Emergency Assistance Japan / 6063

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1 COVERAGE INITIATED ON: Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an owner s manual to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at sr_inquiries@sharedresearch.jp or find us on Bloomberg. Research Report by Shared Research Inc.

2 Research Report by Shared Research Inc. INDEX How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company s most recent earnings. First-time readers should start at the business section later in the report. Key financial data Recent updates Highlights Trends and outlook Quarterly earnings Full-year company forecast, long-term strategy Business Business description Strengths and weaknesses Market and value chain Historical financial statements Historical earnings results Income statement Balance sheet Cash flow statement Key performance indicators Other information History News and topics Major shareholders Top management Group companies Employees Company profile /51

3 Research Report by Shared Research Inc. Key financial data Income statement FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 (JPYmn) Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Total sales 1,133 1,357 1,611 1,893 1,984 2,200 2,531 2,509 2,567 2,900 YoY 28.4% 19.8% 18.7% 17.5% 4.8% 10.9% 15.0% -0.9% 2.3% 13.0% Gross profit YoY 52.5% 67.4% 23.1% 8.4% -14.1% -3.8% 40.9% 9.4% -4.9% GPM 20.0% 27.9% 29.0% 26.7% 21.9% 19.0% 23.3% 25.7% 23.9% Operating profit YoY % -14.1% -75.8% % -58.3% 11.7% OPM -1.3% 7.8% 10.7% 7.8% 1.8% -1.1% 5.3% 6.0% 2.4% 2.4% Recurring profit YoY % -21.3% -80.3% % -67.3% 54.2% RPM -2.9% 6.7% 10.2% 6.8% 1.3% -1.2% 5.2% 4.7% 1.5% 2.1% Net income YoY % -54.7% -81.1% % -60.6% 38.6% Net margin -1.9% 5.8% 10.3% 4.0% 0.7% -1.6% 3.5% 2.6% 1.0% 1.2% Per share data (JPY; adjusted for stock splits) Shares issued (year end; '000) , , , , , ,468.4 EPS EPS (fully diluted) Dividend per share TBD Book value per share Balance sheet (JPYmn) Cash and cash equivalents Total current assets ,457 1,691 1,752 1,815 1,792 Tangible fixed assets Investments and other assets Intangible fixed assets Total assets ,054 1,053 1,594 1,996 2,048 2,079 2,119 Accounts payable Short-term debt Total current liabilities ,212 1,256 1,294 1,308 Long-term debt Total fixed liabilities Total liabilities ,401 1,380 1,358 1,369 Net assets Total interest-bearing debt Cash flow statement (JPYmn) Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Financial ratios ROA (RP-based) % 17.4% 12.3% 1.9% -1.5% 6.5% 5.8% 1.9% ROE % 72.1% 17.3% 2.4% -5.9% 14.2% 9.2% 3.4% Equity ratio 11.1% 17.9% 29.7% 53.0% 38.3% 29.8% 32.6% 34.7% 35.4% Note: Figures may differ from company materials due to differences in rounding methods. 03/51

4 Research Report by Shared Research Inc. Recent updates Highlights On April 04, 2018, Shared Research updated the report following interviews with Emergency Assistance Japan Co., Ltd. (EAJ). On February 13, 2018, the company announced Full-year FY12/17 earnings results; see the results section for details. For corporate releases more than three months old, see the News and topics section. 04/51

