■ 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.

Strengthening manufacturing capabilities (3)

Seiko Giken <6834> focuses on three strategies to enhance manufacturing capabilities and strengthen its own manufacturing and production capabilities: 1) improving production efficiency through AI, automation, and other methods, 2) achieving stable procurement of cheap and good-quality materials, and 3) maintaining the quality required by customers.

In Japan, the labor force is shrinking due to a declining birthrate and aging population. In China, wages for workers continue to rise as the economy grows. The company is promoting the development of automatic manufacturing equipment for molded products and optical connectors, aiming to reduce personnel, improve production efficiency, and increase revenue in response to these situations. It has developed automatic assembly devices that process automotive molded products' burr removal and inspection stages as well as optical connectors' assembly, inspection, and packaging stages. It will continue to improve the functions of automatic manufacturing equipment, keeping in mind AI and IoT utilization.

The unstable supply chain environment for semiconductors and resin materials, as well as external environmental changes such as the coronavirus crisis and the Ukrainian situation, have caused logistical chaos and resource price spikes. The company is committed to maintaining good relationships with its business partners to ensure stable procurement of cheap and good-quality materials and is also working to build a high-efficiency supply chain in logistics.

In addition, efforts to improve the quality of products manufactured in Japan and China's production facilities began with the Global Quality Conference in March 2020. The effort to establish a quality management system that can supply products that meet customer specifications stably is expected to lead to a system that cannot be shaken by external adverse effects.

As of March 2024, the company is working to stabilize procurement activities by strengthening its relationship with business partners to respond to the unstable supply chain environment. In particular, the decision to reduce personnel at its subsidiary in Dalian, China, is a strategic move to improve cost efficiency and competitiveness, demonstrating the company's adaptability in a tough market environment. Zenkikushikogen in Dalian has rationalized 79 personnel. This decision was made to respond to the decrease in demand for zirconia ferrules due to investment stagnation in optical communication networks. By reducing fixed costs, the company aims to build a more muscular management structure, improve management efficiency, and improve profit margins. In addition, it is aiming to expand its sales by incorporating the manufacture of metal cutting parts and optical connector assemblies. The addition of these new product lines will create synergy with existing product lines and have significant implications for responding to diverse customer needs. In particular, optical connector assembly is expected to be an important growth driver in the future optical communication market recovery due to the increase in AI data center and others.

(Reported by FISCO guest analyst Hiroshi Nakayama)