COMPANY RESEARCH AND ANALYSIS REPORT

Gakken Holdings Co., Ltd.
9470
Tokyo Stock Exchange Frist Section

7-May-2020
FISCO Ltd. Analyst

Yuzuru SatoFISCO Ltd.
http://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Reported FY9/19 sales and operating income growth exceeding guidance due to M&A effects. ................

01

2. Likely to continue sales and profit increases in FY9/20 due to improved profitability in educational
business................................................. ......................................................................................................

01

3. If educational business gets on a growth path, the pace of profit expansion may accelerate. .....................

01■Business overview --------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. Company history and business segments. ..................................................................................................

02

2. Educational services business.....................................................................................................................

04

3. Educational content business................ ......................................................................................................

06

4. Educational solutions business....................................................................................................................

07

5. Healthcare and Nursing Business................................................................................................................

09■Performance trends------------------------------------------------------------------------------------------------------------------------------------------------- 11
1. FY9/19 results summary........................ ......................................................................................................

11

2. Trends by business segment. . ......................................................................................................................

12

3. Financial conditions and cash flow overview. ..............................................................................................

18■Business outlook-------------------------------------------------------------------------------------------------------------------------------------------------------- 20
1. FY9/20 outlook...................................... ......................................................................................................

20

2. Outlook by business segments....................................................................................................................

21

3. Progress of the medium-term business plan. . ..............................................................................................

22■Shareholder returns------------------------------------------------------------------------------------------------------------------------------------------------- 24

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html█ Summary
Steadily increasing profits through expansion of healthcare andnursing business scope and structural reforms in educational
business
Gakken Holdings <9470> is a comprehensive services company in the fields of education and healthcare & nursing.
In the educational field, it operates private supplementary schools and publishes children’s books, study-aid books,
textbooks for elementary and junior high schools, and other materials. In the healthcare and nursing field, it operates
serviced apartments and facilities for the elderly, and conducts parenting support businesses, such as running
nursery schools. The Company acquired Medical Care Service Company Inc. (MCS), the top operator of grouphomes for the elderly with dementia, in September 2018 and has been broadening business scope by actively
undertaking M&A.
1. Reported FY9/19 sales and operating income growth exceeding guidance due to M&A effects
In FY9/19 consolidated results, the Company reported ¥140,559mn in net sales (+31.3% YoY) and ¥4,523mn
in operating income (+23.8%), the 10th straight year of sales increase and 5th straight year of operating income
improvement. These results also exceeded the Company’s revised guidance (¥138,000mn in net sales, ¥4,200mn inoperating income). The main driver of steep sales and profit gains, despite lower sales and profits in the educational
domain on income setbacks in prep school and publishing businesses, was due to the effect of making MCS a
subsidiary in the healthcare and nursing domain. MCS added ¥30,333mn in net sales and ¥1,392mn in operating
income.
2. Likely to continue sales and profit increases in FY9/20 due to improved profitability in educational business
The Company’s FY9/20 consolidated guidance targets ¥143,000mn in net sales (+1.7% YoY) and ¥5,100mn inoperating income (+12.8%). This outlook aims to raise profitability and restore profit increase in the educational
domain by realizing benefits from structural reforms, including removal and consolidation of unprofitable schools in
prep school business and narrowing in publishing business, and increasing sales of elementary school textbooks.
Meanwhile, the Company expects a decline in operating income for the healthcare and nursing domain, despite anincrease in sales on ramped-up openings of serviced apartments for the elderly and group homes for the elderlywith dementia, because of higher initial investments, including personnel costs. Since the Company conservatively
estimates personnel costs, however, it has upside room in earnings if operations proceed smoothly.
3. If educational business gets on a growth path, the pace of profit expansion may accelerate
While progress with Gakken 2020, a two-year medium-term management plan started in FY9/19, is generally
proceeding smoothly in terms of overall results, the educational field is undershooting the initial plan for profits.
Main reasons are slumping profits in prep school business because of tougher competition to recruit students
amid decline in the youth population and emergence of personalized tutoring schools and other rivals and steadyshrinkage of publishing business related to inroads by the Internet and e-books. Additionally, it is taking some time
to expand successful cases in G-PAPILS business, an independent-style personalized learning school that utilizes
AI technology attracting attention as a new initiative. The Company plans to expand profits in the educational field byresolving these issues and strengthening businesses with growth opportunities, such as English learning and STEAM
businesses. In the healthcare and nursing field, the Company should be capable of achieving stable growth in an
expanding market by adding more serviced apartments for the elderly, group homes for the elderly with dementia,
and other sites and enhancing group collaboration. For this reason, if the education sector is on a growth path, thepace of growth in the overall business performance may accelerate, and the trend is noteworthy.

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01 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Summary

Key Points
Attained a 10th straight year of sales increase and 5th straight year of operating income improvement in FY9/19
Likely to continue sales and profit gains in FY9/20 on recovery in educational business profitability with structuralreform benefits• Targets improvement in enterprise value driven by sustainable growth with the educational field and healthcare& nursing field as growth engines••

R e s ul ts t rends
Net sales (left)（¥mn）

Operating income (right)

160,000
140,559
140,000

95,94599,049102,177

107,030

4,900
4,200

4,523

3,652

3,382

2,800

2,732

60,000

5,600

3,500

80,00040,000143,000
5,100

120,000
100,000

（¥mn）

2,100
1,400

1,599

20,000700

00FY9/15

FY9/16

FY9/17

FY9/18FY9/19FY9/20 E

Source: Prepared by FISCO from the Company's financial results█ Business overview
Operates in two main areas – education and healthcare/nursing
1. Company history and business segments
The Company started with the establishment of Gakushu Kenkyusha, a publisher of educational books, in 1946
with a corporate motto from the founder that “postwar reconstruction fundamentally relies on education.” While theCompany initially developed business through a schools sales channel of schools, it expanded scope in the 1970s
by building the sales channel of bookstores sales channel and setting up direct sales to households. It obtained
broad support for Kagaku and Gakushu learning materials with notes for elementary students and steadily grew into
a comprehensive publishing company in the educational field by widening to encyclopedias, dictionaries, medical
books, and other areas. The Company expanded business to the educational services field from the 1980s with its
launch of prep school business.

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02 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Business overview

In the 2000s, the Company pursued streamlining reforms in educational business in response to weaker profits from
impacts by decline in the youth population and a publishing recession and also started elderly care business in 2004
with the goal of developing a second major business area. It subsequently moved forward actively in acquisitions andbusiness alliances and transitioned to a holding company format in 2009. The Company has worked on rebuilding
the business foundation and restoring profitability in recent years. At the end of FY9/19, it had 51 consolidated
subsidiaries, 16 non-consolidated subsidiaries, and eight affiliates (including one equity-method affiliate*).
*	Owns a 37.7% stake in Ichishin Holdings <4645>.

