Step : Non-consolidated Financial Results for the Second Quarter of the Fiscal Year Ending September 30, 2021

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.

Non-consolidated Financial Results

for the Second Quarter of the Fiscal Year Ending September 30, 2021

[Japanese GAAP]

April 27, 2021

Company name: STEP CO.,LTD.

Stock exchange listing: Tokyo Stock Exchange

Stock code: 9795

URL: https://www.stepnet.co.jp/

Representative: Yousuke Endou, Representative Director and President

Contact: Noriaki Arai, Director and Managing Executive Officer

Phone: [phone]

Scheduled date of filing quarterly securities report: May 7, 2021

Scheduled date of commencing dividend payments: May 14, 2021

Availability of supplementary briefing material on quarterly financial results： Yes

Schedule of quarterly financial results briefing session： None

(Amounts of less than one million yen are rounded down.)

1. Non-consolidated Financial Results for the Second Quarter of the Fiscal Year Ending September 30, 2021

(October 1, 2020 to March 31, 2021)

(1) Operating Results

(% indicates changes from the previous corresponding period.)

Net sales

Operating profit

Ordinary profit

Profit

For the second quarter ended

Million yen

%

Million yen

%

Million yen

%

Million yen

%

March 31, 2021

6,307

10.2

1,707

35.7

1,749

35.5

1,204

36.3

March 31, 2020

5,722

0.5

1,258

5.2

1,290

5.2

883

4.9

Profit per share

Diluted earnings

per share

For the second quarter ended

Yen

Yen

March 31, 2021

72.99

―

March 31, 2020

53.53

―

(2) Financial Position

Total assets

Net assets

Equity ratio

Net assets per share

Million yen

Million yen

%

Yen

As of March 31, 2021

26,911

21,937

81.5

1,329.06

As of September 30, 2020

26,036

21,060

80.9

1,275.93

(Reference) Equity: As of March 31, 2021: ¥ 21,937million

: As of September 30, 2020: ¥ 21,060million

2. Dividends

Dividend per share

1st

2nd

3rd

Year-end

Total

quarter-end

quarter-end

quarter-end

Yen

Yen

Yen

Yen

Yen

Fiscal year ended September 30, 2020

―

20.00

―

20.00

40.00

Fiscal year ending September 30, 2021

―

20.00

Fiscal year ending September 30, 2021

―

20.00

40.00

(Forecast)

(Note) Revision to dividend forecast announced most recently: None

3. Financial Results Forecast for the Fiscal Year Ending September 30, 2021 (October 1, 2020 to September 30, 2021)

(% indicates changes from the previous corresponding period.)

	Net sales		Operating profit	Ordinary profit	Profit		Profit per share
	Million yen		%	Million yen	%	Million yen	%	Million yen		%	Yen
Full year	12,211		11.7	2,706	40.2	2,741	39.2	1,848		37.6	111.96

(Note) Revisions from financial results forecasts announced most recently: None

*Note

1. Application of special accounting treatment for the preparation of the quarterly financial statements: None
2. Changes in accounting policies, changes in accounting estimates and retrospective restatement

1. Changes in accounting policies due to the revision of accounting standards: None
2. Changes in accounting policies other than 1) above: None
3. Changes in accounting estimates: None
4. Retrospective restatement: None

1. Total number of issued shares (common shares)

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

As of March 31, 2021: 16,670,000 shares

As of September 30, 2020: 16,670,000 shares

1. Total number of treasury shares at the end of the period: As of March 31, 2021: 163,983 shares
   As of September 30, 2020: 163,983 shares
2. Average number of shares during the period:

As of March 31, 2021: 16,506,017 shares

As of March 31, 2020: 16,506,745 shares

*These quarterly financial results are not subject to auditing by certified public accountants or audit firms.

*Explanation on the proper use of financial results forecast and other notes.

The statements regarding forecast of financial results in this report are based on the information that is available to the Company, as well as certain assumptions that are deemed to be reasonable by management, and they are not meant to be a commitment by the Company. Therefore, there might be cases in which actual results differ materially from forecast values due to various factors. For the suppositions that from the assumptions for earnings forecasts and cautions concerning the use thereof, please refer to "Qualitative Information on the Quarterly Financial Results (3) Explanation of forward-looking statements including business forecasts" on page 4 of this report.

