Rakuten : Earnings Release for Q2 of FY2022 Financial Results

The following information was originally prepared and published by the Company in Japanese as it contains timely disclosure materials to be submitted to the Tokyo Stock Exchange. This English summary translation is for your convenience only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version. The following financial information was prepared in accordance with International Financial Reporting Standards ("IFRS").

Consolidated Financial Reports (IFRS) for the six months ended June 30, 2022

					Rakuten Group, Inc.
					August 10, 2022
Company name	Rakuten Group, Inc.		Listed	Tokyo Stock Exchange
Code No	4755			URL	https://global.rakuten.com/corp/
Representative	(Title)	Chairman and CEO	(Name)	Hiroshi Mikitani
Contact person	(Title)	CFO	(Name)	Kenji Hirose

Supplementary materials for financial results: Yes

Financial results information meeting held: Yes (For institutional investors and analysts)

1. Consolidated Results for the six months ended June 30, 2022 （January 1 - June 30, 2022）

(1) Consolidated Operating Results				(Yen amounts are rounded to the nearest million)
					(%, YoY)
	Revenue		Operating income	Income before		Net income
		income tax
Six months ended	Millions of Yen	%	Millions of Yen	%	Millions of Yen	%	Millions of Yen	%
893,598	12.6	(197,075)	－	(214,487)	－	(178,163)	－
June 30, 2022
Six months ended	793,671	16.9	(100,889)	－	(95,518)	－	(77,948)	－
June 30, 2021
	Net income	Comprehensive	Basic		Diluted
	earnings per		earnings per share
	attributable to
	income		share attributable	attributable to
	owners of the
			to owners of the	owners of the
	Company
				Company		Company
Six months ended	Millions of Yen	%	Millions of Yen	%	Yen	Yen
(176,617)	－	(63,580)	－	(111.47)	(111.47)
June 30, 2022
Six months ended	(77,082)	－	(33,750)	－	(52.30)	(52.30)
June 30, 2021

Note: In line with the finalization of provisional accounting treatment related to the business combination of an equity method associate company, Seiyu Holdings Co., Ltd., during the fourth quarter ended December 31, 2021, amounts have been retrospectively restated for the six months ended June 30, 2021.

(2) Consolidated Financial Position

			Total equity	Ratio of total equity
			attributable to
	Total assets	Total equity	attributable to
	owners of the
	owners of the
			Company to total
			Company
			assets
As of June 30,	Millions of Yen	Millions of Yen	Millions of Yen	%
18,705,257	1,046,941	1,019,863	5.5
2022
As of December 31,	16,831,221	1,117,290	1,093,719	6.5
2021
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2. Dividends

		Dividend per Share
	1Q	2Q	3Q	4Q	Year
FY2021	Yen	Yen	Yen	Yen	Yen
－	0.00	－	4.50	4.50
FY2022	－	0.00
FY2022 (Forecast)			－	－	－

Note: Dividend per share for the fiscal year ending December 31, 2022 has not been decided yet, and there are no changes to the previously disclosed dividend forecast.

.

3. Estimate of Consolidated Operating Results for year ending December 31, 2022 (January 1 to December 31, 2022)

For the estimate of consolidated operating results for fiscal year 2022, double-digit growth on consolidated operating results for fiscal year 2021 is estimated for fiscal year 2022 consolidated revenue, excluding the securities business whose results are heavily impacted by stock market conditions.

For details, see page 8, 1. Qualitative Information, Financial Statements, etc. (3) Qualitative Information about Consolidated Business Forecasts.

Note: There are no changes to the previously disclosed consolidated forecasts for the year ending December 31, 2022.

Notes

(1) Changes in Significant Subsidiaries during the Current Period

(Changes in Specified Subsidiaries resulting in Change in Scope of Consolidation): No

New:

－ (Company name: －)

Excluded: － (Company name: －)

1. Changes in Accounting Policies and Changes in Accounting Estimates
2. 1. Changes in accounting policies as required under IFRS: No
   2. Changes in accounting policies due to other reasons: No
   3. Changes in accounting estimates: No
3. Number of Shares Issued (Common Stock)
4. 1. Total number of shares issued at the end of the period (including treasury stocks) 1,587,486,000 shares (As of June 30, 2022)
      1,581,735,100 shares (As of December 31, 2021)
   2. Number of treasury stocks at the end of the period

244 shares (As of June 30, 2022)

234 shares (As of December 31, 2021)

3. Average number of shares during the period (cumulative from the beginning of the year) 1,584,396,767 shares (January 1 - June 30, 2022)

1,473,733,763 shares (January 1 - June 30, 2021)

This financial report is not subject to an audit firm's quarterly review.

