructuring, with a year-over-year increase in profit driven by 2023 restructuring and integration cost-cutting effects totaling 1.1 billion yen (110 million yen), but remains in the restructuring phase with no guaranteed sustained profitability. Total consolidated revenue came to 84.03 billion yen (8.403 billion yen), marking the first revenue and profit increase in four periods. Ordinary profit totaled 6.424 billion yen (642.4 million yen), and net profit totaled 4.267 billion yen (426.7 million yen).

• Consolidated total revenue guidance for FY2025 is set at 85 billion yen (8.5 billion yen), representing 1.2% year-over-year growth, with segment revenue targets of 34.3 billion yen (3.43 billion yen) for the solution business, 38.2 billion yen (3.82 billion yen) for the mail-order business, and 13.6 billion yen (1.36 billion yen) for the e-commerce business. The solution business is expected to lead overall growth, while the mail-order and e-commerce businesses are guided for lower revenue year-over-year.
• Total segment profit guidance is a decline year-over-year to 6 billion yen (600 million yen). The solution business is guided for profit growth, the mail-order business is guided for profit decline, and the e-commerce business is guided for roughly flat profit year-over-year. The guidance already incorporates expected market cooling and other current macro headwinds, and reflects downward revisions from previous plans.

• The solution business' payment service segment has already accumulated low-quality receivables from aggressively expanded utility (especially new power) sector clients, which required large additional bad debt allowance provisions. Additional provisions of 400-500 million yen (40 million to 50 million yen) will be required in FY2025, with no large near-term improvement expected for already originated bad debt.
• The mail-order business faces significant demand slowdown starting in Q1 2025 calendar year, with unseasonable weather and broader consumer market contraction pressuring sales, and excess inventory leading to higher disposal costs that compress margins.
• The e-commerce business remains in restructuring, trapped in intense price competition that limits profit generation, and has not yet achieved a sustainably profitable business model.
• Broader macroeconomic slowdown driven by trade policy impacts on core Japanese export sectors is already reducing consumer sentiment, which creates downside risk to demand across all consumer-facing segments.

Q: The solution business has grown steadily, but a 615 million yen negative impact from increased bad debt allowances was recorded this period. Is this level of bad debt a permanent feature of the payment business, or a one-off special case? What is the outlook for future bad debt levels? / A: The large increase in bad debt came from the firm's recent aggressive expansion into non-retail utility payment services, which were initially viewed as low non-payment risk. Intense competition in the new power sector led to the firm having to guarantee purchases of lower-quality receivables, which pushed non-payment rates much higher than initially projected. Accounting rules require allowances for projected bad debt over the next 24 months based on current trends, leading to the large required increase in allowances, with elevated provisions required for the next 12 months. The firm has already adjusted contract terms or terminated agreements with high non-payment clients, and implemented early warning systems to identify new bad debt. Future new bad debt should be controllable, but additional provisions for already originated problematic receivables are unavoidable over the next year.

Q: What are the main drivers of the steady decline in the mail-order business' profit margin, and what improvement plans are in place? What FX rate is assumed for the current fiscal year? / A: The largest driver of margin decline is unfavorable yen depreciation over the past two years, which raised import costs. The second driver is recent demand cooling that increased excess inventory, leading to higher disposal costs that raised the cost of goods ratio. For improvement, the firm is focusing on improving demand forecasting to better control inventory, reduce costs, and maximize gross profit. The current FY2025 FX assumption is roughly the mid-140 yen range on a forward contract basis, a 5 yen improvement from the prior year's average rate that will ease import cost pressure.

Q: What is the status of e-commerce business restructuring and rebuilding, and when can sustained profitability be expected? / A: After the 2023 corporate integration and restructuring, the business returned to black ink in FY2025, but remains in rebuilding and is not yet guaranteed sustained profitability. The core challenge of exiting cutthroat price competition that erodes profits remains, and the firm will spend an additional year testing new business models to determine a path to sustainable growth and profit, with no fixed timeline for full restructuring completion.