Ichigo Group Holdings Co

Hi, everybody. I'm Scott Callan, Chairman of Ichigo. I'm joined today on my right by Ted Fujita, who is our lead independent director, and on my left, Dan Morisaku, who is a senior member of our finance team and the head of Global Hour for us. We're speaking against what's right in front of you, the FY26-2, so the February 2026 full-year corporate presentation. So let's jump into it. I think there's a summary page right before that. There you go. And I say there's a summary page. I'm going to go relatively quick through this presentation. Maybe I'm wrong, but we try to be consistent in the way that we present things. Maybe I'm wrong element of this. I feel like I say the same things every three months, which is probably better than not saying the same things every three months in terms of what our core business activity is and providing you the KPIs and our progress and KPIs. So I'll go relatively quickly through this and go through questions and any comments on our business. It is a very strong operating environment, and we're doing well. So we've generated record business profit, net income, cash earnings, stock earnings. We'll go through some of the details on this later. We've done both investments for growth and significant buyback activity. We think the shares are at historically low levels. On this year's earnings, the year that I'm going to describe the forecast, so the FY27-2 earnings were at 11 times P.E. and 8 times cash P.E., in an environment and I'll talk about this also, where inflation is a strong driver of positive economics for the business model, which is unlike a lot of firms in the world. So it is an extraordinary time for us to deliver positive outcomes for our shareholders. Here are some of the details. Again, I'm going to try to choose which areas to focus on. One of the things that you would notice is that we were down year on year on cash and income relative to net income. So cash GPS is flat because we were buying back the stock. Just to explain that. On occasion, it's pretty rare, but on occasion you have a mismatch between how you account for earnings from a tax basis, and if you account for it on a tax basis, you have to pay taxes on it, and so there's a cash hit to you. And accounting can be different. And so what happened is we sold – a real estate subsidiary at the end of last year. It was accounted for on a tax basis, but it's being accounted for on an accounting basis. And this year, it's always saying that cash and income because of a one-off tax effect is showing down, when in fact it would have been up about also 10%. So nothing odd going on there. We are relentlessly focused on driving high cash flows for our shareholders and what we believe in, not accounting earnings, but actual cash earnings. This is also a reason why the multiple accounting earnings is only 1.1 when it would have been something more like 1.3. Anyway, a one-off out of facts. You're going to see a significant increase in cash earnings this year, and I will also point to that later and say, look, this is not totally real because this is the offset of the underreporting of our earnings from last period. One of the most important things to know is that we have a portfolio of businesses that move with different levels of activity. They are all rooted in our core capability and our core activity of value-add. But it does mean that within any fiscal period, any year, you're going to have stuff going up and stuff going down. And so this is just the same as it always is. On a total basis, we're up 13% on business profit. We've got asset management down a little bit. We've got sustainable real estate up a lot. We've got hotel down a bit, electric owners up a bit, and clean energy down a lot. The total generates a plus 13% year on year. I'm not going to go in too much detail on any of these. Hopefully, we designed these presentations to be relatively self-explanatory. It's probably worth pointing out that, you know, stock earnings were up in the asset management business. Loanings were down a little bit, but none of these are particularly material moves. SRE, Sustainable Real Estate, continues to be the major driver of earnings. And let me just speak to the inflation element that I touched on earlier. It is not a good thing for the world for everything to become more expensive. The impact of the Iran war is proving to be very significant. There are global risks to this. There are country risks to this. There are company-specific risks to this as investors. or companies are going to take significant higher input costs, and this is a negative for the world. It is a good thing for all of us that inflation actually is a very positive feature. It shows them in two ways. It shows them in our balance sheet. We have already built assets on our balance sheet, about $2 billion worth. We're in a billion yen right now of real estate. It becomes more expensive to build new assets. and it means that our existing assets, so already having kind of steel in the ground and buildings built, means that when new builders come in at higher costs and they're going up at kind of 10% per annum in Japan in terms of construction inflation, it means that our assets are extraordinarily competitive relative to any new assets that would compete with them. It means we can raise rents because your ability to price rents is all about replacement costs. What does it cost to replace? The building and your asset as a competitive building, so that's one element But it's it's less dynamic. It's a static element. We do have a balance sheet of assets that we added value to the dynamic element is when inflation goes up Raw development, which is the classic development model in