Bridge Report（2722）July 29, 2021

https://www.bridge-salon.jp/

I.K Co., Ltd. (2722)

Chairman & CEO Hiroshi Iida

Company Information
MarketIndustry
Chairman & CEO
HQ Address
Year-end
Homepage

Tokyo stock exchange 1st section and Nagoya stock exchange 1st section
Retail Business (Commerce)
Hiroshi Iida
KDX Nagoya Station Building, 3-26-8 Meieki, Nakamura-ku, Nagoya-shi, Aichi
End of May
https://www.ai-kei.co.jp/en

Stock Information
Share Price
Shares Outstanding
Total market cap¥621
8,308,000 shares¥5,159 million
DPS EstDividend yield Est.
EPS Est.
PER Est.
¥12.001.9%¥70.158.9x

ROE Act.
10.1%
BPS Act.
¥451.96

Trading Unit
100 shares
PBR Act.
1.4x*The share price is the closing price on July 28. Each figure was taken from the brief report on results for the fiscal year ended May 2021.

Earnings Trend
Fiscal Year
May 2018 Act.
May 2019 Act.
May 2020 Act.
May 2021 Act.
May 2022 Est.

Sales
Operating Income Ordinary Income
18,337898
899
17,614431
437
18,483590
623
20,754705
730
22,000880
870

Net Income
641
238
384
321
550

EPS
86.07
31.85
52.19
42.60
70.15

DPS
10.00
12.00
12.00
12.00
12.00

*Unit: million yen, yen. The estimated values are those announced by the Company. Stock split in a ratio 1:2 was conducted on 1st December 2017 and 1st April
2018. EPS and DPS were retroactively adjusted.

The financial statement for the fiscal year ended May 2021 and many more about I.K Co., Ltd. will be described.

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Bridge Report（2722）July 29, 2021

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Table of Contents
Key Points
1. Company Overview
2. Fiscal Year ended May 2021 Earnings Results
3. Fiscal Year ending May 2022 Earnings Forecasts
4. Future Strategy
5. Conclusions<Reference: Regarding Corporate Governance>

Key Points⚫

Both sales and profit increased for two consecutive terms in the fiscal year ended May 2021. Sales grew 12.3% year on year
to 20,754 million yen, hitting a record high. Compared to the previous fiscal year, sales rose by 1,811 million yen in the Bto-C Business, by 346 million yen in the B-to-B-to-C Business, and by 115 million yen in the Other Business, increasing theoverall sales by 2,271 million yen. Operating income stood at 705 million yen, up 115 million yen year on year, because grossprofit margin grew 3.0 points year on year to 51.1% while the ratio of selling, general and administrative (SG&A) expenses
went up 2.8 points year on year to 47.7% owing to the increased ratio of packing and freight expenses and advertising costs
to sales. Gross profit amounted to 10.6 billion yen, exceeding 10 billion yen for the first time. Net income, however, went
down 16.3% year on year because the company recorded an extraordinary loss of 173 million yen.

⚫

Sales grew dramatically in the B-to-C Business with sales from Air Yawn sold through TV shopping rising 1,357 million
yen year on year and those from Speed Heat increasing 1,822 million yen year on year. The ratio of private-label products(products developed in-house), whose gross profit margin is high, went up 5.9 points year on year to 65.34% andcontributed to profit.

⚫

For the fiscal year ending May 2022, the company aims to achieve record-high sales of 22 billion yen. Operating income isforecast to grow for three terms in a row to 880 million yen. In the Direct Marketing (former B-to-C) Business, the company
will continuously make investment in TV shopping and expect a sales increase at brick-and-mortar stores. In the Sales
Marketing (former B-to-B-to-C) Business, the company projects that sales will be at almost the same level as that of theprevious term because sales from wholesale to retail stores will rise again and special demand stimulated by the Covid-19
pandemic is subsiding. The company changes the names of the business segments in the fiscal year ending May 2022, but
the details of the businesses remain the same. A dividend to be paid will be unchanged at 12.00 yen per share while thecompany aims at a payout ratio of 20%. The estimated payout ratio is 17.1%.

