2016
Annual Report

For the year ended January 31, 2016

Pigeon History
Corporate
Domestic Baby &Mother Care Business

1950〜

1970〜

1980〜

1990〜

▶ 1949 Dofu Boeki, Pigeon’s
predecessor, established▶ 1952 Yuichi Nakata appointed
President▶ 1957 Pigeon Honyuki Honpo(Nursing Bottle Manufacturing)
Corporation established▶1966 Name changed from Pigeon
Honyuki Honpo Corporation to
Pigeon Corporation▶ 1973 Head office building in
Kanda-Tomiyama-cho, Chiyoda-ku,
Tokyo, constructed▶ 1975 Kyowa Tokushu Shiko Co.,
Ltd. (now Pigeon Home Products
Corporation) joined the PigeonGroup▶ 1982 Pigeon Textiles (Pigeon
Will Corporation) establishedto manufacture and sell maternity
wear▶ 1983 Yoichi Nakata appointed
President; Yuichi Nakata
appointed Chairman▶ 1985 Corporate identity basedon the Pigeon philosophy of“Love” adopted▶ 1988 Shares registered with the
Securities Dealers Association ofJapan (present-day JASDAQ)▶ 1991 Joso Research Center(now Central Research Center)established▶ 1995 Listed on the Second
Section of the Tokyo Stock
Exchange (July 7)▶1996 Fukuyo Ibaraki Corporation(now PHP Ibaraki Corporation),joined the Pigeon Group▶ 1997 Listed on the First Sectionof the Tokyo Stock Exchange▶1949 First nursing bottle in Japan
with wide cap (A-type) launched▶ 1956 Baby and child care-related
products launched▶ 1963 Milk powder case andsponge brush for nursing bottles
launched▶ 1966 Baby powder, first in a newrange of baby hygiene products,
launched▶ 1975 World’s first diaper
liner made using binderfree
manufacturing method launched
Liquid cleanser for nursing bottles
and vegetables launched▶ 1976 World’s first rubber
toothbrush for milk teeth launched▶ 1977 P-type nursing bottle forbabies with poor sucking strength
launched▶ 1979 New-standard K-typenursing bottle (still used today)launched▶ 1982 MagMag training cup withadjustable tops for different ages
launched▶ 1985 Fit, Japan’s first seamlessbreast pad, launched▶ 1987 Chibion digital
thermometer for babies launched▶ 1988 Babies’ natural sucking
peristaltic motion revealed▶ 1992 Baby Wipes launched▶ 1993 Entry into baby foodmarket▶ 1994 UV Baby Skincare, firstultraviolet-ray skincare product forbabies, released▶ 1995 Nursing bottle disinfectant
Milkpon launched

Health Care &Child-rearing
Nursing Care
Support Services
Business▶ 1993 Pigeon Land Joso, childminding center for infants, opened▶ 1996 Pigeon Wendy, babysitter
dispatch service, launched▶ 1999 Pigeon Kids World
Corporation (now Pigeon Hearts
Corporation) established▶ 1975 Habilis Business
Department, targeting the seniormarket established▶ 1966 Exports to other countries
startedOverseas Business▶ 1974 First overseas officeestablished, in Singapore▶ 1978 Pigeon Singapore Pte. Ltd.
established in Singapore▶ 1983 Nursing care products
under the Habinurse brandlaunched▶ 1990 Thai Pigeon Co., Ltd.
established in Thailand▶1996 Pigeon Industries (Thailand)Co., Ltd. established in Thailand

China BusinessPigeon History ……………………………………………………1
At a Glance ………………………………………………………3
Key Performance Indicators ……………………………………4
New Product Highlights …………………………………………5
Top Message ……………………………………………………6
Pigeon Way …………………………………………………… 17
Pigeon Group Activities ……………………………………… 18
Domestic Baby & Mother Care Business ………………… 19Child-rearing Support Services …………………………… 21
Health Care & Nursing Care Business …………………… 22
Overseas Business ………………………………………… 23
China Business ……………………………………………… 25

Pigeon Annual Report 2016 Contents
Pigeon History ……………………………… Inside front coverAt a Glance ………………………………………………………2
Key Performance Indicators ……………………………………3
Fiscal 2015 Topics ………………………………………………4
Dear Stakeholders ………………………………………………5
Pigeon Group Activities ……………………………………… 17
Domestic Baby & Mother Care Business ………………… 18
Child-rearing Support Services …………………………… 20
Health Care & Nursing Care Business …………………… 21
Overseas Business ………………………………………… 22
China Business ……………………………………………… 24

1

Annual Report 2016

Pigeon ESG Initiatives…………………………………………………… 27
For Consumers………………………………………………………… 27
For the Environment ………………………………………………… 28
For Local Communities ……………………………………………… 28
For Business Partners ………………………………………………… 29
Human Rights ………………………………………………………… 30
For Employees ………………………………………………………… 31
Corporate Governance ……………………………………………… 31
Management’s Discussion and Analysis ……………………………… 34
Financial Data …………………………………………………………… 38
Corporate Information ………………………………………………… 40

▶ 2000 Seiichi Matsumura appointed President and Chief Operating Officer;
Yoichi Nakata appointed Chairman and Chief Executive Officer▶ 2002 PHP Hyogo Corporation joined the Pigeon Group▶ 2006 Head office relocated to Nihonbashi-Hisamatsu-cho, Chuo-ku, Tokyo▶ 2007 Akio Okoshi appointed President and Chief Operating Officer; Seiichi
Matsumura appointed Chairman and Chief Executive Officer; Yoichi Nakata
appointed Executive Advisor and Member of the Board▶ 2013 Shigeru Yamashita appointed President and Chief Operating Officer;
Akio Okoshi appointed Chairman and Chief Executive Officer▶ 2014 Pigeon Corporation absorbed and merged with Pigeon Will
Corporation
Pigeon Way formulated▶ 2002 Wide neck "Bonyu Jikkan" nursing bottles, which promote babies’
natural sucking peristaltic motion, launched▶ 2003 Baby shoes, designed using research on toddlers’ walking patterns,
released▶ 2010 Renewal of "Bonyu Jikkan" series of nursing bottle nipples
Full-scale entry into baby stroller market▶ 2015 Runfee baby stroller that runs smoothly
over uneven ground launched▶ 2001 Operation of in-company child-minding facilities launched▶ 2002 Operation of approved child-care center launched▶ 2004 Operation of 113 child-care facilities in hospitals of the National
Hospital Organization (independent administrative agency) launched▶ 2013 "Math-Program" introduced in Pigeon Kids World▶ 2015 Pigeon Kids World Yoga opened▶ 2000 Pigeon Manaka Corporation established▶ 2004 Tahira Corporation (now Pigeon Tahira Corporation) joined the PigeonGroup▶ 2007 Recoup brand of anti-aging products launched▶ 2011 Daycare service launched by
Pigeon Manaka Corporation▶ 2015 Sano Day Service Center opened▶ 2004 Lanshinoh Laboratories, Inc. in USA joined the Pigeon Group▶ 2009 Pigeon India Pvt. Ltd., a sales subsidiary, established in India▶2010 Lansinoh Laboratories Medical Devices Design Industry and CommerceLtd. Co. established in Turkey
Lansinoh Laboratories, Inc. in the USA acquired mOmma business▶ 2011 Lansinoh Laboratories, Inc. in the USA similarly acquired the earth
friendly baby brandPigeon Malaysia Trading Sdn. Bhd. established in Malaysia▶ 2012 DoubleHeart Co. Ltd. established in South Korea▶ 2014 Lansinoh Laboratórios Do Brazil Ltda. established in Brazil▶ 2015 Pigeon India Pvt. Ltd. plant established in India
Lanshinoh Laboratories Benelux established in Belgium▶ 2016 Lansinoh Labratories Shanghai established in China

At a Glance
Key Performance Indicators

2010〜

PIGEON History

2000〜

Dear Stakeholders
Pigeon Group Activities
Pigeon ESG Initiatives
Management’s Discussion
and Analysis▶ 2002 Pigeon (Shanghai) Co., Ltd. established in
Shanghai, China▶ 2006 Pigeon Manufacturing (Shanghai) Co., Ltd.
established in Shanghai, China▶ 2009 Pigeon Industries (Changzhou) Co., Ltd.
established in Changzhou, China

Financial Data
Annual Report 2016

Corporate Information

About thisannual report

The Pigeon Group (Pigeon Corporation and its consolidated subsidiaries) seeks to maximize
economic and social value through communications with all stakeholders, including shareholders
and other investors. This document, which contains reports on management strategies, as well as
business and CSR activities, is designed to deepen people’s understanding of corporate value
created by the Pigeon Group. We hope you find it informative.

1

At a Glance

Consolidated Net Sales: ¥92,209 million
Domestic Baby & Mother
Care Business

Other

1.4%

30.4

%
¥28,053 million¥1,283 million
China Business*

34.4%¥31,688 million
Overseas Business*

Business Categories

27.4%¥25,234 million

Sales;
Share ofNet SalesChild-rearing
Support Services

7.3%¥6,757 million

Health Care &Nursing Care Business

7.0%¥6,499 million* The consolidated net sales figure refers to the amount after elimination of intersegment transactions.

Products; Services

Domestic Baby &Mother Care Business

Breastfeeding-related products, weaningrelated products, skincare products, women’scare products, other products for babies andmothers, large-sized products

Based on half a century of research into breastfeeding and early childhood development,
we have gained an in-depth understanding of babies’ growth processes and identified areasof concern in child-rearing. This has led to our development and launch of numerous highquality products, resulting in widespread recognition of Pigeon as a leading company inthe industry and a very strong and prominent brand. Going forward, we will expand ourbusiness with a focus on large-sized products centered on baby strollers.

AffiliatedCompanies

Child-rearing Support
Services

Child-rearing support services, operation of incompany child-minding facilities and daycare
centers, babysitter dispatch services, eventchild-care services, preschool education services

Health Care &Nursing Care Business

Elder care products, anti-aging products, eldercare support services

Pigeon Home Products Corporation, PHP Hyogo Corporation, PHP Ibaraki
Corporation, Pigeon Manaka Corporation, Pigeon Tahira Corporation

Overseas BusinessSpearheaded by Lansinoh Laboratories, Inc., based in the U.S. state of Virginia, we are
expanding our business in the United Kingdom, Germany, and elsewhere in Europe. Goingforward, we will strengthen our brand while upgrading our nursing bottles and otherproduct categories. In Asia, meanwhile, we expanded our production base in Thailand whilebuilding a distribution system and broadening our sales network in India.

AffiliatedCompanies

China BusinessAnnual Report 2016

Pigeon Hearts Corporation

To address continuously increasing elderly care costs, the national government amended
the nursing care insurance system by raising the personal contribution to nursing careinsurance and tightening preconditions for moving into special elderly nursing homes,
reflecting a policy shift from care in institutions to at-home care. As the market steadily
increases in size, we will entrench various measures, including introduction of new,competitively superior products and raising the quality of nursing care services.

AffiliatedCompanies

Baby and mother related products

Pigeon Home Products Corporation, PHP Hyogo Corporation, PHP Ibaraki
Corporation

An increasing number of women want children but wish to keep working. Similarly, more
and more women want to return to work while raising children. These factors are providing
the impetus for the advancement of our Child-rearing Support Services. Leveraging
Pigeon’s reputation for safety, peace of mind, and reliability acquired in baby and child-care
products, we will earn the confidence of customers by offering high-quality services as one
of Japan’s largest companies in in the sector.
AffiliatedCompanies

Baby and mother related products

2

Business Environment; Our Competitive Edge

Pigeon Singapore Pte. Ltd., Pigeon Malaysia (Trading) Sdn. Bhd., Lansinoh
Laboratories, Inc., Lansinoh Laboratories Medical Devices Design Industry
and Commerce Ltd. Co., Lansinoh Laboratórios Do Brasil Ltda., Lansinoh
Laboratories Benelux, Lansinoh Laboratories Shanghai, Pigeon India Pvt.
Ltd., Pigeon Industries (Thailand) Co., Ltd., Thai Pigeon Co., Ltd., P. T.
Pigeon Indonesia (equity-method affiliate)

In China, a huge nation with annual childbirths of 15–17 million, the target for Pigeon’s
products is the “new rich” market. We are advancing our business by proposing innovative
lifestyle scenarios, with an emphasis on nursing bottles and nipples, toiletries, and high-end
skincare products. With more than 500 types of products on the Chinese market, we supply
higher-priced items to meet high-end demand from the growing number of newly wealthypeople in major coastal cities.

AffiliatedCompanies

Pigeon (Shanghai) Co., Ltd., Pigeon Manufacturing (Shanghai) Co., Ltd.,
Pigeon Industries (Changzhou) Co., Ltd., Doubleheart Co. Ltd.

Net Sales

Operating Income

Net Income(¥ millions)(¥ millions)

100,000

16,00014,521(¥ millions)（%）
20

12,00014,00080,000

15.7

8,000

10,197

10

6,000
4,000

20,0000

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16（%）
25

12,000

ROA

4,000

4

2,000

2

0

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

(¥)

60

Cash Dividends

21.3
20.6

10
5

2,000

0

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

20

20

10

10

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

Jan. 14Jan. 15

Jan. 16(US$ thousands)

Jan. 16 (Note 1)

77,465

84,11392,209761,429

Gross Profit

24,31927,76034,46438,296

43,345357,944

41.1

42.7

44.5

45.5

47.0

5,042

7,086

10,365

12,78014,521

8.5

10.9

13.4

15.2

15.7

4,917

7,389

11,002

13,29915,080

8.3

11.4

14.2

15.8

16.4

Net Income

3,183

4,573

6,985

8,451

10,197

84,203

Total Assets

43,772

48,53857,95572,36773,943

610,595

Net Assets

27,93532,36539,98147,29750,792

419,422

Free Cash Flows

2,341

5,807

4,135

7,001

10,147

83,790ROA (%) (Note 2)

11.4

16.0

20.7

20.4

20.6

ROE (%) (Note 2)

11.8

15.5

19.7

19.8

21.3

EPS (yen) (Note 3)

26.51

38.09

58.17

70.55

85.15

0.7(US$)Cash Dividends per Share (yen)

14.67

19.17

29.33

35.00

42.00

0.3 (US$)

Payout Ratio (%)

55.3

50.3

50.4

49.6

49.3

Employees (persons)

2,963

3,304

3,458

3,617

3,743

Operating Income
Operating Income/Net Sales
Ordinary Income
Ordinary Income/Net Sales(Note 3)

119,909

124,525

Notes: 1. Figures in U.S. dollars are calculated, for convenience only, at the exchange rate of ¥121.10=US$1.0.
2. ROA is the ratio of ordinary income to total assets. ROE is the ratio of net income to shareholders’ equity. The denominator for both is the average of the figures at the beginning and end of the fiscal year.
3. The Group carried out a 2-for-1 split of common stock, effective August 1, 2013, and a 3-for-1 split of common stock, effective May 1, 2015. Figures in the above tables have been calculated assuming thosestock splits were conducted at the beginning of the fiscal year ended January 2012.

Annual Report 2016

Corporate Information

65,075

Financial Data

59,145

Management’s Discussion
and Analysis

Net Sales

Gross Profit/Net Sales

0

Pigeon ESG Initiatives(¥ millions)Jan. 1340
30

Performance Highlights
Jan. 1250

30

0Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

(%)

60

Pigeon Group Activities

6,000

Rayout Ratio

42.0

40

15

4,000

0

49.3

50

20

8,000

0

6

0

ROE

10,147

10,0006,000

Cash Dividends/Payout Ratio

ROA/ROE(¥ millions)

8

Dear Stakeholders

Free Cash Flows

8,000

5

2,000
0

10

15

10,00040,000（%）
12

10,00012,00060,000

11.1

At a Glance
Key Performance Indicators

92,209PIGEON History

Key Performance Indicators

3

Fiscal 2015 Topics
In the year under review, the Pigeon Group again achieved steady growth. In addition to
expanding our business globally, we significantly improved corporate value while maintaining
honest and sincere communication with all stakeholders.

“Premige” baby stroller launched
Having significantly increased its share of the baby stroller market since launching“Runfee” in January 2015, Pigeon unveiled its “Premige” premium baby stroller in
December 2015. Numerous media personnel gathered for the product launch, where
we introduced new functions and features, including “Mama Hugging Suspension.”
Ms. Yoshino Kimura, a renowned actress and image character for Premige, spoke
about her impressions on using the baby stroller. In February 2016, we launched“Runfee ef,” an upgraded version of Runfee.

Healthy sales in China, North America, and Europe
Recently, Lansinoh Laboratories, Inc., based in Virginia, United States, has been increasing sales ofbreastfeeding-related products in North America and Europe, complementing China’s position as a growth
driver for the Pigeon Group’s overseas business. Lansinoh Laboratories, which became a wholly owned
subsidiary in 2004, has long held the top market shares in the United States for nipple cream, breast pads,
breast milk storage bags, and manual breast pumps. It is also progressively increasing sales in Europe by
broadening its market territory, centering on United Kingdom, Germany, and Turkey. In January 2017, we arescheduled to complete a new factory in Turkey in order to upgrade Lansinoh Laboratories’ production system.
Going forward, we will continue reinforcing our sales system to create a business growth pillar second to China.

