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November 2007

 Business Outline
       and
Management Strategy




            Lion Corporation
Company Overview
                                                                       As of December 31, 2006
          ...
Company Overview
             The manufacture and sale of toothpastes,
             toothbrushes, soaps, hair- and skin-ca...
Lion Businesses : Health Care Products

   Oral Care             Beauty Care
   products               products




Pharma...
Lion Businesses : Household Products


Fabric Care             Living Care
 Products                Products




         ...
Lion Businesses : Chemical Products
◆Concentration on proprietary technologies to improve profitability
ⅰ)Eco-friendly pro...
Lion Businesses : International
             ◆Expand our overseas operations
              in fast-growing Asian market
  ...
Advantages, Tasks and Risks
Advantages
1. Technological, brand and distribution strength in toiletries, OTC drugs
   and f...
Approach to Business Challenge

        FY2005
 Strengthen foundation


   Business challenge                          Mea...
Approach to Business Challenge

        FY2006
   Enhance profitability

  Business challenge                        Measu...
Approach to Business Challenge

         FY2007
 Increase growth potential

  Business challenge                          ...
Results of Operations for the Third Quarter
ended September 30, 2007 (Consolidated)
                                      ...
Summary of Financial Results for the Third
    Quarter ended September 30, 2007

             - Smoothing sales by reducin...
Summary of Financial Results
  Result of Profit Structure Reform Measures
◆ Reduce the level of wholesale inventory (Smoot...
Summary of Financial Results
  Introduction of New Major Products
Expand market share by introducing high-performance, hig...
Summary of Financial Results
  Introduction of New Major Products
Expand market share by introducing high-performance, hig...
Summary of Financial Results for the Third
   Quarter ended September 30, 2007
Implementation of medium- to long-term
stra...
Implementation of Medium- to Long-term Growth Strategy
  Promote sales of MES         Features of MES(plant-based detergen...
Implementation of Medium- to Long-term Growth Strategy
  Acquire trademark rights to BUFFERIN etc.

Acquire trademark righ...
Implementation of Medium- to Long-Term Growth Strategy
 Expand functional food products business                      New ...
Total Cost Reduction

Total cost reduction from VIP to VIPII09 (accumulated total)

 (¥100 million)
   120
   100
     80
...
Fiscal 2007 Consolidated Financial Forecast
                                                       Unit: ¥100million

    ...
Measures to Increase Shareholders’ Value
    Dividend
                                                           2001     ...
Reference materials




                      24
Actual Results by Business Segment (Consolidated)

                                                                       ...
Actual Results by Business Segment (Consolidated)

                                                                       ...
Actual Results by Geographic Segment (Consolidated)

                                                                     ...
Cost of Sales (Consolidated)

                                   Jan-Sep 2007                 Jan-Sep 2006
               ...
Selling, General and Administrative Expenses (Consolidated)

                                   Jan-Sep 2007              ...
Significant Extraordinary Gains or Losses


                       Jan-Sep 2007                                        Jan...
Capital Expenditures and Depreciation Expenses
(¥100 million)
                            (Consolidated)
         Capital ...
Statements of Income (Consolidated)
                               Jan-Sep 2007   Jan-Sep 2006    Change
                 ...
Consolidated Balance Sheets (Selected) I
                                                                              (un...
Consolidated Balance Sheets (Selected) II
                                                                          (unit:...
The forecasts and projected operating results contained in this
report are based on information available at the time of
p...
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Business Outline and Management Strategy

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Transcript of "Business Outline and Management Strategy"

