Wacoal : FY2023 Third Quarter Business Presentation (Transcription)

FY2023 Third Quarter

Business Results

Presentation

February 10, 2023

Wacoal Holdings Corp.

Hello, everyone. Thank you very much for joining us today.

I am Akira Miyagi, Director, Vice President, Executive Officer, and CFO of Wacoal Holdings Corp.

Thank you very much for attending this information session.

I will now explain Wacoal Holdings' financial results for third quarter of the fiscal year ending March 2023.

Revision of the Consolidated Business Performance Forecast for the Full

Business Year Announced in November 11, 2022

Poor performance in major countries, Recorded impairment loss on goodwill from past acquisitions.

Reason for the revision

➢ Reviewing 4Q plans for Japan, China, and America based on the current business conditions (For details, refer to page 26 and onwards)

• Recorded impairment loss on goodwill and intangible assets of Wacoal International, a consolidated

subsidiary responsible for the U.S. business

(There is no new cash out associated with the impairment loss)

					（billion of yen）
	Revenue	Business Profit	Operating	Quarterly profit/loss	Profit/Loss attributable to owners
	Profit/Loss	before tax	of the parent company
Previous Forecast（A）	200.0	5.0	8.0	10.5	8.0
Revised Forecast（B）	190.0	2.0	-5.5	-3.0	-4.0
Change（B－A）	-10.0	-3.0	-13.5	-13.5	-12.0

2

On February 10, we disclosed a downward revision to our earnings forecast for the current fiscal year.

This is the second disclosure of a downward revision, following the revision of the earnings forecast disclosed on November 11, 2022. We take very seriously the concerns we have caused to our stakeholders.

The revised forecast is a result of weak performance in key countries and the accounting treatment of impairment losses on goodwill and intangible assets associated with past corporate acquisitions.

Due to the significant impact on the full-year results, we will first discuss the impairment loss recorded this time.

Impairment loss by Wacoal International (U.S.)

Impact on Operating Profit

-10.1 billion yen

Impairment loss (¥10.1 billion) was recorded mainly on goodwill associated with the acquisition of IO Inc.

• We voluntarily adopt International Financial Reporting Standards (IFRS), and impairment losses have an impact on operating profit (Affected amount of net income in this term was -¥9.8 billion)

[About Wacoal International (U.S.)]

• A holding company that oversees Wacoal business in the USA.
• "Wacoal" and "b.tempt'd" are under Wacoal, while "LIVELY" is under the IO Inc.
• IO Inc. was acquired in 2019 to create growth opportunities and strengthen competitiveness in EC businesses

[Background to Recording Impairment Loss]

• Recorded impairment loss on goodwill, intangible assets, and right-of-use assets (goodwill: ¥8.3 billion,
  intangible assets: ¥1.2 billion, right-of-use assets: ¥0.5 billion) as a result of revaluation of the recoverable amount of Wacoal International (U.S.), in light of changes in the external environment, such as the tightening of regulations on digital marketing and the recent slowdown in personal consumption
• Residual value of goodwill of Wacoal International (U.S.): USD 45 million (approx. ¥6 billion)

3

See page three. In Q3, the Company recorded an impairment loss of JPY10.1 billion related to WACOAL INTERNATIONAL, the consolidated subsidiary managing the US business. The Company acquired INTIMATES ONLINE INC (IO), which manages the Lively brand, in 2019, to create growth opportunities and strengthen its competitive position in the e- commerce market.

However, considering changes in the external environment, including tighter privacy regulations for digital marketing and the recent slowdown in consumer spending, the Company reassessed the recoverable amount of the Company, resulting in the recording of an impairment loss of JPY10.1 billion.

Since the Company has voluntarily adopted International Financial Reporting Standards, or IFRS, these impairment losses will be other expenses and will affect operating profit. The impact on net profit will be a decrease of approximately JPY9.8 billion.

As a result of this impairment loss, the residual value of the Company's goodwill will be approximately JPY6 billion. Impairment losses are not accompanied by cash outflows.

IO: Organize and address marketing issues

Reiterated (from the November 11, 2022 Business Presentation)

4P Issue Analysis and Measures

• Aiming to improve profitability by leveraging integrated synergies and improving sales promotion efficiency and reducing expenses.

	Products	Price
	Inefficient operation with approx. 20% of bra product			The retail price was changed to $45 due to soaring costs,
	numbers accounting for 80% of sales			but sales were sluggish.
	■Issue		■Issue
	Market analysis, weakness in development and inventory		Mismatch between added value and product price. Less
	management capabilities, and response to soaring costs.		competitive than competitors.
	■Measures		■Measures
	Strengthen market research, product development and		Conduct test marketing to review pricing. Began
	inventory management functions through synergies with		validating appropriate pricing along with reviewing costs.
	Wacoal America.
	Place		Promotion
	Sluggish growth in Wacoal's EC, and delayed development			Increased emphasis on discount promotions due to
	in the new EC market.			deterioration in sales promotion efficiency.
	■Issue		■Issue
	Lost growth opportunities by sticking to Wacoal's EC while the		Lack of efforts to improve Wacoal's EC website.
	entire EC market is expanding.
	■Measures		■Measures
		Improve convenience and review discount promotions by
	Enter the Canadian market by opening stores on Amazon
		improving website's speed and strengthening SEO.
	and collaborating with partners.
	4

See page four. This is a copy of the financial supplement disclosed on November 11, 2022, for your reference.

Along with the initiatives described above, we will work to improve the profitability of IO as soon as possible by improving sales promotion efficiency and reducing expenses. This concludes an explanation of the impairment losses recorded in the US operations.

Changes From the Same Period of the Previous Year

1. Implementation of International Financial Reporting Standards (IFRS)

• IFRS has been applied on a voluntary basis from 1Q of FY2023 in order to provide more useful information and improve convenience
• "Business profit," calculated as revenue less cost of sales and selling, general and administrative expenses, is newly disclosed
• Fluctuation risk in net income is reduced as fluctuations in stock market value, except for some stocks, will no longer affect the profit and loss statement
• Results of all subsidiaries are disclosed as if the fiscal year ended in March as required by IFRS accounting standards where the fiscal years of all group companies must be unified
• The figures for the cumulative consolidated term in 1H of the previous year are also disclosed according to IFRS

1. The Impact of the Change in Revenue Recognition at Wacoal

• Sales of consumption transactions in department store, etc., were changed to an over-the-counter price basis in the period under review
• Because this change will increase sales revenue and SG&A expenses by the same amount, operating income will not be affected.
• This change has boosted 3Q(Apr-Dec) sales revenue by approximately ¥4.2 billion (main factor of boost in sales revenue and
  SG&A expenses).

5

I will now explain Wacoal Holdings' financial results for 3Q of the fiscal year ending March 2023.Changes from the same period of the previous year are described.

The first is the voluntary application of International Financial Reporting Standards. The Company has voluntarily adopted IFRS since the beginning of the current fiscal year, and the figures for the previous fiscal year shown in this document have been reclassified to conform to IFRS.

The second is the change in revenue recognition at Wacoal. Sales of consumption transactions in department stores and so on, were changed to an over-the-counter price basis in the period under review. This change has pushed up sales revenue for H1 by approximately JPY2.6 billion, but since SG&A expenses have also increased by the same amount, there is no impact on each profit. Furthermore, no retroactive adjustments have been made.