Bridge Report:（8860）Fuji Second Quarter of Fiscal Year ending March 2024

President Nobutsuna Miyawaki	Fuji Corporation Ltd. (8860)

Company Information

Stock Information

* The share price is the closing price on December 6, 2023. The number of shares issued at the end of the most recent quarter excludes its treasury shares.
* ROE and BPS are based on FY 3/23 earnings results. EPS and DPS are based on FY 3/24 earnings estimates.

Earnings Trends

*Units: million yen, EPS and dividend are yen.

This Bridge Report provides information about Second Quarter of Fiscal Year ending March 2024 Earnings Results of Fuji Corporation Ltd.

Table of Contents

Key Points
1. Company Overview
2. Mid-Term Management Plan (FY 3/23 to FY 3/25) and Progress
3. Second Quarter of Fiscal Year ending March 2024 Earnings Results
4. Fiscal Year ending March 2024 Earnings Estimates
5. Conclusions
<Reference: Regarding Corporate Governance>

Key Points

• In the second quarter of the fiscal year ending March 2024, sales and ordinary income decreased 6.5% and 17.0%, respectively, year on year. In terms of sales, the sales of the effective land utilization segment increased thanks to the healthy performance of contract construction of rental properties and affordable apartments for seniors with nursing-care services, and the sales of the property leasing and management segment, too, increased. On the other hand, the sales of the segment of residential properties for sale declined, because the number of units delivered decreased year on year as there was no construction and delivery of condominium buildings like in the same period of the previous year. In terms of profit, the segments of residential properties for sale and housing distribution saw a decline in profit due to the decrease in the number of units delivered, but the segments of effective land utilization and property leasing and management witnessed a profit growth, so total profit was in line with the initial forecast of the company.

   

• As of the end of the second quarter, there is no revision to the initial forecast calling for a 4.8% y/y increase in sales and a 4.5% y/y rise in ordinary income in the fiscal year ending March 2024. In the second half of the fiscal year, 4 condominium buildings will be completed and delivered, and two thirds of the annual number of rental apartment buildings for individual investors will be delivered, so sales will become larger in the second half than usual. Accordingly, the company is expected to reach the full-year earnings forecast. In addition, there is no change to their plan to pay dividends amounting to 27 yen/share per year (an interim dividend of 14 yen/share and a year-end dividend of 13 yen/share) like in the previous fiscal year.

   

• According to the balance sheet as of the end of the second quarter of the fiscal year ending March 2024, inventory real estate increased 5.7 billion yen from the end of the previous fiscal year, due to the acquisition of land for condominiums and effective land utilization. Seeing the rise in prices and the intensification of competition, the company has selected and procured properties more rigorously in recent years, but it seems that the procurement environment is improving gradually, and attractive properties are increasing. We would like to pay attention to how many attractive properties they can accumulate.

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.
Taking advantage of its strength in community-based management, the company aims to create homes that deliver high customer satisfaction by a special relationship with customers that doesn’t end just after sell or build them a home.
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 Management ethos

The company operates for the sake of:
・Employees,
・Employees’ families,
・Customers and business partners,
・Shareholders,
・Local communities, and
・Ultimately, the nation.
The company's management ethos begins with “for employees and their families” because it believes that if employees or their families are not happy, they cannot do work that would truly please customers. By treasuring employees and their families and providing them with a sense of gratitude, pride in their work, motivation, and a sense of purpose in life, the employees will be able to value customers truly, which the company believes will lead to the happiness of all stakeholders, including business partners, shareholders, local communities, and the nation.

1-2 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（accounting for 26.3% of total sales in 2Q of FY 3/2024）
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: “Airs city”)

Housing Distribution（accounting for 23.5% of total sales in 2Q of FY 3/2024）
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)

Property library on the first floor
The library always displays information on more than 1,000 properties, including those not disclosed to the public on the Internet. It is arranged so you can easily search for properties using conditions such as desired areas and preferences for new or used properties.

(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（accounting for 22.8% of total sales in 2Q of FY 3/2024）
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)
Left: Affordable apartments seniors with nursing-care services, "Fuji Palace Senior" (Sakai City, Osaka Prefecture)
Right: Fuji Palace series, rental apartments for individual investors

Property Leasing and Management（accounting for 26.0% of total sales in 2Q of FY 3/2024）
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 (accounting for 1.1% of total sales in 2Q of FY 3/2024）
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.

Other business (accounting for 0.1% of total sales in 2Q of FY 3/2024)
This business segment is not included in segments to be reported, but includes the insurance agency business operated by the company.

1-3 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 been highly recognized by customers. This is evident through the many introductions of new customers by existing customers and cooperating companies and the repeat contracts from existing customers. Moreover, in the 2023 Oricon Customer Satisfaction ® Survey, the company has been ranked first overall for "Kinki" and "Osaka Prefecture".

