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

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

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

伪伪Likely to be revalued based on growth of the Japanesemarket for women’s wigs and overseas business
Since its foundation, Aderans has remained the top provider of wigs in Japan. The company
now produces and sells wigs and offers hair growth and hair transplantation services globally. In
Japan, it produces custom-made wigs under the brand names of Aderans and Ladies’ Aderans,
produces ready-made wigs for women under the Fontaine brand name, and provides a hairtransplantation service under the Bosley brand namein US and overseas. Also outside Japan, it
produces non-surgical hair replacement, hair transplantation, and hair loss prevention services
under the Hair Club brand name (see company’s English language website).
For nine years from the fiscal year through March 2002, i.e., FY3/02, the company’s earnings
declined, in part, due to external factors, such as the terrorist attack in the U.S. in September
2001, the global financial crisis that followed the Lehman Brothers bankruptcy in September
2008, and the Great East Japan Earthquake in March 2011. However, this decline ended in
FY2/11, when the company suffered losses for the second year in a row. In the following threefiscal years, its profits grew. Even so, its profits in FY2/14 were about one-third of its peak
profits. The main point of interest to investors now is the business strategy the company plans
to implement to regain profit growth.
Prospects for the wig market in Japan are not good. Due to changes in the age composition of
the Japanese people and to changes in their mentalities, the Japanese market for men’s wigs
has been shrinking, and it will probably continue to shrink. In fact, it may decrease at a fasterrate than it has to date. In contrast, the Japanese market of women’s wigs has been growing
steadily and is likely to continue to do so, but not enough to offset the decline in the men’s
wig market unless business operators can find a new application for women’s wigs or a newmarket segment to cater to.
Aderans is often compared to ARTNATURE (7823) in terms of business content andattractiveness as an equity investment. Reflecting the weak earnings performance of Aderans,
ARTNATURE has been the preferred investment, but given the prospects for the Japanese wig
market cited above, Aderans may become a more attractive investment because ARTNATURE
leads the market for men’s wigs but Aderans leads the market for women’s wigs and theoverseas market for wigs, which has strong growth prospects. Most likely, Aderans will maintainits lead in these markets.
Aderans considers earnings before interest expense, taxes, depreciation and amortization
expenses (EBITDA) the most important measure of business performance. In its businessplan for FY2/15 – FY2/17, the company aims for an accumulated EBITDA of \26.3bn or more.
Its historical high EBITDA was achieved in the three fiscal years in the early 2000s, but theoperating environment for the Japanese wig industry and market shares have changed so muchsince then that this period may not be an appropriate basis for comparison. A more appropriate
basis may be the three fiscal years through FY2/08, before the Lehman shock. In those three
years, the company’s accumulated EBITDA was \29.4bn. Thus, over the next three fiscal
years, the company aims to generate about 90% of the EBITDA it amassed in FY2/06 – FY2/08.
If it achieves this goal, it will acquire a large amount of cash. If it invests this cash intelligently,
it could regain the top name recognition and investment attractiveness in the industry.

We encourage readers to review our complete legal statement on “Disclaimer” page.
1

伪伪Check PointADERANS・Most products made in-house, ensuring cost control and high quality
・Purchase of HC (USA) Inc. boosted sales substantially, while cost cuts and yen
depreciation lifted profits
・Aiming for profit growth by increasing market share in Japan and expanding overseas
business

8170 Tokyo Stock ExchangeFirst Section㻯㼛㼚㼟㼛㼘㼕㼐㼍㼠㼑㼐㻌㻿㼍㼘㼑㼟㻌㼍㼚㼐㻌㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㻼㼞㼛㼒㼕㼠㻘㻌㻲㼅㻞㻛㻜㻥㻌– 㻲㼅㻞㻛㻝㻡㻱（¥mn）

25-Jul.-14

㻟㻘㻡㻡㻥

㻟㻘㻢㻝㻢

㻠㻘㻝㻜㻜

㻢㻘㻜㻜㻜
㻠㻘㻜㻜㻜

㻞㻘㻡㻟㻝

㻞㻘㻡㻜㻤

㻢㻜㻘㻜㻜㻜

㻞㻘㻜㻜㻜㻡㻜㻘㻜㻜㻜

㻜㻠㻜㻘㻜㻜㻜
㻣㻜㻘㻠㻢㻟
㻟㻜㻘㻜㻜㻜FISCO Ltd. Analyst
Hiroyuki Asakawa（¥mn）

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㻼㼞㼛㼒㼕㼠㻤㻜㻘㻜㻜㻜
㻣㻜㻘㻜㻜㻜

Important disclosuresand disclaimers appear
at the end of this document.

㻿㼍㼘㼑㼟㻢㻣㻘㻣㻡㻡
㻡㻣㻘㻟㻡㻡

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㻝㻜㻘㻜㻜㻜

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㻠㻤㻘㻝㻣㻝

㻠㻣㻘㻠㻞㻞

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㻙㻞㻘㻜㻜㻜
㻙㻠㻘㻜㻜㻜

㻙㻢㻘㻜㻜㻜
㻙㻡㻘㻤㻤㻟

㻜㻙㻤㻘㻜㻜㻜
㻲㼅㻞㻛㻜㻥

㻲㼅㻞㻛㻝㻜

㻲㼅㻞㻛㻝㻝

㻲㼅㻞㻛㻝㻞

㻲㼅㻞㻛㻝㻟

㻲㼅㻞㻛㻝㻠

㻲㼅㻞㻛㻝㻡㻱

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

伪伪Company Overview
Early entry into the Japanese market for women’s wigs andoverseas markets formed the basis for current strengths(1) History
Aderans was founded in 1968 bycurrent president Nobuo Nemoto as a specialized provider
in custom-made wigs for men. And, then the company entered into women’s market when itbought Fontaine Co., which had been selling the Fontaine brand of ready-made wigs for womensince 1970 as a subsidiary of Kaneka Chemical Co., now called Kaneka Corp. (4118).

We encourage readers to review our complete legal statement on “Disclaimer” page.
2

■Company■
Overview

History
Sep. 1968
Mar. 1969
Mar. 1970

Jul. 1979
Aug. 1985
Sep. 1985
Apr. 1990
Jan. 1992
Mar. 1992
Nov. 1994
Dec. 1994
Aug. 2001
Jan. 2002
Sep. 2007

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

Sep. 2010

Important disclosuresand disclaimers appear
at the end of this document.

Feb. 2011
Jul. 2011
Sep. 2012
Apr. 2013

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., andAderans 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 asubsidiary

History of Fontaine Co., Ltd.
Source: Fisco Inc. from company information and other materials*

FISCO Ltd. Analyst
Hiroyuki Asakawa

While expanding its domestic operations, Aderans entered overseas markets earlier than mostof its competitors. In 1979, it set up its first overseas subsidiary, Aderans Corporation ofAmerica. In 1986, it established Aderans Thai in Thailand as its first oversea production unit.
Aderans’s businesses grew strongly in the 1990’s. In Japan, the company developed salons tosell custom-made wigs to women. These salons formed the basis for the company’s current
top share of the Japanese market for women’s wigs. After establishing Aderans Europe, thecompany bought local wig sales companies in most main European countries to build a businessfoundation in that continent. Because the market structure and brands vary by country, thecompany decided that it could more effectively grow in Europe through such acquisitions
than through independent development. In North America, Aderans resumed its investment in
the late 1980’s, buying local wig wholesalers. In the 1990’s, it accelerated this investment,purchasing such companies as New Concept and General Wig. These efforts supported strong
growth through the 1990’s and early 2000’s, and company profits peaked in FY3/02, whilesales peaked in FY2/03.
After these peaks, sales and profits declined, primarily because the company pursued
businesses other than wigs, the growth of the wig market slowed, and the company’s shareof the wig market fell. The company restructured its operations in Japan and overseas toregain growth, but these efforts were stymied by the economic impact of the global financial
crisis after the Lehman shock and other factors. Thus, the company suffered large losses in
FY2/10 and FY2/11. In FY2/12, it returned to profitability, and in the ensuing two fiscal years,
its profits grew.

Pursuing a wide range of hair-related businesses in Japan andoverseas; all businesses increased sales in FY2/14(2) Description of Businesses
The Aderans and Fontaine brands are well-known in Japan, but the company’s businessstructure and profit structure are somewhat complicated because of brand histories andfrequent changes in the categories of information released by the company.

We encourage readers to review our complete legal statement on “Disclaimer” page.
3

■Company■
Overview

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.

