Take and Give Needs / 4331

COVERAGE INITIATED ON: 2018.08.01 LAST UPDATE: 2018.11.09

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.

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INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.

Executive summary ------3 Key financial data ------5 Recent updates ------6 Highlights ------6 Trends and outlook ------8 Quarterly trends and results ------8 1H FY03/19 results ------10 Long-term outlook ------13 Business ------15 Business description ------15 Business model ------16 Market and value chain ------30 Competition ------41 Strengths and weaknesses ------46 Historical performance and financial statements ------48 Income statement ------48 Balance sheet ------49 Cash flow statement ------51 Historical performance ------52 Q1 FY03/19 results ------52 Full-year FY03/18 results ------53 Other information ------55 History ------55 News and topics ------57 Corporate governance and top management ------58 Dividend policy ------58 Major shareholders ------59 Employees ------59 Profile ------59

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Executive summary

Business overview

◤ Take and Give Needs Co., Ltd. (T&G) offers “house weddings,” which are marriage ceremonies and receptions held at a guest house rented for the occasion. According to the company, it has the top market share of the house wedding business in Japan by sales at 15%.

◤ T&G was established in October 1998 when founder Yoshitaka Nojiri started a house wedding service in partnership with restaurants. In 2001, the company opened a directly operated house wedding facility, and from 2003 expanded operations nationwide ahead of peers, promoting the spread of house weddings across Japan.

◤ The Domestic Wedding segment is the company’s mainstay business, accounting for roughly 80% of overall sales (JPY64.6bn) and operating profit (JPY2.8bn before eliminations) in FY03/18. The main source of earnings for this business is fees for planning and executing house weddings. The average customer spend for T&G’s house weddings rose after the company upgraded chapels and banquet halls, and this increase contributed to a gradual GPM improvement. (The average spend per wedding was JPY4.0mn in Q3 FY03/16, JPY3.9mn in Q3 FY03/17, and JPY4.0mn in Q3 FY03/18; GPM in the Domestic Wedding business was 59.0%, 59.1%, and 60.8% for the respective quarters).

◤ In the Overseas and Destination Wedding segment, the company mainly conducts weddings at resorts located overseas and in Okinawa. Backed by the expansion of T&G facilities in Hawaii, Guam, Bali, and Okinawa, the number of weddings has increased steadily. Segment sales rose for 10 consecutive years, from JPY1.9bn in FY03/08 to JPY10.8bn in FY03/18, with CAGR at 18.8%.

Trends and outlook

◤ In FY03/18, sales were JPY64.6bn (+7.3% YoY), operating profit was JPY2.8bn (+14.2% YoY), recurring profit JPY2.5bn (+18.5% YoY), and net income attributable to owners of the parent JPY888mn (2.5x YoY). Operating profit exceeded the company forecast of JPY2.6bn by JPY185mn, mainly because profits of TRUNK (HOTEL), a hotel opened in May 2017, surpassed expectations.

◤ For FY03/19, the company forecasts sales of JPY66.5bn (+3.0% YoY), operating profit of JPY3.8bn (+36.4% YoY), recurring profit of JPY3.4bn (+36.6% YoY), and net income attributable to owners of the parent of JPY1.4bn (+57.7% YoY). The company revised up its earnings forecasts in November 2018. The revised OP forecast factors in an increase in wedding orders and the shift in average customer spend per wedding in the Domestic Wedding business. The forecast also reflects advertising expenses, renovation expenses, and other investments toward business growth from FY03/20 onward.

◤ While T&G does not disclose a medium-term business plan, it intends to secure a stable revenue stream from the Domestic Wedding business, while positioning the new Hotel business (currently a subsegment) as a growth driver in addition to the Overseas and Destination Wedding business. In the Domestic Wedding business, the company plans to generate stable cash flow by raising market share through bolstered earnings capability and competitiveness; OPM of around 8% is in sight for the medium-term. In the Hotel business, T&G plans to accelerate openings of Western-style hotels modified for central Tokyo and major regional cities. It also plans to explore new resort opportunities and increase the number of facilities in the Overseas and Destination Wedding business with a view to capturing growing demand in Asia. Longer-term outlook: consolidated sales of around JPY100.0bn in FY03/28, which breaks down to Domestic Wedding business JPY50.0bn, Hotel business JPY30.0–40.0bn, Overseas and Destination Wedding business JPY20.0–30.0bn, and Other JPY5.0bn (eliminations: JPY5.0bn). This scenario assumes an operating profit of around JPY7.0bn and OPM of around 7%, to maintain the profitability of the Domestic Wedding business while expanding the earnings of new businesses.

Strengths and weaknesses

The company’s strengths are its established brand in the house wedding market; ability to develop markets by being an early mover, from house weddings to boutique hotels; and capable successors to support the founder. Weaknesses: reliance on the

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domestic wedding business, which is expected to see market contraction in Japan; impairment of unprofitable venues weighing on profit margins; and low asset efficiency amid maturing house wedding market (see the Strengths and weaknesses section for details).

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Key financial data

Income statement FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Total sales 46,039 46,716 47,983 52,804 60,714 59,221 59,524 60,186 64,590 66,500 YoY -0.4% 1.5% 2.7% 10.0% 15.0% -2.5% 0.5% 1.1% 7.3% 3.0% Gross profit 24,655 24,954 25,801 28,499 34,199 33,847 34,611 35,922 39,848 - YoY 4.2% 1.2% 3.4% 10.5% 20.0% -1.0% 2.3% 3.8% 10.9% - GPM 53.6% 53.4% 53.8% 54.0% 56.3% 57.2% 58.1% 59.7% 61.7% - Operating profit 2,520 2,282 2,213 2,833 3,706 2,973 1,546 2,439 2,785 3,800 YoY 272.8% -9.4% -3.0% 28.0% 30.8% -19.8% -48.0% 57.8% 14.2% 36.4% OPM 5.5% 4.9% 4.6% 5.4% 6.1% 5.0% 2.6% 4.1% 4.3% 5.7% Recurring profit 1,882 1,541 1,588 2,459 3,342 2,784 1,377 2,100 2,489 3,400 YoY 5971.0% -18.1% 3.0% 54.8% 35.9% -16.7% -50.5% 52.5% 18.5% 36.6% RPM 4.1% 3.3% 3.3% 4.7% 5.5% 4.7% 2.3% 3.5% 3.9% 5.1% Net income 371 214 453 1,086 1,370 1,008 230 360 888 1,400 YoY -135.4% -42.3% 111.7% 139.7% 26.2% -26.4% -77.2% 56.5% 146.7% 57.7% Net margin 0.8% 0.5% 0.9% 2.1% 2.3% 1.7% 0.4% 0.6% 1.4% 2.1% Per share data (JPY) Shares issued (year-end; '000) 823 1,297 1,297 1,306 1,306 1,306 1,306 1,306 1,306 - EPS 350.5 165.5 347.7 83.2 104.7 77.8 17.8 27.9 68.6 108.1 EPS (fully diluted) 349.2 165.4 347.7 ------Dividend per share - 100.0 100.0 120.0 15.0 15.0 15.0 15.0 15.0 15.0 Book value per share 12,547 12,617 12,764 1,361 1,474 1,565 1,559 1,566 1,615 - Balance sheet (JPYmn) Cash and cash equivalents 4,559 4,094 5,035 4,170 5,582 5,111 3,871 4,918 4,769 - Total current assets 6,858 6,801 7,779 7,612 9,391 9,485 8,237 9,643 10,520 - Tangible fixed assets 21,095 20,927 20,803 24,514 24,695 25,564 29,240 31,743 35,037 - Investments and other assets 14,758 16,297 14,249 12,192 11,810 10,853 9,826 9,647 9,580 - Intangible fixed assets 743 607 557 2,191 2,384 2,187 1,981 1,143 887 - Total assets 43,456 44,634 43,390 46,510 48,282 48,091 49,286 52,176 56,025 - Accounts payable 2,347 1,867 2,413 2,732 2,874 2,576 2,627 2,484 2,339 - Short-term debt 7,286 6,593 8,585 5,243 6,017 5,494 4,890 7,111 6,300 - Total current liabilities 13,397 12,598 15,158 13,270 15,839 14,058 13,648 16,510 15,597 - Long-term debt 11,846 12,800 9,066 12,655 10,330 11,338 12,778 12,881 16,868 - Total fixed liabilities 13,736 15,587 11,439 15,279 13,081 13,569 15,252 15,180 19,291 - Total liabilities 27,134 28,186 26,598 28,550 28,921 27,628 28,901 31,690 34,889 - Net assets 43,456 44,634 43,390 46,510 48,282 48,091 49,286 52,176 56,025- Total interest-bearing debt 19,132 19,393 17,651 17,898 16,347 16,832 17,668 19,992 23,168 - Cash flow statement (JPYmn) Cash flows from operating activities 3,383 1,449 3,687 3,870 5,646 1,825 3,731 4,130 4,139 - Cash flows from investing activities -2,030 -2,138 -880 -2,197 -1,769 -2,477 -5,471 -5,155 -6,708 - Cash flows from financing activities 287 232 -1,828 -2,377 -2,537 126 476 2,092 2,408 - Financial ratios ROA (RP-based) 4.4% 3.5% 3.6% 5.5% 7.1% 5.8% 2.8% 4.1% 4.6% - ROE 2.2% 1.3% 2.7% 6.0% 7.2% 5.1% 1.2% 1.8% 4.3% - Equity ratio 37.6% 36.8% 38.7% 38.6% 40.1% 42.6% 41.4% 39.3% 37.7% - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Recent updates Highlights

On November 9, 2018, Take & Give Needs Co., Ltd. (“T&G”) announced earnings results for 1H FY03/19; see the results section for details.

On November 7, 2018, the company announced a revision to its 1H and full-year FY03/19 earnings forecasts.

Revised forecasts for 1H FY03/19 Ne t in c o me (JPYmn) Sales Operating profit Recurring profit attributable to EPS (JPY) owners of the parent Previous Est. 32,000 1,500 1,350 750 57.90

New Est. 32,740 2,280 2,090 1,340 103.45

Difference 740 780 740 590 -

Diff., as % of Prev. Est. 2.3% 52.0% 54.8% 78.7% -

Q2 FY03/18 Act. 31,082 683 491 36 2.82

Source: Shared Research based on company data

Reasons for revising 1H forecasts Sales: In addition to the strong performance of a new hotel opened during FY03/18, T&G’s customer base expanded significantly due to the remodeling of its wedding facilities. As a result, the number of weddings held at the company’s domestic facilities increased. Profit: 1) GPM improved as the company’s efforts to create products internally (one of T&Gs initiatives aimed at improving profitability) made progress both in the Domestic Wedding business and the Overseas and Destination Wedding business. 2) SG&A expenses came in below budget since scheduled ad shootings and renovation work were postponed due to natural disasters such as typhoons and earthquakes that hit Japan during 1H.

Revised full-year forecasts for FY03/19 Ne t in c o me (JPYmn) Sales Operating profit Recurring profit attributable to EPS (JPY) owners of the parent Previous Est. 66,000 3,400 3,000 1,200 92.63

New Est. 66,500 3,800 3,400 1,400 108.09

Difference 500 400 400 200 -

Diff., as % of Prev. Est. 0.8% 11.8% 13.3% 16.7% -

FY03/18 Act. 64,590 2,785 2,489 888 68.58

Source: Shared Research based on company data

Background for revising the full-year forecasts Wedding orders are robust in the Domestic Wedding business but the company also takes into account the impact of a shift in average customer spend per wedding. T&G also anticipates advertising and renovation expenses from initiatives that have been pushed back from 1H, as well as other investments toward business growth from FY03/20 onward.

On November 2, 2018, the company announced the expansion of its business into Phuket, Thailand.

Good Luck Corporation, a group company of Take & Give Needs that plans and operates overseas and domestic destination weddings, announced that it has concluded exclusive sales agreement regarding destination weddings with three hotels in

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Phuket, Thailand, one of the most popular tourist destinations in Asia, and that it resolved to open the three wedding venues at the same time.

According to the medium-term management plan EVOL 2027 announced in July 2018, T&G targets consolidated sales of JPY100bn in ten years. Good Luck manages the overseas destination wedding business, and in fiscal 2018, handled about 1,000 wedding ceremonies for overseas couples mainly from East Asia. In its medium-term plan, Good Luck targets sales of JPY20–30bn and operating 50 destination wedding venues in fiscal 2027. It aims to accelerate the development of its overseas business strategy by entering Phuket, a popular tourist destination in Asia.

Good Luck entered an exclusive sales agreement with the following three resort hotels: The Shore at Katathani Resort, Anantara Mai Khao Phuket Villas, and The Naka Island, A Luxury Collection Resort & Spa Phuket.

The Shore at Katathani Resort Anantara Mai Khao Phuket Villas The Naka Island, A Luxury Collection Resort & Spa Phuket

Source: Company release data

Wedding venues at the above three hotels will be provided mainly for customers from East Asia, namely China, Hong Kong, South Korea, and Taiwan. With the opening of three wedding venues at the same time, the number of destination wedding venues will total 22.

For previous releases and developments, please refer to the News and topics section.

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Trends and outlook

Quarterly trends and results

Cumulative FY 03/ 17 FY03/18 FY03/19 FY 03/ 19 FY03/19 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2% of 1H1H Est.% of FYFY Est. Sales 14,158 28,852 45,075 60,186 14,349 31,082 48,494 64,590 15,801 32,742 100.0% 32,740 49.2% 66,500 YoY -1.1% 0.5% 1.8% 1.1% 1.3% 7.7% 7.6% 7.3% 10.1% 5.3% 5.3% 3.0% Gross profit 8,355 17,137 26,830 35,922 8,721 19,032 29,763 39,848 9,923 20,713 YoY -0.3% 2.1% 3.4% 3.8% 4.4% 11.1% 10.9% 10.9% 13.8% 8.8% GPM 59.0% 59.4% 59.5% 59.7% 60.8% 61.2% 61.4% 61.7% 62.8% 63.3% SG&A expenses 8,162 16,562 24,731 33,483 9,196 18,349 27,631 37,063 9,06618,429 YoY 1.3% 0.3% 0.9% 1.3% 12.7% 10.8% 11.7% 10.7% -1.4% 0.4% SG&A-to-sales ratio 57.6% 57.4% 54.9% 55.6% 64.1% 59.0% 57.0% 57.4% 57.4% 56.3% Operating profit 192 574 2,099 2,439 -475 683 2,131 2,785 857 2,284 100.2% 2,280 60.1% 3,800 YoY -40.7% 108.7% 46.7% 57.8% - 19.0% 1.5% 14.2% - 234.4% 233.8% 36.4% OPM 1.4% 2.0% 4.7% 4.1% - 2.2% 4.4% 4.3% 5.4% 7.0% 7.0% 5.7% Recurring profit 97 282 1,682 2,100 -567 491 1,871 2,489 719 2,090 100.0% 2,090 61.5% 3,400 YoY -67.9% 18.0% 26.8% 52.5% - 74.1% 11.2% 18.5% - 325.7% 325.7% 36.6% RPM 0.7% 1.0% 3.7% 3.5% - 1.6% 3.9% 3.9% 4.6% 6.4% 6.4% 5.1% Net income 13 35 728 360 -401 36 814 888 480 1,342 100.1% 1,340 95.9% 1,400 YoY -74.5% - 95.7% 56.5% - 2.9% 11.8% 146.7% - 3627.8% 3622.2% 57.7% Net margin 0.1% 0.1% 1.6% 0.6% - 0.1% 1.7% 1.4% 3.0% 4.1% 4.1% 2.1% Quart erly FY03/17 FY03/18 FY03/19 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 Sales 14,158 14,694 16,223 15,111 14,349 16,733 17,412 16,096 15,801 16,941 YoY -1.1% 2.1% 4.3% -0.9% 1.3% 13.9% 7.3% 6.5% 10.1% 1.2% Gross profit 8,355 8,782 9,693 9,092 8,721 10,311 10,731 10,085 9,923 10,790 YoY -0.3% 4.4% 6.0% 4.8% 4.4% 17.4% 10.7% 10.9% 13.8% 4.6% GPM 59.0% 59.8% 59.7% 60.2% 60.8% 61.6% 61.6% 62.7% 62.8% 63.7% SG&A expenses 8,162 8,400 8,169 8,752 9,196 9,153 9,282 9,432 9,066 9,363 YoY 1.3% -0.7% 2.2% 2.3% 12.7% 9.0% 13.6% 7.8% -1.4% 2.3% SG&A-to-sales ratio 57.6% 57.2% 50.4% 57.9% 64.1% 54.7% 53.3% 58.6% 57.4% 55.3% Operating profit 192 382 1,525 340 -475 1,158 1,448 654 857 1,427 YoY -40.7% - 31.9% 195.7% - 203.1% -5.0% 92.4% - 23.2% OPM 1.4% 2.6% 9.4% 2.3% - 6.9% 8.3% 4.1% 5.4% 8.4% Recurring profit 97 185 1,400 418 -567 1,058 1,380 618 719 1,371 YoY -67.9% - 28.7% 736.0% - 471.9% -1.4% 47.8% - 29.6% RPM 0.7% 1.3% 8.6% 2.8% - 6.3% 7.9% 3.8% 4.6% 8.1% Net income 13 22 693 -368 -401 437 778 74 480 862 YoY -74.5% - 28.3% - - 1886.4% 12.3% - - 97.3% Net margin 0.1% 0.1% 4.3% - - 2.6% 4.5% 0.5% 3.0% 5.1% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Sales Operating profit

(JPYmn) (JPYmn) 20,000 25.0% 2,000 20% 20.6% 17.4% 20.0% 17.0% 1,500 15% 15,000 13.9% 15.0% 11.6% 10.5% 9.4% 1,000 10% 7.3% 10.0% 8.3% 7.4% 6.5% 6.9% 10,000 6.5% 6.5% 4.2% 4.3% 5.4% 3.2% 5.0% 5.7% 2.6% 2.1% 1.3% 500 5% 4.4% 4.1% 0.0% -0.3% 0.0% 1.4% 5,000 2.6% -1.1% -0.9% 1.9% 2.3% 2.3% 0 0% -1.8% 1.0% 0.8% 0.8% -5.0% -4.6% -4.9% 0.0% 0.0% -6.7% 0 -10.0% -500 -5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 FY3/14 FY3/15 FY3/16 FY3/17 FY3/18 FY3/19 FY3/14 FY3/15 FY3/16 FY3/17 FY3/18 FY3/19

Sales YoY Operating profit OPM Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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By segment (cumulative) FY03/17 FY03/18 FY03/19 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 Sales 14,158 28,852 45,075 60,186 14,349 31,082 48,494 64,590 15,801 32,742 YoY -1.1% 0.5% 1.8% 1.1% 1.3% 7.7% 7.6% 7.3% 10.1% 5.3% Domestic Wedding 11,897 23,743 37,784 49,568 11,829 25,162 39,946 52,096 13,151 26,566 YoY -2.5% -0.3% 1.0% 0.3% -0.6% 6.0% 5.7% 5.1% 11.2% 5.6% % of total sales 84.0% 82.3% 83.8% 82.4% 82.4% 81.0% 82.4% 80.7% 83.2% 81.1% Overseas and Destination Wedding 1,910 4,455 6,191 9,156 2,104 5,142 7,257 10,801 2,216 5,397 YoY 13.2% 9.6% 11.0% 8.1% 10.2% 15.4% 17.2% 18.0% 5.3% 5.0% % of total sales 13.5% 15.4% 13.7% 15.2% 14.7% 16.5% 15.0% 16.7% 14.0% 16.5% Other 350 652 1,099 1,461 414 777 1,290 1,692 434 778 YoY -17.8% -20.8% -13.7% -9.8% 18.3% 19.2% 17.4% 15.8% 4.8% 0.1% % of total sales 2.5% 2.3% 2.4% 2.4% 2.9% 2.5% 2.7% 2.6% 2.7% 2.4% Operating profit 192 574 2,099 2,439 -475 683 2,131 2,785 857 2,284 YoY -40.7% 108.7% 46.7% 57.8% - 19.0% 1.5% 14.2% - 234.4% Domestic Wedding 652 1,223 3,098 3,469 198 1,454 3,511 3,944 1,349 2,893 YoY -26.2% 5.0% 4.8% 0.9% -69.6% 18.9% 13.3% 13.7% 581.3% 99.0% OPM 5.5%5.2%8.2%7.0%1.7%5.8%8.8%7.6%10.3%10.9% % of total operating profit ------Overseas and Destination Wedding 29 287 136 565 -162 239 -36 602 10 403 YoY - 54.3% - 88.3% - -16.7% - 6.5% - 68.6% OPM 1.5%6.4%2.2%6.2%-4.6%-5.6%0.5%7.5% % of total operating profit 15.1% 50.0% 6.5% 23.2% - 35.0% - 21.6% 1.2% 17.6% Other -489 -936 -1,135 -1,595 -511 -1,010 -1,344 -1,761 -502 -1,012 YoY ------OPM ------% of total operating profit ------By segment (quarterly) FY03/17 FY03/18 FY 03/ 19 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 Sales 14,158 14,694 16,223 15,111 14,349 16,733 17,412 16,096 15,801 16,941 YoY -1.1% 2.1% 4.3% -0.9% 1.3% 13.9% 7.3% 6.5% 10.1% 1.2% Domestic Wedding 11,897 11,846 14,041 11,784 11,829 13,333 14,784 12,150 13,151 13,415 YoY -2.5% 2.0% 3.3% -1.9% -0.6% 12.6% 5.3% 3.1% 11.2% 0.6% % of total sales 84.0% 80.6% 86.5% 78.0% 82.4% 79.7% 84.9% 75.5% 83.2% 79.2% Overseas and Destination Wedding 1,910 2,545 1,736 2,965 2,104 3,038 2,115 3,544 2,216 3,181 YoY 13.2% 7.2% 14.7% 2.4% 10.2% 19.4% 21.8% 19.5% 5.3% 4.7% % of total sales 13.5% 17.3% 10.7% 19.6% 14.7% 18.2% 12.1% 22.0% 14.0% 18.8% Other 350 302 447 362 414 363 513 402 434 344 YoY -17.8% -23.9% -0.7% 4.3% 18.3% 20.2% 14.8% 11.0% 4.8% -5.2% % of total sales 2.5% 2.1% 2.8% 2.4% 2.9% 2.2% 2.9% 2.5% 2.7% 2.0% Operating profit 192 382 1,525 340 -475 1,158 1,448 654 857 1,427 YoY -40.7% -879.6% 31.9% 195.7% - 203.1% -5.0% 92.4% - 23.2% Domestic Wedding 652 571 1,875 371 198 1,256 2,057 433 1,349 1,544 YoY -26.2% 103.2% 4.6% -22.9% -69.6% 120.0% 9.7% 16.7% 581.3% 22.9% OPM 5.5% 4.8% 13.4% 3.1% 1.7% 9.4% 13.9% 3.6% 10.3% 11.5% % of total operating profit 339.6% 149.5% - - - - - 66.2% - - Overseas and Destination Wedding 29 258 -151 429 -162 401 -275 638 10 393 YoY -583.3% 34.4% - 37.5% - 55.4% - 48.7% - -2.0% OPM 1.5% 10.1% - 14.5% - 13.2% - 18.0% 0.5% 12.4% % of total operating profit 15.1% 67.5% - - - 34.6% - 97.6% 1.2% 27.5% Other -489 -447 -199 -460 -511 -499 -334 -417 -502 -510 YoY ------OPM ------% of total operating profit ------Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Other includes head office allocation expenses.

