Company Analysis for ASICS

NOVA School Of Business And Economics

Financial Statement Analysis- Group 25
Professor Francisco Antunes da Cunha Martins
Bernardo Santos; Federico Donati; Gonçalo Sousa; Madalena Sena-Lino; Marta Carvalhal
Index

Company Presentation/ Historical Reformulated Historical Reformulated Cash Flow

Overview Income Statement Balance Sheet Management/ Activity

Capital Structure / Evolution of Sales’ Evolution of Costs’

Liquidity
Financing Value Drivers Value Drivers

Evolution of Invested ROIC and its respective ROE and its respective
Growth Rate
Capital’s Value Drivers Breakdown Breakdown

Forecasted Forecasted
Main Forecasting
Value Creation Analysis Reformulated Income Reformulated Balance
Assumptions
Statement Sheet

Forecasted Free Cash Long Term Value Overall Conclusions

Valuation
Flow Map Drivers and Recommendations
Company Overview

Over 1,900 stores worldwide

VISION

Create Quality Lifestyle Through

Available in more than 50 countries
Intelligent Sport Technology

ASICS began its road to perfection on September 1, 1949, in the heart of Japan, under the
visionary Kihachiro Onitsuka, with a concentration on basketball shoes.
Today, it is a leading global manufacturer and supplier of sports clothes, shoes, and
equipment for men, women, and children.

Technology focused Collaborations with

ASICS sells its products under the brand names Onitsuka Tiger, ASICS,
on functionality athletes and designers ASICS Tiger, and Haglofs.

VALUES VISION 2030 ASICS,

"Anima Sana In
1. Provide staff with a shared understanding of Provide value enabling everyone to enjoy Corpore Sano,"
translates to
what we do and why we do it healthy minds and bodies for life
2. Guide the way we work, make decisions and Further contribute to reducing impacts on "Healthy Soul
interact with each other the global environment In A Healthy
3. Define what our stakeholders and customers Expand business scale in line with profits Body”
can expect when they deal with us.
Historical Reformulated Income Statement

REFORMULATED INCOME STATEMENNT

Core Operations 2022 2021 2020 Notes:
Sales 484601 404083 328784
Cost of sales -243894 -204205 -175926 • ASICS is subject to a statutory tax rate of 30,6%.
SG&A -191205 -164731 -144244
Depreciation -15499 -13201 -12568
• All tax adjustments are considered to be in the core business since they are related to the
Core Result Before Taxes 34003 21946 -3954
company´s operations in foreign countries which belong to the main business.
Statutory taxes -10404,9 -6715,48 1209,924
Tax adjustments 90,1 -419,974 -4980,36
Core Result 23688,2 14810,55 -7724,44 • Other income is mainly composed by interests and dividend income and therefore is considered
Non Core Operations to be in the non-core segment.
Other income 2193 614 597
Exchange (loss) gain net -2581,00 398,00 -1626,00 • Other financial gains(losses) are related to security investments.
other financial gains(losses) 523 425 -3184
Other Losses -2773 -7539 -6192 • Other losses include loss on impairment of investments in securities and loss on the cancelation
Non Core Result Before Taxes -2638 -6102 -10405
of lease contracts.
Statutory taxes 807,2 1867,2 3183,9
OCI 13215 16653 -6523
Non Core Result 11384,23 12418,21 -13744,1
Financial Operations
interest expense -2662,00 -1723,00 -1701,00
Financial result before taxes -2662,00 -1723,00 -1701,00
Statutory taxes 814,6 527,2 520,5
Non controlling interests -133 -1 -2
Financial Result -1980,43 -1196,76 -1182,49
Historical Reformulated Balance Sheet

Notes:
Reformulated Balance sheet
Core Business 2022 2021 2020
Operating cash 12115,03 10102,08 8219,6 • We consider that the operating cash is equal to 2,5% of sales and the rest of cash is excess of cash.

accounts receivable 67797 47663 48974

Inventories 135586 80048 88123 • Intangible assets are composed mainly by goodwill and right of use assets and therefore are considered to
other current assets 25358 19125 17246 be related to the core business.
PP&E 25240 27391 29352
Intangible assets 70167 46844 43224
• Investments include derivatives that the company uses to hedge the risk arising mainly from fluctuations in
foreign currency exchange rates.
Accounts payable -44670 -30460 -33003
Accrued expenses -27580 -25500 -19198
Other current liabilities -26877 -14038 -14312 • Other current liabilities include contract liabilities.
Invested Capital in Core Business 237136 161175,1 168625,6
Non core Business • Other Assets include deferred tax assets.
Investments 10697 9136 8521
Other assets 22839 19269 16271
• Other Long-Term liabilities include pension plans and other retirement obligations.
Other LT liabilities -13408 -18764 -16904
Invested capital in Non Core Business 20128 9641 7888
Financial • The non-core segment is composed by the company´s investment on securities and derivatives.
Excess of cash 55267,98 86195,93 73250,4
Debt -139803 -110474 -123000 • Debt is computed by summing the current position in long term debt, short term bank loans and long term
Minority interests -1819 -144 -143 debt.
Net Financial assets -86354 -24422,1 -49892,6

• Minority interest were considered to be in the financial operations.

CommonEquity 170910 146394 126621
Cash Flow Management/ Activity

The primary objective of this study is to conduct a comprehensive analysis of the cash conversion cycle and liquidity of ASICS. To
gain deeper insights into its financial performance, we compared the data for the year 2022, 2021 and 2020. Furthermore, we drove
comparisons with a peer company operating within the same sector, Nike. This comparative analysis will enable us to discern trends
and make informed assessments of ASICS financial health and efficiency.

ASICS has decreased the cash conversion cycle from 2020 to 2021 by 37 days. However, from FY2021 to FY2022, ASICS has
worsened the management of its Cash Conversion Cycle by increasing it, on average, 55 days. Despite better negotiations with
suppliers, increasing on average 13 days the payable period, this positive effect was offset by the increase in the increase in the number
of days it took to receive sales payments (by 8 days) and the increase in average holding period (by 60 days).
Nike also increased the cash conversion cycle from 2021 to 2022, after improving it on the year of 2020, mainly due to the increase in
the average holding period (suggesting worsening of management practices) and a decrease in average payable period (suggesting
ASICS In FY2022, took, on average:
worsening of negotiations). This poses a higher pressure on both companies' liquidity position.
53 days to collect the sales' revenues from its clients.
67 days to pay its credit purchases to suppliers.
Cross-sectional Analysis:
203 days for inventories to be turned into finished goods and to be
Despite Nike having a lower and more stabilized conversion cycle both companies present high positive value, which implies the need
sold
for recurring to external sources to finance their operational cycles and investments.
The conversion cycle of ASICS was 189 days. There are 189 days
Both companies have relatively similar average collection and payable periods, which might be characteristic to this Sportswear
during which ASICS has to use cash from other sources to keep its
Industry. However, ASICS show a more efficient payable period, which can suggest that ASICS is simply taking advantage of a
operations going.
possible greater negotiation leverage power than Nike or Nike may have agreed a lower supply's price in exchange for tighten credit
Nike In FY2022, took, on average:
payments. On other hand, the collection period of Nike is much lower (which is advantageous) probably due to the higher bargaining
122 days for inventories to be turned into finished goods and to be sold
cost dealing with clients.
36 days to collect the sales' revenues from its clients.
It is important to notice that, both companies have worsened the average holding period from 2021 to 2022, but the number of days
49 days for Nike to pays its credit purchases to suppliers.
ASICS takes to turn inventories into units sold has always been higher, so this increase become much more costly than to Nike. Thus,
The conversion cycle was 110 days. There are 110 days during which Nike has
even though inventories serve primarily as a back-up for shortages, it would be relevant for ASICS to evaluate its inventory
to use cash from other sources to keep its operations going.
management practices, so that this worrying increase in average holding period doesn't become a trend.
Liquidity Analysis

