Milbon / 4919 COVERAGE INITIATED ON: LAST UPDATE:

COVERAGE INITIATED ON: 216.1.26 Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an owner s manual to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at sr_inquiries@sharedresearch.jp or find us on Bloomberg. Research Report by Shared Research Inc.

Research Report by Shared Research Inc. www.sharedresearch.jp INDEX How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company s most recent earnings. First-time readers should start at the business section later in the report. Executive Summary ----------------------------------------------------------------------------------------------------------------------------------- 3 Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 5 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 6 Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------ 6 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 7 Quarterly trends and results ----------------------------------------------------------------------------------------------------------------------------------- 7 Outlook ------------------------------------------------------------------------------------------------------------------------------------------------ 16 Business ------------------------------------------------------------------------------------------------------------------------------------------------ 2 Core strategy ----------------------------------------------------------------------------------------------------------------------------------------------------- 21 Business model --------------------------------------------------------------------------------------------------------------------------------------------------- 22 Field activities system: selecting Target Salons -------------------------------------------------------------------------------------------------------- 24 Product overview ------------------------------------------------------------------------------------------------------------------------------------------------ 28 Market and value chain ---------------------------------------------------------------------------------------------------------------------------------------- 32 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 38 Historical Performance ---------------------------------------------------------------------------------------------------------------------------- 4 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 4 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 54 Cash flow statement -------------------------------------------------------------------------------------------------------------------------------------------- 55 Other Information ---------------------------------------------------------------------------------------------------------------------------------- 56 History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 56 News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 56 Corporate governance and top management --------------------------------------------------------------------------------------------------------- 59 Dividend policy -------------------------------------------------------------------------------------------------------------------------------------------------- 59 Major shareholders (December 2, 216) -------------------------------------------------------------------------------------------------------------- 59 Major group companies (December 216) ------------------------------------------------------------------------------------------------------------ 6 Employees --------------------------------------------------------------------------------------------------------------------------------------------------------- 6 By the way --------------------------------------------------------------------------------------------------------------------------------------------------------- 6 Profile ---------------------------------------------------------------------------------------------------------------------------------------------------------------- 61 2/62

Research Report by Shared Research Inc. www.sharedresearch.jp Executive Summary Performance overview Milbon is Japan s top manufacturer of professional-use hair cosmetics (15.6% domestic market share in 216, per Fuji Keizai Marketing Research & Consulting Group research). Hair care treatments and other hair products accounted for 58.3% of its consolidated sales in FY12/17, with hair coloring products at 36.2%, and perm products at 4.7%. The company sells its products to hair salons in Japan and overseas via distributors. Milbon ranked within the top ten in the global professional hair cosmetic market, according to a 213 study by Kline & Company. In FY12/17, overseas sales accounted for 16.4% of the total, and the company plans to expand its overseas footprint through specialized staff training. Sales have grown steadily for 21 consecutive years since the 1996 listing. Milbon has grown sales through two proprietary systems: it jointly develops products with hair stylists through a system called TAC, and conducts proposal-based sales using a Fieldperson* system. *Fieldperson: The company s name for its sales representatives who go not only to the distributors that sell Milbon s hair products, but also to the hair salons that buy the products from the distributors to uncover challenges, offer management advice, introduce the latest beauty techniques, and support hair designer training. Despite a decrease in the number of target customers in Japan amid population decline, Milbon s TAC and Fieldperson systems have underpinned expansion. The company s business model is to boost sales by increasing the number of fieldpersons while offering suggestions to increase sales and profits of its customers (hair salons). Another proprietary system, the field activities system, which efficiently conducts market research by selecting and concentrating on certain hair salons with growth potential, has contributed to overall sales activities. In FY12/17, overseas sales (12-month basis) hit JPY4.5bn (4.2x the JPY1.1bn in FY12/7), and the overseas sales ratio hit 14.3% (versus 6% in FY12/7). Until 26, the company had only one overseas subsidiary (in the US). Since 27, it has established subsidiaries in China, Korea, and Thailand. The company has also set up representative offices in Taiwan, Hong Kong, Vietnam, Malaysia, Turkey, Indonesia, and the Philippines. Growing local demand and increased sales initiatives targeting local distributors and salons have contributed to growth. Trends and outlook Milbon is operating under a five-year management plan covering the period from FY12/15 to FY12/19. Together with the 1H FY12/17 results (announced June 28, 217), the company announced a downward revision to profit forecasts for FY12/19, the final year of the plan. This is because in order to accelerate its long-term growth strategy, the company brought forward investment spending plans that it had previously not expected to implement until the next medium-term plan. More specifically, it moved ahead with corporate branding, expanding in Europe and other regions worldwide, relocating its head office to Tokyo, and increasing and training personnel to promote the cosmetics business. For FY12/19, the company originally targeted consolidated sales of JPY35.bn (+38.7% from FY12/14), operating profit of JPY7.bn (+57.3%), recurring profit of JPY6.6bn (+57.2%), and net income of JPY4.1bn (+57.6%). Although it has not changed the sales target, it lowered its operating profit target to JPY6.bn (+34.8% YoY), recurring profit to JPY5.6bn (+32.7%), and net income to JPY3.9bn (+46.9%). The plan also targets the company becoming the top hair cosmetics manufacturer in Asia by FY12/19, and one of the top five in the global market for professional hair products. It aims for overseas sales of JPY6.5bn, up around 2.5x from FY12/14 (CAGR: 2%). Under the original five-year management plan, Milbon planned to lift OPM to 2% by FY12/19 (17.6% in FY12/14). The revised plan targets OPM of 17.1%. 3/62

Research Report by Shared Research Inc. www.sharedresearch.jp Strengths and weaknesses Strengths: Original proposal-based sales approach boosting market share; unique R&D; and targeting the salon market, where sales have room to grow. Weaknesses: Earnings dependent on the domestic market, where the number of customers is expected to decline, low recognition overseas hampering expansion; and small scale compared with global players. 4/62

Research Report by Shared Research Inc. www.sharedresearch.jp Key financial data Income statement FY12/7 FY12/8 FY12/9 FY12/1 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/17 FY12/18 FY12/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. 12mo eqv. Est. Target Sales 18,46 18,692 19,189 19,75 2,527 21,887 23,83 25,227 27,377 29,135 33,456 31,78 34, 35, YoY 2.4% 3.6% 2.7% 2.9% 3.9% 6.6% 8.9% 5.9% 8.5% 6.4% - 8.8% 7.2% 2.9% Gross profit 11,722 12,227 12,215 13,3 13,62 14,834 16,175 17,281 18,682 2,1 22,797 21,661 23,58 24,5 GPM 65.% 65.4% 63.7% 65.8% 66.4% 67.8% 67.9% 68.5% 68.2% 69.% 68.1% 68.3% 69.4% 7.% SG&A expenses 8,148 8,482 8,937 9,424 9,828 1,847 11,872 12,83 13,954 14,987 17,452 16,347 17,84 18,5 YoY 8.5% 4.1% 5.4% 5.4% 4.3% 1.4% 9.4% 8.1% 8.8% 7.4% - 9.1% 9.1% 3.7% SG&A ratio 45.2% 45.4% 46.6% 47.7% 47.9% 49.6% 49.8% 5.9% 51.% 51.4% 52.2% 51.6% 52.5% 52.9% R&D expenses 573 668 766 838 871 873 97 1,169 1,214 1,232 1,422 na 1,448 YoY -.% 16.5% 14.8% 9.3% 3.9%.3% 11.% 2.5% 3.9% 1.5% - - 1.8% R&D ratio 3.2% 3.6% 4.% 4.2% 4.2% 4.% 4.1% 4.6% 4.4% 4.2% 4.3% - 4.3% Operating profit 3,574 3,745 3,278 3,579 3,792 3,986 4,33 4,451 4,728 5,113 5,345 5,313 5,74 6, YoY -5.7% 4.8% -12.5% 9.2% 6.% 5.1% 7.9% 3.4% 6.2% 8.2% - 3.9% 8.% 4.5% OPM 19.8% 2.% 17.1% 18.1% 18.5% 18.2% 18.1% 17.6% 17.3% 17.6% 16.% 16.8% 16.9% 17.1% Recurring profit 3,281 3,514 3,14 3,327 3,546 3,735 4,6 4,219 4,428 4,734 4,998 4,98 5,27 5,6 YoY -7.3% 7.1% -11.7% 7.2% 6.6% 5.3% 8.7% 3.9% 4.9% 6.9% - 5.2% 5.8% 6.3% RPM 18.2% 18.8% 16.2% 16.8% 17.3% 17.1% 17.% 16.7% 16.2% 16.2% 14.9% 15.7% 15.5% 16.% Net income 1,542 2,28 1,785 1,832 2,35 2,128 2,516 2,621 2,95 3,69 3,817 3,785 3,99 3,85 YoY -29.5% 31.5% -11.9% 2.6% 25.8% -7.7% 18.2% 4.2% 12.6% 4.% - 23.3% 5.4% -3.5% Net margin 8.5% 1.8% 9.3% 9.3% 11.2% 9.7% 1.6% 1.4% 1.8% 1.5% 11.4% 11.9% 11.7% 11.% Per share data (JPY; split-adjusted) Shares issued (year end; ') 25,89 25,89 25,89 25,89 27,598 33,117 33,117 33,117 33,117 33,117 33,117 - EPS 61.5 8.9 71.2 73.1 83.6 64.4 76.4 8. 9.1 93.7 116.6-121.9 EPS (fully diluted) - - - - - - - - - - - - Dividend per share 26.5 27.5 27.5 3. 32. 33. 34. 34. 37. 39. 46. - 48. Book value per share 58.8 625.1 664.4 76.1 691.5 615.8 676.2 736.1 8.5 846.2 95. - Balance sheet (JPYmn) Current assets 5,64 6,476 6,988 8,36 1,617 11,6 12,938 14,38 14,625 13,411 16,17 Cash and cash equivalents 937 1,63 1,666 2,673 5,8 6,66 6,846 7,387 7,412 5,23 6,165 Accounts receivable 2,582 2,769 2,796 2,847 3,2 2,924 3,55 3,383 3,425 3,86 5,77 Inventories 1,756 2,339 2,164 2,222 2,222 2,316 2,617 3,77 3,295 3,894 4,75 Others 365 35 362 293 295 293 421 461 493 688 79 Noncurrent assets 13,1 13,138 13,366 12,88 11,976 12,63 13,384 13,831 16,174 19,33 21,536 Tangible fixed assets 1,177 1,487 1,64 1,31 9,753 9,529 1,416 1,531 12,281 14,681 14,627 Intangible fixed assets 248 261 319 452 512 526 482 449 398 79 944 Investments and other assets 2,575 2,391 2,47 2,54 1,711 2,7 2,486 2,852 3,494 3,562 5,966 Total assets 18,641 19,614 2,354 2,844 22,593 23,662 26,322 28,139 3,799 32,444 37,643 Current liabilities 3,399 3,294 3,247 2,725 3,328 3,98 3,971 3,87 4,357 4,591 5,995 Accounts payable 835 1,78 953 467 42 482 51 53 685 687 1,146 Short-term debt 258 23 - - - - - - - - - Others 2,36 2,192 2,293 2,258 2,98 2,616 3,469 3,366 3,672 3,94 4,849 Noncurrent liabilities 684 652 454 419 25 197 22 165 23 147 544 Long-term debt 23 - - - - - - - - - - Others 661 652 454 419 25 197 22 165 23 147 544 Net assets 14,558 15,668 16,654 17,699 19,6 2,367 22,149 24,14 26,213 27,76 31,13 Capital stock 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, Capital surplus 2 199 199 199 199 199 199 2 2 2 2 Retained earnings 12,22 13,565 14,638 15,78 17,257 18,476 2,69 21,656 23,44 25,249 27,756 Translation and valuation differences 156-96 -184-28 -397-38 -119 249 573 258 1,147 Share subscription rights - - - - - - - - - - - Minority interests - - - - - - - - - - - Total capital and liabilities 18,641 19,614 2,354 2,844 22,593 23,662 26,322 28,139 3,799 32,444 37,643 Cash flow statement (JPYmn) Cash flows from operating activities 2,465 2,34 3,79 2,434 3,158 2,977 3,511 2,767 3,896 3,355 4,347 Cash flows from investing activities -962-1,399-1,68-728 11-1,57-1,199-1,236-2,834-4,367-1,92 Cash flows from financing activities -1,98-922 -725-688 -837-911 -1,388-1,52-1,135-1,262-1,318 Financial ratios Interest-bearing debt 281 23 - - - - - - - - - Net cash 655 1,4 1,666 2,673 5,8 6,66 6,846 7,387 7,412 5,23 6,165 ROA (RP-based) 17.7% 18.4% 15.5% 16.2% 16.3% 16.2% 16.2% 15.5% 15.% 15.% 14.3% ROE 1.8% 13.4% 11.% 1.7% 12.5% 1.8% 11.8% 11.3% 11.7% 11.4% 13.% Current ratio 166% 197% 215% 295% 319% 374% 326% 37% 336% 292% 269% Fixed ratio 89% 84% 8% 72% 63% 59% 6% 57% 62% 69% 69% Equity ratio 78% 8% 82% 85% 84% 86% 84% 86% 85% 85% 83% Notes: Figures may differ from company data due to differences in rounding methods. Note: FY12/17 is an irregular accounting period consisting of 12 months and 11 days. The company implemented a two-for-one share split effective January 1, 218. 5/62

