Milbon Co., Ltd.
Q2 Financial Results Briefing for the Fiscal Year Ending December 2023
August 10, 2023

Event Summary[Company Name]

Milbon Co., Ltd.

[Company ID]

4919-QCODE[Event Language]

JPN[Event Type]Earnings Announcement[Event Name]

Q2 Financial Results Briefing for the Fiscal Year Ending December 2023

[Fiscal Period]

FY2023 Semi-annual[Date]

August 10, 2023

[Venue]Webcast[Number of Speakers]

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Ryuji Sato
Masahiro Murai

Representative Director, President & CEO
Managing Executive Director

1Presentation
Murai: My presentation will cover the financial results for the second quarter of fiscal year 2023.

First are the full fiscal year results.
As you can see, first half net sales increased by 5.8%, year-on-year.
Sales grew thanks to the strong performance of domestic haircare products and favorable sales in the U.S.,
South Korea, and other regions.
However, the Company target was not met due to less than satisfactory progress in beauty equipment - more
specifically our hair dryer - and domestic hair coloring products.
Additionally, rising raw material costs pushed down the gross profit margin, and SG&A expenses also
increased due to increased sales activities.
As such, unfortunately, operating income decreased on a year-on-year basis.

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This waterfall chart breaks down the factors in year-on-year change in consolidated operating income.
End of first-half results for fiscal year 2022 form a starting baseline of 3.824 billion yen.
While higher sales led to an increase in gross profit of 820 million yen, rising raw material costs, among otherfactors, weighed down on gross profit margin by 280 million yen.
We additionally saw an increase in expenses of 470 million yen, resulting from greater activity in the form of
events, etc.
There was an increase in travel and transportation expenses of 160 million yen, and of 250 million yen inpersonnel expenses, on account of a higher employee headcount, annual salary increases, as well as the base
pay hike implemented in April.
Taking all of these factors into account, operating income as of the first half stood at 3.091 billion yen.

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I would now like to go over consolidated sales by product category, starting with hair care products.
Premium brands saw a strong performance, with Aujua and Global Milbon growing sales at a robust pace.
milbon:iD continues to grow at a robust pace and had 540,000 registered members and 5,450 registeredsalons as of the end of June.
Lastly, while overall sales of professional brands haven't increased much, some of our new product releases
have been very well received, so we have seen higher sales from these.

4Page 6 deals with new products from the Aujua and Global Milbon brands, with the results being as shown
here.

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Next are new hair care products from our professional brands.
These products show a very high progress rate versus the fiscal year 2023 target - at around 82% and 95%,
respectively..

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Aujua - which is one of our flagship brands - registered a year-on-year sales increase of 10.1%, accompanied
by an increase of 6.6% in the number of salons.
Our new “Inmmetry Line” has posted very strong results, and these contributed to the aforementioned
increases.

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Next is Global Milbon.
Growth in Japan was driven by increased touchpoints due to the release of “Milbon&,” and overseas growth
was driven by the U.S.
The number of salons therefore grew by 14.2% and consolidated gross sales grew even more - by 24.3%.

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Next is the category of hair coloring products.
Sales of hair coloring products in Japan were down 1.0%, year-on-year, as excess inventory at distributors
since the end of last year negatively affected sales over the first half.
Overseas, sales remained steady with a 9.1% increase, year-on-year.

9We invite you to review this slide for the results for Villa Lodola.

10Page 12 discusses new products for the Villa Lodola brand.

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Next is the category of cosmetic products.
While results are starting to show year-on-year growth, this product category nevertheless still fell short ofthe plan.
With that being said, a new product released in this category has been very well received, with the progress
rate already exceeding the plan target by 29.4%.

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As we wrote here, strong sales of new products led to a year-on-year increase in sales, and additionally, thenumber of salons also grew by 16.3%, in what was also a strong performance.

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Unfortunately, the sales progress rate for Elmista - a hair dryer jointly developed with Panasonic - has beenlackluster.
The fiscal year 2023 target is 1.215 billion yen in sales, but realized sales figures through to the end of the firsthalf only amounted to 57 million yen.
President Sato will be going over the details later on, but one thing that can be said is that realized results
deviated significantly from Company expectations.

