Financial Overview for Fiscal Year ended December 2017

0

Financial Overview for Fiscal Year ended December 2017

Akihiro Kobayashi

President & Chief Operating Officer

Kobayashi Pharmaceutical Co., Ltd.

February 6, 2018

11Table of Contents

Consolidated Results for Fiscal Year

Ended December 31, 2017

Forecasts for Year Ending December 2018

Returns to Shareholders

Progress of the Medium-Term

Management Plan for 2017 to 2019

New Growth Investments

Activities for ESG

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2

Consolidated Results for Fiscal Year Ended December 31, 2017

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33

FY2017

(Jan. to Dec. 2017)

Comparable period in 2016

(Jan. to Dec. 2016)

Amount

(million yen)

Margin

(%)

Amount

(million yen)

Percentage

(%)

Net sales 156,761 - 144,806 108.3%

Operating

income22,925 14.6% 18,446 124.3%

Ordinary

income24,191 15.4% 20,359 118.8%

Net income 15,863 10.1% 15,025 105.6%

Achieved significant year-on-year growth in both revenue and income

Published forecasts

(published on

February 1, 2017)

Amount

(million yen)

Percentage

(%)

150,000 104.5%

20,000 114.6%

21,000 115.2%

15,100 105.1%

Consolidated Results for Fiscal Year Ended December 31, 2017

*Comparable period in 2016: Results for January to December

2016 were totaled for the purpose of comparison with FY2017.

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44Achieved increases in net income for 20 consecutive years

150

158

0

50

100

150

200

Mar.1998

Dec.2017

(100 million yen)

August 2000

Listed on TSE

April 1999

Listed on OSE

4/37

55Highlights of Consolidated Results [Net sales]

(1) Increased revenues from overseas business

(+4 billion yen)

(2) Contribution of new products (+5.4 billion yen)

(3) Increase in sales of existing products in Japan

(+1 billion yen)

(4) Increase in inbound demand (+2 billion yen)

(5) Growth in direct marketing business (+0.6 billion yen)

Incr

ease

sD

ecre

ases (1) Decreased sales in Other Businesses (-1.1 billion yen)

* Including decreased revenues in the medical-related

business (-1.4 billion yen)

<Increases/decreases in net sales(change from the comparable period in 2016)>

Year-on-year

change

108.3%

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66

184

229

+82 +22 +2

-2 -6 -22

-13 -14 -3 -1

Op

erat

ing

inco

me

for

Jan

. to

Dec

.20

16

Sal

es in

crea

se

Co

st r

edu

ctio

n

Lo

ss o

n d

isp

osa

lo

f in

ven

tory

Pri

ce in

crea

se

Oth

er c

ost

s

Ad

vert

isin

gex

pen

ses

Sal

es p

rom

oti

on

exp

ense

s

R&

D e

xpen

ses

Ph

ysic

ald

istr

ibu

tio

n c

ost

s

Oth

er e

xpen

ses

Op

erat

ing

inco

me

for

Jan

. to

Dec

.20

17

- - - Factor for increase

- - - Factor for decrease

Production costs SGA expenses

Highlights of Consolidated Results [Operating income]

(Unit: 100 million yen)

Assisted growth by actively investing in advertisements and achieved a sharp increase in income.

Year-on-year

change

124.3%

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*Comparable period in 2016: Results for January to December 2016 were totaled for the purpose of comparison with FY2017.

77

Domestic Consumer

Products Business

(Sales at stores in Japan

and Kiribai Chemical)

Overseas Consumer

Products Business

Direct Marketing

Business

Amount

(million yen)

Year-on-year

change

(%)

Amount

(million yen)

Year-on-year

change

(%)

Amount

(million yen)

Year-on-year

change

(%)

Net sales123,494

*113,605

107.3%

*106.6%21,767 122.8% 10,179 106.9%

Operating

income

21,323

*20,709

119.1%

*117.8%935 302.4% -75

Comparable

period in 2016

-286

Segment Results

* Net income and operating income excluding Kiribai Chemical

The three major businesses (Domestic Consumer Products, Overseas Consumer

Products, and Direct Marketing Businesses) achieved sales increases.

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8

Domestic Consumer Products Business

(Sales at stores in Japan and Kiribai Chemical)

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99

1,150 1,234

0

500

1000

1500

Jan. to Dec.2013

Jan. to Dec.2014

Jan. to Dec.2015

Jan. to Dec.2016

Jan. to Dec.2017

<Net sales>(100 million yen)

Performance of Domestic Business

Net sales : 123.4 billion yen (107.3% year on year)

Operating income: 21.3billion yen (119.1% year on year)

* The results for each period are prepared using the actual results for the corresponding periods in the past.