Research Report by Shared Research Inc. www.sharedresearch.jp Recent updates Highlights On April 27, 218, Milbon Co., Ltd. announced earnings results for Q1 FY12/18; see the results section for details. On April 19, 218, Shared Research updated the report following interviews with the company. On February 14, 218, the company announced earnings results for full-year FY12/17. For corporate releases more than three months old, see the News and topics section. 6/62

Research Report by Shared Research Inc. www.sharedresearch.jp Trends and outlook Quarterly trends and results Cumulative FY12/16 FY12/17 FY12/18 FY12/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Est. Sales 6,79 14,218 21,425 29,135 6,898 14,957 22,84 33,456 7,79 22.9% 34, YoY 1.3% 8.7% 7.2% 6.4% 2.8% 5.2% 6.6% - 12.9% 7.2% Gross profit 4,563 9,788 14,762 2,1 4,544 1,69 15,511 22,797 5,552 GPM 68.% 68.8% 68.9% 69.% 65.9% 67.3% 67.9% 68.1% 71.3% SG&A expenses 3,638 7,364 1,916 14,987 3,757 7,736 11,617 17,452 4,162 YoY 1.8% 8.8% 7.5% 7.4% 3.3% 5.1% 6.4% - 1.8% SG&A ratio 54.2% 51.8% 51.% 51.4% 54.5% 51.7% 5.9% 52.2% 53.4% Operating profit 925 2,424 3,845 5,113 787 2,333 3,894 5,345 1,39 24.2% 5,74 YoY -7.3% 2.3% 1.5% 8.2% -14.9% -3.7% 1.3% - 76.7% 8.% OPM 13.8% 17.% 17.9% 17.6% 11.4% 15.6% 17.1% 16.% 17.8% 16.9% Recurring profit 814 2,188 3,495 4,734 717 2,147 3,666 4,998 1,29 22.9% 5,27 YoY -17.% -3.6% -2.8% 6.9% -11.8% -1.9% 4.9% - 68.5% 5.8% RPM 12.1% 15.4% 16.3% 16.2% 1.4% 14.4% 16.% 14.9% 15.5% 15.5% Net income 546 1,465 2,37 3,69 538 1,58 3,137 3,817 1,75 26.9% 3,99 YoY -14.% 1.4% 1.7% 4.% -1.5% 3.% 32.3% - 99.7% 5.4% Net margin 8.1% 1.3% 11.1% 1.5% 7.8% 1.1% 13.7% 11.4% 13.8% 11.7% Quarterly FY12/16 FY12/17 FY12/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 6,79 7,51 7,27 7,71 6,898 8,59 7,883 1,616 7,79 YoY 1.3% 7.4% 4.4% 4.2% 2.8% 7.3% 9.4% - 12.9% Gross profit 4,563 5,225 4,974 5,339 4,544 5,525 5,442 7,286 5,552 GPM 68.% 69.6% 69.% 69.2% 65.9% 68.6% 69.% 68.6% 71.3% SG&A expenses 3,638 3,726 3,552 4,71 3,757 3,979 3,881 5,835 4,162 YoY 1.8% 6.9% 4.9% 7.2% 3.3% 6.8% 9.2% - 1.8% SG&A ratio 54.2% 49.6% 49.3% 52.8% 54.5% 49.4% 49.2% 55.% 53.4% Operating profit 925 1,499 1,422 1,268 787 1,546 1,561 1,451 1,39 YoY -7.3% 9.2%.3% 34.9% -14.9% 3.2% 9.8% - 76.7% OPM 13.8% 2.% 19.7% 16.4% 11.4% 19.2% 19.8% 13.7% 17.8% Recurring profit 814 1,374 1,37 1,238 717 1,43 1,519 1,332 1,29 YoY -17.% 6.5% -1.2% 48.6% -11.8% 4.% 16.2% - 68.5% RPM 12.1% 18.3% 18.1% 16.1% 1.4% 17.7% 19.3% 12.5% 15.5% Net income 546 919 95 699 538 97 1,628 68 1,75 YoY -14.% 13.5% 2.% 12.9% -1.5% 5.6% 79.9% - 99.7% Net margin 8.1% 12.2% 12.6% 9.1% 7.8% 12.% 2.7% 6.4% 13.8% Segments (cumulative) FY12/16 FY12/17 FY12/18 FY12/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Est. Hair care products 3,918 8,511 12,76 17,711 3,924 8,68 13,21 19,511 4,49 22.1% 2,281 YoY 1.8% 11.2% 9.8% 9.4%.2% 2.% 3.5% - 14.4% 8.5% Hair coloring products 2,441 4,944 7,529 9,892 2,667 5,462 8,36 12,96 2,95 24.2% 11,994 YoY 12.4% 7.3% 5.6% 4.1% 9.3% 1.5% 11.% - 8.9% 6.5% Perm products 35 763 1,136 1,53 37 815 1,27 1,85 393 22.8% 1,725 YoY -6.5% -6.2% -7.8% -8.6% -12.1% 6.7% 11.8% - 28.% -1.8% Sales 6,79 14,218 21,425 29,135 6,898 14,957 22,84 33,456 7,79 22.9% 34, YoY 1.3% 8.7% 7.2% 6.4% 2.8% 5.2% 6.6% - 12.9% 7.2% Domestic sales 5,739 12,33 18,593 25,287 5,856 12,847 19,58 27,975 6,479 22.6% 28,62 YoY 8.8% 7.8% 6.5% 5.9% 2.% 4.2% 5.3% - 1.6% 5.3% Overseas sales 968 1,888 2,831 3,847 1,41 2,19 3,259 5,482 1,31 24.3% 5,38 YoY 2.1% 15.6% 12.2% 33.8% 7.7% 11.7% 15.1% - 25.8% 18.6% Overseas sales ratio 14.4% 13.3% 13.2% 13.2% 15.1% 14.1% 14.3% - 16.8% 15.8% Segments (quarterly) FY12/16 FY12/17 FY12/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Hair care products 3,918 4,593 4,249 4,951 3,924 4,756 4,53 6,31 4,49 YoY 1.8% 11.5% 7.2% 8.2%.2% 3.5% 6.6% - 14.4% Hair coloring products 2,441 2,53 2,585 2,363 2,667 2,795 2,898 3,736 2,95 YoY 12.4% 2.8% 2.5% -.6% 9.2% 11.7% 12.1% - 8.9% Perm products 35 414 373 394 37 58 455 58 393 YoY -6.5% -6.% -1.9% -1.8% -12.1% 22.7% 22.2% 47.% 28.% Sales 6,79 7,51 7,27 7,71 6,898 8,59 7,883 1,616 7,79 YoY 1.3% 7.4% 4.4% 4.2% 2.8% 7.3% 9.4% - 12.9% Domestic sales 5,739 6,591 6,263 6,694 5,856 6,991 6,733 8,395 6,479 YoY 8.8% 6.9% 4.1% 4.2% 2.% 6.1% 7.5% - 1.6% Overseas sales 968 92 943 1,16 1,41 1,68 1,15 2,223 1,31 YoY 19.9% 11.3% 6.% 4.5% 7.5% 16.1% 22.% - 25.8% Overseas sales ratio 14.4% 12.3% 13.1% 13.2% 15.1% 13.3% 14.6% - 16.8% Note: Figures may differ from company data due to differences in rounding methods. Note: FY12/17 is an irregular accounting period consisting of 12 months and 11 days. The company implemented a two-for-one share split effective January 1, 218. YoY comparisons for FY12/18 are direct comparisons with the twelve months of FY12/17. YoY comparisons for Q1 FY12/18 (January 1 to March 3, 218) are with the three months of December 21, 216 to March 2, 217 for non-consolidated financial statements and with the three months of October 1 to December 31, 216 for financial statements of subsidiaries. 7/62

