Bridge Report Koshidaka HOLDINGS Co., Ltd. (2157)

Transcription

1 Bridge Report Koshidaka HOLDINGS Co., Ltd. (2157) Hiroshi Koshidaka, President Company Code No Exchange Industry President HQ Address Business Description Year-end URL Koshidaka HOLDINGS Co., Ltd. First Section, Tokyo Stock Exchange Service Hiroshi Koshidaka World Trade Center Building 23 rd Floor, Hamamatsucho, Minato-ku, Tokyo A comprehensive entertainment and leisure services provider that operates a chain of nationwide karaoke clubs called Karaoke Honpo Manekineko. A subsidiary providing the fitness business is steadily expanding its earnings, and the hot spring business isbeing cultivated. August - Stock Information - Share Price Share Outstanding Market Cap. ROE (Act.) Trading Unit 2,775 17,954,591 shares billion 14.1% 100 shares DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Act.) % x x * Share price as of close on June 19, Outstanding shares as of most recent quarter end, excluding treasury stock. - Consolidated Earnings Trends - Fiscal Year Sales Operating Profit Ordinary Profit Net Profit EPS ( ) Dividend ( ) August ,515 4,151 4,237 3, August ,720 4,276 4,370 2, August ,257 4,394 4,492 2, August ,170 4,810 4,699 1, August 2017 (Est.) 55,112 5,468 5,519 2, * Estimates are those of the Company. From fiscal year August 2016, the definition of net profit has been changed to net profit attributable to parent company shareholders. This Bridge Report presents Koshidaka HOLDINGS s earnings results for the first half of fiscal year August 2017 and other details of the Company. 1. Company Overview 2. First Half of Fiscal Year August 2017 Earnings Results 3. Fiscal Year August 2017 Earnings Estimates 4. Conclusions

2 Key Points Sales and operating profit rose by 10.1% and 22.2% year-on-year respectively during the first half of fiscal year August The effects of the new club openings in the Tokyo metropolitan region started from three years ago have begun to surface and Manekineko is trending strongly in the karaoke club business. In the overseas business, the conversion of clubs to the Manekineko brand has allowed Singapore to continue to trend profitably. The Curves Fitness Club business, which saw sales reach a new record high on a semiannual basis, was ranked as the number one fitness club for the third consecutive year in the Japan Consumer Satisfaction Index of the Service Industry Efficiency Promotion Council. The hot spring business saw stable profitability due to effective efforts to reduce costs and secure customers. Koshidaka HOLDINGS moved its shares to the First Section of the Tokyo Stock Exchange in November Full year earnings estimates remain unchanged and call for sales and ordinary profit to rise by 7.7% and 17.4% year-on-year respectively, expected tomark the 10 th consecutive term of increases in both sales and profits. By business segment, higher sales are expected to allow profits of the karaoke club business to rise by 24.1%, and higher sales and energy conservation efforts to allow profits of the hot spring business to rise by 70.1% year-on-year. Also, successful absorption of costs arising from increased efforts to raise brand awareness of Curves Fitness Club business are expected to allow profit to rise by 7.4% year-on-year. Koshidaka has been successful in gaining awareness for its karaoke facility service characteristics of safety, security, reasonableness, and friendliness. Furthermore, the Company has benefited from the retreat by major competitors in certain regions and seen higher profits as a result. At the same time, Koshidaka HOLDINGS is implementing efforts to deal with declines in existing club sales of regional clubs by capturing businessmen and female office workers in their 30s to 40s. Key issues for the Curves Fitness Club business include its ability to avoid cannibalization with existing stores while fortifying its club network in the future, and its ability to capture elderly members. At the same time, the hot spring business has recovered to a level where new facility openings may once again be considered, and efforts to cultivate this business into the third cornerstone of Koshidaka s overall business should be closely watched. 