179

213

15.6% 17.3%

0

10

20

30

0

50

100

150

200

250

Jan. to Dec.2013

Jan. to Dec.2014

Jan. to Dec.2015

Jan. to Dec.2016

Jan. to Dec.2017

Operating income

Operating margin

<Operating income>(100 million yen) (%)

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1010

FY2017(Jan. to Dec. 2017)

Comparable period in 2016(Jan. to Dec. 2016)

Amount

(million yen)

Amount

(million yen)

Difference

(million yen)

Percentage

(%)

Healthcare products 58,127 53,494 4,633 108.7%

Household products 52,352 50,334 2,017 104.0%

Skin care products 6,047 5,387 660 112.3%

Body warmers 6,965 5,873 1,092 118.6%

Total 123,494 115,090 8,403 107.3%

Sales by Business Category

Net sales increased significantly, supported by strong sales of both new and existing products.

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1111Reasons for Strong Sales

Initial forecast(Year-on-year change)

Reasons for strong sales Results

First Half(Jan. to Jun.

2017)

A significant

increase in

revenues cannot be

expected because

sales in the

comparable period

in 2016 were very

high.

Second Half(Jul. to Dec.

2017)

An increase in

revenues is

expected but there

are some

uncertainties in

body warmers and

some other

products.

Better than projected

In line with the projection

Better than projected

• The increase in advertising expenses led to robust sales

(especially of pharmaceutical products).

• Increase in inbound demand (+0.8 billion yen)

• The increase in advertising expenses led to robust sales

(especially of pharmaceutical products).

• Strong sales of Kiribai body warmers

• Increase in inbound demand (+1.2 billion yen)

108.1%

Year-on-year

change

106.7%

Year-on-year

change

• Customer demand shifted to high value-added products

• Sales of new products, which were launched three to four

years ago, were strong.

In line with the projection

• Customer demand shifted to high value-added products

• Sales of new products, which were launched three to four

years ago, were strong.

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1212

Supplements

Inbound Demand

Inbound demand is estimated to be 7.5 billion yen

(up 2 billion yen year on year)

"Twelve Supreme Drugs You Must Buy

When You Visit Japan"Source: Sofu (Chinese social media) (Oct. 17, 2014)

19

41

55

75

Jan. to Dec. 2014 Jan. to Dec. 2015 Jan. to Dec. 2016 Jan. to Dec. 2017

(100 million yen)

<Estimated inbound demand>

OTC Pharmaceuticals Household products

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1313Contribution of New Product Sales(excluding the Direct Marketing business)

(%)

5.5 7.9 7.5 8.1

7.1 6.8 5.4

15.4

18.0 16.9

19.6 20.2

22.8 21.0

0

10

20

30

Year endedMar. 2012

Year endedMar. 2013

Year endedMar. 2014

Year endedMar. 2015

Year endedMar. 2016

Year endedDec. 2016

Year endedDec. 2017

(nine months)

Both the initial year contribution rate and the four year contribution rate declined due

to the launch of fewer new products in autumn 2016 and spring in 2017, and strong

sales growth of existing products.

Red: Four year contribution rate

Blue: Initial year contribution rate

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1414Values of Contribution by New Products

Net sales of four-year new products* increased, supported by the

development of new products

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5678 76 83 78 64 68

0

100

200

300

Year endedMar. 2012

Year endedMar. 2013

Year endedMar. 2014

Year endedMar. 2015

Year endedMar. 2016

Year endedDec. 2016

Year endedDec. 2017

(nine months)

(100 million yen)

157177 171

201223 216

264

*Four-year new products: New products

launched over the past four years

Red: Net sales of Four year new products

Blue: Net sales of Initial year new products

15

Overseas Consumer Products Business

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1616Performance of Overseas Business


177

217

12.2% 13.9%

0

5

10

15

20

0

50

100

150

200

250

Jan. to Dec.2013

Jan. to Dec.2014

Jan. to Dec.2015

Jan. to Dec.2016

Jan. to Dec.2017

Net sales

Overseas sales ratio

(100 million

yen)<Net sales>

Body warmers sold well in the U.S., while sales of Netsusama Sheet grew in China and Southeast Asia.

