Kobayashi Pharmaceutical : Financial Overview for First Quarter of Fiscal 2024(Fiscal Year Ending December 31, 2024)

Financial Overview for First Quarter of Fiscal Year Ending December 31, 2024 (January 1, 2024 to March 31, 2024)

Yumi Nakagawa

Executive Officer, General Manager, CFO Unit

Kobayashi Pharmaceutical Co., Ltd.

May 10, 2024

Introduction

2/15

Statement Regarding Our Benikoji (Red Yeast Rice)-related Products

We deeply apologize again for the significant concerns and distress felt by our customers, business partners, and all those associated with us, in connection with our benikoji-related products.

We extend our prayers for the souls of those who have tragically passed away, and offer our sincere condolences to their families. We express our hopes for the swift recovery of all those currently hospitalized or undergoing treatment.

Introduction

3/15

Chronology of events to date

We have taken the following actions in response to the incident. We will continue to address the incident with a

company-wide effort under the leadership of the president, who serves as the head of the task force

Mid-January to early	We received case reports of adverse reactions from persons who developed symptoms after taking Benikoji CholesteHelp,
February	as well as from practitioners who examined such patients.
Following these reports, we took steps to analyze the situation and to evaluate potential explanations in identifying the root cause.
Mid-March	Our analysis revealed the presence of unexpected components in certain product lots and benikoji raw material lots.
March 22	We convened an extraordinary meeting of the Board of Directors, announced a request to customers to refrain from taking
	benikoji-related products together with a voluntary collection of the products, and held the first press conference.
March 27	The City of Osaka issued an order to us to collect the products.
March 29	We held the second press conference.
March 30 and 31	Administrative authorities conducted an on-site inspection of our factory premises in accordance with the Food Sanitation Act.
April 26	At an extraordinary meeting of the Board of Directors, we resolved to set up a fact-finding committee.

Introduction

4/15

Investigation and verification led by the Board of Directors

We will take strict action to address any shortcomings identified in our responses to the incident, taking into consideration

feedback from within and outside of the Company regarding our compliance and corporate governance system.

• Policy

The Board of Directors will take the lead in investigating the following issues and conducting follow-up verification:

・Can it be said that we took appropriate responsive actions after receiving the initial case reports of adverse reactions, from the viewpoint of preventing the spread of health problems and maintaining the trust of our stakeholders, including our customers, business partners, and shareholders?

・Have we ever had any problems complying with other laws and regulations, including any administrative penalty (collection order) for violation of the Food Sanitation Act?

・Have we ever had any problems complying with management decision making or corporate governance (one of the bases for management decision making) after receiving initial case reports of adverse reactions?

 Important issues to be examined in the follow-up verification process		Members of the Fact-finding Committee
1.	Investigation of the development of events after	Chairperson		Makoto	Lawyer (former President of the Tokyo District Court)
	we received the initial case reports of adverse reactions		Kaiami
2.	Close examination of the internal control system and the quality control system	Member		Mikinao	Lawyer (former superintendent public prosecutor of the
3.	Determination of conformance with laws and regulations			Kitada	Osaka High Public Prosecutors' Office)
4.	Appropriateness of the timing of the announcement	Member		Kengo	Lawyer
			Nishigaki
 Investigation and verification system

• As to the issues mentioned in 1 and 2 above, findings of facts based on evidence are required. Thus, we set up a fact-finding committee composed of legal experts, and commissioned the committee to conduct

an independent, objective, and effective investigation and verification as soon as possible.

• Regarding the issues mentioned in 3 and 4 above, the Board of Directors is committed to fulfilling its supervisory obligation by ensuring that we extend fair and full cooperation to investigations conducted by the authorities. Additionally, the Board of Directors will consider whether our conformance with laws and regulations and the timing of our announcement were appropriate by seeking the advice of external experts.

Summary of Business Performance (First Quarter)	5/15
Domestic Business	(Figures in parentheses are year-on-year changes.)

Net sales increased by 1.2 billion yen (up 4.9%).

・Inbound tourism demand increased along with a rise in the number of overseas tourists to Japan (+1.3 billion yen).

・Sales of new products, such as Sawaday+ &Emotion and Hipcure, contributed to a growth in net sales (+0.8 billion yen).

・Sales of body warmers decreased due to mild winters (−0.4 billion yen). ・Sales of other existing goods declined (−0.2 billion yen).

・Sales in the Direct Marketing Business fell (−0.3 billion yen).

International Business

(Figures in parentheses are year-on-year changes. * Foreign currency translation effects are included.)

Net sales increased by 1.7 billion yen (up 21.0%)due to positive foreign currency translation effects.

・U.S.: Net sales increased due to the contribution of supplements and pharmaceuticals manufactured by Focus Consumer Healthcare (+1.1 billion yen).

・China (Mainland): Net sales decreased slightly due to a reaction to a huge rise in demand for Netsusama Sheet in the previous

year (−0.02 billion yen).