The company’s main product is wigs. The wig market in Japan is divided by gender andby product specification, i.e., ready-made or custom-made. Aderans also offers hair growthservice and barber and hair salon services and sells hair care products, such as shampoo. The
company includes in its Aderans business the sale of all custom-made wigs in Japan and related
services, for both men and women. Its Fontaine business sells ready-made wigs for womenin Japan. The Bosley business is the hair transplantation service conducted by subsidiary
Bosley, Inc. in the US. The overseas wig business handles all other overseas business. The
other category includes electronic commerce, medical-use wig business, and wholesale salesof ready-made wigs for women through beauty supply route.
In FY2/14, sales in the Aderans business grew 10.1% year-on-year (y-o-y) to \28,234mn, sales
in the Fontaine business increased 5.3% to \8,987mn, sales in the Bosley business rose 10.9%
to \9,320mn, and sales in the overseas wig business surged 150% to \17,992mn, boosted by thepurchase of HC (USA) Inc., of the US. Revenue from domestic business rose from a recent low
and revenue in the Bosley business increased due to yen depreciation.

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㻜㻚㻝㻑

㻠㻚㻢㻑

FISCO Ltd. Analyst
Hiroyuki Asakawa

㻰㼛㼙㼑㼟㼠㼕㼏㻌㼟㼍㼘㼑㼟㻌㼛㼒㻌㼏㼡㼟㼠㼛㼙㻙㼙㼍㼐㼑㼣㼕㼓㼟㻌㼒㼛㼞㻌㼙㼑㼚㻰㼛㼙㼑㼟㼠㼕㼏㻌㼟㼍㼘㼑㼟㻌㼛㼒㻌㼏㼡㼟㼠㼛㼙㻙㼙㼍㼐㼑㼣㼕㼓㼟㻌㼒㼛㼞㻌㼣㼛㼙㼑㼚㻰㼛㼙㼑㼟㼠㼕㼏㻌㼟㼍㼘㼑㼟㻌㼛㼒㻌㼞㼑㼍㼐㼥㻙㼙㼍㼐㼑㻌㼣㼕㼓㼟㼒㼛㼞㻌㼣㼛㼙㼑㼚㻮㼛㼟㼘㼑㼥㻌㼎㼡㼟㼕㼚㼑㼟㼟㻌㻔㼔㼍㼕㼞㼠㼞㼍㼚㼟㼜㼘㼍㼚㼠㼍㼠㼕㼛㼚㻌㼕㼚㻌㼠㼔㼑㻌㼁㻿㻕㻻㼢㼑㼞㼟㼑㼍㼟㻌㼣㼕㼓㻌㼎㼡㼟㼕㼚㼑㼟㼟

㻝㻡㻚㻣㻑

㻞㻢㻚㻡㻑

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㻝㻟㻚㻣㻑
㻝㻟㻚㻟㻑

㻻㼠㼔㼑㼞㻌㼐㼛㼙㼑㼟㼠㼕㼏㻌㼎㼡㼟㼕㼚㼑㼟㼟㼑㼟㻻㼠㼔㼑㼞㻌㼛㼢㼑㼞㼟㼑㼍㼟㻌㼎㼡㼟㼕㼚㼑㼟㼟㼑㼟

Source: compiled by Fisco based on company materials

Breakdown of Consolidated Sales and Operating Profit by Business, FY2/13 – FY2/14(\mn)
FY2/13Results
51,08925,644
8,536
8,401
5,214
3,293
3,559
6,793
3,168
764
-293
-259
10,173-6,614

Sales
Aderans business
Fontaine business
Bosley business
Overseas wig business
Other
Operating profit
Aderans business
Fontaine business
Bosley business
Overseas wig business
Other
Subtotal
Adjustments

FY2/14
Results
67,75528,234
8,987
9,320
17,992
3,219
3,616
7,703
2,051
457
-1,234-476
8,501-4,884

y-o-y
32.6%
10.1%
5.3%
10.9%
245.1%
-2.2%
1.6%
13.4%
-35.3%-40.2%-16.4%-

Source: Japanese financial statements

We encourage readers to review our complete legal statement on “Disclaimer” page.
4伪伪Business Details
In wigs for men, the customer repeat rate at Hair Club is high; thechallenge is to acquire new customers

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

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

Three major businesses: domestic wig business for men, domestic wig business for women, andoverseas businesses (Bosley and wig business)
Aderans’s businesses can be categorized as domestic wig business for men, domestic wig
business for women, and overseas businesses. The company also breaks down its domestic
wig businesses by ready-made and custom-made, but all ready-made wigs are for women, so
it is easier to understand the company’s businesses by the simple categorization above. This
categorization also simplifies comparison with Aderans’s main listed competitor, ARTNATURE.
With a market share of about 15%, Aderans ranks third(1) Domestic wig business for men
The domestic wig business for men comprises the Aderans brand of custom-made wigs andrelated services, such as hair growth service, barber shops and hair salons. In FY2/14, sales
from the domestic wig business for men increased 8.4% y-o-y to \10,554mn. Of these sales,
about 65% was from wigs and 35% was from other products and services. In this business,
including related services, the company holds an approximately 15% share of the Japanesemarket, ranking it third. ARTNATURE holds the top share, of about 30%, and Reve21 is second
with a share of about 20%.
○Lost market lead over past 10 years
Over the past 10 years, both Aderans and ARTNATURE have seen a downtrend in earnings,
but the drop at Aderans has been greater than that at ARTNATURE, and profit at Aderans
recovered later than profit at ARTNATURE. These trends help to explain why ARTNATURE
displaced Aderans as the market leader.

㼀㼛㼠㼍㼘㻌㼟㼍㼘㼑㼟㻌㼛㼒㻌㼃㼕㼓㼟㻌㼍㼚㼐㻌㻾㼑㼘㼍㼠㼑㼐㻌㻿㼑㼞㼢㼕㼏㼑㼟㻌㼒㼛㼞㻌㻹㼑㼚㻌㼎㼥㻌㻭㼐㼑㼞㼍㼚㼟㻌㼍㼚㼐㻌㻭㻾㼀㻺㻭㼀㼁㻾㻱㻘㻌㻲㼅㻜㻟㻌– 㻲㼅㻝㻟（¥㼙㼚）㻭㼐㼑㼞㼍㼚㼟

㻭㻾㼀㻺㻭㼀㼁㻾㻱㻞㻡㻘㻜㻜㻜
㻞㻜㻘㻜㻜㻜
㻝㻡㻘㻜㻜㻜
㻝㻜㻘㻜㻜㻜
㻡㻘㻜㻜㻜㻜㻲㼅㻞㻜㻜㻟

㻲㼅㻞㻜㻜㻡

㻲㼅㻞㻜㻜㻣

㻲㼅㻞㻜㻜㻥

㻲㼅㻞㻜㻝㻝

㻲㼅㻞㻜㻝㻟

Source: compiled by Fisco from company materials

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

■Business■
Details㻿㼍㼘㼑㼟㻌㼠㼛㻌㼚㼑㼣㻌㼏㼡㼟㼠㼛㼙㼑㼞㼟㻌㼛㼒㻌㼃㼕㼓㼟㻌㼍㼚㼐㻌㻾㼑㼘㼍㼠㼑㼐㻌㻿㼑㼞㼢㼕㼏㼑㼟㻌㼒㼛㼞㻌㻹㼑㼚㻌㼎㼥㻌㻭㼐㼑㼞㼍㼚㼟㻌㼍㼚㼐㻌㻭㻾㼀㻺㻭㼀㼁㻾㻱㻘㻌㻲㼅㻜㻟㻌– 㻲㼅㻝㻟（¥㼙㼚）㻭㼐㼑㼞㼍㼚㼟

㻭㻾㼀㻺㻭㼀㼁㻾㻱

㻡㻘㻜㻜㻜
㻠㻘㻡㻜㻜

ADERANS㻠㻘㻜㻜㻜

8170 Tokyo Stock ExchangeFirst Section

㻟㻘㻡㻜㻜
㻟㻘㻜㻜㻜
㻞㻘㻡㻜㻜
㻞㻘㻜㻜㻜

25-Jul.-14

㻝㻘㻡㻜㻜
㻝㻘㻜㻜㻜

㻡㻜㻜

Important disclosuresand disclaimers appear
at the end of this document.

