Nareru Group Inc. Q4 FY2025 earnings call

• Company Overview and Core Mission: The Narelu Group is a pure holding company that operates talent dispatch businesses solving skilled labor shortages in the construction and IT industries. Its core mission is to cultivate young talent and drive growth for both technical personnel and Japan's construction/IT industries. The core business model is talent development-focused dispatch classified as a stock-type business, with stable recurring revenue from monthly dispatch fees. Growth is driven by two core metrics: expanding operating headcount and increasing contract unit prices. Key competitive advantages are strong recruitment capability and large room for contract unit price growth. The company focuses on recruiting inexperienced talent, draws from a broad candidate pool including candidates from other industries, and has a talent base that is 90% under 39 years old, enabling steady unit price growth as personnel gain experience. - Strategic Growth Initiatives: The company has three core medium-term strategic pillars: strengthening recruitment and development, expanding dispatch service areas, and launching construction DX consulting. The company has formalized its talent development system as the "Zero Pro Growth Cycle", added national qualification exam preparation courses in July 2024, and introduced an industry-leading qualification allowance system in November 2024, which has received stronger-than-expected employee feedback with nearly 5% of personnel obtaining qualifications so far. For new business expansion: 1. Construction DX support: The company is cultivating DX-capable technical personnel, currently dispatches teams to support on-site digital tool application, and plans to pursue DX system introduction projects and BPO support in the future, with the business already seeing rapid small-scale growth. 2. Artisan introduction business: The company holds one of only three national authorized qualifications for paid construction artisan placement (direct dispatch of artisans is legally prohibited), leverages existing candidate data from its core dispatch business to build a placement platform, currently has 1,500 client companies, a candidate pool of thousands of artisans, and over 4,500 workers compensation insurance members for self-employed artisans, and is focusing on platform building. 3. Expanded into the new plant engineering O&M (operation and maintenance) talent service space this term, targeting the large growing market for aged infrastructure renewal and decarbonization investment. - First Half Operational Progress: Recruitment headcount fell short of target due to intensifying industry-wide talent competition, but the company has been improving recruitment channels, upgrading interviewer skills, and has seen clear improvement in recruitment numbers starting from the May-June period of Q3. The Q2 contract count hit an all-time high, and the sales team is now actively prospecting for projects launching in the fall to year-end period.

For the 2025 October Term first half: Total sales revenue is 11.79 billion yen, up 15.6% year-over-year, and operating profit is 1.535 billion yen, up 15.2% year-over-year. Narelu Group operates two business segments: 1. Construction Solution Business: Contributes approximately 90% of total revenue, hosted by subsidiary World Corporation. As of the end of the first half, World Corporation had 3,494 registered technical personnel, with a monthly average operating headcount of 3,049 (up 413 year-over-year), and a monthly average operating rate of 94.5% (flat year-over-year). The average contract unit price increased by 12 thousand yen year-over-year to 519 thousand yen. 956 new hires were made in the first half, a decrease of 116 year-over-year. 2. IT Solution Business: Contributes approximately 10% of total revenue, hosted by subsidiary ATJC, which focuses on IT engineer dispatch services, and delivered stable growth in the first half.

• Full-year 2025 October Term guidance is maintained with no changes: Total sales revenue is projected at 25.65 billion yen, representing an 18.7% year-over-year increase; operating profit is projected at 3.31 billion yen, representing a 6.4% year-over-year increase, as the company plans to increase investment in recruitment, development, and organizational expansion this term. - Dividend guidance is maintained: The fixed interim dividend of 55 yen per share is confirmed, and a year-end dividend of 60 yen per share is planned, bringing full-year annual dividend to 115 yen per share, with a dividend payout ratio of 43.0% flat with the prior year, resulting in a ~5% high dividend yield based on current stock prices. - A new medium-term management plan is currently under development by management, and is scheduled for disclosure in mid-December this year, covering 3-5 year goals for business expansion, human capital investment, financial strategy, and investment planning.

• Industry risk: Rising interest rates and population decline may lead to a decline in housing starts; rising material prices and persistent artisan shortages may cause demand contraction and project delays. The construction industry faces an extremely high effective job opening ratio of over 5x, and talent acquisition competition with other industries is intensifying year over year, leading to rising recruitment costs and lower offer acceptance rates. - Operational risk: The company's business is sensitive to operating rate: if dispatched personnel enter idle status when projects end or demand softens, the company still incurs ongoing personnel costs that hurt profitability. Construction demand has inherent seasonality, with demand peaking from year-end to fiscal year-end and softening from spring to summer, which can pressure operating rates if sales prospecting is not completed early. - New business risk: The artisan introduction business requires ongoing marketing and recruitment investment, and needs to scale candidate and client pools to reach profitability.

Q: Is the entire construction dispatch industry growing, and do you see intensifying competition in recruitment and sales? / A: The overall industry is growing at an average annual rate of 12%, while Narelu grows at ~20%, outperforming the industry average. Recruitment competition is extremely intense across all industries, which is already pushing up recruitment costs for Narelu. The company is continuing to refine its recruitment strategy to maintain growth despite this competitive environment.

Q: Why have both recruitment and operating growth slowed recently, and is this an industry-wide or company-specific issue? / A: The slowdown in recruitment is driven by broader industry-wide competition: Narelu has seen declining offer acceptance rates and rising candidate withdrawals. The company is currently fixing recruitment channels and upgrading interviewer skills to address this. For operating rates, the slowdown is mostly due to normal seasonality: construction demand peaks from year-end to March, then softens in spring and summer. The key to mitigating this is early prospecting for future projects, which the sales team is prioritizing.

Q: Is there synergy between your existing core dispatch business and the new artisan introduction business, and how do you manage marketing costs for this new business? / A: There is clear recruitment synergy: Narelu can draw candidates interested in hands-on construction work from the existing core candidate pool to move into artisan roles. The company also runs its own owned media (Jobken Work) to source new artisan candidates. Narelu sets a target optimal cost per hire and strictly keeps recruitment spending within this target, while promoting construction and artisan careers to young candidates.

Q: Will growing numbers of foreign workers create an opportunity for the artisan introduction business? / A: While foreign worker numbers are growing in construction, they still make up less than 4% of the total construction workforce, and are concentrated in a small number of urban regions. Narelu will consider foreign workers as candidates, but prioritizes passing on skills from veteran Japanese artisans to young domestic workers as a core strategic focus.