アクシージア（4936） – 【Delayed】Presentation Material for Our Business Plan and Growth Potential

December 23, 2021Presentation Materialfor Our Business Plan and Growth PotentialAXXZIA Inc.Copyright © AXXZIA Inc. All rights reserved.1. Corporate Information5. Competitive Advantage• Company Overview and HistoryAdvantages in the Chinese MarketExperienced Management TeamAcquisition of Import Registration (NMPA)Agenda•••••••••••Awards• Management Philosophy• Operating Results2. Concept / VisionThree CharacteristicsPositioning Map3. Market EnvironmentTrends in the Chinese MarketPremium Skincare Market in ChinaE-Commerce Market in ChinaBrand Market in ChinaBusiness Model and AdvantagesProduct FeaturesMain and Up-and-Coming Brands4. Business Model•••••••••••6. Growth StrategyProduct Development and ManufacturingSales ChannelsMarketing StrategyAnti-Counterfeiting MeasuresBusiness Environment and OpportunitiesMedium-Term Management Plan (3-Year)Strengthen Management Base to Support GrowthBasic Policy in the Medium-Term Management Plan•••Brand StrategyMarketing StrategyBusiness Alliance / M&AESG: Balance Business Objectives and Results7. Risk Information8. AppendixCopyright © AXXZIA Inc. All rights reserved.21. Corporate InformationCopyright © AXXZIA Inc. All rights reserved.Company OverviewBoard of DirectorsPresidentExecutive Vice PresidentManaging Director Managing DirectorDirectorDirectorOutside DirectorOutside DirectorCorporate AuditorOutside Corporate AuditorOutside Corporate AuditorDan TakuXiaowei AmanoWu JunZhang HuiMasahiro YoshidaYasuhito FukuiYujiro ArakawaReiko AkemineMasahiro MiyajimaKenji ShimizuKuninobu OkudaCompany Overview[Establishment][Capital][Location] [Office]December 21, 20112,109 million yen （As of end of July 2021）Tokyo, JAPANTokyo Head OfficeTokyo 2nd Head OfficeOsaka Sales OfficeFukuoka Sales OfficeAXXZIA GINZA SIX[Business Activities] Manufacturing / sales of cosmetics and supplements[Market]TSE Mothers (4936)Consolidated SubsidiariesXiaozi Cosmetic (Shanghai) Inc.Copyright © AXXZIA Inc. All rights reserved.4Corporate History2021• Listed on the Mothers market (section) of the Tokyo Stock Exchange• Launched The B PRO, salon-exclusive brand for professional use• Opened AXXZIA GINZA SIX Store, the Company’s first directly managed store• Opened AXXZIA’s flagship store on Douyin/TikTok (China’s leading mobile video app)• Shanghai subsidiary opened a flagship store specializing in skincare products on Douyin/TikTok (China’s leading mobile video app)• Shanghai subsidiary opened AXXZIA’s flagship store on JD.com, a major e-2019commerce platform in China• Opened AXXZIA’s flagship stores on China’s leading e-commerce platforms RED and Tmall Global• Launched AGtheory, skincare brand for the retail market• Established Xiaozi Cosmetic (Shanghai) Inc. as a consolidated subsidiary (100%)20182016• Launched Beauty Eyes, eye care and skincare brand for the retail market• Launched Venus Recipe, supplements brand for the retail market2013• Launched Le Ciel de L’aube, skincare brand for beauty salons and spas• Changed company name from Orientina Cosme Co., Ltd. to AXXZIA Inc.20122011• Established Orientina Cosme Co., Ltd. in Tokyo, Japan (Capital: 9 million yen)• Started development and production of cosmetics for beauty salonsCopyright © AXXZIA Inc. All rights reserved.5Experienced Management TeamDan Taku, originally from China, completed graduate school in Japan and worked for a publicly listed company before starting his own business in 2003. He ran his own beauty salons and imported and exported beauty equipment before moving to the current structure of AXXZIA in 2011. His philosophy is to “present Asian beauty from Japan to the world.”Dan TakuPresidentXiaowei Wang (Xiaowei Amano)Executive Vice PresidentZhang Hui, originally from China, graduated with a Master of Law degree from a Chinese university. After visiting Japan, he also went to graduate school in Japan, and joined AXXZIA after graduation. Currently, he serves as Director of Domestic and Overseas Sales and is responsible for the overseas distribution network connecting AXXZIA products with the rest of the world, with a focus on Asia.Zhang HuiManaging DirectorMasahiro YoshidaDirectorXiaowei Wang graduated from university and then worked on branding and media strategy as the Head of Strategy and Marketing for Europe, the US, and China. After AXXZIA was established, she gathered information from around the world and oversaw domestic and international marketing strategies and new product design, while also being responsible for creative development.Masahiro Yoshida graduated from university and then worked for a major general trading company, where he was involved in the trading of life science-related chemicals. He then launched a Japanese subsidiary of a foreign cosmetics brand. Since joining AXXZIA, he has been using his experience and insight to replicate the steps that lead to brand development, growth in Japan, and growth in the Asian market.Copyright © AXXZIA Inc. All rights reserved.6Awards in Japan2016 Best of Venture Award2017 Popular Cosmetics Among Adult Women2017 Growth Companies2018 Monde Selection Bronze AwardGirls Happy Style Selection 2018, Smile Award,Glitter Award, Happy Award 2018 Popular Cosmetics Among Adult Women 2021Eye Care Cosmetics Recommended by Beauty ProfessionalsNo. 1 in CategoryCopyright © AXXZIA Inc. All rights reserved.72016Awarded 2016 Best of Venture Award by Beauty and Healthcare News Inc.Ranked 1st Place in Rakuten Research Ranking in the Cosmetics Popular AmongAdult Women categoryAwarded 2017 Growth Company Brand by Beauty and Healthcare News Inc.Awarded 2018 Monde Selection Bronze Award　Awarded product: Venus Recipe AG Drink PlusAwarded Smile Award, Glitter Award, and Happy Award in Girls Happy StyleSelection 2018 (selected by Japanese TV program Girls Happy Style)　Awarded product: AGtheory Clarifying Essence, Venus Recipe AG Drink PlusRanked 1st Place in selection by JMRO, Inc. in Cosmetics Popular Among AdultWomen category　Survey overview: November 2018 image survey2019Ranked 3rd Place in @cosme word-of-mouth ranking in the Skincare BeautyAppliances category　Survey period: May 1, 2019 to July 31, 2019 (three months)　Awarded product: MATE FOR EYES2021Ranked 1st Place in selection by JMRO, Inc. in the Eye Care CosmeticsRecommended by Beauty Professionals category　According to JMRI, Inc.’s survey Survey overview: February 2021 brand image survey Survey period: January 19, 2021 to February 2, 202120172018International Awards TmallSupplement Category W11 Rapid Growth AwardTmall2020 Emerging Company of the Year AwardJapan Buyers Community2020 Outstanding Strategic Alliance Enterprise AwardJapan Buyers CommunityExcellent Value Brand Award2021 RED Skincare Trends Brand AwardCopyright © AXXZIA Inc. All rights reserved.82019Winner of 医药保健双11-新店成长奖(Winner of Supplement Category W11 Rapid Growth Award by Tmall)2020Winner of 财年新锐奖(Winner of 2020 Emerging Company of the Year Award by Tmall)Winner of 优质战略合作品牌方(Winner of 2020 Outstanding Strategic Alliance Enterprise Award by JapanBuyers Community)Winner of 卓越价值品牌(Winner of Excellent Value Brand Award by Japan Buyers Community)Winner of 2021小红书美护趋势品牌(Winner of 2021 RED Skincare Trends Brand Award)2021Management PhilosophyThe name AXXZIA symbolizes the “beauty of the female chromosome” (XX) and the desire to transmit the “beauty of Asia” (AZIA). With innovation and passion, we will continue to propose beauty from Japan to the world.VISIONCODE OF CONDUCT❶ To be a trusted global beauty company that continues to create value.