⚫

The company made its medium-term business plan, which it had never disclosed, available to the public for the first time.
The plan is for three years with the fiscal year ending May 2024 deemed as the final year. The company enriches the life ofsenior citizens from the aspects of healthcare, beauty, and entertainment in Japan, whose population is getting super-aging
rapidly. After improving the quality of its services in Japan, which is a country facing an issue of an aging population aheadof other countries, the company will expand business into markets in the Asian region at an accelerated rate in preparation
for an aging society with which Asian nations will be confronted in the near future. As management indicators, the company
endeavors to achieve sales of 25 billion yen and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
after adjustment of 1.97 billion yen in the fiscal year ending May 2024.

⚫

A succession of the second, third, and fourth waves of Covid-19 imposed tight restrictions on individual consumption andbusiness operations and fueled downward economic trends, continuously heightening a sense of uncertainty about the
future. In fact, sales early in the fiscal year ending May 2022 fell below those of the same month of the year before, but wewould like to expect the company to start delivering strong performance. While the company aims to become a full-fledged
marketing manufacturer, a business model that is one of a kind in the world, we would like to pay attention to how speedily
the proportion of the company’s products developed in-house will grow from the current percentage of 65% to 100%.
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1. Company Overview
I.K Co., Ltd. is a “marketing manufacturer,” which conducts integrated business activities including product planning, manufacturing,
selling and distribution through its original promotion strategy.
The company operates the three businesses: the “Direct Marketing Business,” to sell sundries, food products, and cosmetics via TV
shopping, EC, and shops to consumers, the “Sales Marketing Business,” to sell products via various routes, including co-op stores, mailorder companies, shops, overseas channels, etc., and the “IT Solutions Business,” to offer IT solutions for developing and selling systems.
The company strives to establish a group management to make all stakeholders its fans by promoting “the increase of fans” as its
corporate philosophy.
◎Performance Trends

1-1 Corporate History
After spending his high school and college days in a “freewheeling” school environment, Mr. Hiroshi Iida (present chairman and CEO),who had a strong entrepreneurial spirit from the beginning, worked for a nonlife insurance company and went on to establish I.K Ltd. in
May 1982. While working on the sales of various products, he opened an account of Aichi CO-OP Union in April 1983 on getting favors
from people in charge of sales and started trading with occupational co-ops.
As the sales of flyers about a rechargeable cleaner, the first product, became a major hit, the horizontal expansion to other co-ops
progressed, the number of items handled also increased and the business expanded rapidly. It got listed on the JASDAQ market in
December 2001.
Due to the increase in recognition and reliability after the listing, the company began supplying products to the mail-order systems ofdepartment stores and retailers in a full-fledged manner, steadily expanding sales outlets, and achieved sales increases for 25 consecutive
terms until the fiscal year ended May 2007.
However, as the Lehman’s bankruptcy put the growth at halt, the company shifted to a “marketing manufacturer” that conducts integrated
business activities including product planning, manufacturing, sales and distribution of products on its own using a unique promotion
strategy and established “B to C channels” in addition to “B to B to C” to offer its products directly to customers, which allowed it toreturn to the growth track once again.
The company is actively putting efforts in M&A such as making Prime Direct Inc., a major company for television shopping, into awholly owned subsidiary in September 2014.
1-2 Management Philosophy
Increase of fans What they should pursue to become a leading company in the 21st century is not the amount of sales, capital or thenumber of employees. When they look ahead 100 years, they consider that making more and more people their “fans”
will lead to prosperity for the company, therefore, they set “increase of fans” as the company’s management philosophy
with a goal of “making all people involved in I.K Co., Ltd its fans.”

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1-3 Business Description(1) Segments
In the fiscal year ending May 2022, the company changes the names of the business segments to Direct Marketing (former B-to-C)
Business, Sales Marketing (former B-to-B-to-C) Business, and IT Solutions (former Other) Business in an effort to describe the detailsof its businesses more appropriately in the course of pursuing a business model of a marketing manufacturer.

(Note: Sales by channel are presented under the former segment names for FY 5/21.)(Source: The company)➀ Direct Marketing (former B-to-C) Business: Retail
The subsidiary, Primedirect Inc. offers products directly to consumers via websites and TV shopping slots, while the subsidiary Food
Cosmetic Co., Ltd. sells SKINFOOD, which is a product of a South Korean cosmetic brand, and OLIVE YOUNG at shops. The total
number of shops as of the end of May 2021 was 23, including 18 directly managed shops and 5 franchised ones, which are locatedmainly in station buildings of major cities in Japan.
② Sales Marketing (former B-to-B-to-C) Business: Wholesale
The cosmetics, apparel goods, shoes, bags, products related to beauty and health, etc. designed and developed by the company as a4