This slide presents an examination of the liquidity ratios of the company for the financial years 2019-2020, 2020-2021 and 2021-2022 focusing on the analysis of the current ratio, quick ratio, cash ratio and net working
capital of ASICS. We can see that despite some changes ASICS has consistently kept a good liquid position.
Liquidity Analysis
3.00
Liquidity Analysis
2.50
2022 2021 2020 2.00
Current Ratio 1.97 2.77 2.32 1.50
Quick Ratio 1.07 1.86 1.45 1.00
Cash Ratio 0.45 1.10 0.80 0.50
Net Working Capital 1 303 855 USD 1 351 609 USD 1 110 610 USD 0.00
2022 2021 2020

Current Ratio Quick Ratio Cash Ratio

Between 2020 and 2021, ASICS witnessed a notable improvement in liquidity ratios, signifying an enhanced capacity to meet short-term obligations using immediate assets. However, this positive trend reversed in
2021-2022. Despite the subsequent decline, ASICS consistently maintained the ability to cover short-term liabilities with current assets, excluding inventory, and even with available cash in 2021, where ratios
remained above 1. Despite the cash ratio falling below 1 in 2020 and 2022, it consistently staying above 0.4, a relatively high value, covering nearly half of the liabilities.

In 2021, the increase in ASICS' current ratio was primarily due to a noteworthy 14% reduction in current liabilities. This reduction was primarily driven by a significant decrease in the current portion of long-term
debt. However, from 2021 to 2022, there was a decline in the current ratio, primarily attributed to an 11% increase in current liabilities. This increase stemmed from a rise in various factors, including the current
portion of long-term debt, accounts payable, accrued expenses, provisions for employee bonuses, and other current liabilities. Notably, the most substantial increase occurred in accounts payable, indicating that the
company has opted to engage in more credit transactions for the acquisition of goods and services rather than making immediate cash payments. This shift has implications for ASICS' liquidity as it indicates a shift
towards leveraging credit for short-term financing needs.
Looking at the quick ratio we can see that it follows the same trend. Meaning that from 2020 to 2021 when compared to current liabilities, there is a considerable increase in liquid assets such as cash or assets that
can be swiftly converted to cash. There is a reduction in liquid assets relative to current liabilities in 2022, as the quick ratio decreases. Since the values are higher than 1 it suggests that the firm´s capacity to face
it´s short term obligations is not dependent on it´s ability to execute it´s inventories

The Cash Ratio, given by the ratio of cash over current liabilities faced an increase in 2021 despite the decrease in cash, this because the current liabilities, as we saw, faced a big decrease. However, in 2022 the
cash ratio decreased to lower levels than in 2020, even despite the cash increase being explained by the increase in current liabilities. This because the magnitude of the changes in current liabilities was larger than
the changes in cash in both years impacting the cash ratio.
Capital Structure / Financing

Besides performing a liquidity analysis on companies, is also important to look at their solvability and capital structure decisions, to understand how the company is financing itself and evaluate whether is in a sustainable
position.
As usual, this company finance itself through both equity and debt.
It is important to notice that the company shows fluctuation in value of net debt. However the company's gearing ratio and
debt to equity ratios are relatively low, they do not demonstrate a consistently balanced capital structure.

Capital structure ratios:

The gearing ratio provides insight into how much of a company's invested capital is being financed through debt. Despite
a recent increase in the gearing ratio, ASICS maintains a relatively modest level of gearing. In other words, the company's
reliance on debt financing is relatively low.
Both the gearing and D/E ratios essentially convey the same message – they compare the value of debt to the value of
equity. ASICS' low dependence on debt is evident in the relatively small proportion of debt in relation to equity. This
implies a lower financial risk compared to companies with more substantial debt burdens.

From 2021 to 2022, the recent increase of 202,87% in the D/E ratio suggests that ASICS has secured more financing from debt sources in the past year compared to equity sources, though t's essential to avoid hasty
conclusions based on a single year's data, it warrants further investigation through historical financial data analysis to determine if it signifies a significant and sustained trend.
Looking at other ratios, such as PPE/total assets and %institutional ownership, we can justify ASICS financing decisions. A higher ratio of PPE could potentially serve as collateral for debt financing, while a low PPE/Total
Assets ratio means fewer assets available as collateral and a higher presence of institutional investors would give more credibility to company looking for loans (also institutional investors are more looking for presence and
benefits of tax shield), while low %of institutional ownership makes harder to access (and make use) of credit. In 2020, ASICS had a relatively high Debt-to-EBITDA ratio of 5.79 due to a smaller EBITDA, indicating a
substantial debt burden. In 2021, the ratio improved due to both higher EBITDA and lower Net Debt Issuance. ASICS generated increased earnings, enhancing its ability to service debt and reduced its overall debt load.

Solvability Ratios
The solvency ratio, ranging between 60% and 70% in the analyzed period, indicates that ASICS has a substantial capacity to fulfill its financial obligations by analyzing the balance sheet structure. This suggests a healthy
balance between assets and liabilities. In what respects the independence towards its creditors, ASICS presented a Financial Autonomy Ratio of 36% in 2022. This indicator shows that ASICS is not that independent from
creditors, and that can represent some risks. In times of financial crisis when access to credit may become challenging, ASICS might be more exposed to interest rate volatility if market interest rates increase. This situation
can present financial risks. Nonetheless, the company maintains a level of autonomy from creditors, which is a positive sign.
Evolution of Sales’ Value Drivers

Over the past three years, ASICS has experienced consistent sales growth across various regions, aligning with prevailing trends in the footwear and
apparel industry. The industry as a whole has demonstrated significant growth, due to factors like e-commerce dominance, sustainability, athleisure
and the integration of technology. However, ASICS heavily relies on its three primary markets: Japan, North America, and Europe. These markets can
be categorized as "mature markets" due to their well-established status. In terms of geographical distribution, an essential observation is that the
proportion of sales in these mature markets relative to the total sales has been gradually decreasing from 2020 (71,63%) to 2022 (69,49%), pointing
out to more diversified global sales distribution. This international expansion has been driven by the increase of number of subsidiaries, one of the
sales value drivers. In 2022 ASICS has expanded worldwide through 74 subsidiaries, accorded to Asics integrated report. The increase in the number
of subsidiaries appears to be one of the key drivers for ASICS' sales growth. Subsidiaries can help the company establish a stronger local presence,
understand regional markets better, and cater to the specific needs of customers in different regions. Thus, increase sales.

