Milbon / 4919

R Milbon / 4919

COVERAGE INITIATED ON: 2016.01.26

LAST UPDATE: 2019.04.12

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to

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Milbon / 4919 LAST UPDATE: 2019.04.12 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

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INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent

earnings. First-time readers should start at the business section later in the report.

Executive Summary ----------------------------------------------------------------------------------------------------------------------------------- 3 Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 5 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 6

Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------ 6 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 8

Quarterly trends and results ----------------------------------------------------------------------------------------------------------------------------------- 8 Outlook------------------------------------------------------------------------------------------------------------------------------------------------- 15

Global position --------------------------------------------------------------------------------------------------------------------------------------------------- 16 Business ------------------------------------------------------------------------------------------------------------------------------------------------ 21

Core strategy ----------------------------------------------------------------------------------------------------------------------------------------------------- 22 Business model --------------------------------------------------------------------------------------------------------------------------------------------------- 23 Field activities system: selecting Target Salons -------------------------------------------------------------------------------------------------------- 25 Brands --------------------------------------------------------------------------------------------------------------------------------------------------------------- 29 Product overview ------------------------------------------------------------------------------------------------------------------------------------------------ 31 Market and value chain ---------------------------------------------------------------------------------------------------------------------------------------- 35 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 41

Historical Performance ---------------------------------------------------------------------------------------------------------------------------- 43 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 43 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 59 Cash flow statement -------------------------------------------------------------------------------------------------------------------------------------------- 60

Other Information ---------------------------------------------------------------------------------------------------------------------------------- 61 History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 61 News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 62 Corporate governance and top management --------------------------------------------------------------------------------------------------------- 62 Dividend policy -------------------------------------------------------------------------------------------------------------------------------------------------- 63 Major shareholders (as of December 31, 2018) ------------------------------------------------------------------------------------------------------- 63 Major group companies (as of December 2018) ----------------------------------------------------------------------------------------------------- 63 Employees --------------------------------------------------------------------------------------------------------------------------------------------------------- 64 By the way --------------------------------------------------------------------------------------------------------------------------------------------------------- 64 Profile ---------------------------------------------------------------------------------------------------------------------------------------------------------------- 65


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Executive Summary

Performance overview

◤ Milbon is Japan’s top manufacturer of professional-use hair cosmetics (16.4% domestic market share in 2017, per Fuji Keizai

Marketing Research & Consulting Group research). Hair care treatments and other hair products accounted for 59.7% of its

consolidated sales in FY12/18 (figure adjusted to correspond to the Accounting Standard for Revenue Recognition the

company has applied since the beginning of FY12/19; same below), with hair coloring products at 35.0% and perm products

at 4.6%. The company sells its products to hair salons in Japan and overseas via distributors. Milbon ranked within the top ten

in the global professional hair cosmetic market (holds an approximately 3% share of the global market) according to a 2017

study by Kline & Company. The company aims to be ranked within the top five companies in FY12/23 (with a 4% share of the

global market). According to Milbon, it already had the top share in Asia (at about 11%) in FY12/18 but aims to increase that

share to 14% in FY12/23. It also plans to expand the ratio of overseas sales contribution from 15.7% in FY12/18 to 17.5% in

FY12/23. By expanding its overseas sales, the company continues to increase its presence in the global market.

◤ Sales have grown steadily for 22 consecutive years since its 1996 listing. Milbon has grown sales through two proprietary

systems: it jointly develops products with hair stylists through a system called TAC, and conducts proposal-based sales using a

Fieldperson* system.

*Fieldperson: The company’s name for its sales representatives who go not only to the distributors that sell Milbon’s hair products, but also to the hair

salons that buy the products from the distributors to uncover challenges, offer management advice, introduce the latest beauty techniques, and

support hair designer training.

◤ Despite a decrease in the number of target customers in Japan amid population decline, Milbon’s TAC and Fieldperson

systems as well as business growth overseas, have underpinned expansion. The company’s business model is to boost sales by

increasing the number of fieldpersons while offering suggestions to increase sales and profits of its customers (hair salons)

both in Japan and abroad. Another proprietary system, the field activities system, which efficiently conducts market research

to select and concentrate on certain hair salons with growth potential, has contributed to results.

Trends and outlook

◤ In FY12/18, the company recorded sales of JPY35.2bn (+11.0% YoY*), operating profit of JPY6.3bn (+17.8% YoY), recurring

profit of JPY5.8bn (+16.7% YoY), and net income attributable to parent company shareholders of JPY4.5bn (+18.8% YoY).

Results were driven by hair care product sales, which increased 13.0% YoY. Hair coloring product sales also rose. Profit

increased thanks to higher sales, special factors such as reversal of allowance for sales returns of old versions of Aujua products,

and heightened productivity. GPM improved by 0.9pp YoY to 69.2%, while the SG&A-to-sales ratio fell 0.2pp YoY to 51.4%,

and OPM rose 1.0pp YoY to 17.8%.

* YoY comparisons for FY12/18 are direct comparisons with the annualized results (12 months) for FY12/17.

◤ Milbon forecasts FY12/19 sales of JPY36.6bn (+8.0% YoY**), operating profit of JPY6.8bn (+9.3% YoY), recurring profit of

JPY6.2bn (+6.5% YoY), and net income of JPY4.4bn (-3.2% YoY). The company also projects domestic sales of JPY30.9bn

(+8.1% YoY) and overseas sales of JPY5.7bn (+7.9% YoY). By product, the FY12/19 sales forecasts are JPY22.1bn for hair care

products (+9.3% YoY), JPY12.3bn for hair coloring products (+4.0% YoY), JPY1.5bn for perm products (-0.7% YoY), and

JPY632mn for other products (+145% YoY).

** The company has applied the Accounting Standard for Revenue Recognition, etc. from the start of FY12/19. Changes from the previous term are

calculated against FY12/18 result based on the new standards.

◤ The company has announced a new medium-term management plan after achieving the targets in its previous medium-term

management plan (FY12/15 to FY12/19; released in January 2015) one year ahead of schedule in FY12/18. For FY12/23, the

final year of the new plan, the company forecasts consolidated sales of JPY48.5bn (FY12/18–FY12/23 CAGR of 7.4%),


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domestic sales of JPY40.0bn (7.0%), overseas sales of JPY8.5bn (9.9%), operating profit of JPY8.8bn (7.0%), and net income

attributable to parent company shareholders of JPY6.0bn (5.8%).

Strengths and weaknesses

Strengths: Original proposal-based sales approach boosting market share; unique R&D; and targeting the salon market, where

sales have room to grow. Weaknesses: Earnings dependent on the domestic market, where the number of customers is expected

to decline, low recognition overseas hampering expansion; and small scale compared with global players.


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Key financial data

Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods. Note: FY12/17 is an irregular accounting period consisting of 12 months and 11 days. The company implemented a two-for-one share split effective January 1, 2018. Note: The company has applied the Accounting Standard for Revenue Recognition, etc. from the start of FY12/19. The FY12/18 results are additionally restated in accordance with the new standard.

Income statement FY12/08 FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/18 FY12/19 FY12/23

(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. (new st'd)* Est. MTPSales 18,692 19,189 19,750 20,527 21,887 23,830 25,227 27,377 29,135 33,456 35,185 33,882 36,600 48,500

YoY 3.6% 2.7% 2.9% 3.9% 6.6% 8.9% 5.9% 8.5% 6.4% - 11.0% - 8.0% Gross profit 12,227 12,215 13,003 13,620 14,834 16,175 17,281 18,682 20,100 22,797 24,361 22,189 24,270 32,100

GPM 65.4% 63.7% 65.8% 66.4% 67.8% 67.9% 68.5% 68.2% 69.0% 68.1% 69.2% 65.5% 66.3% 66.2%SG&A expenses 8,482 8,937 9,424 9,828 10,847 11,872 12,830 13,954 14,987 17,452 18,101 15,928 17,430 23,300

YoY 4.1% 5.4% 5.4% 4.3% 10.4% 9.4% 8.1% 8.8% 7.4% - 10.7% - 9.4% SG&A ratio 45.4% 46.6% 47.7% 47.9% 49.6% 49.8% 50.9% 51.0% 51.4% 52.2% 51.4% 47.0% 47.6% 48.0%R&D expenses 668 766 838 871 873 970 1,169 1,214 1,232 1,422 1,479 1,479 1,535 YoY 16.5% 14.8% 9.3% 3.9% 0.3% 11.0% 20.5% 3.9% 1.5% - 4.0% - 3.8% R&D ratio 3.6% 4.0% 4.2% 4.2% 4.0% 4.1% 4.6% 4.4% 4.2% 4.3% 4.2% 4.4% 4.2%

Operating profit 3,745 3,278 3,579 3,792 3,986 4,303 4,451 4,728 5,113 5,345 6,261 6,261 6,840 8,800YoY 4.8% -12.5% 9.2% 6.0% 5.1% 7.9% 3.4% 6.2% 8.2% - 17.8% - 9.3% OPM 20.0% 17.1% 18.1% 18.5% 18.2% 18.1% 17.6% 17.3% 17.6% 16.0% 17.8% 18.5% 18.7% 18.1%

Recurring profit 3,514 3,104 3,327 3,546 3,735 4,060 4,219 4,428 4,734 4,998 5,811 5,811 6,190 8,400YoY 7.1% -11.7% 7.2% 6.6% 5.3% 8.7% 3.9% 4.9% 6.9% - 16.7% - 6.5% RPM 18.8% 16.2% 16.8% 17.3% 17.1% 17.0% 16.7% 16.2% 16.2% 14.9% 16.5% 17.2% 16.9% 17.3%

Net income 2,028 1,785 1,832 2,305 2,128 2,516 2,621 2,950 3,069 3,817 4,495 4,495 4,350 5,960YoY 31.5% -11.9% 2.6% 25.8% -7.7% 18.2% 4.2% 12.6% 4.0% - 18.8% - -3.2% Net margin 10.8% 9.3% 9.3% 11.2% 9.7% 10.6% 10.4% 10.8% 10.5% 11.4% 12.8% 13.3% 11.9% 12.3%

