highlights for the 1 half of fy2010 - kao.com · 5 amid global economic recovery, results grew...
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Highlights for the 1st Half of FY2010(Ended September 30, 2010)
Kao Corporation
President and CEOMotoki Ozaki
October 26, 2010
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These presentation materials are available on ourwebsite in PDF format:http://www.kao.com/jp/en/corp_ir/presentations.html
These presentation materials contain forward-looking statements that are based on management's estimates, assumptions and projections as of October 26, 2010. Certain factors, which include, but are not limited to, the risks and uncertainty associated with the worldwide economy, competitive activity, and fluctuations in currency exchange and interest rates, could cause actual results to differ materially from expectations.
Note: The yen amounts in these presentation materials are rounded down.
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Agenda
Initiatives Toward Medium-to-long-term Growth
Summary of the 1st Half of FY2010
Summary of FY2010 Forecast
Focal Issues and Progress in the 1st Half of FY2010
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Summary of the 1st Half of FY2010Summary of the 1st Half of FY2010
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Amid global economic recovery, results grew year-on-year and surpassed Kao’s forecast1, led by consumer-driven product development, efficient marketing and cost reduction activities.In Japan, a shift in consumer preference to lower priced products in the prestige cosmetics market and deflation in the household and personal care market continued.Kao responded by working to rebuild its cosmetics business and launching high-value-added products.The performance of the Consumer Products Business outside Japan and the Chemical Business was steady.
Amid global economic recovery, results grew year-on-year and surpassed Kao’s forecast1, led by consumer-driven product development, efficient marketing and cost reduction activities.In Japan, a shift in consumer preference to lower priced products in the prestige cosmetics market and deflation in the household and personal care market continued.Kao responded by working to rebuild its cosmetics business and launching high-value-added products.The performance of the Consumer Products Business outside Japan and the Chemical Business was steady.
Financial Overview – 1st Half of FY2010
Net sales: +0.4%
Net income: ¥27.8 billion +10.3%
¥601.3 billionYear-on-year
Net income per share: ¥51.93 +10.3%1. Forecast announced on April 26, 2010 2. Operating income before amortization of goodwill and intellectual property rights related to M&A
EBITA2: ¥75.1 billion +18.7%
4.6%
% of sales
12.5%Operating income: ¥57.8 billion +27.0%9.6%
+¥2.8 billion
+¥0.3 billion
+¥5.29
+¥8.8 billion
Versus forecast1
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-
-
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Summary by Business – 1st Half of FY2010
Consumer Products excluding prestige cosmetics in Japan Consumer Products excluding prestige cosmetics in Japan
Prestige cosmetics in JapanPrestige cosmetics in Japan
Consumer Products in Asiaand OceaniaConsumer Products in Asiaand Oceania
Consumer Products inNorth America and EuropeConsumer Products inNorth America and Europe
ChemicalChemical
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Summary of Sales by Business – 1st Half of FY2010
Consumer Products in Japan: -3.2% (Includes effect of approximately \10 billion decrease in sales of Econa and related products)
Consumer Products excluding prestige cosmetics performed generally in line withour plan, with aggressive product launches in response to consumer and market changesRebuilding of prestige cosmetics business is underway
Consumer Products in Japan: -3.2% (Includes effect of approximately \10 billion decrease in sales of Econa and related products)
Consumer Products excluding prestige cosmetics performed generally in line withour plan, with aggressive product launches in response to consumer and market changesRebuilding of prestige cosmetics business is underway
Consumer Products in Asia and Oceania: +8.8% (Like-for-like* +7.7%)Sales continued to expand with further progress of integration of business operations in Asia, including Japan
Consumer Products in Asia and Oceania: +8.8% (Like-for-like* +7.7%)Sales continued to expand with further progress of integration of business operations in Asia, including Japan
Consumer Products in North America: -3.7% (Like-for-like* +1.4%)Consumer Products in Europe: -0.1% (Like-for-like* +6.9%)
New products led to a sales increase year-on-year on a like-for-like basis amid severe market conditions
Consumer Products in North America: -3.7% (Like-for-like* +1.4%)Consumer Products in Europe: -0.1% (Like-for-like* +6.9%)
New products led to a sales increase year-on-year on a like-for-like basis amid severe market conditions
