Lion Corporation
Financial Results for the Fiscal Year Ended December 31, 2019
February 13, 2020

Event Summary[Company Name][Event Type][Event Name][Fiscal Period][Date][Number of Pages][Time][Venue][Venue Size][Participants][Number of Speakers][Respondent]

Lion Corporation
Financial Announcement
Financial Results for the Fiscal Year Ended December 31, 2019
FY2019 Annual
February 13, 202028
16:00 – 16:56(Total: 56 minutes, Presentation: 26 minutes, Q&A: 30 minutes)
6F Sapia Tower, 1-7-12 Marunouchi, Chiyoda-ku, Tokyo, 100-0005
310 m264
6
Itsuo Hama
Representative Director,
Chairman of the Board of Directors,
Chief Executive Officer
Masazumi Kikukawa
Representative Director,
President and Executive Officer
Chief Operating Officer
Takeo Sakakibara
Director, Senior Executive Officer
Kei Minamikawa
Director of Corporate Planning Department
Akihiko Takeo
Director of Finance Department
Keita Tanimoto
Director of Investor Relations Office
Corporate Planning Department
Masazumi Kikukawa

Presentation
Tanimoto: Thank you for visiting today. Now, we will hold a financial results briefing for the 159th fiscal year
ended December 31, 2019 of Lion Corporation. We disclosed our financial announcements on the Tokyo
Stock Exchange at 3:00pm today. We would like to explain the details.
Now, I would like to introduce our participants today: Itsuo Hama, Representative Director and Chairman.
Masazumi Kikukawa, Representative Director, President and Executive Officer. Takeo Sakakibara, Director,
Senior Executive Officer. Kei Minamikawa, Director of Corporate Planning Department. Akihiko Takeo,
Director of Finance Department. I am Tanimoto, Director of Investor Relations Office Corporate Planning
Department, and will moderate the meeting today. We would like to answer your questions after thepresentation. President Kikukawa, please go ahead.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

1

Kikukawa: Thank you very much for gathering today. First, I would like to review the results for FY2019, andthen explain our initiatives for the current fiscal year.
This is the highlight of the consolidated results for the fiscal year under review. As we revised our financial
results for FY2019 on January 31, both net sales and profit forecasts were not achieved.
From Q3, the business environment in South Korea and Hong Kong has become worse, and the competition
environment has become tighter in South Asia. However, we have been working to achieve the forecast by
thinking that it could be covered by the domestic Consumer Products Business. However, in Q4, thedeterioration in the environment in South Korea and Hong Kong exceeded our expectations, andcompetition intensified toward the end of the year, mainly in the domestic fabric care field. As a result, both
net sales and profit were below the forecasts.
Sales in the Consumer Products Business increased YoY, but sales in the Overseas Business and the Industrial
Products Business declined due to the impact of the deterioration in the business environment I mentioned
earlier. As a result, consolidated sales fell slightly below the previous year's level.
Core operating income increased due to an increase in net sales of the Consumer Products Business and theimproved profitability of the Overseas Businesses due to cost reductions and other factors.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

2

Next, I will explain our business performance in more detail.
Net sales were JPY347.5 billion, a decline of JPY1.88 billion, or 0.5%, from the previous year. Excluding theeffects of exchange rate fluctuations, net sales declined by 0.4%. Excluding the impact of the transfer of theinsecticide business and the loss of consolidation of Malaysian detergent ingredient manufacturingsubsidiary, net sales increased by 0.4%. In the future, if there are special factors, we will indicate them as areal growth rate in the margins of the corresponding sections.
Core operating income increased by JPY1.6 billion, or 5.9%, to JPY30 billion, while the core operating income
margin rose by 0.5% to 8.6%.
Operating profit was JPY29.8 billion, an increase in real terms excluding the impact of the absence of a gainon sales of property, plant and equipment recorded in the previous fiscal year.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

