Kitanotatsujin : Supplementary Material for the Fiscal Year Ended February 28, 2021

April 14, 2021 at 02:33 am EDT

Supplementary Material for the Fiscal Year Ended February 28, 2021

Stock code: 2930

Kitanotatsujin Corporation

April 14, 2021

Executive Summary

Exceeded forecasts for both net sales and profits at each level, resulting in net sales of ¥9,270 million (+12.7% compared with the initial forecast) and operating profit of ¥2,031 million (+1.2% compared with the forecast).

☞

New customer acquisitions through affiliates, Amazon, etc. were strong.

Aim to expand business and performance as the Kitanotatsujin Group through the implementation of two M&As.

Table of Contents

Highlights for the Fiscal Year Ended February 28, 2021 (P.4 -)
Future Developments (P.20 -)
References (P.28 -)

Highlights for the Fiscal Year

Ended February 28, 2021

Key Performance Highlights [Compared with Forecasts for the Quarter (Plan)]

			(Millions of yen)
Initial forecast (plan)	Results for the fourth	Changes	Changes (%)
for the fourth quarter	quarter

Net sales	1,894	2,258	+364	+19.2%
Gross profit	1,393	1,730	+336	+24.2%
Selling, general	1,067	1,273	+205	+19.3%
and administrative
expenses
Advertising	505	658	+152	+30.3%
expenses
Operating profit	326	457	+131	+40.1%
Operating profit	17.2%	20.3%	+3.1pt
margin
Ordinary profit	326	466	+140	+42.9%
Profit	220	301	+80	+36.3%

Although net sales and profits at each level were much higher than the forecast due to an unexpected increase in the number of new customer acquisitions and an increase in subscription sales, net sales and operating profit resulting from shipping delays for some products are expected to be included from the next fiscal year.

Key Performance Highlights [Compared with Forecasts for the Fiscal Year (Plan)]

				(Millions of yen)
	Initial forecast (plan) for	Results for	Changes	Changes (%)
	the fiscal year ended	the fiscal year ended
	February 28, 2021	February 28, 2021
Net sales	8,227	9,270	+1,042	+12.7%
Gross profit	6,133	7,023	+889	+14.5%
Selling, general	4,126	4,992	+865	+21.0%
and administrative
expenses
Advertising	2,020	2,681	+661	+32.7%
expenses
Operating profit	2,006	2,031	+24	+1.2%
Operating profit	24.4%	21.9%	2.5pt short
margin
Ordinary profit	2,007	2,048	+41	+2.1%
Profit	1,357	1,387	+30	+2.2%

Net sales significantly exceeded the initial forecast due to an increase in the number of new customer acquisitions.
Profits at each level increased slightly as a result of active investment through advertising expenses that was much higher than planned.

Analysis through Advertising Investment Efficiency and number of new customer acquisitions

ROAS*1: How much new products sales are acquired through the invested advertising expenses.

Assumed 1-yearROI*2:How much profit is expected to be generated in one year's time for invested advertising expenses.

The assumed 1-year ROI for advertising expenses is calculated using accurate LTV*3 calculation skills based on a vast amount of data to date.
Emphasis on gaining an understanding of profit-based investment efficiency, considering factors such as product profit margins and repeat rates.
Divergence from April to June 2020 due to the unit price of products with strong new customer acquisitions and characteristics of measures (see P.37).

New customer acquisitions*4

ROAS (Actual)*4

Assumed 1-year ROI (Adjusted value)*5

1.20

											1.10
											1.00
											0.90
											0.80
											0.70
											0.60
Mar. 2020	Apr.	May	Jun.	Jul.	Aug.	Sep.	Oct.	Nov.	Dec.	Jan. 2021	Feb.

From December 2020 to February 2021, the number of new customer acquisitions remained nearly flat compared to the previous quarters.

*1 ROAS stands for Return On Advertising Spend, which is an indicator of advertising investment efficiency that measures how much sales are generated from advertising. If ¥1 million was used for advertising expenses, and sales was ¥900 thousand, the ROAS is 0.90. If ROAS is 1.00 or less, the balance of income and expenditure at the first purchase will be negative. Meanwhile, if it is a subscription purchase, the balance will become positive as products are purchased continuously.

*2 ROI stands for Return On Investment, which is a benchmark for advertising investment efficiency that measures the amount of profit made on advertising placements. We use the assumed 1-year ROI as an indicator of how much net gross profit (a proprietary indicator calculated by subtracting order-linked costs such as product cost, shipping, and settlement fees from 1-year LTV) can be expected to be earned from advertising in one year.

*3 LTV stands for Life Time Value, which is the amount of lifetime net sales a customer will bring.

*4 The numbers of new customer acquisitions and ROAS are based on the order date, taking into account shipping delays for some products.

*5 The assumed 1-year ROI is a figure adjusted so that the ROAS (0.98) is the same as the assumed 1-year ROI (not disclosed) from March 2020. The figures have been adjusted to facilitate comparison with ROAS and are not actual numbers.

Measures to increase the number of new customer acquisitions

1 Approach to affiliate* businesses

Affiliates were the main source of acquisition of new customers several fiscal years ago. At the time, SEO (Search Engine Optimization) was a major means.
However, Google's update has slowed it down.
Current affiliates are mainly "performance-based advertising agencies," where affiliates advertise using their own funds (ad-affiliates).
Since the number of highly skilled affiliates has increased, the Company has once again reinforced efforts for affiliates.

Measures that produced the best results in the fiscal year under review

Advertiser	Advertising	ASP
	(the	expenses	Affiliate service
Company)		provider
Product shipping	Payment		Remuneration	Registration
			Affiliates*
Users	Purchase of	Place an
products/services
Click on ads	advertisement
		on a website

* Direct contracts with some leading affiliates.

The number of new customer acquisitions through affiliates has grown every quarter, having increased by 3.8 times when comparing the first quarter of the fiscal year ended February 28, 2021, to the fourth quarter.