  1. 1. November 2007 Business Outline and Management Strategy Lion Corporation
  2. 2. Company Overview As of December 31, 2006 Sapporo Office Foundation October, 1891 Headquarters Tokyo Research Centers Tokyo (2 locations) Establishment September, 1918 Kanagawa Fukushima Sendai Office Tokyo Office Capital ¥34.4 billion Chiba Plant Odawara Plant Domestic Offices 15 locations Nagoya Office (Include headquarters) Osaka Office Consolidated Osaka Plant 21 companies Fukuoka Office Akashi Plant Subsidiaries Overseas Affiliates 8 countries/regions Consolidated: 5,771 Employees Non-consolidated: 2,494 Average age 42.8 years old of employees 2
  3. 3. Company Overview The manufacture and sale of toothpastes, toothbrushes, soaps, hair- and skin-care products, Operations detergents, cooking-related products, pharmaceuticals, and chemicals. Also, exports to overseas affiliates. Other Businesses Consolidated: ¥330.3 billion ¥15.0 billion (4.6%) Sales Non-Consolidated: ¥257.4 billion Oral care products division ¥52.1 billion (15.8%) Chemical products ¥32.3 billion (9.8%) Beauty care Net Sales products division ¥330.3 billion ¥33.5 billion (10.1%) Household products ¥149.2 billion (45.2%) (FY2006) Pharmaceutical products division Health care products ¥47.9 billion (14.5%) ¥133.5 billion (40.4%) FY2006 3
  4. 4. Lion Businesses : Health Care Products Oral Care Beauty Care products products Pharmaceutical products 4
  5. 5. Lion Businesses : Household Products Fabric Care Living Care Products Products 5
  6. 6. Lion Businesses : Chemical Products ◆Concentration on proprietary technologies to improve profitability ⅰ)Eco-friendly product development using plant-based ingredients ⅱ)In-house product development focused on leading and growth fields (Natural fat and Oleo Chemicals oil derivatives) MES MES Glycerin Carotene Fatty Esters Raw materials for Pigments for foods, Raw materials for cosmetics and Insulating oil for transformers Insulating oil for transformers toothpastes etc health foods surfactants Alcohols, fatty acids Alcohols, fatty acids Carbon (Raw materials for Electro-conductive carbon Surfactants detergents and cosmetics) Electro-conductive compounds Chemicals for Chemicals for civil engineering pulp and paper and construction Industrial cleaners Deinking agents for ・Concrete superplastisizer ・LCD panel cleaners IC trays recycled paper ・Curing compounds for concrete ・Hard disc substrate cleaners Polymer fenders 6
  7. 7. Lion Businesses : International ◆Expand our overseas operations in fast-growing Asian market i) Increase growth potential by nurturing Composition of combined sales main brands for each countries and regions (2006) ii) Enter new categories China iii) Bolster production capacity Singapore iv) Increase profitability by implementing Hong Kong cost reduction measures T aiwan Thailand 2005 Establishment of CJ Lion Malaysia Overseas-related companies South 1988 Establishment of Lion Necessities Chemicals (Qingdao) Co., Ltd. Indonesia Korea Qingdao South Korea Japan 1965 Establishment of Lion Home Products (International) Ltd. Hong Kong 1969 Establishment of Lion Chemical Industry (Taiwan) Co., Ltd. Taiwan Malaysia 1967 Establishment of Lion Thailand Corporation (Thailand) Ltd. 1986 Establishment of Southern Lion Sdn. Bhd. 2007 Establishment of Lion Eco Chemicals Sdn. Bhd. Indonesia Singapore 1982 Establishment of P.T. Lion Wings 1982 Establishment of Lion Corporation (Singapore) Pte. Ltd. 7
