5th Medium-Term Business Plan
(February 2015 to January 2017)© All rights reserved by PIGEON Corporation

15

Contents

1.

Looking Back to the 4th Medium-Term Business Plan

2.

The 5th Medium-Term Business Plan: “Pigeon Way”

3.

Medium-Term Business Policy

4.

Business Strategy

5.

Functional Strategy

6.

Quantitative Targets

7.

Improvement of Enterprise Value© All rights reserved by PIGEON Corporation

16

1. Looking Back to the 4th Medium-Term Business Plan (1) Financial Targets(¥ millions)

4th Medium-TermBusiness Plan

Net sales

73,30077,465105.7 %

Gross profit

30,40034,464113.4 %

Operating income

7,300

10,365142.0 %

Ordinary income

7,300

11,002150.7 %Net income

4,400

6,985

158.8 %EPS (¥)

110174

158.2 %

Gross margin

41.5 %

44.5 %＋ 3.0 pt

Operating margin

10.0 %

13.4 %＋ 3.4 pt

Ordinary margin

10.0 %

14.2 %＋ 4.2 pt

Return on sales

6.0 %

9.0 %

＋ 3.0 pt

ROA

14.0 % or higher

20.7 %＋ 6.7 pt

ROE

14.0 % or higher

19.7 %＋ 5.7 pt

Jan. 2014 Result

Progress Status

Pace of growth and expansion is faster than our plan, and profitability has been enhanced.
※EPS in the 4th Medium-Term Business Plan was preliminary calculated by employing the aggregate number of issued shares after the stock split.
※ ROA= Ordinary income ÷ Total assets; ROE = Net income ÷ Equity (in both cases, denominators are averaged between beginning and year-end figures)© All rights reserved by PIGEON Corporation17

1. Looking Back to the 4th Medium-Term Business Plan (2) by Segment(¥ millions)

4th Medium-Term Business
Plan
Net Sales

% of
Total

Gross
MarginJan. 2014 Result
Net Sales

% of
Total

Progress Status

Gross
MarginNet Sales

Gross
MarginConsolidated
net sales

73,300100.0 %

41.5 %

77,465100.0 %

44.5 %

105.7 %

＋3.0 pt

Domestic Baby andMother Care
Business

26,46036.1 %

45.6 %

24,451

31.6 %

45.8 %

92.6 %＋0.2 pt

Child-rearing
Support Services

6,100

8.3 %

12.1 %

6,599

8.5 %

11.5 %

108.2 %

(0.6) pt

Health Care andNursing Care
Business

8,000

10.9 %

28.5 %

6,721

8.7 %

29.8 %

84.0 %＋1.3 pt

Overseas Business

31,68043.2 %

48.2 %

38,54049.7 %

52.6 %

122.0 %

＋4.4 pt

Other

1,060

1.4 %

7.5 %

1,151

1.5 %

20.5 %

108.7 %

＋13.0 pt

There is divergence between the sales plan and actual sales of the Domestic Baby and Mother
Care Business, and the Health Care and Nursing Care Business.

© All rights reserved by PIGEON Corporation18

1. Looking Back to the 4th Medium-Term Business Plan(¥ millions)

4th Medium-TermBusiness Plan
Net Sales

% of
Total

(3) by Overseas Region

Jan. 2014 Result
Net Sales

% of
Total

Progress
StatusOverseas Business

31,68043.2 %

38,54049.7 %

121.7 %

China (incl. HongKong)

14,27019.5 %

22,41728.9 %

157.1 %

Other Asia

7,581

10.3 %

6,125

7.9 %

80.8 %

North America

4,874

6.6 %

5,418

7.0 %

111.2 %

Middle East

2,272

3.1 %

2,118

2.7 %

93.2 %

Other

2,683

3.7 %

2,412

3.1 %

89.9 %

Continuous growth in China and North America,and slow growth pace in the other Asian regions© All rights reserved by PIGEON Corporation19

2. 5th Medium-Term Business Plan:“Pigeon Way”

Pigeon Way(Pigeon Way is a foundation of our minds and behaviors.)