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Quarterly sales Quarterly operating profit

(JPYmn) (JPYmn) 80,000 4,000 3,800

66,500 3,500 2,785 70,000 64,590 60,186 3,000 654 60,000 2,439 16,096 2,500 15,111 340 50,000 2,000 1,448 40,000 17,412 1,500 1,427 16,223 1,525 1,000 30,000 16,941 500 1,158 16,733 382 857 20,000 14,694 0 192 -475 10,000 14,158 14,349 15,801 -500 0 -1,000 FY03/17 FY03/18 FY03/19 FY03/17 FY03/18 FY03/19

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

1H FY03/19 results Earnings summary

▷ Sales: JPY32.7bn (+5.3% YoY) ▷ Operating profit: JPY2.3bn (+234.4% YoY) ▷ Recurring profit: JPY2.1bn (+325.7% YoY) ▷ Net income: JPY1.3bn (37.3x the result of 1H FY03/18) *Net income refers to net income attributable to owners of the parent

Sales at earnings were up at the mainstay Domestic Wedding business, which includes the TRUNK (HOTEL), and the Overseas and Destination Wedding business, as both areas saw solid growth with the exception of operations in Guam. Overseas sales accounted for 16.5% of total sales, unchanged from the same period last year.

Gross profit of JPY20.7bn was up 8.8% YoY. The gross profit margin of 63.3% was up 2.1pp YoY and 0.5pp above plan. The company attributed the rise in the gross profit margin to the boost to earnings coming from the move to increase in-house production. SG&A spending rose 0.4% YoY to JPY18.4bn as the opening of new facilities pushed up personnel costs, but operating profit still came in above plan.

Results by segment Domestic Wedding business For 1H FY03/19, the Domestic Wedding segment reported total sales of JPY26.6bn (+5.6% YoY), gross profit of JPY16.6bn (+9.2% YoY), and operating profit of JPY2.9bn (+99.0% YoY). Within the segment, directly operated facilities generated sales of JPY23.9bn (+11.6% YoY), consulting services JPY713mn (-9.1% YoY), and other services (lodging, restaurants, etc.) JPY1.9bn (+8.5% YoY). Average spending per wedding at directly operated facilities fell 3.6% YoY to JPY3.8mn on a decline in guest numbers.

The top-line gains were attributed to an increase in the number of weddings at directly operated facilities, which at 6,207 was up 6.9% YoY, and the renovation of five existing facilities as part of the company's ongoing efforts to enhance existing facilities. The jump in operating profit reflected the boost to earnings from this "renewal effect," the TRUNK (HOTEL) being in operation the entire period, and moves to increase in-house production.

The Hotel business, which is also included in the segment, posted higher sales and profits owing to contributions from TRUNK (HOTEL), opened in May 2017, which was in operation the entire period. TRUNK (HOTEL) posted a 42.4% YoY increase in sales

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to JPY2.3bn in 1H. The average daily rate (ADR) for rooms at the TRUNK (HOTEL) was JPY52,769; 77.0% of guests were from overseas.

Cumulative FY03/17 FY03/18 FY 03/ 19 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2 Domestic Wedding 11,897 23,743 37,784 49,568 11,829 25,162 39,946 52,096 13,151 26,566 YoY -2.5% -0.3% 1.0% 0.3% -0.6% 6.0% 5.7% 5.1% 11.2% 5.6% Directly operated facilities 10,734 21,433 34,139 44,869 10,602 22,640 35,795 46,721 11,837 23,915 Domestic house wedding 10,734 21,433 34,139 44,869 10,126 21,052 - 43,075 10,765 21,653 TRUNK (HOTEL) 4761,588-3,6461,0722,262 Number of weddings 2,837 5,616 8,883 11,695 2,749 5,804 9,131 11,695 3,086 6,207 Average spend (JPY'000) 3,898 3,901 3,931 3,923 3,851 3,989 4,007 3,923 3,827 3,846 Average visitor count 72.0 72.0 72.5 72.8 70.5 74.7 72.6 72.8 68.0 68.6 Consultng 374 810 1,229 1,557 343 784 1,272 1,557 400 713 Gross transaction value 841 1,748 2,897 3,726 500 975 1,416 3,726 325 649 Number of weddings 291 589 953 1,226 145 306 460 1,226 117 242 Other 788 1,501 2,416 3,140 883 1,784 2,879 3,140 914 1,936 Source: Shared Research based on company data

Overseas and Destination Wedding business For 1H FY03/19, the Overseas and Destination Wedding business reported sales of JPY5.4bn (+5.0% YoY), gross profit of JPY3.7bn (+6.0% YoY), and an operating profit of JPY403mn (+68.6% YoY). Growth during the period was driven by successful efforts to increase both the number of weddings and pricing. While rising geopolitical tension overseas led to a drop in booking at its facilities in Guam and Bali, the company was able to offset this drag and log positive growth in sales and earnings with help from rising wedding numbers in other areas, including two new wedding facilities (one in Okinawa, the other in Hawaii) opened last year.

Number of weddings and average spend per wedding at the Overseas and Destination Wedding business (indexed to 100 in FY03/15)

106.3 106.8 104.8 103.0 100.0

137.5 134.8

117.6 110.9

100.0

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Q2 Q2 Q2 Q2 Q2

Number of weddings Average spend

Source: Shared Research based on company data

Other businesses Other businesses mainly comprise a travel agency business centering on wedding-related travel, and a childcare business. For 1H FY03/19 the Other segment reported sales of JPY778mn (+0.1% YoY).

We plan to update this report and provide more details on 1H results following our upcoming interview with the company. For details on previous quarterly and annual results, please refer to the Historical financial statements section.

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Full-year company forecasts

FY03/17 FY03/18 FY03/19 (JPYmn) 1H Act. 2H Act. FY Act. 1H Act. 2H Act. FY Act. 1H Est. 2H Est. FY Est. Sales 28,852 31,334 60,186 31,082 33,508 64,590 32,740 33,760 66,500 YoY 0.5% 1.7% 1.1% 7.7% 6.9% 7.3% 5.3% 0.8% 3.0% Operating profit 574 1,865 2,439 683 2,102 2,785 2,280 1,520 3,800 YoY 108.7% 46.7% 57.8% 19.0% 12.7% 14.2% 233.8% -27.7% 36.4% OPM 2.0% 6.0% 4.1% 2.2% 6.3% 4.3% 7.0% 4.5% 5.7% Recurring profit 282 1,818 2,100 491 1,998 2,489 2,090 1,310 3,400 YoY 18.0% 59.8% 52.5% 74.1% 9.9% 18.5% 325.7% -34.4% 36.6% RPM 1.0% 5.8% 3.5% 1.6% 6.0% 3.9% 6.4% 3.9% 5.1% Ne t in c o me 35 325 360 36 852 888 1,340 60 1,400 YoY - -18.3% 56.5% 2.9% 162.2% 146.7% 3622.2% -93.0% 57.7% Net margin 0.1% 1.0% 0.6% 0.1% 2.5% 1.4% 4.1% 0.2% 2.1% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

On November 7, 2018, T&G revised its full-year FY03/19 forecasts. The revised forecasts are as follows.

▷ Sales: JPY66.5bn (+3.0% YoY) ▷ Operating profit: JPY3.8bn (+36.4% YoY)

Sales were revised up JPY500mn and operating profit JPY400mn versus the previous plan. The revision factors in an increase in wedding orders and the shift in average customer spend per wedding in the Domestic Wedding business. The forecast also reflects advertising and renovation expenses that were included in the initial plan, as well as other investments aimed at business growth from FY03/20 onward.

Shared Research plans to report the details following interviews with the company.

Company forecasts versus results

Results vs. Initial Est. FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales (Initial Est.) 51,912 47,918 47,759 48,500 50,000 58,000 62,000 61,500 60,000 65,000 Sales (Results) 46,206 46,039 46,716 47,983 52,804 60,714 59,221 59,524 60,186 64,590 Results vs. Initial Est. -11.0% -3.9% -2.2% -1.1% 5.6% 4.7% -4.5% -3.2% 0.3% -0.6% Operating profit (Initial Est.) 2,079 1,961 2,688 2,350 2,600 3,400 3,800 1,800 1,700 2,600 Operating profit (Results) 676 2,520 2,282 2,213 2,833 3,706 2,973 1,546 2,439 2,785 Results vs. Initial Est. -67.5% 28.5% -15.1% -5.8% 9.0% 9.0% -21.8% -14.1% 43.5% 7.1% Recurring profit (Initial Est.) 1,963 1,285 1,984 1,650 2,000 3,000 3,500 1,500 1,500 2,200 Recurring profit (Results) 31 1,882 1,541 1,588 2,459 3,342 2,784 1,377 2,100 2,489 Results vs. Initial Est. -98.4% 46.5% -22.3% -3.8% 23.0% 11.4% -20.5% -8.2% 40.0% 13.1% Net income (Initial Est.) 1,049 695 857 550 800 1,500 1,400 700 650 750 Net income (Results) -1,048 371 214 453 1,086 1,370 1,008 230 360 888 Results vs. Initial Est. -199.9% -46.6% -75.0% -17.6% 35.8% -8.7% -28.0% -67.1% -44.6% 18.4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Long-term outlook

T&G announced its long-term management policy EVOL 2027 on June 26, 2018.

Vision: EVOL

Mission: Innovation in the hospitality industry

Group sales JPY100.0bn

Overseas and Destination Domestic Wedding Hotel Wedding

Continue improving the quality Offer resort wedding Create a market for of wedding ceremonies and experiences to global customers boutique hotels in Japan provide high value to customers

Sales: JPY50.0bn Sales: JPY20.0–30.0bn Sales: JPY30.0–40.0bn

Source: Shared Research based on company data

According to the long-term management policy, the company targets consolidated sales of JPY100.0bn in FY03/28, the final year of the plan. The sales target of JPY100.0bn breaks down to Domestic Wedding business JPY50.0bn, Hotel business JPY30.0– 40.0bn, Overseas and Destination Wedding business JPY20.0–30.0bn, and Other JPY5.0bn.

In the mainstay Domestic Wedding business, T&G plans to further strengthen earnings capability by controlling new openings, closing unprofitable venues, and reducing costs. It aims to enhance quality of its wedding ceremonies (high spend per wedding) through measures to ensure assignment of a wedding planner to each couple, exclusive use of a facility (i.e., exclusive use of an entire facility besides a wedding chapel such as a pool, garden, and banquet room) for each wedding, and customized ceremonies for each couple. Further, the company intends to focus on marketing activities that utilize social media such as Instagram and YouTube. Taking advantage of conducting one of the largest numbers of weddings in Japan, it plans to improve GPM with continued efforts to increase the share of in-house production of wedding dresses and tuxedos, gifts, and floral decorations.

In the Hotel business, T&G intends to open boutique hotels* (a new category in the Japanese market). It plans to open more TRUNK (HOTEL)s in central Tokyo and more localized boutique hotels in major regional cities (10 in total over the next 10 years). The company expects to attract foreign tourists to its directly operated hotels and positions the Hotel business as a growth business. It also plans to cultivate new resorts and wedding locations in the Overseas and Destination Wedding business to capture growing demand in Asia.

*A key feature of boutique hotels is stylish designer interiors. Most are small, high-end hotels with 10–100 rooms. Boutique hotels are already common in North America and Europe, where they are positioned midway between business and luxury hotels. TRUNK (HOTEL) is based on the Western boutique hotel model, incorporating concepts of socializing, and modified to suit Japanese central city locations.

The Overseas and Destination Wedding business operates in a field with high barriers to entry, making it difficult for other companies to enter the field and make profit. Reasons include limited number of target destinations suitable for development and higher cost of sales (e.g., costs of establishing and operating domestic facilities and advertising expenses) compared with that of domestic wedding business. T&G intends to intensively open facilities in popular destinations of Hawaii, Guam, Bali, and Okinawa in a short period of time and target upper middle and upper class customers to realize significantly higher spend per wedding than the industry average. It will promote collaborations with unique facilities designed by renowned architects and designers as well as famous brands and creators in Japan and overseas with an aim of developing high value-added wedding ceremonies. The company plans to open new facilities mainly in the Overseas and Destination Wedding business and in its new Hotel business (directly operated hotels), which could benefit from market growth.

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T&G has not disclosed its operating profit targets in the long-term management policy. Shared Research projects stable cash flow from the Domestic Wedding business as a result of strengthened earnings capability and competitive advantage, leading to higher market share. Judging from historical earnings trends in the Domestic Wedding business, OPM of around 8% is in sight for the long term. Judging from the company’s overall direction of maintaining the profitability of the Domestic Wedding business while expanding earnings of the Overseas and Destination Wedding business and the Hotel business, consolidated OPM of around 7% are expected.

Long-term earnings outlook FY03/18 FY03/28 (SR est.) CA GR Operating Operating (JPYmn) Sales OPM Sales OPM Sales profit profit Domestic Wedding 52,450 3,914 7% 50,000 4,000 8% 0% Hotel 3,646 30 1% 30,000 3,600 12% 21% Overseas and Destination Wedding 10,801 602 6% 20,000 1,600 8% 6% Others 1,692 194 11% 5,000 500 10% 11% Company-wide expenses -3,999 -1,961 -5,000 -2,500 Total 64,590 2,785 4% 100,000 7,200 7% 4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Business Business description Industry leader that pioneered house wedding market in Japan T&G plans, organizes, and executes “house weddings,” which are wedding ceremonies and receptions held in large rented houses, usually with a garden. According to the company, it has the top market share of the house wedding business in Japan at 15%. The first house wedding facility in Japan is believed to be Ludens Tachikawa Wedding Village, opened in 1997 by Press Work (now Anniversaire Inc., a subsidiary of AOKI Holdings).

Market pioneer T&G was established in October 1998 with three founding members including Yoshitaka Nojiri. The company initially launched a house wedding service in partnership with restaurants, as its priority was to accumulate knowledge of the business. In 2001 the company opened its first directly operated facility in Daikanyama, Tokyo, which marked the start of T&G’s house wedding business utilizing proprietary venues. In 2003 it began expanding into other regions to build a nationwide network, cultivating the business and gaining recognition throughout Japan. The company listed on NASDAQ Japan (now Tokyo Stock Exchange JASDAQ market) three years after it was founded, moved to the Tokyo Stock Exchange Second Section in 2004, and to the First Section in 2006.

Exclusive use of facility for each wedding, with planner assigned to each couple A house wedding offers the wedding party exclusive use of a facility, enabling a more private function. In addition to a wedding chapel, the property usually comes with a garden, and other facilities like a pool and banquet room. Since its founding, T&G has been assigning a dedicated wedding planner to each couple. By offering full support, the planner can coordinate details and create a wedding unique to each couple. The company aims to maintain a competitive edge by meeting the needs of the bride and groom, and of all guests.

Operates overseas and destination weddings in Hawaii, Guam, Bali, and Okinawa T&G has alliances with foreign hotels and offers resort weddings packaging the use of hotel facilities and wedding chapels. These weddings are currently available in Hawaii, Guam, Bali, and Okinawa. Sales continue to grow as the number of facilities expands. The company also has a directly managed wedding venue in Taiwan and a wedding planning and management business in Indonesia in partnership with hotels. T&G seeks to create new markets by offering Japanese-style hospitality in growing markets mainly in Asia.

Customer service center gathers customer feedback to improve services and help assess employee performance T&G has its own customer center, which conducts follow-up questionnaires with all customers and their guests. The surveys have a high response rate and the data collected is centrally controlled. The company uses the survey results to respond quickly to diversifying customer needs, strengthen its products, and design systems that create high added value to improve customer satisfaction. Customer feedback is also reflected in performance reviews of T&G employees such as wedding planners and service staff. This system is aimed at further boosting employee morale, and has been effective in improving employee satisfaction.

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Business model Business segments The company has three business segments: Domestic Wedding business, Overseas and Destination Wedding business, and Other. In FY03/18, the Domestic Wedding business accounted for 81% of sales and 83% of operating profit, Overseas and Destination Wedding business 17% and 13%, and Other 3% and 4%. Although the Domestic Wedding business is the mainstay, the sales share of the Overseas and Destination Wedding business grew from 3.9% in FY03/08 to 16.7% in FY03/18—a 12.8pp increase in 10 years.

Segment sales and profit FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn） Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Est. Sales 43,642 46,206 46,039 46,716 47,983 52,804 60,714 59,221 59,524 60,186 64,590 66,000 YoY -6.0% 5.9% -0.4% 1.5% 2.7% 10.0% 15.0% -2.5% 0.5% 1.1% 7.3% 2.2% Domestic Wedding 40,515 41,482 41,429 41,253 42,036 46,138 52,902 50,059 49,433 49,568 52,096 - YoY -8.9% 2.4% -0.1% -0.4% 1.9% 9.8% 14.7% -5.4% -1.3% 0.3% 5.1% % of total sales 92.8% 89.8% 90.0% 88.3% 87.6% 87.4% 87.1% 84.5% 83.0% 82.4% 80.7% Overseas and Destination Wedding 1,717 2,977 3,246 4,014 4,355 5,046 6,235 7,445 8,471 9,156 10,801 - YoY -10.7% 73.4% 9.0% 23.7% 8.5% 15.9% 23.6% 19.4% 13.8% 8.1% 18.0% % of total sales 3.9% 6.4% 7.1% 8.6% 9.1% 9.6% 10.3% 12.6% 14.2% 15.2% 16.7% Other 1,409 1,746 1,363 1,448 1,591 1,619 1,577 1,715 1,620 1,461 1,692 - YoY - 23.9% -21.9% 6.2% 9.9% 1.8% -2.6% 8.8% -5.5% -9.8% 15.8% % of total sales 3.2% 3.8% 3.0% 3.1% 3.3% 3.1% 2.6% 2.9% 2.7% 2.4% 2.6% Operating profit -901 676 2,520 2,282 2,213 2,833 3,706 2,973 1,546 2,439 2,785 3,200 YoY -113.6% -175.0% 272.8% -9.4% -3.0% 28.0% 30.8% -19.8% -48.0% 57.8% 14.2% 14.9% Domestic Wedding 2,084 2,395 4,143 3,890 3,580 4,540 5,598 4,841 3,438 3,469 3,944 4,824 YoY - 14.9% 73.0% -6.1% -8.0% 26.8% 23.3% -13.5% -29.0% 0.9% 13.7% 22.3% % of operating profit 212.7% 98.6% 97.5% 92.5% 87.7% 91.7% 91.7% 90.7% 89.0% 82.2% 83.1% 93.5% Overseas and Destination Wedding -313 141 108 288 376 258 337 347 300 565 602 137 YoY - - -23.4% 166.7% 30.6% -31.4% 30.6% 3.0% -13.5% 88.3% 6.5% -77.2% % of operating profit -5.8%2.5%6.8%9.2%5.2%5.5%6.5%7.8%13.4%12.7% 2.7% Other -790 -108 -4 16 115 141 156 138 117 180 194 194 YoY - - - - 618.8% 22.6% 10.6% -11.5% -15.2% 53.8% 7.8% 0.0% % of operating profit - - - 0.4% 2.8% 2.8% 2.6% 2.6% 3.0% 4.3% 4.1% 3.8% Adjustments -1,881 -1,752 -1,728 -1,925 -1,871 -2,119 -2,396 -2,363 -2,315 -1,779 -1,961 -1,961 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Segment sales and OPM

Source: Shared Research based on company data Domestic Wedding business Business overview The Domestic Wedding business comprises Directly operated facilities (89.7% of segment sales in FY03/18), Consulting (3.1%), and Other businesses (7.2%). In the mainstay Directly operated facilities business, the parent company and subsidiary Bride’s Word Co., Ltd., plan and organize house weddings at proprietary venues. TRUNK (HOTEL), launched in May 2017, was added to the facility lineup in FY03/18. In Consulting, the company manages weddings through partnerships with hotels and restaurants. Other businesses within the segment include lodging services, wedding dress rental, and restaurant operation.