3This is the reason for the change in core operating income. Total income growth of JPY6.2 billion was
attributable to steady progress in total cost reductions, lower raw material prices, and lower competitive
costs. On the other hand, a decrease of JPY4.5 billion was attributable to decreased sales, changes in the
product mix, and an increase in other expenses.
The decrease in competitive expenses was mainly attributable to a decrease in advertising expenses. Thiswas mainly due to a shift to digital, and in response to intensifying competition in the domestic fabric carefield, a part of which was deliberately shifted to sales promotion expenses, particularly in Q4. Since thisamount is deducted from sales under IFRS, this portion is counted in the item of decrease in sales, productmix and others as a decrease in gross profit due to sales decrease. An increase in depreciation expenses
associated with the expansion of production capacity, mainly in oral care, is also included in this item.
As a result of these changes, core operating income rose JPY1.67 billion.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

4Next, we will discuss the results by segment. Regarding sales, I will comment on the total net sales in theupper rows.
In the Consumer Products Business, sales increased 1.2% and segment profit increased 10.1% to JPY19.6
billion. Segment profit margin was 8.4%, up 0.7% from the previous fiscal year.
In the Industrial Products Business, sales decreased 4.8% as a whole, mainly due to sluggish sales ofsemiconductor-related products in the electric and electronics field affected by trade friction between the
US and China. Segment profit declined 25.5%, mainly due to a decrease in gross profit resulting from lower
sales and an increase in depreciation expenses associated with the start-up of core systems at a chemical
subsidiary.
In the Overseas Business, sales decreased 3.8% YoY due to the impact of the decrease in sales in South
Korea and Hong Kong mentioned at the beginning of the report. Excluding the impact of exchange rate
fluctuations, the real rate of change was a 3.2% decrease. Segment profit increased due to improved
profitability in major Southeast Asian countries and a recovery in growth in China. The segment profit
margin was 7.5%.
In the Other segment, sales increased 12.7% due to an increase in the sales volume of logistics subsidiaries.
However, at a construction subcontracting subsidiary included in this segment, internal construction works,
such as the construction of a new factory for toothpaste, increased, which resulted in a decline in orders
received for external construction work. As a result, sales to external customers decreased substantially.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

5

Next, I will explain sales in the Consumer Products Business segment in more detail.
Oral care, beauty care, and living care are all growing steadily, supported by contributions from new
products and high value-added products.
In the fabric care field, sales of the renewed core brand of fabric softeners increased steadily mainly in thesecond half of the year, despite intensifying competition toward the end of the year in the area of laundry
detergents. As a result, overall sales increased.
In the pharmaceuticals, sales of the mainstay antipyretic analgesics and eye drops increased YoY, but sales
declined due to the impact of the transfer of the insecticide business and a decline in demand from inboundtourists in Japan. Excluding the impact of the transfer of the insecticide business, the real growth rate was a
decline of 4.9%.
In the other field, sales decreased due to a decrease in sales within the Group accompanying the transfer ofthe insecticide business and the continuing struggle in the direct-to-consumer sales.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

6

We are looking at the growth of five major consumer products sectors based on retail sales values,
comparing the total market and us.
The fabric sector is the only market segment with the same growth rate as the market, while all othersegments have been able to grow faster than the market. We expect steady growth to continue.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

7

In addition, I would like to provide a brief explanation of the state of the Consumer Products Business.
In oral care, we launched new high value-added products such as toothpaste, toothbrushes, dental rinses,
and dental products in each of the three priority categories of cavity prevention, gum disease prevention,and bad-breath care. As you saw earlier, we were able to maintain a high growth rate of 8.5% YoY on a sales
basis.
In the living care field, sales were up 10.5% YoY, driven by growth in the market share of Look Plus BathCleansing bath detergent. We received several awards, with the characteristic that it reduces the burden ofcleaning the bathroom and realizes a need for time reduction.
In this way, the continued growth of high value-added products in each field contributed greatly to thegrowth in sales and profits of the Consumer Products Business as a whole.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

8Next, I will explain the Overseas Business divided in two regions.
Sales declined in both Southeast and Northeast Asia. However, as shown in the table below, Southeast Asia
has achieved positive growth in real terms.
The decline in sales in Northeast Asia was attributable to the effects of South Korea and Hong Kong, which I
explained earlier. In China, we achieved double-digit growth on a local currency basis after shifting to a
growth trajectory last year following monetization through structural reforms. Sales of imported products
from Japan have contributed greatly to this growth in sales.
Let me now explain our initiatives for 2020.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