㻜㻲㼅㻞㻜㻜㻟

㻲㼅㻞㻜㻜㻡

㻲㼅㻞㻜㻜㻣

㻲㼅㻞㻜㻜㻥

㻲㼅㻞㻜㻝㻝

㻲㼅㻞㻜㻝㻟

Source: compiled by Fisco from company materials

FISCO Ltd. Analyst
Hiroyuki Asakawa

㻿㼍㼘㼑㼟㻌㼠㼛㻌㼞㼑㼜㼑㼍㼠㻌㼏㼡㼟㼠㼛㼙㼑㼞㼟㻌㼛㼒㻌㼃㼕㼓㼟㻌㼍㼚㼐㻌㻾㼑㼘㼍㼠㼑㼐㻌㻿㼑㼞㼢㼕㼏㼑㼟㻌㼒㼛㼞㻌㻹㼑㼚㻌㼎㼥㻌㻭㼐㼑㼞㼍㼚㼟㻌㼍㼚㼐㻌㻭㻾㼀㻺㻭㼀㼁㻾㻱㻘㻌㻲㼅㻜㻟㻌– 㻲㼅㻝㻟（¥㼙㼚）㻭㼐㼑㼞㼍㼚㼟

㻭㻾㼀㻺㻭㼀㼁㻾㻱㻞㻡㻘㻜㻜㻜

㻞㻜㻘㻜㻜㻜

㻝㻡㻘㻜㻜㻜
㻝㻜㻘㻜㻜㻜

㻡㻘㻜㻜㻜㻜㻲㼅㻞㻜㻜㻟

㻲㼅㻞㻜㻜㻡

㻲㼅㻞㻜㻜㻣

㻲㼅㻞㻜㻜㻥

㻲㼅㻞㻜㻝㻝

㻲㼅㻞㻜㻝㻟

Source: compiled by Fisco from company materials○155 salons nationwide
Aderans directly operates 155 salons selling wigs and related goods and services for men andwomen. These salons first consult with a customer, and based on the condition of clients’ hairand clients’ aspirations, the salons recommend the most appropriate good or service from awide selection. ARTNATURE follows the same procedure. Thus, Aderans and ARTNATURE
differ little in sales method and strategy.
○Services to promote and maintain healthy hair growth a vital component for men business
Most men who use wigs start to do so in their 30’s, when they still have some of their own
hair. To prolong the life of their own hair, many men combine the hair growth service with theuse of a wig. Many men who have just begun to notice their thinning hair use only the hair
growth service, as the psychological barrier to such use is low. However, many of these men
ultimately buy wigs. Therefore, Aderans and its competitors invest in the development of a hair
growth service.

We encourage readers to review our complete legal statement on “Disclaimer” page.
6

■Business■
Details

ADERANS
8170 Tokyo Stock ExchangeFirst Section○Most men’s wigs sold outright, but some sold through club membership
Aderans sells most of its men’s wigs as simple sales, but in the 2000’s, the company started
selling them through membership in its Fathers Club. In 2010, the company changed the nameof this club to Hair Club. The contract for membership in this club is similar to an automobile
lease contract. For an annual fee of about \200,000 (\15,220 – \20,293 per month), a member
gets to use a custom-made wig with no additional cost for maintenance. Other wig makers also
sell through club memberships, but Hair Club membership is cheaper than membership in mostother clubs because it charges no initial fee or maintenance fee. The repeat sale rate in the
Hair Club, i.e., the proportion of members which joins the club for more than one year, is high.
This is one of the main strengths of Aderans. Currently, about 30% of the company’s sales ofcustom-made wigs are made through the Hair Club.

25-Jul.-14○Difficult to distinguish wigs based on quality because sales reflect individual preferences

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

more than quality
In general, the quality of wigs made by Aderans and other leading producers is high. Most of
Aderans’s wigs are made of nylon resin hair that is surface-treated to resemble natural hairin such traits as moisture absorbency. However, it is difficult to differentiate wigs based on
their similarity to natural hair because wig purchasers or users often choose a wig based on
individual preferences rather than quality.
○No concrete strategies to attract more new customers, which is the lifeline of the men’s
wig businessAs shown in the graph earlier, Aderans has lagged behind rival ARTNATURE in the sale ofmen’s wigs over the past decade. Most notably, Aderans’s sales to new customers fell fromalmost \5bn 10 years ago to just over \0.5bn in FY2/14. Some wig users ultimately stop using
wigs, so it is important to acquire new customers to maintain sales and profit growth in the wig
business. Aderans is analyzing the reasons for the decline in its sales to new customers andclaims to be designing a strategy to deal with this problem, but it has not clarified the detailsof this strategy, so it is impossible to judge its probable success.

The pioneer for women’s wig, Aderans remains the market
leader, with a 40% share(2) Domestic wig business for women
Aderans started selling wigs for women in 1970, just after its establishment, when it set up
Fontaine Service. to distribute the Fontaine brand of ready-made wigs produced by Kaneka
Chemical Co. In 1985, Aderans made Fontaine Co. a subsidiary. In 1990, Aderans started
developing salons dedicated to the sale of custom-made wigs for women. Thus, the company
pioneered the sale of both ready-made and custom-made wigs for women in Japan and remains
the market leader. In FY2/14, Aderans’s sales of women’s wigs, including ready-made wigs,
custom-made wigs, and related services, such as the hair growth service, grew 9.1% y-o-y to\26,666mn, giving it an estimated market share of about 40%. ARTNATURE was second, with anestimated share of 20%. With a combined market share of about 60%, Aderans and ARTNATURE
dominate the market for women’s wigs more than they dominate the market for men’s wigs.

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7

■Business■
Details（¥㼙㼚）㼀㼛㼠㼍㼘㻌㼟㼍㼘㼑㼟㻌㼛㼒㻌㼃㼕㼓㼟㻌㼍㼚㼐㻌㻾㼑㼘㼍㼠㼑㼐㻌㻿㼑㼞㼢㼕㼏㼑㼟㻌㼒㼛㼞㻌㼃㼛㼙㼑㼚㻌㼎㼥㻌㻭㼐㼑㼞㼍㼚㼟㻌㼍㼚㼐㻌㻭㻾㼀㻺㻭㼀㼁㻾㻱㻘㻌㻲㼅㻜㻟㻌– 㻲㼅㻝㻟㻭㼐㼑㼞㼍㼚㼟

㻟㻡㻘㻜㻜㻜

㻭㻾㼀㻺㻭㼀㼁㻾㻱㻟㻜㻘㻜㻜㻜ADERANS㻞㻡㻘㻜㻜㻜

8170 Tokyo Stock ExchangeFirst Section㻞㻜㻘㻜㻜㻜
㻝㻡㻘㻜㻜㻜

25-Jul.-14㻝㻜㻘㻜㻜㻜
㻡㻘㻜㻜㻜

Important disclosuresand disclaimers appear
at the end of this document.

㻜㻲㼅㻞㻜㻜㻟

㻲㼅㻞㻜㻜㻡

㻲㼅㻞㻜㻜㻣

㻲㼅㻞㻜㻜㻥

㻲㼅㻞㻜㻝㻝

㻲㼅㻞㻜㻝㻟

Source: compiled by Fisco from company materials

FISCO Ltd. Analyst
Hiroyuki Asakawa

㻿㼍㼘㼑㼟㻌㼛㼒㻌㼏㼡㼟㼠㼛㼙㻙㼙㼍㼐㼑㻌㼣㼕㼓㼟㻌㼍㼚㼐㻌㻾㼑㼘㼍㼠㼑㼐㻌㻿㼑㼞㼢㼕㼏㼑㼟㻌㼒㼛㼞㻌㼃㼛㼙㼑㼚㻌㼎㼥㻌㻭㼐㼑㼞㼍㼚㼟㻌㼍㼚㼐㻌㻭㻾㼀㻺㻭㼀㼁㻾㻱㻘㻌㻲㼅㻜㻟㻌– 㻲㼅㻝㻟（¥㼙㼚）㻭㼐㼑㼞㼍㼚㼟

㻭㻾㼀㻺㻭㼀㼁㻾㻱㻞㻡㻘㻜㻜㻜

㻞㻜㻘㻜㻜㻜

㻝㻡㻘㻜㻜㻜

㻝㻜㻘㻜㻜㻜

㻡㻘㻜㻜㻜㻜㻲㼅㻞㻜㻜㻟

㻲㼅㻞㻜㻜㻡

㻲㼅㻞㻜㻜㻣

㻲㼅㻞㻜㻜㻥

㻲㼅㻞㻜㻝㻝

㻲㼅㻞㻜㻝㻟

Source: compiled by Fisco from company materials㻿㼍㼘㼑㼟㻌㼠㼛㻌㼚㼑㼣㻌㼏㼡㼟㼠㼛㼙㼑㼞㼟㻌㼛㼒㻌㼏㼡㼟㼠㼛㼙㻙㼙㼍㼐㼑㻌㼣㼕㼓㼟㻌㼍㼚㼐㻌㻾㼑㼘㼍㼠㼑㼐㻌㻿㼑㼞㼢㼕㼏㼑㼟㻌㼒㼛㼞㻌㼃㼛㼙㼑㼚㻌㼎㼥㻌㻭㼐㼑㼞㼍㼚㼟㻌㼍㼚㼐㻌㻭㻾㼀㻺㻭㼀㼁㻾㻱㻘㻌㻲㼅㻜㻟㻌– 㻲㼅㻝㻟（¥㼙㼚）㻭㼐㼑㼞㼍㼚㼟