Market Share by Productin North America (2015)
75.2％
No.1
share

67.8％
No.1
share

54.3％
No.1
share

33.4％
No.1
share

Breast pumps(manual)Breast milkstorage bags

Breastpads

Nipple
cream

80
70
60
50
40
30
20
10
0

Corporate Value Improvement Award received by TSE
Pigeon Corporation received the prestigious Grand Prize at the fiscal
2015 “Corporate Value Improvement Awards” hosted by the Tokyo Stock
Exchange (TSE). The awards, targeting all TSE-listed companies (around3,500), recognize those that practice “corporate value improvement
management” by incorporating in-depth measures, including thoserelated to cost of capital, from the perspectives of investors. The award
was given in recognition of Pigeon’s practice of “corporate value
improvement management” at a particularly high level. This includes theCompany’s positioning of Pigeon Value Added (PVA, equivalent to net
operating profit after tax minus the cost of capital) as an independent
performance indicator that expresses the financial amount of corporate
value generated in excess of capital cost, as well as unified efforts toimprove PVA and delivery of real outcomes.

4

Annual Report 2016

Dear Stakeholders

Annual Report 20165

Dear Stakeholders

Shigeru Yamashita
President and Chief Operating Officer

Guided by “Pigeon Way,” we will focus
on the keywords of “total optimization” and“speed” to become Global Number One.

6

Annual Report 2016

PIGEON History

Celebrating 60 years
partners, and employees.
Guided by “Pigeon Way,” formulated in 2014, today weare working constantly to improve enterprise value,committed to becoming the “Global Number One”
manufacturer of baby and child-care products. We lookforward to your ongoing support.

Dear Stakeholders

Accolades for our “corporate value improvement management”

Pigeon ESG Initiatives
Management’s Discussion
and Analysis

and consistently into the future leads to increased“economic value”, we believe. This requires increases inoperating income (to be more precise, net operating profit
after tax, or NOPAT), as we also actively utilize otherperformance indicators, notably return on equity (ROE),
cash conversion cycle (CCC), and Pigeon Value Added(PVA, a cash flow indicator for NOPAT minus the cost ofcapital). In these ways, we are leveraging assets that are
difficult to imitate―such as business model, marketing
power, and knowledge unique to Pigeon―to create
enterprise value.
The aforementioned award was given in recognition of
Pigeon’s practice of “corporate value improvement
management” at a particularly high level, given the
Company’s positioning of PVA as an independent
performance indicator that expresses the financial amountof corporate value generated in excess of capital cost, as
well as unified efforts to improve PVA and delivery of realoutcomes. While I personally am very happy to accept thisaward, I stress that is a reflection of the efforts we aremaking, and that there are many areas in which we can still
improve corporate value. So rather than rest on our laurels,
we will continue pushing forward in the pursuit ofenhanced corporate value.

Pigeon Group Activities
Financial Data

In January 2016, Pigeon Corporation received the mostprestigious “Grand Prize” at the fiscal 2015 “Corporate
Value Improvement Awards” hosted by the Tokyo Stock
Exchange (TSE). The awards, targeting all TSE-listedcompanies (around 3,500), recognize those that practice“corporate value improvement management” byincorporating in-depth measures, including those related
to cost of capital, from the perspectives of investors.
At Pigeon, we regard improvement in “corporate value”
as improvements in both “social value” and “economic
value.”“Social value” means our ability to deliver joy andhappiness to society and our target customers by solving
problems and providing new levels of value. In otherwords, our “social value” increases as we become an
indispensible part of society. Key to generating such value
is our workforce. Employees must have the ability todevelop and make products and create new levels of valueemphasizing brand power and diversity, as well as form
good relationships with stakeholders and contribute tosociety by reducing environmental impacts and the like.
Employees, the core and essence of our company, mustalso share our philosophies on a global level and work in a
motivated fashion.
On the other hand, increasing free cash flow efficiently

At a Glance
Key Performance Indicators

In 2016, we celebrated 60 years since our founding in 1957.
Throughout our history, we have evolved and grown under
our Corporate Philosophy of “Love” and our Credo of“Only love can beget love.” I would like to take thisopportunity to thank all of our stakeholders, including
customers, shareholders and other investors, businessCorporate Information
Annual Report 2016

7

Leveraging “Pigeon Way” to entrench corporate philosophy management
In March 2014, we formulated the “Pigeon Way” as a
document embodying fundamental values and behavioral
principles that have been passed down to Pigeon over thegenerations. In addition to our Corporate Philosophy(“Love”) and our Credo (“Only love can beget love”), we
have a Corporate Mission, which is “To bring joy,happiness, and inspiration to babies and families aroundthe world by providing them with products and services
that embody our Corporate Philosophy of ‘Love.’” We also
have three Values, which are important attributes for all
Pigeon employees, and five Action Principles, which arebasic guidelines driving all of our actions. Then we have
our Vision, which is “To be the baby product manufacturer
most trusted by the world’s babies and families, i.e. ‘Global
Number One.’”In the past two years, I and my fellow officers have visitedthe Group’s various operations to explain and discuss thesignificance and inherent meaning of Pigeon Way, and wehave made good progress in spreading understanding
throughout the Group. To ensure that Pigeon Way is morethan a slogan, we have also incorporated it into thepersonal goals of each employee in Japan, and we havebuilt a system in which employees take actions reflecting
their awareness of Pigeon Way in their day-to-day duties,
and submit reports accordingly. I have often personallywitnessed scenes in which employees refer to Pigeon Way
when promoting an argument, and outcomes of Pigeon
Way’s formulation and introduction are visible everywhere.
Personally, I judge the progress of Pigeon Way fromthree perspectives. The first pertains to Pigeon’s raisond’être: What is the purpose of our work? In other words,
how can we fulfill our mission? The second perspective, an
outcome of the first, asks: What type of economic value
can we improve? And the third perspective inquires: Are

Pigeon’s employees feeling motivated?
Social value and economic value have a mutuallycomplementary relationship, and if we can intertwine themeffectively we can create a positive cycle that leads tosustained growth. If employees, the source for creatingsocial value, work with purpose and inspiration, goodthings will happen, leading to growth in economic value
and increased free cash flows.
Every year, we employ an outside research firm to
conduct a fixed-point observation of employee motivation.
When the research was first done three years ago, it wasnoted that employee satisfaction levels were already high,but these have improved with each ensuing year, which isvery helpful feedback.
As we target the Global Number One position, ourbusiness continues to grow rapidly as we open bases in
new nations and regions. On the organizational side, weare promoting reforms aimed at realizing our Global Head
Office (GHO)―tasked with reinforcing our corporate
center functions, such as business planning, accounting
and finance, and personnel and general affairs―and ourfour Strategic Business Units (SBUs) separated by region:
Japan, China, Europe/Americas, and Asia. Pigeon Way
serves as the cornerstone enabling our various operations,spread throughout the world, to make judgments basedon swift decision-making. Drawing on similar yardsticks
and criteria, can we make decisions with “speed” from theperspective of “overall optimization”? These two
keywords―“overall optimization” and “speed”―areimportant to achieving Global Number One status. For thisreason, we will leverage Pigeon Way to further entrench
corporate philosophy management.

Fifth Medium-Term Business Plan progressing well; continued year-on-year
growth in sales and income in fiscal 2015
Fiscal 2015 was the second year of our Fifth Medium-TermBusiness Plan, covering the three years to January 2017.
The slogan of the plan is “Pursuing world class businessexcellence, think globally, plan agilely, and implement

8

Annual Report 2016

locally.” Under the plan, we have determined five key
medium-term business objectives: (1) Become the Global
Number One in child-care products; (2) Strengthen the
management framework for continuous businessPIGEON History

Pigeon Way
The “Pigeon Way” is the cornerstone of all our activities. It embodies our “heart and soul” and sets the grounds
for our actions to stream from this core.

Pigeon Way

Dear Stakeholders

VisionAt a Glance
Key Performance Indicators

What is the Pigeon Way?

MissionPigeon Group Activities

Corporate Philosophy
Credo

ValuesAction Principles
Pigeon ESG Initiatives

Corporate Philosophy

The essence and core of our company

Love

Management’s Discussion
and Analysis

Credo

Our fundamental brief based on the corporate philosophy

Only love can beget love
■ Vision■ Act ion Pr in ciple s

To be the baby product manufacturer most trusted by theworld’s babies and families, i.e. “Global Number One”

● Agility● Keep sight of customers

The goal Pigeon Group aims to achieve

Our purpose of working and what we promise to achieve for consumers

Corporate Information● We will bring joy, happiness and inspiration to babies
and families around the world by providing them withproducts and services that embody love.

● Global collaboration among competent individuals● Leadership and logical working style● Willingness to change

Financial Data

■ Mission

The basic guideline for driving all of our actions■ Values

Important attributes for all Pigeon employees● Integrity● Communication, Consent, Trust● Passion

Annual Report 20169

development; (3) Improve management quality by focusing
on cash flows; (4) Establish global human resource training
and personnel systems and promote employee dynamism;and (5) Further enhance enterprise value. With these inmind, we are focusing on expanding Group businesses
and improving management quality.
In fiscal 2015, consolidated net sales increased 9.6% year
on year, to ¥92,209 million, thanks to growth of ourOverseas Business and the Domestic Baby & Mother Care
Business segment. The cost of sales ratio improved around
1.5 points year on year, thanks to enhanced capacity
utilization of production facilities in line with businessexpansion, as well as higher net sales. Accordingly,
operating income grew 13.6%, to ¥14,521 million, ordinary
income rose 13.4%, to ¥15,080 million, and net income
climbed 20.7%, to ¥10,197 million, marking year-on-yearincreases for all key income indicators. Return on equity(ROE) reached a record-high 21.3%.
Seeking to strengthen our business systems, which havestrong regional ties, we shifted the businesses of various
regions, previously controlled from Japan, to establish asales and marketing system that better reflects ourchanging product flows. Specifically, our businesses inSouth Korea, Taiwan, Hong Kong, the Philippines, Russia,
and elsewhere are now under the jurisdiction of the China
Business Division, while our business in Latin America is
now controlled by Lansinoh Laboratories. For this reason,
our business results in some regions will change from theprevious year due to segment reclassification.

Research and Development■ Pigeon Research and Development■ Basic Research and Achievements

Pigeon’s R&D ac tivities center on basic research,

Our baby shoes are a good example of a best-selling

behavioral observation, and product design. In the field

product to emerge from basic research conducted at theof breastfeeding research, in particular, have observed

Central Research Center. This product required eightthe behavior of infants continuously for more than 50

years of research before its launch in 2003. Pigeon’s core

years in an ef for t to clarif y how infants drink when

products―nursing bottles and nipples―are the result ofbreastfeeding. At the core of such R&D activities is oursuckling-related research extending back more than 50

Central Research Center, which was opened in 1991 inyears since its establishment. We have been expanding

Tsukuba Mirai City, Ibaraki Prefecture. The work of the

our body of knowledge on the suckling movements

C e n t e r, w h i c h i s s t a f f e d b y a r o u n d 110 p e o p l e,established by Pigeon well before, which consists of theencompasses research, development, and qualit ythree pr inciples of “adsor ption,” “suckling,” andcontrol―for products sold both in Japan and overseas.

“swallowing.” One finding from this research has been

Today, Pigeon’s product group has expanded greatly.

applied to a new nursing bottle nipple called Bonyu

Our behavior observation has also broadened to include

Jikkan. Launched in spring 2010, this product has beensuch themes as maternity products and items for thehighly acclaimed by customers.

elderly. Every day, we work our hardest to solve theproblems of people leading a variet y of dif ferent
lifestyles.

Product development expertise: Pigeon’s core competence
A company’ s “corecompetence” is its
inherent ability to provide
one-of-a-kind levels ofvalue to customers in a
way that other companies
cannot imitate.

Basicresearch

Develop power
Behavioral
observation

Product
design(Reference: The Core Competence of the Corporation, Gary Hamel and C.K. Prahalad)10

Annual Report 2016

PIGEON History■ Overseas Business■ Localized R&D and Quality Control

In 2016, we celebrate 60 years since our establishment.

Pigeon is steadily expanding its business in China, North

Over the years, we have created a diverse range ofA m e r i c a, a n d o t h e r c o u n t r i e s a n d r e g i o n s . T h e

products based on research into breastfeeding and otherestablishment of produc t supply and development

aspec t s of child development. Overseas, we havesystems and the training of personnel are pivotal for

successfully marketed the same products that were

promoting further globalization. Consequently, Pigeon’s

originally known in Japan for their high quality and

R&D focuses on developing products that address local

advanced technological functions. This has enabledneeds and on establishing a highly reliable quality control

Pigeon to satisf y customers and earn their trust in

system.

overseas markets, such as China.

New products sold in overseas countries are subject toCenter before their release. Quality confirmation related
to mass production is handled by the Center’s quality

R&D expenditure/ R&D expenditure ratio to net sales（%）(¥ millions)

2,000

2,263
1,730

1,932

1,500

2.2％

2.3％

3

2.5％

2

1

500
0

assurance across the Pigeon Group.

Financial Data

1,000

4

control section. This permits consistent product quality

Jan.14Jan.15

Management’s Discussion
and Analysis

stringent quality control checks by the Central Research

2,500

Pigeon ESG Initiatives■ Overseas Business and R&D

Pigeon Group Activities

Overseas Research and Development

Dear Stakeholders

category into a business pillar following our other No. 1
products in North America, namely, breast pumps, nipple
cream, breast pads, and milk bags. In Europe, we achieved
sales growth in our threes main markets―United Kingdom,
Germany, and Turkey. In the year to January 2017, we plan
to build a new plant in a free trade zone within Turkey, so
we can exploit the geographical advantage of being
next-door to Europe, which we believe will give impetus tobusiness expansion in the region.
In May 2015, we began shipping Pigeon’s flagshipproducts―nursing bottles and nipples―from our local
production plant in India. More than 10,000 outlets,
centering on pharmacies, currently handle our products in
India. We are confident of turning a profit in the year to

At a Glance
Key Performance Indicators

The aforementioned shift of our businesses in South Korea,
Taiwan, Hong Kong, the Philippines, Russia, and elsewhereto the China Business Division had no impact on the resultsof the Overseas Business Division. However, thanks tosignificant sales growth in Europe and North America―
regions controlled by Lansinoh Laboratories―sales in theOverseas Business Division segment increased 8.0%, to¥25,234 million (up 16.8% under the previous segmentclassification).
In Europe and North America, we achieved sales
increases across all product categories, but our breast
pumps showed particularly strong growth, and our manual
pumps attained the No. 1 share in North America for the
first time. Going forward, we will target growth of thisJan.160

Corporate Information
Annual Report 201611

January 2017, and we will expedite growth in that hugemarket, where childbirths number around 27 million
annually. In Singapore, meanwhile, our high-end baby
skincare line, “Newborn Pure,” has been well received

since its launch. For these and other reasons, our overseas
business posted generally healthy growth.

■ Domestic Baby & Mother Care Business
Growth in the baby stroller category, purchases by
inbound foreign visitors, and other factors made significant
contributions to growth of the Domestic Baby & Mother
Care Business segment in the year under review. Calendar
2015 saw an upturn in childbirths for the first time in five
years, giving a sense that the downward trend may beending. Against this background, we enjoyed a sharp
increase in our share of the baby stroller market thanks to
the warm reception of our “Runfee” series, launched in
January 2015. We developed “Runfee” with a focus on

ensuring a smooth ride, to address the stress felt by manymothers when going out due to the impact of unevenground. We also enjoyed higher sales of baby food andmaintained our overwhelming No. 1 share in mainstay
products, such as nursing bottles and nipples and breast
pads. As a result, segment sales grew 14.8% year on year,to ¥28,053 million. We are very pleased with theperformance of our baby strollers. This is a priority
category that we have fostered with the aim of making it a
new sales pillar.

■ China BusinessIn the year under review, some regions previously
controlled by the Overseas Business Division weretransferred to the China Business Division. During the year,
we also reported steady growth in sales of nursing bottles
and nipples. Accordingly, the China Business Division
posted sales of ¥31,688 million, up 20.5% year on year.
While concern about economic slowdown seems to beaffecting local stock markets, we feel that the purchasing
power of Chinese consumers is definitely not declining.
Pigeon is already known widely in China as a high-quality,

reliable brand, and sales of our highly profitable mainstay
offerings, such as nursing bottles and nipples, are notlosing momentum at all. Having said that, we recognizethat the purchasing patterns of consumers have changed
in recent years, with a trend away from traditional retailstores to online purchases via e-commerce sites. To
address this trend, we will actively embrace e-commercein an ongoing effort to broaden our business in China as
an income pillar and growth driver for the Pigeon Group.

