July 15, 216 Aderans Group Consolidated Results for the First Quarter of the Fiscal Year ending February 28, 217 (March 1, 216 to May 31, 216) This handout contains forward-looking statements that are based on management s estimates, assumptions and projections at the time of presentation and include risks and uncertainties. A number of factors could cause actual results to differ materially from expectations. Amounts less than a full unit are omitted, and percentages are rounded to one decimal place. Totals may not reflect the sum of component amounts.
The Aderans Group Ideal To offer hair-related products and services that people need and be trusted by clients and society around the world Servant Leadership Management Management Philosophy Management Vision Sampo yoshi Management Management Philosophy Our corporate mission, as the Aderans Group, is to utilize our hair-related businesses to help as many people as possible acquire the physical and emotional qualities that underpin the realization of dreams and promote a good impression, and in doing so, bring smiles to faces and support happy lives. Product excellence Technological excellence Heartfelt omotenashi Management Vision Realizing good company standard Establish management structure which is highly transparent and trusted from inside and outside the company Servant Leadership Management Leadership to support clients and employees Pattern of executive behavior that motivates employees, encourages them to persevere and allows their talents to blossom ES CS CSR Sampo yoshi literally, three-way good Management Employee Satisfaction Customer Satisfaction Corporate Social Responsibility Establish ECSR management 2
Global Business Portfolio Expand shares in global markets and maintain stable profits United States Market growth/expansion Evolution from stability to growth by leaps and bounds HC (USA) to open more locations and reinforce presence in women s market Bosley to pursue globalization and expand medical business Aderans Hair Goods to widen access routes Europe Market growth/expansion Evolution from stability to growth by leaps and bounds Enter regions where presence not yet established Enhance marketing efforts for custom-made products and reinforce after-sale services Japan Mature market, heightened competition Moderate but definite growth Capture attention of anyone who uses wigs, beyond customer base, through after-sale services Expand business domain Asia Market growth/expansion Shift from introduction to growth Establish firm footing for businesses providing solutions to hair-related concerns Japan United States Europe Asia Fiscal 217 From change to marked progress Fiscal 218 From marked progress to stabilization Fiscal 219 From stabilization to sustainable growth Focusing on solutions to hair-related concerns, offer total beauty and organic haircare products and establish higher profile in medical services market with hair transplantation and androgenetic alopecia (AGA) treatments Develop new services using strength of current doctor-facilitated medical business and promote in other countries, enhance healthy hair-growth services, and improve response to demand from black people for wigs and hair-volumizing products and services as well as after-sale services. Boost customer retention for custom-made wigs, accelerate entry into regions where presence has not yet been established, and attain No.1 share in each market by securing an overwhelming advantage Pursue business providing solutions to hair-related concerns, accelerate business growth in China, and set up locations in ASEAN region 3
Consolidated Results for the First Quarter of Fiscal 217 (March 1, 216 to May 31, 216)