  8. 8. Advantages, Tasks and Risks Advantages 1. Technological, brand and distribution strength in toiletries, OTC drugs and functional food products a) Product development based on these combined strengths in these three product fields b) Better positioned to grow in the OTC drug field owing to easing of OTC drug sale regulations in 2009 2. Proactively utilizing plant-based ingredients to develop products 3. Establishing our presence in fast-growing Southeast Asian market Tasks Sustaining business growth with profits Risks 1. High raw material costs Development of high value- added products and 2. Currency exchange rate total cost reductions fluctuations 8
  9. 9. Approach to Business Challenge FY2005 Strengthen foundation Business challenge Measures a. Stabilize retail price Stabilize retail prices, expand the range of as a part of products handled by existing stores while infrastructure increasing the number of new stores enhancements ⇒ Decrease sales promotion expenses 9
  10. 10. Approach to Business Challenge FY2006 Enhance profitability Business challenge Measures a. Strengthen brand 1) Nurture principal brands b. Develop high value- ⇒ Secure a leading share of TV-CM advertising added products 2) Enhance R&D capabilities from medium- to long- c. Reform earnings term perspective structure ⇒ Reorganization of new R&D structures 3) Enhance flexibility of production, reduce production costs ⇒ Reorganize production bases Focus on our core businesses ⇒ Restructure businesses of related companies Smoothing sales and increasing profitability ⇒ Reduce wholesale inventories 10
  11. 11. Approach to Business Challenge FY2007 Increase growth potential Business challenge Measures a. Increase share of 1) Launch new, high-value-added major products principal items in core categories b. Strengthen nurturing 2) Establish new business division structure capability ⇒ Strengthen integrated business development c. Implement medium encompassing household products, OTC and long-term growth drugs and functional food products strategy Strategic product development based on a comprehensive marketing and sales process 3) Sell MES (Methyl ester sulfonate) outside the Lion Group Acquire trademark rights to BUFFERIN etc. Enter new categories (Expand functional food business and direct marketing business) 11
  12. 12. Results of Operations for the Third Quarter ended September 30, 2007 (Consolidated) (unit: ¥100 million) Jan. – Sep. Jan. –Sep. Year on Year 2007 2006 Amount %Change Net Sales 2,449.9 2,345.4 104.4 4.5 Operating Income 46.7 (42.2) 89.1 - Ordinary Income 58.9 (25.4) 84.4 - Net Income 36.4 (9.6) 46.0 - 12
  13. 13. Summary of Financial Results for the Third Quarter ended September 30, 2007 - Smoothing sales by reducing wholesale inventory Increase - Launch and nurture of new major products in sales - Good performance of overseas subsidiaries Increase - Result of profit structure reform measures in profits - Good sales in both domestic and overseas markets Wide range of constitutional improvement 13
  14. 14. Summary of Financial Results Result of Profit Structure Reform Measures ◆ Reduce the level of wholesale inventory (Smoothing sales ) Domestic wholesale inventories (Non-consolidated) (Level of wholesale inventories at the end of Jun. 2006 = 100) 100 Cost of sales ratio 100 (%) 55 55 48 49 50.2 50 47.2 45 0 40 Jan-Sep Jan-Sep Jun. 2006 Dec. 2006 Jun. 2007 Sep. 2007 2006 2007 ◆ Reorganize production bases (Tokyo plant Lion Chemical Co., Ltd. in Sakaide in FY 2006 etc.) ◆ Focus on core businesses Wide range of (Restructuring businesses of related companies in FY2006: constitutional McCormick-Lion Limited, Lion Building Maintenance Co., Ltd.) improvement 14
