Financial Results For the Year Ended July 31, 2016 Consolidated September 12, 2016

Transcription

1 Financial Results For the Year Ended July 31, 2016 Consolidated September 12, 2016 Company name: Ci:z Holdings 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 26, 2016 Scheduled commencement date for payment of dividends: October 27, 2016 Scheduled date of submission for financial reports: October 26, 2016 (Amounts rounded down to the nearest million yen) 1. Consolidated Financial Results for the Year Ended July 31, 2016 (August 1, 2015 to July 31, 2016) (1) Operating Results (Percentage figures denote year-on-year change) Profit attributable to Net sales Operating income Ordinary income owners of parent million yen % million yen % million yen % million yen Year ended July 31, , , , , Year ended July 31, , , , , Note: Comprehensive income: Year ended July 31, 2016: 5,262 million yen (4.6 %) Year ended July 31, 2015: 5,033 million yen (9.4%) Net income per share Diluted net income per share Return on Equity Ordinary income/ total assets % Operating income/ net sales yen yen % % % Year ended July 31, Year ended July 31, Note: Investment gains or losses under the equity method: Year ended July 31, 2016: - million yen Year ended July 31, 2015: -million yen (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 million yen million yen % yen Year ended July 31, ,140 27, Year ended July 31, ,759 20, Note: Shareholders equity: Year ended July 31, 2016: 27,173 million yen Year ended July 31, 2015: 20,428 million yen (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 million yen million yen million yen million yen Year ended July 31, ,051 (2,140) 1,547 18,829 Year ended July 31, ,080 (351) (7,408) 12, Dividends Year-end Dividend per share Full year Total dividends paid (Full year) Payout ratio (Consolidated) Dividends/ net assets (Consolidated) yen yen million yen % % Year ended July 31, , Year ended July 31, , Year ended July 31, 2017(Forecast) (Note) The Company implemented a 2-for-1 stock split effective on August 1, Dividends for the fiscal year ended July 31, 2015 are amounts before the stock split. 3. Forecast of Consolidated Earnings for the Year Ending July 31, 2017(August 1, 2016 to July 31, 2017) (Percentage figures represent year-on-year changes) Profit attributable Net income Net sales Operating income Ordinary income to owners of per share parent Second quarter ending July 31, 2017 million yen % million yen % million yen % million yen % yen 19, ,100 (31.0) 2,100 (31.6) 1,810 (14.0) FY ending July 31, , ,600 (7.2) 7,600 (7.1) 5,

3 4. Other information (1)Significant changes in subsidiaries during period (changes in specific subsidiaries due to change in scope of consolidation): Yes. New 1 Company (Company name) Dr. Ci:Labo Co., Ltd. (2) Changes in accounting policies; changes in accounting estimates; restatements 1) Changes in accounting policies due to amendment of accounting standards: Yes 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, 2016: 48,635,255 shares Year ended July 31, 2015: 50,854,600 shares 2) Number of shares held in treasury at end of period: Year ended July 31, 2016: -shares Year ended July 31, 2015: 3,668,676 shares 3)Average number of shares over period Year ended July 31, 2016: 47,296,845 shares Year ended July 31, 2015: 49,173,847 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. 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) Analysis of financial position (3) Dividend policy and fiscal dividends Management Policies (1) Company s Basic Management Policy (2) Target Management Indices (3) Medium and Long Term Corporate Management Strategy Basic concept for the choice of accounting standards Consolidated Financial Statements....7 (1) Consolidated Balance Sheets (2) Consolidated Statements of Income (3) Consolidated Statement of Changes in Shareholders Capital (4) Consolidated Statements of Cash Flows.13 (5)Note concerning consolidated financial statements...14 (Notes relating to the assumption of an ongoing business) (Segment information etc.) (Information per share)..18 (Important subsequent events).18 1

