Rebels too old for a cause

Transcription

1 Rebels too old for a cause The dying motorcycle market in Japan :; Mike Newman President & CEO Analogica K.K. May 23 rd, 217 Page 1 INTELLIGENCE, INDEPENDENCE, INTEGRITY

2 Yamagata Fukui Miyazaki Kagawa Wakayama Saga Hokkaido Shimane Tokyo Chiba Gifu Niigata Mie Kumamoto Ehime Saitama Osaka Nara Gunma Yamanashi Ibaraki Tochigi Yamaguchi Nagano Kyoto Iwate Hiroshima Kochi Nagasaki Kanagawa Ishikawa Oita Aichi Fukuoka Aomori Shiga Okinawa Miyagi Hyogo Fukushima Akita Shizuoka Toyama Kagoshima Tokushima Okayama Tottori -2.7% -3.1% -4.% -5.4% -5.5% -5.7% -6.% -6.2% -6.6% -7.5% -7.6% -7.6% -8.% -8.3% -8.5% -8.6% -8.9% -1.3% -1.4% -1.7% -11.% -11.4% -11.4% -11.7% -11.7% -12.7% -12.7% -13.2% -13.3% -13.6% -14.3% -14.5% -14.5% -14.9% -15.3% -15.8% -16.% -16.4% -16.8% -17.2% -17.3% -17.6% -18.3% -19.3% -2.1% -22.% 9.9% Executive Summary 1,7, gave up motorcycle licenses in last 6 years The average age of motorcyclists in Japan is 53 years old and continuing to climb as younger riders looking to obtain new licenses continues to drift. Between 21 and 216 the Japanese National Police Agency (JNPA) noted that large capacity motorcycle license holders (ogata classified as 4cc+) have fallen by nearly 1,5,. While mid-size (chugata classified as below 4cc) have risen around 715,. Female riders have shown a similar pattern of 178, fall in ogata licenses and 147, increase in chugata respectively. While there are still 9.175mn men and 625, women willing to get out on the highway with large capacity bikes, the trend is alarming. More frighteningly, new graduates aren t lining up either. 3, fewer students lined up to get a mid or large size bike license between 214 and 216 representing a 12.3% dip, denoted by the red line in Fig.1. Fig.1 - Total New Motorcycle Graduates % change (216 vs 214) 15.% 1.% 5.%.% -5.% -1.% -15.% -2.% -25.% -3.% -35.% Source: JNPA Ownership Who owns What? The Japanese motorcycle market is dominated by <5cc scooters (referred to as gentsuki). Gentsuki are popular because they can be ridden even with a standard Japanese car driver s license. The gentsuki s low cost ($1,-1,5) makes it practical to do short trips to the supermarket or commutes especially considering the congested roads in Japan, Fig.2. Larger bore bikes are only 13% of the 12 million bikes on the road in Japan. Motorcycles below 25cc do not require shaken (compulsory inspection) unlike their bigger brothers. Page 2 INTELLIGENCE, INDEPENDENCE, INTEGRITY

3 Fig. 2 : Japan Motorcycle Ownership - Units (212) 1,542,856, 13% 1,959,845, 16% 6,889,459, 58% 1,582,925, 13% Scooter (<5cc) 5cc-125cc) 125cc-25cc 25cc+ Source: JAMA Gentsuki However ownership levels for gentsuki have been sliding for over a decade from around 98, units per annum to just under 7,. Motorcycles over 5cc have shown the opposite although at a very slow pace nudging over 5, units before drifting back to 45,. Fig.3 : Trend of Japanese Motorcycle Purchase (21-212) 1,2, 1,, 8, 6, 4, 2, Gentsuki Motorcycle Source: JAMA Large bore only 13% of total Larger bore motorcycle trends are slowly grinding higher. In the 25cc+ market BMW holds an effective 5.8% market share. Harley Davidson s share is approximately 13%. Yamaha made good progress with the MT-7/9 series which gave consumers a reasonably priced ( 7,-9,) naked bike with ample performance. The initial sales target of 1,5 units annually was quickly raised to 4, after its release. Simply put, good product sells! Annual motorcycle sales in Japan hit a peak of 3.28 million in 1982, but decreased to 45, by 214 according to JAMA. Page 3 INTELLIGENCE, INDEPENDENCE, INTEGRITY