  15. 15. Summary of Financial Results Introduction of New Major Products Expand market share by introducing high-performance, high value- added new products: New Products launched in H1 2007 Dentor Aim for No.1 share in general-purpose Clear MAX toothpastes price range Top Fuai-Kan Aim for No.1 share in the premium laundry (Fresh Touch detergent market and Color) Aim for No.1 share of any single product in the CHARMY Awa dishwashing detergent market no Chikara (Power of Suds) Strengthen the product lineup by adding new items Focus on continuous nurturing in H2 2007 15
  16. 16. Summary of Financial Results Introduction of New Major Products Expand market share by introducing high-performance, high value- added new products: New products launched in H2 2007 Clinica Launched Aim for No.1 share in toothpaste market in September PRO TEC HEAD Create new market in men’s hair care Launched category by offering new style in September Look O2 Cleaner Create new market in household cleaners Launched in October Focus on nurturing toward end of year (demand season) 16
  17. 17. Summary of Financial Results for the Third Quarter ended September 30, 2007 Implementation of medium- to long-term strategy - Sell MES (Methyl Ester Sulfonate) outside the Lion Group - Acquire trademark rights of BUFFERIN etc. - Enter new categories Functional foods business and direct marketing business Expand chance for future growth 17
  18. 18. Implementation of Medium- to Long-term Growth Strategy Promote sales of MES Features of MES(plant-based detergent) 1) High biodegradability, 2)High detergency in hard water, outside the Lion Group 3) Carbon neutral Established a new subsidiary (Lion Eco Chemicals Sdn. Bhd.) in Malaysia for the manufacture and sale of MES on June 2007. Plan to start production from December 2008. (25,000 tons per year in the first stage) Aim to increase annual production capacity to 100,000 tons Research pilot plant at Sakaide plant of Lion Chemical Co., Ltd. Work to position MES as the recognized global standard for use in laundry detergents. 18
  19. 19. Implementation of Medium- to Long-term Growth Strategy Acquire trademark rights to BUFFERIN etc. Acquire trademark rights for the analgesics brand “BUFFERIN®” in Japan and other countries in the Asia and Oceania regions (Announced on June 29, 2007) (1) Will be able to increase the value of its brands by implementing its own business strategy in Japan utilizing existing brands including BUFFERIN® (2) Will be able to independently enter into product categories that used to be handled by the joint venture business (3) Will be able to expand our OTC business to countries in Asia and Oceania (4) Will be able to improve profitability by integrating businesses formerly covered by the joint venture 19
  20. 20. Implementation of Medium- to Long-Term Growth Strategy Expand functional food products business New gums to support oral health MEDISH Develop in-house research technologies horizontally Launched in three prefectures to facilitate business development through new for test marketing in 2007 business channels and markets Launched in 2006 Contains dextranase Contains lactoferrin Start full-scale direct marketing business Make the most of direct marketing via the Internet where detailed product information and research results can be publicized DHA・Crocetin Lactoferrin Palm carotene +Palm carotene 20
  21. 21. Total Cost Reduction Total cost reduction from VIP to VIPII09 (accumulated total) (¥100 million) 120 100 80 60 40 20 0 2005 2006 Jan.-Sep. 2009 2007 (Target) 21
  22. 22. Fiscal 2007 Consolidated Financial Forecast Unit: ¥100million Jan.-Sep. Year on Year Revised target Year on Year 2007 Actual announced on Results Amount %Change Oct. 31, 2007 Amount %Change Net Sales 2,449.9 104.4 4.5 3,400.0 96.2 2.9 Operating 46.7 89.0 - 80.0 76.5 2,232 Income Ordinary 58.9 84.4 - 100.0 75.7 312.0 Income Net Income 36.4 46.0 - 45.0 (10.4) (18.8) 22
