docHighlights for the 1st Half of FY2010
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Highlights for the 1st Half of FY2010
Highlights for the 1st Half of FY2010 (Ended September 30, 2010) October 26, 2010 Kao Corporation Motoki Ozaki President and CEO These presentation materials are available on our website 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. 2 Agenda Summary of the 1st Half of FY2010 Focal Issues and Progress in the 1st Half of FY2010 Initiatives Toward Medium-to-long-term Growth Summary of FY2010 Forecast 3 Summary of the 1st Half of FY2010 4 Financial Overview – 1st Half of FY2010 Amid economic recovery, results grew year-on-year and surpassed Kao’s Amidglobal global economic recovery, results grew year-on-year and surpassed Kao’s 1 forecast forecast,1,led ledby byconsumer-driven consumer-drivenproduct productdevelopment, development,efficient efficientmarketing marketingand and cost reduction activities. cost reduction activities. InInJapan, Japan,aashift shiftininconsumer consumerpreference preferenceto tolower lowerpriced pricedproducts productsininthe theprestige prestige cosmetics market and deflation in the household and personal care market cosmetics market and deflation in the household and personal care marketcontinued. continued. Kao responded by working to rebuild its cosmetics business and launching Kao responded by working to rebuild its cosmetics business and launching high-value-added high-value-addedproducts. products. The performance of The performance ofthe theConsumer ConsumerProducts ProductsBusiness Businessoutside outsideJapan Japanand andthe theChemical Chemical Business was steady. Business was steady. % of sales Net sales: ¥601.3 billion Year-on-year - +0.4% Versus forecast1 +¥0.3 billion EBITA2: ¥75.1 billion 12.5% +18.7% Operating income: ¥57.8 billion 9.6% +27.0% +¥8.8 billion Net income: ¥27.8 billion 4.6% +10.3% +¥2.8 billion Net income per share: ¥51.93 - +10.3% +¥5.29 1. Forecast announced on April 26, 2010 2. Operating income before amortization of goodwill and intellectual property rights related to M&A 5 - Summary by Business – 1st Half of FY2010 Consumer ConsumerProducts Productsexcluding excluding prestige prestigecosmetics cosmeticsin inJapan Japan Prestige Prestigecosmetics cosmeticsin inJapan Japan Consumer ConsumerProducts Productsin inAsia Asia and andOceania Oceania Consumer ConsumerProducts Productsin in North NorthAmerica Americaand andEurope Europe Chemical Chemical 6 Summary of Sales by Business – 1st Half of FY2010 Consumer ConsumerProducts Productsin inJapan: Japan:-3.2% -3.2% (Includes (Includeseffect effectof ofapproximately approximately \10 \10billion billiondecrease decreasein insales salesof ofEcona Econaand andrelated relatedproducts) products) Consumer ConsumerProducts Productsexcluding excludingprestige prestigecosmetics cosmeticsperformed performedgenerally generallyin inline linewith with our ourplan, plan,with withaggressive aggressiveproduct productlaunches launchesin inresponse responseto toconsumer consumerand andmarket market changes changes Rebuilding Rebuildingof ofprestige prestigecosmetics cosmeticsbusiness businessisisunderway underway Consumer ConsumerProducts Productsin inAsia Asiaand andOceania: Oceania:+8.8% +8.8%((Like-for-like* Like-for-like*+7.7%) +7.7%) Sales Salescontinued continuedto toexpand expandwith withfurther furtherprogress progressof ofintegration integrationof ofbusiness business operations operationsin inAsia, Asia,including includingJapan Japan Consumer ConsumerProducts Productsin inNorth NorthAmerica: America:-3.7% -3.7%((Like-for-like* Like-for-like*+1.4%) +1.4%) Consumer ConsumerProducts Productsin inEurope: Europe:-0.1% -0.1%((Like-for-like* Like-for-like*+6.9%) +6.9%) New Newproducts productsled ledto toaasales salesincrease increaseyear-on-year year-on-yearon onaalike-for-like like-for-likebasis basisamid amid severe