アダストリア（2685） – Summary of Consolidated Financial Results for the Fiscal Year Ended February 28, 2022

[Japanese GAAP] April 13, 2022 Listing: Tokyo Stock Exchange URL: https://www.adastria.co.jp Tel: +81-3-5466-2060 Summary of Consolidated Financial Results for the Fiscal Year Ended February 28, 2022 Company name: Adastria Co., Ltd. Stock code: Representative: Michio Fukuda, Chairman of the Board 2685 Contact: Itsuo Iwakoshi, Senior Vice President, Head of Corporate Planning Office Scheduled date of Annual General Meeting of Shareholders: Scheduled date of payment of dividend: Scheduled date of filing of Annual Securities Report: Preparation of supplementary materials for financial results: Holding of financial results meeting: Note: The original disclosure in Japanese was released on April 13, 2022 at 15:30 (GMT +9). May 26, 2022 May 11, 2022 May 27, 2022 Yes Yes (for investors) 1. Consolidated Financial Results for the Fiscal Year Ended February 28, 2022 (March 1, 2021 – February 28, 2022) (1) Consolidated results of operations (Percentages shown for net sales and incomes represent year-on-year changes) (All amounts are rounded down to the nearest million yen) Net sales Operating profit Ordinary profit Million yen 201,582 183,870 % 9.6 (17.3) Million yen 6,564 766 % 756.1 (94.0) Fiscal year ended Feb. 28, 2022: Fiscal year ended Feb. 28, 2021: Diluted net Net income per income per share share Yen Yen Million yen 8,166 2,981 % 173.9 (76.8) (-%) (-%) Ratio of ordinary profit to total assets % 5,280 million yen (888) million yen ROE % 9.4 (1.3) – – 108.72 (14.88) Net income attributable to owners of the parent Million yen 4,917 (693) % – – Ratio of operating profit to net sales % 8.4 3.1 3.3 0.4 Total assets Million yen Net assets Million yen Equity ratio % Net assets per share Yen As of Feb. 28, 2022 As of Feb. 28, 2021 Reference: Shareholders’ equity As of Feb. 28, 2022: 53,963 million yen As of Feb. 28, 2021: 50,701 million yen (3) Consolidated cash flow position 97,957 95,449 54,963 50,701 55.1 53.1 1,192.62 1,122.71 Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Million yen Million yen Million yen Cash and cash equivalents at end of the period Million yen 3,504 11,933 (7,780) (7,366) (3,251) (6,840) 16,863 24,082 Fiscal year ended Feb. 28, 2022 Fiscal year ended Feb. 28, 2021 2. Dividends Dividend per share 1Q-end 2Q-end 3Q-end Year-end Total Total dividends Dividend payout ratio (consolidated) Dividend on equity (consolidated) Yen Fiscal year ended Feb. 28, 2021 Fiscal year ended Feb. 28, 2022 Fiscal year ending Feb. 28, 2023 (forecast) 3. Consolidated Forecast for the Fiscal Year Ending February 28, 2023 (March 1, 2022 – February 28, 2023) Yen Million yen 40.00 55.00 Yen 25.00 30.00 Yen 15.00 25.00 1,856 2,510 – 50.6 30.00 55.00 25.00 39.5 Yen – – – – % % – – 3.4 4.8 Net sales Operating profit Ordinary profit Full year Million yen 230,000 % 14.1 Million yen 10,000 % 52.3 Million yen 10,000 % 22.5 (Percentages represent year-on-year changes) Net income per share Yen Net income attributable to owners of the parent Million yen 6,300 139.23 28.1 % Fiscal year ended Feb. 28, 2022 Fiscal year ended Feb. 28, 2021 Note: Comprehensive income Fiscal year ended Feb. 28, 2022 Fiscal year ended Feb. 28, 2021 (2) Consolidated financial position * Notes scope of consolidation): Yes (1) Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in changes in Newly added: 1 (Zetton, Inc.) Excluded: 1 (Adastria Korea Co., Ltd.) (2) Changes in accounting policies and accounting-based estimates, and restatements 1) Changes in accounting policies due to revisions in accounting standards, others: None 2) Changes in accounting policies other than 1) above: None 3) Changes in accounting-based estimates: None 4) Restatements: None (3) Number of outstanding shares (common stock) 1) Number of shares outstanding at the end of the period (including treasury shares) As of Feb. 28, 2022: 48,800,000 shares As of Feb. 28, 2021: 48,800,000 shares 2) Number of treasury shares at the end of the period As of Feb. 28, 2022: 3,552,459 shares As of Feb. 28, 2021: 3,639,505 shares 3) Average number of shares outstanding during the period Fiscal year ended Feb. 28, 2022: Reference: Summary of Non-consolidated Financial Results 1. Non-consolidated Financial Results for the Fiscal Year Ended February 28, 2022 45,229,961 shares Fiscal year ended Feb. 28, 2021: 46,598,046 shares (March 1, 2021 – February 28, 2022) (1) Non-consolidated results of operations Net sales Fiscal year ended Feb. 28, 2022 Fiscal year ended Feb. 28, 2021 Fiscal year ended Feb. 28, 2022 Fiscal year ended Feb. 28, 2021 (2) Non-consolidated financial position Million yen 174,065 160,940 % 8.2 (18.5) Million yen Operating profit % 263.6 (87.3) 5,533 1,521 Ordinary profit % 140.2 (74.2) Million yen 6,667 2,775 Net income Million yen 4,443 (527) % – – (Percentages represent year-on-year changes) Net income per share Diluted net income per share Yen Yen 98.25 (11.32) – – Total assets Million yen Net assets Million yen Equity ratio % Net assets per share Yen As of Feb. 28, 2022 As of Feb. 28, 2021 Reference: Shareholders’ equity Note 1: The current financial report is not subject to audit by certified public accountants or auditing firms. As of Feb. 28, 2022: 46,973 million yen 78,983 81,340 46,973 44,511 1,038.14 985.63 As of Feb. 28, 2021: 44,511 million yen 59.5 54.7 Note 2: Cautionary statement with respect to forward-looking statements Forward-looking statements in this report are based on currently available information and certain assumptions judged to be reasonable. These statements are not promises by Adastria regarding future performance. Actual results may differ significantly from these forecasts for a number of factors. Please refer to the section “1. Overview of Results of Operations (4) Outlook” on page 5 regarding preconditions or other related matters for the forecast shown above. Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year (5) Basic Policy on Profit Distribution, and Dividend Plans for the Current and Next Fiscal Years Contents of Attachments 1. Overview of Results of Operations (1) Results of Operations (2) Financial Position (3) Cash Flows (4) Outlook 2. Basic Approach for the Selection of Accounting Standards 3. Consolidated Financial Statements and Notes (1) Consolidated Balance Sheet (2) Consolidated Statements of Income and Comprehensive Income (3) Consolidated Statement of Changes in Equity (4) Consolidated Statement of Cash Flows (5) Notes to Consolidated Financial Statements Going Concern Assumption Business Combinations Segment Information Per Share Information Subsequent Events 2 2 4 5 5 6 6 7 7 9 11 13 14 14 14 15 15 16 – 1 – Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year 1. Overview of Results of Operations (1) Results of Operations Consolidated results (Million yen) Net sales Operating profit Ordinary profit FY2/21 (Mar. 1, 2020 – Feb. 28, 2021) FY2/22 (Mar. 1, 2021 – Feb. 28, 2022) YoY change (Amount) YoY change (%) 183,870 766 2,981 201,582 6,564 8,166 17,711 5,797 5,184 9.6 756.1 173.9 (693) 5,610 4,917 Net income attributable to owners of the parent Consolidated net sales increased 9.6% year-on-year to 201,582 million yen, operating profit increased 756.1% to 6,564 million yen, ordinary profit increased 173.9% to 8,166 million yen, and net income attributable to owners of the parent was 4,917 million yen (net loss of 693 million yen in the previous fiscal year). Sales in Japan increased 8.9% year-on-year to 188,655 million yen. There were states of emergency and other pandemic safety measures in Japan during almost the entire first half of the fiscal year. In the second half, the number of customers at stores fell sharply for a while because of an upturn in the pandemic caused by a new variant. As a result, the business climate was uncertain with big swings in consumer sentiment during the fiscal year. Despite this challenging environment, store operations were better than in the previous fiscal year and there was a recovery in demand associated with outings during the second half. – E-commerce sales in Japan continued to grow, increasing 6.8%. As the e-commerce market grew during the pandemic, numerous activities to attract customers were strengthened, including the use of TV commercials for the Adastria e-commerce “.st” website. In addition, sales were higher at BUZZWIT, a subsidiary that handles brands exclusively for the e-commerce market. Overseas sales increased 20.7% to 12,926 million yen. Sales increased 87.8% in Mainland China due to the opening of the second niko and … store in Shanghai. Furthermore, sales increased in Hong Kong, Taiwan, the United States and other regions as economies recovered worldwide. As a result, there was a fiscal year profit in the overseas business. We opened 97 stores (including 10 overseas) and closed 69 stores (including 5 overseas), resulting in a total of 1,428 stores (including 73 overseas) at the end of the fiscal year. The number of stores does not include the stores of Zetton, Inc., which became a consolidated subsidiary in February 2022. Earnings were negatively affected by the need to reduce inventories during states of emergency, the yen ’s depreciation and the higher cost of raw materials. Despite these difficulties, the gross profit margin increased 0.6 percentage point to 55.1% because discount sales were held down by supplying the right products at the right prices and at the right times. Selling, general and administrative expenses increased 5,089 million yen. One reason was higher personnel expenses and store leasing expenses because of a decline in store operating hour reductions and suspensions of store operations from the previous fiscal year. Higher advertising expenditures to increase public awareness of the Adastria e-commerce “.st” website was another reason. However, there was an operating profit as the ratio of selling, general and administrative expenses to sales improved by 2.2 percentage points to 51.8% because of sales growth. The operating margin rose 2.9 percentage points to 3.3%. In addition, non-operating income includes employment adjustment subsidies of 549 million yen associated with temporary store closings