Seiko Holdings Corporation
FY2019 Consolidated Results Presentation
Summary of Q&A

Date:

Wednesday, May 13rd, 2020, from 10:00-11:00 a.m.

Place:<Telephone conference>Respondent:

Yoshinobu Nakamura, President
Shimesu Takizawa, Executive Director and CFOSummary of Q&A :Q1. Could you describe the progress of the results of advertising and promotion
expenses in FY2019 in relation to the plan? In addition, what are the plansfor using advertising and promotion expenses for the current fiscal year(FY2020)? Please explain in relation to the Global Brands (GB) strategy.
A1. The results of advertising and promotion expenses in FY2019 increased byapproximately 11% year on year, or approximately 1.9 billion yen annually.
(Advertising and promotion expenses in FY2018 were 16.9 billion yen.)
Advertising activities for the current fiscal year are based on two
assumptions: that the activities must be reduced while sales activities
cannot be performed; and that advertising and promotion expenses cannot
be used even if we want to. It is difficult to determine when this situation willchange. Even under such circumstances, some fixed costs, such as rent
costs for boutique, are being incurred. However, since these costs arehighly variable, including rent negotiations, it is difficult to determine what
the outlook for the current fiscal year will be compared to the results for
FY2019. Although the Group’s GB strategy, in which we aim to expand
Global Brands, will remain the same, advertising and promotion expenses
may increase or decrease as a result of assessing measures in responseto changes in the market or distribution.

Q2. Can you please comment on the status of the Watches Business by region
and by product in April and May, to the extent possible?
A2. Regarding the results for the 4th quarter of FY2019, production and sales
activities in China stagnated in February and March. In Japan, demand
from tourists from abroad began to deteriorate from around February
onward and consumption began to show signs of stagnation. In March,large-scale economic activities were suspended due to lockdowns in
Europe and the U.S. In the latter half of March, activities were undervoluntary restraint in Japan. Accordingly, net sales fell 4.7 billion yen year
on year (compared to the 4th quarter of FY2018).
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Many countries in Europe and the U.S. have continued to restrict activities
beyond April, and we have suspended some shipments for a period.
However, even in such circumstances, some sales activities continue
through direct sales and e-commerce. Although it was possible to carry out
activities until the beginning of April in Japan, store activities have almost
stopped on a nationwide scale due to the government’s declaration of astate of emergency. Our business continues in limited areas, centered one-commerce. While the situation in Asia varies from country to country, in
general we have not reached full operations. Only China has been seeing acomparative return of economic activities since March.
The possibility that the state of emergency will be gradually lifted in Japanbegan to emerge in May. There are signs that economic activities will
resume in some countries in Europe and the U.S., albeit limited in scope.
Accordingly, the business environment is very fluid, and it is still difficult tojudge how the current situation will evolve.

Q3. You explained that branding activities proceeded smoothly. Can you
explain how you are currently responding to the expansion of Global
Brands for after the novel coronavirus outbreak has been contained?
A3. There is no change in the policy of the Mid-Term Management Plan. Oncethe pandemic ends, we will continue to invest actively. Currently, we areunable to invest even if we want to. Accordingly, once we see that thepandemic is coming to an end, we want to proceed with investment inaccordance with the policy of the Mid-Term Management Plan. Specifically,
we are currently making preparations, including the opening of a Grand
Seiko Boutique in Place Vendôme, Paris.

Q4. While net sales in the Watches Business decreased, we understand thatthe gross profit margin (GP%) has been maintained. Please explain theprofit ratio for the completed watches business and the watch movements
business separately. We also understand that the profitability of watch
movements has improved and contributed to profits. How was the watch
movements business in the 4th quarter? Has production been adjusted inthe 4th quarter?
A4. Although net sales have fallen, the GP% has improved by a few points.
With regard to mechanical movements, sales are increasing for both
external sales and in-house production, and profits are improving.
Meanwhile, net sales of analog quartz movements are on a downward
trend due to stagnant market conditions. While the movements businesshas also contributed to profits to some extent, it is the completed watchesbusiness, including in-house mechanical movements, that is driving theimprovement in profitability.
We did not adjust production in the 4th quarter. However, due to the impact2

of the novel coronavirus outbreak, manufacturing plants in China could not
be operated in February and production activities in Malaysia came to ahalt due to the enforcement of an activity restriction order in March. Output
fell as a result.

Q5. The Watches Business in China performed favorably in the 4th quarter.
How much did it grow in relation to the plan? Please explain separately for
e-commerce and physical stores.
A5. We cannot explain the specific numbers. The ratio of e-commerce sales isincreasing due to the impact of the novel coronavirus. Meanwhile, not allphysical stores have stopped operating, as certain levels of sales werereported at some physical stores for Grand Seiko (GS) in March. March ofFY2018 was a month in which inventory adjustments to date werecompleted and business performance recovered. In comparison to that, it
was not a bad result.

