Company Research and Analysis Report
FISCO Ltd.
http://www.fisco.co.jp

ADERANS
8170 Tokyo Stock ExchangeFirst Section

27-Nov.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

伪伪Domestic business prospering due to effective
advertising and sales promotion
Since its establishment, Aderans has remained the top provider of wigs in Japan in terms ofsales. The company produces and sells custom-made wigs for men and women and readymade wigs for women in Japan, the US, the main countries of Europe, China, Taiwan andSingapore. It also offers a wide range of hair care services other than wigs, including hairgrowth services, hair-volumizing products, hair growth, partial hair supplementation, and hairtransplantation services and hair care products.
Due to a decline in the Japanese population and to changes in the mentalities of Japanesemen, the Japanese market for men’s wigs has been shrinking, and it will probably continue toshrink. However, Aderans holds the top share of the Japanese market for women’s wigs andplans to expand sales of these wigs over the medium to long term by attracting new customers
and by expanding its overseas business, in which it greatly outstrips Japanese competitors.
Japanese women in their 60s comprise the company’s main customer segment, but Aderansis also appealing to women in their 40s with low-cost, easy-to-use, readymade wigs. In April
2013, Aderans purchased HC (USA) Inc., the largest provider of wigs in the US.
In the first half of the fiscal year through February 2015, i.e., in H1 FY2/15, Aderans’ domestic
business remained strong due to the company’s effective advertising and sales promotion
activities. HC (USA) Inc. increased its sales and contributed to consolidated revenue inoverseas business. Because Aderans’ depreciation and amortization cost increased with thepurchase of HC (USA) Inc., its operating profit declined by 21.7% year on year (y o y) in
H1 FY2/15, but Aderans considers earnings before interest expense, taxes, depreciation andamortization expenses (EBITDA) the most meaningful measure of profit, and EBITDA increased
by 18.4% y o y to \3,495 mn in H1 FY2/15.
It is difficult to appraise the business performance of Aderans because of factors such as
the increase in depreciation and amortization cost cited above and the company’s use oftax-effective accounting. EBITDA seems to be an appropriate measure by which to judge acompany like Aderans, which is pursuing profit growth through aggressive acquisitions. EBITDA
is widely used globally, and by discounting this profit by applying a normal tax rate, a measureof net profit reflecting the company’s true strength can be calculated. Using this measure of
net profit, we estimate Aderans’ FY2/15 ROE at 14.3%, which is close to the 15% ROE target
that many companies worldwide are striving to attain. If equity investors were aware of thisstrength, Aderans’ share price valuations would probably rise.

伪伪Check Point• Overseas wig sales grew strongly in H1 FY2/15, reflecting the full-scale contributionof HC (USA) Inc.
• As investor awareness of Aderans’ EBITDA and ROE based on EBITDA grows, thecompany’s share price valuations are likely to rise
• The company plans to pay a dividend of ¥15 per share for FY2/15, and there appears
to be ample room to raise the dividend

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1

Consolidated Sales and Operating Profit (\mn), FY2/09–FY2/15E(¥mn)

Sales (left axis)(¥mn)

Operating profit (right axis)

ADERANS
8170 Tokyo Stock ExchangeFirst Section

27-Nov.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

FY2/09FY2/10FY2/11

FY2/12

FY2/13

FY2/14

FY2/15E

Note: FY2/15 estimates are by the company
Source: Company

伪伪Company Outline
While expanding business in Japan, Aderans entered overseas
markets at earlier stage of history(1) Company History
Aderans was founded in 1968 by current representative director, chairman and president
Nobuo Nemoto and two colleagues as a specialized provider in custom-made wigs for men.
In 1985, the company entered the women’s wig market on a large scale by buying FontaineCo., which had been selling the Fontaine brand of ready-made wigs for women since 1970 as a
subsidiary of Kaneka Chemical Co., now called Kaneka Corp. (4118).
While expanding its domestic operations, Aderans entered overseas markets at earlier stageof history. In 1979, it set up its first overseas subsidiary, Aderans Corporation of America.
Aderans had to revamp its US business about a decade later, but it set up production bases in
Asia and bought sales companies in Europe.
After peaking in the early 2000s, the company’s sales and profits declined, primarily because
the growth of Japan’s wig market slowed, the share of Japan’s hair care market accounted forby the wig market declined, and new wig makers entered the market. The company restructured
its operations in Japan and overseas, overcame the economic impact of the global financial
crisis after the Lehman shock and other factors, returned to profitability in FY2/12, and has
expanded its profits since then.