Research Report by Shared Research Inc. www.sharedresearch.jp Q1 FY12/18 results (out April 27, 218) Sales JPY7.8bn (+12.9% YoY*) Operating profit JPY1.4bn (+76.7%) Recurring profit JPY1.2bn (+68.5%) Net income JPY1.1bn (+99.7%) (Net income refers to net income attributable to parent company shareholders.) *Due to a change in the accounting period initiated in FY12/17, YoY comparisons for Q1 FY12/18 (January 1 to March 3, 218) are with the three months of December 21, 216 to March 2, 217 for non-consolidated financial statements and with the three months of October 1 to December 31, 216 for financial statements of subsidiaries. *Change in accounting year: Until FY12,17, the company used an accounting year running from December 21 to December 2 the following year. However, starting FY12/17, the company decided to unify the accounting periods used by all group companies and switched to an accounting year running from January 1 to December 31. Aujua products, which received an update in November 217, have enjoyed a positive reception in the market. The volume of returns on the older version of Aujua products, which ended end-q1 FY12/18, was significantly lower than company expectations, positively impacting profits. Premium brand milbon has performed well in the global market as the company has continued to open new customer support centers. In the overseas market, the East Asia region continues to show solid growth. Results versus plan Looking at results against the FY12/18 company forecasts, Q1 sales finished 22.9% versus plan (2.6% versus FY12/17 forecasts in Q1 FY12/17), operating profit 24.2% (14.7%), recurring profit 22.9% (14.4%), and net income 26.9% (14.1%). By segment, sales of hair care products reached 22.1% versus plan (2.1%) and hair coloring products 24.2% (22.%). Domestic sales finished 22.6% versus plan (2.9%) and overseas sales 24.3% (19.%). Performance versus the previous year Sales In Q1 FY12/18, sales were JPY7.8bn (+12.9% YoY*). By product area, sales of hair care products were JPY4.5bn (+14.4%), hair coloring products were JPY2.9bn (+8.9%), perm products were JPY348mn (+33.8%) and other products were JPY45mn (-2.2%). Excluding the small YoY drop in sales in the other products area, sales rose across all segments. In addition to robust domestic sales, results benefited from exchange rate effects as overseas results in local currency base were also solid (see below). Sales by product (JPYmn) 12, 1, 8, 6, 4, 2, Hair care products Hair coloring products Perm products YoY (right axis) 12.9% 9.7% 1.2% 1.3% 9.% 9.4% 7.4% 3,736 4.9% 2,172 2,434 2,523 2,377 2,441 2,53 2,585 2,363 2,667 2,795 2,898 2,95 4.2% 7.3% 3,537 4,118 3,963 4,577 3,918 4,593 4.4% 4,249 4,951 2.8% 3,924 4,756 4,53 6,31 4,49 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY12/15 FY12/16 FY12/17 FY12/18 14% 12% 1% 8% 6% 4% 2% % 8/62

Research Report by Shared Research Inc. www.sharedresearch.jp Profit Operating profit was JPY1.4bn (+76.7% YoY*). OPM improved 6.4pp YoY to 17.8%. As the return volume for old versions of Aujua products was lower than company forecasts, CoGS ratio declined 5.4pp YoY and SG&A to sales ratio declined 1.1pp due to unused SG&A expenses, leading to strong profits. Net income attributable to parent company shareholders was JPY1.1bn (+99.7%) due to the booking of JPY36mn for gains on the sale of investment securities (extraordinary profit). Operating profit (JPYmn) 1,8 1,6 1,4 1,2 1, 8 6 4 2 Operating profit YoY (right axis) 76.7% 1,561 1,499 1,451 1,39 14.4% 34.9% 32.3% 1,422 1,546 5.7% 1,268 94 925 998 1,373 1,417 787 9.2% 3.2% -7.3%.3% 9.8% -23.9% -14.9% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY12/15 FY12/16 FY12/17 FY12/18 1% 8% 6% 4% 2% % -2% -4% Sales by segment Hair care products Sales of hair care products was JPY4.5bn (+14.4% YoY*). In hair care products, sales of the premium brand Aujua were JPY1.3bn (+2.4%). The November 217 version upgrade of the product has received positive reviews from customers. The number of salons selling Aujua at end-q1 FY12/18 was 3,46 (+24 salons compared with end-fy12/17). Sales of the premium brand milbon were JPY434mn (+7.2%) and 4,34 salons were selling the product at end-q1 FY12/18 (+338 salons compared with end-fy12/17), showing the same solid growth as Aujua. Quarterly sales of hair care products (JPYmn) 8, Hair care products YoY (right axis) 2% 6, 14.4% 15% 4, 2, 14.1% 9.3% 11.% 1.% 1.8% 11.5% 7.2% 8.2% 6,31 3,537 4,118 3,963 4,577 3,918 4,593 4,249 4,951 3,924 4,756 4,53 4,49 6.6%.2% 3.5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY12/15 FY12/16 FY12/17 FY12/18 1% 5% % 9/62

Research Report by Shared Research Inc. www.sharedresearch.jp Quarterly sales of Aujua (JPYmn) Aujua brand sales YoY (right axis) 2, 26.9% 25.6% 2.4% 22.6% 19.5% 2.4% 1,617 1, 13.2% 11.2% 1,877 11.7% 1,447 1,32 852 1,19 1,168 1,271 1,239 1,25 1,38 8.8% 9.2% 1.9% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY12/15 FY12/16 FY12/17 FY12/18 3% 25% 2% 15% 1% 5% % Hair coloring products Sales of hair coloring products were JPY2.9bn (+8.9% YoY*). Ordeve Addicthy, a new hair coloring product that allows users to easily change their hair color to suit their individual tastes and experiment with different hair colors found outside Japan by removing both redness and yellowness, was very popular, primarily among young people. Sales of the organic brand Villa Lodola Color were JPY176mn (+23.2%) as the brand sold well. The number of salons selling Villa Lodola was 7,16 at end-q1 FY12/18 (+265 salons compared with end-fy12/17). Quarterly sales of hair coloring products (JPYmn) Hair coloring products YoY (right axis) 4, 14.3% 12.4% 11.8% 9.9% 3,736 9.2%11.7% 12.1% 3, 8.9% 2,172 2,434 2,523 2,377 2,441 2,53 2,585 2,363 2,667 2,795 2,898 2,95 2, 2.8% 2.5% 1, -.6% -4.2% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY12/15 FY12/16 FY12/17 FY12/18 15% 1% 5% % -5% Results by region By region, the company booked JPY6.5bn in sales in Japan (+1.6% YoY*) and JPY1.3bn overseas (+25.8%). 16.8% of overall sales were made overseas (+1.7pp YoY). Overseas, sales in Korea were JPY485mn (no YoY comparison*), JPY373mn in China, JPY131mn in the US, JPY17mn in Thailand, and JPY31mn in other regions, including Taiwan (+1.2% YoY). Southeast Asia, including China and Korea, continued to perform well. In Q1, the foreign currency exchange rate was JPY.117/KRW in Korea (JPY.939/KRW in Q1 FY12/17), JPY17.15/CNY in China (JPY16.17/CNY), JPY18.23/USD in the US (JPY19.56/USD), and JPY3.45/THB in Thailand (JPY3.29/THB). 1/62

Research Report by Shared Research Inc. www.sharedresearch.jp Sales breakdown (Japan/overseas) (JPYmn) Domestic sales Overseas sales Overseas sales ratio (right axis) 12, 1, 2,223 13.3% 11.8% 12.9% 13.1% 14.4% 12.3% 13.1%13.2% 15.1% 13.3% 14.6% 16.8% 8, 827 89 972 92 968 943 1,16 1,68 1,15 1,31 6, 1,41 87 4, 5,276 6,165 6,14 6,425 5,739 6,591 6,263 6,694 6,991 5,856 6,733 8,395 6,479 2, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY12/15 FY12/16 FY12/17 FY12/18 3% 25% 2% 15% 1% 5% % Capex, R&D In Q1 FY12/18, capital expenditures were JPY369mn (reaching 22.1% of FY12/18 company forecast). The main items in the capital expenditure plan for FY12/18 are factory mixing equipment (four ton vacuum tank), expenditures related to the transfer and expansion of the Fukuoka branch office and Okayama sales office, and the renovation of the Central Research Institute. Depreciation costs were JPY326mn (reaching 23.7% of the company forecast). R&D expenses were JPY332mn (reaching 22.9% of company forecast; 4.3% of sales). FY12/18 Company Forecast There have been no changes to the FY12/18 company forecast. For details on previous quarterly and annual results, see the Historical financial statements section. 11/62

