|WASHHOUSE Co., Ltd. (6537)|
WASHHOUSE Co., Ltd.
86-1, Shinei-cho, Miyazaki-shi, Miyazaki prefecture
End of December
* The share price is the closing price on March 13. The number of shares issued was taken from the brief financial report for the latest period.
ROE and BPS are those for the previous term.
The company plans to conduct 2-for-1 share split on Apr. 1, 2017. DPS was estimated while considering the share split.
*The forecasted values were provided by the company. *The Company conducted a 100-for-1 share split on April 2, 2016.
EPS and DPS have been revised retroactively.
The company plans to conduct 2-for-1 share split on Apr. 1, 2017. The DPS for the term ending Dec. 2017 was estimated while considering the share split.
This report outlines WASHHOUSE Co., Ltd. and includes the earnings forecast for the term ending Dec. 2017, the interview with president Kodama, etc.
1-1 Corporate historyWhen starting up this business, president Kodama pondered over how to keep increasing sales and profit eternally in the age that will certainly witness the decreased birthrate and aging and declining population, whether the business has social meanings, whether there are any forerunners, whether the company can survive competitions, whether the business can be imitated easily, whether it is possible to achieve recurring revenue, and so on from various aspects, and decided to do the laundromat business.
For expanding the scale of business, the FC system is effective, but the FC business is accompanied by the problem of the conflict between the FC headquarters and franchised stores. In order to solve this problem, the company immediately introduced a call center that is in operation 24 hours a day all year round and the "system for managing and operating all stores at the same time," which is composed of the swift support based on webcams and remote control, etc. and reduced the burdens of franchised stores considerably. Its business grew steadily, partially thanks to the expansion of needs due to the increase in the number of working females.
From the Kyushu area, including Miyazaki Prefecture, where the business was launched, the company expanded its sales territory, entering Osaka in Dec. 2015 and Tokyo in Jul. 2016.
Then, in Nov. 2016, WASHHOUSE got listed in Mothers of Tokyo Stock Exchange and Q-Board of Fukuoka Stock Exchange.
1-2 Corporate ethos, etc.The ethos of WASHHOUSE is "to think about all matters from the viewpoint of customers and keep being demanded by society."
Under this ethos, the company is working on "the creation of the de facto standard in the self-service laundry industry" with the aim of continuously offering satisfactory services to users on behalf of store owners by fully managing laundromats after the opening of the store rather than "just selling self-service laundry equipment and instructing owners to operate it."
1-3 Market environment
◎ Growing laundromat marketAccording to the "Survey on coin-operated cleaning facilities" by the Ministry of Health, Labour and Welfare, although it is somewhat out of date, the number of laundromats in Japan in fiscal 2013 was 16,693, and that in fiscal 1996 was 10,228, indicating a compound annual growth rate (CAGR) of 2.9%. If it keeps growing at a rate of 3%, it will exceed 18,000 in fiscal 2016, which is nearly equal to the number of the stores (18,140) of FamilyMart, which ranks second in the convenience store field (as of the end of Nov. 2016), and is catching up with the number of stores (19,166) of Seven-Eleven, which ranks first (as of the end of Nov. 2016).
◎ Growth factorsIn the background of such growth, there are:
Women's needs for "the reduction in cleaning time" due to the increase of dual-earner households,
Measures against allergies, such as the allergy to pollen,
Decrease in the use of cleaning services due to the increase of low-priced high-quality clothes,
Enhancement of awareness of cleanliness,and so on.
In addition to these external factors, enterprises, including WASHHOUSE, started offering a variety of services considering the convenience for users, and so "users have increased" and then "the number of laundromats has grown."
According to president Kodama, "rate of utilization," which indicates how many households use laundromats among all households living within 2 km from a store, was about 3% on national average 10 years ago, but it is now 5-8%, and expected to increase further.
◎ Market playersIt is difficult to obtain detailed information, but the number of main players in the self-service laundry market is said to be 4 to 5. WASHHOUSE has the largest number of laundromats with the same brand, and is the only listed company in this field.
Although many enterprises carry out the FC business for growth (increasing stores), WASHHOUSE possesses an unparalleled "system for managing and operating all stores at the same time," which was developed while pursuing the streamlining of business operation and unification of quality. (For details, see "1-5 Characteristics and Strengths.")
1-4 Business contents
1. Business structureWASHHOUSE conducts the three kinds of business: (1) FC business, (2) store management business, and (3) direct management business, etc.
(1) FC businessWASHHOUSE created a unique operation-supported FC business.