and a subsidy of 676 million yen related to shortened operating hours caused by the pandemic and foreign exchange gains of 310 million yen. There was extraordinary income of 264 million yen for the reversal of the allowance for doubtful accounts resulting from the conversion of a loan to Lovebonito Holdings Pte. Ltd., a Singapore company using the “Love Bonito” omnichannel fashion brand, to equity to become an equity partner of this company and 81 million yen due to a gain on the liquidation of the Korean subsidiary. Ther e was an extraordinary loss of 600 million yen for – 2 – Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year Brand / region FY2/22 Sales (million yen) Composition (%) YoY change (%) the impairment of store assets. Supplementary Information (1) Sales for Brands and Regions GLOBAL WORK niko and … LOWRYS FARM studio CLIP LEPSIM JEANASIS BAYFLOW RAGEBLUE Others Total (Adastria) BUZZWIT Co., Ltd. ELEMENT RULE Co., Ltd. Other consolidated subsidiaries Total (Japan) Hong Kong Mainland China Taiwan USA Total (Overseas) Total (Group) subsidiaries. (2) Sales for Merchandise Categories Category Men’s apparel (bottoms, tops) Lady’s apparel (bottoms, tops) Others Total subsidiaries. 18.7 13.5 10.1 9.4 5.9 5.2 4.5 2.9 14.8 85.0 3.4 4.9 0.3 93.6 1.4 1.2 1.5 2.3 6.4 100.0 15.3 63.8 20.9 100.0 11.6 4.3 4.8 2.2 5.9 6.0 4.7 6.8 19.3 8.4 8.0 18.1 71.1 8.9 8.9 87.8 11.0 36.7 20.7 9.6 16.0 10.3 3.5 9.6 37,762 27,227 20,374 18,970 11,790 10,526 9,122 5,801 29,815 171,390 188,655 6,884 9,828 551 2,820 2,356 3,046 4,703 12,926 201,582 FY2/22 30,831 128,570 42,180 201,582 – 3 – Notes: 1. The number of stores is categorized by using brand operating divisions and geographic regions. 2. The above figures are sales to external customers and do not include internal sales be tween consolidated Sales (million yen) Composition (%) YoY change (%) Notes: 1. The others category includes additions to the provision for point card certificates and other items. 2. The above figures are sales to external customers and do not include internal sales between consolidated Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year Brand / region As of Feb. 28, 2021 Opened Changed Closed Increase /decrease As of Feb. 28, 2022 Number of stores FY2/22 – – – – – – – – – – – – – – – – – – – – (4) (2) (2) (2) (3) (2) – (2) (25) (42) (2) (18) (2) (64) (2) – (2) (1) (5) (69) (3) – 2 1 1 4 (2) (1) 15 17 4 (3) 5 23 – 3 2 – 5 206 144 136 184 120 73 60 48 274 1,245 1,355 18 84 8 14 6 43 10 73 (3) Number of Stores GLOBAL WORK niko and … LOWRYS FARM studio CLIP LEPSIM JEANASIS BAYFLOW RAGEBLUE Others Hong Kong Mainland China Taiwan USA Total (Overseas) Total (Group) (2) Financial Position Assets Total (Adastria) BUZZWIT Co., Ltd. ELEMENT RULE Co., Ltd. Other consolidated subsidiaries Total (Japan) 1,332 209 144 134 183 122 72 56 49 259 1,228 14 87 3 14 3 41 10 68 1,400 Notes: 1. The number of stores is categorized by using brand operating divisions and geographic regions. 2. The number of stores includes e-commerce websites of other companies and e-commerce websites of Adastria. 3. The number of stores does not include the stores of Zetton, Inc., which Adastria acquired during the current fiscal year, because the last day of the fiscal year is used as the acquisition date for accounting purposes. 28 1,428 Current assets decreased 3,400 million yen from as of February 28, 2021 to 48,169 million yen as of February 28, 2022. This was mainly due to a decrease of 7,202 million yen in cash and deposits, while there was an increase of 3,540 million yen in inventories. Non-current assets increased 5,907 million yen to 49,787 million yen. This was mainly due to increases of 814 million yen in buildings and structures, net, 1,784 million yen in goodwill and 1,330 million yen in other (software, etc.) under intangible assets. Liabilities Current liabilities decreased 2,638 million yen to 38,416 million yen. This was mainly due to decreases of 3,590 million yen in accounts payable-other and 903 million yen in income taxes payable, while there was a n increase of 1,733 million yen in notes and accounts payable-trade. Non-current liabilities increased 884 million yen to 4,577 million yen. This was mainly due to an increase of 896 million yen in long-term borrowings, while there was a decrease of 207 million yen in lease obligations. Net assets Net assets increased 4,261 million yen to 54,963 million yen. This was mainly due to increases of 2,634 million yen in retained earnings and 1,000 million yen in non-controlling interests. 