Fiscal 217: First Quarter Consolidated Summary First quarter of Fiscal 217 First quarter of Fiscal 216 Net sales 19,131 19,78 SG&A expenses Operating loss 15,514 15,964 YOY change (576) -2.9% (449) -2.8% (42) (339) (62) Comment Both the Aderans Business and the Fontaine Business delivered lower sales, down 179 million year-on-year (2.6%) and 128 million (6.%), respectively. The Bosley Business achieved a 155 million (5.%) decrease in sales, also lower sales on a local-currency basis. The Overseas Wig Business showed a 61 million (.9%) decrease in sales. However, in United States, and Europe, we enjoyed an increase in sales on a local-currency basis. Domestic operations posted a 39 million year-on-year decrease (4.9%), mainly due to decrease in advertising and sales promotion expenditures. HC s consolidated goodwill amortization amounted to US$932 thousand (about 1 million). Depreciation expenses, mainly HC s tangible/intangible fixed assets, reached US$5,34 thousand (about 61 million). Quarterly operating loss before amortization of goodwill posted 275 million, down 223 million year-on-year. Net income (loss) attributable to owners of the parent company (87) 54 (925) Booked foreign exchange losses of 46 million, from foreign exchange gains of 46 million at the previous first quarter. EBITDA 714 829 (114) -13.8% EBITDA = Operating income + Depreciation expenses + Depreciation of intangible fixed assets + Amortization of goodwill 5
Financial Highlights: Aderans Business First Quarter Results Net Sales New 男性新規 Male Repeat 男性リピート Male New 女性新規 Female Repeat 女性リピート Female 6,98-2 126 6,81-388 13-179 (-2.6%) 2,998 3,12 Male +4.1% Female -6.5% 1,413 1,25 1,25 Operating income 132 1,382 1.6% EBITDA 1,33 176 1,56 13.3% 2,237 2,363 33 39 16/2 1Q 男性新規 New 男性リピート Repeat 女性新規 New 女性リピート Repeat 17/2 1Q Male Male Female Female Men s Market Conducted sales promotions for patented hair growth, generating an increase in inquiries (up 135.9% year on year) Enhanced website content and added chat function, generating an increase in website-based inquiries (up 145.% year on year) Men s Market Vital EX launched March 1, 216 Fiscal 217 initiatives Enhance efficiency of website-driven consultations Step up customer loyalty promotion activities Use campaigns to encourage salon visits 16/2 1Q 17/2 1Q Women s Market New sales down due to entry of other companies offering women s wigs into the industry and onslaught from other companies in the same industry Wig maintenance commercials designed to attract wig users away from other companies generated some inquiries, but translation to actual sales expected to take time We achieved slight increase of inquiry by launching Hair-up Program, which is featured patented hair-growth technique. However, these efforts had limited effect, and sales of the women s segment decreased year on year. Sales down due to lower customer attraction power at try-on events held in department stores Wig maintenance commercial aired from May 1, 216 16/2 1Q 17/2 1Q Women s Market Attract more customers through wig-maintenance and trade-in promotions targeting other wigbrand users Enhance efficiency of website-driven consultations Step up marketing of hair-growth products (secure wig reserve force of women in 4s and 5s) Improve ROI of exhibitions/try-on events; use small-scale events to attract new customers Women s hair-growth promotion commercial aired from June 3, 216 6
Financial Highlights: Fontaine Business (Ready-made wigs) First Quarter Results Net Sales 2155 2,26-128 (-6.