http://www.doshisha.co.jp/7483

Doshisha
Masayuki Nomura
President and COO, Doshisha Corporation

Long-term Vision:
Create 30 business groups each worth ¥10 billion◆Summary of 1H FY3/17 Consolidated Results
For the first half of fiscal 2016, ended September 30, 2016, consolidated results were as follows: net sales¥50,921 million (down 3.2% year on year), gross profit ¥13,023 million (up 2.6%), selling, general andadministrative expenses ¥9,567 million (up 6.1%), operating income ¥3,455 million (down 6.1%), ordinary
income ¥3,327 million (down 12.5%), and net income ¥2,211 million (down 9.0%).

Sales declined due to a pullback in inbound demand for luxury brand watches and weaker sales of TVs.
The gross margin remained high at 25.6%, supported by the development and launch of new retailconcepts and merchandise. However, profits declined year on year due to an increase in selling, generaland administrative expenses, reflecting higher third-party warehousing expenses and advertising costs.

Consolidated

End of 2Q FY3/16(¥ million)
ActualNet sales

Composition
ratio

End of 2Q FY3/17

ActualComposition
ratio

YoY

ChangeReference

Pct. change

5/9/16
forecast

ChangePct. Change

52,603100.0%

50,921100.0%(1,681)-3.2%

56,700(5,778)-10.2%

23,76545.2%

23,826

46.8%

61

0.3%

26,600(2,773)-10.4%

26,851

51.0%

25,57650.2%(1,275)-4.7%

28,350(2,773)-9.8%

Others

1,986

3.8%

1,519

3.0%

(467)

-23.5%

1,750

(230)

-13.2%

Gross profit

12,69424.1%

13,023

25.6%

328

2.6%

13,650(626)-4.6%

SG&A expenses

9,016

17.1%

9,567

18.8%

550

6.1%

9,500

670.7%

Operating income

3,678

7.0%

3,455

6.8%

(222)

-6.1%

4,150(694)-16.7%

Ordinary income

3,800

7.2%

3,327

6.5%

(473)

-12.5%

4,150(822)-19.8%Net income

2,429

4.6%

2,211

4.3%

(218)

-9.0%

2,800(588)-21.0%

ProductDevelopment
Business Model
Wholesale
Business Model

The copyright to this publication is owned by the Securities Analysts Association of Japan◆2H FY3/17 Sales Trends by Channel
Sales to large electronic retailers were weak due to a drop in sales of TVs and luxury-brand watches, butsales were strong in the discount store, online and hardware store channels.

◆2H FY3/17 Operating Results by Business Segment
Our operations are largely divided into two business segments: the Product Development Model Businessand the Wholesale Model Business.
The Product Development Model Business plans, manufactures and sells Doshisha original products. TheWholesale Model Business is a comprehensive sales proposal business, mainly focused on selling
products sourced from leading domestic and overseas brands and major manufacturers in Japan. It alsoplans and develops related sales promotions. The product range in the Wholesale Business includes
well-known luxury brand watches, bags and other items, traditional mid-year and year-end assorted gift
packs arranged by Doshisha using merchandise sourced from leading domestic suppliers, and national
brand processed products.

< Product Development Model Business: ¥23,826 million, up 0.3% year on year >Sales rose a modest 0.3% year on year to ¥23,826 million. Sales of TVs declined sharply, but that wasoffset by strong demand for other products, including Taiwanese-style snow cone makers, kamome fans,such as the heavily advertised Cleopatra model, massage chairs in the health appliances category,
inflatable rings in the leisure category, and other merchandise such as Halloween costumes, clothing andshoes.

< Wholesale Model Business: ¥25,576 million, down 4.7% year on year >・ Famous Brands: ¥11,419 million, down 15.1% year on year
Sales of luxury brand watches fell sharply due to changing trends in inbound demand, but the drop in sales
overall was held to 15.1% due to firm demand for other products such as London-based shoe brand Fitflopand American umbrella brand totes.
・ NB Processing: ¥14,156 million, up 5.6% year on year
Sales increased 5.6% year on year on the back of new retail ideas and merchandise, such as gift
assortments of local souvenirs from roadside stops across Japan, and gifts that can be ordered via email orsocial media. Overall, sales in the Wholesale Model Business declined 4.7% year on year to ¥25,576
million.

