Financial Results For the Year Ended July 31, 2015 Consolidated September 10, 2015

Transcription

1 Financial Results For the Year Ended July 31, 2015 Consolidated September 10, 2015 Company name: Dr. Ci:Labo Co., Ltd. Listings: First Section of the Tokyo Stock Exchange Security code: 4924 URL: Representative: Tomomi Ishihara, President and COO Contact: Hiroyuki Kosugi, Director and General Manager of FinancialDepartment Telephone: Scheduled date for the regular general meeting of shareholders: October 21, 2015 Scheduled commencement date for payment of dividends: October 22, 2015 Scheduled date of submission for financial reports: October 21, 2015 (Amounts rounded down to the nearest ) 1. Consolidated Financial Results for the Year Ended July 31, 2015 (August 1, 2014 to July 31, 2015) (1) Operating Results (Percentage figures denote year-on-year change) Net sales Operating income Ordinary income Net income % % % Year ended July 31, , , , , Year ended July 31, , , , , Note: Comprehensive income: Year ended July 31, 2015: 5,033 (9.4 %) Year ended July 31, 2014: 4,600 ( 5.8%) Net income per share Diluted net income per share Return on Equity Ordinary income/ total assets % Operating income/ net sales % % % Year ended July 31, Year ended July 31, Note: Investment gains or losses under the equity method: Year ended July 31, 2015: - Year ended July 31, 2014: - (Note) 1. The Company implemented a 2-for-1 stock split effective on August1, Net income per share and diluted net income per share are calculated assuming that the stock split was implemented at the beginning of the previous fiscal year. 2. Diluted net income per share for the fiscal year under review is not shown above because there are no diluted shares. (2) Financial Position Total assets Net assets Shareholders equity ratio Net assets per share % Year ended July 31, ,759 20, Year ended July 31, ,691 22, Note: Shareholders equity: Year ended July 31, 2015: 20,428 Year ended July 31, 2014: 22,741 (Note) The Company implemented a 2-for-1 stock split effective on August 1, Net asset per share is calculated assuming that the stock split was implemented at the beginning of the previous fiscal year.

2 (3) Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at the end of the period Year ended July 31, , ,408 12,495 Year ended July 31, , ,002 16, Dividends Year-end Dividend per share Full year Total dividends paid (Full year) Payout ratio (Consolidated) Dividends/ net assets (Consolidated) % % Year ended July 31, , Year ended July 31, , Year ended July 31, 2016(Forecast) (Note) The Company implemented a 2-for-1 stock split effective on August 1, Dividends for the fiscal year ended July 31, 2016 are amounts after the stock split. After the stock split, the dividend per share at the end of the said fiscal year would be 88 and the total annual dividend per share would be Forecast of Consolidated Earnings for the Year Ending July 31, 2016 (August 1, 2015 to July 31, 2016) (Percentage figures represent year-on-year changes) Second quarter ending January 31, 2016 Net sales Operating income Ordinary income Net income % % % Net income per share % 18, , , , FY ending July 31, , , , , (Note) The Company implemented a 2-for-1 stock split effective on August 1, Other information (1)Significant changes in subsidiaries during period (changes in specific subsidiaries due to change in scope of consolidation): None (2) Changes in accounting policies; changes in accounting estimates; restatements 1) Changes in accounting policies due to amendment of accounting standards: None 2) Other changes in accounting policies: None 3) Changes in accounting estimates: None 4) Restatements: None (3) Number of shares issued and outstanding (common stock) 1) Number of shares issued at end of period (treasury stock included): Year ended July 31, 2015: 50,854,600 shares Year ended July 31, 2014: 50,854,600 shares 2) Number of shares held in treasury at end of period: Year ended July 31, 2015: 3,668,676 shares Year ended July 31, 2014: 1,000,076 shares 3)Average number of shares over period Year ended July 31, 2015: 49,173,847 shares Year ended July 31, 2014: 49,854,571 shares (Note) The Company implemented a 2-for-1 stock split effective on August 1, The number of shares issued and outstanding is calculated assuming that the stock split was implemented at the beginning of the previous fiscal year.

3 Reference: Overview of Financial Results on Non-Consolidated basis 1. Non-Consolidated Financial Results for the Year Ended July 31, 2015 (August 1, 2014 to July 31, 2015) (1) Operating Results (Amounts rounded down to the nearest ) Net sales Operating income Ordinary income Net income % % % Year ended July 31, , , , , Year ended July 31, , , , , % Net income per share Diluted net income per share Year ended July 31, Year ended July 31, (Note) 1. The Company implemented a 2-for-1 stock split effective on August 1, Net income per share and diluted net income per share are calculated assuming that the stock split was implemented at the beginning of the previous fiscal year. 2. Diluted net income per share for the fiscal year under review is not shown above because there are no diluted shares. (2) Financial Position Total assets Net assets Shareholders equity ratio % Net assets per share Year ended July 31, ,517 20, Year ended July 31, ,857 22, Note: Shareholders equity Year ended July 31, 2015: 20,348 Year ended July 31, 2014: 22,926 (Note) The Company implemented a 2-for-1 stock split effective on August 1, Net asset per share is calculated assuming that the stock split was implemented at the beginning of the previous fiscal year. Implementation status of quarterly review procedures At the time of disclosure of this report, review procedures for financial statements pursuant to the Financial Products and Exchange Law had not been completed. Explanation about the appropriate usage of business prospects and other special notes Forward-looking statements included in this document, such as forecasts of operating results, are based on information currently available for the Company and certain assumptions the Company deems reasonable, and do not represent a commitment by the Company that they will be achieved. Actual results may differ greatly from forecasts due to various factors. For assumptions for operating results forecasts and cautionary notes on the use of such forecasts, please refer to 1. Analysis of Operating Results and Financial Conditions, (1) Analysis of Operating Results on page 4 of the attachment.