■ Child-rearing Support Services; Health Care & Nursing Care BusinessIn fiscal 2015, we enjoyed increased sales and income in
our Overseas Business, Domestic Baby & Mother Care
Business, and China Business segments. However, theChild-rearing Support Services segment reported higher
sales and lower income, and the Health Care & Nursing
Care Business posted declines in both sales and income.
In the Child-rearing Support Services segment, we were
newly entrusted to operate four in-company child-care

12

Annual Report 2016

facilities, and we opened a new Kids World preschool
education center, but higher personnel expenses andother factors led to a decline in segment income. A
revision to Japan’s nursing care insurance system in April
2015 led to a decline in nursing care insurance payments,
prompting care facilities to suppress purchases and giving
rise to price wars. Such headwinds made businessdevelopment more difficult.

PIGEON History

Year ending January 2017: Forecast for increased sales and income

Management’s Discussion
and Analysis

China Business: Forecasting year-on-year increases in sales
and income through full-scale response to e-commerce

moreover, the China Business has a structure conducive toboosting high profitability thanks to local manufacturing
benefits that deliver a high capacity utilization rate.
Accordingly, our business in China makes a significant
contribution to total Group earnings, and this situation will
not change.
Growing concerns about slowdown in the overall Chinese
economy are partially affecting stock markets. A close look

Financial Data

Pigeon has achieved dramatic business growth in China
since establishing a local subsidiary there in 2002. In theyear ending January 2017, we forecast a 2.6% year-on-yearincrease in sales of the China Business, to ¥32,518 million(11.1% increase in local-currency terms), again accounting
for more than 30% of consolidated net sales and making
China a major business pillar for the Pigeon Group. Since
practically all of its products are manufactured locally,

Pigeon ESG Initiatives

average growth rates over multiple-year time periods.

Pigeon Group Activities* CAGR (compound average growth rate) is geometric mean signifying

Dear Stakeholders

the breast pump market is growing, and we will foster thiscategory into a new business pillar. In Japan, we willcontinue focusing on baby strollers, for which we have set
a high 20% target for market share. At the same time, wewill foster child seats and other large-sized products.
In overseas markets, we are focusing on India and Russia
as the next growth regions after China. We are confidentof turning a profit in India in fiscal 2016, our seventh yearof doing business there. We have already started making
nursing bottles and nipples at our plant in India, and overthe medium term we will expand our business so that theplant fulfills a role as a production base not just for India
but surrounding nations as well. In Russia, we are working
with powerful local maternity hospitals and doctors andhave built a framework in which they can recommend our
products. As a result, we achieved a 1.5-fold jump in sales
in fiscal 2015. We will leverage our strengths in nursing
bottles and nipples, which are future priorities, to expand
our business in the Russian market.
In fiscal 2016, we forecast year-on-year increases in sales
and income for both the Child-rearing Support Services
segment and the Health Care & Nursing Care Businesssegment. For the latter, in particular, it will be a year ofsurvival. For a start, we will strive to achieve our segment
income target of ¥0.4 billion, up 186% year on year.

At a Glance
Key Performance Indicators

Fiscal 2016, ending January 2017, is the final year of our
Fifth Medium-Term Business Plan. For the year, ourconsolidated forecasts are net sales of ¥95.0 billion (up3.0% year on year), operating income of ¥15.0 billion (up3.3%), ordinary income of ¥15.3 billion (up 1.5%), and net
income of ¥10.4 billion (up 2.0%). For the year, we assume
that the yen will become progressively stronger, so
compared with the year under review, when the weak yen
had a positive effect, our growth may appear to be slow. If
we exclude foreign exchange factors (using the same rate
as fiscal 2015), however, our consolidated net sales forecast
for fiscal 2016 would be close to the ¥100 billion target set
under the Fifth Medium-Term Business Plan.
Over the past 10 years, the Pigeon Group has achieved acompound annual growth rate (CAGR) for consolidated net
sales of 8.2%. In the past five years, CAGR has been 11.7%,
representing a continuation of very strong growth.
Moreover, the trend of our core business is not changing
significantly. In addition to Japan, we are achieving steady
growth in local-currency terms in China, Europe, andNorth America, and I believe we will continue posting
healthy growth.
Broadly speaking, we will focus on three core areas infiscal 2016: e-commerce in China, breast pumps in Europe
and North America, and large-sized products in theDomestic Baby & Mother Care Business segment. Given
that young people are the driving force for consumption
growth in China, it is essential that we actively embracee-commerce. In Europe and North America, our share of

Corporate Information
Annual Report 201613

at our actual business in China, however, reveals thatmacroeconomic trends have virtually no impact on ourbusiness there. In fact, we feel that the purchasing powerof consumers has remained unchanged.
Looking at business conditions for the baby care productsector in China, we note that the government’s long-held“one child policy” was abolished in 2015. Moreover, 2016is the “Year of the Monkey,” a year in which giving birth isregarded as good luck. Accordingly, business conditions
are definitely not looking bad.
Over the past year, meanwhile, one major change in the
Chinese business environment has been the explosive
growth of e-commerce. Driving the ongoing expansion of
e-commerce are young people in their 20s and 30s―
Pigeon’s target market―so we are actively embracing
e-commerce as a sales channel to augment traditional
baby product specialty stores. We firmly believe that thiswill generate major business growth in China. We will also
make a full-scale entry into the cross-border e-commerce
sector, which has been difficult to grasp, to address
expansion in inbound demand. By complementing current

retail store sales through proactive sales via the fastgrowing e-commerce channel, we hope to generate an
11.1% year-on-year sales increase in China on a localcurrency basis in the year to January 2017.
In China, as in Japan, when customers feel that our
products are good, they will spread the information
through word of mouth, leading to purchases by othercustomers. Another major purchasing motivation similar to
Japan is recommendations from specialists, such as
doctors and nurses in hospitals. Comments such as “We
use Pigeon products in our hospitals” and “You can trust
this manufacturer” provide peace of mind and represent a
powerful impetus to purchase. In a collaboration with
China’s Ministry of Health to promote breastfeeding, weare also opening breastfeeding advice offices in large
hospitals and clinics in various regions. As of January 31,
2016, we had such 58 offices, up from 45 a year earlier.
Combined with our meticulous direct communication
approach, we now have a business model in China that isdifficult to imitate.

Breastfeeding room (Mexico)

E-commerce site (China)

Breastfeeding room (Malaysia)

Breastfeeding room (China)

14

Annual Report 2016

Breastfeeding room (Russia)

PIGEON History

Proactive shareholder return

Management’s Discussion
and Analysis
Financial Data

many comments from shareholders and other investors
asking why we don’t have female directors, even thoughbabies and their mothers represent our target market.
From the perspective of optimal corporate governance, it
should be a matter of strengthening our team of directors
in a way that helps enhance corporate value. From theperspective of diversity, I personally and fully acknowledge
the issue of having no female directors. At present, wehave not found anyone qualified to be a director, but alook at our female promotion reveals that women accountfor around 20% of Pigeon’s overall management positions,and around 30% of those women serve as generalmanagers. We hope to resolve the issue of female
directors in the next few years.
To make the workplace more accessible for women, weare promoting the advancement of women through threecore initiatives: “expansion of compatibility support
system,” “workplace mindset reforms,” and “backup for
women’s feelings and skills.” As a part of “workplacemindset reforms,” we have a parental leave system called“One Month Together,” in which fathers can take one
month of leave to spend caring for newborn babies. Thissystem, which is available to male staff, gives employees
the opportunity to experience first hand the excellent
aspects of Pigeon’s products and areas that require

Pigeon ESG Initiatives

While the passion and DNA of our founder was originallypassed down in the form of a family-run business, sincelisting publicly we have achieved growth as a truly publiccompany. With this in mind, the Board of Directors
strengthened corporate governance via the Ordinary
General Meeting of Shareholders by appointing Mr. Rehito
Hatoyama, who has plentiful experience in overseas
business expansion, as our second outside director. He
joins our existing outside director, Mr. Takayuki Nitta, who
has a wealth of experience in business consulting andinvestment management companies. Mr. Nitta has
provided various pieces of advice and forged lively
discussions based on the perspective of investors and his
own rich knowledge, thus energizing the Board of
Directors. With the addition of Mr. Hatoyama, who hasabundant overseas business experience, we are very
confident that our global business development efforts will
be strengthened.
We also recently added a new internal member to theBoard of Directors: Mr. Kevin Vyse-Peacock, CEO of
Lansinoh Laboratories, a subsidiary of the Company. Under
our Sixth Medium-Term Business Plan, scheduled to startin the next fiscal year, we wish to fully incorporate newknowledge in our quest to become a truly global entity.
With respect to promoting female executives, we hear

Pigeon Group Activities

Strengthening our corporate governance system; appointmentof two outside directors

Dear Stakeholders

cash from operating activities. Of this amount, we planned
to make ¥15.0 billion in investments (¥11.5 billion overseasand ¥3.5 billion in Japan). Now, however, we forecast thatnet cash from operating activities will exceed ourassumption. Also, we postponed our initial plan to invest
in a second plant in China to make disposable diapers.
Accordingly, we will have more cash in hand than
expected. Regarding this surplus portion, as we formulate
our Sixth Medium-Term Business Plan we will look at how
we can return cash to shareholders after taking into
consideration the availability and need for investments
over the next few years.

At a Glance
Key Performance Indicators

Cash generated through our business activities is returned
to shareholders after retaining funds necessary for growth,which is a priority. We are targeting a consolidated returnof 45–50% under our Fifth Medium-Term Business Plan,
with year-on-year increases in cash dividends in each fiscal
period. Based on this policy, we declared cash dividendsof ¥42.00* per share for the year under review, for adividend payout ratio of 49.3%. In the year ending January
2017, we plan to pay dividends of ¥44.00 per share, up¥2.00 year on year. (Please refer to note at bottom of page 3.)Over the three-year period of the Fifth Medium-TermBusiness Plan, we expected to generate ¥27.0 billion in net

Corporate Information
Annual Report 201615

improvement. Also, first-hand experience of the challengesof raising children gives employees a better understandingof the perspectives and feelings of customers and mattersthat worry them.
Despite our thoughts and aims, the fact is that ourparental leave system was not being adequately utilized,
so I sent a message encouraging employees to take fulladvantage of it, and now the our parental leave take-up
ratio is 100%. Compared with the 2% average in Japan and
13% in the United States, we are proud of our 100%

achievement, which reflects that we are making successful
improvements in creating friendly workplaceenvironments.
Going forward, we will continue seeking an optimal
governance system for Pigeon while drawing on our own
thinking, which we believe will lead to improved corporate
value. We look forward to the long-term support ofshareholders and other investors.

Shigeru Yamashita
President and Chief Operating Officer

16

Annual Report 2016

Pigeon Group
Activities

Annual Report 201617

Pigeon Group Activities

Domestic Baby &Mother Care Business

Sales of Domestic Baby & Mother Care Business(¥ millions)

28,05330,00025,00029,501

24,43220,00015,00010,0005,000
0In 2015, the total number of births in Japan was 1,008,000(according to 2015 estimation of population dynamics by the
Ministry of Health, Labour and Welfare), up around 4,000
from 2014 and signaling a pause in the downward trend. In
2015, the economy remained on a recovery path, buoyedby improvements in corporate earnings and employment
conditions, as well as flourishing inbound demand fromforeign tourists. From the consumer’s perspective, however,uncertainty about the future remains amid oligopolizationof retailers and rising costs of social security and daily
necessities, so the business environment will continue to defy
optimism.

300(10 thousands)

250
200
150
100
50
0

1948

1958

1968

1978

Jan.16

Jan.17
Targetproblems that parents encounter when raising children. Ourcompetitive edge lies in our high public profile as an industry
leader and creator of the very strong Pigeon brand.

Business Environment

Number of Childbirths in Japan

Jan.15

1988
1998
2012
2014
2015
Source: Ministry of Health, Labour and Welfare

Our Competitive Edge
Based on half a century of research into breastfeeding
and infant and child development, the predominance of
the Pigeon brand is the result of creating and developinga wide range of high-quality products. Here, we use thediscoveries we have made via in-depth research into thegrowth processes of babies, and we have uncovered various

Business Strategy
In the year under review, we introduced competitive newofferings into the market and focused on achieving steady
growth in baby strollers and other large-sized products. We
also stepped up our approach to the maternity market
through our ongoing direct communication policy.
■ Existing Market Initiatives
We are conducting more in-depth research into the physicaldevelopment of babies with the aim of further raising theappeal of our products. At the same time, we are expanding
our product lineup for the maternity market in order to meetthe diversifying needs of customers. We are also striving tomaintain and boost our market shares for all productcategories by stepping up educational activities. Pigeon isrenowned for its ability to offer a full range of baby products.
Deploying this capability, we are working in collaboration withlarge retailers to establish in-store Pigeon product sections
and develop sales promotion strategies.
■ New Market Initiatives
Amid changes in consumer purchasing behavior, the PigeonGroup is creating business models that are appropriate forsuch patterns. In large-sized products, a new category wehave been fostering, back in 2012 we launched the “Contento”
rear-facing baby stroller designed with the baby’s feelings in
mind, as well as the “Solacica” baby stroller featuring a highpositioned seat and A-shaped, face-to-face configuration. In
February 2014, we launched the “Mahalo laule’a” reversible
stroller, designed to ensure baby comfort. This was followedby the “Runfee” baby stroller, which runs smoothly overuneven ground thanks to its 16.5cm large-diameter tires.
Market share for “Runfee” has been growing sharply since its
launch in January 2015. In July 2015, we added a new color
to the “Runfee” range, and in December 2015 we unveiled“Premige,” a premium baby stroller that provides a smooth,pleasant ride.

Performance and Highlights

Wide variety of baby and mother care-related products

18

Annual Report 2016

In fiscal 2015, sales in the Domestic Baby & Mother Care
Business segment amounted to ¥28,053 million, up 14.8%
from the previous year. Segment income rose 16.8%, to¥4,383 million, despite an increase in cost of sales stemming

Outlook

Top Message

(¥)

2014

2015

Baby formula

1,203

994

828

1,020

855

Baby foods

755

645

572

587

652

Cow's milk

259

354

360

302

311

Snacks

494

578

576

597

570

Other (foods)

1,380

1,632

1,741

1,616

1,760

Subtotal (foods)

4,094

4,203

4,077

4,123

4,148

Clothes, underwear, shoes, etc.

2,558

2,483

2,679

2,530

2,497

Cloth diapers, diaper liners, etc.

149

160

120

154

169

Disposable diapers

3,117

3,002

3,176

3,169

3,128

Subtotal (clothes, diapers)

5,824

5,646

5,974

5,853

5,794

755

705

912

1,715

1,031

1,313

1,240

1,137

1,291

1,205

469

467

372

464

322

Subtotal (toys, picture books)

1,783

1,707

1,509

1,755

1,527

Breastfeeding, baby food crockery

324

292

343

442

330

Bathing/hygiene accessories

1,146

1,080

1,285

1,505

1,294

Subtotal (breastfeeding, baby
food crockery, bathing, hygiene)

1,470

1,372

1,628

1,947

1,625

Outing products, furniture, beds, etc.

2,362

2,087

1,987

2,803

2,215

Total

16,291

15,71916,087

18,196

16,340Toys
Picture books

Source: Figures compiled by Pigeon.

76%

Nursing bottles

Nursing bottle
nipples85%

Nursing bottle
detergent

83.4%

Nursing bottle
sterilizers

20%

Breast pads

64%

MagMag54.5%

10%Baby food

Skincareproducts

29.7%

Baby wipes

25.6%

0

20

40

60

80

100

(Jan. 2016)
From INTAGE Inc's POS national drug expansion/
promotion value (amount of money per month)

Annual Report 2016

Corporate Information

2013

Financial Data

2012

Management’s Discussion
and Analysis

2011

（%）

Pigeon ESG Initiatives

Segment

Domestic Market Share of Pigeon's
Main Products

Pigeon Group Activities

Average Monthly Expenditures per Infant

Medical treatment

At a Glance
Key Performance Indicators

The birthrate in Japan is not expected to increase significantlyin the future. To achieve growth amid such conditions, Pigeon
will deploy its strengths in basic research to develop highly
distinctive products while reinforcing existing businesses toraise profitability. With respect to baby strollers and otherlarge-sized products, we will actively promote our products
and implement marketing strategies to expand our business.
Our objective is to raise Pigeon’s share of Japan’s baby
stroller market to 20% in value terms. In existing categories,
such as nursing bottles and nipples, we will expand sales ofhigh-value added products and introduce new offerings.
Through these measures, we forecast sales in the Domestic
Baby & Mother Care Business segment of ¥29.5 billion for theyear ending January 2017.