5 Research Report by Shared Research Inc. Trends and outlook Quarterly earnings Quarterly performance FY12/15 FY12/16 FY12/17 FY12/15 FY12/16 FY12/17 FY12/18 (JPYmn) Q2 Q4 Q2 Q4 Q2 Q4 Act. Act. Act. Est. % of FY Init. Est. Sales ,531 2,509 2,567 2, % 2,900 Medical Assistance ,111 2,066 2,101 Lifestyle Assistance YoY 20.2% 20.3% 11.6% 7.8% -1.4% -0.2% -1.2% -0.4% -10.5% 3.9% 10.0% 9.2% 15.0% -0.9% 2.3% 1.6% 13.0% Medical Assistance 23.1% 25.7% 14.7% 11.4% -1.9% -1.6% -2.8% -2.3% -13.7% 3.9% 11.3% 10.4% 18.8% -2.1% 1.7% Lifestyle Assistance 5.1% 0.0% -0.7% -6.0% 1.8% 6.0% 6.1% 8.1% 8.9% 3.8% 4.6% 3.9% -0.6% 5.5% 5.3% Gross profit YoY 55.3% 51.7% 20.5% 38.5% 10.1% 16.1% 10.3% 2.0% -20.1% -13.0% 13.7% 3.5% 40.9% 9.4% -4.9% GPM 21.6% 23.3% 22.4% 26.0% 24.2% 27.2% 25.1% 26.7% 21.6% 22.7% 25.9% 25.3% 23.3% 25.7% 23.9% SG&A expenses YoY 5.4% 3.8% -0.4% 1.2% 5.3% 14.4% 7.1% 9.0% 9.1% 20.6% 12.3% 3.7% 2.4% 8.9% 11.4% SG&A ratio 15.3% 18.2% 19.5% 19.6% 16.3% 20.8% 21.1% 21.4% 19.9% 24.2% 21.5% 20.4% 17.9% 19.7% 21.4% Operating profit % 70 Medical Assistance Lifestyle Assistance Company-wide YoY % 21.7% 31.0% -19.1% -80.4% % 2.8% % -58.3% -70.1% 11.7% Medical Assistance 113.6% 141.8% 52.8% 100.0% 17.9% 13.7% 1.4% -8.4% -37.6% -23.5% 23.7% 8.9% 98.3% 6.3% -10.7% Lifestyle Assistance -9.3% -4.5% -12.1% -22.8% 1.7% 19.8% 36.7% 30.6% 13.7% -38.0% -38.7% -30.8% -12.8% 21.4% -24.5% OPM 6.4% 5.2% 3.0% 6.5% 7.9% 6.3% 4.0% 5.3% 1.7% -1.4% 4.3% 5.0% 5.3% 6.0% 2.4% 1.8% 2.4% Medical Assistance 16.5% 18.0% 17.0% 20.8% 19.9% 20.8% 17.7% 19.5% 14.4% 15.3% 19.7% 19.2% 18.0% 19.5% 17.1% Lifestyle Assistance 26.6% 25.6% 21.5% 25.2% 26.6% 28.9% 27.7% 30.5% 27.8% 17.3% 16.2% 20.3% 24.7% 28.5% 20.4% Recurring profit % 60 YoY % -0.1% -44.2% -25.3% 12.8% -86.0% % -37.1% % -67.3% -79.0% 54.2% RPM 6.0% 5.4% 2.3% 6.8% 6.1% 3.0% 1.8% 7.7% 1.0% -3.3% 3.8% 4.4% 5.2% 4.7% 1.5% 1.0% 2.1% Net income % 35 YoY % -51.5% -18.2% -3.1% -83.7% % 3.3% % -60.6% -76.6% 38.6% Net margin 5.2% 4.1% 1.5% 2.9% 3.8% 2.0% 1.2% 2.8% 0.7% -3.2% 3.6% 2.7% 3.5% 2.6% 1.0% 0.6% 1.2% Japanese outbound travelers 4,027 3,598 4,489 4,100 4,158 3,754 4,807 4,398 4,528 3,873 4,994 4,475 16,214 17,116 17,869 YoY -5.4% -4.3% -4.9% -1.7% 3.3% 4.3% 7.1% 7.3% 8.9% 3.2% 3.9% 1.8% -4.1% 5.6% 4.4% Foreign inbound travelers 4,128 5,009 5,348 5,250 5,753 5,961 6,263 6,062 6,537 7,220 7,439 7,494 19,734 24,039 28,691 YoY 43.6% 48.0% 53.7% 42.8% 39.4% 19.0% 17.1% 15.5% 13.6% 21.1% 18.8% 23.6% 47.1% 21.8% 19.4% Japanese outbound travelers and their use of EAJ medical assistance services (number of contracts) YoY Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Japanese outbound travelers % 8% -9% -8% -9% -3% 4% 9% 6% 6% 7% 12% % 13% 22% 27% 24% 17% 9% 10% -1% -3% -4% -2% % -9% -5% -12% -12% -12% -9% -6% -4% 2% -2% 3% % -2% -3% -4% 1% -1% -3% -3% -2% -5% -3% -5% % -11% -4% -4% -1% -8% -7% -7% 0% -0% -1% -4% % 6% 1% 9% -2% 7% 10% 10% 2% 4% 10% 8% % 12% 12% -1% 7% 4% 3% 4% 5% -0% 5% 1% EAJ contracts % 21% 19% 11% 29% 14% 17% 11% 20% 30% 29% 32% % 7% 6% 13% 0% 2% 13% 15% 20% 11% 5% -1% % 8% 9% 14% 2% 9% 0% -4% -8% 0% -12% -3% Source: Shared Research based on Japan National Tourism Organization (JNTO) and company data Note: The EAJ contracts YoY comparison is for the existing contracts for the use of EAJ Medical Assistance (excluding new contracts signed current year). Seasonality: Projects from public and government bodies tend to be concentrated in, driving up sales in the Medical Assistance business in this quarter. Sales subsequently fall quarter-on-quarter in Q2. 05/51

6 Research Report by Shared Research Inc. Full-year FY12/17 results (out February 13, 2018) Full-year results: Revenue up 2.3%, operating profit down 58%. Revenue expanded in each segment on benefits from a favorable external environment, but increased hiring costs and expense per employee weighed on profit Existing businesses: Revenue for the mainstay service looks to have bottomed after company's action to reverse a 1H decline led to an upturn in 2H. Company expects recovery in revenue in FY12/18 Growth businesses: Corporate, university, and security services performing well. Revenue generated from services geared toward Japanese and international students studying abroad also strong Newly launched business: Inbound tourist business (for patients visiting Japan) remains firm. Demand for emergency care assistance increased in line with an increase in visitors to Japan Company secured orders for inbound-related business from government agencies. Sees further sales expansion acting as future growth driver Medical Assistance: Revenue fell due to severe competition among companies offering medical claim services in the overseas travel insurance-related business (bottomed as discussed previously) and the effects of terrorist attacks overseas Topics: Company built powerful alliance with Koishikawa International Clinic (opened on August 8) in inbound business FY12/18: Aims for recovery in supplementary services for overseas travel insurance (business platform) as well as strengthened marketing and fuller lineup of services provided on associated infrastructure. Cautious profit outlook due to forex uncertainty (assuming exchange rate of JPY112/USD), personnel-related and capital expenditures, and sustained upfront spending to improve IT systems Japanese outbound travelers and tourists visiting Japan 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 Japanese outbound travelers Tourists visiting Japan Japanese outbound travelers (YoY) Tourists visiting Japan (YoY) Source: Shared Research based on data by Ministry of Justice, Japan National Tourism Organization 8,000 6,000 4,000 2,000 0 Earnings (JPYmn) FY12/12 (JPYmn) FY12/ FY12/14 FY12/15 FY12/16 Sales Operating profit Sales YoY (right axis) FY12/ % 30% 25% 20% 15% 10% 5% 0% -5% -10% 06/51

