[edit] Financial Summary

[edit] Recent Updates

On August 9, 2010, the company announced its first quarter results and released its Midterm Business Plan.

Investors may have become doubtful of the firm’s future prospects when the Midterm Business Plan was announced (see below for detail). SR Inc. attempted to calculate the impact of several important items on the mid-term outlook to address some of these doubts and concerns. Please be advised that the related commentary is strictly the opinion of SR Inc.; it has not been reviewed or endorsed by the company.

Summary of Midterm Business Plan (excerpt from a company brochure published August 9, 2010):

“Our plan for roughly the next five years (through the March 2016 business year) follows below.

• The method we use will be to switch to a lease after selling off the store (land and building) assets (sale & leaseback).
• The implementation of these sale & leaseback process is expected to generate losses. Some disadvantages include reduced net income for the term due to extraordinary accounting losses as well as the possible outflow of cash reserves to repay borrowings. At the same time, advantages include reduced lease fees (interest burden) after the sale, which should improve the store’s balance of payments.
• We plan to repay between 20 and 30 billion yen in interest-bearing debt by using sale & leaseback transactions.
• With the stores that we have currently operating and ones we are planning, we expect company-wide recurring profit to reach 20.0 billion yen as early as FY03/16 through reduced lease fees and lower finance leases, even if sales continue at current levels at all stores.”

July monthly sales data was released on August 6, 2010.

June monthly sales data was released on July 9, 2010.

May monthly sales data was released on June 11, 2010.

On June 2, 2010 the company announced that its board of directors made a decision on the same day to issue new shares in a secondary public offering to overseas investors.

Details are as follows:

• Maximum of 16,000,000 shares will be issued overseas excluding US and Canada (14,000,000 offering plus 2,000,000 green shoe to underwriter Deutsche bank AG, London branch).

• The book building was set from June 2 to June 4, 2010, however the price was already set on June 2, 2010.

• The shares were offered at 526 yen, about an 7.56% discount to the June 2, 2010 closing price of 569 yen. The amount that the company would receive was set at 512.1 yen, the difference being the underwriter’s fee. The company therefore raised 8,193.6 million yen.

• The funds are planned to be used to finance openings of four specific standard type facilities in Japan (Osaka Namba, Osaka Umeda, and Tokyo Ikebukuro) and the US (CA, Puente Hills Mall).

• The company commented that issuing the shares also strengthens the capital base, adding that it has successfully been placing a corporate bond issue of 20 billion yen (previously registered).

• SR Inc. believes that the issue is a positive event – not only will the company be able to open new centers in extremely attractive domestic locations but it also improves the company’s financial health, impacted by what were in essence exogenous factors a few years ago. The approximate 20% dilution should probably be seen in that light.

The company released Full Year results on May 14, 2010.

April monthly sales data was released on May 10, 2010.

March monthly sales data was released on April 9, 2010.

On April 1, 2010, Round One announced that conversions of Convertible Bonds No. 1 through 4 had been completed in March.

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[edit] Trends & Outlook

Monthly Trends

July 2010 sales figures were up 3.8% YoY, with comparable store sales down 2.8% YoY. The total number of reported locations was 106 shops.

Quarterly Trends

FY03/11 Q1 Results

Round One released Q1 FY03/11 results on August 9, 2010. As a percentage of the 1H company forecast, Q1 numbers were as follows:

• Sales: 45.9% (vs. 1H forecast of 42.9 billion yen)

• Operating profit: 32.1% (vs. 1H forecast of 6.8 billion yen)

• Recurring profit: 21.9% (vs. 1H forecast of 4.5 billion yen)

• Net income: -1.4 billion yen (vs. 1H estimate of 680 million yen)

The company recorded a net loss of 1.4 billion yen, mostly due to an extraordinary loss related to asset retirement obligations of 3.2 billion yen (new accounting standards came into effect in FY03/11).

There was no change to the 1H and full year forecasts. However, due to the continuing decline of bowling sales at existing stores and the possibility that there will be additional extraordinary losses (see discussion in Longer-Term Outlook), in SR Inc.’s opinion, the company may find it difficult to meet its planned performance.

Full Year FY03/10 Results

The company announced FY03/10 Q4 and full year results on May 14, 2010.

Sales were 82.1 billion yen (+5.3% YoY), operating profit 12.0 billion yen (-11.6% YoY), recurring profit 7.8 billion yen (-19.9% YoY), net income 3.4 billion yen (-14.6% YoY).

As a percentage of the revised company forecast, the results were as follows:

• Sales: 98.9% (vs. forecast of 83.0 billion yen)

• Operating profit: 91.8% (vs. full year forecast of 13.1 billion yen)

• Recurring profit: 87.2% (vs. full year forecast of 9.0 billion yen)

• Net income: 82.8% (vs. full year forecast of 4.1 billion yen)

FY03/10 Results Report Card (vs. revised estimates announced early Q4)

Revenues

Target: 83 billion yen (+6.4% YoY)

Result: 82.1 billion yen (+5.3% YoY)

Gross Profit

Target: 14.8 billion yen (-3.5% YoY, 17.9% GPM)

Result: 13.8 billion yen (-10.1% YoY, 16.8% GPM)

SG&A, Operating Profit

Target: 1.7 billion yen SG&A (-1.1% YoY; SG&A/Sales 2.1%)

Result: 1.8 billion yen SG&A (-1.2% YoY; SG&A/Sales 2.2%)

Target: 13.1 billion yen OP (-3.8% YoY; 15.8% OPM)

Result: 12.0 billion yen OP (-11.6 YoY; 14.7% OPM)

Recurring Profit

Target: 9.0 billion yen (-8.1% YoY; 10.8% RPM)

Result: 7.8 billion yen (-19.6% YoY; 9.6% RPM)

Net Income

Target: 4.1 billion yen (+3.1% YoY; 4.9% NPM)

Result: 3.4 billion yen (-15.4% YoY; 4.1% NPM)

Overall, FY03/10 results were disappointing although it could be argued that the weakness had to be expected and the company communicated the difficulties well through the period. The end results however, were a miss relative to the forecast revised down in February 2010.

The company remains focused on getting back to a growth trajectory. SR notes that as of May 2010 end, the comparable store sales seem to have bottomed and therefore the company’s FY03/11 forecast can probably be considered more reliable than the previous ones. The company assumptions for FY03/11 and the discussion by SR Inc. are presented in the detailed discussion below.