PIGEON History

from rising costs of imported raw materials due to the yen’s
depreciation.
We introduced a host of new products during the year. In
February 2015, for example, we launched “Breast Milk PowerPlus” and “Breast Milk Power Plus Tablet” breastfeeding
supplements for breastfeeding mothers and their babies. In
July 2016, we added a new color to “Runfee,” our baby
stroller that easily overcomes ground-level differences, and in
December we launched “Premige,” a premium baby strollerthat provides a smooth ride. Sales and market share are
growing steadily as a result.
We also held various events as a part of our directcommunications program. These included “Breast Feeding
Seminars” for women expecting to give birth in the near
future and seminars for healthcare professionals aboutbreastfeeding while parenting. In fiscal 2015, we held a totalof 38 such events, with participation from around 2,800
people.
We will continue targeting progress in providing customers
more accessible information, including updates ofmerchandise information via “Pigeon Info,” a website that
supports women during pregnancy, in childbirth, and whileraising children.

19Pigeon Group Activities

Sales of Child-rearing Support Services(¥ millions)
7,000

Child-rearing Support
Services

6,722

6,757

6,911

Jan.15Jan.16

Jan.17
Target

6,000
5,000
4,000
3,000
2,000
1,000
0

Business Environment
There is an increasing number of women who want children but
who wish to keep working. Similarly, more and more women want
to return to work while raising children. Despite a declining
birthrate, the market for Child-rearing Support Services is
expanding. In addition, the problem of children on waiting lists toenter daycare remains unsolved, particularly in urban areas. In
response, the national government introduced three measures,
including laws supporting children and child-rearing and certified
daycare centers, in August 2012 and fully implemented the“Comprehensive Support System for Children and Child-Rearing”
in April 2015.
Such measures are being implemented through the cooperationof the public and private sectors. All of society is working to enact
measures for addressing the declining birthrate and for supportingchild-rearing. There are high expectations for our company tofulfill a major role. Specifically, we believe that there will be apositive influence on the expansion of our Child-rearing Support
Services business. For example, new kindergartens will beestablished and a variety of child-care services will be enhanced.

Our Competitive Edge
Through its provision of baby and child-care offerings, Pigeon has
built a reputation for safe and reliable products. Deploying thisbrand strength, we are building our Child-rearing Support Services
business under the principle that “children’s growth is first priority.”
Today, the Pigeon Group provides a host of Child-rearing Support
Services that meet the varied needs of users. These include theoperation of child-minding facilities, such as licensed and certified
daycare centers and in-company child-minding facilities. The PigeonGroup also operates preschool education facilities, such as Kids
World, which is implementing new programs. Pigeon has earned thetrust of parents for the high quality of its services while operating
one of Japan’s largest child-care service businesses.

Business Strategy
The solid reputation and trust earned by our Child-rearing Support
Services business represent real social value, which in turn leads tofurther business growth. For this reason, we are working to raise thequality of our services, which are directly tied to the quality of ourbusiness, as our top priority. We are targeting business expansion by
providing child-care and educational services with added value that
only the private sector can effectively deliver. This is spearheaded
by staff with high levels of awareness and competence working
within safe and secure systems. Through ongoing classes at Pigeon
Heartner Open College, our training facility for child-care workers
and other staff members, we endeavor to uphold the Pigeon Group’s
reputation as a provider with unparalleled knowledge of babies. We
will also strive to improve business profitability.

Performance and Highlights
In the year under review, sales in the Child-rearing Support
Services segment amounted to ¥6,757 million, up 0.5% fromthe previous year. Segment income declined 21.7%, to ¥148
million, due mainly to increased personnel expenses.
During the year, we were newly entrusted to operate fourin-company child-care facilities, bringing the total numberof facilities under our management, including in the National
Hospital Organization, to 189. We are currently operating
those facilities while improving the quality of our services. In
the preschool education field, we also opened a new Kids
World center in Yoga, Tokyo.
Going forward, we will step up our pursuit of highly
specialized child-minding capabilities to address thedistinctive characteristics of children. At the same time, wewill strengthen our management framework to deliver greaterlevels of safety and peace of mind.

Outlook
The Pigeon Group is considering a reassessment of its
business structure according to a growth strategy targeting
improved profitability. We will also continue working tomaintain and improve business quality by fostering andeducating child-minding personnel. At the same time, we willfurther upgrade our crisis management systems. Throughthese measures, we forecast sales in the Child-rearing
Support Services segment of ¥6.9 billion for the year ending
January 2017.
Operation of
approved and certified
child-care centers
Operation ofchild-minding
centers

Event child-careservices

Child-rearing Support Services
Kids World
preschool
educational
services

Operation of
in-company
child-minding
facilities

Consulting service
and training

Child-minding facility

20

Annual Report 2016

Pigeon Group Activities

Sales of Health Care & Nursing Care Business
8,000

Health Care &Nursing Care Business

7,000

6,761

6,499

Jan.15Jan.16

7,000

6,000
5,000
4,000
3,000

1,000
0

Performance and Highlights

Annual Report 2016

Corporate Information

The role of the Health Care & Nursing Care Business in the
Pigeon Group is essentially to increase earnings. By stepping
up initiatives with sales agents, we will target sales andbusiness growth. At the same time, we will promote better
efficiency of our business operational system, which will leadto improved profitability.
We forecast sales in this segment to ¥7.0 billion in the year
ending January 2017.

Financial Data

OutlookManagement’s Discussion
and Analysis

Due to declining sales to facilities stemming from a revisionof the nursing care insurance system, as well as intensifying
competition in the consumables market, sales in Health Care
& Nursing Care Business segment declined 3.9% year on year,to ¥6,499 million. Segment income fell 46.1%, to ¥140 million.
In February 2015, Pigeon Tahira released “Assista Ease Ⅰ
and Ⅱ” wheelchairs for seniors. Both products help users
keep a straight posture and enable comfortable sitting forlong periods of time. In April, we added a new citrus green
scent to the “Kaori Kakumei” series of indoor air fresheners.
This spray-type room air freshener for nursing care usechanges fecal and urinary odors into pleasant scents. During
the year, Pigeon Manaka opened the Sano Day Service
Center. We will continue introducing competitive new
products while taking measures to improve the quality of ournursing care services.

Pigeon ESG Initiatives

Pigeon’s Health Care & Nursing Care Business revolves
around two brands: the Habinurse brand of elder careproducts and the Recoup brand of products that support theactive elderly. Together, these two brands offer items in many
product categories, including toileting, bathing, hygiene,
meals, sleeping, and mobility. Pigeon’s strengths in thissegment lie in its product planning capabilities-which use
behavioral observations of consumers to accurately pinpoint
unsatisfied customer demand-as well as its advanced quality
control systems acquired in the course of developing baby
care products. The Pigeon Group has two sales channels forhealth and elder care products: retail stores and institutions/
hospitals. We also possess know-how and a proven trackrecord in providing health and elder care services, centeringon Tochigi Prefecture.

To date, we have advanced our Health Care & Nursing Care
Business through the aforementioned Habinurse and Recoup
brands. In the fiscal year ended January 2012, we restructured
the organization of this segment by slimming down andconcentrating managerial resources around the Habinurse
brand of elder care products that are enjoying strong
demand. We are now striving to improve the competitive
power of our products by focusing on core categories.
In our nursing care business, which we launched in 1975,
Habinurse is our brand for nursing care products. We sell
these products through retail store and institution/hospitalsales channels, and we are working comprehensively to meetthe needs of people receiving care in facilities or in theirhomes.

Pigeon Group Activities

Our Competitive Edge

Business Strategy

Top Message

Japan’s population is aging
Estimate of Future Population
rapidly while the number ofin Japan (age 65 and older)births declines. When baby
(thousands)
40,000boomers born between 1947
and 1949 began entering
30,000the 65-plus age bracket in2015, it is estimated that thisgroup’s population had grown
20,000to 33,840,000, equivalent to26.7% of the total population
10,000(according to September 2015
statistics). This means that
one in every four Japanese is0
2000
2010 2020(prediction)
now at least 65 years old-thehighest level among the world’s advanced nations.
Moreover, there are more than 10 million people aged 80
and over, and to address continuously increasing elderly carecosts, the national government amended the nursing careinsurance system in April 2015, thus clarifying its policies forthe system, covering everything from institutions to at-homecare. These policies include raising the personal contribution
to nursing care insurance and tightening preconditions formoving into special elderly nursing homes.
Meanwhile, the upward population trend will continue.
Although the number of elderly will start declining fromaround 2042, the percentage of elderly in the total population
will rise further.
Against this backdrop, the market is expanding steadily. In
response, we will continue working relentlessly to introduce
competitive new products and enhance the quality of ournursing care services.

Jan.17
TargetAt a Glance
Key Performance Indicators

2,000

Business Environment

PIGEON History(¥ millions)21

Pigeon Group Activities

Sales of Overseas Business(¥ millions)
30,000Overseas
Business

25,00023,37325,23425,429Jan.16

Jan.17
Target20,00015,00010,0005,000
0Business Overview
In fiscal 2015, we sought to strengthen our sales/marketingsystem, which has close regional ties. Specifically, the Latin
American market, previously under the jurisdiction of Japan,
was taken over by Lansinoh Laboratories, while South Korea,
Taiwan, Hong Kong, the Philippines, and Russia, previously
handled by the Overseas Business Division, were moved tothe jurisdiction of the China Business Division, including fordisclosure purposes.
Despite the aforementioned changes in segmentcomposition, the Overseas Business segment posted an
8.0% year-on-year increase in sales, to ¥25,234 million, while
segment income rose 12.3%, to ¥5,579 million.
In May 2015, we began shipping Pigeon’s flagshipproducts-nursing bottles and nipples-from our local
production plant in India. Going forward, we will continue
strengthening our sales and distribution systems. In addition,
we are steadily expanding sales of breastfeeding-related
products, including such flagship products as breast pads,
breast pumps, and milk bags, in North America and Europe.
In Europe, meanwhile, we plan to establish a new plant inTurkey in January 2017, thus strengthening our production
system. We will also broaden our business by reinforcing oursales organizations in the United Kingdom, Germany, andelsewhere.

Jan.15

positions in new and existing markets, as stated in our Fifth
Medium-Term Business Plan. We will also work to expand
sales in five priority categories: nursing bottles and nipples,
breast pumps, skincare products, breast pads, and pacifiers.
In addition, we will target further improvements in profitability
by promoting in-house product manufacturing and making
capital investments accordingly.
With respect to advancing the Lansinoh brand, we will
expand sales of the Pigeon Group’s mainstay productsnursing bottles and nipples-in North America and Europe,and we are planning a full-scale entry into the Chinese market.
With the opening of a new plant in Turkey, meanwhile, wewill establish and reinforce our production system and target
business growth in Europe.
Looking to Asia, we will continue and step up branding
activities in India in order to achieve business growth. We will
also consider production for export at our new Indian plantto raise productivity and further improve profitability throughincreased capacity utilization.
Through these initiatives, we forecast sales in the Overseas
Business segment of ¥25.4 billion in the year ending January
2017. (This assumes an exchange rate of ¥115.00 per U.S.
dollar, compared with a rate of ¥121.10 per U.S. dollar in theyear under review.)

North America & Europe
Business Overview

Business Strategies
Our competitive advantage in overseas markets derives
from two key strengths. One is the appeal of our products.
We conduct basic research into “matters that concern ourcustomers,” and make products accordingly. At the sametime, we hold seminars for healthcare professionals andmothers at retail stores to permit a first-hand understandingof our product appeal. Looking ahead, we will advance thisbusiness model, already established in Japan, across ouroverseas operations.
Another strength is teamwork with high-quality business
partners. To develop our overseas business, it is extremely
important that we build good relationships with local
partners-including distributors and retailers-with excellent
local knowledge. When selecting sales agents, we are mindfulthat reviews and updates of our promotions and their results
are in the best interests of our customers. Accordingly, weclosely monitor market conditions, and take action where
necessary.

With respect to total fertility rate and childbirth numbers, theUnited States is relatively stable among advanced countries.
In that nation, where breastfeeding is recommended,
specialist “lactation consultants” provide general support
for women around the time of birth by emphasizing theimportance of breastfeeding and providing guidance andadvice related to suckling and breastfeeding. Accordingly,
demand for breast pumps and other breastfeeding-related
products is rising.
In April 2004, Pigeon acquired Lansinoh Laboratories, Inc.,
based in Virginia, and transformed it into a wholly owned
subsidiary. Since then, Lansinoh has been building sales
platforms in the United States and Europe based on mediumand long-term perspectives. Amid increasing demand forbreastfeeding-related products stemming from worldwide
promotion of breastfeeding, Lansinoh’s offerings havegarnered strong support thanks to their high quality.

Our Position
OutlookIn our Overseas Business, we will cultivate and entrench our22

Annual Report 2016

The Lansinoh range of breastfeeding-related products
includes nipple creams, breast pads, breast milk storage bags,
and breast pumps. It is recognized for its unmatched brandstrength and product quality, and its offerings are handledNipple cream

75.2％ (No.1 share)
67.8％ (No.1 share)

Breast pads
Breast milkstorage bags

54.3％ (No.1 share)

Breast pumps(manual) 33.4％ (No.1 share)
0

20

40

60

80

100

In India, the population has been growing at the rate of morethan 10 million per year, and has reached 1.31 billion according
to a 2015 world population white paper. More than half the
population is under 25. Indeed, the number of childbirths isprojected to reach 27 million per year, significantly higher thanChina.
We are working raise recognition of Pigeon in India as a topquality brand with high added value, as we have done in Japanand China. In that nation, we have already expanded mainly inmajor cities such as Delhi and Mumbai, and we are developing
outlets linked closely with local communities. In addition toestablishing and reinforcing our distribution system, we arepromoting our offerings in more than 10,000 outlets, centeringon pharmacies. We have started local production of nursing
bottles and nipples, and we will seek to turn a profit in the year
ending January 2017.

At a Glance
Key Performance Indicators

Lansinoh Laboratories, Inc.: U.S. Market Share (yearly average)

Initiatives Elsewhere in Asia

PIGEON History

by more than 40,000 stores in the United States. In January
2009, Lansinoh acquired the Soothies brand of breastfeedingrelated products from Puronyx, Inc., with the aim of enhancing
its lineup and reinforcing its business by securing sales
routes to hospitals. We will target further business growth by
upgrading our product categories. In January 2014, Lansinoh
made a full-scale launch of nursing bottles. Going forward, we
will continue enhancing our brand power as a company thatoffers total support for breastfeeding.

Source: Figures compiled by Pigeon (2015)

Top Message

Lansinoh Laboratories, Inc.: Breast Pad Market Sharein North America

（％）

70
60
50

●

●

2008

2009

●

●

2010

2011

●

●

2012

2013

Pigeon Group Activities

40
0

2014

2015

Source: Figures compiled by Pigeon (2015)

Performance and Outlook

Initiatives in Other Regions

Other Countries

Financial Data

In the Middle East, we are actively advancing our business. For
example, Lansinoh Laboratories opened a branch in Turkey in2009, and established Lansinoh Laboratories Medical Devices
Design Industry and Commerce Ltd. Co. (LMD) in 2010. LMD
operates a plant that produces and assembles components
for Lansinoh-brand breast pumps. In addition to its existingproducts, in January 2017 LMD will start making nursing
bottles and nipples-mainstay products of the Pigeon Groupfor the North American, European, and Turkish markets.
To this end, LMD will close its current plant and establish a
new facility in a free-trade zone within Turkey, and plans to
install additional production equipment in the meantime.
We will deploy the new plant to establish and strengthen our
production system and thus target business expansion in
Europe and the Middle East.

Management’s Discussion
and Analysis

Lansinoh products

India factory

Pigeon ESG Initiatives

In the year under review, we successfully reinforced ourmarketing activities in North America, where sales totaled¥7,671 million, up 9.0 % from the previous year (up 5.1% in
local-currency terms). In Europe, we expanded our lineup
of offerings for the breastfeeding-related market while
increasing the number of retailers and stores handling our
products.
Going forward, the Pigeon Group will continue
strengthening its brand. At the same time, we will launch newofferings to broaden our business.

Business Strategies
Corporate Information

The Pigeon Group is actively entering new markets in order toexpand its business. In addition to expanding our production
bases in Thailand, we established a subsidiary in India andbegan local production of nursing bottles and nipples inJanuary 2015. On the sales side, as well, we are building a
distribution system and broadening the network of retailstores handling our products.

Annual Report 201623

Pigeon Group Activities

Sales in China(¥ millions)
35,00030,000China
Business

25,00031,68832,51826,301

20,00015,00010,0005,000
0Business Overview

Annual GDP Growth in China

（％）

12

●

●

●

●

●
●

●

●
●

●

8

●

●

●

6

●

0

ʼ02

ʼ03

ʼ04

ʼ05

ʼ06

ʼ07

ʼ08

ʼ09

ʼ10

ʼ11

ʼ12

ʼ13

ʼ14

ʼ15

Source: The figures are compiled by Pigeon Corporation with data from the International
Monetary Fund (IMF) (~2006) and the Organization for Economic Cooperation
and Development (OECD) (2007~).