5 1. Review of operating results (1) Analysis of operating results 1) Overview of operating results The Japanese economy is expected to gradually recover during the current consolidated fiscal year, partially due to the effects of various government policies, while employment and the income environment continue to improve. However, the risks of downward pressure on the Japanese economy remain, as the economies of emerging countries in Asia, including China, have taken a downturn. In addition, attention must be paid to increases in uncertainty in overseas economies and the impacts of fluctuations in financial and capital markets, such as the Brexit, UK s action of withdrawing from the European Union (EU). In December 2015 during the course of this environment, the Dr. Ci:Labo Group reorganized its structure into a pure holding company system, led by the Ci:z Holdings Co., Ltd., then in February 2016 Ci:z Labo Co., Ltd., which runs the aesthetic service business, became a consolidated subsidiary of Ci:z Holdings. In July 2016, the Holdings concluded a capital and business alliance with members of the Johnson & Johnson Family of Companies, in order to expand overseas business full scale. From the third quarter of the consolidated accounting period ended July 31, 2016, Ci:z Labo Co., Ltd. became the object of consolidation, so that the consolidated net sales as well as profits in each stage increased in comparison with the same period in the previous fiscal year. In addition, sales of the Labo Labo brand products were brisk to the Chinese, contributing to increases in net sales and profits. Consequently, net sales amounted to 39,452 million yen, an increase of 4.8% on a year-on-year basis, operating income was 8,191 million yen, an increase of 6.6% on a year-on-year basis, and ordinary income was 8,178 million yen, an increase of 5.1% on a year-on-year basis, while net earnings attributable to equity holders of the parent company were 5,289 million yen, an increase of 7.1% on a year-on-year basis. The business performances of individual segments are as follows. 2) Operating results by segment <Cosmetics> In the cosmetics business segment, the renewed Aqua-Collagen-Gel Enrich-Lift-EX released in November 2015 brought brisk sales, mainly among existing customers. Moreover, promotion of VC100 Essence Lotion was strengthened to appeal to a wide range of customer age groups and foreign tourists, and sales activities were fortified by individual sales channels, with the aim of cultivating the product to be the second pillar of cosmetics, after the Aqua-Collagen-Gel series. Regarding the Genomer brand, we released renewed existing products periodically, and launched several make-up products into the markets. The Labo Labo brand products sold well throughout the period of the current consolidated fiscal year 2016; in particular sales of the skin-pore care-related products were popular among foreign tourists, meeting high inbound demand. As a result, net sales in the cosmetic business segment recorded 35,320 million yen, up 5.2% on a year-on-year basis, while profits in this segment were 7,429 million yen, a decrease of 1.8% on a year-on-year basis. <Health food> In the health food business, sales of BIZENSHOKU, which have been a driving force of the entire health food segment, decreased from the same period in the previous consolidated fiscal year, owing to curbed advertisement placement in comparison with the previous consolidated fiscal year. The reason for ad placement reduction was that the company increased its weight on the proportion of advertisement for products in the cosmetics segment, because the unit sales prices of cosmetics are relatively high, and we can expect our customers continuous purchase of such products more reliably than for health food. On the other hand, operating income turned into a positive figure on a year-on-year basis, due to improvement in the cost effectiveness of advertising and sales promotion expenses for sales. From these reasons, the net sales of the health food business were 2,908 million yen, a decrease of 28.8% on a year-on-year basis, and profits in this segment were 588 million yen (a 392.5% increase on a year-on-year basis). <Aesthetic Salon Business> The aesthetic salon business became a new reporting segment of Ci:z Holdings, since Ci:z Labo Co., Ltd., which operates the aesthetic salon business, became a consolidated subsidiary of the Holdings during the 3rd quarter of the consolidated accounting period under review. During the consolidated fiscal year 2016, the number of additional agreements from existing customers increased due to introduction of new treatments, contributing to an increase in sales. Besides, sales of cosmetics and other products including Dr. Ci:Labo brand also vigorously developed at Ci:z Labo salons. Therefore, net sales of the Aesthetic Salon business were 1,248 million yen, and profits in this segment were 159 million yen. 2