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Overview of house weddings House weddings refer to private wedding ceremonies and receptions held at classic, upscale Western-style residences. House weddings debuted in Japan when Press Work (now Anniversaire Inc., a subsidiary of AOKI Holdings) opened Ludens Tachikawa Wedding Village in 1997. In 2000, Best Bridal (now Tsukada Global Holdings) opened Shirokane Art Grace Club in Shirokane, Tokyo.

Founded in 1998, T&G started out by forming alliances with a number of restaurants to launch a “restaurant wedding” service. In 2001, the company opened its first directly operated facilities Ark Club Shoto and Arkangel Daikanyama. Although T&G entered the market later than rivals Anniversaire and Best Bridal, it spread the concept of house weddings in Japan by accelerating the opening of new facilities in regional areas to form a nationwide network.

Domestic Wedding FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn） Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 40,515 41,482 41,429 41,253 42,036 46,138 52,902 50,059 49,433 49,568 52,096 YoY -8.9% 2.4% -0.1% -0.4% 1.9% 9.8% 14.7% -5.4% -1.3% 0.3% 5.1% Gross profit ------28,892 28,830 29,284 31,746 YoY ------0.2% 1.6% 8.4% GPM ------57.7% 58.3% 59.1% 60.9% SG&A expenses ------24,051 25,392 25,815 27,802 YoY ------5.6%1.7%7.7% SG&A expenses ------48.0% 51.4% 52.1% 53.4% Operating profit 2,084 2,395 4,143 3,890 3,580 4,540 5,598 4,841 3,438 3,469 3,944 YoY 14.9% 73.0% -6.1% -8.0% 26.8% 23.3% -13.5% -29.0% 0.9% 13.7% OPM 5.1% 5.8% 10.0% 9.4% 8.5% 9.8% 10.6% 9.7% 7.0% 7.0% 7.6% Assets 33,816 34,466 34,023 34,930 32,668 36,010 35,504 35,364 37,420 37,358 41,913 Depreciation 1,410 1,213 1,045 1,064 1,074 1,121 1,416 1,348 1,671 1,761 2,231 Capital expenditures -5,139 -244 -330 -3,164 -1,557 -2,781 -1,736 -2,535 -5,090 -3,454 -5,910 Goodwill - - - - - 1,019 1,112 869 758 137 151 Number of employees - 996 1,059 1,927 2,294 2,844 2,766 2,740 2,580 2,505 - Sales per employee - - - 21.41 18.32 16.22 19.13 18.27 19.16 19.79 - YoY - - - - 19.0% 24.0% -2.7% -0.9% -5.8% -2.9% - Sales per employee - - - - -14.4% -11.5% 17.9% -4.5% 4.9% 3.3% - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Number of employees comprises full-time and temporary employees including part timers. Figures from FY03/08 to FY03/10 only include full-time employees.

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Domestic Wedding FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn） Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 40,515 41,482 41,429 41,253 42,036 46,138 52,902 50,059 49,433 49,568 52,096 By segment Directly operated facilities 37,463 37,874 38,422 38,915 39,057 41,947 47,422 45,059 44,609 44,869 46,721 Domestic house wedding 43,075 TRUNK (HOTEL) 3,646 Consulting 2,639 3,150 2,452 1,764 2,304 2,835 2,832 2,220 1,942 1,557 1,637 Other 413 458 555 574 675 1,356 2,648 2,780 2,882 3,142 3,738 YoY -8.9% 2.4% -0.1% -0.4% 1.9% 9.8% 14.7% -5.4% -1.3% 0.3% 5.1% Directly operated facilities -10.3% 1.1% 1.4% 1.3% 0.4% 7.4% 13.1% -5.0% -1.0% 0.6% 4.1% Domestic house wedding -4.0% TRUNK (HOTEL) - Consulting - 19.4% -22.2% -28.1% 30.6% 23.0% -0.1% -21.6% -12.5% -19.8% 5.1% Other - 10.9% 21.2% 3.4% 17.6% 100.9% 95.3% 5.0% 3.7% 9.0% 19.0% % of total sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Directly operated facilities 92.5% 91.3% 92.7% 94.3% 92.9% 90.9% 89.6% 90.0% 90.2% 90.5% 89.7% Domestic house wedding 82.7% TRUNK (HOTEL) 7.0% Consulting 6.5% 7.6% 5.9% 4.3% 5.5% 6.1% 5.4% 4.4% 3.9% 3.1% 3.1% Other 1.0% 1.1% 1.3% 1.4% 1.6% 2.9% 5.0% 5.6% 5.8% 6.3% 7.2% Directly operated facilities No. of weddings 8,944 9,799 10,071 9,897 9,738 10,181 10,433 11,484 11,491 11,695 11,988 Average spend (JPY'000) 4,137 3,825 3,773 3,890 3,975 4,019 4,093 4,017 3,971 3,923 3,980 YoY No. of weddings -10.7% 9.6% 2.8% -1.7% -1.6% 4.5% 2.5% 10.1% 0.1% 1.8% 2.5% Average spend (JPY'000) 0.3% -7.5% -1.4% 3.1% 2.2% 1.1% 1.8% -1.9% -1.1% -1.2% 1.5% Consulting No. of weddings 977 1,197 965 638 805 1,026 1,605 1,901 1,700 1,226 563 YoY -5.8% 22.5% -19.4% -33.9% 26.2% 27.5% 56.4% 18.4% -10.6% -27.9% -54.1% Directly operated facilities No. of facilities 62 61 61 61 61 68 69 70 70 69 69 No. of halls 88 87 87 87 87 99 101 103 105 103 105 Sales per directly operated facility Per facility 604 621 630 638 640 617 687 644 637 650 677 Per hall 426 435 442 447 449 424 470 437 425 436 445 YoY Per facility -16.1% 2.8% 1.4% 1.3% 0.4% -3.7% 11.4% -6.3% -1.0% 2.0% 4.1% Per hall -14.4% 2.3% 1.4% 1.3% 0.4% -5.6% 10.8% -6.8% -2.9% 2.5% 2.1% No. of weddings per directly operated facility Per facility 144 161 165 162 160 150 151 164 164 169 174 Per hall 102 113 116 114 112 103 103 111 109 114 114 YoY Per facility -16.4% 11.4% 2.8% -1.7% -1.6% -6.2% 1.0% 8.5% 0.1% 3.3% 2.5% Per hall -14.7% 10.8% 2.8% -1.7% -1.6% -8.1% 0.4% 7.9% -1.8% 3.8% 0.6% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Domestic Wedding business

(JPYbn) (JPYbn)

60.0 12% 8.0 13.3% 15% 12.5% 10.6% 12.0% 12.3% 12.4% 11.9% 52.1 11.1% 9.8% 10.3% 10.6% 10.0% 50.1 49.4 49.6 6.0 1.4 9.4% 50.0 52.9 10% 8.6% 8.7% 1.3 10% 1.1 5.6 2.2 42.0 1.0 9.7% 1.1 1.1 1.7 1.8 40.5 41.5 41.4 41.3 46.1 4.0 4.5 7.6% 40.0 8.5% 8% 1.4 1.2 5% 7.0% 4.8 2.0 4.1 3.6 3.9 3.4 3.5 3.9 2.1 2.4 5.8% 7.0% 30.0 5.1% 6% 0.0 0%

-0.2 -0.3 -2.0 20.0 4% -1.6 -1.7 -5% -2.5 -4.0 -2.8 -3.2 -3.5 10.0 2% -10% 5.6 4.8 4.1 3.9 3.6 4.5 3.4 3.5 3.9 -6.0 -5.1 -5.1 2.1 2.4 -5.9 0.0 0% -8.0 -15%

Sales Operating profit OPM Operating profit Depreciation Capital expenditures EBITDA

Source: Shared Research based on company data. Business model: Directly operated facilities Sales in the mainstay Directly operated facilities business are mostly fees paid for the wedding ceremonies and receptions held in T&G’s house wedding venues. Sales are calculated as the average customer spend (the average customer spend on a wedding ceremony and a reception) multiplied by the number of weddings held. In FY03/18, the average customer spend came to nearly JPY4.0mn and there were 11,988 weddings held at T&G’s directly operated facilities.

TRUNK (HOTEL), which opened in May 2017, was added to the list of directly operated facilities in FY03/18. Sales at TRUNK (HOTEL) were JPY3.6bn in FY03/18. We estimate that operating profit before deduction of company-wide expenses was around JPY700mn. With OPM at around 20%, we believe the business is making a significant contribution to profits.

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Services T&G plans, designs, and executes house weddings and receptions. House weddings are held in a large Western-style house, usually with a garden, and the wedding party can enjoy private use of the facility instead of sharing the space with other parties.

The chapel (where the ceremony is performed) is a standalone facility designed to create an atmosphere similar to a Western wedding. T&G also caters the reception, and the meals can be customized.

Pricing (wedding ceremony and reception) In FY03/18 the average customer spend on a wedding ceremony and reception at T&G’s directly operated facilities was JPY3,980,000, JPY400,000 more than the average spend of JPY3,548,000 on a conventional wedding ceremony and reception in Japan (according to Zexy marriage trend survey 2017 by Recruit Bridal Souken). As a general rule, house weddings cost more than weddings at other venues because of the high value-added services.

Number of facilities and weddings performed As of end-March 2018, T&G had 69 directly operated venues and 105 banquet rooms. After opening its first venue in 2001, the company focused on opening new facilities in regional areas and pursued an aggressive expansion program. In 2008 the number of facilities reached 62, but T&G’s earnings performance suffered from the hasty expansion, and the company posted its first loss since it was listed in FY03/08. The company stopped its expansion program and focused on improving profitability. The number of directly operated facilities has been stable at around 61 since FY03/09. In December 2012, the company made Bride’s Word Co., Ltd. (which had a track record of turning around unprofitable facilities) a subsidiary, acquiring its eight facilities, but kept the total number of facilities down at the parent level by closing unprofitable ones. It closed three facilities in FY03/17 and one in FY03/18. The number of weddings held has been trending up since it bottomed at 9,738 in FY03/12 and reached 11,988 in FY03/18, spurred by the rise in utilization rates of existing facilities owing to remodeling.

Earnings model (per facility) Shared Research calculated the earnings of T&G’s average house wedding facility in Japan using the following earnings model. Assuming 100 Saturdays, Sundays, and public holidays per year (excluding the year-end/New Year and traditional summer holiday period) and two weddings performed per day, annual capacity per facility is roughly 200 weddings. We estimate 180 weddings per year, because Sunday afternoons are less popular due to the following day being a weekday. Based on an average customer spend of JPY4.0mn, annual sales per facility come to JPY720mn. Based on investment per facility (single banquet-room with a separate chapel) of JPY350mn (JPY300mn construction cost and JPY50mn guarantee) and OPM of 8% (OPM of the Domestic Wedding business in FY03/18 was 7.6%), operating profit would be JPY57.6mn. Assuming annual depreciation of JPY10mn (useful life of 30 years for buildings), cash flow from operating activities comes to JPY67.6mn. ROI calculated as operating cash flow divided by investment is 19% and the company can recover its investment in about five years.

Earnings model of a directly operated facility (JPYmn) % of sales, other Sales 720 100% Number of weddings 180 Average spend 4 Operating profit 58 8% Depreciation 10 30-year depreciation of construction costs Operating cash flows 68 Investments 350 Construction 300 Guarantee deposits 50 ROI 19% Payback period (years) 5.2 Source: Shared Research based on company data.

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Business model: Hotels T&G’s founder Yoshitaka Nojiri decided to open TRUNK (HOTEL), the core property of the company’s new Hotel business, fueled by a wish to expand the scope of services in the Japanese hotel industry, just as he did for the wedding industry with house weddings. He set eyes on boutique hotels that were gaining increased presence in North America and Europe, and launched the business to start similar hotels in Japan.

As with boutique hotels in Europe and the US, the customer base of TRUNK (HOTEL) includes trend-sensitive individuals, but the hotel also targets digital nomads (who work remotely) and those seeking eco-friendly lifestyles. TRUNK (HOTEL) positions itself as a multifunctional hotel (featuring a wedding venue, restaurant, café, bar, and multipurpose spaces), designed to showcase the latest trends while reflecting social awareness. The concept has been well received overseas and the hotel was named AHEAD* Asia’s Best New Concept of the Year 2018 for incorporating the “socializing”** concept in its design, products, and services. It was also ranked fourth in the AHEAD Asia Hotel of the Year category and has been featured in a range of overseas media for its design and hospitality.

*AHEAD: the Awards for Hospitality, Experience, and Design; AHEAD Asia gives awards to the most innovative hotels in the Asia-Pacific region.

**“Socializing” according to T&G is “to live true to oneself, without undue pressure, but with a life-sized social purpose.” The hotel advocates a new way for individuals to contribute to society through their day-to-day living; based on this concept, the interior and facilities of the entire TRUNK (HOTEL) are designed with a focus on social awareness.

The first TRUNK (HOTEL) opened in Harajuku Jingumae (Shibuya, Tokyo) in May 2017. Weddings account for around 75% of sales, with guest accommodation, corporate events, restaurant, and bar accounting for the remaining 25%. The hotel has the capacity to hold around 700–800 weddings per year. Order trends for weddings have been brisk, up 21.3% YoY as of end-April 2018. The hotel has only 15 guest rooms. ADR is JPY59,775, significantly higher than the average nationwide ADR of JPY13,000, mainly because some of the rooms are suites with high unit prices. Foreign visitors account for 81% of guests, of whom 84% are from North America and Europe. The coverage of TRUNK (HOTEL) by overseas media has contributed to brand recognition among visitors familiar with boutique hotels. The hotel has attracted these guests with its design and brand concept.

TRUNK (HOTEL) earnings forecast The company forecast sales of JPY3.2bn and operating loss of JPY100mn in FY03/18 for its first TRUNK (HOTEL), in which it had invested JPY1.5bn. However, sales came in at JPY3.6bn and the facility made a small operating profit. The previous forecast for FY03/19 called for sales of JPY4.0bn and operating profit of JPY350mn, but the company revised up the operating profit to JPY700mn. With annual depreciation of JPY50mn, cash flow from operating activities (operating profit + depreciation) is JPY750mn. Assuming a similar cash flow from operating activities in FY03/20, JPY750mn x 2 years = JPY1.5bn, which means the company can recover its investment in roughly two years or 2.9 years from setting up the business (TRUNK Co., Ltd.).

The investment recovery period of TRUNK (HOTEL) is much shorter than for house wedding facilities (5.2 years in the aforementioned model case), because the company can expect significant sales from weddings and other sources such as accommodation and events. The company forecasts TRUNK (HOTEL)’s FY03/19 sales of JPY4.0bn (versus JPY720mn sales for a house wedding facility in the model case). The hotel can increase capacity utilization on weekdays by generating sales that are not related to weddings and is also profitable because of its high room prices, with an OPM of 18% (versus 8% for house wedding facilities).

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TRUNK (HOTEL) earnings model (JPYmn) FY03/18 % of sales FY03/19 Est. % of sales FY03/20 Est. FY03/19 Est. Sales 3,646 100% 4,000 100% 4,000 100% Wedding 2,735 75% 3,000 75% 3,000 75% Accommodation 365 10% 400 10% 400 10% Events 365 10% 400 10% 400 10% Restaurants, other 182 5% 200 5% 200 5% Operating profit 30 1% 700 18% 700 18% Depreciation 50 1% 50 1% 50 1% Operating cash flows 80 2% 750 19% 750 19% Investments 1,500 1,420 670 ROI 5% 53% 112% Payback period (years) 18.8 1.9 0.9 Source: Shared Research based on company data, interview, and other. Investments from second year onward excludes payback

Long-term plan for the Hotel business The company commented that it plans to open a total of around 10 hotels by FY03/28, consisting of TRUNK (HOTEL)s in central Tokyo and more localized boutique hotels in major regional cities. For a TRUNK (HOTEL) in central Tokyo, the company estimates investment per facility to be roughly on par with the first one at JPY1.5bn, to be recovered in 3.5–4 years. It estimates investment per regional boutique hotel at JPY1.0–1.5bn with a recovery period of up to seven years. Projections for annual sales per facility are JPY4.0bn for a hotel in central Tokyo (same as the first one), and JPY3.0bn for a regional boutique hotel. Assuming eight of ten facilities are in full operation, the company forecasts Hotel business sales of JPY30.0bn in FY03/28. In addition to earnings from weddings on weekends and holidays, T&G plans to raise capacity utilization by providing lodging, hosting events on weekdays, and building theaters in regional hotels. The aim is to achieve higher profitability than the existing Domestic Wedding business. The company forecasts operating profit in the Hotel business to reach JPY4.5bn (OPM of 15%) in FY03/28.

Business risk The main risk in the Hotel business is the lack of a clear roadmap for medium-term earnings expansion. The business is still in its early days—Yoshitaka Nojiri founded TRUNK Co., Ltd. in December 2016 and opened the first TRUNK (HOTEL) in May 2017—and the company does not have an established track record in operating its own hotels. Although the first TRUNK (HOTEL) is performing well, turning a profit shortly after opening, it significantly benefits from its prime location in Shibuya, an area that attracts trend-sensitive people from all over the world. The company plans to open more TRUNK (HOTEL)s in central Tokyo, but it could be difficult to find locations that have the same market needs as Shibuya. It is also unclear whether regional cities will be receptive to localized boutique hotels, which are a new category in Japan. The process from site selection to completion of a hotel takes roughly two and a half years: a year for site selection and signing the lease, and 18 months for construction. We thus see as risk factors the challenge of finding suitable hotel locations that match the needs of the boutique hotel market, localization of boutique hotels for regional cities, and the relatively long period before a hotel can open for business.

Business model: Consulting and other businesses The Consulting business (3.1% of Domestic Wedding business sales in FY03/18) entails wedding management in alliance with hotels and restaurants. In this business, the company organizes and runs weddings held at partner hotels and restaurants, while partners provide catering services for these events. The company receives service fees from the marrying party and pays an outsourcing fee to the hotel or restaurant operator. T&G held 563 weddings in FY03/18 (-54.1% YoY) on a consulting basis, down sharply YoY mainly because it canceled contracts with hotels and restaurants with a low customer spend per order.

Other businesses (7.2% of Domestic Wedding business sales in FY03/18) include lodging services, wedding dress rentals (T&G operates MIRROR MIRROR stores in Omotesando, Marunouchi, and Yokohama), and restaurant operation.

