Kao Consolidated Financial Results for the Fiscal Year Ended December 31, 2023

Trends in Overall Results for the Fiscal Year Ended December 31, 2023
 
In fiscal 2023, the novel coronavirus (COVID-19), which has had various impacts around the world, subsided and daily life returned to normal. However, conditions in the business environment remained unclear as a result of factors including a slowdown in the Chinese market, which had been growing, geopolitical risks in Europe and the Middle East and rising costs due to inflation.
 
According to retail sales and consumer purchasing survey data, the Kao Group’s key market of consumer products in Japan, consisting of household and personal care products and cosmetics, grew compared with the previous fiscal year.
 
Amid these circumstances, the Kao Group worked hard to address changes in people’s  lifestyles, consumption and the structure of sales channels, as well as rising raw material prices around the world and other issues. Net sales decreased 1.2% compared with the previous fiscal year to 1,532.6 billion yen. Currency translation accounted for a 2.6% increase and net sales decreased 3.8% on a like-for-like basis (breakdown of the decrease: 3.6% decrease by volume, 0.1% decrease by price). Core net sales decreased 0.7% to 1,540.9 billion yen. On a like-for-like basis, core net sales decreased 3.2%. Operating income was 60.0 billion yen, a decrease of 50.0 billion yen compared with the previous fiscal year, due to recording 54.7 billion yen in structural reform expenses, and the operating margin was 3.9%. Core operating income increased 4.6 billion yen to 114.7 billion yen. Income before income taxes was 63.8 billion yen, a decrease of 52.0 billion yen, and net income was 46.2 billion yen, a decrease of 41.6 billion yen.
 
Basic earnings per share were 94.37 yen, a decrease of 88.91 yen, or 48.5%, from 183.28 yen in the previous fiscal year. Core net income per share was 184.95 yen, an increase of 1.67 yen, or 0.9%, from 183.28 yen in the previous fiscal year.
 
Return on invested capital (ROIC), which the Kao Group uses as a management metric, was 4.1% and Economic Value Added (EVA*) increased 0.3 billion yen compared with the previous fiscal year to 14.9 billion yen due to an increase in capital cost as net operating profit after tax (NOPAT) increased.
* EVA is a registered trademark of Stern Stewart & Co.
 
Consumer Products Business
 
Sales increased 1.4% compared with the previous fiscal year to 1,210.3 billion yen. Currency translation accounted for a 1.9% increase and sales decreased 0.5% on a like-for-like basis (breakdown of the decrease: 3.5% decrease by volume, 3.0% increase by price). Core net sales increased 2.1% to
1,218.7 billion yen. On a like-for-like basis, core net sales increased 0.2%. 
 
Global market demand was on a recovery track as the COVID-19 pandemic subsided, but the market in China, which had been driving growth, slowed due to worsening business sentiment and the impact of local reaction to Japan’s discharge into the ocean of water treated using the Advanced Liquid Processing System (ALPS) from the Fukushima Daiichi Nuclear Power Station. Under these circumstances, the Kao Group increased profitability by offering high-value-added products and working to strengthen brand loyalty, in addition to continuing to implement strategic price increases in response to rising raw material prices.
 
As a result, sales in Japan increased 0.9%% to 781.7 billion yen. Core net sales increased 1.9% to 790.0 billion yen. In Asia, sales decreased 5.6% to 222.6 billion yen. On a like-for-like basis, sales decreased
9.2%. In the Americas, sales increased 12.1% to 126.6 billion yen. On a like-for-like basis, sales increased 5.4%. In Europe, sales increased 14.4% to 79.4 billion yen. On a like-for-like basis, sales increased 4.7%.
 
Operating income was 49.9 billion yen, a decrease of 29.4 billion yen compared with the previous fiscal year, due to the impact of recording 38.8 billion yen in structural reform expenses, including impairment loss,
among other factors. Core operating income was 88.7 billion yen, an increase of 9.4 billion yen, as a result of strategic price increases implemented to offset rising raw material prices, among other factors.
 
