Medium- to long-term growth strategy of CSS Holdings <2304>

1. Progress of Medium-term Management Plan

The company group is promoting a three-year medium-term management plan "Value Innovation 2024" (fiscal year ending September 2022 to fiscal year ending September 2024) towards the 40th anniversary of its founding in 2024. In order to respond to the increasingly accelerating business environment, we have worked towards rebuilding our management foundation with a focus on strengthening the core business to improve profitability, enhancing human resources development, promoting efforts to address ESG issues, and creating value through group synergy and external resource utilization, aiming to achieve our goals.

As of the first year of the plan, the fiscal year ending September 2022, the final target performance for the fiscal year ending September 2024 was set at revenue of 1,430 million yen, net income attributable to parent company shareholders of 200 million yen, and ROE of 8% or more. However, at the beginning of the fiscal year ending September 2023, we revised upwards to revenue of 1,500 million yen, net income attributable to parent company shareholders of 250 million yen, and ROE of 8% or more, and at the beginning of the fiscal year ending September 2024, we further revised upwards to revenue of 1,621.1 million yen, net income attributable to parent company shareholders of 270 million yen, and ROE of 10% or more. The reason for repeated upward revisions is that at the time of formulating the medium-term management plan, the company was significantly affected by the COVID-19 pandemic and was unable to fully incorporate the performance recovery in three years. However, the performance has been improving at a faster pace than expected due to improvements in the business environment and management efforts.

Similarly, at the second quarter earnings announcement for the fiscal year ending September 2024, we revised upwards to revenue of 1,761.4 million yen and net income attributable to parent company shareholders of 371 million yen for the fiscal year ending September 2024, and the final year of the medium-term management plan is expected to exceed the revised target numbers. However, as the company group engages in a contracting business, it has the characteristic of being vulnerable to external environmental changes. The external environment has changed significantly since the formulation of the medium-term management plan, such as rising prices, rising wages, and a weakening yen, but the company group is working to transfer prices through negotiations with its trading partners. In addition, the company is focusing on creating an environment in which female employees, who make up 60% of the workforce, are comfortable working and has developed language manuals for foreign employees who make up 10% of the entire workforce, as well as receiving proposals from hotels, its major customers, on whether there is anything more that can be done to improve productivity.

2. Implementation status of initiatives and future direction

1) Strengthening of core business to improve profitability and creating value through group synergy and external resource utilization

We aim to rebuild the areas that were damaged during the COVID-19 pandemic and increase profitability. We also aim to create new value through synergy among the various companies in the group and through the utilization of external resources. The implementation status of business-by-business initiatives up to the fiscal year ending September 2023 is as follows:

Throughout the entire company group, i) we promoted co-creation and collaboration with non-industry businesses that could provide value and productivity improvements around existing businesses and sustainability initiatives, with the holding company taking the lead, and ii) we achieved results such as setting KPIs for each business and sharing progress and issues through monthly monitoring. For the final year of the medium-term management plan, we planned to organize the X-value unit from the fiscal year ending September 2024, strengthen cooperation and efforts with business companies, and set up opportunities for strategic discussions on business issues and next-generation responses for individual companies throughout the group.

In the Stewardship business, (i) we have achieved results such as employing thousands of employees annually, verifying cost-effectiveness, and following employees, increasing wages based on salary (including labor costs such as overtime within the budget), (ii) expanding the system through cooperation with partner companies and strengthening management, and (iii) commencing new projects, including 19 new entrustments and 4 challenges in the field of cabin cleaning. In the final year, we plan to (i) deepen HR methods, develop partner companies, accelerate consideration of partnerships, (ii) collect a wide range of needs in the hotel and other industries focusing on existing clients, and challenge the construction and monetization of an entrustment system, and (iii) pursue inter-industry exchange marketing for untapped potential customers and areas.

In the food service business, (i) we appeal to the diversity of cooking and growth opportunities as characteristics of having a variety of on-site locations, and strengthen recruitment activities while increasing awareness of having a unique environment for the development of human resources, (ii) enhance monitoring of food prices and thoroughly respond quickly to alerts, and (iii) achieved results, such as starting operation at 12 breakfast restaurants, 5 employee cafeterias, and 1 life care facility. In the final year, we plan to (i) continuously appeal to human resource development opportunities based on having a variety of on-site locations, (ii) activate the use of human resources for strengths, such as agile menu development, and (iii) develop relationships with companies, schools and others for food procurement and human resource acquisition.

In the space production business, (i) we promote solution development in the cross-media promotion project, conduct verification experiments such as using our own building-installed AI cameras to solve the problem of labor shortage that is becoming serious in the service industry, (ii) accurately grasp facility updates and additional equipment needs centered on existing important customers, and (iii) achieve results, such as accelerating orders by increasing opportunities for negotiations through exhibitions and training sessions, etc. In the final year, we plan to (i) develop an expansion of development that links specific solutions to sales activities that respond to customer needs, (ii) expand the scale and scope of proposals through partnerships with other companies in the space production field, collaborate with marketing and sales activities within the segment, and (iii) promote sales management and marketing from the perspective of contribution to revenue.

(Written by FISCO guest analyst Nozomi Kokushige).