The Company adjusted business segments over the years in keeping with business growth, exits, and other changes,
and has been disclosing income results in four business segments under two business domains (educational domain
and healthcare nursing domain) since FY9/17.
The educational domain consists of three business segments – educational services that mainly manages Gakken
Classroom started in 1980 and other schools, educational content that has roots in the Company’s founding areaof educational-related publishing, and educational solutions that primarily handles publications for kindergartensand nursery schools and textbooks for elementary and junior high schools.
The healthcare and nursing domain, meanwhile, has a single business segment – healthcare and nursing services.
This segment covers the senior residence business that began with the establishment of Gakken Cocofump Co.,
Ltd. (now Gakken Cocofump Holdings Co., Ltd.) in 2004, the parenting support facility management business fornursery schools and other facilities, the publishing business for specialty books aimed at nurses and doctors*1,
and the MCS*2 business acquired as a subsidiary in September 2018 (operates group homes for the elderly withdementia and other elderly care facilities, etc.).
*1	Moved the publishing business for specialty books aimed at nurses and doctors operated by Gakken Medical Shujunsha
Co., Ltd. and e-learning service, etc. for nurses provided by its subsidiary to the educational content business from
FY9/20.
*2	Acquired 61.8% of outstanding shares for ¥8.9bn.

Business content and major subsidiaries
BusinessdomainBusiness segment

Business content

Major subsidiaries

Educational
domainEducational services
business

1) Operate Gakken Classroom mainly for elementary
students and promote franchise business, 2) operate prep
schools mainly for junior and senior high school students
and provide home tutor dispatching service

Gakken Juku Holdings (intermediate holding company)
Gakken Educational
Gakken L Staffing
Gakken Study etSozogakuen, Waseda School, ING
ZENKYOKEN, Bunri gakuin, Koto Shingakujuku

Educational content
business

1) Publish studying materials, children’s books, and otherpublications, 2) plan, develop, and sell stationery goods
and educational toys and goods, and 3) produce and sell
digital content

Gakken Plus
Gakken Sta:Ful
TOKYO GLOBAL GATEWAYBUNRI (moved to educational services business from
FY9/20)

Educational
solutions business

1) Produces and sells publications for kindergartens andnursery schools, nursery goods and supplies, etc., 2)
produces and sells textbooks for elementary and juniorhigh schools, supplements, etc., and 3) produces and sells
publications and teaching materials for senior high schools
and colleges

Gakken E-mirai
Gakken Associe(absorbed by Gakken E-mirai in October 2019)
JTEX Management Center

Healthcare
and nursing
domainHealthcare andnursing business

1) Operate serviced apartment for the elderly, nursing
homes, and other elderly care facilities, 2) operates
kindergartens, nursery schools, etc., 3) publish specialty
books for nurses and doctors, and 4) operate grouphomes for the elderly with dementia

Gakken Cocofump Holdings
Gakken Cocofump
Gakken Cocofump Nursery
Medical Care Service
Gakken Medical Shujunsha(moved to the educational contents business from FY9/20)

Other

Other

Provide logistics services, provide group shared services,etc.

Gakken Logistics
Gakken Products Support

Source: Prepared by FISCO from the Company's securities report and results briefing materials

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03 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Business overview

The Company’s income breakdown by business segment in FY9/19 was educational domain at 57% and healthcare& nursing domain at 41% in net sales and educational at 31% and healthcare & nursing at 66% in operating income.
Healthcare and nursing substantially increased its presence, versus FY9/18 levels of 23% in net sales and 28% in
operating income, thanks to growth by existing businesses and a large boost from acquiring MCS as a subsidiary.

C o m pos iti on b y b usi ness s eg ment (FY9/19)
3,500
2%

58,142
41%

30,273
22%

130
899
3%
20%
126
361
2,984
3%
8%
66%
29,561
21%(Unit: ¥mn)
Outer circle: Net sales
Inner circle: Operating income
Educational
services
Educational
contents
Educational
solutions
Healthcare andnursing services
Other

19,08014%

Source: Prepared by FISCO from the Company's financial results

Operates Gakken Classroom business for elementary students andprep school business
2. Educational services business
The educational services segment is the group’s core business at 22% of net sales and 20% of operating income(FY9/19 results; same below). Segment activities include 1) operate Gakken Classroom mainly for elementary
students and promote franchise business, 2) operate prep schools mainly for junior and senior high school students
and provide home tutor dispatching service.

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04 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Business overview

E d u cati onal s ervi ces s eg men t s ales b reakdown b y s ub-s egments( F Y9 /19)

(Unit: ¥mn)

Gakken Classroom

Prep schools

10,59035%

19,68265%

Source: Prepared by FISCO from the Company's financial results(1) Gakken Classroom business
Gakken Classroom is a grade-less learning class that is operated by Gakken Educational Co., Ltd. and utilizes afranchise system. The Company started this business in 1980. While it covers from toddlers to junior high school
students (some senior high school students), more than half of attendees are elementary school students. Gakken
Classroom had 16,135 approved classrooms with 416,431 student members (number of students is counted
as the total for all subjects) at the end of September 2019. The Company runs this business abroad too, mainlyin the Asian region.
Kumon Method Classroom service operated by the Kumon Institute of Education Co., Ltd. is the primary rival,
and the market for a grade-less learning class service is split between Gakken Classroom and Kumon Method
Classroom. While Kumon Method Classroom leads in numbers of classrooms and students, Gakken Classroom’s
main characteristics and strengths are 1) low monthly fees, 2) educational service that emphasizes reading
comprehension in accordance with course guidelines, and 3) content that balances math and Japanese.
The Company utilizes a franchise business model in which the majority of sales comes from royalty income (acertain percentage of revenue) and membership fees paid by franchise owners (classroom operators). While
sales growth stalled over the past few years, including the impact of steady decline in the youth population, thisbusiness remains a stable profit source for the group with operating margin in the 6% range.
(2) Prep school business
While educational services business primarily focused on increasing the number of Gakken Classroom, it has
also been expanding prep school business through aggressive acquisitions and business alliances since themid-2000s. This initiative obviously aims to strengthen the Company’s presence in the education field and targets
maximization of customer LTV by assembling prep schools within the group and thereby keeping students who
attended Gakken Classroom at a younger age from leaving for other prep schools for entrance exam studies as
they become junior and senior high school students. Regarding M&A, smooth business succession is smoothly
carried out.

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05 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.

7-May-2020

9470 Tokyo Stock Exchange Frist Section

https://ghd.gakken.co.jp/english/index.html

Business overview

The group’s prep schools, which operate under their own brands as subsidiaries, currently include SIGN-1(Saitama), Asunaro Gakuin (Miyagi), and Taishi Seminar (Fukushima) of Gakken Study et Co., Ltd., EDIC andSogaku Seminar (Hyogo) of Sozo gakuen Co., Ltd., Waseda School Co., Ltd. (Kumamoto), ING Co., Ltd. (Osaka,
Nara, Wakayama), ZENKYOKEN Co., Ltd. (Kitakyushu area), Koto Shingakujuku Co., Ltd. (Keihanshin area), andBunri Gakuin Co., Ltd. (Yamanashi, Shizuoka).
Gakken L Staffing Co., Ltd. operates Gakken’s home tutor dispatching business in ordinance-designated city areas
nationwide. It also operates the Clantete kindergarten and elementary integrated education and day care center
through GI Village Co., Ltd., a joint venture with Ichishin Holdings, and prep schools with the Waseda Academy
brand for Japanese students in Singapore, Taiwan, Vietnam, and other overseas locations.
The Company had a total of 489 classrooms with 50,964 students as of end-September 2019. Since group firms
run these businesses directly, trends in the number of classrooms, number of students, and average student
spending are variables for income results. Sozo gakuen, Waseda School, and Bunri Gakuin have relatively large
profit impacts among the subsidiaries.