7 Research Report by Shared Research Inc. (JPYmn) Medical Assistance OP Lifestyle Assistance OP Eliminations, other Operating profit OPM (right axis) 12% 8% % 0% % -100 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17-8% Earnings performance Full-year results: Revenue up 2.3%, operating profit down 58%. Revenue expanded in each segment on benefits from a favorable external environment, but increased hiring costs and expense per employee weighed on profit In FY12/17, although the company reported a 2.3% increase in sales and 58% decline in operating profit YoY, both came in above the company plan. In medical assistance services for Japanese clients the company s primary operations assistance services for corporate clients, crisis-management services for students studying abroad, and security assistance services, which the company sees as future growth areas, were robust. On the other hand, due to severe competition in its mainstay service related to overseas travel insurance from companies offering medical claim services and the impact of terrorist attacks, sales fell below forecast in 1H. However, aggressive group-wide efforts to reach out to medical institutions from 2H proved successful, and this kept YoY growth in positive territory over the full year. Accordingly, the company believes sales have bottomed. Lifestyle Assistance sales are growing steadily as its customers card member numbers increase. By service: a) in supplementary services for overseas travel insurance, despite severe competition among medical claim companies, EAJ has taken action and the business bottomed from 2H; b) the public sector business since April won more orders than the previous year; c) sales of corporate, university, and security services increased owing to greater customer demand and stepped up marketing activities; and d) in the inbound business, the foreign patient business in medical tourism grew steadily, boosting the performance of medical transportation, and the company strengthened its emergency care offerings for foreign patients. As a result, sales rose 2.3% YoY. The cost ratio fell 2.0pp, affected by a fall in gross profit due to revenue declines (costs of supplementary services for overseas travel insurance are mostly fixed). SG&A expenses rose 11.4% YoY as the company continued to invest in personnel to handle future expansion. A recent labor shortage has led to an increase in hiring costs and personnel expenses, pushing down the SG&A ratio by 2.7pp to 21.4%. As a result, operating profit plunged by JPY88mn YoY to JPY63mn, but the outcome was above the downwardly revised target announced in July. Revenue and profit are trending upward in all segments, but rising personnel costs are affecting profit. 07/51

8 Research Report by Shared Research Inc. Overview by business Medical Assistance business Supplementary services for overseas travel insurance Medical assistance services for corporations Medical assistance services for universities Security assistance for corporations Sales below expectations Solid increase in market share Solid business expansion Demand is strong, but EAJ's crisis management services are not fully ready yet Medical Support business International medical service coordination Emergency response Inbound: Observing opportunity losses from insufficient price competitiveness Inbound (medical tourism): Works to enhance preparations EAJ growing out of Japan-driven business, into Outbound: overseas-opportunity-driven business Assistance services developing, including support from local medical companies National and public services increased; services for corporations expanding as well Lifestyle Assistance business Concierge services for credit card holders Pressing need to renovate service structure in line with expansion in scale Revenue from supplementary services for overseas travel insurance fell in 1H but rose in 2H; company believes revenue has hit bottom and looks for a recovery in FY12/18 Revenue from supplementary services for overseas travel insurance declined YoY in 1H. The company advances the treatment costs to medical institutions and arranges to recover money from insurance companies, for a fee. In broad terms, there are two services. 1) EAJ refers a customer to a local medical institution after receiving an inquiry, and provides cashless settlement once treatment is finished, and then takes care of the details. 2) Handling a cashless settlement when a customer receives treatment at a local medical institution. The first is trending solidly, but sluggishness in the second dragged on results. The second service should really be via EAJ, but for a number of reasons business is flowing to competitors. In response, the company said it took a number of actions which started to bear fruit around summer, and the business is bottoming. The company also wants to expand its market share by emphasizing the quality of its services, and it seems likely to grow its customer base, and thus market share. EAJ has already established a network for this service. An increase in revenue, therefore, flows through to the bottom line. The company believes revenue bottomed in 2H, and looks for a rebound in FY12/18 (it will make a full contribution in 2018 once it recovers). In the long term, we will watch how this business expands its customer base. Corporate, university, and security service sales solid as overseas crisis management demand grows and marketing stepped up; launch of smartphone app Sales targeting corporate clients and universities, and sales of security services focus areas for the company remained strong, supporting revenue growth. We believe that revenue increases in these businesses will flow through to profits, similar to the supplementary services for overseas travel insurance. Corporate customers using assistance services (medical and security) topped 160 as of the end of January 2018, and universities using the services steadily increased to more than 70 schools, further strengthening the revenue base. The company reports it is steadily expanding its corporate and institutional client base every month and even expects to increase the pace of expansion going forward. The company also said that strengthening its marketing organization was starting to have an impact. This is happening under the leadership of vice president Kurata (joined in October 2015, appointed director in March 2017, and vice president in August 2017). EAJ is steadily acquiring new customers as it wins an increasing number of referrals from financial institutions and customers switch from competitors. In April 2017, the company concluded an overseas security service contract with JICA (Japan International Cooperation Agency). Under the contract, EAJ provides security assistance services to JICA staff and related persons who are working abroad. The basic fees of the company s services seem to rise proportionately with the breadth of its service coverage (target regions and staff count), but wider coverage also implies higher costs. For this reason, the program s contribution to earnings is yet to be determined, but it may add to the company s medium- to long-term growth. 08/51

