ZOZO, Inc.

to start the financial results announcement of ZOZO for the second quarter of FY 2022 ending in March. In order to prevent the spread of COVID-19, we would only be offering live streaming this time. And we plan to have the session until 5.35 p.m. After this, on a separate Zoom channel, we will have a Q&A session with institutional investors. I would like to now introduce the participants. Representative Director, President, and CEO, Kotaro Sawada.

Hello. Director, Executive Vice President, and CFO, Koji Yanagisawa. Hello.

Director and COO, Fuminori Hirose. Hello. We have three presenters today. Our CFO, Yanagisawa, will take us through the business results. Hello, I'm Yanagisawa. I'd like to walk you through the earnings results of the second quarter of FY22 ending in March. The presentation document we will be using today has already been uploaded to the RR page of our website, so please take a look. And by the way, our wardrobe, we're all wearing hoodies today because it's trending right now. Let's jump right in. Here are the highlights. So once again, we included a lot of manga featuring Kuritaro. So that's the hero wearing the hoodie like us. So please enjoy that. Here are the highlights of the second quarter, our gross merchandise value. GMV went up by 23.6% year-on-year, landing at 229.5 billion yen. GMV excluding the other GMV went up by 12.7% year-on-year, landing at 209 billion yen. Operating profit was up by 19.5%, landing at 23.7 billion yen. Operating profit margin was 11.4%, improving by 0.7 point year-on-year. The progress rate against the full-year target is for GMV 48.5%, OP 49.8% against the plan. It is progressing steadily. Next slide, please. This is page seven of the document. These are the quarterly changes of the business results. In the second quarter, GMV, excluding the other GMV, was up by 13.5% year-on-year. After the Tokyo Olympic Games, we temporarily experienced a decline of visitors to the site, but we sustained more than 10% of growth year-on-year, nevertheless, and it is doing quite well. Regarding operating profit, on top of GMV and the advertising business growth contributing to the increase of gross profit, we managed to reduce the logistic costs and payment collection commission fee, which worked to improve OP by 18.1% year on year. With respect to OP margin, and this is due to the fashion industry seasonality, both retail price and order value tend to be low in the second quarter. And it's quite difficult to generate a high margin. However, we managed to land high at 10.9% next. I'd like to touch on the highlights of the business results. And by the way, you see new characters appearing on this manga. This is page eight. Let's look at the increase-decrease analysis of the operating profit. OP was $19.9 billion in the second quarter last year, and this year it was $23.79 billion. It improved by $3.89 billion. Factors attributable to the growth of the OP were, there are three. The increase of consignment shop commission due to the GMV growth. $5.28 billion. The increase of sales from the advertising business, $1.2 billion. The growth of shipping revenue and payment settlement revenue coming from the GMB expansion, $2.15 billion. On the other hand, factors that drove down the OP were, and there are four of them, the increase in Fixed costs, including the increase in the number of employees, logistic basis, and outsourcing, minus 1.86 billion. The increase in variable costs correlating to the GMV growth, minus 2.21 billion. The increase of promotion expenses due to the active airing of TV commercial, minus 650 million. And other expenses, minus 20 million. Next slide, please. This is page nine of your handout, the balance sheet. Compared to last year, cash and deposits shows decline and treasury stock shows increase. And this is because as we have explained in the first quarter financial results announcement, we acquired treasury stocks to adapt ourselves to the prime section. And for other points, there's really no major change. Next, page 10. This is our consolidated cash flows. For cash flows from operating activities, there was increase in income taxes paid, so it came down. For cash flows from investing activities, there were expenses related to the new office and expansion of the logistics center and warehouses. So we do see a change here. For cash flows from financing activities, as I have explained, there were gains and losses from purchase and disposal of the treasury stocks. So you do see a major change here. Next slide, please. This is page 17 of your handout, quarterly changes of GMV. During the second quarter, Z Holdings executed aggressive promotion, driving up the PayPayMole GMV share by 3.5 points year on year. This now makes up for 8.3% of our GMV. That is a big jump. Also, the share of the other GMV, which started to be recorded from the second quarter of the previous year, amounted to 9.2% this quarter. Next slide, please. This is page 21 of your handout. SG&A breakdown as of the quarter, as of the second quarter of this year. SG&A against GNV for the second quarter was 23% down by 0.4% year on year. The ratio decrease is attributed to these main reasons. One, with the application of the new revenue standard, point related expenses recorded as an SG&A expense last year is now deducted from net sales. And this decreased the reward point related expenses by 0.5 point. improvement of the logistic basis efficiency resulted in a 0.3 point decline of logistics related expenses under payroll and staff costs. That's the second point. And thirdly, improvement of the economic conditions coming from the change of the payment collection company for credit card payment resulted in 0.3 point decline in payment collection commission. This is the ratio of payment collection commission against the GMV. So that was 0.3 point change. And mainly due to the change of packing materials, others decreased by 0.3 point. We changed our packing materials in the middle of the second quarter of the previous year. Factors that increased SG&A are, there are two reasons. the advertising expenses related to TV commercial and other proactive measures and free distribution of Zozo glass plus 0.6 point. The second factor is the rent expenses going up by 0.2 point coming from the increase of the logistic basis. Next slide, please. Page 22, let's look at the OP and OPM changes. In the second quarter, coupled with the GMV growth, we managed to improve gross profit thanks to the advertising business growth and reduction of SG&A. And as a result, our OP margin improved by 0.4 point landing at 10.9% year on year, which is at a quite a high level. Next slide, please. And moving on to the main KPIs of Zozo Town.