❷ To be a group of professionals who meets high expectations.❸ To make everyone beautiful and happy by continuing to propose advanced and innovative beauty products with speed and flexibility.❶ Take action first and think outside the box.❷ Be considerate and humble.Copyright © AXXZIA Inc. All rights reserved.9Operating Results (Consolidated)(1) Net sales(2) Gross profit(3) SG&A expenses(4) Operating income10Copyright © AXXZIA Inc. All rights reserved.Operating Results (Consolidated)(5) Ordinary income(6) Profit attributable to owners of parent11Copyright © AXXZIA Inc. All rights reserved.2. Concept / VisionCopyright © AXXZIA Inc. All rights reserved.Three CharacteristicsConceptThree PillarsAs a nicher, we will invest our management resources in segments where we can leverage our strengths and aim for highly efficient management to become the No. 1 local brand.■ The premium skincare market in China is our main battlegroundChina market premium segment■ All manufacturing done by OEMs without fixed assetsFabless production in Japan■ Focus on sales on large platformsCross-border e-commerce platformsCopyright © AXXZIA Inc. All rights reserved.13Positioning Among Japanese Cosmetic Companies◼ We are the only cosmetics company that sells primarily through e-commerce, with most sales in China.◼ Even when looking at other retail sales companies, there are no other companies in the same position as us.Mainly mail-order salesMainly overseas sales (sales ratio: approx. 90%)Mail order sales: approx. 70%・PATH・Premier Anti-Aging・Shinnihonseiyaku・Kitanotatsujin・Pharma Foods・Tea Life・4Cs HoldingsMainly Japan salesMail-order sales: over 80%Mainly Japan salesMail-order sales: 50% – 80%Mainly Japan salesMail-order sales: 15% – 50%・I-ne・FANCL・HABAMainly Japan salesMainly Japan salesMainly physical store sales・COTA・Euglena・HOUSE OF ROSE・C’bon・ADJUVANT・IVY・NOEVIR・POLAHalf Japan, half overseas (overseas sales ratio: 50%)Mail-order sales: 50%Soiken HoldingsMainly overseas salesMainly Japan sales (overseas sales ratio: 30% – 45%)Mainly physical store salesHalf Japan, half overseas (overseas sales ratio: approx. 50%)Mainly physical store salesMilbonShiseido・Mandom・KOSE・Rohto PharmaceuticalMainly Japan sales(overseas sales ratio: approx. 15%)Mainly physical store salesMainly physical store salesSource: Securities reports and securities registration statements of each company* Categorized as “mainly physical store sales” or “mainly Japan sales” if mail-order sales or overseas sales account for less than about 10% of total sales.* If the percentage of each type of sales cannot be known from the disclosed data, the percentage is assumed to be small.Copyright © AXXZIA Inc. All rights reserved.143. Market EnvironmentCopyright © AXXZIA Inc. All rights reserved.Trends in the Chinese Market (Our Target Market)◼ The skincare market (which accounts for most of the Chinese cosmetics market that we target) is growing sharply due to rising income levels associated with economic growth and an increase in cosmetics users.Skincare market size in China: 4,178.9bn yen (retail sales in 2020)Skincare market size in Japan: 1,643.4bn yenSupplements market size in China: 2,739.7bn yen (retail sales in 2020)Supplements market size in Japan: 1,241.0bn yen(Unit: billions of yen)(Unit: billions of yen)5yr CAGR = 13.3%(2020-2025(E))中国■ China■ Japan日本4yr CAGR = 4.9%(2020-2024(E))中国■ China日本■ Japan4,0003,5003,0002,5002,0001,5001,00050009,0008,0007,0006,0005,0004,0003,0002,0001,0000Source: Euromonitor International Limited, Beauty and Personal Care 2021 edition, retail value RSP, fixed 2020 exchange rates, current prices, data extracted on 8 October 2021Source: Euromonitor International Limited, Consumer Health 2021 edition, retail value RSP, fixed 2021 exchange rates, current prices, data extracted on 8 October 2021Copyright © AXXZIA Inc. All rights reserved.16Premium Skincare Market Trends (Cosmetics in China)◼ Compared to Japan, skincare accounts for a higher share of the cosmetics market in China, at about 80%.◼ The premium segment is growing rapidly in the Chinese skincare market, and its share of the total market is on the rise.China: Composition of cosmetics product categoriesSkincare premium market in China and JapanFragrance 3.2%Makeup17.8%Fragrance2.5%Makeup28.1%(Unit: billions of yen)5yr CAGR = 20.1%(2020-2025(E))Skincare79.0%中国■ China■ Japan日本5,0004,5004,0003,5003,0002,5002,0001,5001,0005000Japan: Composition of cosmetics product categoriesSkincare69.4%*Premium = high-end cosmetics. Luxury lineup for customers who are highly conscious of beauty and are willing to spend more money on beauty products and services. Positioned as a series exclusively for premium channels such as department stores and directly-managed shops.Source: Euromonitor International Limited, Beauty and Personal Care 2021 edition, retail value RSP, fixed 2020 exchange rates, current prices, data extracted on 8 October 2021Source: Euromonitor International Limited, Beauty and Personal Care 2020 edition, retail value RSP fixed 2019 exchange rates, current prices, data extracted on 30 November 2020Copyright © AXXZIA Inc. All rights reserved.17E-commerce Trends in the Chinese Market◼ In the last five years, the share of e-commerce in Chinese skincare distribution channels has risen from 24.1% to 40.6% (19.1% to 35.3% for supplements). Unlike Japan, where drugstores are the main channel, e-commerce purchases are becoming common.24.1%40.6%14.3%8.8%Supplements specialist retailersE-commerceDirect salesDrugstoresPharmaciesSupermarketsHome shoppingHypermarketsOtherE-commerceDirect salesDrugstoresDepartment storesSupermarketsHypermarketsHome shoppingPharmaciesConvenience storesSupplements specialist retailersChina skincare20212016E-commerceDirect salesHome shoppingDrugstoresMass merchandisersDepartment storesSupermarketsConvenience storesPharmaciesSupplements specialist retailersWarehouse storesVariety storesHealth food shopsOtherChina supplements20202015E-commerceHome shoppingDirect salesWarehouse storesVariety storesMass merchandisersDepartment storesDaily necessities storesDrugstoresPharmaciesCosmetics specialist retailersRetail storesSupermarketsConvenience stores（Unit： ％）01020304050（Unit： ％）19.1%35.3%010208.5%（Unit： ％）403014.5%Japan skincare20212016Japan supplements20202015（Unit： ％）0102030400510152025Source： Euromonitor International Limited, Beauty and Personal Care 2021 edition, retail value RSP fixed 2020 exchange rates, current prices, data extracted on 8 October 2021Source： Euromonitor International Limited, Consumer Health 2021 edition, retail value RSP, fixed 2020 exchange rates, current prices, data extracted on 8 October 2021Copyright © AXXZIA Inc. All rights reserved.18Differences and Advantages over Other Brands Entering the Chinese Market◼ In the Chinese market, only a few players focus on high-end skincare products.European/AmericanbrandsAXXZIAFocused one-commerceKorean brandsChinese brands・Department stores and cosmetics specialty stores in major cities・Mass brand on e-commerce・Department stores and cosmetics specialty stores in major cities・Mass brand on e-commerce・Mass retailers in regional cities mainly selling low-end products・E-commerceSkincareMakeupSkincareMakeupSkincareMakeupSkincareMakeupHigh-endLow-endHigh-endLow-endHigh-endLow-endHigh-endLow-endMid-rangeMid-rangeMid-rangeMid-rangeMain sales channelMain products◼ Japanese brands are popular for their high quality and reliability. Since they target the same Asian users, products based on the concept of “transparency and luster” tend to have an advantage over European and American brands.