BRIDGE REPORT
(2157)

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Koshidaka HOLDINGS Co., Ltd. (2157)
Hiroshi Koshidaka, President
Hiroshi Koshidaka,
President
Corporate Profile
Company
Koshidaka HOLDINGS Co., Ltd.
Code No.
2157
Exchange
JASDAQ
Industry
Service
President
Hiroshi Koshidaka
HQ Address
World Trade Center Building, 2-4-1 Hamamatsucho Minato-ku, Tokyo
Year-end
August
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥2,279 18,454,640 shares ¥42.058 billion 16.2% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥30.00 1.3% ¥130.59 17.4x ¥725.99 3.1x
* Share price as of close on November 13, 2015. Outstanding shares as of most recent quarter end, excluding treasury stock.
 
Consolidated Earnings Trends
Fiscal Year Sales Operating
Profit
Ordinary Profit Net Profit EPS Dividend (¥)
August 2012 33,746 4,077 4,096 2,279 238.60 35.00
August 2013 34,515 4,151 4,237 3,072 162.09 50.00
August 2014 37,720 4,276 4,370 2,423 127.87 55.00
August 2015 44,257 4,394 4,492 2,098 112.79 30.00
August 2016(Est.) 49,607 4,939 5,019 2,410 130.59 30.00
* Estimates are those of the Company. A 400 for 1 stock split was conducted in September 2011, and a 2 for 1 stock split in September 2014. (EPS and dividends for fiscal year August 2013 and 2012 have been adjusted.)

This Bridge Report presents Koshidaka Holding's earnings results for the fiscal year August 2015 and other details of the Company.
 
Key Points
 
 
 
Company Overview
 
Koshidaka Holdings Co., Ltd. is a "comprehensive entertainment and leisure services provider" and it promotes a strategy of "creating new businesses in existing industries" in the four realms of "amusement," "sports and fitness," "tourism and travel," and "hobbies and cultural activities." Based upon its two main pillars of business of the karaoke clubs, which boasts of stable growth, and Curves Fitness Clubs, which boasts of high growth, Koshidaka has been able to continue to grow both sales and profits since its listing and is cultivating new businesses such as its hot spring facilities. Moreover, the Company will take on a new perspective to target new customers by creating new services and operational methods to establish unique business models as part of its strategy of creating "new businesses in existing industries" based upon the Company's expertise within these industries.
 
<Corporate Philosophy: Contribute to the Creation of a Peaceful World by Providing Bountiful Hope and Lifestyles Rich with Entertainment>
Koshidaka maintains a corporate philosophy of "contributing to the creation of a peaceful world by providing bountiful hope and lifestyles rich with entertainment, while continuing to provide evolutionary and significant services and products to people worldwide." Based upon this corporate philosophy, Koshidaka has also established five visions: 1) cultivating new businesses in existing industries to provide easily accessible entertainment that only require short amount of time, and are close and reasonable, 2) developing optimized businesses and structures based upon conditions in each country, area, and industry, 3) continuing to offer surprising and highly satisfying services and products with customers' needs in mind, 4) fostering inspired and entrepreneurial human resources, and 5) seeking to cultivate and maximize synergies between the various businesses of the Group.
 
<Corporate History>
Koshidaka Holdings was founded in 1954 as a restaurant operating in Tokyo. Later in 1964, the Company moved its headquarters to its current location in Maebashi City, Gunma Prefecture. In 1967 the Company was officially registered as a corporate entity called "Shinseiken Limited." The Company started to change significantly after President Hiroshi Koshidaka became the de facto President. Under Hiroshi's leadership, the Company entered the karaoke box business during the 1990s. Koshidaka Holdings began its growth phase by successfully promoting the shift in the karaoke industry from pubs and bars to specialized "karaoke box" type clubs (clubs with individual rooms for customers to sing with their friends) using laserdisc karaoke equipment. Hiroshi Koshidaka was able to take advantage of the consolidation within the karaoke industry by taking over bankrupt karaoke clubs after becoming President officially in August 1995. In March 2000, the Company was reorganized and its name was changed to Koshidaka Co., Ltd.