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2

■Company■
OutlineHistory
Sept. 1968
Mar. 1969
Mar. 1970

ADERANS
8170 Tokyo Stock ExchangeFirst Section

27-Nov.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Jul. 1979
Aug. 1985
Sept. 1985
Apr. 1990
Jan. 1992
Mar. 1992
Nov. 1994
Dec. 1994
Aug. 2001
Jan. 2002
Sept. 2007
Sept. 2010
Feb. 2011
July 2011
Sep. 2012
April 2013
May 2014

Started business
Established as a company
Mr. Nobuo Nemoto became president.
Established Fontaine Co. to sell the Fontaine brand of ready-made wigs for women, which
was made by Kaneka Chemical Co., now Kaneka Corp. Kaneka Chemical Co. Bought Fontaine
Co. in August 1970.
Established Aderans Corporation of America
Took a controlling equity interest in Fontaine Co., making it a subsidiary
Registered shares on Japan’s over-the-counter equity market
Started operating custom-made wig salons for women only
Established Aderans Europe
Made the Comaflex companies in France, Germany and Belgium subsidiaries
Established Aderans Holding Co., now Aderans America Holding Co.
Registered shares of Fontaine Co. on Japan’s over-the-counter equity market
Made Bosley Medical Institute (now Bosley) and Bosley Medical Canada Co. subsidiaries
Established Aderans Philippines
Aderans renamed Aderans Holdings Co., and Aderans Co. reestablished as an operatingcompany.
Aderans Holdings merged Aderans Co. and Fontaine Co. and renamed the merged company
Unihair Co.
Mr. Nobuo Nemoto becomes president and chairman of Unihair Co.
Unihair Co. renamed Aderans Co.
Made Le Nouvelle Espace Beauté in France a subsidiary
HC (USA) Inc., of the US, made a subsidiary
Aderans Lao Co., Ltd. establishedSource: Fisco Inc. from company information and other materials

Company developed Aderans brand of custom-made wigs andFontaine brand of ready-made wigs
(2) Description of Businesses
The company’s main product is wigs. The wig market in Japan is divided by gender and by
product specification, i.e., ready-made or custom-made. The company includes in its Aderansbusiness the sale of all custom-made wigs in Japan and related services, for both men andwomen. Its Fontaine business sells ready-made wigs for women in Japan.
The company sells other brands of ready-made wigs for women in Japan, depending on thesales channel. However, its main sales channel is department stores, through which, it sells the
Fontaine brand, and the company refers to all of its brands of ready-made wigs for women as
the Fontaine brand.
Overseas, Aderans develops both wig and hair transplantation businesses. The wig business,both custom-made and ready-made, is undertaken mainly by HC (USA) Inc., which was acquiredby Aderans in April 2013 and operates as Hair Club Inc. Aderans also develops wig business in
Europe and East Asia, primarily China. The hair transplantation service is provided by subsidiary
Bosley, Inc., of the US. Unlike the wig business, hair transplantation is a surgical procedure of
attaching healthy hair follicles, which include hair roots, into the scalp. This procedure costs
less overseas than it does in Japan, and there is a steady demand for it overseas. Bosley, Inc. is
the most experienced and most trusted provider of hair transplantations, with an approximately
10% share of the US market.

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3

■Company■
OutlineBreakdown of H1 FY2/15 Sales by Product and Market

Domestic sales of custom-made wigs for men

ADERANS

Domestic sales of custom-made wigs for women

8170 Tokyo Stock ExchangeFirst Section

Domestic sales of ready-made wigs for women
Bosley business (hair transplantation in the US)
Overseas wig business
Other domestic businesses

27-Nov.-14

Other overseas businesses

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Source: compiled by Fisco based on company materials

伪伪Growth Strategy
Focus on the promotion for increasing target customers in theJapanese market for women’s wigs
The growth of different segments of the wig market varies substantially, depending onsuch factors as population change, perceptions of the need for hair care, and as a result of
these factors, changes in the segment of a population that is likely to use hair restoration
services. Based on its analyses and forecasts, Aderans has concluded that there is significant
growth potential in the Japanese market for women’s wigs and in the overseas wig market.
Consequently, the company is concentrating on expanding its profits in these markets. We
concur with the company’s analysis and believe that its growth strategy is rational and is likely
to succeed.
(1) Domestic Wig Business for Women
The age range of Japanese women who buy wigs is 40–89. As detailed in the table below, thissegment of Japan’s population is projected to grow by 3% in the 10 years through October
2023. Aderans holds the top share of the Japanese market for women’s wigs, of about 40%,and in order to expand its profits, it is promoting sales routes through which it can increase
sales to the target market segment.

