9788.T

• Company Overview

  • Founded in 1971, listed on the Tokyo Stock Exchange Prime Market, with 16 consolidated subsidiaries and 178 locations nationwide. It operates a stock-based recurring business centered on daily life and housing-related services, with Clecella and rental business as core segments.
  • Group-wide, the company has approximately 900,000 regular recurring customers, including 430,000 in Clecella, 320,000 in rental business, and 100,000 in beauty and health business, plus an additional 400,000 non-regular customers totaling 1.3 million customer contacts.

• Clecella (Clecella) Business Highlights

  • Operates a 2Way returnable bottle model: Produces water locally across 40 manufacturing plants nationwide, uses in-house dedicated delivery, collects and reuses bottles. Differentiates on safety: uses tap water as raw material, filters to pure water with RO membrane, adds custom minerals matched to Japanese preferences, applies 10 additional internal quality standards beyond general mineral water requirements, and provides mandatory annual full maintenance and replacement of water servers, a unique service in the industry that has earned it the top position for hospital (maternity clinic) adoption with approximately 600 maternity clinics using its products.
  • Has expanded product line to meet diverse demand: launched carbonated water-capable multi-server Clecella Shuwa in 2021, and subscription-style tap water purifying server feel free in 2022. Currently 7% of Clecella customers use feel free to meet customer demand for no-bottle-exchange options.
  • Implemented CrePF (Clecella Platform) to solve historical data linkage issues between headquarters and franchisees: rollout to all directly operated stores is complete, and rollout to franchisees is ongoing, enabling unified operational management and improving work efficiency for sales and administrative staff via smart device adoption.

• Rental Business Highlights

  • Centered on the DuscKin franchise business, which is the largest DuscKin franchise by revenue and customer count in Japan, with 55 locations nationwide. DuscKin business contributes over 70% of rental segment revenue, and operates three core divisions: dust control (rental/sales of cleaning supplies such as mops and doormats), care services (professional cleaning such as air conditioner cleaning, housekeeping, pest control, gardening), and HealthRent (rental/sales of nursing care and welfare products, which has expanded store network alongside market growth driven by population aging).
  • Also includes the in-house Wiz business, which rents and sells automatic pest control devices for restaurants, with 17 directly operated stores and 300 sales agencies nationwide. The rental business model is also recurring stock business, with regular customer visits that enable cross-selling of additional products and services.

• Core Group Strength

  • In-person direct customer contact from in-house delivery enables strong trust-based customer relationships, and allows quick capture of customer voice for new product/service development. The large 900,000 regular customer base has attracted growing alliance and collaboration proposals from external manufacturers and service providers, enabling the company to launch trending products quickly without high in-house development costs.
  • Alliance products currently account for 3% of Clecella direct division revenue and 6% of DuscKin business revenue, with a target to increase this share to 10% long-term to drive customer lifetime value (LTV) growth through higher average customer spend.
  • Examples of successful alliance collaborations include Hazuki Loupe, Miruble, ReFa, recovery wear products, and year-end Osechi collaboration with Oisix. Offering special discounted prices to existing customers improves customer satisfaction and increases contract retention rates.

• Short-term guidance for fiscal 2026 ending March 2026: Full-year earnings guidance is maintained unchanged, as the company has a historical pattern of heavier second-half performance. The annual dividend is forecast to remain unchanged at 22 yen per share, consistent with the prior fiscal year.
• Long-term vision Long-Term Vision 2035: Targets 100 billion yen in total group revenue and 8% operating profit margin by the fiscal year ending March 2035, with a core goal of exceeding 1 million regular customers and maximizing LTV by leveraging last-mile customer contact. Key milestones include expanding sales areas and service offerings, increasing customer density to improve delivery efficiency, and strengthening alliance and collaboration initiatives through regular customer visits.
• Mid-term plan Medium-Term Management Plan 2028: Positioned as the investment phase to achieve the 2035 long-term vision, with a plan for growing revenue over the 3-year period while keeping operating profit flat. The company will actively invest in recurring customer businesses including Clecella, rental, and beauty and health, while maintaining the current scale of architectural consulting and housing businesses and exploring entry into new business areas. Recent investments include new store openings in previously unserved areas of Iwaki, Mito, and Chiba for the rental business, acquisition of an existing DuscKin franchise in Machida Tokyo, and absorption of a Clecella franchise previously operated by Daiki Axis to expand Clecella's customer base.
• Dividend policy: Maintains a target dividend on equity (DOE) of 4% with a payout ratio capped at 100%. The 4% DOE target will be maintained for the foreseeable future, with dividend increases to be evaluated over time; if the company meets its 2035 long-term vision targets after the investment phase concludes, a dividend increase is possible. The current dividend and shareholder return level will be maintained during the mid-term investment phase.