In March 2006, Koshidaka opened its first Curves Fitness Club franchise. In June 2007, Koshidaka was listed on the JASDAQ stock exchange. In October 2007, it took over Curves Japan Co., Ltd. as a 90% owned subsidiary. Currently Koshidaka is responsible for the headquarter function, directly operated clubs and franchise operations for Curves Fitness Clubs.

Koshidaka adopted a pure holding company structure and its name was changed to Koshidaka Holdings Co., Ltd in September 2010. In its overseas business deployment activities, the first "Karaoke Honpo Manekineko" facility was opened in Seoul, Korea in June 2011. KOSHIDAKA INTERNATIONAL Pte. Ltd. was established in November 2013 to serve as an intermediary holding company (Oversee operations of the karaoke business in Southeast Asia). Under this holding company, KOSHIDAKA MANAGEMENT SINGAPORE PTE. LTD. was established in February 2014 and it then acquired K BOX ENTERTAINMENT GROUP PTE.LTD., which operated 11 karaoke clubs in Singapore, turning it into a subsidiary. In July 2014, the headquarters function was moved to Tokyo. In April 2015, Moon Corporation, which operates a total of 20 karaoke clubs and Internet cafés largely in Kanagawa Prefecture, was acquired and converted to a subsidiary.
 
<Business Segments and Group Structure>
The Koshidaka Holdings Group currently divides its business into four main segments. In the karaoke business segment, the Company operates both the "Karaoke Honpo Manekineko" clubs (Suburban regions) and the "One Kara" individual use Karaoke clubs (Urban regions). In the Curves Fitness Club business, fitness clubs providing specialized 30-minute workout programs targeting middle to older aged female customers called "Curves" are operated. And as a new business segment, hot spring facilities and other new businesses are also being undertaken (Leveraging the facility operation know-how of taking over and operating existing facilities). Also, real estate management services are provided.

Sales of the karaoke club, Curves Fitness Club, hot spring and real estate management business segments during fiscal year August 2015 accounted for 53.8%, 42.1%, 3.4%, and 0.7% of total sales respectively. With regards to profits, the karaoke club, Curves Fitness Club, hot spring and real estate management business segments during fiscal year August 2015 accounted for 23.6%, 75.6%, -1.8%, and 2.5% of total profits respectively.
 
 
The Koshidaka Group is operated by the holding company Koshidaka Holdings Co., Ltd., and 12 consolidated subsidiaries, and 3 non-consolidated subsidiaries. An overview of the consolidated subsidiaries is provided below.
 
 
The non-consolidated subsidiaries include English Island Co., Ltd., which uses the television conference software application "Skype" to provide English lessons with native English speaking teachers living overseas, EEIKAIWA, Inc., and Koshidaka R&C Co., Ltd.
 
 
ROA (Return on Asset) is calculated multiplying by "net profit to sales margin (net profit/sales)" times "total assets turnover (sales/total assets)"
ROE (Return on Equity) is calculated multiplying by "net profit to sales margin (net profit/sales)," times "total assets turnover (sales/total assets)" times "leverage (total assets/equity capital, inverse of equity capital ration.)" ROE = net profit to sales x total assets turnover x leverage.
The figures above are calculated using earnings results and assets data from official financial reports. Total assets and equity are averages of the balance during the term (average of balance at the end of previous term and current term). Equity ratio taken from official financial filings is calculated based on balance at the end of term. Therefore, its inverse and the leverage figure quoted above may differ.
 
Koshidaka places a high priority upon return on asset (ROA) as a key management indicator. Management seeks to maximize return on investments and recover investments as quickly as possible by holding down investments and implementing efforts to expand sales. Based upon this policy, the Company has been able to achieve high levels of ROA as previously mentioned. The high level of return on equity (ROE) achieved is a reflection that capital efficiency has been maintained. Looking at the past five years, Koshidaka's ROE has been on the decline after large fluctuations in fiscal year August 2011, due to volatility in net profit margin arising from the booking of extraordinary profit, anticipatory investments, and a rapid improvement in its balance sheet on the back of favorable business trends during that term.

