Message from the CFO

Recap of FY 2024 Financial Results and Progress on the Medium-term Management Plan

During FY 2024, despite continuing improvements in employment and income and signs of recovery in personal consumption, the economic outlook remained uncertain for various reasons including trends in trade policies in various countries and fluctuating exchange rates. Under such conditions, while the Group’s performance was affected more than anticipated by rising costs, particularly those for food and labor, our efforts in optimizing selling prices successfully absorbed the increased costs for large-scale renovation works. As a result, the Group recorded highest profits for two consecutive years.

As for progress in our medium-term management plan, while carrying out the various measures set forth in the plan, the number of visitors to Japan has exceeded our estimates by a large margin. Coupled with the contributions of the optimization of our selling prices and other factors, this has resulted in our performance trending at an accelerated pace one year ahead of what we originally envisioned.

Our progress toward our 2028 development targets at this point in time is generally on track, with the Dormitory Business at 97% of the 50,000-room target, the Dormy Inn Business at 102% of the 20,000-room target, and the Resorts Business at 98% of the 5,500-room target. Thanks in part to our relationships with schools in the Dormitory Business, we expect to secure sufficient human resources, particularly new graduates, to accommodate these facility increases, with approximately 380 new graduates scheduled to join our company in the next fiscal year. Note that FY 3/2025 results against the quantitative targets (KPIs) for the final year of the medium-term management plan were generally on track, with net sales of 228.9 billion yen (81.7%), operating income of 20.4 billion yen (72.8%), operating income margin of 8.9% (1.1 points to target), ROE of 15.7% (exceeding target), EPS of 186 yen (93%), and net debt-to-equity (D/E) ratio of 1.24 (0.24 points to target).

Basic Policy for Financial and Capital Management

The basic policy for financial and capital management is to maintain and improve financial soundness while achieving sustained growth.

To achieve this, we are conducting meticulous evaluations of growth investments from both profitability and risk perspectives to maximize capital efficiency.

Specifically, we consider ROE as a key management indicator and aim to secure returns exceeding the cost of capital. Our medium-term goal is to maintain and improve ROE at a stable level of 10% or higher. To achieve this, we are reviewing our business portfolio, implementing cost structure reforms, and determining investment allocations with focus on capital efficiency.

Meanwhile, as we proactively conduct growth investment, we recognize the importance of maintaining a sound financial foundation and focus on net D/E ratio as a core indicator of financial health. Currently, we consider a net D/E ratio of 1.0x or less to be an appropriate level. We will maintain financial stability by ensuring adequate liquidity on hand and efficiently managing interest-bearing debts.

In terms of risk control, we are working to achieve companywide visibility and management of management risks. For key financial risks (such as foreign exchange, interest rates, and credit risks), we are implementing specific measures including the use of hedging and clarification of risk limits. Furthermore, we enhance the effectiveness of our governance through regular verification and follow-ups by the internal control and internal audit departments.

Financial Strategy for the Creation of Corporate Value Over the Medium to Long Term

We have established a long-term vision entitled KYORITSU Growth Vision with a subtitle “For The Next Future: 3&3&3 (Triple Threes).” 3&3&3 (Triple Threes) shows our goal for 2030, which marks the 50th anniversary of our founding, to achieve net sales of 300 billion yen and operating income of 30 billion yen. Simultaneously, we aim to further promote improvements in customer and employee satisfaction, brand power, and labor productivity, as well as the expansion of new service areas. As we proclaim ourselves as a 100-year company, we consider this a milestone in our long-term vision.

As a specific measure to achieve this long-term vision, we have formulated a medium-term management plan called “Rise Up Plan 2028” and have been taking actions. We have established the framework of “Rise Up Plan 2028” as “recovering from COVID-19 to achieve renewed growth” and “pursuing further growth in customer satisfaction and regional expansion.” Specifically, this will be achieved by lifting the top line even higher by “increasing numbers of rooms through new development” and “normalizing selling prices” to achieve external growth, and striving to increase profitability by “normalizing market costs through DX” and “improving labor productivity through DX” to achieve internal growth. We are also implementing human resources strategies and sustainability strategies. In addition, we are also strengthening the Senior Life Business including the development of new senior residences targeting active elderly, exploring international businesses, and expanding our business domains.