4 Contents 1. Review of operating results.. 2 (1) Analysis of operating results... 2 (2) Analysis of financial position.. 5 (3) Dividend policy and fiscal dividends 5 2. Management Policies 6 (1) Company s Basic Management Policy 6 (2) Target Management Indices 6 (3) Medium and Long Term Corporate Management Strategy Basic concept for the choice of accounting standards Consolidated Financial Statements... 8 (1) Consolidated Balance Sheets.. 8 (2) Consolidated Statements of Income 10 (3) Consolidated Statement of Changes in Shareholders Capital 12 (4) Consolidated Statements of Cash Flows. 14 (5)Note concerning consolidated financial statements. 15 (Notes relating to the assumption of an ongoing business).. 15 (Segment information etc.). 15 (Information per share) (Important subsequent events)

5 1. Review of operating results (1) Analysis of operating results The Japanese economy continued its gradual recovery during the consolidated fiscal year of consideration, while improvement in employment and the income environment persisted, partially due to the effects of various government policies. However, the risks of downward pressure on the economy still remain, including downside risks in overseas economies such as the Chinese economy. Under these circumstances, Dr. Ci:Labo Group endeavored to establish a stable customer base to make our existing businesses recover and grow, by implementing measures to acquire new customers and to facilitate the continuing purchases of current customers. In addition, the company regularly released new products and renovated existing products to offer more diversified opportunities of product choice to our customers. In looking at our performance by sales outlet, for our mail order sales, sales promotion activities brought success, such as sales of lucky bags and large capacity Aqua-Collagen-Gel series in the demand season, as well as a large scale campaign held in the fourth quarter of the consolidated fiscal year. At the same time, in addition to implementing short-term measures, in September 2014 the company renewed its existing periodic delivery services to periodic saving delivery services, called Teiki Toku-toku bin in order to facilitate continuous sales of merchandise, resulting in a boost of both the number of contracts and sales. Moreover, due to our strong advertisement of non-skin care products, such as One Simple Brush-in White Hair Concealment and BI-ZEN-SHOKU, mainly through infomercials, we were able to successfully increase the number of new purchasers. Because of these measures, mail-order sales of the group increased to 24,855, or a 4.9% increase on a year-on-year basis. Concerning sales from face-to-face retail channels, Dr. Ci:Labo opened three directly-managed stores and one store at the GMS, while closing four counseling counters at department stores. The group continuously provided services which were only available at the face-to-face retail shops, such as holding skin-care counselling events and providing counseling services, with the purpose of increasing the number of visitors to shops and the purchase unit price. Sales of cosmetics at our Ginza Flagship Store have been brisk since starting duty-free sales, so that the store has been enhancing the role of the flagship store to meet the demand of foreign visitors. Consequently, Dr. Ci:Labo recorded 4,106 for sales from the face-to-face retail outlets, a 3.8% increase from the same period of the previous fiscal year. Sales from wholesale distribution declined compared with the same period of the previous year, because there wasn t any shipment of particularly large-scale new products in the first half of the fiscal year. On the contrary, in the second half of the fiscal year, the group actively engaged in sales promotional measures at drug stores, mainly of products such as Medicated Aqua-Collagen-Gel Super Moisture EX and Medicated Aqua-Collagen-Gel Super Sensitive. The company also promoted sales, primarily at the drug stores, of the Labo-Labo brand products, which are highly popular for tourists from mainland China. As various measures implemented in the second half of the consolidated fiscal year took effect, the results for this consolidated fiscal year of consideration exceeded the results posted for the previous consolidated fiscal year. Subsequently, wholesale sales were 7,770, a 5.0 % increase on a year-on-year basis. As to our performance overseas, sales in Hong Kong exceeded the level in the previous consolidated fiscal year, attributable to brisk sales at the wholesale chain store Mannings and an increase in the number of tourists from mainland China, principally in the Chinese New Year season. On the other hand, sales in Taiwan were less than those in the previous consolidated fiscal year, because the company was forced to have a tight fight for sales at department stores in the region, as exemplified by the fact of closing two stores within the department stores. In Singapore, we implemented measures to gain customers brand recognition by advertising our products on local advertising media, launching wholesales, and opening a new duty-free shop at the airport. As a result, sales in the country exceeded significantly those in the previous consolidated fiscal year. Moreover, in Thailand, the company initiated product sales through sales agencies, with the goal of enhancing sales of Dr. Ci:Labo brand products in the growing market, and to capture the demand of the foreign customers visiting from the region. As a consequence, sales from overseas operations were 924, a 6.2% increase on a year-on-year basis. As regards profitability in the consolidated fiscal year of concern, the group suppressed total fees for placing advertisements because of valuing the importance of efficiency in advertising and sales promotion expenses, thereby creating effective marketing activities, as seen in an increase in the number of new customers by 6.7% from the previous term. Meanwhile, the efficiency in mail-order 2