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Facilities

Source: Shared Research based on company data

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Domestic house wedding facilities Aoyama Geihinkan

Domestic House Wedding (chapel)

TRUNK (HOTEL)

Source: Shared Research based on company data

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Overseas and Destination Wedding business Business overview

Overseas and Destination Wedding FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 1,717 2,977 3,246 4,014 4,355 5,046 6,235 7,445 8,471 9,156 10,801 YoY -10.7% 73.4% 9.0% 23.7% 8.5% 15.9% 23.6% 19.4% 13.8% 8.1% 18.0% Gross profit 4,4955,2776,1137,479 YoY 17.4%15.8%22.3% GPM 60.4%62.3%66.8%69.2% SG&A expenses 4,1484,9775,5486,877 YoY 20.0%11.5%24.0% SG&A expenses 55.7%58.8%60.6%63.7% Operating profit -313 141 108 288 376 258 337 347 300 565 602 YoY -145.0% -23.4% 166.7% 30.6% -31.4% 30.6% 3.0% -13.5% 88.3% 6.5% OPM -18.2% 4.7% 3.3% 7.2% 8.6% 5.1% 5.4% 4.7% 3.5% 6.2% 5.6% Assets 2,246 1,823 1,934 2,106 2,373 2,927 3,665 4,994 4,934 6,494 6,449 Depreciation 51 102 122 138 137 160 244 325 444 463 691 Capital expenditures -839 -265 -238 -218 -71 -424 -758 -236 -991 -1,921 -583 Goodwill - - - 1310223175127794731 Number of employees 105 106 140 166 185 234 274 332 377 449 Sales per employee 16.35 28.08 23.19 24.18 23.54 21.56 22.76 22.42 22.47 20.39 YoY -8.7% 1.0% 32.1% 18.6% 11.4% 26.5% 17.1% 21.2% 13.6% 19.1% Sales per employee -2.2% 71.7% -17.4% 4.3% -2.6% -8.4% 5.5% -1.5% 0.2% -9.2% Business locations Hawaii 13344565 Guam 33334445 Bali 11233333 Okinawa 11122233 Total 6 8 9 12 13 14 16 16 Sales per location 669 544 561 520 573 605 572 675 YoY -18.6%3.0%-7.3%10.2%5.7%-5.4%18.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Number of employees comprises full-time and temporary employees including part-timers. Figures from FY03/08 to FY03/10 only include full-time employees. Note: Fiscal year-end for the Overseas and Destination Wedding business is December. Note: Numbers of business locations are as of end-March; figures per location are for reference purposes only.

Overseas and Destination Wedding business

(JPYbn) (JPYbn) 8.0 13.3% 15% 12.5% 12.0% 12.3% 12.4% 11.9% 12.0 10% 11.1% 7.2% 10.8 1.4 10.3% 10.6% 5.1% 6.2% 6.0 4.7% 8.6% 5.6% 8.6% 8.7% 1.3 10% 10.0 4.0% 4.7% 1.1 2.2 3.5% 5% 1.0 5.6 1.1 1.1 1.7 1.8 9.2 4.0 4.5 8.0 3.3% 7.4 8.5 1.4 1.2 4.8 5% 0% 4.1 3.6 2.0 3.9 3.4 3.5 3.9 2.1 2.4 6.0 6.3 0.0 0% 4.4 -5% 4.0 5.0 -0.2 4.0 -0.3 3.0 3.2 -2.0 -1.6 -5% -10% -1.7 1.7 2.0 -2.8 -2.5 -4.0 -3.2 0.6 0.6 -3.5 0.1 0.1 0.3 0.4 0.3 0.3 0.3 0.3 -15% -10% 0.0 -6.0 -0.3 -5.1 -5.1 -5.9 -18.2% -2.0 -20% -8.0 -15%

Sales Operating profit OPM Operating profit Depreciation Capital expenditures EBITDA margin

Source: Shared Research based on company data.

Sales in the Overseas and Destination Wedding business are mainly from fees received for organizing wedding ceremonies and receptions. In this business, the company provides small ceremonies and receptions (mainly for family members) in partnership with resort hotels in Hawaii, Guam, Bali, and Okinawa. Sales are calculated as the average customer spend per wedding multiplied by the number of weddings held. In FY03/17 the average customer spend was JPY1.2mn and over 7,000 weddings were held (Shared Research estimate).

Services T&G launched the Overseas and Destination Wedding business in 2007. The main service offered in this business is the planning and organization of wedding ceremonies and receptions in partnership with overseas hotels. The ceremonies are held in the company’s own wedding chapels. These weddings meet the needs of couples who want a private and affordable ceremony at an overseas resort. Customers can rent a broad range of wedding dresses, from imports to domestic off-the-shelf dresses to dresses produced by T&G. The ratio of wedding dresses produced internally has increased over the years, contributing to GPM

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improvement (in the Tokyo and Yokohama areas, the ratio went up 37.4pp in three years from 15.3% in 1H FY03/16 to 52.7% in 2H FY03/18).

The company also has subsidiaries in Hong Kong and Taiwan that send customers from other parts of Asia to the company’s resort facilities for weddings. In 2017 the numbers of resort weddings conducted by customers from Asia ex Japan grew significantly: +21.0% YoY in January–March, 4.7x in April–June, +54% in July–September, and 2.4x in October–December.

In April 2010 the company established T&G Wedding Asia Pacific Co., Limited, with a view to expanding into Asia. In January 2011 it established a consolidated subsidiary in Shanghai, and opened a directly operated wedding salon in Shanghai in May to begin a wedding planning and management business. Chairman Nojiri spearheaded the China effort and pushed forward the wedding business in partnership with a foreign-owned hotel in China. The company increased the number of local offices from five in FY03/13 to 12 in FY03/14 and 13 in FY03/15, but the business remained unprofitable from its start in FY03/10, posting a maximum annual operating loss of JPY300mn. One of the main reasons hindering profitability is that partner hotels were owned by foreigners, who did not communicate well with their local employees responsible for outsourcing wedding planning and management. T&G decided to withdraw from the China business in 2015, and did so in 2016.

Outside of China, the company offers local weddings in Taiwan and Indonesia. T&G opened a resort wedding salon in Taiwan in 2013, which has managed to capture the changing needs of local customers. The company opened its first local wedding facility in Taiwan in November 2016. In August 2016, it won a contract to plan and manage weddings in Jakarta in partnership with a hotel.

Pricing (wedding ceremony and reception) The company estimates that the average customer spend on a resort wedding ceremony and reception is JPY1.2mn: JPY200,000 for the wedding chapel, JPY400,000 for dress rental, JPY200,000 for the reception (average 20 guests x JPY20,000 per head), JPY200,000 for the photo album, and JPY100,000 for photo processing.

Number of facilities and weddings The Overseas and Destination Wedding business had 16 facilities as of end-March 2018 (five in Hawaii, five in Guam, three in Bali, and three in Okinawa). The number of facilities has steadily increased, from eight in FY03/14 to 11 in FY03/15, 14 in FY03/16, and 16 in FY03/17 and FY03/18.

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Overseas and Destination Wedding facilities CHURA no KYOUKAI (Okinawa) Crystal Chapel (Guam)

Ko Olina Royal Chapel (Hawaii) The Moana Chapel (Hawaii)

Sheraton Laguna White Arrow Chapel (Guam) Conrad Infinity (Bali)

Source: Shared Research based on company data

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Other businesses Business overview Other businesses include financing and travel services. In October 2017, the company opened Mono* Nursery to meet the needs of its female employees, and is planning to establish a childcare business as an independent business unit.

*Mono for Mono Nursery is derived from the particle “mo” in Japanese, which expresses inclusiveness. The concept of the nursery is to make it a happy place for children and adults, companies and communities, and in relation to work and child-rearing.

Other businesses

(JPYbn)

(JPYbn) 8.0 13.3% 15% 12.5% 12.4% 60.0 12% 12.0% 12.3% 11.9% 11.1% 10.6% 10.6% 1.4 10.3% 52.1 6.0 9.8% 8.6% 8.7% 1.3 10.0% 50.1 49.4 49.6 1.1 2.2 10% 9.4% 52.9 1.0 5.6 50.0 10% 1.1 1.8 4.0 1.1 1.7 42.0 4.5 41.5 9.7% 40.5 41.4 41.3 46.1 1.4 1.2 7.6% 4.8 5% 40.0 8.5% 8% 2.0 4.1 3.9 3.6 3.9 7.0% 3.4 3.5 2.1 2.4 5.8% 7.0% 0.0 0% 30.0 5.1% 6% -0.2 -0.3 -2.0 -1.6 -1.7 -5% 20.0 4% -2.5 -4.0 -2.8 -3.2 -3.5 10.0 2% -10% 5.6 4.8 -6.0 -5.1 -5.1 4.1 3.9 3.6 4.5 3.4 3.5 3.9 2.1 2.4 -5.9

0.0 0% -8.0 -15%

Sales Operating profit OPM Operating profit Depreciation Capital expenditures EBITDA margin

Source: Shared Research based on company data.

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Earnings structure

Sales Sales at directly operated facilities (72.3% of FY03/18 sales) in the core Domestic Wedding business are calculated as average customer spend (the average price of a wedding ceremony and a reception) multiplied by the number of weddings held.

Expenses

Consolidated earnings FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons. Sales 43,642 46,206 46,039 46,716 47,983 52,804 60,714 59,221 59,524 60,186 64,590 Cost of sales 21,193 22,556 21,383 21,762 22,181 24,305 26,514 25,373 24,913 24,263 24,741 SG&A expenses 23,350 22,974 22,135 22,672 23,588 25,666 30,493 30,874 33,065 33,483 37,063 Advertising 4,097 2,766 3,148 2,983 3,124 3,218 3,614 3,657 3,828 4,015 Salaries and allowances 4,557 5,325 4,741 5,256 5,811 6,728 7,869 8,429 8,886 9,278 Provision for bonuses 337 332 352 403 466 519 537 447 523 Rents 5,341 5,509 5,264 5,082 5,117 5,051 5,517 5,474 6,017 6,330 Depreciation 1,575 1,445 1,296 1,313 1,313 1,383 1,774 1,824 2,143 2,276 2,978 Others 7,780 7,592 7,354 7,686 7,820 8,820 11,200 10,953 11,744 11,061 34,085 Operating profit -901 676 2,520 2,282 2,213 2,833 3,706 2,973 1,546 2,439 2,785 % of sales FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons. Cost of sales 48.6% 48.8% 46.4% 46.6% 46.2% 46.0% 43.7% 42.8% 41.9% 40.3% 38.3% SG&A expenses 53.5% 49.7% 48.1% 48.5% 49.2% 48.6% 50.2% 52.1% 55.5% 55.6% 57.4% Advertising 9.4% 6.0% 6.8% 6.4% 6.5% 6.1% 6.0% 6.2% 6.4% 6.7% Salaries and allowances 10.4% 11.5% 10.3% 11.3% 12.1% 12.7% 13.0% 14.2% 14.9% 15.4% Provision for bonuses 0.0% 0.7% 0.7% 0.8% 0.8% 0.9% 0.9% 0.9% 0.8% 0.9% Rents 12.2% 11.9% 11.4% 10.9% 10.7% 9.6% 9.1% 9.2% 10.1% 10.5% Depreciation 3.6% 3.1% 2.8% 2.8% 2.7% 2.6% 2.9% 3.1% 3.6% 3.8% 4.6% Others 17.8% 16.4% 16.0% 16.5% 16.3% 16.7% 18.4% 18.5% 19.7% 18.4% 52.8% Operating profit -2.1% 1.5% 5.5% 4.9% 4.6% 5.4% 6.1% 5.0% 2.6% 4.1% 4.3% Parent earnings FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) ParentParentParentParentParentParentParentParentParentParent Parent Sales 40,520 41,484 41,429 41,267 42,014 44,514 45,789 41,940 40,652 40,874 Cost of sales 19,733 20,226 18,954 18,845 18,987 20,549 20,347 18,386 17,439 17,076 Food and beverage 10,538 10,115 9,131 9,436 9,641 10,589 11,006 9,161 9,201 9,134 Outsourcing expenses 9,194 10,110 9,822 9,408 9,345 9,870 9,340 9,224 8,238 7,942 SG&A expenses 20,787 21,258 22,475 22,422 23,027 23,965 25,442 23,554 23,213 23,798 Advertising 2,924 2,924 2,924 2,924 2,924 2,924 2,924 2,924 2,924 2,924 Salaries and allowances 3,968 3,968 3,968 3,968 3,968 3,968 3,968 3,968 3,968 3,968 Provision for bonuses 330 330 330 330 330 330 330 330 330 330 Rents 5,487 5,487 5,487 5,487 5,487 5,487 5,487 5,487 5,487 5,487 Depreciation 1,043 1,043 1,043 1,043 1,043 1,043 1,043 1,043 1,043 1,043 Others 7,035 7,506 8,723 8,670 9,275 10,213 11,690 9,802 9,461 10,046 Operating profit -207 241 2,041 1,595 1,493 2,533 3,302 2,351 1,136 1,769 % of sales FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Cost of sales 48.7% 48.8% 45.8% 45.7% 45.2% 46.2% 44.4% 43.8% 42.9% 41.8% Food and beverage 26.0% 24.4% 22.0% 22.9% 22.9% 23.8% 24.0% 21.8% 22.6% 22.3% Outsourcing expenses 22.7% 24.4% 23.7% 22.8% 22.2% 22.2% 20.4% 22.0% 20.3% 19.4% SG&A expenses 51.3% 51.2% 54.2% 54.3% 54.8% 53.8% 55.6% 56.2% 57.1% 58.2% Advertising 7.2% 7.0% 7.1% 7.1% 7.0% 6.6% 6.4% 7.0% 7.2% 7.2% Salaries and allowances 9.8% 9.6% 9.6% 9.6% 9.4% 8.9% 8.7% 9.5% 9.8% 9.7% Provision for bonuses 0.8% 0.8% 0.8% 0.8% 0.8% 0.7% 0.7% 0.8% 0.8% 0.8% Rents 13.5% 13.2% 13.2% 13.3% 13.1% 12.3% 12.0% 13.1% 13.5% 13.4% Depreciation 2.6% 2.5% 2.5% 2.5% 2.5% 2.3% 2.3% 2.5% 2.6% 2.6% Others 17.4% 18.1% 21.1% 21.0% 22.1% 22.9% 25.5% 23.4% 23.3% 24.6% Operating profit -0.5% 0.6% 4.9% 3.9% 3.6% 5.7% 7.2% 5.6% 2.8% 4.3% Cons.-Parent difference FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Sales 3,122 4,722 4,610 5,449 5,969 8,290 14,925 17,281 18,872 19,312 Cost of sales 1,460 2,330 2,429 2,917 3,194 3,756 6,167 6,987 7,474 7,187 SG&A expenses 2,563 1,716 -340 250 561 1,701 5,051 7,320 9,852 9,685 Advertising 1,173 -158 224 59 200 294 690 733 904 1,091 Salaries and allowances 589 1,357 773 1,288 1,843 2,760 3,901 4,461 4,9185,310 Provision for bonuses -330 7 2 22 73 136 189 207 117 193 Rents -146 22 -223 -405 -370 -436 30 -13 530 843 Depreciation 532 402 253 270 270 340 731 781 1,100 1,233 Others 745 86 -1,369 -984 -1,455 -1,393 -490 1,151 2,283 1,015 Operating profit -694 435 479 687 720 300 404 622 410 670 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Cost of sales The consolidated sales cost ratio fell 10.3pp from 48.6% in FY03/08 to 38.3% in FY03/18. The cost ratio at the parent fell 6.9pp from 48.7% in FY03/08 to 41.8% in FY03/17.

The company only discloses the cost breakdown for the parent. Main costs are food and beverages (accounting for 53.3% of cost of sales in FY03/17) and outsourcing expenses (46.5%), both of which are variable expenses. The cost of food and beverages was 26.0% of sales in FY03/08, dropping 3.7pp to 22.3% in FY03/17. The ratio fell to 22.0% in FY03/10 (-2.4pp YoY), when the company adopted a procurement strategy that leveraged economies of scale, which led to an efficient purchasing process. The

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outsourcing cost to sales ratio fell 3.3pp from 22.7% to 19.4% over the same period, dropping 2.6pp in the two years of FY03/15 and FY03/16. This is because 100% of wedding dresses were sourced from other companies until early 2012, but T&G began producing dresses internally in 2012 and significantly strengthened in-house production from 2015. In Tokyo and Yokohama, the in-house production ratio rose a sharp 37.4pp from 15.3% in 1H FY03/16 to 52.7% in 2H FY03/18.

SG&A expenses Main SG&A expense items are advertising, salaries and allowances, rents, and depreciation. The consolidated SG&A expenses to sales ratio fell from 53.5% in FY03/08 to 48.1% in FY03/10, as the company recorded a net loss in FY03/08 and FY03/09, which prompted business process reviews. However, the ratio topped 50% again at 50.2% in FY03/14 (+1.6pp YoY) and resumed an upward trend, reaching 57.4% in FY03/18 (+9.1pp from FY03/13). Expenses have increased due to strengthening directly operated facilities, opening new overseas bases, and opening TRUNK (HOTEL) in Tokyo. The SG&A expense ratio has also gone up on a parent-only basis from 51.8% in FY03/08 to 53.9% in FY03/17 (+2.1pp).

Advertising expenses These include advertising fees paid to wedding information services for bridal magazine and online ads, and commissions paid to referral agents. Wedding information services include Zexy (magazine and website), Minna no Wedding, Hanayume, and other websites, and many other businesses like Zexy Navi and MyNavi Wedding that operate wedding venue referral centers. These businesses are important ways to attract customers, because their users gather information, make inquiries, and sign up to tour venues. Although online media have become more influential in recent years, the number of companies providing services has also increased, resulting in an upward trend in advertising expenses (as a ratio of sales, +0.7pp from 6.0% in FY03/14 to 6.7% in FY03/17 on a consolidated basis).

Salaries and allowances (personnel expenses) The number of employees rose by 294 in three years from 1,902 in FY03/14 to 2,196 in FY03/17 as a result of upgrading directly operated domestic wedding facilities and increasing the number of overseas bases. The personnel expenses to sales ratio increased 2.4pp from 13.0% in FY03/14 to 15.4% in FY03/17 on a consolidated basis.

Rents and depreciation Rents and depreciation have both increased due to the opening of TRUNK (HOTEL) and expansion of overseas bases. The ratio of rents to sales went up 1.4pp from 9.1% in FY03/14 to 10.5% in FY03/17, and depreciation up 0.9pp from 2.9% to 3.8% during the same period (both on a consolidated basis).

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Market and value chain Domestic Wedding business: Market size The size of the marriage-related market in Japan is approximately JPY2.5tn, broken down to JPY1.4tn in wedding expenses (mainly the ceremony and reception), and JPY1.1tn in costs for setting up a new home (estimated by T&G based on Yano Research Institute’s Wedding Industry 2018 and a 2017 Zexy survey on preparations for setting up home as a newly married couple). In 2017 there were approximately 607,000 new marriages and the average customer spend per wedding was JPY3.5mn (source: MHLW Vital Statistics of Japan 2017 for number of marriages and Zexy marriage trend survey 2017 (Greater Tokyo area) for average customer spend).

Number of marriages and marriage rates (per 1,000 people)

('000 couples)

1,200 14.0

12.0 1,000

10.0 800

8.0

600

6.0

400 4.0

200 2.0

0 0.0 1947 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Number of remarriages Number of first marriages Marriage rate (per 1000 people; right axis) Source: Shared Research based on Ministry of Health, Labour and Welfare Marriage Statistics Specified Report of Vital Statistics

The number of marriages in Japan exceeded 1mn per year in 1970–1974 when the first wave of baby boomers reached approximately 25 years of age, with marriage rates per 1,000 people mostly exceeding 10.0. Both the number of marriages and rates of new marriages began trending down thereafter, fluctuating at around 0.7mn marriages from 1978 onward and peaking again at over 0.8mn in 2001, when the children of baby boomers married. The number of marriages declined thereafter, dropping below 0.7mn in 2011 and falling to 0.62mn in 2015. Contributing factors are a declining and aging population (fewer people of marriageable age), people getting married later in life, and an increasing percentage of single people who do not intend to marry.

Domestic wedding market (ceremony and reception) and T&G’s position

Trends in wedding ceremonies and receptions

('000) (%)

800 80 731 714 720 726 708 700 700 70 662 669 661 644 635 69.3 67.5 68.4 66.5 621 67.0 65.4 600 65.0 60 62.4 62.5 59.7 58.7 495 493 492 483 55.3 500 474 50 458 430 417 414 384 400 373 40 343

300 30

200 20

100 10

0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of marriages Number of wedding receptions Receptions / Marriages

Source: Shared Research based on Recruit Bridal Souken “Marriage awareness survey,” AOKI Holdings FY03/16 briefing material (Anniversaire Inc.’s bridal business)

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As the number of new marriages declined from 0.71mn in 2005 to 0.64mn in 2015, the ratio of couples having wedding ceremonies and receptions dropped 10.6pp from 69.3% to 58.7%. Thus the number of wedding ceremonies and receptions fell from 0.5mn in 2005 to 0.37mn in 2015, with a CAGR of -2.8% versus -1.2% for the number of new marriages.