㻭㻾㼀㻺㻭㼀㼁㻾㻱㻝㻞㻘㻜㻜㻜
㻝㻜㻘㻜㻜㻜
㻤㻘㻜㻜㻜

㻢㻘㻜㻜㻜
㻠㻘㻜㻜㻜
㻞㻘㻜㻜㻜
㻜
㻲㼅㻞㻜㻜㻟

㻲㼅㻞㻜㻜㻡

㻲㼅㻞㻜㻜㻣

㻲㼅㻞㻜㻜㻥

㻲㼅㻞㻜㻝㻝

㻲㼅㻞㻜㻝㻟

Source: compiled by Fisco from company materials

We encourage readers to review our complete legal statement on “Disclaimer” page.
8

■Business■
Details㻿㼍㼘㼑㼟㻌㼠㼛㻌㼞㼑㼜㼑㼍㼠㻌㼏㼡㼟㼠㼛㼙㼑㼞㼟㻌㼛㼒㻌㼏㼡㼟㼠㼛㼙㻙㼙㼍㼐㼑㻌㼣㼕㼓㼟㻌㼍㼚㼐㻌㻾㼑㼘㼍㼠㼑㼐㻌㻿㼑㼞㼢㼕㼏㼑㼟㻌㼒㼛㼞㻌㼃㼛㼙㼑㼚㻌㼎㼥㻌㻭㼐㼑㼞㼍㼚㼟㻌㼍㼚㼐㻌㻭㻾㼀㻺㻭㼀㼁㻾㻱㻘㻌㻲㼅㻜㻟㻌– 㻲㼅㻝㻟（¥㼙㼚）㻭㼐㼑㼞㼍㼚㼟

㻭㻾㼀㻺㻭㼀㼁㻾㻱㻝㻠㻘㻜㻜㻜
㻝㻞㻘㻜㻜㻜ADERANS
8170 Tokyo Stock ExchangeFirst Section㻝㻜㻘㻜㻜㻜
㻤㻘㻜㻜㻜㻢㻘㻜㻜㻜

25-Jul.-14

㻠㻘㻜㻜㻜
㻞㻘㻜㻜㻜

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa㻜㻲㼅㻞㻜㻜㻟

㻲㼅㻞㻜㻜㻡

㻲㼅㻞㻜㻜㻣

㻲㼅㻞㻜㻜㻥

㻲㼅㻞㻜㻝㻝

㻲㼅㻞㻜㻝㻟

Source: compiled by Fisco from company materials（¥㼙㼚）㻿㼍㼘㼑㼟㻌㼛㼒㻌㼞㼑㼍㼐㼥㻙㼙㼍㼐㼑㻌㼣㼕㼓㼟㻌㼍㼚㼐㻌㻾㼑㼘㼍㼠㼑㼐㻌㻿㼑㼞㼢㼕㼏㼑㼟㻌㼒㼛㼞㻌㼃㼛㼙㼑㼚㻌㼎㼥㻌㻭㼐㼑㼞㼍㼚㼟㻌㼍㼚㼐㻌㻭㻾㼀㻺㻭㼀㼁㻾㻱㻘㻌㻲㼅㻜㻟㻌– 㻲㼅㻝㻟㻭㼐㼑㼞㼍㼚㼟

㻭㻾㼀㻺㻭㼀㼁㻾㻱㻝㻠㻘㻜㻜㻜
㻝㻞㻘㻜㻜㻜
㻝㻜㻘㻜㻜㻜
㻤㻘㻜㻜㻜
㻢㻘㻜㻜㻜
㻠㻘㻜㻜㻜
㻞㻘㻜㻜㻜
㻜

㻲㼅㻞㻜㻜㻟

㻲㼅㻞㻜㻜㻡

㻲㼅㻞㻜㻜㻣

㻲㼅㻞㻜㻜㻥

㻲㼅㻞㻜㻝㻝

㻲㼅㻞㻜㻝㻟

Note: For FY09, which was FY2/10 for Aderans, for sales of custom-made wigs to new customers andrepeat customers, Fisco added some amounts to the Aderans business reported by the company.
Source: compiled by Fisco from company materials○Women’s wig market includes ready-made wigs
Unlike the men’s wig market in Japan, the women’s wig market includes ready-made wigs,
as well as custom-made wigs. Custom-made wigs for women are sold through consultations
at salons operated by Aderans, just as custom-made wigs for men are. However, ready-madewigs are sold by specialized sales staff at corners of department stores and major distribution
chains.
○Average price for custom-made wigs \450,000, for ready-made wigs \100,000
The main price range for Aderans’s custom-made wigs is \400,000 – 500,000, with an averageof \450,000. The main price range for its ready-made wigs is \30,000 – 200,000, with an averageof \100,000. High prices for custom-made goods are normal, but Aderans’s ready-made wigs
are also relatively expensive. This pricing indicates that its ready-made wigs, like its custommade wigs, are targeted to middle-aged or older women having anxieties about their hair.

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9

■Business■
Details

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa○Market expansion is the calling of a market-leading company
As mentioned earlier, the women’s wig market is likely to grow for a certain period of time
because it is less adversely affected by the change in the age distribution of Japan’s population
than the men’s wig market. However, the women’s wig market will start to shrink in the near
future.Between men and women there are great differences in the need to combat thin hair.
The psychological resistance to measures against thin hair also differs greatly by gender. It
is vital that Aderans takes advantage of these differences to expand the demand for wigs,
including fashion wigs, and develops wigs to satisfy this new demand.
○Aderans could resume sales of low-priced wigs to stimulate demand
Aderans used to sell low-priced fashion wigs and hair pieces to young women at directly
operated stores. It no longer operates stores for such sales, which are currently made throughthe company’s electronic commerce website and at some stores operated by Aderans.
The scale of these sales has been declining. The company probably had good reasons forwithdrawing from this market segment, but it seems that the company could stimulate overallmarket demand by re-entering it.

Concentrating on the North American market, Aderans overseas
operationshaveacquired local companies producing ready-madewigs and offering hair transplantation(3) Overseas businesses
Development of overseas business on the right track though challenging to be successful
We believe that Aderans’s strategy of developing overseas business is reasonable, given thehigh probability that the Japanese market for men’s wigs will continue to shrink. To date,however, the company’s overseas businesses have not increased their profits, in part, because
Aderans has not been actively involved in their operations. Despite such failures overseas in
the past, the company continues to expand its overseas business. Unlike the Japanese wig
market, in the overseas wig market, no competitor has invested heavily in advertisement toexpand its business.Aderans should be able to grow overseas through its active PR activities.
With the recent acquisition of HC (USA), Inc., of the US, Aderans is prepared to increase its
men’s wig business in the US using the same strategy used in Japan. Furthermore, the US
market for custom-made wigs for women is untouched, so it offers great growth potential.
○North America as main overseas target
The overseas strategy of Aderans aims to expand business in North America, Europe andChina.The most important market for the company in terms of sales is North America, so thisreport focuses on that market.
(i) Overseas operations until FY2012

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10

■Business■
Details

History of overseas operations development

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

Jul. 1979
Jun. 1987
Mar. 1989
Jan. 1992
Mar. 1992
Nov. 1994
Mar. 1998
Sep. 1998
Aug. 2001
Jan. 2002
Jun. 2002
Aug. 2007
Nov. 2009
Sep. 2012
Apr. 2013

Established Aderans Corporation of America
Made International Hair Goods Co., of the US, a subsidiary
Made Rene of Paris, of the US, a subsidiary
Established Aderans Europe
Made the Comaflex companies in France, Germany and Belgium subsidiaries
Established Aderans Holding Co., now Aderans America Holding Co.
Made New Concept Co., of the US, a subsidiary
Made General Wig Co., of the US, a subsidiary
Made Bosley Medical Institute (now Bosley) and Bosley Medical Canada Co. subsidiaries
Established Aderans Philippines
Established Aderans Research Institute in the US
Acquired MHR in the US
Established Aderans Hair Goods Co. in the US and merged its five US subsidiaries with thiscompany
Made Le Nouvelle Espace Beauté in France a subsidiary
Made HC (USA) Inc., of the US, a subsidiary