6 sales slightly deteriorated, as seen by a decrease in the unit price of orders in mail-order sales, because of our actions to encourage customers to switch to renewed Teiki Toku-toku bin (Periodic saving delivery services) and sales increases in low-priced products. Although the unit price of orders in the fourth quarter of the consolidated fiscal year showed signs of improvement, the operating margin in this accounting period was 20.4%, which is less than the level in the previous consolidated fiscal year. Operating income was 7,682, an increase of 2.3% on a year-on-year basis. According to the above results, total sales amounted to 37,656, up 4.8 % on a year-on-year basis, and ordinary income was 7,778, an increase of 2.8 % on a year-on-year basis, while net income was 4,940, an increase of 7.7% on a year-on-year basis. Operating results by segment <Cosmetics> In the cosmetics business, Dr. Ci:Labo released the renewed Dr. Ci:Labo brand products Medicated Aqua-Collagen-Gel Super Moisture EX and VC100 Essence Lotion. In particular, securing many shelves for regular assortments within drug stores, which are supposed to be advantageous as a selling place, enabled the company to increase sales results of the above mentioned two products considerably in the second half. In addition, sales of Perfect-Gel Foundation, which was released as a part of reinforcing our foundation product group, and One Simple Brush-in White Hair Concealment products, which the company rigorously advertised, were selling well in the consolidated fiscal year of concern. Regarding the Genomar-brand, the company renewed existing products and released new products on a regular basis to increase the number of customers visiting stores and the purchase unit price. In terms of the Labo-Labo brand, we were able to increase sales of those products substantially by meeting inbound demands at the Ginza Flagship Store and drug stores where we offer duty-free sales. In consequence, sales in the cosmetic business achieved 33,572, up 4.5% on a year-on-year basis, and operating income was 7,563, an increase of 2.5% on a year-on-year basis. <Health foods> In the health food business, sales of BI-ZEN-SHOKU, for which the company released new flavor in this consolidated fiscal year, have been strong since the last consolidated fiscal year, contributing to boost the sales of the entire health food business. In addition to diet products, the group also developed several supplement products and released them in the market in this consolidated fiscal year, in an effort to enhance the supplement product lineup. However, due to aggressive advertising activities for sales expansion, the operating income fell below the previous consolidated fiscal year. For that reason, sales in the health food business were 4,083, an increase of 7.9% on a year-on-year basis, and the operating loss was 119, a decrease of 9.0% on a year-on-year basis. 3

7 Fiscal-2016 forecast Regarding the forecast for the next fiscal period, the Japanese economy is expected to recover gradually, partially due to the effects of various economic measures. However, we also need to take notice of the risks of downward pressure on the economy, including downside risks in overseas economies such as the Chinese economy, and fluctuation of the financial and capital market. Based on the situation mentioned above, the Dr. Ci:Labo Group shall continuously engage in business operations with following basic policies 1) restoring growth in existing business, 2) cultivating new business, and 3) full-scale expansion of overseas business, in line with the 4th Mid-term Management Plan formulated on September 12, In the cosmetics business, we shall strengthen sales of our mainstay products, from the Aqua-Collagen-Gel series. Especially, the company regards the release of renewed Aqua-Collagen-Gel Enrich Lift EX which is scheduled in the first half of the coming fiscal year, as an important step in the next fiscal period, so that we are going to develop sales promotional measures for the product in all sales outlets. In addition to products of the Aqua-Collagen-Gel series, we shall promote solicitation of peripheral products with the aim of expanding sales further, such as Aqua-In-Derm Dounyu (introductory) Essence and VC100 Essence Lotion, so that customers will purchase them together with Aqua-Collagen-Gel products. In terms of costs, the company shall make efforts to improve its performance by actively using effective media and casting promotional items in the markets, in order to enhance the cost effectiveness of advertising and promotional expenses toward sales in the next fiscal period, more than in this period. In the health food business, Dr. Ci:Labo shall aim at expanding sales of health food further by focusing on BI-ZEN-SHOKU, whose sales have been brisk. Also, the company plans to offer diverse options to our customers by launching supplement products, to continuously meet the demands of senior customers. Regarding measures for individual sales outlets, in mail-order sales we shall mainly take sales promotional measures for skin-care products whose selling prices are relatively high, in order to increase purchase unit price and improve profitability. At wholesale distribution channels, the company shall increase turnover of merchandise at drug stores and variety stores in next fiscal year, and stimulate the inbound demand mainly targeting tourists from greater China, aiming at expanding sales further. Concerning sales from face-to-face retail channels, the group will continuously make services available which are only available at the face-to-face retail stores, such as holding skin-care counselling events and providing counseling services, with the intention of increasing the number of shop visitors and the purchase unit price. In our overseas business, we shall reinforce sales in Asian countries, in cooperation with business partners mainly in Asia region. In Hong Kong, at the same time we strengthen wholesales channels, we shall implement a number of measures to promote soliciting consumers in mainland China and Chinese tourists. In Taiwan, the company plans to increase the percentages of mail-order sales and wholesale sales, since the sales at department stores have been having hard fights. In Singapore, our Singapore ION Orchard Shop will remain a flagship store in Southeast Asia in the future. Therefore, we shall increase recognition of the store among customers not only in Singapore, but also throughout neighboring countries, as well as fortifying wholesale sales in the country which we have just started in July For these reasons, the company forecast for sales in next fiscal year will be 40,700 (up 8.1% on a year-on-year basis), operating income will be 8,100 (up 5.4% on a year-on-year basis), ordinary income will be 8,100 (up 4.1% on a year-on-year basis), and net income attributable to owners of the parent company will be 5,250 (up 6.3% on a year-on-year basis). 4

