Pola Orbis : Summary of Financial Results for Fiscal 2022 First Quarter

Summary of Financial Results

For the First Quarter of Fiscal Year Ending December 31, 2022 (Consolidated)

These financial statements have been prepared in accordance with accounting principles and practices generally accepted in Japan.

The following English translation is based on the original Japanese-language document.

April 28, 2022

POLA ORBIS HOLDINGS INC.

Listing:	Tokyo Stock Exchange, Prime Market (Code No.: 4927)
URL:	https://www.po-holdings.co.jp/
Representative:	Satoshi Suzuki, Representative Director And President
Contact:	Naoki Kume, Director, Finance

Tel: [phone]

Filing Date of Quarterly Securities Report:	May 13, 2022
Start of Cash Dividend Payment:	－
Supplemental Materials Prepared for Quarterly Financial Results:	Yes
Conference Presentation for Quarterly Financial Results:	Yes(for analysts)
(Amounts less than one million yen have been truncated)

1. Consolidated Performance for the First Three Months of Fiscal 2022

(January 1, 2022-March 31, 2022)

(1) Consolidated Operating Results

(Percentage figures indicate year-on-year change)

Net Sales

Operating IncomeOrdinary IncomeProfit Attributable to

Owners of Parent

Millions of yen

%

Millions of yen

%

Millions of yen

%

Millions of yen %

FY2022 Three Months FY2021 Three Months

37,662 (13.5) 1,912 (55.6) 4,140 (28.2) 43,561 0.6 4,307 114.7 5,763 －

• 7,180 82.3

• 3,939 －

Note: Comprehensive income: ¥5,842 million (78.4%) for the three months ended March 31, 2022; ¥3,274 million (－%) for the three months ended March 31, 2021

FY2022 Three Months FY2021 Three Months

32.46 32.42

17.81 17.79

(2) Consolidated Financial Position

Total Assets

Net Assets

Equity Ratio

Net Assets Per Share

Millions of yen

Millions of yen

%

Yen

FY2022 First Quarter FY2021

204,514 208,039

171,220 173,267

83.5 771.72

83.1 781.11

Reference: Equity capital: FY2022 First Quarter: ¥170,728 million; FY2021: ¥172,803 million

2. Dividends

Annual Cash Dividends Per Share

FY2022

－ －

20.00

－

31.00

51.00

FY2022 (Forecast)

21.00 － 31.00 52.00

Note: Revisions to the cash dividends forecast announced most recently: none

3. Consolidated Performance Forecast for Fiscal Year Ending December 31, 2022

(January 1, 2022-December 31, 2022)

(Percentage figures indicate year-on-year change)

Net SalesOperating IncomeOrdinary IncomeProfit Attributable to Owners of ParentNet Income Per Share

Millions of yen

%Millions of yen

%Millions of yen

%Millions of yen

%

Yen

Full year

186,000

4.1

17,700

4.8

17,700

(6.7)

16,200

38.1

73.23

Note: Revisions to the consolidated performance forecast announced most recently: yes

Notes to Summary Information

(1) Changes in significant subsidiaries during the current period

(Changes in specific subsidiaries resulting in changes in the scope of consolidation) : None

(2) Application of special accounting methods for the preparation of the quarterly consolidated: None

financial statements
(3) Changes in accounting policies, accounting estimates, and restatement
1) Changes in accounting policies associated with revision of accounting standards	: Yes
2) Changes other than (3)-1)	: None
3) Changes in accounting estimates	: None
4) Restatements	: None
(4) Number of shares issued and outstanding (common stock)
1) Number of shares issued and outstanding at the end of each period (including treasury stock)

At March 31, 2022

At December 31, 2021

229,136,156 shares 229,136,156 shares

• 2) Number of shares of treasury stock at the end of each periodAt March 31, 2022

  At December 31, 2021

  7,906,761 shares 7,906,761 shares

• 3) Average number of shares issued and outstanding in each periodThree months ended March 31, 2022

Three months ended March 31, 2021

221,229,395 shares 221,221,801 shares

Note: The number of shares of treasury stock at March 31, 2022 includes the Company's shares held by the officer compensation Board Incentive Plan (BIP) trust (244,708 shares).