◼ The strength of Korean brands is that they communicate well with consumers and their prices are more affordable than those ofWestern and Japanese brands. However, due to the worsening political relationship between China and South Korea, the number of Korean brands has decreased.◼ High-end cosmetics, the main battleground for Japanese brands, are mostly sold in department stores, but there are many major European and American brands in department stores, so competition is fierce. Considering exhibition fees and fixtures, sales in department stores are unprofitable unless they reach a certain sales scale.◼ Major foreign brands and Japanese brands that have already established sales channels in physical stores are at a disadvantage in selling high-end products through e-commerce due to concerns over cannibalization and opposition of existing channels.Copyright © AXXZIA Inc. All rights reserved.194. Business ModelCopyright © AXXZIA Inc. All rights reserved.Our Business Model and Advantages◼ We have built a system that is acceptable to Chinese users, from product development to manufacturing, sales, and after-sales support.described below.◼ Our company has many unique and differentiating factors that make it possible for us to expand into China, as Product developmentManufacturingSalesAfter-sales support・Test marketing on Taobao, etc.(via KOL and local beauty salons)・High-paced product release cycle・Made in Japan(highly favored in China)・Online and offline(mainly high-end products)・Promotion through both top-down and bottom-up approaches・Extensive customer service・Efforts to maintain brandBuilding our own business modelRapid product development by cultivating the Chinese market on our ownBackground of management teamBuilding a manufacturing system that leverages the strengths of both Japan and ChinaCooperation with Tmall GlobalUtilizing Tmall Global’s big data through a strategic business allianceEfforts to maintain brandImplementing security verification and traceability systemsSince we are expanding into the Chinese market on our own by participating in exhibitions and selling our products at beauty salons, etc., we can listen to the voices of users firsthand and translate that to rapid product development.President Dan Taku, who is from China, has lived in Japan for many years and has long been engaged in the development of professional products for beauty salons. He has built a system that is acceptable to Chinese users.Under the strategic business alliance, we can analyze Tmall Global’s big data and implement effective promotions and product development. We will continue to strengthen our ties with major Chinese online distributors to further enhance our e-commerce sales capabilities. We have introduced security verification and traceability systems using QR codes to foster a sense of security for our products in the Chinese market, where a large share of our products are sold through e-commerce channels.Copyright © AXXZIA Inc. All rights reserved.21Product Featuresand supplements.handle skincare products.◼ AXXZIA is involved in the planning, manufacturing, and sale of high-end (premium) and medium-range cosmetics ◼ Cosmetics are generally divided into three categories: skincare, makeup, and fragrance. At AXXZIA, we mainly Salon-exclusive brandB2C brandMain product lineupHigh-endAvg. selling price: Over 10,000 yenMedium-range to high-endAvg. selling price: Over 5,000 yenAging Care seriesEye Care seriesTransparency and Luster seriesCosmetics(mainly skincare)SupplementsCopyright © AXXZIA Inc. All rights reserved.22Main Brands: AXXZIA SeriesOur main retail brand consisting mainly of eye care cosmetics products.◼ Succeeded in turning Essence Sheet into a hero product.(Grew sales by approx. 2.5x to 706mn yen in Q4 FY07/21 from 274mn yen in Q4 FY07/20)◼ Greater brand awareness also leads to awareness of the Company, because the brand carries the company name.9008007006005004003002001000AXXZIA Brand Sales Trendエッセンスシート■ Essence Sheet ■ Other AXXZIA Brands他、アクシージア・ブランド(Unit: millions of yen)9370688102655605675116040287274691925213598621Q4067２Q74123３Q57106４Q１Q２Q３Q４Q１Q２Q３Q４QFY07/19Essence sheet total: 359FY07/20Essence sheet total: 887FY07/21Essence sheet total: 2,343Milestones for sustainable growth➢ Released a product series based on Essence Sheet.➢ In December 2020, we launched Essence Sheet Premium Edition and sales are progressing favorably.➢ In the spring of 2022, we plan to add a new sunscreen product to the series and turn it into a second growth driver.Copyright © AXXZIA Inc. All rights reserved.23Main Brands: AGtheory SeriesSecond main retail brand consisting of the core AG Drink product and cosmetics products based on the same concept.◼ Created a brand series that combine AG Drink (hero product) with AGtheory cosmetics (based on the same concept) to target theexisting loyal users of AG Drink. ◼ AG Drink sales have increased steadily to 537mn yen in Q4 FY07/21 from 451mn yen in Q4 FY07/20.◼ Expanding sales of AGtheory cosmetics based on AG DrinkAGtheory Brand Sales Trend AGｾｵﾘｰ化粧品■ AG Drink ■ AGtheory CosmeticsAGﾄﾞﾘﾝｸ27586070060050040020010003006159543440638330352341321483475451457533537(Unit: millions of yen)428342383Milestones for GrowthFY07/19AG Drink total: 1,707FY07/20AG Drink total: 1,996FY07/21AG Drink total: 1,901１Q２Q３Q４Q１Q２Q３Q４Q１Q２Q３Q４Q➢ In March 2021, we released a renewed 5th-generation AG Drink. Sales have been steady around 10,000 units/month.➢ In October 2021, we will expand the AGtheory cosmetics series to include facial cleanser and face wash products, completing the full lineup.Copyright © AXXZIA Inc. All rights reserved.24Up-and-Coming (Whitening Appeal) SeriesWe position beauty supplements (White Aminos) and sunscreens as up-and-coming products, which we hope to turn into our third major brand.◼ Both White Aminos and sunscreens (UV Veil EX) have become mid-sized hit products.(Sales of each product exceeded 100mn yen in Q4 FY07/21)◼ Developing these items into product series is under consideration.Up-and-Coming (Whitening Appeal) Series Sales Trendサンスクリーン■ Sunscreen ■ White Aminosホワイトアミノズ(Unit: millions of yen)10113765111113117142577342338323１Q10221２Q107815037１Q２Q３Q４Q３Q４Q１Q２Q３Q４QFY07/19Sunscreen total: 85White Aminos total: 429FY07/20Sunscreen total: 231White Aminos total: 423FY07/21Sunscreen total: 364White Aminos total: 2876172139115502502001501000Copyright © AXXZIA Inc. All rights reserved.25Milestones for turning into main series➢ The following plans are underway for the full-scale launch starting in the spring of 2022.➢ Release of a renewed White Aminos drink with a unique ➢ Release of AXXZIA’s first cosmetics series (quasi-drugs) with container.skin whitening features.Salon-Exclusive (Professional) SeriesSalon-exclusive products have been AXXZIA’s strength and distinctive business area since its establishment.