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4

■Growth■
Strategy

Japan’s Female Population Over Age 10 and Under Age 90, 2013–2033

ADERANS
8170 Tokyo Stock ExchangeFirst Section

27-Nov.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Current
Oct. 2013
5,811
6,518
8,504
8,760
7,843
9,492
7,470
4,682
59,08038,247

Age range
10–19
20–29
30–39
40–49
50–59
60–69
70–79
80–89
Total (10–89)
Total of wig-buying ages (40–89)

10 years after
Oct. 2023
change5,094-12.3%
5,884
-9.7%
6,394
-24.8%
8,137
-7.1%
8,780
11.9%
7,504
-20.9%
8,784
17.6%
5,982
27.8%
56,559-4.3%
39,187
2.5%(thousands)
20 years after
Oct. 2033
change4,285-15.9%
5,237-11.0%
5,913
-7.5%
6,321
-22.3%
7,988
-9.0%
8,521
13.6%
7,017
-20.1%
7,115
18.9%
52,396-7.4%
36,962-5.7%

Note: Population projections are based on the most likely fertility and mortality rates
Sources: Compiled by Fisco, Inc. based on Population Estimates by the Statistics Bureau of the Ministryof Internal Affairs and Communications and Population Projections for Japan as of January 2012by the National Institute of Population and Social Security Research

In Japan, Aderans sells its custom-made wigs through directly operated salons, which numbered
149 at the end of August 2014. It sells its ready-made wigs through department stores, directly
operated shops, and major distribution chains. At the end of August 2014, there were 204 suchoutlets. Aderans prices its ready-made wigs much lower than its custom-made wigs to entice
women to try the ready-made wigs initially, hoping that they will advance to custom-made wigs
after they become accustomed to wearing a wig.
Sales Routes for Ready-made Wigs for Women in Japan
Sales route

No. of outlets
2/2014 8/2014

Department
stores148

Major
distribution
chains13

Directly
operated shops
Beauty salons
Total

Brand

Remarks

Fontaine Company gives demonstrations at areas ofdepartment stores for this purpose. In H1 FY2/15, 151
151 Fontaine
demonstrations were given.
The Swanee by Fontaine brand is sold through Aeon stores.
Swanee by A new brand, René of Paris by Fontaine, was launched
22
Fontaineon Sept. 26, 2014 for sale through stores operated by
Mitsukoshi Isetan Holdings.

30

31 Fontaine

191- Fontaine
204

Direct sales to beauty salons totaled ¥727mn in H1 FY2/15.

As Aderans operates corners in major of Japan’s department stores that sell the Fontaine
brand of ready-made wigs for women, the company has a strong connection with thesedepartment stores. So Aderans holds try-on fairs at department stores across Japan where
products are displayed and easily accessible to touch and try on under the connection.
Through this approach, the company avoids paying for the event space and its only cost is forthe transportation of products, tables, chairs and promotional materials. Therefore, Aderansaggressively hold the try-on events in the current fiscal year. In H1 FY2/15, Aderans held 151
events. This was 74% more than the 87 demonstrations it gave in H1 FY2/14.
In H1 FY2/15, Aderans added 13 new outlets to its sales channels, and it plans to add 10 more in
H2 FY2/15. It is concentrating on increasing the number of outlets at major distribution chainsbecause it has fewer outlets at these locations than at department stores, and therefore, agreater potential for increase. While it sold through corner of 151 department stores at the endof H1 FY2/15, it sold through only 22 outlets at major distribution chains.
More importantly, the brand of ready-made wigs sold at major distribution chains, called
Swanee by Fontaine, and the brand sold at small to medium-sized stores in residential area,
called René of Paris by Fontaine, are cheaper than the Fontaine brand sold at department
stores. They are targeted to price-sensitive women in their 40s, who may eventually decide tobuy a custom-made wig.

