Results for the First Quarter of Fiscal 2017: Supplementary Materials

First Quarter of Fiscal 2017

Supplementary Material

POLA ORBIS HOLDINGS INC.

Director and Vice President

Management Planning, IT and Global 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 2017

4. Initiatives Going Forward & Appendices

Cosmetic Market

Q1 Key Topics

• Japanese cosmetic market overall showed steady growth. However, pure domestic market excluding inbound seemed to be flat or declined slightly.*

• Department stores and online channels remained strong.

• Chinese cosmetic market sustained growth mainly at skincare category. Purchase location of the Chinese consumers has been shifting towards rural areas and online as the market gets matured.

  *Source: Ministry of Economy, Trade and Industry, Japan Department Stores Association, Ministry of Internal Affairs and Communications, Intage SLI.

  Our Group

• The Group achieved increases both in sales and operating income on a consolidated basis driven by POLA's strong sales and prosperous brands under development.

• Wrinkle Shot Serum (launched on January 1st) contributed to better-than-expected sales at POLA.

• Sales and operating income decreased at ORBIS due to weak sales of new products and decrease in the number of customers.

• As for overseas brands, Jurlique struggled at Hong Kong and duty free. Shipments of revamped products of H2O PLUS have been going well.

• DECENCIA and THREE from brands under development category sustained strong performance.

  Reference: Updates on Inbound Sales (Consolidated)

• FY2015 (full-year) : Approximately 5% of consolidated net sales

  ↓

• FY2016 (full-year) : Approximately 6% of consolidated net sales

  ↓

• FY2017 (Q1) : Approximately 7% of consolidated net sales

  Analysis of Consolidated P&L Changes

  Net Sales to Operating Income

  (mil. yen)	FY2016	FY2017	YoY Change
  	Q1 Results	Q1 Results	Amount	%
  Consolidated net sales	49,516	56,074	6,557	13.2%
  Cost of sales	9,443	9,320	(123)	(1.3%)
  Gross profit	40,073	46,753	6,680	16.7%
  SG&A* expenses	36,400	37,626	1,226	3.4%
  Operating income	3,673	9,127	5,454	148.5%

  Key Factors

  *Selling, General and Administrative Expenses

• Consol. nets sales For domestic brands, Wrinkle Shot Serum strongly boosted sales of POLA. Meanwhile, sales decreased at ORBIS because sales of new products and the number of active customers were weaker than expected.

  For overseas brands, Jurlique struggled at HK and duty-free and shipments of revamped products of H2O PLUS has been going underway.

• Cost of sales Cost of sales ratio was highly improved due to increase in sales compound ratio of POLA's high-prestige products.

  Cost of sales ratio 2016Q1: 19.07% ⇒ 2017Q1: 16.62%

• SG&A expenses Labor expenses : down ¥21 mil. YoY

Sales commissions : up ¥1,759 mil. YoY

-> resulted from increase in sales at POLA. Commission ratio within POLA has improved.

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