Pigeon Corporation Telephone Conference for Q1 of Fiscal Year ending December 2019, Q&A summary

Q&A Summary of Telephone Conference for the Q1 of the Fiscal YearEnding 31 December, 2019
[Points of Attention]
This "Q&A Summary" is a reference for those who would like to review the Q&A session oftelephone conference hold by Pigeon Corporation on June 10, 2019..
Please note that this is not the entire text of the question and answer session at the telephone
conference.
Forward-looking statements in these materials are based on management's assumptions andbeliefs in light of the information currently available to it and involve known and unknown
risks, uncertainties and other factors. Such risks, uncertainties and other factors may affect
the Company's performance.

*Q&A are listed by Business.

Overview of Q1
Q: Please explain the factors behind the Year-On-Year (YoY) decrease in sales and YoY
increase in SG&A expenses.
A: The biggest factor of sales decline is that Childcare Service Business declined its sales by JPY670
million. This is because a consignment contract with Japan’s National Hospital Organization (NHO)
for operation and management of on-site childcare facilities by Pigeon for NHO’s employees expired
on March of last year, 2018.
Other factor is a negative impact of appreciation of Japanese yen when final results are converted toJPY. We estimated the impact of yen appreciation decreased JPY320 million in Net Sales, JPY200
million in Gross Profit and JPY140 million in Ordinary Income.
In terms of SG&A, we had temporally increase due to such as the retirement benefits to directors(JPY300 million) and ERP (Enterprise Resources Planning) system-related expenses (JPY 400million)

1/6Pigeon Corporation Telephone Conference for Q1 of Fiscal Year ending December 2019, Q&A summary

Domestic Baby and Mother Care Business
Q: Please tell us Q1 business performance of Japan domestic market in terms of domestic
demand and sales from inbound tourists/resellers (referred as “inbound sales”).
A: Our inbound sales are booked as domestic sales in the Domestic Baby and Mother Care Businessonly in the case of purchases made by inbound tourists and/or by resellers (Daigou shoppers) inJapan. Sales from inbound tourists and resellers have grown by 20% to 30% every quarter YoY, but
we estimate this Q1 sales were JPY2.1 billion, nearly flat YoY. So we see other factors of sales
decline in the Domestic Baby and Mother Care business in Q1.
On a monthly basis, the introduction of a new ERP in February resulted in unexpected shipping
problems, which led to a sales decline of hundreds of million yen. Since then, March sales has been
flat, and April has been well above from a year earlier. Regarding inbound sales, we had slightly
weak sales in February but fairly strong sales in April. And we are still not sure how much impact
the new EC law implemented in China this year will have on our inbound sales.
In terms of sales by product category, Nursing bottles and Nipples as well as Baby skincare are ourbest-selling categories as always. Looking at sales of specific product, we see that the sales
weighting of products with lower Gross Margin, such as silicone-coated nursing bottles, isincreasing, and as a result, Gross Margin declined.

Q: Please explain the factors behind the decline in sales of the Domestic Baby and Mother
Care Business and the outlook for the future.
A: Inbound sales are not planned on the assumption that they will grow, so results for this quarter arebasically in line with expectations. The unexpected effect continued until mid-March as a result of
the introduction of a new ERP in February and a slight shipping problem in the logistics system.
From Q2 onwards, it is aiming for a 5% increase as planned, as there is no impact from this problem.
However we have faced a shipping problem with new ERP system,

our “Momo-no-ha (Peachleaves) Lotion” was sold 1.03 million units in Q1. And we will closely monitor the sales of Babyfood and drinks in Q2 as Q1 sales of these categories declined significantly.

2/6

Pigeon Corporation Telephone Conference for Q1 of Fiscal Year ending December 2019, Q&A summary

Q: Sales have declined by JPY300 million, Gross Margin has declined by approximately 1
percentage point. And Operating Margin has declined by 2.8 percentage points. Does thereason for this decline include temporary expenses in addition to those caused by the decline insales?
A: We don’t have any temporary expense in the Domestic Baby and Mother Care Business.
Temporary expenses we have in Q1 of this year are included in the elimination of consolidation. InQ2, we will expect July sales because July is always a good month in a year. Also, we will launchmore new products in second half (Later August) of this year

Q: In the baby strollers business, the launch of a new product was postponed to the end of May.
Did this delay of new product launch have a significant impact on the sales performance inQ1? Also, the Japan Fair Trade Commission recently searched two major stroller
manufacturers for allegedly violating antitrust regulations. Does this make an impact on
Pigeon business?
A: It was disappointing to delay the launch of new model of stroller. But the impact of delay in therelease of new stroller on overall sales will be very small. We clearly say that Pigeon has absolutely
no connection with JFTC's cease-and-desist order.

China Business
Q: (The reason for the slowdown in sales in the Q4 of the previous fiscal year was a change ofthe commercial condition with one e-commerce customer). What is their monthly sales trend
after January? Please explain if Pigeon still targets 10% sales growth in China this year andwhat are the reasons behind?
A: The image of monthly sales in the e-commerce channel is gradually improving from January toFebruary and March. Especially after March when the revision of the terms of transactions wasresolved, the situation turned out to be extremely positive, and the situation continued in April.
Year-on-year comparisons are not disclosed on a single month basis, but the e-commerce channel asa whole is growing by around 20% YoY, continuing to be extremely strong. On the other hand,conditions in the offline channel (transactions at actual stores) were difficult, falling below theresults of the same period of the previous fiscal year. However, overall sales (Online and Offline)
achieved our forecasts thanks to robust e-commerce channels and full-year plan (up 10% in sales)
3/6

Pigeon Corporation Telephone Conference for Q1 of Fiscal Year ending December 2019, Q&A summary

will not be changed.