Aim to expand the number of products handled and advertising media, and utilize the strengths and characteristics of affiliates to increase the number of new customer acquisitions

An online advertising method, where an affiliate posts advertisements about an advertiser's products and services on its blogs, websites, or other media. The advertiser pays a fee (commission) to the affiliate, if a viewer purchases the product through the link.

Measures to increase the number of new customer acquisitions

2 Strengthening sales through e-commercemalls

Strengthen sales through Amazon, Rakuten Ichiba and other e-commerce malls.
The number of new customer acquisitions increased 2.2 times compared to the first quarter.
Aim at gaining customers belonging to a customer base different from before, who purchase products on the Internet.

The amount of Amazon distribution transactions will grow more for third parties (Marketplace), sellers outside of Amazon, than for first party, which is Amazon.
It has changed from a place where people search for and purchase major well-known brand products, to a place where people search by product category and compare products from well-knownand unknown brands.
It will be a place where sales can be greatly increased not by brand power but by product power.

There is a lot of room for growth by our company

Sellers		First party	Third parties
	Amazon

Amazon platform

Because Amazon is engaged in a global business, this platform will make it easier for us to expand globally

Buyers


Listing existing	Analyze buyer characteristics and trends,
products	and focus on developing Amazon exclusive
	products

We will work to capture the global common platform of Amazon in order to gain a foothold for future overseas expansion

Measures to increase the number of new customer acquisitions

- Sales channels other than the Internet
Advertisements and articles in magazines, including men's fashion magazines.
Utilization of TV advertisement on terrestrial channels in some parts of Hokkaido and other regions.
Strong new customer acquisitions from infomercial advertising (BS broadcasting, etc.).

While the Company has been working on this initiative for several fiscal years, results have not been readily apparent. However, through continuing this initiative, the Company has accumulated production expertise and improved its skills in selecting advertising distribution programs.

New customer acquisitions has grown each quarter, and in the fourth quarter increased 8.4 times compared to the first quarter.

Approach to customers who do not purchase products on the Internet.

- Holding meetings with customers to receive feedback
Hold meetings with customers who are currently purchasing the Company's products, those who used to purchase the Company's products in the past but have canceled their regular purchases, those who know about the Company's products but have not bought any, etc.
Receive feedback directly from customers regarding motivation for purchases, reasons for cancellation, reasons for not buying, etc.
The customer feedback will be used for improving advertising contents and customer satisfaction.

LTV improvement measures

The Company also actively took measures to improve LTV in the fiscal year under review. Improvement in LTV will lead to an increase in the number of new customer acquisitions.

(See P.34 for details)

LTV improved by 10% or more for some products

Specific measures (1) Cross-selling*2 and up-selling*3

Cross-selling measures showed an increase in the success rate from 1.5% to 8.9% and contributed to achieving a certain level of improvement in LTV.

Illustration of cross-selling as reference

Facial	×
cleanser	Lotion

(Example) Would you like some lotion as well?

*1 CPO stands for Cost Per Order, which is the amount of advertising expenses per order.

For example, if advertising expenses are ¥1 million and the number of new customer acquisitions is 100, the CPO is ¥10,000.

*2 A sales method to ask customers to purchase not only the products they are currently purchasing, but also other products. In addition to improving LTV, customers will benefit from lower settlement charges and shipping fees.

*3 A sales method to ask customers to purchase products with a higher unit price than products they are currently purchasing, or to shift to another regular course which offers a larger number of products than the course that they currently subscribe to.

In addition to improving LTV, customers will benefit from higher discount rates offered for regular courses.

LTV improvement measures

Specific measures (2)	Establishment of a dedicated contact point to improve the rate
of continued subscription purchases

There is a certain number of cases of incorrect usage, such as usage amounts and frequency of usage, with respect to reasons for cancellation, including "cannot feel any positive effect," "receiving new products before using up previous ones," etc.

Did not specifically ask for feedback from customers, and processed cancellations

Established a dedicated contact point, after improving knowledge of in-house professional staff based on their expertise as developers, as well as improving the service quality of telephone support

Increase in the rate of customers who wish to continue subscription purchases from 8.0% before the establishment of the contact point to 18.0%.

Continue efforts to improve customer satisfaction and the rate of continued subscription purchases of customers who are regularly buying products.

Red: New sales Blue:Subscription sales

Overseas Business Development

At the Taiwan Branch Office, which steadily increased sales during the previous fiscal year, net sales growth slowed due to a decline in consumer sentiment caused by the spread of COVID-19, which were more severe than in Japan.
However, net sales of the Taiwan Branch Office account for only a small portion of total sales and have a minor impact on the Company's overall business performance.
During the fiscal year ended February 28, 2021, we have begun developing a system to expand our Taiwan Branch Office, such as increasing the number of products handled, hiring and training full-timestaff from Taiwan, and researching new advertising media.

Sales were

Monthly net sales at the Taiwan Branch Office

increasing steadily,

but...

Sales plummeted

due to COVID-19.

Sep. 2019 Oct.

Nov.

Dec.

Jan. 2020

Feb.

Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec. Jan. 2021

Feb.

Focus on expanding overseas business while paying attention to the spread of COVID-19 and timing of it being contained

Launched new products in the fiscal year ended February 28, 2021

Fourth in the "DEEP PATCH Series"

Launched in March 2020

[Quasi-drug] Spots prevention peeling gel for men

Launched in May 2020

Aging care mist lotion for men

Launched in August 2020

Establishment of a new logistics base

In addition to the existing logistics base in Sapporo, Hokkaido, a new base was established in Soja, Okayama

Avoiding geographic risks from concentrating on a single location
Reduction of shipping and handling costs and other expenses

Corporate Governance System

Existing base

Sapporo, Hokkaido

New base

Soja, Okayama

Composition of Directors

Mr. Shigeatsu Shimizu, Senior Managing Director, resigned at the conclusion of the Ordinary General Meeting of Shareholders in the previous fiscal year.
Increased the number of Directors in order to strengthen the management system, and elected three Directors (including one Outside Director) at the said Ordinary General Meeting of Shareholders.