Net sales : 21.7 billion yen (122.8% year on year)

Operating income: 0.9 billion yen (302.4% year on year)

(%)

16/37

17

Direct Marketing Business

17/37

1818Performance of Direct Marketing Business

Year-on-year

change

105%

Year-on-year

change

113%

95 101

0

40

80

120

Jan. to Dec.2013

Jan. to Dec.2014

Jan. to Dec.2015

Jan. to Dec.2016

Jan. to Dec.2017

<Net sales>(100 million yen)

A V-shaped recovery in net sales continued from the previous year thanks to active investment in advertisements.Net sales : 10.1 billion yen (106.9% year on year)Operating loss: 0.07 billion yen (an operating loss of 0.28 billion yen in the

comparable period in 2016)

Supplements

Skin care products


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19

Forecasts for Year Ending December 2018

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2020

FY2018 forecasts

(Jan. to Dec. 2018)

FY2017 results

(Jan. to Dec. 2017)

Amount

(million yen)

Margin

(%)

Amount

(million yen)

Percentage

(%)

Net sales 163,000 - 156,761 104.0%

Operating

income23,700 14.5% 22,925 103.4%

Ordinary

income24,800 15.2% 24,191 102.5%

Net income 17,000 10.4% 15,863 107.2%

ROE - - 10.7% -

Medium-term Management Plan

for 2017-2019

(announced on November 1,

2016)

Amount

(million yen)

165,000

23,000

-

17,000

Over 10.0%

Highlights of Forecasts for Consolidated Results

The Company aims to achieve the 21st consecutive term of growth

with increased net sales and increased operating income.

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21

Returns to Shareholders

21/37

2222

52

58 60

28.8%27.9%

0

10

20

30

40

50

0

10

20

30

40

50

60

70

Mar

. 199

9

Dec

. 201

7

Dec

. 201

8fo

reca

st

Dividend amount

Dividend pay-out ratio

(%)(yen)

Changes in Dividend Payment

Achieved an increase in dividend payment for 19 consecutive terms (Interim dividend

28 yen + Year-end dividend 30 yen (+4 yen increase) = Annual dividend 58 yen per share).The aim is to achieve an increase in dividend payment for 20 consecutive terms in FY2018, with an increase of 2 yen/share.

22/37

Interim dividend: 28 yen (paid in Sept. 2017)

Year-end dividend: 30 yen (to be paid in March 2018)

23

Progress of the Medium-Term Management Plan for 2017 to 2019

23/37

2424

FY2019

targets*1

Comparable period

in 2016 results*2

Year on year

change*3

Net sales 165 billion yen 144.8 billion yen 114%

Operating income 23 billion yen 18.4 billion yen 124%

Net income 17 billion yen 15 billion yen 113%

ROE 10% 10% -

<Consolidated financial targets>

*1: The financial targets are minimum targets; the Company will aim for higher results.

*2: The results of the comparable period in 2016 are the total of the results for January to December 2016. *3: Comparison to results for January to December 2016

<Future goals>

Theme: Growth with real strengthTo further improve the ability of new product development and

cultivation, achieve “growth with real strength,” and become the No. 1

company in new market creation that can solve customers’ problems

Outline of the Medium-Term Management Plan for 2017 to 2019

Announced on November 1, 2016

24/37

2525

<Outline of strategies>

1. Promote the four growth businesses*

3. Develop and cultivate new market creator products

4. Aim to be a company where employees can feel growth

2. Invest in growth for the future

* Four growth businesses: Overseas, Direct Marketing, Skincare, and Kampo

Outline of the Medium-Term Management Plan for 2017 to 2019

25/37

2626Outline of strategies: Promote the Four Growth Businesses

Overseas business FY2019 target amount

Change from the comparable period in 2016*

Strengthen the OTC Pharmaceuticals business mainly in North America and China.

Cultivate products such as Netsusama Sheet, Anmeltz and body warmers.

27 billion yen

150%

Direct Marketing business FY2019 target amount


Develop new high-profile products that would lead to new customer acquisition.

Develop brands by mixing sales at stores and by direct marketing.

12 billion yen

126%

Skincare business FY2019 target amount


Create a brand that would become the third pillar after

Keshimin and Eau de Muge.

9 billionyen

167%

Kampo businessFY2019

target amountChange from the

comparable period in 2016*

Continue to pursue the development of products that are

easier for customers to choose, depending on their

constitution and symptoms

12.5 billion yen

113%

* Comparison to results for January to December 2016

26/37

2727Progress of the Four Growth Businesses 27/37

* The progress rates are based on the results for Jan. to Dec. 2016, compared with the target values for FY2019.

Overseas

business

Direct

marketing

business

Skincare

business

Kampo

business

FY2017

results

17.7 billion

yen

5.4 billion

yen

9.5 billion

yen

11.2 billion

yen

Progress rate 17%

6 billion yen

Progress rate 27%

10.1 billion yen

Progress rate 44%

21.7 billion yen

Progress rate 124%

12.7 billion yen

FY2019

target

27 billion

yen

12 billion

yen

9 billion

yen

12.5 billion

yen

Achieved

the target

FY2016

results

2828

What the Company is striving to achieve:FY2019 target

amount

FY2017 results

progress rate Evaluation

Strengthen product marketing, such as body warmers and

Netsusama Sheet in North America, China, and Southeast Asia.

