Watahan & Co., Ltd.
Q2 Financial Results Briefing for the Fiscal Year Ending March 2023
November 22, 2022

Event Summary[Company Name]

Watahan & Co., Ltd.

[Company ID]

3199-QCODE[Event Language]

JPN[Event Type]Earnings Announcement[Event Name]

Q2 Financial Results Briefing for the Fiscal Year Ending March 2023

[Fiscal Period]

FY2022 Q2[Date]

November 22, 2022

[Number of Pages]

28[Time]

15:00 – 15:12(Total: 12 minutes, Presentation: 12 minutes)[Venue]Webcast[Venue Size][Participants][Number of Speakers]

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1Isamu Nohara

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President & CEO

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Presentation
Nohara: My name is Nohara, President and CEO of Watahan & Co., Ltd. I would now like to begin the Q2
Financial Results Briefing for the Fiscal Year Ending March 2023.
I will first discuss the overview of Q2 financial results, then the full year forecast for the fiscal year ending
March 31, 2023, and finally, the medium-term management plan.

First, an overview of Q2 financial results. Net sales were JPY64.2 billion, up 19.4% from JPY53.8 billion in thesame period last year.

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Profit was also up 48.5% to JPY1.42 billion compared to JPY950 million in the previous year.

The total sales by segment increased from JPY53.8 billion to JPY64.2 billion, but the retail and tradingbusinesses were almost the same YoY, while the construction business made a breakthrough, adding JPY10.8
billion.

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On a profit basis, the retail business and the trading business posted a decrease of JPY350 million and JPY330
million, respectively, while the construction business posted an increase of JPY1 billion, making up for thenegative results in the other segments.

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I will now explain per segment performance.
First, in the retail business, our full year targets for this fiscal year are store remodeling, new store openings,
development of new business categories, expansion of the distribution network, and promotion of SPA, but
sales ended the year at JPY38.2 billion, about the same as the previous year.

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5Segment income, on the other hand, was JPY490 million, down 41.8% YoY, due to the cost of opening two
new stores and the impact of electricity cost hikes.

In August, we opened the Watahan Super Center Ueda Store, our first super center in the Toshin region ofNagano Prefecture.

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6Additionally, in September, the Group’s first store in a central city location opened in central Nagano as the
Watahan Super Center Gondo Store.

In expanding our distribution network, we have further expanded our fresh fish procurement bases and now
procure fish from six bases, including Niigata and Kagawa.

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In addition to fresh fish, we are building our own cold chain for vegetables and fruits this fiscal year to create
a new fresh distribution network.

We would also like to bring Watahan Farm Co., Ltd. into the Group for butchery, starting with pig farming,and then to expand into various other businesses.

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We have also begun selling carnations produced in Minami Shinshu through our own distribution network, asystem that allows us to sell them, while keeping them fresh in the cold chain.

Continuing the construction business.
In the construction business, we have set the further acceleration of factory automation in the steel frame
field, the construction of a wood processing and distribution network, and the promotion of productdevelopment using wood as our full year measures.

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As for net sales, the previous year’s JPY12.6 billion has significantly increased to JPY23.5 billion, and sales were
up 86.2% YoY.

Segment income has also grown significantly along with sales, and the previous year’s loss of JPY40 million
was converted to a profit of JPY960 million this fiscal year.

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10This is due to the Iida plant starting operations in April, and the utilization rate of this plant has increased. At
the same time, the environment for orders is robust, with the order backlog increasing 50%, from JPY16.4
billion in the previous year to JPY24.6 billion.

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11Next is the trading business.
In the trading business, we are expanding into the food sector and then into the fertilizer and feed sectors.

Originally, we had assumed a YoY decline in sales, and we have made progress as planned, with sales of
JPY2.23 billion, which is 24.2% less than the previous year.

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12Segment income decreased 73.7% to JPY190 million from JPY450 million YoY. Basically, the trading businessis currently progressing as planned due to the timing of deliveries and other factors.

Next, I will present the consolidated financial statements.
This fiscal year, the balance sheet has been affected by the strong construction progress in the construction
business, as mentioned earlier, and the opening of two new stores.