Japan where you tear something down you build it from nothing is incredibly expensive and and our sustainable real estate business, we're in the business of not tearing down assets. We keep them. We improve them. And you're putting in several percents of CapEx relative to building costs in order to improve the asset. So the competition is facing inflation, which is against 100%, and we're facing inflation against only a small percentage point relative to the asset value. So it's a way of saying we've become extraordinarily more competitive in in our core sustainable real estate business when there is high inflation. And this is playing out in very powerful economics, and we're forecasting for next year a significant amount of growth, and that is durable. Again, inflation for an Ichigo shareholder is our friend. Hotels are down. That's primarily, as you can see, stock earnings were up year on year. That's primarily because we did less asset selling during the year. You know, it's part and parcel. The upcoming year, we're forecasting down a little bit again on hotels, which is fine. I mean, there's going to be times when we generate a huge amount of profit off the hotel business. There are times when it's going to come in less. The point is that we manage on a portfolio basis, and we make choices. around again the core capability and the core activity, adding value between different asset classes. SRE, sustainable real estate, is primarily about offices and retail. Hotels broken out in this category. This turned to owners, which is primarily residential. So in owner's case, business profit was up 13% year-on-year. It did, however, come in under the forecast, as you can see, and that's because we pushed out. on some massive sales to the year that we're currently in fiscal year 27 to February, the environment remains very strong. There has been no backing off from a desire to own Japanese real estate assets is linked in part because Japan is is recognized as being incredibly safe and secure in a world that feels not as safe and secure as we all want it to be. And it's because you still have the powerful economics despite Japanese interest rates have gone up. being refund below your cap rate, your NOI coming off an asset. And because inflation, as I just pointed out, is increasing replacement costs, meaning this is a fundamental driver of your ability to raise rents because new assets have to come in at higher rents. And so you now have a phenomenon where you're able to raise rents on an ongoing basis, and that makes, obviously, real estate more attractive. Clean energy downs a little bit on some higher operating costs. So this is how it shapes out. As you can see, it's a relatively nice chart. Every year, earnings going up. That is, none of their goal is to believe what we need to be delivered to all of you. And, again, we're going to – we see a lot of secure growth going forward, and I'll touch on that later. What's most important to us is that we are structurally profitable. That shows up in the left side pie graph. As you can see, our stock earnings, so these are contractually embedded earnings, are about twice our fixed expenses. It means this is a firm that almost went dead but did survive the global financial crisis. One of the things we learned is that we need to be systematically and structurally profitable, and we are. Just going to touch on some elements of the business model. We have both stock and flow earnings. Our cash earnings, that shows that the cash earnings, again, we're focused on cash, not just accounting profit, but genuine cash in the door for all of us. And our cash earnings hit a record high this year. Similarly, we have a record high on our stock earnings. You can see they're diversified among a number of categories. It is the case, and this is not something we should run away from and is very, very powerful. Our sustainable real estate business is this extraordinary, powerful growth and earnings engine. And, you know, there are elements of us diversifying around it, but certainly not away from it. This is a very, very, very powerful engine, as I just told you. One of the things that can go horribly wrong in the world for investors and consumers is inflation. As I just told you, this model is anti-fragile in that sense. It gets stronger during an inflation environment. This is a very, very powerful business model. we're selling these assets that we add value to we generate and monetize gains on them and yet year after year will continue to generate to create higher unrealized gains in our business which effectively create forward earnings and so at the current point in time third-party appraisal values puts our unrealized gains at about 83 billion yen. Our total shareholder equity is only about 100. So the appraisers say that there's actually another 80% of value underpinning our balance sheet in terms of shareholder equity. And if you look at the reality, you can see what the multiple looks like. It is manifestly clear that the third-party appraisals underestimate the amount of actual value that we derive when we go ahead and monetize and sell assets. So this year was a big year. We generated 2.9x on actual gains on sales relative to appraisal value. We think that number is high. However, we think consistently, as you can see, we generated about two times And so I just told you the appraisers think we have $80 billion plus of unrealized gains on a balance sheet, meaning kind of equity, equity value. In reality, it's probably twice that. So we have stated equity of $100 billion. We actually probably have genuine equity of $260 billion. That makes us less proud of what an RE looks like. It goes both ways. Group Holdings Co Group Holdings Co