Highlights for the 1 st Half of FY2010

Transcription

1 Highlights for the 1 st Half of FY2010 (Ended September 30, 2010) October 26, 2010 Kao Corporation Motoki Ozaki President and CEO

2 These presentation materials are available on our website in PDF format: These presentation materials contain forward-looking statements that are based on management's estimates, assumptions and projections as of October 26, 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 Agenda Summary of the 1 st Half of FY2010 Focal Issues and Progress in the 1 st Half of FY2010 Initiatives Toward Medium-to-long-term Growth Summary of FY2010 Forecast 3

4 Summary of the 1 st Half of FY2010 4

5 Financial Overview 1 st Half of FY2010 Amid Amid global global economic economic recovery, recovery, results results grew grew year-on-year year-on-year and and surpassed surpassed Kao s Kao s forecast forecast 1, 1, led led by by consumer-driven consumer-driven product product development, development, efficient efficient marketing marketing and and cost cost reduction reduction activities. activities. In In Japan, Japan, a a shift shift in in consumer consumer preference preference to to lower lower priced priced products products in in the the prestige prestige cosmetics cosmetics market market and and deflation deflation in in the the household household and and personal personal care care market market continued. continued. Kao Kao responded responded by by working working to to rebuild rebuild its its cosmetics cosmetics business business and and launching launching high-value-added high-value-added products. products. The The performance performance of of the the Consumer Consumer Products Products Business Business outside outside Japan Japan and and the the Chemical Chemical Business Business was was steady. steady. % of sales Year-on-year Net sales: billion % EBITA 2 : 75.1 billion 12.5% +18.7% Operating income: 57.8 billion 9.6% +27.0% Net income: 27.8 billion 4.6% +10.3% Net income per share: % Versus forecast billion billion billion Forecast announced on April 26, Operating income before amortization of goodwill and intellectual property rights related to M&A 5

6 Summary by Business 1 st Half of FY2010 Consumer Products excluding prestige cosmetics in in Japan Prestige cosmetics in in Japan Consumer Products in in Asia and Oceania Consumer Products in in North America and Europe Chemical 6

7 Summary of Sales by Business 1 st Half of FY2010 Consumer Products in in Japan: Japan: -3.2% (Includes (Includes effect effect of of approximately \10 \10 billion billion decrease decrease in in sales sales of of Econa Econaand and related related products) products) Consumer Consumer Products Products excluding excluding prestige prestige cosmetics cosmetics performed performed generally generally in in line line with with our our plan, plan, with with aggressive aggressive product product launches launches in in response response to to consumer consumer and and market market changes changes Rebuilding Rebuilding of of prestige prestige cosmetics cosmetics business business is is underway underway Consumer Products in in Asia Asia and and Oceania: +8.8% (Like-for-like* +7.7%) Sales Sales continued continued to to expand expand with with further further progress progress of of integration integration of of business business operations operations in in Asia, Asia, including including Japan Japan Consumer Products in in North North America: -3.7% (Like-for-like* +1.4%) Consumer Products in in Europe: -0.1% (Like-for-like* +6.9%) New New products products led led to to a sales sales increase increase year-on-year year-on-year on on a like-for-like like-for-like basis basis amid amid severe severe market market conditions conditions Chemical: +14.3% (Like-for-like* +16.6%) Sales Sales volume volume increased increased reflecting reflecting recovery recovery of of demand demand from from customer customer industries, industries, with with Asia Asia in in particular particular driving driving growth growth * Change excluding effect of currency translation 7

8 Focal Issues and Progress in the 1 st Half of FY2010 8

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 Focal Issues and Progress in the 1 st Half of FY2010 Measures against deflation in the Japanese household and personal care market Rebuilding cosmetics business in Japan 10

11 Measures Against Deflation in the Japanese Household and Personal Care Market Launch of of new and improved products with high added value from the the aspects of of function, emotion and environment New and improved products that contributed to results in the 1 st 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 Essential Damage Care Deep Clean Attack Neo Resesh gel air freshener 11

12 Prestige Cosmetics in Japan in the 1 st Half of FY2010 The The cosmetics market in in Japan continues to to shrink year-on-year although the the rate rate of of contraction is is decreasing. (Reference) [Year-on-year growth in value terms] Apr.-Sept. 10 Apr. 09-Mar. 10 Prestige cosmetics market in in Japan -3.2% -4.1% High-priced segment (over 5,000 yen): -5.3% -5.3% Mid-priced segment (2,000-5,000 yen): -3.7% -5.6% Low-priced segment (below 2,000 yen): +0.6% +1.1% Kao Group total (Kanebo (KaneboCosmetics + Kao Kao Sofina) Sofina) -1.1% -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 Rebuilding Cosmetics Business in Japan Reform of brands Reform of marketing Reform of sales methods Maximization of cost synergy 13

14 Reorganize and Integrate Skin Care Brands of Kao Sofina in Japan Before reorganization and integration Current focus brands Department stores Over 50s 30s to 40s 20s By age bracket Drugstores/GMS Whitening 14

