Overview of FY2016 Results and Forecast for FY2017

Overview of FY2016 Results and Forecast for FY2017

May 9, 2017Benesse Holdings, Inc.

(8.2)

3.5

0

FY2016

8.7

5.54.5

FY2016

10.8

7.6 7.5

444.1 430.0 438.8

FY2016

FY2016 Results (YoY)Net Sales Operating Income

Ordinary Income Net Income

（Billions of JPY）

FY2015

(3.2)％

(36.5)％

(29.2)％

1※2:Net income attributable to owners of parent

※2

Actual Forecast*1

Actual

FY2015

FY2015Results

Forecast*1

FY2015

Forecast*1

FY2016

Actual

※1:Forecast announced on May 11, 2016

Forecast*1

FY2016 Net Sales by Segment■FY2015 ■FY2016

Domestic Education

Overseas Business

Nursing Care and Childcare

Language Learning

Others

・Lower enrollment for Shinkenzemi(4.8)％

+3.4％

+8.5％

(18.4)％

・Higher enrollment in China

・Increase in nursing home residents

・Lower sales at Berlitzʼs ELS

・Higher sales at TMJ

94.9

102.9

44.0

60.2

73.9

44.3+0.7％

204.1

27.1

28.0

Positive/negative primary factors

194.4

（Billions of JPY）

2

・Foreign exchange rate impact

・Foreign exchange rate impact

FY2016 Operating Income by Segment

・Reduced Area Benesse locations

・Foreign exchange rate impact

(46.4)％

＋18.8％

＋16.6％

1.6

2.6

3.1

3.1

7.0

8.1

3.2

(0.４)

(5.1)

(4.8)

ー

ー

■FY2015 ■FY2016 （Billions of JPY）

3

Domestic Education

Overseas Business

Nursing Care and Childcare

Language learning

Others/Adjustment

Positive/negative primary factors

・Due to higher sales

・Due to lower sales

・Due to higher sales

・Due to lower sales

Enrollment in Shinkenzemi(Domestic) as of April

（Thousands）

+0.9％

+2.9％

4

2016

+3.2％

＋0.3％

+0.2％

2,430 2,450

2017

(Thousands)

2016 2017 Change %

Senior High School 150 150 0 2.9

Junior High School 390 400 10 3.2

Elementary School 1,150 1,160 10 0.3

Kodomo Challenge(Preschool) 740 740 0 0.2

Total 2,430 2,450 20 0.9

Kodomo Challenge(Preschool)

Elementary School Junior High School Senior High School

3,000

2,000

1,000

China Taiwan S.Korea

Overseas Enrollment as of April

+8.6 ％

5

+15.5％

(13.2)％

(10.1)％

1,2501,360

（Thousands）

1,600

1,200

800

400

0

(Thousands)

2016 2017 Change %

China 930 1,080 150 15.5

Taiwan 160 150 (10) (10.1)

S.Korea 150 130 (20) (13.2)

Total 1,250 1,360 110 8.6

Note: Included the number of enrollment for the preschool course in Korea, which is based on a license agreement.

2016 2017

Net Income

5.5

10.6

7.6

14.2

5.5

54.6％

430.0 454.8

FY2017 Forecast

5.8％

3.591.1％

84.8％

※Net income attributable to owners of the parent

※

Net Sales Operating Income

Ordinary Income

（Billions of JPY）

6

FY2016 FY2017(E)FY2016

FY2017(E)

FY2017(E)

FY2017(E)FY2016 FY2016

FY2017 Forecast of Net Sales by Segment

・Higher enrollment for Shinkenzemi

+13.4％28.0

31.8

+5.0％194.4

204.1

+8.7％102.9

112.0

+1.5%60.2

61.2

+3.1%44.3

45.7

■FY2016 ■FY2017 Forecast（Billions of JPY）

7

Domestic Education

Overseas Business

Nursing Care and Childcare

Language Learning

Others

Positive/negative primary factors

・Higher enrollment in China

・Lower sales at Berlitz

・Foreign exchange rate impact

・Increase in nursing home residents

・Higher sales at TMJ, and Mail-order business

・Foreign exchange rate impact

FY2017Forecast of Operating Income by Segment

+18.0％

+450.6％

+8.7％

ー

ー(4.8)

(5.4)

(0.4)

(2.2)

3.1

3.7

8.1

8.9

1.6

9.2

■FY2016 ■FY2017 Forecast （Billions of JPY）

8

Domestic Education

Overseas Business

Nursing Care and Childcare

Language Learning

Positive/negative primary factors

・Cost reduction of Shinkenzemi

・Due to higher sales

・Due to higher sales

・Due to higher sales

・Due to lower sales

・Due to restructuring expenses

Others/Adjustment

7.6

+2.7

(4.9)

+9.4+0.3 +0.5

+0.7

(1.7)(0.5)

14.2

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

Domestic Education

FY2017 Operating Income

968

（Billions of JPY）

9

18.0

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

Strategies for the FutureStrategies for the Future

May 9, 2017Benesse Holdings, Inc.