◼ In addition to Le Ciel de L’aube, a long-selling brand available since AXXZIA’s founding, we offer a range of special cosmetics (Eyetail Series) for professional use.◼ We were one of the first companies to register cosmetics in China and launched a business targeting Chinese salons with made-in-Japan cosmetics, contributing to the success of our Shanghai subsidiary.140120100806040200Salon-Exclusive SeriesSales Trend■ Le Ciel de L’aubeルシエルドローブ■ Eyetail and other products for professional useアイテール他業務専用(Unit: millions of yen)3991329335552569176094911208618203436１Q２Q３Q４Q１Q２Q３Q４Q１Q２Q３Q４QFY07/19FY07/20FY07/21Copyright © AXXZIA Inc. All rights reserved.26Milestones for sustainable growth87847478➢ In March 2021, we launched a new premium version skincare brand called The B. We aim to create a new growth driver by developing and expanding cosmetics catering to special-care needs.➢ We will use this series as a leeway for introducing new products that employ novel technologies and ingredients.FY07/21 Net Sales by Region and Channel◼ China net sales （*1): 5,226mn yen （90.3 % of total sales)◼ Japan net sales (*1): 384mn yen（6.6％ of total sales）+1,536mn yen YoY (+41.6% YoY)-80mn yen YoY （-17.4％ YoY）（*2）FY07/20 4,290mn yenFY07/21 5,787mn yen(Unit: millions of yen)(Unit: millions of yen)*1 Sales in China and Japan are the total of e-commerce, salon, and retail sales.*2 In Japan, increased salon and e-commerce sales offset the decline in retail sales (-174mn yen YoY) due to COVID-19.Copyright © AXXZIA Inc. All rights reserved.275. Competitive AdvantageCopyright © AXXZIA Inc. All rights reserved.Advantages in the Chinese Market: Differences from Other Japanese Companies◼ Other Japanese companies are rolling out products designed for the Japanese market to China. In contrast, we develop and market products that target the Chinese market, and this gives us an advantage. AXXZIAOther Japanese companiesMarketing methodMarketing that targets the Chinese marketMarketing that targets the Japanese marketDevelopment and manufacturingProduct development incorporating Chinese preferencesProduct development that meets Japanese preferencesAdvertisingSalesSimultaneous advertising in Japan and China, with China as main focusHorizontal deployment in China with Japan as main focusSimultaneous sales in Japan and China, with China as main focusSelling luxury items through e-commerceHorizontal deployment in China with Japan as main focusTraditionally, luxury items have been sold in personSuitability and preference4P* design based on the voices and needs of Chinese users4P* for domestic users is the main focusImport registration (NMPA)Product design that places importance on NMPA-approved ingredients and formulationsSpeed of brand recognitionComprehensive sales promotion support by each channel in ChinaSeparately consider adjustments to ingredients and formulations for non-NMPA-approved productsBias toward specific brandsDifferencesAdvantages*4P = Product, Price, Place, and Promotion.Copyright © AXXZIA Inc. All rights reserved.29Acquisition of Import Registration (NMPA)◼ AXXZIA’s product design emphasizes the use of NMPA-approved ingredients and formulas in order to ensure a smooth approval process.About NMPA approval*87 productsChinese market◼ Approx. 77% NMPA* approval out of the total SKUs of ◼ 100% approval rate in the last two years (generally, other ◼ Approx. 86% out of all products developed for the ◼ 3-month average application period (generally, other companies companies average 20%-30%)average 6 months)NMPA registration ratio (all products)(as of end-Nov. 2021)NMPA registration ratio (products developed for Chinese market)(as of end-Nov. 2021)Unregistered products23％Registered products77%Unregistered products14%Registered products86%*NMPA: National Medical Products Administration. Government agency administering requirements and review permits in China for sales of medical devices, pharmaceuticals, pharmaceutical packaging materials, cosmetics, and health foods in the Chinese market. Equivalent to the Ministry of Health, Labour and Welfare (MHLW) certificate (manufacturing and marketing approval certificate) in Japan, the premarket approval (PMA) by the US FDA, and CE marking in the EU. Graph entries relate only to cosmetics as AXXZIA’s dietary supplements are sold as general foods and beverages.*Figures only apply to cosmetics for which we are applying for NMPA approval as our policy for supplements is to obtain Chinese import approval.Copyright © AXXZIA Inc. All rights reserved.30Product Development:System for Continuing to Release Hit Products◼ We are in constant communication with Taobao owners and salon owners, and are deeply involved in product development and prototype model reviews.◼ We have established a system that will allow us to continue to release hit products, as described below.< Product development flow >Taobao members/beauty salon usersTaobaodiamond class stores or higher196 storesBeauty salons652 storesBeauty salon ownersExtract conceptual elementsProduct development meetingMonthlyPlanning and proposalMarketability study and careful selection of prototypesPrototype phaseQuality checkCheck by in-house testerJust over half a yearNo. of proposals/year(No. of prototypes)Approx.100 to 200 SKUs (approx. 50 to 100 SKUs)➢ In addition to in-house staff, Taobao and beauty salon owners also participate in the process and review together.➢ After that, we leverage big data through our strategic alliance with Tmall Global to check marketability.➢ Our in-house testers check prototypes together with Taobao and beauty salon owners. Products that obtain 80% approval or higher pass the check. Mass productionNo. of products that reach mass production15 to 20 SKUsNew product development is one of the sources of the Group’s competitiveness and growth potential, and we are constantly striving to anticipate market needs, develop new products, and introduce them to the market. We aim to achieve results in short time by formulating annual sales and production plans and focusing on the implementation of marketing and advertising strategies prior to launch. However, if the development of a new product takes a long time, the results may not come out until the following fiscal year or later. In addition, if the results are not achieved as planned, we may be forced to extend the period or increase the overhead costs for the product launch, or we may not be able to commercialize the product after all. Furthermore, even if we are able to commercialize a product, it may not necessarily be accepted by customers due to the uncertainties associated with various factors. The Group continues to withdraw existing brands and products that no longer meet consumer needs. In this manner, failure to achieve the initially intended results may adversely affect the Group’s operating results and financial position.Copyright © AXXZIA Inc. All rights reserved.31Manufacturing: High Quality Control Standards■ To differentiate our brand, we plan all ingredients, containers, and outer packaging on our own in line with the voice and needs of Chinese users.