FY03/10 Results Highlights

FY03/10 was a challenging year. A number of external factors impacted the performance. Particular culprits were weak consumption and the flu outbreak earlier in the year. The new flu type had an extended impact – not only normal public fears regarding the virus, but also persistent calls from schools and authorities to keep children away from public places. Combined with weak incomes and lower highway tolls (encouraging longer family trips at the expense of local entertainment) this meant a substantial drop in family traffic to Round One facilities.

Additionally, the lack of new hit medal prize machines also impacted both Game revenues and (likely) overall traffic.

On a positive side, the company was able to weather the storm related to the financial crisis, specifically the refinancing of its multiple SPCs (refinancing a total of 12.8 billion yen of consolidated loans), a sudden threat to the very existence of the business. As of FY03/10 end it would appear that the worst was behind the company, although uncertainties surrounding future refinancing remained (negotiations were underway for approximately 17.7 billion yen needs in FY03/11; further negotiations were scheduled for 39.7 billion yen for FY03/12-FY03/13, according to the FY03/10 analyst meeting materials).

Another smaller positive was the success of network bowling installed in all facilities. The new approach, made possible by Round One’s nationwide presence, high market share, and innovativeness, likely helped stem the decline of bowling revenues which otherwise might have been much worse.

FY03/11 Estimates

President Sugino’s FY03/11 hopes and worries (highlighted in SR Inc. interview on May 20, 2010)

Hopes:

• The allowance for children, one of the key initiatives of the DPJ government, should be distributed from June 2010 (13,000 yen per month). This, in combination with the removal of public high school fees, should positively impact family consumption.

• New advertising approach. Round One had been using a media mix of 15 second TV spots as well as newspaper inserts, bus stop advertising etc. The company realized that in many cases families, the core target, were not subscribing to newspapers in many cases, while sporadic TV ads were not working either (possibly because consumers would record programs using commercial skipping options). Round One kept the advertising expenses at usual 2.2% of total sales for FY03/11, but will focus on 30 second TV spots targeting variety entertainment programs aired from 7 to 9pm – when the family is eating and normally not recording programs, but watching together. The company found that it could secure the time slots at major networks, made possible and affordable by the weak economy’s impact on TV advertising revenues particularly hard. The new commercials started airing from April 1.

Fears:

• In Game, there are still very few new interesting machines available. Without those it would be very hard to drive Games segment revenues. President Sugino suspects a “boiling frog syndrome” at major machine manufacturers – they address short-term issues such as low profitability at their own centers while ignoring the fact that a market starved of good games may structurally deteriorate. The issue of few new games remains serious as more than 40% of the company’s sales come from this business.

• Weak incomes of public servants and SME employees offset positive effects of the child allowances.

• Refinancing – while fears of not being able to refinance the current operations are over, president Sugino had concerns about his company’s ability to obtain additional funds to finance three new major facilities that it planned to open (see detailed discussion below).These fears were addressed by the new share issue announced on June 2, 2010 (See Recent Updates).

New Centers: the company plans to have 107 centers at FY03/11 end vs. 105 a year earlier. Only one new center was planned to open in Japan – in Matsuyama; the company also slated for opening in August its first US center in California (Puente Hills Mall). The US facility is expected to produce net earnings contribution of zero for FY03/11. Matsuyama should contribute around 400 million yen in sales (700 million yen when contributing full 12 months in FY03/12). Please see important discussion regarding the opening of new large facilities in FY03/12 and beyond in the Longer-Term Outlook.

Comparable Store Sales, Total Sales:

Round One opened several new facilities in FY03/10; the number of operating months should increase from 1,201 months (i.e. equivalent to 100 centers) in FY03/10 to 1,268 months (or 105-106 centers) in FY03/11. This should boost the sales by about 5%, i.e. the expected growth in sales in FY03/11 is all from the new stores full year contribution effect. The company assumes that comparable store sales will be flat YoY for the full year (see the table above).

Estimates call for a small increase in bowling revenues from Q2 due to easy comps vs. FY03/10 as well as anticipated impact from TV advertising. In Game, the company expects comparable store sales improvement to arrive in Q3, driven by the expected release of major medal game machines by Sega and others in November (Round One is still critical saying that the number of new machines is unlikely to be enough to revive the market). Karaoke sales are expected to continue declining on a comparable store sales basis due to continued price competition. However, Q3 should see bottoming of the momentum as new equipment expected to be introduced in summer and fall should incrementally help customer traffic. SPO-CHA comparable store sales are forecast down 4.6% YoY but the contribution from Shin-Misato (Saitama) store means total SPO-CHA sales could be only marginally down.

As a result, total sales are expected to increase +4.7% YoY to 86 billion yen. Bowling is forecast to increase to 32.8 billion yen (+6.5% YoY), Game to 35.4 billion yen (+6.0% YoY), and Karaoke to 6.1 billion yen (+1.0% YoY). Sales in SPO-CHA and Other are expected to decline: SPO-CHA to 8.8 billion yen (-1.8% YoY), and Other to 2.9 billion yen (-0.6% YoY).

Costs and Profits:

The company forecast calls for approximately 1.9 billion yen increase in OP and about 1.2 billion yen higher RP in FY03/11.

The biggest boost, about 1.0 billion yen, is expected to come from lower lease fees in the core business. This is the beginning of a trend that should continue for a number of years as stores age (see detailed discussion later in the report).

Incremental total sales growth and otherwise stable gross profit margins should bring about the balance of the improvement.

The advertising expense is budgeted as usual at 2.0%-2.4% of total sales although use should change dramatically and hopefully provide more bang for the buck.

Non-operating expenses will see higher interest charges which are in essence the rental payments sent through the SPCs but are also affected by the refinancing conditions.

Extraordinary losses of 4.5 billion yen were also included in the company forecast:

1. 3.1 billion yen of those are expenses related to obligations related to liquidation of assets, a non-cash provision related to new accounting rules demanding that retailers and similar businesses provision for the costs of future store closures. When Round One closes one of its centers, depending on the contract detail but most of the time it has to return only the skeleton of the building structure to the owner so the costs are equipment and fixture removal and dismantling of the structure. If facilities are held in SPCs, Round One would also add residual rent payments to the expense.
2. Further 1.0 billion yen is a non-cash asset impairment loss estimate based on previous year’s performance. It is unclear where or not such loss would be realized. Last year, the company recorded impairment of about 0.9 billion yen in FY03/10 for two of Round One facilities and seems to have assumed a similar situation and charges in FY03/11. There is a possibility that the sale and lease-back schemes might be used for some of the centers lowering the effective rent burden. The company noted that on the operating profit level about 10 facilities were in the red and that a YoY increase in comparable store sales of about 4%-5% would cut that number to 2-3 facilities.
3. Finally, 0.4 billion yen is a routine write-off of obsolete gaming machine gauge boards.