Establishment of a Nomination and Remuneration

Committee

Deliberate and provide replies in response to questions from the Board of Directors concerning the election and dismissal of Directors and Audit & Supervisory Board Members, the remuneration of Directors, etc.

Transition to a Company with an Audit and Supervisory Committee

Before conclusion of the Ordinary General Meeting of Shareholders for fiscal year ended February 29, 2020

Total of four Directors (including one Outside Director)

After conclusion of the Ordinary General Meeting of Shareholders for fiscal year ended February 29, 2020

Total of six Directors (including two Outside Directors)

After conclusion of the Ordinary General Meeting of Shareholders for fiscal year ended February 28, 2021

(planned)

Total of nine Directors (including two Outside Directors and three Outside Directors who are Audit and Supervisory Committee Members)

Protection of intellectual property rights

Mainly the "Office of Competition and Imitation Countermeasures" respects the intellectual property rights of the Company and other companies and promotes business activities in a fair competitive environment.

As a corporation that focuses on protecting consumers, the Company monitors for imitation products and false information in order to prevent harm to customers.

Protect customers to

improve and optimize

Eliminate

the industry as a

whole.

If no initiatives

inferior

are undertaken...

Products claiming

products

false statements are

released onto the

Consumers have an

market.

increased risk of

Leads to loss of

obtaining inferior

trust in the

products and

industry and

suffering harm.

shrinkage of market scale.

Our policy is to continue the Company's initiatives to optimize the industry over the long term

Protection of intellectual property rights

Case seeking an	Competitor of the Company's product "KAITEKI	• Misrepresentation
order of provisional	OLIGO" was displaying in their SNS advertising that	Settlement
the product could "fight off coronavirus by	of product quality
disposition	improving immunity from within your body."


Case seeking an	• Competitor of the Company's product "KAITEKI		first instance>
	Opposing party ordered
OLIGO" was displaying that the product was	• Misrepresentation
injunction for unfair	100% pure oligosaccharides.	to pay approximately
of product quality
competition	• Compared their product with the Company's	¥18.35 million in
product "KAITEKI OLIGO" and listed false facts.		damages
			→ Appeal filed
Case seeking an	• Sales of competing product with product name
similar to the Company's product "MINNA NO
injunction for	HADAJUNTO."	• Trademark	Settlement
trademark	• Use of images, illustrations, etc. that are	infringement, etc.
substantially similar to the images, illustrations,
infringement	etc. posted on the Company's website.
Case seeking	• Competitor of the Company's product "EYE
KIRARA" was displaying multiple "1st place	• Misleading
compensation for	rankings," etc. without any rational basis.	practices	Pending
• Dissemination of false facts on affiliate sites	• Damaging
damages	comparing against the Company's product "EYE	reputation
	KIRARA."

Balance Sheets

				(Millions of yen)

Subject/Section	Fiscal year ended	Fiscal year ended	Changes	Changes (%)
February 29, 2020	February 28, 2021

(Cash and deposits)	4,088	3,612	-475	-11.6%
Current assets	5,521	5,857	336	+6.1%
Non-current assets	380	343	-36	-9.7%
Total assets	5,902	6,201	299	+5.1%
Current liabilities	1,554	1,022	-532	-34.2%
Non-current liabilities	ー	ー	ー	ー
Total liabilities	1,554	1,022	-532	-34.2%
Total net assets	4,347	5,179	831	+19.1%
Total liabilities and net	5,902	6,201	299	+5.1%
assets

The main factors for the changes were a decrease in "Current liabilities" due to the payment of income taxes payable and an increase in "Net assets" due to the recording of profit.

Statements of Cash Flows

			(Millions of yen)
	Fiscal year ended	Fiscal year ended
Subject/Section	February 29, 2020	February 28, 2021	Changes
March 1, 2019 to	March 1, 2020 to

	February 29, 2020	February 28, 2021
Cash flows from operating	2,142	682	-1,460
activities
Cash flows from investing	-100	-609	-509
activities
Cash flows from financing	-643	-555	+88
activities
Effect of exchange rate change	1	7	+5
on cash and cash equivalents
Net increase (decrease) in	1,400	-475	-1,876
cash and cash equivalents
Cash and cash equivalents at	2,687	4,088	+1,400
beginning of period
Cash and cash equivalents at	4,088	3,612	-475
end of period

The main factors for the changes during the period were an increase in profit before income taxes of ¥2,044 million, a decrease in payment of income taxes of ¥1,114 million, a decrease in deposits for the acquisition of stock of affiliated companies of ¥582 million, and a decrease in payment of dividends of ¥555 million.

Future Developments

Forecast for the fiscal year ending February 28, 2022

				(Millions of yen)
	[Results for the fiscal	[Forecasts]
	year under review]
	(non-consolidated)
	(non-consolidated)	Changes	Changes (%)
	Fiscal year ending
	Fiscal year ended
	February 28, 2022
	February 28, 2021

Net sales	9,270	9,847	+577	+6.2%
Operating
2,031	1,812	-219	-10.8%
profit
Ordinary	2,048	1,815	-232	-11.4%
profit
Profit	1,387	1,232	-154	-11.2%

Increased revenue expected from the launch of mass-market products and an increase in the number of new customer acquisitions through various measures.
Temporary profit decrease expected from increase in advertising expenses for new customer acquisitions and increase in operating expenses to strengthen organizational foundation.

＜Consolidated forecast for the	Net sales	¥10,657 million
fiscal year ending	Operating profit	¥1,871 million
February 28, 2022＞	Ordinary profit	¥1,873 million
	Profit attributable to owners of parent	¥1,262 million

Future Developments

Period for improving internal organizational structure to grow future net sales and profit

Position as period for sowing seeds for the future and full-scaledevelopment of strategies and measures

Full-scaleoperation of measures continuing from the previous fiscal year
Further expansion of sales channels in e-commerce malls.
Expand on Amazon's domestic platform, develop into the large market scale offered by
Amazon overseas. (See P.9 for details)
Active operating activities for affiliate businesses. (See P.8 for details)
Utilizing the expertise of subsidiaries to increase the number of new customer acquisitions.
Increase selling, general and administrative expenses in addition to advertising expenses
Impact throughout the fiscal year of increased personnel expenses associated with the increase in personnel to improve the organizational structure which was put into operation in the fiscal year ended February 28, 2021.
Increased operating expenses, etc. due to business expansion.