We encourage readers to review our complete legal statement on “Disclaimer” page.
5

■Growth■
Strategy

The René of Paris by Fontaine brand is new. The first store to sell it began to do so on
September 26, 2014. This store is part of a small to medium-sized stores called MI Plaza.
MI Plaza is operated by Mitsukoshi Isetan Holdings (3099), and targets consumers in their50s–60s. However, Aderans is also trying to attract more customers in this age group with
low-priced products.

ADERANS
8170 Tokyo Stock ExchangeFirst Section

These marketing efforts by Aderans yielded results in H1 FY2/15, when sales of custommade wigs for women grew 5.1% y o y to ¥9,374mn and sales of ready-made wigs for women
increased 7.6% y o y to ¥5,229mn.
Sales of Wigs and Related Services for Women, FY2/13–H1 FY2/15(¥mn)
FY2/14
FY2/15H1
H2
H1
FY2/13
FY2/14yoy
FY2/14 FY2/14
FY2/1527-Nov.-14
Product line

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Custom-made wigs (Aderans business)
Sales to new customers
Sales to repeat customers
Total sales
Ready-made wigs
Sales through dept. stores, major
distribution chains, and directly operated
shops (Fontaine business)
Sales to beauty salons
Total sales

6,287
9,620
15,907

3,069
5,847
8,916

3,408
5,354
8,763

6,477
11,201
17,679

3,242
6,131
9,374

5.6%
4.9%
5.1%

8,536

3,998

4,989

8,987

4,502

12.6%

2,441
10,977

860
4,858

1,504
6,493

2,364
11,351

727
5,229-15.5%
7.6%

Overseas wig sales grew strongly in H1 FY2/15, reflecting the fullcontribution of HC (USA) Inc.
(2) Overseas Wig BusinessIn H1 FY2/15, Aderans’ overseas wig business generated sales of \11,656mn, which was
69.4% more than its sales in H1 FY2/14 (the above net sales is based on a simple sum of thefinancial data for subsidiaries in overseas wig business. Therefore, the figures may differ fromthe sales of reporting segment in the financial statements). This large growth reflected the fullterm contribution of HC (USA) Inc. Although Aderans purchased this company in April 2013, it
contributed only three months of sales in H1 FY2/14. US sales of wigs by company other thanHC (USA) Inc. fell 17.0% y o y, while wig sales in Europe rose 15.3% y o y, and wig sales in otheroverseas markets increased 26.6% y o y.
Overseas Sales of Wigs and Related Services, FY2/13 – H1 FY2/15

MarketCompany

Business

AHG
ready-made wigs
North
HC (USA) Inc.
custom-made wigs
America
North America total
Europe Other
Total

(¥mn)
FY2/14
FY2/15H1
H2
H1
FY2/13
FY2/14yoy
FY2/14 FY2/14
FY2/15
2,174
1,220
1,440
2,660
1,013 -16.3%
3,235
7,407 10,642
7,815
2,174
4,455
8,847 13,302
8,828
98.1%
3,051
2,161
2,279
4,440
2,492
15.3%
283
264
283
547
335
26.6%
5,509
6,881 11,409 18,290 11,656
69.4%

Aderans has greater expectations of HC (USA) Inc. than for its other overseas wig subsidiaries.
HC (USA) Inc. holds the largest share of the US market for custom-made wigs for men andgenerates annual sales of about ¥16bn. This subsidiary also produces custom-made wigs for
women, but 80% of its sales come from wigs for men, and only 20% from wigs for women. It
operates about 100 stores throughout the US.

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6

■Growth■
Strategy

The management of Aderans foresees great growth potential for HC (USA) Inc., especiallywhen compared with the severe share competition in Japan’s wig market. The first source ofgrowth it anticipates, based on its experience in Japan, is in expanding HC (US) Inc.’s sales
to women to at least match those of its sales to men. We agree that this is a realistic target.
Aderans aims to achieve this goal as soon as possible. If it accomplishes this as planned, it
could easily add about \10bn to annual sales.