■ We provide consumers with safe and secure prestige cosmetic brands by practicing high quality control standards in the production stage at our own factories.AXXZIAOver 10% (15 to 20 products) of the 100 to 200 proposals per year are put on the market.Incorporation of market and customer needsPlanning(product concept, main ingredients)Formula developmentLegal check(Pharmaceutical and Medical Device Act, NMPA registration)Container and design reviewPrototype verificationDecision of formula(approved by more than 20 or over 80% of in-house testers and main Taobao owners)Pharmaceutical applicationShipping/DeliveryProduct testing(3C8 inspection)ManufacturingHigh quality control standards in the production stage at our own factories➢ We are unique in that we plan, design, and procure our own ingredients, containers, and outer packaging, and supply them to contract manufacturers.➢ We implement 3C8 (3-step check, 8 items in total) based on a detailed Product Standard with the aim of accumulating manufacturing know-how at our own factories in the future.Prototype manufacturingBy contract manufacturerProcurement of raw materials and containers→ Supply to contract manufacturer, place contract manufacturing order3C8 inspection policy1st check Acceptance inspection of incoming materials such as bulk materials・1C-(1) Acceptance inspection of bulk materials・1C-(2) Acceptance inspection of containers and other materials2nd check Line inspection in manufacturing, filling, and packaging processes・2C-(1) Individual product inspection・2C-(2) Inner box inspection・2C-(3) Inner box inspection・2C-(4) Collection of items to be stored for 5 years as reference3rd checkFinal quality inspection before shipment・3C-(1) Finished product inspection・3C-(2) Pre-shipment quality inspectionCopyright © AXXZIA Inc. All rights reserved.32Sales Channels: Capturing the High-Growth China Market with an E-Commerce Focus◼ We focus on the high growth potential of the Chinese cosmetics market. Our sales are mainly through e-commerce, beauty salon, and physical store channels in China.◼ Using the listing on the Mothers section of the Tokyo Stock Exchange as an opportunity, we aim to raise brand recognition in Japan and improve sales through O2O expansion centered on e-commerce.Beauty salon➢ No. of handling stores (as of end-Oct. 2021)・ Socie・ Total of 679 stores (e.g., Beauty Clinic Kodama)E-commerce➢ Tmall Global➢ RED ➢ TaobaoBeauty salonChina’s largest B2C e-commerce platform operated by Alibaba Group.Social media app for posting product information (word-of-mouth).The introduced products can be purchased directly through the app.➢ TikTok (Chinese name: Douyin)China’s leading mobile video app.The introduced products can be purchased directly through the app.E-commercecommerce website.Retail➢ Sales on Amazon, Yahoo, Rakuten and our own e-C2C e-commerce platform operated by Alibaba Group.➢ No. handling stores (as of end-Oct. 2021)・上海AYAKO东京国际美业商学院(Shanghai AYAKO Tokyo International Beauty Business School)・Total of 585 stores (e.g., 若樱（上海Alice）教育科技有限公司; Shanghai AliceEducation Technology Ltd.)Retail➢ Sephora China, 22 stores➢ 1 department store, 44 retail stores➢ 4 duty-free stores (Shenzhen Airport duty-free stores)➢ Sales at duty-free drugstores such as Matsumotokiyoshi, Sundrug, Daikoku, Cocokara Fine, Sugi Drug, etc.➢ Opened store at GINZA SIX in March 2021; sales at duty-free stores in Haneda, Narita, and other airports.➢ Sales at major department stores such as Takashimaya.➢ Sales at a total of 593 cosmetics specialty stores, variety stores, etc. (e.g., ＠cosme store, LOFT, Tokyu Hands).➢ 1 store in Korea (Lotte Duty Free, Shilla airport)➢ 1 store in Singapore (Changi Airport duty-free store)➢ E-commerce in Russia, Australia, the US, etc.Copyright © AXXZIA Inc. All rights reserved.33Sales Channels: Measures to Improve Customer Loyalty in Chinese E-Commerce◼ We have an after-sales support system in place to establish our brand and encourage the continued use of our products.After-sales support on TaobaoAfter-sales support at our flagship store on Tmall Global➢ We work to improve customer loyalty by offering services (e.g., provision of product content) to shops (KOLs).-After-sales support details-AXXZIA ⇒ Shops (KOLs)Product sales and after-sales support• Provision of content (e.g., landing page)• Provision of Q&A manual for our products• Sharing of marketing policy informationShop(KOL)Shop(KOL)Shop(KOL)-After-sales support details-Shops (KOLs)⇒ UsersProduct sales and after-sales support• Q&A support for users• Spread new product information• Communicate how to use effectively, etc.UserUserUser➢ Alibaba, the operator of Tmall Global, ranks the store owners and Tmall Partners respectively, and matches them according to their rank.➢ We are ranked on par with major Japanese cosmetics companies and can work with Tmall Partners that provide quality customer service.➢ In April 2020, we entered into a strategic alliance with Tmall Global (Tmall Global Strategic Collaboration Supplemental Agreement). Under this agreement, we can get special support from Tmall Global.Store ownerTmall PartnerRanking criteria・Brand recognition・Sales performance・Growth rate・IP management capability・Company size・Overall evaluation based on sales strategy, etc.Four-step evaluation (★3 to ★6) based on the following:・Track record on Tmall Global・Size・Degree of cooperation・After-sales service support★★★★★★Pola Orbis★6 partner★★★★★★★★★★★★Shiseido / FANCLNARISGuangzhou-based Ruoyuchen (RYC; ★5)★5 partner★4 partner★3 partnerOverview of Guangzhou-based RYC and the work we outsource[Overview]In addition to AXXZIA, RYC also provides customer support services to Unicharm and P&G.[Details of outsourced work]Flagship store design, operation, maintenance, customer service, marketing, and sales expansion planningSource: Our online survey on February 27, 2020Copyright © AXXZIA Inc. All rights reserved.34Marketing Strategy: Synergies of Bottom-Up and Top-Down Strategies◼ We use both top-down and bottom-up approaches to promote sales and advertising activities while focusing our advertising methods on web marketing.◼ Through synergy of these approaches, we have succeeded in selling high-end products via e-commerce.Top-down approachBottom-up approachImage-building strategy by appointing famous actresses, etc.Advertising costs are expensive, but also leads toadoption by major companiesBidirectional marketing through CRM*1to retain Taobao owners, etc.Retaining owners requires a lot of time and local knowledge in China• Generate brand interest• Improve customer loyaltyStrategic alliance➢ Utilize big data➢ Select and implement measures within advertising and marketing expenses• Live streaming• KOL*2 / Marketing➢ Cost borne by owner• Word-of-mouth, increase brand recognition• Live streaming• KOL*2 / Marketing➢ Cost borne by AXXZIA(small percentage of sales)End usersTens of thousands to 1 million / store*1 CRM: Customer Relationship Management.*2 KOL: Key Opinion Leader. In particular, a person who has many followers on his/her blog or social media in Greater China, and who disseminates information on products, brands, services, etc. that he/she recommends (also known as a Chinese influencer). Copyright © AXXZIA Inc. All rights reserved.35Anti-Counterfeiting Measures and Brand Maintenance◼ To maintain the brand, it is essential to take measures against counterfeit and predatory pricing in the Chinese market.