Kao Consolidated Financial Results for the Fiscal Year Ended December 31, 2024

In the global economy during fiscal 2024, geopolitical risks in Europe and the Middle East and international tensions between major powers impeded recovery. Protracted inflation and monetary tightening also weakened recovery in consumption and investment. In Japan, amid persistently high prices, the movement toward wage increases has been gaining momentum, and recovery in domestic demand has become the linchpin of economic growth. For these reasons, the business environment remained unclear.

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.

To successfully carry out its Mid-term Plan 2027 (“K27”), the Kao Group has been steadily conducting a Global Sharp Top Strategy to contribute as global No. 1 with leading-edge solutions that address the critical needs of customers.
 
Net sales increased 6.3% compared with the previous fiscal year to 1,628.4 billion yen. Currency translation accounted for a 3.0% increase and net sales increased 3.3% on a like-for-like basis (breakdown of the increase: 1.7% increase by volume, 1.5% increase by price). Operating income was 146.6 billion yen, an increase of 86.6 billion yen compared with the previous fiscal year, and the operating margin was 9.0%. Income before income taxes was 151.0 billion yen, an increase of 87.2 billion yen, and net income was 110.4 billion yen, an increase of 64.2 billion yen.
 
Basic earnings per share were 231.94 yen, an increase of 137.57 yen, or 145.8%, from 94.37 yen in the previous fiscal year.
 
Return on invested capital (ROIC), which the Kao Group uses as a management metric, was 9.2% and although capital cost increased slightly, Economic Value Added (EVA*) increased 18.3 billion yen compared with the previous fiscal year to 33.2 billion yen as net operating profit after tax (NOPAT) increased substantially.
 
Consumer Products Business
Sales increased 4.8% compared with the previous fiscal year to 1,268.2 billion yen. Currency translation accounted for a 2.4% increase and sales increased 2.4% on a like-for-like basis (breakdown of the increase: 0.6% increase by volume, 1.8% increase by price).
 
Globally, while the consumer preference for low prices continued, demand increased for high-cost performance products offering superior quality and functionality. In the market in Japan, inflation persisted and consumer spending remained cautious. In the market in China, sluggish personal consumption persisted due to the economic slowdown and other factors. Under these circumstances, the Kao Group conducted initiatives including upgrading its marketing methods through digital transformation (DX), offering high-value-added products and adjusting selling prices to reflect that added value.

As a result, sales in Japan increased 5.3%% to 823.2 billion yen. In Asia, sales decreased 4.6% to 212.5 billion yen. On a like-for-like basis, sales decreased 9.7%. In the Americas, sales increased 9.9% to 139.1 billion yen. On a like-for-like basis, sales increased 2.0%. In Europe, sales increased 17.7% to 93.5 billion yen. On a like-for-like basis, sales increased 8.4%.
 
Operating income was 112.8 billion yen, an increase of 62.9 billion yen compared with the previous fiscal year, as the Kao Group improved its earning power through measures including structural reform initiatives that began in 2023.
 
Health and Beauty Care Business
Sales increased 7.9% compared with the previous fiscal year to 424.0 billion yen. Currency translation accounted for a 3.8% increase and sales increased 4.1% on a like-for-like basis (breakdown of the increase: 4.0% increase by volume, 0.1% increase by price).

Sales of skin care products increased. Strong sellers in Japan included Bioré makeup remover, UV care products and new sheet-related products. The skin protection business, including UV care products, which the Kao Group is developing as part of its Global Sharp Top Strategy, progressed as planned. Sales of the Bondi Sands premium skin care brand, which the Kao Group acquired in November 2023, also contributed to results.
 
Sales of hair care products increased. In Japan, a new product in the Cape hair spray brand and rebranded Essential sold strongly and sales of new hair care brands melt and THE ANSWER exceeded the plan as the Kao Group steadily carried out its new premium strategy. In the Americas and Europe, new JOHN FRIEDA products performed strongly. Sales of products for hair salons increased, with strong sales of the ORIBE brand for high-end hair salons in the United States, primarily through e-commerce, and growth in sales of the GOLDWELL brand in Europe.