Mode of ceremonies to mark a wedding Simplified ceremony 0.2% No ceremony 14.8% Photography 4.3%

Family dinner with relatives Wedding 15.5% reception 55.3% Wedding ceremony 9.9%

Source: Shared Research based on Recruit Bridal Souken “Marriage awareness survey 2017”

According to Recruit Bridal Souken’s “Marriage awareness survey 2017,” 85.2% of couples getting married in 2017 had some kind of ceremony (including family dinners, and going to a photo studio for a wedding portrait) to mark the occasion, while 14.8% did not. The percentage of couples marrying without any ceremony went up 2.6pp from 12.2% in the 2016 survey (Note: for reference only since method of survey varies between 2016 and 2017). Looking at couples marrying without a wedding ceremony or reception, the ratio increased 2.9pp from 29.1% in the 2014 survey to 32.0% in the 2016 survey. We assume couples who skip the marriage ceremony mainly do so for financial reasons.

Ratio of couples holding wedding ceremonies and receptions (by age groups) Total 20s 30s 40s （％） 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017

Both ceremony and reception 60.3 58.9 57.7 53.6 67.6 67.0 69.6 64.0 60.5 58.1 55.3 53.9 37.1 41.0 36.4 31.4

Ceremony only 8.4 9.3 9.3 9.9 7.6 7.3 5.9 7.3 7.7 10.7 11.3 12.2 13.2 10.0 11.49.2

Reception only 2.20.81.01.71.40.20.50.62.91.01.11.82.41.71.73.7

None 29.1 31.0 32.0 34.8 23.4 25.5 24.0 28.1 28.9 30.1 32.2 32.1 47.3 47.3 50.4 55.7

Source: Shared Research based on Recruit Bridal Souken “Marriage awareness survey 2017”

By age group, the percentage of couples in 2017 having a wedding ceremony and/or reception was 71.9% for those in their 20s, 67.9% for those in their 30s, and 44.3% for those in their 40s. The older the couple, the less likely they are to have a ceremony and reception. Given the trend of marrying later, this means fewer weddings held.

We estimate that around 55% of couples who got married in 2017 had a wedding reception (based on Recruit Bridal Souken’s “Marriage awareness survey 2017”), which means there were about 0.34mn wedding receptions held nationwide. T&G organized 20,360 weddings in FY03/18 (total of weddings at directly operated facilities, partner hotels and restaurants, and resorts) for a 6% market share and average customer spend of about JPY4.0mn (for weddings at directly operated facilities). We can see that the domestic wedding business is fragmented and consists of many small and medium companies; even the industry leader T&G has only 6% of the market.

The domestic wedding market was worth an estimated JPY1.4tn in 2016, of which the house wedding business accounted for a 20.6% share at JPY289.6bn (T&G estimate based on market breakdown by type of venue in Yano Research Institute’s “Wedding Industry 2017”). Sales at the company’s Directly operated facilities business (in the Domestic Wedding segment) were JPY44.6bn in FY03/16, which makes it the top company in the house wedding industry with an estimated 15.4% market share.

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Wedding ceremony venues

Restaurants Other 3.8% 3.2% Church (overseas) 6.2%

Church (in Japan) 7.1% General wedding hall 30.4%

Shrine 8.1%

House wedding (guest house) 15.2% Hotel 25.9%

Source: Shared Research based on Recruit Bridal Souken “Zexy marriage trend survey 2017 (Greater Tokyo area)”

Wedding ceremonies in Japan

Typical timeline of a wedding ceremony in Japan Timeframe Things to do Before 8 to 10 months Inform both sets of parents. Receive parental advice and develop a wedding general idea on preferred wedding styles. 6 to 8 months Prepare wedding rings and engagement gifts. Hold formal engagement ceremony or dinner. Attend bridal events hosted by wedding venues to get a feel for the venue, services offered, and atmosphere on the day. Make a reservation. 3 to 7 months Compile a guest list and print invitations. Select wedding outfits. Finalize details of ceremony and reception, including menu and seating plan. 1 to 3 months Arrange travel and accommodation for family members. Select gifts (including confectionery) for guests. Organize program for reception, including presentation and background music. Organize and book honeymoon and after-party. One month before wedding to Finalize food and gift counts for guests. day before wedding Final check of the proceedings with MC. Prepare monetary gifts for special guests. Wedding day Greet your guests with a smile and enjoy the big day! After wedding Thank your guests on departure and send gifts to those who could not attend. Source: Shared Research, based on Recruit and Zexy materials

Timeline of a wedding The timeline of a typical wedding in Japan is as follows. Customers (the prospective bride and groom) use wedding information services such as Zexy and Minna no Wedding to find a venue and make reservations to attend the so-called bridal fairs organized by the venues that appeal to them. At these fairs, sales reps (wedding planners) interview participants to find out what they require, explain the features and selling points of the venue, and prepare a wedding plan and cost estimate. Prospective customers will usually tour several venues and sign a contract with the one best fitting their needs. Wedding planners work with their internal planning departments and with dress rental businesses, florists, and photographers to provide a customized service menu so they can accommodate constantly changing customer needs as much as possible. We note that many larger companies that used to outsource these services have brought them in-house in recent years.

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Wedding business processes

Provide Pay Wedding Refer products and referral information wedding services fee venue services (Zexy, Minna no Wedding, Domestic Dress hire, Pay for Refer etc.) Request wedding wedding venue florist, products and customer services business referral photographer, company Customers etc. Wedding ceremony and reception services (prospective bride and Pay service fees groom)

Customer referral, sales alliance

Services Consumer credit and finance company, travel Pay service fees agency

Source: Shared Research, based on various materials Wedding expenses (for ceremony and reception)

Average customer spend for wedding ceremonies and receptions held in Greater Tokyo

(JPY'000) 4,000 3,855

3,800 3,707

3,567 3,600 3,510 3,706 3,461 3,379 3,549 3,400 3,417 3,365 3,200 3,122 3,270

3,000 2,938 2,911 2,892

2,800 2,798 2,807

2,600 2,564 2,632

2,542 2,400

Source: Shared Research based on Recruit Bridal Souken “Zexy marriage trend survey 2017 (Greater Tokyo area)”

Number of guests at wedding receptions (nationwide) Cost per guest (nationwide)

75 70 64.0 74 73.7 62.0 59.0 73.1 60 55.0 55.0 73 72.5 54.0 72.2 72 71.6 50

71 70.2 40 43.7 45.5 40.9 70 36.4 37.3 37.3 30 69

68 20

67 10 18.1 18.3 18.5 66 17.6 17.7 17.7

65 0 2012 2013 2014 2015 2016 2017 201220132014201520162017 (JPY'000) Food and beverages Other

Source: Shared Research based on Recruit Bridal Souken “Zexy marriage trend survey 2017 (Greater Tokyo area)”

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Breakdown of wedding expenses (Greater Tokyo area)

100% 7.9% 7.5% 11.9% 9.4% 10.0% 10.8% 10.7% 5.3% 5.4% 5.0% 5.2% 4.6% 5.1% 5.3% 6.0% 6.1% 6.2% 6.0% 5.9% 5.7% 5.9% 0.5% 0.4% 0.4% 5.1% 0.5% 0.5% 0.4% 5.2% 5.2% 0.5% 75% 5.2% 1.6% 5.1% 5.0% 4.8% 1.7% 1.7% 1.6% 1.6% 1.6% 1.5% 8.2% 8.2% 8.1% 8.3% 9.1% 7.5% 8.5% 2.8% 2.5% 2.6% 2.5% 2.5% 2.7% 4.3% 4.7% 2.5% 3.9% 4.2% 4.5% 4.2% 4.2% 12.0% 11.8% 50% 11.6% 11.8% 11.7% 11.8% 11.8%

37.1% 37.2% 35.6% 34.8% 25% 36.9% 37.4% 35.2%

7.3% 7.8% 8.9% 9.4% 8.7% 9.7% 9.8% 0% 2011 2012 2013 2014 2015 2016 2017

Ceremony Food and beverages Bride dresses Groom attire Beauty salon Gifts

Bouquet Flowers Welcome items Snapshots Video shooting Other

Source: Shared Research based on “Zexy marriage trend survey 2017 (Greater Tokyo area)”

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Sample cost estimate for a reception at a house wedding facility (assuming 80 guests) Unit price Amount Category Unit s (JPY) (JPY) Food and beverages Full-course dinner 13,000 80 1,040,000 Wedding cake 1,000 80 80,000 Beverages for toasts 1,000 80 80,000 Snacks and beverages before ceremony 3,500 80 280,000 Subtotal 1,480,000 Gifts for guests Gift 3,000 56 168,000 Gift confectionery 2,000 56 112,000 Subtotal 280,000 Printed materials Invitation and seating chart 1,200 56 67,200 Seat card and menu 600 80 48,000 Subtotal 115,200 Floral decorations Main t able flow ers 50,000 1 50,000 Guest table flowers 5,000 10 50,000 Bouquet 30,000 1 30,000 Petal toss 300 80 24,000 Subtotal 154,000 Dress rental, hair, and makeup Wedding dress 200,000 1 200,000 Tuxedo 50,000 1 50,000 Accessories 30,000 1 30,000 Bride hairst yle 50,000 1 50,000 Bride preparat ions 5,000 1 5,000 Bride makeup 150,000 1 150,000 Groom makeup 10,000 1 10,000 Subtotal 495,000 Photography and video Group photo 20,000 1 20,000 Snapshots and album 150,000 1 150,000 Projector 10,000 1 10,000 Subtotal 180,000 Production Master of ceremonies 80,000 1 80,000 A udio, light ing, live music, ot her 70,000 1 70,000 Subtotal 150,000 Venue rental Chapel 300,000 1 300,000 Banquet hall 300,000 1 300,000 Lounge, w ait ing rooms 100,000 1 100,000 Subtotal 700,000 Total 3,554,200 Consumption tax 284,336 Grand total 3,838,536 Source: Shared Research based on company data. For gifts, invitation cards, and seating charts, unit figures are calculated at 70% assuming attendance by multiple family members who do not require these items.

Average customer spend on wedding ceremonies and receptions trending up The average customer spend on wedding ceremonies and receptions held in the Greater Tokyo area in 2017 was JPY3.7mn. The average has been trending up since bottoming at JPY2.5mn in 2002. The same trend can be observed nationally, with the average rising from JPY2.6mn in 2001 to 3.5mn in 2007 (based on “Zexy marriage trend survey [Greater Tokyo area]”). We believe the increased share of house weddings, which have a higher average customer spend in exchange for high value-added services, has played a big part in increasing spending.

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Breakdown of wedding receptions by type of venue

100%

14.5 18.8 18.7 16.3 16.4 15.8 15.8 16.9 90% 21.7 22.0 20.8 21.5 19.3 19.8

80%

26.1 23.1 70% 27.0 28.0 27.9 26.4 31.2 32.9 32.7 32.1 60% 38.0 34.6 41.3 38.8

50%

40%

30% 59.4 59.8 56.7 55.6 56.3 57.8 47.8 47.5 49.1 50.1 43.9 20% 41.2 37.0 39.2

10%

0% 2003 2004 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016 2017

General wedding hall and house wedding Hotel Restaurant, other

Source: Shared Research based on “Zexy marriage trend survey 2017 (Greater Tokyo area)”

A breakdown of weddings in Japan by venue type shows that the share of dedicated wedding halls and house wedding facilities grew from 50.1% in 2010 to 59.8% in 2017, whereas the share of hotels declined from 31.2% to 23.1%, and that of other venues such as restaurants dropped slightly from 18.7% to 16.9% over the same period (based on "Zexy marriage trend survey (Greater Tokyo area)”).

The number of guests has been on a downward trend amid growing demand for smaller weddings in recent years, falling from 73.7 in 2012 to 70.2 in 2017. However, the cost of wedding ceremony and reception per guest went up JPY10,000 in five years from JPY54,000 in 2012 to 64,000 in 2017 due to the spread of house weddings (based on "Zexy marriage trend survey (Greater Tokyo area)”).

Cost breakdown of wedding ceremony and reception Looking at the historical cost breakdown of wedding ceremonies and receptions (based on "Zexy marriage trend survey (Greater Tokyo area)”), the cost of a ceremony went up 2.5pp from 7.3% of the total in 2011 to 9.8% in 2017, with the cost increasing by JPY104,000 from JPY261,000 in 2011 to JPY365,000 in 2017, while the cost of the ceremony and reception rose JPY139,000 from JPY3.567mn to JPY3.706mn over the same period. The main reason for the increase is the rise in unit price for venue rental, because companies have been investing in full remodeling of chapels and other facilities to make them more attractive.

Shared Research produced a cost estimate of a house wedding in Tokyo assuming 80 guests, using estimates of facilities in Tokyo. The total cost of ceremony and reception of JPY3.6mn (excluding consumption tax) breaks down into food and beverages JPY1.5mn, gifts for guests JPY0.3mn, printing costs JPY0.1mn, floral decorations JPY0.2mn, dress rental, hair, and make-up JPY0.5mn, photography and video JPY0.2mn, production JPY0.2mn, and venue rental JPY0.7mn. Variable expense items depending on the number of guests are food and beverages, gifts, printed materials, and some floral decorations for a total of JPY1.9mn (JPY2.1mn including tax). Fixed expense items are venue rental, dress rental, hair, and makeup, photography and video, production, and some floral decorations for a total of JPY1.7mn (expenses are classified as fixed or variable from the customer’s perspective).

Raising money for weddings Funds to pay for weddings generally consist of the bride and groom’s savings, gift money received from reception guests, and money gifted to the couple by their parents to help pay for the wedding. The average gift money paid by guests is JPY66,000 for family members and close relatives, JPY40,000 for work colleagues and superiors, and JPY30,000 for friends. According to the Zexy marriage trend survey, the average breakdown of reception guests in Japan is family and relatives 35%, colleagues and

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superiors 30%, and friends 35%. Based on this breakdown, we can estimate an average JPY2.3mn in gift money in the case of 60 guests and JPY3.1mn in the case of 80.

Gift money (estimated) Total people Total gift money received No . o f No . o f No . o f f r ie n d s invited (JPY) relatives colleagues 20 924,000 20 0 0 40 1,546,800 14 12 14 60 2,320,200 21 18 21 80 3,093,600 28 24 28 100 3,867,000 35 30 35 120 4,640,400 42 36 42 150 5,798,600 53 44 53

Source: Shared Research based on company data Note: Number of relatives is calculated at 70% when calculating gift money per person, assuming some relatives will be attending in couples. Note: The 20-guest scenario assumes that all guests are relatives.

Applying these figures to the 80-guest scenario above, gift money pays for JPY3.1mn of the total cost of ceremony and reception (JPY3.8mn including consumption tax), with the bride and groom paying the remaining JPY0.7mn from savings and financial assistance from parents. Bride and groom must pay JPY1.1mn in the 60-guest scenario and JPY0.6mn in a 100-guest scenario assuming venue rental and other fixed expenses are the same for all scenarios. Since having more guests reduces the out-of-pocket payment for the bride and groom, there is an incentive to increase the guest list. This works to an advantage for house wedding companies, since they can raise the customer spend on ceremony and reception by offering high value-added services while keeping the drop in guest numbers to a minimum.

Features of domestic wedding market The main features of the domestic wedding market are as follows:

◤ Average customer spend is high at JPY3–4mn. Orders are a leading indicator of earnings and sales are easy to control, because the lead time from receiving an order to booking sales is relatively long at six to eight months.

◤ In most cases, couples have their wedding ceremony and reception near their hometown. The average cost of weddings varies considerably between regions, and many exhibit regional characteristics such as incorporating local customs into the ceremony or reception.

◤ The contrast between peak and off-peak seasons (spring and fall are preferred over summer and winter) is strong. Auspicious days in the traditional Japanese calendar are favored for the wedding date and inauspicious days are avoided.

◤ It is a capital-intensive industry requiring substantial upfront investment on facilities (wedding halls, banquet rooms, and dressing rooms), decorations, parking lot (regional venues), and more.

◤ Advertising expenses paid to wedding information services tend to be a significant outlay, because the company must find a constant stream of new customers as most people only get married once and thus there are no repeat or regular customers.

Customers usually tour several wedding venues before making a decision. Skilled wedding planners who quickly gain a solid understanding of customer needs and make them an attractive offer are essential to increasing the contract rate. A company’s performance can fluctuate depending on wedding planners’ relocation or retirement. Thus securing skilled wedding planners is a key competitive strategy.

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Average age of first marriage

(Age) 34 33.3 32.5 31.7 32 31.1 30.4 30.3 29.7 29.8 30 29.3 29.4 28.7 28.2 27.8 28 27.3 26.9 26.4 25.9 26 25.2

24

22

20 1975 1980 1985 1990 1995 2000 2005 2010 2015

Groom Bride

Source: Ministry of Health, Labour and Welfare Marriage Statistics Specified Report of Vital Statistics

Looking at trends in the average age of men and women at the time of their first marriage, the age for men rose 5.5 years over 40 years from 27.8 in 1975 to 33.3 in 2015. For women, the age rose 5.9 years in the same period from 25.2 to 31.1. The age at first marriage continues to rise, showing a clear trend of marrying later in life.

Percentage of unmarried women by age group

（％） 100

90

80

70

60

50

40

30

20

10

0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

15–19 20–24 25–29 30–34 35–39 40–44 45–49

Source: National Institute of Population and Social Security Research “Population Projection for Japan April 2017”

Trends in the percentage of unmarried women by age group suggest that the percentage of unmarried women increased sharply (mainly in the 20s age group) from 1975 onward, rising in the 30s age group as well from the 1980s. The pattern of marrying later has advanced in tandem with the pattern of staying unmarried (especially those in their 50s), which has led to the recent decline in the number of marriages. The percentage of unmarried women of marriageable age has risen sharply—from 69.3% in 1975 to 91.4% in 2015 for women aged 20–24, from 20.9% to 61.6% for those aged 25–29, and from 7.7% to 34.6% for those aged 30–34.

Population projection for Japan Japan’s population is projected to decline from 120.8mn in 2015 to 110.9mn in 2040, drop below the 100mn mark to 99.2mn in 2053 and 81.0mn in 2065. We break down the projection into three age groups—young age (0–14), working age (15–64), and old age (65 and older; source: National Institute of Population and Social Security Research “Population Projection for Japan April 2017”).

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Population projections—medium-fertility (medium-mortality)

Actual Estimated (mn) 100% 6.3 100 7.9 10.3 14.6 90% 20.2 90 26.6 32.8 80% 36.8 38.0 38.4 80 Working age 70% 70 (15–64)

60% 68.1 60 67.7 68.2 50% 69.5 50 Actual Estimated 66.1 60.8 40% 40 56.4 52.5 51.6 51.4 30% 30 Old age (65 and older) 20 20% 25.6 24.3 10 Young age 10% 21.5 16.0 13.8 (0–14) 12.5 10.8 10.7 10.4 10.2 0 0% 1965 1975 1985 1995 2005 2015 2025 2035 2045 2055 2065 1965 1975 1985 1995 2005 2015 2035 2045 2055 2065

Source: National Institute of Population and Social Security Research “Population Projection for Japan April 2017”

Number of births

('000) 3,000

2,679 2,750

2,500 2,338 2,250

1,934 2,000 1,901 1,824 1,731 1,750 1,606 1,577

1,500 1,432

1,222 1,187 1,191 1,250 1,063 1,071 1,006 1,000

750

500

250

0 19471950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Shared Research based on the national census (2015)

Young age (0–14) The number of births in Japan has been on a downward trend after reaching 2.1mn in 1973 (second baby boom) and was down to 1.0mn in 2015. The population of children aged 0–14 also declined alongside the number of births from 27.0mn in the early 1980s to 16.0mn in 2015 according to the 2015 census. The young-age population is forecast to be around 14.0mn in 2021, decline to under 10.0mn in 2056, and to 9.0mn in 2065. The young-age population accounted for 12.5% of the total in 2015 and is forecast to shrink to 12.0% in 2022, 11.0% in 2031, and 10.2% in 2065.

Working age (15–64) The working-age population climbed steadily after the Second World War, increasing from 66.9mn in 1965 to the 1995 peak of 87.3mn and falling to 77.3mn in 2015. It is forecast to decline to 70.0mn in 2029, 60.0mn in 2040, and below 50.0mn in 2056 to reach 45.3mn in 2065. As a percentage of the total population, it shrank from 60.8% in 2015 to under 60% in 2017 and is forecast to reach 51.4% in 2065.

Old age (65 and older) The old-age population is forecast to increase gradually from 33.9mn in 2015 to 36.2mn in 2020, reach 37.2mn in 2030 and peak at 39.4mn in 2042 when the children of baby boomers reach 65. Numbers are expected to trend down slowly thereafter to 33.8mn in 2065. The old-age population was 26.6% of the total population in 2015, i.e., one in four, and is forecast to increase to 33.3% (one in three) in 2036 and 38.4% (1:2.6) in 2065.

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Marriage-age population projection for 2018–2028 The marriage-age population is included in the working-age population (15–64). We can therefore forecast change in this population to some extent from the working-age population projections. The working-age population is estimated at 75.2mn in 2018 and is projected to decline to 70.1mn in 2028. This is a CAGR of -0.7% over ten years. We thus expect the marriage-age population to decline by around 0.7% per year.