1 2 4 3 1 3 4 1 40 59 6 15 7 87 2 3 4 1 10 97 – 4 – Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year (3) Cash Flows Cash and cash equivalents (hereinafter “net cash”) as of February 28, 2022 amounted to 16,863 million yen, or 7,219 million yen less than as of February 28, 2021. A summary of cash flows from each activity during the current fiscal year is as follows: Cash flows from operating activities Net cash provided by operating activities totaled 3,504 million yen (a decrease of 8,429 million yen, compared with the previous fiscal year). The main positive factors include net income before income taxes of 7,911 million yen and depreciation of 7,044 million yen. Main negative factors include an increase in inventories of 3,266 million yen, a decrease in accrued consumption taxes of 4,021 million yen and income taxes paid of 3,381 million yen. Cash flows from investing activities Net cash used in investing activities totaled 7,780 million yen (an increase of 414 million yen). This was mainly due to the payments of 3,796 million yen for the purchase of property, plant and equipment, 3,136 million yen for the purchase of intangible assets and 788 million yen for leasehold and guarantee deposits. Cash flows from financing activities Net cash used in financing activities totaled 3,251 million yen (a decrease of 3,588 million yen). This was mainly due to cash dividends paid of 2,283 million yen and repayments of lease obligations of 967 million yen. Reference: Cash flow indicators Shareholders’ equity ratio (%) Shareholders’ equity ratio based on market prices (%) Interest-bearing debt to cash flow ratio Interest coverage ratio (times) FY2/20 FY2/21 FY2/22 58.3 84.2 0.2 200.8 53.1 94.4 0.3 74.6 55.1 78.4 1.4 23.6 Notes: 1. Shareholders’ equity ratio: Shareholders’ equity / Total assets 2. Shareholders’ equity ratio based on market prices: Market capitalization / Total assets 3. Interest-bearing debt to cash flow ratio: Interest-bearing debt / Operating cash flows 4. Interest coverage ratio: Operating cash flows / Interest payments * Market capitalization is calculated by multiplying the closing share price at the end of the period by the number of shares outstanding at the end of the period, excluding treasury shares. * Operating cash flows are calculated using the figures for operating cash flows in the consolidated statement of cash flows. Interest-bearing debt includes all liabilities on the consolidated balance sheet that incur interest. Interest payments are calculated using the figures for interest expenses paid in the consolidated statement of cash flows. (4) Outlook The Japanese economy and the global economy are expected to slowl y return to normal because vaccinations and other measures are making economic and social activity possible while living with COVID -19. However, there are increasing concerns about the business climate because of the rising cost of raw materials and energy, upturns in inflation and interest rates, the yen’s depreciation, and geopolitical risk. Even if a recovery in consumer spending happens as economic activity returns to normal, lifestyle changes caused by the pandemic such as teleworking and different consumer preferences will not be reversed. The outlook for market conditions must be based on the premise that the behavior of consumers, including spending by foreign tourists in Japan, will not go back to the situation prior to the pandemic. At the same time, there are numerous positive trends for the Adastria Group. One example is increasing demand for one-mile wear and household products as people spend more time at home. Other beneficial shifts in consumer preferences are the increasing popularity of outd oor activities, the increasing use of casual apparel for business activities, and the growth of the e -commerce market. We are taking many actions to target these new categories of demand. From a medium to long-term perspective, the apparel market in Japan is certain to structurally shrink slowly as – 5 – Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year the population ages, the number of children falls and disposable income decreases. In other countries, the growth of apparel markets is likely to continue as populations increase and personal income in emerging countries climbs. To continue growing in this business climate, we have updated our growth strategies for 2025 and established a medium-term management plan. This plan has the following four key elements. (1) In the apparel business in Japan, we will divide our multi-brand portfolio, which has a large number of innovative brands, into three categories. First is independent brands, where will use our own initiatives for developing these into major brands. Second is growth brands, where our goal is rapid growth by focusing on new markets and new customers. Third is profit brands, where our goal is higher efficiency while building even stronger ties with customers. Our objective is growth of the scale of operations and of our earnings by making strategic investments and implementing business strategies that match the current stage of each category of brands. (2) For our digital strategy, as the e-commerce market continues to expand, we will make investments to raise the awareness of our e-commerce operations and the capabilities of these operations. In addition, we will add more merchandise categories to our e-commerce operations and strengthen relationships between our store personnel and customers. Our objectives to increase the number of active customers and the numb er of purchases these customers make. (3) Our overseas strategy is centered on a “glocal” approach that reflects the