Third Quarter of Fiscal 2019 Supplementary Material POLA ORBIS HOLDINGS INC. Director and Vice President Management Planning, IT, HR and Group International Business Naoki Kume This report contains projections of performance and other projections based on information currently available and certain assumptions judged to be reasonable. Actual performance may differ materially from these projections resulting from changes in the economic environment and other risks and uncertainties.
1. Highlights of Consolidated Performance 2. Segment Analysis 3. Forecasts for Fiscal 2019 4. Initiatives Going Forward & Appendices 1
Q3 Key Topics Cosmetics Market The Japanese cosmetics market including exports showed steady growth. Chinese inbound traffic, a key target audience for cosmetics, continued to increase but the growth rate for inbound demand slowed due to the impact of China’s e-commerce law and Chinese yuan depreciation. Excluding inbound demand, we saw temporary increases from last-minute demand driven by the consumption tax hike. *Source: Ministry of Economy, Trade and Industry, Ministry of Internal Affairs and Communications, Japan Tourism Agency, Japan Department Stores Association, and Intage SLI Our Group Last-minute demand generated in September but consecutive trend of decreased sales and Ratio of Inbound Sales profits continued. to Consolidated Net Sales POLA continued to record decreased sales from health foods. Overseas, POLA accelerated Approx. 7% FY2017 (Full year) new store openings mainly in China. ORBIS continued favorable sales of mainstay products and last-minute demand also FY2018 (Full year) Approx. 7% contributed to improved sales. Approx. 6% FY2019 Q3 As planned, Jurlique conducted organizational downsizing to reduce fixed costs. Among brands under development, THREE drove overseas growth and new brands expanded cross-border EC. Quarterly Consolidated Sales Quarterly Operating Income 80,000 16,000 13,159 65,736 60,468 11,817 59,526 61,304 9,601 59,544 12,000 57,806 9,943 56,074 55,282 9,232 9,462 60,000 52,440 9,127 9,175 6,773 8,000 40,000 4,000 0 20,000 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 (mil. yen) (mil. yen) 2 Q1 Q2 Q3 Q1 Q2 Q3
Analysis of Consolidated P&L Changes Net Sales to Operating Income FY2018 FY2019 YoY Change (mil. yen) Q3 Results(YTD) Q3 Results(YTD) Amount % 165,530 184,807 Consolidated net sales (19,277) (10.4%) 25,686 29,948 Cost of sales (4,261) (14.2%) 139,843 154,859 Gross profit (15,015) (9.7%) 114,431 122,523 SG&A* expenses (8,091) (6.6%) 25,411 32,335 Operating income (6,924) (21.4%) Note: YoY change in consolidated net sales and OP income excluding the pharmaceuticals business were down 5.8% and down 19.7% respectively. *Selling, General and Administrative Expenses Key Factors Consol. net sales Sales declined year on year mainly due to POLA which experienced a decrease in demand from buyers primarily for health foods (especially Inner Lock ), in addition to the impact of the transfer of the pharmaceuticals business which had recorded ¥9,051 million in 2018 Q3. Cost of sales The cost of sales ratio improved because of the transfer of the pharmaceuticals business on a consolidated basis. Cost of sales ratio 2018Q3 : 16.2% ⇒ 2019Q3 : 15.5% SG&A expenses Labor expenses : down ¥1,476 mil. YoY -> Resulted from the transfer of the pharmaceuticals business. Sales commissions : down ¥5,042 mil. YoY -> Resulted from a sales decline at POLA. Sales related expenses : down ¥1,793 mil. YoY - > Increase in advertising expenses at ORBIS was covered by decreases in other expenses. Administrative expenses, etc. : up ¥221 mil. YoY - > System updates resulted in increased depreciation and amortization costs but fixed expenses decreased. Operating income Operating margin 2018Q3 : 17.5% ⇒ 2019Q3 : 15.4% 3
Analysis of Consolidated P&L Changes Operating Income to Profit Attributable to Owners of Parent FY2018 FY2019 YoY Change (mil. yen) Q3 Results(YTD) Q3 Results(YTD) Amount % 25,411 32,335 (6,924) (21.4%) Operating income 304 383 (79) (20.7%) Non-operating income 1,345 529 Non-operating expenses 815 153.8% 32,189 24,370 (7,818) (24.3%) Ordinary income 0 28 Extraordinary income (28) (99.9%) 325 186 (138) (42.7%) Extraordinary losses Profit before income 31,892 24,184 (7,708) (24.2%) taxes 9,504 8,287 (1,216) (12.8%) Income taxes, etc. Profit attributable to (2) (5) 3 - non-controlling interests Profit attributable to 22,393 15,898 (6,494) (29.0%) owners of parent Key Factors Non-operating expenses : Loss from unfavorable foreign exchange rates ¥830 mil. Income taxes, etc. : Effective tax rate 34.3 ％ 4