Chemical: +14.3% (Like-for-like* +16.6%)Sales volume increased reflecting recovery of demand from customer industries, with Asia in particular driving growth
Chemical: +14.3% (Like-for-like* +16.6%)Sales volume increased reflecting recovery of demand from customer industries, with Asia in particular driving growth
* Change excluding effect of currency translation
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Focal Issues and Progress in the 1st Half of FY2010Focal Issues and Progress in the 1st Half of FY2010
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Three Focal Issues and Countermeasures in FY2010
High-value-added productsResponse to aging populationResponse to increasing health consciousnessResponse to rising environmental consciousness
Measures against deflation in the Japanese household and personal care market
Efforts for relaunch of functional healthy cooking oilExpansion of unique health solutions business combining a support program for healthy lifestyles and functional foods thathelp prevent lifestyle-related diseases
Revitalization of functional health food business and expansion of health solutions business
Reform of brands and marketingReform of sales methodsSynergy within the Kao Group
Rebuilding cosmetics business
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Focal Issues and Progress in the 1st Half of FY2010
Measures against deflation in the Japanese household and personal care market
Rebuilding cosmetics business in Japan
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Measures Against Deflation in the Japanese Household and Personal Care Market
New and improved products that contributed to results in the 1st half of FY2010
Beauty Care- Improved Merit hair care series- Essential Damage Care hair care series
Human Health Care- Laurier Speed Plus sanitary napkins- Deep Clean toothpaste and toothbrushes
Fabric and Home Care- Improved Attack Neo eco conscious liquid
laundry detergent - Resesh gel air freshener
Merit
Laurier Speed Plus
Attack Neo
Essential Damage Care
Deep Clean
Resesh gel air freshener
Launch of new and improved products with high added valuefrom the aspects of function, emotion and environmentLaunch of new and improved products with high added valuefrom the aspects of function, emotion and environment
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Prestige Cosmetics in Japan in the 1st Half of FY2010
The cosmetics market in Japan continues to shrink year-on-yearalthough the rate of contraction is decreasing.
The cosmetics market in Japan continues to shrink year-on-yearalthough the rate of contraction is decreasing.
Prestige cosmetics market in Japan -3.2% -4.1%Prestige cosmetics market in Japan -3.2% -4.1%
Source: SLI survey by INTAGE Inc. (Data based on tracking service of 40,060 female consumers nationwide in Japan)The database for Apr. 09-Mar. 10, including the number of female consumers, is different from the current SLI surveyand the data are presented for reference.
[Year-on-year growth in value terms] Apr.-Sept. 10 Apr. 09-Mar. 10
High-priced segment (over 5,000 yen): -5.3% -5.3%High-priced segment (over 5,000 yen): -5.3% -5.3%
Mid-priced segment (2,000-5,000 yen): -3.7% -5.6%Mid-priced segment (2,000-5,000 yen): -3.7% -5.6%
Low-priced segment (below 2,000 yen): +0.6% +1.1%Low-priced segment (below 2,000 yen): +0.6% +1.1%
(Reference)
Kao Group total (Kanebo Cosmetics + Kao Sofina) -1.1% -8.3%Kao Group total (Kanebo Cosmetics + Kao Sofina) -1.1% -8.3%
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Rebuilding Cosmetics Business in Japan
Reform of brands
Reform of marketing
Reform of sales methods
Maximization of cost synergy
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Reorganize and Integrate Skin Care Brands of Kao Sofina in Japan
Before reorganizationand integration Current focus brands
Department stores
Drugstores/G
MS
Over 50s
30s to 40s
20s
Whitening
By age bracket
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Nurture Priority Skin Care Brands of Kanebo Cosmetics in Japan
Departmentstores
Specialtystores
DrugstoresGMS
Nurture and strengthen megabrands* by distribution channelNurture and strengthen megabrands* by distribution channel
DrugstoresGMSSpecialty stores
Self-selection
Counseling
Expand product lines in response to market changes
GMS
Brands specificto distributionchannel
Build strong brands in growing segments
Enhance brand structure
Reinforce the brand through renewal
* Brands with annual sales of more than ¥10 billion
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Reinforce Makeup Brands of Kanebo Cosmetics in Japan
August 2010
Evolution of leading self-selection makeup brand in JapanCarry out promotions focusing on eyemakeup
December 2010
Full renewal of the brand to establish a solid position in the mid-priced counseling makeup marketShift of core target from the late 20s to the early 30sEmpathic communication with consumers
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Reform of Marketing