characteristics of each region where we have operations. We plan to continue growing in China while starting operations in Southeast Asia and other areas where we are not yet active. Expanding e-commerce outside Japan is another goal. (4) For new businesses, we plan to enlarge our lineup of businesses and sources of earnings, such as by adding a restaurant business, in order to reflect the diversification of our customers’ life styles and changes in consumption patterns. Launching and expanding B-to-B businesses is another goal for new businesses. The B-to-B sector will allow us to target new opportunities in the fashion industry and build new busines s models that span different business formats. By taking actions based on these strategies, we are determined to reach the following targets for the fiscal year ending in February 2026: sales of 280 billion yen, operating margin of 8% and an ROE of at leas t 15%. (5) Basic Policy on Profit Distribution, and Dividend Plans for the Current and Next Fiscal Years Our goal is to maximize the overall satisfaction of our customers, shareholders, business partners and employees as we achieve the long-term growth of corporate value (shareholder value) by making investments needed to create highly appealing brands, increase the use of digital technologies and achieve business growth on a global scale. For the distribution of earnings to shareholders, we use a consolid ated payout ratio before goodwill amortization of 30% as the basic policy. Repurchases will be determined in an appropriate and timely manner while taking into account changes in our stock price, our financial position and other factors. The forecast for the year-end dividend for the fiscal year that ended in February 2022 was determined by taking into account the stability of dividends and the need for proper balance between investments and shareholder distributions. On March 18, 2022, we increased our net income forecast for the fiscal year that ended in February 2022 and raised the year-end dividend forecast from 25 yen to 30 yen. As a result, the fiscal year dividend forecast is 55 yen, 5 yen higher than the forecast announced on April 7, 2021. For the fiscal year ending in February 2023, we plan to pay an annual dividend of 55 yen. 2. Basic Approach for the Selection of Accounting Standards Adastria prepares its consolidated financial statements based on the generally accepted accounting principles in Japan to permit comparisons with prior years and with the financial data of other companies. We will take suitable actions with regard to the application of International Financial Reporting Standards (IFRS) by taking into account associated factors in Japan and other countries. – 6 – 3. Consolidated Financial Statements and Notes (1) Consolidated Balance Sheet Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year FY2/21 (As of Feb. 28, 2021) FY2/22 (As of Feb. 28, 2022) (Million yen) Assets Current assets Cash and deposits Notes and accounts receivable-trade Inventories Other Allowance for doubtful accounts Total current assets Non-current assets Property, plant and equipment Buildings and structures Accumulated depreciation Buildings and structures, net Store interior equipment Accumulated depreciation Store interior equipment, net Land Other Construction in progress Accumulated depreciation Other, net Total property, plant and equipment Intangible assets Software Goodwill Other Total intangible assets Investments and other assets Investment securities Leasehold and guarantee deposits Deferred tax assets Other Allowance for doubtful accounts Total investments and other assets Total non-current assets Total assets 24,179 9,751 15,718 1,995 (74) 51,569 6,010 (2,318) 3,691 32,901 (28,678) 4,222 2,366 38 7,042 (2,785) 4,257 14,577 4,751 113 2,428 7,292 260 15,162 6,463 1,308 (1,184) 22,010 43,880 95,449 16,976 9,878 19,259 2,126 (71) 48,169 8,374 (3,868) 4,506 35,223 (30,818) 4,404 2,366 402 9,291 (4,965) 4,325 16,005 6,417 1,897 2,092 10,406 1,003 15,426 7,090 205 (351) 23,375 49,787 97,957 – 7 – Liabilities Current liabilities Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year FY2/21 (As of Feb. 28, 2021) FY2/22 (As of Feb. 28, 2022) (Million yen) Notes and accounts payable-trade Electronically recorded obligations-operating Short-term borrowings Current portion of long-term borrowings Lease obligations Accounts payable-other Income taxes payable Provision for bonuses Provision for point card certificates Other provisions Other Total current liabilities Non-current liabilities Long-term borrowings Lease obligations Provisions Other Total non-current liabilities Total liabilities Net assets Shareholders’ equity Share capital Capital surplus Retained earnings Treasury shares Total shareholders’ equity Accumulated other comprehensive income Valuation difference on available-for-sale securities Deferred gains or losses on hedges Foreign currency translation adjustment Total accumulated other comprehensive income Non-controlling interests Total net assets Total liabilities and net assets 9,548 7,360 672 14,040 4,151 2,170 1,285 420 1,405 