Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

Summary of Results Briefing for the Q2 of the Fiscal Year Ending 31 December, 2022

[Points of Attention]
This Summary is a reference for those who would like to review the session or event of the results
briefing held by Pigeon Corporation.
Please note this is not the entire text of the conference but a summary based on our judgment.
Forward-looking statements in these materials are based on management's assumptions andbeliefs in light of the information currently available to it and involve known and unknown risks,
uncertainties and other factors. Such risks, uncertainties and other factors may affect theCompany's performance.
In the event of discrepancy between the English version and the Japanese version of thesummaries, the Japanese-language version shall prevail.

Date:

Aug 9, 2022 4:30 PM (JST)Event Venue:

Web Conference

Number of Speakers:

4
Norimasa Kitazawa

President and CEO

Tadashi Itakura

Director, Senior Managing Executive Officer,
Head of Global Office

Yasunori Kurachi

Director, Managing Executive Officer,
Head of Japan Operations

Kevin Vyse-Peacock Director, Executive Officer,
Lansinoh Business Division Manager
CEO of Lansinoh Laboratories, Inc.

1 / 19Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

First of all, I would like to introduce the highlights of Q2, which, after all, were marked by the lockdownin Shanghai that had a tremendous impact on our business.
In fact, the lockdown took place in April and May, during which time there was very little movementin the production and logistics areas.
Even under such circumstances, employees at the Shanghai plant stayed overnight and somehow
managed to keep production going. Logistics disruptions still kept the market in a state of disarray
during the 618 shopping festival, and it was finally resolved at the end of June.

2 / 19Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

In the 618 shopping festival in China, GMV (Gross Merchandise Volume) grew 11% year on year. In
fact, there were some logistics disruptions that prevented us from supplying some of our products. If
there had been no such disruptions, we might have had better numbers.
At the same time, our nursing bottles and skin care products continued to win first place in the Baby
& Mom category of JD.com.

3 / 19Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

Last year, we launched botanical skincare products in the Singapore business, and this year we havefurther expanded the sales area to include the Middle East and India, where sales have been verystrong. Currently, this skincare series is available in more than 15 countries, and is performing well.

4 / 19Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

In terms of ESG and sustainability, we received the Forest x. Decarbonization Challenge 2022
Excellence Award from the Forestry and Fisheries (MAFF). This was the Forestry Agency DirectorGeneral’s Award.
We were also selected as a component stock of the FTSE Blossom Japan Sector Relative Index. We
would like to continue our efforts to strengthen our ESG activities.

5 / 19Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

As for our business performance, we ended the first half of the current fiscal year with net sales
accounting for 95.8% of the year-before result.
Operating income was 67.4% YoY, mostly due to the impact of the lockdown in Shanghai.

6 / 19Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

By business segment, sales in the Japan business were 90% YoY. The China business was affectedby the Shanghai lockdown and sales were 83.5% YoY.
However, the Singapore business has started to get on a growth trajectory, since the obstacle caused
by COVID-19 has been almost completely eliminated. Singapore enjoyed sales of 114.9% YoY. The
Lansinoh business kept performing well, with mainstay products selling well and sales being 125.4%
YoY.

7 / 19Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

Operating income decreased considerably, and we showed major factors for the year-on-year
decrease.
The most significant factor was a decrease in gross profit of about JPY 940 million due to lower sales
YoY. Another factor was JPY 860 million due to a rise in the cost of sales ratio, most of which wascaused by the temporary close of Shanghai factory due to the Shanghai lockdown.
Also, there was a rise in personnel expenses. This is largely due to the rising costs of labor in the US
and the continued rise in labor costs in China.
In terms of SG&A, distribution and logistics costs had a negative impact of about JPY200 million,
largely due to the soaring costs of logistics in the US, Lansinoh business.

8 / 19Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

In the balance sheet, the YoY change has increased considerably, but mainly due to the depreciationof the Japanese yen. Comparing these figures of YoY change without the impact of FX rates, weestimate (highlighted in blue), you will see that the yen’s depreciation has considerably boosted eachitem.
As a matter of fact, cash and deposits would have decreased by JPY1.7 billion from the end of
December 2021 estimated without the foreign exchange effects. Of course, the main factor was theYoY decrease in net sales. Inventories would have been much smaller than those inflated by the
yen’s depreciation. And you will the same trend for notes and accounts receivable-trade.