Group Holdings Co Group Holdings Co Group Holdings Co Group Holdings Co we we actually ended up with the year with a slight increase in our balance sheet because we didn't do the sales that we expected but we are we are actually going into balance sheet shrinkage we will have a shrinkage in our balance sheet this we would have had it last year we're going to have it more this year um you know the business is going to become more asset light and more capital efficient high economic operating cash flow again we're focused on on on cash flow is systematically higher than an income again we're cash driven for They have a very strong financial base, overwhelmingly long-term borrowings. As you can see, interest rates have gone up. That is a reality. And so we're up 43 basis points relative to where we were two years ago. As you can see on the bottom of the page, 61% of our borrowings are fixed. We use interest rate swaps and caps to hedge interest rate exposure. We generally borrow for about 10 years, very specifically. We borrow 10 years plus, and that's already sustainable real estate and hotel businesses. We tend to borrow 15 to 20 years in our clean energy business. We borrow generally about seven years in the owner's business. We've had some coming in of the loan terms because we're doing increasing amounts of uncollateralized borrowing with no amortization, so it's really, really nice borrowing with no covenants, and that generally is like three to five years. but it's a very very durable capital structure for the firm in both terms of equity and debt and we continue to to work on behalf of the world global warming is real The actions that we take, the core activity of the firm is deeply sustainable. We're not in the business of tearing down buildings and wasting assets and wasting value and creating environmental effects from it. Because we are significantly sustainable in our activity in Japanese financial institutions, also believe in sustainability, it enables us to borrow through ESG as a sustainable loan activity at very, very good terms. And we continue to expand this activity. As you can see on the page, we had net acquisitions of about 6 billion yen. We thought we were actually going to be net sellers for the year, but because, again, we pushed out each of the owners' activity, some sales into this current year that we're in right now, we ended up being relatively flat for the year. You've got some buying and selling in various asset classes. The core activity of the firm is value add. We add value to assets, and when we add value to them, we sell them off. This breaks out the activity among the various key groups. Owners is the highest turnover model. We generally have a hold of a year or so. That's extended just a little bit to give us some more opportunity. Rents are going up. We finance really, really well to optimize kind of the final cap rate when we sell the asset to a brand-new owner at the highest possible rent. But it's a very high turnover business, and so you generally have largely offset buying, selling within about a year. Hotel earnings were down year-on-year. That is, as I said earlier, is not because of stock earnings, which continue to grow. As you can see, REVPAR, so revenue per available year was up, per available room was up 12% year-on-year, but because we didn't do a large hotel sale in the year and some impact from hotel performance fees, full earnings were down. We have very little China inbound exposure, so we're not seeing really any effect of that. We, of course, should all be concerned about what's happening in the Middle East right now, its impact on high airfares and how it affects things. And a positive, it probably makes Japan a better and easier destination on the negative airplane costs going up. And so we are kind of modeling for some negative impact on our hotel business this year. It's about 15% of earnings. So, okay, if something happens there, it's just going to be fine. But FYI, this is something we're, of course, focused on. Owners continues to do well. And it is diversified its sale channels in order for it to be resellable. I think that's on the next page. No, on the next page it shows us this business profit. We came in in the last two years. We're going to see a significant increase, actually a doubling year on year in this year. And, look, we have high visibility on this already, so this is going to happen. This is the slide where we show the diversified sales channels. And that's super powerful. I mean, the, you know, different segments in different parts of the market will have some specific value to them. We always want to sell at the highest possible price. We do. You know, we work for our shareholders. You know, it's insane. Our buyers have alternatives because Ichigo is really, really good at delivering high-quality assets. You know, we have an active bid from buyers, and we want to have the broadest set of buyers so that we can meet their needs and deliver the highest possible returns for our shareholders. and growth on diverse growth drivers. I say it's growth, but the truth of the matter is this year we were down a little bit. That was a one-off. Some of the owner's activity was expected to be security tokens, which will increase again, so we expect to have growth, and you'll see it visibly in our asset management business. Green energy, we shifted towards battery storage. It is, economics have become very, very powerful. One of the, there's a negative impact on our solar business, which is there is effectively some overproduction right now relative to the ability for the grid to accommodate on the solar power production. This actually gets solved with battery storage, not just by us, but broadly. And