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presentations_fy2010_q2_01

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presentations_fy2010_q2_01

  1. 1. Highlights for the 1st Half of FY2010 (Ended September 30, 2010) October 26, 2010 Kao Corporation Motoki Ozaki President and CEO
  2. 2. 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 managements 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
  3. 3. AgendaSummary of the 1st Half of FY2010Focal Issues and Progress in the1st Half of FY2010Initiatives Toward Medium-to-long-termGrowthSummary of FY2010 Forecast 3
  4. 4. Summary of the 1st Half of FY2010 4
  5. 5. Financial Overview – 1st Half of FY2010 Amid global economic recovery, results grew year-on-year and surpassed Kao’s Amid global economic recovery, results grew year-on-year and surpassed Kao’s forecast1, ,led by consumer-driven product development, efficient marketing and forecast1 led by consumer-driven product development, efficient marketing and cost reduction activities. cost reduction activities. In Japan, aashift in consumer preference to lower priced products in the prestige In Japan, shift in consumer preference to lower priced products in the prestige cosmetics market and deflation in the household and personal care market continued. cosmetics market and deflation in the household and personal care market 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 products. high-value-added products. The performance of the Consumer Products Business outside Japan and the Chemical The performance of the Consumer Products Business outside Japan and the Chemical Business was steady. Business was steady. % of sales Year-on-year Versus forecast1 Net sales: ¥601.3 billion - +0.4% +¥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 billionNet 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
  6. 6. Summary by Business – 1st Half of FY2010 Consumer Products excluding Consumer Products excluding prestige cosmetics in Japan prestige cosmetics in Japan Prestige cosmetics in Japan Prestige cosmetics in Japan Consumer Products in Asia Consumer Products in Asia and Oceania and Oceania Consumer Products in Consumer Products in North America and Europe North America and Europe Chemical Chemical 6
  7. 7. Summary of Sales by Business – 1st Half of FY2010 Consumer Products in Japan: -3.2% (Includes effect of approximately Consumer Products in Japan: -3.2% (Includes effect of approximately 10 billion decrease in sales of Econa and related products) 10 billion decrease in sales of Econa and related products) Consumer Products excluding prestige cosmetics performed generally in line with Consumer Products excluding prestige cosmetics performed generally in line with our plan, with aggressive product launches in response to consumer and market our plan, with aggressive product launches in response to consumer and market changes changes Rebuilding of prestige cosmetics business is underway Rebuilding of prestige cosmetics business is underway Consumer Products in Asia and Oceania: +8.8% ((Like-for-like*+7.7%) Consumer Products in Asia and Oceania: +8.8% Like-for-like* +7.7%) Sales continued to expand with further progress of integration of business Sales continued to expand with further progress of integration of business operations in Asia, including Japan operations in Asia, including Japan Consumer Products in North America: -3.7% ((Like-for-like*+1.4%) Consumer Products in North America: -3.7% Like-for-like* +1.4%) Consumer Products in Europe: -0.1% ((Like-for-like*+6.9%) Consumer Products in Europe: -0.1% Like-for-like* +6.9%) New products led to aasales increase year-on-year on aalike-for-like basis amid New products led to sales increase year-on-year on like-for-like basis amid severe market conditions severe market conditions Chemical: +14.3% ((Like-for-like*+16.6%) Chemical: +14.3% Like-for-like* +16.6%) Sales volume increased reflecting recovery of demand from customer industries, Sales volume increased reflecting recovery of demand from customer industries, with Asia in particular driving growth with Asia in particular driving growth * Change excluding effect of currency translation 7
  8. 8. Focal Issues and Progressin the 1st Half of FY2010 8
  9. 9. Three Focal Issues and Countermeasures in FY2010 Measures against deflation in the Japanese household and personal care market High-value-added products Response to aging population Response to increasing health consciousness Response to rising environmental consciousness Rebuilding cosmetics business Reform of brands and marketing Reform of sales methods Synergy within the Kao Group Revitalization of functional health food business and expansion of health solutions business Efforts for relaunch of functional healthy cooking oil Expansion of unique health solutions business combining a support program for healthy lifestyles and functional foods that help prevent lifestyle-related diseases 9
