Net Protections : Consolidated Financial Results for the Three Months Ended June 30, 2022 (under IFRS)

Translation

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Consolidated Financial Results

for the Three Months Ended June 30, 2022

(under IFRS)

			August 12, 2022
Company name:	Net Protections Holdings, Inc.	Listing:	Tokyo Stock Exchange
Securities code:	7383	URL:	https://corp.netprotections.com/en/
Representative:	Shin Shibata, President and Representative Director
Contact:	Kazuharu Watanabe, CFO and Director
Telephone:	[phone]

Scheduled date to file Quarterly Securities Report:			August 12, 2022
Scheduled date to commence dividend payments:			-
Preparation of supplementary material on quarterly financial results:	Yes
Holding of quarterly financial results briefing:			Yes (for institutional investors and securities analysts)
			(Note) Amounts less than one million yen are rounded down to the nearest million yen.
1. Consolidated financial results for the three months ended June 30, 2022 (from April 1, 2022 to June 30, 2022)
(1) Consolidated operating results					(Percentages indicate year-on-year changes.)
	Total operating revenue	Operating profit	Profit before income taxes	Profit attributable to owners
									of the parent
Three months ended	Millions of yen		%	Millions of yen		%	Millions of yen	%	Millions of yen		%
June 30, 2022	4,586		(0.4)	58		(87.0)	41	(88.9)	(14)		-
June 30, 2021	4,604		-	448		-	378	-	236		-
	EBITDA*		Adjusted EBITDA*	Basic earnings per share	Diluted earnings per share
	(non-GAAP)		(non-GAAP)
Three months ended	Millions of yen	%	Millions of yen	%		Yen			Yen
June 30, 2022	411		(48.0)	572		(32.8)		(0.15)			(0.15)
June 30, 2021	791		-	852		-		2.77			2.56

Note: As the Company conducted a 1,000-for-1 stock split of common stock effective on September 30, 2021, both basic and diluted earnings per share were calculated based on the assumption that the stock split had been conducted at the beginning of the fiscal year ended March 31, 2022.

(2) Consolidated financial position

			Equity attributable to	Ratio of equity
	Total assets	Total equity	attributable to owners of
	owners of parent
			parent to total assets
As of	Millions of yen	Millions of yen	Millions of yen	%
June 30, 2022	52,850	18,673	18,673	35.3
March 31, 2022	53,037	18,642	18,642	35.2

2. Cash dividends

		Annual dividends per share
	First quarter-end	Second quarter-end	Third quarter-end	Fiscal year-end	Total
Fiscal year ended	Yen	Yen	Yen	Yen	Yen
-	0.00	-	0.00	0.00
March 31, 2022
Fiscal year ending	-
March 31, 2023
Fiscal year ending
March 31, 2023		0.00	-	0.00	0.00
(forecast)

Note: Revisions to the forecast of cash dividends most recently announced: None

3. Forecast of consolidated financial results for the fiscal year ending March 31, 2023 (from April 1, 2022 to March 31, 2023) (Percentages indicate year-on-year changes.)

	Total operating revenue	Operating profit	Profit before income taxes	Profit attributable to
	owners of the parent
	Millions of yen		%	Millions of yen	%	Millions of yen	%	Millions of yen	%
First six months	10,053		9.1	(103)	-	(136)	-	(335)	-
Fiscal year	21,436		14.8	457	(49.0)	395	(37.3)	11	(95.1)
	EBITDA		Adjusted EBITDA	Basic earnings per share
	(non-GAAP)	(non-GAAP)
	Millions of yen		%	Millions of yen	%		Yen
First six months	589		(62.3)	1,261	(25.8)		(3.48)
Fiscal year	1,890		(15.8)	2,924	(2.5)		0.12

Notes: 1. Revisions to the forecast of consolidated financial results most recently announced: None

2. For the average number of shares outstanding during the period that forms the basis for calculating "Basic earnings per share," the number of shares issued (excluding treasury shares) as of March 31, 2022 is used as a substitute.