We computed the average sale per subsidiary, allowing us to conclude that the average sales per subsidiary are increasing at a lower pace in the same
way as net sales. These trends suggest that ASICS may be facing challenges in achieving rapid sales expansion through its subsidiary network.
Possibly, there is a need for further adjustments to revitalize the growth trajectory of each subsidiary.
By dividing the total revenue per number of subsidiaries to find the average sales per subsidiary, we are assuming that only source of revenues are the
subsidiaries and there is no other source of net revenue.
Sales % by product category, 2022 ASICS employs three primary sales channels: E-commerce, retail, and wholesale. E-commerce has emerged as a significant driver of ASICS' revenue
Performance
Running (P.Run)
growth. E-commerce sales have surged from 51,700 in 2020 to 86,300 in 2022, which is align with trend in online sales. This aligns with broader
Core Performance industry trends towards digital, reflecting the increasing consumer inclination toward online shopping and the effects of the Covid 19 pandemic.
Sports (CPS)
Sports Style
Sales % by geographical Location, 2022 Furthermore, the average percentage of E-commerce relatively to net sales has also grown from 15,72% to 17,81 and
(SPS)
Apparel and E-commerce is becoming an increasingly important sales channel for the company, matching ASICS goal of digital
Equipment Japan
(APEQ) North America expansion in previous years.
Onitsuka Tiger
(OT)
Europe
Greater China Every category of products (P.Run, CPs, SPS, APEQ, OT, others) has been increasing during the 3years analysed. The
Oceania main core product is Performance running and all the other categories have almost the same share of total sales.
Evolution of Costs’ Value Drivers

An examination of ASICS' cost value drivers reveals that the company's cost structure does not exert significant pressure on its overall profitability. While ASICS has Core costs linear increase
witnessed an increase in its total core costs from 2020 to 2022, aligning with the growth in revenues, however, the %of costs relative to the total amount of revenues in sales
have been decreasing. In 2021 and 2022, ASICS managed better its core costs in comparison to 2020, as the percentage of operating costs relative to revenues 600000
decreased, thus implying a higher core operating margin. 400000
Overall, total costs and expenses represent in 2022 92,98% of total sales and revenue, which is a 200000
significant issue for the company’s bottom-line and value creation. However, ASICS has been tackling 0
2022 2021 2020
this issue in the past years, developing strategies to reduce costs. To better understand the drivers
behind the change, a driver for each core costs’ caption was chosen, as seen in the table below: Revenues Total core costs

Merchandise costs (COGS) represent the majority of ASICS core costs (54% in 2022), followed by general and administrative expenses, these costs have been
rising, partially due to the impact of high inflation levels during this period. However, due to the implementation of cost effectiveness, optimization of supply chains
and minimization of waste (one important component of ASICS business model), the company managed to control COGS, decreased them as a %of sales and thus
increase gross margins.
SG&A expenses are given in annual report including the value of depreciation and amortization but in order to do costs breakdown we separated them. SG&A have
also increased between 2020 and 2022, by 14,2%in 2021 and 16,07%in 2022. To better understand this account, we used the average cost per employee and the
average cost per subsidiary, that showed the cost increase due to labour costs and inflation. The increase in the average cost per employee is primarily driven by
factors such as salary raises, employee benefits, training programs, and potential recruitment expenses. This increase in expense is crucial for cultivating a skilled
and motivated workforce and contributes to overall productivity.
Additionally, As we have seen ASICS' is committed to global expansion and subsidiaries play a crucial role in the company's global presence. The costs associated
with subsidiaries involves additional operating expenses, such as personnel, marketing, infrastructure, and distribution capabilities and logistics costs. The growth
in average cost per subsidiary suggests that ASICS is making investments in its subsidiary network. What seems to be an increase in cost per subsidiary, can
indicate that that ASICS is allocating more resources to its subsidiaries.

As for depreciation and amortization expense we have used as value driver, the %of PPE. The depreciation as a % of PPE has been increasing over the years, due to an increase in expense and decrease in PPE
account. All this costs show an increasing trend attributable to the increase in costs. However, as we have seen this increase is not motive for concern since they can be explained by the digitally and physically
expansion.
Evolution of Invested Capital’s Value Drivers

Core invested Capital:

• First, we assumed that the company operating cash is 2,5% of the annual revenues. Therefore, since revenues have increased both in 2021
and 2022, it is easy to understand why operating cash has also increased.
• Moreover, when we look at the accounts receivable, one can note that in 2021 there was a decrease, which reflects the decrease in the
average collection period in 2021 (by 12 days). On the other hand, in 2022, ASICS also experienced an increase in revenues which also
tends to increase receivables.
• In inventories, it is interesting to note how they have decreased in 2021 both in absolute value and as a percentage of revenues, which was a
consequence of the pandemics. Another important fact was the decrease in the average holding period. In 2022, in the post pandemics,
ASICS got back to normal patterns, increasing its revenues and the Inventory. It is worth to note that the average collection period has also
increased in this time.
• Regarding PP&E, its value has been decreasing over time due to the accumulated depreciation but specially because of the decrease in the
value of leased assets.
• As for Intangible assets, they increase in absolute value in the past two years but in 2022 their value as a percentage of total revenues
decreased mainly because of the post pandemic recovery that led to a sharp rise in Revenues that was bigger than the growth of the
Intangible assets.
• Accounts payable follow a similar approach as accounts receivable. In this case, average payable period decrease in 2021, leading to a
decrease in accounts payable whereas in 2022 Average payable period increased, leading to higher accounts payable.

Non-Core Invested Capital:

• As for the investments, we decided to use revenues as the value driver. These are mainly derivatives that the company uses to hedge the risk
arising mainly from fluctuations in foreign currency exchange rates. This happens because a significant part of operations happens in other
regions apart from Japan such as Europe and North America.
ROIC and its respective Breakdown

Core Business 2022 2021

As investments typically require time to generate returns, we opted to compute a one-year lagged ROIC. In the year 2022, we observed that ASICS' ROIC
Operational Margin 4.9% 3.7%
Asset Turnover 3.01 2.40 increased more than 5 percentual points when compared to the previous year, indicating a boost in profitability for its invested capital. Looking with more detail, it
Core ROIC 14.7% 8.8% becomes evident that the main factor contributing to this growth was the rise in the company's core ROIC that offsets the decline in the non-core ROIC of the
Weight from Total Invested Capital 94.4% 95.5%
company specially because the core business weights more in overall company´s ROIC.
Weighted ROIC 13.9% 8.4%
Moreover, the main drivers of the core ROIC improvement in 2022 were the fact that the company was able to generate higher profitability per sale each sale
Non Core Business
Operational Margin 519.1% 2022.5% (operational margin 4,9% in 2022 vs 3,7% in 2021) and it enhanced its asset utilization for generating sales (asset turnover was 3.01 in 2022 vs 2.4 in 2021). In one
Asset Turnover 0.23 0.08 hand, firm´s core operational margin increased because costs have decreased has a percentage of revenues. It is important to keep in mind that costs have increased
Non Core ROIC 118.1% 157.4%
in absolute terms, however revenues have increased even more translating into a lower level of costs as a percentage of revenues. In the other hand, core asset
Weight from Total Invested Capital 5.6% 4.5%
Weighted ROIC 6.7% 7.0% turnover increased because the company was more efficient in using its asset to generate sales given that, during this period, there was no significant change in the
core invested capital but as previously mentioned, there was a sharp increase in sales translating into higher sales per invested capital.
Total ROIC 20.5% 15.4%
The improvements seen in 2022 can be attributed to the post-pandemic recovery that the company has been through. For instance, it is easy to understand why the
sales have increased in this year compared to the previous one because in 2021 it was harder to sell products to the costumers due to the lockdowns and other
restrictions. However, during this time there was an increase in the online shopping, but it was not enough to compensate for the decrease in demand.