  10. 10. 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
  11. 11. Measures Against Deflation in the Japanese Household and Personal Care MarketLaunch of new and improved products with high added value Launch of new and improved products with high added valuefrom the aspects of function, emotion and environment from the aspects of function, emotion and environmentNew and improved products that contributedto results in the 1st half of FY2010 Beauty Care - Improved Merit hair care series Merit Essential Damage Care - Essential Damage Care hair care series 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 Resesh gel air freshener 11
  12. 12. Prestige Cosmetics in Japan in the 1st Half of FY2010 The cosmetics market in Japan continues to shrink year-on-year The cosmetics market in Japan continues to shrink year-on-year although the rate of contraction is decreasing. although the rate of contraction is decreasing. (Reference) [Year-on-year growth in value terms] Apr.-Sept. 10 Apr. 09-Mar. 10 Prestige cosmetics market in Japan Prestige cosmetics market in Japan -3.2% -3.2% -4.1% -4.1% High-priced segment (over 5,000 yen): High-priced segment (over 5,000 yen): -5.3% -5.3% -5.3% -5.3% Mid-priced segment (2,000-5,000 yen): Mid-priced segment (2,000-5,000 yen): -3.7% -3.7% -5.6% -5.6% Low-priced segment (below 2,000 yen): Low-priced segment (below 2,000 yen): +0.6% +0.6% +1.1% +1.1% Kao Group total (Kanebo Cosmetics + Kao Sofina) Kao Group total (Kanebo Cosmetics + Kao Sofina) -1.1% -1.1% -8.3% -8.3% 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
  13. 13. Rebuilding Cosmetics Business in Japan Reform of brands Reform of marketing Reform of sales methods Maximization of cost synergy 13
  14. 14. Reorganize and Integrate Skin Care Brands of Kao Sofina in Japan Before reorganization and integration Current focus brands Department stores Over 50s By age bracket Drugstores/GMS 30s to 40s 20s Whitening 14
  15. 15. Nurture Priority Skin Care Brands of Kanebo Cosmetics in Japan Nurture and strengthen megabrands**by distribution channel Nurture and strengthen megabrands by distribution channel Department stores Enhance brand structure Brands specific Specialty to distribution stores channelCounseling Reinforce the brand GMS through renewal Drugstores Build strong brands in GMS growing segments Specialty stores Expand product lines DrugstoresSelf-selection in response to GMS market changes * Brands with annual sales of more than ¥10 billion 15
  16. 16. 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
  17. 17. Reform of MarketingFocus marketing spending on nurturing strong brands ingrowing 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 BASICEfficient marketing spending by Integrated BrandCommunications (IBC) Optimize communication mix (mass advertising, Web, in-store counseling, etc.) for each product 17
  18. 18. Reform of Sales MethodsOffer counseling on demand tailored to the ability ofconsumers 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 retailersStrengthen collaboration in sales function of Kao andKanebo 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
  19. 19. Maximization of Cost SynergyEstimated cumulative cost-cutting synergy from FY2006 toEstimated cumulative cost-cutting synergy from FY2006 toFY2010: Approximately ¥13 billionFY2010: Approximately ¥13 billion Reduce costs by consolidating logistics centers Optimize media buying Reduce cost of production and procurement 19
  20. 20. Initiatives Toward Medium-to-long-termGrowth 20
  21. 21. Kao’s Mid-term Growth StrategiesProfitable growth driven by high-value-addedproducts 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
  22. 22. Achieve Growth of Business Globally Shift to ecology-centered Establish corporate identity management Global “matrix management” Functional Units R&D Production Sales Corporate Beauty Care Beauty CareBusiness Units Human Health Care Human Health Care Fabric and Home Care Fabric and Home Care Chemical Chemical 22
  23. 23. Global Expansion of BusinessAccelerate growth in the Asian region where KaoAccelerate growth in the Asian region where Kaoalready operatesalready 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 of Establishment of integrated global business operations integrated global business operations (including Kanebo Cosmetics Inc. and Beauty Care Business in North America and Europe) (including Kanebo Cosmetics Inc. and Beauty Care Business in North America and Europe) Full-scale business development in BRICs Full-scale business development in BRICs 23