4 Return riders Product offerings are clearly important. One of the most significant trends is the popularity of motorcycle sales to middle-aged and older people wanting larger capacity bikes than the common 25cc. These people are often return riders. The average age of motorcycle riders is now 53, up 9.3 years on 25. Multi bike ownership is on the rise after the Global Financial Crisis in 28. 3, 25, 2, 15, 1, 5, Fig. 4 : Japan - New Motorcycle Sales by Engine Size <5cc cc cc 25cc ,95 9,291 45,36 6, ,786 1,947 55,441 65, ,918 96,249 54,33 7, , 97, 56, 68, Fig. 5 : Motorcycle Ownership by individual household (units) 1 Bike 2 Bikes 3 Bikes 4+ Bikes Average Source: JAMA Emissions laws Japan s large bore domestic market has been hindered by restrictive emissions laws and power limiters. Some Japanese motorcycle purchasers prefer overseas specification motorcycles known as reverse imports to dispense with the restrictions of the domestic offerings. A good example of this is the Yamaha XJR13. The domestic version has not changed for the last six years, but there is no plan to introduce the 217 European model in the Japanese market. The European/US version of the bike is offered under the branding of born customised, Fig.6. Fig. 6 : Domestic (left) and Overseas (right) versions of Yamaha s XJR13 Source: Company Data So what drives the Japanese motorcycle buyer? What are the main concerns and what are the trends we should pay attention to? Page 4 INTELLIGENCE, INDEPENDENCE, INTEGRITY

5 JAMA study Age Replacement Parking Desire Women The Japan Automotive Manufacturers Association (JAMA) conducted a survey of 5,15 people on trends in motorcycling in Japan in 211. Their findings were: A) Ownership declined among users in their 3s or younger, but increased among users in their 5s or older, underscoring the continued rise in the average age of motorcycle users. B) Replacement demand accounted for 59% of all new-model purchases, up from 57% in the 29 survey. First-time purchases accounted for 15% of the total, not significantly different from the previous survey s figure but underscoring a sustained decline in first-time motorcycle purchases. C) Over 76% of owners in Tokyo (i.e., its main 23 wards) reported experiencing difficulties in finding a parking space for their motorcycles. D) Respondents expressing the desire to continue riding motorcycles in the future totaled 87%, down from the 92% peak recorded in 29. E) A large percentage of women respondents viewed motorcycles as a Means of transport and Lifestyle commodity, while a significant percentage of male respondents considered them a Hobby item. In 213, the results from JAMA s survey was largely unchanged. No real change in 213 survey Average ownership up F) Ownership has continued to decline steadily among young men in their teens, 2s and 3s. Ownership by women has levelled off since fiscal 29, although among women respondents in their 5s or older, the ownership rate surpassed 6%. Meanwhile, ownership of scooters and business-use lightweight motorcycles under 5cc in engine capacity among users in their 5s or older has grown more pronounced. G) The average period of motorcycle ownership prior to its replacement with a new purchase was 6.6 years, up from the previous survey s 6.1 years. This confirms the trend towards longer ownership, which was particularly marked for scooters 5cc and under in engine capacity. Large capacity motorcycles have an average turnover of 4.1 years up from 3.9 years. 25cc-4cc motorcycle ownership periods remained flat at 3.4 years. H) Respondents expressing the desire to continue riding motorcycles in the future totaled 88%, up slightly from the 87% indicated in the previous survey but still down from the peak of 92%. While overall motorcycle license holders continue to increase in aggregate, what is the rate of new license holders? Is it rising, falling? Foreign brands more popular in large bore market Financing trends have remained pretty consistent at 12% of overall sales according to JAMA with many preferring to pay cash. There is an inverse correlation between domestic brands and engine size, Fig.7. Foreign brand popularity is driven in part due to the higher average engine capacity. Page 5 INTELLIGENCE, INDEPENDENCE, INTEGRITY