9

As for the consolidated financial results forecast for FY2020, net sales are expected to be JPY355 billion, an
increase of 2.2%. Core operating income is expected to be JPY30.5 billion, an increase of 1.5%. Operating
profit is expected to be JPY31 billion, while profit for the period attributable to owners of parent is expected
to be JPY21 billion.
This year marks the final year of LIVE Plan. On the right-hand side of the table, differences between theperformance targets at the time of the announcement of the LIVE Plan and the current targets. I will explain
this later.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

10This is the forecast for sales to external customers by segment.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

11This table shows the forecast for 2020 by segment, the 2020 target announced in the LIVE Plan, and theincrease or decrease compared to the 2017 results prior to the LIVE Plan.
Compared with the time LIVE plans were announced, there is a large discrepancy with the decline of JPY25
billion in the Consumer Products Business and the decline of JPY19 billion in the Overseas Business.
In the Consumer Products Business, the Group continued to struggle, mainly due to intensifying competitionin the fabric care and direct-to consumer sales. Overseas, the business environment worsened in South
Korea last year, and we undertook structural reforms in China in the first year. As a result, sales fell short ofour initial expectations.
However, although the figures are not shown, in comparison with the results in 2017, we have beenachieving steady growth while generating core operating income.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

12

Let me now explain the background to the consolidated earnings forecasts for 2020.
Our basic approach is to aim for steady growth in net sales, but we have also factored in an increase in
expenses for future growth this year. As a result, profit forecasts are on a par with the previous year.
The Company has not factored in the impact of the new coronavirus, as there are many uncertainties at thispoint in time.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

13

The key themes for FY2020 are shown here.
In Japan, we will continue to focus on sustaining growth in the oral care field, expanding our presence in thepharmaceutical field, and capturing inbound demand.
Overseas, we will focus our efforts on accelerating growth in our Chinese Business and restoring growth inSoutheast Asia, where growth was slightly stagnant last year.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

14

Let me explain a little more about each of these themes.
We believe that in order to sustain growth in the oral care field, it is necessary to establish oral carepractices and increase the number of participants in oral care activities through proposals tailored to eachgeneration.
In addition to launching new high-value-added products in the priority categories of cavity prevention, gum
disease prevention, and bad-breath care, we will continue to cultivate each brand in order to establish oral
self-care habits among as many people as possible.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

15This year, as part of this initiative, we would like to start an action to establish the habit of tooth brushingafter lunch at the office.
The portable toothpaste set so far has had many demerits, such as unstylishness and bad hygiene. I believe
this is a reason why we cannot increase the number of people who brush their teeth three times a day.
In April, we launched MIGACOT, a new product that resolves these complaints, and we are working tocreate oral care opportunities by promoting measures to encourage brushing at the office.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

16

The second theme is to expand our presence in the pharmaceutical field.
Currently, the mainstays of our Pharmaceuticals Business are antipyretic analgesics and eye drops. In orderto make dermatologic agents, which have larger market than the aforementioned two categories, into athird pillar, we will cultivate them under the brand names of "Method" for itchiness, "FERZEA" for dryness,and "PAIR" for beauty treatments, centered on acne, and including product extensions.
This year, we will focus on strengthening the area of itchiness.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

17

Specific measures are as shown.
We incorporated the Encron technology acquired from Shiseido Medical, and will substantially renew the“Method” brand as a brand for the treatment of itching.
By creating a lineup for each body part and clarifying the appeal of the product at stores, we will strive toincrease the ease of choice for customers.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

18

The third theme is capturing inbound demand.
Recently, there have been concerns about a decline in inbound tourists due to the impact of the newcoronavirus. However, the number of visitors to Japan is expected to increase this summer, due to the
Olympics and Paralympics, and demand from inbound tourists is also expected to increase accordingly.
In order to capture inbound demand, we will take various measures, including the use of mobile marketing,in a multifaceted ways.
In addition, we will take measures to maximize business opportunities that will lead to increased sales in
Cross-Border and Overseas Businesses, in order to avoid merely capturing temporary demand.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