9 / 19Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

Here is a summary of the results by business segment.
In the Japan business, sales of Baby care were down 4.4% YoY. Main channels in Japan were flat
YoY, but it seems that overseas demand (e.g., cross-border e-commerce) declined significantly. We
believe this was mainly due to a sharp drop in Skincare products, particularly the Peach Leaves series.
Sales of Nursing bottles were up 26% YoY due to the introduction of a new product. Other
consumables such as Wet tissues and Nursing pads were quite heavily affected by the pricecompetition from competitors.
The gross margin for Baby care deteriorated by 4.5 percentage points, but this was mostly due tohigher import prices resulting from the weaker yen.
In the Health & elder care business, we reviewed the product portfolio last year. In particular, we
discontinued the low margin products and that led to an improvement in the profit margin in this year.
Next, in our China business, sales in the mainland in local currency dropped 30% YoY due to the
Shanghai lockdown.
The total sell-out figure was down 10% YoY, e-commerce sales were down 7%, and offline sales
were down 17%. The ratio of e-commerce rose to 68% of total sales, with a particularly large increasein TikTok sales. I believe that the percentage of TikTok increased to around 4 - 5% of overall ecommerce sales as of the 618 festival period.
Although our market share for Nursing bottles decreased slightly due to the supply shortages inShanghai lockdown but we continued to maintain the top market share.
The gross margin deteriorated by 2.6 percentage points. This was due to lower capacity utilization at
the Shanghai factory.
In China, we launched other new products, such as Nursing bottles with Disney designs and a new
herbal skincare series.

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Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

In the Singapore business, sales (local currency) in India grew 54% YoY. Sales in Malaysia andIndonesia increased 28% and 29%, respectively, indicating that sales have been recovering at a fast
pace in each country in the region.
In export markets, sales in the Middle East and Vietnam grew considerably YoY.
Sales of core products (Nursing bottles, Breast pumps, Skincare, and Oral care products) grew by
double digits YoY. As for the new skin care series, Natural Botanical, the business has successfully
expanded to over 15 markets and sales are doing well.
Gross profit also improved in this area due to a rise in the factory utilization rate and strong sales.
Next is the Lansinoh business.
Lansinoh group sales in USD grew 10% YoY. In particular, sales in North America rose 14% YoY.
Both online and offline sales were very strong.
Looking at Europe, Benelux and especially France performed very well. In the UK and Germany,
demand was increasing, but some products were out of stock, resulting in a slight YoY decline.
Mainstay products such as Nipple cream and Breast pumps maintained strong sales. Prenatal andpostpartum care products, which have been on sale since last year, have expanded to 25 countries,
including export markets, and they performed very well.
The gross profit margin was 3.5 percentage points lower, and this was due to the impact of higher
ocean freight rates resulting from the logistics disruptions, as well as the increase in transportation
costs in the US that affected to COGS increase.

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Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

These are the one of the new products we launched this year. First of all, in the Singapore business.
There we launched the world’s first Nursing bottle made of a new plastic material, T-Ester.
We are the only one in the world that sells the product made of this material. The glass-like
transparency of T-Ester, not found in conventional plastics, makes it both visually appealing and easy
to process, and I believe it will become one of our core materials in the future. We are currently selling
the Nursing bottles made of a slightly brownish plastic material. Compared to that, it looks quite good,and I have high expectations for it in the future.
Another new product is a new model of Softouch nursing bottles. We have completed launching themin Japan and in China. In August, we will finally start introducing it in Southeast Asia. They areplanning to hold a new product presentation event this month.
In the Japan business, we launched the Sonaetta line, Pigeon’s first series of emergency supplies forbabies. The number of disasters has increased in Japan due to climate change. We have given thename Sonaetta to sonaeru (prepare for) disasters. What we have just released are feeding cups, ablanket to protect the baby’s head, and a compact bed.
The other new product was born using the in-company proposal system that we have been
implementing for the past two years. Based on the first PFA (Pigeon Frontier Awards), we havedeveloped Precious Drop, a colostrum collection device for hospitals. We have started to sell the newdevice.