15 Nurture Priority Skin Care Brands of Kanebo Cosmetics in Japan Nurture and strengthen megabrands ** by by distribution channel Counseling Brands specific to distribution channel Department stores Specialty stores GMS Enhance brand structure Reinforce the brand through renewal Drugstores GMS Specialty stores Build strong brands in growing segments Self-selection Drugstores GMS Expand product lines in response to market changes * Brands with annual sales of more than 10 billion 15

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 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

18 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

19 Maximization of Cost Synergy Estimated cumulative cost-cutting synergy from FY2006 to to FY2010: Approximately 13 billion Reduce costs by consolidating logistics centers Optimize media buying Reduce cost of production and procurement 19

20 Initiatives Toward Medium-to-long-term Growth 20

21 Kao s Mid-term Growth Strategies 21 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.

22 22 Achieve Growth of Business Globally Shift to ecology-centered management Establish corporate identity Global matrix management Functional Units Business Units Beauty Care Human Health Care Fabric and Home Care Chemical R&D Production Sales Corporate

23 Global Expansion of Business 23 Accelerate growth in the Asian region where Kao already 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 integrated global business operations (including Kanebo Cosmetics Inc. Inc. and and Beauty Care Care Business in in North North America and and Europe) Full-scale business development in BRICs

24 Topics in Emerging Nations of Focus ( ) 24 China [Consumer Products excluding prestige cosmetics] Sept Launch of cost-competitive Attack Instant Clean Liquid water-saving type laundry detergent targeting middle-class consumers [Prestige cosmetics] Sept Launch of AQUA SPRINA brand manufactured in China and sold in department stores -Launch of COFFRET D OR makeup brand Sept Launch of KATE makeup brand Russia [Consumer Products excluding prestige cosmetics] Feb Mar Introduction of Merries baby diapers through an agency - Start of sales of John Frieda hair care brand through an agency [Prestige cosmetics] Sept Start of operation of subsidiary of Kanebo Cosmetics - Reinforcement of SENSAI super-prestige brand Attack Instant Clean Liquid AQUA SPRINA In-store display of KATE SENSAI counter in Russia

25 Summary of FY2010 Forecast 25

26 Summary of FY2010 Forecast 26 An An uncertain business environment persists, stemming from factors such as as the the economic outlook and and volatility in in exchange rates and and market prices of of raw raw materials. Kao will will reinforce its its foundation for for profitable growth with continuous development of of high-value-added products in in the the Consumer Products Business excluding prestige cosmetics in in Japan and and the the Chemical Business. Prestige cosmetics in in Japan will will aim aim to to improve its its profitability by by structural reform. Kao will will expand its its businesses in in Asia, driven by by China. Kao has has revised its its operating income forecast upward by by 8 8 billion from its its forecast announced in in April % of sales Year-on-year Net sales: 1,185.0 billion +0.1% EBITA 1 : billion 11.8% +7.7% Operating income: billion 8.9% +11.7% Net income: 53.0 billion 4.5% +30.8% Net income per share 2 : % ROE 2 : Shareholder returns Cash dividends per share: Consolidated payout ratio: Share repurchase: 9.4% 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, bps 58 1 increase 58.4% Up to 8.5 million shares or 15 billion

27 Use of Free Cash Flow* Use steadily generated free cash flow effectively from an an EVA standpoint toward further growth Capital expenditures and M&A for for future growth Steady and continuous cash dividends FY2010 forecast Cash dividends per share: 58 Consolidated payout ratio: 58.4% Share repurchases and repayment of of interest-bearing 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 Appendices 28

29 Business Segments and Main Product Categories Consumer Products Business Consumer Products Business Beauty Care 1H/FY2010 sales: billion Fabric and Home Care 1H/FY2010 sales: billion Consumer driven Human Health Care 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%] Beauty salon products Prestige cosmetics Premium skin care Premium hair care Laundry detergents and fabric treatments Products for kitchen, bath, toilet and living room care Beverages Oral care Blood circulation enhancement products (incl. bath additives and thermal pads ) Sanitary products Chemical 1H/FY2010 sales: 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 Consumer Products Business Chemical Business Note: Sales include intersegment sales. Share of net sales is calculated based on sales to customers. 29

30 FY2010 Breakdown of Beauty Care Business Billion yen Increase (Decrease) 1 Beauty Care Net sales (1.1%) Operating income Operating margin 1.9% +150bps Prestige cosmetics Net sales (3.0%) Operating income 2 (15.8) +1.1 Operating margin (12.5%) +50bps Kanebo Cosmetics Net sales: Slightly more than 90 billion EBITA as a % of sales 3 : Approx. 2% Premium mass products and professional hair care products Net sales % Operating income 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 SRI Indexes and External CSR Evaluation SRI indexes for which Kao has been selected CSR-related evaluation from external organization CSR: Corporate Social Responsibility SRI: Socially Responsible Investment (As of October 26, 2010) 31

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