Shareholder return strategy: No. 1<3562> changed its shareholder return policy along with the publication of the new mid-term management plan "Evolution 2027" and showed the direction of significantly strengthening shareholder return. So far, we have aimed for stable dividends (30% dividend payout ratio as a guide), but in the future, we plan to implement stable and continuous shareholder dividends based on a policy of aiming for a 30% dividend payout ratio, regardless of changes in annual performance. A notable feature is that we have set a minimum dividend of the previous year's annual dividend per share and will continue to increase dividends, which is a significant enhancement of shareholder return and can also be evaluated as a expression of confidence in profit growth. Moreover, we have a policy of "flexibly implementing under financial discipline" for acquiring our own shares, showing a more proactive stance.* *Considering the gap between our own perception of the stock price and the market evaluation, ROE, capital efficiency, and CF level, we have a policy of implementing it flexibly. Dividends for the fiscal year ending February 2024 will increase by 1 yen from the previous year, as expected at the beginning of the period, to 33 yen per share (mid-term dividend of 16.5 yen and year-end dividend of 16.5 yen). We also acquired 340,000 shares of our own stock (with a purchase price of 397 million yen). Despite the anticipated decline in profits for the fiscal year ending February 2025, we are expected to follow the policy of increasing dividends every period and issue a dividend of 1 yen per share (a commemorative dividend for the 35th anniversary of our founding), with an expected increase of 2 yen from the previous year to 35 yen per share (mid-term dividend of 17.5 yen and year-end dividend of 17.5 yen).

As of the end of August 2023, Nagai Levain's equity ratio is high at 91.2%, indicating a stable financial condition. Given the company's business model, the risk of a rapid decline in profits is low, and stable earnings are expected to continue. As a result, if the distribution to non-shareholders (shareholder returns) is low, retained earnings are accumulated in equity each year, leading to a decrease in return on equity (ROE), that is, a decrease in capital efficiency. However, the company is actively engaged in comprehensive shareholder returns, including the acquisition of treasury stock aimed at improving capital efficiency and responding to changes in the business environment, in addition to a dividend increase commensurate with profit growth, maintaining a high ROE (7.5% in the August 2023 term).

As the company has pledged a dividend payout ratio of over 50% on a stand-alone basis, it increased the annual dividend from 50.0 yen to 60.0 yen in the August 2017 term and implemented an annual dividend of 60.0 yen from the August 2018 term to the August 2023 term, with a planned annual dividend of 60.0 yen for the August 2024 term.

As for the acquisition of treasury stock, it acquired 612,700 shares (JPY 1,231 million) of treasury stock and extinguished 2,500,000 shares of treasury stock in the August 2022 term. In addition, it acquired 164,600 shares (JPY 373 million) of treasury stock in the August 2023 term and acquired 415,500 shares (JPY 923 million) of treasury stock by the end of the third quarter of the August 2024 term. As a result, the balance of treasury stock at the end of the third quarter of the August 2024 term was JPY 542.7 million (an increase of JPY 91.3 million compared to the end of the previous period).

The weighted average total return ratio (※) for the past 10 years (from the August 2014 term to the August 2023 term), combining dividends and acquisition of treasury stock, was 71.1%, indicating a strong financial position. Such proactive shareholder return initiatives are highly regarded.

※Weighted average total return ratio = (total amount of dividends + total amount of treasury stock acquisition) ÷ (total net income)

(Written by FISCO guest analyst Noboru Terashima)