6 236, , ,41 199, ,362 19, , , , , , ,369 34, <5cc cc cc 251-4cc 41-75cc 751cc+ Domestic Maker Reverse Import Foreign Maker Source: JAMA Licensing Fig. 7 : Origin of manufacturer preference by Engine Size (%) Licenses The number of new motorcycle licenses issued in Japan has been falling consistently. In 24 almost 32, new licenses were issued. In 216 that number had fallen 4%. Total motorcycle licenses held in 214 number 2.2mn with 1.4mn of those Ogata (4cc+ engine size) class. Fig.8: Newly issued Motorcycle Licenses 35, 3, 25, 2, 15, 1, 5, Source: JNPA Below 4cc ma rket rising Fig. 9 shows the status of riders who possess a motorcycle licence separated by engine class and gender. There are two classes - Chugata (middle class) licenses are below 4cc and Ogata licenses are available for those who wish to purchase bikes above 4cc. We can clearly see that Ogata numbers for both genders is declining but Chugata licenses are rising. The decline in licenses has to do with licenses not being renewed. Page 6 INTELLIGENCE, INDEPENDENCE, INTEGRITY

7 Fig. 9 : Motorcycle Licence Holders in Japan by Type 12,, 1,, 8,, 6,, 4,, 2,, Ogata (4cc+)- Men Chugata (<4cc)- Men Ogata (4cc+)- Women Chugata (<4cc) - Women 21 1,67,417 7,842,426 82,52 1,172, ,427,177 7,956,291 77,726 1,198, ,193,671 8,86,72 745,259 1,224, ,997,273 8,22, ,418 1,252, ,732,861 8,343, ,214 1,276, ,454,81 8,453, ,783 1,298, ,175,34 8,557, ,476 1,32, Source: JNPA Driving schools expensive Let us consider the cost to get a Japanese motorcycle license. One cannot get an Ogata license without getting Chugata first. Fig. 1 highlights the high cost of getting a license. The dots represent standard (blue), double time (red) and fast (green). So to get a full bore Ogata license from no license at all could set one back over $3,. One could try to avoid the cost and try at the official test centres, but the tests are designed to test memory rather than skill to force schooling. The schools are authorised to give passing grades for licenses at the end of tuition and well over 95% of students that go to these schools pass. Fig. 1 : Hinomaru Driving School costs to get a motorcycle license - $3,+ investment Category License Class License Status Plan Time Tuition Enrollment Fee No License Chugata Motorcycle Car License Ogata Chugata Source: Hinomaru Driving School Page 7 INTELLIGENCE, INDEPENDENCE, INTEGRITY

8 Kanagawa Tokyo Osaka Kyoto Saitama Aichi Hyogo Chiba Fukuoka Shizuoka Hiroshima Tochigi Hokkaido Okinawa Ibaraki Miyagi Kumamoto Niigata Okayama Gifu Fukushima Gunma Mie Kagoshima Shiga Ehime Nagano Yamagata Wakayama Miyazaki Nagasaki Nara Kagawa Oita Saga Yamaguchi Yamanashi Ishikawa Aomori Iwate Shimane Kochi Toyama Tokushima Fukui Akita Tottori Fig. 11 denotes the number of chugata/ogata graduates from motorcycle license schools in 216. The yellow bars denote a GDP/capita ratio at 5% below the national average or above. 25 Fig Chugata/Ogata Licence Graduates by prefecture (216) Source: JNPA Young go small Fig.12 shows at what age groups people move to take up their motorcycle licenses. Chugata licenses are the main target of the 2s-4s with Ogata picking up after 5s as the common motorcycle license type. It would be fair to assume that affordability is a likely factor in choosing a license, both schooling and motorcycle cost. Fig. 12 : Age when Motorcyclists take up a license (%) s 2s 3s 4s 5s 6s 7+ Gentsuki Only Car License incl Gentsuki Bike license <25cc Chugata Ogata Gentsuki Only Car License incl Gentsuki Bike license <25cc Chugata Ogata Source: JAMA, Note some double counting due to multiple licenses taken out (e.g. Ogata & car) Page 8 INTELLIGENCE, INDEPENDENCE, INTEGRITY