Our Position
The target for Pigeon’s products is the “new rich” market. We
are advancing our business initially by proposing innovative
lifestyle scenarios, with an emphasis on toiletry-related
products. With more than 500 types of products on the
Chinese market, including our mainstay nursing bottles andnipples, we supply higher-priced items to meet high-end
demand from the growing number of newly wealthy people inmajor coastal cities.
Given a sluggish economic growth rate, there arewidespread concerns that the entire Chinese market willslow down, and this even affected local stock markets at the
beginning of 2016. Nevertheless, we have steadily expanded
our business, at a faster pace than Chinese economic growth,through various measures. These include extensive face-toface sales activities based on high product quality and stablepricing, and increasing the number of stores and dedicatedin-store Pigeon sections handling our offerings. Recognitionof Pigeon as a safe, reliable, high-quality brand is spreading
as a result.

24

Annual Report 2016

Jan.16

Jan.17
TargetBusiness Strategies

With a population of around 1.38 billion, China’s annual
childbirths have averaged about 17 million over the past
several years, which is 17 times the number of births ofJapan. Pigeon is targeting the wealthiest 15%–20% of themarket, representing 2.55–3.40 million people. Given that
we generate around ¥28 billion from our Domestic Baby &Mother Care Business in Japan, where only 1.008 million
babies are born annually, we feel it is possible to achieve
annual sales in China of around ¥40 billion in the near future.
Since our full-scale entry into the Chinese market in 2002,
we have broadened our sales coverage across the entire
nation, from such large cities as Shanghai and Beijing tointerior regions.

10

Jan.15

From the beginning, Pigeon
has regarded China as a market
rather than a production center.
With this in mind, we haveworked to strengthen brandawareness and proliferation by
deploying the sales prowess of
our partner companies.
In Chinese hospitals, forexample, we have held various
Mother receiving counseling in a
Breastfeeding Advice Officeevents, such as productexhibitions, product explanation
forums, and child-care information sessions. In 2009, we
opened Pigeon Breastfeeding Advice Offices in 34 hospitals
as a joint project with China’s Ministry of Health (58 hospitals
as of January 2016). In these ways, we have stepped up our
focus on brand appeal reinforcement. Including Pigeon
Breastfeeding Advice Offices, in January 2016 we formed
partnerships with around 250 hospitals throughout thecountry in order to offer educational activities related tobreastfeeding.
With respect to manufacturing, Pigeon Manufacturing(Shanghai) Co., Ltd., established in Shanghai’s Qingpu
Industrial Zone in January 2008, has been manufacturing andassembling various products. These include silicon nursing
bottle nipples, detergents, and toiletries, as well as nursing
bottles. In January 2011, Pigeon Industries (Changzhou) Co.,
Ltd. started operations at its plant in Changzhou, Jiangsu
Province, producing breast pads and baby wipes. Sales in
China have been growing steadily, and Pigeon is gaining
widespread recognition as a brand that earns people’s fullconfidence.
In fiscal 2015, our businesses in South Korea, Taiwan, Hong
Kong, the Philippines, Russia, and elsewhere-previously
under the jurisdiction of the Overseas Business Divisionwere shifted to the China Business Division. Accordingly, ourbusinesses in those regions are now included in the results of
the China Business segment, which posted sales of ¥31,688
million in the year under review, up 20.5% from the previous
year.
In China, which abolished its long-standing “one childpolicy” in 2015, we expect the high birthrate to continue
for some time, and with disposable incomes rising among
Chinese people in general, consumers are growing more andmore conscious of product safety. We regard this as a positive
factor that will underpin growth of our Chinese business.
Recent years have seen explosive growth in e-commerce,
driven by the Internet, among young Chinese people in their
20s and 30s. Also, in addition to existing products, notably
nursing bottles and nipples and toiletries, we anticipate
sharp growth in the market for consumables, such as breastpads and baby wipes. We will need to address these andother changes in consumer behavior and demand trends.
For example, we launched disposable diapers, which we
do not sell in Japan, in July 2013, followed by baby food in
November 2013. In response to sharp growth in e-commerce,Sales Development

China’s Surrounding Markets (Now Handled by China Business Division)

Pigeon ESG Initiatives

Pigeon Industries（Changzhou）Co., Ltd.（plant in Changzhou, Jiangsu Province）

Management’s Discussion
and Analysis

Pigeon launched its business in South Korea in the 1980s,
focusing primarily on exports from Japan. In February
2009, we changed our brand name for the local market to“DoubleHeart,” which has since won high recognition mainly
for its breastfeeding- and weaning-related products. Our
branch office in South Korea, opened in July 2010, has beengathering information and conducting activities while also
providing sales support. Seeking to reinforce our operations
and achieve future business expansion, in August 2012 wetransformed the branch office into a subsidiary. Throughthe new subsidiary, we are working to further raise brandrecognition and broaden our range of offerings.
In Russia, we are advancing our business, centering on
our new distribution agency, appointed in 2010. Throughbreastfeeding- and maternity-related seminars for healthcare
professionals, we are striving to increase recognition of
Pigeon-brand nursing bottles and nipples and build a system
in which we can promote our offerings to hospitals. Goingforward, we will leverage our strength in nursing bottles andnipples to target further business growth.

Pigeon Group Activities

Through our focus on establishing dedicated Pigeon sections
within baby specialty stores, department stores, and the like,
we are making steady sales progress in China. As of January
31, 2016, a total of 3,324 such dedicated sections were in
operation, up 289 from a year earlier.
For the e-commerce sales channel, we notice rapid growthin sales via major Chinese e-commerce websites. In response,
we will broaden online sales by having our primary distributors
form agreements with large e-commerce providers.

Looking at demand for products aimed at children from birth
to 24 months, there is no major difference between China
and Japan. While we recognize the existence of income
differences between people living in coastal and regional
areas of China, our total sales in that country have grownsteadily thanks to our nationwide business advancement
strategy. Indeed, sales in interior regions now exceed
those in major coastal cities, such as Shanghai, Beijing, andGuangzhou, and we look forward to further growth in the
future.
In the year ending January 2017, we will focus on stepping
up strategies and sales promotion measures to address
the rapid expansion of the Internet, including by launching
online sales of our Japanese products. We are already seeing
positive outcomes from our “retail round (roller strategy),”
implemented in the second half of fiscal 2015, and we willcontinue and broaden this initiative to further boost sales.
In the year ending January 2017, we forecast sales in the
China Business segment of ¥32,518 million. On a localcurrency basis, we forecast an 11.1% year-on-year sales
increase, and by continuing our business growth trend we will
target further improvements in profitability.

Top Message

Expanding Our Sales Network

Outlook

At a Glance
Key Performance Indicators

We are expanding ties with local distributors in order todevelop our sales network across the entire nation. For
the retail channel, we will rebuild our distribution network
by selecting and mobilizing both primary and secondary
distributors as we seek to further boost sales in China. At
the same time, we will actively target the rapidly growing
e-commerce market while forming alliances with large
Chinese e-commerce service providers.

this segment enjoyed year-on-year increases in both revenue
and earnings.
In China, we are focusing on categories outside of mainstay
nursing bottles and nipples. In May 2015, for example,
we launched a new baby skincare line. We will also swiftly
rebuild our distribution system to address the rapid spreadof the Internet in China. In addition, we will implement sales
promotion measures in collaboration with sales agencies as
we target further business growth.

PIGEON History

we are augmenting our existing retail sales channels by
actively embracing online sales as we focus on changing
market conditions and new demand.

Financial Data

Business Performance

Corporate Information

In the year under review, sales of the China Business segment
totaled ¥31,688 million, up 20.5% from the previous fiscal
year. Despite an increase in SG&A expenses stemmingfrom marketing activities accompanying proactive businessdevelopment, segment income grew 14.1%, to ¥8,586 million.
In the year under review, our businesses in such regions as
South Korea, Taiwan, Hong Kong, the Philippines, and Russiapreviously included in the Overseas Business segment-were
shifted to the jurisdiction of the China Business Division.
Thanks also to growth in sales of nursing bottles and nipples,reflecting ongoing marketing and sales proliferation activities,
Annual Report 201625

Pigeon ESG Initiatives

26

Annual Report 2016

Nipples for infants withlow birth weight

Nursing bottle speciallydesigned for babies with cleft
lips and/or palatesManagement’s Discussion
and Analysis

Child-rearing and nursing care information
In modern Japan, with the emergence of the nuclear family,
there are many mothers who have nobody to consult when
faced with anxieties about child-rearing. To address suchdifficulties, Pigeon aims through its business activities toreduce and even eliminate the anxieties and inconveniences
its customers face while raising a child. To this end, theCompany provides a wide range of services and information,
not only through its products but also through its website andevents.
As for nursing care, we introduce our products and describe
how to use them according to specific purpose and scenario,
by providing the “Guide for Pigeon Tahira’s Health andNursing Care Products,” which even beginners can easily
understand.

Pigeon ESG Initiatives
Financial Data
Corporate Information

Using our products with peace of mind
To ensure that customers can use our products with peace
mind, we are meticulous about providing explanations on
appropriate usage and warnings. Since practically all of our
end-users are babies, who cannot communicate in the spoken
word, we have formulated Pigeon Quality Standards (PQS), ahighly stringent set of criteria covering safety and health, andwe apply PQS universally for quality control both in Japan andoverseas. In collaboration with the Research andDevelopment Division, Quality Control Division, Customer
Service Center, and other sections of the Group, meanwhile,
we take care to provide important information about user
safety by preparing instructions and packaging in an easy-tounderstand manner, including through figures and symbols.
After-sales service and inquiries are handled by the
Customer Service Center, and we work hard to protect theprivacy of customers. Discontinued products are stored inwarehouses for a certain period of time, so that the Customer
Service Center can address inquiries from customers aboutsuch products.

Pigeon Group Activities

Products derived from more than 50 years of
research into infants
The Pigeon Group deploys its brand appeal and management
quality to achieve a global presence as a lifestyle support
company centered on child-rearing.
The development of Pigeon’s products is based on morethan 50 years of research into infants and feedback from
customers raising children. For example, the Company’s
nursing bottles and nipples are being created based on
ongoing research into the breastfeeding exercise, fromvarious perspectives including observation of baby’s oralcavity through monitoring and measurement conducted at
the Central Research Center, home visit observation, andultrasonic tomography (echo). The Group has also been jointly
conducting observation and research with medical doctors onbreastfeeding of babies with low birth weights.

low birth weight or special needs can also suckle milk withlimited effort required. Regarding “nipples for infants withlow birth weight,” we reduced the size of the teat so that evenbabies with small lips may hold naturally the nipple in theirmouth. Also, we created a “nursing bottle specially designed
for babies with cleft lips and/or palates” by providing themwith an ingenious selection of structure, shape, and evenbottle. These activities reflect Pigeon’s ongoing support forbreastfeeding exercise for babies lacking strength to suckle
milk on their own.

Dear Stakeholders

Customer-focused management
Companies that fail to satisfy customers with their products
and services cannot be expected to return profits toshareholders. Since the 1960s, Pigeon has establishedcustomer consultation rooms, which were unusual in thosedays, to quickly gain customer feedback for reflection in its
business. These activities underscore our commitment tocustomer-focused management. Recently, we have steppedup activities aimed at delivering safe, reliable products
according to our own quality standards.

At a Glance
Key Performance Indicators

For Consumers

PIGEON History

Reflecting its Corporate Philosophy, “Love,” Pigeon is committed to supporting the lives of women―while
pregnant, approaching childbirth, and when raising children―as well as the elderly, through the provision of
specific products and services. In this respect, we believe our business activities themselves entail an elementof corporate social responsibility (CSR). Moreover, we feel that building favorable relationships with all
stakeholders, whom we treat as customers, is key to effective CSR and also helps increase corporate value.
Guided by the Pigeon Way, formulated in 2014, all employees of the Group share the meaning andsignificance of our Corporate Philosophy, which is thus reflected in the specific actions of each individual. Thisis the true essence of Pigeon’s CSR.

■For all babies
Pigeon produces nursing bottles and nipples in order to“allow all babies enjoy better suckling.” Moreover, the Grouphas been developing exclusive products so that infants with

Annual Report 201627

For the Environment
Basic approach to environmental protection
The Pigeon Group regards global warming as a very serious
problem and is committed to preventing such warming andrealizing a sustainable society. In addition to complying with
relevant laws, such as the Energy Saving Act and Law
Concerning the Promotion of Measures to Cope with Global
Warming, each year we step up Groupwide environmental
initiatives. These include establishing energy-efficient systems
and various specific activities. As a maker of daily
commodities, the Group is committed to ensuring that its
products do not have a bad effect on the global environment,
not only while in use but also after they are discarded. To thisend, we pay meticulous attention at each stage ofmanufacture, including selection of raw materials and parts.
In addition to product-related initiatives, for the past 30
years we have held the annual Newborn Baby
Commemorative Tree-Planting Campaign at the “Pigeon
Miwa no Mori” site, leased from Japan’s Forestry Agency in anational forest near Hitachi-Omiya City. So far, more than
130,000 people have taken part in tree-planting activities,
within a total plantation area greater than 33 hectares.
Creating lifelong memories for parents and children, thetree-planting campaign helps safeguard the environment byprotecting the forest. It also contributes to educationalawareness about global environmental protection.
Environmental initiatives
The Pigeon Group has obtained ISO-14001 certification forenvironmental management systems at many of its business
operations and affiliated companies. Our environmental
activities are not aimed simply at temporarily reducing theimpact of our operations on the environment. By adopting
the PDCA (plan–do–check–act) cycle as well, we work hard tomaintain an upward spiral for our environmental management
systems.
In Japan, the Tsukuba Office and PHP Hyogo Corporation
earned certification in 2001 and 2006, respectively. Overseas,
Pigeon Industries (Thailand) Co., Ltd. received ISO-14001
certification in 2000, followed by Thai Pigeon Co., Ltd. in

2002. In China, meanwhile, Pigeon Industries (Changzhou)Co., Ltd. is committed to operating an environmentallyfriendly production facility. In addition to using photocatalytic
paint, for example, it deploys solar and wind power
generation to the maximum extent.
■Pollution prevention
Since practically all of our end-users are babies, we are very
stringent and cautious when selecting raw materials andingredients to ensure that any food additive has no impact on
the human body. Our products also include body soap andother liquids and detergents, and we strive to prevent
pollution by identifying sources of pollution and waste related
to our production activities.
■Sustainable use of resources
Pigeon is committed to the sustainable use of resources.
Among chemically derived materials that we handle, we use
rubber as the raw material for our nursing bottle nipples.
Here, we do not use any natural rubber, but rather silicon andsilica gel. For glass and plastic (polyphenylsulfone, or PPSU)
used in nursing bottles and other items, we procure fromsources that can ensure traceability.
■Climate change mitigation, biodiversity
The Pigeon Group gives full consideration to climate change
mitigation and biodiversity. To this end, we have specified thevolume of our greenhouse gas emissions, both direct andindirect, and we are currently preparing to determine thescope of our own responsibility. For significant greenhousegas emissions, we are planning to create a mechanism
enabling measurement, recording, and reporting according
to internationally agreed standards as much as possible.

For Local Communities
From local activities to global development
The Pigeon Group has achieved harmonious coexistence withpeople in local communities through a positive
communication approach, which fosters a sense of trust. As
our business becomes more and more global in nature, wewill broaden this approach and pursue related actions on a
global scale.
To encourage local community participation anddevelopment, we foster protection and promotion ofcommunity culture, as well as education related to it. At ourplants in China, India, Thailand, and elsewhere, we recruit
many people from local areas to promote local employment,
job advancement, and skills development. We also actively
engage in exchanges of opinion and joint research projects
with local communities. In Japan and China, we contribute to
the development of local communities in cooperation withmaternity hospitals in each region.
Through our business, we also generate wealth and income
for communities. In Changzhou City, China, as well as
Thailand, we have received consecutive annual awards related
to our payment of local taxes.

28

Annual Report 2016

[Japan]■Environmental benefits of tree-planting campaign
In 1986, Pigeon launched the Newborn Baby Commemorative
Tree-Planting Campaign, and since 1987 it has held treeplanting drives on an annual basis, which in 2016 saw its 30th
anniversary. Under the slogan “Raising Children, Raising
Trees: The Spirit Is The Same,” the campaign seeks to sharethe emotion and joy of childbirth with as many people aspossible. It also serves to create forests and environmentsthat will remain into the children’s future. This ongoing
initiative is helping to make people more conscious about theissues of environmental conservation. The campaign was
launched in 1986 and has managed to plant so far more than
130,000 trees through 30 years of activity within a total
plantation area greater than 33 hectares.
To address increasing concerns about environmental issues
in recent years, people are rethinking their views of the valueof forests, which help prevent global warming by absorbing
carbon dioxide and also preserve biodiversity. In addition,
they play a role in preventing floods and erosion while
preserving high water quality, to the extent that they referred
to as “green dams.”

PIGEON History
At a Glance
Key Performance Indicators

Commemorative photo of tree-planting campaign

Dear Stakeholders■Supporting children’s creativity
Pigeon is a supporter of the Tomorrow’s Science Children’s
Art Exhibition, which encourages children, our future world
leaders, to freely express their visions of future science. The
exhibition is hosted by the Japan Institute of Invention andInnovation (JIII). Our involvement stems from an endowment
made to JIII by Pigeon founder Yuichi Nakata in order to help
foster children’s creativity. The endowment funds prize money
presented every year by the Institute to kindergartens
attended by children who win the JIII Chairman’s Award or
the Excellence Award in the Kindergarten Section.