Operates publishing business mainly for education-related books
and provides various services that leverage longstanding knowledge
and knowhow related to education.
3. Educational content business
Educational content business provides 21% of net sales and 3% of operating income. It consists of publishingbusiness and other non-publishing businesses.

S u b -s eg men t n et s ales b reakdown o f e ducatio nal c ontents b usi nes s( F Y9 /19)
(Unit: ¥mn)
Publishing

Other than publishing

8,815
30%

20,74670%

Source: Prepared by FISCO from the Company's financial results

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06 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Business overview(1) Publishing business
Gakken Plus Co., Ltd. and BUNRI Co., Ltd.* are the main companies that handle publishing business and sellchildren’s books, study-aid books, and various publications for adult learning through the agent and bookstore
route. Books for elementary and junior high school students are a large share of study-aid books. While publishingbusiness is profitable as a whole, some individual magazines and books incur losses and the Company plans tocontinue weeding these out.
*	While BUNRI produces and sells learning materials for elementary and junior high school students with focus on workbooks,
the Company moved it to the educational services segment from FY9/20 because sales to prep schools had risen toroughly 50% of overall sales.

(2) Businesses other than publishing
Other businesses besides publishing are those that utilize the Gakken brand and content accumulated frompast years. Main areas include electronic publishing and distribution, educational ICT services, advertising, andproperty licensing at Gakken Plus, stationery and educational toy sales at Gakken Sta:Ful Co., Ltd., and operationof the experience-style English learning facility TOKYO GLOBAL GATEWAY (TGG) by TOKYO GLOBAL GATEWAY
Co., Ltd. TGG opened a facility in Tokyo’s Odaiba area in September 2018 after being selected as an operator
for Tokyo’s “English Village” vision. This facility is available to roughly 1.23mn students at elementary, junior, andsenior high schools and special assistance schools in Tokyo, as well as students from outside of Tokyo, and canprovide experience-style English lessons to about 200,000 people a year (it is also available to individuals andareas outside of Tokyo).
Medical and nursing publications and e-learning business for nurses handled at Gakken Medical Shujunsha andsubsidiary Gakken Medical Support Co., Ltd. moved from healthcare and nursing services to educational content
segment from FY9/20.

Sells products to kindergartens and nursery schools and operates
toddler classes, publishes textbooks for elementary and junior highschools, and conducts educational seminars for companies
4. Educational solutions business
Educational solutions contribute 14% of net sales and 8% of operating income. This segment has two sub-segments– toddler educational business and school educational business (including corporate seminar business).

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07 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Business overview

S u b -s eg men t n et s ales b reakdown o f e ducatio nal s ol uti ons bus i ness
( F Y9 /19)
(Unit: ¥mn)
For kindergartens and nursery schools

For schools

6,012
32%

13,06868%

Source: Prepared by FISCO from the Company's financial results(1) Toddler educational business
The toddler educational business sells published materials (picture books, etc.) for kindergartens and nurseryschools, day care goods, supplies, and uniforms and operates toddler classrooms at Gakken E-mirai Co., Ltd.
Toddler classrooms are the toddler version of in-school learning centers at which instructors who have completed
the required training at the company provide edification, science, English, and other lessons at kindergartens.
(2) School educational business
School educational business covers publishing of textbooks for elementary and junior high schools (physical andhealth education, moral education), instruction guides for teachers, and special assistance teaching materials,
as well as produces and sells essay and practice test materials for senior high schools in addition to job practicetests and learning materials for colleges at Gakken E-mirai. This business also provides hiring assistance services
to companies. Other activities include instructor dispatching service for corporate seminars at JTEX Management
Center Co., Ltd. (JMC) acquired as a subsidiary in February 2018.
Income for the school educational business increasingly relies on textbooks for elementary and junior high schools
and instruction guides for teachers. The Ministry of Education, Culture, Sports, Science and Technology assesses
school textbooks in a four-year cycle. For public schools, boards of education in each municipality select school
textbooks that are approved by the assessment. Sales share fluctuates depending on these trends. While income
should be healthy in FY9/20 and FY9/21 because of new publications of two school textbooks in each year, sales
are likely to weaken in the next two years because of the absence of instruction guide sales.

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08 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.

7-May-2020

9470 Tokyo Stock Exchange Frist Section

https://ghd.gakken.co.jp/english/index.html

Business overview

School textbook publication schedule
Fiscal year

2017

2018

Elementary school health

2019

2020

2021

2022

△

Assessment

2023

△
•

Selection•

Usage start
Junior high school health andphysical education△

Assessment△•

Selection
Usage start△

Assessment
Elementary school moral education Selection

•

△
•

•

Usage start
Assessment△△•

Junior high school moral education Selection△•

Usage start
Source: Prepared by FISCO from the Company's results briefing materials

Operates serviced apartment for the elderly, group homes forthe elderly with dementia, and other elderly care businesses andprovides parenting support services
5. Healthcare and nursing services
Healthcare and nursing services has grown into a major business at 41% of sales and 66% of operating income.
The Company’s acquisition of MCS as a subsidiary in September 2018 is contributing significantly. This segment
consisted of three sub-segments through FY9/19 – elderly care business, parenting support business, and publishingbusiness for doctors and nurses. As mentioned earlier, the Company moved the publishing business for doctors
and nurses (including e-learning business) to the educational contents business from FY9/20.

S a l es b reak down for h ealt hcare and n urs i ng s ervi ces bus i nessb y s ub-s egment (F Y9/19)
Senior assistanceParenting support
2,699
4,541
5%
8%