9 Fig. 13 : 251cc-4cc Bike Ownership by Age (%) 1s 2s 3s 4s Fig. 14 : 4cc+ Bike Ownership by Age (%) 1s 2s 3s 4s Source: JAMA Female age rising The average age of female and male riders has risen from 43-44yo range in 25 to 53yo range in 215. Thinking of it another way, these 43-44yo group just grew 8 years old along with the survey by JAMA, Figs Fig. 15 : Average Age of Motorcycle Riders Male (%) 1s 2s 3s 4s 5s Average Age Fig. 16 : Average Age of Motorcycle Riders - Female (%) s 2s 3s 4s 5s Average Age Source: JAMA Sourcing information JAMA s 213 motorcycle survey revealed that dealerships are a key source of information on motorcycles followed by websites, Fig. 17. Page 9 INTELLIGENCE, INDEPENDENCE, INTEGRITY

10 Dealer Fig. 17 : How motorcycle riders source information on bikes (%) by year Maker Website Motorcycle Catalogue/ Magazine Pamphlet Other website Heard from Friend/Exp ert Saw parked Saw Riding on Street Past Pamphlet Newspaper Direct Mail Motorsho w TV Ad Magazine Ad Source: JAMA Large bore attracts hobbyists However JAMA also highlights (Fig.18) that as engine size grows motorcycle magazines become a very important source of new information. Although there are dedicated BMW magazines (including a dedicated version BMW Boxer Journal in Japan, other broader magazines Bike Bros, Bikejin and the like are equally important to attract new customers. Larger bore motorcycle riders clearly view motorcycles as a hobby. Fig. 18 : How motorcyclists gain information on bikes (%) by engine size Dealer Maker Website Motorcycle Catalogue/ Magazine Pamphlet Other website Heard from Friend/Exp ert Saw Saw Riding Motorsho parked on Pamphlet Newspaper Direct Mail Past w Street <5cc cc cc cc cc cc <5cc cc cc 251-4cc 41-75cc 751cc+ TV Ad Magazine Ad Source: JAMA Page 1 INTELLIGENCE, INDEPENDENCE, INTEGRITY

11 Fig. 19 : Why owners choose a second bike (%) Want a different type Want to ride different engine capacity Want to separate use Convenience vs Hobby Want to add Style/Design Current bike New model to hobby reliability getting worse release Current bike servicing getting expensive Economic situation improved Cheap price Touring with Family Members Dealer pushed hard Source: JAMA The plight of the Japanese makers globally Trend of the Japanese Looking over the last 5 years, Japanese motorcycle manufacturers have been struggling. Honda remains at the top of the production tree at 17.7 million units but Yamaha has trended down while Suzuki continues to suffer the steepest drop of all makers declining 8-19% per annum. Kawasaki Heavy has maintained a more focused strategy with larger bore motorcycles. 2,, 18,, 16,, 14,, 12,, 1,, 8,, 6,, 4,, 2,, - Fig.2: Japanese maker's Global Motorcycle Production (units) 17,661, 15,494, 6,9, 5,154, 2,574, 1,367, 544, Honda Yamaha Suzuki Kawasaki FY212 FY213 FY214 FY215 FY216 54, Source: Custom Products Research, Company data When analysing the contribution that motorcycle segments make to the Japanese makers group revenue and EBIT we see the following. Page 11 INTELLIGENCE, INDEPENDENCE, INTEGRITY