Outlook on domestic wedding market We assume the domestic wedding market will contract in the medium term due to falling birth and marriage rates and falling percentage of couples having wedding ceremonies and receptions. Marriages have become more diverse in recent years, with a growing number of couples opting not to have a wedding and simply registering their marriage with the local government, while the trend of marrying later in life has been accompanied by an increase in remarriages. T&G aims to cultivate latent demand for wedding ceremonies and receptions by communicating information on their significance and importance as well as proposing new styles of wedding ceremony and reception in keeping with diversifying personal value systems.

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Competition Industry peers Major listed companies in the house wedding business with nationwide operations include T&G, Tsukada Global Holdings Inc. (TSE1: 2418), Watabe Wedding Corporation (TSE1: 4696), Anniversaire Inc. (subsidiary of AOKI Holdings; TSE1: 8214), and Escrit Inc. (TSE1: 2196). Companies with regional operations include IKK Inc. (TSE1: 2198) and Brass Co., Ltd. (TSE1: 2424).

Latest full-year results Ticker Company Sales OPM ROE Description (JPYmn) （％） （％） Leader in the house wedding market. Operates nationwide. Has Aoyama Geihinkan as its core 4331 Take and Give Needs 64,590 4.3 4.3 facility 2418 Tsukada Global Holdings 57,253 7.5 6.4 Focuses on large facilities, led by The Strings Omotesandoh. Operates InterContinental Tokyo Bay Pioneer in overseas wedding. Located in 11 countries. Operates Hotel Gajoen Tokyo and Hotel 4696 Watabe Wedding 45,135 1.7 1.6 Mielparque Tokyo Focuses on large facilities. First to open a house wedding facility in Japan. Became a subsidiary of - Anniversaire * 27,173 10.3 6.2 AOKI Holdings in 2002 Focuses on urban areas (station buildings) Operates in four formats including wedding halls, house 2196 Escrit 31,700 6.2 10.7 weddings, hotels, and restaurants 2198 IKK Wedding 18,172 10.0 12.7 Headquartered in Saga, and mainly covers regional cities in Kyushu, Hokuriku, Tohoku, Shikoku 2424 Brass 8,967 9.1 17.3 Headquartered in Nagoya and operates in Tokai region Source: Shared Research based on data from the various companies Note: Anniversaire is unlisted.

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Financial performance of peers

Take and Give Needs Tsukada Global Holdings Watabe Wedding Anniversaire (4331) (2418) (4696) (unlisted)

(JPYmn) FY03/16 FY03/17 FY03/18 FY12/15 FY12/16 FY12/17 FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Revenue 59,524 60,186 64,590 53,804 55,365 57,253 43,882 43,908 45,135 29,321 26,860 27,173 Gross profit 34,611 35,922 39,848 18,047 17,240 18,540 28,727 29,769 31,037 8,695 7,493 7,876 SG&A expenses 33,065 33,483 37,063 12,655 13,724 14,272 28,580 28,768 30,269 5,103 4,732 5,067 Operating profit 1,546 2,439 2,785 5,392 3,515 4,268 146 1,001 768 3,591 2,760 2,809 Recurring profit 1,377 2,100 2,489 5,431 3,598 4,119 208 675 677 Net income 230 360 888 3,880 1,951 2,203 46 124 171 ROE 1.1% 1.8% 4.3% 12.8% 6.1% 6.4% 0.4% 1.2% 1.6% ROA (RP-based) 2.8% 4.1% 4.6% 7.4% 4.4% 4.9% 1.0% 3.2% 3.0% OPM 2.6% 4.1% 4.3% 10.0% 6.3% 7.5% 0.3% 2.3% 1.7% 12.2% 10.3% 10.3% Total assets 49,286 52,176 56,025 80,327 84,752 84,447 20,811 21,348 24,354 41,983 41,604 41,161 Net assets 20,385 20,485 21,136 31,807 34,228 35,781 10,342 10,540 10,451 Equity ratio 41.0% 38.9% 37.3% 39.6% 38.5% 40.5% 49.5% 49.1% 42.8% Operating CF 3,731 4,130 4,139 5,686 6,559 7,062 1,679 2,250 3,222 Investing CF -5,471 -5,155 -6,708 -12,887 -12,352 -3,976 -380 -1,850 -4,174 Financing CF 476 2,092 2,408 7,712 3,131 -3,572 -356 -147 2,268 Cash and deposits 3,658 4,704 4,556 17,863 15,380 14,985 5,307 5,431 6,685 Interest-bearing debt 17,668 19,992 23,168 35,366 38,317 35,240 1,058 975 3,350 Net debt 14,010 15,288 18,612 17,503 22,937 20,255 -4,249 -4,456 -3,335

Escrit IKK Wedding Brass (2196) (2198) (2424)

FY03/16 FY03/17 FY03/18 FY10/15 FY10/16 FY10/17 FY07/15 FY07/16 FY07/17 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Revenue 26,227 29,477 31,700 16,979 17,911 18,172 6,156 7,107 8,967 Gross profit 14,622 16,948 17,799 9,301 9,791 9,827 3,801 4,427 5,599 SG&A expenses 12,664 14,281 15,849 7,194 7,615 8,006 3,339 3,816 4,780 Operating profit 839 1,343 1,950 2,107 2,176 1,821 462 611 818 Recurring profit 729 1,191 1,830 2,067 2,119 1,839 413 565 793 Net income 360 713 665 1,147 1,341 1,319 265 318 495 ROE 6.9% 12.7% 10.7% 13.4% 14.1% 12.7% 21.3% 15.9% 17.3% ROA (RP-based) 3.5% 4.8% 6.8% 12.3% 11.7% 9.5% 8.0% 8.8% 10.1% OPM 3.2% 4.6% 6.2% 12.4% 12.2% 10.0% 7.5% 8.6% 9.1% Total assets 24,653 26,560 27,104 18,322 18,583 19,809 5,831 7,217 8,462 Net assets 5,351 5,946 6,479 9,010 10,071 10,708 1,438 2,560 3,153 Equity ratio 21.6% 22.4% 23.9% 49.2% 54.2% 54.1% 24.7% 35.5% 37.3% Operating CF 1,341 3,254 1,826 2,524 2,599 1,198 623 998 1,168 Investing CF -3,271 -1,148 -2,098 -1,715 -323 -3,533 -779 -1,524 -1,815 Financing CF 1,274 -362 -855 848 -1,348 694 476 733 410 Cash and deposits 4,224 5,940 4,804 4,444 5,373 3,731 702 909 672 Interest-bearing debt 12,052 11,771 10,967 4,859 3,672 4,805 3,207 3,156 3,493 Net debt 7,828 5,830 6,163 414 -1,701 1,073 2,505 2,247 2,821 Source: Shared Research based on materials from the various companies

Profitability Comparing operating profit margins of listed house wedding operators, Anniversaire leads with 10.3% in the latest fiscal year followed by IKK (10.0%) and Brass (9.1%). OPM is lower for Tsukada Global Holdings (7.5%) and Escrit (6.2%). The two lowest OPMs are for T&G (4.3%) and Watabe Wedding (1.7%).

Looking at ROE, Brass leads with 17.3%, followed by IKK (12.7%), Escrit (10.7%), and Tsukada Global Holdings (6.4%). T&G’s ROE is also second lowest at 4.3% after Watabe Wedding’s 1.6%. We can thus conclude that T&G has the second lowest profitability after Watabe Wedding among house wedding operators. (Anniversaire has been excluded, because it is a business segment of AOKI Holdings and ROE data is not disclosed).

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Cost analysis

Take and Give Tsukada Global Watabe Wedding Anniversaire Escrit IKK Wedding Brass Needs Holdings (4696) (unlisted) (2196) (2198) (2424) (4331) (2418)

FY03/17 FY12/17 FY03/17 FY03/17 FY03/17 FY10/17 FY07/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 60,186 57,253 44,605 26,860 29,477 18,172 8,967 Cost of sales 24,263 38,713 13,975 19,367 12,530 8,345 3,368 SG&A expenses 33,483 14,255 30,147 4,732 14,281 8,006 4,780 Advertising expenses 4,015 4,124 3,148 632 Salaries and allowances 9,278 2,798 10,118 3,275 2,313 1,343 Rents 6,330 649 4,964 3,501 544 Depreciation 2,276 1,324 875 497 Others 11,584 6,684 15,065 3,033 4,817 1,765 Operating profit 2,439 4,268 483 2,760 1,343 1,821 818 % of s a le s Cost of sales 40.3% 67.6% 31.3% 72.1% 42.5% 45.9% 37.6% SG&A expenses 55.6% 24.9% 67.6% 17.6% 48.4% 44.1% 53.3% Advertising expenses 6.7% 7.2% 10.7% 7.0% Salaries and allowances 15.4% 4.9% 22.7% 11.1% 12.7% 15.0% Rents 10.5% 1.1% 11.1% 11.9% 6.1% Depreciation 3.8% 4.5% 4.8% 5.5% Others 19.2% 11.7% 33.8% 10.3% 26.5% 19.7% Operating profit 4.1% 7.5% 1.1% 10.3% 4.6% 10.0% 9.1% Source: Shared Research based on data from the various companies Note: Figures may differ from company materials due to differences in rounding methods.

Cost ratio Comparing the cost ratios of house wedding operators, although many companies do not disclose their cost breakdown, the main costs are purchasing costs of food and beverages, dresses, flowers, and other materials, as well as outsourcing costs. Anniversaire and Tsukada Global Holdings have relatively high CoS ratios at 72.1% and 67.6%, respectively. These two companies have relatively low SG&A expense ratios, however, at 17.6% and 24.9%. We believe this is because unlike their competitors, they book a large portion of personnel expenses (salaries and allowances) under cost of sales as a variable expense, and include depreciation under cost of sales as well. Excluding these two companies, the CoS ratio is 42.5% for Escrit, 45.9% for IKK, and 40.3% for T&G; Brass and Watabe Wedding have relatively low CoS ratios at 37.6% and 31.3%, respectively.

SG&A expense ratio Comparing SG&A ratios of companies other than Anniversaire and Tsukada Global Holdings, Watabe Wedding has the highest at 67.6%, followed by T&G (55.6%) and Brass (53.3%). Escrit (48.4%) and IKK (44.1%) have relatively low SG&A expense ratios.

Below we compare the main SG&A expense items of advertising expenses, salaries and allowances, rents, and depreciation as a percentage of sales (some companies do not disclose these figures).

Advertising expenses Excluding Watabe Wedding and IKK, Escrit has the highest ratio to sales (10.7%), while Tsukada Global Holdings, Brass, and T&G have ratios around 7%.

Salaries and allowances (personnel expenses) Excluding Tsukada Global Holdings, whose personnel expenses are likely included under cost of sales, Watabe Wedding has the highest ratio to sales (22.7%), followed by T&G (15.4%) and Brass (15.0%), while IKK (12.7%) and Escrit (11.1%) have relatively low ratios.

Rents Excluding IKK, the ratio of rents to sales is highest for Escrit (11.9%), followed by Watabe Wedding (11.1%) and T&G (10.5%), while Brass (6.1%) and Tsukada Global Holdings (1.1%) have lower ratios. We assume Tsukada Global Holdings procures the land for most of its directly operated venues on its own.

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Depreciation Excluding Tsukada Global Holdings and Watabe Wedding, the ratio of depreciation to sales is highest for Brass (5.5%), followed by IKK (4.8%) and Escrit (4.5%). T&G has the lowest ratio at 3.8%.

In summary, T&G’s OPM (4.1% in FY03/17) is lower than most of its competitors, because its SG&A expense ratio is a high 55.6%, mainly due to its a relatively large personnel expense weighting. The company operates many facilities nationwide and most of them are small or medium-sized. It is therefore disadvantaged in terms of improving management efficiency compared with its peers that operate large-scale facilities, and consequently has a high personnel expense weighting (see below).

Comparison of Domestic wedding businesses

Take and Give Tsukada Global Watabe Wedding Anniversaire Escrit IKK Wedding Brass Domestic Wedding Ne e d s Holdings (4696) (unlisted) (2196) (2198) (2424) (4331) (2418)

FY03/18 FY12/15 FY03/18 FY03/18 FY03/18 FY10/17 FY07/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons.

Domestic Wedding Hotels and Domestic Domestic Wedding Wedding Business segment Bridal-related Wedding business Weddings Wedding Operations Services

Sales 52,096 33,427 26,856 27,157 27,290 17,378 8,967 Directly operated facilities 46,721 Operating profit 3,944 6,320 692 2,809 3,125 1,767 818 OPM 7.6% 18.9% 2.6% 10.3% 11.5% 10.2% 9.1% Assets 41,913 29,332 6,606 41,161 18,324 19,809 8,462 Depreciation 2,231 1,949 590 1,653 1,561 1,118 514 Capital expenditures -5,910 -941 -1,124 -359 -2,136 -397 -1,490 No. of facilities 69 18 14 30 17 18 No. of halls 105 54 42 33 No. of weddings 11,988 9,651 6,088 5,166 4,384 2,422 Average spend (JPY'000) 3,980 4,413 3,768 3,883 3,634 Per unit data Sales per facility (JPYmn) (Directly operated facilities) Per facility 677 1,857 1,940 910 1,022 498 Per hall 445 619 647 527 No. of weddings per facility Per facility 174 536 435 172 258 135 Per hall 114 179 145 133 Source: Shared Research based on data from the various companies Note: Figures may differ from company materials due to differences in rounding methods. Note: Figures for Tsukada Global Holdings are from FY12/15 when the company had a domestic wedding business segment. Note: Number of weddings and average customer spend at Escrit are for ceremonies and receptions held at directly operated facilities assuming more than 30 guests.

OPM Comparing domestic wedding businesses (mainly directly operated facilities) by OPM, Tsukada Global Holdings has the highest OPM (18.9%), followed by Escrit (11.5%), Anniversaire (10.3%), IKK (10.2%) and Brass (9.1%) around the 10% mark. T&G’s OPM at 7.6% is second lowest after Watabe Wedding (2.6%).

Number of weddings and average customer spend Comparing the number of weddings conducted per year at directly operated facilities (excluding Watabe Wedding), T&G has top market share at 11,988 weddings, with Tsukada Global Holdings in second place with 9,651. Anniversaire ranks third (6,088), followed by Escrit (5,166), IKK (4,384), and Brass (2,422).

Looking at average customer spend (excluding Tsukada Global Holdings and Watabe Wedding), Anniversaire is top at JPY4.4mn and T&G second at about JPY4.0mn. IKK is third (JPY3.9mn), followed by Escrit (JPY3.8mn) and Brass (JPY3.6mn). Tsukada Global Holdings and Watabe Wedding do not disclose average customer spend, but we think their average is similar to Anniversaire and T&G, because Tsukada Global Holdings operates large facilities and Watabe Wedding’s flagship facility is a well-known, high-end wedding hall Hotel Gajoen Tokyo. According to Zexy marriage trend survey 2017, the average market price of a wedding ceremony and reception was JPY3.7mn in the Greater Tokyo area and JPY3.5 nationwide. House wedding operators’ average customer spend is above the market average, because they provide high value-added services.

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Sales and number of weddings per facility Comparing sales per facility (excluding Watabe Wedding), companies with large facilities have higher sales, such as Anniversaire (JPY1.94bn) and Tsukada Global Holdings (JPY1.86bn), followed by IKK (JPY1.02bn), and Escrit (JPY910mn). Companies with small and medium facilities have lower sales: T&G (JPY677mn) and Brass (JPY498mn). Similarly, Anniversaire and Tsukada Global Holdings were top in the number of weddings per facility at 435 and 536, respectively, followed by IKK (258), T&G (174), Escrit (172), and Brass (135).

Employees

Tsukada Global Take and Give Needs Watabe Wedding Anniversaire Escrit IKK Wedding Brass Domestic Wedding Holdings (4331) (4696) (unlisted) (2196) (2198) (2424) (2418)

FY03/17 FY12/15 FY03/17 FY03/17 FY03/17 FY10/17 FY07/17 Cons. Cons. Cons. Cons. Cons. Cons. Cons.

Domestic Wedding Hotels and Domestic Domestic Wedding Wedding Business segment Bridal-related Wedding business Weddings Wedding Operations Services

Number of employees 2,505 953 849 1,094 956 960 402 Per unit data Sales per employee (JPYmn) 19.8 35.1 30.8 24.5 27.0 18.1 22.3 No. of employees per facility 37 53 78 33 56 22 Source: Shared Research based on data from the various companies

Comparing productivity per employee, Tsukada Global Holdings and Watabe Wedding have sales per employee of over JPY30mn at JPY35.1mn and JPY30.8mn, respectively, followed by Escrit (JPY27.0mn) and Anniversaire (JPY24.5mn). Companies with large facilities have greater management efficiency and are able to increase productivity per employee. Companies with relatively low sales per employee are Brass (JPY22.3mn), T&G (JPY19.8mn), and IKK (JPY18.1mn). Productivity per employee is lower for T&G because it has a large number of facilities around the country, for Brass because its business is based in regional areas, and for IKK because it operates small and medium facilities.

Extraordinary gains and losses

Take and Give Tsukada Global Average of latest five fiscal years Watabe Wedding Escrit IKK Wedding Brass Ne e d s Holdings (JPYmn) (4696) (2196) (2198) (2424) (4331) (2418)

Sales 60,847 55,073 44,970 25,999 16,584 6,966 Extraordinary gains 81 0 54 6 0 0 Extraordinary losses 762 133 621 23 27 15 % of s a le s Extraordinary gains 0.1% 0.0% 0.1% 0.0% 0.0% 0.0% Extraordinary losses 1.3% 0.2% 1.4% 0.1% 0.2% 0.2% Source: Shared Research based on data from the various companies Note: Values for Brass are the average for the first four fiscal years after listing.

Comparing extraordinary losses (average over the past five fiscal years), values are relatively large for T&G at JP762mn and Watabe Wedding JPY621mn, but relatively small for other companies. The ratio of extraordinary loss to sales is at or below 0.2% for all companies except T&G (1.3%) and Watabe Wedding (1.4%). T&G’s net income has been eroded by a substantial extraordinary loss of around JPY700mn per year, resulting in the second-lowest ROE of 4.3% after Watabe Wedding (1.6%) in FY03/18.

T&G’s main extraordinary loss items (average over the past five fiscal years) are impairment loss (JPY415mn), goodwill amortization (JPY102mn), provisions for losses on facility closures (JPY55mn), fixed asset retirement/disposal loss (JPY50mn), and provisions for doubtful accounts (JPY44mn).

T&G recognizes impairment loss by grouping its facilities into basic units (minimum unit required to generate cash flow). Every three years (to match the lease period of facilities), the company reduces book value to recoverable amounts for facilities with consistently negative cash flow from operating activities and those forecast to have negative cash flow from operating activities in three years’ time and records the writedown as an impairment loss. The company closes unprofitable facilities and those forecast to remain unprofitable under a scrap and build program.

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Strengths and weaknesses

Strengths

◤ An established brand in the house wedding market: Founded in 1998, T&G pioneered the house wedding market and established itself as the leading brand in the business (15% market share based on company estimate). It has a wealth of information and an established brand from years of handling wedding operations. Wedding halls and house wedding facilities have increased their share of the wedding ceremony and reception market from 30% in 2003 to 54% in 2017, although the number of marriages in Japan peaked at 1.1mn in 1972 (first wave of baby boomers) and 0.8mn in 2001 (children of baby boomers), and has declined thereafter to around 0.62mn in 2016 (sources: MHLW “Vital Statistics of Japan (2017),” Yano Research Institute “Wedding Industry 2018,” and Recruit Bridal Souken “Zexy marriage trend survey” nationwide and Greater Tokyo editions). The wedding market overall will likely continue to shrink amid Japan’s falling birth rate, potentially causing a market shakeup (including consolidation). Even in this context, T&G is well positioned as the leading company with an established brand in the house wedding market.

◤ Ability to develop markets by being an early mover, from house weddings to boutique hotels: Driven by the management prowess of founder Yoshitaka Nojiri, T&G pushed the concept of customized weddings and developed a new “house wedding” service, which offered customers exclusive rental of a wedding venue and the assistance of a dedicated wedding planner. The company opened its first proprietary house wedding facility in 2001 and accelerated openings into regional areas from 2003, popularizing the concept nationwide. With the market entry of multiple house wedding operators, the format became a mainstream wedding style, and the company’s growth momentum weakened. Chairman Nojiri led efforts to explore new businesses amid this change in operating environment and established TRUNK Co., Ltd. in December 2016 to start a hotel business, introducing boutique hotels (common in Europe and North America, positioned midway between business and luxury hotels) to Japan. The first directly operated TRUNK (HOTEL) opened in Shibuya in 2017. T&G sees the boutique hotel business, a new hotel category in Japan, as its next growth driver.