Per share data (split-adjusted; JPY) Shares issued (year-end; '000) 25,089 25,089 25,089 27,598 33,117 33,117 33,117 33,117 33,117 33,117 33,117 EPS 80.9 71.2 73.1 83.6 64.4 76.4 80.0 90.1 93.7 116.6 137.3 132.9 EPS (fully diluted) - - - - - - - - - - Dividend per share 27.5 27.5 30.0 32.0 33.0 34.0 34.0 37.0 39.0 46.0 54.0 54.0 Book value per share 625.1 664.4 706.1 691.5 615.8 676.2 736.1 800.5 846.2 950.0 1,012.6 Balance sheet (JPYmn) Current assets 6,476 6,988 8,036 10,617 11,600 12,938 14,308 14,625 13,411 16,107 19,304

Cash and cash equivalents 1,063 1,666 2,673 5,080 6,066 6,846 7,387 7,412 5,023 6,165 9,778 Accounts receivable 2,769 2,796 2,847 3,020 2,924 3,055 3,383 3,425 3,806 5,077 3,876 Inventories 2,339 2,164 2,222 2,222 2,316 2,617 3,077 3,295 3,894 4,075 4,823 Other 305 362 293 295 293 421 461 493 688 790 827

Noncurrent assets 13,138 13,366 12,808 11,976 12,063 13,384 13,831 16,174 19,033 21,536 20,490 Tangible fixed assets 10,487 10,640 10,301 9,753 9,529 10,416 10,531 12,281 14,681 14,627 14,341 Intangible fixed assets 261 319 452 512 526 482 449 398 790 944 988 Investments and other assets 2,391 2,407 2,054 1,711 2,007 2,486 2,852 3,494 3,562 5,966 5,161

Total assets 19,614 20,354 20,844 22,593 23,662 26,322 28,139 30,799 32,444 37,643 39,794 Current liabilit ies 3,294 3,247 2,725 3,328 3,098 3,971 3,870 4,357 4,591 5,995 6,345

Accounts payable 1,078 953 467 420 482 501 503 685 687 1,146 866 Short-term debt 23 - - - - - - - - - - Other 2,192 2,293 2,258 2,908 2,616 3,469 3,366 3,672 3,904 4,849 5,480

Noncurrent liabilit ies 652 454 419 205 197 202 165 230 147 544 297 Long-term debt - - - - - - - - - - - Other 652 454 419 205 197 202 165 230 147 544 297

Net assets 15,668 16,654 17,699 19,060 20,367 22,149 24,104 26,213 27,706 31,103 33,152 Capital stock 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Capital surplus 199 199 199 199 199 199 200 200 200 200 201 Retained earnings 13,565 14,638 15,780 17,257 18,476 20,069 21,656 23,440 25,249 27,756 30,615 Translation and valuation differences -96 -184 -280 -397 -308 -119 249 573 258 1,147 336 Share subscription rights - - - - - - - - - - - Minority interests - - - - - - - - - - -

Total capital and liabilit ies 19,614 20,354 20,844 22,593 23,662 26,322 28,139 30,799 32,444 37,643 39,794 Cash flow statement (JPYmn) Cash flows from operating activities 2,304 3,079 2,434 3,158 2,977 3,511 2,767 3,896 3,355 4,347 6,487 Cash flows from investing activities -1,399 -1,680 -728 101 -1,507 -1,199 -1,236 -2,834 -4,367 -1,920 -1,202 Cash flows from financing activities -922 -725 -688 -837 -911 -1,388 -1,052 -1,135 -1,262 -1,318 -1,639 Financial ratios Interest-bearing debt 23 - - - - - - - - - - Net cash 1,040 1,666 2,673 5,080 6,066 6,846 7,387 7,412 5,023 6,165 9,778 ROA (RP-based) 18.4% 15.5% 16.2% 16.3% 16.2% 16.2% 15.5% 15.0% 15.0% 14.3% 15.0% ROE 13.4% 11.0% 10.7% 12.5% 10.8% 11.8% 11.3% 11.7% 11.4% 13.0% 14.0% Current ratio 197% 215% 295% 319% 374% 326% 370% 336% 292% 269% 304% Fixed ratio 84% 80% 72% 63% 59% 60% 57% 62% 69% 69% 62% Equity ratio 80% 82% 85% 84% 86% 84% 86% 85% 85% 83% 83%


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Recent updates

Highlights On April 12, 2019, Shared Research updated the report following interviews with Milbon Co., Ltd.

On April 8, 2019, the company announced that it has successfully established a new formulation technology focusing on the

structure of oil-based gel.

▷ Previously, oil-based gel* formulations were prone to changes in structure or ease of use (firmness, elasticity, application,

appearance), depending on the temperature.

▷ The new formulation technology using a specific rice bran wax**, however, helps realize oil-based gel formulations that maintain

a stable structure even under temperature changes. By using this technology, the company can now develop formulations that

maintain steady ease of use regardless of the temperature.

▷ The company plans to use this technology in its styling formulations scheduled for release in Japan around the summer of 2019

and other products.

▷ It presented its research findings in an article titled, “Temperature characteristics of organogel made from specific rice bran wax,

and the use of organogel in cosmetics,” at a conference of the Chemical Society of Japan held on March 16, 2019.

*Oil-based gel: Solidified oil, ethanol, or other liquids except water.

**Rice bran wax: Solid fat obtained from rice bran.

On March 15, 2019, the company announced that it had discovered an ingredient that would restore the moisture-retention

capability of the outer layer of skin when it has been damaged.

Milbon, together with KOSÉ (TSE1: 4922) and Tohoku University Associate Professor Shinichi Morita, created a new technology

to assess structural changes at the molecular level in the proteins of the outer layer of the skin (stratum corneum) that has been

damaged and also visualize the accompanying changes in water molecule bonding. Milbon and KOSÉ intend to use these results

to create new products that will be on the market in 2019. A paper detailing the discovery is scheduled to be presented at the

annual meeting of the Protein Science Society of Japan in June 2019.

Research results

▷ Milbon, with its research on hair and the scalp, and KOSÉ , with its research in the field of dermatology and development of

cosmetic ingredients, combined their expertise in these research areas in a search for an ingredient that would help restore the

outer layer of skin when it has been damaged. As a result of this research, they made the world's first discovery of an ingredient

that would restore the protein structure and moisture-retention capability of the outer layer of skin when it has been damaged.

▷ Normally, proteins serve to maintain an orderly structure within molecules, and when treatments to repair oxidative damages are

applied to the outer layer of the skin (stratum corneum) the protein structure in the damaged layer is thrown into disarray. For

the first time researchers were able to analyze and visualize this process at the molecular level.

▷ In their search for an ingredient that would help repair the outer layer of the skin, researchers discovered that the KOSÉ's

self-developed apple fruit extract (extracted and refined from unripe apples) was able to not only restore structural order to the

proteins in the outer layer of the skin, but also restore their capacity for bonding with water molecules.


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▷ It was already known that KOSÉ's apple fruit extract worked as an antioxidant and was effective in maintaining the cell

multiplication on the surface of the skin, but this time the researchers were able to find that the ingredient was also effective on

proteins in the outer layer of the skin.

On February 13, 2019, the company announced earnings results for the full-year FY12/18, a new medium-term management

plan, and an upward revision to its dividend forecast.

For previous releases and developments, please refer to the News and topics section.


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Trends and outlook

Quarterly trends and results

Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods. Note: FY12/17 is an irregular accounting period consisting of 12 months and 11 days. The company implemented a two-for-one share split effective January 1, 2018. YoY comparisons for FY12/18 are direct comparisons with the annualized results (12 months) for FY12/17. YoY comparisons for cumulative Q4 FY12/18 (January 1 to December 31, 2018) are calculated using results accrued during the 12 months and 11 days from December 21, 2016 to December 31, 2017 for non-consolidated financial statements, and results accrued during the 15 months from October 1 to December 31, 2017 for financial statements of subsidiaries.

Cumulative FY12/16 FY12/17 FY12/18(JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Est.Sales 6,709 14,218 21,425 29,135 6,898 14,957 22,840 31,708 7,790 16,803 25,262 35,185 101.4% 34,700

YoY 10.3% 8.7% 7.2% 6.4% 2.8% 5.2% 6.6% - 12.9% 12.3% 10.6% 11.0% 11.0%Gross profit 4,563 9,788 14,762 20,100 4,544 10,069 15,511 21,661 5,552 11,753 17,660 24,361

GPM 68.0% 68.8% 68.9% 69.0% 65.9% 67.3% 67.9% 68.3% 71.3% 69.9% 69.9% 69.2% SG&A expenses 3,638 7,364 10,916 14,987 3,757 7,736 11,617 16,347 4,162 8,777 12,973 18,101

YoY 10.8% 8.8% 7.5% 7.4% 3.3% 5.1% 6.4% - 10.8% 13.5% 11.7% 10.7% SG&A ratio 54.2% 51.8% 51.0% 51.4% 54.5% 51.7% 50.9% 51.6% 53.4% 52.2% 51.4% 51.4%

Operating profit 925 2,424 3,845 5,113 787 2,333 3,894 5,313 1,390 2,975 4,687 6,261 101.6% 6,160YoY -7.3% 2.3% 1.5% 8.2% -14.9% -3.7% 1.3% - 76.7% 27.5% 20.4% 17.8% 17.8%OPM 13.8% 17.0% 17.9% 17.6% 11.4% 15.6% 17.1% 16.8% 17.8% 17.7% 18.6% 17.8% 17.8%

Recurring profit 814 2,188 3,495 4,734 717 2,147 3,666 4,980 1,209 2,747 4,393 5,811 103.0% 5,640YoY -17.0% -3.6% -2.8% 6.9% -11.8% -1.9% 4.9% - 68.5% 27.9% 19.8% 16.7% 16.7%RPM 12.1% 15.4% 16.3% 16.2% 10.4% 14.4% 16.0% 15.7% 15.5% 16.3% 17.4% 16.5% 16.3%

Net income 546 1,465 2,370 3,069 538 1,508 3,137 3,785 1,075 2,137 3,325 4,495 106.0% 4,240YoY -14.0% 1.4% 1.7% 4.0% -1.5% 3.0% 32.3% - 99.7% 41.7% 6.0% 18.8% 18.8%Net margin 8.1% 10.3% 11.1% 10.5% 7.8% 10.1% 13.7% 11.9% 13.8% 12.7% 13.2% 12.8% 12.2%

