Seiko Group Corporation
FY22 Q2 Consolidated Results Presentation - Summary of Q&A◆◆◆Date: Wednesday, November 9, from 15:00 - 16:00
Place: Online Web conference
Respondent : Shuji Takahashi, President
Shimesu Takizawa, Director, Executive Vice President

Summary of Q&A
Q1. You have said that an economic downturn in Europe and the United States is a risk factor
for the second half. Have there been any downward trends visible, for example, in retailstore sales or distributors' inventories?
A1. Until October (the beginning of our 2Hf), we saw no clear downward trends in finishedwatches. We expect that the effects of the downturn will become more evident from here on
than they were in the first half. At present, watch sales have not clearly fallen, but sales ofmovements, which were driven by the U.S. market until the first quarter, fell in the secondquarter. Orders in both the North American and European markets have begun to decline.
Given this trend, we expect more challenges in the mass-market price range in both thosemarkets, and will focus on selling our Global Brands (GB) to underpin sales.

Q2. If the economy slows, how will it affect the market for watches in the higher price range?
A2. Past trends in Japan indicate that an economic slowdown produces a large impact onwatches in the lower price range, but no significant change in the highest price range(above 10 million yen). In Grand Seiko’s price range (around 1 million yen), the market
usually dips slightly, but recovers quickly. In general, we expect that the lower price ranges
will be affected by any economic slowdown, but the impact on the higher price range will bemuch less.
Q3. How do you see inbound demand in the second half? Surely inbound demand will beaffected by the weaker yen, which could boost sales. How do you see the impact ofinbound demand in the second half?
A3. In the past, inbound demand accounted for 10% to 15% of sales, with roughly half of that
attributable to Chinese tourists. Now, with very few Chinese tourists able to come toJapan, we expect this segment will account for only a few percent of total sales in thesecond half.

1Q4. Returning to the issue of an economic downturn, both in Japan and overseas, could youtell us about what strategies you are considering to cope with that scenario in the secondhalf?
A4. As I’m sure you noted, in our full-year forecast, figures for the second half are lower thanthose for the first half. The impact of exchange rate changes will be positive, but energy
and other costs will rise. We have also factored in the negative effects of an economic
slowdown in China, Europe, and the United States. Consequently, our second-half resultswere already forecast to be lower than those in the first half.
As I mentioned before, higher-priced watches are less susceptible to economic downturns
than lower-end products. With that in mind, we will focus on Global Brand strategies tomitigate the impact of a possible market downturn. We will also continue working toincrease the share of Grand Seiko sales in overseas markets.

Q5. Regarding those GS strategies, I would like to ask if we can expect Seiko to continue
developing GS distribution channels even if demand for those products weakens.
A5. We believe there is plenty of scope for developing new distribution channels, not only in
the United States, but also in Europe. We recently established a GS sales company inSingapore to cover the Asia-Pacific region. We plan to promote the development of new
distribution channels and steadily increase our market share.

Q6. Prices appear to be comparatively low in Japan. Are you considering narrowing the gap
between retail prices in Japan and overseas?
A6. We are aware that exchange rate fluctuations have caused a gap between prices in Japanand abroad. However, we have not yet decided when we will revise domestic prices.
Q7. The operating margin rose, reflecting an increase in gross margin and the curbing ofincreases in the SG&A ratio. Can we expect the operating margin to continue to rise? Itseems reasonable to think that strengthening your brands would generally help improve
the gross margin. Can we expect that you will hold down SG&A expenses to strengthen
the Watches Business, or are expenses likely to increase?
A7. Before the pandemic, it was natural to allocate substantial funds to advertising via highpriced media such as television and magazines. However, during the pandemic weincreased the use of online media and digital technology, and we are shifting more of ourbudget in that direction. We started using online marketing overseas before trying it inJapan. Just as one example, we are now connecting online marketing with physicalevents, which has been quite successful.
I should note that there was a delay in introducing online approaches here in Japan, but2