【High rate of conclusion of contracts through referrals and high rate of conclusion of repeat contracts (FY 3/2023)】

※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 area builder ranking for 17 consecutive years in terms of the number of housings starts; the Residential Distribution Division ranks seventh in Japan in terms of the number of used homes purchased and resold; and the Land Use Division including a whopping 237 serviced residences, making it the No. 1 operator in Japan. “Source: Reform Industry Newspaper, Annual Ranking of Units Sold for Purchase and Resale 2023 (issued on July 31, 2023); the Elderly Housing Newspaper dated summer extra-large, 2023."
The company was certified as No. 1 in the ranking of local builders in terms of housing starts in Osaka Prefecture, excluding Osaka City (Osaka City is out of scope for this survey.) (surveyed by Jutaku Sangyo Kenkyusho Co., Ltd.)
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 (2Q of FY 3/24)】

◎ 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.
Sumi no Ie (a house with a system for purifying air with charcoal)/Pure Air is a carbon air clean system that forcibly draws in outdoor air with a fan, and blocks minute harmful substances with a microparticle filter. By putting charcoal under the floor and passing air through it, clean air is supplied to each room.

(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 (having six kinds). 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)

◎ 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 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 its founding spirit, the company aims to create high-quality housing that is community-based so that customers who have been with the company for decades can continue to live with peace of mind.

◎ Used asset business in collaboration with the leasing management division
The used asset business acquires used condominiums that are already rented. This business model profits by collecting rents until tenants move out, and then the company renovates and resells the properties by collaborating with the leasing management business division. The company is one of the leading companies in Japan in the property purchase and resale business that renovates and resells vacant, used homes. The company owns 849 properties in Osaka Prefecture and the Hanshinkan area. Namely, it holds a significant number of properties in Kansai, being comparable to the largest companies in the same industry. In addition, the company has diversified exit strategies, such as re-leasing properties with existing tenants as investment properties or selling them with the tenants living in them. Using the corporate group's leasing management division enables the company to manage the properties flexibly according to their attributes. The average area of ​​properties owned as of the end of September 2023 is 64.13m2, and the average building age is about 29 years. Regarding the location of the properties, 58% of them are in Osaka prefecture, and 33% are in Hyogo prefecture, making them the regions with the largest number of properties.

*Properties owned at the end of September, 2023

◎ No sales consignment. The company’s employees handle all sales.
The company sells about 1,000 new condominium units annually, and the company's employees conduct sales activities at all sales sites. The company's employees handle land purchase, sales, plan design, construction site management, and after-sales follow-up. The company conducts face-to-face sales activities in an intensive and responsible manner aiming for the best customer satisfaction in Japan and pursuing customer happiness. In the sales department, there are no sales performance graphs for individual employees, but customer reviews and report graphs. The company places great importance on the positive reviews it receives from its customers and is promoting its sales activities by upholding the principles of " a special relationship with customers that doesn’t end just after sell or build them a home."

◎ Leasing management that has maintained a high occupancy rate of 96% or higher for the past seven consecutive years
As of the end of September 2023, there are 33,480 managed units (2,318 managed facilities), and overall occupancy rate is 96.6%. Thus, the company has maintained a high occupancy rate of over 96% over the past seven years. This is thanks to the company carefully selecting the location of each property so that its buyer can manage the property with peace of mind over the long term, as well as (1) the company's ability to attract customers through strong cooperation with brokerage companies, (2) its high level of property management, and (3) the rapid and flexible management system due to division of labor.

◎ Stable supply of high-quality housing based on deep trusting relationships with cooperative firms
In order to provide high-quality housing, the company holds a meeting of the council for safety and health every month and a conference of the association for on-site cooperation once a year, to share the management philosophy of the company and carry out the thoroughgoing management of safety and quality. At the conference of the association for on-site cooperation in FY 2022, 761 people of cooperative firms got together, and held a ceremony for commending companies and artisans who aim to “bring happiness to customers” together with Fuji Corporation. In addition, they hold a ceremony for offering letters of appreciation to cooperative firms that make daily efforts to satisfy customers three times a year to express their thanks. Fuji Corporation and cooperative firms join hands to provide high-quality housing in a stable manner.

1-4 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).

1-5 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 Management Plan (FY 3/23 to FY 3/25) and Progress

The company formulated a medium-term management plan for the next three years from the fiscal year ended March 2023. 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 3/25, 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 operating income for FY 3/25.

Medium Term Business Plan Targets

*Units: million yen

2-1 Assumptions for the Medium-Term Management Plan and Progress

Plan for FY 3/23
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 because of favorable orders in the previous term contributed to profit. In the construction-related segment, the renovated 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.
In the fiscal year ended March 2023, targets were achieved for all items.