1. Company Overview Koshidaka HOLDINGS Co., Ltd. is a comprehensive entertainment and leisure services provider and it promotes a strategy of creating new businesses in existing industries in the four realms of amusement, sports and fitness, tourism and travel, and hobbies and cultural activities. Based upon its two main cornerstones of businesses of karaoke clubs and Curves Fitness Clubs, Koshidaka has been able to continue to grow both sales and profits since its listing and is cultivating new businesses such as its hot spring facilities, which is becoming a steadfast contributor to earnings. Moreover, the Company will take on a new perspective to target new customers by creating new services and operational methods to establish unique business models as part of its strategy of creating new businesses in existing industries based upon the Company s expertise within these industries. <Corporate Philosophy Contribute to the Creation of a Peaceful World by Providing Bountiful Hope and Lifestyles Rich with Entertainment> Koshidaka maintains a corporate philosophy of contributing to the creation of a peaceful world by providing bountiful hope and lifestyles rich with entertainment, while continuing to provide evolutionary and significant services and products to people worldwide. Based upon this corporate philosophy, Koshidaka has also established five visions: 1) cultivating new businesses in existing industries to provide easily accessible entertainment that only require short amount of time, and are close and reasonable, 2) developing optimized businesses and structures based upon conditions in each country, area, and industry, 3) continuing to offer surprising and highly satisfying services and products with customers needs in mind, 4) fostering inspired and entrepreneurial human resources, and 5) seeking to cultivate and maximize synergies between the various businesses of the Group.

3 <Business Segments and Group Structure> The Koshidaka HOLDINGS Group currently divides its business into four main segments. In the karaoke business segment, the Company operates both the Karaoke Honpo Manekineko clubs (Suburban regions) and the One Kara individual use Karaoke clubs (Urban regions). In the Curves Fitness Club business, fitness clubs providing specialized 30 minute workout programs specialized for middle to older aged female users called Curves are operated. Furthermore, the hot spring business (Leveraging various hot spring facility operation knowhow), and real estate management businesses are also being undertaken. The Koshidaka Group is comprised of the holding company Koshidaka HOLDINGS, and ten consolidated and four non-consolidated subsidiaries. FY8/16 Sales, Profits by Business Segment Sales Share YY Change Operating Profit Share YY Change Karaoke Club 27, % +16.2% 1, % -2.7% Curves Fitness Club 21, % +16.2% 4, % +9.8% Hot Spring 1, % +3.8% % - Real Estate Management % -3.6% % -22.7% Adjustments Total 51, % +15.6% 4, % Overview of Consolidated Subsidiares Koshidaka Co., Ltd. Koshidaka Korea Co., Ltd. KOSHIDAKA INTERNATIONAL Pte.Ltd. KOSHIDAKA SINGAPORE Pte.Ltd. Curves Holdings Co., Ltd. Curves Japan Co., Ltd. High Standard Co., Ltd Koshidaka Products Co., Ltd. Koshidaka Business Support Co., Ltd. Koshidaka HOLDINGS Co., Karaoke Business (Including the Karaoke Honpo Manekineko, One Kara Individual Use Karaoke) Hot spring business ( Maneki No Yu, Lamp No Yu ) Karaoke club operations in Korea Intermediary holding company that oversees karaoke business operations in South East Asia Company that operates karaoke business in Singapore with 11 directly operated clubs in Singapore Intermediary holding company for three Curves fitness club business related companies Curves franchise business headquarter and directly operated store operations Operation of 49 Curve fitness Clubs in Hokkaido, Saitama, Tokyo and Chiba Management of Group intellectual properties and real estate Intermediate group management The non-consolidated subsidiaries include English Island Co., Ltd., which uses the television conference software application Skype to provide English lessons with native English speaking teachers living overseas, EEIKAIWA, Inc., and Koshidaka R&C Co., Ltd.