Bridge Report（2722）July 29, 2021

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manufacturer are offered to consumers through various routes, including co-op stores, mail-order companies, shops, and overseas
channels.
(Major Sales Routes)
Co-op route
Co-op Sapporo, Co-op Tohoku Sun Net Business Union, Co-op deli Consumer’s Co-operative Union, Palsystem
Consumer’s Co-operative Union, Tohto Co-op, U Co-op, Tokai Co-op Business Union, Co-op Kinki Business
Union, Co-op Kobe, Co-op Chugoku Shikoku Business Union, Co-op Hokuriku Business Union, Green Co-op
Union, Co-op Kyushu Business Union, All School Co-operative Unions in Japan, Aichi Co-op Union, Japan
Consumer’s Co-operative Union, etc.
Mail-order route Takashimaya Co., Ltd., Dinos Corporation Co., Ltd., Cecile Co., Ltd., Belluna Co. Ltd., Senshukai Co., Ltd.,
Nissen Co., Ltd., Aeon Retail Co., Ltd., au Commerce & Life, Inc., ABC Media Communications, JAF Service,
JALUX Inc., East Japan Railway Trading Co., Ltd., Shogakukan-Shueisha Productions Co., Ltd., QVC Japan,
Inc., Ropping Life, Nihon Bunka Center Co., Ltd., Zenkokutsuhan Co., Ltd., Japan Green Stamp Co., Ltd.,
Shaddy Co., Ltd., Television Shopping Kenkyujo Co., Ltd., Yamachu Co., Ltd., LightUp Shopping Club Inc.,TV Tokyo Direct Inc., Credit Saison Co., Ltd., Japan Post Trading Service Co., Ltd., etc.
Store route
Variety type
Don Quijote Co., Ltd., Nagasakiya Co., Ltd., UD Retail Co., Ltd., Loft Co., Ltd.,
cosme next Co., Ltd., Tokyo Dome Co., Ltd., Izumi Co., Ltd., TokyuHands Co., Ltd.,
etc.
Drug store typeMatsumoto Kiyoshi Co., Ltd., Tsuruha Holdings Co., Ltd., Create SD Co., Ltd., Ain
Pharmaciez Co., Ltd., Sundrug Co., Ltd., Sugi Holdings Co., Ltd., cocokarafine
Healthcare Inc., AEON Retail Co., Ltd., Daikoku Corporation, etc.
Home Center type
Komeri Co., Ltd., Cainz Co., Ltd., etc.
Home appliance type
Yamada Denki Co., Ltd., Biccamera Co., Ltd., Yodobashi Camera Co., Ltd, etc.
Overseas route
China, Taiwan, Hong Kong, South Korea, Singapore, Vietnam, and the U.S. etc.
③ IT Solutions (former Other) Business
The subsidiary AlfaCom, Ltd. sells systems for the establishment of contact centers, such as the voice call recording system “Voistore,”the business version of LINE “LINE WORKS,” the chat system “M-Talk,” etc.
(2) Main Products Developed by the Company
As a marketing manufacturer, the company develops products in various genres in house.
<<Healthcare>>(Source: The company)<<Beauty>>(Source: The company)

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Bridge Report（2722）July 29, 2021

https://www.bridge-salon.jp/<<Entertainment >>(Source: The company)

1-4 Characteristics and strengths: Business model as a marketing manufacturer
The primary point characterizing the company is a business model as a "marketing manufacturer" which conducts integrated businessactivities including planning, manufacturing, sales, and distribution of products on its own with a unique promotion strategy.
The company’s business model is composed of the following 3 functions.

(1) Powerful product development, discovery, and procurement
The company is developing, discovering and procuring attractive products by taking advantage of information gained from a wide rangeof sales channels and experiences cultivated over 30 years. The "Development Approval Conference" is held once a week, and threeteams of cosmetics, sundries and food with 7 to 8 members in each team, propose new products to officers and people in charge of sales.
In their company where challenges are valued, each team proposes an average of 10 or more items each month based on freewheelingideas, but not everything is approved.
The company has set "10 rules for development," which stipulates "emphasis on originality" and "thorough differentiation" regarding
product development, and the proposed product is strictly criticized based on them, and homework is given out sometimes. However,these processes train the staff members in charge of development and are leading to further enhancement of product development
capabilities.
(2) High marketing ability“High marketing ability” is playing a major role in developing a hit product.
Test marketing is conducted using various sales channels to check whether candidate products actually sell well. By making innovations
in various aspects such as package, timing, target and price and conducting new promotions, the company has been creating many hit
products.