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Next are the consolidated trends in capital expenditures and R&D expenses.
As of the end of the first half, we had executed 1.704 billion yen in capital expenditures, more or less according
to plan.
There have been some partial delays in terms of investment in factories, but there haven’t been any planchanges.
As such, we believe that ultimately things will progress according to the plan.

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Next are trends in fieldpersons, shown here on a per-country basis.
We welcome you to review this information when you have the time.

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Next are consolidated net sales in Japan and Overseas.
Net sales in Japan grew by 3.3%, year-on-year, and 14.2% Overseas.
This overseas performance includes foreign exchange effects, so the adjusted growth rate is 9.5%.

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Next are the operating income results.
We face a challenging situation in Japan, with a decrease in operating income and in the operating income
ratio, which stood at 14.0%.
On the other hand, we registered an increase in operating income in the Overseas business.
The amounts aren’t that large, but have shown steady growth.

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Next, I would like to discuss the outlook of our overseas subsidiaries, starting with Milbon USA.
Here, Global Milbon is performing very well, with great success in terms of a deeper collaboration with
distributors translating into results.
Additionally, hair color training sessions for distributor representatives across the U.S., among other initiatives,
have contributed to a sales increase for SOPHISTONE, a hair color brand tailored for the European and North
American markets.

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Next is Milbon China.
Noteworthy here is how we hosted in the second quarter a large-scale event that attracted over 3,000 beauty
professionals.
This event was titled “Be the One,” and was held as a message-driven event for people in the beauty industry.
Not many of these types of events are held in China, so we believe this effort will bear fruit for Milbon, going
forward.
While this will not directly translate into an increase in sales, we held this event in the interest of the beauty
industry in China.
Additionally, hair care products led growth, thanks to the introduction of Global Milbon and Grand Linkage.
Furthermore, production of hair coloring products at the China Factory commenced in July, ahead of theoriginally planned start in 2024.
These therefore represent very strong results.

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Next is Milbon Korea.
Hair coloring products account for more than 70% of total sales, and within these, gray color products
delivered very strong growth.
Additionally, sales of hair care products, especially Global Milbon, performed well, on account of very goodcollaboration with distributor representatives.
While net sales posted a strong performance, Milbon Korea actually recorded a decrease in profits.
This was primarily due to costs relating to the resumption of major events that could not be held during the
COVID-19 pandemic.

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As announced earlier today, Milbon issued a revision to the consolidated operating results forecast, so allow
me to offer a few comments on the matter.
As I mentioned earlier, net sales are expected to fall 1.2 billion yen from the initial forecast due to the expectedshortfall in sales of beauty equipment and domestic hair coloring products.
More specifically, sales of beauty equipment were adjusted downward in line with the full-year sales forecast,while the sales forecast for hair coloring products was cut by the negative amount in the first half of the fiscal
year.
Gross profit is expected to decrease due to a decline in sales, as well as losses from disposal and write-downs,
both in Japan and the U.S.
Lastly, while there are unutilized SG&A expenses, we are now expecting additional expenses not accounted
for in the original plan.
As such, we now anticipate these to come in at the originally planned level, so we expect a decrease inoperating income.

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Next are the consolidated forecasts by product category.
As you can see, we have lowered the sales forecast for hair coloring products by 234 million yen, and for the
category of “Others,” by 943 million yen, primarily due to the underperformance of our Elmista hair dryer.
In terms of the breakdown, we expect strong results Overseas, as we actually revised the sales forecast
upwards by 171 million yen.
Unfortunately, we have issued a downward sales revision for the Domestic segment, and a significant factor
behind this was the underperformance of our hair dryer.