◼ To manage the brand, we conduct all packaging, shipping, and inventory management on our own. We focus on measures to prevent overstocking and diversion.Security verification systemPatrolTraceabilityWe take countermeasures against counterfeit products by attaching QR code security labels to all our products. This allows buyers to verify that the products they purchased are genuine.An in-house personnel checks if there has been any diversion or counterfeit products by searching the Internet, etc.All products we manufacture are always numbered at the time of shipment,and a system is in place to immediately respond to unfair pricing.Check for appropriateness of pricing and counterfeits in circulationIn-house personnelCopyright © AXXZIA Inc. All rights reserved.366. Growth StrategyCopyright © AXXZIA Inc. All rights reserved.Business Environment and Opportunities◼ COVID-19 has had a prolonged impact on the Japanese economy, while the Chinese economy has quickly emerged from the pandemic and has now returned to a normal rate of growth.◼ Although AXXZIA is a latecomer to the Chinese market (we only have a few physical stores), we have turned that disadvantage intoan advantage by focusing on e-commerce, thereby maintaining a high-margin business.◼ Our strategy is to steadily increase the number of supporters (core fans) of our high-end brands in the Chinese and Japanese cosmetics markets. Although this is a highly saturated market (red ocean), we aim to grow while maintaining high profitability through our unique positioning.EnvironmentOpportunitiesJapanChinaSkincarebusiness• Noticeable shift to e-commerce• Sluggish sales at physical stores have weighed on overall earnings• Recovered from the COVID-19 pandemic early on• The mid-to low-end cosmetics market is a red ocean• Increased demand for cosmetics designed to be worn underneath masks/face coverings.• More time spent at home; must respond to diversifying preferences• Build a stronger sales base by raising brand awareness in China by taking our IPO as an opportunity• Build an OMO business model• Efficient business execution using the existing network we built in China• Increase the number of core fans of our brand• Promote the value of our brand• Increase recognition of existing brands (eye, anti-aging, skin luster)Copyright © AXXZIA Inc. All rights reserved.38Medium- to Long-Term Plan◼ We aim to grow and expand while maintaining brand strength, and to ensure increased profits from higher sales through cost control.(1) Brand strategy: Expand mainstay products and nurture products within existing brands.(2) Marketing strategy: Further cultivate the Chinese market and diversify sales channels.(3) Business alliances / M&A: Strengthen product development capabilities and reinforce the domestic market.(Unit: millions of yen)Medium- to Long-Term Plan25,00020,00015,00010,0005,0000Avg. CAGRaround 25％3yr1.57x3yr1.91xGoals for the next 5 yearsNet sales¥20.0 billionOperating margin20% or moreKPIs for the next 3 yearsAvg. CAGRAbout 25%Net salesAdvertising cost ratioaround 20%FY07/22FY07/22FY07/24FY07/24FY07/26FY07/26■ Net sales ■ Operating incomeNet salesOperating income”Three growth strategies” to achieve goalsBrand strategyMarketingstrategyBusiness alliance/M&ACopyright © AXXZIA Inc. All rights reserved.39Medium-Term Management Plan (3-Year)- Assumptions of the Medium-Term Management Plan -◼ We expect the premium skincare market in China, our main battleground, to continue to grow at an annual rate of around 20%.⇒ We will capture the organic growth of the Chinese market, which accounts for 90% of our sales.◼ The e-commerce ratio at the time of purchase in the Chinese skincare and supplements market is 30% to 40%, and we expect the ratio to continue to grow.⇒ We will diversify our sales channels (platforms) to capture the growth of the e-commerce market. In addition to our cross-border e-commerce flagship stores, we will also open e-commerce flagship stores in China.◼ We expect the operating margin to rise due to a decrease in the fixed cost ratio on higher sales, while advertising and commissions paid for Chinese e-commerce platforms are variable costs.FY07/22Forecast7,1171,46620.6%FY07/24 Target(Final year of 3yr period)11,2002,80025.0%Net salesOperating incomeOperating margin(Unit: millions of yen)Growth rate1.57×1.91x+4.4pptCopyright © AXXZIA Inc. All rights reserved.40Strengthen Management Base to Support Growth◼ We are making the following investments to strengthen the management base that will support our robust growth over the medium term.ResearchManufacturing• Build R&D structureingredients• Develop new products using new technologies and [30 million yen for each fiscal year from FY07/23]• Optimize R&D and manufacturing efficiency by using both factories and OEMs• At the time of our IPO, we stated that 2 billion yen in proceeds will be allocated to the construction of our plant. However, we are now also considering M&A, given that constructing a plant will take time, and from the perspective of reducing risks until the plant is operational. However, whether we execute on the plan will depend on the details of the deal, so we are considering M&A in parallel with constructing our own plant. [The timing of operation will vary depending on the status of construction or M&A; the size of investment is expected to be around 2 billion yen]IT systemPersonnel• Renew backbone system (to be operated from 2022)• Improve business processing capacity and productivity• Strengthen security[50 million yen in FY07/22]• Hire talented personnel (mid-career, new graduates) by taking advantage of the increased name recognition of our brand as a result of listing on the Mothers section of the Tokyo Stock Exchange.• Revise personnel system and establish an education & training system.• Manage personnel and promote diversity without regard to nationality or gender.[Increase the no. of employees (consolidated) from 97 in FY07/21 to 150 in FY07/24].Copyright © AXXZIA Inc. All rights reserved.41Basic Policy in the Medium-Term Management Plan (3-Year)❶ Brand Strategy❷ Marketing Strategy❷ Business Alliance / M&ACopyright © AXXZIA Inc. All rights reserved.42Brand Strategy◼ We will continue our efforts to enhance the overall value of our brand under the following three strategic policies that have been in place since our founding.❶ Strategy to launch branch series and develop hero products (hit products)Introduce brands and series that meet a wide range of beauty needs (i.e., have a product lineup comparable to that of major companies), and achieve sustainable growth of brands and series as a whole by raising awareness through the development of hero products.❷ Brand protection and credibility building strategy / IP and anti-counterfeiting measures cultivation strategyEnsure healthy brand growth and build trust by thoroughly implementing measures against counterfeit products by registering IP (trademarks, designs) and introducing a security labeling system in major markets.