◤ Capable successors supporting the founder: T&G aggressively opened new facilities from 2003 onward, when it began expanding its house wedding business to regional areas. However, it posted a net loss two years running (JPY2.8bn in FY03/08 and JPY1.0bn in FY03/09), because the rapid expansion program inflated fixed costs and undermined the service capability of existing facilities, which led to lower customer satisfaction. Then president and representative director, Nojiri sought to turn the company around by visiting all facilities in Japan, halting expansion and instead improving services at existing facilities. In June 2010, Nojiri invited corporate turnaround expert Kenji Chishiki to become T&G’s second president (Nojiri became the chairman). Under Chishiki’s leadership, the company reviewed its HR system, including recruitment and training, strengthened the organization, including the functions of the management council, and implemented cost restructuring. Kenji Iwase took over as the company’s third president in June 2015. Iwase took steps to improve earnings, such as withdrawing from the business in Shanghai (in FY03/14–FY03/15 T&G’s wedding business in China failed to be profitable), negotiating lower rents for domestic facilities, and reducing fixed expenses by closing unprofitable facilities. Under his leadership, the company also sought to improve customer satisfaction by acquiring its own warehouse (approximately 1,200 sqm) for storage of various venue decorations and opening a customer center to improve the quality of response to initial inquiries.

Weaknesses

◤ Reliance on the domestic wedding business, which is expected to see market contraction in Japan: The domestic wedding market is likely to contract in the longer term amid trends such as falling birth and marriage rates in Japan and fewer people having wedding ceremonies and receptions. The percentage of couples marrying without a ceremony or reception and simply registering the marriage with a local government has increased due to changing values or for financial reasons, and the number of remarriages is up amid the trend of marrying later in life. In addition to house weddings, T&G began offering hotel weddings in TRUNK (HOTEL), but both the house and hotel wedding businesses are still domestic wedding businesses and thus their growth potential appears limited.

◤ Smaller, less efficient facilities and impairment of unprofitable venues weighing on profit margins: Compared with industry peers, the company’s SG&A expense ratio was a high 57.4% (largely due to high personnel expense ratio) and its

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OPM a low 4.3% in FY03/18. The company books impairment loss by grouping its facilities into basic units, booking an impairment loss on facilities with negative cash flow from operating activities and those forecast to have negative cash flow from operating activities in three years’ time. It has booked an average extraordinary loss of around JPY700mn in the past five fiscal years. As a result, its net margin and ROE are relatively low at 1.4% and 4.3%, respectively. T&G has a large number of facilities around the country and most of them are small or medium in size. For this reason, its productivity per employee and overall profitability are relatively low compared to operators of larger facilities, and the company must continuously exit unprofitable facilities as a result.

◤ Low asset efficiency amid maturing house wedding market: T&G entered the hotel business in May 2017, when it opened its first directly managed TRUNK (HOTEL). However, industry peers started running their own hotels ahead of T&G and are expanding hotel operations through acquisitions. They have improved management efficiency by converting to larger facilities and raising capacity utilization rates on weekdays by offering accommodation and providing venues for various events. T&G has a competitive edge in terms of house weddings due to its specialization, but revenue opportunities are limited to weddings and the company is lagging behind in addressing other needs. For instance, more efforts can be devoted to promote sales targeting existing customers (i.e., service offerings such as celebration plans for wedding anniversaries other than the widely-celebrated 25th and 50th anniversaries, party plans at hotel restaurants, and special accommodation packages). As a result, the company’s ROA remains at 4.6% and it takes a relatively long 5.2 years for the company to recover its investment in the house wedding business.

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Historical performance and financial statements

Income statement

Income statement FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total sales 46,206 46,039 46,716 47,983 52,804 60,714 59,221 59,524 60,186 64,590 YoY 5.9% -0.4% 1.5% 2.7% 10.0% 15.0% -2.5% 0.5% 1.1% 7.3% Cost of sales 22,556 21,383 21,762 22,181 24,305 26,514 25,373 24,913 24,263 24,741 YoY 6.4% -5.2% 1.8% 1.9% 9.6% 9.1% -4.3% -1.8% -2.6% 2.0% Cost ratio 48.8% 46.4% 46.6% 46.2% 46.0% 43.7% 42.8% 41.9% 40.3% 38.3% Gross profit 23,650 24,655 24,954 25,801 28,499 34,199 33,847 34,611 35,922 39,848 YoY 5.3% 4.2% 1.2% 3.4% 10.5% 20.0% -1.0% 2.3% 3.8% 10.9% GPM 51.2% 53.6% 53.4% 53.8% 54.0% 56.3% 57.2% 58.1% 59.7% 61.7% SG&A expenses 22,974 22,135 22,672 23,588 25,666 30,493 30,874 33,065 33,483 37,063 YoY -1.6% -3.7% 2.4% 4.0% 8.8% 18.8% 1.2% 7.1% 1.3% 10.7% SG&A ratio 49.7% 48.1% 48.5% 49.2% 48.6% 50.2% 52.1% 55.5% 55.6% 57.4% Operating profit 676 2,520 2,282 2,213 2,833 3,706 2,973 1,546 2,439 2,785 YoY -175.0% 272.8% -9.4% -3.0% 28.0% 30.8% -19.8% -48.0% 57.8% 14.2% OPM 1.5% 5.5% 4.9% 4.6% 5.4% 6.1% 5.0% 2.6% 4.1% 4.3% Non-operating income 179 78 55 81 107 140 177 166 40 184 Interest income 19181712121111 9 6 6 Other 160 60 38 69 95 129 166 157 34 178 Non-operating expenses 823 715 796 706 480 504 366 334 378 480 Interest expenses 633 612 570 508 398 332 279 246 202 377 Other 190 103 226 198 82 172 87 88 176 103 Recurring profit 31 1,882 1,541 1,588 2,459 3,342 2,784 1,377 2,100 2,489 YoY -102.2% 5971.0% -18.1% 3.0% 54.8% 35.9% -16.7% -50.5% 52.5% 18.5% RPM 0.1% 4.1% 3.3% 3.3% 4.7% 5.5% 4.7% 2.3% 3.5% 3.9% Extraordinary gains 19 33 60 145 25 116 35 29 142 Extraordinary losses 1,264 1,703 1,943 483 251 417 523 789 1,333 748 Pretax profit -1,214 212 -342 1,250 2,233 3,041 2,261 623 796 1,883 Income taxes, other -170 -187 -601 753 1,101 1,624 1,228 378 415 981 Income taxes 148 646 132 441 867 1,899 834 588 817 Income tax adjustments -318 -833 -733 311 234 -275 393 -209 -402 Implied tax rate 14.0% -88.2% 175.7% 60.2% 49.3% 53.4% 54.3% 60.7% 52.1% 52.1% Net income attributable to non-controlling interests 6 28 45 44 45 49 24 14 20 13 Net income attributable to owners of the parent -1,048 371 214 453 1,086 1,370 1,008 230 360 888 YoY -49.0% -135.4% -42.3% 111.7% 139.7% 26.2% -26.4% -77.2% 56.5% 146.7% Net margin -2.3% 0.8% 0.5% 0.9% 2.1% 2.3% 1.7% 0.4% 0.6% 1.4% Net financial income -614 -594 -553 -496 -386 -321 -268 -237 -196 -371 Non-operating income (expenses) -644 -637 -741 -625 -373 -364 -189 -168 -338 -296 Extraordinary gains (losses) -1,245 -1,670 -1,883 -338 -226 -301 -523 -754 -1,304 -606 Source: Shared Research based on company data. Note: Figures may differ from company materials due to differences in rounding methods.

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Balance sheet

Balance sheet FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/ 18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ASSETS 41,425 43,456 44,634 43,390 46,510 48,282 48,091 49,286 52,176 56,025 Cash and deposits 2,865 4,559 4,094 5,035 4,170 5,582 5,111 3,871 4,918 4,769 Notes and accounts receivable 243 214 234 344 444 539 522 596 686 716 Operating loans receivable 1,111 1,034 1,082 1,382 1,848 1,648 1,778 1,940 2,150 2,656 Inventories 99 81 52 54 101 98 140 167 206 284 Merchandise and finished products 63 71 42 42 70 71 100 141 178 219 Raw materials and supplies 36101012312740262865 Prepaid Expenses 539 514 544 477 512 694 786 847 840 835 Deferred Tax Assets 210 261 462 379 320 510 288 415 380 426 Others 1,276 1,281 1,467 -6,220 2,089 2,014 2,681 2,426 2,665 3,548 Allowance for doubtful accounts -37-52-52-66-24-46-43-85-52-58 Total current assets 5,195 6,858 6,801 3 7,612 9,391 9,485 8,237 9,643 10,520 Buildings and structures 11,844 10,878 10,851 10,680 13,630 13,463 13,910 15,886 15,573 18,651 Equipment, machinery, and vehicles 32 2 3 1 34 34 26 18 13 19 Tools, furniture, and fixtures 563 418 391 407 472 519 645 878 1,027 1,442 Land 9,661 9,661 9,661 9,661 10,085 9,973 9,973 10,882 10,894 11,153 Lease assets 29 23 17 5 167 596 572 578 503 3,661 Construction in progress 213 111 2 45 124 107 436 995 3,730 109 Total tangible fixed assets 22,345 21,095 20,927 20,803 24,514 24,695 25,564 29,240 31,743 35,037 Total intangible fixed assets 846 743 607 557 2,191 2,384 2,187 1,981 1,143 887 Investment securities 665 106 121 131 45 45 45 31 31 31 Shares in subsidiaries and affiliates 103 92 267 56 17 Long-term loans receivable 1,223 1,112 1,157 1,030 917 880 630 537 444 338 Long-term prepaid expenses 425 394 636 548 484 558 508 430 360 342 Deferred tax assets 792 1,574 2,107 1,902 1,733 1,885 1,713 1,789 2,214 2,317 Guarantee deposits 10,010 11,640 12,243 10,629 9,010 8,421 7,760 7,113 6,714 6,757 Other (financial reports) 231918241719212324142 Others 24 20 20 25 19 21 23 24 26 142 Allowance for doubtful accounts -102 -88 -90 -16 -16 -92 -93 -154 -159 -347 Investments and other assets 13,037 14,758 16,297 14,249 12,192 11,810 10,853 9,826 9,647 9,580 Total fixed assets 36,229 36,598 37,832 35,610 38,898 38,890 38,605 41,048 42,533 45,505 Total deferred assets Total assets 41,425 43,456 44,634 43,390 46,510 48,282 48,091 49,286 52,176 56,025 LIA BILITIES Notes and accounts payable 2,246 2,347 1,867 2,413 2,732 2,874 2,576 2,627 2,484 2,339 Short-term debt 5,959 7,286 6,593 8,585 5,243 6,017 5,494 4,890 7,111 6,300 Short-term borrowings 5,959 7,286 6,593 8,585 4,975 5,839 5,394 4,790 7,011 6,300 Current portion of bonds 268 178 100 100 100 Income taxes payable 192 600 17 450 639 1,511 204 328 697 937 Accounts payable 2,509 2,378 2,294 Provision for bonuses 337 332 352 403 466 519 537 447 523 516 Provision for losses on disaster 482 24 Provision for losses on store closures 13 53 21 101 6 Provision for losses at associates Provision for relocation expenses 38 Provisoin for repairs 83 Others 2,517 2,781 3,287 3,230 4,169 4,835 5,146 2,841 3,317 3,211 Total current liabilities 11,251 13,397 12,598 15,158 13,270 15,839 14,058 13,648 16,510 15,597 Long-term debt 16,447 11,846 12,800 9,066 12,655 10,330 11,338 12,778 12,881 16,868 Corporate bonds 478 300 200 100 0 0 Long-term borrowings 16,447 11,846 12,800 9,066 12,177 9,527 10,590 12,125 12,422 12,912 Accumulated impairment loss on long-term lease assets 1,037 1,434 1,563 1,176 915 640 421 306 227 149 Long-term lease obligations 503 548 553 459 3,956 Asset retirement obligations 1,094 1,080 1,114 1,134 1,109 1,230 1,243 1,219 Provision for losses on store closures 99 Others 362 456 130 117 595 375 153 385 2,072 -2,901 Total fixed liabilities 17,846 13,736 15,587 11,439 15,279 13,081 13,569 15,252 15,180 19,291 Total interest-bearing debt 22,406 19,132 19,393 17,651 17,898 16,347 16,832 17,668 19,992 23,168 Total liabilities 29,098 27,134 28,186 26,598 28,550 28,921 27,628 28,901 31,690 34,889 Net assets Capital stock 3,449 5,239 5,239 5,264 5,264 5,264 5,264 5,264 5,264 5,264 Capital surplus 3,395 5,185 5,185 5,210 5,210 5,210 5,210 5,210 5,208 5,208 Retained earnings 5,696 6,068 6,282 6,605 7,561 8,770 9,584 9,612 9,779 10,478 Treasury stock -211 -212 -213 -214 -215 Shareholders' equity 12,540 16,492 16,706 17,079 18,035 19,033 19,846 19,873 20,037 20,735 Deferred hedge gains (losses) 8 47 165 30 35 34 Foreign currency translation adjustments -234 -220 -343 -412 -266 21 267 292 209 143 Accum. other comprehensive income -234 -220 -343 -412 -257 69 432 323 244 177 Others 0102222218 Minority interests 20 49 84 123 180 257 183 187 203 216 Total net assets 12,326 16,322 16,447 16,792 17,960 19,361 20,463 20,385 20,485 21,136 Total liabilities and net assets 41,425 43,456 44,634 43,390 46,510 48,282 48,091 49,286 52,176 56,025 Working capital -1,904 -2,052 -1,581 -2,015 -2,187 -2,237 -1,914 -1,864 -1,592 -1,339 Total interest-bearing debt 22,406 19,132 19,393 17,651 17,898 16,347 16,832 17,668 19,992 23,168 Net debt 19,541 14,573 15,299 12,616 13,728 10,765 11,721 13,797 15,074 18,399 Debt / Equity ratio 155.8% 88.4% 91.6% 73.9% 76.1% 56.6% 59.1% 69.4% 75.2% 88.7% Source: Shared Research based on company data. Note: Figures may differ from company materials due to differences in rounding methods.

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Assets The company has a large fixed asset weighting, because it operates its own wedding facilities. Fixed assets accounted for 81.2% of all assets in FY03/18. Main fixed assets are buildings and structures (33.3% of assets), land (19.9%), and guarantee deposits (12.1%).

Tangible fixed assets The main tangible fixed asset items are buildings and structures (53.2% of fixed assets), land (31.8%), and lease assets (10.4%). Tangible fixed assets increased by JPY11.2bn from FY03/09 to FY03/18, of which buildings and structures were JPY6.8bn and land was JPY1.5bn. T&G has building lease agreements for four of its directly operated facilities and lease assets totaled JPY503mn in FY03/17. In FY03/18, a sale and lease back transaction accompanying the opening of TRUNK (HOTEL) increased lease assets by 3.2bn from FY03/17 to JPY3.7bn. Building and structures increased by JPY3.1bn and land by JPY259mn in FY03/18 due to the new TRUNK (HOTEL), establishing new facilities in overseas resorts, and remodeling of domestic facilities.

The fixed assets ratio (fixed assets ÷ equity capital) was 219% and the ratio of fixed assets to long-term capital (fixed assets ÷ (fixed assets + equity capital)) was 114%, both exceeding the “safe” value of 100%, which needs improvement from a financial soundness perspective.

Liabilities The main liabilities in FY03/18 were long-term debt (37.0% of liabilities), current portion of long-term debt (14.3%), long-term lease liabilities (11.3%), and accounts payable (6.6%). Like lease assets, long-term lease liabilities trended between JPY4–500mn through FY03/17, but increased by JPY3.5bn to JPY4.0bn in FY03/18.

Interest-bearing debt Interest-bearing debt was reduced from JPY22.5bn in FY03/08 to JPY16.3bn in FY03/14 as T&G made efforts to repay loans and improve financial soundness. However, it began to trend up again thereafter due to the opening of new facilities in Kyoto and Yokohama in FY03/16, reaching JPY23.2bn in FY03/18.

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Cash flow statement

Cash flow statement FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/ 18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 1,618 3,383 1,449 3,687 3,870 5,646 1,825 3,731 4,130 4,139 Cash flows from investing activities (2) -2,128 -2,030 -2,138 -880 -2,197 -1,769 -2,477 -5,471 -5,155 -6,708 Free cash flow (1+2) -510 1,353 -689 2,807 1,673 3,877 -652 -1,740 -1,025 -2,569 Cash flows from financing activities 900 287 232 -1,828 -2,377 -2,537 126 476 2,092 2,408 Depreciation and amortization (A) 1,445 1,296 1,313 1,313 1,383 1,774 1,824 2,143 2,276 2,978 Capital expenditures (B) -517 -527 -841 -796 -699 -65 -1,903 -5,385 -4,980 -6,261 Working capital changes (C) 403 -148 471 -434 -172 -50 323 50 272 253 Simple FCF (NI + A + B - C) -523 1,288 215 1,404 1,942 3,129 606 -3,062 -2,616 -2,648 Source: Shared Research based on company data. Note: Figures may differ from company materials due to differences in rounding methods. Cash flows from operating activities Cash flows from operating activities vary mainly according to pretax profit, as well as depreciation and amortization expenses, and income tax payments. Depreciation and amortization increased by JPY1.7bn from JPY1.3bn in FY03/11 to JPY3.0bn in FY03/18 due to an increase in tangible fixed assets. Other than in FY03/15 (when income tax payments rose JPY1.0bn to JPY2.1bn because net income before taxes increased by JPY808mn YoY in FY03/14) the upward trend in depreciation and amortization has contributed to stabilizing cash flow from operating activities.

Cash flows from investing activities Cash flows from investing activities are mainly affected by the acquisition of tangible fixed assets. Capital expenditures began to increase from JPY699mn in FY03/13 to JPY1.9bn in FY03/15, and soared to higher levels in the three years to FY03/18.

▷ JPY5.4bn in FY03/16 on new facilities in Kyoto and Yokohama ▷ JPY5.0bn in FY03/17 on TRUNK (HOTEL), new facility in Okinawa, new local facility in Taiwan, and remodeling in Japan ▷ JPY6.3bn in FY03/18 on TRUNK (HOTEL), new facility in Guam, and remodeling in Japan

Free cash flow turned negative for the first time in five years in FY03/15, going deeper into negative territory from FY03/16.

Cash flows from financing activities Cash flows from financing activities were negative from FY03/12 to FY03/14 due to loan repayments, but turned positive in FY03/15 by an increase in interest-bearing debt and has moved further into positive territory thereafter. Although there was a JPY221mn net decrease in borrowings in FY03/18 due to repayments (-JPY2.7bn YoY), cash inflow from financing activities increased as a result of inflow from a sale and lease back transaction (+JPY3.3bn YoY).

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Historical performance

Q1 FY03/19 results Earnings summary

▷ Sales: JPY15.8bn (+10.1% YoY) ▷ Operating profit: JPY857mn (versus JPY475mn loss in Q1 FY03/18) ▷ Recurring profit: JPY719mn (versus JPY567mn loss in Q1 FY03/18) ▷ Net income: JPY480mn (versus JPY401mn loss in Q1 FY03/18) *Net income refers to net income attributable to owners of the parent

Q1 FY03/19 sales and profits were up across all three segments: the mainstay Domestic Wedding segment (which includes the TRUNK (HOTEL), the Overseas and Destination Wedding segment, and Other segment. Overseas sales accounted for 14.0% of total sales (fell 0.7pp YoY).

Gross profit of JPY9.9bn was up 13.8% YoY. The gross profit margin of 62.8% was up 2.0pp YoY and 0.4pp above plan. The company attributed the rise in the gross profit margin to the boost to earnings coming from the switch to in-house production of wedding dresses at the Domestic Wedding business. Combined with lower SG&A expenses, which declined 6.7% to JPY9.1bn due to the absence of the JPY607mn in startup costs for new businesses booked in Q1 FY03/18, this was enough to put the company back in the black at the operating profit level. SG&A expenses also came in JPY169mn below plan, though the company noted that this was due to the timing of certain expenses, which ended up being pushed out to Q2 or 2H. Having easily covered increases in non-operating expenses, recurring profit stayed positive.

Results by segment Domestic Wedding business For Q1 FY03/19, the Domestic Wedding segment reported sales of JPY13.2bn (+11.2% YoY), gross profit of JPY8.2bn (+14.9% YoY), and operating profit of JPY1.3bn (+581.3% YoY). Within the segment, directly operated facilities generated sales of JPY11.8bn (+11.6% YoY), consulting services JPY400mn (+16.6% YoY), and other services (lodging, restaurants, etc.) JPY914mn (+3.5% YoY). Average spend per wedding at directly operated facilities fell 0.6% YoY to JPY4.0mn on a decline in the number of guests.