Going more in dept in the firms ROIC, we decided to segment the business by different regions. As we can see from the graph in light blue, Greater China is the
region with the highest return on invested capital followed by Oceania. This may be explained by lower transportation costs and therefore higher margins that
translate into higher returns. In the other hand, both Europe and Japan are the regions with the lowest return on ASICS´ invested capital.

However, by looking into the dark blue columns, we can observe that, even though Europe has a low ROIC when compared to other
ROIC/Region
40.0%
regions, it is one of the regions that contributes the most to the overall ASICS´ ROIC. The other region that contributes the most is Greater
30.0%
China. It is interesting to note that, even though the region of Greater China has a much higher ROIC than Europe, Europe contributes
20.0%
10.0% more to ASICS ROIC because the invested capital in Europe is significantly larger. Also, it is interesting to note that North America
0.0% presents a low ROIC which can be attributed to the fact that there are high operating costs in this region, specially related to e-commerce.
Japan North Europe Greater Oceania Other
America China Regions

ROIC Wieghted ROIC

ROE and its respective Breakdown

Return on Equity Analysis By looking at the tables it becomes clear that ROE was higher than ROIC in the last two years. This is a good sign since it means that financing decisions
Level 1 Decomposition 2022 2021 have been effective in adding value to shareholders. Moreover, the level 1 decomposition states that the ROE is the weighted average of the return from
ROIC 20.5% 15.4% operations and the negative return (cost) from financing activities. From the table, we can see that ROIC has increased in this period which has a positive
IC/E 1.17 1.39
influence on ROE. However, it is important to note that the cost of external financing has also increased, exerting a negative influence on ROE. Overall, the
Cost of external financing 8.1% 2.4%
Net Debt / Equity 0.17 0.39 positive effect of the increased ROIC offsets the negative impact of higher external financing costs because the ROIC weights more in the ROE calculation
ROE 22.60% 20.56% and, therefore, the ROE has increased in 2022. It is also worth noting that the main driver of the increase in ROIC was the sharp increase in revenues
observed in 2022 in the post pandemics.
Level 2 Decomposition 2022 2021 In the level 2 decomposition, Return on Equity rises with the returns generated by the invested capital and with the excess return made on the amount of
ROIC 20.5% 15.4%
capital that is externally raised. In this case, we can see that the return on the invested capital is higher than the cost of external financing. In 2022, the
Net Debt / Equity 0.17 0.39
Cost of external financing 8.1% 2.4% ROIC has increased contributing to a higher ROE. In the other hand the cost of external financing increased in this year decreasing the excess return on the
ROE 22.60% 20.56% capital externally raised. However, it is worth to note that the excess return on capital externally decreased in 2022 but it is still positive meaning that
financial leverage has a positive impact on the ROE. On a side note, the D/E ratio decreased in 2022 when compared to the previous year which decreases
Level 3 Decomposition 2022 2021
the company financial risk in one hand, but in the other hand it limits the company capacity to achieve a potential higher ROE in 2022.
Weight Core 94.4% 95.5%
In the third level decomposition, we segmented the company into three components: core business, non-core business and financial operations. Firstly, in
Core Operational Margin 4.9% 3.7%
Core Asset Turnover 300.7% 239.6% the core business, we observed a simultaneous increase in the core operational margin in and in the asset turnover in 2022, resulting in a higher core ROIC.
Core ROIC 14.7% 8.8% As we saw in the ROIC breakdown, the increase in the operational margin can be attributed to a reduction in costs as a percentage of revenue whereas the
Core Activity 13.9% 8.4% increase in assets turnover is driven by the post-covid 19 sales growth.
Weight Non-Core 5.6% 4.5%
Moreover, there was a substantial decline in non-core ROIC in 2022 primarily due to a significant increase in the non-core invested capital that was not
Non-core ROIC 118.1% 157.4%
matched by an increase in the non-core result. Nonetheless, it does not have a significant impact on the ROE, as non-core invested capital carries a low
Non-Core Activity 6.7% 7.0%
Net Debt / Equity 16.7% 39.4% weight of the total invested capital.
ROIC 20.5% 15.4% Additionally, in the financial operations, as previously mentioned, the rise in the return on the invested capital in 2022 was lower than the increase in the
Cost of external financing 8.1% 2.4% cost of external financing implying that the excess return on the capital externally raised is positive but lower than the previous year and, therefore,
Financial Activity 2.1% 5.1%
contributes less to the company´s ROE in 2022 compared to 2021 (2,1% in 2022 vs 5,1% in 2021). All these effects together culminated into higher returns
ROE 22.6% 20.56%
to shareholders.
Growth Rate

This growth analysis is important both to understand how ASICS has been evolving in the past years, and also to forecast the future revenues
ASICS revenue growth rate, by region
40.00%
of the company – understanding the segments that generate more money to the company.
30.00%
In 2021, ASICS experienced a total core revenue growth of 23%, but in 2022, this growth decelerated to 10%. This decline was primarily 20.00%
attributed to a reduction in sales growth in markets accounting for a higher percentage of the company's total sales, specifically in mature 10.00%
markets such as Japan, North America, and Europe. We can see that in 2021, the region that grow more was North America, however 2022 0.00%
var21,22 var20,21
marked a reversal of this trend, as growth was predominantly driven by emerging markets like Oceania and other regions.
Japan North America Europe
This indicates that ASICS is performing well and expanding its market presence.
Greater China Oceania Other Regions

The positive yet diminishing revenue growth rate is reflected in the gross profit growth, which has been from 31% in
ASICS overall growth
2021% and 31% in 2022.
2022 2021 2020 var21,22 var20,21
Revenues 484601 404083 328784 20% 23% Also, the accounting operating Income registered this upward trajectory from 2020 to 2022, although in 2020 the
Gross Profit 240707 199878 152858 20% 31% operating income was negative, primarily due to substantial SG&A costs (including depreciation) outweighing the gross
Operating income 34003 21946 -3954 55% -655% profit. After 2020, the operating income increases as the gross profit outpaces the SG&A costs. The behaviour of the
Profit before income taxes 28703 14121 -16060 103% -188%
profit before income taxes follows the same trend, and so thus net income.
Net Income 20009 9380 -16126 113% -158%
If we split the analysis of the growth by business segment, we reach out the conclusion that, despite the core result
started negative in 2020, the core result has been increasing significantly in every year analyzed. On other hand, the non-
core business segment witnessed substantial growth from 2020 to 2021, only to stabilize in 2022 with a marginal loss of

Growth by business segment 8%.

