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Currency Translation Helps Prop Up Kao Results

Posted: July 30, 2014

Kao Corporation announced its consolidated business results for the six months ended June 30, 2014, with net sales of ¥665.9 billion, up 6.6% over the net sales for the same time period in 2013. Additionally, operating income was up 14.9% to ¥49.3 billion, while net income increased 73.3% to ¥31.6 billion.

During the six months ended Jun 30, 2014, the global economy recovered moderately, although weakness was apparent in some sectors. In the Japanese economy, a moderate recovery trend continued as the pullback from the last-minute surge in demand associated with the consumption tax rate increase in April 2014 subsided. The household and personal care products market in Japan, a key market for Kao, grew by 4% on a value basis compared with the same period a year earlier, and a sense has emerged that the decline in consumer purchase prices had bottomed out. In additional the cosmetics market in Japan grew by 2%.

For its consumer products business, Kao reported that sales increased 4.8% compared with the same period a year earlier to ¥541.3 billion. Excluding the effect of currency translation, sales would have increased 3.7%. In Japan, sales increase 3.7% to ¥422.3 billion, as Kao responded to changing consumer lifestyles and social issues such as the environment, health consciousness and the aging society, and enhance proposal-based sales, among other measures. On the other hand, sales of Kanebo Cosmetics decreased compared with the same period a year earlier, mainly due to the voluntary recall in 2013 and its associated impact.

In Asia, sales increase 13.8% to ¥64.5 billion. Excluding the effect of currency translation, sales would have increased 12.7%. Sales continued to grow as Kao worked to collaborate with retailers, utilize wholesale channels, nurture products targeting the middle-class consumer segment and expand sales regions.

In the Americas, sales increased 11.4% to ¥38.2 billion. Excluding the effect of currency translation, sales would have increased 5.2%. Sales based on the same inter-company transaction method used in the same period a year earlier would have increase 3.9% (a decrease of 1.8% excluding the effect of currency translation). Excluding the effect of currency translation, sales of skin care were flat, and sales of hair care products decreased compared with the same period a year earlier.

In Europe, sales increase 16.7% to ¥39.7 billion. Excluding the effect of currency translation, sales would have increased 5.3%. Sales based on the same inter-company transaction method used in the same period a year earlier would have increased 9.3% (a decrease of 1.3% excluding the effect of currency translation). Excluding the effect of currency translation, sales of hair care products decreased compared with the same period a year earlier.

For its beauty care business, Kao saw sales increase 1.8% compared with the same period a year earlier to ¥283.5 billion. Excluding the effect of currency translation, sales would have decreased 0.2%. Sales of cosmetics decreased 2.7% compared with the previous year to ¥122.9 billion, and without the currency translation, the decrease would have been 3.8% In Japan, Kao continued to work to reinforce focal brands in the market, which grew during the time period measured. Despite growth in sales of Sofina Primavista base makeup and Aube Couture makeup in counseling cosmetics, as well as renewed Kate makeup in self-selection, sales decreased compared to the same time during the previous year, mainly due to the voluntary recall by Kanebo Cosmetics. Outside Japan, sales increased compared with the same period a year earlier, excluding the effect of currency translation.

Sales of skin care products increased compared with the same time period the previous year. In Japan, sales increased with strong performance by Biore UV care products and facial cleanser, Biore U body cleanser and Curel derma car products. In Asia, Biore performed steadily and sales grew. In the Americas, sales excluding the effect currency translation were flat given a tough year-on-year comparison due in part to the launch of improved Jergens hand and body lotion products in the previous year.

Sales of hair care products were flat compared with the same period in 2013. In Japan, although hair color products were impacted by market contraction, sales increased with strong performance by shampoos, conditioners and hair styling products. In Asia, sales decreased compared with the same period in the previous year amid severe competitive conditions, and in the Americas and Europe, Kao launched an improved styling product line from John Freida, but sales excluding the effect of currency translation decreased due to the severely competitive environment.

Operating income for the beauty care business increased ¥3.4 billion compared with the same time period in 2013 to ¥6.4 billion, mainly due to the effect of increased sales and a decrease in depreciation and amortization expenses.

Read more from Kao’s six months ended June 31, 2014, financial report here.