Heian Ceremony Service Reports Earnings for the First Six Months Ended September 2007

Transcription

1 FOR IMMEDIATE RELEASE Heian Ceremony Service Reports Earnings for the First Six Months Ended September 2007 Kanagawa, Japan November 9, 2007 Heian Ceremony Service Co., Ltd. (JASDAQ Security Code 2344) announced consolidated net sales of 4,311 million for the first six months (April 1 September 30, 2007) of the fiscal year ending March 31, 2008 and net income of 275 million, or per share. Consolidated Financial Results for the First Six Months of the Year Ending March 31, 2008 (April 1, 2007 September 30, 2007) (Amounts rounded to the nearest million yen) Net sales Operating income Ordinary income million yen % million yen % million yen % Six months ended September 30, , Six months ended September 30, ,994 (5.0) 285 (38.1) 356 (33.8) Year ended March 31, , ,141 Net income Net income per share Net income per share (fully diluted) million yen % yen yen Six months ended September 30, Six months ended September 30, Year ended March 31, (1) Operating Results Overview of the Six-Month Period Ended September 30, 2007 During the six months under review, consumer spending in Japan gradually improved, reflecting strong performance in the corporate sector. Domestic corporate investment also remained robust, with the Japanese economy recording the longest period of continuous economic expansion in its postwar history.

2 Under such circumstances, Heian Ceremony Service continued to provide memorable services in the weddings and celebrations business by offering one-and-only experiences utilizing the unique concept of banquet halls modeled on estate houses. The Company further promoted low-cost operations by focusing on home-style weddings, and multi-jobbing by enhancing the training provided to employees. Demand is on the increase in the funeral-related services business, reflecting demographic trends within the country and signs that the falling trend in funeral attendance bottomed out during the six months under review. The Company continued to focus on counseling for future funeral ceremonies and utilized PC-based order processing to ensure accuracy and clarity of arrangement details as well as to improve labor efficiency. The preliminary report on the Survey of Specific Service Industries (sample survey) issued by the Ministry of Economy, Trade and Industry showed that total revenue produced by wedding ceremony halls was up 10.6% in fiscal 2006 to 207,010 million, with 76,002 wedding ceremonies held, a 7.6% increase from a year earlier. The report also indicated that total revenue for the funeral services industry grew 6.6% to 477,232 million, with 312,800 funerals held, an increase of 5.6% from a year earlier. Given this economic environment, the Group worked to improve quality and promote low-cost management while also expediting the shift to in-house production. As a result, consolidated net sales for the six-month period increased 7.9% from a year earlier to 4, million, and ordinary income grew 70.8% to million. Net income before income taxes rose 37.6% to million, and net income surged 54.2% from a year earlier to million. Segment Overview (i) Wedding and Celebration Services The number of wedding ceremonies managed by Heian Ceremony Service rose from a year earlier, and the Company's efforts to provide plans that maximize customer satisfaction also saw the unit price per ceremony rise. As a result, revenue in the segment expanded 9.3% from a year earlier to million, and operating income came to million yen, an increase of million. (ii) Funeral Related Services The number of funerals the Company managed in the Shonan area was higher than for the same period last year, and there was also strong growth in the number held at the Showa Kaido facility in Machida and at the Showa Reihinkan facility in Kayama, which was opened in December 2006.,

3 This resulted in an overall increase in the number of funerals held and higher overall revenue in the segment, despite a decline in the unit price per ceremony. Revenue from funeral related services rose 8.2% year on year to 3, million, and operating income increased 21.4% to million. (iii) Mutual Aid Society Revenue in the segment grew 5.1% year on year to million. Operating expenses shrank million from a year earlier due primarily to reductions in labor cost and advertising expenses. (iv) Other Businesses In this segment, revenue from care service business increased, helped by the With Living Heian Kameino condominium facility and the Heian Kowada group home, which were put into operation last year. On the other hand, revenue from home assistance services declined from a year earlier due to the impact of the April 2006 revision of the nursing care insurance system. As a result, the segment reported a 5.4% year-on-year increase in revenue to million, and an operating loss of million, compared with an operating loss of million a year earlier. Outlook for the Six-Month Period Ending March 31, 2008 As part of the Group's medium- and long-term strategies, specific tasks are set out under the objectives of (i) enhancing profitability and (ii) improving productivity. For the remainder of the current fiscal year, the Group will focus particularly on (i) developing the corporate brand in the area of funeral services part of measures to enhance profitability and on (ii) revising operating-unit sizes part of measures to improve productivity. In terms of specific management issues to be addressed, the Group will be focusing particularly on (i) cementing its foothold in the funeral services business in the Tokyo area, (ii) generating synergies between the wedding and celebration services business and the funeral services business, and (iii) improving service quality. The Group forecasts full-year consolidated net sales of 9,006 million, ordinary income of 1,500 million, and net income of 732 million. * The above outlook and forecasts contain forward-looking statements based on certain assumptions, the Company's future outlook and plans, and information available at the time of the preparation of this document. Actual results may differ from the figures presented above due to various risks and other unpredictable factors.

