Review of the Current Business Environment and the First Half
Through the previous mid-term management plan (FY2020 to FY2022), we established the foundation for our medium-to long-term vision of becoming a recycling-oriented company. In FY2023, we launched the new mid-term management plan and began creating the pillars for the next stage of growth. Over the 3-year period ending in FY2025, we will pursue 3 business growth strategies: expansion and improved efficiency, diversification through the addition of businesses and services and taking on the challenge of a new business model.
In the current business environment, while economic activity is normalizing during the recovery following the COVID-19 pandemic, an inflationary trend has become pronounced due to increased costs, including higher prices and increased labor costs, as well as rising interest rates. Against this backdrop, we believe that it is becoming increasingly important to lower the hurdles faced by our customers in capital investment and support the growth of their businesses through vendor leasing, a part of our Group's DNA. We view changes such as the shift from ownership to use, rising demand for outsourcing, the advance of digitalization, and the expansion of the introduction of renewable energy as opportunities, and we will respond to that role with initiatives that combine the strengths of our own finances and services.
In the first half of FY2023, the office field's executed contract volume* recovered, mainly in IT-related equipment. There was growth in the medical and healthcare field, primarily in loans for practitioners, and the executed contract volume increased. In the capital investment business, there was a reactionary decrease in the executed contract volume due to the previous year's large-scale projects. In the real estate field, we increased investments primarily in loans and trust beneficiary rights for logistics facilities and residential properties. In the environmental field, we also invested in several large-scale installment businesses and solar power generation projects, resulting in a significant growth in the amount of the contracts executed. The executed contract volume increased in the service field, mainly in the ICT field, and the BPO field achieved the steady growth of both the number of collection agency transactions and the transaction volume of factoring services for nursing-care facilities as a result of its continuous acquisition of new customers. As a result, in the 1st half consolidated results, we recorded net sales of 155.3 billion yen (up 4.2% YOY), gross profit of 23 billion yen (up 5.2%), operating profit of 11.4 billion yen (down 5.8%), ordinary profit of 11.6 billion yen (down 6.1%), and a loss of 3.7 billion yen on the write-down of investment securities, resulting in a quarterly net profit of 5.3 billion yen (down 36.6%). At the end of the first half of the fiscal year, operating assets were 1.0868 trillion yen, a decrease of 3.4 billion yen from the end of the previous fiscal year, due in part to large-scale scheduled repayments.
*Executed contracts volume = Cost of acquisition of assets for lease (leases) or installments receivable minus unrealized profit on installment sales (installment sales)
Progress in the New Mid-term Management Plan
Regarding the status of initiatives for each business growth strategy in the first year of the new mid-term management plan, in expansion and improved efficiency, we are responding to digitalization by standardizing, consolidating and investing in systems to increase efficiency while maintaining growth in the areas of offices, medical and healthcare, which are our most important foundation, and by investing capital. In diversification through the addition of businesses and services, we worked to expand our PV-related business in the environmental field by expanding our PPA-scheme as a FIT-free strategy. We began offering Operation Assist, a proxy service for the operation and management of power plants, to customers of power generation companies. In addition, we are operating nursing care facilities through the consolidation of Welfare Suzuran in the area of nursing care factoring services and land continuity, both of which are existing businesses, and we will change from this area to create new services which will lead to growth. In taking on the challenge of a new business model, we strengthened collaboration with our subsidiary Techno Rent to expand our services field and pursued alliances with outside parties. At the same time, in the BPO field, we launched a loan guarantee business in the fiscal year under review. Utilizing our transaction data and screening capabilities where we have 0.4 million customers, which is a part of our DNA, this business guarantees the risk of uncollectible receivables arising from inter-company transactions, and we intend to develop it into a pillar following the collection agency business.
With regard to the strategy for strengthening organizational capabilities to support these growth strategies, we are focusing on promoting and revitalizing internal challenges. From the perspective of human capital management, we are focusing on strengthening human resources development and institutional improvements. In the area of Group management, we have also changed the organizational name and established a system for strengthening governance. This is to promote IT-and human resources-related initiatives across the Group companies.
Our financial targets, including the net income target of 16 billion for FY2025, are high hurdles due to the dissipation of special rental demand caused by the COVID-19 pandemic. However, the start of the first year of the plan has been steady, and we believe that the target will be fully achievable.
Towards Increasing Corporate Value
From the viewpoint of improving corporate value, management must be conscious of the cost of capital and the stock price. In addition to expanding earnings and improving profitability in business fields such as non-asset businesses including services and BPOs under the new mid-term management plan, we will now review our basic policy on shareholder returns, which will lead to the continued enhancement of corporate value. Based on the above thinking, we changed our basic policy on shareholder returns. We had been aiming for a dividend payout ratio of 35% in FY2025. In consideration of the progressiveness of dividends and industry-leading returns, we have set the new target of a dividend payout ratio that is over 40% in FY2025 and 50% in FY2029. The interim dividend this year is expected to be 75 yen per share, and the year-end dividend is expected to be 75 yen per share. The annual dividend is expected to be 150 yen (up 5 yen year on year) and the dividend payout ratio is expected to be 32.1%.
November 2023
Representative Director, President and Chief Executive Officer
Tokuharu Nakamura