Bridge Report:（8860）Fuji fiscal year ended March 2022

President Nobutsuna Miyawaki	Fuji Corporation Ltd. (8860)

Company Information

Stock Information

* The share price is the closing price on June 1 2022.
* The number of shares issued at the end of the most recent quarter excludes its treasury shares. Figures are rounded to the nearest decimal point.
* ROE and BPS are based on FY 3/22 earnings results. EPS and DPS are based on FY 3/23 earnings estimates.

Earnings Trends

*Units: million-yen

This Bridge Report provides information about the fiscal year ended March 2022 earnings results of Fuji Corporation Ltd.

Table of Contents

Key Points
1. Company Overview
2. Mid-term profit plan (FY 3/23 to FY 3/25)
3. Fiscal Year ended March 2022 Earnings Results
4. Fiscal Year ending March 2023 Earnings Estimates
5. Conclusions
<Reference: Regarding Corporate Governance>

Key Points

• In the fiscal year ended March 2022, sales declined 2.3% year on year, while ordinary income rose 58.2% year on year. In terms of sales, the number of deliveries of free-design homes, residential properties for sale, and rental apartment buildings for individual investors increased, but the company sold part of the land for large-scale residential properties in Kakogawa City, Hyogo Prefecture and significantly reduced the inventory of used housing in the previous term, so the number of units sold decreased. Accordingly, sales declined from the previous term. In terms of profit, the company significantly reduced unprofitable inventory and carefully selected properties to procure in the previous term, and sales commissions decreased, so the profitability of the housing distribution segment improved considerably, and the company reduced costs, including advertising expenses. Accordingly, profit grew from the previous term.

   

• According to the corporate plan for the fiscal year ending March 2023, sales are projected to drop 6.8% year on year, while ordinary income is expected to grow 1.3% year on year. In terms of sales, it is forecasted that the sale of used condominiums and rental apartment buildings for individual investors, rental and management of housing, etc. will grow steadily, but the number of deliveries of newly built detached houses will decrease from the previous term due to the decline in the number of orders received in the second half of the previous term after the special demand amid the coronavirus pandemic subsided. On the other hand, profit will be influenced by the sales growth of used condominiums, rental apartment buildings for individual investors, rental and management of housing, etc. and the decline in temporary expenses related to the repair of Charcoal House (a house with a system for purifying air with charcoal), which was recorded in the previous term. The company plans to pay a dividend of 27 yen/share like in the previous term (an interim dividend of 14 yen/share and a term-end dividend of 13 yen/share).

   

• A new mid-term management plan began in April. Due to the decline in the number of orders for free-design homes, sales are projected to drop in the initial fiscal year, but sales and profits are expected to recover in the second and third years. The company aims to establish a business base that can tolerate the unexpected changes in the economic environment, by strengthening the Used Residential Property Business, whose entry barrier is high, establishing trusting relationships with owners and those who introduce them (tax accountants, financial institutions, and others) to improve the rates of repeat orders and referrals, and expanding revenues from rents in the recurring-revenue business to establish a stable revenue base. The variation in KPIs for attaining the mid-term management plan is noteworthy.

   

1. Company Overview

Fuji Corporation Ltd. provides various real estate related services including sales of new and used condominiums and detached homes primarily in Osaka Prefecture (where the Company is based), between Osaka and Kobe, and within Wakayama City. Their main business is the sale of detached homes, albeit a built-for-sale type, that would maximize customer satisfaction by allowing for the “free-design home” regarding layout, specifications, etc. within the boundaries of Japan’s Building Standards Act. Fuji also boasts of strengths in the development of properties where 50 to 200 homes are constructed in coordination with the surrounding environment and each other to provide uniformity in neighborhoods. The other main pillars of the Company’s business include renovation and sale of used residential properties, collaboration with financial institutions for effective land utilization, sales of rental apartments for sale to individual investors, property leasing and management services.
Fuji boasts of unique knowhow developed in various businesses realms derived from its sales agency and detached home services. Furthermore, the complementary and synergistic effects that occur between its various business divisions allow the Company as a Complete Home Provider to respond with solutions that match the needs of home owners and residents in various geographic regions and times. Another strength of Fuji is local community-based management to match the time and place of the markets, and to maintain high levels of customer satisfaction by upholding the principles of “never ignoring customers after the sale” and “never ignoring customers after the completion of construction.”
In addition, each of the company's businesses, consisting of residential properties for sale, housing distribution, effective land utilization, leasing and management, and construction-related businesses, has its own know-how and promotes balanced management that complements each other’s business segments. Starting with the sublease business of rental apartment buildings for individual investors and serviced housing for seniors for individual investors, the company has been diversifying the business, operating the asset business of existing residential properties and the business of owning serviced rental housing for seniors, and expanding its recurring-revenue business that will withstand any change in economic trends.

