Interview with the President

Representative Director and President: Itsuo Hama

1. Could you please explain the factors supporting Lion's continued strong performance in fiscal 2014?

In Japan, the increase in the consumption tax rate and unseasonable summer weather, and overseas political instability and slower economic growth, had a significant adverse impact on our performance. In addition, the business environment for the Lion Group continues to be severe.

Amid this business environment, in our Consumer Products Business, we worked to nurture the development and sales of high-value-added products, while also endeavoring to improve our product mix. In our Industrial Products Business, we were successful in improving profitability, along with the expansion in the detergent for the institutional use field and growth in high-value-added products in the chemical businesses.

In our Overseas Business also, we were able to secure steady expansion in the second half of the fiscal year in Thailand, which is our largest overseas market, and web-based sales in China showed steady growth. As a result, we were able to report continued growth in quantitative terms.

Net Sales
Operating Income
Net Income
2. Under the medium-term "V-1 Plan," actual results were below targets. Please explain the reasons and Lion's future directions, including any changes in the "Vision 2020" longer-term plan.

Under our "V-1 Plan," we achieved generally good sales growth, despite the impact of the increase in Japan's consumption tax rate and fluctuations in foreign currency exchange rates. In the domestic market, we focused on further developing our mainstay brands and strengthening our sales systems. Overseas, we stepped up the pace of the development of our global brands and were successful in showing the positive results of our aggressive marketing drive.

On the other hand, we left some issues not fully addressed from a profitability perspective. In our Consumer Products Business operations in particular during the first year of the "V-1 Plan," we reported a marked decline in income, and this had a major impact on subsequent earnings plans. Since fiscal 2013, however, we have reported steady improvement and have reported the highest income levels in Lion's history for two consecutive years now. Notwithstanding, there was a major divergence from our initial income targets.

However, through the planned and efficient control of expenditures, our profit management has improved significantly. We have also made steady progress in improving our business and financial positions, and, by building on this as a foundation, we will aim to reach the goals of the "V-2 Plan."

Our targets under our "Vision 2020" of consolidated net sales of ¥500 billion and ¥50 billion in operating income are intended to be an approximation of the volume of our activities. By increasing earnings through structural reforms, we will remain true to our initial objectives by implementing strategies to realize our management vision for the year 2020.

3. Could you please provide an outline of your "V-2 Plan," which you began to implement in fiscal 2015, and its priority measures?

With the objective of reaching our management targets under "Vision 2020," we began to implement our "V-2 Plan" in January 2015. To reach the goals of the "V-2 Plan," we will build on the earnings base we created under the "V-1 Plan," and endeavor to implement our four basic strategies and structural reforms, and thereby achieve increases in income. The three years of the "V-2 Plan" are positioned as a time for thorough preparations to go to the implementation of our "V-3 Plan."

Performance objectives under the "V-2 Plan" are annual net sales of ¥400 billion, operating income of ¥20 billion, and an operating income to net sales ratio of 5%. To make sure that we reach this 5% goal for the operating income ratio, which has been an issue we have been considering for some time, we will make bold changes in the Lion Group's earnings structure. Particularly, with the goal of strengthening earnings power, we will review our manufacturing costs, marketing expenditures, supply chain management, and other aspects of our operations with the aim of making structural reforms to increase efficiency and optimize our activities. In addition, we will take initiatives to expand earnings and increase management efficiency, with a numerical objective of an ROE of 10%.

Let us look next at what we have specifically in mind in implementing the four basic strategies to reach the goals of "Vision 2020." The first of these strategies is "qualitative growth of domestic businesses." To implement this strategy, we will develop high-value-added products and items that create new markets within the Consumer Products Business to meet the evolving needs of Japan's aging society and the decreasing numbers of children, by seizing the initiative to meet consumers' desire for "discretionary consumption*." To this end, we will concentrate resources in strategic businesses, such as oral care, fabric care, and pharmaceuticals; conduct aggressive marketing and sales activities; and work to increase the efficiency of marketing activities. From the production side, we will strive to allocate fixed costs more efficiently, and, by reviewing and improving our logistics management systems, work to maximize efficiency in supply chain management.

*The trend among consumers to exercise discretion and pay more for products they feel have value that meets their needs.

Within the Industrial Products Business, in the detergent for institutional use business in addition to sales of products to restaurant kitchens, we are expanding our hygiene management business to serve the needs of a wider range of customers, including hospitals and nursing facilities for seniors.

In the chemical products business, we will integrate the chemical operations that are dispersed through the Group and establish a new company. As a result of this realignment, we will pull together the "seeds" or ideas for new business, strengthen our marketing activities, and position ourselves to make a strong approach to overseas customers.