4 (2) Financial Condition As of September 30, 2007, the Group's total assets stood at 26, million, an increase of million compared with March 31, This primarily reflects the acquisition of securities and an increase in fixed-term deposits, which were offset by a decline due to a change in the deposit method in deposits pledged to secure long-term advances received on specified prepaid transactions. Total liabilities declined slightly from the end of the previous fiscal year to 16, million due to the payment of corporate income taxes. Net assets came to 9, million, an increase of million from the end of the previous fiscal year, as retained earnings increased. Cash flows from operating activities Net cash provided by operating activities was million, an increase of 102.6% from a year earlier. This was primarily due to income before income taxes of million and depreciation expenses of million, versus million in income tax payments. Cash flows from investing activities Net cash used in investing activities surged 531.2% from a year earlier to 1, million. Cash inflows and outflows related to time deposits, marketable securities, and investment securities mainly result from additions to, withdrawals from, or exchanges of financial assets that are not part of ordinary funds but required in relation to the Company's obligation to deposit monetary amounts, marketable securities, or the like, as collateral to secure advances on specified transactions for which prepayment is required under the Installment Sales Act. The net outflow resulting from such transactions was 1, million during the six months under review, compared with an outflow of million a year earlier. Cash used in capital investment was million. This was related to the purchase of fixed assets, including million for the refurbishment of the Showa Kaido Kugenuma funeral hall, million for the construction of stores for rent, and million associated with the maintenance and repair of existing buildings. Cash flows from financing activities Net cash used in financing activities was million, compared with million used during the same period a year earlier. This was due primarily to dividend payments. As a result, consolidated cash and cash equivalents decreased 1, million from a year earlier to 2, million.

5 Recent trends in cash flow indicators Six months ended September 30, 2006 Six months ended September 30, 2007 Year ended March 31, 2007 Shareholders' equity ratio (%) Equity ratio based on market value (%) * All indicators are calculated based on consolidated figures. * Since the Group does not have any interest-bearing debt, the ratio of interest-bearing debt to operating cash flow and the interest coverage ratio are not presented here. (3) Policy on the Distribution of Profits and Dividends for the Current Fiscal Year Heian Ceremony Service considers its basic policy on the distribution of profits as vital for ensuring that the management of the Group is consistent with the best interests of shareholders. Accordingly, the Company is committed to maintaining stable dividends that are appropriate given business results, while aiming to further reinforce its business structure and improve the return on shareholders' equity. The Company also makes it a basic policy to invest retained earnings to promote business efficiency from a long-term perspective, to strengthen business fundamentals in response to intensifying competition, to actively expand its business, and to enhance corporate value. In accordance with these basic policies, the Company intends to pay an annual dividend of 15.0 per share of common stock for the fiscal year ending March 31, 2008, a 1.0 increase from the previous fiscal year. (4) Business Risks Factors that may affect the Group's business performance (a) Demographic trends The Statistics Bureau at the Ministry of Internal Affairs and Communications and the National Institute of Population and Social Security Research predict that the population of those aged between 20 to 39 inclusive, the main users of wedding and celebration services, will decline from 34,265 thousand in 2006 to 23,452 thousand in 2030 a decline of 10,813 thousand, or 31.6%. Meanwhile, the population of those aged 65 or older, the main users of funeral-related services, is expected to increase from 26,756 thousand (20.9% of the population) in 2006 to 36,670 thousand