< Other / Affiliated Companies: ¥1,519 million, down 23.5% year on year >The copyright to this publication is owned by the Securities Analysts Association of Japan

Product Development
Business Model

Wholesale
Business Model

NB
Processing

FamousBrands

Others(¥ billion)*Figures in ( ) are composition ratio
Figures in [ ] are percent change year on year

60.0

52.6 [+7.9%]

50.9 [-3.2%]

48.7

40.0

23.7

23.0
(47. 2%)(20. 7%)

26.8

23.9
(49.0%)(46. 8%)[+3.2%]

10.0

20.0

23.8

(45. 2%)[+0.3%]

13.4

11.4

(25. 6%)[ + 33.3%](22. 4%)[ -15.1%]

25.5

13.4

23.8(51.0%)[+12.3%](28.3%)(50.2%)[ -4.7%](25.5%)[-3.0%]

14.1(27.8%)[+5.6%]

0
End of 2Q FY3/15

End of 2Q FY3/16

End of 2Q FY3/17◆Consolidated Forecasts for FY3/17
In October 2016, we lowered our forecasts for the fiscal year ending March 31, 2017. We now forecast net
sales of ¥114 billion, gross profit of ¥27.6 billion, selling, general and administrative expenses of ¥19.0billion, operating income of ¥8.6 billion, ordinary income of ¥8.5 billion, and net income of ¥5.76 billion.
Consolidated(¥ million)

FY3/1652,603

Full year

Full year ChangeVs. start-of-year forecast

Pct.
Full year Change
ChangePct.
Change2H58,240 110,843

50,921

63,078 114,000

3,156

2.8% 120,000(6,000)-5.0%

23,76528,44552,21023,82632,17356,000

3,789

7.3%

58,800(2,800)-4.8%

26,85128,28055,131

25,57629,47355,050

(81)

-0.1%

57,900(2,850)-4.9%

Others

1,986

1,514

3,501

1,519

1,430

2,950(551)-15.7%

3,300

(350)

-10.6%

Gross profit

12,694

14,267

26,962

13,023

14,576

27,600637

2.4%

28,700(1,100)-3.8%

SG&A expenses

9,016

9,209

18,226

9,567

9,432

19,000773

4.2%

19,200(200)-1.0%Operatingincome

3,678

5,058

8,736

3,455

5,144

8,600

(136)

-1.6%

9,500

(900)

-9.5%

Ordinary income

3,800

5,120

8,921

3,327

5,172

8,500

(421)

-4.7%

9,500

(1,000)-10.5%Net income

2,429

3,324

5,754

2,211

3,548

5,760

5

0.1%

6,400

(640)

-10.0%

ProductDevelopment
Business
Model
Wholesale
Business
Model

2H

YoY

1H

Net sales

1H

FY3/17The copyright to this publication is owned by the Securities Analysts Association of Japan◆Adaptable Risk Management – One of Doshisha’s Strengths
Doshisha’s strength as a company is underpinned by three factors: a business base that supports anunshakeable corporate structure, sales strategies that capture the leading position in niche markets, and abusiness portfolio anchored by three business models.

< A business base that supports an unshakeable corporate structure >We have learnt a great deal from past experiences and we now put particular emphasis on the following fiveareas:

Cash flow management
We have established internal systems to maximize working capital. Cash flow management is now
embedded in our corporate culture.

High equity ratio
We believe a healthy level of cash reserves and a high equity ratio are vital to ensure the Company remains
viable well into the future, especially in the event of natural disasters and other unexpected developments.

Rigorous credit control
Doshisha has business relationships with 4,800 companies with various business models across a broad
range of sectors. To protect Doshisha from sales risk due to bankruptcy and other factors, we have createdsales networks that are not dependent on a small number of distributors.

Flexible organization
We have transferred authority to give frontline divisions more freedom, and sales divisions have to achieve
standalone profit targets. Business divisions that report losses for two consecutive six-month periods arewound up or integrated with other business divisions.

< Sales strategies that capture the leading position in niche markets >Consumers have access to any product they want and markets are overflowing with low-price merchandise.
In that environment, companies are likely to struggle to generate profits simply by cutting prices. Our
approach is to “make products better, cheaper and more specialized,” aiming to capture the leading positionin niche markets by developing numerous unique products that offer new value and that spike the interest ofconsumers with appealing narratives.

< A business portfolio anchored by three business models >Doshisha has achieved growth by generating synergies between multiple business divisions across threedifferent business models – the Product Development Model Business, and Famous Brands and NB
Processing in the Wholesale Model Business. Those business groups do more than just complement eachother – they also share various resources, helping to fuel the creation of new businesses.

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Using the above approach, we have grown as a company by adapting to change in our markets while also
dispersing risk and taking on challenges in new business fields and product categories.

Doshisha’s Strengths

Strengths unique toDoshisha that support
an unshakeable
corporate structure＜ Adaptable Risk Management＞
・Cash flow management
・ Rigorous credit control

・High equity ratio
・Flexible organization＜ Leading positions in niche markets＞

Business portfolio management (three business models)
Product Development
Model Business

Wholesale Model BusinessFamous Brands
NB Processing (gifts)

Plans, develops, makes and sells
niche lifestyle products for
untapped needs not actively
addressed by leading
manufacturers and retailers

Creates assorted gift setscontaining well-known national
brand products and develops
gift sales areas tied in withpromotional campaigns

Uses a reliable, independent
procurement network to source
famous overseas brands andprovides comprehensive
support for developing sales
campaigns and sales areas

Sales area proposals areused for various businessformats, including
hardware stores andlarge-scale public baths

Assorted gift sets
created from thestandpoint ofconsumers

Can develop hybrid sales areas with amix of brands and categories◆Key Strategies for 2H FY3/17
We aim to reinforce our business by harnessing the strengths and resources of our three business models.
Specifically, we will actively utilize the sales channels of our 4,800 business partners, one of Doshisha’s
business assets, enhance sales promotion, and implement initiatives to reduce logistics costs.