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Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

We have revised down the full-year forecast. We expect that it would be difficult for us to catch up
with the impact of the Shanghai lockdown in the first half, as related sales account for a large part ofoverall sales.
The revised forecast is for sales of JPY 95 billion. This is about 102% YoY. We have revised down
the operating income forecast to JPY 12 billion. This represents just over 90% YoY.

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Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

We will not be able to reach our initial plan. However, according to the forecast for the second half(H2) alone, consolidated net sales will be 108.5% YoY. Operating income will be 119.7% YoY, so
the performance will recover very well in H2.
I think this is a trend that can continue toward the medium-term management plan starting next fiscal
year.

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Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

As for dividends, we are going to pay JPY38 per share for the interim period, as we have initiallyannounced. And our dividend forecast for the end of this fiscal year remains unchanged.
As for capital expenditures, there has been no major increase partly due to the COVID-19 pandemic.
Depreciation expenses will increase slightly, but this is partly due to the depreciation of the newfactory in Shanghai.
This concludes my explanation. Thank you very much.

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Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

Question & Answer

Q&As are summarized by Business segment.

[Consolidated]
Q. Consolidated operating income in the first half decreased approximately 2.5 billion yen
YoY. How was that by business segment?
A. Operating income fell short YoY in the Japan, China, and Lansinoh business. The Singapore
business saw a YoY increase in operating income on the back of sales growth in major markets.
In addition to lower sales, operating income in Japan was also down due to higher procurement
costs from the weaker yen and lower gross profit from weak sales of the high-margin Peach leaveskincare series through cross-border e-commerce.
In China, the fixed cost ratio increased due to the temporary close of a Shanghai factory due to the
Shanghai lockdown, and these factors had a significant impact on profit decline YoY.
Lansinoh's profit decreased due to the significant impact of soaring logistics costs on the COGS
side, although sales remained strong. Logistics costs have risen sharply since the second half oflast year, and the trend has continued to the present, so the difference between the first half andthe previous year was particularly large.
Although each business has been controlled SG&A expenses within the plan, we are investing innecessary marketing costs, product planning, and R&D. As a result, the SG&A ratios of eachbusiness increased slightly from the previous year, which was another reason for the decline inoperating income.

Q. What are the assumptions for the revised full-year plan (net sales of JPY 95 billion andoperating income of JPY12 billion) and how likely is company confident to achieve?
A. The revised plan includes assumptions for the most recent situation regarding the sharp rise inlogistics and raw material costs. Therefore, we recognize that the revised plan is a conservative
figure to some extent. Unless there is a second lockdown in Shanghai or a rapid cost increasebeyond our expectations, we expect to achieve the plan.
By the business segments, the Singapore and Lansinoh businesses had strong sales in the first
half, and we expect to see the same trend in the second half, with Lansinoh expecting an increasein both sales and profit in the second half alone.

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Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

While the sales companies in Singapore business are expected to continue to perform well in thesecond half, the Thai factory under the Singapore business had an initial shipment of a new modelof the Nursing bottle for the Japanese market in the the second half of last year, but no such large
shipment is expected in the second half of the current fiscal year, so operating income for thesecond half alone is expected to be lower than the previous year.
In the Baby care business in Japan, there is an aspect of the category that already has a highmarket share and is easily affected by lower birth rate. On the other hand, additional measures arebeing considered for the second half to recover sales of consumables, but since price competition is
becoming extremely fierce, we envision the second half stand-alone results at about the same level
as in the previous year.
In mainland China, sales were held down in the second half of last year mainly due to offline
inventory adjustments, etc. We believe that sales will steadily recover in the second half of this year
and we expect about 12% YoY increase in local currency for the second half alone. 618 results
show that the unit purchase price of consumers is rising, and price increases thanks to new modelof Nursing bottles and other products are also contributing. We expect this will make a stronger
contribution in the second half of this year.

Q. In your revised plan for the full year, how much do you expect the cost of sales to rise
YoY?
A. In our original forecast, we had expected the cost of sales to rise about 1 billion yen YoY for thefull year. However, due to the current increase in requests for price hikes, we now expect the costof sales to rise about 2 billion yen YoY in the revised plan. On the other hand, we have raised theprice of Nursing bottles in Japan and China by introducing new models, and plans to introduce
them in the Singapore business from the second half of this fiscal year. Lansinoh is also performing
well, especially with its mainstay products, and we believe that it will be able to offset the higher
cost of sales to some extent through higher unit prices and increased sales.