During both fiscal years August 2014 and 2015, ROA and ROE declined due in part to the increase in investments for the karaoke club business both within and outside of Japan. During the most recently ended fiscal year August 2015, ad hoc conditions including an increase in extraordinary losses and a rise in the tax rate led to a decline in the net profit to sales ratio. Also, M&A activities and anticipatory investments to expand businesses led to a decline in asset turnover rate as well. Meanwhile, leverage increased as capital sourcing activities were expanded to take advantage of the low interest rates. While new club openings were restrained in favor of fortifying their existing club network, the know-how acquired in club operations in the Tokyo Metropolitan Area was leveraged to accelerate new club openings from the second half of fiscal year August 2013 onwards. At the same time, Koshidaka's overseas club network was fortified through M&A activities in Singapore and new club openings in Korea.
 
 
In the main karaoke club business, new club openings thereafter contributed to growth in sales, but the burden from anticipatory investments negatively impacted profits. From fiscal year August 2013 onwards, the Curves Fitness Clubs underwent rapid expansion and has now entered a stable growth phase. In addition, the anticipatory investments for the aggressive new club openings in the karaoke club business both inside and outside of Japan have contributed to slower growth in profits. While anticipatory investments are expected to continue from fiscal year August 2015 onwards, the fruits of these anticipatory investments are expected to be seen in the form of increases in both sales and profits going forward.
 
 
<Growth Strategy - "Comprehensive Leisure Services Providing Company" Promoting a "New Businesses in Existing Industries" Strategy>
 
The possibilities within the Japanese leisure related market are considered to be unlimited given its massive size of about ¥65 trillion. Moreover, the number of baby boomers approaching the age of 75 (Peak number being born between 1947 to 1949) is expected to increase and contribute to growth in the market over the next ten years. Based upon the business concept of becoming a "comprehensive leisure services company," Koshidaka seeks to cultivate synergies between the four realms of "amusement (karaoke)," "sports and fitness (Curves)," "tourism and travel (hot springs)," and "hobbies and cultural activities" to promote a strategy of "creating new businesses in existing industries." Koshidaka also maintains a medium- to long-term goal of achieving Group sales of ¥100.0 billion.

According to the "Karaoke White Paper 2015," the karaoke market within Japan in fiscal year 2014 (April 1, 2014 to March 31, 2015) benefitted from strength in karaoke box type club openings and demand from elderly segment of the market, and it grew on a year-on-year basis to ¥397.9 billion (From ¥391.2 billion in fiscal year 2012 and ¥395.7 billion in 2013). Since 2009, the market has trended between ¥380.0 to ¥390.0 billion. According to newspaper reports, the fitness club market has continued to trend sideways during the past several years at around ¥410.0 billion.
 
Karaoke Club Business Strategy
While the karaoke club industry in Japan is being aggregated by the major karaoke chain operators, competition for customers is intensifying. In addition to fortification of its club network, Koshidaka is implementing efforts to leverage its characteristics of "ease of use, safety, reasonableness, and friendliness" to provide customers with new ways to have fun, while at the same time developing new services as a means of differentiating its Karaoke clubs.

Along with the shift from a "regional existing club take over and refurbishment" strategy to a "major metropolitan, station front, downtown area new club opening" strategy, Koshidaka is stepping up openings of "Karaoke Honpo Manekineko" in the Tokyo Metropolitan Area (inside the National Route 16 Loop around Tokyo, as well as Kanagawa, Saitama and Chiba Prefectures). Also, efforts are being made to expand the "One Kara" individual use karaoke club network. In addition, efforts are being made to introduce new ways to enjoy karaoke, including the introduction of its own new karaoke system developed in-house called "Sukitto" (Karaoke commander) at all of its clubs and to establish a solid customer base of "Sukitto members" and One Kara clubs "Singer Club members, and as a means of achieving differentiation. "Sukitto" provides the facility for all customers to enjoy karaoke by expanding ways customers can use karaoke clubs through collaboration with contents holders.