ADERANS
8170 Tokyo Stock ExchangeFirst Section

27-Nov.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Image of Sales Breakdown for HC (USA) Inc. by Gender

FutureNow

women’s
wigs

women’s
wigs

men’s
wigs

men’s
wigs

The second source of growth Aderans projects for HC (USA) Inc. is in increasing the numberof its stores. In Japan, Aderans sells its custom-made wigs through 155 salons, which is morethan 50% higher than the number of stores operated by HC (USA) Inc. Considering that the landarea of the US is many times the land area of Japan, HC (USA) Inc. is much less represented
in the US than Aderans is in Japan. Of course, it is important to train personnel to effectively
operate new stores. Therefore, Aderans is planning to increase the number of HC (USA) Inc.
stores by about 10 per year. This restrained rate of expansion should reduce the business risk
inherent in expansion.
The third way in which Aderans plans to expand the business of HC (USA) Inc. is to increase
the type of products it offers. Specifically, the company plans to test the US market for its
receptiveness to hair-volumizing products. In Japan, Aderans sells these products under the
Pinpoint brand. In the US, consumers tend to migrate from hair-growth services directly towigs, but Aderans believes that these consumers may be attracted to hair-volumizing products
because they cost less than wigs and are easy to apply.
HC (USA) Inc. appears to be growing. It is impossible to compare its H1 FY2/15 results with
its results in H1 FY2/14 because it contributed to Aderans’ sales and profits for only the final
three months of H1 FY2/14. However, based on its monthly sales growth, it appears that its
sales in US dollars are growing by about 4% per year. Aderans overhauled the advertising of
HC (USA) Inc. and some of its other functions, which may be contributing to the subsidiary’s
growth. In H1 FY2/15, HC (USA) Inc.’s cost of depreciating tangible and intangible fixed assets,
plus its cost of amortizing goodwill totaled ¥1,361mn. Therefore, the company reported an
operating loss of ¥597mn for H1 FY2/15. However, its EBITDA, which reflects its cash fromoperations, amounted to ¥764mn, and its EBITDA margin was almost 10%.

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7

■Growth■
Strategy

Business Results of HC (USA) Inc., H1 FY2/14–H1 FY2/15

ADERANS
8170 Tokyo Stock ExchangeFirst Section

27-Nov.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa(¥mn)
FY2/14
FY2/15H1 FY2/14
H2 FY2/14
FY2/14※H1 FY2/15
Sales
3,235
7,407
10,642
7,815
Operating profit
-352
-395
-747
-597
Depreciation & amortization cost
606
1,310
1,916
1,361
EBITDA
253
915
1,168
764
Note: H1 FY2/14 contained only 3 months of operations, so FY2/14 contained 9 months.
Source: Company materials

伪伪Business Trends and Financial Analysis
As investor awareness of Aderans’ EBITDA and ROE based on
EBITDA grows, the company’s share price valuations are likely to rise(1) Financial Analysis
At the end of FY2/14, the company’s ROE was 13.0%, which is relatively high for a Japanesecompany, but we estimate that its ROE at the end of FY2/15 will drop to 11.7%. The company
uses tax-effective accounting, which should raise its net profit compared to its level without
tax-effective accounting, implying that its ROE in FY2/15 without tax-effective accounting
would be lower than 11.7%. However, we take a different view.
The company’s depreciation and amortization cost makes it difficult to analyze its financial
condition. Because Aderans is growing through acquisitions, its profit margins from theoperating profit margin to lower levels on an income statement will remain low for several
years. Thus, the company places greater importance on its EBITDA than on other profit levels.
We estimate Aderans’ FY2/15 EBITDA margin at 11.3%, which would be about double its
operating profit margin based on the company’s forecasts. Discounting our estimate of EBITDA
by the company’s effective tax rate of 35% produces a measure of net profit, exclusive of
extraordinary factors, that is a more precise measure of the company’s strength than the net
profit forecast by the company. This procedure yields a “real” net profit of ¥5,426mn. Applying
this figure to our estimate of total equity at the end of FY2/15 produces an ROE of 14.3%,
which Aderans considers to be its actual ROE. The company’s share price valuations, however,indicate that equity investors do not share this appraisal. If investors were to understand thesemeasures, the company’s valuations would probably rise.

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8

■Growth■
Strategy

Financial Measures for Aderans, FY2/12–FY2/15E

8170 Tokyo Stock ExchangeFirst Section

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at the end of this document.