4 <Growth Strategy> The possibilities within the Japanese leisure related market are considered to be limitless, given its massive size of about 72.3 trillion (Source: Japan Productivity Center, Leisure White Paper 2016). Moreover, an increase in the number of baby boomers approaching the age of 75 (Peak number being born between 1947 to 1949) is expected to contribute to strong growth in the market. Based upon the business concept of becoming a comprehensive leisure services company, Koshidaka seeks to cultivate synergies between the four realms of amusement (karaoke), sports and fitness (Curves), tourism and travel (hot springs), and hobbies and cultural activities to promote a strategy of creating new businesses in existing industries. Koshidaka also maintains a goal of achieving Group sales of billion at an early stage. According to the Karaoke White Paper 2016, the karaoke market within Japan in fiscal year 2015 (April 1, 2015 to March 31, 2016) grew on a year-on-year basis to billion (From 397.9, and billion in fiscal years 2014, 2013 and 2012 respectively). According to newspaper reports, the fitness club market has continued to trend sideways during the past several years at around billion. Strategies by Business Segment Along with the shift from the traditional regional and suburban existing club take over and refurbishment strategy to a new major metropolitan, station front, downtown area new club opening strategy, Koshidaka is stepping up openings of karaoke clubs in Tokyo and three neighboring prefectures. Based on the favorable reputation of Koshidaka s facilities service characteristics of safety, security, reasonableness, and friendliness, the Company will conduct efforts to expand its karaoke system developed in-house Sukitto (Smart Karaoke Internet Terminal) and its Zero Kara clubs targeting high school and younger karaoke users in Tokyo and three neighboring prefectures. While the share of sales booked in Tokyo and three neighboring prefectures during fiscal year August 2012 was 21.1%, it has grown to 31.5% in fiscal year August 2016 and has helped to offset weakness encountered in other outer lying regions. Sales and profits of the Singaporean subsidiary are growing on the back of the injection of knowhow developed in the Japanese karaoke club business and as part of the efforts to leverage profits recorded within Japan to develop the overseas business. As of the end of fiscal year August 2016, there are 457 facilities operated in Japan and 24 facilities operated outside Japan. Koshidaka has been able to achieve low withdrawal rates by leveraging its unique knowhow to build communities at the store level in the Curves Fitness Club business. While the normal exercise programs at Curves requires only 30 minutes, the ability to enjoy the program allows members to realize positive results because they do not get bored or tired of the programs (The most important point of exercise programs is to continue to do them). An aggressive new club opening strategy where attention will be paid to avoid cannibalization of members and sales with existing clubs is being promoted to maintain growth in both club facilities and membership numbers. In addition, Koshidaka will pursue disease prevention and lengthening of healthy life expectancy rates through collaborations with regional government bodies and corporations, and efforts to cultivate synergies between exercise programs and highly effective protein supplements and other product sales to members. Measures are also being implemented to create a club network and systems to grow the total membership number to 1.00 million. As of end fiscal year August 2016, Koshidaka operated 1,722 fitness clubs (Including 55 directly operated clubs) and boasted of 772,000 members.

5 In the hot spring business, Koshidaka currently operates five facilities including the Tokyo Health Land Maneki No Yu Natural Hot Springs (Tokyo), Koriyama Yudokoro Maneki No Yu (Fukushima Prefecture), Misato Onsen Maneki No Yu (Gunma Prefecture), Oita Mori Onsen Maneki No Yu and Oita Lamp No Yu Hanazonoten (The last two are located in Oita Prefecture). Fixed cost reduction efforts through use of human resource development systems in employee training, and efforts to improve operations of facilities (hospitality) by leveraging knowhow developed in the karaoke club business have been implemented to achieve a turn to profitability of the hot spring business in fiscal year August Koshidaka now maintains near term goals of operating profit margin of 10% and increases in customer numbers of 10% by introducing new contents and special campaigns, and refurbishment of some facilities to improve operating efficiencies.

