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Business Outline and Management Strategy

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  • 1. February 2009 Business Outline and Management Strategy Lion Corporation
  • 2. Business Outline
  • 3. Company Overview As of December 31,2008 Consolidated: 338.2 billions of yen Sales Non-Consolidated: 266.4 billions of yen Other Businesses Foundation October, 1891 Chemical products ¥6.8 billion(2.0%) ¥31.4 billion(9.3%) Oral care products division ¥54.9 billion(16.2%) Establishment September, 1918 Capital 34.4 billions of yen Living care Beauty care 15 locations product division Domestic Offices (Include headquarters) ¥46.9 billion(13.9%) Net sales products division ¥35.4 billion 338.2 (10.5%) Consolidated billions of yen Subsidiaries 22 companies Fabric care product (FY2008) Pharmaceutical Overseas 8 countries/regions division products division Affiliates ¥116.5 billion (34.5%) ¥45.9 billion(13.6%) Consolidated: 5,774 Employees Non-consolidated: 2,480 Health care products The manufacture and sale of toothpastes, Household products ¥136.3 billion toothbrushes, soaps, hair- and skin-care ¥163.5 billion(48.4%) (40.3%) Operations products, detergents, cooking-related products, pharmaceuticals, and chemicals. Also, exports to overseas affiliates. -3-
  • 4. Lion Businesses : Health Care Products Consolidated net sales 338.2 billions of yen Oral care (FY2008) Oral care 16% Health Care 40% Beauty care 10% Pharmaceutical 14% Sales of Health Care Products 136.3 billions of yen (FY2008) Beauty care Pharmaceutical -4-
  • 5. Lion Businesses : Household Products Consolidated net sales 338.2 billions of yen (FY2008) Fabric care 34% Household 48% Living care Sales of Household Products Living care 14% 163.5 billions of yen (FY2008) Fabric care -5-
  • 6. Lion Businesses : Chemical Products Consolidated net sales 338.2 billions of yen Natural fat and (FY2008) Chemical products 9% Oleo Chemicals( oil derivatives ) Glycerin Carotene Fatty Esters MES MES Sales of Chemical Products 31.4 billions of yen (FY2008) Surfactants( Raw materials for detergents and cosmetics) Carbon Electro-conductive carbon Chemicals for Chemicals for civil engineering Electro-conductive compounds pulp and paper and construction Industrial cleaners Deinking agents for ・Concrete superplastisizer ・LCD panel cleaners recycled paper ・Curing compounds for concrete ・Hard disc substrate cleaners -6-
  • 7. Lion Businesses : Overseas Business Overseas consolidated net sales 47.9 billions of yen (FY2008) South Korea China Hong Kong Malaysia* Taiwan Singapore Thailand Indonesia* *Equity-method affiliates -7-
  • 8. Lion’s Three Visions << Three Visions >> Aim to be the leading company in the new comfortable lifestyle support industry Aim to be a leading company Aim to revitalize a in environmental friendliness corporate culture of tenacity, creativity and learning -8-
  • 9. New Comfortable Lifestyle Support Industry ● Enrich daily life Our approach to new lifestyle value: ● Boost lifestyle quality Integrate Company resources to Healthy happy living build new market concepts Self Eat well Eat well maintenance New Comfortable Lifestyle Communicate better Communicate better Exercise regularly Support Industry Exercise regularly Sleep well Sleep well Find time to relax Find time to relax Functional Foods Be youthful Be youthful Boost your immunity Boost your immunity OTC drugs Toiletries Healthy Habit Proposals Provided by Lion merchandise, services and information -9-
  • 10. Extend “Healthy life expectancy” <Life expectancy and Healthy life expectancy in Asia> (unit: years) Male Female Healthy life Healthy life Life expectancy expectancy Gap Life expectancy expectancy Gap Japan 78.4 72.3 6.1 85.3 77.7 7.6 South 71.8 64.8 7.0 79.4 70.8 8.6 Korea Malaysia 69.6 61.6 8.0 74.7 64.8 9.9 China 69.6 63.1 6.5 72.7 65.2 7.5 Thailand 66.0 57.7 8.3 72.7 62.4 10.3 Indonesia 64.9 57.4 7.5 67.9 58.9 9.0 (Source : WHO The World Health Report 2004) -10-