6 (31.8% of the population) in 2030 an increase of 9,914 thousand. Furthermore, the average life expectancy is rising as the elderly population increases. Future demographic trends may affect the Company's business performance in both wedding and celebration services and funeral-related services. (b) Seasonal fluctuations in the number of wedding ceremonies and funerals Wedding ceremonies are generally concentrated in spring and fall. Meanwhile, changes in the number of deaths from month to month have an impact on the number of funeral services managed by the Company. Trends in the number of weddings and deaths may affect monthly numbers of wedding ceremonies and funerals managed by the Company and therefore revenue in each segment. (c) Progress in the acquisition of land and development of funeral facilities The Company, as a general rule, acquires fixed-term leasehold agreements over land intended for the construction of new funeral halls, rather than owning sites itself. This is to enable the acquisition of locations that are convenient for customers and to facilitate the efficient recovery of capital invested. Under this approach, finding sites with favorable conditions can take a long time. And development projects may be delayed due to prolonged negotiations with landowners and local residents who harbor negative sentiment towards the establishment of funeral halls on their land or in their neighborhood. Such delays in the construction of funeral facilities, and other factors, may adversely affect the Company's operating performance. (d) Legal restrictions The Group operates a mutual aid society that, as its main business, provides wedding and celebration services and funeral services. The provision of such services by a mutual aid society for its members is classified as a "specified prepaid transaction" under the Installment Sales Act. Under the act, a license issued by the Minister of Economy, Trade and Industry is required to engage in certain types of prepaid transactions. The act also requires businesses to deposit service guarantee deposits, secure advances received on prepaid transactions, submit reports regarding assets and revenue and expenditure conditions, and submit notifications in the event of any changes to terms and conditions on the relevant contracts. The Group is currently licensed to operate such a business in the western area of Kanagawa Prefecture. The Group's funeral service, which involves hearse transport classified as "general road-vehicle transport (hearse transport)" under the Act Concerning the Road-Vehicle Transport Businesses, is subject to restrictions such as geographical coverage and the number of hearses that may be owned. The Company is permitted to operate a hearse transport business within Tokyo and Kanagawa

7 prefectures. (e) Management of customer information The Company recognizes efforts to prevent damage caused by the leakage or destruction of customer data as crucial to the Group's business. Although the Company has not, to this point in time, detected any major incidents involving the leakage, falsification, or destruction of important customer data, any such incidents, should they occur, may adversely affect the Group's operating results and financial condition. About the Heian Ceremony Service Group The Heian Ceremony Service Group comprises Heian Ceremony Service Co., Ltd., two consolidated subsidiaries (Heian Co. and Yamadai Shoji Co.), and a non-consolidated subsidiary (Hanaichirin Co.) The Group owns two wedding halls in Kanagawa Prefecture and 13 funeral halls in Kanagawa and Tokyo prefectures. The Group's principal business activities are in providing ceremonial function management services and ancillary services for individuals, members of the mutual aid society operated by the Group, and corporate customers. The Group's business comprises four segments: wedding and celebration services, funeral-related services, the operation of a mutual aid society, and other services, such as nursing and care-related services and the operation of leasehold condominiums and group homes for the elderly.

8 Consolidated Financial Statements Consolidated Balance Sheets Assets I Current assets As of September 30, 2006 (A) As of September 30, 2007 (B) (In thousand yen) (B) (A) As of March 31,2007 Amount % Amount % Amount Amount % 1 Cash and deposits 4,532,995 4,333,754 (199,241) 4,401,983 2 Accounts receivable 180, ,483 58, ,874 3 Marketable securities 1,201,351 3,777,736 2,576, ,810 4 Inventories 139, ,187 18, ,888 5 Deferred tax assets 80, ,715 21,888 93,453 6 Deposits pledged 4,086, ,000 (3,115,000) 4,846,000 7 Other 137, ,258 18, ,086 Allowance for doubtful accounts (531) (624) (93) (1,096) Total current assets 10,358, ,738, (619,949) 10,476, II Fixed assets 1 Tangible fixed assets (1) Buildings and structures 5,130,392 4,765,673 (364,719) 4,829,991 Machinery, equipment and (2) vehicles 120,003 73,380 (46,623) 109,904 (3) Furniture and fixtures 191, ,777 (22,984) 191,276 (4) Land 6,548,141 6,827, ,548 6,824,853 (5) Other 33,878 40,657 6,779 13,597 Total tangible fixed assets 12,024, ,876, (147,999) 11,969, Intangible fixed assets 46, , (6,413) 41, Investments and other assets (1) Investment securities 1,278,398 2,424,840 1,146,441 1,518,456 (2) Long-term loans 49,812 49,790 (22) 49,790 (3) Long-term deposits 600, , ,000 (4) Deferred income taxes 267, , , ,871 (5) Other 1,463,986 1,531,602 67,616 1,494,373 Allowance for doubtful accounts (9,300) (9,300) (9,300) Total investment and other assets 3,650, ,965, ,315,130 4,004, Total fixed assets 15,720, ,881, ,160,717 16,015, Total assets 26,079, ,620, ,768 26,491,