6 2. First Half of Fiscal Year August 2017 Earnings (1)Consolidated Earnings 1H FY8/16 Share 1H FY8/17 Share YY Change Initial Est. Divergence Sales 24, % 26, % +10.1% 26, % Gross profit 6, % 7, % +12.9% - - SG&A 3, % 4, % +6.6% - - Operating profit 2, % 3, % +22.2% 2, % Ordinary profit 2, % 3, % +31.8% 2, % Net profit 1, % 1, % +29.7% 1, % Values in this table and other parts of this report include figures which have been calculated by Investment Bridge, and may differ from those of the Company. Sales, Operating and Ordinary Profit Rise to Record Highs in First Half Sales rose by 10.1% year-on-year to billion. Sales of the karaoke club business rose by 6.6% year-on-year, and sales of the Curves Fitness Club business rose by 15.6% year-on-year on the back of increases in both club and member numbers, and favorable sales of protein and other goods. While no new facilities were opened, sales of the hot spring business rose by 6.6% on the back of various efforts to capture customers. With regard to profits, improvements in operating rates of clubs in Tokyo and surrounding regions in the karaoke club business, and increases in existing facility sales of the hot spring business contributed to a 0.6 point improvement in gross profit margins to 26.9%. Sales, general and administrative expenses rose by only a small margin due in part to efforts to reduce expenses in both the karaoke club and hot spring businesses, allowing operating profit to grow by 22.2% year-on-year. Foreign exchange translation gain amounted to 98 million (Compared with a 99 million loss in the previous term), and club location transfer subsidy to 27 million, allowing non-operating income to improve. Sales, Profits by Business Segment 1H FY8/16 Share 1H FY8/17 Share YY Change Karaoke Club 13, % 14, % +6.6% Curves Fitness Club 9, % 11, % +15.6% Hot Spring % % +6.6% Real Estate Management % % -0.9% Total Sales 24, % 26, % +10.1% Karaoke Club % 1, % +41.6% Curves Fitness Club 2, % 2, % +12.5% Hot Spring % % % Real Estate Management % % +14.6% Adjustments Total Operating Profit 2,577-3, % Quarterly Earnings Trend FY8/16-1Q 2Q 3Q 4Q FY8/17-1Q 2Q YY Change QQ Change Sales 11,143 13,244 12,912 13,868 12,328 14, % +17.9% Gross profit 2,197 4,216 3,062 3,081 2,760 4, % +62.2% SG&A 1,574 2,262 1,997 1,913 2,147 1, % -9.6% Operating profit 623 1,954 1,064 1, , % % Ordinary profit 638 1,843 1,051 1, , % % Net profit 307 1, , % % Gross Margin 19.7% 31.8% 23.7% 22.2% 22.4% 30.8% - - SG&A Margin 14.1% 17.1% 15.5% 13.8% 17.4% 13.4% - -

7 (2) Segment Earnings Trends Karaoke Club Business 1H FY8/16 Share 1H FY8/17 Share YY Change Sales 13, % 14, % +6.6% Gross Profit 2, % 3, % +10.1% SG&A 2, % 1, % -1.9% Operating Profit % 1, % +41.6% Sales rose by 6.6% year-on-year to billion and operating profit rose by 41.6% year-on-year to billion. With regard to sales, success of new club openings to strengthen the club network in Tokyo and surrounding regions and efforts to fortify the unique lineup of services have begun to surface. With regard to profit, increases in operating rates in the Tokyo metropolitan region arising from improved brand recognition and improvements in operations resulting from the switch from the Moon and Sincere brands to Manekineko brand allowed gross profit margin to improve. At the same time, sales, general and administrative expenses and store opening expenses declined. Fortification of the club network primarily in the Tokyo metropolitan region, strengthening of unique service lineup, implementation of Zero Kara focusing on high school students where room usage is free, Asa Uta (Morning karaoke) reduced price karaoke room usage of 10 per 30 minutes for elderly customers offered during the morning, and collaboration with contents holders were effective in cultivating specific groups of target customers during specific operating hours. In addition, implementation of smoke free rooms at clubs operating in Tokyo and surrounding regions from September was well received by family and elderly customers, and contributed to a 5% year-on-year increase in customer numbers. Moreover, the consolidated subsidiary Moon Corporation was absorbed through merger with Koshidaka effective September 1, 2016, and Moon and Sincere brandclubs operated by Moon have been converted to Manekineko brand clubs. Overseas Sales Operating Profits Sales Operating Profits 1H FY8/16 1H FY8/17 1H FY8/16 1H FY8/17 Korea Singapore Total 