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Next is an analysis of the factors affecting changes in operating income, within the revision to the consolidated
operating results forecast.
The initial forecast for operating income was 8.3 billion yen, but we now expect a decrease in gross profit of
460 million yen due to lower sales, 285 million yen in disposals and write-downs, as well as the negative impactof “others.”
In terms of SG&A expenses, we expect a decrease in logistics expenses derived from lower sales, andadditionally there are unutilized SG&A expenses, so overall, we expect to save 470 million yen in SG&A in
fiscal year 2023.
These are the decrease factors for SG&A expenses, but conversely, we forecast 510 million yen in increase
factors, such as personnel expenses, travel and transportation expenses, and the construction of the Human
Resources Development Center. We are in the process of proceeding with construction, but because
construction will take place in Odawara, this process requires us to expend costs to investigate buried culturalproperties at the construction site. This was an unexpected expense of 50 million yen, and we will also be
incurring 180 million yen in world expo sponsorship expenses. Sponsorship expenses totaled 500 million yen,
but starting this year, these expenses can be recorded in installments. We will therefore be recording onethird of these expenses every year, starting this fiscal year.
Taking all of these factors into account, the operating income forecast now stands at 7.35 billion yen.

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Sato: I would now like to go over 3 analysis highlights for the first half of fiscal year 2023, as well as theinitiatives for the second half.
First is a review of the first half.
As you are aware, the following factors affected consumer behavior: inflation, soaring energy costs resulting
in higher utility costs, and also a great increase in people traveling this year, both domestically and overseas.
This year, I have been doing quite a bit of business travel myself, both within Japan and overseas, and I canattest to this increase in people traveling.
In fact, this surge really went into high gear after May 8th, 2023, after the COVID-19 downgrade.

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We therefore feel this marks a significant change for consumers, who had lived a different lifestyle for the
past three years because of COVID.
In light of this, and as Managing Executive Director Murai mentioned earlier, one of our topics of analysis in
first half results is how the Overseas business has been posting a strong performance, with net sales growthof 14.2% in the Overseas segment.
Additionally, we have two topics of analysis as it pertains to sales in the Domestic business.
The first is the line item of “Others,” which contains the results for the Elmista hair dryer jointly developed by
Milbon and Panasonic. Things haven’t been going as we had hoped, and this is the largest factor behind thedecrease in sales.
The other factor is the performance of hair coloring products, especially domestically, as we have been seeing
strong results overseas.
I would like to use this opportunity to discuss these two topics of analysis.

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First is Elmista, our hair dryer and Milbon’s first endeavor in the field of beauty equipment.
Japan’s population is expected to gradually decrease over time, and against this backdrop, our strategy is toexpand the products we offer. Within this, we expanded into cosmetics, and we want to try various domains.
This is by no means easy and this experience with Elmista contains lessons for us, as competition in the market
for high-end hair dryers is fierce.
Additionally, we developed Elmista with specifications designed for home use, in terms of the shape, winddirection, and color. This hair dryer is offered in white and this presents a drawback when used in a
professional setting at beauty salons, namely how any residue from things like styling gel or foam is likely tostand out. Elmista being designed for home use isn’t in and of itself a bad thing, but the issue I mentioned justnow does lower the probability of consumers having the opportunity to be exposed to Elmista at their hairsalon of choice and makes it harder for stylists to recommend it to customers.
We believe this to be the main reason things aren’t going as planned on this front.
I would now like to discuss future actions to remedy this.
A total of over 16,000 salons carry our premium brands of Aujua and Global Milbon, and in the second half,
we will be actively lending out our hair dryers to these hair salons and encourage their use there, as well as adirect hands-on experience for clients.

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We have also heard from stylists about how they find it difficult to use the dryer directly, so we will be offering
trial rentals of our hair dryer to customers, with customers that enjoy the product then making a purchase.
Going forward, we will be offering these types of services, in a way to incentivize a hands-on experience on
the part of customers. Customers who have used our hair dryer have very good things to say, so we will befocusing on how to navigate that bridge between salons and customers.
We issued a downward revision to sales, but this is a first-time endeavor for us in the field of beauty
equipment, so we intend to continue our efforts.

Next is the topic of hair coloring products.
We see no change in the hair color trend in Japan.
We saw a slight decrease of 1% in the first half in Japan, in terms of sell-in, as we offer our products to salonsthrough distributors. The reason for this decrease is the fact that our hair coloring products had been seeing
double-digit growth of 12% to 13% for two consecutive years amidst the COVID-19 pandemic. Distributors
expected this trend to continue, so there was an excessive purchase of inventories on the part of distributors.
This year, results have plateaued at elevated levels, with hair coloring product shipments for the industry
overall staying in line with last year’s numbers. Last year saw increasing popularity of double-process colors,
and this trend remains in effect this year. These factors remain at play, but sales of hair coloring products are
not growing like they used to over the past two years.