Explanation about the Appropriate Use of Estimate of Operating Results, and Other Special Matters Estimate of consolidated operating results for the year ending December 31, 2022 are based on information that is available at the time of writing, but a number of known and unknown factors could cause actual results to differ from projections.

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1. Qualitative Information, Financial Statements, etc.

(1) Qualitative Information Concerning Consolidated Business Results

The Rakuten Group discloses consolidated business results in terms of both its internal measures which management relies upon in making decisions (hereinafter the "Non-GAAP financial measures") and those under IFRS.

Non-GAAP operating income is operating income under IFRS (hereinafter "IFRS operating income") after deducting unusual items and other adjustments as prescribed by the Rakuten Group. Management believes that the disclosure of Non-GAAP financial measures facilitates comparison between the Rakuten Group and peer companies in the same industry or comparison of its business results with those of prior fiscal years by stakeholders, and can provide useful information in understanding the underlying business results of the Rakuten Group and its future outlook. Unusual items refer to one-off items that the Rakuten Group believes shall be excluded for the purposes of preparing a future outlook based on certain rules. Other adjustment items are those that tend to differ depending on the standards applied, and are therefore less comparable between companies, such as share based compensation expenses and amortization of acquisition-related intangible assets.

Note: For disclosure of Non-GAAP financial measures, the Rakuten Group refers to the rules specified by the U.S. Securities and Exchange Commission but does not fully comply with such rules.

i) Business Results for the six months ended June 30, 2022 (Non-GAAP basis)

The world economy during the six months ended June 30, 2022 has been recovering, despite signs of a partial standstill. Looking ahead, it will be necessary to pay attention to the risk of economic downturn due to fluctuations in financial markets, rising prices, supply-side restrictions, and other factors amid global monetary tightening. The Japanese economy showed signs of recovery as the normalization of economic and social activities progressed.

As the spread of COVID-19 brings restrictions on going out and consumer behavior, societal demand has increased even further for digital services that enable people to purchase products and enjoy services without physical contact or face-to-face interaction. The recent situation in Ukraine has also had a certain degree of impact on the Group's business activities through economic sanctions imposed by various countries, but it is expected that this will only have a limited impact on the Group's business performance and financial status.

Under such an environment, the Rakuten Group will work to further evolve the Rakuten Ecosystem and enhance the competitiveness of the Rakuten Group mainly by developing and promoting the use of services that leverage advanced technologies such as AI, virtualization networks, and data both online and offline based on membership and shared loyalty point programs.

In the Internet Services segment, factors including measures to improve customer convenience, such as the introduction of a common free shipping (shipping included) threshold for participating merchants on internet shopping mall "Rakuten Ichiba", successfully led to the retention of customers against the backdrop of "stay-at-home consumption" amid the COVID-19 pandemic. In addition, a recovery in demand for domestic travel and other factors contributed to growth in transaction volume in domestic e-commerce services. In the FinTech segment, the customer base for each service has continued to expand, and the Group achieved increases in revenue and profit in credit card related services, banking services, and securities services, among others. In the Mobile segment, revenue increased during the six months ended June 30, 2022 due to an increase in telecommunication fee revenues and other factors.

As a result, the Rakuten Group recorded revenue of ¥893,598 million, up 12.6% year-on-year for the six months ended June 30, 2022, but due to ongoing prior investments in the Mobile segment, such as the installment of its own base stations, it recorded Non-GAAP operating loss of ¥177,391 million, compared to Non-GAAP operating loss of ¥91,124 million in the six months ended June 30, 2021.

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(Non-GAAP)

				(Millions of Yen)
	Six months ended	Six months ended	Amount	% Change
	Change
	June 30, 2021	June 30, 2022	YoY
	YoY
Revenue	793,671	893,598	99,927	12.6%
Non-GAAP operating loss	(91,124)	(177,391)	(86,267)	－%

1. Reconciliation of Non-GAAP Operating Income to IFRS Operating Income
   For the six months ended June 30, 2022, amortization of intangible assets of ¥4,665 million and share

based compensation expenses of ¥6,405 million were excluded from Non-GAAP operating income. One- off items of ¥8,614 million recorded during the six months ended June 30, 2022 were expenses associated with an increase in provision for customer points as a result of revisions in the Rakuten Point Terms of Use.