19

The first priority of the Overseas Business is to accelerate of growth in the Chinese Business.
Leveraging the strong trust on Japanese brands and reliability, we will expand sales channels for Japanese
products and reinforce brand development. By capturing inbound demand and enhancing confidence in ourbrand, we will expand the sales volume of locally produced products in China in the future. We will
accelerate these scenarios.
Specifically, in addition to strengthening approaches to Chinese consumers through a variety of sales
channels and expanding the supply of Japanese products, we will foster brands through marketing thatcombines Japan's know-how with local strengths and expand the market through promoting preventive
dentistry in cooperation with specialists. Through these and other initiatives, we will strive to make Lionbrand loyal users among Chinese consumers.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

20

The second is the return to growth in Southeast Asia.
In Thailand and Malaysia, where we struggled in the previous fiscal year, our business portfolio is centeredon laundry detergents. As they are exposed to the risk of price competition, we struggled in the latter half oflast year as well.
Meanwhile, in Southeast Asia, the middle-class population is increasing, and there is a steady increase ininterest in health care and high-value-added products. We will review our current portfolio centered onlaundry detergents and expand our Personal Care Businesses, such as Oral Care and Beauty Care, with theaim of accelerating growth in sales and profits.
At the same time, we will promote cost reductions in the home care field, which accounts for a certain size,
as well as further researching the behavior, tastes, and local characteristics of consumers, in order to create
value-added products that create new customs.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

21This year's initiatives are explained above. Now, please watch a video for about three and a half minutes. As
I mentioned earlier, Lion would like to grow in Asia by leveraging its strengths as a Japanese company. We
have such a strategy.
One of its strengths is, of course, its strong commitment to quality. In the video, we introduce ourcommitment to the flavor of mint, which determines the taste of toothpaste. Looking ahead, in addition to
helping consumers understand our commitment to quality through our products, we will also promote ourcommitment to quality through video and other media. Please see.
Video: [Video showing Lion's commitment to manufacturing (approx. three and a half minutes).]
Kikukawa: In the harvest time of mints every year, our researchers go to mint fields and buy the blends thatbest fit our toothpaste.
I believe Lion is the only manufacturer in the world using natural mints with such a high level of mint taste. I
believe continuing to produce products with a strong commitment to areas that are hard to see externally is
the reason why we are highly supported also by overseas customers, and we would like to put even greater
emphasis on these matters.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

22

Finally, regarding shareholder returns, based on our basic policy of continuously and stably returning profits
to shareholders, we plan to increase the dividend for the fifth consecutive fiscal year, by JPY1 from theprevious fiscal year to JPY22 per share.
That's my explanation. Thanks for your time.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

