Pola Orbis : Summary of Financial Results for Fiscal 2024

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POLA ORBIS HOLDINGS INC. (4927) FY2024 Financial Summary

1. Overview of Consolidated Operating Results

(1) Overview of Consolidated Operating Results for Fiscal 2024

During the fiscal year ended December 31, 2024 (January 1-December 31, 2024), despite some lingering stagnation, the Japanese economy showed a moderate recovery with improvements in the employment and income environment. In addition, personal consumption, despite experiencing stagnation in some areas, has recently been showing signs of recovery, backed by continued improvement in nominal wages among other factors.

In the domestic cosmetics market, personal consumption has improved thanks to the moderate economic recovery. Moreover, inbound demand has continued to grow due to the continued trend of a weaker yen. In the Chinese market, although supply has increased as policy measures take hold, the economy has remained stagnant.

Within this market environment, as part of its medium-term management plan (from 2024 to 2026) that started in 2024, the POLA ORBIS Group (the "Group") implemented four business growth strategies, namely, "strengthen the customer base in the domestic business to achieve sustainable growth and improve profitability," "further grow the overseas business and establish business bases in new markets," "achieve profitability through growth in brands under development, contributing to sustainable earnings," and "enhance the brand portfolio and expand business domains." At the same time, in effort to sustainably strengthen the management foundations that will support these strategies, the Group has worked to "strengthen R&D capabilities for new value creation" and "strengthen sustainability combining the resolution of social issues with uniqueness."

As a result of the above, consolidated net sales for fiscal 2024 fell 1.7% year on year to ¥170,359 million due mainly to a decrease in sales of the flagship POLA brand. Operating income decreased 14.1% year on year to ¥13,810 million due to a decrease in gross profit from lower net sales, ordinary income decreased 12.9% year on year to ¥16,083 million, and profit attributable to owners of parent decreased 3.9% year on year to ¥9,286 million.

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Note: Reconciliations of segment income refer to elimination of profits arising from inter-company transactions and expenses not allocated to reportable segments. Please see note 2 in "3. Information about Net Sales, Profit (Loss), Assets and Other Items by Reportable Segment" on page 18 for the details of reconciliations of segment income in fiscal 2024.

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POLA ORBIS HOLDINGS INC. (4927) FY2024 Financial Summary

Beauty Care

The Beauty Care segment consists of the flagship brands POLA and ORBIS, the overseas brand Jurlique, and the brands under development DECENCIA, THREE and FUJIMI.

POLA is working to further improve the value of its brand and build a medium- to long-term customer base by launching highly functional products mainly in the field of anti-aging and skin-brightening. In the domestic business, we are working to establish brand experience (the One POLA model) to promote the transition from new customer acquisition to high lifetime value. Elsewhere, expansion of the POLA Premium Pass, a membership program launched in 2023 covering all sales channels, has seen customers start to move between sales channels. Through activities to enhance customer experience value, such as boosting our consulting services and aesthetic treatment centered on new products, and launching a new skin analysis service, sales increased at growth stores in the consignment sales channel, while the department store channel continued to witness sales growth. However, overall performance in the domestic business fell short of the previous year, impacted by the reduction in customer contact points caused by a decrease in the number of stores in the consignment sales channel, and other factors. In the overseas business, we are working to drive business recovery in the post-pandemic world and to establish a brand presence in China, our top priority market, by expanding contact points with high-prestige customers and strengthening CRM. However, due to the continued impact of the economic slowdown in some areas of Asia, particularly in China, the overall performance of the overseas business fell short of the previous year. As a result, POLA brand net sales and operating income decreased year on year.

ORBIS strives to regrow into a highly profitable business by enhancing its presence through creation of brand differentiation, improving customer loyalty, and increasing users of skincare products, with a focus on the ORBIS U anti-aging skincare for improving wrinkles and brightening skin. In the domestic business, we are working to achieve steady growth in its skincare-centered direct selling business, build a robust profit base, and increase net sales in new fields by entering untapped markets. In the direct selling channel, where we are building an increasingly stable customer base, the number of customers continued to grow, and the continued strong sales of highly functional, higher- priced products also contributed to raising the customer unit price. As a result, sales increased significantly. In the external channels, which we have positioned as a new growth driver and are proactively developing, we expanded our product lineup and sales channels, enabling sales growth to remain brisk. In the overseas business, we are focusing on expanding customer contact points and raising brand recognition in China, our priority market. However, the overall performance of overseas business fell below that of the previous year due to the continued economic slowdown in China. As a result of the above, ORBIS brand net sales and operating income exceeded those of the previous year.