Information Regarding Quarterly Review Procedures

The quarterly financial results report is exempt from quarterly review by certified public accountants or accounting firms.

Explanation of Appropriate Use of Performance Forecast and Other Special Items

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. For performance projections, please refer to "1. Qualitative Information on Consolidated Performance for the First Quarter of Fiscal 2022 (3) Explanation of Consolidated Performance Forecast and Other Predictive Information" on page 5.

Table of Contents

1. Qualitative Information on Consolidated Performance for the First Quarter of Fiscal 2022 ……………… 2

(1) Explanation of Consolidated Operating Results ………………………………………………………… 2

(2) Explanation of Consolidated Financial Position ………………………………………………………… 4

(3) Explanation of Consolidated Performance Forecast and Other Predictive Information ……………… 5

2. Quarterly Consolidated Financial Statements ………………………………………………………………… 6

(1) Consolidated Balance Sheets ……………………………………………………………………………… 6

(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income ………. 8

(3) Notes to Consolidated Financial Statements ……………………………………………………………… 10

(Going concern Assumptions) ……………………………………………………………………………… . 10

(Significant Changes in Shareholders' Equity) …………………………………………………………… 10

(Changes in Accounting Policies) …………………………………………………………………………… 10

(Segment Information) …………………………………………………………………………………….... 11

(Subsequent Events) ………………………………………………………………………………………… 12

1．Qualitative Information on Consolidated Performance for the Three Months of Fiscal 2022

(1) Explanation of Consolidated Operating Results

During the three months of fiscal 2022 (January 1-March 31, 2022), the Japanese economy continued to tread a difficult path toward normalization due mainly to a sluggish personal consumption, especially for face-to-face services, as a result of the application of quasi-emergency measures and gradual expansion of regions to which the measures are applied, as well as extension of the application period following the sixth wave of COVID-19 (the novel coronavirus). In addition, geopolitical risks stemming from the unrest in Russia and Ukraine aggravated the economic chaos caused by the COVID-19 pandemic since February. This has caused other situations such as the sharp rise in resource prices, including crude oil, which is also affecting the Japanese economy. In the domestic cosmetics market, while demand for makeup products continued to decline, due to fewer opportunities to go out following the spread of COVID-19, there are signs of recovery comparing to the corresponding period of the previous year. Meanwhile, basic skincare products which were recovering as the same level as pre-COVID-19 is currently slowing down its trend. Also, e-commerce channel which has covered the demands on store market channel which is highly affected by measures for public health, remains steadily. Initiatives aimed at merging offline and online services have been stepped up in anticipation of coexistence with COVID-19 and the post-COVID-19 era and the expansion of differentiated services with utilization of digital and IT technologies is expected to become important besides convenience of purchase.

In the overseas cosmetics market, concerns about COVID-19 have also lingered. The zero-COVID policy still persists in China, which the Group has designated as a priority market, and lockdown measures which make the decline of supply chain function have been taken, including suspension of business activities and public transportation, and closure of major roads. Coupled with geopolitical risks stemming from the unrest in Russia and Ukraine, the situation remains unpredictable.

Within this market environment, the POLA ORBIS Group (the "Group") has worked to achieve the key objectives-"evolving domestic direct sales," "growing overseas businesses profitably," "profit contribution from brands under development," "strengthening operations," and "expanding new brands and domains of 'beauty'." These objectives are in line with the medium-term management plan (from 2021 to 2023) that started in 2021. As a result, the Group achieved the following consolidated operating results for the three months of fiscal 2022.

Consolidated net sales for the three months of fiscal 2022 decreased 13.5% year on year to ¥37,662 million. Operating income decreased 55.6% year on year to ¥1,912 million as a result of a decrease in gross profit due to decreased sales, and ordinary income was ¥4,140 million due to the recording of foreign exchange gains ¥2,183 million resulting from yen depreciation. As a result of the factors noted above and a decrease in income taxes - deferred as a result of business liquidation on a subsidiary, profit attributable to owners of parent increased 82.3% year on year to ¥7,180 million.