Source: company materials

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

Acquired companies selling ready-made wigs and providing hair transplantation service
Aderans first entered the US market in 1979, but it failed because it tried to apply Japanesebusiness practices in the US market, which differed completely from the Japanese market inmany respects, including size, commercially viable price ranges, and the attitude toward aftersale service. Based on its experience in the market, from the late 1980’s, Aderans strengthened
its small North American business by purchasing five local companies that sold ready-madewigs wholesale or imported them. In 2001, Aderans purchased Bosley Medical Institute (nowBosley) of the US and Bosley Medical Canada Co., which offer hair transplantation service. In
2007, Aderans acquired MHR Co. of the US, which also provides hair transplantation service.
○North American operations unprofitable
According to the geographical breakdown of its sales and profits in the past (Aderans has notdisclosedthe breakdown since FY2/12), it generated about \10bn of sales in North America,\3bn in Europe, and \500mn in Asia. However, its operations in North America, though once
profitable, were unprofitable, its European operations yielded an operating profit of about \100300mn, and its Asian operations just broke even, after adjustment of internal transactions.
○Restructuring of North American operations completed in 2009-2010
Aderans’s operations in North America were hard-pressed by the economic weakness
accompanying the global financial crisis after the bankruptcy of Lehman Brothers. Thus, thecompany restructured these operations. In 2009, it established Aderans Hair Goods Co. in the
US and integrated its five US subsidiaries involved in selling ready-made wigs into this newcompany. In 2010, it acquired MHR Co. and merged this company with Bosley Co. to improve
operational efficiency in the hair transplantation business.
○Though small, European operations remain profitable
Aderans’s operations in Europe are small in terms of sales, compared with its North American
operations. However, its European operations are continuously profitable. Aderans owns
subsidiaries in Germany, France, Belgium, the UK, the Netherlands, and Sweden. Thesesubsidiaries sell local brands of goods, mainly ready-made wigs. This is an effective sales
strategy in Europe, where market structures, consumer taste and brands vary substantiallyby country. Aderans production facilities in the Philippines and Thailand supply wigs to theEuropean subsidiaries, and in September 2014, a new plant in Laos is scheduled to start
operations. This business model for Europe has allowed European operations to maintain an
operating profit margin of about 10%.

We encourage readers to review our complete legal statement on “Disclaimer” page.
11

■Business■
Details

Geographical Breakdown of Aderans’s Sales, FY2/04㻙㻲㼅㻞㻛㻝㻝
（¥㼙㼚）

㻶㼍㼜㼍㼚

㻭㼟㼕㼍

㻺㼛㼞㼠㼔㻌㻭㼙㼑㼞㼕㼏㼍㻱㼡㼞㼛㼜㼑

㻣㻜㻘㻜㻜㻜
㻢㻜㻘㻜㻜㻜ADERANS㻡㻜㻘㻜㻜㻜

8170 Tokyo Stock ExchangeFirst Section㻠㻜㻘㻜㻜㻜
㻟㻜㻘㻜㻜㻜

25-Jul.-14㻞㻜㻘㻜㻜㻜
㻝㻜㻘㻜㻜㻜

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa㻜㻲㼅㻞㻛㻜㻠

㻲㼅㻞㻛㻜㻡

㻲㼅㻞㻛㻜㻢

㻲㼅㻞㻛㻜㻣

㻲㼅㻞㻛㻜㻤

㻲㼅㻞㻛㻜㻥

㻲㼅㻞㻛㻝㻜

㻲㼅㻞㻛㻝㻝

Source: Japanese financial statements

Geographical Breakdown of Aderans’s Operating Profit, FY2/04 – 㻲㼅㻞㻛㻝㻝
㻔¥㼙㼚㻕

㻶㼍㼜㼍㼚

㻭㼟㼕㼍

㻺㼛㼞㼠㼔㻌㻭㼙㼑㼞㼕㼏㼍㻱㼡㼞㼛㼜㼑

㻝㻢㻘㻜㻜㻜
㻝㻠㻘㻜㻜㻜
㻝㻞㻘㻜㻜㻜
㻝㻜㻘㻜㻜㻜
㻤㻘㻜㻜㻜
㻢㻘㻜㻜㻜
㻠㻘㻜㻜㻜
㻞㻘㻜㻜㻜
㻜
㻙㻞㻘㻜㻜㻜
㻙㻠㻘㻜㻜㻜
㻙㻢㻘㻜㻜㻜
㻲㼅㻞㻛㻜㻠

㻲㼅㻞㻛㻜㻡

㻲㼅㻞㻛㻜㻢

㻲㼅㻞㻛㻜㻣

㻲㼅㻞㻛㻜㻤

㻲㼅㻞㻛㻜㻥

㻲㼅㻞㻛㻝㻜

㻲㼅㻞㻛㻝㻝

Source: Japanese financial statements

Bosley thriving in \100bn US market for hair transplantation, but
still room for improvement(ii) North American hair transplantation business○US market size for hair transplantation \100bn, 20 times larger than the Japanese market
A hair transplantation is a surgical procedure of removing healty follicles from the back andsides of the scalp and relocating them to areas of hair loss on the scalp. The Japanese market
for hair transplantation is estimated at \4 to5bn, while the US market is estimated at \100bn.

We encourage readers to review our complete legal statement on “Disclaimer” page.
12

■Business■
Details

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa○Entered the US hair transplantation business in 2001 through acquisition of Bosley
From the late 1980’s to 2000, Aderans acquired companies dealing in and selling wholesale
ready-made wigs, but in 2001, Aderans purchased Bosley Medical Institute (now Bosley) of
the US and Bosley Medical Canada Co. to complement its ready-made wig business with ahair transplantation business. In 2001, Bosley operated 11 clinics and 33 consultation officesin the US and held an approximately 10% share of the US market for hair transplantation. In
September 2001, shortly after the acquisition of Bosley, the US suffered terrorist attacks,
which adversely affected Bosley’s hair transplantation business for a while. The business
subsequently recovered and has remained profitable.
In 2007, Aderans bought US hair transplantation company MHR Co., but this company’sbusiness was hurt by the global financial crisis following the Lehman shock, and it suffered
operating losses from 2007 through 2009. Therefore, in 2010, Aderans merged MHR into Bosley
Inc.
Results of Aderans’s hair transplantation business in the US, 2003 – 2013

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

Sales
MHR

Bosley
8,220
8,220
9,060
10,797
11,086
9,516
7,629
7,799
8,059
8,401
9,320

1,753
3,965
2,606
750
-

total
8,220
8,220
9,060
10,797
12,83913,481
10,235
8,549
8,059
8,401
9,320

Operating profit
Bosley
MHR
480
420
460
663
-228
-179
-229
-462
n.a.
n.a.
n.a.
n.a.
657
764
n.a.
-

total
480
420
460
663
-408
-691
-220
365
657
764
n.a.

(\mn)
Op. profit
margin
5.8%
5.1%
5.1%
6.1%
-3.2%
-5.1%
-2.1%
4.3%
8.2%
9.1%
-

○Bosley’s business is growing, but there is room for improvement
Since 2010, Bosley has been profitable, but it could perform better. In 2013, for example, while
its sales in yen grew by about \900mn y-o-y, in US dollars, its sales dropped almost 10%,from $104.8mn in 2012 to $95.1mn in 2013. Furthermore, Bosley’s operating profit margin
has remained far below targeted levels. As shown in the table below, Aderans aimed for an
operating profit margin of 10-15% for Bosley in FY2/10-FY2/11, which corresponds to calendar
years 2009-2010 for Bosley. However, Bosley’s operating profit margin did not reach thesetargets. Even in 2012, its margin was 9.1%.
Aderans’s Targets for its US Hair Transplantation Business in FY2/09 – FY2/11

2007
2008 Plan
2009 Plan
2010 Plan

Bosley11,086
11,106
13,045
15,327

Sales
MHR
1,753
5,001
5,350
5,750

total
12,83916,107
18,39521,077

Bosley
-228
756
1,455
2,213

Op. profit
MHR
-179
-35
107
257

total
-408
721
1,563
2,470

(\mn, %)
Op. profit margin
Bosley
MHR
total
-2.1%
-10.2%
-3.2%
6.8%
-0.7%
4.5%
11.2%
2.0%
8.5%
14.4%
4.5%
11.7%

Source: compiled by Fisco from company materials○Aderans taking more management control of Bosley
Aderans attributes Bosley’s falling sales and low profitability to the company’s media buying
and to media fatigue. Aderans considers it difficult to improve media buying because it is linked
to funding. However, it decided to combat media fatigue by producing new sales promotion
materials, which Bosley started to use in December 2013. Furthermore, Aderans concluded
that poor cost control was one reason for Bosley’s disappointing profitability. Therefore,
Aderans has seconded senior personnel from Japan to help manage costs at Bosley.

