CHARM CARE CORPORATION Q4 FY2025 earnings call

Strategic Focus: Return to Core Nursing Care Business

• Full exit from third-party real estate development after the 2026 June Chofu City project; all ex-real estate personnel will be reassigned to new nursing home opening projects. The company will now concentrate 100% on its core paid nursing home business to become a leading industry player.
• Expand new openings from 10 per year to 15-20 per year, including M&A-acquired homes. New expansion areas include Tokyo-adjacent Saitama and Chiba Prefectures (as part of the greater Tokyo dominant strategy) and the Nagoya region (target 5 initial openings to build a third regional dominant cluster, after Kansai and greater Tokyo).
• Continue M&A focused on carve-out/operating transfer deals rather than full company acquisitions, leveraging the company's expertise in turning around underperforming acquired homes. Related subsidiary businesses will also be expanded: Good Partners (hospice care) has 6 openings confirmed and will add several per year; Charm Senior Living (resident referral) is targeting M&A of a nursing care portal site to strengthen digital customer acquisition; new opportunities including a senior residence partnership with Tokyu Real Estate are under evaluation.

Operational Improvement: On-site Training & Labor Productivity

• Shift training focus from off-site center training to on-site OJT: add more training staff to visit homes and provide in-person service improvement coaching. The CEO and COO will directly train home managers to upgrade management capabilities, and individual staff skill levels will be tracked transparently to drive measurable improvement.
• Secured regulatory approval for the first ever 3:0.9 staffing ratio (from the mandatory baseline of 3:1) at one home, delivering a 10% labor cost reduction. The company is running trials for 10 more homes in 2026 June, targeting broader approval and rollout.
• Top-tier industry compensation: average employee annual salary reached 4.65 million yen, near the average for general Japanese corporations. The optional 3-day workweek policy introduced in September 2024 has boosted hiring: 100 new graduate acceptances for April 2026 intake, up from 62 in 2025, and mid-career applications have grown 1.5x.
• Co-developing AI-generated care plans with NTT DX Partner; the demo is complete and the tool is on track to launch by end-2025, with rollout starting 2026. This will increase care manager productivity, allowing one care manager to handle up to 100 residents (up from the current 60 average), reducing required headcount and improving margins.

Capital Allocation & Shareholder Return

• Prioritize growth investment, maintain a 30%+ payout ratio for dividends, and hold reserve cash for large M&A. Allocate at least 3.5 billion yen to shareholder return over the mid-term plan, with upside for additional return if earnings exceed plans.
• 2025 June year-end dividend maintained at 34 yen per share, pushing payout ratio above 30% for the first time. 2026 June dividend is planned at 37 yen per share (including a 20th anniversary special dividend), and interim dividends will be introduced starting 2026.

1. Nursing Care Segment: Revenue grew 17.0% year-over-year. Segment profit increased 395 million yen (9.0% year-over-year growth), even after absorbing a 489 million yen negative impact from newly M&A-acquired homes. Charm Care existing homes (open over 2 years) hit 94.6% occupancy at end-June, in an uptrend; former Care21 homes (acquired via M&A) hit 45.7% occupancy, a large improvement from prior levels, though both missed plan targets. Like existing homes exceeded occupancy targets with high occupancy, and CM Care homes hit near-target occupancy. 2. Real Estate Segment: The segment dragged down consolidated results, with a 1.808 billion yen negative contribution to consolidated profit. Results missed plan because two non-development income properties sold for below expected prices. One remaining development project (the Kokuryo, Chofu City project) will wind down the segment after completion in 2026 June.