The second of our strategies under "Vision 2020" is "quantitative expansion of overseas businesses." To implement this strategy, we are going to strengthen our presence in Asia and aim for growth accompanied by profitability.

To seize the opportunities presented by the growing purchasing power of the middle-income classes in Asia, we will work to nurture our global brands and strengthen our lineup of high-value-added personal care brands. In addition, by reinforcing our mutually supporting intraregional supply network in northeast Asia, we will work to optimize our supply systems. Of particular interest is the launching this year of the ASEAN Economic Community. We are anticipating that this will lead to greater movements of goods in the Southeast Asia region and prepare the way to the expansion of business activities. In addition, we will work steadily to improve the profitability of the investments we made for future growth under our "V-1 Plan." These included investments in methyl ester sulfonate (MES) related activities and investments to enter the Philippine market.

The third strategy under "Vision 2020" is "development of new business value." As a result of the weakening of demand following the increase in Japan's consumption tax rate, sales of our direct-to-consumer business activities experienced slower growth. However, we are responding to the new labelling system for structured/functional food products, reviewing our production systems, and strengthening our product development capabilities to create second and third earnings generators in this business with the aim of making it a growth driver.

The fourth strategy under "Vision 2020" is "enhancement of organizational learning capabilities." To breathe new life into our organization through encouraging employees to learn and reform themselves, we are improving our measures and systems for helping employees to further their own career development by cooperating with them in dealing successfully with various events in their lives, including childbirth and rearing as well as taking care of senior family members.

Also by using the "Lidea" section of our website, which was launched last year and contains information that assists people in their daily lives, we are working to promote interactive communication with consumers, and obtain ideas for product development and marketing through digital marketing platforms.

Finally, regarding investment, we are placing priority on investments for structural reforms and investments for encouraging innovation.

4. Please explain your new product strategy in fiscal 2015, including plans for high-value-added products and expansion of your brands that hold leading market shares.

In Japan, we cannot look forward to expansion on a unit volume basis that we experienced in the past because of such factors as the declining birthrate and shrinking population; it is clear that, in their behavior, consumers are showing a preference for choosing high-value-added products. Also, along with the demographic aging of the population, more attention is being given to the need for self-medication.

In fiscal 2015 also, we are continuing to identify changes in consumer behavior and have introduced new high-value-added products and products that are leading to the creation of new market segments. Examples include CHARMY Magica, our first major new kitchen detergent product in eight years; a new antiperspirant in the Ban series: Ban Sweat-Blocking Roll-On; and new products CLINICA ADVANTAGE Dental Gel and SYSTEMA Arch Fit Toothbrush. All of these new items have been favorably received by consumers.

Under our new "V-2 Plan," we will be striving to double the percentage of sales accounted for by Lion brands that have the leading market share in their respective segments. To make this goal a reality, we will continue to invest in related R&D and create products that consumers can sense are really better immediately from the evidence of their senses.

5. Growth in your overseas sales in fiscal 2014 was quite robust. What are your strategies for your overseas operations?

Expansion in overseas sales will be essential for Lion to reach the targets of its "V-2 Plan." Annual expansion of about 10% will be needed, and we are expanding the range of product categories, geographical areas, and distribution channels to facilitate the attainment of our targets.

In countries overseas where we already have a business presence, we will expand the range of product categories. In Thailand and China, our strategy will be to focus on the expansion of the personal care product lineups and entering new fields. We will take initiatives to raise sales to the middle-income groups whose spending power is expected to rise, and thereby realize growth in our earnings. Particularly in China, we are concentrating mainly on high-value-added oral care products (including toothpastes for tobacco smokers and toothbrushes for the broader market). Along with expansion in production capacity, we are considering the expansion of sales of a wide range of oral care products and market products in new product fields, including laundry detergents. Also, in Southeast Asia, since the purchasing power of the middle-income classes is forecast to expand, along with the increase in the population and the number of households, we are continuing to explore possibilities for entering the ASEAN markets where we do not yet have a presence.

To diversify our marketing channels, we are thinking especially of strengthening our Internet-based sales in China where these channels are experiencing exceptionally high rates of growth.

Along with these activities, we are working to draw actively on the capabilities of our overseas production facilities and make cost reductions through the more-efficient use of overseas production.

6. In conclusion, what will be your policy for providing a return to shareholders?

Providing continuing stable dividends is the basis for our policy for providing returns to shareholders. We declared an annual dividend of ¥10 for fiscal 2014. Looking to the future, we will consider Lion's corporate performance and the need for retained earnings from a comprehensive perspective as we aim to expand the return to shareholders through the payment of dividends and the purchase of Lion shares outstanding.

April 2015

Itsuo Hama
Representative Director and President