With a long-term perspective to maintaining growth, efforts to expand the Karaoke club business into overseas markets like Korea and Singapore are being promoted. With nine clubs operated in Korea (As of end FY8/15), Koshidaka has succeeded in establishing its business model and seeks to achieve "100 clubs in operation within five years" in Korea. At the same time, the Singaporean subsidiary, K BOX ENTERTAINMENT GROUP PTE. LTD. (K BOX), operates 10 karaoke clubs and will adapt its "Manekineko" format karaoke clubs and club network operations to match the local market.
 
 
Curves Fitness Club Business Strategy
Amidst the rapid advance of the aging society, the Curves Fitness Club business concept supports and promotes the health of each individual user by providing healthy ways to exercise and contributes to improvements in health and extension of life expectancy of members, while at the same time growing its business. The Curves Fitness Club business will be deployed to create a fitness club (franchisee clubs) network that is easy to access. Furthermore, close collaboration between the headquarters and club franchisees will be conducted to achieve the common goal of building a community that allows members to enjoy participation in the activities at each club.

The milestones of 1,500 Curves Fitness Clubs and 650,000 members were reached in October 2014 (As of end fiscal year August 2015, 1,602 clubs and 711,000 members). Efforts will be promoted to increase the number of clubs operated by existing franchisees and to boost the total number of clubs to 1,800, grow the number of members per club, reduce the withdrawal rates, increase new member introductions by word of mouth from existing members, and improve customer satisfaction. On the back of general public's improved awareness of health and well-being, potential demand for fitness clubs is larger than initially expected. Local governments also show interest in Curves Fitness Club business. The target number of clubs is likely to be increased. In addition, Koshidaka will continue to expand sales of protein by leveraging the positive effect of protein when administered along with a exercise programs and fortify product sales for club members, offering simple dietary diagnosis testing, and proposing programs to improve dietary balance of club customers.
 
 
Hot Spring Business Strategy
Five facilities, "Tokyo Kenko Land Maneki No Yu" (Tokyo), "Koriyama Yudokoro Maneki No Yu" (Fukushima Prefecture), "Misato Onsen Maneki No Yu" (Gunma Prefecture), "Oita Mori Onsen Maneki No Yu" (Oita Prefecture) and "Oita Lamp No Yu Hanazonoten" (Oita Prefecture) are currently operated and turning to profitability of these facilities during FY8/15 is now in sight. Fixed cost reduction efforts, including use of human resource development systems in employee training and operation of facilities (hospitality), and utilization of know-how developed in the karaoke club business have been implemented to realize energy savings and to rejuvenate existing hot spring facilities.

With regards to energy conservation, gas powered cogeneration systems for both power generation and hot water heating have been introduced in conjunction with water saving showers at all facilities. Reserve tanks have been expanded to accommodate natural hot spring water, and energy efficient water recirculation systems have also been installed. Drilling for hot spring water at the main hot spring facility "Tokyo Kenko Land Maneki No Yu" has been completed, and operation of natural hot spring facilities has started from November 2014 (Contribute to reductions in water heating costs and attraction of a greater number of customers). Also, events with comedians giving live performances and health promoting exercises coordinated with music are also conducted as a means of attracting a greater number of customers.
 
 
 
Fiscal Year August 2015 Earnings Results
 
 
Sales, Ordinary Profits Rise by 17.3%, 2.8% Year-On-Year
Sales rose by 17.3% year-on-year to ¥44.257 billion. While the closure of unprofitable facilities led to a decline in sales of the hot spring business, new club openings and successful M&A related activities allowed sales of the karaoke club business to rise by 19.8% year-on-year to ¥23.794 billion. Increases in club and member numbers and retail sales (Primarily protein supplements sales to members) allowed sales of the Curves Fitness Club business to rise by 16.47% year-on-year to ¥18.649 billion.