6 Next, as regards the performances of the cosmetic business and health food business by sales outlet, in our mail order sales category the number of excellent customers with long purchasing histories has been increasing well, partially due to launching TV commercials on Aqua-Collagen-Gel Enrich-Lift-EX and VC100 Essence Lotion and various sales promotional activities. Besides Aqua-Collagen-Gel series products, the company promoted solicitation of peripheral products among customers, such as VC100 Essence Lotion and Aqua-In-Derm Dounyu (introductory) Essence, by selling them in grab bags, and together with Aqua-Collagen-Gel products in tie-in sales. However, in spite of these efforts, the number of newly acquired customers was less than expected and customers newly acquired in the previous consolidated fiscal year didn t smoothly turn into repeat customers, so that the performance in the mail-order division fell short of expectations we had at the beginning of the period. Hence, net sales of the mail-order division were 23,706 million yen, declining by 4.6 % on a year-on-year basis. As for wholesale distribution, the company actively shipped Labo Labo Super-Keana Lotion products, mainly to drugstores in urban areas during high demand seasons, and tourists from China and Southeast Asia purchased them in far higher volume than our original forecast in the beginning of the period. In addition, sales of VC 100 Essence Lotion were brisk as the company attempted sales promotion activities at stores, such as placing Chinese staff at major wholesale shops, as a part of strengthening measures to meet strong inbound demand. Consequently, we recorded 8,622 million yen in net sales in the wholesale category, an increase of 11.0% on a year-on-year basis. With regard to sales from face-to-face retail channels, Dr, Ci:Labo continued providing services specific to the face-to-face retail shops, such as skin-care counselling events and counseling services, to enhance customers satisfaction, along with the renovation of some shops. We also fortified sales at the department stores in the Shinjuku and Ikebukuro areas, along with directly managed Ginza Flagship Store by Dr. Ci:Labo Co., Ltd., so as to meet the inbound demand of foreign tourists. Although we engaged in activities to increase the number of customer visits and the frequency of customers visits at the stores, the results didn t exceed the presumed targets. Therefore, net sales from the face-to-face retail outlets resulted in 3,907 million yen, a drop of 4.9 % from the same period of the previous fiscal year. In relation to overseas operations, due to an increase in the number of Chinese tourists during high demand periods such as Lunar New Year and Christmas seasons, product sales, especially those of Labo Labo Super-Keana Lotions, were brisk. In Taiwan, along with Labo Labo Super-Keana Lotions, sales were strong of VC 100 Essence Lotion which was covered by local fashion magazines. In Singapore, sales were favorable, especially of Aqua-Collagen-Gel series products, while the number of stores expanded which handle products of Dr. Ci:Labo among the chain wholesaler Watson s. The products received awards in a cosmetics category from one local fashion magazine after another, and were covered in the special features in major magazines, elevating an increase in awareness of products of Dr. Ci:Labo. Furthermore, in order to deal with demands from foreign tourists, the company expanded the number of duty free shops at the airports in Japan and overseas, as well as launching in-flight sales on the international flights of Vanilla Air and Peach Aviation. Due to the above reasons, net sales from overseas operations reached 1,968 million yen, an increase of 112.8% on a year-on-year basis. 3

7 3) Fiscal-2017 forecast On the topic of the forecast for the next fiscal year, the Japanese economy is expected to continue to steadily recover, due to some extent to the effects of all sorts of government policies, while employment and the income environment keep improving. However, it is necessary to take notice of the risks of downward pressure on the Japanese economy and fluctuations in financial and capital markets, such as the Brexit, and downturn trends in overseas economies, including the Chinese economy. Under these circumstances, based on the 5 th Mid-term Business Plan formulated in September 2016, Ci:z Holdings Group shall endeavor for stable growth of existing business segments as well as expansion of new business segments in Japan, including the Aesthetic Salon Business in Japan. Launching new business which has a strong affinity with existing business will enable us to acquire new customers, and we will utilize this opportunity to increase the satisfaction level of existing customers through enriching provision of new services, and will turn dormant customers into active customers. Moreover, with conclusion of the capital and business tie-up with the members of the Johnson & Johnson Family of Companies, we plan to sell products by Johnson & Johnson by using our mail-order sales channel in Japan, anticipating a steady increase in sales. Meanwhile, our system-related expenses are expected to increase temporarily by about 700 million yen from the previous period, because of replacing the existing mainstay system for all group companies and switching the electric commerce system in January Also, sales promotion expenses relating to the loyalty program are expected to increase as we will completely renew the customer service related services, including the loyalty program called point service. Hence, the planned figures for profits are set in a conservative manner. Furthermore, in our overseas operation, we shall promote our global development strategy full scale starting with the Asia region, in order to make the brands of the Ci:z Holdings Group global brands, under the lead of the group companies of the Johnson & Johnson Family of Companies based on the U.S. From January 2017, the fixed amount of royalty income from the sales of Johnson & Johnson group companies and milestone payments, which will be paid to us when their sales exceed certain amounts, will be our new income pillars in the overseas operations of the Ci:z Holdings Group. For these reasons, the Group forecasts for net sales in next fiscal year will be 42,900 million yen (up 8.7% on a year-on-year basis), operating income will be 7,600 million yen (down 7.2% on a year-on-year basis), ordinary income will be 7,600 million yen (down 7.1% on a year-on-year basis), and net income attributable to owners of the parent company will be 5,660 million yen (up 7.0% on a year-on-year basis). 4