12 8.% 6.% 4.% 2.%.% Fig.21: Japanese motorcycle maker's revenue as % of group Honda Yamaha Suzuki Kawasaki FY212 FY213 FY214 FY215 FY216 4.% 3.% 2.% 1.%.% -1.% -2.% Fig. 22: Japanese motorcycle maker's EBIT as % of group Honda Yamaha Suzuki Kawasaki FY212 FY213 FY214 FY215 FY216 Source: Custom Products Research, Company data EBIT marhins Unsurprisingly Yamaha is the purest motorcycle play (Fig.21) in Japan. However its contribution from motorcycles has been declining as a percentage of total revenue. There are two factors at play. One is the growth in sales of boat engines (where it commands 4% a global share) and second is a focus on more profitability per unit, Fig.22. EBIT margins for the global motorcycle majors can be seen here. Honda has seen its motorcycle segment grow as a percent of group EBIT due to weaker performances in cars. Suzuki is the worst performer. Fig.23 : Major Motorcycle Maker's segmented (not group) EBIT Margins (%) 2.% 15.% 1.% 5.%.% -5.% -1.% 1.1% 3.9% -.5% 3.8% 9.% 9.% 14.7% FY212 FY213 FY214 FY215 FY216 Fig. 24: Group EBIT Margins (%) 25.% 2.% 15.% 1.% 5.%.% 3.9% 7.2% 8.4% 3.% 1.% 9.% 17.5% FY212 FY213 FY214 FY215 FY216 Source: Custom Products Research, Company Data Page 12 INTELLIGENCE, INDEPENDENCE, INTEGRITY

13 25,, 2,, Fig.25: Major Motorcycle Maker's Segmental Revenue (US$/ 's) +34% 15,, 1,, 5,, -14% -32% -5% +39% +87% +7% - FY212 FY213 FY214 FY215 FY216 Fig.26: Major Motorcycle Maker Segmental EBIT ($s) 2,5, 2,, +65% 1,5, 1,, 5, +287% N/A -32% +137% +87% -12% - -5, FY213 FY214 FY215 FY216 Source: Custom Products Research, Company data Foreign brands focused Analysing the foreign brands shows clear product focus has paid off. The four major European large bore makers have experienced double digit production growth. Page 13 INTELLIGENCE, INDEPENDENCE, INTEGRITY

14 3, Fig. 27: Non-Japanese Motorcycle Maker Production (units) +6% 25, 2, 15, +28% +7% 1, 5, +26% +15% - BMW Motorrad KTM AG Harley-Davidson Ducati Triumph FY212 FY213 FY214 FY215 FY216 Source: Custom Products Research, Company data Efficiency One thing Figs. 2 & 27 point out is that focused strategies appear to be paying off for the Europeans and to some extent Kawasaki which has moved away from a me-too approach. Efficiency and brand seems to be paying off for BMW s continued rise and a broad range of product unlike Harley which seems to be stuck in a divine franchise scenario. Profitable but struggling to break out of cruisers. It has had a stab at sports bikes through Buell (business was spun off and EBR has since closed) and the Porsche designed V-Rod (now out of production). Now that Ducati is potentially being sold by Audi, does Harley look to use a proper sports brand with no clash in its line up to fuel (no pun intended) its growth? Summary Severe pressure The Japanese motorcycle market is under severe pressure. It is little wonder that the domestic makers aren t exerting too much effort into the market given the long-term decline in the market. Half of the decline is driven by apathy and poor product placement. The build it and they will come dealer model is a sure fire way to ensure the market dies. The foreign luxury brands appear to be gaining share. They continue to target the heart not the head like the Japanese makers. Yamaha Motor has been the most proactive of the domestic makers in providing a product that attracts new riders. Such has the success been of the Yamaha Bolt that Harley-Davidson has had to respond with a 1,, entry level model. Sadly with 1,8, male and female motorcycle license holders giving up the right to ride over the last 6 years, there is not much time left to save the remaining 1 million that remain. The differences between the focused foreign brands and the everything for everyone Japanese is clear. While Honda can grunt with its huge economies of scale, sadly Suzuki needs to resurrect its former glories of the 198s rather than produce more me-too. Kawasaki would seem to have worked that out. On top of that, the employment situation in Japan doesn t lend itself to allow for investment in such hobbies as motorcycles. We outline that plight in the appendix. Page 14 INTELLIGENCE, INDEPENDENCE, INTEGRITY