severemarket marketconditions conditions Chemical: Chemical:+14.3% +14.3%((Like-for-like* Like-for-like*+16.6%) +16.6%) Sales Salesvolume volumeincreased increasedreflecting reflectingrecovery recoveryof ofdemand demandfrom fromcustomer customerindustries, industries, with withAsia Asiain inparticular particulardriving drivinggrowth growth * Change excluding effect of currency translation 7 Focal Issues and Progress in the 1st Half of FY2010 8 Three Focal Issues and Countermeasures in FY2010 Measures against deflation in the Japanese household and personal care market Ä High-value-added products Response to aging population Response to increasing health consciousness Response to rising environmental consciousness Rebuilding cosmetics business Ä Reform of brands and marketing Ä Reform of sales methods Ä Synergy within the Kao Group Revitalization of functional health food business and expansion of health solutions business Ä Efforts for relaunch of functional healthy cooking oil Ä Expansion of unique health solutions business combining a support program for healthy lifestyles and functional foods that help prevent lifestyle-related diseases 9 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 10 Measures Against Deflation in the Japanese Household and Personal Care Market Launch Launchof ofnew newand andimproved improvedproducts productswith withhigh highadded addedvalue value from fromthe theaspects aspectsof offunction, function,emotion emotionand andenvironment environment 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 Merit Essential Damage Care Human Health Care - Laurier Speed Plus sanitary napkins - Deep Clean toothpaste and toothbrushes Laurier Speed Plus Deep Clean Fabric and Home Care - Improved Attack Neo eco conscious liquid laundry detergent - Resesh gel air freshener Attack Neo 11 Resesh gel air freshener Prestige Cosmetics in Japan in the 1st Half of FY2010 The Thecosmetics cosmeticsmarket marketin inJapan Japancontinues continuesto toshrink shrinkyear-on-year year-on-year although althoughthe therate rateof ofcontraction contractionis isdecreasing. decreasing. (Reference) [Year-on-year growth in value terms] Apr.-Sept. 10 Apr. 09-Mar. 10 -3.2% -3.2% -4.1% -4.1% High-priced High-priced segment segment (over (over 5,000 5,000 yen): yen): -5.3% -5.3% -5.3% -5.3% Mid-priced Mid-priced segment segment (2,000-5,000 (2,000-5,000 yen): yen): -3.7% -3.7% -5.6% -5.6% Low-priced Low-priced segment segment (below (below 2,000 2,000 yen): yen): +0.6% +0.6% +1.1% +1.1% -1.1% -1.1% -8.3% -8.3% Prestige Prestige cosmetics cosmetics market market in in Japan Japan Kao Kao Group Group total total (Kanebo (KaneboCosmetics Cosmetics++Kao KaoSofina) Sofina) 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 survey and the data are presented for reference. 12 Rebuilding Cosmetics Business in Japan Reform of brands Reform of marketing Reform of sales methods Maximization of cost synergy 13 Reorganize and Integrate Skin Care Brands of Kao Sofina in Japan Before reorganization and integration Current focus brands Department stores 20s Whitening 14 Drugstores/GMS 30s to 40s By age bracket Over 50s Nurture Priority Skin Care Brands of Kanebo Cosmetics in Japan **by distribution channel Nurture and strengthen megabrands Nurture and strengthen megabrands by distribution channel Department stores Enhance brand structure Brands specific to distribution channel Counseling Self-selection Specialty stores Reinforce the brand through renewal GMS Drugstores GMS Specialty stores Build strong brands in growing segments Drugstores GMS Expand product lines in response to market changes * Brands with annual sales of more than ¥10 billion 15 Reinforce Makeup Brands of Kanebo Cosmetics in Japan August 2010 Evolution of leading self-selection makeup brand in Japan Carry out promotions focusing on eye makeup December 2010 Full renewal of the brand to establish a solid