With regards to profits, the acquisition of K BOX, which operates karaoke club business in Singapore, facilitation of the business foundations of Moon Corporation, which became a subsidiary in April 2015, and increases in retail sales which have relatively high cost of sales margins contributed to a deterioration in gross profit margin. At the same time, sales, general and administrative expenses rose on the back of amortization of goodwill (¥0.3 billion) arising from the acquisition of K BOX, and caused operating profit to grow by a smaller margin than sales of 2.8% year-on-year to ¥4.394 billion. Ordinary profit also rose by 2.8% year-on-year to ¥4.492 billion, but a rise in extraordinary loss resulting from the closure of facilities and reevaluation of overseas assets (Noncurrent asset retirement loss of ¥129 million, impairment loss of ¥102 million and facility closure related loss of ¥82 million, amounting to a total of ¥314 million) and higher tax burden (Resulting from subsidiaries that do not implement deferred tax accounting) resulted in a decline in net profit of 13.4% year-on-year to ¥2.098 billion.
 
 
 
Sales rose by 19.8% year-on-year to ¥23.794 billion but operating profit fell by 23.9% year-on-year to ¥1.203 billion. Along with the opening of 32 new clubs (Compared with 38 in the previous term), including 19 clubs refurbished after being acquired from other operators and 13 newly constructed, and another 21 clubs were added through the acquisition of Moon Corporation as a subsidiary. At the same time, 7 clubs were closed (Compared with 9 in the previous term), bringing the total number of clubs in operation at the end of the fiscal year to 412, an increase of 46 from the 366 clubs in operation at the end of the previous term. In addition, 37 clubs underwent refurbishment (Compared with 33 in the previous term). By category of club, Koshidaka operated 381 Manekineko clubs (353 in the previous term), 10 One Kara clubs (13 in the previous term), and 21 Moon and Sincere clubs (Through its subsidiary Moon Corporation). In overseas markets, the number of clubs in operation at the end of the term just ended. Clubs in overseas stood at 10 and 9 in Singapore and Korea respectively (Compared with 12 and 4 in the previous term) respectively, for a total of 19 (Compared with 16 in the previous term).

Sales on an existing club basis trended at 98.6% of the previous year's level (96% and 102% in terms of customer numbers and pricing). Sales on an existing club basis trended at 102.2% during the first half, but the high sales recorded during the second half of the previous fiscal year made year-on-year comparisons difficult and led to a weakening in existing club sales during the second half to 95.3%.

Koshidaka is currently pursuing a strategy of opening new clubs, primarily "Karaoke Honpo Manekineko" in the Tokyo Metropolitan Area (Tokyo, and Kanagawa, Saitama and Chiba Prefectures). with accelerated openings along the JR Chuo Line (Iidabashi, Mitaka, Musashi Koganei, Hachioji). Also, Moon Corporation, which operates karaoke clubs primarily in the Kanagawa Prefecture, was bought from the Sotetsu Holdings, Inc. in April 2015. In addition to the contribution from K BOX, which was acquired to become a subsidiary from February 2014, the acquisition of Moon Corporation also enabled sales to grow by a large margin. The main factors behind the growth in sales (¥4.940 billion increase in total) include ¥1.803 billion from new Manekineko clubs, ¥1.867 billion from K BOX, and ¥432 million from Moon Corporation. Furthermore, additional contributions were seen from existing One Kara clubs operations and from Koshidaka Korea Co., Ltd. during fiscal year August 2015.

However, ¥0.2 billion in operating losses from K BOX, ¥0.3 billion in amortization of goodwill arising from the acquisition of K BOX, and ¥0.3 billion in costs associated with the introduction of the karaoke commander "Sukitto" (Development and music acquisition costs) contributed to a decline in operating profit.
 