1-1 Business Description

*The percentage represents the ratio of sales in each business segment to the total sales of the reporting segments (excluding internal sales).

Residential Properties for Sales（38.2% of Total Sales for fiscal year ended March 2022）
Sales of detached homes and condominiums are conducted in this business. A characteristic of this business is Fuji’s ability to develop neighborhoods of new detached homes in 50 to 200 units that match the local neighborhoods, and to allow its customers to participate in the designing of the property. It is developing a town with an emphasis on freedom, safety, communities, and landscapes. More specifically, these “free-design” homes respond to the needs of individual customers by allowing them to customize the layout and specification of the homes to suit their tastes and needs. Furthermore, new condominiums for sale are also included in the residential properties for sales business segment. Fuji halted the condominium for sale business in spring of 2005, based upon the outlook for a weakening in pricing due to declines in demand and increases in supplies. However, in the aftermath of the Lehman Shock, declines in land prices and improvements in supply and demand conditions in the condominiums for sale market led Fuji to restart the condominiums for sale business in February 2012. Another feature of Fuji is its focus upon condominiums and residential properties that are carefully selected (such as their convenient proximity to stations) and that are attractively priced for first-time buyers.

(Taken from the reference material of the company)
（Left: “Korigaoka Project”, Right: “Charman Fuji Wakayama Ekimae Gran Peak”）

Housing Distribution（20.2% of Total Sales for fiscal year ended March 2022）
Sales of refurbished used residential property called "Kaizo Kun" is conducted in this business segment. "Kaizo Kun" refurbished used residential properties are used residential properties purchased for renovation and sales. The company conducts business activities in this segment mainly in the region between Osaka City and Kobe City.

(Taken from the reference material of the company)
“Ouchi Kan” Housing information showroom where customers can browse and make selections. (Kishiwada City, Osaka)

(Taken from the reference material of the company)
Housing information exhibition hall where you can look around and choose freely, "Ouchikan Main Branch" (Kishiwada, Osaka)

Effective Land Utilization（20.0% of Total Sales for fiscal year ended March 2022）
Contract construction for leased properties and sales of rental apartment for sale to individual investors are conducted in this business. Construction work is performed for construction of rental residential properties sold on a proposal basis and leverages Fuji’s knowhow developed in its property leasing and management business. In addition, Fuji purchases lands and then constructs rental apartment buildings for sale to individual investor in this business. The highly price competitive wooden structure apartments called “Fuji Palace” were launched in November 2008, subsequently affordable apartments for seniors with nursing-care service, which are called “Fuji Palace Senior” as a means of differentiation. With regards to rental apartments for sales to individual investors, the price for apartments is roughly ¥100 million, and the demand for these types of rental properties remains strong as a fund management method. In addition, recently, the Company has been proactively developing affordable rental apartments for seniors with nursing-care services.

(Taken from the reference material of the company)
Affordable apartments seniors with nursing-care services, "Fuji Palace Senior" (Sakai City, Osaka Prefecture)

(Taken from the reference material of the company)
Fuji Palace series, rental apartments for individual investors

Property Leasing and Management（20.1% of Total Sales for fiscal year ended March 2022）
The fully owned subsidiary Fuji Amenity Services Co., Ltd. provides rental apartment structure management, tenant solicitation, rent collection and other management services, in addition to consigned management of condominiums. Superior rental and management related services not only act as stable source of earnings, but also provide opportunities to achieve high synergy with contract construction of rental income properties, sales of rental apartments for sale to individual investors, and sales of condominiums.

Construction related (1.5% of Total Sales for fiscal year ended March 2022)
This business consists of the sales of Yuuken Kensetsu Co., Ltd., and Kansai Densetsu Kogyo Co., Ltd., whose shares were all acquired by the company on January 29, 2020, to make them wholly owned subsidiaries of the company. It became a reporting segment in the first quarter of the fiscal year ending March 2021.
To further meet the demand for effective land utilization projects, the company welcomed the Yuuken Kensetsu Group as a partner in constructing steel frames and reinforced concrete structures. Yuuken Kensetsu Group has a wide range of construction achievements for government offices and private companies, mainly in Osaka prefecture. The company aims to stabilize and expand its business performance by enhancing its project lineup by providing non-wooden housing.