1, While there are issues with the operations in Korea, Singapore is trending favorably due to the promotion of the Manekineko brand karaoke clubs. Singapore saw a decline in sales due to closures for renovation of clubs, but profits remained in line with the previous year s levels. At the same time, reviews of the business model in Korea are being conducted. Clubs in Japan 1H FY8/16 1H FY8/17 Oversea Clubs 1H FY8/16 1H FY8/17 Manekineko Korea (All Manekineko) One Kara Singapore (8 Manekineko of 11 stores total) Total Total The number of karaoke clubs within Japan rose by 44 to 477 at the end of the first half from 433 at the end of the previous first half, and clubs overseas grew by 1 to 24. Within Japan, 16 clubs were opened through new construction and 5 were taken over from other operators for a total of 21 newly opened clubs (Compared with 17 and 5 in the previous term). Amongst these, 16 were opened in Tokyo and surrounding regions including 8 in Tokyo, 4 in Kanagawa Prefecture and 4 in Chiba Prefecture. Also, 31 clubs were renovated (Compared with 13 in the previous term). In addition, clubs opened by former club managers at existing directly operated facilities to become franchise club owners themselves rose by 4 to 23 (Compared with 19 at the end of the previous first half term). Existing club sales fell by 2.1% year-on-year. Customer pricing declined by a small margin 0.6% year-on-year and remained basically in line with the previous term. At the same time, customer numbers declined by 1.6% year-on-year.

8 Curves Fitness Clubs 1H FY8/16 Share 1H FY8/17 Share YY Change Sales 9, % 11, % +15.6% Gross Profit 3, % 4, % +14.3% SG&A 1, % 1, % +16.9% Operating Profit 2, % 2, % +12.5% Sales and operating profit rose by 15.6% and 12.5% year-on-year to and billion respectively. The factors behind the higher sales (Up billion) include spot sales from memberships of 328 million, royalty income of 569 million, directly operated club sales of 94 million, and sales of protein and other goods of 519 million. With regard to profit, an increase in the share of goods sales caused gross profit margin to decline, but the higher sales offset this decline in margin. Club Member Number Trends (Units: 1,000) Age Distribution (As of End June 2016) FY8/13 FY8/14 FY8/15 FY8/16 2/17 50s 23.6% Under 30s 4.0% Year End s 40.0% 40s 8.9% Interim End s 23.4% Over 50s 87.0% Interim End per Club (1) At the end of the first half, the number of clubs rose by 2.2% or 38 from the end of the previous fiscal year to 1,760 clubs (55 directly operated, 1,647 at the end of previous term). The number of members rose by 1.5% or 12,000 from the end of the previous fiscal year to 784,000 (Compared with 722,000 at the end of 1H of previous fiscal year). The member withdrawal rate was kept to a low level of around 2%. Third Consecutive Year of Number One Ranking in the Japan Consumer Satisfaction Index of the Service Industry Efficiency Promotion Council The Curves Fitness Club division achieved the third consecutive year of number one ranking in the Japan Consumer Satisfaction Index of the Service Industry Efficiency Promotion Council during fiscal year FY2016 Fitness Club Index Six Criteria Rankings (2016 JCSI Ranking by Industry) Rank Client Expectations Perceived Quality Perceived Value Client Satisfaction Willingness to Recommend Loyalty 1 Curves Curves Konami Sports Curves Curves Curves 2 Konami Sports Konami Sports Renaissance Konami Sports Konami Sports Konami Sports 3 Renaissance Renaissance Tipness Renaissance Renaissance Renaissance Companies Evaluated: Curves, Konami Sports, Central Sports, Tipness, Renaissance Hot Spring Facilities 1H FY8/16 Share 1H FY8/17 Share YY Change Sales % % +6.6% Gross profit % % +67.1% SG&A % % -9.4% Operating profit % % % Sales and operating profit rose by 6.6% and 143.6% year-on-year to 827 and 77 million respectively. Favorable reception of free admission for children under elementary school age, bingo games and other measures, and efforts to increase the time spent at the Tokyo Health Land facility by offering comic books and large lounge areas called Maneki Town allowed existing facility sales to grow. With regard to profit, higher sales and reductions in water and heating costs allowed gross profit margin to improve. At the same time, higher labor, consumable products and other costs, general and administrative expenses were offset by efforts to reduce other costs.