%) -148-5 24 122 Operating income -66 56-53.9% EBITDA 164-69 95-42.1% 16/2 1Q Department Directly 百貨店直営店 GMS GMS 17/2 1Q stores operated salons Department stores Decline in shop customer interactions due to entry of other companies offering women s wigs into the industry and onslaught from other companies in the same industry Decline of in-salon customer attraction power Directly operated salons Decrease in sales at existing salons but decline minimal owing to new salon openings GMS Increase in sales thanks to new salon openings; repeat sales also firmly up Fiscal 217 initiatives 16/2 1Q 17/2 1Q Step up sales promotions, including campaigns and special events, linked to new product launches and in-salon sales Capture users of other-brand wigs through follow-ups; prompt them to switch brands; strengthen up-selling efforts to bolster purchases Strengthen connectivity between own on-line site and omni-channel strategy 14 12 1 8 16/2 1Q 17/2 1Q % Number of Customer Interactions (YoY % Change) Mar. 3 月 Apr. 4 月 May 5 月 Accumulated 累計 GMS (value) GMS 111.7% 111.7% Directly 直営店 operated 1.3% salons (value) 1.3% Overall (value) 92.1% 全体 92.1% Department stores (value) 86.5% 百貨店 7
Financial Highlights: Bosley Business First Quarter Results Net Sales 3,15 2,95-155 (-5.%) ($26.m) -64-9 Net decrease Effect of yen 16/2 1Q in sales appreciation 売上純減為替 ( 円高 ) の影響 17/2 1Q Operating income (loss) 146 Problems with call center system (which went into operation in June 215) were resolved in December 215, but the issue affected the number of inquiries through February 216 Recruited physicians and assistants in line with full-scale introduction of Follicular Unit Extraction (FUE, hair-transplant method that doesn t use scalpel), where needs are growing (1,s) No. of Hair Transplants by Type Successfully test-marketed FDA-approved CoolSculpting treatment (partial slimming through fat-cooling) 12 Total FUE FUT FUT method FUE method ($25.4m) Boost number of consultations through website renewal and effective commercials Increase number of FUE procedures by recruiting physicians and assistants and training in FUE treatment method Increase one-stop services by providing non-transplant-related medical treatment FUE 11.3% Bosley Fiscal 216 No. of Hair Transplantation FUT 88.6% -154-7 16/2 1Q 17/2 1Q Hair Transplantation FUE 18.5% Bosley 1Q of Fiscal 217 No. of Hair Transplantation FUT 81.4% CoolSculpting 1 8 6 4 2 195 EBITDA -155 39-79.7% 16/2 1Q 17/2 1Q Exchange Rates: Fiscal 216 First Quarter US$1 = 119.23, Fiscal 217 First Quarter US$1 = 115.72, Presumed rate for fiscal 217 at start of year: US$1 = 113. Fiscal 217 initiatives 合計 FUE FUT 28 21 212 214 Eyebrow transplantation Source: ISHRS Theradome (laser hair growth) 8
Financial Highlights: Overseas Wig Business First Quarter Results 6,852 6,79-61 (-.9%) 186 183 1,211 ( 9.1m) -49-1 -3 1,21 ( 9.3m) 5,455 ($45.7m) Net Sales North America Europe Asia excluding Japan Increase in local currency sales North America (wigs) +2.2% Europe (wigs) +2.2% 5,46 ($46.7m) North Europe Asia America excluding 16/2 1Q 米国ウィッグ欧州ウィッグアジアウィッグ Japan 17/2 1Q -451 Operating loss 65-386 16/2 1Q 17/2 1Q Exchange Rates: Fiscal 216 First Quarter: US$1 = 119.23, 1= 132.61, Chinese yuan 1 = 19.9 Fiscal 217 First Quarter: US$1 = 115.72, 1= 127.99, Chinese yuan 1 = 17.67 Presumed rate for fiscal 217 at start of year: US$1 = 113., 1= 124., Chinese yuan 1 = 17.35 EBITDA 459 42-8.6% -39 16/2 1Q 17/2 1Q North America (wigs) HC: New salon openings: February 216 (Pickering, Ontario, Canada); May 216 (Baton Rouge, Louisiana, USA) Increased sales of women s products and hair-volumizing products AHG: Problems and returned products at mass retailers (main wholesale clients) Fiscal 217 initiatives North America (wigs) HC: Increase new clients via commercials for hair-volumizing products, and products aimed at women and Hispanics Effective new salon openings continuously AHG: Step up sales of Cyberhair (artificial hair developed in-house) Introduce new products on a regular basis, and strengthen marketing capability Europe (wigs) Solid performance driven by in-hospital salons and retail salons acquired in previous year Acquired Dutch sales agency of wholesale client Ellen Wille expanded geographical sales coverage Asia (wigs) China: Steady outcomes from try-on events at department stores Taiwan: Opened Taiwan flagship salon to address rising demand for wigs Europe (wigs) Expand network based on medical needs (also consider growth through acquisitions) Asia (wigs) China: Translate success of department store try-on events to new-salon openings 9