Corporate Philosophy: “Love”
Credo: “Only love can beget love”

MissionValuesVisionAction Principles© All rights reserved by PIGEON Corporation

20

3. Medium-Term Business Policy(1) Slogan

Pursuing world classbusiness excellence,
think globally, plan agilely,
and implement locally.

© All rights reserved by PIGEON Corporation

21

3. Medium-Term Business Policy(2) Vision 2016

1. Strengthening of Brand Power (The No.1 Baby Care Products Manufacturer in the World)
・Expansion of sales shares of baby bottles and baby bottle nipples in the major markets
・Gain of competitive advantage in the markets by developing new products on the basisof basic research and consumer behavior observation
・Strengthening of the global Pigeon brand
2. Strengthening of Management Structure for Sustainable Business Expansion
・Strengthening of the function of Global Head Office (GHO) to develop and execute
the global-wide group strategies
・Establishment of organizational structure enabling prompt decision-makings andactions in each location
・Establishment of functional head office structure enabling to support each locationfrom the viewpoint of total optimization
3. Enhancement of Management Quality by Focusing on Cash Flows・Investment in new markets and business・Improvement focusing on profitability and efficiency of the existing
markets and business・Improvement of CCC to maximize cash, enhancement of ROIC, and,more importantly, establishment of the “Global Cash Management”※GHO: Global Head Office 、 CCC：Cash Conversion Cycle, ROIC： Return On Invested Capital（NOPAT/Capital Invested, calculated with a tax rate of 40.7%)© All rights reserved by PIGEON Corporation

22

3. Medium-Term Business Policy(2) Vision 2016

4. Development of Global Human Resources, Establishment of Global Personnel Management
System, and Implementation of System to Facilitate Employees’ Success・Development of global human resources, execution of flexible personnel assignment,
and establishment of global personnel management to realize the above.
・Cultivation of company culture allowing each employee to enhance productivity oneach job, to feel “pride" in working at Pigeon and to continue to work at Pigeon for along time.
5. Further Improvement of Enterprise Value・Further improvement of enterprise value by continuously providing the services
and products that make customers smile.
・Efforts to bring smiles to all the stakeholder including our customers

We will achieve “Vision 2016” within the years under the
5th Medium-Term Business Plan

© All rights reserved by PIGEON Corporation

23

4. Business Strategy(1) Overseas Business: Overall Strategy
Markets in Focus

Entry into new markets and expansion of the shares byselecting important countries from the viewpoint of market
potentials, as well as medium- and long-term perspectives
Five Priority Categories
Focus on the categories that Pigeon has “advantage”(baby bottles / baby bottle nipples, breast pumps, pacifiers, skincare products
and breast pads)

Promotion Activities toward Hospitals and Maternity Hospitals
Synergy effect by combining horizontal development of promotion activities
toward hospital and maternity hospitals with strengthening of brand power© All rights reserved by PIGEON Corporation

24

4. Business Strategy(2) Overseas Business: China

Expansion of Business Scale(1) Growth in Existing Categories(2) Growth in New Products such as Baby Diaper

Strengthening of Business Foundation(1) Capital investment to respond to business expansion(2) Cost reduction and stable supply by automation of production lines(3) Further improvement of organization structure to respond tobusiness expansion© All rights reserved by PIGEON Corporation25

4. Business Strategy(3) Overseas Business: Europe and America

Strengthening of Brand Power as a Company Supporting Breast-Feed・Baby bottles: Introduction “NaturalWave” in the Europe and U.S. markets.
・Support of whole cycle of child rearing consisting of “milking ➡ preserve ➡
feeding”
・Strengthening of promotion activities toward hospitals / maternity hospitals

Business Expansion
in the U.S.