Pigeon Group Activities

growth of Pigeon’s business, we shall exist as a corporationthat contributes to the countries where we do business.” With
this in mind, we make social investments from educationaland cultural perspectives aimed at improving people’s lives inlocal communities.
In China, we have been building and donating to schools inareas with inadequate educational infrastructure, and these
initiatives have been praised and rewarded by the Chinese
national government. Following the Sichuan Earthquake of
2008, our local Chinese subsidiary Pigeon (Shanghai) Co., Ltd.
provided various aid, including donating funds for thereconstruction of a local elementary school. This resulted in
the opening of the Pigeon Hope Elementary School in
Meishan District of Sichuan Province in 2009. (In 2011, werevisited that school and spent time interacting with thestudents and delivering donated school equipment.) In 2010,
we donated a school building to Huzhu Autonomous County
in Qinghai Province, in 2011 we donated a kindergarten
building to Xinjiang Uygur Autonomous Region, and in 2012
we donated a school building to Yuping Dong Autonomous
County in Guizhou Province. In August 2014, meanwhile, we
held the groundbreaking ceremony for our seventh Pigeon
Hope Elementary School, in Wenshan City, Yunnan Province.
In the future, we plan to continually donate primary schoolbuildings at the pace of one building per year.
Our exchange-related activities are ongoing. In May 2012,
for example, we invited teachers and students to attend a
ceremony in Shanghai, commemorating Pigeon’s 10th
anniversary of doing business in China.

“Future Science Dream Picture Exhibition” entry

Pigeon ESG Initiatives[Overseas]
The Pigeon Group bases its overseas business expansion on
the following philosophy: “Instead of merely seeking the

Pigeon Hope Elementary School in Wenshan, Yunnan Province

Pigeon Partners LineWe established Speak Up as a reporting/consulting systemfor employees who learn of any compliance violation in the
Company and other Group companies. In order to expand asystem similar to Speak Up to our business partners as well,
we established Pigeon Partners Line (a counter for compliancereporting and consultations for our business partners) in2008. Employees can use this line for compliance reportingand consultations if they suspect that actions deemed toinfringe corporate ethics (compliance violations) are occurringin transactions made with the Company or other Group
companies, or if such actions have bred their mistrust.
Annual Report 2016

Corporate Information

Fair trading
In addition to its own CSR, the Pigeon Group believes that it
must first win the understanding and support of its clients,
who are important business partners, in order to promote
CSR activities across the entire supply chain.
Regarding transactions with antisocial forces, we havealready received confirmation from all business partners thatthey do not engage in such transactions and are taking
stringent measures to ensure against such transactions fromoccurring.
In addition, we are working to resolve various other issues
across the supply chain, including such social issues as humanrights and labor, as well as global environmental problems. To
this end, we ensure that business partners understand theimportance of legal compliance, as well as the need to work
together with the Pigeon Group to meet the expectations ofsociety. Moreover, we hold briefings with our suppliers two or
three times a year to convey our policies in this area.

Financial Data

Providing products to be appropriately used worldwide
An important raison d’être for Pigeon is to boost the profits ofbusiness partners who handle its products. In Japan, we havea diverse array of such business partners, including
drugstores, specialty stores for babies, supermarkets, home
centers, department stores, nursing homes, and hospitals.
These partners handle a variety of Pigeon items, such as
child-care products, elder care products, and maternity
products. Overseas, our offerings, mainly child-care products,
are sold via department stores, specialty stores for babies,
pharmacies, and other stores. We receive acclaim as an
exceptional company for the diversity of our offerings.
In our Child-rearing Support Services, we help employeesof companies and government entities raise children,
including through the operation of in-company child-minding
centers, in which we are an industry leader.

Management’s Discussion
and Analysis

For Business Partners

29

Responsible political involvement and fair competition
Pigeon completely rejects excessive political involvement,
intimidation, and extortion. We make sure that our activities
conform to competition laws, and we actively participate insurveys and the like conducted by relevant authorities asnecessary. With respect to the importance of competition law
compliance and fair competition, we conduct compliancetraining and other forms of employee education, and we work
hard to prevent involvement in anticompetitive behavior inorder avoid exposure to bid-rigging and the like.

Respect for property rights
Seeking to prevent patent infringement and the like from theproduct development perspective, Pigeon established an
intellectual property-related department within its Central
Research Center. That department is in charge of matterspertaining to intellectual property globally. Meanwhile, in
China, which faces numerous problems with counterfeitedproducts, we established a Legal Affairs Department at
Group company Pigeon (Shanghai) Co., Ltd., which is working
to increase respect for property rights, including intellectual
property in collaboration with the intellectual-propertyrelated department of the Central Research Center.

Human Rights
Policy of respecting human rights
The Pigeon Group cites “integrity” as one of the basic values
to be observed by each and every employee. By “integrity,”
we mean embracing a feeling of sincerity, using correct
policies to realize our mission, and striving to build “win-win”
relationships with stakeholders instead of simply pursuing
profit. It also means embracing and respecting diversity insuch areas as human rights, gender, and customs.
Our Corporate Philosophy―the essence and core of ourcompany―is “Love,” and our Credo based on that philosophy
is that “Only love can beget love.” With this in mind, ouremployees constantly reflect on our Credo when performing
their tasks.
Embracing diversity
One of our Corporate Ethics Policies is that “Pigeon shallrespect its employees’ human rights and personalities at all
times, ensuring them discrimination-free, equal job
opportunities and rewarding work environments, and offering
them fair merit ratings to help their self-fulfillment.”
In conjunction with its global business growth, the PigeonGroup is rapidly increasing the number of non-Japaneseemployees. By welcoming and utilizing the fundamental
differences in employee backgrounds―in such areas asgender, nationality, age, employment status, and income―we
aim to strengthen our entire organization. For this reason, theGroup undertakes a variety of activities to promote diversity.
Strengthening support for advancement of womenNow, more than ever, women are seeking to advance in theworkplace, so creating an environment and corporate culture
enabling women to truly excel is a crucially important priority
for the Pigeon Group in its constant pursuit of “world-classbusiness excellence.”
Back in 2007, Pigeon received “Kurumin” accreditation as a
“Child-rearing Support Company.” We have also establishedand upgraded various child-care frameworks aimed atpromoting advancement of women and encouraging men toparticipate in child-care, and more and more employees aremaking use of these systems.
With respect to promoting women’s advancement, we have
stepped up various activities centered on three core
initiatives: “expansion of compatibility support system,”“workplace mindset reforms,” and “backup for women’s
feelings and skills.” We have also set five key objectives forthe period from April 2016 and July 2017: (1) Increase numberof men using the compatibility support system to 10 or more;(2) Increase awareness about parental leave among male
employees; (3) Grasp and improve status and outcomes ofwork-at-home system; (4) Establish framework enabling
women to give birth, raise children, and return to work with30

Annual Report 2016

peace of mind; and (5) Open a breastfeeding room in theCentral Research Center (following one already opened in thehead office) that breastfeeding employees can use. We
conduct training sessions for working mothers, and male
employees with small children will be able to join thosesessions. We have also started looking at ways to improve ourwork-at-home system by receiving feedback from its users. In
addition, we conduct interviews with employees, attended bytheir superior officers, before taking parental leave and after
returning to work.
Discrimination and the socially vulnerable; civil andpolitical rights; economic, social and cultural rights
The Pigeon Group respects the rights of minorities and thesocially vulnerable and works actively to recruit disabled
people. We also have conversations with employees about
civil and political rights, and we respect those rights.
Basic workplace principles and rights
The Pigeon Group respects the human rights and other rights
of workers in Japan and overseas. Here, our Compliance
Committee spearheads efforts to manage labor-related
compliance in an appropriate manner.

establish a solid operational foundation, the Board of
Directors seeks to ensure rational and effective decisionmaking by management.
The Company continues working to enhance its corporate
governance. On April 26, 2012, for example, we introduced acommissioned operating officer system to complement ourexisting managing officer system. Here, our aim was to ensure
reciprocal collaboration between the governance(management decision-making and oversight) function andthe business execution function, as well as to clarify thebusiness execution responsibility of directors.

Annual Report 2016

Corporate Information

Board of Director and Outside Directors
The Board of Directors is strengthening the control/oversightfunction of business execution by eliciting robust opinionsfrom its outside directors, as well as from both inside andoutside corporate auditors. Outside directors offer advice on
the Company’s business strategies and otherwise fulfill a rolein ensuring impartial decision-making and improving
corporate governance.
Seeking to further strengthen corporate governance andFinancial Data

Governance System
Pigeon is a company with an Audit & Supervisory Board. As of
April 2016, Pigeon’s Board of Directors had 10 members,
including two outside directors, and its Audit & Supervisory
Board had four members, including two outside corporate
auditors.
Since its public listing, Pigeon Corporation has
strengthened corporate governance under its current
management format underpinned by the Board of Directors
and the Audit & Supervisory Board. We believe we have built
a framework with a good balance between decision-making
authority, responsibility, and capability. Moreover, the Boardof Directors confirms and evaluates the governance process
on a regular basis. We have steadily improved our businessresults under this system, which we therefore deem to befunctioning effectively.
In addition to the Board of Directors and Audit &Supervisory Board, the Company is enhancing corporate
governance through its Management Committee, headed by
the chairman, and its internal control system. In order to
respond swiftly and appropriately to changes in the businessenvironment, as well as achieve sustained growth andManagement’s Discussion
and Analysis

Corporate Governance

Pigeon ESG Initiatives

Worker health and safety
Pigeon is extremely meticulous with respect to managing thehealth and safety of workers. In addition to Japan, we havefactories overseas, including in China, Thailand, and India,
and we conform to Pigeon Quality Standards (PQS) uniformly
at all those facilities. Under our current Medium-TermBusiness Plan, our Quality Control Division has created a newplatform called Pigeon Product Management (PPM), which weare now introducing at our plants in Thailand and elsewhere
overseas.

Pigeon Group Activities

Breastfeeding and breast pump roomat Pigeon headquarters

Dear Stakeholders

Child-rearing support activities
As a company involved in child rearing, Pigeon has sought toexpand and upgrade its support systems for child-rearing
employees. In 1999, we received a work-life balance award
from the Tokyo Metropolitan Government acknowledging thisinitiative. In August 2015, we set up a breastfeeding/pumping
room in our head office to create a comfortable working
environment for employees with small babies. In addition toemployees, the room is available for use by mothers working
in the vicinity of head office, as well as mothers and babies
living nearby, reflecting our local and social contribution
efforts.

We also implemented a 12-month parental leave system
one year before it became a legal requirement in Japan.
Female employees took advantage of this system as a matterof course, but it was not well utilized by male employees. For
this reason, in February 2006 we adopted a new parental
leave scheme, called “One Month Together,” offering one
month’s paid leave for men as a means of encouraging more
men to take parental leave, prompting 15 male employees totake leave in the subsequent three-year period. Indeed, weare gradually progressing to the stage where parental leave
for male employees becomes commonplace. (For the fiscal
year ended January 2016, the ratio of men who took
advantage of “One Month Together” was 100%.) In addition
to this, we focus on assisting female employees to smoothly
return to work after childbirth, through programs for earlyreinstatement of women workers, monetary support forchildren waiting for admission to daycare, and the like. Goingforward, we will continue creating work environments aimed
at fostering employees who are well-versed in the subject ofraising children.

At a Glance
Key Performance Indicators

Building motivating work environments andcorporate culture
Pigeon recognizes that corporate value represents thesummation of social value and economic value. In order todeliver high-quality products to the world, we must create anenvironment that motivates employees to work. If we don’ttake care of our employees, we cannot succeed in business.
For this reason, we are upgrading various frameworks andsystems to create an appropriate working environment, whilebuilding a corporate culture that helps employees performtheir tasks more easily.
We give opportunities for all workers to participate intechnical development, training, and practice, and foroverseas employees we provide selective training on a global
basis. Moreover, the speed of our career advancement ishigh, and employee turnover is low.
In Japan, previous to the enactment of the Law for the Equal
Employment Opportunity of Men and Women, we establisheda corporate culture where there is no gender difference in theoccupational course, and employees, including the president,
are on last name followed by “-san” (Mr./Mrs.) terms with eachother, thus avoiding calling each other by one’s position.
As a matter of course, we comply with domestic regulations
on worker protection, and well as working hours specified bylaws, labor agreements, and the like. Although total working
hours are declining with the instigation of a rule to leave theoffice by 7:00pm and “no overtime days” (once a week),
productivity is increasing alongside steady improvements inbusiness performance.

PIGEON History

For Employees

31raise corporate value, Pigeon appointed an outside director
at its General Meeting of Shareholders, held on April 28,
2015, and one more outside director at its next meeting on
April 27, 2016. The first appointee, Mr. Takayuki Nitta, has
valuable knowledge about business management based on a
wealth of experience in business consulting and investment
management companies. He continues providing
considerable advice on the Company’s business strategies topromote shareholder-oriented management with anunderstanding of capital efficiency. He is also effectively
performing his duties as an outside director with respect toensuring impartial decision-making by the Board of Directors
and improving corporate governance. The second appointee,
Mr. Rehito Hatoyama, has a wealth of high-level knowledge
about overseas business strategies and managing theexecution of those strategies. By welcoming him into theBoard of Directors, we hope to further improve corporate
governance. In addition, the CEO of Lansinoh Laboratories
became an internal member of the Board of Directors in 2016.
In these and other ways, we are increasing the diversity of our
executive system.

school professor and certified public accountant, and Mr.
Shuji Idesawa, who is an attorney. Because both auditors arehighly impartial and have specialist knowledge, their role
extends beyond compliance to include raising corporate
value.
In addition to Board of Directors’ meetings, the outside
corporate auditors ask questions and provide opinions at
face-to-face meetings with representative directors and otherdirectors. Based on their independent viewpoints andimpartial perspectives, they not only exercise their legally
accepted authority to audit the legal appropriateness ofbusiness, but also fulfill a monitoring function by advising on
the suitability of business decisions.
Rather than be satisfied with the current situation, we willcontinue making improvements aimed at maximizing
corporate value in the future, through ongoing
communication with stakeholders, including shareholders andother investors.
Compliance System
Guided by the Pigeon Way, which embodies our “hearts” and“actions” and is the cornerstone of all our activities, weoperate our compliance system through the efforts of theCompliance Committee.
To ensure compliance-oriented management, we havedefined universal corporate ethical guidelines. Based on theguidelines, we have a code of conduct, in which individual
employees comply with all laws and regulations, as well associal standards and the spirit thereof, and act with sincerity
and a high ethical sense, in order to win the deep trust of our
stakeholders. We believe it is important to constantly
communicate our Corporate Philosophy and Values to all
employees of Pigeon Group companies. To this end, ourrepresentative directors and all other executives lead byexample in rigorously promoting our spirit of ethics andcompliance. With respect to consolidated subsidiaries, ourCorporate Administration Division implements cross-lateralGroupwide responses by developing a system capable ofverifying current conditions from the perspective of ensuring
appropriate monitoring and reporting systems.

Audit & Supervisory Board andOutside Corporate Auditors
According to audit policy and allotment of duties, Pigeon’s
four corporate auditors (including two outside auditors)
attend Board of Directors’ meetings and other important
meetings, where they listen to directors, view importantresolution documents, examine the current status of businessand financial assets, and otherwise conduct meticulous
supervision and oversight. To perform the management
oversight function from an external perspective, the Audit &Supervisory Board has appointed two outside corporate
auditors. Under the Companies Act, Audit & Supervisory
Board members are given strong authority to audit andsupervise the Company’s directors, including the right toattend Board of Directors’ meetings to voice their opinions
and the authority to examine the Company’s business
operations and financial status. Moreover, they are
guaranteed terms of four years.
The outside auditors are Mr. Shigeru Nishiyama, a graduate

Organization of Corporate Governance
General Meeting of Shareholders

Appoint/Dismiss

Appoint/Dismiss

Board of Directors

Auditwith 10 Directors(Outside Corporate Directors: 2)
Appoint/
Dismiss

Appoint/Dismiss
Supervise

Reportwith 4 members
Report(Standing Audit & Supervisory Board Members: 2)(Outside Corporate Auditors: 2)

Instruct

Report

6 Audit Ofﬁce
Management
Committee

Collaborate(7 Directors)(1 Audit & Supervisory Board Member)

Place importantmatters on theagenda6 Executive Managing Ofﬁcers
10 Managing Ofﬁcers

Business Departments and Group Companies

32

Annual Report 2016

Accounting
Auditors

Accounting Audit
Judgment

2 Representative
Directors

Audit

Execute Business

Collaborate• Compliance Committee• Information Security
Committee• Personal Information
Protection Committee• Quality Control Committee

Appoint/Dismiss/Supervise

Risk Management
Promotion Committee

Appoint/Dismiss

Audit & Supervisory Board

Report■ Board of Directors, Auditors and Officers (as of April 27, 2016)
PIGEON History

Chairman of the Board
and CEO

Yoichi Nakata

Akio Okoshi

President and COO

Shigeru Yamashita

Vice President andDirector

Norimasa Kitazawa
Overseas Business Division
Manager/
China Business Division
Manager

Tadashi Itakura

Kevin Vyse-Peacock

Quality Control Division
Manager
In charge of:Supervision of Research &Development Div./
Supervision of Logistics Div./
Supervision of Customer
Service Center

President of Lansinoh
Laboratories, Inc.