position in the mid-priced counseling makeup market Shift of core target from the late 20s to the early 30s Empathic communication with consumers 16 Reform of Marketing Focus marketing spending on nurturing strong brands in growing segments Aging care GRACE SOFINA, EVITA, DEW SUPERIOR, suisai, Freshel Moist Lift Whitening BLANCHIR SUPERIOR, SOFINA beauté whitening aging care, Freshel White C Sensitive skin freeplus Skin care priced around ¥1,000 Fréshel THE BASIC Efficient marketing spending by Integrated Brand Communications (IBC) Optimize communication mix (mass advertising, Web, in-store counseling, etc.) for each product 17 Reform of Sales Methods Offer counseling on demand tailored to the ability of consumers to choose cosmetics by themselves Optimize total deployment of beauty counselors Improve counseling skills and thoroughly carry out basic customer service activities Support 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 store Reinforce maintenance of store displays of self-selection cosmetics of Kanebo Cosmetics in collaboration with Kao Merchandising Service Share sales offices 18 Maximization of Cost Synergy Estimated Estimatedcumulative cumulativecost-cutting cost-cuttingsynergy synergyfrom fromFY2006 FY2006to to FY2010: FY2010:Approximately Approximately¥13 ¥13billion billion Reduce costs by consolidating logistics centers Optimize media buying Reduce cost of production and procurement 19 Initiatives Toward Medium-to-long-term Growth 20 Kao’s Mid-term Growth Strategies Profitable 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. 21 Achieve Growth of Business Globally Shift to ecology-centered management Establish corporate identity Global “matrix management” Functional Units R&D Production Business Units Beauty Beauty Care Care Human Human Health Health Care Care Fabric Fabric and and Home Home Care Care Chemical Chemical 22 Sales Corporate Global Expansion of Business Accelerate Accelerate growth growth in in the the Asian Asian region region where where Kao Kao already already operates operates 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) Establishment Establishment of of integrated integrated global global business business operations operations (including (includingKanebo KaneboCosmetics CosmeticsInc. Inc.and andBeauty BeautyCare CareBusiness BusinessininNorth NorthAmerica Americaand andEurope) Europe) Full-scale Full-scale business business development development in in BRICs BRICs 23 Topics in Emerging Nations of Focus (2009-2010) China [Consumer Products excluding prestige cosmetics] Sept. 2010 -Launch of cost-competitive Attack Instant Clean Liquid water-saving type laundry detergent targeting middle-class consumers Attack Instant Clean Liquid [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 AQUA SPRINA Russia [Consumer Products excluding prestige cosmetics] Feb. 2009 Mar. 2009 - Introduction of Merries baby diapers through an agency - Start of sales of John Frieda hair care brand through an agency In-store display of KATE [Prestige cosmetics] Sept. 2009 - Start of operation of subsidiary of Kanebo Cosmetics - Reinforcement of SENSAI super-prestige brand 24 SENSAI counter in Russia Summary of FY2010 Forecast 25 Summary of FY2010 Forecast An Anuncertain uncertainbusiness businessenvironment environmentpersists, persists,stemming stemmingfrom fromfactors factorssuch suchas asthe theeconomic economic outlook outlookand andvolatility volatilityininexchange exchangerates ratesand andmarket marketprices pricesof ofraw rawmaterials. materials. Kao Kaowill willreinforce reinforceits itsfoundation foundationfor forprofitable profitablegrowth growthwith withcontinuous continuousdevelopment developmentof of high-value-added products in the Consumer Products Business excluding prestige cosmetics high-value-added products in the Consumer Products Business excluding prestige cosmeticsinin Japan Japanand andthe