8 (2) Analysis of financial position 1) Status of Financial Condition Total assets in the fiscal year of consideration became 24,759, a decline of 2,932 from the previous year. This is primarily because cash and deposits decreased by 3,618 due to acquisition of its treasury shares. Total liabilities were 4,330, decreased by 618 from the previous year. The main causes of the decrease are decreases of accounts payable-trade by 493 and accounts payable-other by 360. Net assets were 20,428, decreased by 2,313 from the end of the previous consolidated fiscal year. This is largely because appropriation of retained earnings from dividends decreased by 2,019 and purchase of treasury stock declined by 5,327, while the recorded net income was 4,940. 2)Status of Cash Flow (Cash flow from operating activities) Revenue from operating activities was 4,080. The main causes of the decrease in revenue are an increase in notes and accounts receivable trade by 609 and 3,099 in income taxes paid, while 7,771 in income before income taxes and minority interests were recorded as a major increase factor. (Cash flow from investing activities) Cash flows from investing activities caused an outflow of 351. The chief causes of decreasing funds are 122 in expenses for the purchase of property, plant and equipment, and 203 in expenses for the purchase of intangible assets. (Cash flow from financing activities) Meanwhile, cash flows from financing activities recorded 7,408 in outflow. This is primarily caused by spending 5,375 for the acquisition of treasury shares and 2,020 for payment of cash dividends. Group cash flow metrics are tabulated as follows. FY13 (ended 07/31/13) FY14 (ended 07/31/14) FY15 (ended 07/31/15) Shareholders' equity ratio (%) Shareholders' equity ratio at market value (%) Ratio of debt to operating CF (= years required to repay debt from operating CF) Interest coverage ratio (times) Shareholders' equity ratio: shareholders' equity / total assets Shareholders' equity ratio at market value: market capitalization / total assets Ratio of debt to operating CF: interest-bearing debt / operating cash flow Interest coverage ratio: operating cash flow / interest payments *All ratios were calculated with consolidated-basis financial data. *Market capitalization was calculated based on shares issued and outstanding net of treasury stock. *Cash flow data are operating cash flows. *Interest-bearing debt is all debt on the consolidated balance sheet on which interest is payable without lease debts. 3)Dividend policy and fiscal dividends Dr. Ci:Labo considers the matters of importance at this moment to be strengthening our corporate structure in anticipation of future business expansion and an increase in retained earnings for expansion of our business foundation. At the same time, we acknowledge returning profits to our shareholders are also one of the essential policies in management. In the fiscal year of concern, Dr. Ci:Labo group plans to pay 82 as an annual dividend per share. We plan to provide 44 in annual dividends per share for the next fiscal year. However, if we convert this amount into one before the stock split, the annual dividend per share would be 88. 5

9 2. Management Policies (1) Company s Basic Management Policy The Group, operating under the management philosophy of Providing solutions to all people troubled with skin problems and product concept of Simple Results Science, desires to be a company that is able to expand its business and contribute to society by placing customers first and providing products sincerely, correctly and wholeheartedly. Product concept are made into reality by engaging in research using specialists who focus on the natural healing powers of people and by providing only what the skin really requires in appropriate doses to enhance the natural powers of the skin. In addition, the Group focuses on product improvements and development by taking the customer s perspective and treating problems concerning customers as if they were their own. The Group believes that taking the customers perspective and providing feedback from customers to management is the source of growth for the Group. (2) Target Management Indices Our group intends to establish a new basis for growth in addition to growth maintenance of the existing business. For this reason, although we deem expansion of sales to be the most important, we place importance on profitability and efficiency as management index. Therefore we also recognize operating margin to sales and ROE as an important index. (3) Medium and Long Term Corporate Management Strategy Our group thinks the following three points to be important items in the fourth medium-term management plan and so we have a plan to promote management. (i) Growth recovery of existing business The cosmetic market in Japan is competitive and its environment is severe as increasingly more new companies enter the market every year. Therefore, it is essential for Dr. Ci:Labo to clarify the points of differentiation of the group s merchandise and to promote the originality and uniqueness of our product to customers in an easily understood manner. In order to handle such situations, we shall reinforce developing new products and renovating existing products, in an endeavor to enrich product lineups. In the 18th fiscal year, the group shall implement sales measures focusing on its mainstay products from the Aqua-Collagen-Gel series, as well as promoting sales of lotions such as Aqua-In-Derm Dounyu (introductory) Essence and VC100 Essence Lotion, as concurrent sales products, with the purpose of increasing the purchase unit price further. Moreover, the company plans to conduct advertising activities more effectively by using advertising media comprehensively, including TVCM and Web advertisements. Furthermore, in the health food category, in order to meet the needs of our customers, the company shall reinforce product development and sales of supplement products, in addition to diet foods. (ii) Fostering of new business The Japanese cosmetic market has remained consistent in size, and by taking demographic movements of Japan into consideration we are aware that signs of significant improvement in the future will not be expected. In addition, as diversification of our customers taste is prominent, we consider it will be difficult to meet the customers demand sufficiently with development of a single service or single brand for the medium- to long-term. Having such recognition, the Dr. Ci:Labo group endeavors to cultivate new business by utilizing M&A and other methods, to develop multiple numbers of brands in the cosmetic business, to expand its beauty-related business, and to advance into new health fields, etc. In order to support the direction mentioned above as an organization, the group is scheduled as of December 1, 2015 to transfer itself into a holding company system by the absorption-type company split method, with the condition that we will be able to make a resolution at the shareholder s meeting scheduled to be held on October 21, 2015, and gaining the approval and authorization of the government agency concerned. (iii) Full-scale expansion of foreign business As stated above, growth in the Japanese cosmetic market has been on a slowdown trend, so that we regard full-scale expansion of overseas operation is urgent need for further large expansion of sales in the future. Major activities in our overseas business during the 17th fiscal year of the Dr. Ci:Labo group include initiating production sales in Kingdom of Thailand as a new region, and starting wholesale sales in Singapore. For the future, we shall strive to expand our overseas operations in earnest mainly in Asia region, in cooperation with business partners who can collaborate with us for developing store networks and expanding recognition of the Dr. Ci:Labo brands through the website. 6