8 (2) Analysis of financial position Ⅰ Status of Financial Condition Total assets in the fiscal year 2016 became 36,140 million yen, increasing by 11,381 million yen from the previous consolidated fiscal year. This is caused by an increase in cash and deposits by 6,334 million yen due to issuance of shares resulting from the exercise of subscription rights to shares. Meanwhile, total liabilities were 8,189 million yen, an increase of 3,858 million yen from the previous consolidated fiscal year. The main causes of the increase are increases of unearned revenues by 1,161 million yen and accounts payable by 616 million yen. Net assets were 27,951 million yen, an increase of 7,522 million yen from the end of the previous consolidated fiscal year. This is essentially attributed to a decrease of surplus dividends by 1,934 million yen, while 3,500 million yen was recorded for issuance of new shares and 5,289 million yen as profit attributable to owners of the parent company. ⅱ Status of Cash Flow (Cash flow from operating activities) Revenue from operating activities was 7,051 million yen. The main causes of the decrease are an increase in notes and accounts receivable trade by 809 million yen and 2,869 million yen in income taxes paid, while a major increase factor was recording of 8,095 million yen in income before income taxes and minority interests. (Cash flow from investing activities) The amount spent on investing activities was 2,140 million yen. The primary causes of a decrease in funds are 791 million yen in expenses for the purchase of intangible assets, and 1,381 million yen in expenses for the purchase of shares of subsidiaries resulting from a change in the scope of consolidation. (Cash flow from financing activities) The amount acquired from financing activities was 1,547 million yen. The main decreasing factor was 1,937 million yen in cash dividends payments, while a major increasing factor was 3,368 million yen in proceeds from issuance of shares resulting from the exercise of subscription rights to shares. Group cash flow metrics are tabulated as follows. FY14 (ended 07/31/14) FY15 (ended 07/31/15) FY16 (ended 07/31/16) 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. (3) Dividend policy and fiscal dividends Ci:z Holdings 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 44 yen as an annual dividend per share. We plan to provide 47 yen in annual dividends per share for the next fiscal year. 5

9 2. Management Policies (1) Company s Basic Management Policy Ci:z Holdings Group aspires to be an entity which is capable of expansion of its business and contributes to society by providing high quality products and services to customers, based on our corporate philosophy of "bringing beauty and a healthy life to everyone through dermatological approaches." We shall enhance customers satisfaction derived from the use of our Group products and services by expanding our business domains, while focusing on the areas of beauty and good health, and we shall eventually increase the corporate value of the group companies. (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- to long-term management strategies and tasks which should be addressed Ci:z Holdings Group has been expanding its business, focusing on the cosmetic business by setting Dr. Ci:Labo brand as its core brand, as a leading company in medical cosmetics, and by gaining the broad support of many customers. Above all, Aqua-Collagen-Gel products have been long sellers since the release of products in December 1998, and its total sales surpassed 35 million units in May In the meantime, the size of the cosmetic market in Japan has been flat, and by taking into account the demographic trends in Japan, we cannot expect to see any sign of large improvement in the future. Moreover, we acknowledge that it s difficult to meet the customers demands sufficiently for the medium to long-term if we only develop a single service and/or single brand, because of the eminent trend in diversification of customers tastes. While focusing on beauty and good health as our main fields with such a perception, we felt the necessity of swift expansion of business areas sooner or later, so we have transformed the organization into a holding company system with an absorption-type company split in December Based on the 5th Mid-term Management Plan formulated in September 2016, the Group shall endeavor towards stable growth of existing business segments, development of new business segments and brands, and expansion of business overseas led by the Johnson & Johnson Group. 1) Expansion of the number of Ci:z Labo salons Ci:z Labo Co., Ltd., which became a consolidated subsidiary of Ci:z Holdings Co., Ltd. in February 2016, is an aesthetic salon chain that has both stability and growth potential, because the company provides highly skilled treatment and sophisticated services by use of high-performance equipment, and has many repeat customers. The business is highly profitable, and it s possible to acquire young female customers who are in the age group which the previous existing business had difficulty to attract, so that we plan to expand the number of salons, from 20 salons in Japan in the end of July 2016, to 50 in the next three years. As Japanese-style aesthetic salons are in high demand in Asian countries, we plan to accelerate the growth of the entire group by bringing overseas development into consideration. 2) Launching OTC pharmaceutical business Ci:z Holdings Group plans to handle OTC pharmaceuticals as new products to appeal to dormant customers. Entering the OTC pharmaceutical market enables us to propose solutions to our customers according to their situations; for example, cosmetics of Dr. Ci:Labo for their daily skin care and OTC pharmaceuticals for intensive care for their skin troubles. As we can provide opportunities to provide solutions for our customers worries about beauty issues by utilizing the enormous customer database accumulated in the Contact Center of the Group so far, our relationship with customers is expected to deepen more than before. 3) Expansion of overseas operations Ci:z Holdings Group concluded a capital and business tie-up with the group companies of the Johnson & Johnson Family of Companies as of July 11, 2016, with the intention of accelerating expansion of our overseas operations. Until now, our low end Labo Labo brand products have been predominantly popular for customers in greater China. However, we shall also make efforts to enhance brand recognition and the values of the Dr. Ci:Labo brand from now on, by utilizing the know-how in overseas business operations and management resources of the Johnson & Johnson Group. In terms of regions, we shall first establish the foundation of the global brand of Dr. Ci:Labo in Asia, centering on Greater China, then we are scheduled to cultivate markets in North American and Latin American regions. 3. Basic Concept for the Choice of Accounting Standards Ci:z Holdings 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. 6