Excluding advertising expenses, our selling, general and administrative expenses will increase by approximately ¥380 million from the fiscal year ended February 28, 2021.

Future Developments

Initiatives for product development and market share acquisition

Focus on the product development that can deploy multiple mass-marketproducts for net sales of ¥5.0 billion to ¥10.0 billion from a single product in large mass markets.

Launch multiple new products in the second half of the fiscal year ending February 28, 2022, due to strengthening the Product Department in the fiscal year ended February 28, 2021.

Active investment in advertising after launch

Market scale differs greatly from the products handled to date.
Build up future base of regular customers.

¥5.0 billion -	¥5.0 billion -
¥10.0 billion	¥10.0 billion

¥5.0 billion -

¥10.0 billion

		¥5.0 billion -
¥5.0 billion -		¥10.0 billion
¥10.0 billion	¥5.0 billion -	¥5.0 billion -
	¥10.0 billion	¥10.0 billion

¥5.0 billion -
¥10.0 billion	¥5.0 billion -
¥5.0 billion -	¥10.0 billion
¥10.0 billion
¥5.0 billion -	¥5.0 billion -
¥10.0 billion	¥10.0 billion

While focusing on sales promotion activities in Japan, we consider overseas expansion other than Taiwan and utilize platforms such as Google, Facebook, Twitter, Amazon, etc.

Continue initiatives to strengthen the Product Department from the fiscal year ending February 28, 2023, onward so that it can launch multiple mass-market products every year

Future Developments

Launch of mass-market products

The launch of new mass-marketproducts will stimulate new demand and have a significant impact on future performance.

Launching product with large market scale

Revenue	→ Contributes highly to sales upon the initial launch
and	• As subscription sales increase, the ratio of new customer acquisition
expenses	expenses becomes relatively low

Losses for a certain period of time due to advertising investment without contributions to sales

Investment	Return	Operating profit
New product launch date

(Start with zero regular customers)		Advertising expenses
In a subscription purchase-driven business, invested advertising
costs are recovered through subscription purchases		Time
→ Certain time lag between investment and returns

Subscription

Net sales

New

Launching a product with a large market scale contributes highly to net sales upon the initial launch, but also has a high ratio of advertising expenses that is a main factor in lowering the profit margin.

Fiscal year ended February 28, 2021 = 28.9％ → Fiscal year ending February 28, 2022 (projected) = 31.1％

Future Developments

Business strategy for FM NORTH WAVE CO., LTD.

(Stock transfer agreement concluded in the fiscal year ended February 28, 2021, to make FM NORTH WAVE into a subsidiary from the fiscal year ending February 28, 2022.)

FM radio station with a broadcast area covering Hokkaido

Media

Increase sales by producingメディmailア-order programs
J NORTH FARM
SALONMOON
Expand existing advertising business

Audio

content

▶ Develop 音expertise声 for creating strong fans

コンテンツ

Horizontal expansion into audio media

Develop audio mail-order content

Expand to other stations

Brand

Utilize brand power as a brandブthatラeveryoneンド in Hokkaido knows about

Other business development using the NORTH WAVE brand

Aim to expand business and performance as the Kitanotatsujin Group.

Future Developments

Business strategy for ASHIGARU Co., Ltd.

(Stock transfer agreement concluded in the fiscal year ended February 28, 2021, to make ASHIGARU into a subsidiary from the fiscal year ending February 28, 2022.)

Continue expansion of beauty home appliance market owing to popularization of in-home beauty salon products* in line with recent diversification in beauty needs.
Highly compatible with the Company's existing products and e-commerce malls.

Expand sales channels in e-commerce malls.
Develop products in new categories, including beauty home appliances.

"SALONMOON" hair iron

Breakout success with a total of over 150 thousand units sold in the two years since the company was founded.
Reviews on main e-commerce sites show high levels of customer satisfaction.

Develop products in beauty home appliance category

ASHIGARU • Sales expertise in e-commerce malls

Sells own
"SALONMOON" hair	Kitanotatsujin
iron on various e-
commerce malls	Corporation
Management resources in
personnel, etc.

Further business expansion by growing sales and entering new markets in

the product development category

Aim to expand business and performance as the Kitanotatsujin Group.

* Products that enable consumers to achieve results at home, on their own, for procedures commonly performed at beauty salons, beauty parlors, etc.)

Future Developments

■Diversification of revenue base and acceleration of growth through aggressive M&As

Our policy is to aggressively engage in M&A of companies that operate the same D2C* and E-commerce businesses as the Company that offer high-quality products but are limited on funds and personnel, and where the introduction of the Company's expertise and management resources can establish scale benefit and synergies.

	Entry into new
Expansion of	Aim to improvebusinesses
existing	corporate value
businesses
	Business
	diversification

■ Solicitation of aspiring entrepreneurs who want to start new D2C businesses

Expand business scale while developing multiple businesses with net sales over ¥10.0 billion

Actively hire personnel who possess excellent business plans and passion for entrepreneurship.
Founder and current Representative Director & President, Katsutoshi Kinoshita, provides a first-hand account of his own personal expertise.
Launch new businesses by supporting aspiring entrepreneurs who show promise and share the Company's vision and purpose.

Several prospective candidates have been selected and multiple businesses are scheduled to be launched within the fiscal year ending

February 28, 2022.

Early achievement of medium- and long-term targets of ¥100.0 billion in net sales and ¥30.0 billion in operating profits

* D2C stands for Direct to Consumer, which is a system to sell our products directly to consumers through e-commerce sites.