Research Report by Shared Research Inc. www.sharedresearch.jp Full-year company forecasts for FY12/18 (revised February 14, 218) Earnings FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/17 FY12/18 (JPYmn) FY Act. FY Act. FY Act. FY Act. FY Act. FY Act. FY Act. 12mo eqv. FY Est. Sales 2,527 21,887 23,83 25,227 27,377 29,135 33,456 31,78 34, YoY 3.9% 6.6% 8.9% 5.9% 8.5% 6.4% - 8.8% 7.2% Operating profit 3,792 3,986 4,33 4,451 4,728 5,113 5,345 5,313 5,74 YoY 6.% 5.1% 7.9% 3.4% 6.2% 8.2% - 3.9% 8.% OPM 18.5% 18.2% 18.1% 17.6% 17.3% 17.6% 16.% 16.8% 16.9% Recurring profit 3,546 3,735 4,6 4,219 4,428 4,734 4,998 4,98 5,27 YoY 6.6% 5.3% 8.7% 3.9% 4.9% 6.9% - 5.2% 5.8% RPM 17.3% 17.1% 17.% 16.7% 16.2% 16.2% 14.9% 15.7% 15.5% Net income 2,35 2,128 2,516 2,621 2,95 3,69 3,817 3,785 3,99 YoY 25.8% -7.7% 18.2% 4.2% 12.6% 4.% - 23.3% 5.4% Net margin 11.2% 9.7% 1.6% 1.4% 1.8% 1.5% 11.4% 11.9% 11.7% Earnings by segment FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/17 FY12/18 (JPYmn) FY Act. FY Act. FY Act. FY Act. FY Act. FY Act. FY Act. 12mo eqv. FY Est. Hair care products 1,398 11,69 12,616 14,597 16,195 17,711 19,511 18,688 2,281 YoY 2.6% 6.5% 14.% 15.7% 1.9% 9.4% - 5.5% 8.5% Hair coloring products 7,987 8,82 9,288 8,817 9,56 9,892 12,96 11,264 11,994 YoY 9.7% 1.4% 5.3% -5.1% 7.8% 4.1% - 13.9% 6.5% Perm products 2,142 1,998 1,926 1,813 1,674 1,532 1,85 1,756 1,725 YoY -8.3% -6.7% -3.6% -5.9% -7.6% -8.5% - 14.6% -1.8% Sales 2,527 21,887 23,83 25,227 27,377 29,135 33,456 31,78 34, YoY 3.9% 6.6% 8.9% 5.9% 8.5% 6.4% - 8.8% 7.2% Domestic sales 19,323 2,482 21,946 22,612 23,88 25,287 27,975 27,173 28,62 YoY 6.% 7.1% 3.% 5.6% 5.9% - 7.5% 5.3% Overseas sales 1,24 1,45 1,884 2,615 3,496 3,847 5,482 4,535 5,38 YoY 16.8% 34.% 38.8% 33.8% 1.% - 17.9% 18.6% Overseas sales ratio 5.9% 6.4% 7.9% 1.4% 12.8% 13.2% - 14.3% 15.8% Notes: Figures may differ from company data due to differences in rounding methods. YoY figures for FY12/18 estimates indicate increases/decreases versus 12-month equivalent FY12/17 results. Sales expected to rise 1.6%, operating profit 7.4% in FY12/18 The company forecasts FY12/18 sales of JPY34.bn (+7.2% YoY on 12-month basis), operating profit of JPY5.7bn (+8.%), recurring profit of JPY5.3bn (+5.8%), and net income attributable to parent company shareholders of JPY4.bn (+5.4%). The company forecasts OPM of 16.9%, up.1pp YoY on a 12-month basis. Sales by product (JPYmn) 4, Others Perm products Hair coloring products Hair care products 3, 2, 1, 1,57 1,512 1,26 1,41 12,96 11,994 1,52 1,623 9,892 1,678 9,56 8,817 2,76 2,111 2,25 1,998 1,816 9,288 7,98 7,173 6,969 7,278 7,987 8,82 8,468 9,32 9,864 1,135 1,398 11,69 12,616 14,597 16,195 17,711 19,511 2,281 FY12/7 FY12/8 FY12/9 FY12/1 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 Est. Sales by product Milbon s FY12/18 sales forecasts by product are JPY2.3bn for hair care products (+8.5% YoY on 12-month basis), JPY12.bn for hair coloring products (+6.5%), JPY1.5bn for perm products (+2.%), and JPY213mn for others (-22.%). In the hair coloring products category, the company forecasts sales of JPY3.3bn (+2.5% YoY) for Ordeve, JPY2.7bn (+35.1%) for Ordeve Addicthy, and JPY5mn for new gray coloring products (no YoY comparison). In the perm products category, the company forecasts sales of JPY68mn (+19.1%) for main brand NeoLiscio. 12/62

Research Report by Shared Research Inc. www.sharedresearch.jp Sales of premium brands and number of salons selling products are shown below. Overview of FY12/18 company forecast FY12/17 FY12/18 YoY (JPYmn) 12mo eqv. Est. Sales 31,78 34, 7.2% Domestic 27,173 28,62 5.3% Overseas 4,535 5,38 18.6% By product Hair care products 18,688 2,281 8.5% Hair coloring products 11,264 11,994 6.5% Ordeve 3,191 3,27 2.5% Ordeve Addicthy 2,12 2,72 35.2% New grey coloring - 5 - Others 6,61 5,54-9.2% Perm products 1,482 1,512 2.% NeoLiscio 57 68 19.3% Others 912 832-8.8% Other 273 213-22.% By premium brand Aujua 5,339 6,79 13.9% Number of salons 3,166 3,4 7.4% Milbon 1,635 2,221 35.8% Number of domestic salons 2,738 3,3 2.5% Number of overseas salons 1,228 1,995 62.5% Villa Lodola 966 1,2 24.2% Number of salons 6,895 1, 45.% Gross profit 21,661 23,58 8.9% GPM 68.3% 69.4% - SG&A expenses 16,347 17,84 9.1% SG&A ratio 51.6% 52.5% - Operating expenses 5,313 5,74 8.% OPM 16.8% 16.9% - Recurring expenses 4,98 5,27 5.8% RPM 15.7% 15.5% - Net income attrib. to parent company shareholders 3,785 3,99 5.4% Net margin 11.9% 11.7% - FY12/17 FY12/18 YoY (JPYmn) Irregular FY Est. Capital expenditures 1,57 1,668 6.2% Depreciation 1,272 1,376 8.2% R&D expenses 1,442 1,448.4% R&D as % of sales 4.3% 4.3% - Assumptions underlying company forecast Operating environment The beauty business (salons) is the company s main customer. It has been negatively affected by demographics and the trend of an aging population and low birth rate in terms of a shrinking customer base and labor shortage. The wave of working style reforms has also affected the business, especially leading companies. According to a Ministry of Health, Labour and Welfare (MHLW) management survey report, the average per-customer spending of salons nationwide is JPY6,, but there is growing polarization between high- end salons with per-customer spending of over JPY8, (whose share of the total increased from 1.2% in 2 to 18.6% in 21) and those with per-customer spending of less than JPY4,, whose share of the total increased from 15.5% in 2 to 19.3% in 21. In the past 1 years, Milbon has increased its technical unit price by 6% (from JPY6,719 in 27 to JPY7,181 in 217) and product unit price per store by 5% (from JPY383 to JPY573) by having fieldpersons provide a range of educational assistance and support services. Milbon sees beauty in the context of a salon client s life and incorporates the concept of lifelong beauty (stylists enabling women to look and feel beautiful throughout their lives) in its management policies. Milbon believes that stylists form a lifelong relationship based on trust with salon clients in the sense that clients have the desire to look and feel beautiful, while the stylist makes their wish come true. The company believes that clients for life are created by stylists for life. 13/62

Research Report by Shared Research Inc. www.sharedresearch.jp Experienced stylists who have acquired extensive knowledge and skills help increase Milbon s technical unit price and product unit price per store. The company supports programs to produce salons for life that produce stylists for life mainly through people and education. Until the 198s, the focus for salons was on technique (of hairstyling and perms), whereas the focus shifted to hairstyles in the 199s. Today, salons are regarded as businesses selling all-round beauty services. Many salons provide a range of beauty services from nails to eyelash tinting/extensions, but many of these services do not last long, because they rely on a relatively young customer base. However, Milbon believes that hair care and skin care remain important needs for women regardless of age. The company says that it will support stylist training based on its philosophy that hair care and skin care are lifelong beauty needs for women, and stylists for life who can work closely with clients to serve these needs will lead to business opportunities. Management measures Increase and relocate domestic studios (business bases) The company plans to add a new studio in Okayama to 14 existing studios (Ginza and Aoyama in Tokyo, Yokohama, Osaka, Nagoya, Kyoto, Kobe, Sapporo, Sendai, Saitama, Kanazawa, Hiroshima, and Kumamoto) and relocate and expand its Fukuoka studio, having found a suitable site. Overseas business bases Milbon has 17 business bases in 13 countries offering seminars to distributors as well as employees to provide thorough training in the Milbon Way ( Milbonisms, Milbon s management philosophy, corporate statement, business model, vision, etc.). It is also looking to increase the number of salons through which it sells hair coloring products. Improve designer education programs Milbon runs an education program called Designers Ability (DA) in Japan. The company plans to expand the program gradually to Asia and has held DA in South Korea, Taiwan, and Malaysia so far, with plans to start in Shanghai in FY12/18. Support for salons to attract more clients and hire skilled employees To help salons struggling to attract customers and employees, the company distributes a video it has produced that tells the story of a woman who reinvents herself at a salon. The video has been well received and accessed more than one million times. Corporate and product branding Milbon has been working on corporate and product branding in the past two years. The company places ads in public transportation among other places around the time of upgrading seminars for salons. Moving into cosmetics business The company and KOSÉ announced in January 217 that they would establish a joint venture company in the cosmetics business. The new company KOSÉ Milbon Cosmetics Co., Ltd. was founded in July 217. KOSÉ is responsible for product planning and R&D, while Milbon is providing sales strategy and educational programs, with KOSÉ Milbon Cosmetics providing the coordinating role. The company commented that preparations are progressing well and it expected to make some form of announcement in FY12/19. Organizational structure Milbon currently has two categories of fieldpersons (sales force) field sales (FS) and field educators (FE). The company plans to add a new category of field cosmetics educators (FCE) to create a three-pronged sales force structure. FCE training is to begin in fall 218 to produce cosmetics educators. Support by FE, FS, and FCE will help salons develop a new earnings model. Headquarters relocation to Tokyo Milbon s previous headquarters research facility was in Osaka, but the company decided to relocate to Tokyo to expand the research facility, which was running out of space as a result of expanding R&D, strengthen recruitment (attract students based in Tokyo), and move to a more advantageous location for diversifying into the cosmetics business and overseas expansion. Based on 14/62

Research Report by Shared Research Inc. www.sharedresearch.jp the belief that only companies that can attract young workers will survive competition, Milbon began hiring in fall as well as the traditional spring two years ago. The company aims to employ young, talented people by increasing hiring opportunities. FY12/18 sales strategy The company plans to focus on the following initiatives during FY12/18. Overseas, apply strategies that have proven successful in some countries to others Expand training support for hair designers Add salons to network, support employee recruitment Strengthen corporate and individual product brands (plan ad campaigns in February 218 on mass transit, including Yaesu side of Tokyo Station and Osaka Hankyu Umeda Station) Move into cosmetics business (after establishing KOSÉ Milbon Cosmetics Co., Ltd. in July 217, the company is currently reviewing everything from product planning and R&D, and looking at various sales strategies and approaches to training Establish corps of field cosmetics educators to help salons create a new source of earnings 15/62