2022 2021 2020 var21,22 var20,21 The core result growth has been above 60% along the 3year period and is mainly due to was the increase of core profit
Core result before taxes 34003 21946 -3954 55% -655% relatively to the SG&A and depreciation expenses, as we have already seen.
Core result 23688.2 14810.55 -7724.44 60% -292%
Regarding the non-core part of the company, the reason for the positive grow rate was the increase in the core value
Non-core result before taxes -2638 -6102 -10405 -57% -41%
Non-core result 11384.23 12418.21 -13744.1 -8% -190% before taxes from -10405 millions of yen in 2020 to -2638 millions of yen in 2022. It is important to notice that before
taxes, the non-core result was always negative and non-core result only become positive (in 2021 and 2022) due to the
positive tax shield (effect of statutory taxes and OCI). In 2020 the non-core result value was negative because the
amount of taxes was not high enough to cover the non-core result before taxes.
Value Creation Analysis

ASICS Core Business Non Core Business 35.00% 31.78%

30.00%
2022 2021 2022 2021 2022 2021 26.18%
25.00% 21.65%
ROIC 20,5% 15,4% 14,7% 8,8% 118,1% 157,4%
20.00%
RONIC -137,7% n.a. -119,2% n.a. -59,0% n.a. 14.48%
15.00%
Investment Rate of new capital -20,9% n.a. -50,3% n.a. 14,1% n.a. 10.23%
10.00%
Growth 28,8% -226,8% 59,9% -291,7% -8,3% -190,4% 5.00%
0.05%
Cost of capital 9,5% 9,5% 9,5% 9,5% 9,5% 9,5% 0.00%
Japan North America Europe Greater China Oceania Other Regions

ROIC/Region WACC

In FY2021, it is evident that ASICS was significantly impacted by the pandemics, as indicated by the negative growth rate on its earnings in 2021, across both in the core and non-core business segments. Nevertheless, in
this period, the company was able to generate value as it obtained a return of 15,4% on its invested capital, surpassing the cost of capital (9,5%). By taking a closer look, we can see that this outcome can be attributed to the
core and non-core businesses, both of which recorded higher returns invested capital compared to the respective cost of capital.
In the FY2022, we can note that ASICS engaged in a recovery path flowing the pandemics, with the sales turning back to their normal patterns and resulting in increase in 28,8% increase in earnings. However, this growth
in earnings was not uniform across all businesses. For instance, the non-Core business experienced a negative growth rate of 8,3%. Nevertheless, this decline was more than compensated by the 59,9% increase in earnings
from the main operations. Moreover, in 2022, the company kept generating value, since it achieved a return of 20,5% on its invested capital significantly surpassing the cost of capital (9,5%). This was a result of both the
core business and non-core businesses achieving higher return on their respective invested capital than the weighted average cost of capital (WACC).
To better assess the recent investments made by the company, we calculated the RONIC, which is the return on new invested capital. In 2022, ASICS´ RONIC was -137,7%. Although the RONIC was negative, we observed
a positive growth in earnings in this year. This is possible since the results of the company improved in 2022 while the invested capital decreased. Therefore, it resulted in a negative RONIC. However, when comparing the
core and the non-core business, we noticed different patterns. On one hand, the core business had a negative RONIC but also a negative investment rate of new capital meaning that it decreased its invested capital, and this
resulted into higher earnings in 2022. On the other hand, the non-core business had a negative RONIC, but the invested capital increased, resulting in a decrease of ROIC in this year and, simultaneously, in a negative
growth rate of earnings.
When we segmented ASICS operations by regions, all regions have a return on the invested capital higher than the cost of capital except one: North America. Therefore, all regions are creating value except North America,
which is destroying value. Supply chain disruptions affected ASICS business in North America however the main drivers of this result in this region are the high operating costs, especially the costs associated with the
region e-commerce sales. Just to have an idea ASICS operational margin in North America was 0,03%, a low value for the gross margin which shows how significant operating costs are in this region.
Summary of Main Forecasting Assumptions

Other income and other losses: The decision to anticipate stability in other income and losses in
E-commerce Growth: ASICS is poised for a continued e-commerce growth, surpassing overall
the upcoming years is founded on the predominant source of these fluctuations, which is the
net sales due to the increasing popularity of its online platform and sustained investments in e-
company's financial investments. Presently there are no plans for substantial future financial
commerce and marketing. In 2022, e-commerce sales surged by 12.79%, aligning with the 10.3%
investments that could significantly influence these financial outcomes. Therefore, we expect
average growth rate projected for the global e-commerce market. Given this, is expected to
these figures to remain steady, providing a more predictable financial outlook.
contemplate an average growth rate on e-commerce sales of 12%.

Depreciation and amortization: Since, ASICS is already a well-established company with a

large asset base. Furthermore, ASICS recently is more concerned in growing its e-commerce

COGS: Regarding COGS, we base our decision to assume COGS growth in line with inflation business. We expect that Depreciation and amortization do not have a significant increase

rates on OECD projections. With inflation expected to average 2.9% in 2023, 2.6% in 2024, and compared with the average of the last 3 years.

2.4% in the subsequent years, aligning COGS growth with inflation ensures our cost estimates
remain consistent with broader economic trends, minimizing potential cost discrepancies and The current statutory tax rate in Japan, where ASICS is headquartered, is 30.6%. The Japanese