23

Question & Answer
Q: As far as you know, what effect is the new coronavirus having?
A: There has been an increase in demand for hygienic products, such as hand soaps and disinfectants, bothin China and in Japan. On the other hand, the number of international visitors to Japan is decreasing
dramatically. In particular, the number of visitors from China, the largest foreign buyers of Japanese
products, is decreasing. As such, we believe that sales will fall in proportion to the decrease in thenumber of tourists.
Q: What risks does the virus present for Lion going forward?
A: There still are many uncertainties, but a significant risk is that to production. We have a factory in
Qingdao, China, that produces mainly oral care products, and there is a risk that we may not be able tomaintain stable operations there. A second risk is whether it will be possible to procure a stable supply of
raw materials for our factories. We expect to be able to do so for the foreseeable future, but if current
conditions drag on, it is unclear whether or not we will be able to maintain procurement over the longterm.
Q: What was demand from inbound visitors to Japan like in 2019?
A: While demand from inbound tourists generated more than ¥6.0 billion in sales in 2018, such sales shrank
to just under ¥4.5 billion, about three-quarters that figure, in 2019. We think that the biggest factor
behind this decline was a decrease in proxy purchases. Excluding the transfer of the insecticide business,the decline in sales in the Pharmaceutical Products Business was almost entirely attributable to thedecrease in sales to inbound tourists and proxy purchases.
Q: How much demand from inbound tourists have you factored into your plans for fiscal 2020?
A: I will refrain from giving the exact figures at this time. However, we expect the Olympics and Paralympics
to boost demand over the summer, so, despite the present causes for concern, we expect inbounddemand at about the 2018 level.
Q: Looking at positive and negative factors affecting core operating income in 2020, the impact of raw
material costs is opposite what it was in 2019. Why is that?
A: The price of crude oil is currently very low, which we believe will lead to a reduction in costs compared tothe average for the previous year. On the other hand, natural fat and oil prices have been consistently
high. The difference is what we expect after offsetting the two.
Q: The forecast impact of competition-related expenses is also opposite that of 2019. Could you explainthat?
A: Although it is not apparent in IFRS reporting, we have intentionally shifted part of our advertisingexpenses from competition-related expenses to sales promotion expenses, which are deducted fromsales. Moreover, as competition intensified in the fourth quarter, we decided to step up competitiveefforts in some areas. So, overall competition-related expenses have not really been reduced. In fiscal
2020, our policy is to once again increase expenses related to brand development—mainly advertisingexpenses—which resulted in this change in the breakdown.
Q: Does that mean that you aim to improve results by increasing sales in 2020?
A: Yes, of course. In particular, in the domestic Consumer Products Business, sales were mostly firm in thefiscal year under review, and we believe that we can expect growth at that level in the current fiscal year
as well. A key issue will be recovery in Southeast Asia, which has been somewhat stagnant. The otherquestion is when sales in South Korea, which fell sharply in the second half of 2019, will recover, but thisis somewhat out of our control.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

24

Q: Could you give us a summary of the decline in demand following the consumption tax hike?
A: We believe that the recoil ended in December, at least in our business areas, and that demand more orless returned to normal in January. Overall consumption was somewhat lackluster in the first half ofJanuary, but we believe this was not an effect of the consumption tax hike. However, reflecting theimpact of the new coronavirus in the latter half of the month, total sales in our business areas for Januarycame to 103% of the previous year’s level. Given this, we believe that demand has basically returned tonormal.
Q: Could you tell us about the state of the fabric care market last year and your forecast for it in 2020?
A: The overall fabric care market was somewhat slow, growing only about 2% year on year, which was alittle less than growth seen in other areas. This has not improved significantly since the beginning ofJanuary, so we expect to have to make up for it in other fields.
Q: Are we correct in understanding that the effect of the new coronavirus has not been factored into theplan for 2020?
A: That’s right, it is not factored in.
Q: How were conditions in Thailand in fiscal 2019?
A: In Thailand, price competition in the detergent business, which accounts for a large part of our businessthere, has intensified even more than in Japan. We are advancing profit-focused management to avoid
entering into excessive price competition. Although sales growth slowed, we achieved a larger increase inprofits than in 2018, so I believe that the direction of management is sound.
Q: How were conditions in South Korea in 2019?
A: The situation in South Korea has worsened markedly since July, and the year-on-year contraction in the
fourth quarter was even larger than that in the third. Although our products are not specifically being
targeted by boycotts, we are still utterly unable to negotiate with retailers, and our presence in retail
outlets is declining. If this situation drags on, that presence will fall further, so we urgently hope that thebusiness environment, including geopolitical factors, will soon improve.
Q: This year, you expect overall growth of 1.9% in the Overseas Business. What do you expect in terms ofsales in Thailand and South Korea?
A: Although we cannot give specific figures, in South Korea, we believe it inevitable that sales from January
to June will remain as persistently sluggish as they’ve been over the last six months. Nevertheless, we
expect a gradual recovery from July onward.
In Thailand, we will maintain mostly the same profit-focused management as last year. In fields
other than detergents, we expect growth to be a little stronger, and so are aiming to boost year-on-year
growth by about 1% compared with 2019.
As for growth in the Overseas Business, we will focus on China.
Q: How much growth do you expect in China in 2020?
A: Last year, we were able to secure growth of about 20%, so we would like to aim for that level this year aswell.
Q: Compared with 2019, how much do you expect new products to contribute to sales in Japan in 2020?
A: The number of new products will be fewer than in the latter half of 2019, but we launched a considerable
number of new products in the second half of 2019, mainly in oral care. This year the number will be
about the same as usual.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