Net profit is expected to decline 26.4% YoY to 2.5 billion yen. The company is assuming standard effective tax rate of 42%.

In terms of key cash flow related items, capex is slated at 8.0 billion yen (1.7 billion outflow for already opened Shin-Misato center, 1.1 billion yen for Matsuyama center, 0.7 billion yen for Puente Hills Mall center, and 4.5 billion yen for new gaming machines. The depreciation is forecast at 10.6 billion (excluding leasing fees) compared to 9.4 billion yen in FY03/10.

FY03/11 New Opening Schedule

Opening Schedule FY03/12 and Beyond (Tentative; as of FY03/10 end)

Longer-Term Outlook

Based on the current state of the Midterm Business Plan and comparable store sales trends, SR Inc. has identified three important issues that are key to understanding Round One’s current situation and future prospects. In exploring different variables and possible outcomes, SR Inc. has tried to take a conservative approach. Thus, the discussions below are not based on scenarios SR Inc. thinks are likely, but rather represent an extreme case discussion of what “could” happen.

Three questions that investors might be asking should be considered separately here:

1)What will happen with the new store openings planned for FY03/12 (three stores)?

The company has adjusted its stance on store openings planned for after FY03/12 (Namba, Ikebukuro, and Umeda). In its “Corporate Performance Materials” published on August 9, 2010, the company announced that it was “considering not focusing on ownership, but on leasing, following a partial or total sale of assets as part of a program to strengthen finances”. In other words, it was considering selling, or selling and leasing back.

(Status of the three stores)

In late 2007 or early 2008, Round One was shown prime property in some of the most commercially attractive areas of Japan. Large properties in prime locations of Tokyo and Osaka are offered extremely infrequently and Round One was very enthusiastic about opening there – such facilities not only guarantee stable cash flows, but also serve as a powerful advertising tool for visitors from regions where the company has a bulk of its amusement complexes.

Analysis of the company accounts (yuho) shows that the company made debt guarantees for properties in Ikebukuro, Umeda, and Namba (Sennichimae) in FY03/08. As a part of normal accounting practice approved by the auditors, SPC purchases of non-operating assets can be kept off the balance sheet until they became operating assets. The company acquired land and rights to buy land through three separate SPCs, financed almost entirely through bank debt (it disclosed debt guarantees in footnotes of FY03/08 and FY03/09 parent accounts). SR Inc. understands that the deals happened in Q4 or late Q3 of FY03/08.

Ikebukuro. It appeared in the footnotes as a 22.0 billion yen debt guarantee to an SPC called R-1 Ikebukuro in FY03/08. The company commented in a release on May 28, 2010 that selling Ikebukuro land would mean a capital loss of 4.0-5.0 billion yen based on the current land value.

Umeda. The right to buy a property lot in Umeda (Osaka) appeared at 1.1 billion yen in FY03/08 footnotes. The amount was unchanged at the end of FY03/09. SR Inc. estimates that there is a walk-away penalty should the company decide not to develop Umeda. SR Inc. estimates that the total cost of developing Umeda is about as much as Ikebukuro (slightly north of 20 billion yen).

Namba (Sennichimae). The deposit for the land was paid in FY03/08. Round One then acquired the land through an SPC, with 9.2 billion yen of debt guarantees which appear in FY03/09 footnotes. SR Inc. estimates that the total cost of developing Namba is roughly half as much as Ikebukuro or Umeda.

Likely Scenario

Based on the amount of spending involved for the three locations, SR Inc. thinks that the company might choose either to sell or use a sale & leaseback regarding these projects before the end of 2010. More specifically, SR Inc. speculates that the company may choose to sell Ikebukuro and Umeda and perform a sale & leaseback for Namba. If Ikebukuro and Umeda were sold and then leased back, as opposed to a simple sell (and forget about it) option, Round One would have to develop the sites, which would mean the possibility of losses upon sale or ballooning cash outlays in tandem with debt repayment. SR Inc. therefore thinks keeping the properties is a somewhat unlikely choice for the company at this junction.

2)What about selling and leasing back existing stores?

The sale & leaseback of existing stores will continue with the goal of repaying interest-bearing debt as indicated in the company’s Midterm Business Plan. At their briefing session, the company stated that it would like to keep losses from such transactions at a level that is less than, or equals the annual recurring profit. In other words, the thinking goes, let’s avoid net losses and potential cash shortages. To do so, if the company were to take losses on the sales of the three stores (Ikebukuro, Umeda, and Namba) in FY03/11, it could start selling and leasing back of its existing stores in FY03/12 and keep doing it over several years.

3) What if sales at existing bowling centers continue to fall?

Considering the company’s negative outlook on the bowling industry it shared at the Q1 FY03/11 results presentation and the continuing decline in the earnings of existing bowling centers, investors might be justifiably worried about the potential earning impact. However, it should be noted that bowling historically seems to exhibit cyclicality probably mean that bowling revenues should recover at some point in the future. Despite this, SR Inc. considered a “worst case scenario” and estimated how much sales would need to deteriorate before the company lost money.

Assumptions

SR Inc. ran a simple stress test based on the following assumptions:

• Sales figures from FY03/10.
• Assumption that sales of non-bowling are flat.
• Assumption of a marginal profit ratio of 79% (see cost analysis).
• No impact on future earnings from lower finance and lease rates or lower interest payments.

Results

Based on the above assumptions, if bowling sales fall approximately 39% from levels in FY03/10, the company’s operating profit would dip into the red. SR Inc. thinks that Japan’s bowling market may continue to contract. However, as smaller and weaker rivals retreat from the market as a result, Round One should be able to expand its market share and return to growth. For now, the company struggles alongside the rest of the bowling industry. The question is, can its sales fall further 40% from here?

One factor that SR Inc. did not include in the analysis above was the effect of lower lease fees as facilities age (which increases operating profit, normally an important consideration). According to the company, at the end of FY03/10 it had approximately 30 stores in operation under 3 years old, which would mean a decline of approximately 3.0 billion yen in lease payments over the coming three years.