Q. Are you considering the global rollout of Nursing bottles made of the very new T-estermaterial?
A. Of course, we are. First of all, we have begun selling T-ester Nursing bottles in the key marketsof the Singapore business. Currently, our plastic Nursing bottles are made of a material called
PPSU, but this T-ester bottle is more transparent and has a clearer appearance than PPSU. So it
will be easier for consumers to use when preparing breastmilk and cleaning and disinfecting. Since
we are the only company in the world that uses this material, it may take some time before it is

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Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

approved in some regions, but we would like to introduce it globally as needed. We would also liketo raise the selling price when switching from PPSU.

[Japan Business]
Q. Tell us about the progress of the mainstay products in Japan and key initiatives for thesecond half of the fiscal year.
A. For Nursing bottles, the replacement to the new models since launched in February this year
was slightly delayed more than expected in some retailers, and there was some delay in returns of
the old model in Q2. The new model has been well received by retailers and consumers based on
the improved product lineup while we raised the retail price. For the second half of the fiscal year,
we plan to launch several new products and channel-exclusive products, centered on Nursing
bottles and Skincare products to recover sales. Also, we have been struggling Wet tissues this year
but we will review the price strategy in a timely manner in the second half of the fiscal year torecover sales despite the severe price competition in the market.

[China Business]
Q. From a tough experience in the Shanghai Lockdown, will the company consider
diversifying its procurement and logistics bases and importing from its own factories inother countries to diversify the risk in the future?
A. During this lockdown period, the Shanghai port was also locked down and logistics weresuspended, so the option of importing from our own overseas factories was not practical(technically possible though). Therefore, we took flexible measures such as shipping products
manufactured at the Shanghai factory to Changzhou factory and shipping them to all over thecountry. As a response to future risks, we recognize that it is necessary to consider how tostrengthen logistics within China, including the dispersed the inventory.

Q. What is the impact amount (sellout) of Nursing bottles due to the out of stock during theShanghai lockdown period?
A. The impact during the lockdown at each retailer is very different and honestly it is very difficult toestimate the impact amount of sellouts due to the out of stock. Both e-commerce platformers andoffline retailers were affected by logistical disruptions during the lockdown period around end ofJune. So we believe the impact was significant to some extent because the sales turnover of
Nursing bottle is fast.

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Pigeon Corporation Summary of Results Briefing for the Q2 of the FY December 2022

Q. Did the company see any change in the market share (in value) of Nursing bottle due tothe Shanghai lockdown?
A. Our estimated market share for Nursing bottles was 43% as the end of June, down slightly from
45% at the end of last year. During the Shanghai lockdown in April and May, our production andshipping operations were severely restricted and product shortages occurred, so our market share
dropped to about 40%. However, as soon as the Shanghai lockdown was lifted in June and ourshipping operations also resumed, which helped restore product supply and market share to 43%.

Q. Tell us about the outlook for the China business next year and beyond.
A. We will touch on the details in our 8th Mid-term Business Plan to be announced in February next
year. In terms of the market environment in China, we are cautiously looking at areas where themarket is no longer as stable as before, such as the recent Shanghai lockdown and the declining
trend in the number of births in recent years. On the other hand, we plan to increase the retail priceby introducing new Nursing bottle, strengthen the Skincare category, which is expected to growfurther including age-up products. Also, from next year onward, we plan to expand the lineup of
drinking cups. We will also aim to increase profitability by strengthening our manufacturing
capabilities. Although it may be difficult to achieve double-digit YoY sales growth as in the past, we
still believe that we can expect sustainable growth in both sales and profits.

[Lansinoh Business]
Q. While the sales are strong, what are the factors behind the decrease in profit?
A. The most significant factor behind Lansinoh's profit decline is the higher-than-expected price hikeof logistics costs. The price of containers for marine transportation rose sharply from the beginningof the last year to the end of the term, and a comparison between the first half of the past year andthis year shows a large gap in the price level. Prices have risen five-fold compared to pre-Coronalevels. Prices seem to have calmed down slightly recently, but we still expect prices to remain highfor the rest of the year. Except for the soaring logistics costs, profits are also progressing according
to plan.

[End]

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