10 4. Consolidated Financial Statements (1) Consolidated Balance Sheets (Thousands of yen) As of July 31, 2015 As of July 31, 2016 Amount Amount Assets Current assets Cash and time deposits 12,495,299 18,829,693 Accounts receivable trade 4,768,376 5,686,957 Securities 251, ,511 Products and merchandise 2,436,122 2,070,491 Raw Materials and Inventory Goods 1,314,529 1,308,152 Deferred tax assets 330, ,987 Other 296, ,679 Allowance for doubtful accounts (65,186) (61,224) Total current assets 21,827,383 29,364,248 Noncurrent assets Tangible fixed assets Buildings 786,084 1,123,707 Accumulated depreciation (342,383) (415,404) Buildings(Net) 443, ,303 Tools, furniture and fixture 1,328,303 1,436,052 Accumulated depreciation (1,101,576) (1,143,439) Tools, furniture and fixture(net) 226, ,612 Land 1,315,697 1,315,861 Other 103, ,123 Accumulated depreciation (51,666) (72,231) Other, net 51, ,892 Total tangible fixed assets 2,037,516 2,428,669 Intangible fixed assets Software 228, ,945 Software in progress 238, ,738 Goodwill - 2,180,217 Other 25,800 21,649 Total intangible fixed assets 492,975 3,403,551 Investments and other assets Investment securities 50,600 5,000 Leasehold and guarantee Deposits 243, ,446 Deferred tax assets 91, ,885 Other 37,287 39,416 Allowance for doubtful accounts (20,534) (20,534) Total investments and other assets 401, ,213 Total noncurrent assets 2,932,003 6,776,435 Total assets 24,759,386 36,140,684 7

11 As of July 31, 2015 As of July 31, 2016 Amount Amount Liabilities Current liabilities Accounts payable-trade 446, ,407 Accounts payable-other 1,368,661 1,984,749 Unearned revenue - 1,161,666 Income taxes payable 1,361,596 1,953,858 Reserve for bonuses 145, ,923 Allowance for bonus points redemption 144, ,199 Other 619,807 1,877,171 Total current liabilities 4,086,392 7,834,976 Long-term liabilities Deferred tax liabilities 2,817 4,165 Net defined benefit liability 156, ,944 Other 85, ,184 Total long-term liabilities 244, ,294 Total liabilities 4,330,683 8,252,718 Net assets Shareholders capital Common stock 1,209,208 2,959,358 Additional paid-in capital 1,686,608 3,436,758 Retained earnings 24,119,305 20,790,661 Treasury stock (6,681,804) - Valuation and translation adjustments Total shareholders capital 20,333,318 27,186,778 Net unrealized gains (losses) on available-for-sale securities 21, Foreign currency translation adjustments 73,776 (13,590) Total valuation and translation adjustments 95,385 (13,368) Non-controlling interests - 778,002 Total net assets 20,428,703 27,951,412 Total liabilities and net assets 24,759,386 36,140,684 8