supporting financial stability of ASICS. government has not announced any plans to change the statutory tax rate in the near future.
ASICS has a global presence, but its operations are concentrated in Japan. In 2022, over 70% of
ASICS' revenue came from Japan. This means that ASICS is subject to the Japanese statutory tax
rate on most of its income. For simplicity, we assume Japan's statutory tax rate for their entire
Subsidiaries Expansion Strategy: ASICS is poised for global growth through the strategic
operations. Regarding tax adjustments, we assume to be the average of the last 3 years.
establishment of subsidiaries in pivotal markets. In 2022, the addition of 12 subsidiaries resulted
in a remarkable 15.79% surge in revenue. This growth trajectory is anticipated to persist, with a
Workforce and Costs Stabilization: ASICS, with over 8,000 employees worldwide in 2022, is
projected average of two new subsidiaries annually until 2028. Our assumption relies on
likely to maintain workforce stability in the near future. The company's investment in task
calculating the average sales per subsidiary based on the past three years, under the premise that
automation aligns with expectations that the employee count will remain steady over the next
ASICS efficiently manages its subsidiaries, optimizing their sales capabilities.
five years.
Forecasted Reformulated Income Statement (including Value Drivers)
FORECASTED
2020 2021 2022 2023F 2024F 2025F 2026F 2027F 2028F
Core Interest Expenses: ASICS is strategically dedicated to the
E-commerce net sales 51 700 63 800 86 300 96 656 108 255 121 245 135 795 152 090 170 341
growth of its e-commerce sector and expanding its presence
(%growth) 0.41% 12.79% 12% 12% 12% 12% 12% 12%
Total Sales of subsidiaries 277 084 340 283 398 301 380 186 404 058 415 070 420 142 433 784 443 650 within the Asia-Pacific region. These initiatives may require the
Sales per subsidiary 4 469 5 156 5 382 5 002 5 180 5 188 5 124 5 164 5 159
#subsidiaries 62 66 74 76 78 80 82 84 86 company to secure loans, potentially resulting in an upswing in
(#new subsidiaries) 4 8 2 2 2 2 2 2
interest expenses. Projections indicate an impending increase in
Sales 328 784 404 083 484 601 476 842 512 313 536 315 555 937 585 874 613 991
% Growth of Sales 22.90% 19.93% -1.60% 7.44% 4.69% 3.66% 5.39% 4.80% interest rates in the foreseeable future, which would inevitably
COGS 175926 204205 243894 252486 266884 279280 290493 305278 320162
COGS (%Sales) 54% 51% 50% 51% 51% 51% 51% 51% 51% lead to higher interest costs for ASICS. However, it is
SG&A 144244 164731 191205 197245 207637 216940 226719 237788 249318
imperative to note that ASICS is a well-established firm
SG&A (%Sales) 44% 41% 39% 41% 41% 40% 41% 41% 41%
Personnel boasting a robust financial position. This fiscal strength
# Employees 8 904 8 861 8 886 8 886 8 886 8 886 8 886 8 886 8 886
Average Cost per Employee 16 19 22 22 23 24 26 27 28 positions the company to adeptly manage any surge in interest
Depreciations 12 568 13 201 15 499 12 803 13 100 12 769 11 931 11 568 11 603
Depreciation (% PPE) 42.82% 48.19% 61.41% 50.81% 53.47% 55.23% 53.17% 53.95% 54.12%
expenses that may ensue. Consequently, our approach in
EBIT -3954 21946 34003 14307 24692 27326 26794 31240 32908 calculating the anticipated rise in interest rates solely considers
Taxes 1209.924 -6715 -10405 4378 7556 8362 8199 9559 10070
Statutory Tax Rate 30.60% 30.60% 30.60% 30.60% 30.60% 30.60% 30.60% 30.60% 30.60% the expected incremental increase in interest rates, ensuring a
Tax adjustments -4980 -420 90 -1770 -700 -793 -1088 -860 -914
NOPLAT -7724 14811 23688 16915 31548 34895 33905 39939 42064 more focused and precise financial projection.

Non Core The OECD expects interest rates in developed economies to

Other income 597 614 2193 1135 1314 1547 1332 1398 1426
Exchange (loss) gain net -1626 398 -2581 -1270 -1151 -1667 -1363 -1394 -1474 average 2.9% in 2023, 2.6% in 2024, and 2.4% in 2025-2028.
other financial gains(losses) -3184 425 523 -745 68 -52 -243 -76 -123
Other Losses -6192 -7539 -2773 -5501 -5271 -4515 -5096 -4961 -4857 Given so, we expect that Asics interest expense would increase
Non Core Result Before Taxes -10405 -6102 -2638 -6382 -5041 -4687 -5370 -5032 -5030
at the same rate of interest rates.
Statutory taxes 3184 1867 807 1953 1542 1434 1643 1540 1539
OCI -6523 16653 13215 7782 12550 11182 10505 11412 11033
Non Core Result -13744 12418 11384 3353 9052 7930 6778 7920 7542
Since, ASICS has not announced any specific plans to acquire or
Financial sell other companies in the near future. We expect that minority
Interest expense -1701 -1723 -2662 -2689 -2680 -2675 -2675 -2675 -2675
Expected Interest rate 1.90% 2.90% 2.60% 2.40% 2.40% 2.40% 2.40% interests remain constant until 2028.
Taxes 521 527 815 823 820 819 819 819 819
Statutory Tax Rate 30.60% 30.60% 30.60% 30.60% 30.60% 30.60% 30.60% 30.60% 30.60%
Non controlling interests -2 -1 -133 -133 -133 -133 -133 -133 -133 We used Bloomberg weighted average cost of capital = 9.54%
Financial Result -1182 -1197 -1980 -1999 -1993 -1990 -1990 -1990 -1990

Comprehensive Income -22651 26032 33092 18269 38606 40835 38694 45869 47617
Forecasted Reformulated Balance Sheet (including Value Drivers)

FORECASTED
2020 2021 2022 2023F 2024F 2025F 2026F 2027F 2028F
Core Business • Operating Cash: we expect they will remain constant in future as they were
Operating cash 8 219.60 10 102.08 12 115.03 11 921.05 12 807.82 13 407.88 13 898.42 14 646.86 15350
Operating cash (% of Sales) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% in the past.
accounts receivable 48 974.00 47 663.00 67 797.00 62 708.00 63 161.86 63 182.36 62 447.71 62 600.27 65604
• Management objective is to shorten cash conversion cycle, Intend to
Collection Period 54.37 43.05 51.06 48.00 45.00 43.00 41.00 39.00 39
Inventories 88 123.00 80 048.00 135 586.00 124 513.88 124 302.29 122 424.17 123 360.15 125 456.76 131573 maximize efficiency of operation and profitability by leveraging digital,
Holding Period 182.83 143.08 202.91 180.00 170.00 160.00 155.00 150.00 150
other current assets 17 246.00 19 125.00 25 358.00 23 842.10 25 615.64 26 815.77 27 796.85 29 293.72 30700 Optimize inventory and reduce clearance.
Other Current assets (% of Sales) 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 5% • We believe the company can achieve it by reducing the average holding
PP&E 29 352.00 27 391.00 25 240.00 25 200.00 24 500.00 23 120.00 22 440.00 21 440.00 21440
# Stores 62.00 66.00 74.00 72.00 70.00 68.00 66.00 64.00 64 period. Moreover, they can reach the objective by reducing the average
PP&E per Stores 473.42 415.02 341.08 350.00 350.00 340.00 340.00 335.00 335
collection period closer to the peers’ average.
Intangible assets 43 224.00 46 844.00 70 167.00 71 526.31 76 846.93 80 447.30 88 949.91 93 739.89 98239
Intangible assets (% of sales) 13.1% 11.6% 14.5% 15.0% 15.0% 15.0% 16.0% 16.0% 16.0% • There are no motives to predict an increase or decrease in Other Current
Accounts payable - 33 003.00 - 30 460.00 - 44 670.00 - 41 504.63 - 43 871.40 - 45 909.06 - 47 752.32 - 50 182.70 -52629
Payable Period 68.00 54.00 67.00 60.00 60.00 60.00 60.00 60.00 60 Assets as a percentage of sales, so we kept them constant.
Accrued expenses - 19 198.00 - 25 500.00 - 27 580.00 - 27 773.51 - 29 357.28 - 30 720.82 - 31 954.26 - 33 580.59 -35218 • We believe that physical stores will decrease due to the implementation of E-
Accrued expenses (% of COGS) 0.11 0.12 0.11 0.11 0.11 0.11 0.11 0.11 11%
Other current liabilities - 14 312.00 - 14 038.00 - 26 877.00 - 22 723.78 - 24 019.59 - 25 135.21 - 26 144.39 - 27 475.03 -28815 commerce.
Other current liabilities (% of COGS) 8.1% 6.9% 11.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
• Intangible assets, will increase due to the innovation they are pursuing.
Invested Capital in Core Business 168 625.60 161 175.08 237 136.03 227 709.43 229 986.28 227 632.39 233 042.07 235 939.17 246 244
• The Payable Period is in line with the company history, no reason to assume
Non core Business
any changes. Moreover, do not expect any changes in Accrued Expenses nor
Investments 8 521.00 9 136.00 10 697.00 11 921.05 15 369.39 16 089.46 22 237.48 23 434.97 27630
Investments (% of sales) 2.6% 2.3% 2.2% 2.5% 3.0% 3.0% 4.0% 4.0% 4.5% in Other Current Liabilities.
Other assets 16 271.00 19 269.00 22 839.00 23 842.10 25 615.64 26 815.77 27 796.85 29 293.72 30700
Other assets (% of sales) 4.9% 4.8% 4.7% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% • Investments will be increasing slightly in the following year, as the company
Other LT liabilities - 16 904.00 - 18 764.00 - 13 408.00 - 22 723.78 - 24 019.59 - 25 135.21 - 26 144.39 - 27 475.03 -28815 stated, they are implementing in three business domains: in addition to Product,
Other LT liabilities (% of COGS) 9.6% 9.2% 5.5% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
Invested capital in Non Core Business 7 888.00 9 641.00 20 128.00 13 039.37 16 965.44 17 770.01 23 889.93 25 253.66 29 515 Facility and Community, and Analysis and Diagnosis.
• No reason to assume any changes in the percentage of other assets, same for,
Financial
Excess of cash 73 250.40 86 195.93 55 267.98 - - - - - 0 the Long-Term Liabilities, which will follow the trend registered before 2022 ,
Non Common Equity Funding - 123 143.00 - 110 618.00 - 141 622.00 - 81 854.59 - 83 963.58 - 83 436.82 - 87 356.88 - 88 805.56 -93758
so steady at 9% COGS.
Net Financial assets - 49 892.60 - 24 422.08 - 86 354.03 - 81 854.59 - 83 963.58 - 83 436.82 - 87 356.88 - 88 805.56 -93758
• Non-Common Equity Funding made up of Debt and Minority Interests.
Equity 126 621.00 146 394.00 170 910.00 158 894.21 162 988.13 161 965.58 169 575.12 172 387.26 182001
• Company want to maintain the current equity ratio, as stated in their
Transaction With Shareholders - 6 259.00 - 8 576.00 - 4 567.22 - 9 651.60 - 10 208.79 - 9 673.38 - 11 467.32 -11904 “VISION30” report, and do not plan any change in the Payout Ratio, so we
Equity Ratio 0.72 0.86 0.66 0.66 0.66 0.66 0.66 0.66 66%
Payout Ratio 0.24 0.26 0.25 0.25 0.25 0.25 0.25 25% estimated an average of the two years and kept it.
Forecasted Free Cash Flow Map

