In September 2007, our group announced a three-year management plan starting in August 2007 (fiscal 2008) and ending July 2010 (fiscal 2010). We are now roughly through half of the first year of this plan. Under this medium-term management plan, our group is targeting 35.0 billion yen in consolidated sales and 6.0 billion yen in consolidated ordinary profit.

As a financial strategy, we plan to boost profitability by increasing sales from mail order sales. Important strategies include focusing on raising the repeat ratio and the average purchase per customer, as well as using e-commerce to boost profitability. In counseling type sales, we plan to boost profitability by strengthening the Genomer brand, which generates strong margins driven by high sales per customer. By mixing sales networks and boosting efficiency of the sales networks themselves, the group hopes to achieve an ordinary profit ratio of 17.1% and a consolidated net profit of 12,445 yen per share.

We would like to especially note that this medium-term management plan focuses on growth which will enable us to increase sales by roughly 15.0 billion yen in three years. Demand is growing every year for the medical cosmetics and doctors cosmetics that we specialize in. These are areas gaining attention even in Japan, where the overall cosmetics market is not expected to grow by a large margin. In addition to these favorable market conditions, we believe we can fully achieve the goals set out under this new plan by implementing our three-year growth strategy.

Tomomi Ishihara, President and COO

Expanding the main brand and developing the second brand
~ Growth strategy through expanding our customer base ~

• Increasing sales and expanding market share by developing our second brand
  Enhance presence in the cosmetics industry
• Developing medical cosmetics in Japan and other countries
  Create the de facto standards in medical cosmetics
• Building a foundation for the medical products business
  Develop markets in non-cosmetics areas

• As demand for medical cosmetics grows, we could gain enormous profit as a pioneer.
• It's easy to be accepted by consumers because of the clear concept that doctors are involved in product development.

Dr. Ci:Labo … Most customers are in their mid-30s. Prices range between 5,000 yen and 10,000 yen.

Labo Labo … Most customers are under 30. Prices are around 2,000 yen.

Genomer … Most customers are high-income and older. Prices are around 10,000 yen.

Dr. Ci:Labo — This is currently the most innovative, but we will offer a lineup of some very popular products by FY2010 to make this a brand with a large target audience.

Labo Labo — This is a mass brand that is relatively affordable and very popular.

Genomer — We plan to position this into a highly value-added anti-aging brand.

• Expand sales by targeting middle-income consumers in their 30s and 40s.
• Develop innovative products that make use of medical research.
• Develop popular products that meet a wide variety of needs.
• Focus on a line of products that solve specific skin problems that cause inferiority complexes in users – increasing "high mix, low-volume" products and link with e-commerce strengthening policies.

• Target consumers in their 20s and 30s who spend an average of less than 5,000 yen a month on cosmetics.
• Expand the lineup of items from 30 to 40 over the next three years while maintaining a relatively low price range.
• Develop more problem-solving products like acne treatments and whitening products in addition to offering the conventional line of pore treatment products.

• Target high-income consumers who like very functional and highly value-added products.
• Establish this brand as an anti-aging care brand targeting high-income consumers who choose highly value-added products.
• Over the next three years, develop multiple product lines that meet various needs of customers in the basic, special and prestige levels.
• In department stores – which attract many customers whom we target with the Genomer brand – gradually operate independent counters for this brand and establish the Genomer brand.

• Limit sales of the dr.brandt brand to department stores, and expand the lineup from the current 16 to 40 products by FY2010.
• Attract high-end consumers
• In order to offer overseas doctors cosmetics brands in the Japanese market, continue to gain distributors through business alliances, distributor agreements and other measures. Accelerate market expansion in Japan by having a leading medical cosmetics company like us attract overseas doctors cosmetics products to the Japanese market.

• call centers … Improve customer relations by (1) raising customer satisfaction levels through better services and suggesting the most appropriate products (2) raising customer satisfaction levels by improving the service of our communicators (customer representatives) (3) implementing customer satisfaction policies like the start of a step-up discount service.
• Strengthen e-commerce … Boost mail order sales to 40% (of total sales) by raising customer satisfaction levels. Implement policies such as establishing services using the latest web technology, launching a community web site, expanding "high mix, low-volume" products.
• Mail order back office operations … Implement profit-making policies by streamlining back-office operations.

• Opening new stores … Set up independent Genomer counters in 30 stores and dr. brandt counters in 20 stores by FY2010.
• Operating directly managed stores … We plan to open one directly managed store each in Tokyo and Osaka, which will be flagship stores, during FY2009.
• Streamlining operations at existing stores … Strengthen employee training programs, improve customer service, build a loyal customer base, and increase the number of stores offering skin-testing devices.

• Variety stores, drug stores … Attract customers who want to buy products at their own pace. Further strengthen the operation of drug stores.
• Convenience stores … Take measures to distinguish our products from our competitors.
• Pharmacies … Continue to aggressively offer products at pharmacies as a sales route with ample functions for selling our company's medical cosmetics.
• Cosmetics specialty shops … By the FY2010, secure 350 cosmetics specialty stores that offer our products. Approach customers who live in rural areas and want to purchase products after having tried them.

• Taiwan … Try to win higher customer evaluation to boost customer satisfaction from simply "trust" to "confidence" by further raising our brand image as a specialist.
• Hong Kong … Downsize operations further and strengthen sales near lower rent station space, thus making business more profitable.
• USA … Strengthen sales at QVC, strengthen promotion at Sephora, and continue sales at Takashimaya's New York branch.