12 (2) Consolidated Statements of Income Consolidated Statements of Income (Thousands of yen) Ended July 31, 2015 Ended July 31, 2016 Amount Amount Net sales 37,656,745 39,452,982 Cost of sales 6,887,046 7,746,259 Gross profit 30,769,698 31,706,723 Selling, general and administrative expenses 23,086,712 23,514,841 Operating income 7,682,986 8,191,881 Non-operating revenues Interest income 3,364 2,941 Dividends received 1,080 1,167 Foreign exchange gains 72,676 - Commission fee 25,438 32,613 Compensation for merchandise breakage 17,313 11,502 Others 26,091 29,372 Total non-operating revenues 145,964 77,596 Non-operating expenses Interest expenses Commission fee 48,754 - Foreign exchange losses - 89,787 Others 1, Total non-operating expenses 50,544 90,791 Ordinary income 7,778,406 8,178,687 Extraordinary Profit Gain on sales of noncurrent assets - 58,185 Total Extraordinary Profits - 58,185 Extraordinary losses Impairment Losses 2,537 24,778 Loss on disposal of fixed assets 4,625 2,818 Loss on liquidation of subsidiaries and associates - 113,664 Total extraordinary losses 7, ,261 Net income before taxes 7,771,243 8,095,610 Income tax, inhabitants tax and enterprise tax 2,826,412 3,157,697 Income tax adjustments 4,617 (411,763) Total corporate taxes 2,831,030 2,745,934 Profit 4,940,213 5,349,676 Profit attributable to non-controlling interests - 60,292 Profit attributable to owners of parent 4,940,213 5,289,384 9

13 Consolidated Statements of Comprehensive Income (Thousands of yen) Ended July 31, 2015 Ended July 31, 2016 Amount Amount Income before Minority Interests 4,940,213 5,349,676 Other Comprehensive Income Valuation Difference on Available-for-Sale Securities 16, Foreign Currency Translation Adjustment 76,545 (87,366) Other Comprehensive Income 92,812 (87,049) Comprehensive Income 5,033,025 5,262,626 (breakdown) Comprehensive income attributable to owners of the parent 5,033,025 5,202,239 Comprehensive income attributable to non-controlling interests - 60,387 10

14 (3) Consolidated Statement of Changes in Shareholders Capital 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 yen) 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) Retirement of treasury stock Net change in items other than shareholders capital during period Issuance of subscription rights to shares Exercise of subscription rights to shares 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 Cash dividends Net unrealized gains (losses) on available-for-sal e securities Other Comprehensive Income Foreign Currency Translation Adjustment Total valuation and translation adjustments Subscription rights to shares Non-controlling interests Total net assets 5,341 (2,768) 2,573 22,741,905 (2,019,108) Net income 4,940,213 Acquisition of treasury stocks (5,327,119) Retirement of treasury stock Issuance of subscription rights to shares Exercise of subscription rights to shares Net changes of items other than 16,266 76,545 92,812 shareholders' equity 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 11

15 Fiscal year ended July 31, 2016 Balance at beginning of current period Changes during period Issuance of new shares - exercise of subscription rights to shares Common stock Additional paid-in capital Shareholders capital Retained earnings Treasury stock (Thousands of yen) Total shareholders capital 1,209,208 1,686,608 24,119,305 (6,681,804) 20,333,318 1,750,150 1,750,150 3,500,300 Cash dividends (1,934,622) (1,934,622) Profit attributable to owners parent 5,289,384 5,289,384 Acquisition of treasury stocks (1,600) (1,600) Retirement of treasury stock (6,683,405) 6,683,405 - Issuance of subscription rights to shares Exercise of subscription rights to shares Net changes of items other than shareholders' equity Total changes during period 1,750,150 1,750,150 (3,328,644) 6,681,804 6,853,460 Balance at end of current period 2,959,358 3,436,758 20,790,661-27,186,778 Net unrealized gains (losses) on available-for-sal e securities Other Comprehensive Income Foreign Currency Translation Adjustment Total valuation and translation adjustments Subscription rights to shares Non-controlling interests Total net assets Balance at beginning of current period 21,608 73,776 95, ,428,703 Changes during period Issuance of new shares - exercise of subscription 3,500,300 rights to shares Cash dividends (1,934,622) Profit attributable to owners parent 5,289,384 Acquisition of treasury stocks (1,600) Retirement of treasury stock - Issuance of subscription rights to shares 131, ,950 Exercise of subscription rights to shares (131,950) (131,950) Net changes of items other than shareholders' (21,386) (87,366) (108,753) - 778, ,248 equity Total changes during period (21,386) (87,366) (108,753) - 778,002 7,522,708 Balance at end of current period 221 (13,590) (13,368) - 778,002 27,951,412 12