Jurlique continues to work toward business growth in the markets of Asia, mainly in Australia and in China. In Australia, the home country of the brand, sales continued to increase thanks to strong sales of new products launched in March and solid sales in the department store, directly operated retail store, and e-commerce channels. On the other hand, in China, the effects of the economic slowdown continued, hampering sales in both the department store and e- commerce channels, especially from April onward, leading to weaker performance than that of the previous year. As a result of the above, Jurlique brand net sales fell below those of the previous year, and operating losses expanded mainly due to the impact of higher selling and administrative expenses.

For brands under development, DECENCIA increased year on year thanks to the building of a stable customer base through strengthening sales strategies tailored to customer attributes. Efforts are underway to regenerate THREE. While we have been working to revitalize stores with products highlighting essential oils that are the brand's differentiation, new customer acquisition did not reach the previous year's level and results fell short of the previous year. FUJIMI achieved profitability with higher results than the previous year by improving customer experience value. In addition to the above, the withdrawal of two brands in the previous year meant that overall net sales for the brands under development decreased year on year. Moreover, operating loss expanded mainly due to the impact of investments in new businesses.

As a result of the factors noted above, the Beauty Care segment's net sales-sales to external customers-were ¥165,060 million, down 2.0% year on year, and operating income was ¥14,926 million, down 8.7% year on year.

Real Estate

The Real Estate segment concentrates on the leasing of office buildings in urban areas. Efforts are currently directed at sustaining and improving rental income and reducing vacancy rates by creating attractive office environments. Another area of emphasis is the residential properties rental business. This business highlights condominiums perfect for families with young children. During fiscal 2024, although net sales increased year on year, operating income fell below that of the previous year mainly due to expenses incurred in conjunction with the completion of the "POLA aoyama building" and the withdrawal of some tenants.

As a result of the above, net sales-sales to external customers-totaled ¥2,214 million, up 6.5% year on year, and operating income was ¥76 million, down 82.5% year on year.

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POLA ORBIS HOLDINGS INC. (4927) FY2024 Financial Summary

Others

The Others segment is the building maintenance business.

The building maintenance business is mainly engaged in the operation and management of buildings. During fiscal 2024, both net sales and operating income increased year on year thanks to an increase in the number of contracts.

As a result of the above, net sales-sales to external customers-totaled ¥3,085 million, up 12.3% year on year, and operating income was ¥231 million, up 54.7% year on year.

(2) Overview of Consolidated Financial Position at End of Fiscal 2024

As of December 31, 2024, total assets stood at ¥200,320 million, down 0.4%, or ¥887 million, from December 31, 2023. Factors related to this change included increases of ¥3,833 million in property, plant and equipment and ¥963 million in short-term investments in securities, as well as decreases of ¥2,024 million in cash and deposits, ¥1,954 million in investments in securities, ¥1,043 million in deferred tax assets, ¥355 million in notes and accounts receivable

• trade, and ¥340 million in "Other" under current assets.

Total liabilities amounted to ¥35,404 million, up 7.9%, or ¥2,595 million, from December 31, 2023. Factors related to this change included an increase of ¥3,331 million in income taxes payable, as well as a decrease of ¥1,060 million in accounts payable - other.

Net assets amounted to ¥164,916 million, down 2.1%, or ¥3,482 million, from December 31, 2023. Factors related to this change included a recording of ¥9,286 million in profit attributable to owners of parent, as well as ¥11,519 million in dividends from retained earnings and decreases of ¥574 million in capital surplus and ¥334 million in foreign currency translation adjustments.

(3) Overview of Consolidated Cash Flows for Fiscal 2024

The balance of cash and cash equivalents as of December 31, 2024 was ¥47,305 million, up ¥928 million from the end of the previous fiscal year.