Table of Contents of Appendix

1. Qualitative Information on the Quarterly Financial Results ……………………………………………………………2
2. 1. Explanation of Operating Results ……………………………………………………………………………………2
   2. Explanation of Financial Condition …………………………………………………………………………………3
   3. Explanation of forward-looking statements including business forecasts ……………………………………………4
3. Quarterly Financial Statements and Principal Notes ……………………………………………………………………6
4. 1. Quarterly Balance sheets ………………………………………………………………………………………………6
   2. Quarterly Statements of income ………………………………………………………………………………………8
   3. Quarterly Statements of Cash Flows …………………………………………………………………………………9
   4. Notes to Quarterly Financial Statements ……………………………………………………………………………10
      (Notes on going concern assumption) …………………………………………………………………………………10
      (Notes on significant changes in the amount of shareholders'equity) ………………………………………………10
      (Segment information, etc.) ……………………………………………………………………………………………10
5. Supplementary Information ……………………………………………………………………………………………10
6. 1. Results of production and orders received ………………………………………………………………………… 10
   2. Sales results …………………………………………………………………………………………………………10

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1. Qualitative Information on the Quarterly Financial Results

(1) Explanation of Operating Results

In the second quarter (January-March) of the current fiscal year, the 3rd-grade junior high school and high school students took entrance exams under unprecedented circumstances due to the COVID-19 crisis. As for the student recruitment, this quarter is the time when new students tend to consider attending the tutoring schools for the new school year.

First of all, in regard to the entrance exams in the high school entrance examination course (for elementary and junior high school students) this spring, we were able to be the top tutoring school for the third consecutive year in "the number of students passing the entrance exams at Yokohama Suiran High School, which is an outstanding school with strong influence in the Yokohama and Kawasaki areas," and "the number of students passing the entrance exams at the top public high schools in Yokohama City." In addition, as for the number of students passing the entrance exams at Kawawa High School, the top-level school in the northern area of Yokohama, we have reached the top among all the tutoring schools for the second consecutive year, steadily strengthening the foundation as a top brand in Yokohama. We also reached the top in the number of students passing the entrance exams at all five of the preparatory schools in Kanagawa that are particularly focused on improving academic performance (Yokohama Suiran, Shonan, Hakuyo, Kawawa, and Atsugi high schools).

In addition, a total of 2,192 students passed the exam at the top public high schools in Kanagawa Prefecture, and we remained at the top among all the tutoring schools in Kanagawa. As a result, 42.9% of our students passed the top schools, among those who passed the prefectural public high schools. Looking in detail, we became the top tutoring school in terms of the number of students that passed the exam at 15 of the 19 top high schools in Kanagawa and 15 of the 19 of the schools that underwent the special "tokushoku kensa test" (descriptive test) that characterizes the current exam system. We continued to outperform other tutoring schools this spring. In addition, the number of students who have passed the exam at the Tokyo Gakugeidai High School, which is co-ed and has the most difficult entrance exam among the schools within the school commuting area for our students, has reached 131 in the end (the number of our students who have passed the exam at the first selection was 91, 41.2% of 221 in all at that time). We have the largest number of students who passed the school among all tutoring schools for 13 consecutive years.

In the university entrance examination course (for high school students), this spring's entrance exam was more stressful than usual for the students, as it was the first year of the new entrance exam system (Common Entrance Examination for University Admission) in addition to the COVID-19 factors. Under such circumstances, we were able to pass 10 students for Tokyo University, 4 students for Kyoto University, 10 students for Hitotsubashi University, and 11 students for Tokyo Institute of Technology (all from Kanagawa Prefectural High School). In addition, 6 prefectural high school students also passed the Medical Faculty of a national and public university, and the number of students passing the entrance exams for all national and public universities reached a record high of 270 (up 37.8% from 196 in the previous fiscal year). As for the private universities, a total of 438 students passed the entrance exams at Waseda, Keio, and Sophia Universities (up 71.1% from 256 in the previous fiscal year), and a total of 1,462 students passed the entrance exams at the so-called Ridai MARCH Schools (Tokyo University of Science, Meiji, Aoyama Gakuin, Rikkyo, Chuo, and Hosei) (up 27.4% from 1,148 in the previous fiscal year), both record highs. It is noteworthy that most of these pass results are achieved by public high school students, who tend to be inferior to private high schools in their pass results in the Tokyo metropolitan area. The successful results can be proved to be very meaningful for us. Although there was an objective condition that students were able to spend time devoting themselves to their studies during the period when schools are closed and club activities were limited due to COVID-19, the number of public high school students passing the first-choice universities could be increased if we built a certain study system and structure.