Quarterly FY12/17 FY12/18(JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Sales 6,709 7,510 7,207 7,710 6,898 8,059 7,883 8,868 7,790 9,013 8,459 9,924

YoY 10.3% 7.4% 4.4% 4.2% 2.8% 7.3% 9.4% - 12.9% 11.8% 7.3% 11.9% Gross profit 4,563 5,225 4,974 5,339 4,544 5,525 5,442 6,150 5,552 6,201 5,907 6,701

GPM 68.0% 69.6% 69.0% 69.2% 65.9% 68.6% 69.0% 69.3% 71.3% 68.8% 69.8% 67.5% SG&A expenses 3,638 3,726 3,552 4,071 3,757 3,979 3,881 4,730 4,162 4,616 4,195 5,128

YoY 10.8% 6.9% 4.9% 7.2% 3.3% 6.8% 9.2% - 10.8% 16.0% 8.1% 8.4% SG&A ratio 54.2% 49.6% 49.3% 52.8% 54.5% 49.4% 49.2% 53.3% 53.4% 51.2% 49.6% 51.7%

Operating profit 925 1,499 1,422 1,268 787 1,546 1,561 1,419 1,390 1,585 1,712 1,573 YoY -7.3% 9.2% 0.3% 34.9% -14.9% 3.2% 9.8% - 76.7% 2.5% 9.6% 10.9% OPM 13.8% 20.0% 19.7% 16.4% 11.4% 19.2% 19.8% 16.0% 17.8% 17.6% 20.2% 15.9%

Recurring profit 814 1,374 1,307 1,238 717 1,430 1,519 1,314 1,209 1,538 1,646 1,418 YoY -17.0% 6.5% -1.2% 48.6% -11.8% 4.0% 16.2% - 68.5% 7.6% 8.4% 7.9% RPM 12.1% 18.3% 18.1% 16.1% 10.4% 17.7% 19.3% 14.8% 15.5% 17.1% 19.5% 14.3%

Net income 546 919 905 699 538 970 1,628 648 1,075 1,062 1,187 1,171 YoY -14.0% 13.5% 2.0% 12.9% -1.5% 5.6% 79.9% - 99.7% 9.5% -27.1% 80.6% Net margin 8.1% 12.2% 12.6% 9.1% 7.8% 12.0% 20.7% 7.3% 13.8% 11.8% 14.0% 11.8%

Segments (cumulative) FY12/17 FY12/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Hair care products 3,918 8,511 12,760 17,711 3,924 8,680 13,210 18,688 4,490 9,995 14,800 21,125 YoY 10.8% 11.2% 9.8% 9.4% 0.2% 2.0% 3.5% - 14.4% 15.1% 12.0% 13.0%

Hair coloring products 2,441 4,944 7,529 9,892 2,667 5,462 8,360 11,264 2,905 5,886 9,080 12,203 YoY 12.4% 7.3% 5.6% 4.1% 9.3% 10.5% 11.0% - 8.9% 7.8% 8.6% 8.3%

Perm products 350 763 1,136 1,530 307 815 1,270 1,756 393 922 1,382 1,858 YoY -6.5% -6.2% -7.8% -8.6% -12.1% 6.7% 11.8% - 28.0% 13.1% 8.8% 5.8%

Sales 6,709 14,218 21,425 29,135 6,898 14,957 22,840 31,708 7,790 16,803 25,262 35,185 YoY 10.3% 8.7% 7.2% 6.4% 2.8% 5.2% 6.6% - 12.9% 12.3% 10.6% 11.0% Domestic sales 5,739 12,330 18,593 25,287 5,856 12,847 19,580 27,173 6,479 14,188 21,328 29,873

YoY 8.8% 7.8% 6.5% 5.9% 2.0% 4.2% 5.3% - 10.6% 10.4% 8.9% 9.9% Overseas sales 968 1,888 2,831 3,847 1,041 2,109 3,259 4,535 1,310 2,614 3,933 5,313

YoY 20.1% 15.6% 12.2% 33.8% 7.7% 11.7% 15.1% - 25.8% 23.9% 20.7% 17.1% Overseas sales ratio 14.4% 13.3% 13.2% 13.2% 15.1% 14.1% 14.3% 14.3% 16.8% 15.6% 15.6% 15.1% Segments (quarterly) FY12/17 FY12/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Hair care products 3,918 4,593 4,249 4,951 3,924 4,756 4,530 5,478 4,490 5,505 4,805 6,325 YoY 10.8% 11.5% 7.2% 8.2% 0.2% 3.5% 6.6% - 14.4% 15.7% 6.1% 15.5%

Hair coloring products 2,441 2,503 2,585 2,363 2,667 2,795 2,898 2,904 2,905 2,981 3,194 3,123YoY 12.4% 2.8% 2.5% -0.6% 9.2% 11.7% 12.1% - 8.9% 6.7% 10.2% 7.5%

Perm products 350 414 373 394 307 508 455 486 393 529 460 476YoY -6.5% -6.0% -10.9% -10.8% -12.1% 22.7% 22.2% 23.3% 28.0% 4.2% 1.0% -2.1%

Sales 6,709 7,510 7,207 7,710 6,898 8,059 7,883 8,868 7,790 9,013 8,459 9,924YoY 10.3% 7.4% 4.4% 4.2% 2.8% 7.3% 9.4% - 12.9% 11.8% 7.3% 11.9%Domestic sales 5,739 6,591 6,263 6,694 5,856 6,991 6,733 7,593 6,479 7,709 7,140 8,545

YoY 8.8% 6.9% 4.1% 4.2% 2.0% 6.1% 7.5% - 10.6% 10.3% 6.0% 12.5%Overseas sales 968 920 943 1,016 1,041 1,068 1,150 1,276 1,310 1,304 1,319 1,380

YoY 19.9% 11.3% 6.0% 4.5% 7.5% 16.1% 22.0% - 25.8% 22.1% 14.7% 8.1%Overseas sales ratio 14.4% 12.3% 13.1% 13.2% 15.1% 13.3% 14.6% - 16.8% 14.5% 15.6% 13.9%

FY12/18

FY12/16

FY12/16

FY12/16


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Full-year FY12/18 results (out February 13, 2019)

▷ FY12/19 results: The company posted sales of JPY35.2bn (+11.0% YoY*), operating profit of JPY6.3bn (+17.8% YoY), recurring

profit of JPY5.8bn (+16.7% YoY), and net income attributable to parent company shareholders of JPY4.5bn (+18.8% YoY)

▷ Sales rose 11.0% YoY**, driven by a 13.0% YoY increase in sales of hair care products. Sales of hair coloring products also

expanded 8.3% YoY on the strength of products such as Addicthy.

▷ Operating profit rose 17.8% YoY. An integration and expansion of domestic plants drove up costs in FY12/17, but sales growth,

special factors such as a reversal of provision for sales returns of previous versions of Aujua products, and enhanced productivity

contributed to profit growth in FY12/18. GPM improved 0.9pp YoY to 69.2%, the SG&A-to-sales ratio fell 0.2pp to 51.4%, and

OPM climbed 1.0pp to 17.8%.

▷ Results versus plan: Looking at results against the FY12/18 company forecasts, sales finished 101.4% versus plan, operating profit

101.6%, recurring profit 103.0%, and net income attributable to parent company shareholders 106.0%. Both sales and profit

came in firmly above forecasts.

▷ Dividends: The company revised its year-end dividend forecast upward by JPY6 from its previous forecast of JPY24 to JPY30 per

share. This pushed up the annual dividend target from the previous forecast of JPY48 to JPY54 per share, up from the JPY46

annual dividend paid out in FY12/17*** (ordinary dividend of JPY20 and special dividend of JPY26).

* YoY comparisons for FY12/18 are direct comparisons with annualized results (12 months) for FY12/17.

** In hair care products, the updated Aujua products rolled out from November 2017 enjoyed a positive reception in the market. Sales for the premium

brand milbon grew in the global market as the company continued to expand sales outlets both in Japan and overseas. Among Aujua products, fashion

hair coloring product Ordeve Addicthy, which was launched in February 2017, also grew significantly. Overseas, sales were particularly strong in China

and East Asia.

*** The company implemented a two-for-one share split effective January 1, 2018. The FY12/17 dividend above represents the amount after adjustment

for the stock split.

Change in accounting period

Due to a change in the accounting period* initiated in FY12/17, results for FY12/17 span 12 months and 11 days (December 21,

2016 to December 31, 2017) for non-consolidated financial statements, and 15 months (October 1, 2016 to December 31,

2017) for financial statements of subsidiaries.

* Change in accounting year: Until FY12/17, the company used an accounting year running from December 21 to December 20 the following year.

However, starting FY12/17, the company decided to unify the accounting periods used by all group companies and switched to an accounting year

running from January 1 to December 31.

Sales by product

Source: Shared Research based on company data

3,537 4,118 3,963 4,577 3,918 4,593 4,249 4,951 3,924 4,756 4,5306,301

4,490 5,505 4,8056,325

2,172 2,434 2,523 2,377 2,441 2,503 2,585 2,3632,667

2,795 2,898

3,736

2,9052,981

3,1943,123

4.9%

9.7% 10.2%9.0%

10.3%

7.4%

4.4%4.2%

2.8%7.3%

9.4%

12.9%11.8%

7.3%

11.9%

0%2%4%6%8%10%12%14%16%

02,0004,0006,0008,000

10,00012,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

FY12/15 FY12/16 FY12/17 FY12/18

Hair care products Hair coloring products Perm products YoY (right axis)(JPYmn)


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Operating profit


Sales by segment Hair care products

Sales of hair care products were JPY21.1bn (+13.0% YoY based on comparison to FY12/17 figures adjusted to account for the

discrepancy in accounting period length; same below). In hair care products, sales of the premium brand Aujua were JPY6.7bn

(+29.5% YoY). The updated Aujua products (rolled out from November 2017 through 1H FY12/18) performed well. The number

of salons selling Aujua at end-FY12/18 was 3,271 (+105 salons compared with end-FY12/17). Sales of the premium brand milbon

were JPY2.1bn (+44.2% YoY) and 5,571 salons were selling the product at end-FY12/18 (+1,605 salons compared with

end-FY12/17), showing the same solid growth as Aujua.