Focus marketing spending on nurturing strong brands in growing segments
Aging careGRACE SOFINA, EVITA, DEW SUPERIOR, suisai, Freshel Moist Lift
WhiteningBLANCHIR SUPERIOR, SOFINA beauté whitening aging care, Freshel White C
Sensitive skinfreeplus
Skin care priced around ¥1,000Fréshel THE BASIC
Efficient marketing spending by Integrated Brand Communications (IBC)
Optimize communication mix (mass advertising, Web, in-store counseling, etc.) for each product
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Reform of Sales Methods
Offer counseling on demand tailored to the ability of consumers to choose cosmetics by themselves
Optimize total deployment of beauty counselorsImprove counseling skills and thoroughly carry out basic customer service activitiesSupport and promote light counseling (simple counseling) by shop staff of retailers
Strengthen collaboration in sales function of Kao and Kanebo Cosmetics
Review and propose optimized SKUs for each storeReinforce maintenance of store displays of self-selection cosmetics of Kanebo Cosmetics in collaboration with Kao Merchandising ServiceShare sales offices
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Maximization of Cost Synergy
Reduce costs by consolidating logistics centers
Optimize media buying
Reduce cost of production and procurement
Estimated cumulative cost-cutting synergy from FY2006 toFY2010: Approximately ¥13 billionEstimated cumulative cost-cutting synergy from FY2006 toFY2010: Approximately ¥13 billion
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Initiatives Toward Medium-to-long-term GrowthInitiatives Toward Medium-to-long-term Growth
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Kao’s Mid-term Growth Strategies
Profitable growth driven by high-value-added productsProfitable growth driven by high-value-added products
Accelerate growth in the Beauty Care and Human Health Care* businesses
Further strengthen and develop Fabric and Home Care, a core business
Further enhance the Chemical Business globally and locally with distinctive products that meet customer needs
* The scope of “Human Health Care” does not include pharmaceuticals.
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Achieve Growth of Business Globally
R&D Production SalesBeauty CareBeauty Care
Human Health CareHuman Health Care
Fabric and Home CareFabric and Home Care
ChemicalChemical
Functional Units
Business U
nits
Corporate
Shift to ecology-centered management
Global “matrix management”
Establish corporate identity
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Global Expansion of BusinessAccelerate growth in the Asian region where Kao already operatesAccelerate growth in the Asian region where Kao already operates
Establishment of integrated global business operations
(including Kanebo Cosmetics Inc. and Beauty Care Business in North America and Europe)
Establishment of integrated global business operations
(including Kanebo Cosmetics Inc. and Beauty Care Business in North America and Europe)
Full-scale business development in BRICsFull-scale business development in BRICs
Integration of business operations in Asia, including Japan(Standardize business processes, cooperate, share The Kao Way)Reinforcement of focus brands in Asia(Bioré, Curél, Laurier, Attack)Expansion of target consumer base(From affluent to middle-class)
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[Consumer Products excluding prestige cosmetics]Sept. 2010 -Launch of cost-competitive Attack Instant Clean
Liquid water-saving type laundry detergenttargeting middle-class consumers
[Prestige cosmetics]Sept. 2009 -Launch of AQUA SPRINA brand manufactured in
China and sold in department stores-Launch of COFFRET D’OR makeup brand
Sept. 2010 -Launch of KATE makeup brand
Topics in Emerging Nations of Focus (2009-2010)
China
[Consumer Products excluding prestige cosmetics]Feb. 2009 - Introduction of Merries baby diapers through
an agencyMar. 2009 - Start of sales of John Frieda hair care brand
through an agency[Prestige cosmetics]
Sept. 2009 - Start of operation of subsidiary of KaneboCosmetics
- Reinforcement of SENSAI super-prestige brand
Russia
Attack Instant Clean Liquid
AQUA SPRINA
In-store display of KATE
SENSAI counter in Russia
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Summary of FY2010 ForecastSummary of FY2010 Forecast
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An uncertain business environment persists, stemming from factors such as the economic outlook and volatility in exchange rates and market prices of raw materials.Kao will reinforce its foundation for profitable growth with continuous development of high-value-added products in the Consumer Products Business excluding prestige cosmetics in Japan and the Chemical Business.Prestige cosmetics in Japan will aim to improve its profitability by structural reform.Kao will expand its businesses in Asia, driven by China.Kao has revised its operating income forecast upward by ¥8 billion from its forecast announced in April 2010.