 
Sales and operating profit rose by 16.4% and 17.5% year-on-year to ¥18.649 and ¥3.856 billion respectively. The number of clubs in operation at the end of the fiscal year rose by 8.6% or 127 from the end of the previous fiscal year (Growth of 136 in the previous term) to 1,602 clubs, including 51 clubs directly operated by the Koshidaka Group. The number of club members rose by 10.9% or 70,000 year-on-year (Growth of 55,000 recorded in the previous term) to 711,000 from 641,000 over the same period. The age distribution of club members in their 30s, 40s, 50s, 60s and over 70 stood at 4.7%, 10.0%, 25.1%, 38.4%, and 21.8% respectively.

Ongoing sales of royalty income increased on the back of growth in both club and membership numbers, and retail sales rose by a large margin on the back of strong sales of protein. The contribution to the growth in overall sales of the Curve Fitness Club business (¥2.621 billion growth) of royalty income, retail sales and other factors amounted to ¥551 million, ¥1.517 billion and ¥594 million respectively. In addition, sales per directly operated club rose by ¥1 million from the previous term, but ad hoc income arising from franchisee and new store opening fees declined by ¥91 million from the previous term.
 
 
The closure of two unprofitable facilities during the first half of the term contributed to a 2.8% year-on-year decline in sales to ¥1.495 billion, but sales on an existing facility basis rose by 5% (Tokyo Kenko Land recorded growth of 13% year-on-year). In addition to the influence of these facility closures, the efforts to reduce costs through the implementation of air condition controllers contributed to a ¥0.1 billion reduction in utility fees, in addition to reductions in rent, consumables and labor expenses amounting to ¥29, ¥28 and ¥23 million respectively. Consequent to these efforts, operating loss contracted by ¥149 million from ¥239 million in the previous term to ¥89 million in the current term.

In addition, refurbishment of facilities was undertaken along with the acquisition of the hotel business certification, and steps have been promoted to respond to customers' needs for accommodations at the "Tokyo Kenko Land Maneki No Yu" facility. The strength of 24 hour operations will be leveraged to capture inbound demand for usage as a business hotel type accommodation facility (To raise utilization rates of the facility).

Consequent to these developments, the real estate management business recorded a 6.4% year-on-year increase in sales to ¥318 million, but operating profit declined by 2.1% year-on-year to ¥127 million.
 
 
Total assets rose by ¥4.737 billion from the end of the previous term to ¥30.663 billion at the end of the fiscal year. The increase in sales and facilities contributed to rises in both receivables and tangible fixed assets, and the acquisition of K-BOX and Moon Corporation as subsidiaries contributed to a rise in goodwill from ¥21 million to ¥2.082 billion. On the other hand, the consolidation of K-BOX led to declines in shares of affiliated companies. Interest bearing liabilities rose on the back of an increase in long term loans to fund new facility openings, existing facility refurbishments, and M&A related activities. Net assets rose on the back of an increase in retained earnings. Rate of return on invested capital deteriorated from 17.0% to 12.8%, current ratio declined from 117.1% to 114.1%, fixed ratio increased from 128.1% to 143.4%, and equity ratio fell from 48.5% to 43.7% from the previous term to the current term.
 
 
Net inflows of ¥4.649 billion and ¥372 million were recorded in operating and free cash flows. An increase in depreciation and a decline in inventories contributed to an improvement in capital efficiency and allowed the net inflow of operating cash flow to increase. Declines in payment for investments relating to facilities and M&A related expenses allowed the margin of net outflow of investing cash flow to contract. Consequent to these developments, free cash flow turned to a net inflow, compared with the net outflow recorded in the previous fiscal year. The margin of net inflow of financing cash flow declined due to acquisition of treasury stock and dividend payment.
 