Quarterly sales of hair care products


Quarterly sales of Aujua


Hair coloring products

Sales of hair coloring products were JPY12.2bn (+8.3% YoY*). Ordeve Addicthy, a new hair coloring product that was launched in

February 2018, registered strong sales. Sales of the organic brand Villa Lodola Color were favorable at JPY8.0mn (+18.3% YoY).

The number of salons selling Villa Lodola was 8,085 at end-FY12/18 (+1,190 salons compared with end-FY12/17).

998 1,373 1,417940 925

1,499 1,422 1,268

787

1,5461,561

1,451 1,3901,585

1,712 1,5735.7% 14.4%

32.3%

-23.9%-7.3%

9.2% 0.3%

34.9%

-14.9%3.2% 9.8%

76.7%

2.5% 9.6% 10.9%

-40%-20%0%20%40%60%80%100%

0200400600800

1,0001,2001,4001,6001,800


FY12/15 FY12/16 FY12/17 FY12/18

Operating profit YoY (right axis)(JPYmn)

3,537 4,118 3,963 4,577 3,918 4,593 4,249 4,9513,924 4,756 4,530

6,3014,490

5,505 4,8056,325

14.1% 9.3% 11.0% 10.0% 10.8% 11.5%

7.2% 8.2%

0.2% 3.5%6.6%

14.4%15.7%

6.1%

15.5%

0%

5%

10%

15%

20%

0

2,000

4,000

6,000

8,000


FY12/15 FY12/16 FY12/17 FY12/18

Hair care products YoY (right axis)(JPYmn)

852 1,032 1,1141,447

1,019 1,168 1,2391,617

1,0381,271 1,353 1,531 1,250

1,636 1,472

2,368

22.6% 20.4%26.9% 25.6% 19.5%

13.2% 11.2% 11.7%

1.9%8.8% 9.2%

20.4%28.7%

8.8%

54.7%

-10%

0%

10%

20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

2,500

3,000


FY12/15 FY12/16 FY12/17 FY12/18

Aujua brand sales YoY (right axis)(JPYmn)


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Quarterly sales of hair coloring products


Results by region By region, the company booked JPY29.9bn in sales in Japan (+9.9% YoY*) and JPY5.3bn overseas (+17.1% YoY). 15.1% of overall

sales were made overseas (+0.8pp YoY). Overseas, sales in Korea were JPY2.1bn (+6.2% YoY*), JPY1.4bn in China (+42.6% YoY),

JPY632mn in the US (+9.2% YoY), JPY123mn in Thailand (+3.4% YoY), and JPY1.1bn in other regions, including Taiwan (+20.1%

YoY). East Asia, including China and Korea, continued to perform well.

In FY12/18, the foreign currency exchange rate was JPY0.1001/KRW in Korea (JPY0.0972/KRW in FY12/17), JPY16.73/CNY in China

(JPY16.37/CNY in FY12/17), JPY110.44/USD in the US (JPY111.31/USD in FY12/17), and JPY3.43/THB in Thailand (JPY3.21/THB in

FY12/17).

Sales breakdown (Japan/overseas)


Capex, R&D In FY12/18, capital expenditures were JPY1.1bn (versus FY12/18 forecast of JPY1.7bn). The main items in the capital expenditure

plan for FY12/18 are factory mixing equipment (four-ton vacuum tank), expenditures related to the transfer and expansion of the

Fukuoka branch office and Okayama sales office, and the renovation of the Central Research Institute. The relocation and

expansion of the Fukuoka branch office, originally planned for FY12/18, is now scheduled for FY12/20.

Depreciation costs were JPY1.4bn (versus FY12/18 forecast of JPY1.4bn). R&D expenses were JPY1.5bn, accounting for 4.2% of

sales (versus FY12/18 forecasts of JPY1.4bn and 4.4% of sales).

For details on previous quarterly and annual results, see the Historical financial statements section.

2,172 2,434 2,523 2,377 2,441 2,503 2,585 2,363

2,667 2,795 2,898

3,736

2,905 2,981 3,194 3,123

-4.2%

14.3% 11.8%9.9%

12.4%

2.8% 2.5%

-0.6%

9.2%11.7% 12.1%

8.9% 8.8% 10.2% 7.5%

-5%

0%

5%

10%

15%

0

1,000

2,000

3,000

4,000


FY12/15 FY12/16 FY12/17 FY12/18

Hair coloring products YoY (right axis)(JPYmn)

5,276 6,165 6,014 6,425 5,739 6,591 6,263 6,694 5,856 6,991 6,7338,395

6,479 7,709 7,140 8,545807

827 890 972 968920 943 1,016

1,0411,068 1,150

2,223

1,3101,304 1,319

1,38013.3% 11.8% 12.9% 13.1%

14.4% 12.3% 13.1%13.2% 15.1% 13.3% 14.6% 16.8%14.5% 15.6%

13.9%

0%

5%

10%

15%

20%

25%

30%

0

2,000

4,000

6,000

8,000

10,000

12,000


FY12/15 FY12/16 FY12/17 FY12/18

Domestic sales Overseas sales Overseas sales ratio (right axis)(JPYmn)


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Full-year company forecasts for FY12/19

Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods. YoY figures for FY12/18 estimates indicate increases/decreases versus 12-month equivalent FY12/17 results. Note: The company has applied the Accounting Standard for Revenue Recognition, etc. from the start of FY12/19. The FY12/18 results are additionally restated in accordance with the new standard.

Sales expected to rise 8.0% YoY, operating profit 9.3% YoY in FY12/19

▷ Milbon forecasts FY12/19 sales of JPY36.6bn (+8.0% YoY*), operating profit of JPY6.8bn (+9.3% YoY), recurring profit of JPY6.2bn

(+6.5% YoY), and net income of JPY4.4bn (-3.2% YoY).

▷ The company forecasts domestic sales of JPY30.9bn (+8.1% YoY) and overseas sales of JPY5.7bn (+7.9% YoY).

▷ By product, the FY12/19 sales forecasts are JPY22.1bn for hair care products (+9.3% YoY), JPY12.3bn for hair coloring products

(+4.0% YoY), JPY1.5bn for perm products (-0.7% YoY), and JPY374mn for other products (+145% YoY). By major brand, the

company looks for sales of JPY7.5bn for Aujua (+11.5% YoY), JPY2.6bn for milbon (+21.3% YoY), and JPY1.3bn for Villa Lodola

(+14.1% YoY).

▷ The company forecasts capital expenditures of JPY1.7bn (+48.8% YoY), depreciation costs of JPY1.5bn (+9.3% YoY), and R&D

expenses of JPY1.5bn (+3.8% YoY).

* The company has applied the Accounting Standard for Revenue Recognition, etc. from the start of FY12/19. Changes from the previous term are

calculated against FY12/18 result based on the new standards.

Earnings FY12/11 FY12/12 FY12/13 FY12/17 FY12/17 FY12/18 FY12/18 FY12/19(JPYmn) FY Act. FY Act. FY Act. FY Act. FY Act. FY Act. FY Act. 12mo eqv. FY Est. Act. (new st'd)* FY Est.Sales 20,527 21,887 23,830 25,227 27,377 29,135 33,456 31,708 35,185 33,882 36,600

YoY 3.9% 6.6% 8.9% 5.9% 8.5% 6.4% - 8.8% 11.0% - 8.0%Operating profit 3,792 3,986 4,303 4,451 4,728 5,113 5,345 5,313 6,261 6,261 6,840

YoY 6.0% 5.1% 7.9% 3.4% 6.2% 8.2% - 3.9% 17.8% - 9.3%OPM 18.5% 18.2% 18.1% 17.6% 17.3% 17.6% 16.0% 16.8% 17.8% 18.5% 18.7%

Recurring profit 3,546 3,735 4,060 4,219 4,428 4,734 4,998 4,980 5,811 5,811 6,190YoY 6.6% 5.3% 8.7% 3.9% 4.9% 6.9% - 5.2% 16.7% - 6.5%RPM 17.3% 17.1% 17.0% 16.7% 16.2% 16.2% 14.9% 15.7% 16.5% 17.2% 16.9%

Net income 2,305 2,128 2,516 2,621 2,950 3,069 3,817 3,785 4,495 4,495 4,350YoY 25.8% -7.7% 18.2% 4.2% 12.6% 4.0% - 23.3% 18.8% - -3.2%Net margin 11.2% 9.7% 10.6% 10.4% 10.8% 10.5% 11.4% 11.9% 12.8% 13.3% 11.9%

Earnings by segment FY12/11 FY12/12 FY12/13 FY12/17 FY12/17 FY12/18 FY12/18 FY12/18(JPYmn) FY Act. FY Act. FY Act. FY Act. FY Act. FY Act. FY Act. 12mo eqv. FY Est. Act. (new st'd)* FY Est.

Hair care products 10,398 11,069 12,616 14,597 16,195 17,711 19,511 18,688 21,125 20,222 22,104YoY 2.6% 6.5% 14.0% 15.7% 10.9% 9.4% - 5.5% 8.3% - 9.3%

Hair coloring products 7,987 8,820 9,288 8,817 9,506 9,892 12,096 11,264 12,203 11,857 12,330YoY 9.7% 10.4% 5.3% -5.1% 7.8% 4.1% - 13.9% 0.9% - 4.0%

Perm products 2,142 1,998 1,926 1,813 1,674 1,532 1,850 1,756 1,858 1,801 2,166YoY -8.3% -6.7% -3.6% -5.9% -7.6% -8.5% - 14.6% 0.4% - 20.3%

Sales 20,527 21,887 23,830 25,227 27,377 29,135 33,456 31,708 35,185 33,882 36,600YoY 3.9% 6.6% 8.9% 5.9% 8.5% 6.4% - 8.8% 11.0% - 8.0%Domestic sales 19,323 20,482 21,946 22,612 23,880 25,287 27,975 27,173 29,873 28,570 30,870

YoY 6.0% 7.1% 3.0% 5.6% 5.9% - 7.5% 6.8% - 8.1%Overseas sales 1,204 1,405 1,884 2,615 3,496 3,847 5,482 4,535 5,313 5,313 5,730

YoY 16.8% 34.0% 38.8% 33.8% 10.0% - 17.9% -3.1% - 7.9%Overseas sales ratio 5.9% 6.4% 7.9% 10.4% 12.8% 13.2% - 14.3% 15.1% 15.7% 15.7%

FY12/16

FY12/16

FY12/15

FY12/14 FY12/15

FY12/14


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FY12/19 company forecast

Source Shared Research based on company data Note: FY12/18 data has been adjusted to correspond to the Accounting Standard for Revenue Recognition the company began applying in FY12/19

New products The company is planning to release the following products:

◤ Hair coloring products

▷ Ordeve Seedil and Ordeve Seedil Interval RE:Care: June 2019 release; target sales of JPY800mn

▷ Ordeve Ledress (hair manicure): March 2019 release; target sales of JPY700mn

▷ The launches of new hair coloring products have been delayed, but Milbon plans to expand sales in FY12/19 by packaging

Ordeve Seedil (hair coloring product for gray hair), Ordeve Ledress (hair manicure for gray hair), and Ordeve Seedil Interval

RE:Care (hair coloring product designed for personal use on the T-zone) together. Ordeve Seedil Interval RE:Care is the

company’s first attempt at creating a product that allows customers (repeat salon customers) to dye their hair at home using the

same color they request at salons. Hair dye for personal use at home had been an issue of interest for the company, as gray hair

tends to become visible again after short periods of time. With the aim of creating life-long customers for hair coloring products

offered at salons, the company launched new products and plans to develop the hair coloring products market for gray hair in

various ways.