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13

■Business■
Details

Acquired Hair Club, the leading provider of custom-made men’s
wigs in the US(iii) North American wig business

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.

○Acquired top US provider of custom-made wigs for men in 2013
In April 2013, Aderans acquired HC (USA) Inc., the leading provider of custom-made wigs formen in the US, for US$163.5mn. Until this purchase, Aderans had been engaged only in theready-made wig business in the US. Now, its US business line-up resembles its line-up in
Japan.
○North American wig sales jumped by five times in FY2/14
The business results of HC (USA) Inc. for nine months of 2013 were included in Aderans’s
consolidated results for FY2/14. During those nine months, HC (USA) Inc. recorded sales of\10,642mn, while the North American ready-made wig business reported sales of \2,660mn
for the 12 months to February 2014.The wig business sales in North America jumped up to\13,302mn, five times of the original sales volume.
Aderans’s Overseas Wig Sales (\mn) by Geographical Market, 2012 – 2013

FISCO Ltd. Analyst
Hiroyuki Asakawa

MarketCompany

Sales
2012
2,174
2,174
3051
283
5,509

Business

AHG
ready-made wigs
HC (USA) Inc.
custom-made wigs
North American wig business total

North America
EuropeAsia, other
Overseas wig business

2013
2,660
10,642
13,302
4,440
547
18,290Source: company materials○Amortization of goodwill and other factors to limit profit contribution
Although the purchase of HC (USA) Inc. complemented Aderans’s product line-up in North
America, greatly increased the size of its North American business, and should contribute tosales growth in the future, it will probably not contribute much to profits for several years. The
purchase added about \6bn to Aderans’s goodwill and \7,502mn of customer assets, which
are also intangible fixed assets. The company plans to amortize these assets at a rate ofabout \2.4bn per year, which will weigh on profit growth. However, these amortizations will notaffect cash flow because they are non-cash expenses. They will also not affect EBITDA, thecompany’s prime measure of business success.
Breakdown of Intangible Fixed Assets, 2/13 – 2/14
(\mn)
2/13
Goodwill
Customer assets
Other assets

2/14
522
2,549

6,550
7,502
6,239

Source: Japanese financial statements

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14

■Business■
Details

Most products made in-house, ensuring cost control and highquality(4) Production Facilities

ADERANS
8170 Tokyo Stock ExchangeFirst Section

Most products manufactured in its own factories
Excluding the custom-made wigs sold by HC (USA) Inc. and a few products made for Aderanson an OEM basis, Aderans manufactures all of its products. No other large manufacturer ofwigs in Japan or overseas produces such a high proportion of its goods in-house. ARTNATURE
manufactures some of its products in-house, but it outsources a much higher proportion of
its production than Aderans does. Aderans’s in-house production system allows it to control
costs and product quality effectively and may become a distinguishing strength hereafter.

25-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa○Production bases in the Philippines, Thailand, and Laos
Aderans operates production bases in the Philippines, Thailand, and Laos. In Laos, the company
has been overseeing production at a plant owned by a business partner, but in September 2014,
Aderans plans to start operations at its own new plant in Laos, while continuing to manage
output at the business partner’s plant.
○Production capacity adequate to meet demand
Aderans does not disclose its production capacity, but its capacity can be estimated basedon the reported production output and capacity utilization rate. In FY2/13, Aderans produced
92,504 custom-made wigs and 583,542 ready-made wigs, and the company commented thatthe capacity utilization rate was 60% to 80%. With the start of operations at the second plant in
Laos, the company’s capacity utilization rate may decline. However, changes in the capacity
utilization rate have a limited impact on the company’s profitability because wig plants are
more labor intensive than most plants in other industries. Due to the labor-intensive nature ofthese plants, depreciation expense should not depress profits much.
○Low labor cost needed for labor-intensive production
Aderans’s plants purchase pellets of plastic resin, which they process into artificial hair. This
artificial hair is then manually sewn onto sheets of artificial skin to form a wig. Therefore, it isimportant to maintain low labor costs to profit in this business. It also seems that the company
could lower its costs by developing and improving its production technology.
Aderans’s Production Sites
Country
ThailandCompany
FY2/13 aggregate output
Aderans Thai Ltd.
custom-made wigs
World Quality Co., Ltd.
81,114
Philippines
Aderans Philippines, Inc.
ready-made wigs
Laosbusiness partner plant
502,940
Aderans plant
Sources: compiled by Fisco from Japanese financial statements and interviews○Plants with superior cost and quality control enable spiral of profitability growth
Not so many companies in the world manufacture wigs by themselves and distribute. Typically,
distributors purchase wigs from small manufacturers and sell them, sometimes as importers.
ARTNATURE has two production subsidiaries in the Philippines, but it outsources a substantial
portion of its production. Wig production is a light industry and conducted mainly by small
companies. Larger wig sellers do not consider the ownership of a plant to be cost efficient.
However, Aderans’s plants give it an advantage in terms of product quality and cost. The
company is confident that it maintains lower production costs than its competitors due tothe location of its plants, the training of its plant employees in production technology, and theeffective management of production. Of course, unit production costs decline with an increasein output. Thus, the company is prepared to realize a spiral of profitability growth as its sales
growth lowers unit production costs.

We encourage readers to review our complete legal statement on “Disclaimer” page.
15

■Business■
Details

Multiple brands: Aderans needs better customer understanding of
the brands(5) Brand Strategy

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa○Multiple brands for goods and services
Aderans uses three brands for three different product types of wig:“Aderans”for custommade wigs for men, “Ladies’ Aderans”for custom-made wigs for women, and “Fontaine” forready-made wigs for women. However, it uses too many brands for its service menus. For
example, for men, it offers 15 services, eight of which are: the Hair Check consultation service,
the Hair Repro and Hair Seeder, the provision of healthy hair-growth services, the Pinpoint Fix
and Pinpoint Charge, hair-volumizing products, and the Hair Perfect, Hair Libera and AderansHair Club, the main provision of wigs.
○Excessive number of brands and services may lower customer satisfaction
Aderans’s menu of many services may be able to satisfy a variety of consumer needs, but it
may also create confusion among consumers about the best service for them because morethan one service could be used at the same time or in sequence. The Aderans home page
seems too complicated to allow customers to easily choose the best service for them. The
company may argue that its Hair Check consultation service helps customers to choose thebest service, but the many overlapping services offered may lead customers to fear that they
may be buying more services than necessary. Therefore, overall customer satisfaction with thecompany’s services could decrease.
○Pursuit of customer satisfaction should be conducted appropriately
Aderans has been making many efforts to improve its customers’ satisfaction. For example, it
has strict rules for conducting sales in such a manner as to establish long-term trust between
the company and its customers. The company has enforced these rules even at a decline insales, and its sales have actually declined. It is ironic that the company is willing to see its sales
decline to ensure customer satisfaction when this satisfaction is reduced by a complicatedservice menu. There appears to be ample room to simplify the company’s lines of brands andservices.
○Frequent changes in brands for women
Until the end of 2009, the brand name for women’s custom-made wigs was Ladies’ Aderans.
For 2010, this name was changed to Fontaine. At the start of 2011, the brand name was again
renewed to Fontaine by Ladies’ Aderans. If this frequent change in brand name were basedon a clear strategy, it might be acceptable, but frequent changes in a short period of time may
confuse consumers.