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[edit] Business

[edit] Summary

Core business - Operation of Amusement Complex Centers

Round One specializes in running amusement complex centers across Japan, mainly in Kansai (Southern-Central Japan, including Osaka, Kobe, and Kyoto) and Kanto (Eastern Japan including Tokyo) regions. In particular, it has a substantial presence in “Hokusetsu”, a region comprising parts of Osaka, Kyoto and Hyogo Prefectures. The amusement services start with Bowling as well as Game, Karaoke and SPO-CHA (abbreviation for “Sports Challenge”). Capturing profitability metrics at each service level is difficult, as they are all provided in a same location and for the same customers, and it is therefore hard to appropriately allocate direct costs and overhead to each category. The marginal profitability appears to be the highest in Bowling, followed by Game. For Bowling, the marginal profitability is suggested to be over 90% while Game is relatively lower due to variable costs associated with prizes in redemption type machines etc. Karaoke has a high exposure to variable costs; this service includes offerings of foods and drinks to customers. For SPO-CHA, marginal profitability was initially expected to be higher, but lower than originally forecast sales meant higher fixed cost ratio.

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[edit] Business Description

The company’s amusement centers are divided into “Standard” and “Stadium.” Bowling and Game are the two main revenue pillars at Standard facilities, while SPO-CHA is the key feature for the Stadium format. Stadium is a newer type, and it was seen as an important new driver for sales when it was first introduced. However the SPO-CHA concept has failed to generate sufficient traction in the market as traffic flow tends to slow substantially after a period of initial post-opening excitement. Most recently SPO-CHA had been considered by the company as more of brand advertising tool, flagship stores increasing Round One clout and “carrying the aura” to smaller centers in the vicinity.

Bowling (37.5% of sales in FY03/10): This category comprises sales of bowling games (rounds plus rental shoes, etc.) and vending machines (drinks, snacks, etc.). In early March 2009 the company installed a new feature called “Ganbare! Bowling Bancho!” (“Hang in There! Bowling Boss!”) in all of its centers which allows customers to compete virtually over a network with competitors in other Round One locations.

"Ganbare! Bowling Bancho!"

This feature makes it possible for a customer to bowl in real time against players in other centers. As of the end of FY03/10, the number of registered users reached approximately 2 million, increasing about 80,000 per month. These numbers suggest that this new system is gaining acceptance among customers, and will likely be an important sales driver. It could lead to a boom of bowling as in the case of the introductions of auto-scoring system.

Game (40.7%): This category comprises sales from game machines including medal games, “UFO Catchers” redemption crane games, video games etc., all installed in the centers. The business here makes the company the largest arcade game operator in Japan, and that means that the newest and most popular machines from all vendors are always installed in the centers.

Karaoke (7.4%): This category comprises sales associated with karaoke room rentals and food & drink services for customers of karaoke.

SPO-CHA (10.9%): This category comprises sales associated with admission tickets for SPO-CHA (“Sports Challenge”) areas of the centers. This service is available only in Stadium (43 out of 105 total centers at the end of FY03/10). Stadium facilities are larger than Standard (Stadium facilities have room for SPO-CHA). The top two floors in Stadium facilities are often dedicated to SPO-CHA. SPO-CHA includes spa relaxation facilities, three-on-three basketball, and older and less “current” games (air hockey, batting practice, roller skating etc.). Once customers enter the area, all these services are available at no additional cost within the time period specified by the ticket.

Compared with other amusement services, SPO-CHA has turned out to be something of a disappointment. When it is introduced as a part of new “Stadium” centers, customers tend to get very enthusiastic, but their enthusiasm typically turns out to be short-lived. For example, in the first year when the company disclosed comparable sales of SPO-CHA (FY03/08), its performance was -16.1% YoY, followed by -9.8% in FY03/09 and -9.2% in FY03/10.

Other (3.0%): This category comprises sales associated with rent from tenants like hamburger shops located in the centers as well as small unclassified amusement services.

Development of New Centers

New Center Openings (Source: Company Data Processed by SR Inc.)

The company had 105 amusement complex centers as of the end of FY03/10, the oldest opened in FY03/95. Through FY03/05 to FY03/08 Round One was focusing on Stadium format centers. However, in FY03/09 and FY03/10, there has been a trend that Stadium format openings were declining. It requires about 2 years from the decision to open a new center to actual opening. The company has slowed the pace of new store openings: from approximately 10 per year (FY03/06-FY03/10) to only two planned openings initially announced for FY03/11. See Trends & Outlook for store opening plans for FY03/11 and beyond.

Target facility layout

Cost structure analysis

The company’s business is a fixed cost business. According to the company’s data, it has high marginal profitability of approximately 79% (exposure to variable costs: approximately 21%) in FY03/09 results (70% to 80% in the company’s recent estimates). In this calculation, headquarters costs (SG&A), labor costs, advertising costs, rent, leasing and depreciation are all assumed to be fixed and the rest of expenses variable. The average spending per customer has been and is likely to be stable at 2,000-2,200 yen. That means that the number of customers is the main driver of earnings and the most immediate way to enhance earnings is to enhance the number of customers in existing centers.

Round One’s business model is such that fixed costs per center have a tendency to decline in a medium or long term view. The company’s typical model shows that the annual leasing expense through the first year to the third year is 203 million yen versus 123 million yen through the fourth year to the sixth year and 94 million in the 7th year and onward (see table below). When assuming constant sales levels, the leasing expenses equate to 16.9%, 10.3%, 7.8% of sales, respectively, throughout the three periods. It should be expected that operating profit margins should improve in line with the decreases of exposure to the leasing expenses when other conditions remain unchanged.

The reason for such consistent declines of leasing costs is that Round One gradually enjoys declining burden associated with the initial investments. The renewals for leasing contracts, except for Bowling, are carried out every three years, and the first renewals at the beginning of the fourth year gives the company lowered costs as the initial investments aren’t required to renew a lease. For Bowling, there should be no changes in leasing costs over the first six years, but they will come down at the beginning of the 7th year (lease term is 6 years). More importantly, Bowling has the least exposure to leasing costs in terms of comparison with the overall sales, i.e., 10.0%. On top of this, it has the least exposure to variable costs (high marginal profitability), and thus this is regarded as the key earnings pillar with the company. Bowling leasing costs / sales comes down to 1.1% in the 7th year and onward, and it is presumed that Bowling should see even higher profit margins than the levels during the first six years. Bowling requires almost no additional investments when renewing leasing contracts, unlike other categories, and therefore the rate of declines in leasing costs are large. A key assumption in this analysis is that sales levels for Bowling are relatively stable.

Age of Centers

The number of centers in their 1st year to 3rd year continued increasing through FY03/09, but double-digit store growth from FY03/06-FY03/10 has been reduced substantially in the FY03/11 opening schedule (see Trends and Outlook for detail). This means that the mix of centers 4 years or older continues to grow, which has an obvious impact on overall costs as discussed in Cost Structure.