Kazuhisa Amari

Shinobu Iwamoto

Outside Director

Rehito Hatoyama

Outside Audit &Supervisory Board
MemberOutside Audit &Supervisory Board
MemberShigeru Nishiyama

Shuji Idesawa

Tsutomu Matsunaga

Corporate Administration Division Manager

Hiroyasu Maki

Accounting & Finance Division Manager

Takatoshi Urakari

Human Resources & General Affairs Division Manager

Kaoru Kasahara

Research & Development Division Manager

Financial DataManaging Officers

Audit & Supervisory Board
MemberTakayuki Nitta

Management’s Discussion
and Analysis

Audit & Supervisory Board
MemberOutside Director

Pigeon ESG Initiatives

Health Care & Nursing Care
Business Division Manager
President of Pigeon Tahira Co.,Ltd.
In charge of:Supervision of Domestic Baby
& Mother Care Business Div./
Supervision of Child-rearing
Support Services Div.

Director, Junior Managing
Executive Officer

In charge of:Supervision of Corporate
Administration Div./
Supervision of Accounting &Finance Div./
Supervision of Human
Resources & General Affairs
Div./
Supervision of Internal Audit
OfficePigeon Group Activities

Yasunori Kurachi

Director, Junior Managing
Executive Officer

Eiji Akamatsu

Dear Stakeholders

Director, Junior Managing
Executive Officer

Director, Senior Managing
Executive Officer

At a Glance
Key Performance Indicators

Executive Advisor andMember of the Board

Domestic Baby & Mother Care Business Division Manager

Takanori Tsuru

Child-rearing Support Services Division Manager/ President of Pigeon Hearts Co., Ltd.

Hiroshi Nishimoto

Logistics Division Manager

Koji Ishigami

Senior Managing Director of Pigeon Tahira Co., Ltd.

Yusuke Nakata

President of Pigeon Singapore Pte. Ltd.

Ken Kaku

President of Pigeon Manufacturing (Shanghai) Co., Ltd.

Annual Report 2016

Corporate Information

Nobuyuki Hashimoto33

Management’s
Discussion and Analysis
Financial Data

34

Annual Report 2016

PIGEON History

Management’s Discussion
and Analysis

In fiscal 2015, sales in this segment totaled ¥28,053 million, up
14.8% from fiscal 2014. Segment income rose 16.8%, to¥4,383 million. This was despite an increase in cost of sales
due to higher costs of imported materials stemming from the
yen’s depreciation.
We introduced a host of new products during the year. In
February 2015, for example, we launched “Breast Milk PowerPlus” and “Breast Milk Power Plus Tablet” breastfeeding
supplements for breastfeeding mothers and their babies. In
July 2016, we added a new color to “Runfee,” our baby
stroller that easily overcomes ground-level differences, and in
December we launched “Premige,” a premium baby strollerthat provides a smooth ride. Sales and market share are
growing steadily as a result.
We also held various events as a part of our directcommunications program. These included “Breastfeeding
Seminars” for women expecting to give birth in the near
future and seminars for healthcare professionals aboutbreastfeeding while parenting. In fiscal 2015, we held a totalof 38 such events, with participation from around 2,800
people.
We will continue targeting progress in providing customers
more accessible information, including updates ofmerchandise information via “Pigeon Info,” a website that
supports women during pregnancy, in childbirth, and whileraising children.
■ Child-rearing Support Services
Sales in this segment edged up 0.5% year on year, to ¥6,757
million. Segment income fell 21.7%, to ¥148 million, due
mainly to increases in labor costs.
During the year, we were newly entrusted to operate fourin-company child-care facilities. We are currently operating
those facilities while improving the quality of our services.

■ Income Statement Analysis■ Health Care & Nursing Care Business

Sales by Segment (Consolidated)(¥ millions)Jan. 2015

Jan. 2016

Percentage
Gross
(%)
Margin(%)

Segment
IncomeSegment
IncomeRatio(%)

AmountGrossPercentage YoY Change(%)
Margin(%)(%)

Segment
IncomeSegment
IncomeRatio(%)

Registered amount

84,113100.0%

45.5%

12,78015.2%

92,209100.0%

109.6%

47.0%

14,521

15.7%

Domestic Baby & Mother Care Business

24,432

29.0%

46.0%

3,752

15.4%

28,05330.4%

114.8%

44.4%

4,383

15.6%

Child-rearing Support Services

6,722

8.0%

11.2%

189

2.8%

6,757

7.3%

100.5%

10.7%

148

2.2%

Health Care & Nursing Care Business

6,761

8.0%

28.7%

260

3.9%

6,499

7.0%

96.1%

28.3%

140

2.2%

Overseas Business

23,373

27.8%

53.7%

4,969

21.3%

25,23427.4%

108.0%

55.4%

5,579

22.1%

China Business

26,301

31.3%

43.7%

7,525

28.6%

31,68834.4%

120.5%

44.6%

8,586

27.1%

Eliminations-4,754

-5.7%

-

-

-

-7,306

-7.9%

-

-

-

Other

1,276

1.5%

16.6%

13.6%

1,283

1.4%

100.6%

15.4%

173

152

11.8%

Corporate Information

AmountFinancial Data

Due to declining sales of facilities stemming from a revision of
the nursing care insurance system, as well as intensifying
competition in the consumables market, sales in this segment
declined 3.9% year on year, to ¥6,499 million. Segment
income fell 46.1%, to ¥140 million.
In February 2015, we released “Assista Ease Ⅰ and Ⅱ ”
wheelchairs for seniors. Both products help users keep astraight posture and enable comfortable sitting for long
periods of time. In April, we added a new citrus green scentto the “Kaori Kakumei” series of indoor air fresheners. This
spray-type room air freshener for nursing care use changes
fecal and urinary odors into pleasant scents. We will continue
introducing competitive new products while taking measures
to improve the quality of our nursing care services.

Management’s Discussion
and Analysis

The cost of sales ratio improved around 1.5 points year on
year, thanks to enhanced capacity utilization of production
facilities in line with business expansion, as well as higher net
sales. Cost of sales rose 6.7% year on year, to ¥48,864 million.
As a result, gross profit climbed 13.2%, to ¥43,345 million,
growing at a higher rate than net sales.
Selling, general, and administrative (SG&A) expenses rose
13.0%, to ¥28,823 million. Operating income grew 13.6%, to¥14,521 million, and the operating margin edged up 0.5
point, to 15.7%. Ordinary income rose 13.4%, to ¥15,080
million. Net income for the year climbed 20.7%, to ¥10,197
million, marking year-on-year increases for all key income
indicators.

Pigeon ESG Initiatives■ Domestic Baby & Mother Care BusinessIn fiscal 2015, ended January 31, 2016, the Japanese economy
benefited from signs of improvement in corporate earnings
thanks to the yen’s depreciation since the beginning of theyear, as well as low crude oil prices. However, the outlook
remained uncertain due to several factors. These included afeeling of caution about economic slowdown in China andother emerging nations, rising geopolitical risks in Europe
and the Middle East, and changes to financial measures in the
United States and elsewhere. Also of particular note wasexchange rate and stock market instability, which has become
prominent since the beginning of calendar 2016.
Fiscal 2015 was the second year of our Fifth Medium-TermBusiness Plan, covering the three-year period to January 2017.
The slogan of the plan is “Pursuing excellence, think globally,
plan agilely, and implement locally.” During the year, we
pursued initiatives targeting renewed growth. Under the plan,
we have formulated “Vision 2016” aimed at expanding Group
operations and improving management quality. Vision 2016
has five key objectives: (1) Reinforce brand power (become
the Global Number One in child-care products); (2)Strengthen the management framework for continuous
business development; (3) Improve management quality byfocusing on cash flows; (4) Foster global human resources,
construct a global personnel system, and promote employee
dynamism; and (5) Further enhance enterprise value.
In fiscal 2015, we implemented the aforementioned business
policies and pursued strategies for our various business andfunctions. As a result, consolidated net sales for the year
amounted to ¥92,209 million, up 9.6% from fiscal 2014.
Factors boosting our performance included growth in theOverseas Business and the Domestic Baby & Mother Care
Business baby stroller category, as well as growth in stemmingfrom consumption from inbound foreign visitors.

Pigeon Group Activities■ Business Conditions in Fiscal 2015

Top Message

Performance by Segment

At a Glance
Key Performance Indicators

Business Environment and Performance

The consolidated segment incomes are adjusted (they are all unclassifiable expenses), and are posted as operating income in the consolidated statements of income.

Annual Report 201635

■ Overseas Businessmillion (4.0%), and fixed assets declined ¥310 million (1.2%).
Main factors boosting current assets were a ¥2,706 million(12.5%) increase in cash and time deposits, which contrasted
with a ¥1,407 million (9.2%) decrease in notes and accounts
receivable. The main factors holding down fixed assets werea ¥397 million (67.2%) drop in construction in progress anda ¥378 million (21.9%) fall in intangible fixed assets. This was
despite a ¥569 million (8.4%) rise in buildings and structures.

Effective in fiscal 2015, our businesses in such regions as
South Korea, Taiwan, Hong Kong, the Philippines, andRussia-previously included in this segment-were shifted tothe jurisdiction of the China Business Division. Nevertheless,sales in the Overseas Business segment increased 8.0%, to¥25,234 million, and segment income rose 12.3%, to ¥5,579
million.
In May 2015, we began shipping Pigeon’s flagshipproducts-nursing bottles and nipples-from our local
production plant in India. Going forward, we will continue
strengthening our sales and distribution systems. In addition,
we are steadily expanding sales of breastfeeding-related
products, including such flagship products as breast pads,
breast pumps, and milk bags, in North America and Europe.
In Europe, meanwhile, we plan to establish a new plant inTurkey in January 2017, thus strengthening our production
system. We will also broaden our business by reinforcing oursales organizations in the United Kingdom, Germany, andelsewhere.

■ Liabilities
Total liabilities at fiscal year-end stood at ¥23,150 million,
down ¥1,919 million (7.7%) from a year earlier. Within thistotal, current liabilities decreased ¥1,049 million (6.9%), andlong-term liabilities declined ¥870 million (8.9%). The main
factors holding down current liabilities were a ¥1,631 million(43.2%) fall in accrued account payable and a ¥510 million(57.3%) drop in short-term borrowings, which contrasted witha ¥1,623 million jump in electronically recorded obligations.
The main factor holding down long-term liabilities was a ¥928
million (15.7%) decrease in long-term borrowings.

■ China Business■ Net Assets

In this segment, sales rose 20.5% year on year, to ¥31,688
million. Segment income climbed 14.1%, to ¥8,586 million,
despite an increase in SG&A expenses stemming frommarketing activities associated with proactive businessexpansion.
In fiscal 2015, our operations in South Korea, Taiwan, Hong
Kong, the Philippines, Russia, and elsewhere were transferredfrom the Overseas Business Division to the China Business
Division. During the year, we also achieved sales growth fornursing bottles and nipples due to ongoing marketing andsales promotion activities, with segment revenue and income
increasing as a result.
In this segment, we have been focusing on productcategories other than our flagship nursing bottles andnipples. For example, we launched a new skincare line in May
2015. In China, we will swiftly rebuild our distribution system
in response to rapid expansion of Internet sales. At the sametime, we will target further business growth, including throughsales promotion measures in cooperation with distributors.

Consolidated net assets at fiscal year-end amounted to¥50,792 million, up ¥3,495 million (7.4%) from a year earlier.
This was due mainly to a ¥5,406 million (17.2%) rise in retained
earnings, which contrasted with a ¥1,994 million (37.6%) fall inadjustment on foreign currency statement translation.
■ Sound Financial Position
At fiscal year-end, the Group had cash and cash equivalents of¥24,297 million, and interest-bearing debt of ¥6,308 million,
down ¥1,709 million (21.3%). The equity ratio remained high,at 67.0%.

Cash Flows■ Cash Flows from Operating Activities
Net cash provided by operating activities amounted to¥13,479 million, from ¥10,135 million in the previous year.
Factors boosted operating cash flows included ¥14,887
million in income before income taxes and ¥2,345 million in
depreciation. Contrasting factors included a ¥1,275 million
decrease in accounts payable and ¥4,570 million in income
taxes paid.

■ Other
Sales in this segment edged up 0.6%, to ¥1,283 million, andsegment income declined 12.3%, to ¥152 million.

■ Cash Flows from Investing Activities

Financial Position

Net cash used in investing activities totaled ¥3,332 million,
from ¥3,134 million in the previous year. Main factors
included ¥3,018 million in acquisition of property, plant, andequipment.

■ Assets
As of January 31, 2016, Pigeon had consolidated total assetsof ¥73,943 million, up ¥1,576 million (2.2%) from a year
earlier. Within this amount, current assets increased ¥1,886

Net sales

Operating income/Operating margin(¥ millions)
100,000

92,209(¥ millions)

15,000Operating margin

14,521

12,50080,000100

80

10,00060,000

（%）

60

7,500
40,0005,000

20,000036Annual Report 20160(¥ millions)

18,00015,000（%）

Ordinary margin100

15,08080

12,000

60

9,000
40

15.7

2,500

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

Ordinary income/Ordinary margin

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

20

0

6,000

(¥ millions)

12,00010,000（%）

Net margin100

10,197
80

8,000

60

6,000
40

16.4

3,000
0

Net income/Net margin

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

20

0

40

4,000
2,000
0

11.1

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

200■ Cash Flows from Financing Activities■ ROA and ROE

Under its Fifth Medium-Term Business Plan announced
in March 2014, the Pigeon Group will work to improve
management quality by implementing newly formulated
business strategies and pursuing various measures basedon functional strategies that form the foundation of thosebusiness strategies. At the same time, we will step up
efforts to establish and reinforce our business operationalframework. In our overseas business, positioned as a domain
for continuous growth, we are targeting business expansion
and entrenchment in existing markets, centered on China andNorth America, while actively entering new markets in orderto further boost our business results.
We have set the following consolidated performancetargets for fiscal 2016, the final year of the plan: Net salesof ¥95.0 billion (up 3.0% year on year), operating income of¥15.0 billion (up 3.3%), ordinary income of ¥15.3 billion (up1.5%), and net income of ¥10.4 billion (up 2.0%).

Profit Appropriation Policy

80,00070,00060,00040,000Net assets

Equity ratio

100
73,943 （%）

67.0
50,79230,00020,000

Dividend per share/Dividend
payout ratio

ROA／ROE

（¥）

（¥）

（%）

（%）

80

20

60

15

100

50

85.15

Cash dividend per share
Payout ratio

100

25

42.0

80

80

40

60

60

30

40

40

20

40

10

20

20

10

20

5

0

0

49.3

ROA

ROE

21.3
20.6

10,0000

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

00

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

0

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

Note: The Group carried out a 2-for-1 split of common stock, effective
August 1, 2013, and a 3-for-1 split of common stock, effective May 1, 2015.
Figures in the above tables have been calculated assuming those stock splits
were conducted at the beginning of the fiscal year ended January 2012.

Jan.12 Jan.13 Jan.14 Jan.15 Jan.16

ROA is the ratio of ordinary income to total assets.
ROE is the ratio of net income to shareholders’ equity.
The denominator for both is the average of the figures
at the beginning and end of the fiscal year.
Annual Report 2016

Corporate Information

50,000Total assets

Net income per share

Financial Data(¥ millions)Management’s Discussion
and Analysis

Total assets/Net assets/Equity ratio

Pigeon ESG Initiatives(In this annual report, statements other than historical orpresent-day facts are regarded as future forecasts. Suchfuture forecasts reflect the Pigeon Group’s hypotheses andjudgments based on information currently available, and thus
contain discernable and unpredictable risks, uncertainties,
and other factors that may impact on the Group’s
performance and financial position.)