9 Quarterly Sales, Profits by Business Segment FY8/16-1Q 2Q 3Q 4Q FY8/17-1Q 2Q YY Change QQ Change Karaoke Club 6,076 7,697 6,764 7,104 6,410 8, % +29.1% Curves Fitness Club 4,635 5,046 5,685 6,300 5,469 5, % +4.7% Hot Spring % +21.5% Real Estate Management % +5.5% Total Sales 11,143 13,244 12,912 13,868 12,328 14, % +17.9% Karaoke Club , , % - Curves Fitness Club 1, , ,222 1, % -6.0% Hot Spring % % Real Estate Management % +17.8% Adjustments Total Operating Profit 623 1,954 1,064 1, , % % (3) Financial Conditions and Cash Flow Balance Sheet Summary 8/16 2/17 8/16 2/17 Cash, equivalents 6,304 7,485 Payables 2,146 1,869 Receivables 2,725 2,703 Unpaid expenses 1,864 1,823 Inventories 1,153 1,273 Unpaid taxes 1,006 1,105 Current Assets 12,185 13,064 Deposit received 1,659 1,648 Tangible Assets 14,802 16,435 Interest Bearing Liabilities 9,924 10,795 Intangible Assets 2,361 2,214 Liabilities 19,244 20,019 Investments, Others 4,167 4,233 Net Assets 14,272 15,928 Noncurrent Assets 21,331 22,883 Total Liabilities, Net Assets 33,517 35,947 Total assets rose by billion from the end of the previous fiscal year to billion at the end of the first half, with the expansion of business. Cash and deposits grew, along with increases in tangible assets and other investments (Deposits, security deposits) accompanying the opening of new clubs. At the same time, net assets and interest bearing liabilities rose, but interest bearing liabilities are expected to be reduced to below 10.0 billion due to repayment of debt by the end of the current term. Capital adequacy ratio rose to 41.9% at the end of the first half from 40.4% at the end of the previous term. Cash Flow Summary 1H FY8/16 1H FY8/17 YY Change Operating cash flow (A) 2,031 3,940 +1, % Investing cash flow (B) -2,884-3, Free cash flow (A+B) , % Financing cash flow % Cash, equivalents at end term 5,453 7,430 +1, % Increases in profits, improvements in capital efficiency, and declines in tax expenses allowed the net inflow of operating cash flow to nearly double. Increases in capital investments arising from refurbishments were absorbed and allowed free cash flow to turn to a net inflow of 674 million.

10 3. Fiscal Year August 2017 Earnings Estimates Consolidated Earnings FY8/16 Share FY8/17 Est. Share YY Change Sales 51, % 55, % +7.7% Operating profit 4, % 5, % +13.7% Ordinary profit 4, % 5, % +17.4% Net profit 1, % 2, % +41.8% Full Year Estimates Remain Unchanged, Call for 10 th Consecutive Year of Higher Sales and Profits Koshidaka HOLDINGS earnings estimates call for sales to rise by 7.7% year-on-year to billion. Sales of the karaoke club business are expected to rise by 9.6% year-on-year on the back of various efforts focused upon clubs in the Tokyo metropolitan region. At the same time, sales of the Curves Fitness Club business, which is planning to open 90 new clubs, are expected to rise by 5.6% year-on-year and sales of the hot spring business are anticipated to rise by 5.5% year-on-year on the back of 10% year-on-year increases in customer numbers at the five existing facilities. Consequently, sales of all three businesses are expected to rise. Operating profits are expected to grow by 13.7% year-on-year to billion. Favorable trends in existing clubs within the karaoke business are expected to boost operating profit by 24.1% year-on-year. In addition, the hot spring business is expected to see a 70.1% year-on-year increase in operating profit on the back of higher sales and energy conservation measures. Advertising expenses to increase the brand awareness of the Curves Fitness Club business are expected to be absorbed to allow operating profit to rise by 7.4% year-on-year. Sales, Profits by Business Segment FY8/16 Share FY8/17 Est. Share YY Change Karaoke Club 27, % 30, % +9.6% Curves Fitness Club 21, % 22, % +5.6% Hot Spring 1, % 1, % +5.5% Real Estate Management % % -2.9% Total Sales 51, % 55, % +7.7% Karaoke Club 1, % 1, % +24.1% Curves Fitness Club 4, % 4, % +7.4% Hot Spring % % +70.1% Real Estate Management Adjustments % % - Total Operating Profit 4,810-5, % (2) Second Half Business Strategy Koshidaka has restarted opening One Kara clubs along with continued opening of Manekineko clubs in urban locations in front of stations and busy business districts in the karaoke club business. Based upon the outlook for an increase in the rate of new Manekineko club openings, the first One Kara club in Osaka is expected to be opened. With regard to marketing, efforts to boost the Zero Kara, Zero