Kobayashi Pharmaceutical: Financial Overview for First Quarter of Fiscal 2025(Fiscal Year Ending December 31, 2025)

Kobayashi Pharmaceutical Co., Ltd.

Norikazu Toyoda, President and Chief Executive Officer

Yumi Nakagawa, Executive Officer and General Manager, Finance Headquarters

May 9, 2025

Introduction

2/24

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

Career highlights

1987: Joined the Company (Domestic Sales)

1995: Domestic Marketing

2006: International Sales Company

President, Kobayashi Healthcare Europe, Ltd.

2012: General Manager, Europe, United States and China Strategy Dept.,

International Business Division

2015: General Manager, Europe and United States Strategy Dept., International Business Division, and

President, Kobayashi Healthcare International, Inc.

2023: Executive Officer and Senior General Manager, International Business Division

2025: Executive Officer and Senior General Manager, International Business Headquarters

2025: President and Chief Executive Officer (current position)

What I want to work on as the new president

• Prioritize measures to prevent recurrence and compensation

• Promote well-balanced management

  • Focus on key investment areas and accelerate new product development

    and overseas growth

  • Improve profitability through structural reform efforts (reducing SKUs, improving advertising efficiency, etc.)

  • Ensure that cash generated will be used for further growth investments

  • Pay attention to capital efficiency (ROE) and strengthen shareholder returns

• Organizational culture reform

  • Review and dissemination of the corporate philosophy

Currently formulating a long-term vision for 2035 and

the medium-term management plan for 2026-28

Overview of the measures to prevent recurrence (three pillars)

1. Awareness Raising and Structural Enhancement regarding Quality and

   Safety

   5/24

   ・Thoroughly implement "quality and safety first" to change the awareness of our executives and employees regarding quality and safety.

   ・Clarify roles and responsibilities and strengthen quality assurance and management systems.

2. Fundamental Reform of Corporate Governance

   ・Revamp the composition of the Board of Directors that oversees the management of the new Kobayashi Pharmaceutical.

   ・To regain the trust of our stakeholders and realize a new Kobayashi Pharmaceutical, establish determination and the mechanisms to become a company that does the right thing in the right way.

3. "New Kobayashi Pharmaceutical" to be re-created by all of us

・To enhance our risk sensitivity and our ability to create new value, implement measures to eliminate the homogeneity that exists within our company and ensure diversity.

・All executives and employees will work together as one to re-create a new Kobayashi

Pharmaceutical.

Major progress of measures to prevent recurrence

1. Awareness Raising and Structural Enhancement regarding Quality and Safety

   6/24

   • shows the updates from the previous financial

     results presentation in February.

     [Progress] ・The quality enhancement team jointly formed by the development unit and Manufacturing Headquarters carried out activities to identify areas for improvement at each plant. → After organizing the identified issues, started mass production review meetings in April. ・Both the development unit and manufacturing plants have begun to implement investment in quality, which was given a high priority for this fiscal year.
     Description and progress		Status			Implementation/ introduction
     		Planning	Start/ preparation for introduction	Implemented/ introduced
     Education and awareness reform	Provision of education and training on quality and safety for all executives and employees				Done (2024/6~)
     	Regular transmission of messages and dialogue with employees by the president				Done (2024/8~)
     Strengthening of quality assurance system	Clarification of the role of the Reliability Assurance Headquarters				Done (2025/1~)
     	Shift to function-based headquarters to strengthen front-line expertise				Done (2025/1~)
     Reinforcement of manufacturing management system	Self-inspection and third-party checking of each plant				Done (2024/10~) * Continued after this
     	Establishment of the Manufacturing Promotion Office				Done (2025/1~)
     	Establishment of comprehensive hygiene management standards for each product category				2025/7~ * Start with oral products
     	Effective periodic holding of "mass production review meetings"				Done (2025/4~)
     Inspection techniques	Consideration and introduction of procedures for detecting contamination by ingredients other than specified ingredients				2025/8~
     Personnel evaluation	Introduction of a system in which activities that contribute to quality and safety are subject to evaluation				2025/12

     * Even for measures marked "Implemented/introduced," we will continue to verify the effectiveness and constantly review the content.