1-2 Strengths of Fuji Corporation

Creating customer-oriented homes that can take responsibility for meeting customer needs
The company’s name is derived from Mt. Fuji, with the aim of becoming "the most beloved company in Japan.” The company believes that a house is a once-or-twice-in-a-lifetime purchase, and that it must be a business that satisfies its customers to the very end. The company believes that providing safe and reliable products and services, and meeting the expectations and trust of its customers are of utmost importance, so that all its customers will be happy to say, "Fuji will take care of everything right through to the end, and I am glad I bought a house from Fuji." Since the company's founding, it has continued to build homes that are customer-focused and responsible. As a result, the company has received many new customer referrals from existing customers and subcontractors, as well as repeat contracts from existing customers, and has received high praise from customers, winning first place for two consecutive years in the 2022 Oricon Customer Satisfaction® Survey in the "Kinki" and "Kinki Osaka Prefecture" categories for builders of built-for-sale housing. The company has received high evaluations from customers.

【High rate of conclusion of contracts through referrals and high rate of conclusion of repeat contracts (FY 3/2022)】

※1 The number of contracts concluded through referrals for newly constructed homes for sale is calculated based on the number of lots when multiple lots are purchased at the same time (excluding sales of land).
※2 The number of used homes is for the homes sold directly by the company without an intermediary.
※3 The number of contracts is calculated based on the date of loan approval from the purchaser's financial institution.(Taken from the reference material of the company)

Stable Business Structure with Balanced Management
Although the company's sales area is limited to Osaka and parts of Hyogo and Wakayama Prefectures, each of its divisions boasts a national level or the largest market share within its sales area. The company's Residential Housing Division has ranked first in Osaka for six consecutive years in terms of the number of housings starts; the Residential Distribution Division ranks fifth in Japan in terms of the number of used homes purchased and resold; and the Land Use Division ranks fifth in Japan in terms of the number of senior citizen facilities under management, including a whopping 210 serviced residences, making it the No. 1 operator in Japan. “Source: Reform Industry Newspaper, Annual Ranking of Units Sold for Purchase and Resale 2021 (issued on July 26, 2021); Senior Business Data Book 2022; "For housing constructions started, figures are total amounts for areas excluding Osaka City (Osaka City is not included in the results) (surveyed by Jutaku Sangyo Research Institute, Inc.).”
In addition, (1) the ability to conduct business that meets the needs of a wide range of customers, (2) the expansion of business opportunities by responding to a wide variety of commercialization, and (3) a high tolerance for changes in the economy and market conditions are strengths of balanced management.

【Sales composition by business segment in balance (FY 3/22)】

Sumi no Ie（House of Charcoal） / Pure Air
Pollens, bacteria, and viruses are becoming grave problems in addition to air pollution due to such factors as exhaust gas. Fuji Corporation’s “Sumi no Ie / Pure Air” was born through its efforts of putting together the technologies that it has cultivated and focusing thoroughly on air and quality. The company has gained the right to use the patented system “Sumi no Ie” within the corporate group’s sales area, and offers safe housing as a product that differentiates it from other companies and possesses added value.

(Taken from the reference material of the company)
*Examples of the effects felt by customers

Items on which Fuji has earned the highest grades in the Housing Performance Indication System
The company considers that its mission is to provide customers with high-quality housing that is full of peace of mind. As one of the approaches to the mission, Fuji has obtained the housing performance assessment report for all its free design houses, and this means that the company has established a corporate system that enables it to earn the highest grades for all the housing performance indication items. Furthermore, the company has adopted “TRC Damper”, a vibration control system that dampens seismic vibrations, to achieve more effective prevention of walls from being damaged and furniture from falling down.

(Taken from the reference material of the company)
*As of March 31, 2022

Building a home that can be built because of their close ties to the local community
The company's founding spirit is to "keep taking care of a house even after sold or built." The company is committed to continuing its dense business within the scope of its customers' face-to-face contact, and to ensuring a complete after-sales follow-up system, which is why it does not expand its business nationwide. In line with the spirit of the company's founding, they aim to create high-quality, community-based homes so that their customers, with whom they will have a decades-long relationship, can trust us with their peace of mind.

1-3 Efforts for ESG and SDGs

Fuji Corporation aims to become a corporate group that continues growing sustainably together with the society and builds up trust by contributing to the society while being conscious of the relationship of its local community-based business activities with Environmental, Social, and Corporate Governance (ESG) and the Sustainable Development Goals (SDGs).

(4) DX (Digital Transformation) Initiatives
To promote next-generation system construction projects to dramatically accelerate the improvement of duplicated operations through overall optimization and the improvement of operational efficiency through information sharing, with the aim of building a system infrastructure that is resistant to change.

(Taken from the reference material of the company)

2. Mid-term profit plan (FY 3/23 to FY 3/25)

The company formulated a medium-term management plan for the next three years. The business environment surrounding the real estate industry, the rise in land prices over the past several years, the increase in timber prices due to the lumber shortage and the rise in building costs due to a series of price hikes in housing equipment are expected to be reflected in selling prices, and the increasingly uncertain economic conditions are expected to exacerbate the severity of the sales environment. In this environment, the company aims to maximize its synergy effect by strengthening cooperation among the five business segments of the group, making efforts to further create a stable earnings structure with an emphasis on recurring revenues that can withstand unexpected changes in the economic environment, and contributing to the realization of a sustainable society through human resources development. In FY 03/25, the final year of the medium-term management plan, the company aims to set new records in sales as well as all kinds of profits. The company is aiming for 121.8 billion yen in sales and 7 billion yen in ordinary income for FY 03/25.