Measures of profitability andoperational efficiency

27-Nov.-14

Principal measures

ADERANSFISCO Ltd. Analyst
Hiroyuki Asakawa

Sales

(¥mn)

SG&A costs(¥mn)

Operating profit
Recurring profit
Net profit

(¥mn)
(¥mn)
(¥mn)

Total assets(¥mn)

Total equity(¥mn)

Depreciation &(¥mn)
amortization cost
Return on equity％
Recurring profit/％
total assets
Net profit margin％
Total assets/total(times)equityAsset turnover ratio (times)
Recurring profit％
marginGross profit margin％
SG&A cost ratio％
Operating profit％
marginFY2/12 FY2/13 FY2/14 FY2/15E
Remarks
47,422 51,089 67,755 74,000 Company forecast
Assumes same SG&A cost ratio in
36,330 38,145 50,321 54,959
FY2/15 as in FY2/14
2,531
3,559
3,616
4,100 Company forecast
2,547
3,849
4,481
4,000 Company forecast
1,134
3,301
4,281
4,400 Company forecast
Assumes same asset turnover ratio
35,697 40,904 63,892 62,604
in FY2/15 as in H1 FY2/15 (1.17x)
Assumes dividend payments are the only
26,145 30,086 35,560 39,408
external flow from equity
Assumes FY2/15 cost is twice the
1,170
1,061
3,149
4,248
cost in H1 FY2/15
4.4%
11.7%
13.0%
11.7% ROE
6.8%

10.0%

8.6%

6.3% ROA

2.4%

6.5%

6.3%

5.9% Margin

1.46

1.36

1.60

1.69 Leverage

1.26

1.33

1.29

1.17

5.4%

7.5%

6.6%

5.4%

81.9%
76.6%

81.6%
74.7%

79.6%
74.3%

79.8%
74.3%

5.3%

7.0%

5.3%

5.5%
16.0%

Growth rates

Sales

％

-

-

-

Operating profit

％

-

-

-

Recurring profit

％

-

-

-

Net profit

％

-

-

-

Estimated average annual rates in
FY2/13–FY2/15
Estimated average annual rates in
17.4%
FY2/13–FY2/15
Estimated average annual rates in
16.2%
FY2/13–FY2/15
Estimated average annual rates in
57.1%
FY2/13–FY2/15

Both Aderans and Fontaine businesses are steadily recovering(2) H1 FY2/15 Results
In H1 FY2/15, Aderans’ consolidated sales increased by 20.6% y o y to \37,246mn, but its
operating profit fell 21.7% to \1,371mn, its recurring profit dropped 15.9% to \1,652mn, and its
net profit plunged 48.4% to \1,394mn. The main cause of the operating profit decline was a large
increase in depreciation and amortization cost accompanying the purchase of HC (USA) Inc.
in April 2013. The company’s EBITDA increased by \543mn, or by 18.4% y o y to \3,495mn in
H1 FY2/15 from \2,952mn in H1 FY2/14. Net profit in H1 FY2/14 increased owing to a drop inincome taxes-deferred after examining recoverability of deferred tax assets, but the current
H1 didn’t have these extraordinary factors, which led to lower net profit.
In Japan, sales in the Aderans business (custom-made wigs for men and women) and in the
Fontaine business (ready-made wigs for women) increased y o y in H1 FY2/15, reflecting theeffectiveness of the company’s spending on advertising and sales promotions.
Of particular interest is the 7.1% y o y rise in sales of custom-made wigs for men in Japan to¥5,739mn in H1 FY2/15. Sales to repeat customers grew 4.0% y o y to ¥5,125mn and sales to
new customers surged 43.1% y o y to ¥613mn. The acquisition of new customers is essential
to the business of selling custom-made wigs because without new customers, the number of
repeat customers dwindles. The number of new customers for sales of custom-made wigs formen in Japan has been declining for several years. However, half-year sales of ¥613mn indicate
full-year sales of more than ¥1.2bn, which would be the highest level in six years. We consider
this strong recovery in sales to new men’s customers to be the most significant developmentin the company’s H1 FY2/15 results and intend to monitor this recovery hereafter.

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9

■Growth■
Strategy

HC (USA) Inc. increased its US dollar sales by about 4% y o y in H1 FY2/15 to the equivalentof ¥7,815mn. This growth is one reason that Aderans expects this subsidiary to lead growthover the medium term. HC (USA) Inc. reported an operating loss of ¥597mn for H1 FY2/15 but
an EBITDA of ¥764mn.