Forecasted Free Cash Flows Map

80000
60000 CAPEX will keep increasing at the same pace as
40000 the company, as written in "VISION30" report.
20000
We expect it to grow through investment in
0
2020 2021 2022 2023F 2024F 2025F 2026F 2027F 2028F India, Indonesia and Middle East. Furthermore,
-20000
-40000 expect to expand existing service and new
-60000 business development targeting Women and
-80000 Kid.
CAPEX Net Income Changes in Net Working Capital Depreciation Free Cash Flows
FORECASTED
2020 2021 2022 2023F 2024F 2025F 2026F 2027F 2028F
Net Income -22651 26032 33092 18269 38606 40835 38694 45869 47617
Net Working Capital 96050 86940 141729 130983 128639 124065 121652 120759 126565
Changes in Net Working
Capital - 9110 -54789 10746 2344 4574 2413 893 -5806
Depreciation 12568 13201 15499 12803 13100 12769 11931 11568 11603
CAPEX - -10168 -12656 -15693 -19460 -24130 -28956 -34748 -41697
Expected CAPEX 24% 24% 24% 24% 20% 20% 20%
Free Cash Flows - 58511 6458 26125 34590 34048 24081 23583 11717

Free Cash Flows of the company will follow a positive increasing trend, after the great result of 2021, in 2022 the FCF drastically decrease, this was mainly due to the re-initialization of the activities
after the impact of COVID. Up until 2025, as the company catch up with the market after the closures, the free cash flows will increase and stabilize around an average of 30000 yen per year.
Moreover, afterwards we assumed they will decrease due to the heavy investments they will undertake to expand their businesses in India, Indonesia , Middle East and for the heavy investments
required to develop their E-Commerce and their new virtual augmented reality for a customize shopping experience.
Overall, Free Cash Flows are expected to be positive and growing in the future, even though there will be a period of decreasing FCF due to the investments but, nevertheless, are supposed to bring
a positive return, in the end we expect that the company will be operating better in the foreseeable future.
Long Term Value Drivers

2020 2021 2022 2023 2024 2025 2026 2027 2028

Core Result -7724 14811 23688 16915 31548 34895 33905 39939 42064 Other Long-Term Value
Core Invested Capital 168626 161175 237136 227709 229986 227632 233042 235939 246244 Drivers and Concluding
Core ROIC 8.78% 14.70% 7.13% 13.85% 15.17% 14.89% 17.14% 17.83%
Core RONIC -119.15% -8.92% -155.23% 147.01% 42.06% 111.54% 73.37% Remarks: In addition to the
Investement Rate 100% 76% 74% 75% 75% 75% 75% 75% 75% core ROIC and growth long
Core g 60% -29% 87% 11% -3% 18% 5% term drivers discussed before,
Result -22651 26032 33092 18269 38606 40835 38694 45869 47617
g -215% 27% -45% 111% 6% -5% 19% 4% ASICS' long-term value is
also likely to be driven by its
ability to capitalize on the
Core ROIC Value Creation and ASICS growth rate: ASICS maintains a
growing demand for
Core ROIC is a key long-term value driver for ASICS. It measures the company's ability substantial allocation of its resources for investments (average
sustainable athletic footwear
to generate returns on its core investments. ASICS' core ROIC is expected to experience investment rate ~75%), signifying its strategic commitment to
and apparel. This is a trend
growth and sustain a level of around 18%, starting at 14.7%. This is significantly higher identifying opportunities where the return on investment surpasses the
that is difficult to predict, but
than the company's cost of capital of 9.54%, suggesting that ASICS is well-positioned to cost of capital for investors. It is evident that one of ASICS' pivotal
it is one that is in line with
deliver superior returns to its investors over the long term. There are several factors that long-term value drivers is its adeptness in capitalizing on investment
ASICS' commitment to
contribute to ASICS' strong core ROIC. One factor is the company's global network, opportunities. Notably, ASICS has made strategic investments between
sustainability. ASICS has
which features strategic alliances and connections. This network gives ASICS significant 2020 and 2023 in ventures such as Valkyrie Industries Limited (2022),
already made significant
scale and reach in the industry, which is a result of strategic investments and renowned for its virtual reality fitness experiences employing haptic
investments in sustainable
accumulated experience. This makes it difficult and costly for competitors to replicate EMS technology; Pulse Active Stations Network (2021), a health
materials and manufacturing
ASICS' success. Another factor that contributes to ASICS' strong core ROIC is its monitoring service provider with Y Combinator backing; and Ashirase
processes, and the company is
innovative products, such as its ASICS Gel technology. This technology was a major (2022), recognized for developing a navigation system catering to the
well-positioned to benefit
advancement in the running shoe industry, and it continues to give ASICS a competitive visually challenged. These recent investment activities are expected to
from the growing demand for
advantage. Overall, ASICS' core ROIC is a key long-term value driver for the company. yield a more volatile growth rate, especially until 2024. However, a
sustainable products in the
The company's global network, innovative products, and strong brand reputation are all stabilizing trend with a projected growth rate of approximately 4% is
coming years.
expected to contribute to sustained core ROIC growth in the coming years. anticipated in the ensuing years.
Valuation