15 Appendix - Income & Demographics Income Assets Assessing the demographics of financial assets by age group, there is no question that the 4s-5s segments have more assets than the 2-3s cohort. This means that a makers are unlikely to make huge inroads with the set (backed up by the JAMA survey) in a declining market targeting an age group that has proved less interested in riding than the peak of 29. Fig. 28 bears out the trend. Remember that the 5s set are far more likely to buy gentsuki according to JAMA. For the target BMW, KTM, Harley or Triumph motorcycle buyer, 3s to 5s should be the addressable market comprising around 4% of assets by age Fig. 28 : Total Financial Assets by Age Group 2-29,.5% 3-39, 5.6% 7+, 22.7% 4-49, 12.8% 6-69, 36.6% 5-59, 21.8% Source: Japan Central Council for Financial Service Information Unemployment Here is where it gets tricky. After the Global Financial Crisis of 28, unemployment rates in Japan have drifted downwards, Fig. 29. However this masks the new reality of the composition of employment. The quality of employment is deteriorating. Fig. 29 : Unemployment Rate by Age Group (27-215) ~24 25~34 35~44 45~54 55~ Source: Statistics Bureau The days have passed when most department stores had their elevator girls and train stations had their confetti bag laden ticket clippers waiting at the exits. But Japan, if anything, is moving further Page 15 INTELLIGENCE, INDEPENDENCE, INTEGRITY

16 towards a service economy. Unfortunately, the labour productivity gains over the last 2yrs have come almost exclusively from the manufacturing sector, with retail, transport, restaurants, hotels and business services falling well below their global peers for productivity. At least the service is still great. Changes in labour laws Significant revisions to the labour personnel dispatch laws in 95 and 99 made it much easier to employ irregular and subcontract workers, and hence began a dumbing-down of the workforce since less time was spent on education and training in general (putting Japanese workers in more direct competition with their Asian neighbours). Average monthly wages (including overtime, bonus and social welfare deductions) have generally been flat over the last 5 years, though increased.3% in 215 due to overtime and bonuses, but management is reticent to add to fixed costs with wage increases as it would rather maintain flexibility through higher bonuses. Legally mandated social welfare costs, mainly paid by employers, have risen at a compound rate of 1.39% pa over the last 2 years while nominal wages have only increased.27% pa, such that social welfare costs have risen from 1.4% to 14.8% of wages during this time. Fig. 3 : Wages by type of employment by age ( /hour) Source: Ministry of Health. Labor & Welfare (MHLW) FT vs PT The long running trend of full-time work in a regular capacity has given way to a lot more part-time (lower paying) jobs which involves less other costs like insurance, retirement and so on. This change puts pressure on the household budget. The instance of lower paid part-time work has grown since then from 3% to 37.4% of the total. For women this is now 56%. Page 16 INTELLIGENCE, INDEPENDENCE, INTEGRITY

17 Fig. 31 : Full-time vs. Part-Time Trend as a % of total employees in Japan (%) 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% Regular Employee (% of total) Non Regular (% of total) Source: Statistics Bureau More PT women Fig. 32 shows that since 23 more women are employed part time than full time. The point to be made here is that the long term underlying disposable income for Japanese is shrinking, Fig. 32 : Full time vs Part-time Female Employees (' people) Women Regular Employees Women Non-regular employees Source: Statistics Bureau Law changes? This coming May, PM Abe wishes to introduce a policy which requires equal wages for full-time and contract hires. However such approaches are likely to marginalise hiring should the law be introduced. The Japanese Institute for Labour Policy & Training (JILPT) makes the case for employer s reasons to hire non-regular employees clear in Fig. 33. To economise on wages and to economise on nonlabour costs are the two highest categories. Page 17 INTELLIGENCE, INDEPENDENCE, INTEGRITY