     Awareness Raising and Structural Enhancement regarding

     Quality and Safety

     Examples of specific actions for quality enhancement

     7/24

     
     
     
     
     
     

     Developing specific techniques to rapidly analyze the structure of unintended components

     Allocating additional workers depending on the manufacturing process

     Online quality training for all executives and employees

     (monthly)

     Major progress of measures to prevent recurrence

2. Fundamental Reform of Corporate Governance

   8/24

   • shows the updates from the previous financial

     results presentation in February.

     [Progress] ・The composition of the Board of Directors has been revamped with members selected from both inside and outside the Company. The new structure took effect upon approval at the annual general meeting of shareholders on March 28. → Discussions under the new structure began in April on themes such as review of the Board of Directors' agenda and re-strengthening of the crisis management system. ・Four specialized committees have begun full-scale operations, leveraging their enhanced expertise to improve the quality and speed of decision- making. ・Establish a corporate governance committee to promote the review of the medium- to long-term governance structure.
     Description and progress		Status			Implementation/ introduction
     		Planning	Start/ preparation for introduction	Implemented/ introduced
     Departure from management dependent on the founding family	Change of Chairman of the Board and President				Done (2024/7)
     Board of Directors reform	Strengthening supervisory functions by increasing the number of outside directors and inviting a chairman of the Board from outside				Done (2025/3)
     	Reexamination of organizational design				2026/3
     	Strengthening cooperation between the Board of Directors and the executive side				Done (2024/7~)
     Review of executive meeting structure (Abolition of GOM)	Establishment of a new Executive Committee (clarification of the executive decision-making organ)				Done (2024/11)
     	Establishment of four specialized committees (investment/human resources/ quality/risk)				Done (2025/3)
     Reinforcement of risk response structure	Reorganization of existing risk and compliance-related committees				Done (2025/3)
     	Building a risk escalation system in case of emergency				Done (2024/8~)
     Review of business operations	Selection based on resources				2025/8~

     * Even for measures marked "Implemented/introduced," we will continue to verify the effectiveness and constantly review the content.

     Changes to meeting structure and establishment of specialized committees

     
     
     

     The range of on-site information that the executive unit needs to grasp can be expanded, and based on discussions there, clear and prompt decision-making will be enabled.

     Board of Directors

Supervision Supervision Supervision

New New

Auditing

Executive Committee

• For decision-making for

  important matters

  Group Council

• For reporting and discussing

important matters

Reporting and advising

1. "New Kobayashi Pharmaceutical" to Be Re-created by All of Us

   • shows the updates from the previous financial results presentation in February.
     
     

* Even for measures marked "Implemented/introduced," we will continue to verify the effectiveness and constantly review the c ontent.

Quality and Safety Day

March 22, the date on which the red yeast rice incident was made public, was designated as "Quality and Safety Day" for all executives and employees to engage in reflective activities to ensure that quality issues will never occur again.

(Examples of activities)

• Review of the past year, thorough investigation of causes and reexamination of measures to prevent recurrence

• Lectures by external lecturers, workshops in each department

  ・Session of new and old executives at Osaka Plant for introspection, etc.

  Applications accepted

Approx. 780

people

Approx. 730

people

Application

documents sent

Verification

Approx. 50 people

Domestic Business

(Figures in parentheses are year-on-year changes.)

Net sales decreased by 3.4 billion yen (down 12.9%).

・Inbound tourism demand increased along with a rise in the number of overseas tourists to Japan (+0.1 billion).

・New products, such as Shoshugen ZERO and Gohonurse, contributed (+0.5 billion).

・Sales of body warmers were strong due to lower temperatures from January to March 2025

(+0.2 billion)

・Sales of existing goods declined due to the impact from the recall of red yeast rice-related products and suspension of advertisements (−3.3 billion).