  24. 24. Topics in Emerging Nations of Focus (2009-2010) China [Consumer Products excluding prestige cosmetics] Sept. 2010 -Launch of cost-competitive Attack Instant Clean Attack Instant Clean Liquid Liquid water-saving type laundry detergent targeting 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 AQUA SPRINA Sept. 2010 -Launch of KATE makeup brand Russia [Consumer Products excluding prestige cosmetics] Feb. 2009 - Introduction of Merries baby diapers through an agency In-store display of KATE Mar. 2009 - Start of sales of John Frieda hair care brand through an agency [Prestige cosmetics] Sept. 2009 - Start of operation of subsidiary of Kanebo Cosmetics SENSAI counter in Russia - Reinforcement of SENSAI super-prestige brand 24
  25. 25. Summary of FY2010 Forecast 25
  26. 26. Summary of FY2010 Forecast An uncertain business environment persists, stemming from factors such as the economic An uncertain business environment persists, stemming from factors such as the economic outlook and volatility in exchange rates and market prices of raw materials. outlook and volatility in exchange rates and market prices of raw materials. Kao will reinforce its foundation for profitable growth with continuous development of 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 high-value-added products in the Consumer Products Business excluding prestige cosmetics in Japan and the Chemical Business. Japan and the Chemical Business. Prestige cosmetics in Japan will aim to improve its profitability by structural reform. Prestige cosmetics in Japan will aim to improve its profitability by structural reform. Kao will expand its businesses in Asia, driven by China. 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 Kao has revised its operating income forecast upward by ¥8 billion from its forecast announced in April 2010. in April 2010. % of sales Year-on-year Net sales: ¥1,185.0 billion +0.1% EBITA1: ¥139.5 billion 11.8% +7.7% Operating income: ¥105.0 billion 8.9% +11.7% Net income: ¥53.0 billion 4.5% +30.8% Net income per share2: ¥99. 37 +31.5% ROE2: 9.4% +210bpsShareholder returns Cash dividends per share: ¥58 ¥1 increase Consolidated payout ratio: 58.4% Share repurchase: Up to 8.5 million shares or ¥15 billion1. 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 26
  27. 27. Use of Free Cash Flow*Use steadily generated free cash flow effectively Use steadily generated free cash flow effectivelyfrom an EVA standpoint toward further growth. from an EVA standpoint toward further growth.1. Capital expenditures and M&A for future growth1. Capital expenditures and M&A for future growth2. Steady and continuous cash dividends2. Steady and continuous cash dividends FY2010 Cash dividends per share: ¥58 forecast Consolidated payout ratio: 58.4%3. Share repurchases and repayment of interest-bearing3. Share repurchases and repayment of interest-bearing debt including borrowings debt including 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
  28. 28. Appendices 28
  29. 29. Business Segments and Main Product Categories Beauty Care Human Health CareConsumer Products Consumer Products 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%] Business Business Beauty salon products Beverages Prestige cosmetics Oral care Premium skin care Blood circulation enhancement products Premium hair care (incl. bath additives and thermal pads ) Sanitary products Consumer Consumer driven driven Chemical Fabric and Home CareConsumer Products Chemical Business 1H/FY2010 sales: ¥141.0 billion 1H/FY2010 sales: ¥115.0 billion [-0.0% year-on-year / Share of net sales: 23.5%] [+14.3% year-on-year / Share of net sales: 16.4%] Business Laundry detergents and fabric treatments Oleo chemicals Products for kitchen, bath, toilet and Performance chemicals living room care Specialty chemicals Note: Sales include intersegment sales. Share of net sales is calculated based on sales to customers. 29
  30. 30. FY2010 Breakdown of Beauty Care Business Increase Billion yen 1 (Decrease) Beauty Care Net sales 272.5 (1.1%) Operating income 2 5.2 +4.1 Operating margin 1.9% +150bps Prestige cosmetics Net sales 126.8 (3.0%) Kanebo Cosmetics Net sales: Operating income 2 (15.8) +1.1 Slightly more than ¥90 billion Operating EBITA as a % of sales3 : margin (12.5%) +50bps Approx. 2% Premium mass products and professional hair care products Net sales 145.7 +0.5% Operating income 2 21.1 +2.9 Operating margin 14.5% +200bps 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
  31. 31. 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 ResponsibilitySRI: Socially Responsible Investment 31

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