18 Fig. 33: Employer s Reasons for Hiring non-regular employees (%) Source: Japan Institute for Labour Policy & Training While convenient work hours are a high factor for part-time workers note that lack of regular employment opportunities is the most consistently high factor for male employees selecting nonregular jobs, Fig. 34. Fig. 34: Male Employee s Reasons for selecting non-regular employment (%) Source: Japan Institute for Labour Policy & Training Supplement Income Female non-regular employees showed similar trends to that of men with regards to being unable to secure regular employment, but domestic reasons (38%) was a high factor however 47% said that supplementing household income was second to convenience in work hours (5.7%). In short the labour market is preventing stable employment which adds to individual concerns Page 18 INTELLIGENCE, INDEPENDENCE, INTEGRITY

19 Zero growth Fig. 35 is an outline of the government projections of employment growth by industry according to the JILPT. Under a zero growth scenario they expect to see most job categories decline 2-3% by 23 (based on 212). One of the key assumptions is that JILPT expects that under zero growth there is unchanged labour force participation while economic revival calls for progressive labour participation. 3.% 2.% 1.%.% -1.% -2.% -3.% -4.% -5.% -6.% Fig. 35 : Jobs growth by industry in a Zero Growth outlook Zero growth (22) Zero growth (23) Source: Japan Institute for Labour Policy & Training Economic revival Scenario Fig.36 looks at jobs growth by industry under the government s bullish economic revival scenario. This assumes workforce participation gradually recovers. None-the-less a lot of jobs will go through retirement and restructuring. Once again this poses issues for the set-up of new dealerships with this economic backdrop. 3.% Fig. 36 : Jobs growth by industry in Economic Revival outlook 2.% 1.%.% -1.% -2.% -3.% -4.% Economic Revival (22) Economic Revival (23) Source: Japan Institute for Labour Policy & Training City mergers It should be noted that since the 199s the Japanese national government has run an aggressive campaign to merge towns and cities known as shichison gappei in an attempt to streamline public services to account for rapidly aging and shrinking populations in the regional areas. Fig. 36 shows the large scale migration towards the cities as evidenced by population growth since 192. There could be no rational argument for a dealership in Shimane Prefecture based on zero population Page 19 INTELLIGENCE, INDEPENDENCE, INTEGRITY

20 Kanagawa Saitama Chiba Tokyo Aichi Osaka Nara Miyagi Okinawa Shizuoka Hyogo Hokkaido Fukuoka Japan Ibaraki Shiga Kyoto Gifu Tochigi Gumma Hiroshima Aomori Miyazaki Mie Okayama Iwate Ishikawa Toyama Fukushima Yamanashi Kumamoto Kagawa Yamaguchi Oita Nagano Ehime Fukui Niigata Wakayama Tottori Saga Nagasaki Akita Yamagata Kagoshima Tokushima Kochi Shimane 148.% 144.1% 143.5% 142.9% 142.7% 133.4% 131.8% 128.8% 12.% 116.7% 14.8% 94.5% 92.% 9.7% 85.5% 81.6% 74.3% 73.5% 59.7% 57.2% 56.6% 51.% 48.9% 48.% 47.4% 46.9% 39.4% 39.2% 37.7% 36.7% 34.6% 33.7% 33.6% 29.5% 26.1% 25.6% 2.8% 2.6% 2.5% 17.2% 13.9%.3% 255.7% 254.6% 242.5% 365.3% 445.1% 583.9% growth since in the last 9 years. Any children born in these areas will quickly realise that job prospects will be highly limited much like the eastern areas of Germany immediately post reunification. 7.% 6.% Fig. 37 : Population Growth by prefecture (21 vs. 192) 5.% 4.% 3.% 2.% 1.%.% Source: Statistics Bureau Divorce Divorce rates have been surging since 2. Since 27, women are now entitled to 5% of their ex-husband s pension. Fig. 38 : Divorce Rates of females by age group (% of married population) 1.% 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% %.4% 1.6% 2.9% 4.2% 5.2% 5.3% 4.8% 4.3% 4.2% 3.9% 3.1% 2.1% 1995.%.5% 1.8% 3.4% 4.4% 5.6% 6.4% 6.% 5.1% 4.3% 4.% 3.7% 2.3% 2.%.7% 2.4% 4.2% 5.6% 6.3% 7.% 7.4% 6.5% 5.3% 4.3% 3.9% 2.8% 25.1%.9% 2.6% 5.% 7.% 8.1% 8.2% 8.2% 8.1% 6.8% 5.3% 4.2% 3.2% 21.%.8% 2.5% 4.5% 6.8% 8.6% 9.5% 9.2% 8.8% 8.4% 6.8% 5.2% 3.5% Source: Statistics Bureau Birth rates Japanese births rates among females in their 2s continues to fall as women choose career and feel a lack of suitable partners. In % of men and 4.33% of women were not married at 5 but this has now reached 2.1% and 1.6% respectively. Fig. 31 highlights those women who married Page 2 INTELLIGENCE, INDEPENDENCE, INTEGRITY