An uncertain business environment persists, stemming from factors such as the economic outlook and volatility in exchange rates and market prices of raw materials.Kao will reinforce its foundation for profitable growth with continuous development of high-value-added products in the Consumer Products Business excluding prestige cosmetics in Japan and the Chemical Business.Prestige cosmetics in Japan will aim to improve its profitability by structural reform.Kao will expand its businesses in Asia, driven by China.Kao has revised its operating income forecast upward by ¥8 billion from its forecast announced in April 2010.
Summary of FY2010 Forecast
1. Operating income before amortization of goodwill and intellectual property rights related to M&A2. Net income per share and ROE are calculated reflecting the purchase of the Company’s stock up to 8.5 million shares
or ¥15 billion during the period from October 27 to December 20, 2010
Net sales: +0.1%
Net income: ¥53.0 billion +30.8%
¥1,185.0 billionYear-on-year
Net income per share2: ¥99. 37 +31.5%
Consolidated payout ratio:
EBITA1: ¥139.5 billion +7.7%
4.5%
% of sales
11.8%
Shareholder returnsROE2: +210bps9.4%
¥5858.4%
Cash dividends per share:
Operating income: ¥105.0 billion +11.7%8.9%
¥1 increase
Share repurchase: Up to 8.5 million shares or ¥15 billion
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2. Steady and continuous cash dividends2. Steady and continuous cash dividends
Use steadily generated free cash flow effectively from an EVA standpoint toward further growth.Use steadily generated free cash flow effectively from an EVA standpoint toward further growth.
Use of Free Cash Flow*
* Free cash flow = Net cash provided by operating activities + Net cash used in investing activities
1. Capital expenditures and M&A for future growth1. Capital expenditures and M&A for future growth
3. Share repurchases and repayment of interest-bearingdebt including borrowings
3. Share repurchases and repayment of interest-bearingdebt including borrowings
Cash dividends per share: ¥58Consolidated payout ratio: 58.4%
FY2010forecast
Share repurchasesUp to 8.5 million shares or ¥15 billion during the period from October 27 to December 20, 2010Share repurchases totaling approximately ¥30 billion, including the above,by March 31, 2011 are under consideration
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AppendicesAppendices
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Fabric and Home Care 1H/FY2010 sales: ¥141.0 billion
Chemical1H/FY2010 sales: ¥115.0 billion
Beauty Care1H/FY2010 sales: ¥272.5 billion
Human Health Care1H/FY2010 sales: ¥89.2 billion
Business Segments and Main Product Categories
Consumerdriven
Consumerdriven
Laundry detergents and fabric treatmentsProducts for kitchen, bath, toilet and living room care
Oleo chemicalsPerformance chemicalsSpecialty chemicals
Note: Sales include intersegment sales. Share of net sales is calculated based on sales to customers.
Beauty salon productsPrestige cosmeticsPremium skin carePremium hair care
BeveragesOral careBlood circulation enhancement products(incl. bath additives and thermal pads )Sanitary products
Consum
er Products B
usinessC
hemical B
usiness
Consum
er Products B
usiness
[-1.1% year-on-year / Share of net sales: 45.3%] [-8.9% year-on-year / Share of net sales: 14.8%]
[-0.0% year-on-year / Share of net sales: 23.5%] [+14.3% year-on-year / Share of net sales: 16.4%]
Consum
er Products B
usiness
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FY2010 Breakdown of Beauty Care Business
1. Increase (decrease) in percent for net sales and billion yen for operating income2. Includes amortization of goodwill and intellectual property rights related to M&A
- Beauty Care: ¥17.2 billion- Prestige cosmetics: ¥14.3 billion- Premium mass products and professional hair care products: ¥2.9 billion
3. Operating income ratio before deduction of royalties
Kanebo CosmeticsNet sales:Slightly more than ¥90 billionEBITA as a % of sales3 :Approx. 2%
Billion yenIncrease
(Decrease)1
Net sales 272.5 (1.1%)
Operatingincome2 5.2 +4.1
Operatingmargin 1.9% +150bps
Prestige cosmetics Net sales 126.8 (3.0%)
Operatingincome2 (15.8) +1.1
Operatingmargin (12.5%) +50bps
Premium mass products andprofessional hair care products Net sales 145.7 +0.5%
Operatingincome2 21.1 +2.9
Operatingmargin 14.5% +200bps
Beauty Care
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SRI Indexes and External CSR Evaluation
SRI indexes for which Kao has been selected
CSR: Corporate Social Responsibility SRI: Socially Responsible Investment
CSR-related evaluation from external organization
(As of October 26, 2010)