  23. 23. Measures to Increase Shareholders’ Value Dividend 2001 2002 2003 2004 2005 2006 2007 Dividend per share (annual) ¥8 ¥8 ¥8 ¥8 ¥9 ¥10 ¥10 Plan Payout ratio - 52.4% 62.2% - 54.7% 47.2% (Non-consolidated) * Purchase / Retirement of treasury stock : 55,000,000 shares after 2001, of which 22,000,000 shares (7%) were retired (Yen) (million of shares) 12 16 Repurchase of treasury stock Dividend per share 14 10 Repurchase of treasury stock 12 Dividend per share 8 10 6 88 66 4 44 2 22 0 00 2000 2001 2002 2003 2004 2005 2006 2007 23
  24. 24. Reference materials 24
  25. 25. Actual Results by Business Segment (Consolidated) (unit: ¥100 million) <New Segment> Net Sales Operating Income Jan-Sep Jan-Sep Year on Year Jan-Sep Jan-Sep Year on Year 2007 2006 Amount %Change 2007 2006 Amount %Change Health Care Products 983.3 965.5 17.8 1.8 35.1 - - - Household products 1,190.3 1,030.3 159.9 15.5 8.4 - - - Chemical products 238.1 238.1 0.0 0.0 (1.5) (2.7) 1.2 - Other 38.1 111.4 (73.3) (65.8) 2.4 (0.5) 3.0 - Corporate and eliminations [-] [-] [-] [-] 2.2 0.5 1.7 309.0 Consolidated total 2,449.9 2,345.4 104.4 4.5 46.7 (42.2) 89.0 - * Operating income by segment for the third quarter of the previous fiscal year is not provided. 25
  26. 26. Actual Results by Business Segment (Consolidated) (unit: ¥100 million) <Former Segment> Net Sales Operating Income Jan-Sep Jan-Sep Year on Year Jan-Sep Jan-Sep Year on Year 2007 2006 Amount %Change 2007 2006 Amount %Change Home Products 1,833.0 1,642.9 190.1 11.6 43.7 (45.0) 88.8 - Pharmaceutical products 340.6 352.9 (12.3) (3.5) 2.0 5.6 (3.6) (64.6) Chemical 238.1 238.1 0 0 (1.5) (2.7) 1.2 - products Other 38.1 111.4 (73.3) (65.8) 2.4 (0.5) 3.0 - Corporate and eliminations [-] [-] [-] [-] 0.1 0.5 (0.4) (74.8) Consolidated total 2,449.9 2,345.4 104.4 4.5 46.7 (42.2) 89.0 - 26
  27. 27. Actual Results by Geographic Segment (Consolidated) (unit: ¥100 million) Net Sales Operating Income Jan-Sep Jan-Sep Year on Year Jan-Sep Jan-Sep Year on Year 2007 2006 Amount %Change 2007 2006 Amount %Change Domestic 2,042.3 2,002.8 39.4 2.0 31.7 (51.7) 83.4 - Overseas 407.6 342.6 64.9 19.0 12.2 7.3 4.9 66.8 Total 2,449.9 2,345.4 104.4 4.5 43.9 (44.3) 88.3 - Corporate and eliminations [-] [-] [-] [-] 2.8 2.1 0.6 29.3 Consolidated total 2,449.9 2,345.4 104.4 4.5 46.7 (42.2) 89.0 - 27
  28. 28. Cost of Sales (Consolidated) Jan-Sep 2007 Jan-Sep 2006 ¥100 million % of sales ¥100 million % of sales Cost of sales 1,155.9 47.2 1,178.2 50.2 Cost of sales ratio 50.2% 47.2%, decreased 3.0%P ( %) Trend for the cost of sales ratio 55 50 48.2 50.1 49.8 49.2 48.3 47.2 45 40 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 Jan-Sep 2007 28
  29. 29. Selling, General and Administrative Expenses (Consolidated) Jan-Sep 2007 Jan-Sep 2006 Change (¥100 million) ¥100 million % of sales ¥100 million % of sales Selling, general and administrative expenses 1247.1 50.9 1,209.4 51.6 37.6 Sales incentive expenses 108.1 4.4 101.6 4.3 6.4 Sales promotion expenses 479.2 19.6 460.5 19.6 18.6 Freight and storage expenses 120.1 4.9 112.2 4.8 7.9 Advertising expenses 170.2 6.9 175.0 7.5 (4.8) Salaries 137.7 5.6 143.5 6.1 (5.7) Other 231.7 9.5 216.4 9.2 15.3 29
  30. 30. Significant Extraordinary Gains or Losses Jan-Sep 2007 Jan-Sep 2006 Gain on disposal of property, plant and equipment ¥1,081 million Gain on disposal of property, plant and equipment Extra- Gain on sales of investment securities ¥5,811 million ¥8 million ordinary Gain on sales of subsidiary shares gains Gain on sales of subsidiary shares ¥231 million ¥683 million Other ¥156 million Other ¥47 million Total ¥1,368 million ¥6,721 million Loss on disposal of property, plant and Loss on disposal of property, plant and equipment ¥242 million equipment ¥532 million Extra- Voluntary product recall expenses Loss on shutdown of a plant ¥1,530 million ordinary ¥1,950 million Early retirement payments ¥947 million losses Impairment loss ¥67 million Impairment loss ¥197 million Other ¥31 million Other ¥309 million Total ¥2,291 million ¥3,516 million 30