We encourage readers to review our complete legal statement on “Disclaimer” page.
16

伪伪Financial Trends
Purchase of HC (USA) Inc. boosted sales substantially, while cost
cuts and yen depreciation lifted profits

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

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

FY2/14 Results○Sales up 33% y-o-y, recurring profit up 16%
In FY2/14, Aderans’ consolidated sales increased by 32.6% y-o-y to \67,755mn, its operating
profit rose 1.6% to \3,616mn, its recurring profit grew 16.4% to \4,481mn, and its net profit
advanced 29.7% to \4,281mn. Of the \16,666mn increase in sales in FY2/14, about \10,600mn
was due to the purchase of HC (USA) Inc. in April 2013. Without this acquisition, sales would
have grown by about \6bn y-o-y.
○Sales increase and cost cuts in Japan, plus yen depreciation, lifted operating profit
An increase in gross profit earned in Japan plus a cut in some SGA costs lifted operating
profit by \2,617mn y-o-y in FY2/14. However, advertising and promotion costs increasedby \1,414mn, and other SGA costs grew by \382mn. Thus, operating profit earned in Japan
increased by \821mn y-o-y. Due to the purchase of HC (USA) Inc. and to the impact of yen
depreciation, gross profit earned overseas increased by \10,121mn, but yen depreciation also
raised the SGA costs of overseas operations by \2,195mn y-o-y, and HC (USA) Inc. had SGA
costs of \8,873mn. Therefore, overseas operations lowered their aggregate operating profit
by \947mn y-o-y. Other factors increased operating profit by \183mn. Consequently, overall
operating profit grew by \57mn.
A \1,213mn non-operating foreign exchange gain raised recurring profit by 16.4% y-o-y, andits net profit, at \4,281mn, was comparable to its recurring profit thanks to the tax effect by
tax loss carried forward.
○EBITDA up 46% y-o-y
As Aderans has grown through acquisitions, it has accumulated a large amount of goodwill
and other business rights that must be amortized. Therefore, the company considers EBITDA
as a more appropriate measure of its profit performance than operating profit. In FY2/14,
the company’s depreciation and amortization costs totaled \3,149mn, but its EBITDA was\6,766mn, up 46.4% y-o-y.
Summary Consolidated Income Statement, FY2/06 – FY2/15E

Sales
Gross profit
SGA costs
Operating profit
Recurring profit
Net profit(\mn)
FY2/06 FY2/07 FY2/08 FY2/09 FY2/10 FY2/11 FY2/12 FY2/13 FY2/14 FY2/15E
72,690 73,498 74,998 70,463 57,355 48,171 47,422 51,089 67,755 74,000
60,000 59,772 59,533 55,582 44,488 38,877 38,862 41,704 53,938
49,680 51,560 55,467 53,074 49,753 44,760 36,330 38,145 50,321
10,3198,212
4,066
2,508 -5,264 -5,883
2,531
3,559
3,616
4,100
11,0618,815
4,407
2,472 -5,351 -6,317
2,547
3,849
4,481
4,000
6,149
6,091
590 -2,172 -9,851 -23,213
1,134
3,301
4,281
4,400

EPS (\)DPS (\)

150.51
75.00

156.26
80.00

15.25
36.00

-56.11 -261.98 -630.65
20.00
0.00
0.00

30.83
0.00

89.69
10.00

116.32
10.00

119.5415.00

Capital expenditure
Depreciation &amortization expense
EBITDA
Equity ratio (%)
BPS (\)

2,565

3,701

3,125

2,375

2,536

2,150

1,249

1,782

2,011

-

2,012

2,084

2,520

2,591

2,380

1,882

1,170

1,061

3,149

-

12,331 10,296
6,786
5,099 -2,884
79.1
79.3
77.9
80.5
77.8
1,760.45 1,877.95 1,816.84 1,582.09 1,339.98-4,00064.4
692.02874
73.2
710.33

4,433
73.6
817.406,766
55.7
966.127,600-

We encourage readers to review our complete legal statement on “Disclaimer” page.
17

■Financial■
TrendsSummary Balance Sheet, FY2/06 – FY2/14

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

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

Current assets
Cash and deposits
Sales receivable
Other current assets
Fixed assets
Tangible fixed assets
Intangible fixed assets
Long-term investments
and other 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
Total equity
Liabilities & equity

FY2/0635,257
14,2385,167
15,85052,233
26,902
5,478
19,852

FY2/0735,985
14,525
5,565
15,892
55,67228,144
6,552
20,975

FY2/0833,28814,138
5,944
13,20457,06327,6008,825
20,637

FY2/0927,7009,941
5,471
12,286
48,40225,966
4,932
17,503

FY2/1026,73815,381
4,120
4,233
36,631
21,913
4,363
10,354

FY2/11
19,669
11,1744,016
4,477
19,876
11,9303,336
4,609

FY2/12
20,39011,495
4,220
4,674
15,306
8,725
2,661
3,919

FY2/13
24,84514,001
4,961
5,879
16,059
9,047
3,072
3,939

(\mn)
FY2/14
27,111
10,755
6,248
10,10536,78011,723
20,292
4,764

87,49012,546
1,408
11,134
5,606-

91,658
11,281
1,632
9,644
7,355
1,257

90,352
13,258
1,224
12,031
6,667
775

76,102
9,995
1,236
960
7,794
4,763
44

63,369
9,813
473
9,336
4,137
-

39,546
10,189
389
9,796
3,884
-

35,697
6,467
257
6,203
3,068
-

40,904
7,852
483
8
7,355
2,833
1

63,892
11,036
1,174
1,051
8,806
17,032
8,662

5,606
69,993
12,944
13,157
51,206-7,314-754
69,23987,4906,098
72,086
12,944
13,15755,042-9,057924
73,021
91,658

5,892
69,59812,944
13,15752,528-9,030826
70,42690,352

4,719
65,292
12,944
13,15748,225-9,034-3,94861,344
76,102

4,137
52,186
12,944
13,19333,035-6,986-2,76849,41863,3693,876
28,95812,944
13,036
9,966-6,987-3,48625,47239,546

3,065
30,04812,944
13,157
10,934-6,987-3,887
26,16135,6972,830
33,34912,944
13,157
14,268-7,020-3,13030,21940,904

8,368
37,34812,944
13,157
18,268-7,022-1,52535,82363,892

Summary Cash Flow Statement, FY2/06 – FY2/14

Cash flow from operations
Cash flow from investing
Cash flow from financing
Cash and deposits at thestart of the fiscal year
Cash and deposits at theend of the fiscal year

FY2/06
10,399-2,532-5,545

FY2/07
5,073
258-4,090

FY2/085,512-5,203-3,944

FY2/091,963-335-2,177

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

FY2/11-7,1863,579-23

FY2/12
-61
689
-85

(\mn)
FY2/13 FY2/14
4,378
6,325
-2,238 -18,036
-180
9,036

13,356

15,896

17,956

14,97911,873

15,115

11,037

11,365

13,604

15,896

17,956

14,97911,873

15,115

11,037

11,365

13,604

10,528

伪伪Company Forecasts for FY2/15 and Medium-term
Business Plan for FY2/15 – FY2/17
Aiming for profit growth by increasing market share in Japan andexpanding overseas business○Announced the forecasts for FY2/15 and the business targets for FY2/16-FY2/17
In April 2014, Aderans announced the forecasts for FY2/15 and the business targets for
FY2/16-FY2/17 and FY2/21, which are shown in the table below. The achievement of thetargets through FY2/17 will be an important step towards the realization of the targets for
FY2/21.

We encourage readers to review our complete legal statement on “Disclaimer” page.
18

■Company■
Forecasts for FY2/15 and Medium-term Business Plan for FY2/15 – FY2/17

Company Targets (\mn) for FY2/15 – FY2/17 and FY2/21
FY2/14ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

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

Sales
Domestic
Overseas
Operating profit
Recurring profit
Net profit
Measures of businessperformance
EBITDA
Operating profit margin
EBITDA margin
ROE

¥mn
¥mn
¥mn
¥mn
¥mn
¥mn

Results
67,75540,371
27,384
3,616
4,481
4,281

¥mn
%
%
%

6,766
5.3%
10.0%
11.5%

Company Targets
FY2/15E
FY2/16E
FY2/17E
Forecast
Plan
Plan
74,00079,00084,00042,20044,10046,30032,80034,90037,700
4,100
5,100
6,300
4,000
4,400
-