Medium Term Business Plan Targets

*Units: million yen

(1) Assumptions for the Medium-Term Management Plan
Plan for FY 03/23
Profit is expected to increase year on year due to the development of a stable revenue structure based on recurring revenues.
Although the number of new detached houses delivered decreased year on year due to a decrease of orders received in the second half of the previous fiscal year as a result of the shrinkage of the special demand brought about by the COVID-19 pandemic, profit in the property leasing and management business is expected to exceed 3 billion yen due to an increase in the number of housing units under management accompanying the steady delivery of rental apartments and construction contracts for individual investors, thereby stabilizing the revenue base. The company plans to complete and deliver three condominium buildings to compensate for the decline in the number of newly built detached houses. Regarding construction contracts, sales based on percentage of completion as a result of favorable orders in the previous term contributed to profit. In the construction-related segment, the renovated rental apartment building for seniors with nursing-care services (Nishinomiya City), the second one since the Yuuken Kensetsu Group became a subsidiary, will be completed and delivered.

Plan for FY 03/24
Performance recovered to the level of the fiscal year ended March 2022 due to the completion and delivery of three condominium buildings as well as steady growth in the leasing and management segment.
Three condominium buildings are scheduled to be completed and delivered, driving the performance of the residential housing segment. In the housing distribution segment, the company will continue to adopt selective purchasing policies and focus on the highly competitive and profitable existing housing asset business. Regarding construction contracts, 54 buildings are scheduled to be delivered, which will drive the performance of the effective land utilization segment. In the leasing and management segment, sales will exceed 25 billion yen due to a steady increase in the number of housing units under management, contributing to the stabilization of the revenue base.

Plan for FY 03/25
Consolidated sales and consolidated operating income reached record highs due to an increase in the delivery of condominiums and rental apartment buildings for individual investors.
Five condominium buildings are scheduled to be completed and delivered, and consolidated net sales and consolidated operating income are expected to reach record highs due to the recovery of sales in the residential housing segment to the level of 40 billion yen and an increase in the delivery of rental apartment buildings for individual investors. The company plans to increase the number of residences with health and welfare services for the elderly to 50. In the leasing and management segment, the number of housing units under management has exceeded 35,000, and the construction of long-term stable infrastructure is progressing steadily.

(2) Performance Trends and a Medium-Term Management Plan
The company will respond to changes in the external environment during the current plan period, such as skyrocketing land purchase prices due to a rise in land prices and a continuing rise in construction costs due to a rise in the prices of raw materials. The fiscal year ending March 2023, which is the first term of the medium-term management plan, will be the final year of the adjustment period, and the company will aim to set new records in sales as well as all kinds of profits in the fiscal year ending March 2025.

(3) Variation in Rental Income from Recurring-Revenue Business
Revenues from the recurring-revenue business are expected to remain strong in the current plan period as a result of steady growth in construction contracts and rental apartment buildings for individual investors in the effective land utilization business and the sale and delivery of condominiums in the residential housing business. The company will continue with its efforts to create a stable revenue structure with an emphasis on recurring revenues and aim to establish a business foundation that can withstand unexpected changes in the economic environment.

(4) Business Strategies by Segment
Medium Term Business Plan Targets for each Industry Segment

* Units: million yen
* Segment profits before adjustments. Intersegment transactions are included.
* Derived from Fuji Corporation’s Medium-Term Business Plan announced on May 10, 2022.

Residential Properties for Sales Business
The current plan calls for the completion and delivery of 11 condominium buildings (745 units): 3 in the fiscal year ending March 2023, 3 in the fiscal year ending March 2024 and 5 in the fiscal year ending March 2025, driving one-shot revenues in each fiscal year. The aim of the project will continue to be “Creation of Homes that Bring Happiness,” providing residential areas with higher added value that will serve as landmarks in the surrounding areas with beautiful scenery, safety, and community.

Housing Distribution Business
Continuing with the inventory optimization and profit-oriented selective procurement policies established in the previous plan period, the company aims to further stabilize its revenue base, centered on the existing housing asset business, which has competitive advantages and is highly profitable. The existing housing asset business is a business that acquires existing housing units with tenants, and collects rental income as profit-yielding real estate and profit through resale. This business model, which requires rental management and long-term funding, has a higher barrier to entry than the purchase and resale business, in which competition is intensifying. This will serve as collateral against the risk of a decline in resale prices due to rental income, lead to the diversification of exit strategies in anticipation of sales to investors as well as actual demand, and contribute to further stabilization of the profit base. Under the current plan, the number of owned units will be kept about 1,000 and the annual rental income will be about 1.1 billion yen.