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Current assets increased by JPY10 billion. In addition, fixed assets increased by JPY2.2 billion due to the
opening of new stores.
Total liabilities were plus JPY11.8 billion, which was due to an increase in short-term borrowings and anincrease in notes and accounts payable.

Looking at the consolidated cash flow, there was an increase in notes and accounts receivable trade due tothe construction progress in the construction business, as mentioned earlier, and an increase in inventories
for the two new stores, resulting in a negative cash flow of roughly JPY1.1 billion.
There were also investments in two new stores and a factory, so cash flow from investments was negative
JPY2.8 billion. As you can see in this statement, this is being covered by financing from financial cash flow,which we expect to be eliminated at the end of the fiscal year.

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Next, I will present our forecast for the fiscal year ending March 31, 2023.
For the fiscal year ending March 31, 2023, we project net sales of JPY125 billion, up 9.2% YoY.

Ordinary income is projected to increase by 14.1% to JPY3.35 billion.

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The factors behind the increase and decrease in sales by segment are expected to be JPY125 billion, with retailbusiness adding JPY1.42 billion due to the opening of new stores, construction business adding JPY8.25 billion,
and trading adding JPY0.09 billion.

As for profits by segment, the retail business increased slightly due to the opening of new stores, which
covered the expenses. The trading business is basically unchanged from the previous year, but theconstruction business is expected to add JPY600 million to the final forecast of JPY2.95 billion.

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16This is the progress by segment. First, in the retail business, we will continue to promote store remodeling,
new store openings, and the development of new business categories in H2 of the fiscal year. We will continue
to expand our distribution network as well.

We have already sequentially introduced pharmaceutical sales in about three stores in H1, and we plan tocontinue and expand this in H2.

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A new distribution center is currently under construction in Iida City and is scheduled to begin operations inMarch.

As a result, net sales in the retail business are projected to total JPY78 billion.

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Segment profit is expected to be at the same level as the previous year in the initial plan, but electricity prices
are currently increasing significantly, and we believe this trend could be a factor in the decline in profit.

Continuing the construction business.
The construction business has the following objectives: factory automation in the steel frame field, processing
and distribution of wood, and development of products made from wood.

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Further factory automation will continue in H2 to further expand the increase in processing capacity at theNiida plant, which began new operations in April.

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We are also promoting the processing and distribution of locally produced lumber. As part of this trend, ourfirst wooden warehouse project was completed this fiscal year, and we intend to continue to promote new
businesses, including wooden warehouses.

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As a result, the construction business is currently planning sales of JPY40 billion, up 25.9% from the previous
year’s JPY31.8 billion, but we believe there is an upside here because construction progress is currently
moving smoothly.

Segment income is also projected to be JPY1.45 billion, up 71.5% from JPY840 million in the previous year. As
with sales, there are upside factors here as well since construction work is progressing smoothly. We expect
the final target to be the same as the plan at the beginning of the fiscal year.

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Finally, the trading business.
The trading business is expanding into the food field and into the fertilizer and feed fields to develop newnatural raw materials.

Although it was difficult for quite a while to go abroad due to the impact of COVID-19, we are now resuming
business trips to South America and Europe and are beginning to make progress in developing new natural
raw materials.

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We are now planning for the next fiscal year, expanding the field of natural raw materials to include not only
food products but also fertilizers and feeds.

As for sales in the trading business, we plan to maintain the same level as the previous year, with net sales of
JPY5.91 billion, an increase of 1.7%.

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Segment income is also up 0.3% to JPY700 million, basically in line with the current plan, despite the severe
fluctuations in foreign exchange rates.

Last but not least, our medium-term management plan is to stay close to the community and create newvalues together with the community, and we are targeting net sales of JPY135 billion and ordinary income of
JPY4 billion for the fiscal year ending March 31, 2025. We expect the sales to be close to the medium-termtargets at the end of the current fiscal year.

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25This concludes the explanation of the Q2 Financial Results Briefing for the Fiscal Year Ending March 2023.
[END]______________
Document Notes
1.
2.
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This document has been translated by SCRIPTS Asia.

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