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https://www.bridge-salon.jp/(3) Various sales channels
Rather than just proposing products to the various sales outlets mentioned above, they propose the best ways of selling and showcasing
in other sales channels together with successful stories of those channels.
They blend ideas unique to I.K co., Ltd. with the needs and feedbacks of customers and brush them up daily.
It is a major feature of the company that it provides all solutions, which fit the sales channels, to customers including product selection,
catalog and medium creation, quality control, order reception, logistics and customer service.
Solutions
Creation
Order reception
Quality control
Logistics
Customer Service

OutlineCreate a flyer/catalogue sized paper tailored to the project
They have a flexible core system that can handle all order reception styles such as calls, emails, FAX andpost cards with which it performs order receiving work faster and more accurately.
In addition to preparing for compliance, they set voluntary standards for each product category, and they
check the products to prevent complaints.
They provide individual delivery service from their own distribution center to the end user, keeping in
mind the five keywords: sorting, setting in order, cleaning, hygiene, discipline.
In-house staff members provide one-stop services such as responding to inquiries about products, delivery
and exchange, and after sales services at the call center.

While many other companies in the same industry specialize in planning and marketing of products, have only stores as their sales
channels, and outsource manufacturing and distribution work to other companies, the company can execute a unique promotion strategy
that they cannot imitate as the company can respond flexibly with the system and know-how.
1-5 ROE Analysis
FY 5/14FY 5/15FY 5/16

FY 5/17FY 5/18

FY 5/19

FY 5/20

FY 5/21

-2.3
-0.29
2.74
2.91

-3.4
-0.40
2.75
3.07

4.9
0.53
2.93
3.18

25.0
2.79
3.04
2.95

29.0
3.50
3.19
2.60

9.1
1.35
2.69
2.51

14.0
2.08
2.61
2.59

10.1
1.55
2.84
2.29

ROE (%)Net income margin (%)
Total asset turnover [times]
Leverage [times]（x）The return on equity (ROE) deteriorated in the fiscal year ended May 2021 because net income margin shrank due to posting of an
extraordinary loss of 173 million yen. The net income margin for the fiscal year ending May 2022 is expected to increase to 2.50%.

2. Fiscal Year ended May 2021 Earnings Results(1) Consolidated Business Results
Sales
Gross Profit
SG&A
Operating Income
Ordinary Income
Net Income

FY 5/20
18,483
8,898
8,307
590
623
384

Ratio to Sales
100.0%
48.1%
45.0%
3.2%
3.4%
2.1%

FY 5/21
20,754
10,613
9,908
705
730
321

Ratio to Sales
100.0%
51.1%
47.7%
3.4%
3.5%
1.5%

YY change+12.3%+19.3%+19.3%+19.4%+17.1%-16.3%*Unit: million yen. Net income is profit attributable to owners of parent.

Sales and profit increased for two consecutive years.
Sales went up 12.3% year on year to 20,754 million yen, hitting a record high. Although the company faced an uphill struggle causedby the decrease of customers due to the Covid-19 pandemic at SKINFOOD shops and other stores, products sold through TV shoppingthat can fulfill demand from home-bound consumers, including Speed Heat Thermal Vest, Step 8, and Air Yawn, and products developed
in-house sold through co-op stores and mail-order companies that allow customers to buy items without going out served as a driving
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force. The rise in sales through TV shopping increased gross profit margin and raised gross profit by 19.3% year on year to 10.6 billion
yen, exceeding 10 billion yen for the first time. SG&A expenses, such as advertising costs, increased, but was offset, and operating
income grew 19.4% year on year. Net income, however, shrank 16.3% year on year because the company recorded an extraordinary
loss of 173 million yen (including an impairment loss of 58 million yen, expenses for customer compensation of 41 million yen, aprovision of reserve for customer compensation of 17 million yen, and a provision of reserve for administrative monetary penalties of
47 million yen).
(Variation in Selling, General and Administrative Expenses)
FY 5/20
Ratio to sales
Labor cost
1,479
8.0%
Advertising cost
3,544
19.2%
Packing and freight expenses
1,368
7.4%
Total SGA
8,307
44.9%
*Unit: million yen.

