2304.T

Company Identity and History

• Mission: "Support the Hospitality" to back Japan's hotel and tourism industry; Vision/Concept: "Create Together", with a current workforce of approximately 7,000 employees (many part-time/seasonal) that includes a growing share of diverse workers including seniors, young students, and foreign national employees.
• 41-year operating history centered on dishwashing services; listed on JASDAQ 20 years after founding, then expanded into multi-segment group operations via M&A with the tagline "Go Beyond! Next 20" for the current growth phase.
• M&A strategy has consistently focused on expanding offering value to core hotel/tourism clients, expanding from hotel staff cafeteria support to breakfast/restaurant operations, space production, and now even security cameras for banks and audio equipment for theme parks, with a long-term goal of contributing to urban development projects.

Recent Financial and Capital Return Performance

• Recent performance has seen strong revenue growth following the recovery of the hotel and tourism sector post-Covid, with accompanying growth in operating profit, recurring profit, and net income.
• ROE has risen to over 20%, PBR is over 1x, and PER is currently 8.6x. The company aims to improve PER and further increase ROE and corporate value to drive higher PBR.
• Dividend policy: Maintained a 5 yen per share dividend even during the Covid-19 pandemic, and will continue stable, continuous dividends going forward based on the assumption of consistent revenue and profit growth.

Core Competitive Strengths

• Stable revenue base: 70% of revenue from two stock-based annual contract segments, with consistent contract renewal delivering steady, low-volatility revenue.
• Adaptability to industry change: 40+ years of reputation and brand recognition in dishwashing, with expanding service lines aligned with sustainability and new market needs: joint R&D of a QR-enabled reusable tumbler network with NISSHA, and managed a circular reusable cup washing system for the annual Tokyo Ajiwai Festa event. The company also provides on-site dishwashing services for large events including FOODEX JAPAN 2026 and ProWine Tokyo, contracted directly by washing machine manufacturers based on CSS Holdings' proven expertise.
• Cross-segment hygiene expertise: With the Food Service segment's experience, the group shares food hygiene knowledge across the business, and all employees complete HACCP certification training. Sendan, the group's Food Service company, can also provide external HACCP consulting and training, positioning the company well to meet strict hygiene requirements for new clients including foreign hotels and hospitals.
• High entry barrier from accumulated expertise: 40+ years of accumulated know-how for working in constrained, complex hotel back-of-house environments, including handling all types of dishwashing equipment, workflow optimization, and accident response. The company is currently working to digitize this knowledge and train AI to make it accessible to new younger workers, supplementing existing veteran-led training.

Current Key Operational Initiatives

• Automation and digitalization: Formed a strategic partnership with cooking robot developer TechMagic, already deployed TechMagic robots at the Osaka-Kansai Expo catering kitchen supported by CSS Holdings to test productivity improvements. The company is also exploring automation for dishwashing operations powered by AI, which remains at the development stage with commercialization still expected to take time. The company is also implementing AI to automate shared back-office services (accounting, general affairs, HR, labor management) to reduce SG&A expenses and improve administrative processing efficiency.
• Healthcare sector expansion: Growing demand for outsourced dishwashing services from hospitals, as rising labor and ingredient costs put pressure on hospital catering providers, and hospitals do not want medical/nutrition staff to handle dishwashing. The company is actively responding to these inquiries, adapting to stricter hospital hygiene standards to improve overall service levels, and the Food Service segment is also seeing growing inquiry flow for catering services for healthcare facilities and senior housing.
• Peripheral service expansion via partnership and M&A: CSS Holdings increasingly receives requests for expanded back-of-house services beyond core dishwashing, including kitchen floor cleaning, grease trap cleaning, large exhaust hood cleaning, and drain cleaning. The company is partnering with specialized providers to meet these requests and expand its value proposition to hotel clients.
• Foreign national talent development: 13% of the company's 7,000 employees are foreign nationals. The company is actively hiring foreign national graduates from hospitality-focused universities to develop future management talent, and recently hired 7 new full-time graduate employees (6 from Nepal, 1 from India) who are now training after completing onboarding. The company has also introduced job cards for part-time foreign workers to objectively verify their understanding of Japanese work culture and practices to support their career progression, with a long-term goal of opening up new global business opportunities via talent networks.

• The company's current mid-term management plan (running through the September 2027 fiscal year) is in its second year, structured around organic growth of the three existing segments plus "X-value", the co-creation of new value by combining new offerings with existing core business.
• The core strategic approach is to grow existing business steadily while adding new value to improve market perception, lift PER, and ultimately drive higher PBR and shareholder value. The company is also pursuing investment in sustainability and human capital to reduce broad capital costs and lift ROE.
• The company does not see fixed capacity constraints for new business, and will hire and train talent in line with new contracted business growth in a planned, sequential manner.