so we think that it's gratified because battery storage has become incredibly compelling in its economics. So our major activity you're going to see from us in the near term is going to be around that as opposed to kind of new activity in solar. And when we can pick that up again when the battery infrastructure is in place. We were a J-League top partner. So J-League is Japan's soccer league, or as they say, I'm an American. We pronounce football soccer, the Japanese Football League, if you want to put it that way, for a number of years. We're effectively shifting our activity towards the club that we bought, Takahiro Miyazaki. We bought it in 2023. It was in J3. It got promoted last year. You know, we just think that's a better place to build a brand and build kind of our activities in the sports area. This is not done as charitable enterprises or businesses. We have returns along with brand value creation coming from the sports activity, and that's going to continue to be the case. On the shareholder side, we actually announced a 5 billion share buyback right at the end of the previous period, which began execution the last year. So sort of actually 15 billion yen of buyback execution during the February 20th and 26th period, of which we got about 10 billion yen done. The other 5 billion is in execution right now. We bought a bunch of stock in. We think it was a very, very good use of capital for our shareholders. We're going to grow EPS both through kind of bottom line growth and through shrinking the number of shares outstanding. The cash generation is significant. We can afford to do it. As I just told you, we're 11 times earnings on an accounting basis. We're on eight times EPS earnings on a cash EPS basis. The shares are very, very good value. That's why we've been buying them with a bucket. and we have raised our DOE target and we might well raise it again. Which is to say, if you look over the last five years, We've had double-digit dividend increases. We've shrunk shares outstanding. We want to continue to reward shareholders. The ability to fund growth, we're very capital efficient and becoming more capital efficient. And so the ability to fund growth through growth investments and add a capital through the way and also to increase our dividends and do buybacks is the highest it's ever been. And so we're reflecting that in a structural permanent dividend increase by raising our DEA target. so based on today's today's clothing price so we've got above a three percent yield on the stock as I said earlier global climate change is real and we're focused on doing our best to assuage the effects of that we've gone to 100% renewable energy at this point the next page shows how we're climate positive our CO2 reduction activity is nine times our CO2 emissions To turn to the forecast, this is meant to be a summer of it. Hopefully it's relatively understandable. As you can see, Business Profit, so that's kind of the best measure of operating income in the firm, is forecasting up 21% year-on-year. The other key metrics we're focused on are EPS, which we have up 13%. Cash EPS, which will be up 35%. And, again, that's in part because we under-reported cash earnings because of this one-off tax effect, tax and accounting mismatch during last year or above. Group Holdings Co Group Holdings Co Group Holdings Co Group Holdings Co Group Holdings Co So, again, we have a portfolio of businesses. And so one of the things you should know is that every year we announce like a terrible forecast for asset management. It's not because we expect to have a terrible year in asset management. It's that, you know, we just put in the stock asset management fees. Our primary asset management business is the REITs. We do get performance fees on when we generate value and set and gains on sales in In that business, and of course we do that systematically on an ongoing basis But we're in this is a decision that can be made by the by the reeds not by us There's a completely different shareholder set. There are completely different boards. It's completely separate independent governance so if there is Value Add Monetization Activity in the REITs. We will earn performance fees, but we're not going to forecast them as us, as each ago, because consensus is not our right to do so, and we have no visibility on it. And so, anyway, the number shows down year on year. We think we'll do a lot better than that. a sustainable real estate we were forecasting up 42% hotel down down 29. That's again, we had some gains of sale we're not forecasting for this year. Owners we expected that earlier to be a double clean energy I just touched a little bit we're having more power suspensions meaning you have to turn off your your delivery of power from solar power plants when there's too much power in the grid. And so we're gonna have some impact from that this year. We think that resolves itself over time we have some semester DNA increase also. This is how it breaks out in terms of the various segments and business profit again, you know continuing grow growth and growth and and we think this is durable And and will be long-lasting And again, cash earnings, we expect to be a record. Business profit, of course, was a record also. I think the next slide is the last one, which shows what stock earnings looks like. A little bit, some balance sheet shrinkage. We'll push down some of the stock earnings, but again, that's fine because that's balance sheet shrinkage, and we expect to have very high capital efficient earnings for you over the next year. Thank you very much everybody. It is an honor and a privilege to work for you. We look forward to delivering the strong results that you deserve. Thank you so much.