The company selects candidate places for opening laundromats, sells "a set of WASHHOUSE laundromat systems," which contains the design, interior finish work, equipment installation, etc. in a WASHHOUSE brand store, to franchisees, and receives the preparation fees for opening store, including advertisements, and fees for franchise rights.
For increasing franchisees, the company adopts the division system where sales staff visit possible franchisees, with which telephone staff set up an appointment, so that sales staff can concentrate on more active sales activities without the mental burden of sales calls. In addition, business simulation, contract production, etc. are conducted by other staff, so that sales staff can devote themselves to "footwork."
Furthermore, by concluding business matching contracts with financial institutions, etc., the company is accumulating information on sites for building laundromats and candidate owners, and developing a "system" for increasing laundromats.
WASHHOUSE designs a plan to open new laundromats for each term based on the accumulated data on correlative relations of "the number of years of career of sales staff and achievements of opening franchised stores."
Therefore, the company can achieve the target values set at the beginning of each term with overwhelming probability.
② Store management businessWASHHOUSE undertakes the management of all franchised stores, reports a monthly operation status, including revenue and expenditure, to franchisees, and subtracts the fee for laundromat management from monthly sales.
In order to keep each store "reliable, safe, and clean," WASHHOUSE provides franchisees with such services as
24/7 Call centers
Swift support based on webcams and remote control
Daily inspection and cleaning
Replenishment of detergents
AdvertisementSales are composed of the fees for store management and system maintenance, sales of detergents, cleaning fees, advertising charges, etc.
Since franchisees need not manage their laundromats, if they can bear initial investment costs, they can own multiple stores, increase revenue, and reduce the risk of revenue fluctuation with stores being operated in different regions.
③ Direct management business, etc.The company directly manages some of "WASHHOUSE" laundromats, receiving the charges for washing and drying machines from users. A directly managed store is opened mainly when entering a new area. It takes the roles as an antenna shop, such as popularizing the "WASHHOUSE" brand as a "reliable, safe, and clean" laundromat, promoting possible users to use it, and offering a store model to franchisees and land owners (individuals and corporations that are thinking of utilizing their real estate).
In addition, the company receives commission fees related to the calculation of expenses for laundromat operation, etc. from enterprises.
2. Store operationAs of Dec. 2016, WASHHOUSE operates 361 franchised stores and 25 directly managed stores, that is, a total of 386 stores, mainly in the Kyushu and Chugoku regions. The company made inroads into Osaka in 2015 and Tokyo in 2016, and plans to conduct business nationwide on a full-scale basis.
1-5 Characteristics and strengths
(1) Creation of a new FC business systemWASHHOUSE can be characterized most by its unique FC business model.
In ordinary FC business, a conflict between the FC headquarters and franchisees tends to emerge.
While franchisees pay franchise fees and royalties to the FC headquarters, the FC headquarters permit them to use a brand name, offers know-how to them, supply products to them, store operation, staffing, etc. must be carried out by franchisees on their own responsibility.
For franchisees, the operation and management of stores are significant burdens. If their business performance is favorable, there are no problems, but if sales are sluggish, the franchisee complains, "the system of the headquarters is poor," while the FC headquarters blames, "the education in the franchisee is poor," and these complaints lead to a lawsuit in many cases.
Meanwhile, WASHHOUSE introduced the "system for managing and operating all stores at the same time." The company conducts necessary tasks for operating and managing franchised stores:
24/7 Call centers
Swift support based on webcams and remote control
Daily inspection and cleaning
Replenishment of detergents
AdvertisementAs a consequence, franchisees are free from the burdens of store operation.
In addition, since the company targets real estate that would have sales of over 1 million yen, it has meticulously surveyed the market, including local population, age distribution, income state, etc. and accumulated know-how for cultivating profitable property.
Thanks to the combination of the system for managing stores fully and the capability of cultivating profitable real estate, the satisfaction level of franchisees is very high, and no laundromats have been closed due to sluggish performance in the past 15 years. This result is outstanding.
(2) Bright, clean, easy-to-use storesA laundromat generally reminds us of a "dimly-lit, dirty, and eerie" place, but WASHHOUSE operates "reliable, safe, and clean" stores with the unified brand targeting women and families including children.
In addition, the needs for laundromats mounted with equipment for washing and drying kids' sneakers are getting stronger.
In these circumstances, the company installs the following equipment for meeting the needs of consumers:
Washing machines with a capacity of 22 kg, which can wash a full sized futon, and dryers with a capacity of 25 kg (in standard stores),
Sneaker laundry equipment, which can wash sporting shoes, sneakers for commuting to school, etc.