Strengthen the OTC Pharmaceuticals business.

27 billion

yen

21.7 billion yen

44% ◎

Four Growth Businesses (Overseas Business)

[Actions in the U.S.] Strengthen the OTC Pharmaceuticals business• Renewed the package for MAX FREEZE in Nov. 2017.

• Introduced MAX HEAT (Anmeltz in the U.S.) to the U.S. market in fiscal 2018.

After renewalBefore renewal

Package renewal New Product

28/37

2929Four Growth Businesses (Overseas Business)

Quantitative survey in May 2017

Males and females in the age bracket 20 to 39, monthly income of 6,000 RMB

or higher

Six cities (Beijing, Shanghai, Guangzhou, Chengdu, Hangzhou, and Suzhou)

N=1,248

Know the

Kobayashi

brand very wellHave heard

of the brand

name

Don’t know

the brand

48%

36%

16%

Brand recognition of Kobayashi

Pharmaceutical

Brand recognition of Kobayashi

Pharmaceutical is very high compared to

other Japanese competitors.

Sales at stores(Jan. to Dec. 2017)

Year-on-year change

150%

Sales via EC(Jan. to Dec. 2017)

Year-on-year change

163%

[Actions in China] Expand sales•Brand recognition of Kobayashi Pharmaceutical is high; deliverability

has been strengthened.

• Sales increased significantly in both sales at stores and sales via EC.

EC website

29/37

3030Four Growth Businesses(Direct Marketing Business)

Cultivate the Salacia

brand both by direct

marketing and at stores

・ TV CM

・ Brand website

・ Academic study

・ Symposium, etc.

Expanded sales both by

direct marketing and at

stores

Dir

ect

mar

keti

ng Net sales:

0.3 billion yen(Year-on-year change 605%)

Sal

es a

t st

ore

s Net sales:

0.2 billion yen

(Year-on-year change 205%)


amount

FY2017 results


Develop brands by mixing sales at stores and by

direct marketing (example: Salacia)

12 billion

yen

10.1 billion yen

27% △

30/37

3131Four Growth Businesses(Skincare Business)

Keshimin Eau de Muge

First pillar Second pillar

Madame Juju Bioil

Third pillar Fourth pillar


amount

FY2017 results


Cultivate Madame Juju and Bioil brands

Develop and cultivate the brands and establish their

unique market positions9 billion yen

6 billion yen

17% △

31/37

3232Four Growth Businesses (Kampo Business)

Existing productsNew products

Sales of existing products expanded sharply thanks to advertisements

under an easy-to-understand concept.

The Company launched three new products in 2017.


amount

FY2017 results


The Company continues the development and marketing

of new products under an easy-to-understand concept.

12.5 billion

yen

12.7 billion yen

124%

32/37

Achieved

the target

3333Growth of Domestic Business

What the Company is striving to achieve:Progress toward

the target

◎

○

◎ Expansion of the medicated skin care products market

◎ Brand development in cooperation with the direct marketing business

◎ Efforts to develop switch OTC pharmaceuticals

◎ Expansion of the product line of foods with function claims

Health care products

Household products

◎Launch of high value-added products

◎Development of healthcare-conscious household products

◎Attempts to create new markets

33/37

34

New Growth Investments

34/37

3535Invest in Growth for the FutureMedium-Term Management Plan

for 2017 to 2019

Invest in Growth for the Future

Items Investment budget(2017-2019)

M&A 30 billion yen

R&D and new businesses 3 billion yenAnnounced in November 2016

Challenges ActionsMaximum investment

budget(within four to seven years)

Increasing production capacity to respond to

the expected increase in demand Build a new production

plant

30 billion

yen

Manufacturing in compliance with global

standards (PIC/S)

Expansion of the brands to overseas markets,

and actions to cope with the global risks

Trade mark management in

individual countries, security

control and other measures

Capacity shortage in the current Central R&D

Laboratory

Relocation of the Central

R&D Laboratory

Schedule new large-scale investments in view of the global development of OTC drugs

35/37

* These proposed investments are still in the review stage and not final decisions.

36

Activities for ESG

36/37

3737Activities for ESG

E

S

G

• Strengthen the functions of the Group

Environment Committee

• Strengthen the PDCA cycle for energy

saving

• Social activities

• Develop human resources

• Visualize the growth of employees

• Establish an assessment council of the

Board of Directors(Three outside directors and two outside corporate

auditors)

37/37

38

<Note>

Of the Company’s current business performance, plans and strategies included in this material,

items that are not historical facts are outlooks on future performance, which are based on the

judgment of the Company’s management according to currently available information.

Therefore, please note that actual performance may differ significantly from the future outlook

described in this material due to changes in various factors.

Financial Overview for Fiscal Year ended December 2017

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