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Against this backdrop, we are now seeing a gap between sell-in and sell-out. Results from sell-out by
distributors have been strong, so Milbon’s hair coloring products posted growth on this front, but distributor
inventories weigh down on sell-in, so overall we registered a decrease of 1%.
As such, we see no major changes in the hair color trends and, as Managing Executive Director Murai
mentioned earlier, the performance gap in the first half stems from Elmista and from hair coloring products.
We reflected these results in the revised forecast, and we expect hair coloring products to perform according
to plan in the second half.
Ordeve Crystal High Bright, which is a product to cover over gray hair with bright tonalities, debuted in Julyand has been off to a strong start. Additionally, slated for release in September is Enog Off Black, a productaddressing the double-process color trend, and specially geared toward young people. Since we will beenergizing the brands of Ordeve and Enog through these product releases, we believe we will be able todeliver results according to plan in the second half.
In summation, in the first half, we fell short in terms of Elmista and in terms of the progress versus the forecast
for hair coloring products. To make up for this, we will be executing the various initiatives I discussed just now.

Milbon’s key focal point initiative is its Beauty Platform Plan.
11 salons resonated with Milbon’s vision and opened as smart salons in the first half. The first smart salon
opened on January 21st, 2023, and this has been followed by the opening of another 10 salons since then.

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It is the salons themselves that choose the layout and the type of salon they wish to operate, with Milbon
playing a supporting role. This is therefore a joint effort between Milbon and salons that resonate with our
vision.
One important element is location, and there is variety here, with some salons being located insidecommercial facilities and others being standalone stores facing customer foot traffic.
Milbon offers support on what type of smart salon to operate under what type of layout, all the whilecollecting information and feedback.

Against this backdrop, I have identified two encouraging responses.
There’s currently only a total of 11 smart salons, as Milbon is yet to actively push this concept. Rather, Milbon
is currently working alongside salon owners that learned about our concept and actively expressed a desire
in opening smart salons.
3 out of these 11 salons have already expressed interest in opening a second smart salon. Had these salons
not seen results, they naturally wouldn’t be talking about opening more smart salons, so this underscores thevalidity of this concept. In other words, these salons are seeing a positive response to their smart salon
initiatives and continue showing interest in initiatives like these, going forward.
The second encouraging response has to do with the Milbon Management Index Survey. Every year, Milbon
carries out a Management Index Survey covering approximately 1,000 salons which focus primarily on Milbon

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products, obtaining a variety of data such as the percentage of customers requesting hair coloring services,hair perms, the number of customers, average customer spend, etc.
This data is then analyzed and used by Milbon fieldpersons in making suggestions and proposals to salons.
Looking at the data over time, the ratio of customers purchasing products stands at around 15% to 16% forsalons which focus primarily on Milbon products. This is accompanied by a ratio of product sales of between
8% and 10%. These numbers are lower for the beauty industry at large, with unequivocally higher figures forsalons focusing on Milbon products.
However, the ratio of customer purchases for smart salons is approximately 40%, and the ratio of productsales is also double that of the salons I mentioned earlier and stands at approximately 20%. Naturally, productsales are centered around Aujua and while it’s only been approximately 6 months, smart salons already show
double the percentage of product sales.
Milbon seeks to partner up with salons in over 100 cities throughout Japan by 2026, to roll out smart salons,and we believe these efforts will make a significant sales contribution.
These are two very encouraging responses we have encountered.

As I have mentioned several times already, milbon:iD is the foundation underlying our activities, linking up
these various structures and systems, and building a link between customers and salons.

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The number of registered users stood at approximately 450,000 at the end of last year, and at 540,000 as ofthe end of June. By the end of July, this number had reached 560,000, with the number of registered salonshaving reached around 5,500.
This structure therefore forms the foundation upon which smart salons are built, as this structure gives Milbon
a very significant advantage within the scope of its competitive strategy. The reason for this is that Milbon has
been the only company in the beauty industry that has been able to deliver good results with e-commerce.
Our strategic model is therefore premised on a foundation that then allows us to execute and expand oursmart salon strategy.
We believe this model will translate into results going forward.