10 3.Basic concept for the choice of accounting standards. Dr. Ci:Labo group applies Japanese accounting standards as its accounting standards, so as to secure comparability with other competitors in Japan. With regard to application of International Financial Reporting Standards (IFRS), the group has a policy to appropriately employ it by considering situations at home and overseas. 7

11 4. Consolidated Financial Statements (1) Consolidated Balance Sheets (Thousands of ) As of July 31, 2014 As of July 31, 2015 Amount Amount Assets Current assets Cash and time deposits 16,114,285 12,495,299 Accounts receivable trade 4,145,419 4,768,376 Securities 251, ,416 Products and merchandise 2,165,846 2,436,122 Raw Materials and Inventory Goods 1,583,548 1,314,529 Deferred tax assets 332, ,821 Other 346, ,002 Allowance for doubtful accounts 86,398 65,186 Total current assets 24,853,694 21,827,383 Noncurrent assets Tangible fixed assets Buildings 765, ,084 Accumulated depreciation 296, ,383 Buildings(Net) 469, ,701 Tools, furniture and fixture 1,280,230 1,328,303 Accumulated depreciation 1,051,170 1,101,576 Tools, furniture and fixture(net) 229, ,726 Land 1,315,697 1,315,697 Other 103, ,057 Accumulated depreciation 36,230 51,666 Other, net 66,827 51,390 Total tangible fixed assets 2,081,166 2,037,516 Intangible fixed assets Software 354, ,571 Software in progress - 238,604 Other 29,627 25,800 Total intangible fixed assets 383, ,975 Investments and other assets Investment securities 26,600 50,600 Leasehold and guarantee Deposits 213, ,123 Deferred tax assets 101,317 91,034 Other 31,279 37,287 Allowance for doubtful accounts - 20,534 Total investments and other assets 372, ,511 Total noncurrent assets 2,837,786 2,932,003 Total assets 27,691,480 24,759,386 8

12 As of July 31, 2014 As of July 31, 2015 Amount Amount Liabilities Current liabilities Accounts payable-trade 939, ,057 Accounts payable-other 1,729,634 1,368,661 Income taxes payable 1,633,803 1,361,596 Reserve for bonuses 87, ,631 Allowance for bonus points redemption 92, ,637 Other 234, ,807 Total current liabilities 4,717,374 4,086,392 Long-term liabilities Deferred tax liabilities 2,895 2,817 Net defined benefit liability 132, ,058 Other 97,050 85,415 Total long-term liabilities 232, ,290 Total liabilities 4,949,575 4,330,683 Net assets Shareholders capital Common stock 1,209,208 1,209,208 Additional paid-in capital 1,686,608 1,686,608 Retained earnings 21,198,200 24,119,305 Treasury stock 1,354,685 6,681,804 Valuation and translation adjustments Total shareholders capital 22,739,331 20,333,318 Net unrealized gains (losses) on available-for-sale securities 5,341 21,608 Foreign currency translation adjustments 2,768 73,776 Total valuation and translation adjustments 2,573 95,385 Total net assets 22,741,905 20,428,703 Total liabilities and net assets 27,691,480 24,759,386 9

13 (2) Consolidated Statements of Income Consolidated Statements of Income (Thousands of ) Ended July 31, 2014 Ended July 31, 2015 Amount Amount Net sales 35,916,843 37,656,745 Cost of sales 6,325,539 6,887,046 Gross profit 29,591,304 30,769,698 Selling, general and administrative expenses 22,080,749 23,086,712 Operating income 7,510,554 7,682,986 Non-operating revenues Interest income 2,581 3,364 Dividends received 1,031 1,080 Foreign exchange gains 14,288 72,676 Commission fee 14,643 25,438 Compensation for merchandise breakage 6,502 17,313 Others 21,817 26,091 Total non-operating revenues 60, ,964 Non-operating expenses Interest expenses Commission fee - 48,754 Others 689 1,114 Total non-operating expenses 1,468 50,544 Ordinary income 7,569,952 7,778,406 Extraordinary Profit Gain on sales of noncurrent assets Total Extraordinary Profits Extraordinary losses Notes regarding loss on sales of non-current assets 1,551 - Loss on disposal of fixed assets 5,037 4,625 Impairment Losses 4,254 2,537 Total extraordinary losses 10,843 7,162 Net income before taxes 7,559,300 7,771,243 Income tax, inhabitants tax and enterprise tax 2,962,324 2,826,412 Income tax adjustments 8,018 4,617 Total corporate taxes 2,970,342 2,831,030 Net income from minority interests prior to adjustments 4,588,957 4,940,213 Net income 4,588,957 4,940,213 10

