1. Qualitative Information Concerning Consolidated Business Results(1) Information about operating results
During the three months ended June 30, 2019(April 1 to June 30, 2019), the Japaneseeconomy, despite flagging export with deceleration of global economy, recoveredgradually. This recover was supported by domestic demand and improvement in theemployment and income environment.
The housing industry, our core operating domain, was expected to recover gradually
towards the consumption tax hike on October 1, 2019. However, housing demand wasbelow forecast, since Japanese government decided to enhance housing acquisition
support system to level the housing demand.
In the retail and services industries, the market recovered step by step, though there
was influence of unseasonable weather.
Under the circumstance, the Nac Group of companies aggressively worked on
development of new products, promotion of new services, improvement of customer
satisfaction and expansion of business areas.
As a result, consolidated results for the first quarter ended June 30, 2019 included
sales of 17,800 million yen (up 14.2% year on year), operating loss of 1,243 million yen(compared with a loss of 1,497 million yen a year earlier) and ordinary loss of 1,265
million yen (compared with a loss of 1,508 million yen a year earlier). Loss attributableto owners of parent company was 1,355 million yen (compared with a loss of 1,106
million yen a year earlier).
Operating results by business segments were as follows.
In addition to the operating income or loss of each segment, the Nac Group posted 277
million yen as corporate expenses not attributable to any particular segment.
[CreCla Business (Bottled Water)]During the three months ended June 30, 2018, the condition of market remained harshsince unusual weather conditions affected negatively.
Under the circumstances, the CreCla business carried out sales promotions nationwide
to increase the number of customers before the summer peak demand season. Inaddition, we promoted sales of the new product ZiACO utilizing “hypochlorous acidwater”, which was launched last October, and strengthened production capacity.
In our direct managed stores, the number of customers decreased due to withdrawal
from the one-way bottle delivery service because of rising logistics costs in the previousfiscal year, but efforts were made to improve service quality, bottle consumption perhousehold increased, and the unit price of customers improved. So, sales declined
slightly year on year.
In our affiliated stores, sales remained at the same level as the same period of theprevious year as a result of efforts to lower the churn rate.
Operating income decreased year on year due to a decrease in sales in the directly
managed stores and the completion of temporary profit factors.
As a result, during the three months ended June 30, 2019, the CreCla Businesssegment posted sales of 3,103 million yen (down 5.2% year on year), and operating
income of 17 million yen (down 80.1% year on year).
During the three months ended June 30, 2019, we opened the Tachikawa MaintenanceCenter as a base for server disassembly and cleaning and production of ZiACO.
[Rental Business]
Based on the society of the aged, the Rental business worked on expansion of the sales
network and reinforcement of customer services to respond a variety of customer
demand.
In the mainstay Duskin business, we expanded the provision of total care services (i.e.
the housekeeping service, exterminator and gardener) based on an operational andcapital alliance agreement signed with Duskin Co., Ltd. in August 2018. As a result, we
maintained the same level of sales year on year.
With-branded pest-control devices business strengthened sales promotions before thesummer peak demand season, and Earnest Co., Ltd., which provides regular cleaningplan for business developed sales activities aimed at acquiring new customers. Sales
were at the same level as in the same period.
Operating income increased year on year owing to steady sales in all divisions.
Consequently, during the three months ended June 30, 2019, the Rental Businesssegment posted sales of 3,509 million yen (down 0.9% year on year), and operating
income of 443 million yen (up 2.7% year on year).
[Construction Consulting Business]
The local construction market continued to face a tough market environment due tochronic shortages of craftspeople and a decrease in the number of households.
However, sales of the construction know-how systems increased due to strong sales oforiginal new products launched in February 2019. Operating income also increased
year on year.
The construction materials business, which focused on solar power generation systems

and Eco & Eco Co., Ltd., continued to shift the sales target to the residential solar andstorage battery market. As a result, sales and operating income increased year on year.
As a result, during the three months ended June 30, 2019, the Consulting Businesssegment posted sales of 1,216 million yen (up 12.5% year on year) and operating
income of 60 million yen (up 22.7% year on year).
[Housing Sales Business]
In addition to custom-built homes, Leo House Co., Ltd. started sales of built-for-salehouses and lands and 48 plan-type homes that are in line with life plans, in order toincrease the number of orders and sales. On the other hand, we have reinforced ourefficient operation of SG & A expenses and the appropriate allocation of management
resources.
As a result, during the three months ended June 30, 2019, the number of orders
received and orders in hand are 336 homes (compared with 469 a year earlier) and1.022 (compared with 1,233 a year earlier), respectively. In addition, sales increased
year on year because of an increase in the number of completed delivery buildings.
Operating loss was reduced year on year as a result of closure of unprofitable branches
and efforts to minimize SG & A expenses.
J-wood Co., Ltd. made use of the popular customer attraction model with “Housingcafes” to get new customers. However, the sales and operation income decreased year
on year due to reduced backlog in the beginning of the fiscal year.
KDI Co., Ltd. increased sales year on year owing to continued sales strategies
specializing in the Tokyo metropolitan area and human resource development.
Operating income decreased year on year due to increased personnel costs.
KUNIMOKU HOUSE Co., Ltd. increased sales year on year owing to the sale of model
houses and property for sale.
To sum up, during the three months ended June 30, 2019, the Housing Sales Businessposted sales of 7,408 million yen (up 36.7% year on year), and operating loss of 1,350
million yen (compared with a loss of 1,765 million yen a year earlier, including goodwill
amortization costs at 11 million yen related to KDI Co., Ltd. and KUNIMOKU HOUSECo., Ltd.).
[Beauty and Health Business]
At JIMOS Co., Ltd., we increased advertising expenses and sales promotion expenses
aiming to expand customer base. In addition, we worked to increase sales by expanding
sales channels such as domestic EC malls and overseas mail order.

In the mainstay MACCHIA LABEL brand, sales from existing customers declined, but
sales increased year on year as a result of strong new customer acquisition measurescentered on web advertising.
In the basic cosmetics Coyori brand, which mainly contains natural ingredients, sales
declined year on year because of the decrease in the number of new customers.
In terms of profit and loss, operating income decreased year on year due to aggressive
promotions and advance investment and sales promotion expenses.
In addition, JIMOS Co., Ltd., merged with InfiniTy BeauTy Co., Ltd. in April 2019.
At BELAIR Co., Ltd., in addition to developing new services in view of super aging
society, we worked to expand our sales network of nutritional supplement products, butsales and operating income declined year on year
As a result, during the three months ended June 30, 2019, the Beauty and HealthBusiness posted sales of 2,593 million yen (up 13.9% year on year), and operating lossof 136 million yen (compared with a loss of 136 million yen a year earlier, including
goodwill amortization costs at 141 million yen related to JIMOS Co., Ltd. and BELAIRCo., Ltd.).