Devices for removing stains free of charge
(3) Stable earning structure with recurring revenueThe sales from the store management business are composed of the monthly store management fee (50,000 yen per store), the fee for system maintenance (10,000 yen), ad charge (30,000 yen), cleaning charge (about 40,000 yen), etc., that is, a total of about 130,000 yen/month.
As of the end of Dec. 2015, the number of franchised stores of WASHHOUSE was 256. Accordingly, the sales from store management in the term ended Dec. 2016 can be calculated by adding the sales from existing stores (256 stores × 130,000 yen/store/month × 12 months = 399 million yen) and the sales from new stores opened in the term ended Dec. 2016 (sales vary according to the date of opening).
The sales from store management in the term ending Dec. 2017 can be obtained by adding the sales from existing stores (399 million yen), the sales from new stores opened in the term ended Dec. 2016 (105 stores × 130,000 yen/store/month × 12 months = 164 million yen), and the (estimated) sales from new stores opened in the term ending Dec. 2017.
On the other hand, the satisfaction level of franchisees is very high, which can be represented by the fact that no stores have been closed in the past 15 years, and so there is a low possibility that the number of stores will decrease. This fortifies the stable earning structure with recurring revenue.
(4) Efforts for improving the soundness of the self-service laundry marketAlthough the laundromat market is growing, president Kodama mentioned that there remain a lot of problems, including the issue of compliance with the law.
For example, the dryers in a laundromat consume a large volume of gas, and so the Fire Service Act, the Building Standards Act, etc. specify the materials for exhaust ducts, how to install them, etc. in detail, for safety reasons. However, there are many illegal installations.
Some laundromat operators try to reel in users by offering to wash clothes on behalf of customers as a measure for differentiating their services from competitors, but they are probably violating the dry cleaning business law.
Even if a laundromat operator obtains a dry cleaner's license, he/she cannot offer services of handling and folding up the laundry, etc. at a laundromat, which is not a dry cleaning shop.
The washing machines and dryers inside a facility registered as a dry cleaning shop are exclusively for dry cleaning business operators, and so they cannot be used by others (users of laundromats) from the viewpoint of hygiene.
In this situation, president Kodama considered that in order to promote the use of laundromats, it is indispensable to develop "reliable, safe, and clean" laundromats inside his company and improve the soundness of the self-service laundry industry, and established the National Association of Laundromat Operators in Dec. 2003.
This association specified the operation standards for equipment and hygienic management complying with laws, regulations, etc. At present, the directly managed stores and franchised laundromats of WASHHOUSE belong to this association, which takes the roles of improving the soundness of this industry and educating general consumers (about the usefulness of laundromats, etc.).
|Fiscal Year December 2016 Earnings Results|
Sales and profit grew by double digits, exceeding the estimate.Sales were 3,118 million yen, up 52.1% year on year. The sales of the three businesses, including the FC one, in which the number of laundromats marked a record high, grew significantly.
Gross profit rate rose 0.5% thanks to the advantage of scale.
As WASHHOUSE conducted advertisement activities actively and increased employees, SG&A augmented 63.7%, but was offset by the sales growth, and operating income increased 34.4% year on year to 294 million yen.
Both sales and profit exceeded the estimates announced in Nov. 2016.
The dividend amount is to be 16 yen/share.
1) FC businessWASHHOUSE opened 45 new franchised stores in Fukuoka Prefecture, 11 stores in Kumamoto Prefecture, and so on. The total number of new franchised stores was 105, marking a record high. As of the end of Dec. 2016, the total number of franchised stores was 361.
Since "a set of laundromat systems of WASHHOUSE" was sold to 33 more stores than the term ended Dec. 2015, sales increased significantly.
2) Store management businessSince new franchised stores were built as mentioned above, the number of stores under the management of WASHHOUSE increased by 105.
3) Direct management business, etc.As WASHHOUSE opened 2 directly managed laundromats in Tokyo and 1 laundromat in Osaka, that is, a total of 3 stores, the number of directly managed stores as of the end of Dec. 2016 is 25.
Total liabilities augmented 300 million yen from the end of the previous term to 1,606 million yen, due to the increases in trade payables and guaranty deposits.
Net assets increased 1,826 million yen from the end of the previous term to 2,164 million yen, due to the growth of capital, capital surplus, and retained earnings.
As a result, equity ratio increased by 36.8% from 20.6% at the end of the previous term to 57.4%.