For the first half of fiscal 2026 ending March 2026 (the second quarter end point):

• Clecella (クリクラ) business: Segment profit is 903 million yen, with year-over-year revenue growth of +4.6% and year-over-year operating profit growth of +3.8%, which is in line with budget. This segment accounts for approximately 30% of total group revenue, and together with the rental business contributes about 60% of total group revenue and over 70% of total group operating profit.
• Rental business: Segment profit is 625 million yen. The DuscKin business, which accounts for over 70% of the rental business's revenue, saw flat year-over-year revenue and a 15% year-over-year decrease in operating profit due to rising costs.
• Beauty and health business: Segment profit is 70 million yen. The business is in an investment phase with active advertising investment, so it has seen a temporary year-over-year profit decline, though core product sales are solid.
• Architectural consulting business: Segment loss is 142 million yen.
• Housing business: Segment loss is 199 million yen. The market environment is tough, but profit is expected to be recognized in the fourth quarter as delivery is concentrated at the end of March.

• Industry competition: The water server market is becoming increasingly crowded (red ocean) due to growing share of 1Way natural water models, expansion of purified water server models, and entry of large e-commerce companies, making new customer acquisition challenging.
• Cost pressure: As a labor-intensive business with large in-house delivery fleet, the company faces unavoidable cost increases from rising gasoline prices and wage growth. For the rental segment, this has already led to a 15% year-over-year decrease in operating profit despite flat revenue.
• Price increase impact: The company implemented a second price increase in four years starting January 2026 to absorb rising costs. The cancellation rate increased from below 1% to 1.4-1.5% after the price increase, with measurable impact among price-sensitive customers, though the overall volume impact remains small.
• Macroeconomic and demographic headwinds: Population decline increases the cost of organic new customer acquisition, and aging population creates demand for product adjustments (such as lighter bottles and no-bottle-exchange purified servers) to accommodate customer needs.
• Challenging market for housing-related segments: The architectural consulting and housing businesses face a tough market environment, and are currently operating at a loss, though housing business profit is expected to recover in the fourth quarter of the current fiscal year.

Q: What is Clecella's current customer count and market share in Japan's home delivery water market?

A: Clecella currently has approximately 430,000 customers. Including the growing purified water server segment, the total domestic market has approximately 5.7 million customers, giving Clecella a market share of approximately 7-8%.

Q: Why does NAC continue to invest in purified water servers even though they have lower gross margins than traditional bottled home delivery water?

A: Purified water servers have seen growing demand in recent years for multiple reasons: many customers find bottle exchange inconvenient, subscription models are often lower cost which is attractive in the current economic environment, even with 5.8L half-size bottles available, many elderly customers still find bottle weight a concern, many single-person and corporate customers do not have space to store extra bottles, so there is inherent customer demand for this product that we need to meet to retain customers.

Q: What impact has the 2024 logistics issue (driver shortage) and rising gasoline prices had on the business, and what countermeasures have you implemented?

A: We have not faced major impact from the 2024 logistics issue because we operate our own in-house delivery network with a large fleet of vehicles and dedicated delivery staff. However, we cannot avoid cost increases from rising gasoline prices and required wage hikes due to the labor-intensive nature of our business. While we have improved delivery and operational efficiency through the CrePF system, efficiency improvements alone are not enough to absorb all cost increases, so we implemented a price increase starting January 2026. After the price increase, cancellation rate rose from below 1% to 1.4-1.5%, with impact concentrated on price-sensitive customers. To mitigate this, we offer discounted locked-in rates for multi-year contracts to reduce cancellations and improve retention. We believe this price adjustment will allow us to absorb rising costs while maintaining price competitiveness and stabilizing our customer base over the medium to long term.

Q: Why do you continue to operate in-house delivery when outsourcing would be lower cost?

A: While outsourcing is cheaper when looking only at delivery costs, we have multiple strategic reasons to keep delivery in-house: First, we position water safety as our core competitive advantage, so we need to ensure stable supply, which is easier to control with in-house delivery. Second, in-house delivery gives us stable delivery costs, which avoids unexpected cost increases from third-party delivery providers changing their pricing. Third, our unique annual full water server maintenance service, which is a key differentiator for our business, would be extremely expensive to outsource, as it requires specialized handling similar to home appliance moving rather than standard parcel delivery. Fourth, in-house delivery enables direct face-to-face contact with customers, which builds trust and allows us to collect customer feedback that we use to develop new services and products, and enables cross-selling of alliance and collaboration products, which will become an increasingly large share of our business going forward.

Q: What is the most important driver for achieving the target of over 1 million regular customers by 2035?

A: Given ongoing population decline, organic new customer acquisition one-by-one is not cost effective. The key strategy is absorbing customers from existing franchisees facing aging and succession issues. There are around 400 Clecella franchisees and around 2,000 DuscKin franchisees, and a growing number of these will face succession challenges in coming years. We already have a national network in place, so we can absorb these customers and use our strong sales team to continue growing sales in these regions, which will be the core of our strategy to hit the 1 million customer target.

Q: For Clecella, will future growth prioritize customer count growth or average customer value growth?