¥mn)
Medical and nursing(Unit:publishing

50,90287%
Source: Prepared by FISCO from the Company's financial results

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09 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Business overview(1) Elderly care business
Elderly care business has built a network of serviced apartments for the elderly nationwide under the Cocofump
brand and also plans, develops, and operates paid nursing homes, day care service for the elderly, and other careservices at subsidiary Gakken Cocofump Co., Ltd. The Company, as its primary business, operated 136 (with a
total of 6,457 units) serviced apartments for the elderly, nationwide as of end-September 2019. From a regional
perspective, the Tokyo metropolitan area has just over 70% (on a unit basis) and others are located in Chubu andWestern Japan areas (Shizuoka, Aichi, Ishikawa, Kyoto, Osaka, Okayama, Ehime, and Kumamoto).
Serviced apartments for the elderly mainly utilize a sub-leasing scheme. The Company itself does not own theland nor building and almost entirely focuses on facility operation. It has steadily expanded the business because
this model facilitates streamlining of the balance sheet and rapid site deployment.
Meanwhile, MCS mainly operates group homes that serve as residence-type elderly care facilities for dementia
care. It was managing 269 homes (5,156 residence rooms) nationwide at the end of September 2019 and is theindustry leader in terms of number of rooms. MCS also operates nine paid nursing homes with care services, 12small-scale, multi-function residence elderly care facilities, and 13 other elderly care facilities. It has four businesssites in China too. Through subsidiaries, it provides meal service, cleaning service, sales and rental service fornursing goods, and other businesses that support facilities.
The Company decided to acquire MCS as a subsidiary because of its strong synergy effect in realizing a “Gakken’s
Community-based Integrated Care System” that connects children, the parenting segment, and seniors acrossgenerations for the purpose of supporting a healthy life from the age of zero to over 100. Specifically, it aims
to 1) secure destinations for people living at serviced apartment for the elderly when they need to leave theapartment due to advanced dementia, and raise the occupancy rate, 2) enhance facility development capabilities
by leveraging area commonalities, and 3) realize benefits in personnel recruitment through shared hiring activities
and boost the retention rate.
Occupancy rate and operating staff personnel costs are the main factors that affect profits in the elderly carebusiness. Increase in the number of new sites in a short period results in temporary decline in the occupancy rate
along with initial investment burden, such as operating staff hiring and personnel costs. Upturn in the dispatchedstaff percentage due to manpower shortages pushes costs higher too.
(2) Parenting support business
Parenting support business operates nursery schools and after-school children’s club facilities at Gakken
Cocofump Nursery Co., Ltd. The Company had 64 parenting support sites (3,896 attendees) at the end of
September 2019 with all of them located in the Tokyo metropolitan areas. The nursery school business model
mainly utilizes sub-leasing, similar to serviced apartments for the elderly. After-school children’s club businessfundamentally handles consigned operation of public-sponsored facilities. A key issue in the day care businessis finding nursery teachers. Challenges include the high costs caused by the low percentage of nursery teachers
hired as full-time employees and some cutbacks in subsidies from local governments.

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10 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html█ Performance trends
Attained a 10th straight year of sales increase and 5th straight yearof operating income improvement in FY9/19
1. FY9/19 results summary
In FY9/19 consolidated results, the Company reported ¥140,559mn in net sales (+31.3% YoY), ¥4,523mn inoperating income (+23.8%), ¥4,755mn in ordinary income (+18.8%), and ¥1,940mn in profit attributable to ownersof parent (-36.6%), the 10th straight year of sales increase and 5th straight years of operating and ordinary income
improvement. These values exceeded the Company’s revised guidance. Operating and ordinary incomes reachedthe highest levels since transition to the holding company format in 2009. The main driver of steep sales and profit
gains, despite lower sales and profits in the educational domain, was the addition of MCS as a subsidiary in thehealthcare and nursing domain.
While profit attributable to owners of parent fell, this occurred because of removal of reversal profit in income taxes
adjustment value booked in FY9/18, increase in the tax burden rate, and a ¥458mn YoY rise in profit attributable tonon-controlling interests related to the acquisition of MCS as a subsidiary. Profit missed guidance mainly becauseof the higher tax burden ratio. ROE was 5.0%, steadily rising toward the Company’s 8% goal.
FY9/19 consolidated results(Unit: ¥mn)
FY9/18FY9/19Results

Vs. sales

Revised plan

Results

Vs. sales

YoY change

Vs. plan

107,030-

138,000

140,559

-

31.3%

1.9%

Operating income

3,652

3.4%

4,200

4,523

3.2%

23.8%

7.7%

Ordinary income

4,002

3.7%

4,400

4,755

3.4%

18.8%

8.1%

Profit attributableto owners of parent

3,058

2.9%

2,650

1,940

1.4%

-36.6%-26.8%

ROE

8.1%

6.1%

5.0%

Net sales

Source: Prepared by FISCO from the Company's financial results and its results briefing materials

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

11 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Performance trends

S e g ment o perati ng i ncome c hang es (YoY)(Unit: ¥mn)

+1,947

▲493

+125

4,523

Other

FY9/19results

▲423
▲285
3,652

FY9/18results

Healthcare Educational Educational Educationaland nursing
services
contents
solutionsservices

Source: Prepared by FISCO from the Company's results briefing materials

Steep gains by the healthcare and nursing domain, sales and profits
fell in the educational domain due to structural reforms
2. Trends by business segment(1) Educational services businessIn the prep school industry, despite continuation of a difficult market environment with tougher competition to
recruit students amid decline in the youth population and other trends, new opportunities are increasing too withgrowing needs for English and programming education as part of FY3/21 educational system reforms and ramp-up
of learning services that utilize AI. Within these conditions, educational services reported ¥30,273mn in net sales(-0.3% YoY) and ¥899mn in operating income (-35.4%).

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

12 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.

7-May-2020

9470 Tokyo Stock Exchange Frist Section

https://ghd.gakken.co.jp/english/index.html

Performance trends

R e s ul ts t rends i n e ducati onal s ervi ces b us ines s
Net sales (left)（¥mn）

Operating income (right)（¥mn）

35,00030,0002,100
30,35328,741

30,2731,800

25,00020,000

1,500
1,200

1,392

1,276

15,000900
899

10,000

600

5,000

300

0

0
FY9/17

FY9/18FY9/19Source: Prepared by FISCO from the Company's financial results

Gakken Classroom business delivered modest sales and profit gains at ¥10,590mn in net sales (+0.2% YoY) and¥653mn in operating income (+1.4%). Sales improved on steady recovery in numbers of approved classrooms
and course members in the new fiscal year. Stronger results in toddler business and efforts to promote English
courses paid off. Furthermore, we think fee hikes at the main rival that accentuated the cost appeal of Gakken
Classroom contributed to member gains as well. In income, higher sales sufficiently offset increases in cost of
sales, logistic costs, and other expenses. As of end-September 2019, course member volume was up by 5,177
people YoY to 416,431 people and approved classroom volume rose by 161 sites to 16,135 sites.
Prep school business, meanwhile, had a 0.5% YoY dip in net sales to ¥19,682mn and sharp 67.2% decline inoperating income to ¥245mn. Sales weakened due to decline in student volume in the new fiscal year, despite
opening new schools and proceeding with moves and consolidations, amid a highly competitive environment.
Income fell due to the sales decline and increases in school opening costs, rent, and labor costs. As of end-September 2019, student volume was down by 614 people YoY to 50,964 people and classroom volume rose by
11 sites to 489 sites.
Breakdown of educational services business(Unit: ¥mn)

Net sales

OperatingincomeFY9/17

FY9/18FY9/19YoY change

GakkenClassroom

10,072

10,57010,59019

Prep schools

18,67019,782

19,682-99

GakkenClassroom

641

644

653

9

Prep schools

636

747

245

-502

Source: Prepared by FISCO from the Company's financial results

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

13 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.