[Notes]

1. Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in the change in scope of consolidation): None
2. Changes in accounting policies and changes in accounting estimates
3. 1. Changes in accounting policies required by IFRS: None
   2. Changes in accounting policies due to the other reasons: None
   3. Changes in accounting estimates: None
4. Number of issued shares (common stock)

1. Total number of issued shares at the end of the period (including treasury shares)

As of June 30, 2022:	96,454,000 shares
As of March 31, 2022:	96,447,000 shares

1. Number of treasury shares at the end of the period

As of June 30, 2022:	- shares
As of March 31, 2022:	- shares

3) Average number of shares outstanding during the period (cumulative from the beginning of the fiscal year)

Three months ended June 30, 2022:	96,451,703 shares
Three months ended June 30, 2021:	85,515,989 shares

Note: As the Company conducted a 1,000-for-1 common stock split effective on September 30, 2021, each number of shares was calculated based on the assumption that the stock split had been conducted at the beginning of the fiscal year ended March 31, 2022.

1. Non-GAAPperformance measures
   The Company additionally discloses non-GAAP performance measures that are not prescribed by IFRS, the accounting standards applied by the Company, as we believe that such measures are useful for investors to assess the Group's operating performance.

Non-GAAP	Description
performance measure
	Operating profit + (Depreciation and amortization + Share-based payment
EBITDA	expenses + Loss on disposal of property, plant and equipment + Impairment loss
	- Gain from reversal of impairment losses)
Adjusted EBITDA	EBITDA + IPO-related expenses + Marketing expenses*
*Marketing expense	Sales promotion expenses (excluding agency commissions) + Advertising
expenses

• Quarterly financial results reports are exempt from quarterly review conducted by certified public accountants or an audit firm.
• [Proper use of earning forecasts, and other special matters] (Disclaimer on forward-looking statements)
  The earnings forecast and other forward-looking statements contained in this report are based on information currently available to us and certain assumptions that we believe are reasonable. Accordingly, we can give no assurance that they will be achieved. Note that actual results may differ significantly from forecast figures due to a number of factors.

(How to obtain supplementary material on financial results and the details of the financial results briefing)

The Company will promptly post the supplementary material on financial results and the details of the financial results briefing on our website (https://corp.netprotections.com/ir/) after the briefing.

Contents of Attached Materials

1. Qualitative Information on Quarterly Consolidated Financial Results	2
(1)	Status of operating results	2
(2)	Status of financial position	5
(3)	Explanation of forward-looking information including consolidated earnings forecast	5
2. Condensed Quarterly Consolidated Financial Statements and Major Notes	6
(1)	Condensed quarterly consolidated statement of financial position	6
(2)	Condensed quarterly consolidated statement of profit or loss and condensed quarterly consolidated statement of	8
	comprehensive income
(3)	Condensed quarterly consolidated statement of changes in equity	10
(4) Condensed quarterly consolidated statement of cash flows	11
(5)	Notes to condensed quarterly consolidated financial statements	12
	(Going concern assumption)	12
	(Segment information)	12
	(Trade receivables)	12
	(Operating expenses)	12

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1. Qualitative Information on Quarterly Consolidated Financial Results

1. Status of operating results
   The operating results for the three months ended June 30, 2022 (from April 1, 2022 to June 30, 2022) were as follows:

(Millions of yen, unless otherwise indicated)

	Three months ended	Three months ended	Percentage change
	June 30, 2021	June 30, 2022	(%)
Total operating revenue	4,604	4,586	(0.4)
Operating profit	448	58	(87.0)
Profit before income taxes	378	41	(88.9)
Profit attributable or (loss) to owners of parent	236	(14)	-

Business performance by segment is not presented as the Company and its subsidiaries (collectively, the "Group") operate a single segment, Payment Solutions. The Group, nevertheless, discloses its key performance indicators by type of services to the extent possible. The Group's services are divided into the following two types: services for BtoC transactions (under the brand names of NP Atobarai, atone, AFTEE, etc.; hereinafter, the "BtoC Services") and services for BtoB transactions (under the brand name of NP Kakebarai; hereinafter, the "BtoB Services"). The key performance indicators by type of services are as shown below.

(Millions of yen, unless otherwise indicated)

	Three months ended	Three months ended	Percentage change
	June 30, 2021	June 30, 2022	(%)
GMV (non-GAAP)	112,857	118,700	5.2
BtoC Services	90,209	88,864	(1.5)
BtoB Services	22,648	29,835	31.7
Total operating revenue	4,604	4,586	(0.4)
BtoC Services	4,056	3,916	(3.5)
BtoB Services	547	669	22.3
- Other operating revenue	122	155	27.5
Revenue	4,482	4,430	(1.2)
- Invoicing related expenses (non-GAAP)	1,867	1,808	(3.2)
- Bad debt related expenses (non-GAAP)	648	695	7.3
- Other payment related expenses (non-GAAP)	78	93	19.3
Gross profit (non-GAAP)	1,888	1,833	(2.9)
BtoC Services	1,540	1,407	(8.6)
BtoB Services	348	425	22.2
- SG&A and other operating expenses	1,562	1,931	23.6
(non-GAAP)
Operating profit	448	58	(87.0)
+ Depreciation and amortization	337	340	1.0
+ Share-based payment expenses	2	0	(58.6)
+ Loss on disposal of property, plant and	4	12	179.5
equipment
+ Impairment loss	-	-	-
- Gain from reversal of impairment losses	-	-	-
EBITDA (non-GAAP)	791	411	(48.0)
+ IPO-related expenses	4	-	-
+ Marketing expenses (non-GAAP)	55	160	187.9
Adjusted EBITDA (non-GAAP)	852	572	(32.8)