A: We prioritize long-term LTV (customer lifetime value) maximization over short-term focus on either customer count or average value. Our core strength is direct face-to-face customer relationships from our last-mile delivery service, and building deeper trust through regular customer contact improves satisfaction, which in turn drives longer retention and higher average spend. Specifically, we aim to increase the share of revenue from non-Clecella alliance products from the current single-digit percentage to 10%, which will raise average customer spend. Given that organic customer acquisition is high cost amid population decline, we will do balanced promotional activity while pursuing M&A of competitors and direct operation of succession-challenged franchisees to grow customer count.

Q: How do you evaluate the long-term profitability of the 2Way returnable bottle model, which is a key differentiator but has higher logistics and cleaning costs?

A: While the 2Way model has higher short-term logistics and cleaning costs, it is a critical foundation for our medium to long-term competitiveness and profitability. Its biggest advantage is that it enables direct in-person customer contact, which builds trust, lets us capture customer needs, reduces cancellations, and creates cross-selling opportunities for other products and services, all of which drive higher LTV. In addition, the large customer base maintained via in-house delivery gives us an advantage in alliance partnerships, improving the overall efficiency of our business model. On cost, the 2Way model is not inefficient: compared to the 1Way model, it reduces packaging and raw material costs from cardboard and single-use plastic bottles, so it has long-term cost advantages, and it also reduces environmental impact which improves ESG positioning, making it a core strength for the company.

Q: What is the current trend of cancellation rate, and what are you doing to improve retention?

A: We do not disclose specific cancellation and retention numbers due to competitive conditions, but our internal target is to keep cancellation rate below 1%, and we are implementing initiatives to improve retention. We are focused on improving the service quality of delivery staff who interact with customers daily, using video training tools and holding annual delivery contests for directly operated and franchise staff to improve service awareness and skills. We are also promoting discounted multi-year contract plans to customers, which maintains price competitiveness and creates a structure that encourages longer retention. Going forward we will continue to prioritize delivering long-term service value over short-term numerical improvements to strengthen our stock business foundation.

Q: Which business segment will drive profit growth after the mid-term investment phase ends?

A: We view the mid-term investment phase as a period to build a foundation to improve group-wide profitability, so profit growth will come from cross-business synergies rather than a single segment. We are investing in building a system infrastructure to maximize utilization of group-wide customer data, which will enable more effective cross-selling between segments, service improvements, and development of new products and services. We also have a president-led specialized team pursuing M&A and alliances strategically. When investment pays off, we expect to hit the 1 million regular customer target, and develop new business areas to replace the shrinking housing construction business.

Q: Is Clecella underperforming, given that NAC's performance is not correlated with strong DuscKin parent company performance? What are segment profits for each business?

A: Clecella is performing in line with plan: in the second quarter, revenue grew 4.6% year-over-year and operating profit grew 3.8% year-over-year, which is on budget. The segment profits were shared earlier: Clecella 903 million yen, rental 625 million yen, architectural consulting minus 142 million yen, housing minus 199 million yen, beauty health 70 million yen. It is true that housing-related businesses are facing a tough market right now, but housing business profits will be recognized in the fourth quarter as delivery is concentrated at the end of March.

Q: What is the profit of the beauty and health business that provides the popular shareholder benefit cosmetics?

A: In the second quarter, beauty and health business operating profit was 70 million yen. This business is a targeted growth investment under the mid-term plan, and core brands MACCHIA LABEL and Symplette are performing well, so we are actively investing in advertising and promotion. We expect most ad and promotion investment to be recouped within 24 months, but the front-loaded investment has led to a temporary year-over-year profit decline currently.

Q: How much impact do rising raw material, logistics, and labor costs have on current profit, and what countermeasures are you taking?

A: Our core businesses are labor-intensive with many delivery vehicles, so there is clear impact on operating profit. Specifically, rental business revenue was flat year-over-year but operating profit fell 15% due to these cost increases. We are responding by investing actively in IT to improve efficiency and save labor, developing and selling new in-house products to increase average customer spend, evaluating EV adoption to reduce fuel costs, and we implemented the January 2026 price increase for Clecella after efficiency improvements still left cost gaps, and we have implemented price pass-through via price adjustments across all other segments as well.

Q: What is the current trend for Clecella contract count and cancellation rate?

A: New customer acquisition remains challenging due to large company entry and growing adoption of purified water servers. However, cancellation rate has been declining year-over-year: we have driven this improvement by promoting multi-year contracts to build long-term customer relationships, and offering flexible switching to purified water servers for customers who face issues with bottle weight and storage, matching service to customer lifestyle and usage environment. There is still room for improvement in both new acquisition and cancellation, so we will continue implementing initiatives to improve performance.

Q: Is there a possibility of increasing the dividend after hitting the 2035 8% operating profit target?

A: We will evaluate a dividend increase considering stock market trends, shareholder feedback, and other relevant factors. We have seen growing numbers of individual shareholders in recent years, and we will consider any requests positively going forward. We maintain the 4% DOE target for the foreseeable future, and will review dividend increases after the investment phase ends if we hit our 2035 targets.