❸ Multi-channel strategy in China (our main market) / Cosmetics registration (NMPA) strategyImplement multi-channel sales for the Chinese market through product development premised on Chinese cosmetics registration (NMPA registration).Enable cross-border e-commerce business + physical retail sales in mainland China. (49 cosmetic products registered with NMPA as of end-November 2021)Copyright © AXXZIA Inc. All rights reserved.43Hit Cycle Leveraging Our Product Development Capabilities◼ “Communication with actual users” is one of the strengths of our product development.By combining safe and secure quality control and speedy release, we will constantly develop and nurture products ahead of time in preparation for the peak out of existing products.Image of hit cycleCycle 1Cycle 2Cycle 3Cycle 4Cycle 5 onwardCommunication with actual usersProduct developmentHitPeakDeclineABCDProduct Product Product Product Speedy releaseSafe and secure quality controlProduct developmentHitPeak・・・Product developmentHitProduct developmentCopyright © AXXZIA Inc. All rights reserved.44Basic Policy in the Medium-Term Management Plan (3-Year)❶ Brand Strategy❷ Marketing Strategy❷ Business Alliance / M&ACopyright © AXXZIA Inc. All rights reserved.45Marketing Strategy◼ We will focus on the growing Chinese market to build a solid position.❶ Diversify e-commerce channels in ChinaWe will expand into e-commerce platforms where we have not yet opened stores in the Chinese e-commerce market to further expand brand recognition and gain new customer segments.❷ Further cultivate e-commerce channels in ChinaWe will foster the brand through bottom-up approaches (word-of-mouth, social media, live commerce). We will target new customer segments by analyzing customer segments using big data.❸ Achieve omni-channelizationWe will achieve omni-channelization across the three existing sales channels (beauty salon, retail, and e-commerce) by providing a seamless experience for customers.Copyright © AXXZIA Inc. All rights reserved.46Diversification of E-Commerce Channels in ChinaStrategies in the Chinese Market◼ Further expand recognition and sales in the Chinese market, which accounts for 90% of sales.Further cultivate the market by diversifying e-commerce channelsNew channel developmentAdvertisingExpand recognitionTypeExisting channelsNewly developed channelsCross-border e-commercesales expansion channels・Tmall Global・TaobaoDevelop as appropriate(FY07/23 onward)Cross-border e-commerceadvertising channels・RED・TikTok (July 2021)China domestic e-commerce channelsー・JD.com (October 2021)・Tiktok domestic (October 2021)・Tmall domestic (FY07/23 onward)Copyright © AXXZIA Inc. All rights reserved.47Cultivate E-commerce Channels in China◼ We implemented a two-way marketing strategy (top-down and bottom-up) to promote our high-end products. As a result, we were able to successfully expand sales while controlling advertising costs.◼ We aim to increase sales through our TikTok flagship store and JD (Jingdong) in addition to expanding sales on Tmall Global, RED, and Taobao.Top-down marketingトップダウン マーケティングBottom-up marketingAdvertisements featuring famous actresses, etc.Use influencers (word of mouth). Stimulate brand interest.Develop measures using Tmall Big DataEngage Taobao owners through CRM and expand store transactionsStrengthen brand publicity with RED and TikTok, expand awareness, and implement measures with Baidu• Stimulate brand interest• Enhance loyalty（Tmall Global）Strategicpartnership• Success in expanding sales through synergies in two-way marketing• Raised brand awareness through horizontal usage of e-commerce platform• Increase brand awareness by word of mouth• Live streaming• KOL marketingEnd users100,000 to 1 million per storeExpand number of followson Chinese social mediaSteppingstone to omni-channel expansionin FY07/22 and beyondCopyright © AXXZIA Inc. All rights reserved.48Vision – Omni-Channelization -◼ We aim to achieve omni-channelization by implementing new measures for each of the three existing sales channels and increasing the touchpoints with customers. ◼ We will open physical stores in Japan (4-5 stores) and translate that to mutual referral of customers with e-commerce platforms.Existing channelsE-commerceBeauty salonRetailNew measuresSocial mediaHorizontal expansion to other e-commerceInfluencersUse big dataSocial mediaE-commerceNew brand for beauty salonsStrengthen physical storesAchieve omni-channelization to retain customers more seamlesslyCustomer referral to our own e-commerce websiteCopyright © AXXZIA Inc. All rights reserved.49Basic Policy in the Medium-Term Management Plan (3-Year)❶ Brand Strategy❷ Marketing Strategy❷ Business Alliance / M&ACopyright © AXXZIA Inc. All rights reserved.50Synergies Brought About by Alliances / M&A◼ We will expand domestic sales to 30% of the total by creating synergies through alliances and M&A. (Expecting approx. 4 to 5 billion yen in sales)◼ We will use alliances and M&A as steppingstones to achieve omni-channelization.Assumptions for alliances / M&APattern APattern BPattern CPattern DTypeM&AM&AM&AAllianceE-commerce site operatorE-commerce site operatorOEM manufacturer for cosmetic companiesRaw material manufacturer (e.g., bio-venture)Target companiesExpected effectsExpand customer base in the subscription delivery businessExpand name recognition and awareness by acquiring e-commerce membersSpeed up prototype developmentReduce costs through in-house production of productsCopyright © AXXZIA Inc. All rights reserved.51Three Growth Strategies❶ Brand Strategy■ Launch brand series and develop hero products (hit products)■ Brand protection and credibility building strategy / IP and anti-counterfeiting training■ Multi-channel strategy in China (our main market) / cosmetics registration (NMPA) strategy❷ Marketing Strategy■ Diversify Chinese e-commerce channels■ Further cultivate Chinese e-commerce channels■ Achieve omni-channelization❸ Business Alliance / M&A■ Create synergies through alliances to develop new technologies and ingredients. ❶ Brand StrategySustained growth of mainstay brandsCopyright © AXXZIA Inc. All rights reserved.52ESG: Balancing Business Objectives and Results◼ Our management philosophy is “transmitting the beauty of Asia from Japan to the world.”◼ Our raison d’etre is to make both social contributions and deliver business results through our cosmetics business.Environmental / Social / GovernanceTransmitting beautyDiversityWe will contribute to the creation of an affluent society by introducing the beauty of Asia from Japan to the world. We will put diversity into practice. Diversity, regardless of nationality, is the source of our growth potential.Total number of employees *1Managers *2Number of foreign employees(as of end-July 2021)Total1154553Female732240Ratio of female managers48.8％Ratio of non-Japanese employees46.1％*1 Entire Group (Headquarters and overseas subsidiaries), including directors*2 Job titles of director, general manager, section chief (including deputy chief) and aboveRegional contributionWe will contribute to society through active donations and fundraising activities to help those affected by disasters and the spread of COVID-19.Copyright © AXXZIA Inc. All rights reserved.537. Risk InformationCopyright © AXXZIA Inc. All rights reserved.Perceived Risks and MeasuresMain risksEvaluationRisk overviewMeasuresBusiness activities in ChinaLikelihood of occurrence: MediumPeriod of likelihood of occurrence: Long termImpact: Medium・Operational risks such as unpredictable and opaque policy management, inadequate or revised legal systems, revision of preferential treatment for foreign capital, and labor problems・Risks such as anti-Japanese protests, deterioration of public safety, outbreak of terrorism or war, and social disorder due to infectious disease outbreaks・Risk of being affected by changes in the management policies or business conditions of Alibaba Group・ We will strive to understand the local situation and implement early workaround measures for risk management.