Watahan & Co., Ltd.
Financial Results Briefing for the Fiscal Year Ended March 2021
June 7, 2021

Event Summary[Company Name]

Watahan & Co., Ltd.

[Company ID]

3199-QCODE[Event Language]

JPN[Event Type]Earnings Announcement[Event Name]

Financial Results Briefing for the Fiscal Year Ended March 2021

[Fiscal Period]

FY2020 Annual[Date]

June 7, 2021

[Number of Pages]

33[Time]

17:00 – 17:21(Total: 21 minutes, Presentation: 21 minutes, Q&A: 0 minutes)[Venue]Webcast[Venue Size][Participants][Number of Speakers]

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1Isamu Nohara

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Presentation

Nohara: I’m Isamu Nohara, President & CEO of Watahan & Co., Ltd. I will explain our financial results for the
fiscal year ended March 2021.
I would like to start by explaining the summary of the financial results, earnings by segment, and consolidated
financial statements for the fiscal year ended March 2021, and then I will explain our earnings forecasts andthose by segment for the fiscal year ending March 2022, and finally, our medium-term management plan.

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First of all, regarding the summary of financial results for the fiscal year ended March 2021, we have been
conducting business based on our management policy for the current fiscal year of creating a stable andgrowth-oriented business structure that is not susceptible to economic fluctuations.

Due to the impact of the coronavirus infection since the beginning of the previous fiscal year, the initial plan
itself was planned to be unchanged from the preceding fiscal year. However, the revised plan was announced
in September 2021, and subsequent sales reached JPY114.7 billion as planned.

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As for ordinary income, the Company planned for JPY2.85 billion, which was the same level for the year before
last of JPY2.81 billion. However, since the Company's business performance was favorable in the first andsecond quarters, we announced a revised plan in September 2021.
As a result, ordinary income reached JPY3.52 billion, a further increase of 5.1% over the plan.

Looking at sales by segment, the retail business, with stable sales growth, had a positive impact of JPY2.9
billion, while the construction business segment, affected by the coronavirus pandemic, had a negative impact

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of JPY9 billion. The trade business segment had a positive impact of JPY600 million, for a total of JPY114.7
billion.

In terms of profits, the retail business increased by JPY940 million, the construction business was slightly
negative by JPY150 million, and the trade business was positive by JPY10 million, resulting in a total operating
income of JPY3.28 billion.

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Looking at results by segment, we promoted 3 measures for the retail business: continuing to promote store
renovations and new store openings as our management policy, continuing M&As regardless of industries,
and promoting cashless operations.

As a result, with the initial plan of JPY81.9 billion, we revised the plan downward to JPY80.6 billion, andachieved JPY80.6 billion as in the revised plan.

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As for our profit plan, the initial plan was JPY1.68 billion. However, as our profit increased significantly in thefirst half of the fiscal year, we announced our revised plan of JPY2.45 billion in September, and as a result, weachieved JPY2.56 billion, a further increase of 4.5%.

This is the breakdown of changes in the retail business sales. Although sales increased by JPY1.9 billion due torenovations and new stores, sales declined by about JPY400 million due to changes in the operating hours ofsome stores. With another increase of JPY1.9 billion by M&A, the total sales reached JPY80.6 billion.

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Although profits from renovations and new stores remained almost the same, profits from existing storesincreased significantly by about JPY1.06 billion, bringing the total to JPY2.56 billion.

Last year, due to the coronavirus, considerable demand occurred due to staying home in the first half of theyear, increasing sales significantly. Sales fluctuated significantly in September and October, due to reactions
to the special demand from the consumption tax increase of the year before last, but even after that, sales
remained stable at over 100%.

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In February and March of this year, the reaction to the special demand for stockpiling has gradually started toemerge, with sales declining below 100%.

While sales have changed in this way, gross profits of fresh fish, vegetables, and fruits directly purchased,having become fresher, increased by about 4.1% from February of the year before last.

As for prepared foods, we hired employees of restaurants and hotels that were suffering from the coronavirus
pandemic, which not only improved the freshness of our products, but also enabled us to have a strong

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9commitment to the taste of our products. As a result, profits of prepared foods also increased 2.6% from theprevious fiscal year.

