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First of all, we are pleased to report that our overall performance for the fiscal year ended March 31, 2024 (FY2023) was in line with our initial projections. Consolidated net sales increased 4.9% from the previous year to 178,782 million yen. The recovery of the Direct Selling Group, whose performance was affected by the coronavirus pandemic, has been somewhat slow, but the increase in sales of the Food Group contributed to overall sales growth. In the Food Group, MISDO Meets, a collaborative project with other companies that has been developed as a series since 2017, has been performing well, and the development of value-added products through various marketing strategies has contributed to increased sales. Over the past few years, Mister Donut has been revising the prices of its products in response to the rising cost of ingredients, and these price increases have also contributed to an increase in sales thanks to the understanding of our customers.
As for profits, the increase in gross profit due to the Food Group's sales growth contributed to the good results. Meanwhile, as a major initiative during the year, we have installed RFID tags on all mat and mop products that we distribute. The 2024 Noto Peninsula Earthquake caused a slight delay in post-installation operation, but the system has been working since July. Consolidated operating profit decreased 41.1% from the previous year to 5,084 million yen, and consolidated ordinary profit decreased 30.9% from the previous year to 7,863 million yen. These results were mainly due to a significant increase in costs associated with the installation of RFID tags, as well as computer system-associated expenses related to compliance with the government's qualified invoice system, and higher personnel, freight and other expenses.
Profit attributable to owners of the parent decreased 36.4% from the previous year to 4,574 million yen. This result was mainly due to extraordinary losses incurred as a result of earthquake damage to a consolidated subsidiary located in Ishikawa Prefecture.
The majority of the investment in RFID has been recorded as a cost for FY2023. The direct benefit of the investment in terms of profit is that the labor required to check the quantity of mats is reduced, which in turn lowers the outsourced processing fees paid to partner factories, i.e., the costs required to clean mats and other materials. We expect to recover the investment recorded in FY2023 within a few years.
In the Direct Selling Group, the dedicated household sales teams launched in FY2022 for the purpose of developing new customers in the household market has been achieving results. Therefore, sales activities by such dedicated teams, which had been developed at company-owned offices and affiliated companies, were also started at franchisees in FY2023. We expect that further strengthening such sales activities will enhance the profitability of the Direct Selling Group.
| FY2019 | FY2020 | FY2021 | FY2022 | FY2023 | ||
|---|---|---|---|---|---|---|
| Consolidated net sales | Millions of yen | 159,102 | 153,770 | 163,210 | 170,494 | 178,782 |
| Consolidated operating profit | Millions of yen | 6,577 | 4,651 | 9,899 | 8,637 | 5,084 |
| Consolidated ordinary profit | Millions of yen | 7,929 | 6,633 | 12,215 | 11,375 | 7,863 |
| Profit attributable to owners of the parent | Millions of yen | 5,591 | 2,821 | 8,132 | 7,196 | 4,574 |
| Equity ratio | % | 76.6 | 77.2 | 76.1 | 76.6 | 76.3 |
| Return on equity (ROE) | % | 3.8 | 2.0 | 5.5 | 4.8 | 3.0 |
| Return on asset (ROA) | % | 2.9 | 1.5 | 4.2 | 3.6 | 2.3 |
| Year-end share price per share | Yen | 2,841 | 2,785 | 2,689 | 3,190 | 3,299 |
| Price-to-earnings (P/E) ratio | x | 25.84 | 48.7 | 16.33 | 21.83 | 34.72 |
| Price-to-book (P/B) ratio | x | 0.99 | 0.94 | 0.88 | 1.02 | 1.03 |
The series of initiatives set forth in our Medium-Term Management Policy 2022 are currently progressing largely in line with our original plans. As part of our growth strategy, we had planned to allocate 49 billion yen over three years to growth investments, of which 20 billion yen was planned for M&A. However, the actual investment in M&A over the past two years was 14.6 billion yen.
During FY2023, our M&A-related investments were 10.4 billion yen. This included the acquisition of shares of JP-Holdings, Inc., which operates more than 300 childcare support facilities nationwide, making it an equity-method affiliate. We invested in JP-Holdings because reaching out to the younger generation of customers is important to the Direct Selling Group's future growth, and with a view to contributing to our medium- to long-term growth and the synergies between Duskin and JP-Holdings. Meanwhile, the Food Group has made Kenko Saien Co., Ltd. a subsidiary. This company owns Boston House Co., Ltd., which operates the Italian restaurant Napoli no Shokutaku, mainly in the northern Kanto region. We plan to develop Kenko Saien's business by using our accumulated expertise to expand our outlets to a wider geographic area, with an eye toward franchising.
