7091.T

Overall Financial Performance

• The second quarter recorded all-time record high revenue and operating profit, with operating margin recovering to 3.3%. Full-year revenue is projected to grow 11.9% year-over-year and exceed 20 billion yen for the first time in company history, which management considers achievable at current progress.
• EBITDA grew strongly in the second quarter and is expected to continue rising. The balance sheet remains healthy as debt repayment progresses alongside ongoing investment, though management plans to further improve financial strength in response to recent rising interest rates.

Cost Management and Efficiency Initiatives

• DX investment is driving a steady decline in the ratio of selling, general and administrative expenses to revenue, and management does not expect SG&A to grow proportionally with business scale expansion.
• Ongoing price pass-through will continue through the second half of the fiscal year to strengthen resilience against sustained commodity price inflation.
• Multiple initiatives are underway to reduce electricity costs: solar panel installation is progressing, the restart of Tomari Unit 3 in Hokkaido (expected by first half of 2027) and progress on nuclear plant restarts in the Tokyo Electric Power service area are expected to lower long-term power costs.

Operational Improvements

• Four underperforming low-occupancy facilities remain to be fixed, after two of six previously underperforming sites already reached nearly 100% stable occupancy. Improving these four sites is expected to deliver more than 300 million yen in quarterly operating profit improvement. One site (Library Shimura Sakauragawa) completed regulatory conversion from residential to nursing-equipped paid nursing home in December, which is expected to increase per-resident revenue by 70 thousand yen and deliver large profit improvement.
• The number of higher-cost temporary contracted workers is declining overall for care and disability support segments, which benefits cost control.
• Management is prioritizing reducing turnover through initiatives including reviving pre-COVID employee social activities and improving internal communication, with results expected within 6 to 12 months.
• Active recruitment of specific skill foreign workers has stabilized staffing: while Q1 and Q2 hiring was typically delayed by immigration procedures, H2 hiring is progressing on schedule, supporting new facility openings and conversion of temporary positions to full-time roles.

New Strategic Initiatives

• Medical business: Medical insurance-covered home-visit nursing care is being rolled out across regions, with expansion planned for H2. The initiative aims to raise average revenue per user for existing care and disability support businesses by providing intermediate-level care between medical and long-term care, rather than targeting high-margin hospice services, with meaningful revenue improvements expected within 12 months.
• In-house rice production: A new agricultural subsidiary has been established to secure long-term rice supply amid rising food prices. The company is currently acquiring land, targeting at least tens of tons of self-produced rice within several years to improve supply stability and food quality, aligned with regional dominant strategy goals.

Long-Term Growth Strategy

• Targets becoming the largest listed company in the disability support residential segment (group homes and disability-focused paid nursing homes), a niche with no other major listed competitors, to drive market capitalization growth.
• M&A will shift from focusing only on small-scale deals to also pursuing mid-sized acquisitions, prioritizing reasonably-priced targets in less competitive segments to avoid overpaying. Management will leverage its existing operational improvement capabilities to turn around acquired assets, even if they are not initially profitable. Higher construction costs have reduced organic greenfield development, making M&A increasingly important for growth.
• The company will retain the childcare business to build a full life-cycle service capability that supports future global expansion.

• Full-year 2026 March fiscal year revenue is projected to grow 11.9% year-over-year, which management considers achievable at current progress, with revenue expected to exceed 20 billion yen for the first time.
• The 1 billion yen+ operating profit target for the 2027 March fiscal year (the end of the current 3-year mid-term plan) is considered fully achievable, driven by operational improvements at underperforming facilities which are already expected to deliver annual profit gains of hundreds of millions of yen.
• By the 2028 March fiscal year, the company plans to deliver 21.5% growth in care segment facilities and 168.0% growth in disability support segment facilities.
• Management expects that after operational improvements at low-occupancy facilities, operating profit will exceed 1 billion yen per year starting from the next fiscal year, which is considered fully achievable.
• Occupancy at remaining underperforming facilities is expected to improve enough to reach break-even by the end of the current fiscal year, driving overall margin improvement.
• Management expects disability support segment will become the fastest growing source of revenue change going forward.

The transcript does not provide full separate absolute financial values or revenue contribution percentages for each segment. Operational performance by segment is as follows:

1. Care business (including paid nursing homes and group homes): Paid nursing homes have already met this fiscal year's development targets, with occupancy steadily rising. Group homes are on track to meet full-year development targets with March openings, and an increasing number of facilities have reached 100% occupancy, with only a small number still showing unstable performance.
2. Disability support business: This segment is prioritized for aggressive growth, with a planned 168.0% facility expansion by FY28.3 compared to current levels. Split into two sub-segments:
   • Continuous Employment Support Type B: Facility openings are increasing after regulatory improvements improved business viability, with occupancy expected to rise further through operational reforms.
   • Group homes: Occupancy growth has lagged plan due to severe staffing shortages, but improvement is expected in H2 driven by new hiring including specific skill foreign workers. Overall segment occupancy is rising steadily as staffing is stabilized, with delayed facilities expected to see rapid profit improvement in the second half.
3. Certified childcare center (nursery) business: The business will be retained rather than exited, as it serves as a strategic capability for future overseas expansion covering age groups from infancy to elderly. It currently faces a rapid increase in contracted temporary staffing that raises cost concerns.

• Rising utility costs disproportionately impact the company because many facilities are located in cold regions (eastern Japan and Hokkaido), and Q4 (February) has a seasonal negative impact on margin due to having fewer days.
• Rapidly rising temporary staffing costs in the childcare segment cannot be easily offset by hiring specific skill foreign workers, creating ongoing cost concerns.
• High construction costs have reduced the feasibility of organic greenfield facility development, which slows organic growth and increases reliance on M&A.
• Overpaying for M&A targets in competitive segments increases the risk of failed acquisitions, so the company will avoid such deals.
• Current rising interest rates create pressure to further improve the company's financial position.
• Occupancy improvement at disability support group homes has lagged original plan due to ongoing staffing shortages.

Q: Is the mid-term plan target of exceeding 1 billion yen in operating profit for the 2027 March fiscal year, which requires 13% sales growth and substantial margin improvement, realistically achievable? / A: Management states the target is achievable. The core driver of margin growth is raising occupancy and average revenue per user. Just stabilizing the four remaining underperforming facilities will deliver annual profit growth in the 100 million yen+ range, and there are additional unrealized gains from other under-stabilized facilities that further support hitting the target.

Q: Can the company meet its original occupancy growth targets going forward, given that recent occupancy growth has appeared slower than expected? / A: Two of six previously underperforming facilities already reached nearly 100% stable occupancy. The remaining four are being supported with management system overhauls, and management aims to achieve break-even for these sites by year-end, though there has been a slight delay from the original Q3 break-even target. Full-year guidance already includes conservative buffers for this delay, and improving these four sites will deliver large margin gains going forward, so the company will continue prioritizing this work.

Q: Are there already concrete plans for the timing and level of dividends and continuing shareholder returns? / A: Management is actively working to implement a combination of recurring dividends and continuing shareholder perks as soon as possible, after a one-off shareholder perk program implemented earlier this year. No final decisions have been made on the exact level or timing, but management plans to make an official announcement as early as possible.

Q: Is the company already actively evaluating mid-sized M&A targets after announcing the shift to pursuing larger deals? / A: The company is constantly evaluating potential targets and currently has multiple mid-sized deals under review. Improved financial performance and balance sheet strength mean the company can now pursue larger deals that were previously out of reach. M&A has become more important amid high construction costs that limit organic growth, so the company will continue accelerating this activity going forward.