9 Research Report by Shared Research Inc. As part of an effort to expand earnings opportunities for its security service, the company had been developing a service that uses a smartphone app, and it launched the OSSMA LOCATOR app (crisis-management service for students studying abroad) in January The app allows users to easily obtain personalized reports on the whereabouts of students studying abroad as well as detailed safety confirmations of each student. Because the app is still under development the company is offering it at no charge, but plans to start charging for the app in the future and market the app to corporate customers. Further details are still unclear, but this could turn into a major business opportunity for the company. The company seems to be strengthening its organization as well, as in August 2017, it hired an expert in sales as senior vice president. Inbound tourist business was firm; a rise in foreign visitors led to more inquiries/emergency referrals to medical institutions in Japan The inbound tourist business was also brisk, with sales in the inbound patient business increasing YoY. The inbound patient business was steadily growing, backed by the fact that in January out of 41 hospitals in the Japan International Hospitals network named EAJ s medical tourism business as their Accredited Medical Travel Assistance Company. The number of medical transportation jobs seems to be growing roughly in line with the number of medical-stay visas issued. As visitors to Japan increase, the number of inquiries and cases where Japanese hospitals administer emergency treatments to foreign patients is increasing, as is the number of patients seeking emergency care assistance. EAJ began providing information for English speakers on inbound services through Facebook in July 2017 and started providing WeChat, a mobile application software for Chinese speakers, in November of the same year. The company has also established business partnership with Koishikawa International Clinic, or KIC, which was created on August 8 by a physician who serves as an advisor to the company. Since the start of Q4, EAJ was authorized (by the Japan Medical Education Foundation) to certify individuals taking the Medical Interpreter Certification Examination (in October). The company has been selected more than once under the MHLW s "International Patient Admission Environment Improvement Project for Medical Institutions" (November and December), and was entrusted with the Inbound Response Emergency Medical Care Infrastructure Project Medical Interpreting Training and Registration Services for Okinawa Tourism (December). Using the MHLW s project subsidies, the company has begun offering 24-hour medical interpreting services in several languages to medical institutions. In addition to creating arrangements to care for non-japanese patients in Japanese hospitals, we note that the company is making solid progress on measures to further strengthen its inbound services. Number of medical-stay visas issued 1,400 1,200 1, FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 Source: Shared Research based on Ministry of Foreign Affairs data FY12/18 outlook Although the external environment remains uncertain due to the situation in North Korea and conditions in the forex markets, EAJ expects companies to continue expanding overseas and the number of overseas travelers to keep growing. Consequently, it projects demand for its medical assistance services will increase. Specifically, it plans to increase revenue as follows: 1) supplementary service for overseas travel insurance: improve and expand sales, and expand its service network with the establishment of a local subsidiary in Vancouver, Canada this fall; 2) corporate and university services: achieve sharp revenue growth supported by strengthened marketing capabilities; 3) inbound services: rising number of inbound patients to continue acting as a growth driver; and 4) development of new businesses: pursue a stronger partnership with KIC, efficient utilization of existing infrastructure, and development of new products through strategic collaborations with other companies. Although EAJ 09/51

10 Research Report by Shared Research Inc. targets adequate deployment of human resources and optimization of service processes from a global perspective, it has adopted a cautious profit outlook because it intends to continue investing heavily in personnel and equipment to support future growth as well as in improvement of IT systems. Inbound tourist business EAJ's overseas subsidiaries Patients from overseas Screening support by KIC Easy to contact Overall support for medical services EAJ + Services supported Hospital information Patient information Payment management (Examples) Hospital for circulatory system Clinic specialized in endoscopy Heavy ion radiotherapy Hospital with track record of thyroid treatment Tokyo Osaka Kyushu Okinawa Nationwide medical institutions as one large virtual hospital Reference SG&A expenses and cost ratio According to the company, although the cost ratio looks like it is rising, this stems from lower revenue and is not due to a change in the cost structure. We believe that the rise is due to a decline in revenue from services with more fixed costs than variable costs. The increase in SG&A expenses comes mainly from investments in future growth, which are expected to continue in FY12/18. The company thinks that if sales grow as a result, the fixed cost ratio will decline. SG&A expenses and the cost ratio (JPYmn) % 75.1% 72.8% 69.9% FY12/12 SG&A expenses Forex (JPY/USD; quarter end) Cost ratio (right axis) % 80.2% 77.6% 75.4% FY12/ % 81.5% 79.2% 79.7% 78.4% 76.7% 77.6% FY12/14 FY12/ % 75.8% 72.8% 74.9% 73.3% 78.4% 77.3% 74.1% 74.7% FY12/16 FY12/17 95% 90% 85% 80% 75% 70% 65% 60% New businesses In 2016, EAJ launched new emergency assistance businesses in existing markets. In 1H FY12/17, it started a new business dubbed "Event Aid Service," utilizing internal personnel, including certified nurses and emergency medical technicians. Earnings have been steadily rising thanks to live concerts hosted by pop idol groups and marathons held in Japan. In addition, in March 2017 the company received an order from JOMEG for medical support related to the operation of a 3D seismic survey vessel in fiscal 2017 and for dispatching medical staff onboard. The company is also looking to start new businesses overseas in 2018, with the intention of raising the level of medical care in each region. 10/51