Q: Can we assume the Offline channel is shrinking by nearly 20% if the e-commerce channel isgrowing 20% YoY and the proportion of e-commerce sales is also getting higher?
A: Offline sales are not bad. Actually, sales of some department stores, supermarkets and small baby
shops are decreasing but some of our direct customers of chain baby shops are growing.

Q: Do you think China business now got back on the right track?
A: It seems China business is getting back to normal since we agreed to change the businessconditions with one e-commerce customer. But we need to focus on what will happen in future in themarket. We are paying close attention to what will happen in the e-commerce day on June because
we had great sales in that day last year. Also, we have expected that expansion of Online channel
will affect Offline channel negatively. So we are now working on how to prevent sales decline ofOffline channels and hope to see good results in Q2.

Q: What is your outlook for SG&A and marketing expenses?
A: We invested aggressively into marketing in Q1 because we launched some new products at onlineand offline stores. In Q2, we will make an appropriate investment as we have done in the past
because we will have a big e-commerce day hosted by some of our e-commerce customer in June. Ingeneral, we are positive about investing for growth in China business as Operating margin in China
business is very high.

Q: According to Pigeon’s plan, full-year margin is expected to improve compared to theprevious fiscal year. Do you mean you will improve margin toward the second half of thisyear?
A: Yes, we will. It is because we plan to launch some new products in the second half of this fiscalyear. Also, we had temporary slowdown in sales in Q4 of previous fiscal year but we don’t expectthat will happen in this fiscal year.
4/6

Pigeon Corporation Telephone Conference for Q1 of Fiscal Year ending December 2019, Q&A summary

Q: What made Baby skincare products decline YoY?
A: We understand this is due to the completion of the initial effects of the extremely strong sales of
new products launched in the same period of the previous fiscal year. In line with this, we will
introduce new products in the second half of this fiscal year.

Q: Please tell us why the sales of Nursing bottles are growing even more than in the same
period a year ago, when designed bottles with Disney characters drove the sales growth.
A: We have two reasons. Regional expansion and increase of market share.

Lansinoh Business
Q: Please tell us the factors behind the 11.7% YoY sales increase.
A: The North American region led the great Q1 result with 15% sales increase YoY on a local
currency basis. We have two reasons of great result. One is significant sales growth at e-commercechannels due to effective marketing activities. And another one is the growth in the DME (DurableMedical Devices) channel. The DME channel is growing by about 30% YoY. In addition to DMEchannel, the new hospital channel is beginning to grow sales, 5% YoY in Q1.

Q: DME sales were affected by the entry of competitors in Q4 of previous fiscal year. What isthe latest update of competition in DME channel? Also, Lansinoh launched a new product inDME channel in Q1 of this fiscal year. Do you think introduction of new product drive greatresult of Q1?
A: We see the entry of competitors does not affect our performance because our market share in theDME market is still small. We expect these figures to show how much we worked to implement oursales promotion and marketing campaign. We achieved 30% sales growth YoY in DME whichalmost align with our expectation. We know we still have huge opportunity in DME channel and wewill keep investing our resources there to gain more market share.

5/6

Pigeon Corporation Telephone Conference for Q1 of Fiscal Year ending December 2019, Q&A summary

Q: Please tell us about the performance of nipple cream in Q1.
A: Nipple Cream is one of core products in Lansinoh business because it is very profitable item.
Market competition is getting severer because lots of major retailors launched nipple cream productunder their private label. But we achieved 2% sales increase YoY in Q1 and gained more market
share.

Singapore Business
Q: Gross Margin seems to decrease. Please tell us what caused a gap between these results?
A: In the Singapore business, the Thai factories are the largest contributors to our income, but it isaffected by trends in inbound sales for nursing bottles for Japan.

Others
Q: Why are corporate eliminations (Elimination) worsening in the breakdown of operating
income, and what are your perceptions of these results relative to forecasts? What do you think
about the next fiscal year and beyond?
A: The company-wide elimination includes temporary SG&A expenses, approximately JPY700
million that includes retirement allowances for directors and ERP-related expense. This amount is
not bad compared with our Q1 plan. From the next fiscal year onward, although there will be notemporary retirement benefits for executives, it is expected that maintenance and amortization costfor ERP will continue to rise.

Q: Inventories on the Balance Sheet increased from JPY10.6 billion at the end of the previous
fiscal year to JPY11.4 billion in Q1 of this year. Please share us Pigeon’s perspective on
inventory increase..
A: Inventories increased in China Business at the end of the previous fiscal year, and in Domestic
Baby and Mother Care Business. In China, production adjustments were made at the factories, andinventories declined and returned to normal. However, in Japan, shipment problems in Februarycaused inventory increase. From Q2 onwards, we will work on to normalize inventory level in Japandomestic with making production adjustments.
Over6/6