■ Medium-term Management Plan 1. The goal of the medium-term management plan The outline of the "Medium-term Management Plan 2025" (fiscal year from February 2024 to February 2026) that Veru, Inc. is currently working on is as follows. The company believes that the market environment will change after the end of the corona pandemic. Regarding the changing societal situation, the company assumes various management challenges arising from the normalization of economic activities and the consequent labor market shortages, uncertain future risks, the rise of marketing needs due to the evolution of technology and the increasing complexity of customer touchpoints. As for the company's market, it predicts the importance of securing highly skilled personnel through marketing technology utilization and the increase in effective BPO demands in both the defensive and offensive areas amid various management challenges, as well as rising labor costs due to a shortage of human resources and the automation of customer correspondence. In April 2023, the company established a new corporate brand slogan, "How will you respond to that voice?". Although it has been listening to the needs of society, companies, and consumers by listening to the people's voices and solving problems with meticulous communication, the problems that can be solved by interpreting the "voice" are becoming more multifaceted and complex due to technological innovations. Meanwhile, the new epoch of "NEW BPO," which the company group aims to achieve as a slogan, is to model the process of turning many of the voices gathering at the CX site (customer response department) into values related to management decisions and to lead to the optimal action by utilizing data. NEW stands for Next, Engage, and Widen, aiming to delve into all the voices (maximizing the performance of 40,000 people, enhancing the utilization of data), connect stakeholders (collaboration with partners), and broaden the sphere of influence (growth strategy for expanding into new business domains). In other words, it is considered that the company aims to utilize a wide range of collaborations with companies more than in the past, not only in contact centers but also in marketing and other areas. In the "Medium-term Management Plan 2025," the company has set three key policies and plans to make additional investments of a total of over 15 billion yen for three years from fiscal year 2024 to achieve them. As a result, it has set quantitative targets to achieve sales revenue of 180 billion yen (an average year-on-year increase of 7.1%), operating profit of 16.5 billion yen (an operating margin of 9.2%), net income after tax of 11 billion yen (an average year-on-year increase of 11.8%), ROE of 14.4%, and a dividend payout ratio of 50% for the final fiscal year ending in February 2026. It is a goal-setting that exceeds the sales revenue average annual increase of 5.3% and the tax-exempted income average annual increase of 8.7% in the previous medium-term management plan, based on the assumption regarding the changing social and economic environment. Although the first year of the plan, the fiscal year ending in February 2024, started off tough due to the unexpected decrease in high-profit corona-related businesses, the company aims to achieve its target for the final year by investing in organic growth (growth by internal resources) and reform through generated AI after the fiscal year ending in February 2025.

3. Improvement of Corporate Governance.

Seiko Giken (6834) is striving to improve its corporate governance while maintaining sound management and enhancing its competitiveness to continually enhance its corporate value. In particular, it recognizes the establishment of a system to ensure management transparency and the ability to swiftly respond to changes in the business environment as an important issue. The stock price has fluctuated between 2,000 yen over the past four years, and in June 2023, a volume of approximately 400,000 shares was sold outside the market, increasing trading volume. Against this background, we are promoting measures to realize management that takes into account the capital cost and stock price. According to an analysis of the current capital cost and capital profitability, the PBR has remained below 1 and has ranged from 0.62 to 0.90 between fiscal 2019 and 2023. The PER is between 14 and 22, which is a comparable level compared to other companies in the industry. However, the ROE is between 2.8% and 4.9%, which is below the company's recognized capital cost of approximately 8%. Therefore, improving ROE is essential to improving PBR.

As a specific measure to improve corporate value, the first step is to improve PER. We will promote efforts to strengthen IR and corporate PR, improve the disclosure of non-financial information, including sustainability-related information, and maintain and enhance shareholder returns, in order to foster market expectations for growth in the stock market. Secondly, with regard to improving ROE, we recognize that improving total asset turnover ratio is particularly important among the three elements of revenue net income ratio, total asset turnover ratio, and financial leverage. The total asset turnover ratio over the past five years has ranged from 0.49 to 0.57 turnovers, indicating that sales are too low compared to total assets. In the future, we plan to make growth investments actively, such as capital investments, R&D, M&A, and alliances, using our cash balances and operating cash flows, and aim to expand revenue.

In capital allocation, we will actively allocate operating cash flow generated from fiscal 2024 to 2026 to growth investments to improve capital efficiency. Specifically, we plan to allocate more than 10 billion yen in growth investments, M&A, R&D, and capital investments in the medium term, using 7 to 10 billion yen in operating cash flow generated and 14 billion yen in cash on hand as original funds. We also focus on appropriate shareholder returns and securing working capital.

(Reported by FISCO guest analyst Hiroshi Nakayama)