Effective Land Utilization Business
The demand for residences with health and welfare services for the elderly is expected to increase further as property inheritance and inheritance tax measures are taken and as the population ages. The demand for rental apartment buildings for individual investors is also expected to continue due to the impact of monetary easing.
The company will aim to build a more trustworthy relationship with owners and those who introduce them (tax accountants, financial institutions, etc.) and to improve the rates of repeat orders and referrals.

[Delivery Plan]

Property Leasing and Management Business
This business is expected to remain strong in the current plan period, too, due to construction contracts and rental apartment buildings for individual investors in the effective land utilization business and the sale and delivery of condominiums in the residential housing business. The ratio of the profit in the property leasing and management business has been increasing year by year and is expected to remain steady.

[Number of Housing Units Under Management and Occupancy Rate Forecast]

Construction-related Businesses
In January 2020, the company invited the Yuuken Kensetsu Group, which has a track record in steel frame and reinforced concrete construction, as a partner. In addition to providing steel frame houses in the "Fuji Palace Senior" apartment for seniors with nursing-care services, the company is also engaged in public works, mainly in construction and civil engineering. The company aims to expand its business lineup through in-house construction of steel frame and reinforced concrete structures and to achieve stable earnings growth. In February 2022, in its first cooperation with Yuuken Kensetsu Group, the company finished the construction of a steel-frame apartment building for seniors with nursing-care services in Minamisuita, Suita City, Osaka Prefecture. During the current plan period, the company plans to complete the renovation and delivery of the second rental apartment building for seniors with nursing-care services (Nishinomiya City) since the Yuuken Kensetsu Group became a subsidiary. The company plans to further enhance the synergy effects of such collaborations.

3. Fiscal Year ended March 2022 Earnings Results

(1) Consolidated Earnings

* Data in this table and other parts of this report include figures which have been calculated by Investment Bridge, and may differ from those of the Company (same as below)
* Units: million yen

Sales declined 2.3% year on year, but ordinary income grew 58.2% year on year.
In the fiscal year ended March 2022, sales decreased 2.3% year on year to 118,698 million yen. In terms of sales, the number of deliveries of free-design homes, condominiums, and rental apartment buildings for individual investors increased significantly, but the number of units sold declined from the previous term, in which the company sold the land for large-scale residential properties in Kakogawa City, Hyogo Prefecture and significantly reduced used residential properties in stock. The balance of order backlog at the end of the term (ended March 2022), which is a leading indicator of sales, dropped 6.2% from the end of the previous term (ended March 2021).

Ordinary income grew 58.2% year on year to 5,627 million yen. In terms of profit, the company reduced unprofitable inventory significantly and rigorously selected properties to be procured in the previous term, and sales commission and advertisement costs decreased, so the profitability of the housing distribution segment improved considerably, while the company reduced costs, including advertisement expenses. Accordingly, all kinds of profits increased from the previous term.
Operating income margin rose 1.6 points to 4.9%, as gross profit margin grew 1.1 points year on year and the ratio of SGA to sales decreased 0.7 points year on year. Accordingly, operating income increased 47.3% year on year to 5,871 million yen. Although the company posted a temporary expense of about 840 million yen for the repair of Charcoal House (a house with a system for purifying air with charcoal), profitability improved considerably. In addition, the growth rate of ordinary income exceeded that of operating income, because the revenues from subsidies increased in the section of non-operating revenues and there was no longer expenditure for issuing corporate bond, which was posted in the previous term, and interest paid decreased in the section of non-operating expenses. In addition, extraordinary profit/loss fluctuated mainly because the company posted 329 million yen as gain on sale of fixed assets (127 million yen in the previous term) and loss on sale of fixed assets decreased from 82 million yen to 10 million yen.
With regard to the comparison with the revised corporate forecast announced on February 8, 2022, sales slightly fell below the forecast, while all kinds of profits exceeded the forecast.

(2) Segment Earnings (Fiscal Year ended March 2022)

Results by Segment and Topics

* Units: million yen
* Net sales are sales to external customers, segment income is the figure for the reportable segment.
* The composition ratio of profit is the ratio to the total profit of reportable segments.