The strong top-line gains were attributed to an increase in the number of weddings at directly operated facilities, which at 3,086 were up 12.3% YoY (with a 0.6% decline in the average price, to JPY3.8mn); five existing facilities underwent renovation during Q1 as part of the company's ongoing efforts to enhance existing facilities. Earnings were further bolstered by the company's switch to in-house production of wedding dresses and increases in operating efficiency following its absorption-type merger with subsidiary Bride’s Word.

The Hotel business included in the segment posted higher sales and profits owing to contributions from TRUNK (HOTEL) (opened in May 2017) which will be in operation for the entire FY03/19. TRUNK (HOTEL) posted a 225.2% YoY increase in sales to JPY1.1bn in Q1. The average daily rate (ADR) for rooms at the TRUNK (HOTEL) was JPY61,603, and 78% of guests were from overseas.

Overseas and Destination Wedding business For Q1 FY03/19, the Overseas and Destination Wedding business reported sales of JPY2.2bn (+5.3% YoY), gross profit of JPY1.5bn (+7.1% YoY), and an operating profit of JPY10mn (operating loss of JPY162mn in Q1 FY03/18). The number of weddings was down but the company did succeed in pushing through price hikes. While rising geopolitical tension overseas led to a drop in booking at its facilities in Guam and Bali, the company was able to offset this drag and log positive growth in both sales and profits with help from increases in wedding elsewhere and full-year contributions from two facilities that opened in FY03/18 (one in Hawaii and another in Okinawa).

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Other businesses Other businesses mainly comprise a travel agency business centering on wedding-related travel, and a childcare business. For Q1 FY03/18 the Other segment reported sales of JPY434mn (+4.8% YoY).

Full-year FY03/18 results Earnings summary

▷ Sales: JPY64.6bn (+7.3% YoY) ▷ Operating profit: JPY2.8bn (+14.2% YoY) ▷ Recurring profit: JPY2.5bn (+18.5% YoY) ▷ Net income: JPY888mn (2.5x YoY) *Net income refers to net income attributable to owners of the parent

Sales grew on the back of brisk performance at remodeled facilities in the Domestic Wedding business, the opening of TRUNK (HOTEL), and the addition of new facilities in the Overseas and Destination Wedding business. Overseas sales were 16.7% of total sales (+1.5pp YoY).

Gross profit was JPY39.8bn (+10.9% YoY). On top of sales growth, GPM improved 2.0pp to 61.7%. Gross profit increased mainly because the Domestic Wedding business improved its profit margin by making wedding dresses in-house (in the Tokyo and Yokohama area, the in-house production ratio went up 21.8pp from 30.9% in 1H FY03/17 to 52.7% in 2H FY03/18). SG&A expenses came in at JPY37.1bn (+10.7% YoY), with the SG&A expense ratio rising 1.8pp to 57.4% because of expenses associated with opening the new TRUNK (HOTEL) and increasing the number of facilities in the Overseas and Destination Wedding business.

Higher sales and lower cost ratio pushed up gross profit. SG&A expenses increased and operating profit finished up 14.2% YoY. Operating profit surpassed the company’s forecast of JPY2.6bn by JPY185mn, mainly because sales of TRUNK (HOTEL) were JPY450mn higher than the company’s forecast, resulting in a slight operating profit instead of a JPY100mn loss. Recurring profit grew 18.5% on higher non-operating profit, because the company booked JPY113mn in fees and commissions received. Net income attributable to owners of the parent grew 2.5x YoY on higher recurring profit and lower extraordinary loss.

Results by segment Domestic Wedding business Sales were JPY52.1bn (+5.1% YoY), gross profit was JPY31.7bn (+8.4% YoY), and operating profit was JPY3.9bn (+13.7% YoY). TRUNK (HOTEL), which opened in May 2017, added JPY3.6bn to overall sales and contributed to profits, resulting in segment GPM of 60.9% (+1.8pp YoY) and OPM of 7.6% (+0.6pp YoY).

Directly operated facilities posted sales of JPY46.7bn (+4.1% YoY). Sales went up due to the contribution of TRUNK (HOTEL). Sales breakdown of TRUNK (HOTEL) was weddings 75%, events 10%, hotel 10%, and restaurants and other 5%. The hotel’s ADR was JPY59,775. The hotel proved popular among visitors from Europe and North America, and foreign visitors accounted for 81% of guests, of whom 84% were from Europe and North America.

Sales excluding TRUNK (HOTEL) came to JPY43.1bn (-4.0% YoY), due in part to the closure of one facility. The number of directly operated facilities was unchanged YoY at 69, while the total number of banquet rooms was 105 (+2). Although the total number of weddings was affected by the closure of one facility, it increased 2.5% YoY to 11,988 due to the addition of TRUNK (HOTEL). The average customer spend per wedding was JPY4.0mn (+1.5% YoY).

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Sales in the Consulting business were JPY1.6bn (+5.1% YoY). The number of weddings held in this business halved to 563 (-54.1% YoY) due to offering just seven facilities (six were closed because of low customer spend per order). Other sales were JPY3.7bn (+19.0% YoY).

Overseas and Destination Wedding business Sales were JPY10.8bn (+18.0% YoY), gross profit was JPY7.5bn (+22.3% YoY), and operating profit was JPY602mn (+6.5% YoY). The fiscal year-end of the Overseas and Destination Wedding business is December. The company added a new venue in Hawaii in October 2016, a directly operated facility for local weddings in Taiwan in November 2016, and a new facility in Okinawa in January 2017, which contributed to sales growth.

Although a higher in-house production ratio for wedding dresses improved GPM by 2.4pp to 69.2%, OPM dropped 0.6pp to 5.6% due to the increased cost of opening new facilities. The in-house production ratio for wedding dresses was 16.6% in 1H FY03/16 and 29.9% in 2H. Launching multiple dress shops (WITH A WHITE) among other efforts raised the in-house production ratio from 66.5% in 1H FY03/17 to 72.0% in 2H. The ratio increased further to 79.4% in 1H FY03/18 and 84.2% in 2H.

Quarterly trends in the number of weddings held were as follows (comparisons are with the same quarter in 2013): in 2017, January–March +28%; April–June +49%; July–September +43%; October–December +37%; and in 2018, January–March 2018 +28%. Versus the same period previous year, the number of weddings during January–March 2018 declined 1.6% due to geopolitical risks in Guam. The number of facilities in this segment was 16 at end-FY03/18, of which five were in Hawaii (-1 YoY), five in Guam (+1), three in Bali, and three in Okinawa.

Other businesses Other businesses mainly comprise a travel agency business centering on wedding-related travel, and a childcare business. Sales were JPY1.7bn (+15.8% YoY) and operating profit was JPY194mn (+7.8% YoY).

Full-year FY03/17 results Earnings summary

▷ Sales: JPY60.2bn (+1.1% YoY) ▷ Operating profit: JPY2.4bn (+57.8% YoY) ▷ Recurring profit: JPY2.1bn (+52.4% YoY) ▷ Net income: JPY360mn (+56.7% YoY) *Net income refers to net income attributable to owners of the parent

Domestic Wedding business T&G’s initiatives to strengthen existing facilities such as remodeling work and in-house production of wedding dresses, floral arrangements, and wedding cakes were well received; they led to more customer inquiries and increased profitability. The company also sold some of its facilities and redistributed the management resources that became available as a result. With the strong performance of a new facility in Yokohama, which opened in March 2016, the number of weddings held at T&G’s directly operated facilities increased YoY by 204. Meanwhile average customer spend per wedding fell, due to the decline in the number of guests attending weddings. In the Consulting business, the number of weddings held in the Consulting business was down 474 YoY as the number of partner hotels dropped. As a result, segment sales for full-year FY03/17 finished at JPY49.6bn (+0.3% YoY) and operating profit came in at JPY3.5bn (+0.3% YoY).

Overseas and Destination Wedding business The number of weddings held in the Overseas and Destination Wedding business rose on the back of an increase in new facilities, opening of directly operated local wedding salons, and expanded sales network from new partnerships. The company also increased the number of own dress shops in an effort to increase profitability. As a new initiative, the company opened a new venue in Taiwan—the first directly operated overseas wedding hall for T&G—in November 2016. As a result, segment sales for full-year FY03/17 reached JPY9.2bn (+8.1% YoY) and operating profit JPY565mn (+88.3% YoY).

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Other information

History

Year Event

Oct. 1998 Take and Give Needs Co., Ltd. (T&G) established

Jun. 2001 Began house wedding business with directly operated facilities

Dec. Stock listed on NASDAQ Japan (now Tokyo Stock Exchange JASDAQ market)

Feb. 2004 Stock listed on Tokyo Stock Exchange Second Section

Jun. 2005 Invested in GOOD LUCK Corporation

Jul. Established LIFE ANGEL Co., Ltd., and began financing business

Feb. 2006 Established Anniversary Travel Co., Ltd., and began travel business Mar. Stock listed on Tokyo Stock Exchange First Section Jan. 2007 Began Overseas and Destination Wedding business by making GOOD LUCK Corporation a consolidated subsidiary (73.8% stake)

Apr. Acquired additional stake in GOOD LUCK Corporation (91.8% stake)

Dec. 2012 Made Bride's Word Co., Ltd. a consolidated subsidiary

Aug. 2013 Established subsidiary of GOOD LUCK Corporation in Taiwan

Sep. Opened salon in Taiwan to capture destination wedding customers from Asia in earnest

Dec. 2016 Established And Company Co., Ltd., and began nursery operation

Established TRUNK Co., Ltd., and began hotel business

Sep. 2017 Established Dressmore Co., Ltd., and began wedding dress hire business

Apr. 2018 Absorbed Bride's Word Co., Ltd.

Source: Shared Research based on company data.

Historical performance since October 1998

(JPYmn) (JPYmn)

10,000 70,000

8,000 60,000

6,000 50,000

4,000 40,000

2,000 30,000

0 20,000

-2,000 10,000

-4,000 0 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e

Sales (right axis) Recurring profit Net income Source: Shared Research based on company data. Note: The company began releasing consolidated results in FY03/07. 1998–2004: Nojiri built on success of a teenage venture to become an entrepreneur T&G’s founder Yoshitaka Nojiri was born in Edogawa, Tokyo, in 1972. His father was an electrical and building contractor. Observing his father’s tradesman mentality motivated Nojiri to start his own business. In his third year at Meiji Nakano Junior High School, he joined a group of Teamers,* and was soon after struck by the idea of selling leather jackets and Levis to students in his Teamer circles. He sold apparel to around 2,500 high school students, and teenagers wearing these leather jackets and denims began to stand out in Shibuya. They were featured in men’s magazines as representing a new fashion trend known as Shibuya Casual (the first street fashion trend originating in Japan that started in Shibuya), which soon spread nationwide. Magazine headlines usually mentioned the word Teamer and spawned a social phenomenon called Teamer Culture. As a senior high school

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student, Nojiri organized dance parties for fellow students. These parties became so popular that 300 tickets priced at JPY5,000 each sold out as soon as they went on sale. Through these experiences, Nojiri learned that by identifying latent needs and spreading the word via media, he could start a trend. This was the beginning of his entrepreneurship that later led to the launch of T&G’s house wedding business.

Teamers: Groups of trendy senior high school students who imitated street gangs and gathered in the streets of Shibuya’s entertainment district in the 1980s and 1990s.

2005–2008: Inspired by overseas weddings, resolved to start up customized wedding business in Japan After graduating from Meiji University in 1995, Nojiri joined Sumitomo Marine and Fire Insurance Company (now Mitsui Sumitomo Insurance Group Holdings) with a view to beginning his own business in the future. He worked in the Tokyo Corporate Sales Department and was assigned to a team that supported startups. Capitalizing on his experience of running popular dance parties as a high school student, he made events coordination his area of strength. His friends called on him to organize parties after wedding receptions. When visiting a member’s club for a meeting, he encountered a foreign couple getting married at a white-walled mansion with a pool and garden rented exclusively for the occasion. For 40 years since the period of rapid economic growth starting around 1955, the vast majority of weddings in Japan were held at wedding halls or hotels (hotels accounted for roughly 50% and wedding halls 40% in 1995), and most weddings were standardized and run like an assemly line. Nojiri identified a latent need for more personalized weddings and decided to start a wedding business.

1998–2006: Pioneered house wedding market A team of three, including Nojiri, founded T&G (Take and Give Needs) in 1998. The company’s name came from “give and take” (the team’s final choice), but the team reversed the words. “Needs” was added to reflect the company’s motto of capturing latent needs to provide services that satisfy customers. Initially the company provided a house wedding service in partnership with restaurants, since its priority was to accumulate knowledge of the business. The company opened its first directly operated facility in Daikanyama, Tokyo, in 2001, which marked the start of T&G’s house wedding business utilizing proprietary venues. In 2003 it began expanding into regional areas to build a nationwide network, cultivating the business and gaining recognition throughout Japan in return. The company listed on NASDAQ Japan (now Tokyo Stock Exchange JASDAQ market) three years after it was founded, moved to Tokyo Stock Exchange Second Section in 2004, and to the First Section in 2006.

2007–2009: Posted loss for two consecutive years due to corporate structure falling behind rapid increase in the number of facilities T&G began accelerating the opening of new facilities in the regional areas from 2003, but it could not repeat the success of its Tokyo facilities without modifications. Most weddings in Japan are conducted near the bride and groom’s hometown, requiring strong regional characteristics. The average cost of weddings varies considerably between regions, and many weddings incorporate local customs and traditions into the ceremony or reception. Thus promotional activities to attract customers and the quality of services could not keep up with the fast pace of opening new facilities, with new facilities increasing the capex and fixed expense burden. Formulaic sales and a shortage of experienced employees led to a decline in quality and employee motivation, hurting contract rates and profitability. T&G posted a net loss of JPY2.8bn in FY03/08, followed by a net loss of JPY1.0bn in FY03/09. Then president and representative director, Nojiri sought to turn the company around by visiting all facilities in Japan, apologizing to employees and calling on them to go back to the founding principle of putting customers first. The company halted the expansion (at 61 facilities in 2009) and worked to improve services at existing facilities. T&G launched the Overseas and Destination Wedding business in 2007 and outsourced hotel wedding operations in 2010.

2010–2014: Corporate restructuring led by second president Kenji Chishiki In June 2010, shortly after returning to profitability in FY03/10, Nojiri stepped down as president and representative director to become chairman, naming Kenji Chishiki as his successor. Chishiki was the first president of Kanebo Cosmetics Inc., a subsidiary of Kanebo Ltd., which restructured under the oversight of the Industrial Revitalization Corporation of Japan. He had a reputation as a corporate turnaround expert who restructured Kanebo Cosmetics in a short period of time. Under his leadership, the company reviewed its HR system, including recruitment and training, strengthened the organization, including the functions of the management council, and implemented cost restructuring. In 2012, T&G made Bride’s Word (a company specializing in

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facility restoration and the operation of heritage buildings and hotels) a consolidated subsidiary and started businesses in these areas. T&G also set up a customer center to improve the quality of response to new inquiries.

2015–present: Seeking to strengthen business base further under third president Kenji Iwase After the failure of the Chinese wedding business in FY03/14–FY03/15, third president Kenji Iwase took over in June 2015. Under Iwase, the company took steps to improve earnings, such as withdrawing from the business in Shanghai, negotiating lower rents for domestic facilities, and reducing fixed expenses by closing unprofitable facilities. The company also sought to improve customer satisfaction by acquiring its own warehouse (approximately 1,200sqm) for storage of fittings to fulfill customers’ requirements for venue decorations. Utilizing the customer center established to improve the quality of response to initial inquiries, the company conducted follow-up surveys by telephone of all couples who used its wedding service. With a high response rate, these surveys have been reflected in employee performance reviews, further raising the motivation of employees who had already demonstrated motivation.

News and topics August 2018 On August 8, 2018, the company also announced a revision to its earnings forecasts for 1H and full-year FY03/19, as detailed below.

Revised forecasts for 1H FY03/19 Ne t in c o me (JPYmn) Sales Operating profit Recurring profit attributable to EPS (JPY) owners of the parent Previous Est. 32,000 1,100 950 500 38.59

New Est. 32,000 1,500 1,350 750 57.90

Difference - 400 400 250 -

Diff., as % of Prev. Est. - 36.4% 42.1% 50.0% -

Q2 FY03/18 Act. 31,082 683 491 36 2.82

Source: Shared Research based on company data

Revised full-year forecasts for FY03/19 Ne t in c o me (JPYmn) Sales Operating profit Recurring profit attributable to EPS (JPY) owners of the parent Previous Est. 66,000 3,200 2,800 1,100 84.91

New Est. 66,000 3,400 3,000 1,200 92.63

Difference - 200 200 100 -

Diff., as % of Prev. Est. - 6.3% 7.1% 9.1% -

FY03/18 Act. 64,590 2,785 2,489 888 68.58

Source: Shared Research based on company data

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Corporate governance and top management Corporate governance Capital structure Controlling shareholders None Parent company ticker - Organizational form, directors Organizational form Company with Audit & Supervisory Board Number of directors per Article of Incorporation 10 Directors' term of office per Articles of Incorporation1 year Number of directors 6 Number of independent outside directors 2 Voluntary establishment of committee(s) corresponding to Nomination Committee Y or Remuneration Committee Number of Audit & Supervisory Board members (per Articles of Incorporation) 5 Number of Audit & Supervisory Board members 4 Number of independent outside members of Audit & Supervisory Board 1 Total number of independent outside directors 3 Ot her Disclosure of directors' compensation No disclosure on individual directors Policy to determine amount and calculation method of remuneration N Corporate takeover defenses N Source: Shared Research based on company data Top management Biography of Chairman and Representative Director Yoshitaka Nojiri Joined Sumitomo Marine & Fire Insurance Co., Ltd. Apr. 1995 (currently Mitsui Sumitomo Insurance Company, Limited) Oct. 1998 Established T&G and became its president and representative director Jun. 2010 Became chairman and representative director of T&G (current) Dec. 2016 Became president and representative director of TRUNK Co., Ltd. (current) Aug. 2017 Became a director of GOOD LUCK Corporation (current)

Biography of President and Representative Director Kenji Iwase Mar. 1990 Joined Nagoya Kanko Hotel Oct. 2002 Joined T&G Jan. 2007 Appointed head of sales department Jun. 2008 Appointed head of operations, wedding business division Jun. 2009 Appointed head of sales, wedding business division Jun. 2010 Became a director of GOOD LUCK Corporation (current) Source: Shared Research based on company data.

Dividend policy

T&G’s basic dividend policy is to improve the value of shares in the longer term through business growth, improvement of capital efficiency, and other measures, while maintaining stable dividend payments to shareholders every fiscal year. Based on this policy, the company has maintained annual dividends at JPY15 per share.

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Major shareholders

Shareholding Top shareholders Shares held ratio

Yoshitaka Nojiri 2,460,950 19.00% Japan Trustee Services Bank, Ltd. (Trust account) 1,666,100 12.86% Tokyo Weld Co., Ltd. 1,045,970 8.08% Unimat Life Corporation 543,200 4.19% Weld Trading Co., Ltd. 450,000 3.47% Trust and Custody Services Bank, Ltd. (Securities investment trust account) 429,800 3.32% The Master Trust Bank of Japan, Ltd (Trust account) 378,900 2.93% Japan Trustee Services Bank, Ltd. (Trust account 9) 243,300 1.88% GOLDMAN SACHS INTERNATIONAL 210,600 1.63% Japan Trustee Services Bank, Ltd. (Trust account 5) 170,500 1.32% SUM 7,599,320 58.68% Source: Shared Research based on company data (as of March 31, 2018) Note: Treasury stock (106,000 shares) held by T&G is deducted from total shares issued (13,059,000 shares) in the calculation

Employees

The number of employees totaled 2,364 at end-FY03/18 on a consolidated basis and 1,322 on a nonconsolidated basis.

Number of employees FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Consolidated Number of employees 1,545 1,879 1,902 2,036 2,101 2,196 2,364 Number of temporary employees (annual average, not included above) 1,064 1,320 1,267 1,184 1,001 886 Parent Number of employees 1,319 1,377 1,325 1,369 1,378 1,406 1,322 Number of temporary employees (annual average, not included above) 1,050 1,103 1,042 910 733 633 Average age 30.5 30.7 30.9 30.8 31.1 31.6 Average years of service 3.3 3.5 3.8 4.0 4.3 4.7 Average salary (JPY'000) 4,425 4,456 4,458 4,375 4,368 4,313 Source: Shared Research based on company data

Profile

Company Name Head Office Take and Give Needs Co., Ltd. 2-3-12, Higashi-Shinagawa, Shinagawa-ku, Tokyo Phone Exchange Listing +81-3-6833-1122 First Section of the Tokyo Stock Exchange Established Listed On October 19, 1998 March 2006 Website Fiscal Year-End https://www.tgn.co.jp/company/english/company/index.html March IR Contact IR Web Corporate Planning Division https://www.tgn.co.jp/company/english/ir/index.html

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