Business Expansion in Europe

Entry into the Latin America Markets
・Collaboration of Pigeon and Lansinoh© All rights reserved by PIGEON Corporation

26

4. Business Strategy(4) Overseas Business: Asia and Middle East

Growth Driven by the Five Priority Categories(Acceleration of strengthening and penetration of baby bottles / baby bottle nipples,
breast pumps, pacifiers, skincare products and breast pads)
Acceleration of further strengthening and penetration of Pigeon Brand

South Korea
Singapore
India
Middle East

© All rights reserved by PIGEON Corporation

Indonesia27

4. Business Strategy(5) Domestic Business: Domestic Baby and Mother Care Business

Enhancement of Profitability of
Existing Business

Establishment of Large Merchandise
Business and Selection of New Entry
Categories
Thanks to the newly
mounted 3Mode Pad
mechanism, the car seat canbe adjusted in three ways to
fit in baby’s growth.

© All rights reserved by PIGEON Corporation28

4. Business Strategy(6) Domestic Business: Health & Elder Care Business Div.

Establishment of Business Model for
Elderly Healthcare Business・Strengthening of sales in care facility
channel・Growth both in facility and existing
channels by marketing products withcompetitive superiority
・Further enhancement of care service
quality
Facility
ChannelGeneralChannel© All rights reserved by PIGEON Corporation29

4. Business Strategy(7) Domestic Business: Child-Rearing Support Business

Further Enhancement of Business Quality for Stable
GrowthEnhancement of Management Quality
・Specialized child care services responding to personality ofeach child・Efforts to provide more safe and more assuring operation
systemDevelopment of High-Quality Human Resources forChild Caring
・Further evolution of “Pigeon Heartner College”© All rights reserved by PIGEON Corporation305. Functional Strategy (1) 【R&D】【Quality Control】【Manufacturing, Purchase and Logistics】
Research andDevelopment

The "key to success“ in behavior observation
is to provide the space where both babies and mothers
can spend time comfortably without feeling any stress.

Full Understanding of Customers’ Preference
・Deepening of “Baby Theory”
Research・Understanding of Customers’
Insight
・Improvement of Ability to Commercialize theProducts

Establishment and Strengthening of Global Development System
・Functions for Research, Planning and Development

Quality Control
Strengthening of Quality Control Function at Each
Location・Establishment of PPM System

Optimization of “Supply Chain”

Sales

Order

Research and Development Div.
Quality Control Div.

※PPM: Pigeon Productive Management

Manufacturing, Procurement andDistribution

Raw Materials
Delivery

Manufacturing

Establishment of Global SCM System※SCM: Supply Chain Management© All rights reserved by PIGEON Corporation

Logistics Dept.

Procurement Dept.
31

5. Functional Strategy(2)【Global Personnel Management System】【Global Head Office】

Global Personnel
Management System
Development of human resources who are able to success in the global stages
Education to
Develop Global
Human Resources

・System enabling optimized assignment andactivities of global human resources

Activities of
Excellent Talent in
the Group

Global Head Office

GlobalPersonnel
Management
SystemHead Office(GHO)

Strengthening of Corporate Center Function

Overseas
Business

Domestic
Business・Strengthening of functions for development
and planning of Group strategies
Research & Development
・Establishment of PDCA cycle withKPI (CCC, ROIC, etc.)
Quality Control
・Strengthening of financial standings with
Manufacturing,
GCMS
Purchase and Logistics
・Strengthening of compliance, social responsibility※KPI: Key Performance Indicator, GCMS：Global Cash Management System
and ability to execute strategies※ CCC: Cash Conversion Cycle, ROIC: Return On Invested Capital（NOPAT/Capital Invested, calculated with a tax rate of 40.7%)© All rights reserved by PIGEON Corporation

32

6. Quantitative Targets(1) Financial Targets
Jan. 2015 Plan

Jan. 2016 Plan

Jan. 2017 Plan

Growth Rate
(Jan. 2014 vs. Jan.
2017)(¥ millions)Jan. 2014 Result

Net sales

77,46584,50092,500100,000

129.1 %

Gross profit

34,46437,40040,70044,200128.2 %

Operating income

10,365

11,60013,00015,000144.7 %

Ordinary income

11,002

11,80013,00015,000136.3 %Net income

6,985

7,300

8,000

9,000

128.8 %EPS (¥)