7-May-2020

9470 Tokyo Stock Exchange Frist Section

https://ghd.gakken.co.jp/english/index.html

Performance trends

Gakken Classroom
Number of course members, number of approved classrooms
Sep. 2016

Sep. 2017

Sep. 2018

Sep. 2019

ChangeNumber of course members

418,760

411,626

411,254

416,431

5,177

Number of approved classrooms

15,474

15,826

15,974

16,135161*Number of course members: Number of members based on the number of courses*Number of approved classrooms: Gakken Classroom has two approval categories – math/Japanese and English. This
indicates the number of classrooms based on approvals.
Source: Prepared by FISCO from the Company's results briefing materials

Prep schools Number of students, number of classrooms
Sep. 2016

Sep. 2017

Sep. 2018

Sep. 2019

ChangeNumber of students

44,00347,191

51,57850,964-614

Number of classrooms

381

442

478

489

11

Source: Prepared by FISCO from the Company's results briefing materials(2) Educational content business
Educational content business continued to post weaker sales and profits at ¥29,561mn in net sales (-1.7% YoY)and ¥126mn in operating income (-77.0%). The Company is currently implementing income structural reforms,
mainly for publishing business, amid sustained contraction of the magazine and book market due to the shrinking
youth population and inroads by the Internet.

R e s ul ts t rends i n e ducati onal c ontents b usi nes s
Net sales (left)（¥mn）

35,00030,00031,132

Operating income (right)

（¥mn）
1,400

30,05929,561

1,058

25,000

1,200
1,000

20,000800
549

15,000600

10,000

400
126

5,000
0

200
0

FY9/17

FY9/18FY9/19Source: Prepared by FISCO from the Company's financial results

Publishing business reported ¥20,746mn in net sales (-3.9% YoY) and ¥1,614mn in operating income (-18.7%).
Sales dropped on slumping volumes for periodicals, magazine books, and practical books. Income weakened
because of sales decline and recognition of about ¥300mn in inventory valuation losses for study-aid books related
to revisions in instruction guidelines.

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

14 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.

7-May-2020

9470 Tokyo Stock Exchange Frist Section

https://ghd.gakken.co.jp/english/index.html

Performance trends

The number of new publications dropped by 18 titles YoY to 718. While the Company increased new publication ofchildren’s books and study-aid books, it is also making revisions to unprofitable areas and cutting new releases ofmagazine books and other books. The return rate for books and periodicals has modestly improved too. Despite
weaker sales due to progress in revising unprofitable areas, profitability stayed at the year-ago level, excluding
impact of decline in inventory value.
Other businesses besides publishing reported ¥8,815mn in net sales (+4.0% YoY) and an operating loss of¥1,488mn (widening ¥51mn YoY). Sales climbed on increase in facility usage fees with the launch of the experience-style English learning facility TGG and rise in stationery and toy sales. In income, however, operating losses
moved upward, even with improvement in stationery and toy income, because of initial investments in English
education business, including TGG and online English conversation service.
Breakdown of educational contents business(Unit: ¥mn)

Net sales
OperatingincomeFY9/17

FY9/18FY9/19YoY change

Publishing

24,20921,584

20,746-837

Other than publishing

6,922

8,475

8,815

339

Publishing

2,194

1,986

1,614

-371

Other than publishing-1,137-1,436-1,488-51

Source: Prepared by FISCO from the Company's financial results

Number of new publications*
FY9/16

FY9/17

FY9/18FY9/19Children’s books

200

227

188

195

Study-aid books

158

83

103

132

Magazine books

207

146

131

110

Other books

445

356

314

281

1,010

812

736

718

Total

*Data for Gakken Plus excluding periodicals and musical scores
Source: Prepared by FISCO from the Company's results briefing materials

Publication return rate*
FY9/16

FY9/17

FY9/18FY9/19

Books

34%

32%

32%

31%

Magazines

42%

38%

38%

38%

37%

35%

36%

35%

(Periodical portion)*Data for Gakken Plus excluding musical scores
Source: Prepared by FISCO from the Company's results briefing materials(3) Educational solutions business
Educational solutions business reported ¥19,080mn in net sales (+0.8% YoY) and ¥361mn in operating income(-44.1%). Toddler educational business had ¥13,068mn in sales (-0.1%) and ¥495mn in operating income(-23.0%). Sales fell slightly on sluggish sales of picture books and suppliers and decline in the number of toddler
class members. Income weakened on the drop in toddler class members and higher teaching material costs andlogistics expenses.

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

15 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.

7-May-2020

9470 Tokyo Stock Exchange Frist Section

https://ghd.gakken.co.jp/english/index.html

Performance trends

School educational business, meanwhile, reported ¥6,012mn in net sales (+2.8% YoY) and a ¥134mn operating
loss (income fell by ¥137mn YoY). Sales moved upward again, despite decline in the number of moral education
course books (because of the change to 3rd-year junior high school students this year versus 6th-year elementary
school students), with a boost from consolidated contributions by JMC, which operates corporate seminarbusiness. Income, however, dropped to an operating loss for the first time in two years due to a large impact
from decline in school textbook volume.

R e s ul ts t rends i n e ducati onal s ol uti ons b us ines s
Net sales (left)（¥mn）

Operating income (right)

25,00020,000

（¥mn）

1,000
19,08018,92817,88615,000

800
600

646

10,000

400
361

5,000

200
174

0

0
FY9/17

FY9/18FY9/19Source: Prepared by FISCO from the Company's financial results

Breakdown of educational solutions business(Unit: ¥mn)

Net sales
OperatingincomeFY9/17

FY9/18FY9/19YoY change

Toddler educational

13,374

13,07913,068-11

School educational

4,512

5,848

6,012

163

Toddler educational

378

643

495

-148

School educational

-203

3

-134

-137

Source: Prepared by FISCO from the Company's financial results(4) Healthcare and nursing services
Healthcare and nursing services reported sharply higher sales and profits at ¥58,142mn in net sales (+138.1%
YoY) and ¥2,984mn in operating income (+188.0%). While MCS provided ¥30,333mn in net sales and ¥1,392mn inoperating income, existing healthcare and nursing businesses, excluding MCS, also performed well at ¥27,809mn
in net sales (+13.9%) and ¥1,592mn in operating income (+53.7%).

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

16 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.