theChemical ChemicalBusiness. Business. Prestige Prestigecosmetics cosmeticsininJapan Japanwill willaim aimto toimprove improveits itsprofitability profitabilityby bystructural structuralreform. reform. Kao will expand its businesses in Asia, driven by China. Kao will expand its businesses in Asia, driven by China. Kao Kaohas hasrevised revisedits itsoperating operatingincome incomeforecast forecastupward upwardby by¥8 ¥8billion billionfrom fromits itsforecast forecastannounced announced ininApril 2010. April 2010. % of sales Net sales: EBITA1: Year-on-year ¥1,185.0 billion +0.1% Operating income: Net income: ¥139.5 billion ¥105.0 billion ¥53.0 billion Net income per share2: ¥99. 37 +31.5% ROE2: 9.4% +210bps Shareholder returns Cash dividends per share: Consolidated payout ratio: Share repurchase: 11.8% 8.9% 4.5% +7.7% +11.7% +30.8% ¥58 ¥1 increase 58.4% Up to 8.5 million shares or ¥15 billion 1. Operating income before amortization of goodwill and intellectual property rights related to M&A 2. 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 26 Use of Free Cash Flow* Use Usesteadily steadilygenerated generatedfree freecash cashflow floweffectively effectively from froman anEVA EVAstandpoint standpointtoward towardfurther furthergrowth. growth. 1. 1. Capital Capitalexpenditures expendituresand andM&A M&Afor forfuture futuregrowth growth 2. 2. Steady Steadyand andcontinuous continuouscash cashdividends dividends FY2010 forecast Cash dividends per share: ¥58 Consolidated payout ratio: 58.4% 3. 3. Share Sharerepurchases repurchasesand andrepayment repaymentof ofinterest-bearing interest-bearing debt debtincluding includingborrowings borrowings Share repurchases Up to 8.5 million shares or ¥15 billion during the period from October 27 to December 20, 2010 Share repurchases totaling approximately ¥30 billion, including the above, by March 31, 2011 are under consideration * Free cash flow = Net cash provided by operating activities + Net cash used in investing activities 27 Appendices 28 Business Segments and Main Product Categories Human Health Care 1H/FY2010 sales: ¥272.5 billion 1H/FY2010 sales: ¥89.2 billion [-1.1% year-on-year / Share of net sales: 45.3%] [-8.9% year-on-year / Share of net sales: 14.8%] Beverages Oral care Blood circulation enhancement products (incl. bath additives and thermal pads ) Sanitary products Beauty salon products Prestige cosmetics Premium skin care Premium hair care Chemical 1H/FY2010 sales: ¥115.0 billion 1H/FY2010 sales: ¥141.0 billion [-0.0% year-on-year / Share of net sales: 23.5%] [+14.3% year-on-year / Share of net sales: 16.4%] Oleo chemicals Performance chemicals Specialty chemicals Laundry detergents and fabric treatments Products for kitchen, bath, toilet and living room care Note: Sales include intersegment sales. Share of net sales is calculated based on sales to customers. 29 Chemical Business Consumer Products Business Fabric and Home Care Consumer Consumer driven driven Consumer Products Business Consumer Products Business Beauty Care FY2010 Breakdown of Beauty Care Business Billion yen Beauty Care Prestige cosmetics Increase 1 (Decrease) Net sales 272.5 (1.1%) Operating 2 income 5.2 +4.1 Operating margin 1.9% +150bps Net sales 126.8 (3.0%) Operating 2 income (15.8) +1.1 Operating margin (12.5%) +50bps Premium mass products and Net sales professional hair care products 145.7 +0.5% Operating 2 income 21.1 +2.9 Operating margin 14.5% +200bps Kanebo Cosmetics Net sales: Slightly more than ¥90 billion EBITA as a % of sales3 : Approx. 2% 1. Increase (decrease) in percent for net sales and billion yen for operating income 2. 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 30 SRI Indexes and External CSR Evaluation SRI indexes for which Kao has been selected CSR-related evaluation from external organization (As of October 26, 2010) CSR: Corporate Social Responsibility SRI: Socially Responsible Investment 31