9 Liabilities I Current liabilities As of September 30, 2006 (A) As of September 30, 2007 (B) (In thousand yen) (B) (A) As of March 31,2007 Amount % Amount % Amount Amount % 1 Accounts payable trade 236, ,232 32, ,504 2 Income taxes payable 148, ,672 66, ,910 3 Reserve for directors' bonuses 5,779 7,312 1,533 8,035 4 Reserve for loss on return of deposit cancellation commission 38,035 38,035 5 Other 628, ,111 67, ,257 Total current liabilities 1,020, ,226, ,171 1,294, II Fixed liabilities 1 Deferred tax liabilities 50,594 53,163 2,568 52,235 2 Reserve for employees' retirement benefits 2,113 16,209 14,095 9,357 3 Reserve for directors' retirement benefits 167, ,112 (37,676) 133,712 4 Advance received on prepaid transactions 15,510,060 15,478,952 (31,108) 15,490,654 5 Other ,892 33, Total fixed liabilities 15,731, ,712, (18,728) 15,686, Total liabilities 16,751, ,938, ,443 16,981, Net assets I Shareholder' capital 1 Common stock 785, , , Additional paid-in capital 2,838, ,838, ,838, Retained earnings 5,688, ,147, ,168 5,973, Treasury stock (4,648) (0.0) (70,402) (0.3) (65,754) (70,402) (0.3) Total shareholders' capital 9,308, ,700, ,414 9,526, II Valuation and translation adjustments Net unrealized gains/losses on 1 other securities 19, (19,178) (0.0) (39,089) (16,217) (0.1) Total valuation and translation adjustments 19, (19,178) (0.0) (39,089) (16,217) (0.1) Total net assets 9,328, ,681, ,325 9,510, Total liabilities and net assets 26,079, ,620, ,768 26,491,

10 Consolidated Statements of Operations Six months ended Six months ended September 30, 2006 (A) September 30, 2007 (B) (B) - (A) (In thousand yen) Year ended March 31,2007 Amount % Amount % Amount Amount % I Net sales 3,994, ,311, ,714 8,529, II Cost of sales 3,084, ,185, ,480 6,318, Gross profit 910, ,125, ,233 2,211, III Selling, general and administrative expenses 624, , (13,689) 1,220, Operating income 285, , , , IV Non-operating income 1 Interest income 7,944 10,488 2,544 16,310 2 Dividend income 1,026 1, ,126 3 Interest on securities 5,306 25,967 20,660 20,977 4 Commission on cancellation of deposit 33,290 30,391 (2,898) 63,822 5 Other 30,086 34,881 4,794 62,988 Total non-operating income 77, , , , V Non-operating expense 1 Guarantee fee 6,592 7, ,205 2 Other 427 1, ,397 Total non-operating expense 7, , ,738 14, Ordinary income 356, , ,357 1,141, VI Extraordinary gains 1 Gain on sale of fixed assets Reversal of allowance for doubtful accounts Insurance received 90,261 Total extraordinary gains , VII Extraordinary losses 1 Loss on sale and disposal of fixed assets 8,594 31,888 23,293 25,869 2 Impairment losses 56,683 56, ,588 3 Reserve for loss on return of deposit cancellation commission 38,035 38,035 4 Loss on prior period adjustment 3,980 3,980 Total extraordinary losses 8, , , , Net income before income taxes 348, , ,985 1,014, Income taxes, inhabitants taxes and enterprise taxes 165, , , , Income taxes, inhabitants taxes and enterprise taxes refunded (4,028) (0.1) (4,028) Income taxes adjustments 3, (23,745) (0.6) (27,321) (66,194) (0.8) Net income 178, , , ,