President & CEOTamotsu Adachi

Overview of Strategies from October 2016

●Stop the declining trend of Shinkenzemi

●Start reform of Berlitz

●Rebuild Benesse Groupʼs Business Portfolio: From Shinkenzemi dependent to a balancedportfolio structure

●Motivate employees by reforming the corporateculture

11

Key Initiatives in FY2017

Revitalize Shinkenzemi

Keep high-growth businesses growing

Reform Berlitz structure

12

13

Enrollments as of April

• Stopped the declining trend in all courses • Recovered after a five-year slide since 2012

(Thousands)

Senior High School 150 150 0 2.9

Junior High School 390 400 10 3.2

Elementary School 1,150 1,160 10 0.3

Preschool 740 740 0 0.2

Total 2,430 2,450 20 0.9

April 2016 April 2017 Change %Courses

Domestic Education＜Shinkenzemi＞

Downtrend impact

▼Enrollments as of April (Thousands)

2,4302,720

2,24061%

61%

Estimated result without change in trend

- 180

2,450

As the continued downtrend, April 2017 enrollment numbers would have declined, with the same level of retention rate and new enrollees numbers from the previous year. Recovered after 5-year-slide through improving retention rate and new enrollees

14

Esp. at saleʼs peak season, boosted new enrollments and continued students

New enrollments in December-April:

+170Continued enrollments in April:

+40

April 2017 April 2017April 2016April 2015Estimated result without

change in trendactual result

*Estimated result without change in trend: the result that would have occurred if “new enrollments” and “students / previous years enrollments” had been the same as the previous year. *Number of new enrollees per year: cumulative total of new enrollments from May to April

1,490

Domestic Education＜Shinkenzemi＞

● No. of new enrollees for the year increased by 22% 780,000(May 2015 – April 2016) 950,000(May 2016 – April 2017)

● Improved retention rate for the renewed April issue• Improved retention rates in April across most grades

*Retention rates set new records across several grades

● Strong growth in “school entrance years” has a positive effect going forward • Will impact enrollment across several years until graduation

in each course

Enrollment TopicsThe customer-oriented product renewals was well accepted among usersAs a result, new enrollments and retention rate both grew atop

15

Domestic Education＜Shinkenzemi＞

New tablet strategyBundle with a Benesse original study tablet

● Improved pricing satisfaction● Improved safety and security● Simplified course design

Strengthen direct marketingIncrease the number of PCL*

Product renewal from the customerʼs viewpointThoroughly research ease of use for students

● Made product easier to use and understand

● Proposed styles tailored to age andneeds

Focused on solving short-term issues and thorough implementation from the customerʼs viewpoint

Recovery Factors

16

PCL possession rate recovered to around 1/2 the level prior to the personal information leak, in line with target

● Channel mix centered on directmarketing

*PCL=Potential Customer List

Domestic Education＜Shinkenzemi＞

*BYOD=Bring Your Own Device

Senior High

School

Junior High

School

Elementary School

2016 2017

16％

20％

3％36%

100％

40％

41％

New strategy

Unify tosmartphone +

text

Change from BYOD* to Benesse

Original tablet

Unify toBenesse

original tablet

Hybrid(iPad)

Challenge Touch(Benesseoriginal tablet)

Benefit of New Tablet Strategy

▼Ratio of “digital” enrollees among April enrollments

Increased “digital” enrollee ratio will let us tailor to each studentʼs needs

17

Domestic Education＜Shinkenzemi＞

Aim to lift the retention rate by focusing on customer satisfaction

Increase enrollmentIncrease

enrollmentImprove

profitabilityImprove

profitability

Reduce costs by around 9 billion yen, mainly marketing costs

Balance between “increasing enrollment” and “improving profitability” for further growth

FY2017 Strategy for Further Growth

18

Domestic Education＜Shinkenzemi＞

●The top priority is to invest measures for increasing retention rate ・Concentrate investment in retention rate increase measures

with high investment effect

●Streamline new enrollment measures・Stop inefficient measures・Advance predictive model based on customer data analysis and control

the number of direct mail dispatches・Standardize direct mail format to reduce the unit cost

●Grasp customer needs and evolve marketing channel mix・Increase enrollment rate by offering individual proposals based on each needs・Pursue synergies between commercials, direct mail, telemarketing, and digital marketing

Streamlining Marketing Costs

Streamline marketing costs and maximize investment effect

19

Domestic Education＜Shinkenzemi＞

0

10

20

30

40

50

60

70

80

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY2015 FY2016 FY2017

Classi導⼊校有料会員

1,800校

70万⼈

13万⼈340校5万⼈

120校

Respond to the digitalization of education Cloud-based learning support service for schools Classi Paying members for senior high school services exceeded 700,000, and

the number of schools using the service exceeded 1,800 (April 2017)

Expansion of the School & Teacher Support Business

*Including integrated junior and senior high schools

20

Domestic Education

＜School & Teacher Support＞

Schools using ClassiPaying members

50,000120 schools

700,000

1,800 schools

340 schools130,000

＜Recent trends＞

Expanded GTEC CBT in university entrance examinations- No. of universities using in entrance exams: 49 (FY2016) → 139 (FY2017)

GTEC has the largest number of senior high school examinees- No. of examinees: 930,000 (FY2016) → 1 million (FY2017)

Local governments adopted GTEC for STUDENTS- In Fukui Prefecture, 6,796 3rd grade junior high school students took the exam

(FY2016)- In Kanagawa Prefectural High School, 8,000 students took the exam (FY2016)

Public schools adopted our service; online English lessons - 2nd consecutive year of contracting online English lessons in Tokyo.