・Sales in the Direct Marketing Business fell due to the cancellation of regular subscriptions

(−0.9 billion).

International Business

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

Net sales decreased by 0.5 billion yen (down 4.7%).

・U.S.: Sales of body warmers increased due to harsh winter, and supplements from Focus contributed to sales (+1 billion).

・China (Mainland): Net sales decreased due to lower demand for Netsusama Sheet resulting from fewer opportunities

for fever to occur (-0.7 billion).

・Hong Kong region: Net sales slightly declined due to a decrease in inbound tourism demand from Mainland China

(−0.1 billion).

・Southeast Asia: Net sales decreased due to backlash from the previous year's epidemic for Netsusama Sheet and the impact of sales carried over to 2Q (-0.7 billion).

Consolidated Financial Results for the First Quarter of the Fiscal Year Ending December 31, 2025

15/24

An extraordinary loss of 0.7 billion yen was posted in association with the recall of red yeast rice-related products.

* EBITDA = Operating income + Depreciation + Amortization of goodwill

Operating income decreased due to an increase in the amortization of investment in new buildings, in addition to the impact of a decline in sales and a rise in personnel costs, despite a positive effect on operating income from the cancellation of advertisements.

50

5.0

・・・Factors behind increase

・・・Factors behind decrease

Factors for changes in

operating income

＋22

＋2

+0.2

▲2

+2.2

(Unit: billion yen)

▲3

▲1

25

＋1.7

2.5

Impact of fluctuations in foreign exchange rates

▲41

Total: −0.03

+8

＋1

▲1

−1.2

+0.8 +0.1

-0.1

-0.1

-0.2 -0.3 -0.1

Year-on-year change

-49.6%

+0.17

−0.8

-0.08

▲1

▲2

▲7

(Impact of…

-0.2

Rising import prices

SGA increase

Gross profit increase

Jan. to Mar. 2025

Other SGA expenses

Depreciation and

amortization

Personnel costs

Sales promotion

expenses

Advertising expenses

Other production costs

Fixed costs

Rising import prices

(Impact of fluctuations in

foreign exchange rates)

Cost reduction

Rise in raw material

prices

Sales price hike

Changes in sales

Jan. to Mar. 2024

Production costs

SGA expenses

International Domestic

Healthcare products and Direct Marketing Business continued to struggle, resulting in a

decrease in net sales. Sales of household products and body warmers increased.

The impact of the red yeast rice incident was limited. Demand increased along with an increase

in the number of visitors to Japan.

22

11

11

0.5

0.1

24

25

Inbound-tourism-demand-related sales (Jan. to Mar.)

(Unit: billion yen)

2.2

2.4

2.5

1.1

1.1

0.05 0.01

2019 2020 2021 2022 2023 2024 2025

Well-selling products launched after

COVID-19

Preparation of point-of-purchase displays in foreign languages

Sales reached around 2.5 billion yen, exceeding the level of 2019 before COVID-19 for the second consecutive year.

Sales increased in the U.S. Sales in Mainland China, Hong Kong, and Southeast Asia decreased. The effect of foreign currency translation (+0.2 billion yen for net sales; +0.04 billion yen for operating income)

Sales of body warmers increased due to lower temperatures of this season. Sales of other items increased due partly to new supplement products of Focus, which we acquired in 2023.

(Unit: billion yen)

Net sales

* Percentages in parentheses exclude the effect of fluctuations in foreign exchange rates.

Body warmers Pharmaceuticals Other

21.3

16.1

15.9

2.13

13.1

13.5

1.31

1.35

1.61 1.59

11.3

1.13

1.10

2.2

9.0

11.0

0.90

0.22

Jan. to Mar. Jan. to Mar. Jan. to Mar.

2023 2024 2025

Jan. to Mar. Jan. to Mar. Jan. to Mar.