Q6. Please tell us the e-commerce ratio in the Watches Business.
A6. While we cannot tell you the specific figures, China has the highest ratio bycountry. We believe that the ratio has possibly risen from roughly 50%
previously to roughly 70%, due mainly to the impact of the spread of thenovel coronavirus. The next highest e-commerce ratio is in the U.S., which
remains at a much lower level than China.

Q7. As the economic environment and people’s lives are changing due to theimpact of the novel coronavirus, is there any risk that watch sales trends
will change following the end of the pandemic? Are you considering
measures, such as cost reductions or strengthening the structure, inresponse to these unprecedented environmental changes?
A7. To be honest, we do not yet know what will happen in the post-coronavirus
environment. For example, some people say that deflation will occur, andeconomic activities may not return after the end of the pandemic. However,
we are aiming to expand mid- and high-priced products, and we believethat watch demand in this price range will gradually return.
Although we must work on reducing costs as net sales are declining, at thevery least we will continue to strengthen our structure without affecting
employment.

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Q8. While it was said that production adjustments were necessary for analogue
quartz movements, is there any risk that the distribution stock of completed
watches is accumulating? Will it not be necessary to adjust production ofcompleted watches from the 1st quarter of the current fiscal year? Inaddition, will the production adjustments for analogue quartz movements
affect profitability?
A8. We expect the production of movements for the current fiscal year to shrink
slightly, due in part to the fact that production is not possible because
plants have been closed due to the impact of the novel coronavirus. At
present, we are not considering production adjustments for completedwatches. Going forward, we will look at market trends and consider them ifnecessary.
Mechanical movements are performing favorably. We believe that once thenovel coronavirus outbreak has been contained, the profits frommovements overall will not deteriorate significantly.

Q9. How do you view the certainty of a recovery of business in China? Is
sell-through returning in addition to sell-ins? Do you think China will returnto the same level as the previous fiscal year at an early stage?
In addition, please tell us if you see the return of China as an indicator thatsuggests the return of Japan, Europe and the U.S., or if you think that thereturn of other Western countries is completely different.
A9. We think that e-commerce is growing through sell-through. We feel thatsell-through is returning as physical stores have GS sales. We think that a
return of consumer confidence in China is quite certain. Meanwhile, wethink it includes a temporary reaction to the long-lasting activity restrictions
to prevent the spread of the novel coronavirus, and that it will be necessary
to pay attention to whether the recovery will be steady going forward.
While we think that the situation in other countries may recover in the sameway, that cannot be said unconditionally because of the differingcharacteristics of each country. We think that the speed of recovery in
China is also due to strong e-commerce. While recoveries in othercountries may not be as fast as in China, e-commerce will be one of thekey factors. We would like to respond after observing what kind of market
changes will occur once the novel coronavirus outbreak has been
contained.

Q10. Please tell us if there is any change in the positions of Swiss watches andSeiko due to the impact of the novel coronavirus.
A10. With regard to the balance between Seiko and Swiss watch brands, theSwiss brands are strong and Seiko is weak in China. Swiss brandwatches also have a higher weighting in Hong Kong and Singapore. In4

terms of product mix, the ratio of high-priced watches is high in Swissbrands, and it is difficult to determine what kind of changes will occur
going forward in the post-coronavirus environment. We think it will dependon the speed of recovery of the market. While e-commerce is performing
favorably, there are price ranges that suit it. The balance will also dependon Swiss brand marketing policy.
We will flexibly respond to market changes under the GB strategy, without
being overly conscious.

Q11. In addition to negative aspects, the novel coronavirus pandemic may also
have positive effects on the Electronic Devices Business, the Systems
Solutions Business and other areas. While the current sales situation in
the Watches Business is tough, please tell us about any strategies thatmake use of this situation.
A11. The Systems Solutions Business sees the impact of the novel coronavirus
as an opportunity. As working from home and e-commerce are expected
to increase, demand for system construction and computer performance
management is expected to rise, and we would like to focus our efforts onthese. We are not specifically considering any major changes to theboutique strategy of the Watches Business.

Q12. What potential exists in the Systems Solutions Business amid the impactof the novel coronavirus?
A12. First, we recognize that the Systems Solutions Business has sufficientknowledge regarding cashless payments, which are expected to progressfurther. Going forward, it is expected that working styles will change, suchas working from home, promoting web conferences, and relocating
headquarters to rural areas. Accordingly, we think that having security
management and performance management businesses in the Systems
Solutions Business will be an advantage. We have roughly a 60% shareof the time stamp market in Japan. We expect the market will become
even larger if a public system is introduced. Going forward, we would liketo greatly expand the business of making inconvenient things convenient,such as supporting digital contracts.

Q13. Please tell us about your approach on dividends.
A13. We place the highest priority on stable dividends. We would like todetermine the dividend forecast while preparing the financial forecast.
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