Lessons for 5,500 students at 22 schools (FY2017)- Contracted with several local governments for online English conversation lessons

for public elementary and junior high schools

21

Ride a wave of educational reform for globalization

Domestic Education

＜School & Teacher Support＞

Expansion of the School & Teacher Support Business

Strategies for Medium-Term Growth

Integrate our entire assets towards further growth by taking advantage of FY2020 reform of educational system; one of the biggest revolutions ever in Japan

22

DomesticEducation

Integrate our entire assets

ShinkenzemiFYʼ16 Net Sales: 98 billion yen

School and Teacher Support

FYʼ16 Net Sales: 47 billion yen

Cram SchoolsFYʼ16 Net Sales: 31 billion yen

Major improvements in employee benefit- Nursing care staff starting salaries of up to maximum 285,500 yen/month* - Nursing care staff annual salary increased by a maximum of 700,000 yen*- Childcare staff annual salary increased by a maximum of 350,000 yen**

*For nursing care qualification holders working in Setagaya Ward, Tokyo **For staff working in Tokyo

Control the number of nursing-care facility openings- Set the number of new facility openings to around 10 per year; focus

on continuing stable growth Continue initiatives to maintain and improve service

quality- Focus more on dementia care- Developed our original tablet based system for everyday work

Nursing Care and Childcare

Strengthen Foundations for Stable Growth

Maintain and improve high quality services by enhancing employee benefit, and control the number of nursing-care facility openings

23

Strengthen area-based marketing

Bolster product competitiveness

Expand contact points

DVD video distribution app

Electronic pen

Further Growth in the China Business and Expansion into ASEAN

Increase enrollments in China by over 25% per year

We-chat platform with concierge function and member authentication function

10th anniversary events

Overseas Business

• Increase locations (FY2017 Plan : 36 locations)• Strengthen area-based marketing

• Enhance age-in-month products• Use new media (electronic

pens, app-based material)

• Online (web, social media)• Offline (shops, concerts, events, indoor playgrounds, classrooms)

24

Age-in-month-related products

<Plan>• Prepare to launch in FY2017• Launch in FY2018

Indonesia

Philippines

Malaysia

Expand Kodomo Challenge business globally Invest with right-size scale by developing global

standard products and collaborations with local partners

Ensure success in Indonesia, then plan to expand in the Philippines and Malaysia

25

Overseas Business

Further Growth in the China Business and Expansion into ASEAN

Position FY2017 as a year for structural reforms and aim to recover performance in FY2018

Berlitz Structural Reforms

To reform profit structure, we expect to spend 600 million yen in one-time expenses for liquidating and rebuilding unprofitable businesses

FY2017FY2017

FY2018FY2018Regain profitability through the business structural reforms of FY2017 and other initiatives

Language Learning

26

BTS (Language service)Revamp management and organization, as well as liquidate or rebuild unprofitable businesses to recover

Transformation points

Berlitz Structural Reforms

27

Language Learning

Weak ability to respond to real issues in each country

Decline in front-line capabilities

Decline in competitiveness of business structure• Dependence on old model centered

on classrooms, adult students, and directly-operated schools

Develop businesses in line with customer needs by region• Transfer authority to each country• Restructure in stagnant countries

Strengthen recruitment, training, and process management• Corporate sales, language center

managers

Business structure reforms• Invest in new online services• Strengthen services for children and teenagers

Current issues to be addressed

ELS (support for overseas education)Move away from dependence on students from Saudi Arabia. Recover by bolstering sales and increasing profitability, while planning to introduce a new business model

28

Berlitz Structural ReformsLanguage Learning

Transformation points

Dependence on students from Saudi Arabia• Insufficient sales force other than

Saudi Arabia

Deteriorating earnings structure• Decline in students from Saudi

Arabia necessitates right-sizing of business scale

Issues related to business structure• Program diversification and new

development needed

Bolster sales force• Bolster sales force for agents• Bolster direct sales over the Internet

Lower the break-even point• Reduce fixed costs by revising the

number of locations, etc.

Introduce GATEWAY model• Introduce new programs covering

university coursework + ELS English training as a set

Current issues to be addressed

Concentration in Core Competence

• Dynamic expansion of existing businesses• Conduct M&As for a business to become a third pillar

29

Further Growth

Plan to announce Medium-Term Management Plan in

autumn of 2017

30

Capital Policy

Plan to maintain dividend of 95 JPY for FY2017

Recover business and expand cash flows to conduct management with a balance between investment in growth fields and stable dividends

31