41,055 2,966 356 370 3,692 44,747 – – – 2,660 7,213 48,479 (7,917) 50,435 0 34 231 266 – 50,701 95,449 11,282 6,620 95 455 805 10,449 3,247 2,179 1,728 446 1,104 38,416 896 2,758 322 600 4,577 42,994 2,660 7,213 51,114 (7,636) 53,351 8 45 558 611 1,000 54,963 97,957 – 8 – (2) Consolidated Statements of Income and Comprehensive Income Consolidated Statement of Income Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year FY2/21 (Mar. 1, 2020 – Feb. 28, 2021) FY2/22 (Mar. 1, 2021 – Feb. 28, 2022) (Million yen) Net sales Cost of sales Gross profit Selling, general and administrative expenses Advertising expenses Provision of allowance for doubtful accounts Remuneration for directors (and other officers) Salaries and bonuses Provision for bonuses Welfare expenses Rents Lease payments Depreciation Amortization of goodwill Other Total selling, general and administrative expenses Operating profit Non-operating income Interest income Dividend income Foreign exchange gains Income from contribution to facilities Subsidy income Revenue from electric power sales Subsidies for employment adjustment Other Total non-operating income Non-operating expenses Interest expenses Loss on valuation of derivatives Commitment fee Other Total non-operating expenses Ordinary profit Extraordinary income Gain on liquidation of subsidiaries and associates Reversal of allowance for doubtful accounts Total extraordinary income Extraordinary losses Impairment loss Provision of allowance for doubtful accounts Loss on liquidation of business Total extraordinary losses Net income before income taxes Income taxes-current Income taxes-deferred Total income taxes Net income (loss) Net loss attributable to non-controlling interests Net income (loss) attributable to owners of the parent – 9 – 183,870 83,744 100,125 7,163 47 457 29,195 2,152 4,956 29,220 482 6,841 157 18,683 99,358 766 69 2 75 60 217 36 1,767 333 2,562 160 89 25 72 346 2,981 – – – 1,322 874 137 2,335 646 962 377 1,340 (693) – (693) 201,582 90,569 111,012 8,153 41 497 29,605 2,129 4,993 30,571 580 6,679 58 21,136 104,448 6,564 11 3 310 71 676 34 549 221 1,880 148 59 45 26 278 8,166 81 264 346 600 – – 600 7,911 3,124 (129) 2,994 4,917 (0) 4,917 Consolidated Statement of Comprehensive Income Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year FY2/21 (Mar. 1, 2020 – Feb. 28, 2021) FY2/22 (Mar. 1, 2021 – Feb. 28, 2022) (Million yen) Net income (loss) Other comprehensive income Valuation difference on available-for-sale securities Deferred gains or losses on hedges Foreign currency translation adjustment Total other comprehensive income Comprehensive income Comprehensive income attributable to Comprehensive income attributable to owners of the parent Comprehensive income attributable to non-controlling interests (693) 0 – 27 (222) (195) (888) (888) 4,917 8 10 343 363 5,280 5,280 (0) – 10 – Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year (3) Consolidated Statement of Changes in Equity FY2/21 (Mar. 1, 2020 – Feb. 28, 2021) Share capital Capital surplus Treasury shares Shareholders’ equity Retained earnings (Million yen) Total shareholders’ equity Balance at beginning of period 2,660 7,213 51,079 (4,372) 56,580 Changes during period Dividends of surplus Net loss attributable to owners of the parent Purchase of treasury shares Disposal of treasury shares Disposal of treasury shares by stock ownership plan trust Net changes in items other than shareholders’ equity Total changes during period Balance at end of period Changes during period Dividends of surplus Net loss attributable to owners of the parent Purchase of treasury shares Disposal of treasury shares Disposal of treasury shares by stock ownership plan trust Net changes in items other than shareholders’ equity Total changes during period Balance at end of period – 2,660 – 7,213 (2,599) 48,479 (3,544) (7,917) Accumulated other comprehensive income Valuation difference on available-for- sale securities Deferred gains or losses on hedges Foreign currency translation adjustment Total accumulated other comprehensive income (Million yen) Total net assets Balance at beginning of period (0) 6 454 461 57,041 0 0 0 (1,906) (693) (3,673) 0 128 – – – – – (1,906) (693) (3,673) 128 0 – (6,144) 50,435 (1,906) (693) (3,673) 0 128 (195) (6,339) 50,701 27 27 34 (222) (222) 231 (195) (195) 266 – 11 – Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year FY2/22 (Mar. 1, 2021 – Feb. 28, 2022) Share capital Capital surplus Treasury shares Shareholders’ equity Retained earnings (Million yen) Total shareholders’ equity Balance at beginning of period 2,660 7,213 48,479 (7,917) 50,435 Changes during period Dividends of surplus Net income attributable to owners of the parent Purchase of treasury shares Disposal of treasury shares by stock ownership plan trust Net changes in items other than shareholders’ equity Total changes during period Balance at end of period Balance at beginning of period Changes during period Dividends of surplus Net income attributable to owners of the parent Purchase of treasury shares Disposal of treasury shares by stock ownership plan trust Net