FY 5/21
1,500
4,306
1,744
9,908

Ratio to sales
7.2%
20.8%
8.4%
47.7%

YY change+1.4%+21.5%+27.5%+19.3%Such factors as a rise in broadcast slots for TV shopping increased the ratio of advertising costs by 1.6 points year on year. The ratio ofpacking and freight expenses also went up 1.0 points year on year due to increases in the number of products received at the distribution
centers and fees for shipping work. Meanwhile, a 0.8 point improvement in labor costs caused the ratio of SG&A expenses to grow only
by 2.8 points year on year.
◎Quarterly Earnings(2) Trend of each segment
FY 5/20
Sales
B to C Business
B to B to C Business
Other
Total
Operating Income
B to C Business
B to B to C Business
Other
Adjustments
Total

Ratio to Sales

FY 5/21

Ratio to Sales

YY change

6,656
11,539287
18,483

36.0%
62.4%
1.6%
100.0%

8,467
11,885402
20,754

40.8%
57.3%
1.9%
100.0%+27.2%+3.0%+40.0%+12.3%

359
176
3
50
590

5.4%
1.5%
1.2%
3.2%

298
324
52
30
705

3.5%
2.7%
13.0%
3.4%

-17.0%+83.3%+1472.9%+19.4%*Unit: million yen. Composition ratio of operating income is operating income margin.

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Bridge Report（2722）July 29, 2021

https://www.bridge-salon.jp/① B to C business
Sales rose and profit declined.
Such top-selling products as Speed Heat Thermal Vest, which is the new version released in 2020, Step 8, and Air Yawn through TV
shopping offset the sales decline at the SKINFOOD stores, causing total sales to go up 1,811 million yen to 8,467 million yen.
Operating income of the B-to-C Business as a whole stood at 298 million yen, down 61 million yen year on year, because advertisingcosts and packing and freight expenses rose as a reaction to a rise in the quota of test marketing in the fourth quarter and the sales
efficiency of Step 8 and Air Yawn passed the peak. On the other hand, sales through TV shopping increased following a 1.0 point
improvement of the media ration (MR; sales/media costs) and the gross profit margin improved 2.7 points,② B to B to C business
Sales increased and profit significantly grew.
Sales were 11,885 million yen, up 346 million yen in the B-to-B-to-C Business as a whole because sales from food products rose 24.7%
at the co-op stores and 22.6% at mail-order companies although sales from cosmetics were disappointing as people got accustomed towearing face masks. The 0.6 point drop of the ratio of SG&A expenses to sales as well as the sales increase caused operating income toincrease 147 million yen to 324 million yen.
③ Other
Sales increased and profit significantly grew.
Sales increased as a result of marketing activities aimed at sales expansion for one of the company’s mainstay products, M-Talk (a chatsystem). Operating income grew significantly because sales from M-Talk were strong and the ratio of SG&A expenses shrank 8.0 points.
(3) Financial condition and cash flow
◎Main BSEnd of May
2020
Current Assets
6,268
Cash
670
Receivables
3,176
Inventories
Noncurrent Assets

1,852
1,100

Tangible Assets
Intangible Assets
Investment, Others
Total Assets

380
163
556
7,369

End of May
2021
6,230 Current Liabilities
800
Payables
2,800
ST Interest Bearing
Liabilities
1,947 Noncurrent liabilities
996
LT Interest Bearing
Liabilities
361 Total Liabilities
157 Net Assets
476
Retained Earnings
7,226 Total Liabilities and Net
AssetsBalance of Debts
Equity Ratio

End of May
2021
3,082
1,154
809

End of May
2021
2,614
1,007
570

1,477
1,175

1,055
737

4,559
2,809
2,166
7,369

3,669
3,557
2,400
7,226

1,985
38.0%

1,308
49.0%

*Unit: million yen.

A decline in trade receivables caused total assets to shrink 142 million yen from the end of the previous year to 7,226 million yen. Total
liabilities stood at 3,669 million yen, down 890 million yen from the end of the previous year, because of a decrease in long-term debt.
Net assets increased 747 million yen from the end of the previous year to 3,557 million yen owing to such factors as a rise in retained
earnings. Equity ratio grew 11.0 points from the end of the previous year to 49.0%.

9Bridge Report（2722）July 29, 2021

https://www.bridge-salon.jp/◎Cash Flow
FY 5/20
Operating cash flow
Investing cash flow
Free cash flow
Financing cash flow
Cash and equivalent

FY 5/21
712
-374
338
-139
802

Increase andDecrease
-76
+153
+77
-118
+164

636
-220
415
-258
967

*Unit: million yen.