Research Report by Shared Research Inc. www.sharedresearch.jp Outlook Medium-term management plan forecasts revised When the company announced its 1H FY12/17 earnings results (June 28, 217), it also announced the relocation of its head office to Tokyo (scheduled for November 217) and a revision of its five-year management plan. It made a downward revision to its FY12/19 (final year of the plan) forecasts for operating profit, recurring profit, and net income attributable to parent company shareholders. This is because in order to accelerate its long-term growth strategy, the company pushed up the upfront spending it had planned to conduct as part of the next management plan to the current medium-term plan. It now expects the scope of the current plan to include advancing corporate branding, working on expansion in Europe and other regions worldwide, relocating its head office to Tokyo, and adding and training personnel to promote the cosmetics business. Revised FY12/19 earnings forecasts Sales JPY35.bn (unchanged from the previous plan) Domestic sales: JPY28.5bn (unchanged) Overseas sales: JPY6.5bn (unchanged) Operating profit Recurring profit JPY6.bn (JPY7.bn in the previous plan) JPY5.6bn (JPY6.6bn) Net income JPY3.9bn (JPY4.1bn) (Net income refers to net income attributable to parent company shareholders.) Purpose of relocating head office to Tokyo Improve the company s brand image to help promote the cosmetics business Accelerate global expansion Secure personnel required to achieve these aims Strengthen relationships with partner companies that are indispensable for expansion into new fields Background In order to strengthen its R&D capabilities, the company was working to add personnel at its Central Research Institute, which forms the backbone of its development department. However, in order to do this, it also needs to expand the research space by moving the head office, which is currently attached to the Central Research Institute. For this reason, the company has been proceeding with selecting a site for relocating the head office. Milbon aims to further strengthen its R&D capabilities to grow as a manufacturer. The company also aims to expand sales with the relocation of its head office to Tokyo, which has a bigger market than in Osaka. Further, Milbon is focusing on investing in personnel as it aims to develop its cosmetics business in earnest. In addition to growth in Asia, the company is promoting its overseas businesses by developing hair coloring products for the European and US markets. Five-year management plan In January 215, Milbon announced a five-year management plan, and revised its profit outlook on June 28, 217. By FY12/19, it targets consolidated sales of JPY35.bn (up 38.7% from FY12/14), operating profit of JPY6.bn (up 34.8% from FY12/14), and recurring profit of JPY5.6bn (up 32.7% from FY12/14) and net income of JPY3.9bn (up 46.8% from FY12/14). By FY12/19, the company aims to be Asia s top hair cosmetics manufacturer by sales, and in the world s top five. By FY12/19 it targets domestic sales of JPY28.5bn (+26% from FY12/14) and overseas sales of JPY6.5bn (around 2.5x FY12/14), along with an overseas sales ratio of 18.6% (1.4% in FY12/14). 16/62

Research Report by Shared Research Inc. www.sharedresearch.jp Until 26, the company had only one overseas subsidiary (in the US). Since 27, it has established subsidiaries in China, Korea, and Thailand, and set up representative offices in Taiwan, Hong Kong, Vietnam, Malaysia, Turkey, Indonesia, and the Philippines. It plans to further develop business overseas. Five-year management plan FY12/14 FY12/19 target (JPYmn) Amount % of sales Amount % of sales Diff. % increase Sales 25,227 1.% 35, 1.% 9,773 38.7% Japan 22,612 89.6% 28,5 81.4% 5,888 26.% Overseas 2,613 1.4% 6,5 18.6% 3,887 148.8% Gross profit 17,281 68.5% 24,5 7.% 7,219 41.8% SG&A expenses 12,83 5.9% 18,5 5.% 4,67 36.4% Operating profit 4,451 17.6% 6, 17.1% 1,549 34.8% Recurring profit 4,219 16.7% 5,6 16.% 1,381 32.7% Net income 2,621 1.4% 3,85 11.% 1,229 46.8% Figures may differ from company data due to differences in rounding methods. Regional strategies In Japan, the company plans to respond to the falling birthrate and aging population by leading the industry via aging care product technology and development. In Asia, the company plans to promote sales by training local employees and supporting salons in improving beauty techniques, reinforcing its earnings base. It plans to switch to a distributor-based business model in the US instead of selling directly to salons, and to create opportunities for entering the European market. As part of its investment to boost global procurement, in Japan the company is expanding its Yumegaoka plant. Overseas, it plans to expand its plant in Thailand. Meanwhile, the company is open to M&A in the European and US markets. New five-year management plan Sales Exchange rate (vs. JPY) Growth rate (JPYmn) FY12/14 actual FY12/19 target 214 219 Japan 22,612 28,5 26.% - - US 482 84 74.2% JPY12.3/USD 15. China 43 1,35 3.1x JPY16.73/CNY 17. Korea 1,99 2,5 2.3x JPY.973/KRW.1 Thailand 48 25 5.2x JPY3.16/THB 3.2 Other regions* 552 1,56 2.8x - - East Asia** 1,947 4,49 2.3x - - Southeast Asia *** 18 1,2 5.6x - - Figures may differ from company data due to differences in rounding methods. *Includes Taiwan, Hong Kong, Vietnam, Malaysia, Indonesia, and other countries **Includes China, Korea, Taiwan, Hong Kong ***Includes Thailand, Vietnam, Malaysia, Indonesia, and other countries Financial strategy In the revisions released on June 28, 217, Milbon emphasized that it will not change its dividend payout ratio of 4% in regards to its shareholder return policy. However, the company pointed out that the decision concerning the actual dividend amount will be stably implemented irrespective of the policy. By FY12/19, the company initially planned to generate free cash flow of more 17/62

Research Report by Shared Research Inc. www.sharedresearch.jp than JPY2.bn. In FY12/1 FY12/14 (the period of the previous medium-term plan), out of the roughly JPY15.1bn in free cash flow, about JPY5.bn was invested for growth, about JPY4.4bn distributed to shareholders, and the remaining JPY5.7bn was put toward retained earnings. In the new medium-term plan through FY12/19, the company expects to focus even further on investments and shareholder returns. Use of free cash flow (initial plan) Use Previous plan (Results; FY12/1-FY12/14) Current plan (Targets; FY12/15-FY12/19) Investment in future growth JPY5.bn JPY1.bn Enhance domestic production facilities Construct new Yumegaoka Plant Establish Thai factory Expand Thai Factory Main items Expand Tokyo Office Establish new domestic branches and expand existing branches Expand Central Research Institute Domestic: Ginza, Yokohama, and six others Establish new branches (Kyoto, Beijing, Busan, others) Overseas: Philippines and several others Invest in M&A projects in US and Europe Cosmetics business Shareholder returns JPY4.4bn JPY7.bn Dividends payout ratio: 4.6% (five-year average) Steady dividend payout (Target: over 4%) Maintain financial base JPY5.7bn JPY3.bn Capital efficiency ROE: 11.3% (FY12/14 actual) ROE: Over 12% (FY12/19 target) Increasing sales by training overseas staff Staff are key to Milbon s business. Fieldpersons employees who work with distributors to conduct proposal-based sales to salons made up 45.6% of its total workforce at the end of FY12/15. Manufacturers of cosmetics sold in stores typically supply products in response to demand. The company aims for profitability by selling products and using techniques developed together with hair stylists under the proprietary TAC system (see Business model section for details) through fieldpersons. Sales are almost directly correlated with the number of fieldpersons. Recently the number of fieldpersons has been increasing at a faster pace than sales, because the company has been investing overseas for sales growth in the long term. Sales and number of fieldpersons (JPYmn) 4, 3, 2, 1, 33,454 17,626 18,322 18,946 19,446 2,527 21,887 23,83 25,227 27,377 29,134 Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. FY12/7 FY12/8 FY12/9 FY12/1 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 4 35 3 25 2 15 1 5 Sales No. of Fieldpersons (right axis) Note: Data until FY12/1 are parent figures (non-consolidated) In Korea and China, sales per fieldperson in FY12/17 were 2.3x and 3.6x, respectively, the figure in FY12/12, at JPY81mn in Korea (JPY35mn in FY12/12) and JPY5mn in China (JPY14mn in FY12/12). This implies that the company is making progress with training its overseas staff. In Japan, sales per fieldperson have been steady at JPY9 1mn over the past decade. The company thinks it could reach up to JPY1mn per fieldperson overseas by providing high-end services to salons. 18/62

Research Report by Shared Research Inc. www.sharedresearch.jp OPM has fallen, mainly due to investments overseas. Still, the company projects that OPM will improve, because it expects these investments to lead to sales growth, GPM to improve due to reorganization of production facilities in Japan, and the SG&A to sales ratio to be kept under control. Sales per fieldperson by country (JPYmn) 12 98 12 15 15 11 12 15 93 94 94 1 92 8 65 75 8 81 6 41 63 5 4 36 54 48 36 4 37 41 2 35 25 14 18 Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. FY12/7 FY12/8 FY12/9 FY12/1 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 Japan US China South Korea Sales per fieldperson based on the number of fieldpersons at the beginning of the fiscal year Entering the cosmetics business On January 25, 217, Milbon announced that it had signed a capital and business alliance agreement with KOSÉ Corporation (TSE1: 4922). This announcement was in line with the company s aim of entering the cosmetics business, one of the medium-term goals specified in its five-year management plan. Milbon and KOSÉ say they agreed to the capital and business alliance with the aim of improving the competitiveness of a Japanese beauty care corporate group that competes worldwide. Milbon and KOSÉ will leverage their strengths to conduct joint research utilizing each other s technologies, develop and sell new products, and offer services. KOSÉ is responsible for manufacturing, and Milbon is in charge of sales, and will sell skincare and makeup products to salons. Per the company, there is significant room for expansion of the cosmetics business based on proposals from hair stylists. The company plans to expand sales activities, which utilizes fieldpersons who have until now focused on hair cosmetics, into the general cosmetics business. Specifically, Milbon plans to select a maximum of roughly 2 persons as beauty educators (tentative name) from roughly 25 domestic fieldpersons. The company will use recruitment and education to offset the resulting shortfall in current fieldpersons caused by the selection process. Milbon and KOSÉ established a joint venture company on July 31, 217. 19/62