 
Fiscal Year August 2016 Earnings Estimates
 
 
Sales, Ordinary Profit Expected to Grow by 12.1%, 11.7% Year-On-Year in FY8/16
Koshidaka Holdings earnings estimates for fiscal year August 2016 call for sales to rise by 12.1% year-on-year to ¥49.607 billion. Sales of the karaoke club business are expected to rise by 15.1% year-on-year on the back of an increase in new clubs opened within Japan and favorable trends in the overseas karaoke business. Sales of the Curves Fitness Club business are expected to rise by 8.7% year-on-year as the number of clubs is expected to rise to over 1,700. At the same time, sales of the hot spring business are expected to rise by 8.2% year-on-year on the back of favorable conditions in the "Tokyo Kenko Land Maneki No Yu".

Operating profit is expected to rise by 12.4% year-on-year to ¥4.939 billion. The full scale contribution from Moon Corporation and an improvement in profitability in overseas operations arising from the absorption of anticipatory investments for new facility openings, are expected to offset anticipatory investments to gather evidence on the benefits of exercise for health in cooperation with local governments seeking to improve the health of their constituents and allow profits to continue to grow. An increase in sales and ¥140 million in cost reductions due to the success of various strategies implemented from the term just ended are expected to allow the hot spring business to turn to profits. A full-year dividend payment of ¥30 per share is anticipated (¥15 to be paid at the ends of both the first half and full year).
 
 
Karaoke Club Business
With the goal of achieving a network of 500 clubs and sales of ¥40.0 billion, Koshidaka has shifted from a strategy of opening by "takeover and refurbishment of existing clubs operated by other companies in suburban regions" to "construction of clubs in urban locations in front of stations and busy business districts." The opening of new "One Kara" individual use karaoke clubs has been restarted based upon the outlook for the attainment of profitability at all clubs, and the total number of newly opened clubs is expected to rise above the level achieved in fiscal year August 2015 of 32 to 40 in the coming term (30 newly constructed and 10 take over and refurbished clubs). At the same time, the closure of 10 unprofitable clubs is anticipated and has been factored into the earnings estimates.

With regards to operations, a diverse contents strategy that leverages the various functions including the "score challenge", "singing Olympic" and original karaoke commander "Sukitto" will be promoted. "ZERO Kara" service was introduced from September as a means of raising utilization rates, and efforts are being implemented to introduce "Morning Kara" at all clubs. In addition, "One Kara Singers' Club" member acquisition, and "One Kara" English conversation lesson services will also be fortified. Moreover, the "Manekineko" will be introduced by Moon Corporation, which currently operates Moon and Sincere format clubs as part of the same brand.

In overseas markets, Koshidaka Korea is expected to strengthen its new club openings to bring its network to 20 clubs in total, in addition to consideration of the start of franchise operations as a means of growing its club network to 100. Meanwhile, K BOX is promoting the refurbishment of its existing clubs into "Karaoke Honpo Manekineko" clubs.
 
Curves Fitness Club Business
Efforts to expand the number of Curves Fitness Club network by 100 per year will continue to be promoted to achieve 1.00 million members. Furthermore, coaching skills of staff will be strengthened as a means of raising member satisfaction and retention rates. Moreover, efforts to develop new products and businesses in new realms will also be implemented. Infomercials (30-second television commercials) will be strengthened to increase the brand recognition of Curves Fitness Clubs. Koshidaka is stepping up its efforts to gather evidence on the positive effects of the Curves workouts through joint research with universities. Currently, the following four joint research projects are being conducted.
 
"Effect of Curves Work Out to Raise the Brain Function" with the Institute of Development, Aging and Cancer, Tohoku University
"Large Scale Tracking of Lifestyle Related Disease Incidence Rates of Curves Members" with National Institute of Health and Nutrition
(Effect of frequent exercise in reducing the rate of diabetes has already be proven)
"Effect of exercise upon quality of life (QOL) in patients diagnosed with breast cancer"
"Effect of Curves upon raising the health consciousness of residents living in Daisen-cho (Tottori Prefecture)" with Tottori University and Tsukuba University
 