In the segment of residential properties for sale, sales grew 12.8% year on year to 45,388 million yen and profit rose 273.0% year on year to 1,475 million yen.
In terms of sales, the sales of land decreased significantly from the previous term, in which the company sold the land for large-scale residential properties in Kakogawa City, but the sales of free-design homes and condominiums were healthy, offsetting the decline in sales of land. In terms of profit, the company posted a significant loss on valuation in the previous term, as it conducted sales promotion by changing selling prices flexibly to reduce the impact of the coronavirus pandemic on future business performance, but there was no such impact this term, so the sales growth directly led to the increase in profit. On the other hand, there was a temporary expense of about 840 billion yen for the repair of Charcoal House (a house with a system for purifying air with charcoal).

*Units: million yen

(Taken from the reference material of the company)

Sales in the housing distribution segment decreased 27.0% year on year to 23,928 million yen, and profit increased 153.3% year on year to 1,280 million yen.
Like in the segment of residential properties for sale, the sales in the housing distribution segment dropped considerably due to the decrease in inventory as the company carried out significant inventory adjustment, mainly for unprofitable inventory, in the previous term. On the other hand, revenues per unit improved considerably, thanks to the optimization of inventory and the rigorous selection of properties to be procured. In addition, profit grew considerably from the previous term, due to the significant drop in sales commission caused by the decrease of units sold.

*Units: million yen

According to Japan Journal of Remodeling’s Annual Ranking of Resale Units Sold 2021 (issued on July 26, 2021), the company ranked fifth in Japan in the annual ranking of resale units sold. The company's housing distribution business takes place mainly in the Hanshin region, and although its sales activities are limited to this area, it boasts one of the largest purchase and resale volumes in Japan.
Fuji Home Bank operates the assets business with a significant competitive advantage, buying and reselling used condominiums and acquiring used condominiums occupied by tenants as real estate for investment and reselling them after occupants move out. As of the end of March 2022, the company holds 891 units.

【Variation in the used condominium business】

In addition, “Ouchi Kan” main store is a general housing exhibition hall that always displays information on more than 1,000 properties, including properties that are not available on the Internet, and is arranged by area, new construction, and pre-owned to make it easier to find the property of choice, and touch panel devices make it intuitive to search for properties.

Sales in the effective land utilization segment decreased 2.5% year on year to 23,791 million yen, and profit rose 2.4% year on year to 2,365 million yen.
The number of construction contracts decreased as the company refrained from marketing for about 3 months in response to the first declaration of a state of emergency amid the coronavirus pandemic in the previous term. This affected the sales in FY 3/22. On the other hand, rental apartment buildings for individual investors attracted more attention from investors than before, and the number of orders was healthy, leading to the increase of deliveries and sales and offsetting the decline in sales from construction contracts.

* Units: million yen
* Table sales are before deducting intersegment sales or transfers.

Regarding rental apartment buildings for individual investors, the company rigorously selects and procures rare profitable buildings based on abundant information accumulated as a general real estate company, and keeps occupancy rate as high as 97% as of the end of March 2022, based on the advanced management and tenant attracting capabilities of group companies. Owners highly evaluate their capabilities of developing products, managing properties in good faith, and attracting tenants as well as the contents of contracts beneficial for owners. Accordingly, properties handled by the company are all purchased by existing owners or clients introduced by financial institutions. At the time of release, the number of would-be buyers is five or more times that of available properties. The company also prepared a system for renting properties for up to 30 years at once, and during the contract period, the company cannot request cancellation.

(Taken from the reference material of the company)

Sales in the property leasing and management segment increased 9.7% year on year to 23,829 million yen, and profit rose 7.0% year on year to 2,766 million yen.
Sales and profit grew from the previous term, as the number of properties under management increased through the delivery of rental properties in the land utilization business and the number of properties under management increased through the delivery of housing for elderly people with nursing-care services and condominiums.

*Units: million yen

While the number of units rented and managed has been increasing by 2,000 per year since 2016, occupancy rate remains high. As of the end of March 2022, the number of apartment buildings for elderly people with nursing care services under management was 218 and the number of units under management was 7,043. According to the senior business data book 2022, the company has the largest number of buildings under management (210 as of the end of October 2021) and the largest number of rental residential properties for the elderly with nursing care services in Japan.

*Number of buildings in operated and managed as of October 2021
(Made by investmentbridge based on senior business market)

Sales in the construction related segment declined 26.0% year on year to 1,761 million yen, and profit rose 388.6% year on year to 112 million yen.
The housing for the elderly with nursing care services owned by the corporate group in Minamisuita, Suita-shi, Osaka has been constructed by the Yuuken Kensetsu Group. The company purchased old company housing with a steel-reinforced concrete structure in Nishinomiya City, and is renovating it to transform it into housing for elderly people with nursing care services, so synergetic effects are expected to increase further through collaboration.

* Units: million yen
* Table sales are before deducting intersegment sales or transfers.