changes in items other than shareholders’ equity Total changes during period Balance at end of period (2,282) 4,917 (1) 282 – 2,660 – 7,213 2,634 51,114 281 (7,636) Accumulated other comprehensive income Valuation difference on available-for- sale securities Deferred gains or losses on hedges Foreign currency translation adjustment Total accumulated other comprehensive income (Million yen) Non- controlling interests Total net assets 34 231 266 – 50,701 10 10 45 326 326 558 – – – – 345 345 611 1,000 1,000 1,000 (2,282) 4,917 (1) 282 – 2,915 53,351 (2,282) 4,917 (1) 282 1,345 4,261 54,963 0 8 8 8 – 12 – Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year FY2/21 (Mar. 1, 2020 – Feb. 28, 2021) FY2/22 (Mar. 1, 2021 – Feb. 28, 2022) (Million yen) (4) Consolidated Statement of Cash Flows Cash flows from operating activities Net income before income taxes Depreciation Impairment loss Amortization of goodwill Loss on liquidation of business Interest and dividend income Interest expenses Loss (gain) on liquidation of subsidiaries and associates Increase (decrease) in allowance for doubtful accounts Increase (decrease) in provision for bonuses Increase (decrease) in provision for point card certificates Decrease (increase) in trade receivables Decrease (increase) in inventories Increase (decrease) in trade payables Increase (decrease) in accounts payable-other Increase (decrease) in accrued consumption taxes Other, net Subtotal Interest and dividends received Interest paid Income taxes paid Net cash provided by (used in) operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Purchase of investment securities Long-term loan advances Payments of leasehold and guarantee deposits Proceeds from refund of leasehold and guarantee deposits Purchase of shares of subsidiaries resulting in change in scope of consolidation Other, net Net cash provided by (used in) investing activities Cash flows from financing activities Dividends paid Purchase of treasury shares Repayments of lease obligations Other, net Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period – 13 – 646 7,156 1,322 157 137 – (71) 160 921 (17) (651) 190 (771) 3 (175) 2,977 644 12,630 13 (160) (550) 11,933 (3,807) (2,695) (21) (1,091) (663) 920 – (7) (7,366) (1,907) (3,677) (1,255) 0 (6,840) (22) (2,294) 26,377 24,082 7,911 7,044 600 58 – (81) (14) 148 (226) 1 443 72 (3,266) 651 (414) (4,021) (1,883) 7,022 10 (148) (3,381) 3,504 (3,796) (3,136) (202) – (788) 723 (563) (16) (7,780) (2,283) (1) (967) – (3,251) 309 (7,219) 24,082 16,863 Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year (5) Notes to Consolidated Financial Statements Going Concern Assumption Not applicable. Business Combinations Business combination through acquisition Zetton, Inc. became a consolidated subsidiary of Adastria on February 16, 2022. This was the result of the purchase of newly issued stock of zetton through a third-party allotment, which was completed on December 30, 2021, and the purchase of zetton stock by using a tender offer in accordance with the Financial Instruments and Exchange Act (Act No. 25 of 1948, including subsequent amendments) between January 4 and February 16, 2022. Due to these purchases, Adastria currently owns 51.00% of all stock issued by zetton. 1. Summary of business combination (1) Acquired company and business activities Acquired company: Zetton, Inc. Business activities: Restaurant management, development and consulting (2) Reasons for acquisition Acquiring zetton will allow Adastria to target opportunities in the restaurant business as part of activities for accomplishing the goal of providing a broad range of life style ideas for consumers. Adastria believes that this acquisition will increase the earnings of zetton and raise its corporate value. (3) Acquisition date February 16, 2022 (stock acquisition date) February 28, 2022 (assumed acquisition date) (4) Legal form of acquisition Acquisition of shares with cash (5) Company name after acquisition zetton’s name will not change. (6) Percentage of voting rights acquired a. Pct. of voting rights acquired through third-party allotment: 25.14% b. Pct. of voting rights acquired through tender offer: c. Percentage of voting rights after acquisition: 25.86% 51.00% (7) Basis for choosing the company to acquire Adastria acquired the shares in exchange for consideration in cash. 2. Period of the acquired companies’ performance included in the consolidated financial statements Results of operations of zetton are not included in the consolidated statement of income for the fiscal y ear that ended in February 2022 because the acquisition date of zetton is the end of February 2022 for accounting purposes. 