HASEGAWA CO.,LTD. Q4 FY2025 earnings call

Previous Mid-Term Management Plan (Fiscal 2023 March – Fiscal 2025 March) Retrospective

• Total revenue stayed roughly flat at ~21.2 – 21.6 billion yen over the three-year period, but operating profit and net profit declined year-over-year
• ROE and ROIC remained above shareholder cost of equity and WACC respectively, but showed a downward trend over the period that management identifies as a key priority to reverse
• External environment: core Buddhist altar/gravestone market is shrinking amid declining demand for traditional altars, falling average unit prices, growing competition from home centers, furniture retailers, and funeral service providers, despite the long-term trend of an aging society and rising annual deaths
• Internal challenges: rising labor costs, hiring difficulties, higher raw material costs pushing margins down, and stagnant share price; management concluded that relying solely on the existing core business is no longer viable for long-term survival

New Mid-Term Management Plan (Fiscal 2026 March – Fiscal 2028 March) Priorities

1. Evolve and grow existing core business

   • Add 21 new stores over 3 years (5 in year 1, 8 in year 2, 8 in year 3), building on the combined 150 direct stores post Gendai Butsudan M&A, with distribution to 45 of 47 prefectures
   • Expand multi-brand strategy: combine Hasegawa's 4 existing brands with Gendai Butsudan's 2 brands to target mid-to-high price segments, focus on added-value sales instead of discounting, and deepen collaboration between the two companies
   • Develop new graveyard offerings aligned with customer needs: focus on tree burials and permanent memorial graves that do not require heir responsibility, addressing the top customer concerns of heir availability and long-term maintenance burden

2. Grow new businesses

   • Scale up the PLS end-of-life support business: this service acts as a single point of contact for customers to access end-of-life and post-death services (estate planning, inheritance arrangements, property sales, funeral planning, etc.), connecting customers to specialized providers for referral fees
   • PLS grew from 2,117 annual consultations 2 years ago to over 6,000 in FY2025 March, with a target of 10,000 in year 1, 20,000 in year 2, 30,000 in year 3, targeting 1.5 billion yen in total annual revenue by the end of the plan
   • Expand outreach beyond existing in-store customers: add call center and online access, and increase TV advertising focused on the Kanto region, to grow market awareness of the service

3. Execute strategic investment

   • Allocate 3.0 billion yen in total capital over the 3-year plan period:
     • 1.5 billion yen for growth investment: store opening/renovation, R&D for new PLS and food/gift services, human capital investment for hiring/development, digital system investment including core system renewal and customer ID unification
     • 0.5 billion yen reserved for M&A activity, following the successful first M&A in company history with Gendai Butsudan
     • 1.0 billion yen allocated for shareholder returns

4. Shift to a profit-focused business structure

   • Reform store management: shift from uniform chain store operations to area-based management where multiple stores share back-office functions, reducing overhead and freeing staff to allocate to new growth businesses
   • Drive digitalization: adopt RPA and generative AI to automate manual work, improve operational productivity, and reallocate staff to high-growth initiatives
   • Reduce discounting: target a 3 percentage point reduction in overall discount levels, which is expected to generate ~0.27 billion yen in incremental profit

PBR Improvement Initiatives

• Adopt a progressive dividend policy: starting from FY2026 March, pay the higher of a 30% consolidated payout ratio or 15 yen annual dividend per share
• Expand IR activity: add small meetings for individual investors and hold earnings briefings outside current locations to communicate the company's new business transformation to the investment community

• Buddhist altar and Buddhist fittings business: 5.4% year-on-year revenue decrease (based on standalone results)
• Gravestone business: 5.2% year-on-year revenue decrease (based on standalone results)
• Combined Buddhist altar/gravestone business: 5.4% year-on-year revenue decrease (based on standalone results)
• Food, beverage, and miscellaneous goods business: 21.2% year-on-year revenue increase, driven by strong performance of food gift sales (based on standalone results)
• Other segment (includes Peaceful Life Support (PLS) new business): 259.6% year-on-year revenue increase, driven by expanded services and strengthened cross-functional collaboration (based on standalone results)
• Gendai Butsudan (acquired October 2024): contributed ~0.8 billion yen in revenue for the 6-month period from October 2024 to March 2025
• Full consolidated fiscal 2025 March results: total revenue 21.228 billion yen, operating profit 1.204 billion yen, ordinary profit 1.265 billion yen, net profit 0.905 billion yen. Revenue missed the published plan by 0.072 billion yen, but all profit metrics beat published targets.

• New 3-year mid-term management plan targets: FY2028 March (final year) revenue of 27.0 billion yen, operating profit of 2.5 billion yen, representing clear growth from the FY2025 March pro forma full-year Gendai Butsudan combined base of ~22.0 billion yen revenue
• Annual targets: 22.8 billion yen revenue (FY2026 March), 25.0 billion yen revenue (FY2027 March); 0.7 billion yen operating profit (FY2026 March, a temporary pullback due to upfront investment costs), 1.3 billion yen operating profit (FY2027 March)
• Core KPIs: 21 new stores over 3 years; PLS consultation targets of 10,000 (FY2026), 20,000 (FY2027), 30,000 (FY2028)
• PLS financial targets: grow total annual fees from 0.03 billion yen currently to 0.5 billion yen in end-of-life services, and from 0.1 billion yen currently to 1.0 billion yen in inheritance services, for a total 1.5 billion yen in PLS revenue by FY2028 March

• Core Buddhist altar and gravestone market is in long-term structural decline, with shrinking demand, falling unit prices, and rising competition from non-specialized retailers increasing pressure on existing sales and margins
• Upfront investment in new stores, new business development, digital transformation, and M&A will temporarily depress profits in the first year of the new mid-term plan, and carries execution risk if new initiatives do not scale as expected
• Limited staffing capacity for new graveyard development could slow the pace of new offering rollout
• Legacy fragmented customer data systems require unification work, and delays or implementation issues could impact the ability to deliver personalized cross-service customer experiences

Q: Will the Peaceful Life Support (PLS) business accept inquiries and sign-ups via the Web in addition to in-store and phone, and do you plan digital promotion in addition to TV CM? What is the purpose of the planned customer ID integration in system investment? / A: Hasegawa already has a full setup to accept Web inquiries and applications for PLS, and plans to actively expand digital promotion alongside TV advertising. Management is also developing plans to roll out PLS through the company's existing wholesale partner network. Currently, Hasegawa maintains three separate fragmented customer ID systems across its core SAP ERP, e-commerce channel, and branded customer app, so purchasing behavior and customer preferences across channels cannot be tracked. Unifying these IDs will let management see full customer profiles to better identify needed services.

Q: What is different from the previous administration, and what is the core breakthrough of the new mid-term plan, given market impressions that the company has not changed enough despite leadership change? / A: Hasegawa's core Buddhist altar market has shrunk from 360 billion yen in the late 1990s to 100 billion yen by 2023, and COVID-19 pushed the industry into a situation where revenue growth no longer translates to profit. Management's core vision is to transform Hasegawa from a transaction-only altar/gravestone seller to a full-service provider that can solve all end-of-life customer needs, building long-term lifetime customer relationships. PLS revenue of 1.5 billion yen carries 100% gross margin, which will have a very large impact on the company's bottom line. Hasegawa will also continue to grow the core altar/gravestone business through national expansion and M&A as smaller industry players exit the market. This dual focus is the core of the new plan, and management is fully committed to executing this transformation. Internally, the top-down military-style company culture has shifted to a bottom-up environment that supports new initiatives and experimentation, which management has already seen tangible progress on.