Research Report by Shared Research Inc. www.sharedresearch.jp Business Milbon is Japan s largest manufacturer of professional-use hair cosmetics based on sales. In FY12/17, hair care treatments and other hair care products accounted for 58.3% of sales, hair coloring products 36.2%, and perm products 4.7%. The company sells its products to salons via distributors in Japan and overseas. Hair coloring products have the highest margins. Sales composition: total sales (consolidated, FY12/17 Perm products 4.7% Hair coloring products 36.2% Hair care products 58.3% Since its 1996 IPO, Milbon s sales have increased for 21 consecutive years. Operating profit has risen for eight consecutive years from FY12/1 through FY12/17. Per the Ministry of Internal Affairs and Communications, the number of Japanese women aged 15 64 (target customers) peaked at 43.5mn in 1995 and trended downward thereafter. In line with this, the value of shipments of hair cosmetics in Japan peaked at JPY523.3bn in 1994 (source: Ministry of Trade, Economy and Industry). Still, Milbon s performance has improved, due to the following: Proposal-based sales Proprietary research and development Exclusive targeting of the salon market Performance since IPO (JPYmn) 4, 3, 2, 1, (JPYmn) 6, 5, 4, 3, 2, 1, - FY12/96 FY12/97 FY12/98 FY12/99 FY12/ FY12/1 FY12/2 FY12/3 FY12/4 FY12/5 FY12/6 FY12/7 FY12/8 FY12/9 FY12/1 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 Operating profit (right axis) Sales 2/62

Research Report by Shared Research Inc. www.sharedresearch.jp Core strategy The company s strategy is to narrow its business focus, and become the top player by sales in that category. Its target user base is salons and their customers. Its product development focuses on hair cosmetics used by salons. Further, rather than simply selling products, its core strategy is to offer services and products at a level demanded by salons and their customers. Milbon works with hair stylists from popular salons to create products and techniques using the TAC product development system. Core strategy Strategy to become top by narrowing focus Focusing target Focusing product development Beauty industry Cosmetics Professional use (in businesses) Beauty salon 'Hair' as central focus Goal of developing beauty techniques Targeting the salon market The market for hair cosmetics is divided into over-the-counter products and salon-based products. The company targets the latter. The domestic hair care market was valued at JPY42.8bn in 216, according to the Ministry of Economy, Trade and Industry. According to Milbon, the salon market, its target market, accounts for around one-third of the total hair cosmetics market, at some JPY15.bn. Japan has around 2 3 distributors of hair cosmetics. Milbon was a latecomer to Japan s hair cosmetics market. It focused on the hair salon market from its establishment, as the founder (previously working as a distributor of hair cosmetics) formed the company after seeing the chapped hands of hair stylists and sought to find a solution. Targeting this market required a deep level of market penetration leading to its proposal-based sales style. This continues to distinguish Milbon from its competitors. 21/62

Research Report by Shared Research Inc. www.sharedresearch.jp Business model Three proprietary systems Milbon s business model is based on helping salons (its customers) grow sales and profits. With this aim, it has created the following three systems. Fieldperson system TAC (Target Authority Customer) product development system Field activities system Business model Three system cycle The company operates three proprietary systems based on the following cycle. First, it seeks out popular hair designers, and enters an agreement. The resulting successful techniques and concepts are standardized through the TAC product development system. Then, through the Fieldperson system, the company works with distributors to offer products and introduce techniques to salons. Through the field activities system, the company focuses its activities on promising salons. Profitability from the TAC system and the Fieldperson system Milbon is growing sales by developing both TAC and Fieldperson systems. Trending beauty products and techniques developed under the TAC system are introduced to the market by fieldpersons. Through fieldpersons, the company works with salons (its customers) to solve issues, in addition to making proposals to help grow salon sales and profits, as well as its own (sales growth for salons means an increase in sales volume for Milbon, so more fieldpersons equals more sales). In Japan, sales per fieldperson were stable at JPY9 1mn. Shared Research believes that this is underpinned by nine months of training, including three months of on-the-job training. Overseas, the company is still cultivating the salon market, so sales per fieldperson is lower than in Japan. Management is focusing on training staff hired overseas. Sales per fieldperson are increasing with the exception of the US. The uptrend is pronounced in Korea, where the first entered the market with the establishment of a representative office prior to setting up a subsidiary and signing agreements with local distributors. In the US, earnings have been steady (but flat) since 24, when Milbon established its first overseas subsidiary in New York. According to Milbon, this is because it sells directly to salons, having bought sales rights from a Japanese distributor in the US. It is switching to its original model of using local distributors in the US, as it does in other markets. 22/62

Research Report by Shared Research Inc. www.sharedresearch.jp Milbon s sales and number of fieldpersons Sales by region FY12/7 FY12/8 FY12/9 FY12/1 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 (JPYmn) Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total 17,626 18,322 18,946 19,446 2,527 21,887 23,83 25,227 27,377 29,134 33,454 Japan 17,626 18,322 18,946 19,446 19,3 2,4 21,946 22,612 23,88 25,287 27,974 US 356 359 435 482 642 571 735 China 122 184 281 43 665 737 1,28 South Korea 34 451 73 1,99 1,425 1,63 2,44 Other 49 493 465 64 765 936 1,97 Fieldpersons FY12/7 FY12/8 FY12/9 FY12/1 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 (Employees) Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total 18 197 22 26 224 24 265 28 38 321 345 Japan 2 21 216 237 249 258 US 1 12 12 12 9 12 China 13 16 17 18 18 19 South Korea 13 17 17 19 2 23 Other 4 1 18 22 25 33 Sales per fieldperson FY12/7 FY12/8 FY12/9 FY12/1 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 (JPYmn) Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total 98 93 94 94 92 91 9 9 89 91 97 Japan 98 93 94 94 92 12 15 15 11 12 15 US 36 36 4 54 63 48 China 14 18 25 37 41 5 South Korea 35 41 65 75 8 81 Other 123 47 34 35 37 33 The number of fieldpersons is as of the beginning of each fiscal year Note: Figures may differ from company data due to differences in rounding methods. Training fieldpersons The company sees that training staff is key to growth. It aims to train staff in Japan and overseas by supporting each individual employee. To this end, fieldperson training involves a general Milbon training program, followed by specialized and OTJ training lasting three months. Training fieldpersons Fieldperson training: 9 months Milbon training: 3 months Fieldperson training: 3 months Developer training: 6 months OJT: 3 months Handle distributors and salons Assigned to laboratory/factory Staff training After joining the company, employees undergo basic training for three months regarding the salon market, distributors and the distribution framework, beauty techniques, hair theory, hair structure, scalp structure and components of hair cosmetics. Fieldperson training Following basic staff training, for three months employees learn about their responsibilities, including how to conduct training sessions at salons and make presentations. OJT After fieldperson training, until the end of the company s fiscal year (December 2), employees visit salons and distributors along with their designated fieldperson superior. Fieldperson system: proposal-based sales The Fieldperson system differs from simply selling products, as it involves selling solutions to salons based on beauty products and techniques that lead to higher sales and earnings for the salons. 23/62

Research Report by Shared Research Inc. www.sharedresearch.jp Fieldpersons visit salons, identify issues, develop management plans, introduce beauty techniques, and support hair stylist training. If these techniques are adopted by general consumers, demand for Milbon products grows. This in turn leads to sales growth for both the salons and Milbon. In general, hair cosmetics sales are mainly conducted via distributors. Under the Fieldperson system, however, salons are directly approached by fieldpersons who work with distributors. Per the company, in 214 it conducted more than 3, workshops and meetings with salons, with each fieldperson taking part in more than 12 meetings a year. President Sato visits some 3 salons per year. Fieldperson system Gives management advice Teaches beauty techniques Milbon Fieldperson Trains staff Information Sales promotion Information Products Salons Consults Products/ Service Consumers Distributor Field activities system: selecting Target Salons The field activities system not only includes selling Milbon s products, but also selecting promising salons (Target Salons). Target Salons Sales to Target Salons comprise more than half of the company s total sales volume of hair cosmetics. These salons are key customers who understand Milbon s management strategy. They are a source of new beauty techniques and concepts, and a core earnings source. Although Milbon does not have contracts with these salons, they are central to its sales activities. Target Salons by area (213) Target Salon repeat customer rate Fukuoka 8% (%) 75 73.7 Tokyo 36% Osaka 35% 7 69.3 Nagoya 21% 65 25 26 27 28 29 21 211 212 213 214 Note: Repeat customer rate based on Milbon data obtained through annual surveys of about 68 Target Salons from 21 According to the company, Target Salons feature experienced managers, and are expanding sales based on a solid vision for growth. Each year, the company conducts its own surveys of around 68 Target Salons. This data indicates that the percentage of repeat customers rose from 69.3% in 25 to 73.7% in 214. In 214 spend per customer rose by 9% and sales per employee at Target Salons increased by 7%, compared with 25. The company uses this data to demonstrate the link between increases in its own sales and higher earnings at Target Salons. Although Target Salons are located throughout Japan, about 7% are in Tokyo and Osaka. 24/62

Research Report by Shared Research Inc. www.sharedresearch.jp Target Salon data Data from 21 onward is based on Milbon data obtain through annual surveys of some 68 Target Salons Milbon has agreements with around 1 distributors. According to the Ministry of Health, Labour and Welfare, Japan had 234,89 salons as of March 31, 214. About 7, of these use Milbon products. About 9, of these salons are Target Salons. The company is increasing its number of fieldpersons to swell the number of Target Salons. Product flow in Japan Milbon (manufacture and sales) 2-3 distributors For resale For salon use Milbon product distributors (approx. 1 companies) For resale For salon use 2,-25, salons Salons (Milbon's user base) approx. 7, salons Target salons (approx. 9,8 salons) For resale General consumers Distributors: Milbon manufactures and sells hair cosmetic products for salons. It sells its products to distributors, who provide the products to salons. Milbon s sales team cannot provide fine-tuned services to all end users (some 7, to 8, salons in Japan), so distributors are key to sales. TAC product development system: proprietary research and development The company calls its research and development system the TAC product development system. TAC stands for target authority customers and refers to hair stylists with technical expertise. It enters agreements with these stylists, who provide new beauty techniques for the company s product development. According to Milbon, in most cases companies that develop products for salons first come up with products, and then salons and stylists adopt them. Milbon says it is the only company that develops products in collaboration with stylists from the planning stage. Further, popular hair stylists often hesitate to provide information to companies that commoditize hair products. They are more willing to work with companies like Milbon that work exclusively with salons. TAC product development system First meeting Second meeting Third meeting ~ Discovery of hairstylist (TAC) Meeting with Milbon's development department and hair stylists Milbon's researchers analyze successful techniques Protocol developed for product Product design and naming Product development and sample feedback Approved items sent to production department 25/62