2023 2024 2025

Jan. to Mar. Jan. to Mar. Jan. to Mar.

2023 2024 2025

Sales of Netsusama Sheet decreased because infectious diseases accompanied by fever were not as prevalent as in the previous year.

Sales of other items also decreased due to delays in the shipment of ANMERUTSU.

(Unit: billion yen)

Net sales

* Percentages in parentheses exclude the effect of fluctuations in foreign exchange rates.

Body warmers Netsusama Sheet Other

11.4

9.8

4.9

8.1

6.9

5.4

1.14 0.98

1.6

4.2

3.5

0.16 0.42 0.35

0.49

0.81 0.69

0.54

Jan. to Mar. Jan. to Mar. Jan. to Mar.

2023 2024 2025

Jan. to Mar. Jan. to Mar. Jan. to Mar.

2023 2024 2025

Jan. to Mar. Jan. to Mar. Jan. to Mar.

2023 2024 2025

Sales of pharmaceuticals and Netsusama Sheet decreased due to sales carried over.

The decrease in sales of Netsusama Sheet was partly a backlash from outbreaks of various infectious diseases in the previous year.

In the Other category, sales of body warmers decreased due to excess inventory in Taiwan in the previous year (due to the warm winter).

(Unit: billion yen)

Net sales

* Percentages in parentheses exclude the effect of fluctuations in foreign exchange rates.

Pharmaceuticals Netsusama Sheet Other

13.4

16.4

11.8

Year-on-year change

−12%

(−18%)

1.64

4.6

6.3

5.6

0.46 0.63 0.56

1.34

1.18

4.3

4.2

2.9

0.43 0.420.29

Jan. to Mar. Jan. to Mar. Jan. to Mar.

2023 2024 2025

Jan. to Mar. Jan. to Mar. Jan. to Mar.

2023 2024 2025

Jan. to Mar. Jan. to Mar. Jan. to Mar.

2023 2024 2025

Advertising will be resumed for some products from May onward. We aim to achieve the following announced figures.

*1 EBITDA = Operating income + Depreciation + Amortization of goodwill *2 Foreign exchange rates: US$ 1 = 140 yen; Chinese yuan 1 = 19.7 yen

Progress in structural reform initiatives are as follows (partial excerpt):

[Reduction of the number of SKUs]

We will promote SKU optimization and aim for a 25% reduction both in Japan and overseas. The list of domestic SKUs has been completed, and we will carefully examine overseas SKUs and gradually streamline them.

(Reduction example: BLUELET)

[Closure of Kinokawa Plant] (Released on April 14, 2025)

After reviewing the growth potential and profitability of the manufacturing and sales business of Meitan Hompo products, as well as the various investments required therefore, we have concluded that there are no

2024

81 SKUs

Reduction

18 SKUs

2025 1H

63 SKUs

prospects for the business at this point. Therefore, we have decided to continue sales suspension of Meitan Hompo products and announced the closure of the Kinokawa Plant,

the plant for the products.

Net sales

(Unit: billion yen)

36.4

Gross profit ratio

290

29.0

(Unit: %)

316

316

319

31.6 31.6 31.9

302

326

334

326

30.2

32.6 33.4

32.6

268

26.8

53.1

59.0

59.0

59.0

57.1

58.8

57.1

57.8

57.4

364

51.2

Depreciation and amortization

(Unit: billion yen)

63

64

Operating income

(Unit: billion yen)

55

5.5

(Unit: %)

60

6

6.0

58

68

5.8

6.3

58

60

5.8 6.0

6.4

6.8

18

1.8

7.5

2.0

20

7

0.7

13

1.3

0.7

7

48

4.8

19.0

0.6 0.7

7

54

51

5.4 5.1

19.3 18.5

1.5

15

48

4.8

19.9

1.2

12

46

4.6

19.2

1.2

12

48

4.8

18.6

1.4

14

50

5.0

19.2

5.0

50

18.7

4.7

47

22

2.2

25

2.5

14.5