Plan for FY 3/24
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.
The initial forecast for the fiscal year ending March 2024 is conservative, with net sales exceeding the medium-term plan, but all kinds of profits slightly lower than the medium-term plan.

Plan for FY 3/25
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.

2-2 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 ended 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.

2-3 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.

2-4 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 condominium buildings: 3 in the fiscal year ending March 2023, 4 in the fiscal year ending March 2024 and 4 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 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.Second Quarter of Fiscal Year ending March 2024 Earnings Results

3-1 Consolidated Results

* 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

*Created by Investment Bridge based on disclosed material of the company.
*▲ of expense account indicates that the expense has increased.

*Created by Investment Bridge based on disclosed material of the company.

Sales and ordinary income declined 6.5% and 17.0%, respectively, year on year.
In the cumulative second quarter of the fiscal year ending March 2024, sales were 52,648 million yen, down 6.5% year on year. In terms of sales, the sales of the effective land utilization segment increased thanks to the healthy performance of contract construction of rental residential properties and affordable apartments for seniors with nursing-care services, and the sales of the property leasing and management segment, too, increased. On the other hand, the sales of the segment of residential properties for sale declined, because the number of units delivered decreased year on year as there was no construction or delivery of condominium buildings like in the same period of the previous year.
Ordinary income was 2,309 million yen, down 17.0% year on year. In terms of profit, the segments of residential properties for sale and housing distribution saw a decline in profit due to the decrease in the number of units delivered, but the segments of effective land utilization and property leasing and management witnessed a profit growth covering the above decline in profit. Gross profit margin increased 0.8 points year on year to 15.5%. Operating income margin declined 0.4 points year on year to 5.0%, as SGA augmented 5.5% year on year due to the rise in expenses for advertisement, human resources, bonuses, consumption tax, etc. Accordingly, operating income decreased 14.3% year on year to 2,618 million yen. In addition, the decrease rate of ordinary income exceeded that of operating income, because interest paid and others in non-operating expenses augmented. A major extraordinary profit was a gain on sale of fixed assets of 12 million yen.
Regarding the consolidated performance in the cumulative second quarter of this fiscal year, sales and all kinds of profits were almost in line with the initial forecast of the company.

3-2 Segment Earnings (the cumulative second quarter of FY3/24)

Results by Segment and Topics

* Units: million yen
*Sales mean sales to external clients, while segment profit means operating income.
*The composition ratio of segment profit means the ratio to operating income before adjustments.
*The revenue from the insurance agency business had been posted in “non-operating revenue,” but they adopted the method for posting it in “sales” in the first quarter of this fiscal year, so that in the same period of the previous year, too, was posted in “sales.”

*A: Residential Properties for Sale, B: Housing Distribution, C: Effective Land Utilization, D: Property Leasing and Management, E: Construction Related
*Created by Investment Bridge based on disclosed material of the company.

In the segment of residential properties for sale, sales dropped 19.8% year on year to 13,858 million yen, and profit decreased 19.0% year on year to 415 million yen.
The sales of the segment of residential properties for sale decreased, due to the y/y decline in the number of units delivered. As the company concentrated on courteous sale without rushing, gross profit margin per property improved, but segment profit declined, due to the decline in the number of units delivered.
In this fiscal year, condominiums will be completed and delivered mostly in the second half. The number of condominium units delivered in the cumulative second quarter of this fiscal year was smaller than that in the same period of the previous year, because the company delivered already completed condominiums in stock only.

*Units: million yen

(Taken from the reference material of the company)

In the housing distribution segment, sales decreased 8.7% year on year to 12,383 million yen, and profit dropped 36.3% year on year to 497 million yen.
For both used detached homes and condominiums, the number of units delivered decreased year on year, so sales and profit dropped year on year.
The prices of used residential properties are lower than those of newly built ones but rising due to the rise in prices of newly built ones. Accordingly, the willingness to purchase homes weakened somewhat, while the costs for procurement and renovation, too, augmented.
Therefore, the company also concentrates on the used asset business, in which they own condominiums with occupants as income properties and earn revenues from rental. In the second half of this fiscal year, they will procure properties to secure a certain number of properties, and enhance the sale of used assets with occupants, which has a high gross profit per property, in order to make up for the delay in the profit plan.

*Units: million yen

According to Japan Journal of Remodeling’s Annual Ranking of Resale Units Sold 2023 (issued on July 31, 2023), the company ranked seventh 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 September 2023, the company holds 849 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 used house to make it easier to find the property of choice, and touch panel devices make it intuitive to search for properties.

In the effective land utilization segment, sales grew 0.2% year on year to 12,018 million yen and profit increased 7.8% year on year to 1,055 million yen.
In the effective land utilization segment, both sales and profit increased year on year.
The sales from contract construction of rental properties and affordable apartments for seniors with nursing-care services increased significantly, as ordered construction projects progressed smoothly and the company received a healthy number of new orders.
Regarding rental apartment buildings for individual investors, the number of buildings delivered decreased year on year in the cumulative second quarter of this fiscal year, but the company is expected to deliver 88 buildings in the second half (60 buildings in the previous fiscal year), and the progress is in line with the initially forecast.