174

182

199

224

Gross margin44.5 %

44.3 %

44.0 %

44.2 %

Operating margin13.4 %

13.7 %

14.1 %

15.0 %

Ordinary margin14.2 %

14.0 %

14.1 %

15.0 %

Return on sales

9.0 %

8.6 %

8.6 %

9.0 %

Jan. 2014 Result

5th Medium-Term Business Plan

20.7 %

22.0 % or higher
21.0 % or higher
15.0 % or higher

ROA
ROE
ROIC

19.7 %
14.2 %※ ROA= Ordinary income ÷ Total assets; ROE = Net income ÷ Equity (in both cases, denominators are averaged between beginning and year-end figures)※ROIC: Return On Invested Capital（NOPAT/Capital Invested, calculated with a tax rate of 40.7%)© All rights reserved by PIGEON Corporation

33

6. Quantitative Targets(2) Sales & Operating Income by Segment

Jan .2014 Result(¥ millions)

Net Sales

% of
Total

Jan. 2017

Jan. 2015 Jan. 2016

Gross
MarginNet Sales

Net Sales

Net Sales

% of
Total

Gross
MarginGrowth Rate
(Jan. 2014 vs. Jan.
2017)

Consolidated
net sales

77,465100.0 %

44.5 %

84,50092,500100,000

100.0 %

44.2 %

129.1 %

Domestic Babyand Mother
Care Business

24,451

31.6 %

45.8 %

24,50025,69027,00027.0 %

45.3 %

110.4 %

Child-rearing
SupportServices

6,599

8.5 %

11.5 %

6,300

6,555

6,700

6.7 %

12.7 %

101.5 %

Health Careand Nursing
Care Business

6,721

8.7 %

29.8 %

7,100

7,555

8,000

8.0 %

33.6 %

119.0 %

Overseas
Business

38,54049.7 %

52.6 %

45,60051,70057,30057.3 %

49.1 %

148.7 %

Other

1,151

1.5 %

20.5 %

1,000

1,000

1,000

1.0 %

12.4 %

86.9 %(Net Sales, Unit: ¥100 million) 1,200

1,000
800

Other
Child-rearing Support Business
Health Care and Nursing Care Business
Domestic Baby and Mother Care Business
Overseas Business

600
400

54
65

59
64

241

240

200

63
66

65
67
244

63
71
245

65
75
256

67
80
270

238

199

215

269

Jan. 2011
ResultJan. 2012
ResultJan. 2013
Result

456

517

573

385

Jan. 2014
ResultJan. 2015
TargetJan. 2016
TargetJan. 2017
Target0© All rights reserved by PIGEON Corporation

34

6. Quantitative Targets(3) Sales by Overseas Region

Jan. 2014 Result(¥ millions)

Net Sales

Jan. 2015 Jan. 2016

% of
Total

Jan. 2017

Net Sales

Net Sales

Net Sales

Growth Rate
(Jan. 2014 vs. Jan. 2017)

% of
Total

Overseas Business

38,54049.7 %

45,60051,70057,30057.3 %

148.7 %

China (incl. HongKong)

22,41728.9 %

27,31931,19534,69434.7 %

154.8 %

Other Asia

6,125

7.9 %

7,014

8,258

9,181

9.2 %

149.9 %

North America

5,418

7.0 %

5,694

5,850

6,418

6.4 %

118.4 %

Middle East

2,118

2.7 %

2,547

2,870

3,072

3.1 %

145.1 %

Other

2,412

3.1 %

2,985

3,479

3,882

3.9 %

161.0 %(Net Sales, Unit: ¥100 million) 600

Other
Middle East
North America
Other Asia
China (incl. Hong Kong)