7,600
5.5%
10.3%
-

8,700
10,000
6.5%
7.5%
11.0%
11.9%
- 10% or more

FY2/21E
Target100,000
50,00050,000--Source: company materials○Targeting accumulated EBITDA of \26.3bn in FY2/15 – FY2/17 through steady sales growthtrend
As shown in the table above, for FY2/15, Aderans forecasts 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. The company projects continued sales andprofit growth in FY2/16 – FY2/17, and for FY2/17, it foresees sales of \84.0bn and operating
profit of \6.3bn. In the three years through FY2/17, the company intends to accumulate anaggregate EBITDA of \26.3bn, which would equal about 90% of the \29.4bn of EBITDA it earned
in FY2/06 – FY2/08, before the collapse of Lehman Brothers. If the company achieves the
EBITDA targeted for FY2/15 – FY2/17, it will have conclusively recovered from its recent
earnings lows, reached in FY2/10 – FY2/11.
We expect Aderans to increase its capital investment in FY2/15 – FY2/17, relative to its
investment in FY2/12 – FY2/14. In the six years from FY2/04 through FY2/09, the company’s
capital investment averaged \3,258mn per year. Following this fairly strong investment andadversely affected by losses, the company restrained its capital investment in FY2/10 –FY2/11. It continued to limit capital expenditure in FY2/12 – FY2/14, when it spent a total of
only \5,042mn on facilities. In FY2/14, however, it invested \2,011mn, which was \229mn morethan it had invested in FY2/13. Hereafter, Aderans will most certainly invest in the growth of its
overseas businesses, and given the prospects for a strong recovery of its EBITDA, we estimatethat the company could easily invest \3bn per year, about the average amount invested in
FY2/04 through FY2/09, in FY2/15 – FY2/17. The company will probably use some of thisinvestment to renovate its stores, as it has curtailed spending on its stores for years.
○Company assumes no growth in Japanese wig market, great growth overseas
Aderans based its targets for FY2/15 – FY2/17 on the assumptions that the Japanese market
for men’s wigs would shrink by 0.6 – 0.7% per year while the market for women’s wigs wouldgrow about 1% per year, for a composite growth rate of about 0% per year. The company
foresees all of its market growth overseas. To achieve its long-term goals, the company
intends to continue to acquire other companies.
○Japanese market for men’s wigs may shrink more than the company assumes
We agree with Aderans’s projections of the direction of growth for the men’s and women’s
wig markets in Japan, but foresee a greater rate of annual decline in the market for men’s
wigs than the company and a greater rate of increase in the women’s market if the market
is exploited skillfully. Thus, we believe that the company should seek the pockets of unmet
demand in the Japanese market for women’s wigs, not just over the next three fiscal years,
but over the next 5 – 10 years. The company plans to do this over the next three fiscal years.
We should carefully watchthe progress.

We encourage readers to review our complete legal statement on “Disclaimer” page.
19

■Company■
Forecasts for FY2/15 and Medium-term Business Plan for FY2/15 – FY2/17

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa○Key to sales growth in Japan is taking market share from smaller competitors
The company’s plan for FY2/15 – FY2/17 envisions an increase in domestic sales of about\2bn per year. However, as mentioned above, the company does not foresee any significant
growth of the Japanese wig market during these years. Therefore, the only way it canincrease its domestic sales is to take share from competitors. In the market for men’s wigs,
Aderans’s share has probably stopped falling. Aderans may not be able to take market sharefrom ARTNATURE, but it should be able to take share from smaller competitors because
the company plans to increase its advertising and promotion of men’s wigs, and advertising,particularly TV advertising, is highly effective in attracting new customers. As one of the largest
companies in the market, Aderans has the financial resources for this increased spending. In
the market for women’s wigs, which is still growing, the company hold’s the top share ofabout 40%, about double the share of number two ARTNATURE and far above the shares ofsmaller competitors. By taking advantage of its market dominance and increasing spending on
advertising and promotion, Aderans should be able to expand its share of the women’s market
at the expense of smaller wig sellers.
○Overseas operations depend on HC and Bosley
It is difficult to judge whether the overseas market is promising for Aderans. The need forwigs or hair treatments and the consumer psychology overseas are probably similar to theneeds and psychology in Japan. The price sensitivity of demand for wigs and hair treatments
overseas seems higher than the price sensitivity in Japan, so demand overseas is probably
more affected by changes in the economy than is demand in Japan. Aderans’s two largest
overseas operations are HC (USA) Inc. and Bosley Inc.. As mentioned previously, in 2013,
Bosley’s sales in US dollars declined y-o-y. Aderans just bought HC (USA) Inc. in April 2013.
Thus, 2014 is a testing year for both Bosley and HC (USA) Inc. For January 2014, HC (USA)Inc. reported a y-o-y rise in sales, while Bosley reported a y-o-y decline. This was not aparticularly propitious start of the year for overseas operations.
○Aderans plans to expand its oversea operations through acquisitions
In its analyst meetings following the announcement of results, Aderans has clarified that it
intends to increase its overseas operations through acquisitions. However, it appears that thecompany will limit its acquisitions to a few billion yen each, which would be smaller than its
acquisition of HC (USA) Inc. Keeping acquisitions small would reduce the financial risk of suchtransactions, but it may also increase the administrative requirements of the main office andrestrict profit contributions. The biggest difference between the company’s business modelfor Japan and its business model for overseas is that the Japanese model relies on the market
for custom-made wigs, while the overseas model relies on the market for ready-made wigs.
With the purchase of HC (USA) Inc, Aderans’s business model for North America resembles
its business model for Japan. In Europe, Aderans has been profiting from providing ready-madewigs. If the company were to promote sales of custom-made wigs in Europe, it might profit
even more. This strategy could contribute significantly to the company’s profit growth overthe medium term.

We encourage readers to review our complete legal statement on “Disclaimer” page.
20

伪伪Shareholder Return Policy
Company plans to pay a dividend per share of \15 for FY2/15, \5more than its DPS for FY2/14

ADERANS
8170 Tokyo Stock ExchangeFirst Section

25-Jul.-14

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa○Shareholder returns based on dividends
Aderans returns profits to shareholders through dividends that are based on stable earnings,
the funds needed for investment in future growth, and the company’s cash position. Basedon these factors, the company paid a dividend of \10 per share for FY2/14, unchanged fromits dividend for FY2/13, even though its net profit increased by almost 30% y-o-y in FY2/14.
○Plan to increase dividend per share by \5 for FY2/15 shows positive company attitude
towards shareholder returns
Based on the company’s profit forecasts for FY2/15, Aderans plans to raise its dividend pershare for FY2/15 to \15, from \10 in FY2/14. Even so, the dividend payout ratio for FY2/15
seems low, but the company’s net profit in FY2/15 will be lifted by accumulated losses inprevious years. The company will also have to increase its investment in overseas businesses.
Thus, its announced returns for shareholders in FY2/15 seem adequate.
○Company could increase its dividend payment capacity over next two fiscal years
In FY2/15 – FY2/17, the company aims for an accumulated 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. Thus, it should have ample free cash flow with which toincrease its dividend per share.

Aderans’s Earnings per Share and Dividend per Share, FY2/04 – 㻲㼅㻞㻛㻝㻡㻱㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㻿㼔㼍㼞㼑（㼘㼑㼒㼠㻌㼍㼤㼕㼟）㻱㼍㼞㼚㼕㼚㼓㼟㻌㼜㼑㼞㻌㻿㼔㼍㼞㼑（㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟）

（¥）

（¥）

㻝㻡㻜㻚㻡㻝 㻝㻡㻢㻚㻞㻢㻡㻜㻚㻜㻜 㻝㻞㻜㻚㻠㻢

㻤㻥㻚㻢㻥

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㻝㻡㻚㻞㻡

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㻝㻝㻢㻚㻟㻞 㻝㻝㻥㻚㻡㻠 㻞㻜㻜㻚㻜㻜㻟㻜㻚㻤㻟㻝㻜㻜㻚㻜㻜

㻙㻡㻢㻚㻝㻝

㻜㻚㻜㻜

㻟㻡㻚㻜㻜

㻙㻝㻜㻜㻚㻜㻜

㻙㻤㻤㻚㻜㻞

㻟㻜㻚㻜㻜㻙㻞㻢㻝㻚㻥㻤

㻙㻞㻜㻜㻚㻜㻜

㻞㻡㻚㻜㻜

㻝㻡㻚㻜㻜

㻙㻟㻜㻜㻚㻜㻜

㻠㻠㻚㻜㻜

㻞㻜㻚㻜㻜

㻟㻤㻚㻜㻜

㻟㻢㻚㻜㻜

㻟㻞㻚㻜㻜

㻙㻠㻜㻜㻚㻜㻜

㻟㻜㻚㻜㻜

㻝㻜㻚㻜㻜

㻙㻡㻜㻜㻚㻜㻜

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㻝㻜㻚㻜㻜 㻝㻜㻚㻜㻜㻝㻡㻚㻜㻜㻙㻢㻜㻜㻚㻜㻜
㻙㻣㻜㻜㻚㻜㻜

㻲㼅㻞㻛㻜㻠 㻲㼅㻞㻛㻜㻡 㻲㼅㻞㻛㻜㻢 㻲㼅㻞㻛㻜㻣 㻲㼅㻞㻛㻜㻤 㻲㼅㻞㻛㻜㻥 㻲㼅㻞㻛㻝㻜 㻲㼅㻞㻛㻝㻝 㻲㼅㻞㻛㻝㻞 㻲㼅㻞㻛㻝㻟 㻲㼅㻞㻛㻝㻠 㻲㼅㻞㻛㻝㻡㻱We encourage readers to review our complete legal statement on “Disclaimer” page.
21

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