In the overseas business, both the Direct Selling Group and Food Group are steadily expanding their business based on master franchise agreements, mainly in China and Southeast Asia, but they have not invested in any assets.
In the final year of the Medium-Term Management Policy 2022 period and into the next medium-term business strategy period, we will maintain a stable operating base, but at the same time, we consider rising labor and raw material costs an uncertain factor. For this reason, we believe it is essential to develop products and services that will enable us to pass on these higher prices. We also foresee rising interest rates. As interest rates rise, the return expected by investors and other stakeholders (cost of equity) will rise, and this means we need to invest more. Another thing we need to take into account is that we form a nationwide franchise chain to conduct our business. We believe it is part of the franchise headquarters' mission to maintain the franchise chain even in the event of a disaster or other unforeseen event, and to provide funds to assist franchisees with recovery and operational support. Furthermore, we may need to take over the business of franchisees that are faced with the challenge of a lack of successors. For these reasons, we maintain a certain amount of retained earnings. Also, our financial stability enables us to procure funds from financial institutions in the event of further unforeseen events, and we will continue our efforts to maintain this soundness.
As part of our growth strategy for the future, we are building a framework for growth investing. In particular, the Investment Assessment Committee, which I chair, has reviewed the framework and system for investment evaluation over the past year. We believe that this will ensure both effective evaluation at the time of investment and effective post-investment monitoring. The committee will also serve as a pre-decision-making review body before the Board of Directors. With regard to M&A, the New Business Development department will take the lead in establishing a system to collect information on and manage deals in a centralized manner. Under this system, we will effectively examine each deal to determine whether it is in line with our growth strategy. I would also like to mention that our financial position is currently sound enough to handle M&A deals of several billion yen with our own funds.
With regard to the criteria for investment decisions, the Investment Assessment Committee considers the ability to recoup an investment within 10 years to be an investment criterion, although there are some exceptions among general investment projects.
In terms of cash allocation for the next medium-term business strategy, we will consider appropriate allocation to increase shareholder value while maintaining a balance between growth investing and shareholder returns. We have determined that in order to improve the P/B ratio, it is necessary to raise dividends to shareholders. That is why we have been raising the dividend payout ratio and increasing the total return ratio since FY2021. We believe that our shareholders have given a certain level of recognition to this point and that the share price has been on an upward trend. We will determine the appropriate ratio of investment, retained earnings and shareholder return, while giving due consideration to the dividend-on equity (DOE) ratio.
Duskin's Board of Directors annually reviews the appropriateness of all strategic shareholdings one by one. When reviewing a strategic shareholding, the Board not only considers business-related reasons, such as business alliances and the need to continue transactions and strengthen relationships but also factors such as our cost of capital and the price trends of the issuing company's stock. The main reason for the recent upward trend in the consolidated net asset ratio is the growth in valuation gains on the 20 listed stocks we own.
Our total shareholder return (TSR) over the past 10 years has been lower than the Tokyo Stock Exchange Stock Price Index (TOPIX). To improve this situation, as mentioned above, we are proactively implementing measures to transform our business portfolio and realize effective M&A while maintaining financial soundness. We will keep up our efforts to increase shareholder value by continuing to improve profitability and pay stable dividends, implementing effective financial strategies to achieve TSR that exceeds the cost of shareholders' equity, and engaging in stock price-conscious business management.
| 1 year | 3 years | 5 years | 10 years | ||||
|---|---|---|---|---|---|---|---|
| Cumulative | Annual rate | Cumulative | Annual rate | Cumulative | Annual rate | ||
| Duskin | 6.6% | 28.2% | 8.6% | 39.1% | 6.8% | 95.9% | 7.0% |
| TOPIX | 41.3% | 53.4% | 15.3% | 96.2% | 14.4% | 142.1% | 9.2% |
For future growth, we are pursuing a variety of growth strategies and making robust investments in transforming our human resources (HR) portfolio. As competition for human resources intensifies, we do not rely solely on hiring new graduates but are also focusing on hiring industry-ready, mid-career workers. In particular, we are strengthening our HR base in such areas as product development, supervisors for franchise operations, as well as DX strategies and overseas expansion.
In addition, to make the company more attractive to employees, we are revamping our HR-related computer system and reviewing our personnel system and regulations.
Going forward, in addition to acquiring and developing capable human resources, we will develop an HR strategy that takes diversity, equity and inclusion (DE&I) into account. Our goal is to create a highly productive business organization that operates under the most compact structure possible, with a diverse workforce engaged in friendly competition with one another.
As with investments in human resources, we believe that investments in sustainability are critical to accelerating our strategy for creating shared value (CSV). Sustainability-related investments may be costly in the short term, but they are essential for long-term sustainable growth. In order to promote ESG-conscious business management, we will steadily implement initiatives to address material issues.