* 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 96.6% as of the end of September 2023, 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, the average number of would-be buyers is five or more times that of available properties at the time of sales.

(Taken from the reference material of the company)

Sales in the property leasing and management segment increased 7.7% year on year to 13,710million yen, and profit increased 4.8% year on year to 1,592 million yen.
Both sales and segment profit increased year on year as initially forecast, because the number of managed properties increased through the delivery of rental residential properties in the effective land utilization business and the operation of their own affordable apartments for seniors with nursing-care services progressed.

*Units: million yen

While the number of units rented and managed has been increasing by 2,000 per year since 2018, occupancy rate remains high. As of the end of September 2023, the number of apartment buildings for elderly people with nursing care services under operation was 238 and the number of units under management was7,764. According to the senior citizens housing newspaper 2023, the company has the largest number of buildings under operation (237 buildings) and the largest number of residential properties for the elderly with nursing care services in Japan.

*Number of buildings in operated and managed as of September 2023 (Made by Investment Bridge Co., Ltd. based on the reference material of the company.

Sales in the construction related segment decreased 8.2% year on year to 602 million yen, and loss expanded by 53 million yen to 65 million yen.
In the cumulative second quarter of this fiscal year, the sales of construction-related business (external sales) were almost unchanged year on year, but internal sales declined, resulting in the drop in sales and profit.
On the other hand, the backlog of orders increased steadily, as the company received an order for a large construction project from the outside of the corporate group this fiscal year.
Like in the previous fiscal year, projects inside the corporate group, including the contract construction of condominiums that will be sold by the corporate group and large-scale repairs of the buildings of the company, account for a certain percentage of total sales. They will expand the scope of cooperation further, to enhance the degree of contribution to the entire corporate group.

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

In January 2020, the company welcomed the renowned Yuuken Kensetsu Group as a partner in constructing steel-framed and reinforced concrete structures. After that, the company worked on the construction of a large-sized RC apartment for seniors with nursing-care services for the first time and transformed an old company-owned condominium building into an affordable apartment for seniors with nursing-care services. At present, they engage in the construction of condominiums that will be sold by the corporate group and large-scale repairs of the company’s building, indicating a steady expansion of the scope of cooperation.

Sales in the other segment decreased 38.5% year on year to 74 million yen, and profit decreased 48.2% yen year on year to 51 million yen.
The other segment is a business segment not included in segments to be reported but includes the insurance agency business operated by Fuji Corporation. The revenue from the insurance agency business had been posted in “non-operating revenue,” but they adopted the method for posting it in “sales” in the first quarter of this fiscal year.

3-3 Quarterly Earnings Trends

Consolidated sales and ordinary income for the second quarter (July - September)

In the second quarter (Jul. to Sep.) of the fiscal year ending March 2024, sales and profit declined year on year. This is because condominiums and rental apartment buildings for individual investors are delivered mainly in the second half.

3-4. Status of order backlog

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

The order backlog as of the end of the second quarter of the fiscal year ending March 2024 was up 9.3% year on year. In the segment of residential properties for sale, the number of orders for free-design homes decreased, but the number of orders for condominiums is healthy before the completion and delivery of condominium buildings mainly in the second half, so the order backlog in this segment increased 7.0% year on year. In the housing distribution segment, order backlog is unchanged year on year. In the segment of effective land utilization, order backlog increased, as the order backlog of affordable apartments for seniors with nursing-care services increased 15.0% year on year and the order backlog of rental apartment buildings for individual investors remained healthy and grew considerably by 20.6% year on year. The order backlog in the construction-related segment increased steadily, as the company received an order for a large-scale construction project.

The order backlog as of the end of the second quarter of this fiscal year exceeds that in the same period of the previous year, and is very favorable compared with those as of the end of the second quarter of the fiscal year ended March 2021 and as of the end of the second quarter of the fiscal year ended March 2022, in which there was special demand due to the coronavirus pandemic.

3-5 Financial Conditions and Cash Flow (CF)

Financial Conditions

* 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

*Created by Investment Bridge Co., Ltd. based on disclosed material of the company.