References

Product Strategy

Product development specifically designed for the E-commerce business

Develop the E-commerce business that sells a total of 32 original products on the Internet to meet specific customer needs, including cosmetics and health foods
Only commercialize products that bring solid satisfaction, under the policy, "A product will only be commercialized when an astonishingly fine product is created"
Established original product development standards with 750 items specifically designed for online sales and conduct a thorough monitor survey
Only 2% of development projects meet these standards to be commercialized, thereby

pursuing dominant customer satisfaction and

quality maintenance

◆ Featured in the NIKKEI TRENDY (August 2018 issue)

Product Strategy

Products for men

Looking to increasing demands for products from men and growth potential of the men's cosmetics market (its scale has grown to approximately ¥120.0 billion, and further growth is expected going forward*), we are also focusing on the development of products for men that specialize in men's skin types and constitution.

Two products were launched in the fiscal year ended February 28, 2021.

Market

We are mainly developing niche market products that can generate net sales of ¥1.0 billion to ¥2.0 billion from a single product.

We will mainly develop mass-marketproducts that can generate net sales of ¥5.0 billion to ¥10.0 billion from a single product.

* "Marketing Handbook of Cosmetics 2020 No. 2" published on March 26, 2020 by FUJI KEIZAI CO., LTD.

Sales Strategy

Performance evaluation indicators

We place more emphasis on profits than on net sales.

As the E-commerce business can generate more net sales by increasing advertising investment (increasing advertising placement volume), we cannot evaluate our performance only by net sales.

Advertising optimization system

Analyze daily accumulated data and calculate LTV
Set a CPO limit for each product as the upper limit for advertising expenses
Calculate and manage CPO on a daily basis by subdividing approximately 5,000 advertisements presented regularly into various segments
Automatically suspend advertisements that exceed the CPO limit
The Company develops and operates a system that manages the above process.

Develop a system where only highly profitable advertising will remain

Correlation between CPO and the number of new customer acquisitions

Profit ＝ Number of new customer acquisitions × Profit per customer (LTV - CPO)

Advertising expenses and the number of new customer acquisitions fall under the "law of diminishing returns."* CPO (acquisition cost per order) tends to increase as the number of new customer acquisitions increases.

Consumer distribution by innovator theory

purchasers of Number

Innovator

Those who want to try something new first

One in five

people

purchases

the products

↓

One

purchase per five clicks at ¥100 per click

↓

CPO: ¥500

Diffusion rate:

2.5%

	Early			Early
	adapter			majority
Those who examine	Those who actively
new products and	purchase products that are
purchase them	"popular" or "used by
positively	others," rather than making
			decisions on their own
	One in ten
	people		One in fifty
	purchases		people
	the products		purchases
	↓		the products
	One		↓
	purchase per		One
	ten clicks at		purchase per
	¥100 per		fifty clicks at
	click		¥100 per
	↓		click
	CPO: ¥1,000		↓
				CPO: ¥5,000
13.5%		34%

Late

majority

Basically those who are reluctant of buying, but purchase products after everyone is using them

One in one

hundred people

purchases the

products

↓

One purchase

per one

hundred clicks

at ¥100 per

click

↓

CPO: ¥10,000

34%

Laggard

Those who will never buy

No matter how many clicks, they will never buy the products. Thus, it is not profitable.

16%

Time until purchase

The more you expand your customer base, the greater the CPO will be.

*A theory in which, under a certain condition, an additional production factor will increase overall production volume, but the increase will gradually diminish

Five level profit management

Visualize profits on five levels for "each product"

(Millions of yen)

Gross profit by product

Mandatory cost per order

Gross profit - order-

linked costs = net gross

profit (coined term)

Net gross profit - sales promotion expenses = sales profit (coined term)

Personnel expenses for

each product

	Total of all	Product (1)	Product (2)	Product (3)
	products	×	△	◎

Net sales	10,000	6,000	3,000	1,000
Cost	5,600	3,500	1,800	300
Profit (1) Gross profit or loss	4,400	2,500	1,200	700
Gross profit margin	44%	42%	40%	70%
Order-linked costs	500	300	150	50
(enclosures, accessories, settlement charges, shipping
fees, packaging materials, etc.)
Profit (2) Net gross profit	3,900	2,200	1,050	650
Net gross profit margin	39%	37%	35%	65%
Sales promotion expenses	1,990	1,600	350	40
(primarily advertising expenses)
Profit (3) Sales profit	1,910	600	700	610
Sales profit margin	19%	10%	23%	61%
ABC (Activity Based Costing)	190	50	120	20
Profit (4) ABC profit	1,720	550	580	590
ABC profit margin	17%	9%	19%	59%
Operating expenses	700	420	210	70
(rent expenses and indirect operating personnel
expenses, etc.)
Profit (5) Operating profit for each product	1,020	130	370	520
Operating profit margin for each product	10%	2%	12%	52%

Although sales of Product (1) are increasing, this is due to spending more on sales promotion expenses, and profit is not as high.
Sales of Product (3) are low, but it has a high gross profit margin as a result of less spending on sales promotion expenses and ABC. However, it is easy to overlook this matter, since a product with low ABC is not often discussed in the Company.

Calculation method of the optimal CPO limit and the benefits of LTV improvement

■Profit ＝Number of new customer acquisitions ×Profit per customer (LTV -CPO)

•	Lowering the CPO increases the profit per customer, but decreases the number of new	It is important to find the most
	customer acquisitions							profitable CPO
•	Higher the CPO increases the number of new customer acquisitions, but decreases the profit
	per customer							Diminishing returns begin from here

	CPO		¥3,000		¥4,000	¥5,000	¥6,000	¥7,000		¥8,000		¥9,000
	Number of new		100		120	150	200	250		270		300
	customer acquisitions
	Sales		¥1,000,000		¥1,200,000	¥1,500,000	¥2,000,000	¥2,500,000		¥2,700,000			¥3,000,000
	Profit per customer		7,000		¥6,000	¥5,000	¥4,000	¥3,000		¥2,000			¥1,000

	Profit		¥	700,000		¥720,000	¥750,000	¥800,000	¥750,000		¥540,000			¥300,000
							Most profitable		Largest number of new		Largest
	Most profitable profit per customer
			customer acquisitions		sales

If we are to maximize sales, we should set the CPO at ¥9,000, but because we are aiming to maximize profits, it is most desirable to set the CPO limit at ¥6,000.