CSS Holdings operates across 3 business segments, with the following revenue contribution breakdown: 1. Steward Business: Accounts for 50% of total group revenue, centered on outsourced dishwashing and related back-of-house services for large hotels, with approximately 200 client contracts currently. New non-hotel segments (large theme parks, food courts, hospitals) now account for approximately 10% of total company revenue from this segment. 2. Food Service Business: Accounts for just over 20% of total revenue, focused on outsourced operations including hotel employee cafeterias and hotel breakfast buffets, with approximately 110 client contracts currently. 3. Space Production Business: A construction-focused segment that creates spaces using audio, visual, and scent design; it is primarily flow-based with minor stock-type elements from maintenance and refills, and no specific revenue contribution percentage was provided in the transcript. Combined, Steward and Food Service businesses account for approximately 70% of total company revenue, both operating as stable stock-based annual contract businesses.

• A slowdown in inbound travel demand would impact the Food Service segment (which provides hotel breakfast services) if hotel accommodation and dining demand cools, though management notes that demand is not solely dependent on inbound travel, and past declines in Chinese visitor volumes only had a negligible impact on CSS Holdings' overall business results.
• Core Steward business demand is not closely tied to inbound tourist volumes, as its customer base is large luxury hotels with extensive banquet facilities, so any impact from a post-boom inbound slowdown is expected to be limited.

Q: What is the size of CSS Holdings' target market and what is your current market position?

A: Our core target is large hotels with multiple large banquet facilities, centered on top-tier properties including Imperial Hotel, Hotel Okura Tokyo, and Hotel New Otani. Among the top 10 hotels ranked by banquet sales in industry publications, we currently hold contracts with 5, and this increases to 8 out of the top 15, representing roughly half of the target market.

A: Scope of work varies by hotel: some only require dishwashing, while others outsource all work starting from when used dishes are returned from the dining room.

Q: What are the drivers of future demand growth, and will growth come from new contracts with additional large hotels or gaining share from existing competitors?

A: The number of hotels, particularly foreign-branded hotels, continues to grow, with a number of new large branded hotels recently opening in Kyoto and ongoing new development. We are steadily adding new clients, and are also seeing growing demand to expand the scope of our work for existing clients, from just dishwashing to full hygiene management and end-to-end back-of-house outsourcing. This expansion is driven by severe labor shortages in the hotel industry.

A: Our 40-year reputation for quality has also brought inquiries from non-hotel venues with dishwashing needs including large theme parks, food courts, and increasingly hospitals. These new non-hotel segments now account for approximately 10% of total revenue, expanding our overall market.

Q: Has CSS Holdings grown via M&A, what is the rationale for your M&A strategy, and will this strategy continue?

A: We have pursued M&A since we listed 20 years ago, with the primary goal of expanding the value we can offer to our core hotel, tourism, and restaurant clients. We started with supporting hotel employee cafeterias, then expanded into hotel breakfast and restaurant operations, then into space production, and now we even supply security cameras to banks and audio equipment to theme parks, serving general corporate clients in addition to our core hospitality customers. We started with hotel space design and production, and now aim to expand further to contribute to broader urban development projects.

A: our focus on expanding offered value will remain unchanged going forward, and we continue to discuss and combine segment strengths to grow the business.

Q: Which is higher priority for growth strategy: expanding business with existing hotels or acquiring new hotel clients?

A: Both are important. We were originally specialized exclusively in dishwashing for large luxury hotels, so we only covered a portion of hotels' overall back-of-house needs, but now we are seeing demand to expand our scope from existing clients, and growing inquiries from other industries, so our overall market is expanding. For hotels specifically, we are actively pursuing new contracts tied to upcoming new hotel openings in the next 1-2 years, while also growing via deeper relationships with existing clients, with organic growth often coming from word-of-mouth and existing relationships.

A: Many senior hotel industry personnel (such as executive chefs and general managers) move between hotels over the course of their careers, and they very often bring us with them to their new roles, asking us to bid for contracts at their new properties, so our existing relationships are a strong driver of new client acquisition.

Q: As hotels continue to open in Japan, how much capacity does CSS Holdings have to take on new business?

A: We hire and train talent in line with the number of new contracts we win, so we do not operate with a fixed hard capacity constraint. We will continue to grow our headcount in a planned, sequential manner to match new business.

Q: What would be the impact on performance if inbound tourism demand cools after the current boom?

A: Our core Steward business serves large luxury hotels with extensive banquet facilities, so its customer base is not fully aligned with general inbound tourist demand, so we expect any impact to be limited.

A: Our Food Service segment does serve hotel breakfasts, so it would be impacted if accommodation and dining demand cools, but demand is not entirely dependent on inbound. Even when travel from China declined significantly, the impact on our business was negligible.

Q: What makes it hard for new competitors to enter this niche, where you are the top player serving top-tier hotels? What is your competitive advantage?

A: Our 40 years of experience and track record let us anticipate the actions hotels need before they ask, and we differentiate ourselves by supporting all aspects of a hotel's beverage, kitchen, and banquet operations holistically, not just washing dishes, to help hotels improve their overall quality.

Q: How does your existing base of top luxury hotel clients help you acquire new business?

A: Our strong reputation within the industry is the biggest benefit. As we noted earlier, many hotel industry professionals move between properties as they advance their careers, and they very often request our services at their new hotels.