・Hong Kong region: Net sales increased due to the contribution of inbound tourism demand from Mainland China (+0.1 billion yen).

・Southeast Asia: Net sales grew due to steady sales of Netsusama Sheet and Ammeltz in each country (+0.4 billion yen).

Consolidated Financial Results for the First Quarter of Fiscal Year	6/15
Ending December 31, 2024

Net sales increased but operating profit decreased due to the posting of an extraordinary loss of 3.8 billion yen associated with the recall of benikoji-related products.

(Unit:	Jan. to Mar.		Jan. to Mar. 2024
2023
100 million yen)
	Amount	Amount	Year-on-year change	Percentage of
		net sales
Net sales	334	364	+9.0%	-
Operating income	50	50	−0.6%	13.8%
Ordinary income	51	54	+5.7%	15.0%
Net income	36	9	−72.9%	2.7%
EBITDA*	64	68	+5.9%	18.7%
Net sales of	249	261	+4.9%	-
Domestic Business
Net sales of International Business	83	101	+21.4%	-

* EBITDA = Operating income + Depreciation + Amortization of goodwill

Factors behind Changes in Consolidated Operating Income	7/15
Operating income decreased slightly due to the impact of rising raw material prices and

personnel costs. An increase in the amortization of goodwill of Focus Consumer Healthcare, which we acquired in October 2023, also had a negative effect on operating income

・・・Factors behind decrease

Factors behind changes

・・・Factors behind increase

+21

+3

in operating income

50

−2

−2

−1

−3

−1

−2

−5

−1

Including the effect of

price hikes (+6)

SGA expenses

Production costs

R&D expenses

Jan. to Mar. 2023

Sales increase

Cost reduction

Fixed costs

Rise in raw material prices Increase in import prices (impact of fluctuations in foreign exchange rates)

Other production costs

Advertising expenses

Sales promotion expenses

Personnel costs

(Unit: 100

Impact of fluctuations in

million yen)

foreign exchange rates

50

Total：+0.2

+5.8

−7

Year-

on-year

change

−0.6%

−4.3

−1.3

SGAOtherexpenses

Jan.to Mar. 2024

International

Domestic

increaseprofitGross

increaseSGA

importRisingprices

Business

Business

Domestic Business (Sales Breakdown by Product Category)

8/15

Sales of healthcare products and household products grew steadily, but sales of body warmers and sales in the Direct Marketing Business decreased.

(Unit:

100 million yen)

	Healthcare products
sales	Household products
Body warmers
Net	Direct Marketing
Business
	Total

Total operating income

(Margin)

FY2023		FY2024
Jan. to Mar.		Jan. to Mar.
Amount		Amount		Year-on-year change
140		155	+10.6%
81		85	+5.4%
8		4		−49.6%
19		16		−16.0%
249		261	+4.9%
36		38		+6.8%
14.5%		14.7%		-

Domestic Business (Inbound Tourism Demand)

9/15

Along with an increase in the number of visitors to Japan, inbound-tourism-demand-related sales exceeded those before the COVID-19 pandemic. Some new products were likely to sell well supported by inbound tourism demand. We installed point-of-purchase displays in multiple languages.

Changes in inbound-tourism-	New products that were likely to
demand-related sales		sell well
(Unit: 100 million yen)	24
22
11	11
			Use of point-of-purchase displays in
0.5	0.1		foreign languages

Jan. to Jan. to Jan. to Jan. to Jan. to Jan. to Mar. Mar. Mar. Mar. Mar. Mar. 2019 2020 2021 2022 2023 2024

Inbound-tourism-demand-related

sales ranking by brand

	Jan. to Mar.
Rank		Jan. to Mar.
2019		2024
1	Inochi-no-haha		Naishitol
2	SakamuCare		Inochi-no-haha
3	BreathCare		Nodonool Spray
4	Nodonool Spray		Lens cleaner
5	Ammeltz		SakamuCare

International Business (Sales Breakdown by Region)

10/15

Net sales increased steadily in the U.S. and Southeast Asia, but decreased slightly in Mainland China due to a reaction to a huge rise in demand for Netsusama Sheet in the previous year. Owing to the amortization of goodwill of Focus Consumer Healthcare, operating income declined.

Net sales

	(Unit:	FY2023			FY2024
	Jan. to Mar.			Jan. to Mar.
	100 million yen)	Amount	Amount	Year-on-year change		Year-on-year change (excluding effect
				of foreign currency translation)
	U.S.
	26	38		+44.6%			+28.8%
	Mainland China	21	21		−1.3%		−7.0%
	Hong Kong	6	7		+11.0%			−1.4%
	Southeast Asia	22	27		+20.7%			+12.3%
	Other	7	8		+13.7%			−0.7%
	Total International Business	83	101		+21.4%			+10.5%
	Total operating income		13	10		−21.5%			−32.3%
	(Margin)		16.1%	‐		10.4%			-