◤ Hair care products

▷ Aujua Eternal Stage Series Diorum Line: March 2019 release; target sales of JPY800mn

▷ “milbon” Extended Series (used for hair treatments offered at salons): July 2019 release; target sales of JPY40mn

▷ CRONNA: April 2019 release; target sales of JPY750mn

FY12/18 FY12/19 YoY(JPYmn) (New standard) Est.Sales 33,882 36,600 8.0%

Domestic 28,570 30,870 8.1%Overseas 5,312 5,730 7.9%

By product Hair care products 20,222 22,104 9.3%Hair coloring products 11,857 12,330 4.0%Perm products 1,544 1,534 -0.7%Other 257 632 145.0%

By premium brand Aujua 6,726 7,500 11.5%

Number of salons 3,271 3,600 10.1%milbon 2,142 2,600 21.4%

Number of domestic salons 3,645 4,200 15.2%Number of overseas salons 1,926 2,500 29.8%

Villa Lodola 1,113 1,270 14.1%Number of salons 8,085 10,000 23.7%

Gross profit 22,189 24,270 9.4%GPM 65.5% 66.3% -

SG&A expenses 15,928 17,430 9.4%SG&A ratio 47.0% 47.6% -

Operating expenses 6,260 6,840 9.3%OPM 18.5% 18.7% -

Recurring expenses 5,811 6,190 6.5%RPM 17.2% 16.9% -

Net income attrib. to parent company shareholders 4,495 4,350 -3.2%Net margin 13.3% 11.9% -

FY12/18 FY12/19 YoY(JPYmn) (New standard) Est.Capital expenditures 1,149 1,710 48.8%Depreciation 1,370 1,498 9.3%R&D expenses 1,479 1,535 3.8%

R&D as % of sales 4.4% 4.2% -


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The new Aujua products are ranked number one in the field of aging care. CRONNA is expected to succeed PLARMIA.

Policies

▷ Japanese market: In order to create Lifetime Beauty Salons, the company is developing its recruitment capabilities (providing

working environments that facilitate employee development, enable continued employment, and are rewarding) and customer

support capabilities (preserving beauty and increasing breadth of values and proposals), and cultivating Lifetime Beauty Partners.

▷ Overseas market: Please refer to the section titled New medium-term management plan (FY12/19 to FY12/23).


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Outlook

New medium-term management plan (FY12/19 to FY12/23) The company has announced a new medium-term management plan (FY12/19–FY12/23) after achieving the targets in its

previous medium-term management plan* (FY12/15–FY12/19; released in January 2015) one year ahead of schedule in FY12/18.

New medium-term management plan

FY12/18 results FY12/23 targets CAGR

(%) (JPYmn) Amount % of sales Amount % of sales

Sales 33,882 100.0% 48,500 100.0% 7.4

Japan 28,570 84.3% 40,000 82.5% 7.0

Overseas 5,312 15.7% 8,500 17.5% 9.9

Operating profit 6,260 18.5% 8,800 18.1% 7.0

Net income attributable to parent company shareholders

4,495 13.3% 5,960 12.3% 5.8

Source: Shared Research based on company data Note: The company has applied the Accounting Standard for Revenue Recognition, etc. from the start of FY12/19. The FY12/18 results have been restated in accordance with the new standard.

Overview of new medium-term management plan

▷ Medium-term vision and global vision roadmap: The company’s medium-term vision is to become the top company in the

professional-use hair cosmetics market in Asia and to enter the top five worldwide, contributing to beauty across the globe

through collaboration with hair designers. It plans to make a shift from a global perspective to a viewpoint that essentially focuses

on society and customers. It will pursue the transition to creating a new beauty care industry rooted in Japanese beauty care

culture.

▷ Policies for Japanese market: Develop new products, revamp fieldperson system, expand studio network, strengthen and support

genuine B2B2C communication skills, develop B2B2C digital communication (providing online consulting and installing digital

diagnostic systems), venture into cosmetics business that aims to realize lifelong beauty care for customers, and promote

corporate and product branding.

▷ Policies for overseas markets: Promote rapid growth strategies targeting specific regions, develop market foundations by

promoting shift to local solutions, conduct initiatives related to various solutions businesses.

*(Reference) Summary of the previous medium-term management plan (FY12/15–FY12/19)

▶Progress in Japan exceeded forecasts, and in FY12/18, both sales and operating profit met targets set in the previous (revised) medium-term

management plan one year early.

▶Net income attributable to parent company shareholders met its targets one year early due in part to the recording of gains on the sale of investment

securities following a review of policy shareholdings.

▶The plan was revised on June 28, 2017 because the company decided to attempt investment originally scheduled for the period covered by the

recently announced new medium-term management plan (FY12/19–FY12/23) during the period under the previous medium-term management plan.

Specifically, the following were conducted in advance:

・Hired, trained, and developed additional personnel in order to promote the cosmetics business

・Accelerated corporate branding

・Conducted global expansion into Europe and other overseas regions

・Relocated headquarters to Tokyo in November 2017 to improve brand image in order to promote the cosmetics business; accelerate global

expansion; secure diverse human resources necessary for promoting the cosmetics business; and strengthen relationships with partner companies that

are essential to the development of new fields.


Out Jan. 21, 2014 Rev. Jun. 28, 2017 CAGR（%） % of FY12/19 Tgt(JPYmn) ① ② 2014-2018 ②/①Sales 35,000 35,000 35,185 8.7% 100.5%

Domestic 28,500 28,500 29,872 7.2% 104.8%Overseas 6,500 6,500 5,312 19.4% 81.7%

Operating profit 7,000 6,000 6,260 8.9% 104.3%Net income attributable to parent company shareholders 4,130 3,850 4,495 14.4% 116.8%

FY12/19 Target FY12/18 Act.


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Primary initiatives

▶Plants and R&D: 1) Integration of the Yumegaoka plant; 2) Expansion of the Central Research Institute

▶Establishment of bases in Japan: Ginza, Kumamoto, Okayama, Shizuoka; Base relocations: Sapporo, Yokohama

▶Establishment of overseas bases: Philippines, Singapore, Daejeon (South Korea), Chengdu (China), Germany

▶Promotion of the cosmetics business: Established KOSÉ Milbon Cosmetics Co., Ltd. (KMC), a joint venture with the KOSÉ Corporation, in August

2017

▶Founding of Milbon Corporate University (MCU) with the aim of cultivating executive candidates who can take charge in ten years

▶Products: Renewed Aujua products and promoted “milbon” and Addicthy products

Global position

▷ Milbon ranked within the top ten in the global professional hair cosmetics market (holds an approximately 3% share of the global

market) according to a 2017 study by Kline & Company. The company aims to be ranked within the top five companies in

FY12/23 (with a 4% share of the global market).

▷ According to Milbon, it already had the top share in Asia (at about 11%) in FY12/18 but aims to increase that share to 14% in

FY12/23.

▷ It also plans to expand the ratio of overseas sales contribution from 15.7% in FY12/18 to 17.5% in FY12/23. By expanding its

overseas sales, the company plans to continue increasing its presence in the global market. (Overseas sales: JPY5.3bn in FY12/18;

the company began applying the Accounting Standard for Revenue Recognition from the beginning of FY12/19, and FY12/18

results have been adjusted to correspond to this standard. The company targets overseas sales of JPY8.5bn in FY12/23.)

▷ At 20% in FY12/18, the company already has the top share of the Japanese professional hair cosmetics market but aims to raise

this figure to about 25% in FY12/23.

Regional strategies

Summary Milbon had previously formulated its regional strategies in Japan mainly out of consideration for the industry but is now

attempting to do so from a fundamentally more society- and customer-based standpoint. This transition is rooted in the

company’s Lifetime Beauty Innovation for Next100 plan (details explained in detail below). The company aims to promote the

creation of market foundations through localization in Asia. It projects continuous annual growth of 15% in China, stressing the

importance of supply systems. Milbon will attempt to strengthen its supply system, with an eye toward establishing a production

base in China. It will construct a new growth strategy in South Korea. In Europe and the US, the company plans to launch

Sophistone in Summer 2019. This product, which the company developed in-house, marks the launch of its first hair coloring

product for Europe and US markets. Using North America as a springboard, the company will target countries in Europe and also

Turkey. No decisions have been finalized, but the company is also considering possible expansion into India.

New five-year management plan

Sales CAGR

(%) 2018–2023

Exchange rate (vs. JPY)

(JPYmn) FY12/18 actual* FY12/23 target FY12/18 FY12/23

Japan 28,569 40,000 7.0% - -

US 632 1,050 10.7% JPY110.4/USD 105.0

China 1,368 2,784 15.3% JPY16.7/CNY 16.0

Korea 2,064 2,520 4.1% JPY0.1000/KRW 0.1000

Thailand 123 201 10.4% JPY3.43/THB 3.20

Malaysia 191 302 9.5% JPY27.19/MYR 27.00

Vietnam 103 201 14.3% JPY0.00487/VND 0.00480


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Other regions** 828 1,440 11.7% - -

Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods. *Figures adjusted to correspond with the Accounting Standard for Revenue Recognition, which the company began applying at the start of FY12/19. **Taiwan, Hong Kong, Turkey, Indonesia, the Philippines, Singapore, Germany, and others.