7-May-2020

9470 Tokyo Stock Exchange Frist Section

https://ghd.gakken.co.jp/english/index.html

Performance trends

T r e nds i n h ealt hcare and n urs i ng s e rvices
Net sales (left)（¥mn）

Operating income (right)（¥mn）

70,0003,500
58,14260,000

3,000

2,984

50,0002,500

40,0002,000

30,00021,4341,500

24,41520,000

1,000
871

10,000

1,036

500

0

0
FY9/17

FY9/18FY9/19Source: Prepared by FISCO from the Company's financial results

Breakdown of healthcare and nursing services(Unit: ¥mn)
FY9/17

FY9/18FY9/19YoY change

16,07318,30150,90232,601

16,07318,301

20,569

2,268

-

-

30,33330,333

Parenting support

3,077

3,648

4,541

893

Medical and nursing publishing

2,283

2,466

2,699

232

474

562

2,434

1,872

474

562

1,042

480

-

-

1,392

1,392

Parenting support

98

105

73

-31

Medical and nursing publishing

299

369

476

106

Elderly care
Cocofump, etc.
Net sales

MCS

Elderly care
OperatingincomeCocofump, etc.
MCS

Source: Prepared by FISCO from the Company's financial results

Elderly care business (Cocofump, etc.) reported upbeat results at ¥20,569mn in net sales (+12.4% YoY) and¥1,042mn in operating income (+85.4%). Increase in the number of serviced apartments for the elderly by 11buildings versus the previous period-end to 136 buildings and a higher occupancy rate at existing facilities fueled
higher sales and profits. Residence units climbed 8.2% YoY to 5,934 units as of the end of September 2019. In
MCS business, despite the absence of new group home for the elderly with dementia openings, the occupancy
rate at end-August 2019 rose to 97.4%, versus 96.6% a year earlier, and progress reducing unit costs throughimproved efficiency in personnel assignments supported healthy results.
Parenting support business reported ¥4,541mn in net sales (+24.5% YoY) and ¥73mn in operating income(-30.5%). Profits fell on a rise in sales. While sales improved with the launch of three new nursery schools (bringing
the total number of schools to 43 sites) and consigned operation of 10 after-school children’s club facilities (raising
the total to 20 sites), income weakened on decline in the number of children at certified schools and higher labor
expenses and facility costs.

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17 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Performance trends

Medical and nursing publishing business reported ¥2,699mn in net sales (+9.4% YoY) and ¥476mn in operating
income (+28.7%). The number of hospitals with contracts for nurse e-learning business expanded at a healthy
pace with an increase of 208 contracts from the year-ago level to 1,441 contracts at the end of FY9/19, driving
higher sales and profits in this business.

N u m ber of h os pit als wi th c ontracts（Number）
1,600
1,400

1,153

1,200

1,403

1,441

19/4

19/9

1,233

1,006
1,000

848

800

692
552

600
317

400

200

137

0

12/4

13/4

14/4

15/4

16/4

17/4

18/4

18/9

Source: Prepared by FISCO from the Company's results briefing materials

Healthy financial standing, FCF restored a surplus for the first timein two years
3. Financial conditions and cash flow overview
Looking at financial condition at the end of FY9/19, total assets were down by ¥593mn versus the previous
period-end to ¥99,349mn. Main changes in current assets were a ¥2,274mn rise in cash and deposits and a¥628mn decline in inventory assets. In fixed assets, tangible fixed assets dropped by ¥1,077mn due to monetizing
properties of serviced apartments for the elderly (¥2,759mn) and investment securities value was down by ¥974mn.
Liabilities increased by ¥118mn versus the previous period-end to ¥59,371mn. While notes and accounts payable,
long-term account payable, and liabilities related to retirement benefits declined, interest-bearing debt rose by¥1,267mn. Total net assets fell by ¥711mn versus the previous period-end to ¥39,978mn. While retained earnings
increased by ¥1,099mn, treasury shares rose by ¥796mn (decline factor) and valuation difference on available-forsale securities shrunk by ¥1,118mn.
Looking at cash flow trends, cash and cash equivalents rose by ¥2,343mn versus the previous period-end to¥19,838mn at end-FY9/19. Cash flow from operating activities contributed ¥5,353mn in funds mainly on higher
income in healthcare and nursing services. Cash flow from investment activities, meanwhile, depleted funds by¥2,825mn as the net result of purchases and sales of tangible and intangible fixed assets and investment securities.
Free cash flow hence had a surplus of ¥2,527mn, the first gain in two years. Cash flow from financial activities
depleted funds by ¥352mn, despite income from long-term loans, mainly because of ¥898mn in outlays to acquire
treasury shares and ¥657mn in dividend payments.

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

18 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.

7-May-2020

9470 Tokyo Stock Exchange Frist Section

https://ghd.gakken.co.jp/english/index.html

Performance trends

In business indicators, we think the Company sustained financial health, despite slight weakening of safenessindicators, such as the interest-bearing debt ratio and capital ratio on increase in interest-bearing debt, thanks to
its extensive cash and cash equivalent holdings. For profitability, while ROE declined on increase in the effective
tax rate and other trends, ROA and operating margin stayed at roughly the same levels at the previous fiscal year.
As explained earlier, the Company is currently in the process of implementing business structure reforms in the
educational domain and has room to raise profitability through reorganization and consolidation of group subsidiaries.
Consolidated balance sheet and business indicators(Unit: ¥mn)
FY9/16

FY9/17

FY9/18FY9/19YoY change

46,13046,53853,08754,811

1,724

15,394

15,73818,911

21,1852,274

Fixed assets

30,25330,32546,85444,538-2,316

Total assets

76,38476,863

99,942

99,349-593

Total liabilities

42,92040,65959,25259,371

118

16,89814,85829,22230,4891,267

Total net assets

33,46436,20340,68939,978-711

Total liabilities and net assets

76,38476,863

99,942

99,349-593

Equity ratio

41.8%

46.9%

39.5%

38.7%

-0.8ptInterest-bearing debt ratio

52.9%

41.2%

74.1%

79.3%

5.2pt

ROA

3.8%

4.6%

4.5%

4.8%

0.3pt

ROE

4.2%

9.8%

8.1%

5.0%

-3.1ptOperating margin

2.8%

3.3%

3.4%

3.2%

-0.2ptCurrent assets
Cash and deposits

Interest-bearing debt

Financial indicators(safety)(Profitability)

Source: Prepared by FISCO from the Company's financial results

Cash Flow Statement(Unit: ¥mn)
FY9/16

FY9/17

FY9/18FY9/19Cash flow from operating activities

3,166

5,099

3,145

5,353

Cash flow from investing activities-4,028473-14,898-2,825
2,527

-861

5,573

-11,753

Cash flow from financing activities-1,210-5,11914,431-352

Cash and cash equivalents at the end of FY

14,34014,826

17,494

19,838

Free cash flow

Source: Prepared by FISCO from the Company's financial results

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

19 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.

7-May-2020

9470 Tokyo Stock Exchange Frist Section

https://ghd.gakken.co.jp/english/index.html█ Business outlook
Guides for further sales and profit gains in FY9/20 on recovery on
educational domain profitability from structural reform benefits
1. FY9/20 outlook
The Company’s FY9/20 consolidated guidance targets ¥143,000mn in net sales (+1.7% YoY), ¥5,100mn in operating
income (+12.8%), ¥5,300mn in ordinary income (+11.5%), and ¥2,800mn in profit attributable to owners of parent(+44.3%). It projects continued sales growth led by elderly care business and higher operating income due to the
profit improvement effect from structural reforms in the educational domain. Profit attributable to owners of parent
is headed for a steep increase on improvements in extraordinary gain and the tax burden ratio versus the previous
fiscal year.
Compared to numerical goals from the Gakken 2020 Medium-Term Management Plan announced in November
2018, the Company raised net sales by ¥3,000mn and operating income by ¥100mn on growth in elderly carebusiness and lowered Profit attributable to owners of parent by ¥500mn due to a higher tax burden rate.
FY9/20 consolidated outlook(Unit: ¥mn)
FY9/19Results