• 2026-2028 Mid-term Management Plan: Shifted from ambitious aspirational targets to realistic, achievable targets based on recent performance, after prior plans were missed. Only confirmed items are included in public targets; unconfirmed items (such as the delayed 2025 property sales) are excluded, so net income will see upside if these deals close. The company still retains the internal target of hitting 100 billion yen in revenue and 10 billion yen in recurring profit, and continues to work toward this goal.
• Nursing Care Segment Plan: Detailed breakouts by home type (existing, 2nd year, new open, M&A) are published for the first time to improve transparency. Plans are based on recent actual occupancy trends, so target achievability is much higher than 2025. A 15% ROE is targeted over the mid-term period, above estimated shareholder cost of capital; the plan's lower baseline ROE reflects exclusion of special gains from property sales, so actual ROE will be higher if special gains are realized.
• Real Estate Segment: Will be discontinued at the appropriate time after the final 2026 project is completed.
• 2026 June Dividend Guidance: 37 yen per share (including 20th anniversary dividend), with introduction of interim dividends.

• Higher-than-expected resident passings in early 2025 pushed occupancy below plan, leading to 2025 full year consolidated results that missed targets: consolidated revenue down 2.4% YoY (6.9% below plan), operating profit down 28.6% YoY (21.6% below plan), net profit down 31.3% YoY (38.4% below plan). The primary driver was overly aggressive 97% occupancy target set for existing homes, combined with the unexpected winter increase in passings.
• M&A-acquired former Care21 homes have slower-than-planned occupancy improvement, driven by the large share of recently opened homes and the need for gradual stakeholder engagement with existing staff to avoid mass turnover, which delays turnaround. This contributed to 2025 nursing care results missing plan.
• Expanding to 15-20 new openings per year depends on successfully hiring and training enough home managers and frontline staff, which is the primary barrier to scaled expansion.
• The 3:0.9 staffing ratio rollout depends on continued regulatory approval, which is not guaranteed despite favorable trends toward regulatory relaxation.
• Entry to the new Nagoya market requires building brand recognition from zero, which may lead to slower-than-expected occupancy growth in initial openings.
• Rising development costs and interest rates were the key driver of the decision to exit the real estate business.

Q: Why has occupancy improvement for the 5 acquired former Care21 homes been slower than planned? Are there unforeseen issues? / A: Most of these homes were newly opened when acquired, so naturally had low initial occupancy. The company prioritized building trust with existing incumbent staff to avoid mass resignations, which means addressing underlying issues takes more time and delayed the turnaround start. Despite this, overall aggregate occupancy for the 5 homes improved from ~20% to nearly 50% in less than a year, and one home is down to only 10 remaining vacancies. Management expects these homes will become profitable within another year.

Q: What is the biggest barrier to increasing the annual new home opening target to 15-20? / A: The primary constraint is securing and training enough qualified home managers and frontline staff, not site/property development. However, the company's top-tier pay and optional 3-day workweek have driven a 1.5x increase in mid-career applications and 100 accepted new graduate offers for 2006 intake, up from 62 in 2025. On-site OJT training is also effective at developing new staff, and the 3:0.9 staffing model allows 10% fewer staff per home, so management is confident staffing can support the higher opening target.

Q: Is full-scale rollout of the 3:0.9 staffing ratio possible, and what is the long-term vision for staffing? / A: Management aims to roll out 3:0.9 to all homes eventually. The Japanese Ministry of Health, Labour and Welfare already recognizes the critical nursing labor shortage and is testing relaxed staffing rules, so providing solid operational data from the 10 ongoing trials should lead to broader approval. This model does not cut individual pay; the 10% total labor cost savings will fund further salary increases for staff. The company is also on track to launch AI-generated care plans in 2026, which will boost care manager productivity and allow further staffing efficiency.

Q: How does the dominant strategy work for entry into Saitama, Chiba, and the Nagoya region? / A: Saitama and Chiba are part of the existing greater Tokyo dominant cluster, with openings limited to Tokyo-adjacent areas that fit the existing strategy. For Nagoya, the company plans 5 new greenfield openings from the start to build scale, with a long-term target of 10-20 locations and a local headquarters. Nagoya is 50 minutes by shinkansen from existing Kansai operations, so Kansai can easily support the new market, and management views Nagoya as a promising third core regional cluster.