Financial Highlights: Other Business First Quarter Results Net Sales Beauty supplies Salon inside hospitals Online sales Others 613 562 46-51 (-8.3%) 38 44-59 19-8 -3 3 126 145 Operating loss EBITDA 43 343 Beauty Salon Online sales Others 16/2 1Q Supplies inside 美材ルート病院内サロン通信販売その他 17/2 1Q hospitals Beauty supplies Sales of new products (Lift Up hair-volumizing wigs) below expectations (inadequate name recognition) Increase in try-in events for custom-made wigs at hair beauty salons Medical business (Salon inside hospitals) Increase in telephone inquiries thanks to stepped-up pamphlet distributions in hospitals New in-hospital salon opened: Suita Tokushukai Hospital (May 216) Fiscal 217 initiatives Beauty supplies Step sales with both wholesalers and dealers; implement independent sales promotion activities Promote wig workshops and monitor sales in preparation for busy season in second half of year Medical business (Salon inside hospitals) Reinforce staff training at in-hospital salons; build trust-based relationships between hospitals and our hospital patrol staff -23-4 -244-199 -39-239 16/2 1Q 17/2 1Q 16/2 1Q 17/2 1Q Online sales Concentrated on catalog sales of items returned from business partners (March 216) Increased number of new customers thanks to wig sales via Aderans on-line site (up 35.7% year on year) Launched Beauty Stage brand offering total beauty solutions based on leadingedge technologies (also handled in Aderans salons) Online sales Launch new product (Feel Fine wig) on July 1, 216 Promote omni-channel strategy with salons nationwide (free advice on wig attaching and after-sales maintenance by salon staff) 1
Fiscal 217: First Quarter Consolidated Sales 19,78 Fiscal 216 First Quarter 15 Men s salons -284 Women s salons Aderans Business (Custom-made wigs) -128 Fontaine Business (Ready-made wigs for women) -64 Bosley Business, excluding foreign exchange difference 138 Overseas Wig Business (North America and Europe), excluding foreign exchange difference -297 Difference effect of yen appreciation North America (wigs) Hair Club: + 224 million AHG (wigs, wholesales): - 117 million Europe (wigs): 32 million Bosley: - 9 million North America (wigs) Hair Club: - 146 million AHG (wigs, wholesale): - 17 million Europe (wigs): - 42 million -44 Others 19,131 Fiscal 217 First Quarter 11
Fiscal 217: First Quarter Consolidated Operating Income Fiscal 216 First Quarter Fiscal 217 First Quarter -339-42 -133 235-214 96-442 Decrease in gross profit Domestic 396 Decrease in SG&A expenses Decrease in gross profit Decrease in SG&A expenses due to the ffect of yen appreciation Increase in SG&A expenses excluding foreign exchange difference Overseas(Bosley, Overseas Wig Business) Other 12
Change in Quarterly Consolidated Performance 25, 2, 15, 1, 5, Consolidated Net Sales 215 Fiscal 年 2 月期 215 Fiscal 216 年 2 216 月期 Fiscal 217 217 年 2 月期 215 Fiscal 年 2 月期 215 Fiscal 216 年 2216 月期 Fiscal 217 217 年 2 月期 2, 19,131 2,869 1Q 2Q 3Q 4Q Consolidated Operating Income (Loss) 1,5 1, 62 5-5 -42-1, 1Q 2Q 3Q 4Q Consolidated EBITDA 215 Fiscal 年 2 月期 215 216 Fiscal 年 2 月期 216 Fiscal 217 年 217 2 月期 3, 2,5 2, 1,5 1, 714 5 1Q 2Q 3Q 4Q 13
Fiscal 217 Consolidated Business Forecast There is no change to the forecast announced on April 14, 216. First Half Fiscal 216 (Actual) Fiscal 217 (Forecast) YOY Change Second Half Full Year First Half Second Half Full Year Amount % Net sales 39,842 39,31 79,153 4, 41,3 81,3 2,147 2.7% Operating income (loss) Ordinary income (loss) Net income (loss) attributable to owners of the parent company 459-584 -125 2 45 65 775-821 -1,37-548 19 45 64 1,188-349 -2,29-1,86 3 7 1 1,96 - At end of first half Fiscal 216 (Actual) Fiscal 217 (Forecast) YOY Change Year-end Total At end of first half Year-end Total Amount Dividend 15 15 15 15 (Yen) 14