The total assets as of the end of September 2023 stood at 162,353 million yen, up 7,745 million yen from the end of the previous fiscal year. At the side of assets, mainly real estate for sale in process, real estate for development, buildings & structures, and land increased. At the side of liabilities and net assets, mainly accounts payable, short-term debt, advances received, and retained earnings increased. Inventory assets include real estate for sale worth 25.11 billion yen (25.3 billion yen as of the end of the previous fiscal year), real estate for sale in process worth 33.2 billion yen (30.2 billion yen as of the end of the previous fiscal year), and real estate for development worth 27.34 billion yen (24.39 billion yen as of the end of the previous fiscal year). As of the end of the second quarter of this fiscal year, inventory assets were up 5.7 billion yen from the end of the previous fiscal year. This is mainly due to the acquisition of land for condominiums and effective land utilization. The company plans to own 45 buildings (worth 4.9 billion yen) out of 247 buildings in stock for effective land utilization for a certain period. This number is equivalent to the number of properties to be sold in about one and a half years. The company considers that this number is appropriate. The number of detached homes and condominium units in stock is 2,572, which is for about 3 years.

* Units: million yen

In terms of cash flows, there was a cash outflow from operating activities, as inventory assets increased 4.3 billion yen through the procurement of land for condominiums and rental apartment buildings for sale, etc., accounts payable decreased significantly due to the expenditure of funds for constructing condominiums that were delivered in the previous fiscal year, and net income before taxes and other adjustments decreased. The deficit of free cash flow augmented due to the increase in the cash outflow from investing activities, mainly due to the progress of procurement of used condominiums and affordable apartments for seniors with nursing-care services in the used asset business. On the other hand, the cash inflow from financing activities increased, as inventory assets grew, and short-term debt augmented for acquiring tangible fixed assets. Accordingly, the balance of cash and cash equivalents as of the end of the quarter was up 5.9% year on year.

3-6 Trends in Tangible Noncurrent Assets

* Tangible fixed assets are the total value of buildings & structures, machinery, equipment & vehicles, tools, furniture & fixtures, and land, excluding leased assets and construction work-in-progress assets.

Over the past five years, the company has actively acquired its own affordable apartments for seniors with nursing-care services (serviced residences for the elderly) and used assets (used condominiums with sectional ownership by rental tenants). The company is strengthening its efforts in the recurring-revenue business to build a foundation for stable earnings.

3-7 Trends in Management Indicators

[Equity Ratio / ROE]

[Interest-Bearing Debts, Equity, and Net D/E Ratio]

*Net D/E rati (Interest-bearing debt - Cash and cash equivalents at end of period) / Equity

From the fiscal year ended March 2016 to the fiscal year ended March 2020, the company actively purchased land for large-scale sites (detached houses and condominiums) to secure inventory while actively purchasing land for its own properties (apartment for seniors with nursing care services). The period from the fiscal year ended March 2021 onward has been a period in which the company carefully has selected its land purchases due to the surge in land prices, and it also has reviewed inventory levels (improved inventory turnover rate) by responding flexibly to sales prices.

3-8 Recent Topics

◎ Serialized advertisements for the 50th anniversary of the company's founding
On January 22, 2023, the company celebrated its 50th anniversary. The company developed a total of five serialized article advertisements in the Sankei Shimbun Osaka head office version. The first was one year ago, on January 22, 2022, and the last on January 22, 2023. The company's chairman and president expressed in an interview about the 50th anniversary of the company's founding and the next 50 years in the company's future that the company has aimed to be a company that is loved like Mt. Fuji since its founding. All articles have already been published, and you can check the details from the top screen of the company's website.

◎Start of smart model houses
The company launched a “smart model house,” which is an unattended model house, in Izumisano City, Osaka Prefecture. At smart model houses, there is no accompanying staff, and the door is opened, and smart home devices are operated via a smartphone app, which means that no troublesome hand-over of keys is required and visitors can experience the housing developed by Fuji Corporation with their family members only all the way until locking the door. Furthermore, these model houses allow visitors to try the latest IoT, such as opening and closing of doors and windows or motion sensors and experience the housing in a relaxed manner in a family-only space.

◎“Charmant Fuji Park & Links” Condominium Project to commemorate the company’s 50th anniversary
As a project to commemorate their 50th anniversary, the company started to sell a total of 190 condominiums for sale in a 14-story reinforced concrete building in September 2023 in Koryo Higashimachi, Sakai-ku, Sakai City, Osaka Prefecture. This is located at the center of Sakai City with easy access to five stations of three railway lines with all condominiums facing south. Shared bicycles and three individual booths convenient for working from home have been set up in a shared area on the premises, offering an even more comfortable space.

◎Interview included in the “September issue of PHP”
An interview with the president Miyawaki, entitled “50 years since founding, next on the way to 100 years,” was included in “September issue ‘My Creed’ of PHP,” a monthly magazine, published on August 10th, 2023. This monthly magazine was established by Konosuke Matsushita and has been keenly read by a wide range of readers from teenagers to people in their nineties as a “magazine that encourages them in life.”