			(Millions of Yen)
	Six months ended	Six months ended	Amount Change
	June 30, 2021	June 30, 2022	YoY
Non-GAAP operating loss	(91,124)	(177,391)	(86,267)
Amortization of intangible assets (PPA)	(4,334)	(4,665)	(331)
Share based compensation expenses	(5,431)	(6,405)	(974)
One-off items	－	(8,614)	(8,614)
IFRS operating loss	(100,889)	(197,075)	(96,186)

iii) Business Results for the six months ended June 30, 2022 (IFRS basis)

For the six months ended June 30, 2022, the Rakuten Group recorded revenue of ¥893,598 million, up 12.6% year-on-year, IFRS operating loss of ¥197,075 million, compared with IFRS operating loss of ¥100,889 million in the six months ended June 30, 2021, and net loss attributable to owners of the Company of ¥176,617 million, compared with net loss of ¥77,082 million in the six months ended June 30, 2021. In line with the finalization of provisional accounting treatment related to the business combination of an equity method associate company, Seiyu Holdings Co., Ltd., during the fourth quarter ended December 31, 2021, amounts have been retrospectively restated for the six months ended June 30, 2021. For further details, please refer to "2. Consolidated Financial Statements (Summary) and Notes, (6) Notes to the Summary of Consolidated Financial Statements for the six months ended June 30, 2022, (Share of Income of Investments in Associates and Joint ventures)".

(IFRS)

				(Millions of Yen)
	Six months ended	Six months ended	Amount		% Change
	Change
	June 30, 2021	June 30, 2022		YoY
	YoY
Revenue	793,671	893,598	99,927		12.6%
IFRS operating loss	(100,889)	(197,075)	(96,186)		－%
Net loss attributable	(77,082)	(176,617)	(99,535)		－%
to owners of the Company

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iv) Segment Information

Business results for each segment are as follows. In terms of the IFRS management approach, segment profit or loss is presented on a Non-GAAP operating income basis.

From the second quarter ended June 30, 2022, the aggregation method of point expenses in the headquarter administrative departments and business departments has been changed and applied retrospectively. In accordance with this change, segment revenue and segment profit in the Internet Services segment decreased by ¥2,350 million for the six months ended June 30, 2021, compared to those before the retrospective application. In addition, segment revenue and segment profit in the Internet Services segment decreased by ¥1,119 million for the second quarter ended June 30, 2021. This change has no impact on consolidated revenue, Non-GAAP operating loss, or operating loss.

Internet Services

In domestic e-commerce services, the mainstay of Internet services, the Rakuten Group is aiming for further growth in gross merchandise sales and revenue by working on various initiatives, including sales promotion activities to cultivate loyal customers and win new customers, promotion of cross-use of services, promotion of the introduction of a common free shipping (shipping included) threshold and further opening up the Rakuten Ecosystem. Services such as the internet shopping mall "Rakuten Ichiba" and Rakuten Seiyu Netsuper, which provides home delivery services for food and daily necessities, have continued to see further growth in transaction volume even compared with the six months ended June 30, 2021 when the Rakuten Group benefited from the effects of the COVID-19 pandemic which gave a boost to the businesses. This was because these measures successfully led to the retention of customers who began using the services against the backdrop of increased demand for online shopping following the growth in "stay-at-home consumption". The online travel booking service, Rakuten Travel, saw growth in transaction volume compared to the six months ended June 30, 2021, thanks to the success of sales promotion measures and other measures in line with the recovery in demand for domestic travel.

In other Internet services including overseas Internet services, a recovery was seen in revenue growth, mainly in the US cashback service "Rakuten Rewards", due to efficient marketing measures and a recovery in consumer behavior.

In the six months ended June 30, 2021, the Group recorded ¥28,200 million in valuation gains on investment securities related to investments in FinTech-related companies in the investment business, which is a significant decrease compared to the same period of the previous fiscal year. The Company has completed the succession of all but part of the rights and obligations in connection with its logistics business to JP Rakuten Logistics, Inc., a joint venture with Japan Post Co., Ltd., which became an associate of the Company accounted for using the equity method in the third quarter ended September 30, 2021. Accordingly, part of income (losses) of the logistics business, which was recorded in the Internet Services segment until the second quarter ended June 30, 2021, is recorded in share of income (losses) of investments in associates and joint ventures from the third quarter ended September 30, 2021.

As a result, revenue for the Internet Services segment rose to ¥505,699 million, a 9.8% year-on-year increase, while segment profit stood at ¥38,555 million, a 31.8% year-on-year decrease.

				(Millions of Yen)
	Six months ended	Six months ended	Amount	% Change
	Change
	June 30, 2021	June 30, 2022	YoY
	YoY
Segment revenue	460,461	505,699	45,238	9.8%
Segment profit	56,556	38,555	(18,001)	(31.8)%

FinTech

In credit card related services, Rakuten Card's membership base continued to expand after the cumulative total number of cards issued surpassed 26 million in April 2022. In addition, a recovery in offline consumption was seen primarily against a backdrop of the lifting of the COVID-19pre-emergency status in March of the same year, contributing to growth in shopping transaction volume. In banking services, we have kept working to expand our customer base, resulting in an increase in new acquisitions of bank

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