we are now increasing our digital footprint and using our marketing budget much more
effectively. Where marketing costs used to increase in proportion to sales, we can now
increase sales without increasing costs. We will continue to develop online marketingstrategies and pursue other initiatives that help to control SG&A expenses.
Q8. How significant was spending by inbound tourists in Japan in the second quarter?
A8. Not very significant. According to information from the WAKO store, spending by inboundtourists started to rise around August. Although we believe that spending definitely rosefrom August to October (when Japan was re-opened to foreign tourists), because there arestill so few Chinese tourists, we expect overall inbound consumption to be half or less ofthe pre-pandemic level.
Q9. Do you have any information on people arbitraging the price gap between Japan and theUS, such as making commercial purchases for resale?
A9. We know that there have been some purchases intended for resale. We revised
restrictions on inbound tourists in stages, in June and in October. Purchases by foreign
nationals traveling to Japan on business (as opposed to group tours) have beenincreasing. In general, spending by inbound tourists began to recover gradually from thefirst half, and it has been recovering noticeably since October (when Japan was reopened).
Q10. Your forecast for the second half appears to be rather conservative. What specific cost
items do you see as a drag on profit growth?
A10. Increases in energy costs are probably the most significant factor. Specifically, electricity
costs for clean rooms and other manufacturing facilities have been rising in both ourdomestic and overseas operations. We consider further rises in energy costs to be a majorrisk factor for the second half.
Q11. Could you provide us with a breakdown of sales of finished watches by region (includingChina) in the second quarter?
A11. Sales in Japan remained flat from the first to second quarter. First-half sales in theAmericas rose by more than 20 percent, actually in the high 20s. Sales in Europe rose in
the high teens. Sales in most other regions fell in the first quarter, but rose in the highteens in the second quarter. China was the only exception.
Q12. Does that mean that sales in China were weak in the second quarter?
A12. The Chinese market was our only global market where sales fell. In China, sales fell morethan 50% in the first quarter and then dropped by around 50% in the second quarter.
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Q13. What factors accounted for the increase in operating profit margin in the Devices
Solutions Business?
A13. There was some improvement in the product mix. We were able to increase marginal
profit thanks to an increase in sales and, to a lesser degree, from exchange rate gains. We
were able to properly turn an increase in sales into an increase in profit.
Q14. In the next 18 months (to the end of FY2023), how do you see sales trending in theSystems Solutions Business? Specifically, what will happen in the payment-related, IoTrelated, and system-related businesses in that period?
A14. In the payment-related business, results will be generally stable to some degree, although
there will be temporary effects from a recovery in the domestic food service industry. In theIoT-related business, a large part of revenue is non-recurring, so sales are expected tofluctuate. In the system-related business, we received orders for long-term projects frommajor financial institutions in September, which should support steady growth in thatbusiness. As of the second quarter of this fiscal year, we have achieved year-to-year
growth in both revenue and profits (on a same-quarter basis) for 26 consecutive quarters,
and based on this outlook, we aim to continue that trend at least until the end of fiscal year
2023 (March 31, 2024).
Q15. I noted a substantial adjustment in the operating profit forecast by segment. How can you
estimate the full-year adjustment at the beginning of a fiscal year?
A15. The adjustment includes corporate administrative expenses, the amortization of goodwill,and consolidation adjustments. Administrative expenses and goodwill estimates areincorporated into the initial budget. There will be no significant changes there unless
unexpected factors arise. And consolidation adjustments do not change significantly
unless the Group's businesses change.
Q16. I have another question about price hikes to narrow the gap between prices in Japan andoverseas. The number of visitors to Japan is increasing, and commercial purchases forresale are increasing. If the price gap is not corrected, there is a significant risk of adecline in brand value. Shouldn’t you take immediate action to address the problem andsupport brand value in the long term, even it means a small decline in sales volume now? I
assume you are urgently discussing price hikes internally, but as yet there has been noaction. Is there some problem with the decision-making process?
A16. You are absolutely correct when you note that the price gap between Japan and overseas
is a critical issue for brand management. We believe pricing policy is very important for
creating a unified GB image. And, as you suggest, there is constant discussion about how
4and when to initiate price hikes. The fact that we have not yet reached a final decision
does not point to a problem with decision-making, but rather, to the complexity of theproblem.
We need to choose the right timing so that our price hikes are not seen as merely taking
advantage of the falling yen. We must also consider increases in energy costs, the effectsof cost increases at our suppliers, and the effects on inventories in choosing the righttiming. It is also essential that our actions are seen as enhancing trust in the brand. In
short, our decision needs to balance many different factors.

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