Since its foundation, Kyoritsu Maintenance has been practicing its management policy of “contributing to the progress of society as a whole through food and housing” under the management philosophy that “the spirit of the company is to put customers first.” Then, we have added “Start your day off right.” as our corporate slogan and, since 2018, have engaged in business activities to create good mornings for our customers by providing true relaxation and comfort through providing food and housing so that they can greet each new day full of hope, vitality, and abundance.

By continuously upgrading this initiative, we will create and deliver long-term economic and social value.

Improving Profitability and Reducing Capital Costs

We currently recognize our capital costs to be around 7-8%. Under this medium-term management plan, we have set a target ROE of 10%. Recently, the Hotel Business achieved ROE that exceeded the target under the current plan due to improved profitability through the successful optimization of selling prices, buoyed by the tailwind of an increase in inbound tourism demand in the Hotel Business. From the standpoint of securing an equity spread, we aim to stably maintain ROE of 10% or greater, and will aim to further improve profitability through promoting the various measures outlined in the current plan.

With our corporate value and growth potential having been favorably recognized, our PBR is currently exceeding the market average by more than double. As we recognize that there continues to be room for growth, we will keep on endeavoring to improve our ROE while simultaneously issuing clear communications of our growth strategy through dialogue with investors and proactive IR and PR activities as we aim to further improve our PBR.

Furthermore, we will actively work to reduce capital costs through enhanced investor dialogue and strengthened governance.

Cash Allocation

Operating cash flow to be generated during this medium-term management plan period is anticipated to be 125 billion yen. Including 55 billion yen from the sales and leaseback of real estate and 60 billion yen in financing from financial institutions, we are planning for funds of 240 billion yen in total. Our policy is to allocate those funds in the amount of 195 billion yen to investment in new development for our two major engines—the steadily growing Dormitory Business and the high-growth Hotel Business; 35 billion yen to large-scale renovations of existing facilities; and 10 billion yen to DX investment aimed at enhancing customer convenience and improving operational efficiency.

Note that while rising construction costs are a major challenge in new development and large-scale renovation projects, we are rigorously verifying profitability while ensuring efficiency largely through innovations in design and equipment and the rolling out of the relatively cost-efficient Onyado Nono series.

As for priority areas of growth investment, we will proceed largely with our focus on the Hotel Business, which holds the promise of higher growth potential, but will also continue stable growth investments in the Dormitory Business.

ROE trends

Shareholder Returns

For shareholder returns, we aim for stable and continuing growth in dividends by returning earnings to shareholders through dividends linked to business results and earnings, with a core policy of steady, stable returns to shareholders over the long term. At this point, considering future growth potential, we believe that emphasizing dividend payout ratio contributes more to improving total shareholder return than dividend on equity ratio (DOE).

During the current medium-term management plan period, we will proactively allocate funds to new development and other growth investments to pursue medium- to long-term corporate growth. At the same time, we will enhance the actual dividend amounts through steady growth of existing businesses, thereby achieving improvement in TSR.

We have also made significant enhancement of our shareholder benefit program as of the record date of March 31, 2025, including increasing the amount of shareholder discount vouchers and extending the usage periods, and transitioning to electronic vouchers to encourage more shareholders to utilize our services.

Dividend status

To Our Stakeholders

Under our management policy of contributing to the progress of society as a whole through food and housing, we cultivated an identity in our founding Dormitory Business that is centered on being of service and having the willingness to take care of customers. Our Hotel Business was born from this spirit and continues to this day. We will achieve the next evolution of this unique corporate identity to further strengthen our two major engines—the stably growing Dormitory Business and the rapidly expanding Hotel Business—while simultaneously promoting the development of new products and services and endeavoring to improve sustainable corporate value.

We will also earnestly tackle management mindful of capital costs and stock prices as well, making sure to acknowledge and address trends in capital costs and stock prices while seeking advice from our stakeholders. We ask for your continued support and encouragement.

Manabu Takaku
Managing Director responsible for the Corporate Planning Group