The increased interest in preventative medical healthcare and in living healthy lives serves as a tailwind for the Curves Fitness Club business, and the number of proposals for joint collaboration with regional governments is increasing. Some of the proposals have already been started including the opening of the "Odawara Curves Disease Prevention Center" in June 2015 and the "Curves Daisen-cho Health Center" in Tottori Prefecture in September 2015. The Odawara Curves Disease Prevention Center conducts strength relative to age testing, provides advice on exercise and diet via health consultant staff, activities designed to improve health and prevent disease in the common spaces of its facilities, and other activities designed provide improvements in general health of customers. The "Curves Daisen-cho Health Center" has been opened with the acknowledgement of the local government and is designed to play a role in the promotion of the health of local residents. While operation of a normal facility would otherwise be difficult because of the small population in this region, Daisen-cho provides assistance in acquiring members and the "Curves Daisen-cho Health Center" is ramping up operations successfully.
 
Hot Spring Business
In addition to measures designed to raise customer satisfaction, aggressive sales promotional activities and a full lineup of service contents is expected to contribute to higher sales. Furthermore, energy conserving and other efforts are expected to allow this business to turn profitable. Specifically, overnight accommodation facilities are being added to the Tokyo Kenko Land Maneki No Yu (Tokyo), and a buffet and other food services are being introduced at the Kohriyama Yudokoro Maneki No Yu (Fukushima Prefecture). The "löyly" sauna event for female customers at the Misato Hot Spring Maneki No Yu has been very well received (löyly, a Finnish term, means throwing water on the hot stones to create steam). At the same time, energy conserving efforts including the use of biomass fuels, filtration systems, and water treatment facilities are being planned.
 
 
Conclusions
 
While growth in both operating and ordinary profits remained at only 2.8% year-on-year in fiscal year August 2015, successes of the various strategies undertaken during the term have yet to be adequately reflected in these figures. Specifically, advances in strategies designed to make the "One Kara" individual use karaoke clubs and the hot spring facilities profitable have been achieved, and successes in the implementation of "Karaoke Honpo Manekineko" Japanese club operational format for K BOX clubs have also been attained. While the normal club operational format that had been practiced before the acquisition continued to be implemented, difficulties in their operation led to the decision to refurbish one of the clubs operated as a "Karaoke Honpo Manekineko" format club. The favorable reception to this Japanese format contributed to a large increase in users from 2,700 per month to 6,300 at this club, and Koshidaka is now considering expanding this refurbishment to other clubs operated by K BOX. Stability in the existing club operations of Koshidaka Korea has led to the restart of efforts to open multiple clubs. All of these efforts in overseas markets are expected to contribute to profitability from fiscal year August 2017 onwards.

Meanwhile, the introduction of the new service "Zero Kara" at all of the "Karaoke Honpo Manekineko" clubs operated within Japan from September has resulted in a recovery in sales at existing clubs. "Zero Kara" targets groups of two or more high school students and provides them with free usage of karaoke rooms without time limitations (Excluding peak operational hours and after 10PM) based on the expectations that they will order food and beverages during their visit to the club. While the share of clubs operated in the Tokyo Metropolitan Area is still only about 10% and despite the fierce competition in this region, the latent potential for opening of "Karaoke Honpo Manekineko" is large. Koshidaka expects to accelerate its new club openings within the National Route 16 ring road around Tokyo and the neighboring three prefectures of Kanagawa, Saitama and Chiba. In addition, the achievement of profitability is now in sight, and English language lessons called "e Eikaiwa (e English conversation, http://www.eeikaiwa.com/)" have already begun to be introduced at the individual use "One Kara" clubs.

Furthermore, Koshidaka is also considering the potential for opening of additional Curves Fitness Clubs in the regions close to existing facilities that have over 600 to 700 members, which is significantly higher than the average of 443 as of the end of fiscal year August 2015. In addition, the number of local governments expressing an interest in collaborating with the Curves Fitness Club business is growing on the back of heightened interest in preventive medical health. Consequently, Koshidaka is currently gathering evidence regarding the benefits of exercise and it's future strategy in this business should be watched closely. Furthermore, the aging of the Japanese population should act as a tailwind for Curves Fitness Club business.
 
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