DUSKIN CO.,LTD. Q4 FY2025 earnings call

• Completed 10-year long-term strategy "ONE DUSKIN" and launched new long-term strategy "Do-Connect", with the first phase being the 3-year "Mid-Term Management Policy 2028" running from FY2026 March to FY2028 March. The new strategy sets four core themes: new business creation ("Shinka" = new transformation), expansion into adjacent businesses ("Shinka" = evolutionary transformation), deepening of existing businesses ("Shinka" = deepening transformation), and strengthening of the management base.
• Review of previous Mid-Term Management Policy 2022: Total sales grew 15.7% from the FY2022 March base, driven by strong growth at Mister Donut, but operating profit fell 26.6% due to raw material, logistics and labor cost inflation, as well as intentional upfront investments for future growth. ROE reached 5.8%, up 0.4pp from the base period, just short of the 6% target. Key achievements include: completed RFID tagging of 24 million rental mats and mops by July 2024, launched dedicated full-time sales teams for the Hamba Group (adding ~300 dedicated sales staff and ~300 care service staff), entered into capital alliances with JP Holdings (childcare support) and Krashian, launched the new Rescue Service (lock/key emergency services), completed acquisition of Boston House (Italian restaurant chain "Napoli no Shokutaku"), expanded Mister Donut into Singapore and Hong Kong, and piloted new digital checkout systems (unmanned checkout and AI image recognition checkout) for Mister Donut.
• Portfolio strategy aligned with the three transformation themes: 1) New transformation: expand into childcare support via JP Holdings alliance and further expand into Asian markets for Mister Donut; 2) Evolutionary transformation: expand the Hamba Group into full house maintenance (leveraging its existing 4 million household customer base) via partnerships and new services, explore new food brand development, and reformat Boston House for small-format franchise expansion; 3) Deepening transformation: improve customer value via digital and physical channel integration.
• Financial and capital strategy: Raised the minimum target dividend on equity (DOE) from 2.5% to 3%, effective from the FY2026 March interim dividend. Targets reducing policy-held shares to below 10% of consolidated net assets to free up cash for growth. Over the 3-year mid-term period, plans a total of 300 billion yen in investment, including 200 billion yen allocated for M&A, plus 380 billion yen for maintenance, sustainability and BCP investment. Management acknowledges current ROE of 5.8% exceeds estimated cost of equity of ~5% but will continue targeting improvements to ROE and PBR.

1. Hamba (Door-to-door Sales) Group: Revenue was 108.438 billion yen, up 0.974 billion yen (0.9%) year-over-year, but down 0.761 billion yen (0.7%) against November revised guidance. Operating profit was 5.721 billion yen, up 1.579 billion yen (38.1%) year-over-year, but down 1.178 billion yen (17.1%) against guidance. Revenue contribution: ~56.3% of total consolidated revenue. 2. Food Group: Revenue was 66.747 billion yen, up 8.31 billion yen (14.2%) year-over-year, down 0.852 billion yen (1.3%) against November guidance. Operating profit was 8.556 billion yen, up 1.639 billion yen (23.7%) year-over-year, and up 0.756 billion yen (9.7%) against guidance. Revenue contribution: ~34.7% of total consolidated revenue. 3. Other Segment: Revenue was 16.486 billion yen, up 0.84 billion yen (5.4%) year-over-year. Operating profit was 0.511 billion yen, up 0.07 billion yen (16%) year-over-year. Revenue contribution: ~8.5% of total consolidated revenue.

• For FY2026 March (full year): Management forecasts consolidated revenue of 195 billion yen, an increase of 6.2 billion yen (3.3%) year-over-year. It forecasts consolidated operating profit of 7.9 billion yen, an increase of 0.631 billion yen (8.7%) year-over-year, after accounting for ongoing labor cost increases and higher sales promotion costs. It forecasts net income attributable to parent shareholders to increase 2.2% year-over-year, after factoring in the reduction in gains from policy-held share sales (which were 2.8 billion yen in FY2025 March).
• For the final year of Mid-Term Management Policy 2028 (FY2028 March): Management targets consolidated revenue of 207.8 billion yen, consolidated operating profit of 10.6 billion yen, net income attributable to parent shareholders of 10.6 billion yen, and ROE of 7% or higher.

• Hamba Group: Household customer churn still outpaces new customer acquisition for the core Clean Service business, though the pace of customer decline has slowed. Unplanned inventory write-downs of 0.6 billion yen in FY2025 March led to a 17.1% downside miss to operating profit guidance. Some residual non-RFID tagged inventory remains at customer locations, which is limiting efficiency gains from the RFID project.
• Food Group: A change to the annual Lucky Bag sales structure led to a larger-than-expected drop in Lucky Bag volumes and a 1.3% downside miss to revenue against guidance, though management views the change as necessary for long-term profitability. Boston House will only contribute 3 months of profit in FY2026 March after contributing 15 months of profit in FY2025 March, creating a headwind to year-over-year growth.
• Cost pressures: Persistent inflation in raw material, logistics and labor costs remains a headwind to margin expansion.

Q: While the prior mid-term policy focused on planting seeds via M&A and new initiatives, the new plan still allocates ~200 billion yen to new M&A. Is the company still maintaining an active approach to new M&A, rather than focusing only on integrating past deals, which is common for many companies after an active period of deals? / A: Duskin management confirms it will maintain an active M&A stance. As a franchise headquarters, the company has a responsibility to deliver sustained growth to shareholders, so it will continue to actively pursue new business opportunities. At the same time, it will also focus on growing the initiatives and investments launched in the prior mid-term plan.

Q: What is the strategic focus for future M&A activity, and can management share any high-level directional insights on target sectors? / A: Management cannot share specific M&A targets at this time. It notes that the expansion into the house maintenance sector is a key priority for the company's adjacent business growth strategy, and this area still has significant room for development. The company will actively pursue both M&A and strategic alliances to advance growth in this and other new strategic areas.