ADERANS

Factors (\mn) Contributing to Aderans’ Consolidated Operating Profit in H1 FY2/15(\mn)

8170 Tokyo Stock ExchangeFirst Section
increase in
SG&A costs for
wig and Bosleybusinesses in
the US andEurope due toyen depreciation

27-Nov.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

increase indomestic
gross profit

increase indomestic
SG&A costs

H1 FY2/14
operating profit

increase ingross profit
from overseas
wig and Bosleybusinesses

increase in
other
SG&A costs forfactors
wig and Bosleybusinesses in the US
and Europe due tobusiness growth

H1 FY2/15
operating profit

Sales seen growing due to full contribution of HC (USA) Inc. andrecovery of domestic businesses(3) Company Forecasts for FY2/15
For FY2/15, Aderans left its original forecasts unchanged, projecting a 9.2% y o y rise in sales
to ¥74.0bn, a 13.4% increase in operating profit to ¥4.1bn, a 10.7% decline in recurring profit to¥4.0bn, and a 2.8% upturn in net profit to ¥4.4bn.
It expects sales to rise as a result of the full contribution of HC (USA) Inc. and of the recovery
in its domestic businesses. The rise in sales should lift operating and recurring profits, but thecompany projects a decline in recurring profit because it does not expect a non-operating
foreign exchange gain similar to the gain it reported in FY2/14.
The wig business is stronger in winter than in other seasons, and the company’s forecasts
reflect this seasonality, as they originally called for sales of ¥33bn in H1 FY2/15 and ¥41bn in
H2 FY2/15. The company reported sales of ¥37,246mn for H1 FY2/15 but left its forecast forH2 unchanged. It seems possible that FY2/15 sales will exceed the company’s forecast by theamount by which H1 sales surpassed its forecast.
However, we doubt that profits in FY2/15 will surpass the company’s forecasts because
the yen is weaker against the US dollar than the average rate of ¥97 that the company had
assumed in making its forecasts. Aderans expects HC (USA) Inc. to suffer another operating
loss in H2 FY2/15, but this loss could be larger than Aderans expects if converted into yen at
the current yen-dollar exchange rate.

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10

■Growth■
Strategy

Summary Consolidated Income Statement, FY2/11– FY2/15E(¥mn)
FY2/14

Sales
yoy
Gross profityoy
SGA costs
yoy
ratio
Operating profityoymarginRecurring profityoymarginNet profityoymargin48,171-16.0%
38,877-12.6%
44,760-10.0%
92.9%-5,883-12.2%-6,317-13.1%-23,213-48.2%

47,422-1.6%
38,862-0.0%
36,330-18.8%
76.6%
2,531
5.3%
2,547
5.4%
1,134
2.4%

51,0897.7%
41,704
7.3%
38,145
5.0%
74.7%
3,559
40.6%
7.0%
3,849
51.1%
7.5%
3,301
191.1%
6.5%

30,875
24,62922,878
74.1%
1,751
5.7%
1,964
6.4%
2,705
8.8%

36,88029,30927,443
74.4%
1,865
5.1%
2,517
6.8%
1,576
4.3%

Fullyear
67,755
32.6%
53,93829.3%
50,321
31.9%
74.3%
3,616
1.6%
5.3%
4,481
16.4%
6.6%
4,281
29.7%
6.3%

EPS (¥)DPS (¥)-630.65
0.00

30.83
0.00

89.69
10.00

73.50
0.00

42.82
10.00

116.32
10.00

37.87
0.00

81.67
15.00

119.54
15.00

2,150

1,249

1,782

491

1,520

2,011

1,355

-

-

1,894

1,170

1,061

1,201

1,948

3,149

2,124

2,176

4,300

-4,001
-8.3%

3,701
7.8%

4,621
9.0%

2,952
9.6%

3,814
10.3%

6,766
10.0%

3,495
9.4%

4,905
13.3%

8,400
11.4%

FY2/11 FY2/12 FY2/13

ADERANS
8170 Tokyo Stock ExchangeFirst Section

27-Nov.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

FY2/15E

Capital expenditure
Depreciation &amortization expense
EBITDAEBITDA margin

H1

H2

H1

H2e

37,24620.6%
30,00921.8%
28,638
25.2%
76.9%
1,371
-21.7%
3.7%
1,652-15.9%
4.4%
1,394-48.5%
3.7%