14 Consolidated Statements of Comprehensive Income (Thousands of ) Ended July 31, 2014 Ended July 31, 2015 Amount Amount Income before Minority Interests 4,588,957 4,940,213 Other Comprehensive Income Valuation Difference on Available-for-Sale Securities 1,786 16,266 Foreign Currency Translation Adjustment 12,970 76,545 Other Comprehensive Income 11,183 92,812 Comprehensive Income 4,600,141 5,033,025 Comprehensive income attributable to owners of the parent 4,600,141 5,033,025 Comprehensive income attributable to minority interests

15 (3) Consolidated Statement of Changes in Shareholders Capital Fiscal year ended July 31, 2014 Balance at beginning of current period Changes during period Common stock Additional paid-in capital Shareholders capital Retained earnings Treasury stock (Thousands of ) Total shareholders capital 1,209,208 1,686,608 18,603,426 1,354,566 20,144,677 Cash dividends 1,994,184 1,994,184 Net income 4,588,957 4,588,957 Acquisition of treasury stocks Net change in items other than shareholders capital during period Total changes during period - - 2,594, ,594,654 Balance at end of current period 1,209,208 1,686,608 21,198,200 1,354,685 22,739,331 Balance at beginning of current period Changes during period Net unrealized gains (losses) on available-for-sale securities Other Comprehensive Income Foreign Currency Translation Adjustment Total valuation and translation adjustments Total net assets 7,128 15,739 8,610 20,136,066 Cash dividends 1,994,184 Net income 4,588,957 Acquisition of treasury stocks 118 Retirement of treasury stock Net change in items other than shareholders 1,786 12,970 11,183 11,183 capital during period Total changes during period 1,786 12,970 11,183 2,605,838 Balance at end of current period 5,341 2,768 2,573 22,741,905 12

16 Fiscal year ended July 31, 2015 Balance at beginning of current period Changes during period Common stock Additional paid-in capital Shareholders capital Retained earnings Treasury stock (Thousands of ) Total shareholders capital 1,209,208 1,686,608 21,198,200 1,354,685 22,739,331 Cash dividends 2,019,108 2,019,108 Net income 4,940,213 4,940,213 Acquisition of treasury stocks 5,327,119 5,327,119 Net change in items other than shareholders capital during period Total changes during period 2,921,105 5,327,119 2,406,013 Balance at end of current period 1,209,208 1,686,608 24,119,305 6,681,804 2,033,318 Balance at beginning of current period Changes during period Net unrealized gains (losses) on available-for-sale securities Other Comprehensive Income Foreign Currency Translation Adjustment Total valuation and translation adjustments Total net assets 5,341 2,768 2,573 22,741,905 Cash dividends 2,019,108 Net income 4,940,213 Acquisition of treasury stocks 5,327,119 Net change in items other than shareholders 16,266 76,545 92,812 92,812 capital during period Total changes during period 16,266 76,545 92,812 2,313,201 Balance at end of current period 21,608 73,776 95,385 20,428,703 13

17 (4) Consolidated Statements of Cash Flows (Thousands of ) Ended July 31, 2014 Ended July 31, 2015 Cash flows from operating activities Amount Amount Income before income taxes 7,559,300 7,771,243 Depreciation and amortization 392, ,489 Amortization for long-term prepaid expenses 8,472 9,019 Increase(decrease) in allowance for doubtful accounts 37, Increase(decrease) in reserve for employees bonuses 8,687 58,422 Increase (decrease) in allowance for bonus points redemption 18,555 52,310 Increase(decrease) in reserve for retirement benefits 112,446 - Increase (decrease) in net defined benefit liability 132,254 23,804 Interest and dividend income 3,613 4,444 Interest expenses Commission fee - 48,754 Impairment Losses 4,254 2,537 Loss (gain) on sales of noncurrent assets 1,359 - Loss on disposal of fixed assets 5,037 4,625 Decrease (increase) in notes and accounts receivable-trade 680, ,304 Decrease (increase) in inventories 626,798 26,520 Increase (decrease) in trade payables 493, ,088 Increase (decrease) in accounts payable-other 347, ,541 Increase (decrease) in consumption tax payable 31, ,863 Increase (decrease) in deposits received 2,417 10,460 Other 102,599 97,347 Sub total 7,401,202 7,176,019 Interest and dividends received 3,462 4,305 Interest expenses paid Income taxes paid 2,397,209 3,099,060 Net cash provided by (used in) operating activities 5,006,676 4,080,589 Cash flows from investing activities Acquisition of tangible fixed assets 289, ,138 Income from sale of tangible fixed assets Acquisition of intangible fixed assets 85, ,770 Payment of leasehold and guarantee deposits 6,042 24,161 Proceeds from collection of leasehold and guarantee deposits 1, Other 4,290 1,605 Net cash provided by (used in) investing activities 383, ,581 Cash flows from financing activities Expenditure for Acquisition of Treasury Shares 118 5,375,873 Dividend payment 1,991,109 2,020,592 Other 10,953 12,127 Net cash provided by (used in) financing activities 2,002,181 7,408,593 Effect of exchange rate changes on cash and cash equivalents 11,944 60,600 Net increase (decrease) in cash and cash equivalents 2,632,614 3,618,985 Cash and cash equivalents at the beginning of the period 13,481,670 16,114,285 Cash and cash equivalents at the end of the period 16,114,285 12,495,299 14