16 (4) Consolidated Statements of Cash Flows (Thousands of yen) Ended July 31, 2015 Ended July 31, 2016 Amount Amount Cash flows from operating activities Income before income taxes 7,771,243 8,095,610 Depreciation and amortization 329, ,882 Amortization for long-term prepaid expenses 9,019 6,891 Increase(decrease) in allowance for doubtful accounts (677) (4,779) Increase(decrease) in reserve for employees bonuses 58,422 8,291 Increase (decrease) in allowance for bonus points redemption 52,310 4,561 Increase (decrease) in net defined benefit liability 23,804 24,964 Interest and dividend income (4,444) (4,108) Amortization of goodwill - 145,347 Interest expenses Commission fee 48,754 - Impairment Losses 2,537 24,778 Loss (gain) on sales of noncurrent assets - (58,185) Loss on disposal of fixed assets 4,625 2,818 Loss on liquidation of subsidiaries and associates - 113,664 Decrease (increase) in notes and accounts receivable-trade (609,304) (809,041) Decrease (increase) in inventories 26, ,057 Increase (decrease) in trade payables (516,088) 134,425 Increase (decrease) in unearned revenue - 1,161,666 Increase (decrease) in accounts payable-other (435,541) 549,613 Increase (decrease) in consumption tax payable 306,863 48,626 Increase (decrease) in deposits received 10,460 6,356 Other 97,347 (248,322) Sub total 7,176,019 9,916,676 Interest and dividends received 4,305 4,050 Interest expenses paid (675) (556) Income taxes paid (3,099,060) (2,869,078) Net cash provided by (used in) operating activities 4,080,589 7,051,092 Cash flows from investing activities Proceeds from redemption of securities - 251,474 Acquisition of tangible fixed assets (122,138) (241,672) Acquisition of intangible fixed assets (203,770) (791,269) Payment of leasehold and guarantee deposits (24,161) (43,245) Proceeds from collection of leasehold and guarantee deposits Proceeds from sales of investment securities - 72,240 Purchase of shares of subsidiaries resulting in change in scope of consolidation - (1,381,257) Other (1,605) 6,418 Net cash provided by (used in) investing activities (351,581) (2,140,049) Cash flows from financing activities Expenditure for Acquisition of Treasury Shares (5,375,873) (1,600) Proceeds from issuance of subscription rights to shares - 131,950 Proceeds from issuance of shares resulting from exercise of subscription rights to shares - 3,368,350 Dividend payment (2,020,592) (1,937,633) Other (12,127) (13,738) Net cash provided by (used in) financing activities (7,408,593) 1,547,326 Effect of exchange rate changes on cash and cash equivalents 60,600 (123,976) Net increase (decrease) in cash and cash equivalents (3,618,985) 6,334,393 Cash and cash equivalents at the beginning of the period 16,114,285 12,495,299 Cash and cash equivalents at the end of the period 12,495,299 18,829,693 13

17 (5) Noted Items regarding the Consolidated Financial Statements (Notes relating to the assumption of an ongoing business) No corresponding items (Changes in Accounting Policies) (Application of Accounting Standards regarding Business Combination) The notation forms are changed in the following way: the Accounting Standard for Business Combinations (ASBJ Statement No. 21, September 13, 2013, hereafter referred to as the Accounting Standard for Business Combinations. ), the Accounting Standard for Consolidated Financial Statements (ASBJ Statement No. 22, September 13, 2013, hereafter referred to as the Accounting Standard for Consolidated Statements. ), and the Accounting Standard for Business Divestitures (ASBJ Statement No. 7, September 13, 2013, hereafter referred to as the Accounting Standard for Business Divestitures ) have been applied from the Consolidated Accounting Period under review. Therefore, the following changes are made: 1) The difference derived by changes in equity of Ci:z Holdings over the subsidiaries in which Ci:z Holdings retains control were recorded as a capital surplus, and 2) expenses relating to acquisition were recorded as expenses in the consolidated accounting period when the transactions occurred. Moreover, another change was made in business combinations which took place after the beginning of the consolidated 2016 accounting period; the results of reviewing the allocated amounts of acquisition costs after finalizing the provisional accounting are reflected in the consolidated financial statements in the consolidated accounting period on the day the business combination occurred. Furthermore, other changes were made in the presentation of net income, etc. as well as in the description form from minority interests to non-controlling interests. In order to reflect these changes in presentation forms, consolidated financial statements for the previous consolidated fiscal year were reclassified. The Accounting Standard for Business Combinations, etc. are applied in line with provisions pertaining to transitional handling methods stipulated in the Accounting Standard for Business Combinations No (4), the Accounting Standard for Consolidated Statements No. 44-5(4), and the Accounting Standard for Business Divestitures No. 57-4(4), from the beginning of the current consolidated accounting period to the future. In the consolidated statement of cash flow for the consolidated fiscal year 2016, the cash flow regarding purchase or sales of shares of consolidated subsidiaries when there are no changes in scope of consolidation is described in the category of Cash flows from financing activities, and the cash flow regarding the expenses related to acquisition of shares of consolidated subsidiaries when there is a change in scope of consolidation, and purchase or sales of shares of consolidated subsidiaries when there are no changes in scope of consolidation, are described in the category of Cash flows from operating activities. The effects caused by these changes on the consolidated financial statements are negligible during the consolidated fiscal year (A change in depreciation method) Due to the revision of the Corporation Tax Act, Practices regarding changes in depreciation method pertaining to the tax reform in FY2016 (Report on corresponding practices No. 32) are applied from this consolidated fiscal year under review, and the depreciation method for facilities attached to buildings and structures which were acquired after April 1, 2016, were changed from the fixed percentage method to the straight line method. The effects caused by this change on the consolidated financial statements are negligible during the consolidated fiscal year