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Note: The Company additionally discloses non-GAAP performance measures that are not prescribed by International Financial Reporting Standards (the "IFRS"), the accounting standards applied by the Company, as we believe that such measures are useful for investors to assess the Group's operating performance.

Non-GAAP	Description
performance measure
GMV	Gross merchandise value for the Group's payment services
Invoicing related expenses	Collection expense + Invoicing expense, primarily the amount of expenses
incurred per invoice
	Allowance for doubtful accounts (addition) + Bad debt expense + Loss on sale of
Bad debt related expenses	trade receivables, primarily the expenses incurred in proportion to the amount
	of invoice
Other payment related expenses	Other expenses required for providing payment services, including credit
screening costs and NP point expenses
Gross profit	Revenue - (invoicing related expenses + bad debt related expenses + other
payment-related expenses)
SG&A and other operating	Operating expenses - (invoicing related expenses + bad debt related expenses +
expenses	other payment-related expenses)
	Operating profit + (Depreciation and amortization + Share-based payment
EBITDA	expenses + Loss on disposal of property, plant and equipment + Impairment loss
	- Gain from reversal of impairment losses)
Marketing expenses	Sales promotion expenses (excluding agency commissions) + Advertising
expenses
Adjusted EBITDA	EBITDA + IPO-related expenses + Marketing expenses

Given the Group serves tens of thousands of merchants, our business structure makes us less dependent on specific merchants, but are susceptible to changes in the e-commerce and payment markets impacted by changes in the macro environment.

Notes on GMV

GMV increased 5.2% year on year (down 1.5% year on year for the BtoC Services, and up 31.7% year on year for the BtoB Services). Main drivers/impediments for the BtoC Services are as follows:

• GMV of merchants that newly adopted our services remained firm.
• In response to the partial amendments to the PMD Act (formally known as the Act on Securing Quality, Efficacy and Safety
  of Products Including Pharmaceuticals and Medical Devices) in August 2021, existing merchants in the beauty and health related industries reduced the placement of new advertisements, resulting in a decline in GMV.
• The growth of e-commerce (EC) channels slowed down as the restrictions on activities, imposed in the wake of the COVID-19 pandemic, were eased, and, as a result, consumers shifted away from EC channels to offline retailers.

Main drivers/impediments for the BtoB Services are as follows:

• Growth of GMV for the merchants serving the food and beverage industry with the easing of restrictions on activities imposed in the wake of the COVID-19 pandemic.

Notes on total operating revenue

Total operating revenue decreased 0.4% year on year (down 3.5% year on year for the BtoC Services, and up 22.3% year on year for the BtoB Services). Main drivers/impediments are as follows:

• A decline in the ratio of total operating revenue to GMV as a result of the growth of the BtoB Services which are comparatively lower in the ratio of operating revenue to GMV than the BtoC Services
• Volume discount as a result of the acquisition of large merchants which contribute significantly to GMV

Note that operating revenue consists of the following two types of fees: "Service fees" which are charged primarily in proportion to the amount billed, and "Invoicing and postal fees" which are the fixed amount charged per invoice. The BtoB services are larger in the amount billed per invoice, and accordingly, the percentage of invoicing and postal fees in operating revenue is smaller. For this reason, the BtoB Services are comparatively lower in the ratio of operating revenue to GMV than the BtoC Services. Meanwhile, the amount of invoicing and postal fees, which are recognized as invoicing related expenses, is almost equal between the two types of services, causing little impact on gross profit for both services.

Notes on gross profit

Gross profit decreased 2.9% year on year (down 8.6% year on year for the BtoC Services, and up 22.2% year on year for the BtoB Services). Main drivers/impediments are as follows:

• Allowance for doubtful accounts was increased as there have been some changes in collection status of receivables

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