500
400
300
200
100
0

© All rights reserved by PIGEON Corporation

38
39

15
14

38
42

17
15

90

101

Jan. 2011
ResultJan. 2012
Result

36
52

20
18

54

24
21

29
25
56

58

34
28

38
30
64
91

82

70

61

224

273

311

346

Jan. 2016
TargetJan. 2017
Target141

Jan. 2013
ResultJan. 2014
ResultJan. 2015
Target35

7. Improvement of Enterprise Value(1) Capital Strategies; Shareholder Return

・Expected Increase in Operating Cash Flow: Approx. 27 Billion Yen
・Active Capital Investment for Future Growth
Breakdown of Planned Investment (Total Amount in 3 Years: Approx. 15 Billion Yen)
Overseas Business: Approx. 11.5 Billion Yen

Domestic Business: Approx. 3.5 Billion Yen

・Targeting Dividend Increase in Each Business Period comparing to Previous Period and Shareholder
Return Ratio of 45% to 50%
・Return On Equity (ROE): 21.0% or More
Return On Invested Capital (ROIC): 15.0％ or More (Target Value)・Increase in Earnings per Share Driven by Increase in Revenues
Changes in Dividends

(yen)

100
90
70

50.0%

60

40.0%

50

88

40
30
10

ROE

Payout ratio

60.0%

80

20

Changes in ROE / Payout Ratio

70.0%

28

32

44

44

90

58

0
Jan. 2009 Jan. 2010 Jan. 2011 Jan. 2012 Jan. 2013 Jan. 2014 Jan. 2015
ResultResultResultResultResultResult
Plan

30.0%
20.0%
10.0%
0.0%
Jan. 2009 Jan. 2010 Jan. 2011 Jan. 2012 Jan. 2013 Jan. 2014 Jan. 2015
ResultResultResultResultResultResultPlan＊1 Stock Splitting in the fiscal year ended Jan. 2014 (August 1)
The values for Jan. 2009 to Jan. 2014 were calculated by employing the share numbers after the splitting.

© All rights reserved by PIGEON Corporation※ROIC: Return On Invested Capital（NOPAT/Capital Invested,
calculated with a tax rate of 40.7%)36

7. Improvement of Enterprise Value(2) CSR

Pigeon Group thinks that our business activities
have the aspect of CSR on their own, and based on
this way of thinking, we will continue tocontribute to society and environment not only inJapan, but also in overseas countries.

Raising Children, Raising Trees: the Spirit is the SameWe think that raising children and farming trees is similar to each other,because both humans and trees grow with warmth and affection of people
around them. For this reason, Pigeon has continued the activity to plant
trees from 1987.

© All rights reserved by PIGEON Corporation37

Forecasts for Term Ending Jan. 2015

© All rights reserved by PIGEON Corporation

38

Jan. 2014 Results and Jan. 2015 Forecast (Consolidated)(¥ millions)Jan. 2014
AmountJan. 2015% of Total

YoY Change

Forecast% of Total

YoY Change

Net sales

77,465100.0 %

119.0 %

84,500100.0 %

109.1 %

Operatingincome10,36513.4 %

146.3 %

11,60013.7 %

111.9 %

Ordinary
income11,002

14.2 %

148.9 %

11,80014.0 %

107.3 %Net income

6,985

9.0 %

152.7 %

7,300

8.6 %

104.5 %Net assets

39,981－123.5 %

41,738－104.4 %

Total assets

57,955－

119.4 %

65,342－112.7 %EPS (¥)

174.53－152.7 %

182.38－104.5 %BPS (¥)

977.50－123.5 %

1018.37－104.2 %

ROA

20.7 %－―

19.1 %－―

ROE

19.7 %－―

18.3 %－―※ ROA= Ordinary income ÷ Total assets; ROE = Net income ÷ Equity (in both cases, denominators are averaged between beginning and year-end figures)© All rights reserved by PIGEON Corporation

39

Results and Forecast by Segment (Consolidated)(¥ millions)Jan. 2014
Amount% ofTotal