  • 11. Underpinning for future growth Personal financial assets reached ¥1.5 quadrillion in Japan Status of financial assets possession in 2008 (Two-or-more-person households) 85% 20 Average of amount of assets m illon 17 81.0% Savings hoiding ratio 80% 77.8% 76.9% 14 15 average 75.1% 79.1% ¥11.5mil. 75% 12 10 70.1% 8 70% 5 4 5 65% 60% - 20s 30s 40s 50s 60s 70s- age -11- Source : 2008 The Central Council for Financial Services Information
  • 12. Japan’s Import/Export Structure Import Export Automobiles ¥17.7 trillion Fossil fuel ¥20.3 trillion Electronic parts ¥ 5.2 trillion Foodstuff ¥ 6.0 trillion Iron & Steel ¥ 4.0 trillion Total ¥26.3 trillion Total ¥26.9 trillion Shift to Healthy Comfortable Lifestyle Industry -12-
  • 13. Proactive Approach to Environment Switch to plant resources Protect water environments Develop products that meet the “Lion Eco Standards” Criteria -13-
  • 14. Business Challenge in Fiscal 2008
  • 15. Financial Highlight Net Sales and Profits (unit: ¥100 million) Year on Year Forecast Year on Year Change FY2007 FY2008 Change (Revised on Change (%) Dec.25,2008) (%) Net Sales 3,417.1 3,382.3 (34.8) (1.0) 3,385.0 (2.6) Operating 89.0 82.7 (6.2) (7.1) 80.0 2.7 Income Ordinary 101.0 76.0 (25.0) (24.8) 75.0 1.0 Income Net Income 54.2 30.4 (23.8) (43.9) 25.0 5.0 EPS ¥20.06 ¥11.23 ¥(8.83) ¥(44.0) - - -15-
  • 16. Business Challenge in Fiscal 2008 Quality Improvement ⅰ Main Brand Strategy ⅱ Offering New Value ⅲ Proactive Approach to Environment ⅳ Manufacturing Process Innovation ⅴ Medium- and Long-term Growth Strategy -16-
  • 17. Maximizing Brand Value Creating ¥10 Billion Brand and Strengthening No.1 Brands -17-
  • 18. Main Brand Strategy Japan Strengthen ¥10 Billion Brands Clinica Top Soflan Dentor Systema Bufferin Kireikirei Blue Dia Charmy -18-
  • 19. Main Brand Strategy and New Value Provision Sales Composition Ratio of ¥10 Billion Brands 54% 34% 2005 2006 2007 2008 1 0 billi o n bran ds o th e rs Increase sales composition ratio of main brands -19-
  • 20. Main Brand Strategy and New Value Provision Japan Launched major new products among Introduced new market-creating main brands in expanding markets products/brands to develop new markets MEDISH / Gum Dentor Systema / BATHTOLOGY / Oral care series In-bath skincare series Kaori Tsuzuku (Long- Lasting Fragrance) Top / Laundry detergent New Distribution Acron Laundry detergents Lactoferrin / Kaori to Deodorant Reed / Cooking-aid products Supplement no Soflan ('Soflan with Fragrance and Deodorant') / 21% Contribution Ratio of New Products Fabric softener -20-
  • 21. Main Brand Strategy and Offering new Value Overseas Economic environment & Review of main subsidiaries Thailand 2007 2008 South Korea 2007 2008 ・GDP growing ratio 4.8% →5.1% ・ GDP growing ratio 5.0%→ 2.8% -Fiscal 2008 net sales increased 9% -Fiscal 2008 net sales increased 3% -Fiscal 2008 net sales increased 3% -Operating income decreased due to continuous upswing in raw material prices -Operating income decreased due to an ongoing -Operating income decreased due to an ongoing -Doubled laundry detergent production capacity surge in raw materials princes surge in raw materials princes Dentor Systema Chamgreen Beat Chamsoot F&F Shokubutsu-Monogatari -21-
  • 22. Proactive Approach to Environment LION Top Eco Project LION Top Eco Project is conducting various activities to protect air and water environments. In this project, Lion implements initiatives to reduce CO2 in the atmosphere by developing environmental friendly laundry detergents and provide financial support to “Japan Clean Water Foundation” by donating a portion of proceeds from the sale of Top laundry detergent. Selection in the Global SRI Indicator “FTSE4Good Global Index” Created by FTSE International Limited (“FTSE”), FTSE4Good is a stock price index comprised of companies that achieve a certain level in their CSR (corporate social responsibility) activities. Incorporation in this indicator shows that the company is highly trusted by society and has been evaluated as meeting globally recognized corporate responsibility criteria. Participation in “Eco First Program” The Eco First Company is a company that commit to pursue environmental protection activities and approved. Undertaken in response to calls from the Minister of the Environment, the Eco First Company must further promote environmental protection activities as the leading (“top-runner”) company in each industry with the goal of realizing the Kyoto Protocol’s goals regarding global warming. -22-