11 Research Report by Shared Research Inc. Medical Assistance business Medical Assistance, quarterly performance (JPYmn) FY12/12 Sales Operating profit Sales YoY (right axis) 23% 16% % 15% % 457 8% 9% % % 3% 5% -2% -2% -3% -2% FY12/ FY12/14 26% FY12/ FY12/ % FY12/ % 11% 10% % 25% 20% 15% 10% 5% 0% -5% -10% -15% Japanese outbound travelers and Medical Assistance sales 7,000 Japanese outbound travelers Medical Assistance sales (right axis) ,000 5,000 4, , , ,000 4,117 3,788 0 ('000) FY12/10 4,589 4,143 4,094 3,534 FY12/11 4,889 4,477 4,641 4,324 FY12/12 5,185 4,341 4,444 3,809 FY12/13 4,847 4,373 4,255 3,759 FY12/14 4,719 4,171 4,027 3,598 FY12/15 4,489 4,100 4,158 3,754 FY12/16 4,807 4,398 4,534 3,889 FY12/17 4,991 4, (JPYmn) Japanese outbound travelers and the exchange rate (mn) 2.0 Japanese JPY/USD (right axis) Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 (mn) 3.0 Foreign travelers in Japan JPY/USD (right axis) Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Shared Research based on data by Japan Tourism Agency and Mizuho Bank 11/51

12 Research Report by Shared Research Inc. Lifestyle Assistance business Lifestyle Assistance, quarterly performance (JPYmn) Sales Operating profit Sales YoY (right axis) 23% 19% 21% FY12/ % FY12/13 1% -1% -0% % FY12/ % % 6% 8% 9% 0% -1% 2% % % 4% FY12/15-6% FY12/16 FY12/ % 20% 15% 10% 5% 0% -5% -10% For details on previous quarterly and annual results, please refer to the Historical financial statements section. 12/51

13 Research Report by Shared Research Inc. Full-year company forecast, long-term strategy FY12/15 FY12/16 FY12/17 FY12/18 Init. Est. (JPYmn) 1H 2H FY 1H 2H FY 1H 2H FY 1H 2H FY Sales 1,346 1,185 2,531 1,334 1,175 2,509 1,279 1,288 2,567 1,400 1,500 2,900 YoY 20.2% 9.7% 15.0% -0.9% -0.8% -0.9% -4.1% 9.6% 2.3% 9.4% 16.5% 13.0% Cost of sales 1, , , ,954 Gross profit YoY 53.6% 29.7% 40.9% 12.8% 5.8% 9.4% -16.7% 8.4% -4.9% GPM 22.4% 24.3% 23.3% 25.5% 25.9% 25.7% 22.1% 25.6% 23.9% SG&A expenses SG&A ratio 16.5% 19.5% 17.9% 18.3% 21.3% 19.7% 21.9% 20.9% 21.4% Operating profit YoY % -3.6% 11.1% -97.1% 10.3% -58.3% 515.3% -11.5% 11.7% OPM 5.9% 4.8% 5.3% 7.2% 4.6% 6.0% 0.2% 4.7% 2.4% 1.2% 3.5% 2.4% Recurring profit YoY % 3.2% -9.5% % -67.3% % 54.2% RPM 5.7% 4.6% 5.2% 4.7% 4.8% 4.7% -1.1% 4.1% 1.5% 0.9% 3.1% 2.1% Net income YoY % -8.1% -28.4% % -60.6% % 38.6% Initial FY12/18 company forecasts Numerical targets Plans to ramp up investment spending to drive future growth The company's initial forecast for FY12/18 called for largely flat YoY operating profit. The company said it was being cautious in its initial forecast due to uncertainty in the external environment. The company aims to grow its business by expanding its service network by adding more overseas service centers and employees and restructuring its call center operations. The uncertain outlook for foreign exchange rates (the company assumes an exchange rate of JPY112/USD) together with increasing investments in personnel, equipment, and IT system upgrades led to the flat earnings forecast for FY12/18. Support upfront expenditures by strengthening existing businesses EAJ stated that had been undertaking initiatives to develop its business foundation (including maintaining and expanding its network and infrastructure investment), but it planned to largely complete these initiatives in FY12/17. While EAJ expected spending to rise as it expands its business foundation to support a broader range of businesses, it believed that new services would offset this spending and result in higher profits. As a result, while it expected more upfront expenditures in 2017 as it targets future growth, it planned to maintain profits by further expanding existing businesses, which it continues to cultivate. This should allow EAJ to bolster its profit base. Existing businesses the main sales driver, but targeting stronger contribution from new services EAJ mainly relies on a recurring revenue model, where new customer acquisition results in higher sales. Customer retention rates for its services largely depend on customer satisfaction. The company expects sales to increase 13.0% YoY, with existing businesses continuing to drive growth. More specifically, the company expects sales from supplementary services for overseas travel insurance to bottom out and recover to the level recorded in FY12/17 and sales from corporate clients and universities and sales in services for inbound tourists to continue to grow. In the area of supplementary services for overseas travel insurance, in 1H FY12/17 sales fell short of the forecast due to stiff competition among medical claim service providers and the dampening impact of terrorist attacks on overseas travel. However the company turned things around and saw higher sales in 2H YoY by making a concerted effort at the group level to approach more medical institutions. The company reports that sales has bottomed out and is in recovery. It expects sales to have positive contributions throughout FY12/18. 13/51