Special Purpose Companies, the Driver for the Fast Growth

Out of 105 amusement centers as of the end of FY03/10, approximately 59 were held through Special Purpose Companies (SPC). The structure allowed Round One to take advantage of non-recourse loans which made it possible to use higher leverage than recourse loans. Indeed, the company has achieved aggressive new center openings through use of leverage, resulting in more center opening than would have otherwise been possible. Typically, 10% of the new center assets to be held in an SPC are funded by equity from the company and the remaining 90% by non-recourse loans issued by the SPC. The leasing period for assets held in the SPC is typically seven or eight years, and the redemption period for the non-recourse loans is five years. The company initially viewed the SPC risk as relatively low, due to the unique nature of the assets (creditors would be better served to help the company work-out the situation rather than seizing the assets for a liquidation attempt). However, adverse market conditions in FY03/11 forced the company to re-evaluate its consolidated debt position with SPC debt. The company announced a plan in Q1 FY03/11 which potentially involved sale & leaseback transactions and possible store closures to reduce its balance sheet leverage.

As of the end of FY03/10, outstanding non-recourse loans totaled 56.8 billion yen - comprising 17.5 billion yen of short term debt (including current portion of long-term debt) and 39.3 billion yen of long-term debt. Total assets pledged in the SPC structures were 71.8 billion yen (approximately 1/3 of total assets).

The specific type of debt used in the SPCs has slowly been changing to standard corporate loans as the non-recourse loans mature. The loans are guaranteed by the entire company instead of being secured by specific assets.

Strengths and Weaknesses

Strengths

• The company's business model is unique in that it combines Bowling, Games and Karaoke in one large amusement center, increasing both its customer drawing power and stability of revenues. While these markets are unlikely to grow, Round One can leverage this advantage and continue expanding as the sole operator of nation-wide amusement complexes. As with many mature markets, it might be too late for newcomers, even incumbents in each of three relevant individual markets, to enter the market for amusement complex centers. Indeed, large game machine makers tried to do it and failed in the past as they failed to master the tricky art of profitably managing bowling alleys.

• Strong brand name.“Round One”is well recognized by the consumer and the company’s nationwide presence allows it to advertise its brand on the major TV networks.

• Strong cash flow generating ability. Although high earnings growth of the past decade is unlikely to be repeated, once the wave of store openings subsides, Round One amusement centers should bring joy not only to the bowling fans but to investors as well. An important condition however is for the decline in the comparable store sales to be stemmed.

Weaknesses

• Hard to scrap underperforming facilities. While many roadside retailers can close their stores relatively easily, the company’s large scale centers are unique and not easy to off-load. It takes 2 years to open a store and would take large accounting losses to close one.

• Having a high presence in its market, it is harder to find new venues of profitable growth. While overseas expansion offers such possibilities, differences in regulations and country risk mean that success in replicating the company’s business model is less than certain.

• Weak economy and shrinking disposable incomes are impacting sales just when the company is about to enjoy improving cash flows from its previous expansion. That negatively affects financial health and is restricting near term strategic options.

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[edit] Market & Value Chain

Market Overview

Bowling was well accepted in Japan when it was imported in 1960s. In those days, it was not unusual to queue for hours to play, and anyone with excess funds was keen to invest in bowling alleys as long as they could find suitable land. The number of the centers had once reached 4,000 but has since declined from this peak. Japanese people now have access to a wide variety of entertainment options, leading to a smaller portion of disposable income being spent on bowling. With 105 centers nationwide (FY03/10 end), Round One has approximately 30% of the market (company estimate). Its share of the number of bowling centers is about 10%, reflecting the fact that the company tends to have far more lanes per center than smaller peers. The company entered the market late, in early 1980s, around the end of the era when such commercially successful entries were still possible. The company not only opened bowling alleys but introduced a completely new model (under the Round One brand), combining bowling with games, karaoke, and other amusement options. This model came to dominate the market. The market size is currently about 90-100 billion yen with approximately 10 centers closing each year, with an expected continued contraction of the market. However, Round One has the potential to pursue sales increases by increasing its share as smaller competitors exit the market.

The market for arcade games is saturated, due to previous growth and the over-supply of games and centers which were developed to meet expectations of what the market could have been. The total market size is approximately 600 billion yen, down from a peak of 700 billion yen. The contraction of the market has motivated some incumbents to reconsider participation, and some large national operators are selling assets to smaller regional firms. The overcapacity has caused ripple effects through the value chain as game manufacturers reacted to limit production of game titles. Smaller arcade operators are slow to replace machines due to financing challenges, and manufacturers respond by making fewer games, which in turn impacts larger arcade operators through limited choice.

Customers

Customer breakdown by generations with the company is as follows: Teens and twenties or youngsters, collectively, account for 50% of total. Collective thirties and forties account for 10% to 20%. The remaining 30% to 40% is accounted for by other generations. The population in Japan is unlikely to grow in the future, and the proportion of young people in the total population is likely to decline. When this trend is taken into account, the key customer base or the youngsters should suffer from more decreases than the overall population in Japan. As a result, this could lead to decreases in customers in the near future. However, current youngsters (who may have made it a part of their lives to come to the amusement complex centers) have a potential to remain being repeat customers even in their thirties and forties.

Suppliers

Round One sources equipment for its facilities, otherwise there are no major procurement items. All equipment is leased, not purchased. Primary bowling equipment suppliers include Sport (ex-Brunswick, unlisted), an operator of bowling centers. Suppliers of game machines include Sega Sammy (TSE 6460), Namco Bandai (TSE 7832), and Taito, a subsidiary of Square Enix (TSE 9684). Most game suppliers also operate their own arcade game chains. Round One does not seem to receive volume discounts from these suppliers despite being a very large customer. However, its size allows for quicker delivery times and ensures early availability of the newest “hot” game machines.

Barriers to Entry

The mature market with limited growth potential makes a profitable entry less possible and therefore less attractive. Both the existence of a national Round One franchise and its expertise in managing this franchise create high barriers to entry for would-be competitors. As an example, a few years ago some game manufacturers attempted entering the bowling market but found their expertise (arcade games) was not transferable into bowling, and abandoned their attempts.