  • 23. Bolster Profitability Cost reductions, the acquisition of trademark rights to Bufferin and other factors have absorbed raw material price increases →The cost to sales ratio maintained at last year’s level Process Innovations (%) Cost to sales ratio 55 -Shorten manufacturing cycle 50.1 Shift from monthly administration to ten-day 50 administration to reduce inventory days 46.6 46.6 45 -Implement direct shipment from factories to retailers 40 2006 2007 2008 - Improve profits due to the acquisition of the Bufferin trademark rights in 2007 -23-
  • 24. MES (plant-based detergent) Business Promote sales of MES (Methyl ester sulfonate) LION ECO CHEMICALS SDN.BHD. (Malaysia) Features of MES 1) High biodegradability 2) High detergency in hard water 3) Carbon neutral Dec.2008:Completion of factory Mar.2009:Completion of process of producing powder -24-
  • 25. Management Strategies in FY2009
  • 26. Business Environment in Fiscal 2008 Background Environment of Home Products Market Market trend of the total of 45 home product markets in which Lion participates (percentage change over the year-ago period.) FY2008 FY2005 FY2006 FY2007 FY2008 The first half of The second half Jan-Oct November of November Amount 102 102 103 101 101 100 98 No. of units 103 103 103 101 101 100 97 Unit price 99 99 101 100 100 100 101 (Source: Lion survey) -26-
  • 27. Market Environment Increase of population Factors Increase in the number of households Behind Increase in the number of retail stores Growth of Changing from family use to individual use No. of units Increase of the refill product sales ratio Influence of these factors are weakening Raise unit prices of products by introducing of High-value-added products -27-
  • 28. Market Environment Annual income Annual income Composition ratio of occupied person less than ¥ 2 million less than ¥ 2 million by income bracket(2007) 22.3 million people 22.3 million people 33.7% 33.7% Working poor Non-regular employee 13.4 million people 20.3% Labor force 66.0 Disposable income million people of Workers’ household FY2000 ¥429 thousand/month FY2007 ¥402 thousand/month Decreased by 6.8% Source : 2007 Family Income and Expenditure Survey Source : 2007 Employment Status Survey -28-
  • 29. Market Environment Polarization in consumption patterns High-value-added General-purpose products products -29-
  • 30. Market Environment Growing categories Market share in category 2005 - 2008 Toothpastes High level periodontal disease prevention 9% → 17% Laundry detergents Compact liquid types 16% → 35% Fabric softeners Scented and deodorant types 47% → 65% Dishwashing detergents Dishwashing detergents for dishwashers 13% → 16% (Source: Lion survey) -30-
  • 31. Market Environment <Growing Categories> Common Concepts Health Comfort Environment -31-
  • 32. Three Visions Aim to become the leading company in new comfortable lifestyle support industry Aim to become the leading company Promote the invigoration of In environmental responsiveness corporate culture Health Comfort Environment Key Words -32-
  • 33. Growth Strategy Promotion Brand Value Maximization -1) Strengthen ¥10 billion brands -2) Bolster No.1 brands -3) Emphasize investment in brands that create new demand -33-
  • 34. Strengthen ¥10 Billion and No.1 Brands Introduce strong new products in growing categories New products in 2009 New products in 2008 -34-
  • 35. Strengthen ¥10 Billion and No.1 Brands Introduce strong new products Aggressively develop new demands in growing categories New products in 2009 New products in 2008 -35-