Supplementary Data
Consolidated Results for First Quarter of Fiscal 217 Fiscal 216 First Quarter Fiscal 217 First Quarter YOY change ( ) YOY change (%) Net sales 19,78 19,131-576 -2.9% Cost of sales 4,83 4,19-64 -1.6% Cost of sales ratio 2.7% 21.%.3p - Gross profit 15,624 15,112-512 -3.3% SG&A expenses 15,964 15,514-449 -2.8% Operating loss -339-42 -62 - Operating income ratio - - - - Ordinary income (loss) 315-883 -1,198 - Extraordinary income -72.3% Extraordinary loss 215 29-185 -86.% Income before taxes 99-913 -1,12 - Net income (loss) attributable to owners of the parent company 54-87 -925 - Capital expenditures 1,187 947-24 -2.2% Depreciation/Amortization 1,169 1,117-51 -4.4% EBITDA 829 714-114 -13.8% Cash balance 12,232 11,98-1,133-9.3% 16
Summary of Consolidated Balance Sheets As of February 29, 216 As of May 31, 216 Amount Composition (%) Amount Composition (%) YOY Current assets 27,992 41.5 26,722 41.2-1,269 (Cash and deposits) 11,979 17.8 11,98 17.1-88 Fixed assets 39,495 58.5 38,122 58.8-1,373 (Tangible fixed assets) 14,189 21. 14,482 22.3 292 (Intangible fixed assets) 19,188 28.4 17,49 26.8-1,778 Total assets 67,487 1. 64,844 1. -2,642 Current liabilities 12,18 17.8 12,59 19.3 49 Fixed liabilities 19,158 28.4 18,51 28.5-648 Total liabilities 31,177 46.2 31,2 47.8-157 Total net assets 36,39 53.8 33,824 52.2-2,485 Total liabilities and net assets 67,487 1. 64,844 1. -2,642 17
Consolidated Net Income, ROE, and Equity Ratio Consolidated Net Income (Hundred millions of yen) 15 1 Net Income ROE Equity Ratio Equity Ratio ROE (%) 9 75 6 5 5 1 6.9 3 25-5 -3-25 -1-15 -5-6 -75-9 -1-2 -125-25 -15 *Estimates 21
Change in Consolidated Net Sales and Operating Income Consolidated Sales (Hundred millions of yen) 9 8 7 6 5 4 Fontaine Co made into its subsidiary (August 1985) Started expanding into women s market Stock registered with Japan Securities Dealers Association (September 1985) Aderans Thailand established (Factory) (October 1986) Listed on Second Section of Tokyo Stock Exchange January1987) Aderans Europe BV established (January 1992) Consolidated Net Sales Listed on First Section of Tokyo Stock Exchange (August 1997) Made Bosley into its subsidiary (August 21) Consolidated Operating Income Aderans Philippine established (Factory) (January 22) Made HC (USA) Inc. into its subsidiary (April 213) Made Le Nouvel Espace Beauté SA into its subsidiary (September 212) Aderans Holdings integrates Aderans Co and Fontaine Co. (September 21) Operating Income (Hundred million yen) Aderans Lao Co., Ltd. established (May 214) 25 2 15 1 5 3 2 1-5 85.2 86.2 87.2 88.2 89.2 9.2 91.2 92.2 93.2 94.2 95.2 96.2 97.2 98.2 99.2.2 1.2 2.2 3.2 4.2 5.2 6.2 7.2 8.2 9.2 1.2 11.2 12.2 13.2 14.2 15.2 16.2 17.2-1 18
Consolidated EBITDA, Depreciation/Amortization, Capital Expenditures Consolidated EBITDA (Hundred millions of yen) Consolidated EBITDA Depreciation/ Amortization Capital Expenditures Depreciation/Amortization Capital expenditures (Hundred millions of yen) 25 2 15 New openings and relocation of Aderans salons, and construction of company dormitory and training center. Capital spending on information system for the Y2K issue New opening of Aderans salons New openings and relocation of directly operated salons and shops at deparment stores Acquisition of the Company s building Relocation of Aderans salons due to its deterioration 9 8 7 6 1 5 54 67 82 5 4 3 2-5 1-1 *Estimates 2