Competitors

There are no direct competitors that run national chains. Neighborhood operators of bowling centers, game arcades, and karaoke centers are all competitors to varying degrees. Smaller operator Sport is considered a distant second runner in the industry, operating twelve plain-vanilla bowling centers. But no company has succeeded in replicating the national scale and highly standardized model that Round One has accomplished. In the words of management, “there is no Round 2” in the market. Arcade game operators such as Sega Sammy (TSE 6460), Namco Bandai (TSE 7832) and Square Enix’s (TSE 9684) Taito, as well as smaller players like Adores (JASDAQ 4712) and Warehouse (TSE 4724) are competitors in a broader sense but they lack either scale or exposure to the profitable bowling segment.

Substitutes

Essentially, Round One’s services provide customers with amusement and/or entertainment, and thus any other equivalents could be substitutes. However, the mainstay bowling has distinguished characteristics that make it unique and somewhat ‘sticky’ with players – the rules are relatively simple, skill is not required for enjoyment, and it is relatively inexpensive. Given these factors, it is unlikely that the market for bowling could quickly decline from current levels. The diversification of amusement and/or entertainment will likely keep on making progress, but bowling should survive as one of the key categories even in a long-term view.

Growth and Cycle

The market for Round One’s services is no longer in a secular growth stage. It shows some cyclical characteristics but more than responding to normal economic cycles it goes through other cycles that are more related to product innovation and emergence of competing entertainment options. For instance, when automatic scoring was introduced in bowling alleys in Japan, it fueled a temporary boom. On the other hand, when mobile phone content started rapidly gaining acceptance among young people, handsets took away a portion of their disposable incomes and negatively impacted other amusements, including bowling. The impact tends to wear off after an initial surge, creating a “hindsight cycle”. Generally speaking, any such cycles are short-lived, while Round One’s markets (bowling, games) have a slow contraction trend arguably driven by changing demographics.

Group Companies

In the past, the company had a consolidated subsidiary involved in point card issuance. It was not successful as a standalone business and was liquidated in FY03/02. As a result Round One stopped reporting its consolidated accounts from FY03/03. At the same time, the company started using SPCs from 2002 after a suggestion from a leasing company. Under then prevalent accounting rules, such SPCs were off-balance sheet and therefore did not trigger a consolidated reporting requirement. This changed a few years later and the company restarted consolidated account from FY03/07 reflecting all its SPC-related assets and liabilities. On an income statement front, sales, recurring profit, and net profit are almost the same at the parent and consolidated levels. At the operating profit level, the parent company pays the rent to SPCs. They in turn pay the parent a dividend equal to rent minus interest, maintenance expenses, outsourced administration fees etc. Such dividend is booked by the parent as a non-operating item. The SPCs have typical equity ratio of 10% (financed by the parent), the balance is loan debt. On a balance sheet front, the parent does not reflect any SPC entities. According to company data, consolidated subsidiaries included 4 SPCs (Tokutei Mokuteki Kaisha) and 59 Tokumei Kumiai (Japanese Commercial Code Association similar to a US LLP and often called Japanese LLP) as of the end of FY03/10. While technically different both types are special purpose vehicles that lease the company's amusement complex centers. Additional discussion of the SPC use can be found here.

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[edit] Strategy

Overseas expansion plans are expected to be developed further after comparable sales are stabilized and the company’s financial state improves. President Sugino firmly believes that overseas expansion will take place in the future. The logic is that Round One will be unable to sufficiently grow if it sticks to existing business model and the existing domestic market. Round One is currently planning to open the first overseas center in Los Angeles, California in the Autumn of 2010. Looking back on the key factors why President Sugino started in the business in the early 1980s, he was convinced that he was able to provide customers with higher quality amusement services than peers while spending less. According to his most recent analysis, he is convinced he can do this in North America.

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[edit] Historical Financial Statements

[edit] Summary

Earnings Results Discussion for the Year Preceding Current Fiscal Year (For Reference Purposes)

FY03/10 Q3 Results

Round One released Q3 FY03/10 results on February 10, 2010. As a percentage of the full year company forecast, the cumulative Q3 numbers are as follows:

Sales: 72.1% (vs. full year forecast of 83 billion yen)

Operating profit: 58.6% (vs. full year forecast of 13.1 billion yen)

Recurring profit: 51.4% (vs. full year forecast of 9 billion yen)

Net income: 54.3% (vs. full year forecast of 4.1 billion yen)

Q3 (Oct-Dec 09) sales were 19 billion yen (+5.9% YoY). Operating profit was 1.6 billion yen (-22.2% YoY).

The store count was 104 (+3 during Q3).

The FY03/10 earnings forecast was revised down simultaneously. The updated estimate is as follows:

Sales: 83 billion yen (-3.5% from previous)

Operating profit: 13.1 billion yen (-10.3% from previous)

Recurring profit: 9.0 billion yen (-14.3% from previous)

Net income: 4.1 billion yen (-16.3% from previous)

Sales in the Bowling segment in Q3 were 6.9 billion yen (+6.2% YoY, 70.5% of the full year plan). Q3 comparable store sales were -8.6% (9 month cumulative -3.5% YoY). Lower sales were partially due to economic conditions and reduced demand driven by fears of the swine flu. From discussions with the company, SR Inc. sees the current strategy as one to maintain current tactical measures previously introduced (limited discounting and direct marketing) while waiting for the economy to recover. "Ganbare! Bowling Bancho!", the popular network bowling game (see Business Description), was a bright spot; the company estimated 1 million total unique tournament players and positive comparable store sales growth (between 6% to 7%).

The company seemed cautiously optimistic regarding the competitive situation in the bowling industry, commenting that difficult economic conditions should weaken and eventually force out smaller operators. In the shorter term, the company had planned to improve advertising efforts in Q1 FY03/11 (more television in the marketing mix) to drive sales during Golden Week (beginning of May).

Sales in the Game segment were 8.3 billion yen (+8.3% YoY, 73.5% of the full year plan). Q3 comparable store sales for segment were -9.2% (9 month cumulative -10.3% YoY). Key contributing factors for lower comparable store sales were lower family traffic and stale game content. Family traffic has declined approximately 20% YoY, accounting for over 6% of the 9% decline in Game comparable sales, according to the company. Family traffic is expected to recover when concerns about the flu subside, but the same could not be said for content. Core game players have typically been playing medal games, and manufacturers have been slow to bring new games to market. The segment performance was not without a silver lining: “catcher” (redemption crane) games had positive YoY sales. The company also suggested that consolidation in the market was beginning, which could benefit the remaining operators.

During the Q3 results meeting presentation, the company emphasized focus on game content to improve segment performance. The company bought about 100 new Konami machines in February, and is looking for more. The company also indicated that it wanted manufacturers to increase advertising, even if it means higher prices.