Research Report by Shared Research Inc. www.sharedresearch.jp R&D examples Time until sale Sales section Product planning Central Research Institute Production division 15 months Hears request from salon for products to assist in the styling of Interviews salons throughout Japan (person in charge visits 2 salons each year) colored hair that has been damaged 13 months Learns that a highly rated salon has added one item to hair after shampooing and Develops the first product A brand base material and starts project before drying Discovers that with hair Develops base material coloring products, customers with dry hair have difficulty in styling without additional of products 12 13 months Contracts with stylists at popular salons (TAC salons) and requests assistance in Determines the item that stylists suggest using before blow-drying TAC development 1 11 months Makes a sample formula and reflects feedback from the TAC salon and product evaluation office to develop product Selects an oil base that balances the effect on the end users hair and effect on stylists 2 3 months Confirms that mass production can maintain product quality Adjustment work and processing for mass production test product s in a large tank at research facilities Product sales Gathers post-sale evaluations from distributors and salons Names the new product to contribute to salons sales Receives final confirmation with stylists at TAC salons Basic research supporting TAC product development The company developed original ingredient CMADK in 213. CMADK both repairs and protects against hair damage. CMADK is part of the Aujua Immurise Line series, which is positioned as an aging care product. Keratin, the protein found in hair, is affected by the alkali ingredients contained in hair coloring and perm products, which remove the protein. The effect of the keratin protein contained in conventional cosmetics is lost during washing and drying, according to the company. By comparison, the company said that CMADK is retained on hair even after repeated washing and drying. After washing hair 1 times, none of the keratin protein in typical product remains, whereas CMADK continues to adhere to the hair. Further, Milbon said that hair treated with CMADK has around 1% higher torsional rigidity than untreated hair. Torsional rigidity: the degree of resistance to twisting. Hair that has been damaged has low torsional rigidity. Brands The two main categories of Milbon s product brands, which are sold to salon clients with advice from hair designers, are premium and professional brands. Representative brands in each category are shown below: Premium brands 26/62

Research Report by Shared Research Inc. www.sharedresearch.jp Aujua milbon Villa Lodola Professional brands PLARMIA jemile fran Elujuda Core brand Aujua: developed through the TAC system Aujua is a high-end hair cosmetics brand, mainly shampoos and treatments developed for the hair type of Japanese women. Aujua products are about double the unit price of Milbon s other products. After researching hair characteristics, the company analyzed how Japanese hair in particular is damaged. Based on this research, in 21 it introduced Aujua hair cosmetics containing an ingredient to help repair damage. Using SPring-8 facilities*, the company found that Japanese hair is more easily damaged compared to other hair types. There are various series of the Aujua brand, with effects such as damage care, shine, and volume boosting. SPring-8: A large-scale synchrotron radiation facility established by Rikagaku Kenkyushohttp://ejje.weblio.jp/content/Institute+of+Physical+and+Chemical+Research. Allows for observation of changes to hair on a nano level that are not visible using an electron microscope. The Aujua brand responds to individual hair needs, through a hair care program aimed at returning Japanese hair to a healthy, supple state. Aujua hair stylists provide customers with advice, analyze hair conditions, and provide salon and home care advice. To maximize the originality of Aujua, stylists must fully understand the product, so the company holds special training sessions for stylists to learn about Aujua. The company only supplies Aujua products to certain salons that have mastered the proper techniques of Aujua. The company awards the title of Aujua Sommelier to hair stylists with a high level of technique. The number of Aujua salons is growing, and in FY12/17, Aujua sales totaled JPY5.3bn (+6.1% YoY) on a 12-month basis and JPY5.5bn based on an irregular accounting period. Aujua is increasing its presence. Aujua sales and number of Aujua salons FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 (JPYmn) 12mo eqv. Est. Sales 1,719 2,54 3,582 4,445 5,43 5,339 6,79 YoY 29.8% 45.7% 43.1% 24.1% 13.5% 5.9% 13.9% Number of Aujua salons* 1,121 1,516 2,2 2,399 2,779 3,166 3,4 YoY 47.3% 35.2% 32.1% 19.8% 15.8% 13.9% 7.4% Sales per Aujua salon 1.5 1.7 1.8 1.9 1.8 1.7 1.8 *Number of Aujua salons from FY12/11 to FY12/14 includes canceled salons milbon milbon is one of the company s premium hair care product brands that went on sale in June 216. The brand s concept is 36 degrees beautiful hair a hair care system that cultivates the unique beauty of every individual. The product range consists of seven series (Smooth, Moisture, Repair, Anti-Frizz, Volume, Scalp, and Creative Style) and is geared toward sales in global markets. The company sought out active ingredients that repair what it calls the stick-shaped void of damaged hair and increases internal density, which are formulated in milbon products. The milbon range was developed by rigorous analysis of the internal structure of women s hair from 2 countries using CT scan technology, which revealed the stick-shaped void phenomenon common to all damaged hair. FY12/17 sales of the milbon range came to JPY1.6bn (JPY1.8bn based on irregular accounting period). 27/62

Research Report by Shared Research Inc. www.sharedresearch.jp milbon sales and number of milbon salons FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 (JPYmn) 12mo eqv. Est. Sales - - - 571 1,635 2,221 YoY - - - - 186% 36% Number of domestic salons - - - 2,242 2,738 3,3 YoY - - - - 22% 21% Number of overseas salons - - - - 1,228 1,995 YoY - - - - - 62% Villa Lodola Villa Lodola is an organic brand that is one of Milbon s premium brands. With beauty the organic way as its concept, Villa Lodola is an authentic organic brand that is committed to environmental conservation not only with regard to its products, but also to manufacturing processes, containers, and marketing tools. All products are certified organic by the Istitutio Certificazione Etico Ambientale (ICEA). Milbon began selling Villa Lodola Color hair coloring products with 92% natural ingredients in FY12/15. Sales of the Villa Lodola range in FY12/17 came to JPY966mn (+21.5% YoY) on a 12-month basis, of which Villa Lodola Color accounted for JPY679mn (+31.%). Sales of organic brand Villa Lodola and number of Villa Lodola salons FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 (JPYmn) 12mo eqv. Est. Sales 32 99 115 489 795 966 1,2 YoY - 29% 16% 325% 63% 22% 24% Number of Villa Lodola salons 412 1,191 1,626 4,14 5,632 6,895 1, YoY - 189% 37% 147% 4% 22% 45% Sales per Villa Lodola salon.8.8.7.12.14.14.12 *Number of Villa Lodola salons prior to FY12/14 includes canceled salons Product overview Hair care products Core brands: Aujua, Plarmia, Nigelle, Deesse s Hair care products mainly comprise treatments, hair styling products, shampoo, and hairspray. Treatments are applied to the hair to keep it healthy. Hair styling products are applied to set hair styles into place. Both include products designed to address individual hair characteristics. Per Milbon, in the top 2 hair cosmetics of leading manufacturers sold in shops the most common ingredient is water. Products sold in salons are typically double or triple the price of retail products. Milbon s premium Aujua brand is double the price of its other products. Hair coloring products Core brands: Ordeve, Ordeve Crystal Hair coloring products can be divided into permanent (quasi-drug) and semi-permanent (cosmetic) hair coloring products. Milbon and the Japan Hair Color Industry Association both say that permanent hair coloring products (which last around two months) are applied by bleaching hair and then dyeing it. If not cared for properly, hair can become damaged. In comparison, semi-permanent hair coloring products are absorbed into the hair surface, and typically hold their color for two to four weeks. Temporary hair colorings fade after shampooing once. Ordinarily neither semi-permanent nor temporary hair coloring products damage hair. Most of the salons Milbon works with use oxidizing hair coloring products. Milbon s hair coloring products come in lower cost containers, meaning GPM is higher than its other hair cosmetics for salons. 28/62

Research Report by Shared Research Inc. www.sharedresearch.jp Types of hair coloring products Product name Alkaline oxidant Generic name ORDEVE Permanent hair dye Oxidized hair dye Hair color, hair dye (dye for grey hair, dye for black hair, dye for stylish grey hair) ORDEVE beaute Neutral oxidant(alkalescent, neutral/weak acidic) ORDEVE Non-oxidized hair dye Quasi-drug Hair decolorant (bleach) Hair bleach Hair lightener Powder bleach Hair dye Hair dye remover Semi-permanent hair dye Hair manicure FARGLAN Cosmetics Temporary hair dye Color stick Hair color spray Source: Shared Research based on data from the Japan Hair Color Industry Association Supply system Milbon buys surfactants, oils and other raw materials from Japanese and overseas manufacturers and trading companies. It then mixes the ingredients. Products differ based on the timing and order of mixing and the amount of heat added. These factors vary by company. The company is working on developing new manufacturing technology to mass produce new products. Trial products from its research laboratories (before mass production) are consistently reproduced to show the qualities requested by hair stylists. Milbon had been operating with three factories: Two, the Aoyama plant and the Yumegaoka plant, in Iga, Mie Prefecture, Japan, and a third in Rayong Province, Thailand. However, with the aim of improving productivity, the company expanded the Yumegaoka plant in 216 and integrated the Aoyama plant functions there. The company closed the Aoyama plant in 216 and is currently operating with two factories. The Yumegaoka plant, established in 25, produces 5 colors of hair coloring products, plus other hair cosmetics. Milbon plans to increase capacity at this plant in line with its target of attaining JPY35.bn in sales by FY12/19, the final year of the medium-term plan. In Japan, the Aoyama and Yumegaoka plants had a combined capacity of JPY22bn (sales value basis), and the company plans to expand capacity to JPY35bn by the end of 219. Milbon had provided products overseas by exporting them as needed from its plants in Japan. Since the 213 establishment of its new plant in Thailand, however, it has gradually shifted production to this factory. It still exports from Japan raw materials it cannot get in Thailand. It aims to boost production capacity by increasing its Thailand procurement ratio and expanding overseas. Milbon s product supply capacity (sales value based) November 215 End 219 Production Production (JPYmn/year) Comp. Comp. capacity capacity Japan Aoyama plant 12, 47% % Yumegaoka plant 1, 39% 35, 91% Subtotal 22, 86% 35, 91% Thailand 3,5 14% 3,5 9% Total 25,5 1% 38,5 1% 29/62

