Review of the Current Business Environment and the First Half
Through the termination of the Bank of Japan's negative interest rate policy, Japan is also trying to return to a "world with interest rates." I believe that a moderate rise in interest rates means normalization of monetary policy and that it should be welcomed for the Japanese economy. In anticipation of future interest rates and economic trends, we believe that it is important to continue to improve our earning power and increase profitability in the same manner as before.
In addition, capital investment is increasing in a wide range of industries in response to the worsening labor shortage and advances in digitization, and we will firmly grasp the financing demand of these customers, which will lead to business.
In addition, a new accounting standard for lease transactions will be applied from fiscal 2027. In addition to finance leases, operating leases also require companies to recognize assets and liabilities from lease transactions on the balance sheet. Although there are concerns about a decrease in lease transactions due to the impact on corporate finances, we assume that the percentage of operating leases is low in our group and that there will be no significant impact on our business results.
Regarding operating conditions in the first half of fiscal 2024, the real estate field centered on trust beneficial interests for logistics facilities grew significantly, resulting in an increase in the number of executed contracts volume compared with the same period of the previous fiscal year.
The capital investment field grew due to multiple large-scale projects, and the office field grew due to replacement demand for PCs in anticipation of the termination of Windows10 supports.
Due to an increase in the number of executed contracts volume, operating assets increased by 71.4 billion yen from the end of the previous fiscal year.
In terms of profits, gross profit increased year on year due to growth in the real estate field, centered on trust beneficial interests and loans, and the office field, where asset yields improved, and re-leasing increased.
As a result, the Consolidated recorded nets sales of 153.7 billion yen (down 1.0% year on year), gross profit of 23.9 billion yen (up 3.7%), operating profit of 11.4 billion yen (down 0.5%), ordinary profit of 11.6 billion yen (down 0.1%), and net income of 8.2 billion yen (up 54.0%).
In the first half of the fiscal year under review, we sold some cross-shareholdings after examining the status of transactions and the significance of the shareholdings. In the previous fiscal year, we recorded a one-time extraordinary loss due to loss on valuation of investment securities. However, the impact of this loss disappeared, and as a result, net income increased substantially.
Progress in the Second Year of Mid-Term Management Plan
This fiscal year is the second year of the 2023-2025 Mid-Term Management Plan. We are steadily pursuing the three initial business growth strategies of "Expansion and improved efficiency" " Diversification through the addition of businesses and services" and " Taking on the challenge of a new business model."
Strengthening existing businesses and creating new businesses are the two pillars of our group management strategy. Regarding existing businesses, we will continue to expand our mainstay office, medical and healthcare, and capital investment fields while increasing efficiency.
Regarding the creation of new businesses, we have launched a bond guarantee business in BPO field and are focusing on expanding this business by investing human resources to become a future business pillar.
Under the current Mid-Term Management Plan, we also focused on strengthening our organizational capabilities to support business growth and launched the Human Capital Impact Path Visualization Project to maximize the capabilities of individuals and organizations. We aim to visualize correlations as to what kinds of financial results are ultimately linked to daily operations. This is an initiative to increase employee satisfaction and encourage self-improvement. By developing personnel strategies linked to management strategies, we will lead to increased corporate value.
Enhancement of Corporate Value and Basic Policy for Shareholder Returns
We recognize that the realization of management that is conscious of the cost of capital and stock price is an essential requirement as a listed company.
We will improve PBR by raising ROE and PER, but how to increase profitability is an essential issue. To raise ROE, we will build a business portfolio while looking at the profitability of capital in each business field. I believe that this will be exhausted in how we can create many new businesses that are expected to grow.
At the same time, we emphasize shareholder returns. We will expand shareholder returns while investing in growth for the future. We are aware of the progressiveness of dividends and the industry-leading level of returns and have established a basic policy on shareholder returns that aims to expand shareholder returns by achieving sustainable growth, appropriate capital structure, and strengthening our financial position. Considering this policy, we believe it is important to further increase the return of profits to our shareholders. Accordingly, we have upwardly revised the dividend for the second half of the current fiscal year to 95 yen per share, an increase of 10 yen from the initial forecast. Combined with the interim dividend of 80 yen, we have decided to pay an annual dividend of 175 yen.
In the first half of the fiscal year under review, we donated a total of 5 million yen to the Tohoku region and Ishikawa Prefecture for heavy rain disasters, using the "Reserve Fund System for Prosperous Future" system. We would like to express our deepest appreciation for the understanding and cooperation of our shareholders.
November 2024
Representative President and Chief Executive Officer
Tokuharu Nakamura