◎Participation in a project for career education of local elementary and middle school students
As part of sponsoring projects for regional contribution, the company sponsored a project for producing supplementary reading materials for career education at elementary and middle schools and was introduced in the Kishiwada City and Wakayama City versions of “Notes about Work for Elementary School Pupils” and Wakayama Prefecture version of “Book about Work for Middle School Students.” The primary purpose of this project is to introduce occupations for the elevation of work and labor in society as well as dreams and hopes, and fundamentally one company is stated per industry. Amid such situation, the company was approached as an enterprise with an especially high awareness of regional contribution in the real estate industry and sponsored the project with the wish to provide support in career education, giving dreams and hopes to children in elementary and middle schools for their desired future work.

◎Distribution of three books useful for maintaining health to all employees
The company takes various measures that give top priority to the health of employees, such as regular health check-ups far exceeding what is designated by law and proactive encouragement of the utilization of the health consultation phone service available to all employees free of charge 24 hours a day, 365 days a year, under the philosophy of “An enterprise is composed of personnel. No customer satisfaction or company growth can be achieved without the health and happiness of employees.” In addition, the company regularly distributes books useful for maintaining health that can be effectively used for the sake of employees, their families, clients, and business partners. After the start of this fiscal year, the company distributed three books: “Legs and Hips to Last 100 Years,” “The Stanford Method for Ultimate Sound Sleep” and “How to Train Your Brain According to The Best And Latest Neuroscience” to all employees including part-time and temporary workers, about 1,350 employees in total.

◎Performing a stress check on all employees
The company performs a stress check on all directly employed staff members including short-time workers. While highly stressed people account for 16.4% of all people tested by the testing organization on average for the last four years, this ratio is 6.3%, less than a half, in Fuji Corporation and was 6.8% this fiscal year, extremely low in comparison with the past overall average ratio. The company will keep encouraging the implementation of their philosophy of “true feelings, frank and straightforward” and “it is okay to just ask and say,” and striving for building a workplace environment which allows for working with a positive stance, energy, and vigor.

◎A billboard advertising the company set in Nankai Namba Station
The company's billboard advertising was set up within Nankai Namba Station on October 1st, 2023. It has been installed at a place clearly visible from the descending staircase on the first floor of Nankai Namba Station, which is a passageway from Nankai Namba Station to Osaka Metro, Kintetsu, and Hanshin Railways. As Nankai Namba Station is the southern entrance to Osaka and a gigantic terminal with an average of 250,000 passengers per day, it is expected that the company will become popular among even more people.

4. Fiscal Year ending March 2024 Earnings Estimates

4-1 Consolidated Earnings

*Units: million yen

Sales are projected to rise 4.8% year on year, and ordinary income is expected to rise 4.5% year on year.
With the end of the second quarter, according to the company's plan for the fiscal year ending March 2024, sales are expected to increase 4.8% year on year to 120 billion yen, and ordinary income to rise 4.5% year on year to 6 billion yen.
In the cumulative second quarter of the consolidated fiscal year, the progress rate toward the full-year earnings forecast is about 43.9% for sales and about 38.5% for ordinary income. In the second half of the fiscal year, 4 condominium buildings will be completed and delivered, and two thirds of the annual number of rental apartment buildings for individual investors will be delivered, so sales will become larger in the second half than usual. Their business performance is in line with the initial forecast, so the company considers that it can probably achieve the full-year earnings forecast. Due to the skyrocketing of land prices, construction costs, and prices of housing equipment, the environment surrounding the segment of residential properties for sale remains harsh, but the demand for used residential properties and rental apartment buildings for individual investors and construction remains strong, the company has been receiving a healthy number of orders, and the business of property leasing and management is growing steadily. The company's strength of balanced property management is expected to succeed, and the steady expansion in the effective land utilization and the property leasing and management businesses is expected to increase sales and all kinds of profits. Ordinary income margin is expected to remain flat year on year at 5.0%.
The company plans to pay an annual dividend of 27 yen per share, unchanged from the previous term (14 yen at the end of the first half and 13 yen at the end of the year). The payout ratio will be 24.3%.

4-2 Progress toward consolidated earnings forecast

*Units: million yen

While annual sales are forecast to be 120 billion yen, the sales in the first half of the fiscal year were 52.6 billion yen, so the company needs to earn sales of 67.4 billion yen in the second half. Order backlog will generate sales of 38 billion yen in the second half, and the company will earn sales of 14.2 billion yen from property leasing and management in the second half, so it is expected that a total of 52.2 billion will certainly be posted in the second half. Accordingly, the remaining amount the company needs to earn is 15.2 billion yen. In the housing distribution business of the company, the turnaround time from order receipt to delivery is as short as around 1.5 months, and this business earns about 10 billion yen except order backlog in the second half. In addition, the sale of ready-built houses is healthy, and the company is expected to receive more orders for condominiums and rental apartment buildings for sale. The company considers that it can probably achieve the full-year earnings forecast.