Research Report by Shared Research Inc. www.sharedresearch.jp Market conditions Average selling prices Hair salons, Milbon s customers, are trending toward high quality, high priced hair cosmetics. Milbon, which offers products that meet this demand, is seeing its average selling price increase, in line with the growing sales composition of high-priced products. Sales of Aujua products, priced at double its other product prices, have risen to 17% of sales in FY12/17 (6% in FY12/11). The prices of hair cosmetics sold to salons are stable, unlike products sold at retail stores. New products account for 12 13% of total sales, and the prices on these products are determined at launch. Prices generally stay constant, so product pricing only changes when products are replaced. The company s product cycle is one to two years for styling products, and five to six for hair coloring. Raw material prices As raw materials like surfactants and other petrochemicals account for only 2 3% of product costs, procurement prices do not typically have a big impact on operating profit. Exchange rates impact operating profit only slightly, because the overseas sales ratio is 14% on a 12-month basis (FY12/17). Cost structure Manufacturing cost breakdown (par.) FY12/7 FY12/8 FY12/9 FY12/1 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Sales 17,627 18,322 18,946 19,447 2,218 21,44 23,181 24,197 25,935 27,558 3,851 Manufacturing cost 6,57 7,18 7,154 7,5 7,243 7,511 8,12 8,283 8,818 9,316 1,249 Raw materials 3,883 4,239 4,33 4,41 4,499 4,692 5,57 5,631 5,654 6,75 6,718 Outsourcing 968 1,25 1,4 1,81 1,241 1,26 1,466 1,35 1,491 1,437 1,443 Labor 641 644 638 615 645 645 664 692 74 799 852 Depreciation 558 592 674 51 457 419 381 361 39 461 623 Supplies 52 69 72 6 5 61 62 6 63 97 89 Other 45 431 41 337 351 434 473 188 479 446 525 Cost of goods manufactured 6,475 7,145 7,159 6,998 7,242 7,54 8,95 8,277 8,82 9,32 1,151 % of sales 1.% 1.% 1.% 1.% 1.% 1.% 1.% 1.% 1.% 1.% 1.% Manufacturing cost 36.9% 39.2% 37.8% 36.% 35.8% 35.1% 34.9% 34.2% 34.% 33.8% 33.2% Raw materials 22.% 23.1% 22.9% 22.6% 22.3% 21.9% 21.8% 23.3% 21.8% 22.% 21.8% Outsourcing 5.5% 6.6% 5.5% 5.6% 6.1% 5.9% 6.3% 5.6% 5.8% 5.2% 4.7% Labor 3.6% 3.5% 3.4% 3.2% 3.2% 3.% 2.9% 2.9% 2.9% 2.9% 2.8% Depreciation 3.2% 3.2% 3.6% 2.6% 2.3% 2.% 1.6% 1.5% 1.5% 1.7% 2.% Supplies.3%.4%.4%.3%.2%.3%.3%.2%.2%.4%.3% Other 2.3% 2.4% 2.1% 1.7% 1.7% 2.% 2.%.8% 1.8% 1.6% 1.7% Cost of goods manufactured 36.7% 39.% 37.8% 36.% 35.8% 35.1% 34.9% 34.2% 33.9% 33.8% 32.9% Figures may differ from company data due to differences in rounding methods. CoGS Key items impacting CoGS: raw material costs (21.8% of product sales on a non-consolidated basis in FY12/17); and outsourced processing costs (4.7%). The company engages in small-lot production of an array of products, and more than 2, products. For raw material procurement costs, surfactants and oils comprise the biggest percentage of the total. It outsources processing to companies that can manufacture products for less than it can, for a given quality. As sales volume of Aujua and other high-end products increase, raw material costs are accounting for a smaller percentage of sales. 3/62

Research Report by Shared Research Inc. www.sharedresearch.jp SG&A expenses (consolidated) FY12/7 FY12/8 FY12/9 FY12/1 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total 8,148 8,482 8,937 9,424 9,828 1,847 11,872 12,83 13,954 14,987 17,452 Personnel expenses (excluding R&D) 2,548 2,718 2,83 2,986 3,116 3,581 3,92 4,53 4,41 4,584 5,365 Transportation expenses 51 498 511 56 565 623 78 78 812 845 92 Promotion, advertising and marketing 1,99 1,848 1,949 2,78 2,128 2,552 2,69 2,925 3,165 3,456 3,962 R&D expenses 573 668 766 838 871 873 97 1,169 1,214 1,232 1,422 Depreciation (excluding R&D) 37 371 349 39 461 441 423 448 443 436 468 Other expenses 2,236 2,379 2,532 2,572 2,687 2,777 3,18 3,455 3,919 4,434 5,315 % of sales 45.2% 45.4% 46.6% 47.7% 47.9% 49.6% 49.8% 5.9% 51.% 51.4% 52.2% Personnel expenses (excluding R&D) 14.1% 14.5% 14.8% 15.1% 15.2% 16.4% 16.4% 16.1% 16.1% 15.7% 16.% Transportation expenses 2.8% 2.7% 2.7% 2.8% 2.8% 2.8% 3.% 3.1% 3.% 2.9% 2.7% Promotion, advertising and marketing 1.6% 9.9% 1.2% 1.5% 1.4% 11.7% 11.3% 11.6% 11.6% 11.9% 11.8% R&D expenses 3.2% 3.6% 4.% 4.2% 4.2% 4.% 4.1% 4.6% 4.4% 4.2% 4.3% Depreciation (excluding R&D) 2.% 2.% 1.8% 2.% 2.2% 2.% 1.8% 1.8% 1.6% 1.5% 1.4% Other expenses 12.4% 12.7% 13.2% 13.% 13.1% 12.7% 13.3% 13.7% 14.3% 15.2% 15.9% Figures may differ from company data due to differences in rounding methods. SG&A expenses Excluding R&D, Milbon s major SG&A expenses are personnel expenses (16.% of sales in FY12/17) and sales promotion, advertising and market development expenses (together, 11.8% of sales). Personnel expenses Personnel expenses are rising in tandem with more fieldpersons. These costs are growing as a percentage of sales, from 14.1% in FY12/7 to 16.% in FY12/17. The background to this is that the company is training (investing in) fieldpersons to cultivate the salon market overseas, leading to little change in sales per fieldperson from 1 years earlier. On a non-consolidated basis, sales per fieldperson were JPY98mn in FY12/7, and JPY97mn in FY12/17. The average age of the inaugural fieldpersons is around 57, and as this generation is expected to retire around 22, Shared Research believes that the growth in personnel expenses can be controlled. Sales promotion, advertising, and market development expenses According to Milbon, sales promotion and market development account for the largest share of total sales promotion, advertising, and market development expenses. Sales promotion expenses include the provision of services in response to unit sales, as well as the payment of sales incentives to distributors. Market development costs include educational events for salons. Sales promotion, advertising, and market development expenses comprised 1.6% of sales in FY12/7. By FY12/17, it was 11.8%. Milbon stated that sales incentives are increasing. This is due to a higher percentage of distributors, where incentives account for a big chunk of sales. 31/62

Research Report by Shared Research Inc. www.sharedresearch.jp Market and value chain Japan s hair cosmetics industry According to the Ministry of Economy, Trade and Industry, sales by shipment value of hair cosmetics (sales to salons account for one third of hair cosmetic shipments per Milbon) were JPY42.8bn in 216, down 1.3% YoY, falling for the first time in two years. These statistics indicate that unit sales in the year came to 29,21 metric tons (down 7.7% YoY), decreasing two years running. Shipment-based sales of hair cosmetics have fallen 23% from the 1994 peak of JPY5.2bn. The number of target beauty customers in Japan, i.e., women aged 15 64, has trended downward after peaking at 43.5mn in 1995. The decline in sales has continued to track the decline in beauty customer numbers until the mid-2s. Since then, it has been almost flat. Shipment-based sales of hair cosmetics in Japan (JPYbn) 6 5 4 3 2 1 1% 8% 6% 4% 2% % -2% -4% -6% Shipment value of hair cosmetic products YoY(%) Source: Shared Research based on Ministry of Economy, Trade and Industry Current Survey of Production manufactured chemical products data Shipment-based sales of hair cosmetics and number of women aged 15 64 in Japan (JPYbn) 6 5 4 3 2 1 1981 1982 1983 1984 1985 1986 1987 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 (mn) 44. 43. 42. 41. 4. 39. 38. 37. 36. Shipment value of hair cosmetic products Women aged 15-64 (right axis) Source: Shared Research based on Ministry of Economy, Trade and Industry Current Survey of Production manufactured chemical products data and Ministry of Internal Affairs and Communications population estimates According to Dentsu Inc. (TSE1: 4324), the YoY growth rate of advertising expenses in the cosmetics and toiletries industry was +1.5% in 216, and -3.8% in 215, compared to +5.6% in 214 in the four main media categories of TV, newspapers, magazines, and radio. (Note: Milbon targets salons, so does not spend a lot on advertising.) Trends by item and changing hair styles Among hair cosmetics, the main constituents are shampoo (26% of total domestic sales in 216, -4.3% YoY), coloring products (25%, +2.1% YoY) and treatments (18%, -5.9% YoY). Of the three main product items, only hair coloring had year-on-year growth in 216. Sales of individual hair cosmetic categories fluctuate differently due to changes in hair style trends. Milbon aims to quickly track trends by getting information through its Fieldperson system and TAC product development system, and provide hair cosmetic that meet demand. 32/62

Research Report by Shared Research Inc. www.sharedresearch.jp Shipment-based sales of hair cosmetics in Japan (JPYbn) 15 Shampoo 1 Conditioner 5 Hair treatment 1986 1987 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 Source: Shared Research based on Ministry of Economy, Trade and Industry Current Survey of Production manufactured chemical products data Hair coloring prep Changing hair styles and Milbon s proposals Hair cosmetics for salons market Japan According to Milbon, the Japanese market for hair cosmetics for salons typically posts sales of circa JPY15.bn. This is around one third the size of the overall market for hair cosmetics (JPY42.8bn in 216), including such products as shampoo sold via general retailers. Although no data on the salon market is publicly available, Milbon thinks this market has been flat for the past five years. 33/62