Consolidated
net sales

77,465100.0 %

Domestic Babyand Mother
Care Business

24,451Child-rearing
SupportServices

Gross
MarginJan. 2015
Segment
IncomeAmount

% of
Total

YoY
ChangeGross
MarginSegment
Income44.5 %

10,36584,500100.0%

109.1%

44.3%

11,60031.6 %

45.8 %

3,411

24,50029.0%

100.2%

45.4%

3,653

6,599

8.5 %

11.5 %

176

6,300

7.5%

95.5%

11.7%

188

Health Careand Nursing
Care Business

6,721

8.7 %

29.8 %

212

7,100

8.4%

105.6%

30.7%

284

Overseas
Business

38,54049.8 %

52.6 %

10,17245,60054.0%

118.3%

51.3%

11,910

Other

1,151

1.5 %

20.5 %

204

1,000

1.2%

86.8%

11.5%

93

※Segment income in consolidated amount (all unclassifiable operating expenses) has been adjusted and posted as operating income in the consolidated
statements of income※Assumed exchange rates of Overseas Business: US$1 = ¥100.00 ; 1 yuan = ¥16.50© All rights reserved by PIGEON Corporation

40

Key Priorities for the Year to Jan. 2015
● Domestic Baby and Mother Care Business- Steady growth of large merchandise business by launch of new products- Stronger emphasis on the maternity classes- Improvement of profitability of the existing business by managing selling, general andadministrative expenses in an effective and efficient manner● Child-rearing Support Services- Further improvement in child-rearing quality, improvement of operating revenue● Health Care and Nursing Care Business- Strengthening of marketing activities based on the facilities' routes, maintenance of thefunctionality of sales and marketing- Increase in operating profits by establishment of an efficient business operation structure(reduction in selling, general and administrative expenses).
● Overseas Business- China: stable growth of the new businesses (Baby diapers, Baby food)
Further strengthening of brand penetration and promotion activities toward hospitals
Tight control over the production costs and creation of organization of stable supply- Europe and America: secure success in baby bottles and nipples business and continuous growthof the sales of existing products- Market expansion: activities paving the way for advancement into the Brazilian market© All rights reserved by PIGEON Corporation

41

Shareholder Return and Investment-Related Indicators[Shareholder return indicators under 5th Medium-Term Business Plan]
Adopt flexible approach to upgrading shareholder return (incl. through share buybacks), aiming
at a goal of increasing dividends compared with the previous term and of the total shareholder
return ratio by approximately 45 to 50% in each business term.
Jan. 2012
Dividend Status
Dividend per share(yen)Jan. 2013

Interim(Result)

Year-End(Result)

Interim(Result)

44 (22)44 (22)44 (22) 71 (35.5) 66 (33)55.3%

Payout ratio

Year-End(Result)

Jan. 2014
Interim(Result)

50.3%

Jan. 2015

Year-End(Plan)

Interim(Plan)

Year-End(Plan)

55

45

45

50.4%

49.3%

※The Group conducted a stock split at the ratio of 2 shares for every 1 share of common shares. The effective date of the stock split was August 1, 2013.
The values given in the parentheses for dividend per share above are reference values converted based on the number of shares after the stock split.

[Reference] Capital expenditure indicators
Jan. 2013(¥ millions)Interim(Result)

Capital expenditure(※1)

Depreciation (※2)(tangible fixed assets)

Year-End(Result)

Jan. 2014
Interim(Result)

Year-End(Result)

Jan. 2015
Year-End(Plan)

872

1,868

2,092

3,091

4,503

681

1,426

733

1,663

2,177

※1 Refers to purchase of tangible fixed assets※2 Refers to total R&D expenditures, including personnel-related© All rights reserved by PIGEON Corporation

42

Corporate Overview
PIGEON CORPORATIONHead office
4-4, Nihonbashi-Hisamatsucho, Chuo-ku, Tokyo
103-8480, Japan
Tel:+81-3-3661-4200+81-3-3661-4188 (Investor Relations)
Fax:+81-3-3661-4320
E-mail address
InvestorRelations＠pigeon.com

URL http://www.pigeon.co.jp /http://english.pigeon.co.jp/

In this document, statements other than historical facts related to plans, forecasts, and strategies
are based on information available at the time of writing.
The Corporation cannot provide guarantees or commitments for these forward-looking
statements.
Due to various factors, actual results may differ significantly from those anticipated in thisdocument.

© All rights reserved by PIGEON Corporation

43