FY9/20Vs. sales

Initial plan*

Revised plan

Vs. sales

YoY change

Differenceswith the initialplan

140,559-

140,000

143,000

-

1.7%

3,000

Operating income

4,523

3.2%

5,000

5,100

3.6%

12.8%

100

Ordinary income

4,755

3.4%

-

5,300

3.7%

11.5%

-

Profit attributable toowners of parent

1,940

1.4%

3,300

2,800

2.0%

44.3%

-500

EPS (yen)208.71357.23303.10-54.13

5.0%

7.7%

-

-

Net sales

ROE*Initial plan refers to goals from the Gakken 2020 Medium-Term Management Plan released in November 2018
Source: Prepared by FISCO from the Company's financial results and its results briefing materials

As explained above, the Company moved some group companies to other segments from FY9/20. Specifically, ittransferred medical and nursing publishing business handled by Gakken Shujunsha, Gakken Medical Support, andone other company from the healthcare and nursing services to educational contents and BUNRI from educational
content to educational services segment.
Medical and nursing publishing business aims to promote creation of new businesses by sharing production capabilities and sales knowhow for e-learning for the entire educational content business and to support a Gakken’s
Community-based Integrated Care System from an educational perspective and promote integration with healthcare
and nursing services. BUNRI, meanwhile, and sells teaching materials for prep schools and seeks to strengthen
assessment business handled by Beacon Co., Ltd. Assessment business provides a service of conducting mocktests for prep school students and scoring the tests and analyzing and evaluating results. Its tests focus on thinking,determination, and expression capabilities, rather than past knowledge-centric mock tests.

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

20 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Business outlook

Aims to revive profitability in the educational domain by promoting
structural reforms and expand the healthcare and nursing domain
with aggressive investments
2. Outlook by business segments
Outlook by business segment(Unit: ¥mn)
FY9/20

Educational
domainFY9/19Results

Initial plan*

Revised plan

Plan aftersegmenttransfers

Net sales

78,91479,50078,00081,000

2.6%

Operating income

1,386

2,780

2,300

2,650

91.2%

1.8%

3.5%

2.9%

3.3%

30,27331,00030,00034,50014.0%

Operating income

899

1,200

1,000

1,200

33.5%

Operating income margin

3.0%

3.9%

3.3%

3.5%

29,561

29,50028,00026,500-10.4%

126

580

600

750

495.2%

Operating income margin
Educational
services

Educational
contents

Net sales

Net sales
Operating income
Operating income margin

Educational
solutions

Net sales
Operating income

Other

Total

Healthcare
and nursing
services

0.4%

2.0%

2.1%

2.8%

19,08019,00020,00020,000

4.8%

361

1,000

700

700

93.9%

1.9%

5.3%

3.5%

3.5%

Net sales

58,14257,50062,00059,0001.5%

Operating income

2,984

2,200

2,700

2,350

-21.2%

Operating income margin
Healthcare
and nursing
domainYoY change

Operating income margin

5.1%

3.8%

4.4%

4.0%

Net sales

3,500

3,000

3,000

3,000

-14.3%

Operating income

152

20

100

100

-34.2%

Operating income margin

4.3%

0.7%

3.3%

3.3%

140,559

140,000

143,000

143,000

1.7%

Operating income

4,523

5,000

5,100

5,100

12.8%

Operating income margin

3.2%

3.6%

3.6%

3.6%

Net sales*Initial plan refers to goals from the Gakken 2020 Medium-Term Management Plan
Source: Prepared by FISCO from the Company's results briefing materials(1) Educational services business
Educational services business targets are ¥34,500mn in net sales (+14.0% YoY) and ¥1,200mn in operating
income (+33.5%). Excluding additions from the BUNRI transfer (¥4,500mn in net sales and ¥200mn in operating
income), this guidance expects 0.9% decline in net sales and an 11.2% increase in operating income.
Gakken Classroom business aims for stable growth by promoting subscription to the English course, programmingcourse, and other areas, just as in the previous fiscal year. Prep school business, meanwhile, faces lower sales
because of revisions to unprofitable schools, though aims to improve profitability sharing operational knowhow
from Sozogakuen and other vibrant prep schools within the group and pursuing cost cutbacks.
(2) Educational content business
Educational content business targets are ¥26,500mn in net sales (-10.4% YoY) and ¥750mn in operating income(+495.2%). These targets include negative impact from the BUNRI transfer (¥4,500mn in net sales and ¥200mn
in operating income) and positive impact from adding the medical and nursing publishing business (¥3,000mn in
net sales and ¥350mn in operating income).

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

21 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Business outlook

The outlook projects restoration of profit increase, despite likely decline in publishing business sales from ongoing revision of money-losing areas, mainly due to non-recurrence of ¥300mn in inventory valuation decline forstudy-aid books booked in the previous period. It also factors in smaller TGG losses by raising the operating
rate and optimizing the management process in non-publishing business. The Company announced the sale ofanime-related business* to IID, Inc. (6038) on February 1, 2020.
*	Publishes anime monthly magazine Animedia launched in 1981 by Gakken Plus, voice-actor monthly magazine Seiyu
Anime, and monthly Megami Magazine, publishes magazine books, and operates Cho! Animedia, an Internet media site.
Gakken Plus continues to sell publications after the business sale.

(3) Educational solutions business
Educational solutions business targets are ¥20,000mn in net sales (+4.8% YoY) and ¥700mn in operating income(+93.9%). The main driver of anticipated sales and profit increases, despite sluggishness in toddler educational
business due to the shrinking youth population, is the start of school textbook sales for two courses (health andmoral education) for elementary schools in the school educational business (this business only supplied one course(moral education) for junior high schools in the previous period).
(4) Healthcare and nursing services business
Healthcare and nursing services business targets are ¥59,000mn in net sales (+1.5% YoY) and ¥2,350mn inoperating income (-21.2%). Comparison with the previous period excluding medical and nursing publishingbusiness results puts the growth rates at +6.4% for net sales and -6.3% for operating income. While sales should
continue moving upward on expansion of site count in elderly care business, the Company expects weaker profits
because of investment costs for opening new sites and higher personnel costs. However, we think it conservatively
estimates personnel costs and anticipate upside if operations proceed smoothly.
The new site plan aims to add 17 serviced apartments for the elderly (vs. 11 sites in the previous period) and sevengroup homes for the elderly with dementia (vs. none). In serviced apartments for the elderly, it targets a 15.7%
YoY rise in total units to 7,470 units and a 17.4% increase in occupied units to 6,969 units (lifting the occupancy
rate from 91.9% at the previous period-end to 93.3%). Group home for the elderly with dementia occupancy,
meanwhile, is slated to drop slightly from 97.4% at the previous period-end to 97.0%, mainly because of skewed
timing for opening new sites to 2H.
The Company expects continued sales growth in parenting support business too with two new nursery schools
and an additional eight sites versus the previous period-end in consigned operation of c after-school children’s
clubs.