25

Q: In what fields are you planning to introduce new products?
A: We will launch MIGACOT, as presented earlier, and other oral care products, as well as additional
products in the bath cleansing category, which continues to perform favorably, to further increase sales.
We also plan to substantially revamp a sub-brand in fabric softeners, sales of which are also strong.
These are the main new and improved products we are planning.
Q: Does that mean that the contribution to results of new and improved products will be smaller than in
2019?
A: It will be the same on a full-year basis. Although not all product lineups for the second half of 2020 havebeen finalized, I expect that we will launch about the same number of products as usual. We have great
expectations for the major revamp of the Method brand.
Q: In the fabric care field, competition intensified in the fourth quarter of 2018 and has now intensified in
Thailand, as well. You said that you think the direction of management is sound. However, if competitionis likely to continue intensifying, it seems like you might continue to have difficulty securing sales. Since
fabric care accounts for a large portion of total sales, it seems like this could make it difficult to secure
profit. What are your thoughts on this?
A: For the current fiscal year, based in part on what we learned in 2019, we have been careful not to set
excessively high growth targets for the fabric care field in Thailand and Japan. Rather, we are shifting
focus more than before toward growth in other countries and other fields. So, although we have noteliminated it, we have reduced the level of risk in this area.
Q: Could you please explain in more detail how you will expand fields other than detergents in Thailand thisyear?
A: In Thailand, we have for some time been focusing on nurturing personal care products, such as oral careproducts and hand soaps, and the amount of total net sales that such products account for has been
rising. However, this growth has not been fast enough to offset the slowdown in the rate of growth infabric care, presenting a major challenge. We will therefore concentrate new products in personal carefields, especially oral care.
Q: Core operating income for 2019 was ¥1.45 billion below the forecast published at the beginning of theyear. How much of this difference was due to performance in Hong Kong and South Korea, and how
much was attributable to the domestic Fabric Care Business?
A: Core operating income basically reflected the respective decreases in net sales. Hong Kong and South
Korea together saw a reduction in net sales of approximately ¥5.0 billion. Since the total gap between
the net sales result and forecast was around ¥12.0 billion, about half of the difference in core operating
income can be attributed to the decrease in gross profit in Hong Kong and South Korea as a result of thedecline in sales.
Q: Were there any other major factors behind the difference between actual core operating income and theforecast?
A: Operations in Malaysia struggled in the fourth quarter. Reflecting a tax hike in Malaysia in 2018, thirdquarter sales in 2019 were down on a year-on-year basis—the opposite effect of the 2019 third-quartertax hike in Japan. We thought that sales would rebound in the fourth quarter, but the increase was lessthan expected, and gross profit declined substantially, reflecting the decline in sales. About two thirds ofthe total gap in core operating income was attributable to the Overseas Business (including the factors
just explained) and the Industrial Products Business, while the remaining third was mainly due toperformance in the domestic fabric care field.
Q: So, South Korea and Hong Kong accounted for close to half of the difference?
A: Yes, almost half.
SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