In January 2020, the Yuuken Kensetsu Group, which has the experience of constructing steel-framed and steel-reinforced concrete buildings, became a partner. The projects for constructing steel-framed and steel-reinforced concrete buildings had been excluded, except condominiums, but options increased as the Yuuken Kensetsu Group became a partner, and the product lineup expanded. As the steel-framed rental housing for elderly people with nursing care services in Minami-suita, Suita-shi, Osaka was completed in February 2022 as the first collaboration, synergetic effects in collaboration are being exerted.

(Taken from the reference material of the company)

(3) Quarterly Earnings Trends

Consolidated sales and ordinary income for the fourth quarter (January - March)

In the fourth quarter (January-March), sales and profit grew year on year. Sales were large compared with those in the past fourth quarters, but ordinary income was affected by the posting of temporary expenses for the repair of Charcoal House (a house with a system for purifying air with charcoal).

Status of order backloｇ

* Units: million yen
(Taken from the reference material of the company)

The order backlog as of the end of FY 3/2022 (the end of March 2022) stood at 51,508 million yen, down 6.2% from the end of the previous term (the end of March 2021). The primary factor in the decrease in order backlog is the 29.7% year-on-year drop in order backlog for free-design homes in the Segment of Residential Properties for Sale. This is mainly because the “special demand for housing,” which emerged due to the gain of momentum for reviewing the residential environment amid the coronavirus pandemic around the summer season in the previous term, subsided in the second half of the current term. Another reason is that the land prices remaining high and the rise in prices of raw materials due to the shortage of lumber, etc. were reflected in selling prices, and the number of orders for used residential properties, whose prices are relatively low, is strong. In the Effective Land Utilization Business, the number of orders for commissioned construction is recovering and the number of orders for rental apartment buildings for individual investors is healthy. Accordingly, order backlog increased 18.0% from the end of the previous term.

(4) Financial Conditions and Cash Flow (CF)

* Units: million yen
* Inventories = Real estate for sale + Real estate for sale in progress + Real estate for development + Payments for uncompleted construction + Inventories

* Interest bearing liabilities = Loans + Lease liabilities + Debenture

The total assets as of the end of March 2022 stood at 153,512 million yen, up 5,918 million yen from the end of the previous term. In the side of assets, mainly cash and deposits decreased, while inventory assets and tangible fixed assets, including buildings, structures, and land, increased. In the side of liabilities and net assets, mainly advances received decreased, while accounts payable, short-term interest-bearing liabilities, retained earnings, etc. grew. Inventory assets included real estate for sale amounting to 22.09 billion yen (15.65 billion yen at the end of the previous term), real estate for sale in progress amounting to 27.02 billion yen (29.22 billion yen at the end of the previous term), and real estate for development amounting to 31.83 billion yen (34.02 billion yen at the end of the previous term). As the sale of detached homes was healthy and it was forecast that the shortage of lumber would occur, the company focused on the acquisition of land for condominiums rather than the land for detached homes, and also the acquisition of used residential properties, which remain in high demand, and the land for rental apartment buildings. Although it is still difficult to procure properties, the company has secured inventory for the coming three years by acquiring a total of 2,767 units of detached homes and condominiums. Interest-bearing liabilities augmented 702 million yen. Capital-to-asset ratio stood at 28.9%, up 0.8 points from the end of the previous term.

Cash Flow

* Units: million yen

Regarding cash flows, the cash inflow from operating activities shrank as the decrease of inventory assets diminished. In addition, the cash outflow from investing activities expanded due to the rise in the acquisition amount of tangible fixed assets, so free cash flow turned negative. On the other hand, the cash outflow from financing activities dropped, due to the shrinkage of repayment of long-term debt, etc. As a result, the balance of cash and cash equivalents decreased 2.6% from the previous term.

4. Fiscal Year ending March 2023 Earnings Estimates

(1) Consolidated Earnings

*Units: million yen

Sales are projected to decline 6.8% year on year, but ordinary income is expected to rise 1.3% year on year.
According to the corporate plan for the fiscal year ending March 2023, sales are projected to drop 6.8% year on year to 110.6 billion yen, while ordinary income is expected to grow 1.3% year on year to 5.7 billion yen.
In the aspect of sales, it is forecasted that the sale of used condominiums and rental apartment buildings for individual investors, rental and management of housing, etc. will grow steadily, but the number of deliveries of newly built detached houses will decrease from the previous term due to the decline in the number of orders received in the second half of the previous term after the special demand amid the coronavirus pandemic subsided.
On the other hand, profit will be influenced by the sales growth of used condominiums, rental apartment buildings for individual investors, rental and management of housing, etc. and the decline in temporary expenses related to the repair of Charcoal House (a house with a system for purifying air with charcoal) amounting to about 840 million yen, which was recorded in the previous term. The ratio of ordinary income to sales is expected to rise 0.5 points year on year to 5.2%.
The company plans to pay a dividend of 27 yen/share like in the previous term (an interim dividend of 14 yen/share and a term-end dividend of 13 yen/share).