Investing CF became negative, due to the increase in expenditure through the acquisition of property, plant and equipment for opening directly managed stores.
Free CF remained positive.
Thanks to the increase in revenue from the issuance of shares, financing CF expanded considerably, and the cash position improved.
(4) TopicsWASHHOUSE announced that it would conduct 2-for-1 share split with the reference date being Mar. 31, 2017 and the effective date being Apr. 1, for the purpose of improving liquidity and increasing investors by lowering share price.
◎ Share split announced
◎ The articles of incorporation partially revisedIn order to diversify its business content, the company decided to revise the articles of incorporation and add new business purposes. This matter will be discussed at the 16th annual meeting of shareholders scheduled to be held on Mar. 30, 2017.
(Added business content)
Manufacturing of detergents
The money-lending business is not intended for competing with financial institutions, but for financing franchisees until they procure funds from financial institutions so that the construction process can proceed smoothly or making up for the insufficiency of loans from financial institutions. Since the company collects sales at each store as mentioned above, the risk of bad debts is considered to be low.
|Fiscal Year December 2017 Earnings Estimates|
Significant growth in sales and profit due to the increase of franchised storesSales are estimated to be 4,260 million yen, up 36.6% year on year. It is expected that the number of new franchised stores will be 152, exceeding the number in the previous year and marking a record high.
The augmentation of personnel cost due to new business will be offset, and operating income is projected to be 374 million yen, up 27.2% year on year.
At the end of the term, it is estimated that the total number of stores will be 542, consisting of 513 franchise stores and 29 directly managed stores. Additionally, no stores will be closed for this term.
The dividend amount is to be 8 yen/share (taking into account the share split; virtually equal to that in the previous term). Payout ratio is estimated to be 21.3%.
(1) FC businessWASHHOUSE plans to open 85 new franchised stores in the Kyushu area, 37 stores in the Chugoku area, and 30 stores in the Kansai area, that is, a total of 152 stores, marking a record high. The number of franchised stores is forecasted to be 513 at the end of Dec. 2017.
(2) Store management businessAs new franchised stores will be opened, the number of stores managed by WASHHOUSE is estimated to increase by 152.
(3) Direct management business, etc.The company plans to open 3 laundromats in the Tokyo area and 1 laundromat in the Osaka area, that is, a total of 4 stores.
|Interview with President Kodama|
Q. "Please tell me about your future store expansion strategy."
A. "In this term, we are opening a total of four directly managed stores in the Kanto and Kansai areas. We will start the FC business on a full-scale basis in the term ending December 2018. We plan to operate twenty thousand stores for nationwide business."
As of December 1st, 2016, we have 55 stores in Miyazaki prefecture where there are a total of 465,033 households. To make annual sales of 1,000,000 yen, each store needs to cover 8,455 households. (465,033 ÷ 55 = 8,455)
Fifteen years ago when the rate of utilization (the percentage of households that use the laundromat within 2 km from a store) was about 3%, each store covered 12,600 households. This means that we currently only need 70% of households compared to 15 years ago to achieve sales of 1,000,000 yen because of the improvement of the rate of utilization.
Some doubt that WASHHOUSE will be successful also in Tokyo, because of high rents. However, even if the rate of utilization is 3%, each store can cover 12,000 households in Shinjuku within 500 m from the store, which is 1/16th of the area in Miyazaki. Even though the rent in Tokyo is higher than that in Miyazaki, it is not 16 times higher. In fact, our Shinjuku store had a good start as we planned.
Once the rate of utilization goes up in the future, our chance of expansion will increase.
When we expand our business in a new area, our company opens directly managed stores first. Then we take a year to study and confirm a usage situation and such, and start opening franchised stores there on a full-scale basis.
In this term, we opened 3 directly managed stores in Kanto and 1 in Kansai, and we will start opening franchised stores in these areas on a full-scale basis in the term ending Dec. 2018.
We will keep expanding into untapped areas using our expansion to Tokyo and Osaka as a foothold, and start full-swing nationwide business.
We estimate that 20,000 stores will be operated nationwide, but I think it is possible to expand our business even more.
In addition, media strategy is very critical for the nationwide business operation.
With the concept of "Reliable, Safe and Clean," we will execute a nationwide unified brand strategy to establish a brand image, strong enough to keep the rivals at bay.
We have a big advantage in that by being the only public-listed company.
We will utilize our FC system that allows us to allocate 10% of our sales, which is said to be three times more than that of ordinary companies, to our media strategy using TV commercials and local key TV stations. With these strategies, we would like to diffuse the "culture of washing futons" and boost the rate of utilization of our laundromats nationwide.
Q. "What do you plan to do in order to expand your business foundation?"
A. "From this term, we will amplify our profit-earning opportunities by self-manufacturing detergents, and expand our business overseas."
First, to increase the opportunities to earn profit by self-manufacturing detergents, and improve cost percentage.
Our company purchases a maximum of 30 tons of detergents per month from external sources, and delivers it to our franchised stores. We would like to switch this to self-manufacturing.
We have been researching detergent manufacturing in cooperation with Miyazaki prefecture. Miyazaki prefecture will provide us with information about land and we will build our factory there.
We finished researching and surveying in the previous term, and started seeing the possibility to manufacture detergents within the cost we projected. In this term, we would like to set out a detailed plan and start manufacturing in the next term.
It won't be a big investment since the land will be introduced, and all we need is a building and equipment.
To contribute to our hometown of Miyazaki, we plan to proceed with our operation while considering agricultural diversification.
The second is overseas business expansion.
Last September, home appliance manufacturer AQUA Co., Ltd. (Haier Group in China), which took over Japanese technologies from SANYO Electric Co., Ltd. through partial business transfer, and Microsoft Japan Co., Ltd. struck a basic agreement for collaborating in the development of IoT services for home appliances by combining home appliances and cloud computing, in Japan.
As the first concrete effort, they will transfer the operating system of the "AQUA IT Laundry," which is an IoT washing machine for laundromats, to Microsoft's cloud service "Azure" within 2017. They announced that they are aiming to improve the service level and predict troubles by analyzing the collected data.
As a matter of fact, we are involved with this project, and Microsoft is developing an exclusive next generation system for us, which can be used not just in Japan but also overseas. We are also proceeding with the hardware development, planning to start actual operation at the beginning of fall this year.
For overseas business development, we are currently researching the U.S. market mainly.
In the U.S., there are a number of large-scale laundromats where as many as 120 washing machines are installed. It is said that the market scale is 700 billion yen, far exceeding the 120 billion yen of the Japanese market.
The history of laundromats in the U.S. is long. However, their situation is still old-fashioned as there are no chain stores or franchised ones, and they do not provide their services from the customer's perspective. We think there lies a big opportunity.
By advertising the convenience and introducing the cutting-edge hardware and software, in addition to our concept of "cleanness and reliability," we will cultivate this gigantic market.
We are also planning M&A in several fields and selling our stores as modules that can be assembled.
Q. "What is the biggest difference between your company and competitors?"
A. "We only offer profitable property to franchisees as an investment. It's never just the effective utilization of idle land or a side business."
In contrast, our criterion for opening a store is whether a store could earn sales of 1 million yen. Even when someone wants to open a store, we ask him/her to wait until we find real estate that can meet our criteria. We don't consider it as the effective utilization of idle land nor a side business as it is sufficiently profitable. We consider it as an "investment" which prioritizes profitability. That's the biggest difference from other companies.
In addition to our "system for managing and operating all stores at the same time," the above mentioned stance allows us to co-prosper with franchisees. Therefore we are smoothly expanding the number of our stores without a single store closing due to poor performance in the last 15 years.
Q. "What is your message to shareholders and investors?"
A. "Please understand our strengths and features, and support us in the middle to long term."
For those who don't know much about our company, I very much want them to know those points.
In the days ahead, we will emphasize IR and PR more than ever before, and will deliver information actively. Each release contains some information on our future business as a message, so please pay attention to them.
As the full-scale business expansion in the Japanese market will begin in the days ahead, we have no intention of stopping here.
We want you to support us with a mid to long term perspective as we push forward to cultivate huge overseas markets through establishing the global de facto standard.
In addition to this "system" and "improvement in rate of utilization," "its stable earning structure with recurring revenue" and "the possibility of its business model that could work on the global stage" are highly evaluated in the current stock market.
Furthermore, the company is revealing some new measures that have not been introduced clearly.
We would like to pay attention to the quarterly progress of the increase of laundromat in the short term, and its concrete measures for cultivating the huge overseas market and the M&A projects envisioned by president Kodama in the medium to long term.
|<Reference: Regarding Corporate Governance>|
◎ Corporate Governance ReportLast update date: Nov. 21, 2016
<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
The company mentioned, "We will implement all of the basic principles."
DisclaimerThis report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However, we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
Copyright(C) 2017 Investment Bridge Co., Ltd. All Rights Reserved.