(3) The company’s policy about capital costs and share price
The purpose of the company’s business administration is to continue its business stably and repay all stakeholders for their support on a permanent basis in accordance with the management philosophy.
The real estate business is easily influenced by changes in market conditions, so business operation using financial leverage is indispensable. Accordingly, financial strategies are extremely important, so the company has a policy of enriching IR activities for improving expected values while aiming to improve the financial soundness by improving the efficiency of asset use and increase profitability by investing in growing fields while paying more attention to capital costs and share price.

*1: Capital cost means the cost of shareholder’s equity (Risk-free rate + β value × Market risk premium), *2: PBR (price-book value ratio), *3: BPS (book value per share), *4: EPS (earnings per share), *5: CCC (Day of inventory on hand (DOH) + Days of sales outstanding (DSO) – number of days of payables)

◎Dividend

◎ Benefits for shareholders
Benefits are offered to shareholders holding 500 or more shares written or recorded in the shareholder registry as of March 31 every year.

5. Conclusions

In the cumulative second quarter of the fiscal year ending March 2024, sales dropped 6.5% year on year and ordinary income decreased 17.0% year on year. In the cumulative second quarter of the consolidated fiscal year, the progress rate toward the full-year earnings forecast is about 43.9% for sales and about 38.5% for ordinary income. In the second half of the fiscal year, 4 condominium buildings will be completed and delivered, and two thirds of the annual number of rental apartment buildings for individual investors will be delivered, so sales will become larger in the second half than usual. This is the reason for the low progress rates. Their business performance is in line with the initial forecast, so the company considers that it can probably achieve the full-year earnings forecast. As of the end of the second quarter of the fiscal year ending March 2024, order backlog, which is the advance indicator of sales, was up 9.3% year on year, indicating significant accumulation. In the segment of residential properties for sale, the company received a healthy number of orders for condominiums, which are scheduled to be completed and delivered mainly in the second half of the fiscal year, so order backlog grew 7.0% year on year. In addition, in the segment of effective land utilization, the order backlog for affordable apartments for seniors with nursing-care services increased 15.0% year on year and the order backlog for rental apartment buildings for individual investors remained healthy and rose 20.6% year on year, contributing to the increase in order backlog of the segment. It is noteworthy whether the company can deliver ordered properties as scheduled and achieve the full-year forecast.
Meanwhile, the business of free-design homes saw a decrease in inventory, as the company focused on the procurement of land for condominiums while curtailing the procurement of land for detached homes after the wood shock (skyrocketing of lumber prices) two years ago, so order backlog is decreasing. On the other hand, the company plans to deliver 4 condominium buildings in the fiscal year ending March 2025. Due to the recent soaring of construction costs, selling prices are rising, so we would like to pay attention to whether they can cover the decrease of orders for free-design homes. As the company plans to deliver a large number of rental apartment buildings for individual investors, order backlog may decrease, but the procurement of land is progressing smoothly, and the business is thriving so that properties are sold out on the day they are released. Accordingly, the number of orders received is expected to be large.
According to the balance sheet as of the end of the second quarter of the fiscal year ending March 2024, inventory real estate increased 5.7 billion yen from the end of the previous fiscal year, because the company acquired land for condominiums and effective land utilization. In order to improve business performance, it is indispensable to increase inventory real estate, while increasing interest-bearing liabilities. In response to the skyrocketing of prices in the market and the intensification of competition for procurement, the company has recently selected properties more rigorously, but it seems that the procurement environment is improving, and attractive real estate is increasing. We would like to pay attention to how many attractive properties they can accumulate and the amount of inventory real estate.

<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 November 30, 2023

Basic Policy
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.
(1) To Maximize Shareholder Value
This corporate group was founded with the business objectives of “building homes that bring happiness” and “making our customers happy after they buy homes,” and with the desire to become “the most loved company in Japan, like Mt. Fuji.” The company’s main areas of operation are the entire Osaka Prefecture, southern Hyogo Prefecture and northern Wakayama Prefecture, and its business is based on the management principle of building trustworthy houses with a customer-facing approach that does not ignore them after the completion and sale of houses. Therefore, instead of seeking temporary profits and business expansion, the company believes it is important to establish a company that will survive based on long-term stable management. For long-term stable management, human capital is essential, and it is important to develop respectable leaders with excellent knowledge, boldness, and insight, and thus, the corporate group has adopted the following management ethos and corporate philosophy, by using the expression “human capital” rather than “human resources,” based on the belief that people are assets.
“Management Ethos”
The company operates for the sake of:
・Employees,
・Employees’ families,
・Customers and business partners,
・Shareholders,
・Local communities, and
・Ultimately, the nation.
“Corporate Philosophy”
・We are employees of Fuji Corporation Limited.
・We shall engage in our work with enthusiasm and good faith.
・We shall recognize the responsibilities and importance of our own work.
・We shall work in a spirit of gratitude and service.
・We shall do a job that will be appreciated by our customers and business partners.
The company’s management ethos starts with “For the benefit of employees” and “employees’ families.” This is because the company believes that they cannot do a job that truly pleases their customers if their employees or their families are not happy. When the company values its employees and their families and all employees have a sense of appreciation, pride in their work, a sense of achievement, and a sense of purpose in life, the employees get more motivated and can care about their customers from the bottom of their hearts. The company believes that this will lead to the happiness of all stakeholders, including customers, business partners, shareholders, local communities, and consequently, the nation. While utilizing the above management ethos and policy and expanding business in line with the growth of human capital, the company aims to become a corporation that is always trusted by its customers, business partners, and shareholders, and that can serve society through its business, by further cultivating the business areas it has been operating from the past, actively expanding into Osaka City, the largest market in the Osaka Prefecture, as well as the northern Osaka Prefecture and southern Hyogo Prefecture, and by promoting the improvement of profitability and strengthening the financial structure.