18 ( Segment Information) 1. Outline of reporting segments The reporting segments of the Ci:z Holdings Group are the units structuring the Group whose separated financial information is available, and which are the subject of periodic review by the Board of Directors to determine allocation of management resources and assess business performance. The Ci:z Holdings Group formerly had two reporting segments: the Cosmetic business and Health food business, which are the reporting segments by product type. However, as Ci:z Labo Co., Ltd. became a consolidated subsidiary of the Holdings during the consolidated fiscal year under review, the Aesthetic Salon Business which is operated by Ci:z Labo Co., Ltd., was added into the reporting segments. 2. Methods of calculating the amounts of net sales, profits or losses, assets, liabilities and other items by reporting segment The accounting method of the reported business segments is mostly the same as the accounting method employed for preparation of consolidated financial statements. The profits in reporting segments are based on the figures of operating incomes. 3. Information of sales and profit/loss by reporting segment 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, , ,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. Fiscal year ended July 31, 2016 Sales Cosmetics Reporting segments Health food Aesthetic Salon Business ( Thousand) Total Adjustments *1 Total *2 Sale to outside 35,296,502 2,908,244 1,248,235 39,452,982-39,452,982 customers Internal sales among segments, transfers 23, ,894 (23,894) - Total 35,320,397 2,908,244 1,248,235 39,476,877 (23,894) 39,452,982 Segment profit 7,429, , , ,683 13,806 8,191,881 Other items Depreciation 274,331 21,933 49, , ,882 Amortization of goodwill , , ,347 (Note)* 1. The adjustments on the segment profits, 13,806 million yen, indicates offsets of inter-segment transactions. *2. Segment profits were adjusted with operating incomes in the Statement of Income. 3. Segment assets are not described in the document, because those are the subjects of examination to determine allocation of management resources and assessment of business performances. 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. 4,432,692 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. 5,046,438 Cosmetics [Information concerning impairment loss of non-current assets by reporting segment] Previous consolidated fiscal year (From August 1, 2014 to July 31, 2015) The descriptions are omitted, due to having little relevance. Current consolidated fiscal year (From August 1, 2015 to July 31, 2016) 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, 2014 to July 31, 2015) Not applicable. Consolidated fiscal year 2016 (From August 1, 2015 to July 31, 2016) ( Thousand) Cosmetics Health food Aesthetic Salon All companies or elimination Total Amortization in the current period , ,347 Balance at end - - 2,180,217-2,180,217 of current period 16

20 [Information concerning gains on bargain purchases by reporting segment] Previous consolidated fiscal year (From August 1, 2014 to July 31, 2015) Not applicable. Current consolidated fiscal year (From August 1, 2015 to July 31, 2016) Not applicable. 17

21 (Per-Share Data) (Yen) Fiscal Year Ended July 2015 Fiscal Year Ended July 2016 Net assets per share Net income per share Net assets per share Net income per share (Note) 1.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. 2. Diluted net income per share under review is not shown above because there are no diluted shares. 3. The following is the basis of calculating the current net income per share. Fiscal Year Ended July 2015 (August 1,2014- July 31,2015) Fiscal Year Ended July 2016 (August 1,2015- July 31,2016) Net income per share Net income 4,940,213 5,289,384 Amount not belonging to common stockholders - - Net income / related to common stock 4,940,213 5,289,384 Average shares outstanding 49,173,847 47,296,845 (Note) 1. 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. 2. Diluted net income per share under review is not shown above because there are no diluted shares. (Important Subsequent Event) Not applicable. 18