The Pigeon Group regards the return of profits toshareholders as an important management priority. Our basic
policy is to actively return profits to shareholders through theappropriation of retained earnings and other means, while
reinforcing our financial position based on considerations of
medium-term changes in business conditions and the Group’sbusiness strategies. In addition to strengthening our financial
position, we effectively use retained earnings in a number ofways to fortify our operational base and improve future Groupearnings. These include investing in new businesses andresearch and development, as well as investing in production
facilities to raise production capacity, reduce costs, andenhance product quality.
With respect to specific goals of shareholder return, under
our Fifth Medium-Term Business Plan we have set an ROE
target of 21% or higher and plan to pay increased year-onyear cash dividends for each business period, targeting a
consolidated total shareholder return of 45–50%. To this end,
we will strive to further strengthen and upgrade measures for

Pigeon Group Activities

Outlook

Seeking to increase enterprise value, we are mindful of free
cash flow when conducting internal controls, and we employ
an indicator called Pigeon Value Added (PVA), which is basedon economic added value, to make various investment andother decisions and to make performance evaluations of eachbusiness segment. In fiscal 2015, invested capital totaled¥57,102 million, compared with the fiscal 2014 amount of¥55,315 million and our target of ¥53,153 million, resulting in
a PVA spread of 10.1%, compared with the fiscal 2014 figureof 8.7% and our target of 10.5%. The PVA for fiscal 2015 was¥5,756 million, compared with the fiscal 2014 figure of ¥4,812
million and our target of ¥5,584 million.
In addition, the cash conversion cycle (CCC) in fiscal 2015
was 81.0 days, which was 7.8 days better than 88.8 days infiscal 2014 and short of our target of 72.0 days.

Top Message■ Pigeon Value Added (PVA) and Cash Conversion Cycle (CCC)

At a Glance
Key Performance Indicators

Seeking to improve profitability and capital efficiency, Pigeon
uses return on equity (ROE) as a key performance indicator. At
fiscal year-end, ROE was up 1.5 percentage points from a year
earlier, from 19.8% to 21.3%. Return on assets (ROA) at fiscal
year-end was 20.6%, up 0.2 percentage point from 20.4% a
year earlier.

PIGEON History

returning profits to all shareholders.
During the year, we paid an interim cash dividend of¥20.00 per share. Thanks to a solid earnings performancethat surpassed our projections, however, we declared a yearend dividend of ¥22.00 per share, up ¥2.00 from our forecast
announced on September 7, 2015. This brought total annual
dividends to ¥42.00 per share, representing a ¥7.00 year-onyear increase after accounting for a three-for-one stock split
effective May 1, 2015. The consolidated dividend payout ratio
was 49.3%.

Net cash used in financing activities was ¥6,567 million, from¥150 million in the previous year. Main factors holding down
cash flows included ¥1,200 million in repayment of long-termborrowings and ¥4,789 million in payment of cash dividends.

37

Financial Data
■ Consolidated Balance Sheets(¥ millions)(US$ thousands)

Jan. 2012

Jan. 2013

Jan. 2014

Jan. 2015

Jan. 2016

Jan. 2016

Cash and Deposits

7,293

10,574

13,102

21,59024,297200,636

Notes and Accounts Receivable - Trade

9,993

10,54012,56915,27813,870114,533

Merchandise and Finished Goods

5,332

4,816

5,350

5,899

6,146

50,751Other Current Assets

2,823

3,171

4,340

4,258

4,600

37,985

Total Current Assets

25,443

29,10335,36347,027

48,913403,906

Tangible Fixed Assets

15,058

16,20819,023

21,383

21,471

177,300

Intangible Fixed Assets

1,285

1,176

1,441

1,724

1,346

11,115Investment Securities

1,344

1,420

1,448

1,531

1,477

12,197

641

631

679

701

734

6,061

Total Fixed Assets

18,32919,435

22,591

25,33925,029206,680

Total Assets

43,772

48,53857,95572,36773,943

610,595

Notes and Accounts Payable - Trade

3,758

3,864

4,518

4,462

3,743

30,908

Accounts Payable

2,755

3,179

3,401

3,778

2,147

17,729

Income Taxes Payable

704

1,134

1,155

1,535

1,505

12,428

Accrued Bonuses to Employees

587

606

782

783

894

7,382

Other Current Liabilities

4,577

2,832

2,962

4,714

5,934

49,001

Total Current Liabilities

12,382

11,615

12,81815,272

14,223

117,448

Long-Term Borrowings

1,642

2,204

2,011

5,928

5,000

41,288Other Fixed Liabilities

1,812

2,353

3,143

3,869

3,926

32,419Total Fixed Liabilities

3,454

4,557

5,154

9,797

8,926

73,708

Total Liabilities

15,836

16,173

17,97325,06923,150191,164

5,199

5,199

5,199

5,199

5,199

42,931

Item

PeriodAssetsTotal Investments and Other Assets

Liabilities

Net Assets
Capital Stock
Capital Surplus

5,180

5,180

5,180

5,180

5,180

42,775Retained Earnings

19,873

22,68626,92931,38336,790303,799

Valuation Difference on Available-forSale Securities

10

26

30

36

32

264

Foreign Currency Translation Adjustment(2,386)

(970)

2,240

5,306

3,311

27,341

(448)

(450)

(455)

(942)

(947)

(7,820)Minority Interests

507

693

856

1,132

1,225

10,116

Total Net Assets

27,93532,36539,98147,29750,792

419,422

43,772

48,53857,95572,36773,943

610,595

Treasury Stock

Total liabilities and Net Assets

Note: Figures in U.S. dollars are calculated, for convenience only, at the exchange rate of ¥121.10=US$1.00.

■ Equity Ratio, ROA／ROE（％）

Jan. 2012

Jan. 2013

Jan. 2014

Jan. 2015

Equity Ratio

62.7

65.3

67.5

63.8

67.0

ROA

11.4

16.0

20.7

20.4

20.6

ROE

11.8

15.5

19.7

19.8

21.3

ROA is the ratio of ordinary income to total assets.
ROE is the ratio of net income to shareholders’ equity. The denominator for both is the average of the figures at the beginning and end of the fiscal year.

38

Jan. 2016

Annual Report 2016

PIGEON History

Consolidated Statements of Income(¥ millions)(US$ thousands)

Jan. 2015

Jan. 2016

Jan. 2016

Net Sales

59,14565,07577,465

84,11392,209761,429

Cost of Sales

34,82637,31443,00045,817

48,864403,485

Gross Profit

24,31927,76034,46438,296

43,345357,944

41.1

42.7

44.5

45.5

47.0

Selling, General and Administrative Expenses

19,276

20,67424,09825,51528,823

238,010

Operating Income

5,042

7,086

10,365

12,78014,521

119,909

8.5

10.9

13.4

15.2

15.7

Non-operating Income

373

656

974

923

1,112

9,182

Non-operating Expenses

499

352

337

404

553

4,566

4,917

7,389

11,002

13,29915,080124,525

8.3

11.4

14.2

15.8

16.4

Extraordinary Income

19

7

8

8

10

83

Extraordinary Loss

213

26

24

167

204

1,685

Income before Income Taxes

4,723

7,369

10,98613,14014,887

122,931

Income Taxes - Current

1,463

2,128

3,077

3,768

4,548

37,556

Income Taxes - Deferred

(10)

526

705

734

(124)

(1,024)

Minorityerests in Income

87

140

217

185

265

2,188

3,183

4,573

6,985

8,451

10,197

84,203Gross Profit/Net Sales (%)

Operating Income/Net Sales (%)

Ordinary Income
Ordinary Income/Net Sales (%)

Net Income

Consolidated Statement of Cash Flows(¥ millions)(US$ thousands)

Jan. 2013

Jan. 2014

Jan. 2015

Jan. 2016

Jan. 2016

Cash Flows from Operating Activities

4,212

7,656

7,930

10,135

13,479111,305

Cash Flows from Investing Activities(1,871)(1,848)(3,794)(3,134)(3,332)(27,514)

Cash Flows from Financing Activities(1,776)(3,149)(3,163)(150)(6,567)(54,228)

Effect of Exchange Rate Changes on Cash and Cash Equivalents

(98)

622

1,556

1,637

(873)

(7,209)Net Increase (Decrease) in Cash and Cash Equivalents

465

3,280

2,528

8,488

2,706

22,345

Cash and Cash Equivalents at Beginning of Period

6,827

7,293

10,574

13,102

21,590178,282

Cash and Cash Equivalents at End of Period

7,293

10,574

13,102

21,59024,297200,636

Item

Note: Figures in U.S. dollars are calculated, for convenience only, at the exchange rate of ¥121.10=US$1.00.

Per Share Data(¥)

(US$ )

Jan. 2013

Jan. 2014

Jan. 2015

Jan. 2016

Jan. 2016

Net Income (yen)

26.51

38.09

58.17

70.55

85.15

703

Cash Dividends (yen)

14.67

19.17

29.33

35.00

42.00

347

Payout Ratio (%)

55.3

50.3

50.4

49.6

49.3

Net Assets (yen)228.41

263.75332.5

385.46413.883,418(persons)

Employees

2,963

Jan. 2013
3,304

Jan. 2014
3,458

Jan. 2015
3,617

Jan. 2016
3,743

Annual Report 2016

Corporate Information

The Group carried out a 2-for-1 split of common stock, effective August 1, 2013, and a 3-for-1 split of common stock, effective May 1, 2015. Figures in the above tables havebeen calculated assuming those stock splits were conducted at the beginning of the fiscal year ended January 2012.

Jan. 2012

Financial Data

Jan. 2012

Employees

Management’s Discussion
and Analysis

Jan. 2012

PeriodPigeon ESG Initiatives

Note: Figures in U.S. dollars are calculated, for convenience only, at the exchange rate of ¥121.10=US$1.00.

Pigeon Group Activities

Jan. 2014

Top Message

Jan. 2013

PeriodAt a Glance
Key Performance Indicators

Jan. 2012

Item

39

Corporate Information

40

Annual Report 2016

PIGEON History

Corporate Information■Corporate Data (as of January 31, 2016)

At a Glance
Key Performance Indicators

Company Name… Pigeon Corporation
Address ………… 4-4, Nihonbashi-Hisamatsucho, Chuo-ku,Tokyo 103-8480, Japan

Phone +81-3-3661-4200 Fax +81-3-3661-4320
URL http://www.pigeon.com

Established ……… August 15, 1957
Paid-in Capital…… ¥5,199,597 thousand
Fiscal Year-End … January 31
Business ………… Manufacture, sales, import and export of baby and child-care products, maternity items, women’s care

Pigeon Group Activities■Consolidated Subsidiaries (20 companies) (as of May 31, 2016)• Pigeon Singapore Pte. Ltd.

• Pigeon Hearts Corporation• Pigeon Malaysia（Trading）Sdn. Bhd.

• PHP Hyogo Corporation• Pigeon（Shanghai）Co., Ltd.

• PHP Ibaraki Corporation• Pigeon Manufacturing（Shanghai）Co., Ltd.

• Pigeon Tahira Corporation• Pigeon Industries（Changzhou）Co., Ltd.

• Pigeon Manaka Corporation• Lansinoh Laboratories, Inc.

Pigeon ESG Initiatives• Pigeon Home Products Corporation

Top Message

products, home healthcare products, nursing care products, etc.; operation of child-minding centers

Employees ……… (Consolidated) 3,743 persons, (regular and contract employees in the main unit of the Group) 989 persons• Lansinoh Laboratories Medical Devices
Design Industry And Commerce Ltd. Co.
• Lansinoh Laboratórios Do Brasil Ltda.

Management’s Discussion
and Analysis• Lansinoh Laboratories Benelux• Lansinoh Laboratories Shanghai• Doubleheart Co. Ltd.
• Pigeon India Pvt. Ltd.
• Pigeon Industries（Thailand）Co., Ltd.
• Thai Pigeon Co., Ltd.

Financial Data

■Equity Method Affiliate (1 company)• P.T. Pigeon Indonesia

Corporate Information
Annual Report 201641

PIGEON GROUP
Overseas Consolidated Subsidiaries
Overseas
Business Div.

● Production plant (as of May 31, 2016)

North America,
Latin America, Europe

Overseas
Business Div.

South East
Asia, West Asia

◦LANSINOH LABORATORIES, INC.

◦THAI PIGEON CO., LTD.

◦LANSINOH LABORATORIES MEDICAL DEVICESDESIGN INDUSTORY AND COMMERCE LTD. CO.

◦PIGEON INDUSTRIES (THAILAND) CO., LTD.

USA April 2004
Sale of maternity and baby products

Thailand September 1990
Manufacture of maternity and baby products

Thailand April 1996
Manufacture of maternity and baby products

Turkey September 2010
Manufacture of maternity and baby products◦PIGEON INDIA PVT. LTD.

◦LANSINOH LABORATORIES BENELUX

India November 2009
Manufacture and sales of maternity and baby products

Belgium May 2015
Sale of maternity and baby products◦PIGEON SINGAPORE PTE. LTD.

' RIOS DO BRAZIL LTDA.
◦LANSINOH LABORATO

Singapore February 1978
Sale of maternity and baby products

Brazil April 2014
Sale of maternity and baby products

Overseas
Business Div.

◦PIGEON MALAYSIA (TRADING) SDN. BHD.
Malaysia January 2011
Sale of maternity and baby products

East Asia (China)◦P. T. PIGEON INDONESIA (equity-method affiliate)◦LANSINOH LABORATORIES SHANGHAI

Indonesia
Manufacture of maternity and baby products

China March 2016
Sale of maternity and baby products

China BusinessDiv.

East Asia (China, South Korea)◦PIGEON (SHANGHAI) CO., LTD.

◦PIGEON INDUSTRIES (CHANGZHOU) CO., LTD.

◦PIGEON MANUFACTURING (SHANGHAI) CO., LTD.

◦DOUBLEHEART CO. LTD.

China April 2002
Manufacture and sales of maternity and baby products

China July 2009
Manufacture of maternity and baby products

China April 2006
Manufacture of maternity and baby products

Domestic Consolidated
Subsidiaries

PIGEON CORPORATION
Japan August 1957
Japan domestic business, Child-rearing Support Services, Health Care &Nursing Care BusinessChild-rearing Support Services◦PIGEON HEARTS CO., LTD.

Child-minding and daycare services,
babysitter dispatch services, preschool
education services February 1999

South Korea August 2012
Sale of maternity and baby products

Health Care & Nursing Care Business◦PIGEON TAHIRA CO., LTD.
Sale of nursing care products

February 2004

◦PIGEON MANAKA CO., LTD.

At-home nursing care services, sale of nursing care products

Domestic
Production
Plants◦PIGEON HOME PRODUCTS CO., LTD.
Manufacture and sale of toiletries◦PHP IBARAKI CO., LTD.

October 1985

Manufacture and sale of nonwoven products

42

Annual Report 2016

January 1996

◦PHP HYOGO CO., LTD.

October 2000

Manufacture and sale of nonwoven products
April 2002

PIGEON History■ Stock Data (as of January 31, 2016)• Number of Shareholders………… 24,506• Treasury Stock………………… 1,891,577■ Ten Largest Shareholders (as of January 31, 2016)
Shares Held(thousands)

Shareholder’s Name

Ownership*
(%)

6.0

Yoichi Nakata

4,838

4.0

The Bank of New York, Non-Treaty Jasdec Account

4,477

3.7

The Master Trust Bank of Japan, Ltd. (Trust Account)

4,444

3.7

BBH for Matthews Asia Dividend Fund

3,806

3.2

Y.N Corporation

3,000

2.5

Ueda Yagi Tanshi Co,. Ltd.

2,960

2.5

BBH for Matthews Japan Fund

2,521

2.1

State Street Bank and Trust Company

2,012

1.7

Pigeon Corporation

1,891

1.6

Pigeon Group Activities

7,208

Top Message

Japan Trustee Services Bank, Ltd. (Trust Account)*Percentage of Ownership figures are based on 119,761,909 sharess (121,653,486 shares issued and outstanding, minus 1,891,577 shares of treasury stock).

Pigeon ESG Initiatives

Treasury Stock
Individuals and Others

17.8%

1.6% 1,891(thousands of shares)

21,706(thousands of shares)

At a Glance
Key Performance Indicators• Shares Authorized………… 360 million• Shares Issued………………… 121,653,486

Financial Institutions

22.4%

27,191(thousands of shares)Securities Companies

2.6%

3,116(thousands of shares)

46.8%

56,998(thousands of shares)

Management’s Discussion
and Analysis

Non-JapaneseCorporations

Japanese Corporations

8.8%

10,748(thousands of shares)■Stock Price Range/Turnover of Common Stock(¥)

Pigeon Stock Turnover
50,000,000

40,000,000

2,400

30,000,000

1,600

20,000,000

800

10,000,000

0

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
2012
2013
2014
2015
2016

0

Annual Report 2016

Corporate Information

3,200

Financial Data

4,000

Pigeon Stock Price(Stock splits were carried out on July 29, 2013 (2-for-1) and April 27, 2015 (3-for-1))

43

Pigeon Website

http://www.pigeon.com

44

Annual Report 2016

PIGEON CORPORATION(Securities Code: 7956)

Head Office: 4-4, Nihonbashi-Hisamatsucho,
Chuo-ku, Tokyo 103-8480, Japan

TEL: +81-3-3661-4200
TEL: +81-3-3661-4188 (Investor Relations Department/Direct)
FAX: +81-3-3661-4320

http://www.pigeon.com

As part of our ongoing support to thereconstruction efforts in the Tohoku region,
we enlisted a design company from Tohoku
to create this issue.