(2) Meetings of the Board of Directors
In order to formulate highly competitive strategies according to changes in the business environment and carry out quick decision-making, the Board of Directors meets once a month in principle. The Board meets based on a resolution in writing if there are urgent matters. The Board of Directors is currently composed of seven Directors (including two Outside Directors), and strives to ensure that there is a lively debate at meetings of the Board of Directors and that decisions are made quickly through a collegial system.

(3) Corporate Auditors and the Board of Corporate Auditors
The company has adopted a corporate auditor system. The Board of Corporate Auditors consists of one full-time Corporate Auditor (Mr. Hitoshi Kawade) and two Outside Corporate Auditors (Mr. Shinsuke Takatani and Mr. Inao Harato). In principle, the Board of Corporate Auditors holds regular meetings three times a year with the Representative Director and President to exchange views and opinions, and each Corporate Auditor attends the Board of Directors’ meetings and meetings of department managers and expresses his or her opinions. In addition, they conduct a wide range of audits, including assessing the appropriateness and efficiency of the Directors’ execution of duties and the status of the development and operation of internal control systems, through attending audits and exchanging information with the Internal Audit Office and auditing firms.

(4) To Strengthen the Internal Information Disclosure System
In order to ensure the timeliness, accuracy and fairness of information disclosure, the corporate group has established “Information Disclosure Rules” to restructure and standardize the group-wide information disclosure system, and has been working to raise awareness within the company in relation to timely disclosure. The “Information Disclosure Rules” designate the head of the IR Office as the person responsible for handling information, and clarifies the roles and responsibilities of each department in relation to timely disclosure. In addition, when disclosing information, each relevant department within the company examines and scrutinizes the information to be disclosed and mutually checks the disclosure documents prepared by each department, thereby establishing a system to ensure the appropriateness of the disclosure process starting from information gathering to disclosure.

(5) To Improve the Quality of IR Activities
The company is committed to IR activities based on its basic policy of disseminating information to shareholders and investors in a timely, appropriate, prompt, and easy-to-understand manner. Specifically, the company strives to actively disclose information on corporate details through the publication of financial statements and supplementary materials as well as other materials disclosed by the stock exchange on the company’s website, the posting of electronic public notices, the active holding of company briefings for analysts and institutional investors and for general investors, also through its participation in IR events. Further, in order to fairly disclose the medium/long term direction of the company to shareholders and investors, the company publishes management indicators, which are published in the IR section of its website. Moreover, shareholder newsletters are prepared in an easy-to-understand manner to provide individual shareholders with a better understanding of the company’s management philosophy and policies, as well as its management situation and direction. In principle, the company’s financial results are announced before the end of the following month after the closing date, to accelerate and decentralize the announcement of financial results.

(6) To Strengthen Internal Control
The company believes that internal control is one of the most important mechanisms supporting corporate governance for a company to adequately fulfill its social responsibilities, and that the efforts to strengthen this internal control are the most significant initiatives for a company to adequately fulfill its social responsibilities, recognizing that such efforts are the responsibility of the management itself. As a specific effort to strengthen internal control, the company established the Internal Control Promotion Committee in February 2007, and has been actively exchanging opinions at its meetings held on a regular basis. To achieve 4 objectives of internal control: [1] effectiveness and efficiency of operations, [2] reliability of financial reporting, [3] compliance with laws and regulations related to business activities, and [4] preservation of assets, the company established an organization and corporate culture with a focus on the control environment in internal control. In addition, in order to further enhance monitoring activities, the Internal Audit Office is assigned as a complementary organization to maintain and strengthen compliance and risk management, which continuously perform internal checks on business execution in accordance with laws and internal regulations.

＜Reason for Non-compliance with the principles of the Corporate Governance Code (excerpts)＞

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

* “Situation of Corporate Governance” was released on July 18, 2023, and the expertise and experiences (skill matrix) of directors and auditors are disclosed on the last page.
Situation of Corporate Governance