■ Growth Strategy of Lear <176A>

2. Business Strategy

As an overall management strategy, the construction of a decentralized energy platform aims to enhance mutual complementary value among the existing three businesses, continuously optimize the allocation of management resources, and the business portfolio. Therefore, it is necessary to maximize the growth potential of the existing three businesses and formulate segment-specific business strategies for medium- to long-term growth. In addition, as a hub function connecting the three businesses becomes necessary, a new decarbonization solutions business unit will be established to expand the customer target group of existing businesses based on the centralization of 'public' elements such as decarbonization mechanisms for households, public housing, and businesses, as well as the promotion of local electricity production and consumption of power.

(1) Decentralized Energy Business

In the business strategy of the decentralized energy business, resilience※1 solutions refinement, positioning strategy in sales activities, and customer acquisition strategy are key strategies. Resilience solutions aim to optimize energy use and contribute to decarbonization through 'apartment x decentralized energy facilities x digital control,' where the company bears the costs of Distributed Energy Resources (DER) facilities such as power transformation equipment and rechargeable batteries, allowing developers and rental property owners to enhance the value of apartments without cost burden and aim for zero GHG emissions through the use of renewable energy, making the introduction properties Scope3 compliant. For residents, the bulk purchase reduces the burden of electricity charges, while simultaneously enhancing resilience against disasters and environmental conservation through decarbonization. Developers and residents can enjoy both economic and environmental values simultaneously. In the positioning strategy, the plan is to expand the sales territory from existing apartments to new construction, rental, and public housing. Furthermore, in the customer acquisition strategy, regarding the new product of apartment disaster prevention services, in addition to new construction and rental properties, entry into the REIT project field, as well as a focus on acquiring replacement projects from other companies during contract renewal for existing apartments, is planned.

※1 Resilience: The ability to recover from disasters, crises, stress, and other difficulties.

※2 DER (Distributed Energy Resources): Distributed energy resources. Energy sources owned by energy users (consumers) such as photovoltaic and rechargeable batteries.

(2) Green Energy Business

In the green energy business, there is a plan to advance the improvement of the ratio of renewable energy and hedging risks in procurement. Regarding the ratio of renewable energy, the introduction ratio already exceeds 80%, but in order to achieve the early realization of the 100% introduction target by 2030, all contracts after the June 2024 period will provide electricity with substantial renewable energy. On the other hand, by improving procurement methods, introducing market-linked plans, and striving to improve customer satisfaction, the company aims to improve sustainability and stabilize the overall business revenue. As a risk hedge in procurement, the company aims to balance day and night demand to ensure a constant electricity demand (base load) throughout the day, conduct electricity futures trading based on the seasonal price difference of up to 1.5 times due to seasonal fluctuations, and also utilize the price difference of east being higher and west being lower based on the operational status differences of nuclear power plants and photovoltaic power generation.

Customer Satisfaction (CS): In the energy DX business, plans are underway to simultaneously expand the customer target segments and services provided. In expanding the customer target segments, the company plans to offer customized plans to major new electricity providers and full outsourcing plans for energy management to local government-participated or internally operated new electricity providers, thereby expanding operations to increase the average customer unit price and the number of adopting companies. While major new electricity projects have a significant impact on revenue, the company also aims to gather smaller-scale projects such as new electricity projects for local governments to expand revenue. Additionally, amid increasing demand for offsite Power Purchase Agreements (PPA) due to self-supply restrictions, the company plans to strengthen approaches to new electricity providers lacking expertise.

(3) Energy DX Business

The energy DX business plans to expand the customer target segments and services provided in parallel. In expanding the customer target segments, the company plans to provide customized plans to major new electricity providers and full outsourcing plans for energy management to local government participated or internally operated new electricity providers, thereby expanding operations to increase the customer unit price and the number of adopting companies. While major new electricity projects have a significant impact on revenue, the company also aims to gather smaller-scale projects such as new electricity projects for local governments to expand revenue. Additionally, amid increasing demand for offsite Power Purchase Agreements (PPA) due to self-supply restrictions, the company plans to strengthen approaches to new electricity providers lacking expertise.

Power Purchase Agreement (PPA): An agreement where the electricity consumer, whether a company, local government, or home with electricity demand, leases the roof or idle land of buildings owned by them to PPA operators, allowing the electricity consumer to procure renewable energy generated by solar power generation facilities installed there. Offsite PPA is one model of PPA where solar power generation facilities are installed in a location away from the electricity consumer.

(4) Decarbonization Solution Business and Roadmap

The company established a decarbonization solution business headquarters in July 2024 to serve as a hub function connecting the existing three businesses. The decarbonization solution business headquarters aims to maximize the potential for achieving carbon neutrality in regions and companies by leveraging management resources to expand the customer base of the existing three businesses and develop new services that promote carbon neutrality among customers, thereby creating economic value and social impact. This will strengthen the electricity procurement capabilities in the green energy business, build a foundation towards the 2030 goal of 100% renewable energy, maintain stable growth in decentralized energy businesses through proposing disaster prevention services, replays, business acquisitions, and entry into new construction areas, sustain high growth in the energy DX business through acquiring new customers and upselling to existing customers, and design roadmaps tailored to each business. Additionally, by combining and optimizing services according to challenges, the decarbonization solution business believes it can accelerate business growth, contribute to cross-sector decarbonization, and contribute to decarbonization across society.

A major transformation in business structure aims for sustained double-digit growth in profits in the medium to long term.

3. Our company's focus points

By undergoing a major transformation in its business structure, the company has strengthened its sales system and established a structure to support medium- to long-term growth on a solid foundation. In addition, the clear growth strategy will be the key to whether growth aligned with the strategy can be achieved. In the existing business, the apartment bundled power reception service in the decentralized energy business is expected to contribute stable growth as a core business as it expands into areas such as new construction, replacements, and local governments. It is anticipated to become the backbone of the company's performance. The green energy business showed significant improvement in profitability in the June 2024 period, highlighting the effects of organizational restructuring, further enhancing confidence in the foundation supporting the apartment bundled power reception service. The Energy DX business is expected to experience high growth due to responding to customer customization needs and full outsourcing needs, which can lead to an increase in the number of customers and the average revenue per customer.

As a new business, there is a focus on apartment disaster prevention services. It has garnered attention as a measure against the frequent occurrence of natural disasters in recent years and is expected to further boost the growth of the decentralized energy business. Additionally, the Carbon Neutral Solutions Business Division has been established and is expected to boost the growth of the existing three businesses in the short to medium term. The Carbon Neutral Solutions Business Division will accelerate the development of a decentralized energy platform, which may take a little longer, but ultimately envisage providing the decentralized energy platform to new power companies, local governments, and regional power companies, contributing to the stability of Japan's energy as well as promoting decarbonization and expanding the ecosystem. Based on these assumptions, the company believes it is highly probable to sustain double-digit growth in profitability over the medium to long term.

(Author: FISCO guest analyst Nobumitsu Miyata)