Factors Impacting Profit Attributable to Owners of Parent Profit attributable to owners of parent decreased 29.0% YoY due to decrease in gross profit resulting from lower sales POLA sales decreased Positive Negative (mil. yen) Transferred pharmaceutical business impact impact 24,000 22,393 22,000 Decrease due to POLA sales decline 20,000 (Commission rate largely unchanged) 18,000 15,898 1,213 1,793 16,000 110 16,153 221 14,000 894 12,000 5,042 10,000 1,476 1,137 8,000 6,000 4,000 2,000 0 FY2018 3Q Decrease Improved FY2019 3Q Labor Sales Sales- Admin. Non- Extraordinary Income Profit in gross cost of expenses commissions related expenses, Operating income taxes, Profit attributable profit sales ratio expenses etc. income and loss etc. attributable to owners and loss to owners of parent of parent 5
1. Highlights of Consolidated Performance 2. Segment Analysis 3. Forecasts for Fiscal 2019 4. Initiatives Going Forward & Appendices 6
Segment Results FY2018 FY2019 YoY Change (mil yen) Q3 Results(YTD) Q3 Results(YTD) Amount % 165,530 Consolidated net sales 184,807 (19,277) (10.4%) Beauty care 161,794 172,024 (10,229) (5.9%) 1,979 Real estate 2,031 (51) (2.5%) 1,756 Others 10,752 (8,996) (83.7%) 25,411 Operating income 32,335 (6,924) (21.4%) Beauty care 31,113 24,625 (6,488) (20.9%) 878 Real estate 833 45 5.4% 113 Others 798 (684) (85.7%) (205) Reconciliations (408) 202 - Segment Results Summary Beauty care Sales fell below the same period of last year; although sales increased at ORBIS and Brands under development, the impact of sales declines at POLA and Jurlique were significant. Operating income decreased mainly due to a decrease in gross profit. Made up-front investments including advertising investments for ORBIS and investments in new brands. Real estate Occupancy rate has been maintained at a high level. Others Others segment as a whole fell below the same period of last year for both sales and operating income due to the transfer of the pharmaceuticals business. 7
Beauty Care Business Results by Brands FY2018 FY2019 YoY Change (mil. yen) Q3 Results(YTD) Q3 Results(YTD) Amount % 161,794 172,024 (10,229) (5.9%) Beauty care net sales 112,350 102,305 POLA (10,044) (8.9%) 39,125 38,056 ORBIS 1,068 2.8% 5,157 7,453 Jurlique (2,295) (30.8%) 1,047 1,416 H2O PLUS (368) (26.0%) Brands under 14,157 12,747 1,410 11.1% development Beauty care 31,113 24,625 (6,488) (20.9%) operating income 20,676 25,079 POLA (4,403) (17.6%) 7,350 7,738 ORBIS (388) (5.0%) (2,709) (2,118) Jurlique (590) - (661) (507) (153) - H2O PLUS Brands under 920 (31) (951) - development Note: Consolidated operating income and loss for each brand are shown for reference purposes only (figures are unaudited) 8
Brand Analysis (1) Q3 Result Topics Sales decreased mainly for health foods Inbound and buyer demand declined in part due to the Advanced overseas impact of China yuan depreciation store openings Domestic business struggled to capture new demand 3Q +9 stores in China Overseas business was favorable when excluding the impact of Hong Kong protests and partial time shift of shipment The inbound ratio was approximately 9%. (down 2ppt YoY) Q3 (YTD) Results (mil. yen) YoY Change Quarterly net sales (mil. yen) (8.9 ％ ) Net sales 102,305 50,000 (17.6 ％ ) Operating income 20,676 40,395 36,164 35,790 40,000 36,412 36,767 35,363 33,126 33,516 32,021 Key indicators 30,000 77.2 ％ Sales ratio Consignment sales 20,000 8.0 ％ Overseas 10,000 Dept. store, B2B (1) , EC 14.8 ％ 0 down 15.0 ％ Sales growth* Consignment sales 2017 2018 2019 2017 2018 2019 2017 2018 2019 Q1 Q2 Q3 up 41.8 ％ Overseas Quarterly operating income (mil. yen) Dept. store, B2B (1) , EC up 10.6 ％ Consignment 4,014 12,000 10,574 # of sales offices** sales channel （ down 164 ） 9,264 10,000 8,543 7,693 # of PB (2) ** 673 （ up 4 ） 6,943 8,000 6,811 6,794 6,538 5,594 down 0.1 ％ Purchase per customer* 6,000 4,000 down 10.7 ％ # of customers* 2,000 73 （ up 23 ） Number of stores overseas** 0 2017 2018 2019 2017 2018 2019 2017 2018 2019 (1) B2B: Hotel amenity business (2) PB: POLA THE BEAUTY stores 9 Q1 Q2 Q3 *YoY , ** vs Dec. 2018
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