14 Research Report by Shared Research Inc. Case fee revenue: YoY growth Source: Shared Research, based on company data In assistance services (medical/security) for corporate clients and universities, customer numbers continue to grow steadily (end January 2018: over 160 companies and over 70 universities), and by stepping up its sales efforts the company plans to significantly increase its customer base. Profitability has been robust in services for corporate clients and universities that utilize the company s existing infrastructure, and since such services are based on a recurring revenue model, they significantly contribute to developing revenue base. Shared Research will continue to monitor this trend. In January 2018, the company began offering its OSSMA LOCATOR app, a crisis management service for students studying overseas. Because the app is still under development the company is offering it at no charge, but it plans to start charging for the app in the future and is also looking into marketing this app to corporate customers. Growth potential As of FY12/17 Potential market size (JPYbn) Annual sales Potential market size Corporate customers Over 160 Approx. 3,000 Overseas travel insurance related (case fee revenue only) Approx. 0.7 Approx Educational institutions Over 70 Approx. 170 High class credit card Approx. 0.4 Approx Source: Shared Research, based on company data In the area of medical services for tourists visiting Japan, the company is seeing growth in both medical tourism and assistance service for medical emergencies. However, it is still facing challenges in establishing a business model and dealing with competition. With respect to medical tourism, there is the general lack of recognition of Japan as an advanced healthcare service provider. The company has made some progress on this front through steady promotional campaigns. It sent a manager to oversee the operations of its local subsidiary in China and plans to increase its name recognition by expanding its customer base through social networking sites including Facebook and WeChat. EAJ services receive extremely high marks from first-class hospitals, and it expects this to help drive growth going forward. In addition, the company aims to differentiate itself and capture steady demand to increase sales in services that take advantage of its network with medical institutions, infrastructure of medical assistants (including internal/external emergency technicians and nurses), and management resources. Collecting fees has been a problem in medical emergency assistance services, but EAJ is cooperating with insurance companies and hospitals to develop new products that will address this problem. With Japanese hospitals already admitting many foreigners, the company expects this market to grow significantly in the future. Operating profit For FY12/18 EAJ forecasts operating profit to remain flat YoY at JPY70mn. The reasons for the conservative target were difficulties calculating overseas costs due to uncertain forex trends (assumption: JPY112/USD); an expected fall in the number of Japanese tourists going abroad due to concerns over terrorism; and strategic increases in spending to expand its service network with the addition of more overseas service centers and employees. The company noted that the expansion of workforce will push up the overall spending on personnel by 10% and expects that it would take some time before the investment in new employees are paid off. To improve operating efficiency, the company will keep driving EAJ Reengineering (a reform initiative announced in 2015) and Pursuing Operational Excellence, a follow-up to EAJ Reengineering introduced in 2016, and improve its cost structure through reconfiguration of its operating system across the entire company and more efficient positioning of personnel. 14/51