11 Consolidated Statements of Changes in Shareholders' Capital (April 1, 2007 to September 30, 2007) Common stock Additional paid-in capital Shareholders' capital Retained earnings Treasury stock (In thousand yen) Total shareholders' capital Balance as of March 31, ,518 2,838,393 5,973,283 (70,402) 9,526,792 Changes during period Dividend from surplus (101,927) (101,927) Net income 275, ,739 Net changes in items other than shareholders' capital during period Total changes during period 173, ,812 Balance as of September 30, ,518 2,838,393 6,147,096 (70,402) 9,700,605 Valuation and translation adjustments Net unrealized gains/losses on other securities Total valuation and translation adjustments Total net assets Balance as of March 31, 2007 (16,217) (16,217) 9,510,575 Changes during period Dividend from surplus (101,927) Net income 275,739 Net changes in items other than shareholders' capital during period (2,961) (2,961) (2,961) Total changes during period (2,961) (2,961) 170,851 Balance as of September 30, 2007 (19,178) (19,178) 9,681,426

12 Consolidated Statements of Cash Flows Six months ended September 30, 2006 (A) Six months ended September 30, 2007 (B) (In thousand yen) Year ended March 31, 2007 Amount Amount Amount I Cash flows from operating activities: Net income before income taxes 348, ,062 1,014,515 Depreciation and amortization 248, , ,903 Impairment losses 56, ,588 Increase (decrease) in reserve for loss on return of deposit cancellation commission 38,035 Increase (decrease) in allowance for doubtful accounts (250) (471) 313 Increase (decrease) in reserve for employees' retirement benefit 2,113 6,852 9,357 Increase (decrease) in reserve for directors' retirement benefits (3,600) (34,076) Increase (decrease) in reserve for directors' bonuses 5,779 (722) 8,035 Interest and dividend income, and interest on securities (14,277) (37,554) (38,414) Insurance received (90,261) Gain (loss) on disposal and sale of tangible fixed assets 8,056 31,448 25,328 Gain (loss) on disposal and sale of intangible fixed assets (Increase) decrease in accounts receivable, trade 7,578 (39,609) (11,695) (Increase) decrease in inventories 8,772 (22,298) 12,828 Increase (decrease) in accounts payable, trade (52,453) (14,271) (5,670) Increase (decrease) in advances received on prepaid 17,871 (11,702) (1,534) transactions Other 31,078 4,912 81,699 Subtotal 610, ,975 1,682,417 Interest and dividend received 14,153 28,010 25,167 Proceeds from insurance received 100,700 Income taxes paid (439,336) (387,585) (565,778) Income taxes refunded 4,028 Net cash provided by operating activities 185, ,429 1,242,507 II Cash flows from investing activities: Deposits into time deposit accounts (7,290) (1,509,490) (103,780) Withdrawals from time deposits 3,000 79,580 (Increase) decrease in securities (899,559) Purchase of tangible fixed assets (166,674) (189,776) (587,721) Proceeds from sale of tangible fixed assets 70 3, Purchase of intangible fixed assets (14,039) (5,250) (14,149) Purchase of investment securities (7,546) (3,486,214) (607,546) Proceeds from redemption of investment securities 400, ,000 Placement of deposits in trust fund (380,000) (760,000) Withdrawal of deposits from trust fund 4,255,000 Purchase of other investment (106,907) (52,458) (155,247) Proceeds from collection of other investment 9,400 12,196 19,383 Net cash used in investing activities (292,987) (1,849,220) (1,329,220) III Cash flows from financing activities: Payment for dividend (102,418) (101,927) (205,045) Payment for purchase of treasury stock (65,754) Proceeds from sale of treasury stock 10,808 10,808 Net cash used in financing activities (91,610) (101,927) (259,991)

13 Effect of exchange rate changes on cash and cash IV quivalents V Increase (decrease) in cash and cash equivalents (198,781) (1,574,718) (346,704) VI Cash and cash equivalents at beginning of period 4,657,027 4,310,323 4,657,027 VII Cash and cash equivalents at end of period 4,458,245 2,735,604 4,310,323