18 (5) Note concerning consolidated financial statements. (Notes relating to the assumption of an ongoing business) No corresponding items, ( Segment Information) 3. Information of sales and profit/loss by reporting segment Fiscal year ended July 31, 2014 Sales Sales to outside customers Internal sales among segments, transfers ( Thousand) Cosmetics Division Health Foods Division Amount recorded in consolidated quarterly statements of income 32,132,434-3,784,408-35,916,843 Total 32,132,434 3,784,408 35,916,843 Segment profit 7,379, ,348 7,510,554 Other items Depreciation and amortization 347,675 39, ,929 1)Segment profit is the same as operating income of the consolidated quarterly statements of income. 2) Segment assets are not shown above because they are not a factor to consider when we determine management resources and evaluation of operating results. - Fiscal year ended July 31, 2015 ( Thousand) Cosmetics Division Health Foods Division Amount recorded in consolidated quarterly statements of income Sales 33,572,830 4,083,914 37,656,745 Sales to outside customers Internal sales among segments, transfers Total 33,572,830 4,083,914 37,656,745 Segment profit 7,563, ,571 7,682,986 Other items Depreciation and amortization 293,232 36, ,626 1). Segment profit is the same as operating income of the consolidated quarterly statements of income. 2). Segment assets are not shown above because they are not a factor to consider when we determine management resources and evaluation of operating results. 15

19 Related information Fiscal year ended July 31, Information by Finished Goods and Services This information is omitted because similar information is disclosed in segment information. 2. Information by region (1) Sales This information is omitted because sales from external customers in Japan exceed 90% of sales in the consolidated statements of income. (2)Tangible fixed assets This information is omitted because tangible fixed assets located in Japan exceed 90% of tangible fixed assets in the consolidated balance sheets. 3. Information by major customer Name of customer sales Relevant segment IDA Ryogokudo Co., Ltd. 3,950,534 Cosmetics Fiscal year ended July 31, Information by Finished Goods and Services This information is omitted because similar information is disclosed in segment information. 2. Information by region (1) Sales This information is omitted because sales from external customers in Japan exceed 90% of sales in the consolidated statements of income. (2) Tangible fixed assets This information is omitted because tangible fixed assets located in Japan exceed 90% of tangible fixed assets in the consolidated balance sheets. 3. Information by major customer Name of customer sales Relevant segment IDA Ryogokudo Co., Ltd. 4,432,692 Cosmetics [Information concerning impairment loss of non-current assets by reporting segment] Previous consolidated fiscal year (From August 1, 2013 to July 31, 2014) The descriptions are omitted, due to having little relevance. Current consolidated fiscal year (From August 1, 2014 to July 31, 2015) The descriptions are omitted, due to having little relevance. [Information concerning amortization of goodwill and its undepreciated balance by reporting segment] Previous consolidated fiscal year (From August 1, 2013 to July 31, 2014) Not applicable. Current consolidated fiscal year (From August 1, 2014 to July 31, 2015) Not applicable. [Information concerning gains on bargain purchases by reporting segment] Previous consolidated fiscal year (From August 1, 2013 to July 31, 2014) Not applicable. Current consolidated fiscal year (From August 1, 2014 to July 31, 2015) Not applicable. 16

20 (Per-Share Data) (Yen) Fiscal Year Ended July Fiscal Year Ended July 2015 Net assets per share Net income per share Net assets per share Net income per share (Note1.) The Company implemented a 2-for-1 stock split effective on August 1, Dividends for the fiscal year ended July 31, 2016 are amounts after the stock split. (Note2.)Diluted net income per share under review is not shown above because there are no diluted shares. Net income per share Fiscal Year Ended July 2014 (August 1,2013- July 31,2014) Fiscal Year Ended July 2015 (August 1,2014- July 31,2015) Net income 4,588,957 4,940,213 Amount not belonging to common stockholders - - Net income / related to common stock 4,588,957 4,940,213 Average shares outstanding 49,854,570 49,173,847 (Note1.) The Company implemented a 2-for-1 stock split effective on August 1, Dividends for the fiscal year ended July 31, 2014 are amounts after the stock split. (Note2.)Diluted net income per share under review is not shown above because there are no diluted shares. (Important Subsequent Event) <Stock Split> The company split its shares based on a resolution by the Board of Directors, which was made on June 18, 2015, as follows. 1.The Purpose of the Stock Split Dr. Ci:Labo Co., Ltd. shall split our shares to facilitate reducing investment amounts and improving the liquidity of the stock, providing an environment where our investors can invest more easily. Consequently, the group expects the stock split will induce expansion of the strata of investors. 2.Outline of the Stock Split (1) Method of the stock split Setting Friday, July 31, 2015 as a recorded date, the company split its shares owned by shareholders stated or recorded in the final Shareholder registry of that day, in a ratio of 1 share of common stock to 2 shares. (2) The increased number of shares as a result of the stock split Total number of issued shares before stock split: 25,427,300 The number of shares to be increased as a result of the stock split: 25,427,300 Total number of issued shares after stock split: 50,854,600 Total number of authorized shares after stock split: 196,480,000 (3) Schedule Date of publication of Date of Record: Thursday, July 16, 2015 Date of Record: Friday, July 31, 2015 Effective Date: Saturday, August 1, 2015 (4) Effects on information of per share data The influences of our company s share split are described in the section (Information of per share data). 17