・ We have been strengthening our sales capabilities in mainland China from early on. We will take additional steps such as building our own branding and marketing system in mainland China.Likelihood of occurrence: HighImpact from inbound demandPeriod of likelihood of occurrence: Short term・Risk of sluggish demand due to factors such as unpredictable changes in local economic conditions, changes in policies, deterioration in Japan-China relations, and spread of infectious diseases・ We are closely monitoring inbound trends, and depending on the nature of these trends, we will flexibly hold Board of Directors’ meetings and take measures.Dependence on specific brands and productsImpact: MediumLikelihood of occurrence: MediumPeriod of likelihood of occurrence: No specific periodImpact: Medium・Risk of sluggish sales of the current mainstay brands (AGtheory and AXXZIA) due to some factors・Risk of not achieving initially intended results since performance is subject to uncertainties caused by various factors, given the nature of business activities to increase the number of brands and product lines・ We are closely monitoring inbound trends, and depending on the nature of these trends, we will flexibly hold Board of Directors’ meetings and take measures.Copyright © AXXZIA Inc. All rights reserved.55Perceived Risks and MeasuresMain risksEvaluationRisk overviewMeasuresInventoryPeriod of likelihood of occurrence: No specific period・Risk of slow-moving inventory due to deviations in demand and sales forecasts from actual conditions caused by factors such as changes in the market environment due to revisions in laws and regulations in Japan and overseas, changes in consumer needs, and competition with competitors’ products・We will conduct monthly inspections of inventory holdings and monthly reviews of production plans, including ordering plans for parts and materials. In addition, we will plan and implement sales promotion measures as needed for products for which there is concern about slow-moving inventory.Intensifying competitionPeriod of likelihood of occurrence: No specific period・Risk of unpredictable moves by competitors・We will invest in the development of new brands and products.・We will actively invest in securing intellectual property rights.・We will take various measures, such as obtaining first-mover advantage in niche markets and creating unique packaging and shape, in order to prevent competitors from developing similar products.Likelihood of occurrence: MediumImpact: MediumLikelihood of occurrence: MediumImpact: MediumLikelihood of occurrence: MediumCompliance with laws and regulationsPeriod of likelihood of occurrence: No specific periodImpact: Medium・ Risk of temporary restrictions on the Group’s activities due to changes in laws and regulations or the establishment of unpredictable new laws and regulations･ Risk of incurring expenses for compliance with laws and regulations, etc.・We will establish and operate compliance management regulations, check with the ministries and agencies that have jurisdiction over various laws and regulations as necessary, disseminate the regulations to officers and employees, and conduct training sessions.*The above is an excerpt of the main risks that we recognize as having the potential to significantly impact the realization of growth and our business plan among those described in the “Business and Other Risks” section of the Annual Securities Report.*For other risks, please refer to “Business and Other Risks” in the Annual Securities Report.Copyright © AXXZIA Inc. All rights reserved.568. AppendixCopyright © AXXZIA Inc. All rights reserved.Growth Trajectory of Mainstay Products/Domains(1) AXXZIA (Growth Trajectory of Essence Sheet)Growth model based on first building recognition and trust in the Japanese market and then expanding into the Chinese marketSales Trend Until Turning Essence Sheet into a Hit Product(Unit: thousands of yen)300,000Jun. 2018Debuted product at Yokohama TakashimayaSep. 2018Debuted product at Nihonbashi TakashimayaFeb. 2019Opened RED flagship storeApr. 2019Opened Tmall supplements flagship storeApr. 2020Opened Tmall Cosmetics flagship store250,000200,000150,000100,00050,0000Aug. 2016Launched product and started selling via TV shoppingMar. 2017Debuted product at Shinjuku Takashimaya.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ201620172018201920202021Building period of name recognition and trust in the Japanese marketGrowth phase driven by store openings on Chinese cross-border e-commerce platformsBooming period of inbound travelCopyright © AXXZIA Inc. All rights reserved.58Growth Trajectory of Mainstay Products/Domains(2) AGtheory (Growth Trajectory of AG Drink)Captured demand in the Chinese market as an early mover and developed new products following hero productsSales Trend Until Turning AG Drink Set into a Hit Product(Unit: thousands of yen)Apr. 2019Opened Tmall supplementsflagship storeApr. 2020Opened Tmall cosmetics flagship storeLaunched 5th generation(Jan. 2021)300,000250,000200,000150,000100,00050,0000Aug. 2016Launched 1st GenerationJan. 2018Launched 3rd GenerationJan. 2017Launched 3rd Generation.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ201620172018201920202021Nurturing PhaseEarly mover in Chinese marketFrequent renewals to differentiate from similar products and extend product lifeTaobao growth phaseGrowth phase driven by store openings on Chinese EC platformsCopyright © AXXZIA Inc. All rights reserved.59Growth Trajectory of Mainstay Products/Domains(3) Up-and-Coming: Skin Whitening (Growth Trajectory of Two Main Products)Captured demand in the Chinese market as an early mover and developed a growth model supported by frequent upgradesSales Trend Until Turning Growth Fields (Skin Whitening) into Hit ProductsMar. 2019Launched UV Veil EXSep. 2019Launched White Aminos Drink in plastic containerApr. 2019Opened Tmall Cosmetics Flagship StoreFeb. 2019Opened RED Flagship StoreApr. 2019Opened Tmall Supplement Flagship Store(Unit: thousands of yen)120,000White Aminos (total)UV Veil EXFeb. 2018Launched pouch type of White Aminos DrinkJun. 2017Launched granular type of White Aminos100,00080,00060,00040,00020,0000.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ.guA.peS.tcO.voN.ceD.naJ.beF.raM.rpAyaM.nuJ.luJ20172018201920202021Nurturing PhaseEarly mover in Chinese marketTaobao growth phaseLaunched sunscreen (UV Veil EX) to nurture a 2nd growth driver in the field, turned it into a hit productGrowth phase driven by store openings on Chinese cross-border e-commerce platformsCopyright © AXXZIA Inc. All rights reserved.60Ref: China E-commerce Sales Trend (Quarterly, FY07/20–21)◼◼◼In the increasingly competitive Chinese e-commerce channel, quarterly sales via Alibaba platforms (Tmall Global, Taobao) and RED grew steadily. In May 2021, we opened a new TikTok flagship store.FY07/21 sales of 4,095mn yen was up 1,196mn yen YoY (+41.3% YoY) from 2,899mn yen in FY07/20.Our sales promotion strategy of utilizing both top-down and bottom-up approaches to marketing has been successful.1,4001,2001,000800600200040049758981Ｑ45138955723002993309024948361325537103358522137300(Unit: millions of yen)