Consolidated Sales Forecast by Segment

* Units: million yen
* Segment profits before adjustments. Intersegment transactions are included.
* Derived from Fuji Corporation’s Medium-Term Business Plan announced on May 10, 2022.

In the business of Residential Properties for Sale, the company will rigorously select properties to be procured, according to the changes in the external environment, such as the skyrocketing of prices of land and construction costs remaining high due to the steep rise in prices of materials. In the Housing Distribution Business, the company will strengthen the business of used residential properties, which has a high entry barrier, to stabilize the revenue base further. In the Effective Land Utilization Business, the company aims to cement trusting relationships with owners and those who introduce them (such as tax accountants and financial institutions), and improve the ratio of repeat orders and the ratio of referrals. In the Property Leasing and Management business, recurring revenues are expected to remain healthy, as construction contracts in the Effective Land Utilization Business and the sale and delivery of rental apartment buildings for individual investors and condominiums in the Business of Residential Properties for Sale will be healthy. The company will make continuous efforts to develop a stable revenue structure focused on recurring revenues, with the aim of establishing a business base that can tolerate unexpected changes in the economic environment. In the Construction-related Business, the company plans to deliver renovated rental housing for the elderly with nursing care services (Nishinomiya City), and enhance synergetic effects through collaboration.
Sales and profit are expected to grow through the Property Leasing and Management Business, as the number of deliveries of newly built detached homes will decline from the previous term due to the decrease of orders in the second half of the previous term as the special demand amid the coronavirus pandemic has subsided, but the number of units under management will increase through the steady delivery of rental apartment buildings for individual investors and buildings constructed in accordance with construction contracts. The company plans to deliver 3 condominium buildings, compensating for the decrease of newly built detached homes delivered. The sales on the percentage-of-completion basis are expected to contribute to the rise in profit, as the number of orders for construction was favorable in the previous term.

5. Conclusions

The order backlog, which is the leading indicator of sales of the company, as of the end of FY 3/22 was down 6.2% from the end of the previous term. Accordingly, sales are projected to decline 6.8% year on year in FY 3/23, as the special demand for housing, which emerged due to the gain of momentum of reviewing the residential environment amid the coronavirus pandemic around the summer season of FY 3/21, peaked out, and started diminishing in the second half of FY 3/22. It is necessary to pay attention to the fact that the demand in the domestic housing market, where the company operates business, is weakening. In addition, the skyrocketing of prices of land to be procured and materials, the shortage of housing equipment, etc. are casting a shadow. It is noteworthy how much such worsening of the external environment will affect performance and when it will bottom out. For the company, the lead time between order receipt and posting of sales is as long as about 9 months for free-design homes and about 1 year for rental apartment buildings for individual investors, except used residential properties, so the impact of the worsening of the external environment on the results for FY 3/23 will be minor. This is because the order backlog will account for 70-80% of the forecast sales in FY 3/23. The sale of used residential properties, whose lead time is short, will cause a difference between results and the corporate forecast, but fortunately, the number of orders for used residential properties whose prices are relatively low seems to be healthy. Whether or not they can overcome the worsening of the external environment surrounding free-design homes and the future receipt of orders for used residential properties are noteworthy.
In addition, a new mid-term management plan began in April. Due to the decline in the number of orders for free-design homes, sales are projected to drop in the initial fiscal year, but sales and profits are expected to recover in the second and third years. The company aims to develop a stable revenue base based on recurring revenues and establish a business base that can tolerate the unexpected changes in the economic environment. Concretely, they plan to strengthen the Used Residential Property Business, whose entry barrier is high, establish trusting relationships with owners and those who introduce them (tax accountants, financial institutions, and others) to improve the rates of repeat orders and referrals, and expand revenues from rents in the recurring-revenue business. We would like to pay attention to the variation in KPIs for attaining the mid-term management plan.

<Reference: Regarding Corporate Governance>

◎Organization type, and the composition of directors and auditors

◎Corporate Governance Report
The company submitted its latest corporate governance report on April 12, 2022.

<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>

<Other>
The Company's basic policy on corporate governance is as follows: "Our basic policy on corporate governance is to maximize corporate value from the standpoint of our shareholders while improving management efficiency and transparency and achieving steady business results. We regard this as one of the most important management issues." In addition, it also states the following clause individually.(1) maximizing shareholder value, (2) the Board of Directors, (3) Corporate Auditors and the Board of Corporate Auditors, (4) strengthening the internal information disclosure system, (5) improving the quality of IR activities, and (6) strengthening internal control.
*From the company's release on corporate governance dated April 12, 2022.
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