The investing and free cash flows rose because the company made no expenditure arising from business transfer and sold investment
securities.
An increase in repayment of long-term debt widens the deficit of the financing cash flow. The cash position increased.

3. Fiscal Year ending May 2022 Earnings Forecasts(1) Full-year earnings forecast
Sales
Operating Income
Ordinary Income
Net Income

FY 5/21
20,754705
730
321

Ratio to Sales
100.0%
3.4%
3.5%
1.5%

FY 5/22 Est.
22,000880
870
550

Ratio to Sales
100.0%
4.0%
4.0%
2.5%

YY change+6.0%+24.8%+19.2%+71.3%*Unit: million yen. The estimated values are those announced by the company.

Sales and profit are estimated to increase. Sales are expected to mark a record high.
For the fiscal year ending May 2022, the company aims to achieve record-high sales of 22 billion yen. Operating income is forecast to
grow for three terms in a row to 880 million yen. In the Direct Marketing (former B-to-C) Business, the company will continuously
make investment in TV shopping and expect a sales increase at brick-and-mortar stores. In the Sales Marketing (former B-to-B-to-C)
Business, the company projects that sales will be at almost the same level as that of the previous term because sales from wholesale toretail stores will rise again and special demand stimulated by the Covid-19 pandemic is subsiding. The company changes the names ofthe business segments in the fiscal year ending May 2022, but the details of the businesses remain the same. A dividend to be paid will
be unchanged at 12.00 yen per share while the company aims at a payout ratio of 20%. The estimated payout ratio is 17.1%.
(2) Trend of each segment（Sales forecast for each segment）
FY 5/21
Direct Marketing Business
Sales Marketing Business
IT Solutions Business
Total

8,467
11,885402
20,754

Ratio to
Sales
40.8%
57.3%
1.9%
100.0%

FY 5/22 Est.
9,776
11,803421
22,000

Ratio toYY change
Sales
44.4%
+15.4%
53.7%
-0.6%
1.9%
+4.7%
100.0%+6.0%*Unit: million yen.

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https://www.bridge-salon.jp/(Monthly sales for each segment)

4. Future Strategy(1) Future strategy
Starting off with wholesale to co-op stores, the company diversifies its business, ranging from a business model of sales marketing,which is wholesale to mail-order companies and retail stores, to a business model of direct marketing through such means as television
programs and e-commerce websites, and to an overseas business targeted mainly at China.
(2) Strategy by business segment① Direct Marketing Business◎ TV shopping
The indicator MR that indicates the sales efficiency of TV shopping rose on a yearly average for the second consecutive term, and thenumber of products with an MR of two and over is growing. An MR that exceeds two can boost operating income. Companies that have
five to six kinds of such items can put together a portfolio. The ideal number of such items is considered to be seven to eight.
TV shopping are targeted at consumers in their 50s to 70s (senior citizens who account for 88% of the sales in FY 5/21) whose number
will continue to be on the rise for the next few years. Senior citizens are growing in number also in South Asia and Southeast Asia at
least up until 2026.
◎ E-commerce
The company aims to maximize profit while creating synergy with the television business as a tool for getting orders through TV
shopping.
It strives to carry out unique e-commerce promotions and expand sales through such e-commerce websites as Rakuten and Amazon.
The company plans to begin releasing new products around the fall as a recurring-revenue e-commerce business.
◎ Shops
In addition to SKINFOOD, the company will focus on selling products of OLIVE YOUNG that the company started to sell last year.
The company will lead customers of the physical SKINFOOD stores to the SKINFOOD website, and vice versa, and open official retailstores of private-label cosmetics of OLIVE YOUNG.
The company will begin trial marketing for the type of store selling products of multiple Korean cosmetics brands.
The company endeavors to expand sales at brick-and-mortar stores while the flow of people is on an upward trend gradually.