15 Research Report by Shared Research Inc. Impact of foreign exchange rates: a stronger yen will work to reduce costs at EAJ. Its overseas costs are estimated at around USD7.5mn. Stronger yen also serves as tailwind for medical assistance services as it makes people more enthusiastic about traveling overseas. Pursuing Operational Excellence initiative By "pursing operational excellence," the company means maintaining its competitive position by delivering superior performance at the ground level. By improving both the quality and efficiency of operational management, EAJ aims to reach a level of excellence that cannot be matched by competitors. This means creating an organization that can deliver the kind of service demanded by not only insurers and other companies that are EAJ's direct clients, but also service that is well regarded by the end-users who are receiving the EAJ's services via its client companies. EAJ Re-engineering initiative The company designated 2015 the year for EAJ Re-engineering aiming for a profitable structure despite a severe business environment by focusing on building an efficient and cost-competitive organization. More specifically, the company is working to create a leaner management structure that can generate profits even in the face of difficult conditions such as the weak yen. In FY12/15, the company reported operating profit of JPY135mn JPY30mn more than its initial estimate and its gross profit margin jumped to 23.3%, up 4.3pp from the previous year. Although it has already realized some efficiency gains, the company believes there are further efficiency gains that have yet to be realized and intends to continue its EAJ Re-engineering initiative going forward. Business environment Positive factors in the external environment in 2018 according to the company: The outbound travel market is in an upward trend as the number of Japanese traveling abroad and the number of Japanese requiring emergency assistance services are on the rise Demand for the assistance business should increase on the growing need for crisis management among companies and other entities, amid a rise in terrorism and an epidemic of infectious diseases Inbound market is expected to grow significantly owing to the increasing number of medical-stay visas and number of tourists coming to Japan; greater number of hospitals are accepting foreign patients, and the demand for inbound business has risen Possible negative factors: If the yen weakens, the number of Japanese tourists going overseas will decline further and the cost of the company's overseas centers will increase A rise in terrorism, epidemic of infectious diseases, or threatening actions by North Korea could also lead to fewer Japanese travelling or residing abroad Rising upfront investments to expand its services network and workforce to handle the increased volume of work The external environment has long provided a favorable tailwind for the company. However, the company intends to reconfigure its operating structure so that it can generate a profit even in a hostile external environment. Although EAJ has kept sales growing at an average rate of 13% per annum over the last five years despite a decline in the number of Japanese tourists traveling overseas (as a result of the weakening yen), revenue fell in FY12/16 due partly to a decision not to renew some unprofitable contracts. In FY12/17 sales rose across all businesses as the external environment provided a favorable tailwind, but profits fell due to expenses in hiring new employees and increased wages of existing employees. Initial company plan for FY12/17 (reference) Looking toward medium-term growth: initiatives to support growth, cultivate new services EAJ built up its infrastructure in FY12/14, investing in personnel and facilities in preparation for major orders from Sompo Japan Nipponkoa Insurance. FY12/15 was the year for "EAJ Re-engineering," an initiative aimed making this infrastructure more efficient and promoting various services that make use of this infrastructure. As a result, the company succeeded in bringing down its cost ratio despite the weaker yen and related increase in costs. In FY12/16, the company pursued "operational excellence" with the aim of further improving its competitive position, and worked to build a foundation on which it can continue to grow over the medium term. 15/51

16 Research Report by Shared Research Inc. EAJ has four main business objectives for FY12/17: develop a competitive advantage by improving operational quality; improving communication among all offices and facilities to strengthening the Group s cohesiveness; maintaining an OPM of at least 6% (develop a profit structure that produces high OPM); and expanding sales at existing businesses by bolstering sales activities. Shared Research views FY12/17 as the period when the company will establish initiatives to support medium-term growth and cultivate new services that emerge from that business foundation. Initiatives to support future sales growth, developing a business foundation Since 2014, the company has been building out its business infrastructure centered on its core overseas travel insurance service. However, as its assistance service offering has expanded, it has become necessary to further expand its business foundation. In FY12/17, EAJ is anticipating greater upfront expenditures owing to initiatives for services to support medium-term growth and to develop the main framework for its business foundation. EAJ has stated that it expects to largely complete creating these initiatives in FY12/17. While it is also factoring for a subsequent increase in spending to put in place the operating structure to support the more extensive business foundation, it plans to transition to a profit growth stage, prompted by an increase in sales as a result of various services that emerge from the business foundation. Funds for the increased spending will come from assistance services related to overseas travel insurance and the expansion of services offered by its assistance service to corporate clients and universities. It will focus on acquiring new customers for the overseas travel insurance business, while tapping demand for assistance services by strengthening sales activities. Expanding horizontally by acquiring new businesses: Targeting further sales growth EAJ also plans to enhance the services that it offers with its new infrastructure. Based on its expectations that the workload from Sompo Japan Nipponkoa Insurance would gradually increase toward the end of 2015, and the number of inbound medical tourists would grow, the company focused on promoting security, assistance and other services to corporate clients in FY12/15. Further, in FY12/16 EAJ worked to extend its business foundation horizontally by rolling out value-added services. Until 2015, the company mostly worked on acquiring new customers, and from 2016 EAJ has been focusing on deepening relationships with existing customers and adding new services in existing markets. The company plans to bolster these measures in EAJ is looking to build on its unmatched reputation as an easy-to-use, one-stop shop for quality services from medical assistance to security for Japanese companies. EAJ also wants its customers to think of it as more than just the company to which they pay service fees, and instead to be recognized as the company that provides tangible services. Security services The security services of EAJ and its two competitors are currently being used by about 700 private sector companies, or roughly 20% of the 3,603 companies listed on Japanese stock exchanges (as of March 15, 2018). This would seem to leave plenty of room for EAJ to grow its security service business, especially if the large number of Japanese companies expanding overseas is taken into consideration. If EAJ is able to acquire value-added services, these may also serve as a growth driver over the medium term. In FY12/17, the company focused on tapping further demand by strengthening its sales activities. It expects its security service business to continue growing in FY12/18. Services for travelers to Japan: Designated by 28 of 41 JIHs, intends to develop new products through strategic alliances with other companies In September 2015, EAJ (and the Japan Travel Bureau) were the first to be certified as a domestic Accredited Medical Travel Assistance Company from the Japanese government, increasing EAJ s name recognition and perceived reliability among travelers to Japan. Medical Excellence JAPAN, which supports the globalization of Japan's medical services as a public and private partnership and actively promotes the treatment of foreign patients in Japan, in January 2017 recommended 41 medical institutions as Japan International Hospitals (JIH), medical institutions suitable for handling foreign patients. Of the recommended 41 JIHs, 28 medical institutions named EAJ as their Accredited Medical Travel Assistance Company. Seven institutions of the remaining did not name a company. This means EAJ had more medical institutions designating them than JTB. EAJ has even previously worked as a medical coordinator for the remaining institutions. Looking at inbound tourist-related sales in FY12/17, medical tourism accounted for roughly three-fourths, and referrals for travelers seeking emergency care (emergency referrals) roughly one-fourth of inbound tourist-related sales, pointing to strong growth for medical tourism (roughly %). This market is expected to continue growing in FY12/18. Fee collection has been a problem in medical emergency assistance services, but EAJ is cooperating with insurance companies and hospitals to develop new products that will address this problem. With Japanese hospitals already admitting many foreigners, the company sees great growth potential for this market. 16/51