				Diminishing returns begin from here

CPO	¥3,000		¥4,000	¥5,000	¥6,000	¥7,000	¥8,000	¥9,000
Number of new	100		120	150	200	250	270	300
customer acquisitions
Sales	¥1,200,000		¥1,440,000	¥1,800,000	¥2,400,000	¥3,000,000	¥3,240,000		¥3,600,000
Profit per customer	9,000		¥8,000	¥7,000	¥6,000	¥5,000	¥4,000		¥3,000

Profit	¥	900,000		¥960,000	¥1,050,000	¥1,200,000	¥1,250,000	¥1,080,000		¥900,000

Most profitable profit per customer	Most profitable	Largest number of	Largest
new customer
		acquisitions	sales

If LTV increases by 1.2 times, profit will increase even with the same CPO limit of ¥6,000. It is also possible to raise the CPO limit setting to ¥7,000, which is the optimal limit CPO.

LTV improvement: Makes it possible to increase profit with the same CPO and raise the CPO limit setting

Together

with

Adoption of D2C × Subscription-drivenbusiness model

・ Direct feedback on customer data and products is available

・ High-precisionmarketing backed by the feedback is realizable

・ A steadily growing business model Red: New sales

Blue:Subscription sales

→ Realize a profit structure that enables stable growth

＜Product strategy＞

Product development specifically designed for the E-commerce business
Strict product development standards
Focus on the development of products for men as well
Development of mass-market products

＜Sales strategy＞

Basic policy that places an emphasis on profits
Advertising optimization system developed by the Company
Calculation of the optimal CPO limit based on the correlation between CPO and the number of new customer acquisitions
Profit management fine-tuned for each product

Raising the CPO limit

The CPO limit was raised to increase the number of new customer acquisitions.

While the majority of new customer acquisitions are made through orders that require advertising expenses, there is a certain number of "orders that do not require advertising expenses," which are placed via search engines and e- commerce malls.

"Orders that do not require advertising expenses" were analyzed and considered that they increase in proportion to an increase in advertising placement volume. The CPO limit was calculated by considering the above correlation and incorporating new factors.

Actually, there is only a low correlation between the advertising placement volume and "orders that do not require advertising expenses." As a result, advertising was placed with a "too high CPO limit."

A factor for the deterioration of ROAS in April to June 2020

Return the calculation method of the CPO limit to the previous one from July 2020 onward

Unit price of products with strong new customer acquisitions and characteristics of measures

The CPO limit is calculated based on the LTV of the products.

	Unit price	Average number	LTV
	of purchases

Product A	¥5,000	9 times	¥45,000
Product B	¥6,000	7 times	¥42,000
Product C	¥7,000	5 times	¥35,000

LTV differs depending on product genre and characteristics.
There are products with a low unit price but a large average number of purchases, which yield higher LTV.
The unit price of Product C is higher than that of Product A, but the CPO limit can be set higher for Product A.
As Product A yields a high LTV and a sufficient return on investment can be expected, discounts and other measures can be deployed to increase the number of new customer acquisitions.

If new customer acquisitions are strong for Product A, the unit price for new sales will decline and ROAS will drop temporarily. However, since its LTV is high, the contribution to profits can be expected over the long term.

New customer acquisitions were strong for these products in April to June 2020.

Major Products

"DEEP PATCH Series" were recognized by the Guinness World RecordsTM as the world's best-selling*1 products

Apply the microneedle technology, which is also used in medical treatments
A new concept of cosmetic products to directly inject needle-shapedbeauty ingredients into the skin

[No. 3]

[No. 2]

[No. 1]

[No. 4]

[No. 1]"HYALO DEEP PATCH" for wrinkles under the eyes and smile lines [No. 2]"MIKEN DEEP PATCH" for the area between the eyebrows

[No. 3]"ODEKO DEEP PATCH" for the forehead

[No. 4]"CHEEK PORE PATCH" for the cheek pore zones*2

*1 The largest micro-needle cosmetic skin patch brand, with aggregated sales amount of $45,082,226 for the one-year period from March 2019 to February 2020 (including HYALO DEEP PATCH, MIKEN DEEP PATCH, and ODEKO DEEP PATCH)

*2 Area where cheek pores are concentrated

Major Products

Food with functional claims "KAITEKI OLIGO"

Our sales of oligosaccharide food for household use is the highest in Japan.*1

Improves bowel movements for people with constipation tendency (increase stool volume and frequency of bowel movements)

*1 Research by JMA Research Institute Inc. (May 2016). The annual sales up to the previous fiscal year of home use products sold in Japan, such as powder, granules and syrup products containing "oligos and oligosaccharides"

Awarded the Monde Selection nine times
(Awarded the Grand Gold Award eight times and the Gold Award one time between 2012 and 2020)
The registration as a food with functional claims was accepted in May 2019.

→ Japan's first food with functional claims containing five types of functional ingredients

Expecting an increase in sales going forward through an expansion of the extent of advertising expressions
"OKOSAMAYOU KAITEKI OLIGO," a product for children, was launched in February 2019.

"EYE KIRARA," one product sells every 27 seconds.*2

Awarded the Gold Award of the Monde Selection for five consecutive years (2016 to 2020)
Run in medical journals, representing a rare achievement for cosmetic products
"MEN's EYE KIRARA" for men was also launched in January 2019.

*2 As of September 7, 2018 (research by the Company)

Personnel Changes

Changes in Officers and Employees

200

180

160

140

120

100

Fiscal year ended	Fiscal year ended		Fiscal year ended	Fiscal year ended
February 28, 2018	February 28, 2019		February 29, 2020	February 28, 2021
		Sapporo Head Office		Tokyo Branch Office

* Tokyo Branch Office was established in April 2019 at Nihonbashi, Chuo-ku, Tokyo

Actual and Projected Dividends

The Company is working to return profits to shareholders by paying dividends of approximately 30% of dividend payout ratio, taking into consideration the strengthening of its business foundation and the enhancement of its internal reserves. The Company expects to pay an interim dividend of ¥1.80, a year-end dividend of ¥1.20, and an annual dividend of ¥3.00 per share for the fiscal year ended February 28, 2021, and an interim dividend of ¥1.30, a year-end dividend of ¥1.40, and an annual dividend of ¥2.70 per share for the fiscal year ending February 28, 2022.