36,754
-0.3%
2,729
46.3%
7.4%
2,348
-6.7%
6.4%
3,006
90.7%
8.2%

Fullyeare
74,000
9.2%
4,100
13.4%
5.5%
4,000
-10.7%
5.4%
4,400
2.8%
5.9%

Summary Balance Sheet, FY2/10 – H1 FY2/15

Current assets
Cash and deposits
Sales receivable
Other current assets
Fixed assets
Tangible fixed assets
Intangible fixed assets
Long-term investments andother fixed assets
Total assets
Current liabilities
Accounts payable
Short-term borrowings
Other current liabilities
Fixed liabilities
Bonds and long-termborrowings
Other fixed liabilities
Shareholders’ Equity
Capital stock
Additional paid-in capital
Retained earnings
Treasury stock
Other equity
Stock acquisition rights
Minority interests
Total net assets
Liabilities & net assets(¥mn)
FY2/14 H1 FY2/15
27,111
27,88910,755
11,222
6,248
5,642
10,10811,02536,78035,207
11,723
11,81920,292
18,540FY2/1026,73815,381
4,120
7,237
36,631
21,913
4,363

FY2/11
19,669
11,1744,016
4,479
19,876
11,9303,336

FY2/12
20,39011,495
4,220
4,675
15,3068,725
2,661

FY2/13
24,84514,001
4,961
5,883
16,0599,047
3,072

10,354

4,609

3,919

3,939

4,764

4,847

63,369
9,813
473
9,340
4,137

39,546
10,189
389
9,800
3,884

35,697
6,467
257
6,210
3,068

40,904
7,852
483
8
7,361
2,833

63,892
11,036
1,174
1,051
8,811
17,03263,097
10,659
1,196
1,050
8,413
16,867

-

-

-

1

8,662

8,137

4,137
52,186
12,944
13,19333,035-6,986-2,863
95
49,41863,3693,884
28,95812,944
13,036
9,966-6,987-3,486
025,47239,546

3,068
30,04812,944
13,157
10,934-6,987-3,90215
026,16135,697

2,832
33,34912,944
13,157
14,268-7,020-3,26148
83
30,21940,904

8,370
37,34812,944
13,157
18,268-7,022-1,788154
109
35,82363,892

8,730
38,501
12,944
13,157
19,226-6,826-3,128196
135,57063,097

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11

■Growth■
Strategy

Summary Cash Flow Statement, FY2/10–H1 FY2/15

ADERANS
8170 Tokyo Stock ExchangeFirst Section

Cash flow from operations
Cash flow from investing
Cash flow from financing
Gain or loss on translationof foreign currency cash anddeposits
Change in cash and deposits
Cash and deposits at the startof the fiscal year
Cash and deposits at the end of
the fiscal year(¥mn)
FY2/14 H1 FY2/15
6,325
2,696
-18,036-1,134
9,036-945

FY2/10-1,886
7,610-3,064

FY2/11-7,1863,579-23

FY2/12-61
689-85

FY2/13
4,378-2,238
-180

582

-448

-215

279

-401

-92

3,242

-4,078328

2,239-3,076525

11,873

15,115

11,037

11,365

13,604

10,528

15,115

11,037

11,365

13,604

10,528

11,05327-Nov.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

伪伪Shareholder Return Policy
Company plans to pay a dividend per share of ¥15 for FY2/15,
likely to raise its dividend in coming years
Aderans plans to raise its dividend per share for FY2/15 to ¥15, from ¥10 in FY2/14. The
company needs funds to invest in expanding its overseas businesses and other sources of
future growth. Nonetheless, it is increasing its dividend, which shows management’s solicitude
for shareholders. The dividend payout ratio for FY2/15, based on the company’s projection of
EPS, will remain low, at 12.5%. However, EPS this fiscal year will be lifted by the carry forwardof past cumulative losses.
In FY2/15–FY2/17, the company aims for a cumulative EBITDA of ¥26.3bn, while it plans
capital investment of about ¥10bn. Given its accumulated losses, the company should pay
almost no taxes in FY2/15–FY2/17. Therefore, it should generate free cash flow equal to about
the cumulative EBITDA minus the capital investment planned. It should have ample cash withwhich to increase its dividend per share.
Aderans’ Earnings per Share and Dividend per Share (¥), FY2/04 – FY2/15E(¥)

Dividend per share (left axis)

Earnings per share (right axis)(¥)

FY2/04 FY2/05 FY2/06 FY2/07 FY2/08 FY2/09 FY2/10 FY2/11 FY2/12 FY2/13 FY2/14 FY2/15E

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12

Disclaimer
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