Q3 sales in other business segments were as follows:

• Sales in Karaoke: 1.5 billion yen (+6.6% YoY). 9-month cumulative sales were 4.4 billion yen (72.2% of the full year plan). Q3 comparable store sales were -15.3% (-13.0% 9-month cumulative).
• Sales in SPO-CHA: 1.8 billion yen (-7.8% YoY). 9-month cumulative sales were 6.5 billion yen (72.0% of the full year plan). Q3 comparable store sales were -16.6% (-9.2% 9-month cumulative).
• Sales in Other: 668 million yen (+13.8% YoY). 9-month cumulative sales were 2.2 billion yen (72.8% of the full year plan). Q3 comparable store sales were -12.1% (-0.9% 9-month cumulative).

The company is focused on improving finances over the short to medium term: reducing the number of money losing stores (13 out of 104 were unprofitable, as of Q3 FY03/10) and reducing debt. Store age should help with store profitability; lease payments drop about 7% after the fourth year of operation (see Cost Structure Analysis), and over 70% of stores will be 4 years or older in FY03/11. Closing stores would be an option of ‘last resort’ if turnaround efforts are unsuccessful (closing a store costs between 700 million to 1.3 billion yen). The company indicated an internal goal of being largely debt free within 10 years. SPC-related debt on the balance sheet was approximately 63 billion yen (including short term debt) at Q3 FY03/10 end.

SR Inc. understands that the total refinancing needs for FY03/11 are approximately 14 billion yen, of which the company will need to contribute approximately 3 billion yen to shore up SPC equity positions. Refinancing the SPC debt involves replacing non-recourse loans with corporate loans, which should have a positive impact on overall costs (facility rental expenses are essentially the interest payments made by the SPCs, and corporate loans typically have lower interest payments than non-recourse loans).

Additional Information on Convertible Bonds

President Sugino lent shares to Nikko Citigroup to short sell before Nikko Citigroup bought the company’s convertible bonds, which raised concerns of self-dealing from some institutional investors. President Sugino is adamant that not only was this not any kind of self-dealing, but was the only available option to pull the company out of the financing crisis caused by post Lehman Shock lending reluctance. Nikko Citigroup would not have been a buyer of the convertible bonds without the ability to hedge stock price risk (achieved through short selling the shares). Importantly, Nikko Citigroup was the only investment bank that agreed to take the risk and underwrite such a deal.

Investors who buy convertible bonds are typically attracted by the conversion option value as opposed to the bond component. The option is valued based on the probability of conversion (will the stock price be higher than the conversion price). To separate the option price from the stock value, many convertible bond investors will short sell the stock to offset any gains or losses in the shares (the investor is long stock through the bond’s conversion, and is also short the stock through the short sale, for a net exposure of zero).

FY03/10 Q2 (1H) Results

1H Consolidated results were released on November 11, 2009 - sales increased 5.4% YoY; operating profit declined 19.2 YoY%; recurring profit declined 32.0% YoY; net income -11.8% YoY. The company indicated that the negative trend continued through October as weak consumption and persistent fears of the swine flu had a negative impact on customer traffic. The company assumes that macroeconomic pressures will remain, and therefore is employing some tactical measures to improve operating results such as extended opening hours and efforts to boost patronage. Specifically, operating hours were extended at a majority of stores (24 hours during the weekends) beginning October 31, and Round One has introduced the mobile membership channel to attract more customers through direct marketing with reduced operating costs. The company also announced enhanced networked functionality to improve the tournament play of its popular “Ganbare! Bowling Bancho!” game.

Full year consolidated estimates were revised downward: sales of 86 billion yen (down 5.5% from original estimates), operating profit of 14.6 billion yen (down 11.5% from original estimates), recurring profit of 10.5 billion yen (down 19.2% from original estimates), and net income of 4.9 billion yen (down 22.2% from original estimates).

Specific review of segments and outlook

Game

Reported sales figures for the Game segment were beneath initial company estimates. Performance for the quarter was up 185 million yen, 1.1%, YoY. Comments from Round One indicated that the lack of new game titles as well as challenging macroeconomic conditions prevented performance to the company plan. The outlook for the segment going into 2H was mixed – economic pressure is expected to persist, but there were some indications that new game titles might be available which would boost sales, and proposed DPJ stimulus could increase disposable income.

Bowling

Concern regarding the H1N1 flu resulted in lower sales in the Bowling segment than company estimates. Specifically, some customers (older individuals and families) have been bowling less frequently. 1H sales of 15bn yen were less than initial estimates by 942 million yen, but had positive growth of 10.7% YoY. Sales in the Bowling segment have typically accounted for over 35% of total sales; the YoY top-line increase is helping to offset below-plan growth in other segments.

Karaoke

Sales of 3.0 billion yen in the Karaoke segment were positive 6.5% YoY, but lower than the company estimate of 3.2 billion yen. Some competitors in the market are doing relatively well considering the economic conditions (keeping revenues flat to slightly up) – these operators are changing prices based on time of day that customers arrive. The result of the flexible pricing is that customer spend has declined for these operators, but customer count has not.

SPO-CHA

The SPO-CHA segment was the only segment that reported lower sales on a YoY basis (4.7 billion yen vs. 4.8 billion for 1H FH03/09. When discussing the segment, Round One indicated that performance of urban SPO-CHA facilities was relatively better than regional locations.

FY03/10 Q1 Results

In Q1 FY03/10, released on 7th August, sales were 19.5 billion yen (up 4.5% YoY), operating profit 2.1 billion yen (down 36.3%), recurring profit 1.1 billion yen (down 54.8%) and net profit 0.6 billion yen (down 53.3%). When compared with company estimates, the shortfall in sales was 491 million yen (-2.5%), recurring profit 138 million yen (-10.9%) and net profit 45 million yen (-6.8%). The components of the recurring profit shortfall are as follows:

Delayed installation of new game machines led to smaller-than-expected leasing costs and depreciation, with positive impacts to earnings in the quarter. Meanwhile, sales fell short of company estimates and advertising costs such as those for running TV commercials as well as Game promotion costs turned out to be larger than expected, pushing down earnings.

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[edit] Income Statement

Recent results may imply some kind of saturation in the market, although unprecedentedly unfavorable economic conditions in Japan during the same periods have impacted earnings. Sales in FY03/10 came in at 82.1 billion yen (+5.3% YoY) and operating profit 12.0 billion yen (-11.6% YoY). The key negative factor for both sales and earnings is that sales in existing centers have declined for three consecutive years: -4.0% YoY in FY03/08, -8.5% in FY03/09, and -7.7% in FY03/10. High operational gearing in this fixed cost business has had an adverse effect on the profit margins, but ongoing lease cost reductions of facilities appears to have limited the deterioration in gross profit margins: 16.8% in FY03/10 compared with 19.7% in FY03/09.