(Yen)					Cash dividends per share (yen)									Dividend payout ratio (%)

5.00																																				50.0%

																		41.4%
4.00																											38.7%					40.0%

													32.3%
								29.3%								30.9%			30.3%					30.3%			30.0%	29.7%
3.00			27.9%																							30.0%






2.00																														4.30						20.0%
																													3.60

																															3.00
																																		2.70

1.00																									2.19								10.0%




0.00				0.38					0.57				0.69				0.71				0.84														0.0%


		Fiscal year			Fiscal year			Fiscal year			Fiscal year		Fiscal year		Fiscal year			Fiscal year		Fiscal year		Fiscal year
																		Fiscal year
		ended February	ended February	ended February	ended February	ended February	ended February	ended February	ended February	ended February ending February
	28, 2013			28, 2014			28, 2015			29, 2016		28, 2017		28, 2018			28, 2019			29, 2020	28, 2021		28, 2022
																																(planned)		(planned)
	(Note) Cash dividends per share are translated based on the impact of the following six stock splits. (Fractions less than one sen are
				rounded up.)
				A 4-for-1 stock split for common shares as of February 9, 2013	A 2-for-1 stock split for common shares as of January 3, 2014
				A 2-for-1 stock split for common shares as of June 1, 2015				A 2-for-1 stock split for common shares as of April 1, 2017
				A 2-for-1 stock split for common shares as of November 6, 2017	A 3-for-1 stock split for common shares as of February 15, 2018

Other Indicators

	Fiscal year	Fiscal year	Fiscal year	Fiscal year	Fiscal year	Fiscal year
	ended	ended	ended	ended	ended	ended
	February	February	February	February	February	February
	29, 2016	28, 2017	28, 2018	28, 2019	29, 2020	28, 2021
Equity ratio (%)	86.5	67.4	67.3	69.4	73.7	83.5

Dividend payout	41.4	30.9	30.3	38.7	30.3	30.0
ratio (%)	(planned)

Cash dividends	0.71	0.84	2.19	3.60	4.30	3.00
per share (yen)	(planned)


Number of	8,128	8,926	31,667	47,978	54,307	47,042
shareholders

(Note) Cash dividends per share are translated based on the impact of the following stock splits: (Fractions less than one sen are rounded up.)

A 2-for-1 stock split for common shares as of June 1, 2015 A 2-for-1 stock split for common shares as of April 1, 2017

A 2-for-1 stock split for common shares as of November 6, 2017 A 3-for-1 stock split for common shares as of February 15, 2018

Changes of ROE and ROA

	Fiscal year	Fiscal year	Fiscal year	Fiscal year	Fiscal year	Fiscal year
	ended	ended	ended	ended	ended	ended
	February	February	February	February	February	February
	29, 2016	28, 2017	28, 2018	28, 2019	29, 2020	28, 2021
ROE	18.0%	24.8%	48.8%	48.9%	54.2%	29.1%
(return on equity)


ROA	14.4%	18.6%	32.9%	33.5%	38.9%	22.9%
(return on assets)

Changes of ROE		Changes of ROA

Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year endedFiscal year ended

February 29,	February 28,	February 28,	February 28,	February 29,	February 28,
2016	2017	2018	2019	2020	2021

0
Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended
	February 29,	February 28,	February 28,	February 28,	February 29,	February 28,
	2016	2017	2018	2019	2020	2021

Major Awards Received

November 2020: Awarded the "Asia's 200 Best Under A Billion" in Forbes Asia

September 2019: Awarded the Internet Shopping Award in the "Asia Direct Marketing Vision 2019"

February 2017: Special E-Commerce Promotion Award Recipient at "Japan Venture Awards 2017" hosted by the Organization for Small & Medium Enterprises and Regional Innovation, JAPAN (backed by The Small and Medium Enterprise Agency, Ministry of Economy, Trade and Industry, etc.)

September 2015: Japanese Representative Candidates Finalist for EY Entrepreneur of the Year 2015, an international award program for entrepreneurs

February 2014: Awarded the IT Management Award of the Minister of Economy, Trade and Industry Award

External evaluations and media publications

November 9,	Selected as a constituent stock of the "JPX-Nikkei Mid and
Small Cap Index" jointly calculated by the Tokyo Stock
2020
Exchange and Nikkei Inc. for three consecutive years.

Selected as a constituent stock of JPX-Nikkei Mid and Small Cap Index

"NIKKEI VERITAS," a weekly investment and financial information newspaper published by Nikkei Inc. ranked our October 25, 2020 Representative Director & President, Katsutoshi Kinoshita, first in the "ranking of stock price appreciation during the president's tenure," in recognition of his management ability.

Featured in Nikkei

Veritas

September 10,

2020

"DEEP PATCH Series," which are sold through our own brand "J NORTH FARM," were recognized by the Guinness World RecordsTM as the world's best-selling* products in the microneedle cosmetics market. The certification ceremony was held.

Selected for the fourth time and for three consecutive years as one of the "Asia's 200 Best Under A Billion (Good- August 28, 2020 standing Small-size Listed Companies)" in the August 2020 issue of Forbes Asia, an Asian edition of the U.S. economic

magazine Forbes.

*The largest micro-needle cosmetic skin patch brand, with aggregated sales amount of $45,082,226 for the one-year period from March 2019 to February 2020 (including HYALO DEEP PATCH, MIKEN DEEP PATCH, and ODEKO DEEP PATCH)

External evaluations and media publications

Featured as one of the recommended stocks by analysts August 21, 2020 in the article "Japan's Strongest Stock: Summer 2020" in the October 2020 issue of the financial information

magazine "DIAMOND ZAi."

327 people participated in the Japan Management Consultants Association's "Kitanotatsujin Seminar on Five July 3, 2020 Strategies to Surpass Competitors" (Participation fee:

¥45,000).