WACC 9.54%
g 4%
Core ROIC 17.83%
Core RONIC 73.37%

Core Value
The core value was determined using the discounted cash flow method, employing a WACC of 9.4% as the discount rate. This valuation is used as we
value the company with all its future expected cash flows discounted at the rate demanded by investors. The analysis started in 2023, which is the initial
CORE BUSINESS discounted cash flow, and extended the forecasted period until 2028, anticipating ASICS to reach its steady state by then.
DEDBT VALUE
VALUE Enterprise Value
14,099
113,875
Expanding the evaluation to the Enterprise Value, which encapsulates both core and non-core activities. When valuing a company, it must be clear in the
analysis the values originated by each part of the business, to which end it is crucial to determine the cash flows of all the components of the business: in
what regards to the non-core business, its valuation is of 34,180 million yen, where as the core business’ valuations 113,875 million. Summing up this two
values, we reach the enterprise value of the business, which amounts to 148, 055 Million. Cash flows, were meticulously assessed. This process involved
forecasting future cash inflows and outflows. The resulting cash flows were then discounted back to their present value using the WACC to determine their
impact on the company's overall value.
NON-CORE
EQUITY VALUE
BUSINESS VALUE Terminal Value
133,956
34,180 The initial phase of the Terminal Value corresponds to the attainment of the Steady-State, signaling the point at which both Return on Net Invested Capital
and the growth rate stabilize. In our model ASICS is projected to achieve this equilibrium in 2028, with a realistic growth rate of 4%.. This growth is
justified by the company's substantial investments and its strategic expansion into new markets, constantly opening subsidiaries.
It's imperative to acknowledge that these analyses rest on a set of assumptions, introducing potential variations in the valuation outcome.. These
ENTERPRISE VALUE 2028
assessments provide a comprehensive understanding of Asics's value, recognizing the intricacies involved in valuing both core and non-core aspects of the
148,055
business.
Overall Conclusions and Recommendations as managers

1. Cash Flow Management/Activity: ASICS improved its cash conversion cycle in 2021 but saw a
negative trend in 2022, primarily due to an increase in the average holding period for inventories. ASICS
should focus on optimizing its inventory management practices to prevent this negative trend from
4. Evolution of Sales’ Value Drivers: ASICS has demonstrated consistent sales growth, driven by
continuing. ASICS can sell excess inventory through discount retailers or online marketplaces. This can
factors like e-commerce dominance, sustainability, athleisure, and technological integration. The
help to reduce inventory levels and free up cash flow. Another more efficient way would be ASICS can use
company's focus on diversification and digital expansion is contributing to its sustained sales growth.
data analytics and machine learning to improve its demand forecasting accuracy. This will help the
company to better align its inventory levels with demand and reduce the risk of overstocking.

5. Evolution of Costs’ Value Drivers: ASICS' cost structure does not significantly impact overall
2. Liquidity Analysis: While ASICS has generally maintained solid liquidity, there was a reversal in the
profitability. Effective cost control, optimization of supply chains, and minimizing waste have
positive trend from 2021 to 2022. It's crucial for ASICS to monitor its increasing reliance on credit for short-
contributed to improved gross margins. The increase in average cost per employee and subsidiary
term financing, particularly in accounts payable. ASICS could work with its suppliers to negotiate longer
aligns with ASICS' global expansion strategy, and the increase in depreciation and amortization
payment terms. This would reduce the amount of cash that ASICS needs to have on hand to meet its short-
expenses reflects the company's proactive approach to future growth.
term obligations.

3. Capital Structure/Financing: ASICS utilizes both equity and debt for financing and maintains a
balanced approach. However, the recent increase in the debt-to-equity ratio warrants further investigation to 6. Evolution of Invested Capital’s Value Drivers: ASICS has efficiently managed its invested
understand if it's a sustained trend. ASICS should continue to monitor its financial autonomy ratio to mitigate capital, reflecting its financial health. The company should continue to monitor trends in accounts
risks associated with creditor dependence. A more practical approach to achieve this can be increasing cash receivable, inventories, and accounts payable to ensure efficient working capital management.
flow by increasing sales, reducing costs, or improving its operating efficiency. Based on our projections for
the income statement and balance sheet, it is evident that ASICS possesses the necessary financial conditions
to achieve this objective.
Overall Conclusions and Recommendations as managers

7. ROIC and its respective Breakdown: ASICS witnessed a substantial improvement in its ROIC 10. Long Term Value Drivers: ASICS demonstrates a promising future, driven by its robust
in 2022, chiefly attributed to the efficiency of its core business, cost reduction measures, and post- Core ROIC and strategic investments in innovative ventures. With Core ROIC expected to
pandemic sales growth. To sustain this growth, ASICS should maintain and enhance the remain significantly above its cost of capital and a commitment to sustainable products, ASICS
performance of its core business while addressing challenges within non-core operations and is poised to deliver superior long-term returns to investors. ASICS should maintain its focus on
regions, notably North America. sustaining high Core ROIC by continually leveraging its global network and innovative product
offerings. Additionally, the company should closely monitor and manage the performance and
returns on its strategic investments while embracing the growing market demand for sustainable

8. ROE and its respective Breakdown: ASICS' ROE exceeded its ROIC in the last two years, athletic products. This comprehensive approach will help ASICS optimize its long-term value

reflecting effective financing decisions. The company should continue to focus on enhancing ROIC drivers and secure its competitive position in the industry.

and closely monitor trends in financing costs. Maintaining a balanced capital structure and effective
financial autonomy is critical.

11. Valuation: ASICS' valuation using discounted cash flows and a WACC of 9.4% extends to
2028, acknowledging the intricacies in valuing core and non-core aspects. To maximize
enterprise value, ASICS should proceed with its strategic expansion into new markets and
9. Forecasted Free Cash Flow Map: ASICS' Free Cash Flows (FCF) show a temporary decline in subsidiaries while maintaining vigilance in monitoring financial performance and underlying
2022 due to post-COVID adjustments, with a subsequent positive trend expected until 2025. assumptions. ASICS has been expanding into new markets in recent years, such as China and
Strategic investments may lead to temporary FCF reductions, but they should yield positive returns India. In 2021, ASICS opened its first flagship store in China. In 2022, ASICS acquired 100% of
in the long run. the shares of Onitsuka Tiger India Pvt. Ltd., which is a subsidiary of ASICS Corporation that
distributes Onitsuka Tiger products in India. We highly recommend that ASICS managers
continue with this expansion strategy to enhance the company's value.