The status of cash flows from operating activities, investing activities, and financing activities for fiscal 2024, and noteworthy increases and decreases to these cash flows, are described below.

Cash flows from operating activities

Net cash provided by operating activities increased 81.5% from a year ago, to ¥26,185 million.

The primary components contributing to an increase in net cash were ¥14,649 million in profit before income taxes, ¥8,352 million in depreciation and amortization, ¥696 million in impairment loss, and ¥3,836 million in income taxes refund. Major components leading to a decrease in net cash were ¥1,378 million of foreign exchange gain, and ¥708 million of decrease in notes and accounts payable - trade.

Cash flows from investing activities

Net cash used in investing activities decreased 35.4% from a year ago, to ¥12,104 million. The main factors were an increase in net cash resulting from ¥12,000 million in proceeds from sales and redemption of short-term investments in securities, and a decrease in net cash resulting from outflows of ¥2,000 million in purchase of short- term investments in securities, ¥8,172 million in purchase of property, plant and equipment, ¥3,983 million in purchase of intangible assets, ¥9,310 million in purchase of investments in securities.

Cash flows from financing activities

Net cash used in financing activities increased 8.1% from a year ago, to ¥13,376 million. Primarily attributable to the application of ¥800 million in repayments of lease obligations, ¥1,008 million in payments for acquisition of shares of subsidiaries not resulting in change in scope of consolidation and ¥11,554 million in cash dividends paid.

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POLA ORBIS HOLDINGS INC. (4927) FY2024 Financial Summary

(Reference) Cash flow related indicators

Equity ratio based on market value = Market capitalization/Total assets

Cash flow/Interest-bearing debt ratio = Interest-bearing debt/Cash flow

Interest coverage ratio = Cash flow/Interest payments

Notes: 1. All indicators were calculated using consolidated financial figures.

1. 1. Market capitalization was calculated based on the number of shares issued and outstanding, excluding treasury stock.
   2. Cash flow refers to cash flows from operating activities.
   3. Interest-bearingdebt includes all debts on which we pay interest among the debts shown on the consolidated balance sheets.
2. Consolidated Performance Forecast for Fiscal 2025

The Japanese economy is expected to continue a gradual recovery, against a backdrop of improvements in the employment and income environment. However, sufficient attention must be paid to risks such as downward pressure on the Japanese economy due to the downturn in overseas economies, including the continued high interest rate levels in Europe and the United States and the impact of the continued stagnation of the real estate market in China, price hikes, policy trends in the United States, the situation in the Middle East, as well as fluctuations in financial and capital markets.

Against this backdrop, as the second stage toward achieving our long-term management plan, VISION 2029, the Group started its new medium-term management plan in 2024. As key strategies, the Group continues to implement four business growth strategies, namely, "strengthen the customer base in the domestic business to achieve sustainable growth and improve profitability," "further grow the overseas business and establish business bases in new markets," "achieve profitability through growth in brands under development, contributing to sustainable earnings," and "enhance the brand portfolio and expand business domains," with the aim of accelerating business growth. At the same time, in effort to sustainably strengthen the management foundations that will support these strategies, the Group also continues to "strengthen R&D capabilities for new value creation" and "strengthen sustainability combining the resolution of social issues with uniqueness."

For the fiscal year ending December 31, 2025, the Group forecasts net sales of ¥174,000 million, up 2.1% year on year, operating income of ¥14,500 million, up 5.0%, ordinary income of ¥14,700 million, down 8.6%, and profit attributable to owners of parent of ¥8,500 million, down 8.5%, considering the steady execution of key strategies and downward pressure on the economy due to factors such as the downturn in overseas economies.

2. Basic Approach to the Selection of Accounting Standards

Over the near term, the Group will prepare its consolidated financial statements based on Japanese GAAP, taking into account the inter-period comparability of the consolidated financial statements and comparability between companies.

With regard to the application of International Financial Reporting Standards (IFRS), the Group's policy is to take appropriate measures in light of the situation in Japan and abroad while considering.

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POLA ORBIS HOLDINGS INC. (4927) FY2024 Financial Summary

3. Consolidated Financial Statements and Notes

1. Consolidated Balance Sheets

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