Sales of personal health products decreased.

Operating income decreased 6.0 billion yen compared with the previous fiscal year to 34.4 billion yen as the Kao Group recorded marketing expenses for growth and structural reform expenses at subsidiaries in the Americas and Europe, among other factors.
 
Cosmetics Business
Sales increased 2.3% compared with the previous fiscal year to 244.1 billion yen. Currency translation accounted for a 2.3% increase and sales increased 0.0% on a like-for-like basis (breakdown of the increase: 1.6% decrease by volume, 1.7% increase by price. However, if the impact of China, provision for product returns due to cosmetics brand consolidation in Japan that was implemented in the previous fiscal year, and other factors are also excluded, sales increased approximately 4% on a like-for-like basis.)

Sales in Japan increased as the market remained favorable, driven by KANEBO prestige skin care and makeup, and also due to strong performance by the SOFINA iP skin care, Curél derma care and SENSAI luxury brands, among others. In Asia excluding China, sales of Curél, KATE and other products were strong as the Kao Group further strengthened its online-merges-with-offline (OMO) initiatives. In China, however, as market growth slowed and the competitive environment continued to intensify, the Kao Group optimized distribution inventory by restricting shipments. As a result, overall sales in Asia decreased substantially. Sales in Europe increased due to factors including strong sales of the SENSAI supreme skin care line and Total Lip Treatment Stick, an anti-aging lip serum, as well as steady sales of MOLTON BROWN products.

Operating income increased 1.7 billion yen compared with the previous fiscal year to negative 3.7 billion yen.

Forecast of Overall Business Results for the Fiscal Year Ending December 31, 2025
The global business environment is forecast to remain unclear due to factors such as geopolitical risks in Europe and the Middle East, uncertainty in China’s economy and the possibility of economic disruption from the impact of the administration change in the United States.
 
Under its Mid-term Plan 2027 (“K27”), the Kao Group conducted major structural reforms in fiscal 2023 and achieved solid results in fiscal 2024. By enhancing and accelerating “Yoki-Monozukuri” in fiscal 2025, the Kao Group will further strengthen its earning power from the perspective of return on invested capital (ROIC) and stabilize its revenue base. The Kao Group will also continue to execute its Global Sharp Top Strategy to contribute as the global No. 1 with leading-edge solutions and advance toward further growth worldwide.

To further accelerate this global growth, as of January 1, 2025 the Kao Group further integrated business and sales by restructuring its organization and functions to maximize use of Group resources, clarify the scope of responsibility and enable swift decision-making. The Kao Group also established a new Business Connected Business to maximize global business and sales, as well as cross-business activities, and to strengthen external collaboration for creating new businesses. In addition, the Kao Group will accelerate the growth of its B2B business by incorporating commercial-use hygiene products (excluding Washing Systems, LLC in the United States) in this business.

As a result, the reportable segments “Consumer Products Business,” “Hygiene and Living Care Business” and “Health and Beauty Care Business” will be renamed “Global Consumer Care Business,” “Hygiene Living Care Business” and “Health Beauty Care Business,” respectively, and the “Business Connected Business” will be added.
 
In light of these circumstances, the Kao Group forecasts the following business results for the fiscal year ending December 31, 2025.The Kao Group forecasts a 2.6% year-on-year increase in net sales to 1,670.0 billion yen (a 3.1% increase on a like-for-like basis), a 9.1% increase in operating income to 160.0 billion yen, an operating margin of 9.6%, a 7.9% increase in income before income taxes to 163.0 billion yen, a 7.6% increase in net income attributable to owners of the parent to 116.0 billion yen, and a 7.7% increase in basic earnings per share to 249.74 yen.

The Kao Group expects to improve ROIC from the 9.2% it achieved in fiscal 2024 to 9.4%. It intends to increase Economic Value Added (EVA) from the 33.2 billion yen it achieved in fiscal 2024 to 37.0 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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