26

Q: In that case, if not for South Korea and Hong Kong, would core operating income be about ¥0.7 to ¥0.8
billion higher this year?
A: Yes. We hope it will go that way.
Q: Will the effect of the new coronavirus be positive or negative for Lion?
A: We really do not know. Earlier, I only mentioned that the threat to procurement of raw materials for the
Qingdao Plant in China. However, many of the raw materials used in products we produce in Japan, as
well as a number from further upstream, are most likely produced in China. If even one of these isunavailable, we might be unable to make a complete product. We are still finding out how supply from
China will be impacted going forward, so there is no guarantee that such risks will not affect us.
Q: Could you be more specific?
A: For example, we may purchase raw materials for toothpaste made in Japan from Chinese manufacturers.
Even domestically produced raw materials could very well be themselves made with materials from
China. There are still parts of our supply chains we are unsure of, so, as I said, there are still some risks.
Q: I imagine that, when formulating the medium-term management plan, you probably planned to grow via
M&A, in addition to ordinary business. Where do you stand now on M&A?
A: Until 2017, we broadly targeted M&A overseas with the intention of expanding our area of operations
and in Japan in categories where M&A could generate greater synergies.
Since 2018, under the LIVE Plan, we have refined our targets quite a bit, aiming to reinforce specificareas within specific categories, or, overseas, specific functions in certain geographic areas.
Q: Could you share your general thoughts about differences between the medium-term management planand results so far? For example, are things not going as planned? Are you reworking your plans to startagain?
A: We are not able to give specifics at present, but efforts have already begun to take shape, and I think wewill be able to talk more about them in the near future. It is true that there has been some delay, but thisdoes not mean that we have given up or are rethinking our strategy. We have settled on a few specificideas and are beginning to move into action, as considerations reach an intermediate stage.
Q: It seems like you are finally getting ready to put your growth strategies into action.
A: Yes. Short-term results have been affected by geopolitical risks and severe market fluctuations, andthings have turned out a bit worse than expected on a number of fronts. However, we are now steadily
making forward-looking investments in line with our growth strategy. In this respect, please understandthat we are in the process of preparing for things to come.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

27

Disclaimer
SCRIPTS Asia reserves the right to edit or modify, at its sole discretion and at any time, the contents of thisdocument and any related materials, and in such case SCRIPTS Asia shall have no obligation to provide
notification of such edits or modifications to any party. This event transcript is based on sources SCRIPTS
Asia believes to be reliable, but the accuracy of this transcript is not guaranteed by us and this transcript
does not purport to be a complete or error-free statement or summary of the available data. Accordingly,
SCRIPTS Asia does not warrant, endorse or guarantee the completeness, accuracy, integrity, or timeliness of
the information contained in this event transcript. This event transcript is published solely for information
purposes, and is not to be construed as financial or other advice or as an offer to sell or the solicitation of an
offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal.
In the public meetings and conference calls upon which SCRIPTS Asia’s event transcripts are based,companies may make projections or other forward-looking statements regarding a variety of matters. Suchforward-looking statements are based upon current expectations and involve risks and uncertainties. Actual
results may differ materially from those stated in any forward-looking statement based on a number ofimportant factors and risks, which are more specifically identified in the applicable company’s most recent
public securities filings. Although the companies may indicate and believe that the assumptions underlying
the forward-looking statements are accurate and reasonable, any of the assumptions could prove inaccurate
or incorrect and, therefore, there can be no assurance that the anticipated outcome described in any
forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE
PUBLIC MEETING OR CONFERENCE CALL. ALTHOUGH SCRIPTS ASIA ENDEAVORS TO PROVIDE ACCURATE
TRANSCRIPTIONS, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE
TRANSCRIPTIONS. IN NO WAY DOES SCRIPTS ASIA OR THE APPLICABLE COMPANY ASSUME ANYRESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BY ANY PARTY BASED UPON ANYEVENT TRANSCRIPT OR OTHER CONTENT PROVIDED BY SCRIPTS ASIA. USERS ARE ADVISED TO REVIEW THE
APPLICABLE COMPANY'S PUBLIC SECURITIES FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER
DECISIONS. THIS EVENT TRANSCRIPT IS PROVIDED ON AN "AS IS" BASIS. SCRIPTS ASIA DISCLAIMS ANY AND
ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWAREERRORS OR DEFECTS, AND ACCURACY, COMPLETENESS, AND NON-INFRINGEMENT.
None of SCRIPTS Asia’s content (including event transcript content) or any part thereof may be modified,
reproduced or distributed in any form by any means, or stored in a database or retrieval system, without theprior written permission of SCRIPTS Asia. SCRIPTS Asia’s content may not be used for any unlawful or
unauthorized purposes.
The content of this document may be edited or revised by SCRIPTS Asia at any time without notice.
Copyright © 2020 SCRIPTS Asia Inc. (“SCRIPTS Asia”), except where explicitly indicated otherwise. All rights
reserved.

SupportJapan
Tollfree03.4405.3160
0120.966.744

North America
Email Support

1.800.674.8375
support@scriptsasia.com

28