Watahan & Co., Ltd.
Q2 Financial Results Briefing for the Fiscal Year Ending March 2022
November 18, 2021

Event Summary[Company Name]

Watahan & Co., Ltd.

[Company ID]

3199-QCODE[Event Language]

JPN[Event Type]Earnings Announcement[Event Name]

Q2 Financial Results Briefing for the Fiscal Year Ending March 2022

[Fiscal Period]

FY2021 Q2[Date]

November 18, 2021

[Number of Pages]

27[Time]

17:00 – 17:15(Total: 15 minutes, Presentation: 15 minutes)[Venue]Webcast[Venue Size][Participants][Number of Speakers]

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1Isamu Nohara

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Presentation

Nohara: I'm Nohara, President and CEO of Watahan & Co., Ltd. I would now like to begin the presentation of
Watahan's financial results for the second quarter of the fiscal year ending March 31, 2022.
Today's presentation will begin with an overview of the company, followed by a summary of the second
quarter results, then our forecast for the fiscal year ending March 31, 2022, and finally the medium-term
management plan.

First, an overview of the company. There are no changes in the organization of Watahan, but, starting fromthe next fiscal year, the listing category on the Tokyo Stock Exchange is scheduled to change, from the current
First Section to the Prime Market.
The group as a whole is organized as follows: Watahan & Co., Ltd. is the heart, Watahan Partners Co., Ltd.,
handles purchasing and product development, and under it are 3 businesses or segments: retail, construction
and trading.
I would now like to give an outline of our financial results for the second quarter.

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Actual results for the second quarter of the fiscal year ending March 31, 2022 were JPY53.83 billion, a decreaseof 8.6% in terms of net sales.

Ordinary income was JPY950 million, down significantly from the JPY2.43 billion of the previous coronavirusimpacted year, but on par with the year before.

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3Compared to last year, sales by segment were down JPY1.47 billion in the retail business, down JPY3.29 billion
in the construction business, and down JPY290 million in the trading business.

Operating income was also down by JPY770 million in the retail business, JPY660 million in the construction
business, and JPY130 million in the trading business.
Now let’s move on to the business results by segment.

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First of all, in retail, our policy for the full year is to continue the promotion of store remodeling and new storeopenings. We’ve also set out to optimize our logistics operations and, thirdly, to develop stores in city centers.

As a result of these initiatives, net sales in retail for the first half of the year were JPY38.1 billion. Sales weredown 3.7% from the previous year due to a slowdown in stay-at-home demand and to the effects of heavy
rains and cooler temperatures in August.

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Actually, when we zoom in on the monthly trend, the slowdown of stay-at-home demand was noticeable from
April to June, a gradual rebound started in July, but heavy rains and lower temperatures in August had a huge
negative impact. So, if you look at the monthly average, sales have dropped by about 5% compared to lastyear and the year before.

Segment income for the first half of the year was on par with results of the second preceding year, which isfavorable considering that year had an exceptional spike in demand due to the consumption tax hike.

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If you look at the profit margin, you can see that until the second preceding year, the average profit margin
was 22.4%, but last year, the profit margin rose to 24.2% during the height of the pandemic.
We believe this was mainly due to the increase in the proportion of B-rank and C-rank products in sales.
However, profit margin for the first half of the current fiscal year is now at 24.3%, exceeding the 24.2% of theheavily coronavirus-impacted previous year.

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The biggest reason for this increase in profit margin is the optimization of our logistics operations. We havegreatly reduced costs by doing everything from packing to inspection in-house in our produce centers in
Nagano and Matsumoto, and then using our own logistical capabilities to deliver products.

When it comes to fresh fish, we’ve expanded the direct purchase from markets. We’ve added routes toNumazu and Toyama, and in the future, we will expand further to include Fukui. That way, we are building anetwork that allows us to sell expensive fresh products at a lower price.

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Keeping up with the previous fiscal year, we’ve continued to promote store remodeling.

The Fuji Kawaguchiko and Hatta stores have been converted into Supercenters and, in cooperation with our
new subsidiary Hoshiman, we have introduced a sales floor for pharmaceuticals in 3 Supercenters, theChikuma, Nakano, and Minowa stores.

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9Next is the construction business, where since last year we have reviewed our business structure.

Sales were down 20.7% to JPY12.6 billion.

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10Segment income recorded a loss of JPY40 million due to a significant decrease in orders received amidst thecoronavirus crisis.