Change in Net Sales for Each Segment Overseas Wig Business 35.1% North America 28.% Overseas Wig Business 35.8% North America 28.5% Asia 1.% Europe 6.1% Other 3.% Male 13.% First Quarter of Fiscal 216 Consolidated Nat Sales 19,78 million Asia 1.% Bosley Business 15.7% Europe 6.3% Other 2.9% Male 13.9% First Quarter of Fiscal 217 Consolidated Nat Sales 19,131 million Female 22.3% Fontaine Business 1.9% Aderans Business 35.3% Aderans Business 35.4% Female 21.5% (Hundred millions of yen) 1, 9 8 7 6 5 4 3 2 1 739 76 727 735 75 75 Overseas wig Bosley Fontaine Aderans, Female Aderans, Male Aderans (Male) Aderans (Female) Fontaine Business Bosley Business Overseas Wig Business Other Operations 574 482 474 511 678 767 792 813 Overseas Domestic 91 Overseas Domestic Bosley Business 15.4% Fontaine Business 1.6% *Estimates -Fontaine Business included beauty supply route until the end of fiscal 21, ended February 28, 21 -Other Operations includes beauty supply route, medical-related businesses and e-commerce retail 19
Changes in Domestic Salon Network Men s salons Women s salons Salons for men and women Department stores Directly operated salons GMS In-hospital salons (Number of salons) 45 4 35 3 355 327 335 17 6 14 13 2 28 32 3 397 22 34 33 428 437 25 26 47 53 37 38 25 2 151 148 148 15 156 157 15 1 5 118 119 127 135 136 137 16 13 13 16 2 19 8 7 7 7 7 7 Feb. 2129, 年 2212 月末 Feb. 21328, 年 2 月末 213 Feb. 21428, 年 2 月末 214 Feb. 21528, 年 2 月末 215 Feb. 21629, 年 2 月末 216 May 216 年 31, 5 月末 216 22
Changes in Overseas Salon Network (Number of salons) Bosley (Surgical offices) Hair Club (Directly operated salons) Europe Asia 25 2 15 111 191 22 75 221 36 81 242 244 41 38 9 93 1 18 5 69 71 81 86 88 24 23 23 25 25 Dec. 31, 212 Dec. 31, 213 Dec. 31, 214 Dec. 31, 215 Mar. 31, 216 212 年 12 月末 213 年 12 月末 214 年 12 月末 215 年 12 月末 216 年 3 月末 23
Domestic Market Environment Hair Business Men s Market Heightened competition from adjacent hair-related markets, such as formulas that promote growth and make hair healthier, as well as haircare products, has in the past few years sustained an uphill battle for sales. But many people do not feel that such products are generating the desired effect, prompting an increase in sales of wigs and hair-volumizing products to new male clients. Women s Market More women are falling into the 5-7 age group that is our primary target and more seniors are remaining active as they age. These factors should spur demand for wigs and hairvolumizing products. Sales at wig shops with reasonably priced items and sales at try-on events are rising, especially through a higher profile at general merchandise stores, leading to intense competition. Wigs are becoming accepted as a fashion item, and companies from other business sectors are entering the market. Wigs in the low-price range are being sold through home shopping channels, e-commerce and catalog-based direct marketing methods. This situation is affecting the ability to capture the interest of new clients. Changes in Size of Men s and Women s Markets in the Domestic Hair Business Male 男性 Female 女性 (Hundred millions of yen) 1, 5 1,33 1,36 1,388 1,41 1,48 1,415 1,422 1,429 1,436 63 677 699 77 713 719 725 731 737 7 683 689 694 695 696 697 698 699 211 212 213 214 215 216 217 218 219 (Forecast) (Forecast) (Forecast) (Forecast) (Forecast) Source: Hair Care Industry Market Report Overview by Yano Research Institute Ltd. 21
Domestic Hair Care Market Share Share of Domestic Hair Care Market (Men) Other companies 31.1% Company D 4.3% Company C 5.8% Company B 8.9% Aderans 16.1% Men s hair care market in Japan valued at 69,4 million in 214 Company A 33.8% Share of Domestic Hair Care Market (Women) Outside-industry providers of lowpriced ready-made wigs Pharmaceuticals maker Cosmetics makers Beauty salons Small-scale wig maker Other companies 16.1% Company E 3.4% Company D 3.4% Company C 3.7% Company B 6.6% Women s hair care market in Japan valued at 7,7 million in 214 Company A 24.1% Aderans 42.7% No major change in share status among key players since 212. Wigmakers and companies from outside the industry that offer low-priced wigs are expanding respective shares in the market through their own sales channels. Source: Hair Care Market Report Overview, Yano Research Institute 22