Became a topic as the "Authority in Online Marketing."

Published on the web media, "ShinR25," which targets May 12, 2020 young business people with high motivation for growth,

as "The Expert in Overcoming Recessions."

Featured in DIAMOND

ZAi

Seminar on

Five Strategies to Surpass Competitors

Ranked fourth in the "Medium-sized Listed Companies	Published on
March 24, 2020 (NEXT 1000) with High Five-year Average Operating Profit	The Nikkei

Per Employee" in The Nikkei nationwide edition.

Medium-term Management Plan

In the Internet industry in which the Company operates, the business environment is rapidly changing, and it is necessary to make swift and flexible management decisions in accordance with the business environment. Accordingly, the Company does not disclose its medium-term management plan.

The Company carries out the analysis of causes of divergence between the plans for a single fiscal year and its results on a regular basis, and discloses and explains the analysis results to stakeholders, including shareholders, through announcements of financial results, etc.

Disclaimer and Handling of This Document

This document is provided for informational purposes only and is not intended to be a public offering, investment solicitation, marketing or other activities in respect of specific products such as the Company's shares.
The contents of this document, and opinions and forecasts described herein are based on the judgment of the Company at the time of preparing this document, and the Company does not guarantee the accuracy of the information. Please note that actual performances and results may differ significantly due to changes in various factors.
While all information provided in this document has been carefully prepared, the accuracy and completeness of such information are not guaranteed. Please note that the content may be changed or discontinued without prior notice.
In no event shall the Company be liable for any use of the document by investors, since this document was provided on the assumption that its use is at the discretion and responsibility of investors.
Please refrain from repurposing materials and data without permission.

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Kitanotatsujin Corporation published this content on 14 April 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 April 2021 06:32:09 UTC.

Market Closed - Japan Exchange Other stock markets 02:00:00 2024-05-17 am EDT			5-day change	1st Jan Change
177 ^JPY	-0.56%		-1.12%	-16.90%

Apr. 26	Kitanotatsujin Distributes Surplus, Raises Final Dividend to 1.30 Yen	MT
Apr. 15	Middle East Geopolitical Woes Drag Japanese Shares Lower	MT

Kitanotatsujin Distributes Surplus, Raises Final Dividend to 1.30 Yen	Apr. 25	MT
Middle East Geopolitical Woes Drag Japanese Shares Lower	Apr. 15	MT
Kitanotatsujin Raises Dividend as Attributable Profit Nearly Triples in Fiscal Year Ended February	Apr. 15	MT
Kitanotatsujin Disposes 80,900 Shares Valued at 16 Million Yen as Restricted Stock Compensation	Apr. 14	MT
Kitanotatsujin Corporation Provides Consolidated and Non-Consolidated Earnings Guidance for the Six Months Ending August 31, 2024 and Full Year Ending February 28, 2025	Apr. 12	CI
Kitanotatsujin Corporation Provides Cash Dividend Guidance for the Fiscal Year Ending February 28, 2025	Apr. 12	CI
Kitanotatsujin Corporation Proposes Cash Dividend for the Year Ended February 29, 2024, Payable on May 22, 2024; Provides Cash Dividend Guidance for the Second Quarter Ending August 31, 2024	Apr. 12	CI
Kitanotatsujin Corporation Announces Management Changes	Feb. 15	CI
Kitanotatsujin Corporation Reports Earnings Results for the Nine Months Ended November 30, 2023	Jan. 12	CI
Kitanotatsujin Corporation Provides Consolidated and Non-Consolidated Earnings Guidance for the Year Ending February 29, 2024	Jan. 12	CI
Kitanotatsujin Corporation Provides Dividend Guidance for the Fiscal Year Ending February 29, 2024	Jan. 12	CI
Kitanotatsujin Corporation Announces Tokyo Head Office Relocation	Dec. 15	CI
Kitanotatsujin Corporation Reports Earnings Results for the Half Year Ended August 31, 2023	23-10-13	CI
Kitanotatsujin Corporation Announces Dividend for the Second Quarter-End of Year Ending February 29, 2024, Payable on November 10, 2023	23-10-13	CI
Kitanotatsujin Corporation Provides Dividend Guidance for the Year Ending February 29, 2024	23-10-13	CI
Kitanotatsujin Corporation Announces Establish A New Logistics Center in Ebina, Kanagawa	23-08-03	CI
Kitanotatsujin Corporation Reports Earnings Results for the First Quarter Ended May 31, 2023	23-07-14	CI
Kitanotatsujin Corporation Provides Consolidated and Non-Consolidated Earnings Guidance for the Six Months Ending August 31, 2023 and Full Year Ending February 29, 2024	23-07-14	CI
Kitanotatsujin Corporation Provides Dividend Guidance for the Year Ending February 29, 2024	23-07-14	CI
Kitanotatsujin Corporation Provides Dividend Guidance for the Second Quarter of Fiscal Year Ending February 29, 2024	23-07-14	CI
Kitanotatsujin to Pay Restricted Stock Remuneration to Directors	23-05-31	MT
Kitanotatsujin Corporation Announces Management Changes	23-05-30	CI
Kitanotatsujin Posts Lower Attributable Profit in Fiscal FY23; Shares Fall 5%	23-04-17	MT
Kitanotatsujin Corporation Provides Dividend Guidance for the Fiscal Year Ending February 29, 2024	23-04-14	CI
Kitanotatsujin Corporation Provides Dividend Guidance for the Second Quarter of Fiscal Year Ending February 29, 2024	23-04-14	CI

	1st Jan change	Capi.
KITANOTATSUJIN CORPORATION	-16.90%	160M
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COUPANG, INC.	+42.30%	40.89B
ALLEGRO.EU S.A.	+16.13%	10.33B
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ETSY, INC.	-20.28%	7.49B
ZOZO, INC.	+13.51%	6.85B
FSN E-COMMERCE VENTURES LIMITED	+2.16%	5.9B
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OCADO GROUP PLC	-53.27%	3.74B

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