Japanese market policies Lifetime Beauty Innovation for Next100

While resolving issues facing salons, Milbon aims to convert to policies fundamentally based on standpoints of society and

customers, while it had previously formulated policies primarily out of consideration for the industry. During the ten years since

2008, the company had implemented Challenge80, a policy that targeted productivity equivalent to JPY800,000 in monthly sales

per member of salon staff. However, the number of salons with monthly sales per staff exceeding JPY800,000 has increased by

about four times compared to ten years ago. In addition, the previous target of JPY800,000 per member of staff is no longer

regarded as sufficient for maintaining environments in which salon staff can sustain their employment for long periods of time.

Hence, in its new medium-term management plan, Lifetime Beauty Innovation for Next100, Milbon targets productivity

equivalent to monthly sales of JPY1.0mn per member of salon staff.

The company will implement the following five policies in pursuit of this goal:

◤ Establish a systems that supports increased salon productivity

Product development: The company will conduct R&D based on R&D Vision 2028, strengthen its customer standpoint

approach, perform fundamental research, and promote the manufacture of high value-added products using

cutting-edge technology.

Fieldperson system: Milbon will appoint a supervisor that will take charge of cosmetics education, and each salon will

have an FMS (marketing sales), FSE (salon educator), and an FCE (cosmetics educator) taking part in the fieldperson

system (detailed information regarding how the fieldperson system relates to the cosmetics business can be found

below).

◤ Support strengthening of direct BtoBtoC communication capabilities (direct interaction with salons and salon customers)

The company will educate employees to build total counseling techniques (face-to-face counseling capabilities) that

cover topics ranging from hair to skin care through the Milbon Counseling Method (MCM).

◤ Support digital BtoBtoC communication (digital interaction with salons and salon customers)

Spurred on by the cosmetics business, the company will launch an official e-commerce site. This site will be tailored for

salon customers and will not conduct sales to the general public. It will support the creation of systems that enable

customers to make subsequent and continued purchases of Milbon products without going to salons, preventing the loss

of repeat customers. Sales made under this system will be recorded by salons.

The company will also establish online counseling and digital diagnosis systems.

◤ Foray into the cosmetic products business (explained in detail below)

◤ Promote corporate and product branding

The company will develop branding strategies, such as distributing web magazines and creating official SNS accounts, to

raise brand recognition for product sold through salons (video promotions on YouTube have already recorded three

million views).

The company has been promoting brand recognition through station advertisements near the Yaesu exit in Tokyo Station,

and is gradually expanding this promotion to other areas, such as Fukuoka and Nagoya, since the start of 2019.


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Overseas market policies The company will promote the following policies overseas:

Advance region-specific growth strategies with a sense of speed

▷ Launch International Planning Division responsible for global strategy (in Tokyo Head Office): Previously, regional planning was

conducted separately by region. However, the International Planning Division will develop brand identity by centrally

conducting planning for each region.

▷ Increase the quality of fieldpersons in charge of staff training (Milbon persons) and the quantity of sales agents: The company

currently has 500 sales agents and wants to raise this number to 1,000 because this will be about the number necessary when

considering how many salons a single sales agent is able to support.

▷ Enhance local area marketing and strengthen businesses that increase profitability (market entry and management through

brands)

Create market base by becoming more local

▷ Localize human resources: In principle, the company dispatches one Japanese representative to each area, but all employees at

Milbon Korea Co., Ltd. are already local hires. A Japanese employee manages the main store for Milbon Trading (Shanghai) Co.,

Ltd., but both of its branches are managed by local hires. In Turkey, although the company is facing uncertain circumstances such

as the economic environment, the manager in the representative office is also a local hire.

▷ Localize organizations: The company is promoting the conversion of organizations at other overseas bases into local subsidiaries.

Most recently, the company made organizations in Vietnam and Malaysia subsidiaries. The company is currently considering

making the Singapore base a subsidiary.

Entering the cosmetics business

Capital and business alliance with KOSÉ Corporation On January 25, 2017, Milbon announced that it had signed a capital and business alliance agreement with KOSÉ Corporation

(TSE1: 4922).

Milbon and KOSÉ say they agreed to the capital and business alliance with the aim of improving the competitiveness of a

Japanese beauty care corporate group that competes worldwide. Milbon and KOSÉ will leverage their strengths to conduct joint

research utilizing each other’s technologies, develop and sell new products, and offer services. KOSÉ is responsible for

manufacturing, and Milbon is in charge of sales, and will sell skincare and makeup products to salons. Per the company, there is

significant room for expansion of the cosmetics business based on proposals from hair stylists. The company plans to expand sales

activities, which utilizes fieldpersons who have until now focused on hair cosmetics, into the general cosmetics business.

Specifically, Milbon plans to select a maximum of 20 FCEs (field cosmetics) from roughly 270 fieldpersons in Japan. Due to the

shortfall in fieldpersons caused by the selection process, the company will aim to increase its personnel through recruitment.

Milbon and KOSÉ established a joint venture company on July 31, 2017.

Foray into the cosmetic products business Background behind alliance with KOSÉ

Through its alliance with KOSÉ, Milbon will launch a cosmetic products business especially for salons in April 2019. The company

had previously formed a partnership with L’Oréal (1963–2001) based on its sentiments regarding entering the beauty business.

Milbon partnered with KOSÉ for the following reasons:

▷ The two companies share values regarding employee training and education.

▷ KOSÉ insists upon high value-added with a focus on basic cosmetics (product development capability).


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▷ Milbon admired KOSÉ’s serious and sincere corporate culture and felt they would be a good match in terms of strategy and

human resources.

▷ The company anticipates their differences in expertise and business areas (Milbon on hair care in the professional domain, and

KOSÉ on skincare in the public domain) will produce synergies.

Reasons for launch of the cosmetic products business

The company launched the cosmetic products business for the following reasons:

▷ The company predicts that exclusive sales to salons will become difficult if limited to hair care products due to the decreasing

population in Japan.

▷ The company has been promoting its global vision since 2010 and wants to actively expand overseas.

▷ Milbon began considering entering the cosmetic products business around 2002 but this vision did not become clear until 2014.

Now, this vision has finally taken shape. Milbon does not intend to merely offer cosmetic products over the short term; the

company will develop cosmetic products to be another pillar of its business, while further pursuing female beauty with products

for both hair and face.

▷ The Japanese cosmetic products market (the combined total of both the public and professional markets) is said to have a value

of JPY1.6–1.7tr. Assuming that exclusive sales to salons account for 10% of this figure, the value of the market is about JPY160.0–

170.0bn, or approximately the same as the current hair care market in Japan. Hence, the company believes that the size of the

market for exclusive sales to salons (for both hair care and skin products) could double when it launches its cosmetic products

business.

▷ However, the company will focus on supporting stylists who offer cosmetic products because it faces two hurdles in particular:

the psychologies of those stylists and of customers who purchase cosmetic products at salons.

Future expansion

In March 2019, Milbon hosted a product presentation event in which it announced its cosmetic product brand for exclusive sale

to salons (22 or 23 items). Regarding its employee education support system, the company will adopt successful models it

discovered through sales of Aujua products to develop the cosmetic products business. It will also assign ambassadors to its

distributors while increasing its number of FCEs (cosmetic educators) each year.

Sales targets for cosmetic products for exclusive sale to salons

The new medium-term management plan (FY12/19–FY12/23) targets JPY5.0bn in sales of cosmetic products for exclusive sale to

salons. This figure would place the company at the top of the industry in terms of cosmetic products distributed to salons. Next,

the company will aim for sales of JPY10.0bn, a level at which it believes it would receive recognition from society as a cosmetics

brand. Once achieving this next level, the company will continue to pursue higher sales.

Financial strategy

Milbon targets JPY26.0bn in free cash flow by FY12/23, the final fiscal year of its new five-year management plan. The company

will use JPY12.0bn of this for investment in future growth and allot JPY10.0bn to providing shareholder returns (these will be

conducted stably, targeting a dividend payout ratio of 40%). Milbon will use the remaining JPY4.0bn to maintain its financial

base.


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Use of free cash flow

Use Results of previous plan (FY12/15–FY12/18) Targets of current plan (FY12/19–FY12/23)

Investment in future growth

JPY9.8bn

JPY12.0b

n

Main items

・Construction of new Yumegaoka Plant ・Establishment of integrated education center in Aoyama, Tokyo

・Establishment and expansion of new domestic bases

・Establishment of new bases

Domestic bases: six, including Ginza ・Relocation and expansion of existing bases

Overseas subsidiary branches: two, including Daejeon (South Korea)

・Expansion of Thai factory

Overseas bases: three, including the Philippines

・Launch of cosmetic products business

・Relocation of head office to Tokyo ・Conversion of Villa Lodola to an operating company

・Cosmetic products business ・System investment

・Sales management software ・Building of supply system in China

Shareholder returns ・Dividend payout ratio JPY5.8bn ・Stable return to shareholders targeting a dividend payout ratio of 40%

JPY10.0b

n

FY12/15 41.1% FY12/16 41.6%

FY12/17 39.5% FY12/18 39.3%

Maintain financial base JPY2.4bn JPY4.0bn

Capital efficiency ROE performance Targeting ROE of 14% or higher

FY12/15 11.7% FY12/16 11.4%

FY12/17 13.0% FY12/18 14.0%



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Business

Milbon is Japan’s largest manufacturer of professional-use hair cosmetics based on sales. In FY12/18, hair care treatments and

other hair care products accounted for 59.7% of sales (this figure has been adjusted to correspond to the Accounting Standard

for Revenue Recognition, which company began applying at the beginning of FY12/19; same for below), hair coloring products

35.0%, and perm products 4.6%. The company sells its products to salons via distributors in Japan and overseas. Hair coloring

products have the highest margins.

Sales composition: total sales (consolidated, FY12/18)


Since its 1996 IPO, Milbon’s sales have increased for 22 consecutive years. Operating profit has risen for nine consecutive years,

from FY12/10 through FY12/18.