Pursuing improvement in enterprise value through sustainablegrowth driven by the educational domain and healthcare / nursing
domain as growth engines
3. Progress of the medium-term business plan
Gakken 2020, the Company’s Medium-Term Management Plan that started in FY9/19, pursues improvement inenterprise value through sustainable growth driven by the educational domain and healthcare and nursing domain
as growth engines along with reinforcement of the management foundation, enhanced capital efficiency, and higher
shareholder return.

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

22 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.
9470 Tokyo Stock Exchange Frist Section

7-May-2020
https://ghd.gakken.co.jp/english/index.html

Business outlook

As the first-year assessment, overall results proceeded roughly on track with expectations and the healthcare /nursing domain, in particular, achieved robust income expansion by broadening business scope, as explained
above, and led the Company’s growth. In the educational domain, meanwhile, the Company faces issues, such as
needing some time to assess and cultivate new businesses and income from existing businesses (prep schools,etc.) missing the initial plan. It has outlined policies for improved profitability of continuing to strengthen monitoring
and revamping the business portfolio.
In issues and measures for individual business segments, the Company intends to build a robust managementfoundation capable of achieving sustainable growth by implementing the measures. Prep school business, inparticular, currently operates over 10 brands via multiple companies and has substantial room for improvementfrom the standpoint of group management. We think the Company possesses healthy growth potential, even withheadwind from the shrinking youth population, if it successfully constructs a framework that maximizes customer
LTV by leveraging the strength of group coverage from toddler education (nursery schools, kindergartens, etc.)
through Gakken Classroom for younger elementary school students and prep schools that cover elementary, junior,and senior high school students.
Business strategies (issues and measures)
Business segment

IssuesMeasures

Educational
services• Decline in prep school student volume• Establishment of a success model for G-PAPILS
utilizing AI• Expansion of assessment business• Group deployment of operational knowhow from vibrant schools• Improvement in G-PAPILS product capabilities and enhancedsales• Income improvement and strengthening collaboration between
production and sales division

Educational content• Careful assessment of money-losing businesses• Insufficient content development and sales strength• Improvement in English business profitability(TGG, online English conversation)• Enhanced investment decisions and monitoring• Utilization of medical publishing business (e-learning) knowhow• Customer acquisition with enhanced sales activities and rigorous
cost management

Educational
solutions• Decline in school textbook sales share• Accessing funds for free toddler education• Strengthening BtoB business• Reinforcing school textbook production and sales operations• Increase in toddler classroom members• Bolstering corporate seminar business and e-learning (corporate,teacher credential renewal classes, etc.)

Healthcare andnursing services• Insufficient number of elderly care facility openings• Measures to address manpower shortages (certifiedcare workers, nursery teachers, nurses)• Strengthening development operations (concentration ofdevelopment information and knowhow)• Personnel system revisions (compensation, career plans, training)

Source: Prepared by FISCO from the Company's results briefing materials (including some additions by FISCO)The Company intends to focus on EdTech and English education as longer-term initiatives in its mission as an
educational company. EdTech areas include G-PAPILS, a next-generation independent personalized prep schoolthat uses video distribution and AI, and Gakken Nursing Support, an e-learning service for nurses. The G-PAPILS
strategy calls for steady improvement in quality through accumulation of learning data and business expansion. It
is also possible to provide high value-added solution service by utilizing accumulated learning data in assessment
business. In e-learning service, meanwhile, the Company holds a top industry share in the segment for nurses andis achieving healthy growth. It aims to broaden business scope by applying accumulated knowhow for the nurse
service to certified care worker, teacher license renewal course, and corporate seminar applications.
In English education, it plans to bolster the publication line-up to meet growing demand for elementary school English
teaching materials and workbooks and reference books for Eiken tests in response to entrance exam reforms. It
also hopes to monetize TGG, one of the largest experience-style English learning facilities in Japan.
Key points in the next medium-term management plan that begins FY9/21 include the Company’s specific reinforcement measures in the educational domain, action program for “business strategy monitoring, organizational
personnel reforms, income structure reforms, portfolio changes, financial strategy, investment assessment, andmarketing enhancement” as measures to strengthen the business foundation, and ESG and SDG initiatives.

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

23 24

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Gakken Holdings Co., Ltd.

7-May-2020

9470 Tokyo Stock Exchange Frist Section

https://ghd.gakken.co.jp/english/index.html█ Shareholder returns
Plans a third straight dividend hike in FY9/20, and announces astock split
The Company positions shareholder return as an important management issues and utilizes dividends and a shareholder benefit program. While it has not defined a specific dividend target, the Company aims to realize sustainableimprovement in shareholder value through well-balanced implementation of a stable dividend and profit expansion
with aggressive investment in growth areas.
The Company plans to raise the dividend a third straight time in FY9/20 with a ¥5.0 YoY increase to ¥80.0 (26.4%
dividend payout ratio). It also announced a 1-to-4 stock split at the end of March 2020. While management hopes
to increase the number of individual shareholders in the child-raising generation, the shares have moved above¥7,000 in the past year. The Company hence decided to conduct a stock split and thereby lower the price to a levelat which even individuals can readily buy shares.
The shareholder benefit program lets shareholders as of end-September each year select desired products, according to the number of shares owned, from group magazines, books, magazine books, character goods, and otheritems in a catalogue. There is also a ¥1,000 book card gift as a long-term ownership benefit for shareholders who
own 300 or more shares continuously for a period of at least three years. Management is currently reviewing benefit
content after the stock split.

C h a nges i n d i vi dend p er s hare a nd di vi dend payout r ati o（¥）

Dividend per share (left)

Dividend payout ratio (right)

100.00

50.0%

40.2%
80.00

70.00
60.00

60.00

75.00
35.9%

60.00

80.0
40.0%
26.4%

30.0%

21.4%
16.4%

40.00

20.0%

20.00

10.0%

0.00

0.0%
FY9/16

FY9/17

FY9/18FY9/19FY9/20 E

Note: Conducted a 10-to-1 reverse stock split in April 2017. Updated retroactively
Source: Prepared by FISCO from the Company's financial results

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

24 24

Disclaimer
FISCO Ltd. (“FISCO”) offer stock price and index information for use under the approval of theTokyo Stock Exchange, the Osaka Stock Exchange and Nikkei Inc.
This report is provided solely for the purpose of offering information, and is not a solicitationof investment nor any other act or action.
FISCO prepared and published this report based on information which it considered reliable;
however, FISCO does not warrant the accuracy, completeness, fitness nor reliability of thecontents of this report or the said information.
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mentioned in this report may increase or decrease in value or lose their value due to influence
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not make any promises regarding any future outcomes. If you use this report or any information
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This report has been prepared at the request of the company subject hereto based on theprovision of information by such company through telephone interviews and the like. However,
the hypotheses, conclusions and all other contents contained herein are based on analysis
by FISCO. The contents of this report are as of the time of the preparation hereof, and are
subject to change without notice. FISCO is not obligated to update this report.
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Please use the information in this report upon accepting the above points.

◾ For inquiry, please contact: ◾

FISCO Ltd.
5-11-9 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (Financial information Dept.)
Email: support@fisco.co.jp