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Bridge Report（2722）July 29, 2021

https://www.bridge-salon.jp/② Sales Marketing Business◎ Stable growth of co-op store and mail-order shopping businesses
The company believes that the impact of Covid-19 boosted sales primarily from food products in the previous term, but sales fromgeneral goods and cosmetics will rise in the current and subsequent terms, allowing the business as a whole to grow stably. Specifically,
the company will create synergy with the television business in order to boost sales and revenue from private-label products by expanding
sales mainly of top-selling products in TV shopping to co-op stores and brick-and-mortar stores.
◎ Reconstruction of the retail shop business
Maintaining the current number of stores, the company strives to improve sales efficiency by increasing sales at existing stores.
The company will expand sales of other products than cosmetics, such as Cocoegg and hair removal milk.
The company will generate synergy within the corporate group through direct wholesale of the top-selling products in TV shopping andat co-op stores to physical stores.
◎ Reconstruction of the overseas business
An officer in charge has been stationed in Mainland China since January 2021 in order to rebuild the Chinese subsidiary.
The company reforms the e-commerce sales channels, such as T-mall and RED, through enhanced promotion.
The company will prospect for new customers in Mainland China and fully begin to sell Cocoegg in China.

◎ Medium-Term Business Plan
The company made its medium-term business plan, which it had never disclosed, available to the public for the first time. It adopted
new management indicators, which are EBITDA after adjustment and Cash Conversion Cycle (CCC), in the current business plan.
(1) Purpose
I.K. Co., Ltd. improves customers’ life satisfaction and realize a sustainable society through its products.
The company pursues harmony with the global environment as its product development policy, which the company has worked on forthe past 24 years.
(2) Strengths① Extensive data amassed through the relationship with customers for the past 40 years.
I.K. Co., Ltd. has cultivated extensive data and experiences through contact with customers and product distribution for the last 40 years
since its establishment.
The company is capable of delivering the products desired in daily life to as many customers as possible in a prompt manner and throughan appropriate distribution route by swiftly grasping the social trend and combining marketing and promotion according to the trend.
② The corporate group’s main customers are senior citizens who are in their 50s to 70s.
The major customers of I.K. Co., Ltd. are senior citizens who are in their 50s to 70s.
These customers have an enormous appetite for buying healthcare, beauty, and entertainment products because many of them are freefrom childcare responsibilities, have a large amount of disposable income, and have a relatively considerable amount of time to spare,
providing the company with a solid foundation.
③ Plentiful sales channels and efficient logistics
The company has efficient logistics for delivering products to customers swiftly through a multitude of its sales channels while being
capable of conducting transactions directly with each of the marketing channels, including TV shopping, e-commerce websites,
consumers’ cooperatives, mail-order companies, drugstores, and variety stores, as well as operating stores. This allows the company to
expeditiously provide customers with products that they want when they desire.
(3) Vision that the company strives to achieve◎ Background of how the plan was formulated
The principal reason behind the formulation of the business plan is that the company considers that it is meaningful to enrich the life of12

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senior citizens from the aspects of healthcare, beauty, and entertainment in Japan, whose population is getting super-aging rapidly (theamount of savings outstrips the amount of debts when people are in their 50s, and the amount of net savings (calculated by subtracting
the amount of debts on hand from the amount of savings on hand) reaches the peak when people are in their 70s).
After improving the quality of its services in Japan, which is a country facing an issue of an aging population ahead of other countries,
the company will expand business into markets in the Asian region at an accelerated rate in preparation for an aging society, with which
Asian nations will be confronted in the near future (the population aged 65 and over will nearly double from 400 million as of 2020 to
700 million in 2050).
◎ Vision that the company strives to achieve
Attracting fans: To continue to be an excellent company from the customer viewpoint
Companies can survive and have their purposes by adapting to the rapidly changing social environment.
I.K. Co., Ltd. will expand into the Asian region with a keyword of “attracting fans” by listening to the voices of customers at all times.
(4) Priority measures① Merger and acquisition in priority investment areas (aggressive measure).
The company makes proactive investment in TV shopping and e-commerce websites, focuses on subscription products sold throughsuch sales channels, and releases products made in Japan to overseas markets.
② Structural reform of the corporate group that is the base for agile decision-making (defensive measure).
The company enhances its business portfolio management and corporate functions.
③ Shift to cash flow-based business
The company strengthens its business operations especially by shortening CCC for raising funds and investing in a growth business ofprivate-label products.
(5) Numerical goals
The company will invest 3 billion yen for the next three years mainly through the aforementioned priority measures ① to ③.

(Source: The company)

CCC: If the Direct Marketing Business takes a greater share, the company will be able to collect cash more quickly. So, the company
will increase the scale of the Direct Marketing Business.