3. Acquisition cost of acquired company and breakdown by type of consideration Payment for the acquisition: Cash payment for the third-party allotment 1,292 million yen Cash payment for the tender offer Acquisition cost: 1,584 million yen 2,876 million yen – 14 – Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year 4. Details of major acquisition-related costs Advisory fees, etc.: 85 million yen 5. Goodwill resulting from the acquisition (1) Amount 1,835 million yen (2) Source (3) Amortization method and period Segment Information Goodwill is calculated provisionally because the allocation of the acquisition cost was incomplete at the end of the fiscal year. The source of goodwill is primarily the expectation of excess earnings power emerging from business development in the future. Goodwill will be amortized in equal installments over the period during which benefits are expected. The amortization period will be determined based on the effects of the allo cation of the cost of the acquisition. The Adastria Group has only a single business segment, which is the planning and sales of clothing and related merchandise. There is no others segment because the levels of sales and earnings of o ther activities are insignificant. Per Share Information Net assets per share Net income (loss) per share FY2/21 (Mar. 1, 2020 – Feb. 28, 2021) 1,122.71 FY2/22 (Mar. 1, 2021 – Feb. 28, 2022) 1,192.62 (14.88) 108.72 (Yen) Notes: 1. Diluted net income per share is not presented since Adastria has no outstanding dilutive securities. 2. The Adastria stock held by the trust account recorded as treasury shares under shareholders ’ equity is included in treasury shares deducted from the number of shares that is used to calculate the average number of shares outstanding during the period for the determination of net income (loss) per share, and is included in treasury shares that is deducted from the number of shares outstanding at the end of the period for the determination of net assets per share. For the determination of net income (loss) per share, the average numbers of treasury shares outstanding that were deducted were 501,000 for FY2/21 and 423,000 for FY2/22. For the determination of net assets per share, the numbers of treasury shares deducted were 493,000 for FY2/21 and 405,000 for FY2/22. 3. The basis of calculating the net income (loss) per share is as follows. FY2/21 (Mar. 1, 2020 – Feb. 28, 2021) FY2/22 (Mar. 1, 2021 – Feb. 28, 2022) (Million yen) Net income (loss) attributable to owners of the parent Amount not available to common stockholders Net income (loss) attributable to owners of the parent applicable to common shares Average number of common shares outstanding during the period (Thousand shares) (693) – (693) 46,598 4,917 – 4,917 45,229 – 15 – Subsequent Events Business combination through acquisition Adastria Co., Ltd. (2685) Summary of Financial Results for February 2022 Fiscal Year The Adastria Board of Directors approved a resolution on March 18, 2022 to acquire shares in OPEN AND NATURAL Inc. through the Company’s consolidated subsidiary BUZZWIT Co., Ltd. and to make it a consolidated subsidiary (sub-subsidiary). The acquisition has been completed on March 31, 2022. 1. Summary of business combination (1) Acquired company and business activities Acquired company: OPEN AND NATURAL Inc. Business activities: Marketing of “PAIRMANON,” an EC brand for children’s clothing (2) Reasons for acquisition As a part of our growth strategy for 2025, the Group is working to expand its digital customer communication channels. Starting operations in 2018, BUZZWIT has grown steadily as a company engaged in the development of a dedicated e-commerce brands for the economically priced market. In this context, BUZZWIT has sought out M&A opportunities to further expand its business and focused on the children’s clothing category, which is an area of apparel that is a particularly suitable for e -commerce marketing. OPEN AND NATURAL, the company being acquired, has been marketing “pairmanon,” an EC-only children’s clothing brand since its establishment in 2017. The economically priced and high-quality brand is moderately trend setting in the children’s clothing market. With sales exceeding 2 billion yen in the fiscal year ended January 2022, it has growing presence in the e-commerce market for children’s clothing and as well as in the overall children’s clothing market. The acquisition of the shares will enable BUZZWIT to share its know-how and business structure with OPEN AND NATURAL and operational capabilities to further expand this business. (3) Acquisition date March 31, 2022 (4) Legal form of acquisition Acquisition of shares with cash (5) Company name after acquisition OPEN AND NATURAL’s name will not change. (6) Percentage of voting rights acquired 100.0% (indirect ownership) (7) Basis for choosing the company to acquire BUZZWIT acquired the shares in exchange for consideration in cash. 2. Acquisition cost of acquired companies and breakdown by type of consideration Not disclosed due to a confidentiality agreement. 3. Goodwill resulting from the acquisition Not yet determined. 4. Summary of assets acquired and liabilities assumed on the date of business combination Not yet determined. This financial report is solely a translation of the Company’s Kessan Tanshin (including attachments) in Japanese, which has been prepared in accordance with accounting principles and practices generally accepted in Japan, for the convenience of readers who prefer an English translation. – 16 –