< Utilize the sales channels of 4,800 business partners – one of our business assets >Our goal is to increase our share of in-store sales at distributors. Currently, all 19 of our business divisions
involved in clothing, food and homewares conduct sales activities based on standalone profit targets. If one
business division is successful in securing access to a new distributor, that helps to lower barriers to entry
for the other 18 business divisions, helping to increase our overall share of in-store sales. In that way,encouraging cooperation between vertically divided teams has led to some notable successes. In one case,
we secured a deal to supply mid-year gift sets to a chain of hardware stores thanks to an existing business
relationship in storage furniture. We aim to step up cooperation further to ensure we fully utilize the sales
channels of 4,800 distributors – one of Doshisha’s business assets.

< Enhance sales promotion >To avoid falling into the trap of selling products at the lowest possible price by simply passing them fromThe copyright to this publication is owned by the Securities Analysts Association of Japansuppliers to distributors, we believe it is important to plan and develop distinctive, unique products. As partof that approach, we aim to enhance sales promotion in order to raise awareness of different productcategories and build new brands. To increase the effectiveness of our sales promotion activities, we will
actively roll out personalized campaigns aimed at individual consumers, as well as specific markets. We willdevelop campaigns that harness online channels such as Instagram, Facebook and Twitter and tie them inwith TV, newspaper and magazine advertising and in-store demonstrations and events.

< Initiatives to reduce logistics costs >We are currently building a second proprietary logistics center in Kisarazu, Chiba Prefecture. When thecenter opens in November next year, we will move to a twin-hub proprietary logistics network covering theKansai and Kanto regions. We plan to use this network to boost efficiency, helping to curb rising logistics
costs and disperse risk. The new logistics center is being built on a plot of land of roughly 40,000m2. When
finished, it will have three levels and a total floor area of around 60,000m2. The total cost of the project is¥7.6 billion, comprising ¥2.5 billion for the land and ¥5.1 billion for the building. The new facility will end ourreliance on third-party warehousing providers in the Kanto area, where distribution volume and costs arehigh. That will stop the outflow of cash for logistics services and reduce shipping costs through thedistribution of products from a more optimal location. The facility will also give us greater storage andshipping capacity, helping to diversify risk during natural disasters.

◆Long-term Vision: Create 30 business groups each worth ¥10 billion
Over the medium and long term, our strategy is to differentiate the Group’s operations, promote business
management that mitigates risk, give more independence to business divisions and implement initiatives
that create more cohesive teams, with the ultimate goal of building a unique business model that is resilient
to change and anchored by solid finances. To achieve that goal, we will need to increase the number ofniche categories where we have the leading market share. Our organization is currently made up of 11
business groups and 19 business divisions. To boost profitability in each business division, we plan tocontinue increasing the number of business groups, which are a collection of business divisions, aiming tocreate an organization of 30 business groups each worth ¥10 billion.

As the first step in that process, we have to enhance and strengthen existing businesses and move into
new business fields. To enhance and strengthen existing businesses, we will expand sales channels andincrease our share of in-store business, as well as develop new product categories. At the same time, weplan to reinforce our logistics system to cut operating costs. In new business fields, our focus will be onbuilding closer ties with external partners. We intend to explore all available options, including capital andbusiness alliances. We also plan to actively step up cooperation with partners in areas such as overseas
sales channels, which could help us expand sales of daily necessities, and in e-commerce, which isenhancing convenience for shoppers.

To build earnings streams for the future, we are currently developing our business in three key areas: newbusiness models, new products and a new earnings structure. In those areas, we are asking our employees
to come up with their own ideas and put them into action. Guided by our corporate slogan, "Doshisha –The copyright to this publication is owned by the Securities Analysts Association of Japan

Ideas to Make Life Better," we are encouraging them to be more proactive – to be leaders not followers –resulting in new products that excite consumers. We also want them to develop new and flexible
approaches, enabling the Company to deliver the best possible performance in a changing operating
environment. In other words, to realize our vision of 30 business groups each worth ¥10 billion, we need tocultivate the kind of employee who can create ideas that make life better. By building an organization
distilled down to teams of those people, I am confident we will be able to develop unique business models
that help us achieve our vision.

(Tokyo, November 15, 2016)

The copyright to this publication is owned by the Securities Analysts Association of Japan