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https://www.bridge-salon.jp/(Source: The company)(6) Growth investment
The company will “continue investment” in priority areas and invest 2.5 billion yen in M&A in “promising fields” in the next three years.
The company will spend the cash generated from the revenue foundation on the television business, stores, and the shop business.
The company plans to use the cash also for the e-commerce business, the overseas business, and the IT Solutions Business in the future.

(Source: The company)

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https://www.bridge-salon.jp/(7) Policy on shareholder return
The company aims at a payout ratio of around 20% (unchanged from the conventional ratio) while taking into account the balance of
surplus funds.
The company intends to prioritize strategic growth investment for the coming three years.

5. Conclusions
A succession of the second and third waves of Covid-19 caused the government to issue the fourth state of emergency mainly in urban
areas, making it impossible to predict when things return to normal. Under these circumstances, the key to further prosperity is how
efficiently the company can take in the demand from home-bound consumers, which is a driving force for the immediate businessperformance. We would like to expect the company to create synergy between the capabilities to produce hot-selling products by itself
as a marketing manufacturer and the marketing abilities to precisely promote products through TV shopping and other similar sales
channels.
We would also like to pay attention to how speedily the proportion of the company’s products developed in-house will grow from thecurrent percentage of 65% to 100% while the company aims to stand at the pinnacle of a business model of a one-of-a-kind marketing
manufacturer in the world.

<Reference: Regarding Corporate Governance>◎ Organization type, and the composition of directors and auditors
Organization typeCompany with audit and supervisory committee
Directors
7 directors, including 3 outside ones
◎ Corporate Governance Report
Last updated: December 17, 2020
<Basic Policy>
While corporate governance is expected to function effectively, the company strives to become a reliable firm by improving its
management foundation, maintaining high ethics and increasing the transparency of the management further in order to fulfil the social
mission and responsibility as a listed company.
Also, the company considers the establishment of a management structure that can respond to the changes in the business environment
fast and accurately as one of the important business challenges, and it is making efforts in information sharing from many sides byholding a regular meeting of Board of Directors (once/month), an extraordinary meeting of Board of Directors (as per the need), an inhouse officers meeting (once/week) with regular directors (including directors serving as audit and supervisory committee members)
and executive officers, and a top meeting (once/week) composed of people from team mangers post or above.
<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
Principles
Reasons for not implementing the principles
Supplementary Principle1-2．(4) Electronic The company does not use an online voting platform or provide English
exercise of voting rights, English translation translation of convocation notices for ordinary general meetings of shareholders,of convocation notices
but it will take the shareholders’ convenience into account based on thecomposition of shareholders such as institutional investors and foreign investors,
and discuss them as necessary.
Supplementary Principle 4-1．
The company has its medium-term plan, and it makes efforts to allow shared(2)Explanation of a medium-term
recognition with shareholders and investors through medium-term vision. The
management plan
medium-term profit plan is not disclosed, but the company will consider
disclosing it in future.
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https://www.bridge-salon.jp/<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
Principles
Disclosure contents
Principle 1-4 So-called Strategically-held
The company owns strategically held shares in order to maintain and strengthen
Sharesa continuous, stable and good business relation with its clients. However, it willconduct tests regularly from a medium-to-long term perspective based on returns,
risks, etc., and it will recommend the sale of shares in case there is no longer
necessity. Regarding the concerned shares, the board of directors verifies theholding purpose, reasonability and the status of dividend income, compares theacquisition price and current price, and checks the need for holding the shares
every year.
Furthermore, since the company makes its decision regarding the exercise of
voting rights by comprehensively considering strengthening and maintenance ofbusiness relation, circumstances of the company concerned, etc., it does not haveexternal standards.
Principle 5-1 Policy to have Constructive
In the company, the management team/general affairs group are designated as the
Dialogue with Shareholders
IR department, and they respond to the requests for dialogue by the shareholders
within reasonable range in order to contribute to sustainable growth of thecompany and improvement of corporate value over medium-to-long term.
The company’s chairman holds the financial results briefing twice a year for
shareholders and institutional investors. Further, the company upload videos andhandouts of the briefing on its website for shareholders and investors who are notable to attend the briefing.

This report is intended solely for information purposes, and is not intended as a solicitation for investment. The information and opinions contained
within this report are made by our company based on data made publicly available, and the information within this report comes from sources that
we judge to be reliable. However, we cannot wholly guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy,completeness or validity of said information and opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong
to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibilityof the individual and should be made only after proper consideration.
Copyright (C) Investment Bridge Co., Ltd. All Rights Reserved.

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