In addition, we were able to expand the range of products handled through M&As related to interiors andpharmaceuticals for purchasing.

Furthermore, we introduced the goca card as our own card in April for cashless payment. In just 1 year,
customers have begun to use this card for payment in up to 12.3% of all transactions.

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10Next, as for the construction business, although the Olympic Games were postponed for 1 year, we werelooking ahead to the post-Olympics period and implemented measures for 1 year in preparation for revising
our business system.

We made the initial plan with sales to fall from JPY36.8 billion to JPY32.2 billion, but in September 2021, we
forecasted final sales of JPY27.6 billion in our revised plan, and sales were almost exactly the same as that
forecast.

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As we expected profits to fall a little more than initially planned, we set our profit at JPY810 million in therevised plan, but the result was JPY940 million, close to those in the year before last, up 16% from the plan.

In terms of sales, the steel-structure business and the renovation and interior/exterior business were notaffected to that extent, but the parking lot business, which did not receive any orders during the first half ofthe fiscal year, saw a decrease in orders by about JPY6.6 billion.

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12However, as many of their properties were low margin in the year before last, both the steel-structure andparking lots businesses had virtually no impact on the segment profit, while the renovation business, having
received the largest orders from the manufacturing sector, was affected the most by the coronavirus,
decreasing profits from JPY1,090 million in the year before last to JPY940 million.

The situation was quite severe in the first half of the previous fiscal year, as the order backlog dropped
significantly from JPY17.7 billion to JPY11.1 billion, but it returned to JPY15.4 billion by the fourth quarter,roughly at the same level as 2 years ago. The order backlog is still 38.7% higher than that in the first half ofSupportJapan
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13the previous fiscal year, with the situation expected to remain severe until the first half of the current fiscal
year, although we expect the situation to return to normal in the second half.

In the previous fiscal year, we restructured our business system to a more specialized one, which we believe
will allow us to return to a system that can generate solid earnings.

Next, as for the trade business, since it was also difficult to make transactions overseas due to the coronavirus
pandemic, and our purchasing routes of Mexico, India, and China were greatly affected by the coronavirus, it
was a difficult year to secure these purchasing routes.
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14While net sales exceeded the initial plan, which were forecast to be JPY6.4 billion in the revised plan due to aconsiderable increase in shipments in the first half of the fiscal year, final net sales did not reach this level,
ending at JPY6.07 billion, a decrease of 5.1%.

On a profit basis, we reached JPY920 million, exceeding the initial plan of JPY910 million, but segment profit
was 6% lower than the original revised plan.

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15This is because there was a large increase in demand in the first half of the fiscal year as a result of the increase
in inventories by pharmaceutical manufacturers due to the coronavirus. While in comparison, chemical
products decreased compared to considerably increased pharmaceuticals due to the reduction of thecosmetic market.

In terms of profits, pharmaceutical products increased, while chemical products fell, so there were positive
and negative impacts. With an increase from JPY910 million to JPY920 million, we finished at the same level
as in the previous year.

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Next, in the consolidated financial statements, current assets decreased by JPY4.16 billion due to a decline inorders and progress in construction for the construction business. On the other hand, since there was anincrease in land and real estate due to M&As, fixed assets increased by about JPY780 million.
As for liabilities, trade notes and accounts payable decreased for similar reasons. Borrowings also decreased
due to repayment, and net assets increased by JPY1.69 billion due to an increase in net income.

Cash flow was positive JPY3.2 billion thanks to steady profits. Depreciation and amortization of goodwill
progressed to positive JPY2.1 billion, resulting in a positive operating cash of JPY6.9 billion.
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17Despite aggressive investments, they did not lead to the acquisition of many fixed assets, resulting in anegative investing cash flow of JPY1.6 billion. As the repayment of borrowings progressed, the Company's
financing cash flow was negative JPY2.8 billion, with cash increasing from JPY2.5 billion to JPY5 billion.

Let's continue with our earnings forecast for the fiscal year ending March 2022.
Last fiscal year was the interim period of the medium-term management plan announced in 2019. This fiscal
year is the final period. As for profits, we have reached JPY3.52 billion, significantly exceeding our target of
JPY3.2 billion while achieving the plan.