The situation is different for the order backlog. It was only JPY11.1 billion in the second quarter of FY2021 andis now recovering at JPY16.4 billion. We expect this number to grow even more in the second half of the year.

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In trading, we had set to expand into food products as our policy for this fiscal year.

In the first half of the year, we expected a decline in pharmaceuticals due a downward reaction to exceptional
demand from our customers during the height of the coronavirus. Sales decreased by 9.2% to JPY2.94 billion,
close to what we predicted.

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12Segment income was also within expectations at JPY450 million, down 23.6%.

As for the consolidated financial statements, total assets increased from JPY58.9 billion to JPY63.4 billion fromthe end of FY2021 to the second quarter of FY2022. This is explained by an increase in fixed assets after Yume
House Inc.’s acquisition in September and the consolidation of its land and buildings.

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As for cash flow, there was a large payment of consumption tax accrued last year, which resulted in a negative
operating cash flow of JPY250 million. We also remodeled stores, replaced cash registers, and increased
expenditures for M&A, resulting in a negative investment cash flow of JPY2.5 billion.
Since most of the investment cash flow was financed by loans, the financial cash flow was positive at JPY2.2billion.
I will now report on our progress in each segment for the fiscal year ended March 31, 2022.

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Our policy for the fiscal year ending March 31, 2022 was to aggressively invest in anticipation of the next midterm management plan.

To this end, and in line with our policy during the first half of the fiscal year, we intend to keep carrying out
capital expenditures. We will continue to work on improving logistics, remodeling stores and opening newones.
Then, in March, the integration of steel plants. We also plan to invest in M&A. Overall, we plan to invest a
total of JPY3.2 billion.
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As a result, there is no change to the initial forecast, with a planned JPY120 billion in net sales, up 4.5% YoY.

Ordinary income is also expected to increase by 0.6% to JPY3.55 billion.

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By segment, in the retail business, we plan to open a new distribution warehouse in Iida.

In addition, we’ve started a service of delivery and installation of furniture and home appliances in the Tokyo
metropolitan area in October.

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We are also planning to open a Watahan Supercenter in Gondo in the center of Nagano next April.

Sales in the retail business are expected to reach JPY79.9 billion, on a par with the previous fiscal year.

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And the gross profit margin is also growing steadily even in the context of the pandemic.

Segment income is also expected to be on par with the previous year, recovering from the negative results ofthe first half of the year.

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Next is construction. In the construction business, we will integrate factories and further accelerate
automation to enable us to handle next year’s order backlog.

We are also focusing on establishing the wood-frame housing business as the fourth pillar of the Group, andwith Yume House joining us in September this year, we plan to grow significantly in this area as well.

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We expect net sales in construction to grow by 11.5%.

However, taking into account the fact that the order backlog was originally small, segment profit is expected
to decrease by 7.7% to JPY1.06 billion.

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In order to make these estimates reality, we’ve started carrying out all processes in-house since September,from cultivating mountain forests to sawing, drying, pre-cutting, and construction. Due to the demand shockthat occurred just before in the wood industry, the factory’s operating rate is currently 1.5 times higher thanusual, which is very positive for us.

However, the price of materials like steel frames has risen significantly, and delivery time is now much longer.
We’re also concerned about potential cost increases, and potential property revisions by our customer base,which we are currently seeing as negative factors of risk.

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22However, we expect the order backlog to grow significantly in the third and fourth quarters of the current
fiscal year, so even if those properties do not generate sales during the current fiscal year, we expect
significant growth in construction in the first half of the next fiscal year.

Finally, in trading, we’ve started our expansion into food products, but it will still take some time to see results.

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Sales are expected to decrease by 5.7% from the previous year to JPY5.73 billion.

We are forecasting a 15.3% decrease in segment income to reach JPY780 million, as we’ve read that a positive
contribution of foreign exchange rates should not be anticipated this fiscal year.

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Lastly, this fiscal year is the final year of our mid-term management plan. We plan on achieving our targets of
JPY120 billion for net sales and of JPY3.2 billion for ordinary income for the third year of the plan.
Originally, the management policy outlined in our mid-term management plan was to create a businessstructure with stable growth potential, so we initially set our target for the ordinary income margin at 2.7%.
However, we plan to achieve 3% this fiscal year, evidence of our commitment to achieving stable growth.
This concludes the financial results briefing for the fiscal year ending in March 2022.
Thank you for your attention today.
[END]______________
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