Operating Results Overview

(Millions of yen)

Three Months Ended March 31

Year-on-Year

2021

2022

Amount Change Percent Change (%)Net Sales Operating Income Ordinary Income

Profit Attributable Owners of Parent

to

¥43,561 4,307 5,763 ¥3,939

¥37,662 1,912 4,140 ¥7,180

¥(5,899) (13.5)

(2,395) (55.6)

(1,622) (28.2)

¥3,240 82.3

Operating Results by Segment

Net Sales (Segment Sales to External Customers)

(Millions of yen)

Three Months Ended March 31

Year-on-Year

2021

2022

Amount Change	Percent Change (%)
Beauty Care	¥42,445	¥36,516	¥(5,929)	(14.0)
Real Estate	530	523	(7)	(1.4)
Others	585	622	37	6.3
¥43,561	¥37,662	¥(5,899)	(13.5)
(Millions of yen)

Total

Segment Profit (Loss) (Operating Income (Loss))

Three Months Ended March 31

Year-on-Year

2021

2022

Amount Change Percent Change (%)Beauty Care Real Estate Others

¥4,190

¥2,026

¥(2,163) (51.6)

206

189

(16) (8.1)

13

0

(12) (92.7)

Reconciliations of Segment Profit (Note)

(102)

(305)

(202)

－

Total

¥4,307

¥1,912

¥(2,395)

(55.6)Note: Reconciliations of segment profit refer to elimination of profits arising from inter-company transactions and expenses not allocated to reportable segments. Please see note 2 in "1. Information about Net Sales and Profit (Loss) by Reportable Segment" on page 11 and 12 for the details of reconciliations of segment income during the period.

Beauty Care

The Beauty Care segment consists of the flagship brands POLA and ORBIS, the overseas brands Jurlique and

H2O PLUS, and the brands under development THREE, DECENCIA, Amplitude, ITRIM, FIVEISM × THREE and FUJIMI.

POLA is seeking to further improve the value of its brand and strengthen its business foundation through efforts to launch highly functional products mainly in the field of anti-aging and skin-brightening, and to focus on the growth markets of China and travel retail. In the domestic business, purchasing activities of existing customers was boosted as a result of the enhanced approach by customer segment using an app in the e-commerce business, which is one of the priority strategies. Brand recognition has been improved through digital contact points, as an initiative to promote OMO (Online Merges with Offline). At the same time, POLA has focused also on directing customers to physical stores. By implementing these initiatives, POLA has worked to retain customers seamlessly between channels and improve loyalty and life time value. In the overseas business, while POLA is accelerating business growth in the Chinese market, it has focused on marketing that gives priority to maintaining and improving its brand loyalty in that market over the medium to long term by curbing discounted prices and gift with purchase offers. However, affected substantially by the spread of COVID-19 especially on the domestic consignment sales channel, POLA brand net sales and operating income declined year on year.

ORBIS is proceeding with enhancing its presence through the creation of brand differentiation and acquiring skincare product users, with a focus on the ORBIS U anti-aging skincare series, in order to re-grow into a highly profitable business. In Japan, efforts to promote the purchase of the mainstay ORBIS U skincare series as well as special care products such as Wrinkle White Essence, which improves wrinkles and brightens skin, through communication with each customer segment, resulted in pushing up spending per customer and higher net sales of skincare including special care products than the previous year. Overseas, in China, a priority market, ORBIS is focusing on raising its brand recognition by expanding customer contact points and selling skincare products through both online and offline marketing. ORBIS utilized live commerce to conduct online brand communication, resulting in increased net sales on major e-commerce platforms. However, overall net sales for the ORBIS brand dropped below those of the corresponding period of the previous year due to difficulties on the domestic store business affected by the expansion of COVID-19 and the customer decline on the e-commerce channel. On the other hand, operating income rose year on year by efforts on fixed costs control.

For overseas brands, the Group is working to achieve business growth in Australia and Asia for Jurlique and in the United States, where H20 PLUS originated. Jurlique was affected by factors such as difficulties in acquiring