Health and Beauty Care Business
 
Sales increased 6.3% compared with the previous fiscal year to 392.9 billion yen. Currency translation accounted for a 3.2% increase and sales increased 3.1% on a like-for-like basis (breakdown of the increase: 1.1% increase by volume, 2.0% increase by price).
 
Sales of skin care products increased. In Japan, in addition to a return to mobility among the populace, due to a heat wave sales and market share both grew with the contribution of UV care products, other seasonal products and a new makeup remover in the Bioré brand. Sales in the Americas increased.
 
In November 2023, the Kao Group completed its acquisition of Bondi Sands Australia Pty Ltd, which owns the Bondi Sands premium skin care brand, and made it a consolidated subsidiary.
 
Sales of hair care products increased. Amid severe market competition, sales and market share in Japan both grew due to the steady performance of new and improved Essential brand products and the contribution from the launch of a new product in the Cape hair spray brand in November. Sales in Europe increased. In products for hair salons, sales of the ORIBE brand for high-end hair salons in the United States were strong, primarily through e-commerce.
 
Sales of personal health products were basically unchanged. In Japan, sales of MegRhythm thermo products grew due to new marketing measures, but sales of bath additives were impacted by the shrinking market. Operating income increased 5.9 billion yen compared with the previous fiscal year to 40.5 billion yen as the Kao Group recorded 2.3 billion yen in structural reform expenses. Core operating income increased 8.2 billion yen to 42.8 billion yen.
 
Cosmetics Business
 
Sales decreased 5.1% compared with the previous fiscal year to 238.6 billion yen. Currency translation accounted for a 1.6% increase and sales decreased 6.7% on a like-for-like basis (breakdown of the decrease: 7.3% decrease by volume, 0.6% increase by price). Core net sales decreased 1.8% to 246.9 billion yen. On a like-for-like basis, core net sales decreased 3.4%.
 
Sales decreased in Japan due to the impact of factors including the recording of structural reform-related product returns and restraints on travel retail proxy purchasing in South Korea. Core net sales increased as sales of the Kao Group’s “G11” global strategy brands, including the KANEBO prestige skin care and makeup and KATE makeup brands, remained strong. Sales decreased substantially in China due to key opinion leaders voluntarily refraining from activities, restraints on sales promotion activities and other factors due to local reaction to Japan’s discharge into the ocean of ALPS-treated water from the Fukushima Daiichi Nuclear Power Station. In a weak market in Europe, sales increased due to steady performance by new products from Molton Brown and a successful renewal of promotions for new and existing products from the SENSAI brand.
 
Operating income decreased 19.5 billion yen compared with the previous fiscal year to negative 5.4 billion yen due to recording 10.7 billion yen for a provision for product returns, disposal of raw materials and other expenses for structural reforms. Core operating income was 5.3 billion yen, a decrease of 8.8 billion yen.
 
Forecast of Overall Business Results for the Fiscal Year Ending December 31, 2024
 
The Kao Group forecasts a 3.1% year-on-year increase in net sales to 1,580.0 billion yen (a 3.6% increase on a like-for-like basis), a 116.5% increase in operating income to 130.0 billion yen, an operating margin of 8.2%, a 105.2% increase in income before income taxes to 131.0 billion yen, a 123.4% increase in net income attributable to owners of the parent to 98.0 billion yen, and a 123.4% increase in basic earnings per share to 210.81 yen.
 
The Kao Group aims to substantially improve ROIC from the 4.1% it achieved in fiscal 2023 to 8.6%, and will increase Economic Value Added (EVA) from the 14.9 billion yen it achieved in fiscal 2023 to 24.0 billion yen
by making full use of its assets to manage invested capital more efficiently, together with an increase in net operating profit after tax (NOPAT).
 
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