21 <A Shift to the Holding Company System by Company Split> Dr. Ci;Labo Co., Ltd. resolved at the Board of Directors meeting held on August 27, 2015 to transfer its rights and duties retained for all business, except for business management operations, real estate management operations of our company, and asset management operations regarding the shares of Dr. Ci;Labo Customer Marketing Co., Ltd. and MD Science Co., Ltd. (hereafter referred to as the business ), to the split-preparation company (hereafter referred to as This Company-split Preparation Company ) which is scheduled to be established as a wholly-owned subsidiary of Dr. Ci;Labo under the absorption-type company split method (hereafter referred to as this absorption-type company split ) and to prepare to transfer the company into a holding company, as of the effective date of December 1, 2015 (planned). Furthermore, the Board of Directors meeting held on September 10, 2015 resolved to establish a wholly-owned subsidiary of Dr. Ci:Labo, the Dr. Ci;Labo Company-split Preparation Co., Ltd. (hereafter referred to as The Company-split Preparation Company ) to transfer the company into the holding company system. Transferring to the holding company system shall be only executed on the condition that the Shareholders will pass a prescribed resolution at their Annual Meeting scheduled to be held on October 21, 2015, and the Company-split Preparation Company can obtain approval and authorization from the government agency concerned. (1)The Purpose of Transferring to the Holding Company System Under the management philosophy to save all people who suffer from skin problems, Dr. Ci:Labo has been expanding its business, focusing on the cosmetic business by setting Dr. Ci:Labo brand as its main brand, as a leading company of medical cosmetics, and by gaining the support of many customers. Meanwhile, the size of the Japanese cosmetic market has been leveling off, and by taking demographic movements of Japan into consideration, we believe there won t be signs of large improvements in the future. Moreover, as diversification of our customers taste is prominent, we perceive it will be difficult for the medium- to long-term to meet the customers demand sufficiently with development of a single service or single brand. Having such recognition, Dr. Ci:Labo has been seeking to grow new business fields and expand its overseas operations, while maintaining growth in existing business areas under the current medium-to long-term management plan. In order to carry out such a plan in a speedy way, we thought of utilizing M&A, developing multiple numbers of brands in the cosmetic business, expanding the beauty-related business, and achieving the advancement into new health fields, etc. as effective measures. Therefore, we have been examining methods to improve the enterprise value of our company by expanding our business areas, while setting beauty and health as the major domains. With the purpose of supporting the direction mentioned above as an organization, Dr. Ci:Labo assessed that it is necessary to strengthen the function to draw up strategies of group management, including new business operations and M&A, to reinforce the corporate competitiveness of the group by promoting independence in management, while clarifying the authorities and responsibilities of the individual group companies, and to improve corporate governance by separating the group s business management and execution of business. As the optimal method to achieve these goals, this time we determined to transfer the company into the holding company system by this absorption-type company split. (2) Outlines of Transferring to the Holding Company System 1Schedule of the Company-Split Approval at the Board of Directors meeting regarding transferring to the holding company system through the absorption-type company split (our August 27, 2015 company) Approval of establishing the company-split preparation company at the September 10, 2015 Board of Directors meeting (our company) Establishment of the company-split preparation company September 10, 2015 Approval of the conclusion of the agreement on an absorption-type September 17, 2015 (planned) company split at the Board of Directors meeting (our company) Conclusion of agreement on absorption-type company-split (our September 17, 2015 (planned) company and the company-split preparation company) Approval of an absorption-type company-split at the Meeting of October 21, 2015 (planned) Shareholders (our company) Effective day of the absorption-type company-split December 1, 2015 (planned) 18

22 2The Method of this Absorption-type Company-split For the goal of transferring the company into a holding company, prior to this absorption-type company split, Dr. Ci:Labo Co., Ltd. will establish a Company-split Preparation Company in which Dr. Ci:Labo invests 100%, in order to start the business smoothly from the effective date of this absorption-type company split. Our company will be a splitting company, while the Company-split Preparation Company, which will be a fully owned subsidiary of Dr. Ci:Labo, will be regarded as the succeeding company. Then, we plan to implement the absorption-type company-split, as the former company shall let the latter company take over its business operations. After this absorption-type company-split, Dr. Ci:Labo is scheduled to change its trade name and continue to be listed. (3) Outline of Companies Involved in the Split Split company (As of July 31, 2015) (1) Name Dr. Ci;Labo Co., Ltd. Succession company (As of the date of establishment on September 10, 2015) Dr. Ci;Labo Company-split Preparation Co., Ltd. (2)Address Hiroo, Shibuya-ku, Tokyo Hiroo, Shibuya-ku, Tokyo (3) Title and name of the representative person (4) Business description Tomomi Ishihara, President and COO Cosmetics business and health food business Tomomi Ishihara, President and COO (5) Capital 1, Cosmetics business and health food business (6)Date of foundation February 26, 1999 September 10, 2015 (7)Total number of shares outstanding 25,427,300 2,400 (8)Fiscal year Ends on July 31 Ends on July 31 (9)Major shareholders and ownership ratio CIC Corporation (28.82%) Yoshinori Shirono (14.43%) Dr. Ci;Labo Co., Ltd. (100.00%) (Note) 1. The Split company is scheduled to change its trade name as of December 1, The Succession company is scheduled to change its trade name as of December 1, The company split its stocks in a ratio of 1 share of common stock to 2 shares, as of August 1, (4)Outline of Account Processing to be Implemented Accounts are scheduled to be processed as transactions under joint control, based on the Accounting Standards for Business Combination and Summary Guidance concerning Accounting Standards for Business Combination and Accounting Standards for Business Divestitures. 19