17 Research Report by Shared Research Inc. EAJ has a network established to respond to requests for advanced medical examinations or requests for emergency medical aid for foreign travelers to Japan, and is building an overseas network in various countries consisting of agents, domestic medical institutions, and domestic and foreign embassies. Cost is an issue at this business and so EAJ seeks to streamline operations in the hope that it leads to even broader demand. Provided EAJ is able to steadily capture demand, the business could turn into a sales driver. Shared Research will monitor this trend. Collaborations with travel agencies: A scheme with benefits for All Nippon Travel Agents Association (ANTA), JAL PAK (a travel agency), insurance companies such as Sompo Japan Nipponkoa Insurance, EAJ, medical institutions, and visitors to Japan. Travel agencies benefit from having a system in place to handle illnesses and injuries, and securing funds for expenses; medical institutions are able to handle patients from different countries (an area which they have limited experience) with the certainty that medical expenses can be recovered; and visitors to Japan benefit from a sense of safety. The company has stated that roughly 30% of visitors to Japan are not yet enrolled in this type of insurance, with roughly 50% of these travelers coming from ASEAN and Korea. Promoting insurance coverage and having a system in place has become an urgent issue. Collaborations with JIH Certified institution (MEJ) Medical institutions accepting foreign patients (41) Make recommendations Japan International Hospitals Provide certification Government "guarantee" Select institution based on patients' conditions Accredited Medical Travel Assistance Companies (2) (coordinate foreigners' medical travels) 28 institutions appoint EAJ EAJ Pay for medical services Provide check-up and medical services Provide medical coordination services Pay for services Foreign patients Patients in need of advanced medical services in Japan Services offered by EAJ for medical tourism Services for foreign patients in Japan Support provided Support before visit Support during stay Support after return home Details of support Inquiry into patient's condition, referral to suitable medical facilities Provision of information on medical facilities, provides introduction and makes appointment for patient Translates medical records from overseas facilities and passes on information to facility in Japan Arranges transportation and lodging Transportation on arrival in Japan (in the event that the patient would encounter difficulties) Provides medical escorts at airport, lodgings, and during transportation to the medical facility Provides interpretation during treatment or translation of results afterwards 24-hour hotline available in different languages (support for accompanying persons) Communication between medical facilities/providers (translation of medical records) Arranges repeat visits (makes repeat appointments as part of extended contract) Source: Shared Research, based on company data Emergency services offered to visitors to Japan in collaboration with travel agencies and other business All Nippon Travel Agents Association JALPAK Co., Ltd. Insurance Include insurance in packages Participation Foreign patients Visit Treat Access Provide medical assistance services - T ranslation - Cashless payment - Arranging medical institutions EAJ Non-life insurance companies Make payments Medical institutions Recommend for treatment 17/51

18 Research Report by Shared Research Inc. Reference: Strategies for business growth in FY12/14, FY12/15 Strategies for business growth (as of February 2015) 2003~ ~ New service New service New service Overseas medical assistance project Larger contracts Support for government offices overseas Security assistance Medical services for inbound travelers Assistance for students abroad Offering subcontracting solutions to public bodies More clients Finalizing the business model More client schools/universities Strategy 1 Full operation (EAJ Inside) Strategy 2 Multilingualism (horizontal) Multifunctionalism (vertical) Credit card concierge service Larger contracts Disposal of abandoned chemical weapons in China Utilizing the business model Insurance services for overseas travel Larger contracts Corporate contracts More clients Completing and expanding the Global Assistance Coordination Platform Strategy3 Expanding platform use Strategy 4 Expanding platform applications Business growth from FY12/15 onward EAJ Inside: medical assistance for all casualty insurance companies EAJ s new business strategy, EAJ Inside aims to have EAJ inside of medical assistance programs for all casualty insurance companies. EAJ Inside hopes to make inroads by providing high quality, one-stop services to differentiate itself from competitors, and plans continue to make investments in the medium-term to foster further growth. Growth in casualty insurance companies placing orders The growth in overseas travel insurance services within the mainstay Medical Assistance business while also influenced by each existing insurance company s number of insured and new claim rates will be determined by whether EAJ can add new non-life insurers to its client roster. Normally, it is not easy for an insurer to change its outsourcer due to high switching costs. However, EAJ has much momentum. 18/51