  • 36. Overseas Business Growth Strategies Asia Strategies: To be No.1 in heavy duty laundry detergents and oral care products 1.Introduce heavy duty powder laundry detergents that utilize MES 2.Expand the share of liquid detergents 3.Develop Systema and Shokubutsu-Monotari as global brands 4.Promote cost reduction measures Thailand South Korea -Release powder detergents blended -Introduce high-value-added product range with MES in oral care -Bolster the oral care Systema series -Promote cost reductions for heavy duty -40th anniversary of business operations laundry detergents and other household 1)Organize Thai-version Foundation for Dental Health product series 2)Establish Lion Award -36-
  • 37. Fiscal 2009 Consolidated Financial Forecast Expected rate of growth by business segments and geographical segments (Y o Y) JAPAN OVERSEAS TOTAL Health Care 102% 105% 102% Household 101% 107% 102% Chemical 85% 128% 87% Other 82% - 82% Total 99% 107% 101% -37-
  • 38. Fiscal 2009 Consolidated Financial Forecast Factors for Changes in Operating Income ¥3.0 billion in cost reductions ¥3.5 billion drop in row material prices -Improved composition of laundry detergents -Shorten manufacturing cycle Shift from monthly administration to 10-day + ¥6.5 billion administration to reduce inventory days -Implement direct shipment from factories to +¥0.7 billion retailers Cost increase factors ¥(5.8)billion -Stagnation of domestic consumption -Increase in brand cultivation costs Increased in salaries and general expenses +¥3.0 billion +¥2.8 billion -38-
  • 39. Fiscal 2009 Consolidated Financial Forecast (unit: ¥100 million) Change FY2008 FY2009 Change (%) Net Sales 3,382.3 3,400.0 17.6 0.5 Operating 82.7 90.0 7.2 8.7 Income % of Sales 2.4 2.6 Ordinary Income 76.0 90.0 13.9 18.4 % of Sales 2.2 2.6 Net Income 30.4 50.0 19.5 64.5 % of Sales 0.9 1.5 -39-
  • 40. Cash Dividend to Shareholders Dividend per share (annual) (yen) 12 Year-end Dividend 10 10 10 10 Interim Dividend 10 9 8 8 5 5 5 5 5 6 4 4 5 5 5 5 2 4 4 0 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 (PLAN) FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 (Plan) Payout ratio - 54.7% 47.2% 53.2% 93.0% 54.1% (Plan) (Non-consolidated) -40-
  • 41. Reference Materials
  • 42. Market Environment Cumulative cost reduction and cost increase (2005–2008) (¥100 million) 150 135 117 100 39 83 2008 2007 40 50 2006 26 2005 24 15 14 11 0 Cost reduction Cost increase (Due to rising material costs) -42-
  • 43. Cost of Sales (Consolidated) Fiscal 2007 Fiscal 2008 ¥100 million % of Sales ¥100 million % of Sales Cost of sales 1,592.0 46.6 1,575.2 46.6 (%) Trend for the cost of sales ratio 55 50.1 50 48.2 49.8 49.2 48.3 46.6 45 46.6 40 2002 2003 2004 2005 2006 2007 2008 (YEAR) -43-
  • 44. Selling, General and Administrative Expenses (Consolidated) FY2007 FY2008 Change ¥100 % of ¥100 % of ¥100 % of million sales million sales million sales Selling, general and 1,736.1 50.8 1,724.3 51.0 (11.7) (0.7) administrative expenses Sales incentive expenses 157.1 4.6 168.5 5.0 11.3 7.2 Sales promotion expenses 674.8 19.7 680.9 20.1 6.0 0.9 Freight and storage expenses 168.1 4.9 163.4 4.8 (4.7) (2.8) Advertising expenses 219.3 6.4 198.3 5.9 (21.0) (9.6) Salaries 146.0 4.3 140.7 4.2 (5.2) (3.6) R&D expenses 87.4 2.6 85.2 2.5 (2.2) (2.6) Other 283.0 8.3 287.1 8.5 4.1 1.5 -44-
  • 45. Significant Extraordinary Gains or Losses consolidated) FY 2007 FY 2008 Gain on disposal of property, plant and Reversal of allowance for doubtful accounts equipment ¥1,082 million ¥859 million Reversal of allowance for doubtful accounts Extra- ¥904 million ordinary gains Total ¥2,228 million ¥859 million Loss on disposal of property, plant and Loss on disposal of property, plant and equipment ¥273million equipment ¥263 million Extra- Loss on devaluation of investment securities Loss on devaluation of investment securities ordinary ¥372 million ¥2,032 million losses Voluntary product recall expenses ¥1,950 million Total ¥2,768 million ¥2,373 million -45-
  • 46. Capital Expenditures and Depreciation Expenses (consolidated) (¥100 million) 200 Capital Depreciation 400 expenditures 392 expenses 180 250 232 H2 H1 160 143 140 124 130 117 120 110 352 110 106 101 96 201 100 89 62 66 107 58 80 49 60 69 44 60 40 62 52 51 47 45 45 20 31 32 40 36 0 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009 Plan Plan Note: Both capital expenditures and depreciation expenses include amounts for intangible assets. -46-
