Business Overview 4. DX Regional Collaboration Project Signpost's DX and Regional Collaboration Project started in March 2022 with the establishment of the DX and Regional Collaboration Division. It aims to provide products and services that contribute to regional collaboration by collaborating with local financial institutions nationwide, utilizing its own DX technology and open innovation. In August 2022, it began working with Oita Made Co., Ltd., which was established with the investment of multiple companies in Oita Prefecture, including Oita Bank, to sell original products made in Oita Prefecture to both domestic and overseas markets and to match local companies and Signpost's products and services in order to promote the revitalization of Oita Prefecture's economy. In addition, in April 2024, it started offering DX support services for medium-sized and small businesses. As the first effort, it supports the creation of DX declaration by (The) Fourth Hokuriku Bank, Ltd. (Niigata City, Niigata Prefecture) to deploy DX declaration support services to the market. Furthermore, it will realize new solutions by commercializing its own technology and open innovation and promote regional collaboration through innovation.

1. Revenue and profit composition by business segment

The breakdown of And Do Holdings <3457> by segment for the fiscal year ending June 2024 is as follows: Franchise business 4.7%, House/Leaseback business 38.2%, Financial business 0.7%, Real estate trading business 50.4%, Real estate distribution business 2.4%, Remodeling business 3.6% (revenue uses the amount before deduction of adjustment). Additionally, the profit composition ratio is: Franchise business 23.6%, House/Leaseback business 37.7%, Real estate trading business 28.0%, accounting for nearly 90% with 3 businesses of growth reinforcement. In particular, the profit composition ratio of the real estate trading business increased in the fiscal year ending June 2024 (compared to 22.4% in the previous period). This is due to the significant performance growth of this business, driven by strong sales of large properties and residential real estate. The company has a policy of focusing on the resale business of used properties in the real estate trading business. The focus on the resale business of used properties is anticipated to increase profitability due to factors such as government support for the circulation of used homes, the low proportion of existing homes in the total residential circulation volume in Japan and the high growth potential, as well as good turnover ratios. Over the medium to long term, we expect the proportion of the real estate trading business to increase in the profit composition ratio. Additionally, the reverse mortgage guarantee business included in the financial business can fully demonstrate the company's industry advantages and functions, and is being actively cultivated as a third pillar, as there are no funding constraints.

2. Growth Reinforcement Business

(1) Franchise Business

As of the end of the fiscal year ending June 2024, the cumulative number of franchise business affiliated stores is 707, and the cumulative number of opened stores is 643. The breakdown of the cumulative number of franchise business affiliates includes 671 franchisee stores and 36 company-owned stores. Among the franchisee stores, there are 595 sales intermediary stores specializing in real estate trading related to the franchise business "House Do", 64 purchasing specialty stores, 3 housing information malls, and 9 real estate rental intermediary/management stores "Rent Do". On the other hand, the company-owned stores consist of 7 satellite stores, 23 purchasing specialty stores, 2 housing information malls, and 4 "Rent Do" stores. Additionally, they have one remodeling showroom.

a) Affiliated Stores

Affected by the prolonged impact of the COVID-19 pandemic, the performance of non-real estate diversified companies affiliated with the franchise stores deteriorated, leading to a temporary increase in resignations, etc. However, after the COVID-19 Infectious Diseases Act was reclassified as Category 5 in May 2023 and economic and social activities normalized, the number of resigning stores returned to normal, and the number of new joiners steadily increased. Within this context, the growth of the cumulative number of affiliated stores in the fiscal year ending June 2024 exceeded that of the fiscal year ending June 2023. Recently, there has been a change in the quality of new joining owners. The number of franchise managers knowledgeable in real estate has been increasing. The reputation of the company's franchise brands among real estate professionals is spreading, which is expected to further stimulate the inclusion of professional managers, creating a positive cycle. Currently, there is a tailwind for increasing affiliated stores, and the goal is to return to the pre-pandemic growth pace (50-70 stores per year) in the future.

b) Revenue structure of the franchise business

The franchise business is a stock-type business that can expect high-profit and stable growth. The operating margin for the fiscal year ending June 2024 is 62.1%, maintaining a high level. In addition, the revenue composition ratio consists of franchise fees 14.6%, monthly fees 26.6%, system fees 15.6%, advertising contribution fees 29.7%, equipment sales 5.5%, and others 8.0%. Despite the high proportion of advertising contribution fees, this is due to conducting a brand strategy by employing former professional baseball player, coach, and current commentator Mr. Atsuya Furuta as the image character since 2013, actively sharing the cost focusing on advertising and publicity. The company plans to continue actively promoting promotions in the future to recover the pace of net store growth.

c) Regional expansion

As of the end of June 2024, the cumulative number of franchise stores by region is highest in the Tokai region with 176 stores (24.9%), followed by the Kanto region with 137 stores (19.4%), and the Kansai region, the region of origin, with 117 stores (16.5%). The real estate brokerage business is not significantly affected by economic conditions, and due to the relatively small impact of the COVID-19 pandemic, further expansion of franchise stores is expected. Therefore, the company has adopted a policy of focusing on aggressively developing the large metropolitan area where there is ample room for new store openings.

(Written by FISCO Guest Analyst Yoichiro Shimizu)