Additionally, in order to further expand the range of products we offer, we will be launching new products inthe fall season.
There is some variance on a month-to-month basis, so sales of cosmetics increased by 1.9%, year-on-year in
the first half, but we expect cosmetics to show higher growth in the second half.
Im is a new product that debuted just recently in July, and unlike IMPREA, this Beauty Up Mist product has aslightly younger target market and is easier to use. This product debuted in July and has been off to a strong
start.

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Additionally, we expect to release Alanous, which is a beauty supplement, in September of this year. This, too,is an endeavor in a new product genre, although the context is somewhat different, as Milbon has continued
carrying out joint research with Cosmo Oil into 5-ALA, a hair growth agent, over the past 20 years. Over thecourse of this research, we found out that this compound can be leveraged in the production of beauty
supplements. This part wasn’t done together with Cosmo Oil, but we have succeeded in developing a beauty
supplement product, which is slated for release in September.
Supplements are still only a small part of the field of beauty, but we intend for this to create new opportunities
going forward, expanding the scope of our business.
In the first half, I therefore believe we have been able to sow seeds for this future growth.

Next is progress in the Overseas market.
Net sales in the Overseas business grew by 14.2%, year-on-year, which comes to around 10% when excluding
foreign currency fluctuations.
This year, I had the opportunity to visit all regions where Milbon has bases of operation, with the exceptionof China, and this has made me quite hopeful in terms of the outlook going forward.
In South Korea, Milbon has now become the top player among non-Korean companies, as we hold the number
two market share in the country.

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Additionally, as Managing Executive Director Murai mentioned earlier, we carried out events with theobjective of attracting hairstylists in younger demographics, and we are carrying out other strategies to thisend.

Next is China.
While economic activity has resumed in China, there continues to be up and down swings in terms of COVID
cases.
It was against this backdrop of changing consumer values and priorities in China that Milbon held a messagedriven event. Titled “Be the One,” this event drew 3,000 hair stylists and was very well received, and webelieve it will pave the way for positive developments further down the road.
Additionally, we believe sales will see a steady increase in the second half.
Next, I would like to discuss our factory in China.
Very rarely is this a smooth process, but Milbon has been able to obtain sales approval for hair coloringproducts in an expedited manner.
We started a pilot program this summer, for the purposes of quality control and checks of manufacturing
processes, and we have plans for production to commence in earnest next year in China.

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Next is the United States, where Milbon has its third largest overseas base of operations by sales.
Currently, we have 9 distributors nationwide for Milbon products.
A roundtable meeting was held between Milbon’s top management and the Heads of all U.S. distributors, inwhich we discussed Milbon’s philosophy and discussed ways to grow Milbon’s presence in the United States,for hair care products and hair coloring products, which is an area Milbon is focusing on.
I believe this was a fruitful opportunity to enhance our relationship with distributors.
We also held “Color Boot Camp” - an intensive hair color training session for distributors. Through this and invarious ways, we offer proposals for the use of SOPHISTONE.
Last is the ASEAN region.
It has been about a decade since Milbon first entered the ASEAN market, and we believe we are seeing that
our efforts have borne fruit, especially in Thailand, Malaysia, and Singapore.
My visit to this region also reaffirmed this belief, as we see greater motivation on the part of distributors andhave deepened our relationship with them in carrying out activities in this region.
This has translated into results, which have gone on an upward trend starting around last year.
In summation, I see indications that the overseas business can continue growing going forward.

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Last is the topic of return to shareholders.
While we have revised the consolidated net sales forecast down to 48 billion yen, this nevertheless amounts
to a year-on-year growth of approximately 6.5%.
It’s not like the cosmetics business has stagnated, as it continues to deliver steady growth.
To be frank with you, Elmista’s underperformance was rather significant and this is something we havelearned valuable lessons from, which we would like to leverage going forward.
As such, the interim dividend has been confirmed at 40 yen per share, and our commitment to distributing an
end-of-fiscal-year dividend of 48 yen per share remains in place.
We ask you for your continued guidance and support going forward.
Thank you for your time.
[END]

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