Results vs. Historical Company Estimates

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[edit] Balance Sheet

Assets

The bulk of fixed assets at the end of FY03/10 were tangible fixed assets effectively all associated with the company's operations of amusement complex centers, i.e., 202.2 out of 212.1 billion yen.

Liabilities

Interest-bearing debt as of the end of FY03/10 stood at 138.9 billion yen versus 117.9 billion yen as of the end of FY03/09. While the non-recourse loan balance decreased from 83.3 billion yen to 56.8 billion yen during the same period, the normal (recourse) corporate loan balance expanded leading to a net increase in interest-bearing debt.

Shareholders' equity

Shareholders' equity increased by 13.2 billion YoY to 86.2 billion at the end of FY03/10, as a result of net profit 3.4 billion yen in FY03/10, cash dividends of 1.4 billion yen, and 11.2 billion yen of equity raised through convertible bonds conversion.

Shareholder Returns

Over the past five years in a row, the company delivered cash dividends of 20 yen per share after adjusting for stock splits. According to company estimates, 20 yen per share is expected in FY03/11. For the time being, the company intends to stick to this policy of maintaining 20 yen per share with its cash dividends, while there is no target for payout ratio. In fact, despite a sharp fall of net profit in FY03/09, the company maintained 20 yen per share for its cash dividends, and payout ratio rose to 31.7% from 13.8% in FY03/08. Meanwhile, share buybacks are unlikely to take place in the foreseeable future.

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[edit] Cash Flow Statement

Operating Cash Flow

Operating cash flow in FY03/10 rose to 22.2 billion yen, an all-time high for the company. The key factor was a 4 billion yen increase in depreciation. The company's operating cash flow is mostly influenced by pretax profit and depreciation. In other words, changes in working capital have a limited impact. This is because 1) customers pay in cash, 2) there are no major procurement items, and 3) the level of inventory is very low.

Investment Cash Flow

Investment cash flow in FY03/10 was -35.6 billion yen. When combined with operating cash flow, it was -13.4 billion yen while free cash flow (pretax profit, plus depreciation, plus goodwill write-off, plus working capital changes, plus tax charges and plus capital expenditure) was -16.1 billion yen. Round One has exhibited meaningful outflows in operating and investment cash flows from FY03/07-FY03/10 as it expanded its store network (and resumed consolidated accounting).

Financing Cash Flow

Technical accounting detail: Round One’s financial cash flows differ significantly when comparing parent and consolidated data. SPCs were only included in consolidation after FY03/06, due to a change in accounting conventions. Therefore, financing cash flows before FY03/07 do not fully reflect financing activities during the period. (See SPC discussion for more detail).

Financing cash flow in FY03/07 was mostly due to non-recourse loans (approximately 31.0 billion yen), when the company opened 15 stadium centers. Financing cash flows in FY03/09 and FY03/10 were mostly due to long term debt. The company raised 32.9 billion yen in FY03/09, repaying 14.3 billion yen of non-recourse SPC debt, and 43.2 billion yen in FY03/10 (repaying 23.1 billion yen of non-recourse loans).



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[edit] Other Information

[edit] History

Sugino Kosan (the predecessor to Round One) was founded in 1980. It was running a roller skating court business but soon realized that sales were too concentrated on weekends making the business unattractive. The company was going to close the rink and transform it into a warehouse but Sugino, then a university student, suggested opening a bowling alley instead and was tasked with its management. Sugino set out to construct a bowling alley that he would enjoy, with the logic that because he was the same age as his target consumer group that he was the demographic. His bowling alley proved to be very successful and he proceeded to open similar centers across Osaka. He formed Round One (the former one) in March 1993. Later, he added other amusement services such as arcade games and karaoke, making the whole operations in a center something unique.

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[edit] News & Topics

On March 25, 2010, the company announced the conversion of Convertible Bond No. 4. The conversion resulted in an additional 3,390,435 shares, for a total of 79,452,914 shares outstanding (as of March 25, 2010).

In addition, Round One provided an update on the company capital structure following the conversion of Convertible Bond No. 4: total capital was 20.9 billion yen.

On March 10, 2010, Round One announced the fixing price for Convertible Bond No.4 at 530.9 yen per share. The purchase date is March 25, 2010. SR Inc. estimates an additional 3.4 million shares for a total of 79.5 million shares outstanding.

On February 10, 2010, Round One released Q3 FY03/10 results.

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[edit] Top Management

Masahiko Sugino, born in 1961, CEO & President is the founder of the company. He is the key driving force for the massive growth of Round One in the past. He has been and is likely to remain the key person for all important decision making.

Kenzaburo Yoshida, born in 1947, managing director, joined the company in 1997. He is currently in charge of operations. He used to bowl professionally.

Yoshito Tagawa, born in 1948, director, joined the company in 1992. His tasks include risk management. He also used to bowl professionally.

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[edit] Employees

Round One reported a total of 1,188 employees on a consolidated basis (except part-time workers) at the end of FY03/10. This represented an increase of 14.8% from the beginning of the FY. Data reported at the end of FY03/09 indicated the following characteristics: average age of 30.0 years and an average salary of 5.15 million yen. It requires 10 to 15 full-time employees to open a new center on average, and the center would have 100 to 250 part-time employees on a registration basis to run the center.

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[edit] Major Shareholders

As of the end of FY03/10, the largest ten shareholders collectively accounted for 64.85% of shares outstanding, according to the annual report. The top shareholder is Masahiko Sugino, the current CEO & President and the founder, holding 25.04% of the company and 39.74% when the holdings by Kosuke Sugino (14.70%) are added.

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[edit] Investor Relations

Results meetings for analysts and institutional investors are currently held on a quarterly basis in Tokyo and on a half year basis in Osaka. IR Contact is Noriaki Tanabe, General Manager of Investor Relations (Phone: +81-72-224-5115).

"Quiet Period." The company’s quiet period begins approximately two weeks before earnings announcements, during which time the company’s IR will not be available for investor interviews.

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[edit] By the Way

Round One has an interesting multilingual pamphlet which helps non-Japanese speakers, which is also interesting to see ‘how’ the sales process works for different services. Click [here for the PDF].

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[edit] Latest Q&A

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