  • 47. Statements of Income (Consolidated) (unit: ¥100 million) FY 2007 FY 2008 Change Change(%) Net sales 3,417.1 3,382.3 (34.8) (1.0) Cost of sales 1,592.0 1,575.2 (16.7) (1.1) Gross profit 1,825.1 1,807.1 (18.0) (1.0) Selling, general and administrative expenses 1,736.1 1,724.3 (11.7) (0.7) Operating Income 89.0 82.7 (6.2) (7.1) Decrease in equity earnings of Non- Non-operating income 24.9 13.7 (11.1) (44.6) consolidated subsidiaries and affiliates Non-operating expenses 12.9 20.5 7.6 58.8 Increase in interest expense Ordinary income 101.0 76.0 (25.0) (24.8) Extraordinary income 22.2 8.5 (13.6) (61.4) Gain on disposal of noncurrent assets Voluntary product recall expenses in FY2007 Extraordinary loss 27.6 23.7 (3.9) (14.2) Devaluation loss on investment securities in FY2008 Net income before income taxes 95.6 60.8 (34.7) (36.3) Income taxes 20.7 14.7 (5.9) (28.9) Adjustment of income taxes 19.6 13.4 (6.1) (31.1) Minority interests in earnings of consolidated subsidiaries 1.0 2.2 1.1 110.8 Net income 54.2 30.4 (23.8) (43.9) -47-
  • 48. Consolidated Cash Flow (unit: ¥100 million) FY2007 FY2008 Change Cash flows from operating activities 160.3 151.8 (8.4) Cash flows from investing activities (395.0) (117.9) 277.0 Cash flows from financing activities 298.4 (26.8) (325.3) Translation gain related to cash and cash equivalents 0.6 (8.1) (8.7) Increase (decrease) in cash and cash equivalents 64.3 (1.2) (65.5) Cash and cash equivalents at beginning of period 267.8 332.1 64.3 Cash and cash equivalents at end of period 332.1 330.9 (1.2) -48-
  • 49. Consolidated Balance Sheets (Selected) I (unit: ¥100 million) FY2007 FY2008 Change Comments Current assets 1,270.1 1,220.0 (50.1) Cash and time deposits 326.4 333.1 6.7 Trade notes and accounts 617.8 584.5 (33.3) receivable Short-term investments 9.2 - (9.2) Inventories 278.3 263.2 (15.1) Fixed assets 1,521.2 1,454.3 (66.9) Property, plant and equipment 643.4 634.7 (8.7) Intangible assets 371.9 326.9 (44.9) Acquired trademark rights Loss on devaluation of investment securities Investment securities 250.5 192.5 (58.0) in FY 2008 Deferred tax assets 100.9 103.9 3.0 Total assets 2,791.4 2,674.3 (117.0) -49-
  • 50. Consolidated Balance Sheets (Selected) II (unit: ¥100 million) FY2007 FY2008 Change Comments Current liabilities 960.8 1,011.0 50.2 Trade notes and accounts payable 444.9 469.1 24.1 Short-term loans payable 54.6 62.1 7.4 Current portion of Long-term debts 11.5 83.0 71.5 Other payables and accrued expenses 351.2 349.7 (1.5) Long-term liabilities 755.2 657.5 (97.6) Long-term debts 473.9 390.5 (83.4) Accrued employee retirement benefits 228.9 216.5 (12.3) Common stock 344.3 344.3 - Retained earnings 493.4 496.5 3.1 Unrealized holding gain on other securities 35.2 10.6 (24.6) Treasury stock (157.2) (158.6) (1.4) Minority interest in consolidated subsidiaries 38.9 26.1 (12.7) Total liabilities and net assets 2,791.4 2,674.3 (117.0) -50-
  • 51. Statements of Income (Non-consolidated) (unit: ¥100 million) FY 2007 FY 2008 Change ¥100 million % of sales ¥100 million % of sales ¥100 million Change(%) Net sales 2,671.3 100.0 2,664.7 100.0 (6.5) (0.2) Cost of sales 1,211.2 45.3 1,175.7 44.1 (35.5) (2.9) Gross profit 1,460.0 54.7 1,489.0 55.9 29.0 2.0 Selling, general and administrative 1,409.4 52.8 1,439.0 54.0 29.5 2.1 expenses Operating income 50.5 1.9 50.0 1.9 (0.5) (1.0) Non-operating income, net 51.1 1.9 15.8 0.6 (35.2) (69.0) Ordinary income 101.7 3.8 65.9 2.5 (35.8) (35.2) Extraordinary income, net (26.5) - (18.5) - 8.0 ― Net income before income taxes 75.1 2.8 47.3 1.8 (27.8) (37.0) Income taxes 0.4 0.0 0.4 0.0 ― ― Adjustment of income taxes 23.9 0.9 17.8 0.7 (6.0) (25.2) Net income 50.8 1.9 29.0 1.1 (21.7) (42.8) -51-
  • 52. Consolidated to Non-consolidated Ratios <Consolidated to Non-consolidated Ratios> FY2007 FY2008 Net Sales 1.28 1.27 Operating Income 1.76 1.65 Ordinary Income 0.99 1.15 Net Income 1.07 1.05 -52-
  • 53. 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. 53
  • 54. 54