Kara + and Asa Uta services are expected to be strengthened. In addition, other services including automated systems for check in and payment are expected to be introduced in the coming term. With regards to overseas business deployment, Koshidaka is considering entering Vietnam, Philippines, Indonesia, and other new markets in Southeast Asia due to the outlook for the earnings contribution of the Singapore operations to accelerate. At the same time, reviews of operations in Korea will be made to resolve the difficult conditions in that market. Establishing a store network to achieve a member network of 1.00 million, Koshidaka expects to open between 90 and 100 clubs in the Curves Fitness Club business with a view to avoiding cannibalization. Moreover, efforts will be implemented to further raise customer satisfaction and help resolve various societal issues by expanding the positive effects of exercise to an even wider group of customers. As part of this strategy, educational activities about the benefits of exercise are being conducted in collaboration with regional governments. In the hot spring business, service contents and facilities will be fortified with a goal of growing sales. Specifically, features such as free admission for elementary school aged children, bingo games, and other measures will be implemented, along with introduction of carbonated spring water at all facilities. In addition, a large lounge space called Maneki Town, with comic books and relaxation rooms, was opened at

11 the Tokyo Health Land facility. Koshidaka HOLDINGS will endeavor to achieve its goal of 10% operating profit margin by raising sales, and reducing costs through energy conservation measures. Specifically, heat exchangers have been newly introduced, and air conditioning, filtration systems and boiler facilities have been renovated to reduce energy consumption and achieve further increases in efficiency. Furthermore, the Company is considering restarting new facility openings through take over and renovation of existing facilities operated by other companies. (3) Shareholder Returns: Dividend Raised by 2 to 34 Per Share Koshidaka HOLDINGS had been expected to pay a yearend dividend of 16 per share, but is now expected to raise this to 18 per share to commemorate the move of its shares to the First Section of the Tokyo Stock Exchange for a full year dividend payment of 34 per share (Dividends of 15 and 17 per share were paid at the ends of the interim and full year periods in the previous fiscal year). Furthermore, Koshidaka also offers 5,000 in shareholder coupons to all shareholders holding more than 100 shares and different catalog gifts in accordance with the number of shares held as of the registry date of August 31, 2016 as part of its shareholder benefit program. Shareholders of over 100 but less than 1,000 shares are offered catalog gifts worth 3,000, and those holding over 1,000 share are offered catalog gifts worth 5, Conclusions Business in Tokyo and surrounding regions trended favorably on the back of increased brand recognition of the karaoke club business. Koshidaka HOLDINGS has benefited from the retreat by major competitors in certain regions and subsequently seen higher profits. Introduction of the Asa Uta (Morning karaoke) service has been able to grow the number of older aged customers who use karaoke clubs during the morning, and customers over the age of 60 have risen by over 10%. The Company endeavors to expand its karaoke club network to 1,000 clubs by leveraging its differentiated facilities and services. At the same time, the key issues of how Koshidaka can halt the decline in existing regional club sales, and how it can raise club usage by 30 to 40 years old working male and female customers at all of its clubs remain in play. Koshidaka HOLDINGS is working to resolve the difficult conditions in Korea and consideringto expand its business in new markets within Southeast Asia. The Company hopes to be able to access new growth opportunities by expanding its business beyond Singapore. Efforts to increase usage of Curves Fitness Clubs by older customers are gaining success. Consequently, many of the Curves Fitness Clubs achieve full usage by 24 members shortly after they open at 10A.M. because of the strong demand from older customers. Koshidaka seeks to contribute to resolution of societal issues by leveraging its karaoke club service characteristics of safety, security, reasonableness, and friendliness and by expanding