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For the current fiscal year ending March 2022, we intend to actively make investments in preparation for the
next medium-term management plan.

It has been just 10 years since we announced the management policy in the fiscal year ended March 2011 ofcreating a stable and growth-oriented business structure that is not susceptible to economic fluctuations,which we used until the last fiscal year.

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19While it was originally established at the time of the collapse of Lehman Brothers, we recognized, in the wakeof the coronavirus pandemic, that we have established a system that will not be susceptible to economic
fluctuations on a 10-year basis, so we have changed our management policy from the current fiscal year.

With our new management policy of committing ourselves to the future of the region and to the creation of
new values together with the local communities, we intend to expand our business particularly in the 3 areasof Nagano, Yamanashi, and Aichi, in which we are engaging our business, especially in Nagano.

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In line with this trend, we will establish systems and make capital investments for the next phase of growth.
First, we will expand our distribution centers to Iida, Nagano Prefecture. We plan to develop them. We would
also like to accelerate store renovations and new store openings in Nagano and Yamanashi.
At the same time, while we have 2 plants that were originally built in Iida, we would like to improve theirefficiency by integrating them to increase their size and introduce factory automation.
Apart from that, we plan to invest JPY3.2 billion in total by promoting M&As as well.

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As a result, sales are expected to rise from JPY114.7 billion to JPY120 billion, or an increase of 4.5%.

We plan to increase profits slightly from JPY3.52 billion to JPY3.55 billion at this stage.

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As for changes in sales, the increase in the retail business due to the coronavirus pandemic is expected tosettle down, with a decrease of JPY600 million. On the other hand, we expect the construction business toshow steady growth with a positive impact of JPY6.1 billion, for total sales of JPY120 billion.

Profits will be from JPY3.28 billion to JPY3.37 billion, with a slight increase and a slight decrease in eachsegment. We intend to develop each segment by aggressively investing in these segments as well.

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As for earnings forecasts by individual segments, we will continue to promote store renovations and newstore openings in the retail business, as mentioned earlier. We are planning to develop new types of stores.

In particular, we would like to promote the development of stores in the central urban area, rather thanprevious ones in the suburbs. We will continue to develop stores that focus on food.

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In addition, we would like to expand our distribution warehouse by further improving the efficiency of
distribution.

Based on these measures, we expect sales to remain on a par with the previous year.

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With expenses forecast to increase slightly, profits are expected to decrease by 7.4% from JPY2.56 billion in
the previous year to JPY2.37 billion.

As for the construction business, we are planning to further accelerate the shift to factory automation in thesteel frame field by integrating our plants as we discussed in the investment section. By consolidating into 1
location, we intend to switch to a system that enables more efficient production.

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At the same time, we will add the wooden housing field to the construction business and focus on this as the
fourth pillar of the construction business.

As a result, sales of the construction business are expected to increase by 22.3%, from JPY27.8 billion in theprevious fiscal year to JPY34 billion.

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Earnings are expected to increase from JPY940 million to JPY1,060 million, an increase of 12.8%.

Also, in the trade business, we expect a reactionary decline from last year's inventory buildup to occur inpharmaceuticals, which will be quite large.

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On a revenue basis, JPY6.07 billion will decrease 5.7% to JPY5.73 billion.

Besides this decrease, we expect a decline in segment profit from JPY920 million to JPY780 million, a decreaseof 15.3% with a return to the same level as in the year before last.

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29However, in the trading business, we are planning to give more focus to the food business rather than justthese 2 fields.

Finally, the medium-term management plan.
For the time being, since we are in the final period, our sales target was originally JPY120 billion and ourordinary income target was JPY3.2 billion at the end of this fiscal year. The forecast for the final results is
JPY120 billion and JPY3.55 billion, based on which we intend to make steady progress in the final year as a
medium-term management plan to create a stable and growth-oriented business structure.
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30This concludes our explanation for the financial statements for the fiscal year ended March 2021.
Thank you for your attention.
[END]______________
Document Notes
1.
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3.

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This document has been translated by SCRIPTS Asia.

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