The growth in success results has strengthened our brand as a face-to-face live class school in Kanagawa Prefecture, mainly for public high school students. As the university entrance exams continue to change, we will continue to be proactive and realistic, flexibly review the curriculum and teacher training content, and will work to further improve the content of our teaching.

Although student recruitment was a gradual uptrend until the first quarter, the trend toward student increase became clear around the winter course. The number of elementary school students, which had been sluggish amid the COVID-19 crisis, also turned positive from January 2021 onward. As a result, the average number of students during the cumulative second quarter increased by 2.4% year-on-year. As of the end of the second quarter, the total number of students in all grades, including the high school entrance examination course

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and the university entrance examination course, increased by 7.1% year-on-year.

Furthermore, from the end of the second quarter to the middle of April, student numbers grew in almost all regions of Kanagawa Prefecture. In particular, the number of students at the 5th to 6th grades in elementary school in the high school entrance examination course, rose 22.0% year-on-year.

Last year, the recruitment of new high school freshmen was directly affected by COVID-19 during the student recruitment period and recorded a year-on-year decrease. However, this year, the high school division was off to a good start, with our classes at 10 of the 15 schools for university entrance exams fully booked in early April when the first semester started.

As a result of these factors, as of mid-April, the total number of students in all grades increased by 9.7% year-on-year. This can be said to be due to the fact that some households who had postponed attending the tutoring school due to COVID-19 have begun to attend face- to-face classes, as they thought it will take more time for the containment of COVID-19.

Another factor is that our efforts under COVID-19 to enhance online classes (with over 40,000 videos), our hybrid system that allows students to choose between face-to-face classes and live online classes, and our drastic reduction of tuition fees under the State of Emergency in April and May 2020. We believe that all of our efforts have been supported by many families and have increased their trust in our company's stance of being close to the students.

With regard to the impact of COVID-19 and the responses against it, Kanagawa Prefecture also declared a State of Emergency on January 7, 2021 (which ended on March 21). Accordingly, in the STEP schools as a matter of course, we have implemented more thorough measures to prevent infectious diseases and made it possible for students to select face-to-face classes and live online classes. There were no major barriers to the implementation of live online classes, as we had a system in place to ensure smooth implementation in all of our school buildings based on our experience and accumulation from the first declaration of the State of Emergency in 2020. Going forward, while mainly focusing on face-to-face live classes, we will continue to closely monitor the situation of COVID-19 and maintain a system that allows us to conduct live online classes in parallel at any time.

STEP kids course opened two schools in March, 2020, the Tsujido School (JR Tokaido Line Tsujido Station) and the Chigasaki School (JR Tokaido Line Chigasaki Station), and began networking. In the first year of the two new schools, we accepted applications only for grades 1 and 2 of elementary school students, and we expect the number of students to increase with the addition of grade 3 from this spring and grade 4 from spring 2022. We will continue to accumulate and share operational know-how at three schools with the aim of achieving higher-quality operations.

Three new schools were opened during the current fiscal year in the high school entrance examination course : Motosumiyoshi School (Tokyu Toyoko Line Motosumiyoshi Station, Nakahara-ku, Kawasaki City), Hi-STEP Kawasaki School (JR Kawasaki Station, Saiwai- ku, Kawasaki City) in the Kawasaki area where we are focusing, and Kaminagaya School (Yokohama City Subway Kaminagaya Station, Konan-ku, Yokohama City) in Yokohama City. Motosumiyoshi and Kaminagaya schools began their classes in March and Hi-STEP Kawasaki in April.

As a result of the opening of these new schools, there are currently 154 schools, including 135 in the high school entrance examination course, 15 in the university entrance examination course, 1 in the individualized instruction course, and 3 in the kids course.

We recorded net sales of 6,307 million yen (up 10.2% year on year), operating income of 1,707 million yen (up 35.7% year on year), ordinary income of 1,749 million yen (up 35.5% year on year), and net income of 1,204 million yen (up 36.3% year on year).

1. Explanation of Financial Condition

1. Assets, liabilities and net assets at the end of the second quarter of the fiscal year under review (Assets)

Total assets at the end of the second quarter stood at 26,911 million yen, an increase of 874 million yen from the end of the previous fiscal year.

Current assets increased 927 million yen from the end of the previous fiscal year to 9,142 million yen, mainly due to an increase in cash and deposits.

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