Per the Ministry of Internal Affairs and Communications, the number of Japanese women aged 15–64 (target customers) peaked

at 43.5mn in 1995 and trended downward thereafter. In line with this, the value of shipments of hair cosmetics in Japan peaked at

JPY523.3bn in 1994 (source: Ministry of Trade, Economy and Industry). Still, Milbon’s performance has improved, due to the

following:

▷ Proposal-based sales

▷ Proprietary research and development

▷ Exclusive targeting of the salon market

Performance since IPO

Source: Shared Research based on company data Note: FY12/17 figures are based on a 12-month accounting period.

Hair care products59.7%

Hair coloring products35.0%

Perm products4.6%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0

10,000

20,000

30,000

40,000

FY12

/96

FY12

/97

FY12

/98

FY12

/99

FY12

/00

FY12

/01

FY12

/02

FY12

/03

FY12

/04

FY12

/05

FY12

/06

FY12

/07

FY12

/08

FY12

/09

FY12

/10

FY12

/11

FY12

/12

FY12

/13

FY12

/14

FY12

/15

FY12

/16

FY12

/17

FY12

/18

Operating profit (right axis) Sales（JPYmn）（JPYmn）


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Core strategy The company’s strategy is to narrow its business focus, and become the top player by sales in that category. Its target user base is

salons and their customers. Its product development focuses on hair cosmetics used by salons. Further, rather than simply selling

products, its core strategy is to offer services and products at a level demanded by salons and their customers. Milbon works with

hair stylists from popular salons to create products and techniques using the TAC product development system.

Core strategy


Targeting the salon market The market for hair cosmetics is divided into over-the-counter products and salon-based products. The company targets the

latter. The domestic hair care market was valued at JPY404.7bn in 2017, according to the Ministry of Economy, Trade and

Industry. According to Milbon, the salon market, its target market, accounts for around one-third of the total hair cosmetics

market, at about JPY150.0bn. Japan has around 200–300 distributors of hair cosmetics.

Milbon was a latecomer to Japan’s hair cosmetics market. It focused on the hair salon market from its establishment, as the

founder (previously working as a distributor of hair cosmetics) formed the company after seeing the chapped hands of hair

stylists and sought to find a solution. Targeting this market required a deep level of market penetration leading to its

proposal-based sales style. This continues to distinguish Milbon from its competitors.

Focusing target Focusing product development

Beauty industry Cosmetics

Beauty salon

Professional use (in businesses)

Goal of developing beauty techniques

Strategy to become top by narrowing focus

'Hair' as central focus


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Business model Three proprietary systems Milbon’s business model is based on helping salons (its customers) grow sales and profits. With this aim, it has created the

following three systems.

▷ Fieldperson system

▷ TAC (Target Authority Customer) product development system

▷ Field activities system

Business model


Three system cycle The company operates three proprietary systems based on the following cycle. First, it seeks out popular hair designers, and

enters an agreement. The resulting successful techniques and concepts are standardized through the TAC product development

system. Then, through the Fieldperson system, the company works with distributors to offer products and introduce techniques

to salons. Through the field activities system, the company focuses its activities on promising salons.

Profitability from the TAC system and the Fieldperson system Milbon is growing sales by developing both TAC and Fieldperson systems. Trending beauty products and techniques developed

under the TAC system are introduced to the market by fieldpersons. Through fieldpersons, the company works with salons (its

customers) to solve issues, in addition to making proposals to help grow salon sales and profits, as well as its own (sales growth

for salons means an increase in sales volume for Milbon, so more fieldpersons equals more sales). In Japan, sales per fieldperson

rose to JPY111mn after finishing at JPY105mn in FY12/13 (1.2% growth). Shared Research believes that this strong growth is

underpinned by nine months of training, including three months of on-the-job training.

Overseas, the company is still cultivating the salon market, so sales per fieldperson is lower than in Japan. Management is

focusing on training staff hired overseas. Sales per fieldperson are increasing with the exception of the US. The uptrend is

pronounced in Korea, where the company first entered the market with the establishment of a representative office prior to

setting up a subsidiary and signing agreements with local distributors. Sales per fieldperson in Korea were JPY82mn in FY12/18,

second only to Japan. In terms of annual growth rate in sales per fieldperson over the five years from FY12/13 through FY12/18,

China’s was particularly high at 28.7%.

In the US, earnings have been steady (but flat) since 2004, when Milbon established its first overseas subsidiary in New York.

According to Milbon, this is because it sells directly to salons, having bought sales rights from a Japanese distributor in the US. It is

switching to its original model of using local distributors in the US, as it does in other markets.

Products

Products

TAC product development system

Distributor

Fieldpersonsystem

Production department

Beauty techniques

Successful techniques/concepts

Field activity system

Beauty salons

SelectsInformation/techniques Needs

and issues

Needs and issues


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Training fieldpersons The company sees that training staff is key to growth. It aims to train staff in Japan and overseas by supporting each individual

employee. To this end, fieldperson training involves a general Milbon training program, followed by specialized and OTJ training

lasting three months.

Training fieldpersons


Staff training

After joining the company, employees undergo basic training for three months regarding the salon market, distributors and the

distribution framework, beauty techniques, hair theory, hair structure, scalp structure and components of hair cosmetics.

Fieldperson training

Following basic staff training, for three months employees learn about their responsibilities, including how to conduct training

sessions at salons and make presentations.

OJT

After fieldperson training, until the end of the company’s fiscal year (December 20), employees visit salons and distributors along

with their designated fieldperson superior.

Fieldperson system: proposal-based sales

The Fieldperson system differs from simply selling products, as it involves selling solutions to salons based on beauty products

and techniques that lead to higher sales and earnings for the salons.

Fieldpersons visit salons, identify issues, develop management plans, introduce beauty techniques, and support hair stylist

training. If these techniques are adopted by general consumers, demand for Milbon products grows. This in turn leads to sales

growth for both the salons and Milbon.

In general, hair cosmetics sales are mainly conducted via distributors. Under the Fieldperson system, however, salons are directly

approached by fieldpersons who work with distributors. Per the company, in 2014 it conducted more than 30,000 workshops

and meetings with salons, with each fieldperson taking part in more than 120 meetings a year. President Sato visits some 300

salons per year.

Developer training:6 months

Assigned to laboratory/factory

Fieldperson training:3 months

Milbontraining:3 months

Handle distributorsand salonsOJT:

3 months

Fieldperson training: 9 months


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Fieldperson system


Field activities system: selecting Target Salons

The field activities system not only includes selling Milbon’s products, but also selecting promising salons (Target Salons).

Target Salons Sales to Target Salons comprise more than half of the company’s total sales volume of hair cosmetics. These salons are key

customers who understand Milbon’s management strategy. They are a source of new beauty techniques and concepts, and a

core earnings source. Although Milbon does not have contracts with these salons, they are central to its sales activities.

Target Salons by area (2013) Target Salon repeat customer rate

Source: Shared Research based on company data Note: Repeat customer rate based on Milbon data obtained through annual surveys of about 680 Target Salons from 2001

According to the company, Target Salons feature experienced managers, and are expanding sales based on a solid vision for

growth. Each year, the company conducts its own surveys of around 680 Target Salons. This data indicates that the percentage of

repeat customers rose from 69.3% in 2005 to 73.7% in 2014. In 2014 spend per customer rose by 9% and sales per employee at

Target Salons increased by 7%, compared with 2005.

The company uses this data to demonstrate the link between increases in its own sales and higher earnings at Target Salons.

Although Target Salons are located throughout Japan, about 70% are in Tokyo and Osaka.

MilbonFieldperson

Distributor

Salons Consumers

Information Sales promotion

ProductsProducts/Service

ConsultsInformation

・Gives management advice・Teaches beauty techniques・Trains staff

Tokyo36%

Nagoya21%

Osaka35%

Fukuoka8%

69.3

73.7

65

70

75

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

（％）


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Target Salon data

Source: Shared Research based on company data Note: Data from 2001 onward is based on Milbon data obtain through annual surveys of some 680 Target Salons

Milbon has agreements with around 100 distributors. According to the Ministry of Health, Labour and Welfare, Japan had

234,360 salons as of March 31, 2017. About 70,000 of these use Milbon products. About 9,000 of these salons are Target Salons.

The company is increasing its number of fieldpersons to swell the number of Target Salons.

Product flow in Japan


Distributors: Milbon manufactures and sells hair cosmetic products for salons. It sells its products to distributors, who provide the products to salons.

Milbon’s sales team cannot provide fine-tuned services to all end users (some 70,000 to 80,000 salons in Japan), so distributors are key to sales.

Increasing sales by training overseas staff

Staff are key to Milbon’s business. Fieldpersons—employees who work with distributors to conduct proposal-based sales to

salons––made up 42.3% of its total global workforce at the end of FY12/18. Manufacturers of cosmetics sold in stores typically

supply products in response to demand.

The company aims for profitability by selling products and using techniques developed together with hair stylists under the

proprietary TAC system (see Business model section for details) through fieldpersons. Sales are almost directly correlated with the

number of fieldpersons. Recently the number of fieldpersons has been increasing at a faster pace than sales, because the

company has been investing overseas for sales growth in the long term.

For resale For salon use

For resale For salon use

200,000-250,000 salons

200-300 distributors

For resale

Milbon (manufacture and sales)

Salons (Milbon's user base)approx. 70,000 salons

Milbon product distributors (approx. 100 companies)

Target salons(approx. 9,800 salons)

General consumers


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Sales and number of fieldpersons

Source: Shared Research based on company data Note: Data until FY12/10 are parent figures (non-consolidated)

Milbon’s sales and number of fieldpersons

Source: Shared Research based on company data Note: The number of fieldpersons is as of the beginning of each fiscal year Note: Figures may differ from company data due to differences in rounding methods.

Over the five years from FY12/13 through FY12/18, the company’s number of fieldpersons increased from 240 to 362, at an

annual rate of 6.4%. Sales per fieldperson also grew from JPY90mn to JPY97mn over the same period, at an annual rate of 1.6%. In

Japan, fieldpersons increased from 210 to 269 (annual growth rate of 5.1%), and sales per fieldperson rose from JPY105mn to

JPY111mn (1.2% in annual growth). Fieldperson numbers stayed mostly level in the US, increasing from 12 to 13, but sales per

fieldperson came up significantly, from JPY36mn to JPY48mn (5.8% in annual growth). China also saw a rise in its number of

fieldpersons, from 16 to 22 (6.6% in annual growth), and sales per fieldperson leaped from JPY18mn to JPY62mn (28.7% in

annual growth). In South Korea, personnel numbers went from 17 to 25 for an annual growth rate of 8.0%, while sales per

fieldperson increased from JPY41mn to JPY82mn, for an annual growth rate of 14.7%. South Korea was second only to Japan in

terms of sales per fieldperson.