the awareness of the health benefits of singing and exercise. It also seeks to expand its corporate social responsibility through its various services. At the same time, the Company will expand its club network while seeking to avoid cannibalization. Also, Koshidaka HOLDINGS is considering the restart of new facility openings in hot spring business due to improvement in their operating conditions. Efforts to reduce costs and expand marketing to raise sales have been made to help offset the downward trend in personal consumption. Therefore, the ability of Koshidaka to cultivate this business into the third cornerstone of its overall business should be watched closely. <Reference: Regarding Corporate Governance> Organization type and the composition of directors and auditors Organization type Company with an audit and supervisory board Directors Corporate Governance Report Updated on Dec. 1, directors, including 3 outside ones Basic Policy The basic policy for corporate governance of our corporate group is to achieve swift decision making and flexible organizational operation for strengthening our corporate competitiveness amid the rapidly changing business environment, while keeping the transparency and soundness of business administration for maximizing the corporate value with respect to shareholders, and we have developed systems and implemented some measures for it. The important mission in our business administration is to achieve sustainable growth and improve our medium and longterm corporate value. In order to fulfill this mission, our corporate group has fostered good relationships with all stakeholders, including

12 shareholders and customers, while respecting their respective standpoints, and set our group s management philosophy and behavioral standards for following the philosophy. Corporate Mission Our mission is to contribute to the realization of lifestyles full of leisure and to the establishment of a peaceful world filled with hope by continuing to create, offer and provide the world with new and meaningful products and services. Behavioral Standards 1. Have a spirit of entrepreneurship 2. Have a customers come first mentality 3. Create new services 4. Refine our spirit of hospitality 5. Have a morals before profit mentality 6. Maintain equality and fairness 7. Maintain compliance 8. Maintain awareness of global environmental conservation 9. Encourage staff to educate themselves 10. Offer an abundance of opportunity <Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)> Principle 1-4 The so-called strategically held shares The basic policy of our company is not to hold shares strategically. Principle 1-7 Transactions among parties concerned In our company, important transactions with executives and major shareholders (transactions among parties concerned) are determined by the board of directors. For each account settlement, directors and major shareholders are obligated to submit a written confirmation about whether they have conducted any transactions among parties concerned. Principle 5-1 Policy for developing systems and implementing measures for promoting constructive dialogue with shareholders (Basic policy) Through constructive dialogue with shareholders, we will deepen their understanding of our company, achieve sustainable growth, and improve our medium and long-term corporate value. (Division in charge) If a shareholder requests a dialogue (meeting), the division in charge of IR will deal with the request. After confirming the purpose, etc. of the dialogue (meeting) of the shareholder, the management, including the executive in charge of the IR division, will hold a meeting, if necessary. (Means for dialogue other than individual meetings) In our company, directors disclose information regularly through results briefing sessions, etc. (Prevention of the leakage of insider information) As for the management of insider information, our company prevents the leakage of insider information by managing information rigorously in accordance with the in-company regulations for inside information management and the prevention of insider trading. This report is intended solely for informational purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration. Copyright(C) 2017, Investment Bridge Co., Ltd., All Rights Reserved. To view back numbers of Bridge Reports on Koshidaka HOLDINGS Co., Ltd. (2157) and other companies and to see IR related seminars of Bridge Salon, please go to our website at the following url: