Aderans Company Limited

Transcription

Aderans
Company
NN
EPORT 2OO4
Aderans
Company
LimitedLimited
A N N U A LA R
E PUOARLTR2OO6
Aderans
Annual Report 2006
Ye a r e n d e d F e b r u a r y 2 8 , 2 0 0 6
A d e r a n s V I TA L H A I R
Aderans Hair Club
Pinpoint Fix
Hair Support Aqua
On a sure-footed path to growth
eve Fine
Sifore Aroma
VA L A N
Fontaine
NORIKO COLLECTION
Amore
Uses soybean ink in
consideration of the environment
100% recycled paper
Printed in Japan
Directors and Auditors
Corporate Data
As of May 26, 2006
As of February 28, 2006
The Aderans Group
Three key strengths — solid brand reputation, global presence and a comprehensive array of
products and services — are the signposts of success on our sure-footed path to growth.
Strength 1:
Strength 2:
Solid Brand Reputation
Global Presence
Established in 1969, Aderans Co., Ltd., is a
comprehensive provider of hair-replacement
products and hair-related services for men
and women. The Company maintains Japan’s
leading brand of custom-made hair-replacement products for both sexes and has also
built a solid presence in the women’s fashion
wig market through Fontaine Co., Ltd., a
domestic subsidiary.
Strength 3:
Comprehensive Array of
Products and Services
We augment our mainstay custom-made
wigs for men and women with a rich
selection of complementary products and
hair-related services. Seeking to cement a
position at the forefront of the hair-transplant and hair-growth markets, we have
reinforced our presence in the U.S. hairtransplant business with promising research
and development on hair regeneration.
This move underpins steady expansion of
Group operations beyond wigs and hairreplacement products to hair-growth
treatments and therapeutic remedies.
Aderans heads a group of 28 consolidated
subsidiaries — three operating in Japan and
25 overseas — which together employ more
than 5,400 people. Members of the Group in
the United States and Europe have captured
higher market shares, especially in women’s
fashion wig wholesaling. This achievement
is complemented by sales of men’s wigs in
Taiwan, South Korea and other areas of Asia.
Domestic
Men’s
Market
Rapidly expanded custom-made
wig market with nationwide
network in Japan.
1 Consolidated Financial Highlights
4 Message from the Management
On a Sure-Footed Path to Growth
8 Strategy for the Domestic Men’s Market
10 Strategy for the Domestic Women’s Market
13 Strategy for Other Domestic Hair-Related Businesses
14 Strategy for Overseas Markets
16 Research and Development
18 Aderans in Society
19 Financial Section
44 Corporate Governance
48 Subsidiaries
49 Directors and Auditors, Corporate Data
1986
Commenced Production in Thailand
Opened production facility,
Aderans Thai. which now boasts
world’s highest wig production
capacity.
Head Office
Takayoshi Okamoto*
6-3, Shinjuku 1-chome, Shinjuku-ku, Tokyo 160-8429
President & COO
Established
Katsuji Tokumaru*
March 1, 1969
Senior Managing Director
Paid-in Capital
Mamoru Mino
¥12,944 million
In charge of sales and marketing management division
Managing Director
Noboru Kaneko
In charge of business planning headquarters
Directors
Tsuguo Tanaka
In charge of corporate planning headquarters
Hiroyasu Yamakawa
General manager of administrative division
Senkichi Yagi
General manager of sales and marketing management division
1979
Entered U.S.
Market
Mutsuo Minowa
Established foothold
in the U.S. market
with local representative office.
Nobuo Nemoto
Haruo Okita
General manager of overseas division
Supreme Advisors and Directors
Standing Corporate Auditors
Fumio Arai
Yuji Hirano
1969
Aderans Established
CONTENTS
8
Overseas
Markets
Chairman & CEO
Corporate Auditors
Masaaki Katagiri
Iwao Toigawa
Domestic
Women’s
Market
*Representative director
Number of Shares Authorized
138,000,000
Number of Shares Issued
41,713,388
Number of Shareholders
7,277
Number of Shares and
Shareholding Ratio
Principal Shareholders
Thousands of
Shares
Name
Steel Partners Japan Strategic Fund (Offshore) LP
Nobuo Nemoto
State Street Bank and Trust Company
The Master Trust Bank of Japan, Limited (Trust Account)
Japan Trustee Services Bank, Limited (Trust Account)
State Street Bank and Trust Company 505019
The Dai-Ichi Mutual Life Insurance Company
Trust & Custody Services Bank, Limited
(Security Investment Trust Account)
The Bank of New York Treaty JASDEC Account
Japan Trustee Services Bank, Limited
(Trust Account 4)
%
6,797
4,642
4,322
2,243
2,132
943
726
17.35
11.85
11.03
5.72
5.44
2.40
1.85
570
532
1.45
1.35
468
1.19
Notes: 1. The Company holds of 2,456 thousand shares of its own shares in treasury stock.
2. Those shares held by the Master Trust Bank of Japan, Limited, Japan Trustee
Services Bank, Limited, and Trust & Custody Services Bank, Ltd. are the shares
relating to their trust businesses.
Stock Listings
First Section of Tokyo Stock Exchange
First Section of Osaka Securities Exchange
Transfer Agent and Registrar
The Chuo Mitsui Trust and Banking Company, Limited,
Securities Department
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063
Number of Outlets
233
1985
Began Promoting
Custom-Made Wigs
Number of Employees
1,976
Stock Price Range
Women’s custom-made wigs were
first advertised through media such
as magazines.
Trading Volume
(Thousands of shares)
Stock Price
(¥)
14,000
4 ,9 0 0
Fontaine
12,000
4 ,2 0 0
Brought Fontaine, a leading name
in ladies’ ready-made wigs, under
the Aderans umbrella through
equity purchase.
10,000
3 ,5 0 0
8,000
2 ,8 0 0
6,000
2 ,1 0 0
4,000
1 ,4 0 0
2,000
700
For Further Information Contact:
Investor Relations Division, Aderans Co., Ltd.
6-3, Shinjuku 1-chome, Shinjuku-ku,
Tokyo 160-8429, Japan
0
0
05
3
4
5
6
7
8
9
06
10 11 12 1 2
Tel. 03-3350-3268 Fax. 03-3356-3052
E-mail. [email protected]
49
Consolidated Financial Highlights
Message from the Management
Thousands of
U.S. dollars
Millions of yen
2006
2005
Net sales
Operating income
Net income (loss)
¥72,690
10,319
6,149
¥70,625
8,468
(3,568)
2.9%
21.9
—
$625,188
88,756
52,890
PER COMMON SHARE AMOUNTS (yen and dollars):
Net income (loss)
Cash dividends applicable to the year
¥150.51
44.00
¥(88.02)
38.00
—%
15.8
$
Total assets
Shareholders’ equity
Net cash provided by operating activities
Depreciation and amortization
Capital expenditures
¥87,490
69,239
10,399
2,012
2,565
¥83,140
67,477
7,868
2,322
2,704
5.2%
2.6
32.2
–13.4
–5.2
OTHER YEAR-END DATA:
Number of shares outstanding (thousand)
Number of employees
39,256
5,418
% change
40,371
5,457
2006
Fiscal Summary
F iscal 2006, ended February 28, 2006, was a year characterized by persistently difficult conditions that threatened to
erode demand for hair-related products and services at home
and abroad. It was also the first year of a new medium-term
management plan for the Aderans Group, and we all worked
diligently to reach stated targets. Our efforts were rewarded,
with higher consolidated net sales, which rose 2.9%, to
¥72.6 billion, and more importantly, our return to a net
income position (¥6.1 billion) after a net loss in fiscal 2005.
It is immensely gratifying to close the chapter on downward trends in sales and income that had plagued us over
the past two fiscal years. Our new management plan has
gotten off to a great start, and we are confident that the performance recovery in fiscal 2006 is not a temporary
accomplishment but the beginning of continued improvement.
1.29
0.37
$752,477
595,507
89,440
17,304
22,066
–2.8%
–0.7
—
—
Notes: 1. The U.S. dollar amounts represent the arithmetical results of translating yen into U.S. dollars at the rate of ¥116.27 to US$1.
2. Net income per share is calculated based on the new accounting standard described in Note 13 on page 39.
Net In come (Loss) and
Net In come (Loss) Per S hare
N e t S a l e s an d Net In come
t o N e t S a l es R atio
(Billio ns o f ye n)
(B illions o f y e n )
(% )
(%)
( Ye n )
15
7.5
180
15
40
10
5.0
120
10
20
5
2.5
60
5
0
0
0
0
0
–20
–5
–2.5
–60
–5
–40
–10
–5.0
–120
–10
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
2002
Net Income (Loss) (left scale)
Net Income (Loss) per Share (right scale)
S a l e s by P r o d u ct Categ or y
Aderans’ forté field
Initially, Aderans was established to address the needs of the
domestic men’s market, where “Aderans” has since become a
synonym for men’s wigs and hair-replacement products. We
also introduced services to promote healthy hair growth.
Later, we applied our expertise to the domestic women’s market, trailblazing a path in the hair industry, with ladies’ wigs,
products to create fuller-looking hair and services to encourage healthy hair growth. We also explored overseas markets.
The high quality and sophisticated technologies of
Aderans’ mainstay products — custom-made wigs — and
related services have earned the Company an enviable reputation, one that has reinforced its position at the top of the
wig market in Japan. This reputation is fully demonstrated
by strong domestic sales, which comprise about 70% of
consolidated net sales.
But the composition of domestic sales is changing. In
recent years, we have noticed a change in consumer preferences, highlighting narrower demand for wigs from
middle-aged men — our core client demographic — and
wider demand from women. Indeed, in fiscal 2002 sales to
women surpassed sales to men, and overall demand from
men tended toward services, such as Hair Support, which is
directed toward younger men.
Retur n on A ssets and
Retur n on Equi ty
60
Net Sales (left scale)
Net Income (Loss) to
Net Sales Ratio (right scale)
Situation Leading Up to Fiscal 2006
2003
2004
2005
2006
Return on Equity
Return on Assets
S al es by Regi on
(Millio ns o f ye n)
(Millions of yen)
OTHER BUSINESS
¥505
c d
HAIR-RELATED BUSINESSES ¥72,185
d
a
c
b
Total ¥72,690
a
b
c
d
Custom-made wigs
Ready-made wigs
Other products
Service revenues
¥32,624
¥14,963
¥5,812
¥18,784
a
b
c
d
b
Japan
¥56,241
North America
¥12,641
Europe
¥3,311
Asia excluding Japan
¥495
a
Total ¥72,690
This annual report has been prepared for non-Japanese investors and contains forward-looking statements that are based on management’s
estimates, assumptions and projections at the time of publication. Aderans cautions you that a number of factors could cause actual results to differ
materially from expectations.
1
4
Recent business conditions
Over the past few years, domestic sales, particularly to new
clients — both male and female — have sloped downward
on our performance charts. In the men’s market, this trend
mirrors increasingly fierce competition, paralleling the diversification of hair-related products and services and reduced
latent demand caused by declining birthrates. In the women’s
market, the situation reflects a slower-than-expected response
to new offerings among women outside our main target age
range of 60 to 70.
Aderans currently enjoys top share in the domestic market, but this position is not as secure as it once was. We face
escalating challenges to our lead, exemplified by the recent
introduction of an oral hair-growth treatment.
Overseas, steady investment activities are showing positive results. But in fiscal 2004 and fiscal 2005, the picture
was not so rosy, owing to the unavoidable impact of negative
external developments, particularly the war in Iraq, the
growing threat of terrorist attacks and the spread of Severe
Acute Respiratory Syndrome (the SARS virus), which put a
damper on consumer spending and consequently sidelined
opportunities for better annual performances.
To address the difficulties of this operating environment
at home and abroad, we initiated a new medium-term management plan that aims to have the Aderans Group travel the
high road of corporate development again as a global provider
of comprehensive hair-related products and services.
Medium-term Management Plan
O ur medium-term management plan hinges on two points.
The first is to get back on track to growth by revitalizing
domestic results and establishing a profit-oriented structure
for overseas operations. The second is to undertake a full
range of hair-related businesses, from practical products and
services that alleviate concerns about hair, or lack thereof, to
fashionable hairpieces.
Through the implementation of business strategies finetuned to market demands, we will achieve a higher level of
satisfaction not only among clients but also among shareholders and employees. Aderans will epitomize the “good
company” ideal, guided by a mission statement emphasizing
the Group’s development into a trustworthy organization
with products and services in constant demand from clients
and society as a whole.
As for numerical targets, we will work toward
consolidated net sales of ¥80 billion and a ratio of
consolidated net sales to recurring profit of 15% by
February 29, 2008, taking into account higher
expenses, including a larger advertising budget
needed to capture the interest of new clients. But in
the long term, we remain committed to achieving a
consolidated recurring profit ratio of 20% and consolidated return on equity of at least 10%.
Priorities for Fiscal 2007
I n fiscal 2006, we achieved higher sales and
income. Regrettably, however, we did not reach our
targets. The primary obstacle to better results was
undoubtedly our inability to attract as many new
clients in the domestic women’s market as we would
have liked.
This underlines another issue that we cannot
ignore. In the domestic men’s market, sales to new
male clients increased in fiscal 2006, but only marginally, which, in conjunction with poor demand
from new female clients, highlights the fact that we
rely on replacement demand to keep sales stable in
Japan. Needless to say, it is essential for our corporate survival that we generate more demand from
new clients, both male and female, to guarantee a
base of repeat clients in the future.
As a concrete response to this situation, in March 2006,
we introduced an appropriately innovative product line —
custom-made wigs featuring Aderans Vital Hair, a new, superhigh-quality artificial hair for men’s wigs that is even more like
natural hair than our very own Cyberhair, itself an artificial
hair with properties very similar to natural hair.
To companies in the hair business, men with concerns
about hair loss are a key source of stable earnings. Custommade wigs for men are our core business, a high-profit segment of operations that will underpin continuous growth for
the Aderans Group into the future. It is therefore imperative
that we revitalize new client demand in 30–40s age group,
the key demographic upon which our future repeat client
business is based.
Even today, with such a variety of products and services
available, wigs remain the most viable solution for any man
with thinning hair or a receding hairline. We believe wigs
are truly an exceedingly viable option, and the Aderans
Katsuji Tokumaru
Takayoshi Okamoto
Group will strive to encourage more men to come to the
same conclusion.
In the women’s market, Aderans and its consolidated
subsidiary Fontaine Co., Ltd., joined marketing forces in a
reciprocal agreement wherein we promote the ready-made
wigs of Fontaine to our clients, and in return, our subsidiary
suggests our custom-made wigs to its clients. Covering a
broader range of clients and potential clients, this approach
enhances the ability of both companies to meet the hairrelated needs of all women and should stimulate new interest in the Group’s products.
Excellent products and services are essential to business
success, but marketing is equally crucial. The most important aspect of our marketing strategy hinges on advertising.
We will apply proven results regarding content, time slot,
volume of advertising and other factors to create strategic
advertising that generates new demand.
5
ア
デ
ラ
ン
ス
ア
ニ
ュ
ア
ル
Ｒ
1990
Established Aderans Inc. (Taiwan)
2006
Medium-term
Management Plan 2008
2001
Hair-Transplant Business
１
折
1987
Accelerated U.S.
Market Business
Expanded Asian presence outside
Japan, with establishment
of Aderans Taiwan.
1992
Entered European Market
Acquired International
Hairgoods.
The new medium-term management plan for the Aderans Group, which runs from March 1, 2005, to
February 29, 2008, will underpin growth into the future. Here are the details our three-year plan.
Marked start of operations in Europe, with establishment
of Aderans Europe to promote Aderans’
wig business.
１
Targets
February 2006
(achieved)
February 2008
(goal)
1991
Cyberhair
Consolidated
Net sales
Recurring profit ratio
¥72.6 billion
15.2%
Successfully completed development of proprietary
artificial hair Cyberhair.
¥80.0 billion
15.0%
1987
Healthy Hair-Growth Service for Men
Began healthy hair-growth services for men in response
to a widening range of hair-related
concerns among men.
2OO8 Net Sales
1998
Hair Support Faré
1990
Eve Series
Custom-Made Wigs
1O% up
Debuted healthy hair-growth
services for women.
Introduced Hair Support Faré.
Launched Eve series and promoted
rapid expansion of the women’s
market with the introduction of new
products on a two-year cycle.
Groupwide Medium-ter m Goals
G et back on track to growth by improving domestic results and establishing a profit-oriented
structure for overseas operations.
(Billions of yen)
alleviate concerns about hair, or lack thereof, to fashionable hairpieces.
2002
Hair-Regeneration Technology
Began research on hair-regeneration
procedures, with establishment of Aderans
Research Institute in the
United States.
2006
Aderans
Vital Hair
2004
Hairskin and
Hair-Transplant
Business in Japan
2002
Aderans Hair Club
Coinciding with the debut of the
membership-style Aderans Hair Club
(formerly Aderans Fathers Club), launched
television commercials to enhance the
image of wigs among men.
Introduced Hairskin, a hairvolumizing product, and started
promoting hair transplants in Japan
through tie-ups with local clinics.
The Company’s new proprietary
artificial hair, Aderans Vital Hair,
released to market.
Fontaine Became Wholly
Owned Subsidiary
INTERNATIONAL
COMPARISON
(estimate)
HAIR LOSS RATIO IN JAPAN
(%)
(Millions)
Japan
Germany
France
USA
Canada
UK
Russia
Hong Kong
Taiwan
South Korea
9.7
26.05%
16.5
16
00.00
1. In the domestic men’s market, boost demand by maximizing position as total hair solution provider
with a full range of products, from wigs to medical procedures.
12.4
11.8
8
2. In the domestic women’s market, undertake joint efforts with Fontaine, a leader in the fashion wig
market.
3. In other domestic hair-related businesses, strengthen our network of high-value-added salons,
particularly new-concept salons, which carry wigs and other products.
4. In overseas markets, work toward higher market shares and enhanced profitability by raising wig sales
and promoting the hair-transplant business.
6
Top Share in Japan
4.0
Male
New
Repeat
Female
New
Repeat
0
2002
2003
2004
2005
2006
We pursue activities from a client-oriented
perspective and work to elicit a higher
level of satisfaction not only from clients
but also from shareholders and employees.
Our efforts are based on a mission statement that emphasizes our development
into a trustworthy organization with
products and services in constant demand
from clients and society as a whole.
Indeed, we seek to epitomize the “good
company” ideal.
Debuted Sifore series to attract attention of women in their 40s to 50s to
complement the Eve series, adopting
a two-brand system for women’s
custom-made wigs.
21.5
Medium-ter m Strategies
Mission and Goals
2003
Sifore Series
Custom-Made Wigs
To facilitate more strategic business
development in the ladies’ wig market
the remaining equity in Fontaine was
acquired.
PRINCIPAL PRODUCT SALES
(Non-Consolidated)
U ndertake a full range of hair-related businesses, from practical products and services that
Total Hair
Solution
Company
Acquired Bosley Medical Institute (now, Bosley),
a leader in the U.S. hair-transplant
market.
Aderans boasts the top share of Japan’s custom-made wig
market and has maintained this status for many years. The door
into this market can be unlocked only with excellent technical
capabilities, and having amassed the necessary qualifications,
Aderans has established a solid sales structure with the
steadfast support of repeat clients.
20
20
15.60%
10
10
0
0
1982
1995 1998 2001 2004
%
Million
26.05
41.24
39.10
39.04
37.42
36.03
33.29
24.68
22.59
22.37
12.9
12.6
7.8
40.2
4.4
7.6
16.2
0.6
1.7
3.3
Ratio (left)
Number of men suffering
hair loss (right)
Solutions to Hair
Concerns — A Market
with Growth Potential
Latent demand for solutions to hair loss concerns
is extremely high worldwide, particularly in
Western countries. The situation in Japan, where
about 13 million men admit to hair loss, is similar
to that in other Asian countries, where the hair
loss ratio is large and growing, in line with
changes to diet and levels of stress.
Source: Aderans
Thousands of
U.S. dollars
Millions of yen
2006
2005
Net sales
Operating income
Net income (loss)
¥72,690
10,319
6,149
¥70,625
8,468
(3,568)
2.9%
21.9
—
$625,188
88,756
52,890
Net income (loss)
¥150.51
44.00
¥(88.02)
38.00
—%
15.8
$
Total assets
¥87,490
69,239
10,399
2,012
2,565
¥83,140
67,477
7,868
2,322
2,704
5.2%
2.6
32.2
–13.4
–5.2
Number of employees
39,256
5,418
% change
40,371
5,457
2006
Fiscal Summary
1.29
0.37
$752,477
595,507
89,440
17,304
22,066
–2.8%
–0.7
—
—
(% )
(%)
( Ye n )
15
7.5
180
15
40
10
5.0
120
10
20
5
2.5
60
5
0
0
0
0
0
–20
–5
–2.5
–60
–5
–40
–10
–5.0
–120
–10
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
2002
Retur n on Equi ty
60
2003
2004
2005
2006
Return on Equity
Return on Assets
S al es by Regi on
(Millions of yen)
OTHER BUSINESS
¥505
c d
d
a
c
b
Total ¥72,690
a
b
c
d
Custom-made wigs
Ready-made wigs
Other products
Service revenues
¥32,624
¥14,963
¥5,812
¥18,784
a
b
c
d
b
Japan
¥56,241
North America
¥12,641
Europe
¥3,311
¥495
a
Total ¥72,690
1
4
range of 60 to 70.
have liked.
business is based.
Katsuji Tokumaru
Takayoshi Okamoto
same conclusion.
5
Thousands of
U.S. dollars
Millions of yen
2006
2005
Net sales
Operating income
Net income (loss)
¥72,690
10,319
6,149
¥70,625
8,468
(3,568)
2.9%
21.9
—
$625,188
88,756
52,890
Net income (loss)
¥150.51
44.00
¥(88.02)
38.00
—%
15.8
$
Total assets
¥87,490
69,239
10,399
2,012
2,565
¥83,140
67,477
7,868
2,322
2,704
5.2%
2.6
32.2
–13.4
–5.2
Number of employees
39,256
5,418
% change
40,371
5,457
2006
Fiscal Summary
1.29
0.37
$752,477
595,507
89,440
17,304
22,066
–2.8%
–0.7
—
—
(% )
(%)
( Ye n )
15
7.5
180
15
40
10
5.0
120
10
20
5
2.5
60
5
0
0
0
0
0
–20
–5
–2.5
–60
–5
–40
–10
–5.0
–120
–10
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
2002
Retur n on Equi ty
60
2003
2004
2005
2006
Return on Equity
Return on Assets
S al es by Regi on
(Millions of yen)
OTHER BUSINESS
¥505
c d
d
a
c
b
Total ¥72,690
a
b
c
d
Custom-made wigs
Ready-made wigs
Other products
Service revenues
¥32,624
¥14,963
¥5,812
¥18,784
a
b
c
d
b
Japan
¥56,241
North America
¥12,641
Europe
¥3,311
¥495
a
Total ¥72,690
1
4
range of 60 to 70.
have liked.
business is based.
Katsuji Tokumaru
Takayoshi Okamoto
same conclusion.
5
ア
デ
ラ
ン
ス
ア
ニ
ュ
ア
ル
Ｒ
1990
Established Aderans Inc. (Taiwan)
2006
Medium-term
Management Plan 2008
2001
１
折
1987
Accelerated U.S.
Market Business
Expanded Asian presence outside
Japan, with establishment
of Aderans Taiwan.
1992
Entered European Market
Acquired International
Hairgoods.
The new medium-term management plan for the Aderans Group, which runs from March 1, 2005, to
February 29, 2008, will underpin growth into the future. Here are the details our three-year plan.
Marked start of operations in Europe, with establishment
of Aderans Europe to promote Aderans’
wig business.
１
Targets
February 2006
(achieved)
February 2008
(goal)
1991
Cyberhair
Consolidated
Net sales
Recurring profit ratio
¥72.6 billion
15.2%
Successfully completed development of proprietary
artificial hair Cyberhair.
¥80.0 billion
15.0%
1987
Healthy Hair-Growth Service for Men
Began healthy hair-growth services for men in response
to a widening range of hair-related
concerns among men.
2OO8 Net Sales
1998
Hair Support Faré
1990
Eve Series
Custom-Made Wigs
1O% up
Debuted healthy hair-growth
services for women.
Introduced Hair Support Faré.
Launched Eve series and promoted
rapid expansion of the women’s
market with the introduction of new
products on a two-year cycle.
Groupwide Medium-ter m Goals
G et back on track to growth by improving domestic results and establishing a profit-oriented
structure for overseas operations.
(Billions of yen)
alleviate concerns about hair, or lack thereof, to fashionable hairpieces.
2002
Hair-Regeneration Technology
Began research on hair-regeneration
procedures, with establishment of Aderans
Research Institute in the
United States.
2006
Aderans
Vital Hair
2004
Hairskin and
Hair-Transplant
Business in Japan
2002
Aderans Hair Club
Coinciding with the debut of the
membership-style Aderans Hair Club
(formerly Aderans Fathers Club), launched
television commercials to enhance the
image of wigs among men.
Introduced Hairskin, a hairvolumizing product, and started
promoting hair transplants in Japan
through tie-ups with local clinics.
The Company’s new proprietary
artificial hair, Aderans Vital Hair,
released to market.
Fontaine Became Wholly
Owned Subsidiary
INTERNATIONAL
COMPARISON
(estimate)
HAIR LOSS RATIO IN JAPAN
(%)
(Millions)
Japan
Germany
France
USA
Canada
UK
Russia
Hong Kong
Taiwan
South Korea
9.7
26.05%
16.5
16
00.00
1. In the domestic men’s market, boost demand by maximizing position as total hair solution provider
with a full range of products, from wigs to medical procedures.
12.4
11.8
8
2. In the domestic women’s market, undertake joint efforts with Fontaine, a leader in the fashion wig
market.
3. In other domestic hair-related businesses, strengthen our network of high-value-added salons,
particularly new-concept salons, which carry wigs and other products.
4. In overseas markets, work toward higher market shares and enhanced profitability by raising wig sales
and promoting the hair-transplant business.
6
Top Share in Japan
4.0
Male
New
Repeat
Female
New
Repeat
0
2002
2003
2004
2005
2006
We pursue activities from a client-oriented
perspective and work to elicit a higher
level of satisfaction not only from clients
but also from shareholders and employees.
Our efforts are based on a mission statement that emphasizes our development
into a trustworthy organization with
products and services in constant demand
from clients and society as a whole.
Indeed, we seek to epitomize the “good
company” ideal.
Debuted Sifore series to attract attention of women in their 40s to 50s to
complement the Eve series, adopting
a two-brand system for women’s
custom-made wigs.
21.5
Medium-ter m Strategies
Mission and Goals
2003
Sifore Series
Custom-Made Wigs
To facilitate more strategic business
development in the ladies’ wig market
the remaining equity in Fontaine was
acquired.
PRINCIPAL PRODUCT SALES
(Non-Consolidated)
U ndertake a full range of hair-related businesses, from practical products and services that
Total Hair
Solution
Company
Acquired Bosley Medical Institute (now, Bosley),
a leader in the U.S. hair-transplant
market.
Aderans boasts the top share of Japan’s custom-made wig
market and has maintained this status for many years. The door
into this market can be unlocked only with excellent technical
capabilities, and having amassed the necessary qualifications,
Aderans has established a solid sales structure with the
steadfast support of repeat clients.
20
20
15.60%
10
10
0
0
1982
1995 1998 2001 2004
%
Million
26.05
41.24
39.10
39.04
37.42
36.03
33.29
24.68
22.59
22.37
12.9
12.6
7.8
40.2
4.4
7.6
16.2
0.6
1.7
3.3
Ratio (left)
Number of men suffering
hair loss (right)
Solutions to Hair
Concerns — A Market
with Growth Potential
Latent demand for solutions to hair loss concerns
is extremely high worldwide, particularly in
Western countries. The situation in Japan, where
about 13 million men admit to hair loss, is similar
to that in other Asian countries, where the hair
loss ratio is large and growing, in line with
changes to diet and levels of stress.
Source: Aderans
Overseas in fiscal 2006, our wig and hair-transplant
businesses encountered favorable demand, which local subsidiaries successfully converted into higher sales. A longterm goal is to achieve a 50:50 ratio in domestic-to-overseas
sales, so our next task must be to raise profit ratios.
As we strive to maintain the corporate vitality that
brought the downward trend in overseas sales to an end,
we will effectively tackle our No. 1 priority of stimulating
demand from new clients, both male and female, in Japan.
We expect these efforts to deliver a performance that exceeds
our estimates for fiscal 2007.
Raising Shareholder Value
T he Aderans Group consistently seeks to enhance corporate
governance and in this task strives to uphold management
transparency and provide timely and impartial disclosure of
corporate information to all stakeholders.
In its financial strategies, the Group’s basic policy is to
maintain liquid capital at about ¥20 billion, on a nonconsolidated basis, to be applied toward mergers and acquisitions (M&As), research and development and capital
expenditures that will increase corporate value.
One of our top management priorities is the return of
profits to shareholders, so we aim to raise the payout ratio
and aggressively implement treasury stock buybacks. Up to
and including fiscal 2006, our shareholder return ratio was
based on 50% or more of non-consolidated net income, but
from fiscal 2007, we will make the basic benchmark total
shareholder returns, which comprises consolidated dividends and treasury stock buybacks, and work toward a consolidated payout ratio of 30% or more and a total
shareholder return ratio of 50% or more.
However, if no large applications of funds are required
for M&As or other major investments over the next two fiscal years — that is, until the end of the current mediumterm management plan in February 2008 — then we will go
for a payout ratio of 30% or more and a 100% total shareholder return ratio.
Fiscal 2006 marked the 13th consecutive year that
Aderans plans to increase dividends per share. The annual
dividend will be ¥44 per share, for a payout ratio of 28.0%
and a total shareholder return ratio of 88.5%. Return on
equity was 9.0%.
In fiscal 2007, we expect to boost both interim and yearend dividends by ¥3 per share, for an annual dividend of
¥50 per share and a consolidated payout ratio of 30% or
more.
In Closing
I t seems as if we are in a race — a business marathon. The
Aderans Group must constantly enhance its capabilities and
move steadily toward the leaders’ pack — the world’s top
businesses — as a global organization with a comprehensive
range of hair-related products and services.
On behalf of the Board of Directors, we ask shareholders, investors and business associates for their continued
encouragement and support as the Aderans Group strives to
follow a sure-footed path to growth.
June 2006
Takayoshi Okamoto
Chairman and Chief Executive Officer
Katsuji Tokumaru
President and Chief Operating Officer
Takayoshi Okamoto
Chairman and Chief Executive Officer
1975
1983
1987
1991
1995
1999
2004
Joined Aderans Co., Ltd.
Director of the Company
Managing Director of the Company
President of the Company
General Manager of sales and marketing headquarters
Chairman and Chief Executive Officer of the Company
(present post)
Katsuji Tokumaru
President and Chief Operating Officer
1983
1996
1998
2002
2003
2004
Joined Aderans Co., Ltd.
General Manager of Chugoku branch
General Manager of Kansai sales division
General Manager of corporate planning division
President and Chief Operating Officer of the Company
(present post)
7
Strategy for the Domestic
Pri nci pal Product S al es
to M al e C l i ents i n Japan
A dverti si ng Exp e n s e s
and N umber of Ne w Cl i e n ts
N o n -c o n s o l i d a te d
Men’s Market
(Billions of yen)
(Billions of yen)
MAIN OBJECTIVE: Boost demand by maximizing
position as a total hair solution provider
with a full range of products, from wigs to
medical procedures
Overview
S urveys show that as many as 13 million adult men in
Japan have thinning hair, presenting a huge demographic of
largely untapped demand. But this potential market is not
necessarily receptive to the best solution available — wigs.
Indeed, trends over the past few years indicate that men,
especially young men, still cringe at the thought of wearing a
wig even though wigs are an exceedingly viable solution to
the problem of hair loss.
With this in mind, Aderans made the goal of attracting
new clients a centerpiece of its current medium-term management plan. Over the three years of this plan, we will
direct marketing efforts toward two segments of the population: men in their 30s and up, who represent a key demand
group for wigs and other hair-volumizing products; and
young men, who are increasingly keen on products and services that promote healthy hair growth.
Maximize the effect of advertising
A fundamental aspect of business for Aderans is to encourage men concerned about hair loss to contact the Company.
Promotional activities, especially advertising, are therefore a
vital marketing tool. For several years, we limited our advertising budget to enhance operating efficiency. Unfortunately,
Aderans
20
2.5
5,000
16
2.0
4,000
12
1.5
3,000
8
1.0
2,000
4
0.5
1,000
0
0
2002
2003
2005
2006
2nd
half
2004
New
Repeat
1st
half
2nd
half
2005
1st
half
2nd
half
2006
Advertising expenses (left scale)
Number of new clients
this strategy had unfavorable side-effects: a drop in orders
from new clients and a downturn in demand for replacement products.
Consequently, we are stressing promotional activities,
particularly advertising, during the three years of the current
medium-term management plan. As in fiscal 2006, our efforts
in fiscal 2007 will hinge on three points that should deliver
success in advertising: the development of content highlighting wigs and hair-volumizing products for middle-aged and
older men, the use of eye-catching promotional materials
and well-known entertainment personalities, and an appropriate volume of television commercials.
The Internet is proving to be a fantastic complement to
traditional, direct inquiry methods, by telephone and postcard. Sales through our web site have grown annually in
recent years, settling at ¥1.3 billion in fiscal 2006. To
encourage more hits on our web site, we will continue to
revamp our marketing pages, for both men and women. We
will also review advertising content that promotes our web
site, and even perhaps the media through which we advertise, to cultivate new marketing channels.
Technology
Two-Layer Structure of
AderansVITAL HAIR
Utilizing advanced biomimetics, Aderans combined artificial fibers with different properties into a proprietary two-layer structure that boasts characteristics
previously unattainable for artificial hair. For example, when wet, Aderans Vital
Hair takes on a texture incredibly similar to that of natural hair, and while still a
memory-retentive material, this artificial hair offers the potential for creating
different hairstyles.
8
2004
1st
half
Sheath
Cuticle
Core
Cortex
Medulla
Aderans VITAL HAIR
Natural hair
Proprietary two-layer
structure
Three-layer
structure
Modacrylic,
vinyl chloride,
polyester
Conventional
artificial hair
Single-layer structure
0
Aderans Group Solutions for
Men in Japan
Aderans is synonymous with
men’s wigs — the name
enjoys an enviably high level
of brand recognition.
Hair Support Aqua
Custom-made wigs and hair-volumizing products
Main Target Age Group
Main Target Age Groups
2Os 3O
s
up
and
New products
Aderans Vital Hair, the new artificial hair introduced in March 2006, improves
upon conventional artificial hair and facilitates the creation of excellent
custom-made wigs that retain overall hair structure while facilitating
different presentations.
Multifaceted solutions
Associated clinics will introduce Bosley's hair-transplant procedures in Japan and
add a new dimension to its menu of multifaceted solutions to tackle hair loss
concerns.
9
Gear product development to market needs
Reinforce the hair-transplant business
C yberhair, an artificial hair with properties very similar to
O ur domestic hair-transplant business got started in
natural hair, debuted in 1991 as a revolution in artificial hair
technology. In the years since then, Aderans has acquired
patents on this achievement in 10 countries and has earned
high praise from clients everywhere.
With breakthrough technology, however, Aderans took
artificial hair to a new level of excellence, and in March
2006, the Company introduced custom-made wigs featuring
Aderans Vital Hair.
Aderans Vital Hair, an artificial hair even more like natural hair than Cyberhair, improves on its predecessor with
an extraordinary ability to accept various forms. Until this
point, memory-retentiveness was a characteristic of artificial
hair that prevented a wig from losing its customized shape,
which meant that wearers had to be content with a set
hairstyle. With Aderans Vital Hair, strand thickness and
rigidity can be matched precisely to each client’s hair structure for custom-made wigs with superior performance.
We will create advertising materials that spotlight the
qualities of Aderans Vital Hair to catch the attention of men
over 30. We expect our new wigs to generate the kind of
interest that underpins an increase in new clients.
From a medium- to long-term growth perspective, men
in their 30s and 40s are the main target for Aderans’ custommade wig business, and we vigorously target this age group
to secure a stable profit base for the future. The parallel
strategy for our hair support
B re a k d ow n of Sales to
N e w M a l e Clien ts by Ag e
business, for which the main
N on-consol id a te d
(%)
target group is men in their
20s, is to promote research,
75
including pharmaceutical
studies, and develop innova50
tive products and services to
promote healthy hair growth
25
and distinguish us from our
rivals in the industry.
February 2004 through an associated clinic in Tokyo. Currently, this is our only active location in Japan, but it is recognized by the authorities as a medical corporation and has
increased its staff of physicians in anticipation of demand.
The concept of hair transplants is still new in Japan, so
we are using advertising to raise awareness of this option
among men. The solid technical capabilities afforded to
our affiliated clinic through our ties to Bosley, Inc., in the
United States, will support a steady improvement in treatment revenues.
We aim to take this business nationwide and intend to
open clinics in major urban centers, such as Osaka and
Nagoya, as soon as possible.
0
2002
2003
Over 50s
20s
10
2004
2005
2006
40s
30s
Under 20s
Strategy for the Domestic
Women’s Market
MAIN OBJECTIVE: Undertake joint efforts with
Fontaine, a leader in the fashion wig market
Overview
D emand from women in Japan for custom-made wigs was
sluggish in fiscal 2006, leading to a slight decrease in sales
year-on-year.
Expand main target group with peer-specific measures
C urrently, women in their 60s and 70s form our main target age group for Aderans-brand ladies’ custom-made wigs,
and one of the important issues is to expand this target age
range. We will achieve this goal through our two-brand
strategy for custom-made wigs, with the Eve Series directed
toward women in their 60s and up and the Sifore Series
aimed at women in their 40s and 50s.
Aderans Group Solutions for
Women in Japan
Poste
Aderans
Custom-made
wigs
Fontaine
Ready-made
wigs
60
s and 70s
Eve Series
Wig
1985
Joined Aderans group under merger.
launched in 1990
2003
Aderans acquired 100% equity and
turned company into wholly owned
subsidiary.
The Aderans Group has
the combined capabilities to meet the
diverse needs of the women’s market.
40
s and 50s
Sifore Series
launched in 2003
New Marketing Approach
Every year at a number of major cities nationwide we stage wig
fairs and try-on events, where clients can try out our custommade wigs from both the Eve and Sifore series, aided by our
professional staff.
11
To attract more clients to each brand, Aderans has introduced new lines under both brands every two years and geared
advertising activities specifically to each target group so as to
enhance recognition of the brands among clients in respective
segments.
Toward this end, in March 2006, we launched Eve Fine,
a custom-made wig featuring germanium to catch the interest of increasingly health-conscious older women.
Turn untapped interest into real demand with
Fontaine’s products
A crucial task in the effort to attract new female clients is to
maximize the combined capabilities of the Group. A key
component of this effort is the joint marketing approach
taken by Aderans, which specializes in custom-made wigs,
and its consolidated subsidiary Fontaine, which concentrates
on ready-made wigs.
In December 2005, staff at Aderans’ directly operated
salons throughout Japan began suggesting Fontaine’s readymade wigs to cost-conscious clients who shied away from
the purchase of a custom-made wig. As a result, nearly 400
women visiting Aderans’ salons placed orders for readymade wigs in the fourth quarter of fiscal 2006.
The market for women’s hair-related products and services is driven by two types of demand: demand from
women who are truly concerned about their hair, and
demand from women who consider wigs and hair accessories an extension of fashion. If prevailing trends persist,
the women’s market could well overtake the men’s market as
a growth segment.
To take full advantage of the opportunities afforded by
this situation, Aderans will complement efforts to promote
Fontaine’s lineup at directly operated salons and with product introductions at its national wig fairs and try-on events,
as well. Demand for the Group’s varied selection of ladies’
wigs is sure to expand.
Aderans
Pri nci pal Product S al es
to Femal e C l i ents i n Japan
Breakdown of Sa l e s to
N ew Femal e C li e n ts by Ag e
(Billions of yen)
(%)
30
75
20
50
10
25
0
0
2002
2003
Aderans New
Fontaine
2004
2005
2006
Aderans Repeat
1990
2005
2006
60s
Under 50s
F ontaine caters to women of all ages, from young to middleaged and older, and distributes ready-made wigs through
three key channels, all with national coverage — counters in
department stores, directly operated salons, and a network
of beauty salons supplied under the company’s wholesalebased Beauty Support System. The company also makes its
products available by mail order.
Aderans also sells custom-made wigs through alliances
with beauty salons, but in March 2005, the Company transferred the activities of its barber and beauty salon network to
Fontaine. This move is designed to consolidate the beauty
salon distribution channels of the Group and boost marketing efficiency.
But to successfully promote Aderans’ custom-made wigs,
staff at Fontaine’s salons will need a solid understanding of
the business, including product knowledge, haircutting
techniques and other know-how basic to Aderans’ custommade wig business but irrelevant to the ready-made wig
business. This is a medium-term task that Fontaine must
address to facilitate sales of custom-made wigs.
with Germanium
Germanium exhibits minimal energy output (at a surface temperature of about 32°C) and is said to have
no reflective properties and no worry of side effects or allergic reactions. An inorganic substance, it has
the ability to amplify and regulate the balance of electrical potential. It is featured in the base of Eve Fine,
a line of custom-made wigs that debuted in March 2006, and makes the wig more comfortable to wear.
12
2000
Enhance Fontaine’s business
Technology
eve Fine
1995
Over 70s
50s
Strategy for Other Domestic
Domestic Marketing System
Hair-Related Businesses
Aderans’ domestic marketing efforts hinge on advertising
Strengthen network of highvalue-added salons, particularly new-concept
salons, which carry wigs and other products
MAIN OBJECTIVE:
Collaboration strategy with an M&A perspective
strategies but encompass informal consultation services by
telephone and postcard as well. Existing and potential clients
may also fill out the online Hair Check form and make appointments through our web site.
Strategic Advertising
F or Aderans, advertising, particularly television commercials, is the best marketing tool for highlighting the special
features of products and generating interest from new
clients. But this reliance on advertising underscores a nagging question for management: How do we fuel demand
while keeping advertising expenses in check?
One answer is the new-concept salon, which complements our network of directly operated salons, and facilitates client access to conventional barber and hairdressing
services as well as the products and hair accessories of the
Aderans Group. As of February 28, 2006, this evolving
nationwide network comprised 10 locations.
Developing the network from scratch is a lesson in
investment — an investment of time and money as well as
human resources. We are therefore pursuing a strategy of
collaboration with existing barber shops and beauty salons
outside the current Aderans Group with a view toward M&A
that will shorten the time involved in setting up a new-concept salon, limit start-up expenses, secure skilled staff and
properly address demand from women of all ages.
Providers of typical haircut and styling services face
intense competition in Japan today, and the situation is
unlikely to improve. To minimize the impact of this operating environment, we aim to expand our network of highvalue-added salons quickly and cost-efficiently by bringing
existing locations under the Aderans umbrella. We have several salons under consideration now.
TV
Magazines
● Web site
● Telephone
● Postcard
●
●
Services via Nationwide Network
Consultations
+
Hair Check
(Free)
Custom-made wigs
and
Hair Support
Before
After-sales services
After
Non-Consolidated Sales Network
(As of February 28, 2006)
Counseling Offices
Regular Salons
Ladies’ Salons
Satellite Salons
New-Concept Salons
9
140
24
50
10
New-Concept Salons
Aderans utilizes three primary sales channels in Japan: directly operated salons, which are located in major urban centers
throughout the country; satellite salons, which cater to clients outside large cities; and new-concept salons, which offer
Aderans’ services as well as typical barber and hairdressing services.
13
Strategy for
Overseas Markets
Work toward higher market
shares and enhanced profitability by raising
wig sales and promoting the hair-transplant
business
MAIN OBJECTIVE:
Topics in the medium-term management plan
C onsolidated sales from overseas operations, after intersegment elimination, reached ¥16.4 billion in fiscal 2006 and
represented about 23% of consolidated net sales. Our longterm goal is to boost this contribution to 50% as quickly as
we can, and toward this end, overseas operations are tasked
with a two-point mission during the current three-year management plan: to secure top share — that is, 40% or more —
in each market where we already have a presence, and to
establish a profit structure that ensures a ratio of net sales to
operating income between 10% and 15%.
To further support efforts to reach a 50:50 split in contributions from domestic and overseas operations, we have
entertained the possibility of entering the huge markets of
Russia and the People’s Republic of China (PRC). In February
2006, we made our move, setting up our first local representative office in the PRC.
We will carefully watch evolving trends in these countries and neighboring regions to ascertain the feasibility of
additional offices and identify M&A opportunities here.
The wig business
T o reinforce our wig business abroad, we are taking a
region-specific approach.
In North America, our objectives are to expand the
wholesale business, explore new retailing formats and emphasize certain activities over others to improve profitability.
Toward this end, the regional spotlight will shine on General
Wig Manufacturers, Inc., a consolidated subsidiary plagued
by operating losses, as this company seeks to enhance sales in
its competitive market by focusing on its wholesales business
with a new designer’s wig line, human hair extensions and
products for ethnic — or non Caucasian — market. The company will also strive to trim selling, general and administrative
expenses, in particular by downsizing its unprofitable mailorder and mass-merchandising divisions, in order to boost
profitability. A series of these activities will eventually lead to
the further expansion of the wholesale business with profits.
14
In Europe, we aim to boost profitability through
stronger sales and distribution networks, raise operating efficiency and cultivate new demand with investments in areas,
such as Russia, and Northern, Central, Eastern and Southern
Europe, where we do not yet have a presence.
A key to higher profitability in Europe is the German
market, where our subsidiaries will endeavor to achieve
independent breakeven point in profits. Subsidiaries here as
well as in France and England will strengthen promotional
activities and maximize client bases. Seeking to utilize the
fashion wig brand power of the Group, European subsidiaries and Thai production facilities are now working
together to create a fashion wig brand for Europe.
In Asia, excluding Japan, our goal is to strengthen the
marketing structure, make operations more efficient, boost
the number of clients, maximize the potential of advertising,
and utilize the Internet to promote products.
Here, Aderans Inc. (Taiwan), our key marketing subsidiary in Asia outside Japan, is working to fortify its marketing structure and make operations more efficient. In early
2006, the company released a new television commercial
designed to stimulate interest from new clients. Concerted
efforts are paying off, substantiated by signs of recovery in
the second half of fiscal 2006.
Expanding share of hair-transplant market,
taking business around the world
U .S.-based Bosley, Inc., a leader in the hair-transplant business, enjoys a share of just under 10% in the local market,
and aims to expand this share and go public. The company
also intends to extend its business reach to neighboring
Mexico and Canada, and perhaps even further afield, to capitalize on emerging demand.
In fiscal 2006, Bosley raised sales about 10% with a
database approach to marketing. The company also endeavored to pinpoint the right balance between two kinds of
advertising — infomercials, with refreshed content to attract
new interest, and 60-second spots — with some measure of
success.
To enhance accessibility to clients, Bosley plans to open
new offices in Detroit, Michigan, and Raleigh, North
Carolina, and relocate their Dallas, Texas office to a larger
and more modern facility. Bosley may add locations to its
network in the future.
The Aderans Group Abroad
To establish a presence in Europe and North America, primarily through mergers
with and acquisitions of wholesalers, and to create new markets in Asia, excluding Japan,
through the establishment of retailing outlets based on the business model used in Japan.
Basic Strategy:
North America: A
total of 10 companies, including Aderans Holding
Co., Inc., four wholesalers of men’s and women’s wigs, as well
as Aderans, Inc., which operates retail stores, Bosley, Inc.,
which is engaged in the hair-transplant business, and Aderans
Research Institute, Inc., which is pursuing advances in hairregeneration technology.
A total of 11 companies, including holding company
Aderans Europe B.V., in the Netherlands, which oversees
subsidiaries in France, Germany, Belgium, the Netherlands,
England and Sweden.
Europe:
Asia, excluding Japan: Subsidiaries
in Taiwan, Thailand, South Korea, Singapore and the PRC, which
concentrate on retail operations.
Aderans Thai., Ltd., World Quality Co., Ltd., and Aderans Philippines, Inc.,
world-class facilities with an aggregate annual capacity of about 1,200,000 wigs and a
combined workforce of about 7,000 people.
Group Production Bases:
Aderans (Shanghai) Company, Ltd.
In February 2006, Aderans (Shanghai) Company, Ltd., commenced operations in the PRC, to provide
the local market with hair-replacement products, primarily high-value-added custom-made wigs
produced at our own production facilities in Thailand, and haircare services for healthy hair growth.
This company will raise the profile of the Aderans brand in the PRC and set the stage for future
expansion of the sales network in other urban centers of this country.
15
Research and Development
In Japan
R&D Headquarters
T he development of products and technologies for the
Aderans Group centers the activities of the research and
development headquarters in Niigata Prefecture. The
progress achieved here is indispensable to the fabrication of
high-quality Aderans-brand wigs and other hair-replacement
products. Molding technology, for example, ensures a perfect fit through faithful reproduction of head shape, flow of
hair, whorls, hairline and other characteristics unique to
each client. The polyurethane base of Aderans’ products is a
safe and hygienic artificial skin with color and texture
extremely close to that of real skin.
Aderans
Technology
What is the difference between hair
regeneration and
hair transplants?
Artificial Hair
Cyberhair, an artificial hair developed by Aderans in 1991
and patented in 10 countries, is remarkably similar to natural
hair, with excellent durability, heat-resistance, water absorption and stable light-refraction qualities, in addition to
natural luster and texture. In March 2006, the Company
debuted Aderans Vital Hair, which surpasses even the outstanding properties of Cyberhair.
Custom-made wigs
North America
Hair-Regeneration Research
T he Aderans Group includes Aderans Research Institute
Inc. (ARI), a California-based company focusing on hairregeneration R&D. The company’s two laboratories, one in
Philadelphia and the other in Atlanta, are the world’s only
facilities solely dedicated to research on hair-regeneration
technology. To date, progress has been on track. ARI completed preclinical trials with animals, which paves the way
for Phase I human clinical trials. At present, the company is
engaged in preparing applications to gain approval from the
U.S. Food and Drug Administration for the Phase 1 clinical
trial. Therefore, a practical date for commercialization will
be in 2008 or later, and efforts are directed earnestly toward
this goal.
Professional Skills
After-sales services, which we call “aftercare,” represent an
extremely important part of our business. This is
substantiated by the fact that some 60% of our employees
are involved in service-related activities such as haircuts for
people who have purchased custom-made wigs. To ensure
that we can provide products and services when and where
needed, our professionals, located at more than 200 directly
operated salons and other locations in Japan, receive
dedicated training each time we launch a new product, in
addition to their regular training.
16
Extraction of hair follicle
cells, under the root of the
hair.
Culture of hair follicle cells
Injection of cultivated hair
follicle cells into balding
areas.
Hair regrowth
Aderans Research Institute is developing and testing follicle neogenesis, a new treatment for hair loss,
based on state-of-the-art tissue-engineering techniques. During a conventional procedure, doctors will
remove a small amount of tissue, from which hair-forming cells will be extracted and allowed to multiply
under controlled conditions. After enough new cells have formed, they will be placed into the patient’s scalp,
providing the patient with many more hair-forming cells than were originally taken from the scalp. Hair
regeneration is a medical procedure for people who exhibit male- or female-pattern hair loss.
Hair Regeneration
Total Hair Solution Service
Hair Transplants
A hair transplant is a process whereby a thin strip of the patient’s own scalp with healthy hair roots is
surgically removed from the back or side of the head and relocated, one graft at a time, to areas where hair is
thin or the scalp is completely bald.
17
Aderans in Society
A common thread that runs through our corporate fabric as
a globally active provider of comprehensive hair-related
products and services is the return of corporate value back
to society. An obvious example of this commitment is the
gift of custom-made wigs to children who have lost hair due
to sickness or injury. But we also contribute to society
through the Tokyo Hair Beauty College, where tomorrow’s
hair stylists learn the skills required to meet the haircare
needs of society.
In addition, we strive to be a good employer by ensuring a healthy work environment for our employees, and we
support regional societies overseas through the creation of
stable jobs, particularly in Asia.
At our production facilities in Thailand and the Philippines, we participate a range of environmental protection
activities, such as those outlined below.
In 2001, we worked with Japan’s Ministry of Economy,
Trade and Industry to establish the Japan Hair Industry
Association as a regulatory body advocating stability and
transparency in the disclosure practices of domestic companies providing wigs, products to create the illusion of
greater hair volume and products to promote healthy hair
growth.
The formation of this association highlights the fact that
the industry has developed to a point where providers of
hair-related products and services have a significant impact
on society. Takayoshi Okamoto, Aderans Chairman and
CEO, is the association’s representative director and his
mandate is to inspire greater consumer confidence in the
industry while promoting sound development of the industry itself.
Major community activities in fiscal 2006
June
July
August
October–
November
November
18
Sponsored the 4th Aderans Wellness Open
on the Senior Professional Golf Association
Tour circuit
Sponsored the 11th Aderans Boys & Girls
Soccer Festival
Sponsored the 9th Aderans Summer Holidays
Children’s Golf Events
Sponsored the 21st Aderans Love Charity
campaign
Sponsored the 21st Aderans Human Forum
Environmental protection and quality control at
Aderans Thai and World Quality
A derans Thai and World Quality were quick to tackle environmental protection and quality control issues. In 1999,
the International Standards Organization certified both production facilitates with ISO 14001 for environmental protection systems and ISO 9002 for quality control.
Major environmental protection efforts at Aderans Thai and
World Quality
• Prevent water pollution by factory wastewater
• Prevent air pollution within the facility
• Ensure safe processing of industrial waste
• Promote effective use of available resources
• Improve working conditions within the facility
Financial Section
CONTENTS
19 Consolidated Five-Year Summary
20 Consolidated Financial Review
28 Consolidated Financial Statements
41 Report of Independent Auditors
42 Non-Consolidated Five-Year Summary
43 Non-Consolidated Operating Data
Consolidated Five-Year Summary
Aderans Company Limited and Consolidated Subsidiaries
Years ended the last day of February
Millions of yen
2006
Results of Operations
Net sales
12,690
Gross profit
60,000
Selling, general and administrative expenses
49,680
Operating income
10,319
Income (loss) before income taxes
10,889
Net income (loss)
6,149
2,565
Amounts per Share
of Common Stock
(in yen)
Net income (loss)
Financial Position
Current assets
Current liabilities
Key Ratios (%)
2,012
1,760.45
44.00
12,546
69,239
Total assets
87,490
14.1
8.4
79.1
Return on equity
8.9
Return on assets
7.2
Interest-bearing debt ratio
Number of employees
2002
12,326
58,299
49,830
8,468
(192)
(3,568)
2,704
703
2,322
13,146
60,734
49,938
10,796
10,229
5,001
5,078
591
2,368
13,080
64,032
51,058
12,973
12,742
6,173
2,537
519
2,285
13,324
60,856
44,197
16,659
15,788
9,200
2,715
315
2,270
1,671.40
38.00
1,798.67
32.00
1,737.41
30.00
1,678.28
28.00
¥ 35,257 ¥ 36,492 ¥ 35,029 ¥ 39,282 ¥ 33,830
Shareholders’ equity to total assets
2003
¥ 150.51 ¥ (88.02) ¥ 120.46 ¥ 147.82 ¥ 224.76
—
Net income (loss) to net sales
Other Year-End Data
977
Interest-bearing debt
Operating income to net sales
2004
¥ 72,690 ¥ 70,625 ¥ 73,881 ¥ 77,112 ¥ 74,181
Cost of sales
Research and development expenses
2005
—
39,256
5,418
10,214
—
67,477
83,140
12.0
(5.1)
81.2
(5.0)
(4.1)
—
40,371
5,457
11,778
—
73,884
91,048
13,638
—
70,303
92,864
14,966
14.6
6.8
81.2
6.9
5.4
—
16.8
8.0
75.7
8.9
6.7
—
22.5
40,997
5,373
40,357
5,406
40,861
145
68,577
92,284
12.4
74.3
14.1
10.4
0.2
5,172
Note: Net income (loss) per share and shareholders’ equity per share for 2006, 2005, 2004 and 2003 are calculated based on the new
accounting standard described in Note 13 on page 39.
19
Consolidated Financial Review
The scope of consolidation for this review of fiscal 2006, ended February 28, 2006, covers Aderans Co.,
Ltd. (hereafter inferred in the terms “the Company,” “the parent company” and “non-consolidated”), and
27 consolidated subsidiaries, comprising three domestic subsidiaries, including Fontaine Co., Ltd., and
24 overseas subsidiaries. In fiscal 2006, Carl M Lundh AB was added to the scope of consolidation
through acquisition, while Bosley Healthy Hair Institute, Inc., was removed, owing to its merger with
another consolidated subsidiary.
The efforts of companies under this consolidated umbrella at home and abroad led to higher sales
and profits, on a consolidated basis.
Net Sales, Expenses
and Profitability
Dramatic improvement in sales by operations in North America and Europe complemented a small
improvement in non-consolidated results, to boost net sales 2.9%, to ¥72,690 million ($625 million),
over fiscal 2005.
Millions of yen
Operating Data
Net sales
Operating income
Net income (loss)
Net sales per employee
Net income (loss) per employee
Number of employees
2006
2005
¥72,690
10,319
6,149
13.4
1.14
5,418
¥70,625
8,468
(3,568)
12.9
(0.65)
5,457
% Change
2.9%
21.9
—
3.7
—
–0.7
Cost of sales grew 3.0%, to ¥12,690 million ($109 million), but with higher net sales, the cost of
sales ratio held steady at 17.5%.
Selling, general and administrative (SGA) expenses edged down 0.3%, to ¥49,680 million ($427 million), with advertising expenses accounting for ¥12,199 million ($104 million), down 1.9%, and
personnel expenses accounting for ¥19,759 million ($169 million), up 2.3%.
Cost of Sales and Selling, General
and Administrative Expenses
Millions of yen
Cost of sales
Advertising expenses
Personnel expenses
Other
Cost of Sales,
SG A E xp en ses
an d O p eratin g
In come to
Net Sales
R atios
(%)
2006
2005
¥12,690
49,680
12,199
19,759
17,722
¥12,326
49,830
12,440
19,316
18,072
3.0%
–0.3
–1.9
2.3
–1.9
(%)
N et I ncome (Billions of yen)
(Loss), and
7.5
N et I ncome
(Loss) to N et
5.0
S al es Rati o
75
60
15
10
45
2.5
5
30
0
0
15
–2.5
–5
Cost of sales ratio
SGA expenses ratio
Operating income ratio
–10
–5.0
0
20
% Change
2002
2003
2004
2005
2006
18.0
59.6
22.5
17.0 17.8 17.5
66.2 67.6 70.5
16.8 14.6 12.0
17.5
68.3
14.1
Net income (loss)
(Billions of yen)
Net income (loss) to
net sales ratio (%)
2002
2003
2004
2005
2006
9.2
6.1
5.0
(3.5)
6.1
12.4
8.0
6.8
(5.1)
8.4
As a result, operating income rebounded 21.9%, to ¥10,319 million ($88 million).
Without the ¥6,889 million in impairment losses recorded in fiscal 2005, net other expenses were
much lower, retreating 92.6%, to ¥700 million ($6 million).
A higher net sales starting point and a reduced expense burden enabled the Group to recolor its bottom line from the red of a ¥192 million net loss before income taxes and minority interests to the solid
black of ¥10,889 million ($93 million) in net income before income taxes and minority interests.
Underpinned by this result, net income settled at ¥6,149 million ($52 million) and demonstrated an
excellent turnaround from the net loss of ¥3,568 million recorded in fiscal 2005.
Net income per share was ¥150.51 ($1.29).
Capital expenditures fell 5.2%, to ¥2,565 million ($22 million). Funds were applied to the establishment, relocation and remodeling of salons by the parent company, and to the opening of directly
operated salons by Fontaine, as well as to the installation of equipment in Bosley’s offices and at the hairregeneration research facility in the United States. Depreciation and amortization reached ¥2,012 million
($17 million).
Yen
Per Share Data
2006
Net income (loss)
Cash dividends
2005
¥ 150.51
1,760.45
44.00
Net Sales by Region
North America,
Europe and Asia
2006
2005
Japan
Key Ratios by Geographic Area
Sales growth ratio
Operating income (loss) to net sales
Operating income (loss) (millions of yen)
Asset turnover ratio (times)
Operating income (loss) to total assets
2006
2005
0.8%
22.7%
¥12,768
1.03
23.3%
–4.5%
22.0%
¥12,266
0.91
20.0%
% Change
¥ (88.02)
1,671.40
38.00
11.0%
6.9%
¥1,143
1.07
7.4%
—%
5.3
15.8
Average/Total
2006
2005
–3.9%
1.4%
¥212
0.89
1.3%
2.9%
19.1%
¥13,911
1.03
19.8%
–4.4%
17.7%
¥12,479
0.90
16.0%
The figures above, except sales growth rate, represent those before adjustments for and eliminations of unallocated corporate expenses
and assets.
Net Sales
by R eg ion
(Billions of yen)
Operati ng
I ncome
(Loss)
75
(Millions of yen)
60
16,000
45
12,000
30
8,000
15
4,000
0
0
Japan
Asia
North America
Europe
Total
20,000
2002
2003
2004
2005
2006
64.0
0.7
7.5
1.8
74.1
61.8
0.7
12.4
2.1
77.1
58.4
0.5
12.1
2.6
73.8
55.8
0.4
11.7
2.6
70.6
56.2
0.4
12.6
3.3
72.6
2002
Japan
Asia
North America
Europe
Eliminations
Total
2003
19,696 16,509
1,433 1,371
(450) (1,343)
(68) (11)
(3,952) (3,552)
16,659 12,973
2004
2005
2006
14,560 12,266 12,768
988 793 1,000
(1,045) (688) (75)
4 107 218
(3,712) (4,010) (3,591)
10,796 8,468 10,319
Note: The above figures exclude intersegment transactions.
21
Japan
Sales from operations in Japan are generated by Aderans and Fontaine, which specialize in custom-made wigs and ready-made wigs, respectively, as well as two other
consolidated subsidiaries, which are involved in activities other than hair-related businesses.
Aggregate domestic sales, including intersegment sales, reached ¥56,303 million ($484 million) in
fiscal 2006, up 0.8% year-on-year, and accounted for 77.5% of consolidated net sales.
A breakdown of sales by main product shows that sales of custom-made wigs — a mainstay category —
inched up 0.2%, to ¥31,473 million, thanks to stable replacement demand for Aderans’ products. Sales
of ready-made wigs climbed 4.5%, to ¥9,885 million, paralleling greater interest in Fontaine’s products.
Sales of other hair-related products decreased 4.2%, to ¥4,847 million. Service revenues rose 1.9%, to
¥9,530 million, on a recovery in demand for services designed by Aderans for young men to promote
healthy hair growth. Other business income slipped 1.3%, to ¥505 million, while intersegment sales
rallied 8.7%, to ¥61 million.
As a result, operating income excluding intersegment transactions reached ¥12,768 million ($109
million), up 4.1% from fiscal 2005.
ADERANS’ PERFORMANCE
Non-consolidated net sales inched upward again after a drop in fiscal 2005, showing a 0.2% improvement, to ¥44,990 million ($386 million). This result reflects a positive change in the men’s market,
where the Company’s enhanced advertising activities attracted interest from new male clients, which in
turn spurred higher sales from repeat clients. and led to a 1.4% increase in sales to men. In the women’s
market, the Company encountered steady replacement demand but a soft response from new clients,
which led to a 0.2% dip in sales to women.
Cost of sales grew 1.7%, to ¥7,602 million ($65 million), for a cost of sales ratio of 16.9%, up 0.2
percentage point from fiscal 2005.
On the cost front, advertising expenses fell 8.8%, to ¥8,976 million ($77 million). As a percentage of
overall advertising expenses, advertising directed at men was 44% and at women, 56%. Personnel
expenses decreased 1.3%, to ¥9,451 million ($81 million). Consequently, SGA expenses dropped 3.2%,
to ¥29,793 million ($256 million).
Millions of yen
Aderans’ Net Sales Product Category
Custom-made wigs
Hair Fix
Pinpoint
Hair Support
Physical Esthé
Subtotal
Other custom-made wigs
Ready-made wigs
Other sales
Service revenues
Total
22
2006
2005
2004
2003
2002
¥29,247
115
1,987
5,564
1,210
38,125
77
74
3,985
2,728
¥44,990
¥29,588
132
1,585
5,520
1,105
37,933
63
23
4,161
2,702
¥44,883
¥31,599
108
1,908
5,516
1,191
40,325
84
8
4,687
2,652
¥47,757
¥32,950
167
2,300
5,997
1,455
42,872
68
16
5,449
2,482
¥50,888
¥33,435
233
3,010
6,460
1,513
44,653
67
1,899
6,064
2,590
¥55,275
Operating income rebounded, rising 14.7%, to ¥7,594 million ($65 million).
Early application of the impairment loss accounting standard in fiscal 2005 had an effect on both
consolidated and non-consolidated statements of income. Aderans incurred ¥224 million in impairment
losses and ¥12,493 million in unrealized losses on investment in subsidiaries. However, no such expenses
were recorded in fiscal 2006. Consequently, the Company was able to return to a net income position, at
¥6,700 million ($57 million), from the net loss of ¥6,813 million in fiscal 2005.
In fiscal 2006, capital expenditures amounted to ¥2,694 million ($23 million), up 31.3%, with funds
allocated primarily toward the opening of one satellite salon, the relocation of 13 salons and the expansion or renovation of two other existing salons. Depreciation and amortization decreased 8.6%, to ¥1,450
million ($12 million).
Interim and year-end dividends went up ¥3.00 per share, to ¥22.00 in each six-month period, for an
annual dividend of ¥44.00 per share. This ¥6.00 year-on-year gain marked the 13th consecutive year that
Aderans has raised dividends.
Ad eran s ’ New Mal e
Clien ts by Ag e
A derans’ N ew Femal e
C l i ents by A ge
(%)
(%)
Under 20
20s
30s
40s
50s
60s
70 and over
2.5%
43.7
26.9
13.7
7.5
4.0
1.7
Under 20
20s
30s
40s
50s
60s
70 and over
(Billions of yen)
A derans’
Pri nci pal
25
Product S al es
to N ew and
20
Repeat C l i ents
(Billions of yen)
Ad eran s’
Prin cip al
20
Prod u ct Sales
by G en d er
16
12
15
8
10
4
5
0
Female
Male
0.5%
0.9
1.8
4.3
16.0
36.8
39.7
0
2002
2003
2004
23.1
21.4
23.3 22.3
19.5 17.9
2005
2006
21.6 21.5
16.2 16.5
New
Repeat
2002
2003
2004
20.8
23.7
18.5 15.6
24.3 24.7
2005
2006
13.8 13.7
24.0 24.3
FONTAINE
Fontaine is a sales subsidiary with the top share — about 30% — of the women’s fashion wig market in
Japan. The company utilizes various marketing channels, including mail order, but focuses on three key
distribution routes — department stores, directly operated salons and beauty salons — to reach its market. As of February 28, 2006, the company reached the market through 170 department store counters, a
nationwide network of 37 directly operated salons, and wholesale access to some 100,000 beauty salons
and fine cosmetics stores across the country.
During fiscal 2006, Fontaine introduced new products and conducted demonstrations at department
stores and directly operated salons to expand interest and encourage purchases among new and existing
clients, while working to promote greater use of its Beauty Support System in wholesale circles. These
efforts paid off with higher sales through all distribution channels, for a total of ¥11,062 million ($95
million), up 6.2% over fiscal 2005.
Operating income fell 4.1%, to ¥1,454 million ($12 million), largely because of a temporary increase
in personnel expenses following the assumption of Aderans’ salon division in fiscal 2006.
23
Asia
In Asia, outside Aderans’ home base of Japan, the Company has established a solid
presence in Taiwan, Singapore, Thailand, South Korea and the Philippines.
Consolidated subsidiaries are Aderans Inc. (Taiwan), which markets wigs; Aderans Thai., Ltd., and
World Quality Co., Ltd., which manufacture wigs and hair-replacement products in Thailand; and
Aderans Philippines, Inc., which produces wigs and hair-replacement products in the Philippines.
Efforts to reinforce the marketing structure at Aderans (Taiwan) led to pleasing results in the second
half of fiscal 2006, as the subsidiary welcomed a long-awaited end to the downward sales trend that
plagued the company and returned to an operating income position. Unfortunately, while sales were up
on a full-year basis when translated into yen, sales were below the fiscal 2005 level on a local currency
basis.
Overall, regional sales grew 16.2%, to ¥4,929 million ($42 million). A breakdown shows that sales of
custom-made wigs decreased 3.9%, to ¥248 million, while sales of ready-made wigs climbed 13.2%, to
¥83 million, and sales of other hair-related products jumped 30.0%, to ¥73 million. Service revenues
rallied 3.5%, to ¥91 million. Intersegment sales expanded 17.7%, to ¥4,433 million, paralleling an
increase in sales by Aderans Thai to Fontaine and Group companies in Europe and the United States.
The upsurge in intersegment sales fueled a 26.1% rise in operating income, to ¥1,000 million ($8
million).
Excluding
Japan
In North America, the Aderans Group is represented by 10 consolidated subsidiaries
under the Aderans Holding Co., Inc., umbrella, including four that wholesale men’s
and women’s wigs; Aderans, Inc., involved in retailing; Bosley, engaged in the hairtransplant business; and Aderans Research Institute, Inc., which is pursuing the development of
hair-regeneration technology.
Aggregate sales in this market grew 10.4%, to ¥13,595 million ($116 million).
A breakdown by product reveals that sales of custom-made wigs benefited from the introduction of
new items, which nudged sales up 0.7%, to ¥374 million, but demand for ready-made wigs was sluggish,
despite concerted efforts to revitalize sales to large-scale retailing chains, leading to a 0.2% dip in sales, to
¥2,858 million. In the hair-transplant business, service revenues rose 10.1%, to ¥9,068 million. Sales of
other hair-related products jumped 36.3%, to ¥341 million. Intersegment sales skyrocketed 61.1%, to
¥953 million.
Among developments at principal subsidiaries in the United States, Bosley and General Wig
Manufacturers, Inc., deserve special mention. Bosley lifted sales by 10.1%, largely through the success of
infomercials, which drew increased attention to the company’s hair-transplant services, and the use of a
client database to reinforce marketing efforts. The rewards were clearly evident in the second half of the
fiscal year. Meanwhile, General Wig Manufacturers delayed its planned introduction of new products,
which prevented the company from reaching its sales goal, but ongoing efforts to trim expenses effectively
narrowed its operating loss.
The overall operating loss for operations in North America shrank considerably, from ¥688 million in
fiscal 2005 to ¥75 million ($0.6 million) in fiscal 2006. This reflects better sales and reduced amortization of consolidation difference account, through early application of the impairment loss accounting
standard last year.
North
America
Europe
The Aderans Group’s European presence is maintained by 10 consolidated subsidiaries, with operations in France, Germany, Belgium, the Netherlands, the
United Kingdom and most recently, Sweden.
Aggregate sales from these businesses climbed 26.2%, to ¥3,312 million ($28 million) in fiscal 2006.
The biggest factor contributing to higher sales was derived from the acquisition of Sweden’s Carl M
Lundh, which was complemented by efforts to expand sales through the debut of high-value-added
products and the use of direct mail to promote products.
By product, sales of custom-made wigs skyrocketed 148.0%, to ¥528 million, and sales of readymade wigs grew 3.8%, to ¥2,136 million. Sales of other hair-related products surged 84.8%, to ¥550
million, and service revenues soared 73.1%, to ¥95 million.
24
On the profit front, the combined results of the Group’s two subsidiaries in Germany finally returned
to the black. With this recovery in Germany, all the Group’s European subsidiaries showed operating
income in fiscal 2006. All told, operating income after amortization of the consolidation difference
account reached ¥218 million ($1 million), up 104.0%.
Cash Flow Status
Cash and cash equivalents at February 28, 2006, stood at ¥15,896 million ($136 million), up 19.0%
from a year earlier.
Net cash provided by operating activities jumped 32.2%, to ¥10,339 million ($89 million). This
change is largely represented by ¥10,889 million in income before income taxes and minority interests
and ¥2,082 million in depreciation and amortization on the assets side, and ¥3,209 million in payment
of income taxes on the liabilities side.
Net cash used in investing activities tumbled 69.7%, to ¥2,532 million ($21 million). This considerable reduction reflects the fact that ¥18,692 million received in proceeds from sales of marketable
securities was more than offset by outlays of ¥11,995 million to buy marketable securities, ¥2,017 million to acquire property, plant and equipment, and ¥7,283 million to purchase investment securities.
Net cash used in financing activities soared 96.3%, to ¥5,545 million ($47 million). This dramatic
increase reflects cash outflow of ¥1,648 million to pay dividends and ¥4,977 million to acquire treasury
stock, and cash inflow of just ¥1,080 million in proceeds from the sale of treasury stock.
Millions of yen
Summary of Cash Flows Statements
Net cash used in investing activities
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
Gross Cash (Billions of yen)
Flows and
12
Capital
Expenditures
9
2005
% Change
¥10,399
(2,532)
(5,545)
2,540
13,356
15,896
¥ 7,868
(8,354)
(2,825)
(3,324)
16,819
13,356
32.2%
–69.7
96.3
–176.4
–20.6
19.0
Free
Cash Flows
(Billions of yen)
15
10
6
5
3
0
0
–5
–3
Gross cash flows
2006
–10
2002
2003
2004
11.9
2.7
8.5
2.5
7.5
5.0
Gross cash flows = Net income + Depreciation and amortization
2005
(1.0)
2.7
2006
8.2
2.5
Net cash flows provided
by operating activities
Net cash flows used in
investing activities
Free cash flows
2002
2003
2004
2005
2006
9.4
9.7
7.5
7.8
10.3
(4.7)
4.6
(3.3)
6.3
(6.3) (8.3)
1.2 (0.4)
(2.5)
7.8
Free cash flows = Net cash flows provided by operating activities +
Net cash flows used in investing activities
25
Financial Position
At February 28, 2006, total assets were ¥87,490 million ($752 million), up 5.2% from a year earlier.
Total liabilities, as of the same date, were ¥18,153 million ($156 million), up 16.5%.
Current assets retreated 3.4%, to ¥35,257 million. The main reason for this change is a decrease in
marketable securities.
Fixed assets rose 12.0%, to ¥52,233 million. The breakdown of tangible fixed assets was generally
the same as in fiscal 2005, with the total slipping just slightly, from ¥26,955 million to ¥26,902 million,
while the breakdown of intangible assets grew 11.9%, to ¥5,478 million, because of an increase in the
consolidation difference account.
Current liabilities jumped 22.8%, to ¥12,546 million. As a result, the current ratio (ratio of current
assets to current liabilities) dropped 76.3 percentage points, to 281%.
Total shareholders’ equity inched up 2.6%, to ¥69,239 million ($595 million). The equity ratio fell
2.1 percentage points, to 79.1%.
Millions of yen
Summary of Financial Position
Total assets
Total liabilities
Shareholders’ equity to total assets (%)
(%)
Return on Equity
and
15
Return on Assets
2006
2005
¥87,490
18,153
69,239
79.1
¥83,140
15,577
67,477
81.2
5
0.15
0
0.10
–5
0.05
0
–10
2002
2003
2004
2005
2006
14.1
10.4
8.9
6.7
6.9
5.4
(5.0)
(4.1)
8.9
7.2
(%)
(Billions of yen)
Workin g
Cap ital an d
25
Cu rren t R atio
300
2003
2004
2005
2006
(Millions of yen)
145
—
—
—
—
Interest-bearing
debt ratio
Debt to equity ratio
0.2
0.2
—
—
—
—
—
—
—
—
2002
2003
2004
2005
2006
0.84
0.83
0.80
0.81 0.85
A sset Tur nover
Rati o
(Times)
1.0
240
0.8
15
180
0.6
10
120
0.4
5
60
0.2
0
0
2002
26
2002
20
0
Current assets
Current liabilities
Working capital
Current ratio (%)
5.2%
16.5%
2.6%
—
(%)
Interest-Bearing
Debt Ratio and
0.25
Debt to
Equity Ratio
0.20
10
Return on equity
Return on assets
% Change
2003
33.8 39.2
14.9 13.6
18.8 25.6
226.0 288.0
2004
2005
35.0 36.4
11.7 10.2
23.2 26.2
297.4 357.3
2006
35.2
12.5
22.7
281.0
Asset turnover ratio
Dividend Policy
One of the Company’s top management priorities is the return of profits to shareholders. The primary
objective is, obviously, to maintain stable dividends, but realistically, the goal is to raise the payout ratio.
Toward this end, we must pursue growth opportunities, so while we seek to return profits to shareholders through the repurchase of treasury stock, we also need to boost retained earnings to fund investment
strategies, such as the development of activities that enhance business content and reinforce financial
position over the medium to long term.
Our targets are a payout ratio of at least 30% and a total shareholder return ratio, including treasury
stock buybacks, of at least 50%, based on consolidated net income.
However, if the Group does not execute any large applications of funds over the next two fiscal years
— that is, the terms ending February 2007 and February 2008 — then, notwithstanding the existing
position regarding retained earnings, Aderans will apply all of consolidated net income to the shareholder
return ratio.
Millions of yen
2006
Treasury stock buybacks*
Dividends
Total shareholder returns
Consolidated net income
Payout ratio (%)
Total shareholder return ratio (%)
Return on equity (%)
¥3,695
1,744
5,439
6,149
28.3
88.4
9.0
2005
¥1,400
1,534
2,934
(3,568)
—
—
—
2004
¥(3,194)†
1,287
(1,907)
5,001
25.7
—
6.9
2003
2002
¥1,986
1,210
3,196
6,173
19.6
51.7
8.9
¥1,250
1,144
2,394
9,200
12.4
26.0
14.1
* Treasury stock buybacks = treasury stock acquired - treasury stock disposed of
Note: The ¥3,194 million in treasury stock buybacks for fiscal 2004 reflects the exchange for the common stock of Fontaine acquired to
turn the company into a consolidated subsidiary as well as treasury stock held by the company.
Risk Information
(1) RELIANCE ON OVERSEAS PRODUCTION AND CERTAIN PRODUCTS
i. Aderans’ principal wig production facilities are located overseas, in Thailand and the Philippines.
If the production capabilities of these facilities were undermined by fire, natural disaster, labor
unrest or some other obstacle to normal operations, or if the supply of products or access to necessary materials were hampered by a change in the political or economic environment in the
aforementioned countries, Aderans would have difficulty procuring alternative products since the
Group’s wigs and hair-replacement products require the Company’s proprietary know-how in the
production process. Therefore, the inability to make and/or distribute and export wigs and hairreplacement products could have a serious impact on Aderans’ fiscal results.
ii. If competitors were to develop and bring to market such products as revolutionary topical hair
growth agents and oral remedies, or develop and commercialize medical techniques superior to
prevailing hair transplant procedures, the impact on Aderans’ fiscal results would be considerable.
(2) R&D
Aderans’ R&D activities are currently directed toward the pursuit of hair regeneration techniques.
The Company cannot guarantee that its efforts to develop such techniques will be successful, or that
such efforts, if they were successful, would generate profits in the short term. In addition, it is difficult to predict with accuracy at the present time what the scale of demand might be for hair
regeneration techniques, should such methods be marketable at some point in the future.
(3) INFORMATION MANAGEMENT
The Company is engaged in businesses for ordinary citizens who have concerns about their hair. If
information about clients should leak outside of the Company’s system, the disclosure could cause
considerable psychological or emotional anguish to those clients and could significantly affect the
Company’s business activities.
(4) MAINTAINING TALENT
The business activities of Aderans are subject to laws and regulations pertaining to barber and beauty
salon services, and 60% of the Company’s employees are qualified barbers and beauticians. If the
Company is unable to retain skilled barbers and beauticians at its salons, the resulting shortage of
essential personnel could adversely affect the Company’s ability to provide services.
27
Consolidated Balance Sheets
For the years ended February 28, 2006 and 2005
Millions of yen
Assets
Liabilities and
Shareholders’ Equity
Current assets:
Cash and time deposits (Note 4)
Marketable securities (Note 6)
Notes and accounts receivable
Allowance for doubtful accounts
Inventories (Note 5)
Deferred tax assets (Note 8)
Other current assets
Total current assets
Investments and long-term loans:
Long-term loans receivable
Investment securities (Note 6)
Total investments and long-term loans
Property, plant and equipment, at cost:
Land
Buildings and structures
Machinery and equipment
Construction in progress
Other
Total
Less accumulated depreciation
Property, plant and equipment, net
Intangible assets
Security deposits
Deferred tax assets (Note 8)
Other assets
Allowance for doubtful accounts
Total assets
Current liabilities:
Notes and accounts payable
Accrued income taxes (Note 8)
Accrued expenses
Deferred tax liabilities (Note 8)
Other current liabilities
Total current liabilities
Long-term liabilities:
Accrued severance and retirement benefits—employees (Note 7)
Accrued severance and retirement benefits—directors and
corporate auditors
Deferred tax liabilities
Other long-term liabilities
Total long-term liabilities
Total liabilities
Minority interests
Shareholders’ equity (Note 9):
Common stock, no par value
Authorized—138,000 thousand shares for 2006 and 2005
Issued—41,713 thousand shares for 2006 and 2005
Additional paid-in capital
Retained earnings
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Treasury stock, at cost
Total shareholders’ equity
Total liabilities, minority interests and shareholders’ equity
See Notes to the Consolidated Financial Statements.
28
Thousands of
U.S. dollars
2006
2005
2006
¥ 14,238
9,306
5,167
(96)
4,046
1,262
1,332
35,257
¥ 13,626
12,199
4,815
(54)
3,787
984
1,134
36,492
$ 122,458
80,043
44,446
(831)
34,800
10,860
11,457
303,234
31
10,053
10,085
90
5,082
5,173
273
86,465
86,739
11,611
30,346
6,602
50
156
48,767
(21,864)
26,902
5,478
3,752
2,712
3,376
(74)
¥ 87,490
11,616
30,840
5,795
66
156
48,475
(21,520)
26,955
4,897
3,788
2,780
3,131
(77)
¥ 83,140
99,870
260,996
56,787
431
1,345
419,431
(188,050)
231,380
47,116
32,275
23,333
29,036
(639)
$ 752,477
¥ 1,408
3,246
1,093
4
6,793
12,546
¥ 1,253
1,281
975
5
6,698
10,214
$ 12,111
27,925
9,402
39
58,430
107,910
3,552
3,362
30,553
813
19
1,220
5,606
18,153
97
855
—
1,144
5,362
15,577
85
6,998
170
10,499
48,221
156,131
837
12,944
13,157
51,206
626
(1,379)
(7,314)
69,239
¥ 87,490
12,944
13,157
46,905
230
(2,140)
(3,618)
67,477
¥83,140
111,327
113,162
440,408
5,384
(11,862)
(62,911)
595,507
$ 752,477
Consolidated Statements of Income
Millions of yen
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 12)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Devaluation of land
Impairment losses
Unrealized loss on investment securities
Exchange gain on foreign currency translation
Exchange loss on foreign currency translation
Loss on disposal of property, plant and equipment
Other income and expenses, net
Total other income (expenses)
Thousands of
U.S. dollars
2006
2005
2006
¥72,690
12,690
60,000
¥70,625
12,326
58,299
$625,188
109,146
516,041
49,680
10,319
49,830
8,468
427,285
88,756
180
(11)
—
—
—
325
—
(162)
238
569
10,889
97
(11)
(1,755)
(6,889)
(190)
—
(203)
(83)
374
(8,660)
1,554
(100)
—
—
—
2,798
—
(1,399)
2,047
4,899
Income (loss) before income taxes and minority interests
Income taxes (Note 8)
Current
Deferred
Minority interests
Net income (loss)
(192)
93,655
5,152
(412)
—
¥ 6,149
4,373
(873)
124
¥(3,568)
44,310
(3,544)
—
$ 52,890
Net income (loss) per common share (Note 13) (in the whole yen)
¥150.51
¥(88.02)
$
1.29
29
Consolidated Statements of Shareholders’ Equity
Thousands of
U.S. dollars
Millions of yen
Common stock:
Balance, beginning of year
Balance, end of year
(2006—41,713,388 shares; 2005—41,713,388 shares)
Additional paid-in capital:
Retained earnings:
Increase in retained earnings:
Net income
Decrease in retained earnings:
Net loss
Cash dividends
Bonuses to directors and corporate auditors
Deletion of consolidation of a subsidiary
Loss on consolidation of new subsidiary
Loss on exchange of treasury stock
Unrealized gain (loss) on available-for-sale securities:
Net change
Foreign currency translation adjustments:
Net change
Treasury stock:
Net change
Purchases of treasury stock
Exchange for the common stock of Fontaine Co., Ltd.
Treasury stock held by Fontaine Co., Ltd.
(2006—2,456,597 shares; 2005—1,341,555 shares)
30
2006
2005
2006
¥12,944
¥12,944
$111,327
¥12,944
¥12,944
$111,327
¥13,157
¥13,157
¥13,157
¥13,157
$113,162
$113,162
¥46,905
¥52,265
$403,416
6,149
—
52,890
—
1,647
—
—
—
201
¥51,206
3,568
1,424
178
188
—
0
¥46,905
—
14,169
—
—
—
1,729
$440,408
¥
¥
$
¥
230
395
626
¥
16
213
230
$
1,980
3,403
5,384
¥ (2,140)
761
¥ (1,379)
¥ (2,279)
¥139
¥ (2,140)
$ (18,410)
6,547
$ (11,862)
¥ (3,618)
(3,695)
—
—
—
¥ (2,218)
(1,400)
—
—
—
$ (31,124)
(31,787)
—
—
—
¥ (7,314)
¥ (3,618)
$ (62,911)
Consolidated Statements of Cash Flows
Millions of yen
2006
Cash flows from operating activities:
Income (loss) before income taxes and minority interests
Impairment losses
Loss on retirement of fixed assets
Amortization for consolidation difference
Change in allowance for employees’ bonus
Devaluation of land
Change in accrued severance benefits—employees
Unrealized loss on investment securities
Interest and dividend income
Interest expenses
Change in notes and accounts receivable
Change in inventories
Change in notes and accounts payable
Change in guarantee deposits
Bonuses to directors and corporate auditors
Other
Subtotal
Proceeds from interest and dividend income
Payment of interest
Payment of income taxes
¥10,889
2,082
—
264
631
139
—
184
—
(180)
11
(235)
(21)
60
53
—
(449)
13,431
188
(11)
(3,209)
10,399
Cash flows from investing activities:
Change in time deposits
Payment for purchase of marketable securities
Proceeds from sales of marketable securities
Payment for purchase of property, plant and equipment
Payment for purchase of intangible assets
Payment for purchase of investment securities
Proceeds from sales of investment securities
Other
Net cash used in investing activities
Cash flows from financing activities:
Payment to acquire treasury stock
Cash dividends paid
Other
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Derease in cash and cash equivalents due to deletion of
consolidation of a subsidiary
Cash and cash equivalents held by newly consolidated subsidiary
at beginning of year
Cash and cash equivalents at the end of year
2005
2006
(192)
2,510
6,889
226
838
(122)
1,755
349
190
(97)
11
801
51
275
139
(178)
222
13,670
76
(11)
(5,866)
7,868
$ 93,656
17,914
—
2,278
5,431
1,200
—
1,586
—
(1,554)
100
(2,023)
(184)
518
459
—
(3,865)
115,518
1,624
(100)
(27,601)
89,440
131
(11,995)
18,692
(2,017)
(475)
(7,283)
1,056
(640)
(2,532)
(4,131)
(9,996)
10,596
(2,453)
(580)
(2,144)
245
111
(8,354)
1,131
(103,170)
160,766
(17,353)
(4,086)
(62,645)
9,085
(5,509)
(21,781)
(4,977)
(1,648)
1,080
(5,545)
(1,401)
(1,424)
0
(2,825)
(42,807)
(14,180)
9,290
(47,696)
219
2,540
13,356
(13)
(3,324)
16,819
1,884
21,847
114,871
—
(139)
—
—
¥15,896
¥
Thousands of
U.S. dollars
—
¥13,356
—
$136,719
31
Notes to the Consolidated Financial Statements
Note 1.
Basis of Presenting
Consolidated Financial
Statements
The accompanying consolidated financial statements of Aderans Company Limited (the “Company”) and
its consolidated subsidiaries have been prepared in accordance with accounting principles generally
accepted in Japan, and from consolidated financial statements filed with the Minister of Finance, as
required by the Securities and Exchange Law of Japan.
Certain items presented in the original financial statements have been reclassified for the convenience
of readers outside Japan.
As permitted under the Securities and Exchange Law of Japan, amounts of less than one million yen
have been omitted. As a result, the totals shown in the accompanying financial statements (both in yen
and in dollars) do not necessarily agree with the sum of the individual amounts. The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries.
Note 2.
Summary of Significant
Accounting Policies
(a) Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries (the “Companies”).
All significant intercompany transactions and unrealized profits among the Companies have been
eliminated in consolidation. The difference between the cost and underlying net equity of investments in
consolidated subsidiaries is deferred and amortized within 10 years.
Investments in remaining non-consolidated subsidiaries are not accounted for by the equity method
because of the immaterial effect on the consolidated financial statements.
Fiscal year end of two domestic consolidated subsidiaries and all overseas consolidated subsidiaries is
December 31, which differ from that of the Company; however, the accounts of these subsidiaries have
been consolidated with appropriate adjustments for the intercompany transactions and events to the end
of fiscal year.
(b) Cash and cash equivalents
For the purpose of consolidated statements of cash flows, the Companies consider all highly liquid low
risk investments with maturities of three months or less when purchased to be cash equivalents.
(c) Marketable and investment securities
Marketable and investment securities are classified and accounted for, depending on management intent.
Based on the examination of the intent of holding, the Company classified those securities as held-tomaturity debt securities, equity securities issued by non-consolidated subsidiaries and available-for-sale
securities.
Held-to-maturity debt securities are stated at amortized cost. Equity securities issued by non-consolidated subsidiaries are stated at cost by the moving average method.
Available-for-sale securities are with available fair market values are stated the market value.
Unrealized gains or losses on those securities are reported, net of applicable income taxes, as a separate
component of shareholders’ equity. Realized gains and losses on sale of such securities are computed by
the moving average method. Available-for-sale securities without available fair market value are stated at
cost by the moving average method.
(d) Allowance for doubtful accounts
Allowance for doubtful accounts are stated at an amount considered to be appropriate based on the
Companies’ past credit loss experience and an evaluation of potential losses in the receivables outstanding. Overseas consolidated subsidiaries provide for doubtful accounts at the estimated amount of
uncollectible receivables.
(e) Inventories
Custom-made goods are stated at cost on the basis of specific identification method. Ready-made goods
are stated at cost on the basis of average method. Raw materials and work in process are stated at lower of
cost (first-in, first-out) or market, or lower of moving average cost or market. Supplies are principally
stated at cost on the basis of specific identification method.
(f) Property, plant and equipment
Property, plant and equipment of the Companies have been principally depreciated by the declining-balance method, at rates based on the estimated useful lives of the assets.
However, the straight-line method has been applied to buildings, excluding building fixtures,
acquired after April 1, 1998 at rates based on the estimated useful lives of assets. The straight-line
method is used for some domestic consolidated subsidiaries.
32
The straight-line method is principally used for overseas consolidated subsidiaries. Expenditures for
maintenance and repairs are charged to operating expenses as incurred. Upon the disposal of property,
plant and equipment, the cost and accumulated depreciation are removed from the accounts and any
gain or loss is recorded as income or expenses.
(g) Intangible assets
Intangible assets are carried at cost less accumulated amortization, which is calculated by the straight-line
method over the estimated useful lives. (five years for software)
(h) Allowance for employees’ bonuses
The Company and its domestic consolidated subsidiaries provide allowance for employees’ bonuses at
the estimated-amount-method based on the bonuses to be paid subsequent to the balance sheet dates.
This allowance amounted to ¥1,422 million ($12,235 thousand) at February 28, 2006 and ¥1,283 million at February 28, 2005 and was included in other current liabilities in the consolidated balance sheets.
(i) Warranty reserve
A warranty reserve is provided based upon prior actual experience, while the Companies provide a warranty on its goods. This reserve amounted to ¥137 million ($1,183 thousand) at February 28, 2006 and
¥126 million at February 28, 2005 and was included in other current liabilities in the consolidated balance sheets.
(j) Allowance for returned goods
One of the Japanese subsidiaries, Fontaine Co., Ltd., sets allowance for returned goods up. This
allowance is provided based on accounts receivable multiplied by an average of sales returns rate referring current and previous year and gross profit rate of current year. Amounted to ¥98 million ($842
thousand) at February 28, 2006 and ¥96 million at February 28, 2005 and was included in other current
liabilities in the consolidated balance sheets.
(k) Accrued severance and retirement benefits—employees
The Company and its consolidated subsidiaries accounted for the liability for retirement benefit based on
the projected benefit obligations and plan assets at the balance sheet date.
Past benefit liabilities are amortized from the time they accrue by the straight-line method for a given
number of years (five years) within employees’ average remaining years of service.
Actuarial difference is amortized using the straight-line method over the estimated average remaining
service lives (five years) of employees commencing with the following period.
(l) Accrued severance and retirement benefits—directors and corporate auditors
The Company, one domestic consolidated subsidiary and some overseas consolidated subsidiaries have
recorded retirement benefits for directors and corporate auditors accruing the full amount at the balance
sheet date.
In May 2005, the Board of Directors of the Company resolved to abolish the unfunded retirement
benefit plans for directors and corporate auditors, and proposed to make and calculated the amounts of
lump-sum payments upon abolishment of the plan for their duties up to May 2005.
(m) Translation of foreign currency accounts
Balance sheets of consolidated overseas subsidiaries are translated into Japanese yen at the current rate at
the end of year except for shareholders’ equity accounts, which are translated at historical rates. Statements of income of consolidated overseas subsidiaries are translated at the average rate. Differences
arising from such translation are disclosed under “Foreign currency translation adjustments” on the statement of consolidated shareholders’ equity and accumulated in the shareholders’ equity section of the
consolidated balance sheet.
(n) Derivative financial instruments
In accordance with the accounting standard for financial instruments, all derivative financial instruments,
recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statement of income.
(o) Leases
Finance leases which do not transfer ownership to lessees (and do not have bargain purchase provisions)
are accounted for in the same manner as operating leases under accounting principles generally accepted
in Japan.
(p) Research and development costs
Research and development costs are charged to income when incurred.
33
(q) Reclassifications
In preparing the accompanying consolidated financial statements, certain reclassifications have been
made to the consolidated financial statements for the year ended February 28, 2006 issued domestically.
In addition, the consolidated financial statements for 2005 have been retroactively restated to conform to
the 2006 presentation.
Note 3.
U.S. Dollar Amounts
The financial statements are stated in Japanese yen. The U.S. dollar amounts included in the financial
statements and notes thereto represent the arithmetical results of translating yen into U.S. dollars at the
rate of ¥116.27 to U.S.$1. This is the approximate rate of exchange in effect on February 28, 2006.
Note 4.
Cash and Cash
Equivalents
Reconciliation of cash and time deposits in the consolidated balance sheets and cash and cash equivalents
shown in the consolidated statements of cash flows at February 28, 2006 and 2005 were as follows:
Thousands of
U.S. dollars
Millions of yen
Cash and time deposits
Cash equivalents included in marketable securities
Time deposits with maturities more than three months
Cash and cash equivalents
2006
2005
2006
¥14,238
4,501
(2,843)
¥15,896
¥13,626
2,502
(2,772)
¥13,356
$122,458
38,718
(24,457)
$136,719
Note 5.
Inventories
At February 28, 2006 and 2005, inventories consisted of the following:
Thousands of
U.S. dollars
Millions of yen
Finished goods
Work in process
Raw materials and supplies
Total
2006
2005
2006
¥2,760
197
1,087
¥4,046
¥2,591
212
983
¥3,787
$23,742
1,701
9,355
$34,800
Note 6.
Marketable and
Investment Securities
(1) The following tables summarize acquisition costs, book values and fair value of securities at February
28, 2006 and 2005.
(a) Held-to-maturity debt securities
February 28, 2006
Securities with available fair
values exceeding book values
Bonds
Subtotal
Securities other than the above
Bonds
Subtotal
Total
February 28, 2005
Securities with available fair
values exceeding book values
Bonds
Subtotal
Bonds
Subtotal
Total
34
Millions of yen
Book value
Fair value
¥ 1,400
1,400
¥ 1,400
1,400
9,606
9,606
¥11,006
9,528
9,528
¥10,929
Thousands of U.S. dollars
Difference
Book value
Fair value
¥ 0
0
$12,040
12,040
$12,048 $
12,048
(77)
(77)
¥(77)
82,624
82,624
$94,665
81,954 (670)
81,954 (670)
$94,002 $(663)
Millions of yen
Book value
Fair value
Difference
¥7,503
7,503
¥7,511
7,511
¥8
8
1,700
1,700
¥9,203
1,697
1,697
¥9,209
(2)
(2)
¥5
Difference
7
7
(b) Available-for-sale securities
Millions of yen
February 28, 2006
Securities with book values exceeding
acquisition costs
Equity securities
Subtotal
Equity securities
Subtotal
Total
Book value
Fair value
Difference
Book value
Fair value
Difference
¥1,453
1,453
¥2,509
2,509
¥1,055
1,055
$12,502
12,502
$21,581 $9,078
21,581 9,078
—
—
¥1,453
—
—
¥2,509
—
—
¥1,055
—
—
$12,502
—
—
—
—
$21,581 $9,078
Millions of yen
February 28, 2005
Book value
Securities with book values exceeding
acquisition costs
Equity securities
Subtotal
Equity securities
Subtotal
Total
Fair value
Difference
¥775
775
¥1,143
1,143
¥387
387
2
2
¥757
2
2
¥1,145
(0)
(0)
¥387
(2) Total sales of available-for-sale securities sold for the year ended February 28, 2006 amounted to ¥5
million ($46 thousand) and February 28, 2005 amounted to ¥183 million. The related gains and
losses for the year ending 2006 amounted to ¥4 million ($41 thousand) and no loss, and 2005
amounted to ¥61 million and no loss.
(3) The following tables summarize book values of securities with no available fair values at February 28,
2006 and 2005.
Millions of yen
Held-to-maturity debt securities
Commercial paper
Available-for-sale securities
Money management funds
Thousands of
U.S. dollars
2006
2005
2006
¥3,998
¥4,998
$34,391
¥1,502
¥1,502
$12,926
(4) Available-for-sale securities with maturities and held-to-maturity debt securities were as follows:
Millions of yen
February 28, 2006
Within
one year
Within
five years
Within
ten years
Over
ten years
Within
one year
Within
five years
Within
ten years
Over
ten years
Bonds
Others
Total
¥3,805
3,998
¥7,803
¥4,700
—
¥4,700
¥2,000
—
¥2,000
¥501
—
¥501
$32,725
34,391
$67,117
$40,423
—
$40,423
$17,201
—
$17,201
$4,315
—
$4,315
February 28, 2005
Within
one year
Bonds
Others
Total
¥ 5,698
4,998
¥10,696
Millions of yen
Within
Within
five years
ten years
¥3,505
—
¥3,505
¥—
—
¥—
Over
ten years
¥—
—
¥—
35
Note 7.
Accrued Severance and Employees who terminate their service with the Company or one of the domestic consolidated subRetirement Benefits— sidiaries are entitled to defined benefit pension plans, i.e., tax-qualified pension plans and lump-sum
payment plans determined by reference to basic rates of pay, length of service and conditions under
Employees
which the termination occurs. Another domestic subsidiary has maintained unfounded lump-sum payment plans, whereas certain overseas subsidiaries have defined contribution pension plans or non-funded
lump-sum payment plans.
The following table sets forth the founded and accrued status of the retirement benefits, and the
amounts recognized in the consolidated balance sheets as of February 28, 2006 and 2005:
Thousands of
U.S. dollars
Millions of yen
2006
(a) Projected retirement benefit obligation
¥(5,198)
(b) Pension assets at fair value
2,251
(c) Unfunded retirement benefit obligation (a)+(b)
(2,946)
(d) Unrecognized actuarial differences
(160)
(e) Unrecognized past benefit liabilities
(445)
(f) Accrued employees’ severance and retirement benefits (c)+(d)+(e) ¥(3,552)
2005
2006
¥(5,641)
2,108
(3,533)
170
—
¥(3,362)
$(44,707)
19,364
(25,343)
(1,381)
(3,828)
$(30,553)
The component of retirement benefit costs for the years ended February 28, 2006 and 2005 were as
follows:
Millions of yen
2006
(a) Service cost
(b) Interest cost
(c) Expected return on plan assets
(d) Amortization for actuarial difference
(e) Amortization for past benefit liabilities
Total
¥330
112
(21)
96
(111)
¥406
2005
¥441
106
(19)
112
—
¥640
Thousands of
U.S. dollars
2006
$2,840
964
(181)
827
(957)
$3,494
The assumptions used to calculate relating to retirement benefit liabilities were as follows:
(a) Method of allocation of estimated retirement benefits
(b) Discount rate
(c) Expected rate of return on pension assets
(d) Amortization period of actuarial difference
(e) Amortization period of past benefit liabilities
Straight–line method
2.00%
1.00%
5 years
5 years
Note 8.
Income Taxes
36
The Company and domestic consolidated subsidiaries are subject to a number of taxes based on income,
which in the aggregate amount to statutory tax rates of approximately 40.7% for the year of 2006 and
2005. Foreign consolidated subsidiaries are subject to income taxes of countries in where they operate.
However, income taxes as shown in the accompanying consolidated statements of income differ from
the amounts computed by applying the above-mentioned statutory tax rates to “income before income
taxes”. The principal reason for this difference is the effect of timing differences in the recognition of certain expenses for tax and financial reporting purposes and the effect of permanent non-deductible
expenses.
Significant components of the deferred tax assets and liabilities held by the Company and its consolidated subsidiaries as of February 28, 2006 and 2005 were summarized as follows:
Millions of yen
2006
Deferred tax assets:
Unrealized profits on inventories
Excess of retirement allowance
Accrued severance benefits for directors
Enterprise tax payable
Excess of allowance for employees’ bonuses
Warranty reserve
Allowance for returned goods
Excess of depreciation
Unrealized loss on golf club memberships
Accumulated impairment losses
Devaluation of land
Net loss carry forward
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Reserve for special depreciation
Other
Total deferred tax liabilities
Net deferred tax assets
2005
173
1,342
331
245
573
55
39
493
126
489
714
1,258
891
6,736
(2,661)
4,074
Thousands of
U.S. dollars
2006
¥
¥
$ 1,495
11,548
2,848
2,114
4,928
481
342
4,243
1,091
4,212
6,144
10,825
7,666
57,942
(22,894)
35,047
17
106
123
¥ 3,951
18
21
40
¥ 3,759
151
913
1,064
$ 33,983
141
1,220
347
126
517
51
39
227
126
1,690
714
1,089
602
6,895
(3,095)
3,799
An analysis of the difference between the statutory tax rate and the Company’s effective tax rate for
the year ended February 28, 2006 was as follows. The analysis for the year ended February 28, 2005 has
been omitted as loss before income taxes and minority interests was recorded.
Statutory tax rate
Permanently non-deductible expenses
Inhabitant tax on capita basis
Others
The Company’s effective income tax rate
2006
2005
40.7%
0.4
1.3
1.1
43.5%
—%
—
—
—
—%
Note 9.
Shareholders’ Equity
Under the Commercial Code of Japan, the entire amount of the issue price of shares is required to be
accounted for as common stock, although a company may, by resolution of its board of directors,
account for an amount not exceeding one-half of the issue price of the new shares as additional paid-in
capital.
Effective October 1, 2001, the Japanese Commercial Code provides that an amount equal to at least
10% of cash dividends and other cash appropriations shall be appropriated and set aside as a legal
reserve until the total amount of legal reserve and additional paid-in capital equals 25% of common
stock. The legal reserve and additional paid-in capital may be used to eliminate or reduce a deficit by
resolution of the shareholders’ meeting or may be capitalized by resolution of the board of directors.
On condition that the total amount of legal reserve and additional paid-in capital remains being equal
to or exceeding 25% of common stock, they are available for distributions and certain other purposes by
the resolution of shareholders’ meeting.
Legal reserve is included in retained earnings in the accompanying consolidated financial statements.
The maximum amount that the Company can distribute as dividends is calculated based on the unconsolidated financial statements of the Company in accordance with the Code.
37
Note 10.
Derivative Financial
Instruments
The Company utilizes currency option contracts primarily to hedge their exposure to fluctuations in foreign exchange rates. As a matter of policy, the Company does not speculate in derivatives.
Derivative transactions are controlled by the Treasury Office of the Company based on internal rules.
The contract amounts and unrealized gain or loss at February 28, 2006 and 2005 of outstanding
derivative transactions were as follows:
Currency-related transactions
Thousands of
U.S. dollars
2006
Millions of yen
2006
Options:
Call options, sold:
Yen—Notional amount
Fair value
Put options, purchased:
Yen—Notional amount
Fair value
Total—Notional amount
Unrealized loss
2005
¥—
—
¥314
(29)
$—
—
—
—
—
¥—
104
0
418
¥ (29)
—
—
—
$—
The notional amounts of derivatives which are shown in the above table do not represent the
amounts exchanged by the parties and do not measure the Company’s exposure to risk.
Note 11.
Leases
(1) Finance Leases
Future lease payments and lease payments under finance lease at February 28, 2006 and 2005 were
as follows:
Thousands of
U.S. dollars
Millions of yen
2006
Outstanding finance lease payments
Within one year
Over one year
Total
Lease payments
2005
2006
¥21
32
53
¥96
¥17
20
37
¥21
$150
174
324
$188
A summary of assumed amounts of acquisition cost, accumulated depreciation and net book
value at February 28, 2006 and 2005 were as follows:
Millions of yen
February 28, 2006
Equipment
Vehicle
Total
Acquisition
cost
Accumulated
depreciation
Net book
value
Acquisition
cost
¥ 73
30
¥103
¥44
21
¥65
¥29
8
¥37
$629
258
$887
Millions of yen
February 28, 2005
Equipment
Vehicle
Total
38
Acquisition
cost
Accumulated
depreciation
Net book
value
¥ 98
44
¥142
¥54
35
¥89
¥44
8
¥53
Accumulated
depreciation
$379
184
$563
Net book
value
$249
74
$324
(2) Operating Leases
Future lease payments under operating lease at February 28, 2006 and 2005 were as follows:
Thousands of
U.S. dollars
Millions of yen
Outstanding lease payments
Within one year
Over one year
Total
2006
2005
¥ 565
3,258
¥3,824
¥ 475
2,907
¥3,382
2006
$ 4,867
28,022
$32,889
Note 12.
Research and
Development Costs
Research and development costs included in selling, general and administrative expenses for the year
ended February 28, 2006 and 2005 amounted to ¥977 million ($8,406 thousand) and ¥703 million,
respectively.
Note 13.
Net Income per Common Basic net income per share is computed by dividing net income available to common shareholders by the
weighted-average number of common stock shares outstanding for the period.
Share
The Company did not have securities or contingent stock agreements that could potentially dilute net
income per common share in the year ended February 28, 2006 and 2005.
Note 14.
Segment Information
(1) Business Segments
As the ratios of “Hair-related business” against the total sales, operating income and assets of all segment exceed 90%, information by business segment is not prepared or disclosed.
(2) Geographical Segments
Millions of yen
Year ended February 28, 2006
Sales
Outside customers
Intersegment
Total
Operating expenses
Operating income
Total assets
Japan
North America
Europe
¥56,241 ¥12,641 ¥3,311
61
953
0
56,303
13,595
3,312
43,534
13,671
3,094
¥12,768 ¥
(75) ¥ 218
¥54,404 ¥ 5,793 ¥3,278
Asia
¥ 495
4,433
4,929
3,929
¥1,000
¥7,210
Total
Elimination
¥72,690 ¥
—
5,449
(5,449)
78,140
(5,449)
64,229
(1,858)
¥13,911 ¥ (3,591)
¥70,687 ¥16,802
Consolidated
¥72,690
—
72,690
62,370
¥10,319
¥87,490
Sales
Outside customers
Intersegment
Total
Operating expenses
Operating income
Total assets
Japan
North America
Europe
Asia
Total
Elimination
Consolidated
$483,715 $108,728 $28,480 $ 4,264 $625,188 $
— $625,188
529
8,200
8 38,131
46,870 (46,870)
—
484,245 116,929 28,489 42,395 672,059 (46,870) 625,188
374,429 117,580 26,610 33,792 552,412 (15,980) 536,432
$109,815 $
(651) $ 1,878 $ 8,603 $119,646 $ (30,890) $ 88,756
$467,919 $ 49,825 $28,200 $62,016 $607,961 $144,516 $752,477
Millions of yen
Sales
Outside customers
Intersegment
Total
Operating expenses
Operating income
Total assets
Japan
North America
Europe
¥55,800 ¥11,724 ¥2,624
56
592
—
55,856
12,316
2,624
43,590
13,004
2,517
¥12,266 ¥ (688) ¥ 107
¥55,251 ¥ 5,214 ¥3,252
Asia
¥ 476
3,767
4,243
3,450
¥ 793
¥6,108
Total
Elimination
¥70,625 ¥
—
4,416
(4,416)
75,041
(4,416)
62,562
(405)
¥12,479 ¥ (4,010)
¥69,826 ¥13,314
Consolidated
¥70,625
—
70,625
62,156
¥ 8,468
¥83,140
39
(3) Overseas Sales
Millions of yen
Overseas sales
Consolidated net sales
Share of overseas sales
North America
Europe
¥12,409
¥3,539
17.1%
Asia
Others
¥438
4.9%
¥80
0.6%
0.1%
Total
¥16,468
¥72,690
22.7%
North America
Europe
Asia
Others
Overseas sales
$106,729
$30,444
$3,775
$693
North America
Europe
¥11,484
¥2,889
17.1%
4.9%
Total
$141,642
$625,188
0.1%
22.7%
0.6%
Millions of yen
Overseas sales
16.3%
Asia
¥432
4.1%
Others
¥35
0.6%
0.0%
Total
¥14,841
¥70,625
21.0%
Note 15.
Related Party
Transactions
Transactions with related parties for the years ended February 28, 2006 and 2005 were as follows:
Thousands of
U.S. dollars
Millions of yen
KK Keiho Shoji:
Travel expenses
Kowa Shoji KK:
Rental income
2006
2005
2006
¥—
¥1
$—
2
2
17
Note 16.
Subsequent Events
40
On May 25, 2006, the shareholders of the Company approved payment of a year-end cash dividend of
¥22.00 ($0.18) per share to holders of recorded at February 28, 2006, totaling ¥864 million ($7,428
thousand).
Report of Independent Auditors
To the Board of Directors of
Aderans Company Limited:
We have audited the accompanying consolidated balance sheets of Aderans Company Limited and consolidated subsidiaries (the Company) as of February 28, 2006 and 2005, and the related consolidated
statements of income, shareholders’ equity, and cash flows for the years then ended, all expressed in yen.
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to independently express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally
accepted and applied in Japan. Those standards, procedures and practices require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Aderans Company Limited and consolidated subsidiaries at February
28, 2006 and 2005, and the results of their operations and their cash flows for the years then ended in
conformity with accounting principles and practices generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the
year ended February 28, 2006, are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the
basis described in Note 3 to the consolidated financial statements.
Tokyo, Japan
May 25, 2006
41
Non-Consolidated Five-Year Summary
Years ended the last day of February
Millions of yen
2006
Results of Operations
Net sales
2002
7,602
7,475
7,998
8,483
10,642
Gross profit
37,388
37,408
39,758
42,405
44,633
29,793
30,787
30,553
31,414
30,601
7,594
6,620
9,205
10,990
14,031
10,283
(3,920)
9,957
11,313
12,081
Net income (loss)
6,700
(6,813)
5,671
6,476
6,952
2,694
2,051
5,709
1,831
1,979
Research and development expenses
1,044
735
620
467
314
1,450
1,587
1,684
1,582
1,553
Amounts per Share
of Common Stock
(in Yen)
Net income (loss)
Financial Position
Current assets
¥ 164.74
¥(168.03) ¥ 137.85 ¥ 159.86 ¥ 169.86
1,617.11
1,537.28
1,746.10
1,644.23
1,548.98
44.00
38.00
32.00
30.00
28.00
¥ 17,777 ¥ 20,087 ¥ 19,586 ¥ 24,449 ¥ 20,979
8,800
7,084
9,072
9,374
9,242
—
—
—
—
—
63,594
62,062
71,880
66,357
63,293
Total assets
76,526
73,098
84,606
78,976
75,561
16.9
14.8
19.3
21.6
25.4
Net income (loss) to net sales
14.9
(15.2)
11.9
12.7
12.6
Shareholders’ equity to total assets
83.1
84.9
85.0
84.0
83.8
Return on equity
10.6
(10.2)
8.2
10.0
11.2
Return on assets
8.9
(8.6)
6.9
8.4
9.2
—
—
—
—
—
39,256
40,371
41,081
40,357
40,861
1,976
2,018
2,103
2,137
2,068
Current liabilities
Operating income to net sales
Interest-bearing debt ratio
Number of employees
Common Stock Prices
(in Yen)
2003
Cost of sales
Income (loss) before income taxes
Other Year-End Data
2004
¥ 44,990 ¥ 44,883 ¥ 47,757 ¥ 50,888 ¥ 55,275
Operating income
Key Ratios (%)
2005
4,190 ¥
2,620 ¥
2,485 ¥
4,250 ¥
4,720
Low
2,225
2,075
1,664
2,180
3,410
Year-end close
3,220
2,475
2,200
2,225
4,050
High
¥
Note: Net income (loss) per share and shareholders’ equity per share for 2006, 2005, 2004 and 2003 are calculated based on the new
accounting standard as described in Note 13 on page 39.
42
Non-Consolidated Operating Data
Millions of yen
Sales of Principal
Products
Custom-made wigs
2004
2003
2002
¥29,247
¥29,588
¥31,599
¥32,950
¥33,435
115
132
108
167
233
Pinpoint
1,987
1,585
1,908
2,300
3,010
Hair Support
5,564
5,520
5,516
5,997
6,460
Physical Esthé
1,210
1,105
1,191
1,455
1,513
¥38,125
¥37,933
¥40,325
¥42,872
¥44,653
¥10,757
¥11,134
¥12,420
¥14,321
¥15,586
17
19
15
18
30
Principal Product Sales Custom-made wigs
Hair Fix
to New Clients
Pinpoint
Hair Support
Physical Esthé
Total
Hair Fix
to Repeat Clients
834
651
825
1,145
1,796
1,855
1,778
2,036
2,582
2,939
334
311
315
469
544
¥13,799
¥13,895
¥15,614
¥18,539
¥20,897
¥18,489
¥18,454
¥19,178
¥18,628
¥17,849
98
113
93
149
202
Pinpoint
1,152
933
1,083
1,155
1,214
Hair Support
3,709
3,741
3,480
3,414
3,520
Physical Esthé
Total
Hair Fix
to Male Clients
876
793
875
985
968
¥24,325
¥24,037
¥24,710
¥24,333
¥23,755
¥ 9,378
¥ 9,497
¥10,538
¥10,916
¥11,606
108
129
102
154
225
Pinpoint
1,908
1,527
1,849
2,241
2,936
Hair Support
3,925
4,038
4,264
4,908
5,337
Physical Esthé
Total
to Female Clients
Hair Fix
Pinpoint
Hair Support
Physical Esthé
Total
Number of Client
Visits (Thousand)
2005
Hair Fix
Total
Number of Outlets
2006
Counseling offices
1,210
1,105
1,174
1,320
1,380
¥16,531
¥16,299
¥17,928
¥19,541
¥21,485
¥19,869
¥20,090
¥21,060
¥22,033
¥21,829
6
2
6
13
8
78
58
59
59
74
1,638
1,482
1,252
1,089
1,123
0
0
17
134
132
¥21,593
¥21,633
¥22,396
¥23,330
¥23,168
9
9
9
9
9
Regular outlets
140
139
138
136
134
Ladies’ salons
24
26
25
25
25
Satellite salons
50
52
52
50
50
New-concept salons
10
10
10
6
4
Total
233
236
234
226
222
Male
781
796
886
967
1,028
Female
521
508
517
507
495
1,303
1,304
1,403
1,474
1,523
Total
43
Corporate Governance
Basic Policy
Aderans actively works to enhance corporate governance. Toward this end, we have applied particular
effort to the establishment of a flexible organization primed for speedy decisions on business strategies
and their implementation and the execution of clear, timely and impartial disclosure of corporate information on business activities to all stakeholders.
Status
Internal structures pertaining to the formation, execution and supervision of decisions by the executive team
are described below.
Corporate Structure
Aderans maintains a corporate auditor system. Under this system, the following two executive teams
ensure that business activities are undertaken in accordance with prevailing laws and the Company’s
Articles of Incorporation.
We have clearly defined the responsibility for making decisions and implementing them, with the
Chief Executive Officer (CEO) accountable for long-term Group strategies and the Chief Operating
Officer (COO) accountable for executing measures aimed at achieving the goals of stated strategies.
Board of Directors
Chaired by the president and COO, this highest decision-making authority on business strategies meets
at least once a month to discuss key matters of business and determine responses necessary to move
ahead. The president or the director responsible for the business activity in question will ensure that
appropriate steps are taken to execute proposed measures.
Board of Auditors
The Board of Auditors comprises two full-time auditors and two external auditors, who get together on
the day the Board of Directors has met to exchange opinions on the appropriateness of decisions formed
by the Board of Directors. The full-time auditors offer the external auditors various updates, including a
report on the content of topics explored by the Executive Committee, a recap of items discussed in the
Reporting Sessions, updates on the execution of business activities by the Board of Directors and operating divisions, the results of audits executed by the Internal Auditing Division, staffed by five people, and
data obtained at various meetings, including those of the Executive Committee. As a group, the Board of
Auditors discusses the information brought to the table by the full-time auditors.
Executive Committee
Chaired by the president and COO, the Executive Committee comprises managing directors and the fulltime auditors. The committee meets one week prior to the Board of Directors’ meeting to select topics for
discussion at that meeting and to engage in preliminary discussions of these topics to confirm validity
under prevailing laws and Articles of Incorporation as well as acceptability vis à vis established social
standards. The committee will call upon outside experts when specialized knowledge is required.
Reporting Sessions
Chaired by the president and COO, these sessions are attended by managing directors, directors responsible for executing operations and the full-time auditors. Sessions convene twice a month.
These sessions provide opportunities for directors to get regular updates on actual business activities
and to confirm the content of reports with other members. When necessary, general managers will be
invited to provide progress on activities in their respective divisions. General managers may also be asked
to clarify new business proposals, which session participants will evaluate in terms of feasibility and legality as well as potential interest to clients and acceptance in society in general.
Outside experts will be called on for their opinions when specialized knowledge is required.
44
Internal Controls
The Board of Directors determines basic policy for internal controls, in accordance with the Company’s
stated business philosophy and business direction. Policy content is presented below.
Ensuring the activities of directors and staff conform to prevailing laws and the Company’s
Articles of Incorporation
Activities will be guided by a level of ethics and values demanded by society, based on respect for the
law, of course, as well as corporate philosophy and the business parameters of the Group.
Decisions on important matters that impact the Company or the Group as a whole will be formed
through discussions by the Executive Committee and in reporting sessions, in line with established rules
governing duties and powers. The Company relies on its directors to undertake their respective duties in
all sincerity, but audits by corporate auditors will verify that said duties have been executed lawfully.
Custody and management of information related to directors’ duties
Information relating to the execution of duties will be stored and maintained in line with rules governing
the handling of information assets. The paper or electronic documents to be kept are listed below, and
the custody period will be based on times set forth in rules for document management.
• Minutes from the General Meeting of Shareholders and related materials
• Minutes from Board of Directors’ meetings and related materials
• Minutes from meetings chaired by directors and related materials
• Key documents relating to other executive duties
• Internal memos passed around to directors to obtain overall approval of a decision
Directors and general managers will provide these documents whenever an auditor or someone
working on an audit at the instruction of an auditor asks to look at or copy a document deemed necessary to the audit.
Ensuring efficient execution of directors’ duties
Representative directors will require all directors to execute their duties, based on a division of duties and
in line with the authority allocated to directors to undertake said duties.
Important matters that impact the operations of the Company or the Group as a whole will be clarified by directors or general managers at regularly scheduled reporting sessions with directors in
attendance. If an obstacle to the efficient execution of duties exists, a solution will be presented to the
appropriate executive forum.
Other measures to control risk leading to losses
To preempt the appearance of risk leading to losses that would impede the sustainable corporate development, the Company established a structure that prevents risk from turning into crisis. This structure
hinges on the In-House Improvement Committee and an in-house hotline for reporting alleged illegal
activities or socially unacceptable behavior by directors or employees.
Directors ascertain the status of risk management efforts in respective areas of responsibility and provide updates at regularly scheduled reporting sessions. The risk of losses and measures to control such
risk are always under the direct review of members of reporting sessions.
If information were to leak out or an emergency, such as an accident or natural disaster, were to arise,
an emergency response team would convene immediately under the direction of the president to ensure a
swift and accurate response to the situation.
Ensuring fair business practices of listed companies as well as the corporate group that
comprises the parent company and its subsidiaries
Transactions between companies under the Group umbrella must be appropriate and comply with prevailing laws, accounting principles, tax requirements and social standards as well as in-house management
rules for affiliated companies.
At meetings of the Group executive and at meetings for overseas affiliates, the CEO will indicate the
direction of Group policy and the path that should be taken in executing operations. Local executives
will implement said policy and ensure that operations follow the designated path.
While respecting the autonomy of each company, the Treasury Division, the Manufacturing
Headquarters and the Overseas Division at Aderans’ headquarters will verify budgets and the success of
business plans on a quarterly basis.
45
Corporate auditors, as members of the Board of Auditors, will maintain a close relationship with the
Company’s accounting firm, the Treasury Division, the Manufacturing Headquarters and the Overseas
Division to expedite effective, accurate audits of the Aderans Group’s consolidated businesses.
Matters related to the system for employees asked by auditors to assist in directors’ audits
and these employees’ neutrality vis à vis directors
Auditors may ask the Internal Auditing Division to provide items pertinent to the execution of an audit.
In addition, depending on the importance of a specific audit, auditors may require the assistance of
employees to facilitate the process, and in such cases, directors must cooperate with the auditors’ assistants. Employees asked by corporate auditors to provide items pertinent to the execution of an audit shall
accept neither guidance nor orders from directors or the manager of the Internal Auditing Division that
pertain to the execution of said audit.
Auditors will provide directors with reports on the business skills and work attitude of the employees
who assist them, and directors will include these reports in their evaluation of the employees.
System for directors and employees to report to auditors or the Board and other systems for
reporting to auditors
Reports to auditors cover the following items.
• Reports on handling responses in the event risks, such as accidents or natural disasters, arise.
• Status reports on audits by the Internal Auditing Division.
• Reports containing questions from auditors and confirmed answers.
• Other items that require reports from directors and general managers.
Risk Management —
Information Monitoring
and Disclosure
Monitoring information
To date, directors and departments responsible for disclosure have sifted through risks and highlighted
pertinent data for distribution. From now on, however, risks faced by operating divisions will also be
examined in detail. A list of relevant information will be prepared and each risk will be graded according
to importance and then monitored.
Aderans recently established the Information Protection Committee to safeguard information assets,
including personal data.
As its name implies, this committee has a mandate to protect information collected by the Company.
It is responsible for preventing leaks and, in the unlikely event that data is errantly disclosed, it will pinpoint the breach and initiate improvements to preclude a second incident.
The activities of the committee are supported by an information protection discussion group, which
utilizes cross-sectional representation to identify key information in each division for safeguarding and
undertakes awareness programs to prevent leaks.
Aderans is currently restructuring its risk information management system. The switch to the new
system — anytime from fiscal 2007 — will soundly reinforce information management.
If information were to leak out or an unforeseen accident or a scandal were to arise, an emergency
response team, headed by the president, would convene immediately to deal with the situation and execute appropriate risk management responses. Depending on the circumstances, investors and the market
at large may require explanations, and we have a system in place to handle this as well. In addition, we
are enhancing in-house training programs to promote greater understanding of compliance among directors and employees and make management and staff conscious of behavior conforming to all applicable
laws and social standards.
Disclosing information
Aderans actively discloses business information essential to a solid reputation for management transparency. The process hinges on close ties among the Investor Relations Division, which is responsible for
disclosing information, the Legal Affairs Division, which confirms prior to disclosure that the content of
business activities undertaken by the Company conforms to prevailing laws and the Company’s Articles
of Incorporation, and the Treasury Division, which monitors financial data for the Company and its subsidiaries.
46
Remuneration for
Total annual remuneration for directors
¥392 million
Total annual remuneration for auditors
¥28 million
Portion paid to external auditors
¥13 million
Bonuses based on services described in Article 2-1 of
the Certified Public Accountants Law
¥24 million
No bonuses were paid for services other than those noted under the aforementioned law.
Structure to Ensure
Efficient Execution
of Other Audits by
Corporate Auditors
Cooperation with accounting firm
Corporate auditors receive status updates from the Company’s accounting firm at the end of the interim
and year-end audit of accounts and may ask questions of accounting firm auditors.
In addition, in situations where the participation of both the accounting firm and corporate auditors
is deemed necessary, they may work together.
Cooperation with Internal Auditing Division
The Internal Auditing Division is an in-house auditing department under the direct supervision of the
president, and as such, it does not fall within the corporate auditors’ chain of command and is not subject to direct requests from corporate auditors. The results of business audits undertaken by the Internal
Auditing Division are provided to the president and the full-time auditor and may be of help to corporate
auditors in their own business audits.
Corporate auditors may confirm internal control–related issues and ambiguities with the Internal
Auditing Division and, when necessary, ask for advice.
Corporate auditors’ audits parallel those of the Internal Auditing Division, which occur at irregular
intervals, based on a yearly division schedule, to ascertain routine audit status.
Appointment of external auditors
Of the four corporate auditors, two — a lawyer and a certified public accountant — are appointed from
outside the Company. From their respective professional perspectives, they confirm that the Company is
adhering to established laws and its Articles of Incorporation, and they carefully watch to make sure that
the Company maintains business activities and strategies based on the premise that a company exists only
as long as it has clients.
Private, Capital and
Aderans does not appoint external directors. The Company does have two external auditors, but it does
Business Relationships not maintain private, capital or business relationships with these auditors nor does any other potential
or Conflict of Interest
conflict of interest exist between the Company and these external auditors.
Between the Company
and Its External Directors
and External Auditors
Accounting Firm for
Aderans
Aderans maintains an audit contract with Kyobashi & Co., which undertakes audits of the Company as
required under the Commercial Code and the Securities and Exchange Law.
The names of the certified public accountants who participated in the audit of Aderans’ books for fiscal 2006 and the number of consecutive years these accountants have audited Aderans’ books as well as
the composition of the team assisting these accountants in the audit are listed below.
Names of certified public accountants who undertook audit and number of consecutive years
auditing Aderans
Isao Kishi, representative and managing partner
Yutaka Ishihara, representative and managing partner
Tsukasa Komiyama, representative and managing partner
Composition of team assisting accounting auditors
20 years
4 years
3 years
8 certified public accountants
47
Subsidiaries (Consolidated Companies)
As of May 31, 2006
Japan
● FONTAINE Co., Ltd.
● Aderans, Inc.
■ Bosley, Inc.
(a) January 5, 1979
(Became a wholly owned subsidiary
as of December 1, 2003)
(b) ¥1,539 million
(c) 100%
(a) April 19, 2001
(b) US$3,000 thousand
(c) 100%
(a) August 3, 1989 (Acquired August 1, 2001)
(b) US$8,261
(c) 96.2% (Indirect)
● International Hairgoods, Inc.
■ Sterling Accommodations, Inc.
(a) October 31, 1968 (Acquired June 29, 1987)
(c) 100% (Indirect)
(a) November 8, 1990 (Acquired August 1, 2001)
(b) US$20 thousand
(c) 100% (Indirect)
● New Concepts Hair Goods, Inc.
■ Bosley Medical Institute Canada, Inc.
(a) February 13, 1991 (Acquired March 5, 1998)
(b) US$25
(c) 100% (Indirect)
(a) March 25, 1997 (Acquired August 1, 2001)
(b) C$1,000
(c) 100% (Indirect)
■ Pal Messe Co., Ltd.
● René of Paris
■ Aderans Research Institute, Inc.
(a) June 10, 1991
(Acquired February 10, 2006)
(b) ¥50 million
(c) 100%
(a) November 1, 1976 (Acquired March 1, 1989)
(c) 100% (Indirect)
(a) June 25, 2002
(b) US$400 thousand
(c) 100% (Indirect)
■ ADN Co., Ltd.
(a) May 1, 1985
(Acquired December 4, 1998)
(b) ¥80 million
(c) 83.2%
● General Wig Manufacturers, Inc.
North America
● Aderans Holding Co., Inc.
(a) November 23, 1994
(c) 100%
(a) June 14, 1963 (Acquired September 28, 1998)
(b) US$37 thousand
(c) 100% (Indirect)
● Camaflex SAS
(France)
(a) December 5, 1956 (Acquired March 1, 1992)
(b) €540 thousand
(c) 100% (Indirect)
Europe
● Aderans Europe B.V.
(The Netherlands)
(a) January 9, 1992
(b) €24,000 thousand
(c) 100%
Asia (excluding Japan)
● Aderans Inc. (Taiwan)
(a) January 12, 1990
(b) NT$20,000 thousand
(c) 100%
● Aderans Thai., Ltd.
(Thailand)
(a) October 17, 1986
(b) B170,000 thousand
(c) 100%
● Aderans Philippines, Inc.
(Philippines)
(a) January 31, 2002
(b) P300,000 thousand
(c) 100%
● Gesmofra SAS (France)
(a) March 1, 1980 (Acquired March 1, 1992)
(b) €2,000 thousand
(c) 100% (Indirect)
● Monfair Mode SARL (France)
(a) February 16, 1987 (Acquired March 1, 1992)
(b) €10 thousand
(c) 100% (Indirect)
● Création de Paris Camaflex Vertriebs GmbH
● Monfair Moden Vertriebs GmbH
(Germany)
(a) December 11, 1985 (Acquired March 1, 1992)
(b) €50 thousand
(c) 100% (Indirect)
(Germany)
(a) July 26, 1966 (Acquired March 1, 1992)
(b) €800 thousand
(c) 100% (Indirect)
● Camaflex S.A. (Belgium)
(a) September 25, 1962 (Acquired March 1, 1992)
(b) €70 thousand
(c) 100% (Indirect)
● D. van Nooijen B.V. (The Netherlands)
(a) January 1, 1984 (Acquired March 1, 1994)
(b) €20 thousand
(c) 100% (Indirect)
● Trend Hair Supplies Co., Ltd.
(England)
(a) March 26, 1973 (Acquired May 13, 2002)
(b) £30 thousand
(c) 100% (Indirect)
● Best Move Co., Ltd.
(England)
(a) June 22, 1979 (Acquired January 3, 2006)
(b) £115
(c) 100% (Indirect)
● Carl M Lundh AB
(Sweden)
(a) 1852 (Acquired January 7, 2005)
(b) SK100 thousand
(c) 100% (Indirect)
● World Quality Co., Ltd. (Thailand)
(a) September 3, 1992
(b) B15,000 thousand
(c) 100% (Indirect)
48
(a) Established
(b) Capital
(c) Percentage of parent
company’s ownership
Holding Company
Marketing Company
■ Hair-Transplant Business
■ Other Business
● Manufacturing Company
●
●
Corporate Data
As of May 26, 2006
As of February 28, 2006
The Aderans Group
Three key strengths — solid brand reputation, global presence and a comprehensive array of
products and services — are the signposts of success on our sure-footed path to growth.
Strength 1:
Strength 2:
Solid Brand Reputation
Global Presence
Established in 1969, Aderans Co., Ltd., is a
comprehensive provider of hair-replacement
products and hair-related services for men
and women. The Company maintains Japan’s
leading brand of custom-made hair-replacement products for both sexes and has also
built a solid presence in the women’s fashion
wig market through Fontaine Co., Ltd., a
domestic subsidiary.
Strength 3:
Comprehensive Array of
Products and Services
We augment our mainstay custom-made
wigs for men and women with a rich
selection of complementary products and
hair-related services. Seeking to cement a
position at the forefront of the hair-transplant and hair-growth markets, we have
reinforced our presence in the U.S. hairtransplant business with promising research
and development on hair regeneration.
This move underpins steady expansion of
Group operations beyond wigs and hairreplacement products to hair-growth
treatments and therapeutic remedies.
Aderans heads a group of 28 consolidated
subsidiaries — three operating in Japan and
25 overseas — which together employ more
than 5,400 people. Members of the Group in
the United States and Europe have captured
higher market shares, especially in women’s
fashion wig wholesaling. This achievement
is complemented by sales of men’s wigs in
Taiwan, South Korea and other areas of Asia.
Domestic
Men’s
Market
Rapidly expanded custom-made
wig market with nationwide
network in Japan.
1 Consolidated Financial Highlights
4 Message from the Management
On a Sure-Footed Path to Growth
8 Strategy for the Domestic Men’s Market
10 Strategy for the Domestic Women’s Market
13 Strategy for Other Domestic Hair-Related Businesses
14 Strategy for Overseas Markets
16 Research and Development
18 Aderans in Society
19 Financial Section
44 Corporate Governance
48 Subsidiaries
49 Directors and Auditors, Corporate Data
1986
Commenced Production in Thailand
Opened production facility,
Aderans Thai. which now boasts
world’s highest wig production
capacity.
Head Office
Takayoshi Okamoto*
6-3, Shinjuku 1-chome, Shinjuku-ku, Tokyo 160-8429
President & COO
Established
Katsuji Tokumaru*
March 1, 1969
Senior Managing Director
Paid-in Capital
Mamoru Mino
¥12,944 million
In charge of sales and marketing management division
Managing Director
Noboru Kaneko
In charge of business planning headquarters
Directors
Tsuguo Tanaka
In charge of corporate planning headquarters
Hiroyasu Yamakawa
General manager of administrative division
Senkichi Yagi
General manager of sales and marketing management division
1979
Entered U.S.
Market
Mutsuo Minowa
Established foothold
in the U.S. market
with local representative office.
Nobuo Nemoto
Haruo Okita
General manager of overseas division
Supreme Advisors and Directors
Standing Corporate Auditors
Fumio Arai
Yuji Hirano
1969
Aderans Established
CONTENTS
8
Overseas
Markets
Chairman & CEO
Corporate Auditors
Masaaki Katagiri
Iwao Toigawa
Domestic
Women’s
Market
*Representative director
Number of Shares Authorized
138,000,000
Number of Shares Issued
41,713,388
Number of Shareholders
7,277
Number of Shares and
Shareholding Ratio
Principal Shareholders
Thousands of
Shares
Name
Steel Partners Japan Strategic Fund (Offshore) LP
Nobuo Nemoto
State Street Bank and Trust Company
The Master Trust Bank of Japan, Limited (Trust Account)
Japan Trustee Services Bank, Limited (Trust Account)
State Street Bank and Trust Company 505019
The Dai-Ichi Mutual Life Insurance Company
Trust & Custody Services Bank, Limited
(Security Investment Trust Account)
The Bank of New York Treaty JASDEC Account
Japan Trustee Services Bank, Limited
(Trust Account 4)
%
6,797
4,642
4,322
2,243
2,132
943
726
17.35
11.85
11.03
5.72
5.44
2.40
1.85
570
532
1.45
1.35
468
1.19
Notes: 1. The Company holds of 2,456 thousand shares of its own shares in treasury stock.
2. Those shares held by the Master Trust Bank of Japan, Limited, Japan Trustee
Services Bank, Limited, and Trust & Custody Services Bank, Ltd. are the shares
relating to their trust businesses.
Stock Listings
First Section of Tokyo Stock Exchange
First Section of Osaka Securities Exchange
Transfer Agent and Registrar
The Chuo Mitsui Trust and Banking Company, Limited,
Securities Department
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063
Number of Outlets
233
1985
Began Promoting
Custom-Made Wigs
Number of Employees
1,976
Stock Price Range
Women’s custom-made wigs were
first advertised through media such
as magazines.
Trading Volume
(Thousands of shares)
Stock Price
(¥)
14,000
4 ,9 0 0
Fontaine
12,000
4 ,2 0 0
Brought Fontaine, a leading name
in ladies’ ready-made wigs, under
the Aderans umbrella through
equity purchase.
10,000
3 ,5 0 0
8,000
2 ,8 0 0
6,000
2 ,1 0 0
4,000
1 ,4 0 0
2,000
700
For Further Information Contact:
Investor Relations Division, Aderans Co., Ltd.
6-3, Shinjuku 1-chome, Shinjuku-ku,
Tokyo 160-8429, Japan
0
0
05
3
4
5
6
7
8
9
06
10 11 12 1 2
Tel. 03-3350-3268 Fax. 03-3356-3052
E-mail. [email protected]
49
Aderans
Company
NN
EPORT 2OO4
Aderans
Company
LimitedLimited
A N N U A LA R
E PUOARLTR2OO6
Aderans
Annual Report 2006
Ye a r e n d e d F e b r u a r y 2 8 , 2 0 0 6
A d e r a n s V I TA L H A I R
Aderans Hair Club
Pinpoint Fix
Hair Support Aqua
eve Fine
Sifore Aroma
VA L A N
Fontaine
NORIKO COLLECTION
Amore
Uses soybean ink in
consideration of the environment
100% recycled paper
Printed in Japan

Aderans Company Limited

Transcription

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