  31. 31. Capital Expenditures and Depreciation Expenses (¥100 million) (Consolidated) Capital Depreciation 180 450 expenditures expenses Forecast H2 160 (435.0) H1 250 232.6 143.5 140 Forecast 117.9 (115.0) 120 101.5 97.5 96.3 100 201.5 86.9 106.6 72.9 65.8 80 51.9 49.1 69.5 60 41.6 36.3 40 52.0 45.6 47.1 20 40.0 45.0 36.5 31.0 32.0 36.8 36.6 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Note: Both capital expenditures and depreciation expenses include amounts for intangible assets. 31
  32. 32. Statements of Income (Consolidated) Jan-Sep 2007 Jan-Sep 2006 Change (¥100 million) Comments ¥100 million ¥100 million Net sales 2,449.9 2,345.4 104.4 Overseas sales increased Cost of sales 1,155.9 1,178.2 (22.2) Total cost reduction Gross profit 1,293.9 1,167.2 126.7 Selling, general and administrative expenses 1,247.1 1,209.4 37.6 Operating income 46.7 (42.2) 89.0 Non-operating income 20.7 22.6 (1.8) Non-operating expenses 8.5 5.8 2.7 Ordinary income 58.9 (25.4) 84.4 Gain on disposal of property, plant and Extraordinary income 13.6 67.2 (53.5) equipment in FY 2006 Shutdown of a plant and early retirement Extraordinary loss 22.9 35.1 (12.2) payments in FY 2006; Voluntary product recall expenses in FY 2007 Net income before income taxes 49.7 6.6 43.1 Income taxes 16.5 19.8 (3.2) Adjustment of income taxes (4.4) (5.7) 1.3 Minority interests in earnings of consolidated 1.2 2.1 (0.9) subsidiaries Net income 36.4 (9.6) 46.0 32
  33. 33. Consolidated Balance Sheets (Selected) I (unit: ¥100 million) Sep 2007 Dec 2006 Change Contributing factors Current assets 1,201.0 1,230.0 (29.0) Cash and time deposits 253.4 269.9 (16.5) Trade notes and accounts receivable 583.9 641.3 (57.4) Streamline of sales in every month Short-term investments 16.7 - 16.7 Inventories 290.9 263.8 27.1 Fixed assets 1,563.5 1,233.1 330.3 Property, plant and equipment 646.9 656.0 (9.1) Acquirement of trademark rights of Intangible assets 380.6 94.2 286.3 BUFFERIN etc. Investment securities 287.7 268.5 19.2 Deferred tax assets 107.5 102.7 4.8 Total assets 2,764.5 2,463.2 301.2 33
  34. 34. Consolidated Balance Sheets (Selected) II (unit: ¥100 million) Sep 2007 Dec 2006 Change Contributing factors Current liabilities 953.6 983.7 (30.0) Trade notes and accounts payable 465.5 501.8 (36.2) Repayment by introducing group fund Short-term loans payable 52.4 76.1 (23.6) management system Other payables and accrued expenses 326.8 335.9 (9.0) Long-term liabilities 748.7 428.1 (320.5) Long-term loans 473.9 135.9 337.9 New borrowing Accrued retirement benefits 224.6 236.8 (12.2) Common stock 344.3 344.3 0.0 Retained earnings 475.6 466.0 9.5 Unrealized holding gain on other securities 40.2 47.2 (7.0) Treasury stock (157.6) (159.1) 1.5 Minority interest in consolidated subsidiaries 39.2 33.5 5.6 Total liabilities, minority interests and 2,764.5 2,463.2 301.2 shareholders’ equity 34
  35. 35. The forecasts and projected operating results contained in this report are based on information available at the time of preparation, and thus involve inherent risks and uncertainties. Accordingly, readers are cautioned that actual results may differ materially from those projected as a result of a variety of factors. Note: Figures are rounded to the digits that are displayed.
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