21 by age group. Age groups between 15 and 59 have seen declines in marriage over the last 2 years. One expects these women are looking for hobbies. Fig. 39 : Females Married by age group (% of age population) 1.% 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% % 13.5% 57.5% 82.7% 87.3% 87.1% 86.4% 84.2% 79.9% 73.% 61.% 45.1% 2.8% % 12.6% 49.6% 76.4% 84.7% 86.1% 85.% 83.8% 8.6% 74.7% 65.6% 5.7% 25.2% 2.9% 11.3% 43.5% 68.9% 79.2% 83.3% 83.7% 82.4% 8.3% 75.7% 67.8% 56.1% 25.2% 25.8% 1.4% 38.2% 62.7% 72.4% 77.5% 8.5% 8.9% 79.2% 76.1% 69.6% 59.3% 29.1% 21.6% 9.3% 36.2% 59.7% 68.6% 72.% 75.2% 78.% 78.1% 75.6% 7.7% 61.7% 31.7% Source: Statistics Bureau The 212 MHLW white paper on the nation s declining birth-rate showed women on average were having their first child after the age of 3.3 (the first time ever 3 was breached as an average was 211), Fig Fig. 4 : Japanese Birthrates/' females( ) by age group Source: MHLW Page 21 INTELLIGENCE, INDEPENDENCE, INTEGRITY

22 Important Disclosures: This material was prepared for you and is for your information and use only. This material should only be distributed to other members of that organization on a need to know basis and should not be distributed or disseminated to any other person or entity. This material is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other instruments mentioned in it. This material is based on current public information that Analogica KK ("Analogica") considers reliable, but we make no representation that it is accurate or complete, and it should not be relied on as such. No investment opinion or advice is provided, intended, or solicited. Analogica offers no warranty, either expressed or implied, regarding the veracity of data or interpretations of data included in this report. This material is provided with the understanding that Analogica is not acting in a fiduciary capacity. Opinions expressed herein reflect the opinion of Analogica and are subject to change without notice. The products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. The value of and the income produced by products may fluctuate, so that an investor may get back less than they invested. Value and income may be adversely affected by exchange rates, interest rates, or other factors. Past performance is not necessarily indicative of future results. If a product is income producing, part of the capital invested may be used to pay that income. 215 Analogica KK. All rights reserved. Contact Tokyo Michael Newman President & CEO Analogica KK mcn@analogica.jp Office Locations Headquarters 942 Win Aoyama Minamiaoyama, Minato-ku, Tokyo Japan Tokyo 17/F Roppongi Hills North Tower Roppongi, Minato-ku, Tokyo Japan Page 22 INTELLIGENCE, INDEPENDENCE, INTEGRITY