18,946 19,446 20,527 21,887 23,830 25,227 27,377 29,134 31,708 35,185

050100150200250300350400

0

10,000

20,000

30,000

40,000

Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. 12mo eqv. Cons.

FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18

Sales No. of Fieldpersons (right axis)(JPYmn)

Sales by region FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/18

(JPYmn) Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. 12mo eqv. Cons. Cons.Total 18,946 19,446 20,527 21,887 23,830 25,227 27,377 29,134 31,708 35,185 35,185

Japan 18,946 19,446 19,300 20,400 21,946 22,612 23,880 25,287 27,173 29,872 29,872US 356 359 435 482 642 571 579 632 632China 122 184 281 430 665 737 959 1,368 1,368South Korea 340 451 703 1,099 1,425 1,603 1,941 2,064 2,064Other 409 493 465 604 765 936 1,054 1,246 1,246

Fieldpersons FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/18

(employees) Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. 12mo eqv. Cons. Cons.Total 202 206 224 240 265 280 307 321 345 362 362

Japan 200 210 216 237 249 258 269 269US 10 12 12 12 9 12 13 13China 13 16 17 18 18 19 22 22South Korea 13 17 17 19 20 23 25 25Other 4 10 18 21 25 33 33 33

Sales per fieldperson FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/18

(JPYmn) Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. 12mo eqv. Cons. Cons.Total 94 94 92 91 90 90 89 91 92 97 97

Japan 94 94 92 102 105 105 101 102 105 111 111US 36 36 40 54 63 48 48 48China 14 18 25 37 41 50 62 62South Korea 35 41 65 75 80 84 82 82Other 123 47 34 36 37 32 38 38


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Sales per fieldperson by country

Source: Shared Research based on company data Note: Sales per fieldperson based on the number of fieldpersons at the beginning of the fiscal year

TAC product development system: proprietary research and development

The company calls its research and development system the TAC product development system. TAC stands for target authority

customers and refers to hair stylists with technical expertise. It enters agreements with these stylists, who provide new beauty

techniques for the company’s product development.

According to Milbon, in most cases companies that develop products for salons first come up with products, and then salons and

stylists adopt them. Milbon says it is the only company that develops products in collaboration with stylists from the planning

stage. Further, popular hair stylists often hesitate to provide information to companies that commoditize hair products. They are

more willing to work with companies like Milbon that work exclusively with salons.

TAC product development system


94 94 92 102 105 105 101 102 105 111

36 36

4054

63

48 48

14 1825

37 41

5062

3541

6575 80 84 82

0

20

40

60

80

100

120

Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. 12mo eqv. Cons.

FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18

Japan

US

China

South Korea

(JPYmn)

Discovery ofhairstylist

(TAC)

Product design and

naming

Product development and sample feedback

Approved items sent to production

department

First meeting Second meeting Third meeting ~

Meeting with Milbon's development department and hair

stylists

Milbon's researchers

analyze successful techniques

Protocol developed for

product


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R&D examples

Time until sale Sales section Product planning Central Research Institute Production division

15 months Hears request from salon for products to assist in the styling of colored hair that has been damaged

Interviews salons throughout Japan (person in charge visits 200 salons each year)

13 months Learns that a highly rated salon has added one item to hair after shampooing and before drying

Develops the first product A brand base material and starts project

Discovers that with hair coloring products, customers with dry hair have difficulty in styling without additional of products

Develops base material

12–13 months Contracts with stylists at popular salons (TAC salons) and requests assistance in TAC development

Determines the item that stylists suggest using before blow-drying

10–11 months Makes a sample formula and reflects feedback from the TAC salon and product evaluation office to develop product

Selects an oil base that balances the effect on the end users’ hair and effect on stylists

2–3 months Confirms that mass production can maintain product quality

Adjustment work and processing for mass production test product s in a large tank at research

facilities

Product sales Gathers post-sale evaluations from distributors and salons

Names the new product to contribute to salons’ sales

Receives final confirmation with stylists at TAC salons


Basic research supporting TAC product development The company developed original ingredient CMADK in 2013. CMADK both repairs and protects against hair damage. CMADK is

part of the Aujua Immurise Line series, which is positioned as an aging care product.

Keratin, the protein found in hair, is affected by the alkali ingredients contained in hair coloring and perm products, which

remove the protein. The effect of the keratin protein contained in conventional cosmetics is lost during washing and drying,

according to the company.

By comparison, the company said that CMADK is retained on hair even after repeated washing and drying. After washing hair 10

times, none of the keratin protein in typical product remains, whereas CMADK continues to adhere to the hair. Further, Milbon

said that hair treated with CMADK has around 10% higher torsional rigidity than untreated hair.

Torsional rigidity: the degree of resistance to twisting. Hair that has been damaged has low torsional rigidity.

Brands

The two main categories of Milbon’s product brands, which are sold to salon clients with advice from hair designers, are

premium and professional brands. Representative brands in each category are shown below:

◤ Premium brands


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・Aujua

・milbon

・Villa Lodola

◤ Professional brands

・PLARMIA

・jemile fran

・Elujuda

Core brand Aujua: developed through the TAC system Aujua is a high-end hair cosmetics brand, mainly shampoos and treatments developed for the hair type of Japanese women.

Aujua products are about double the unit price of Milbon’s other products. After researching hair characteristics, the company

analyzed how Japanese hair in particular is damaged. Based on this research, in 2010 it introduced Aujua hair cosmetics

containing an ingredient to help repair damage. Using SPring-8 facilities*, the company found that Japanese hair is more easily

damaged compared to other hair types. There are various series of the Aujua brand, with effects such as damage care, shine, and

volume boosting.

SPring-8: A large-scale synchrotron radiationfacility established and managed by Rikagaku Kenkyusho (Institute of Physical and Chemical Research).

Allows for observation of changes to hair on a nano level that are not visible using an electron microscope.

The Aujua brand responds to individual hair needs, through a hair care program aimed at returning Japanese hair to a healthy,

supple state. Aujua hair stylists provide customers with advice, analyze hair conditions, and provide salon and home care advice.

To maximize the originality of Aujua, stylists must fully understand the product, so the company holds special training sessions for

stylists to learn about Aujua. The company only supplies Aujua products to certain salons that have mastered the proper

techniques of Aujua. The company awards the title of “Aujua Sommelier” to hair stylists with a high level of technique. The

number of Aujua salons is growing, and in FY12/18 Aujua sales totaled JPY6.7bn (+29.5% YoY based on 12-month figures for

FY12/17). Aujua is increasing its presence.

Aujua sales and number of Aujua salons

Source: Shared Research based on company data *Number of Aujua salons from FY12/11 to FY12/14 includes canceled salons

milbon milbon is one of the company’s premium hair care product brands that went on sale in June 2016. The brand’s concept is “360

degrees beautiful hair”—a hair care system that cultivates the unique beauty of every individual. The product range consists of

seven series (Smooth, Moisture, Repair, Anti-Frizz, Volume, Scalp, and Creative Style) and is geared toward sales in global

markets.

The company sought out active ingredients that repair what it calls the “stick-shaped void” of damaged hair and increases

internal density, which are formulated in milbon products. The milbon range was developed by rigorous analysis of the internal

structure of women’s hair from 20 countries using CT scan technology, which revealed the “stick-shaped void” phenomenon

common to all damaged hair.

FY12/18 sales of the milbon range came to JPY2.1bn (+44.2% YoY based on 12-month figures for FY12/17).

Aujua FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19(JPYmn) 12mo eqv. Est.Sales 1,324 1,719 2,504 3,582 4,445 5,043 5,193 6,726 7,500

YoY - 29.8% 45.7% 43.1% 24.1% 13.5% 3.0% 29.5% 11.5%Number of Aujua salons* 761 1,121 1,516 2,002 2,399 2,779 3,166 3,271 3,600YoY - 47.3% 35.2% 32.1% 19.8% 15.8% 13.9% 3.3% 10.1%Sales per Aujua salon 1.7 1.5 1.7 1.8 1.9 1.8 1.6 2.1 2.1

https://en.wikipedia.org/wiki/Synchrotron_radiation


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milbon sales and number of milbon salons


Villa Lodola Villa Lodola is an organic brand that is one of Milbon’s premium brands. With “beauty the ‘organic’ way” as its concept, Villa

Lodola is an authentic organic brand that is committed to environmental conservation not only with regard to its products, but

also to manufacturing processes, containers, and marketing tools. All products are certified organic by the Istitutio Certificazione

Etico Ambientale (ICEA). Milbon began selling Villa Lodola Color hair coloring products with 92% natural ingredients in FY12/15.

Sales of the Villa Lodola series in FY12/18 came to JPY1.1bn (+15.1% YoY based on 12-month figures for FY12/17), of which Villa

Lodola Color accounted for JPY803mn (+18.3% YoY).

Sales of organic brand Villa Lodola and number of Villa Lodola salons

Source: Shared Research based on company data Note: Number of Villa Lodola salons prior to FY12/14 includes canceled salons.

Product overview

Hair care products Core brands: Aujua, milbon, PLARMIA, Nigelle, jemile fran

Hair care products mainly comprise treatments, hair styling products, shampoo, and hairspray. Treatments are applied to the hair

to keep it healthy. Hair styling products are applied to set hair styles into place. Both include products designed to address

individual hair characteristics.

Per Milbon, in the top 20 hair cosmetics of leading manufacturers sold in shops the most common ingredient is water. Products

sold in salons are typically double or triple the price of retail products. Milbon’s premium Aujua brand is double the price of its

other products.

Hair coloring products Core brands: Ordeve, Ordeve Addicthy, Ordeve Crystal

Hair coloring products can be divided into permanent (quasi-drug) and semi-permanent (cosmetic) hair coloring products.

Milbon and the Japan Hair Color Industry Association both say that permanent hair coloring products (which last around two

months) are applied by bleaching hair and then dyeing it. If not cared for properly, hair can become damaged. In comparison,

semi-permanent hair coloring products are absorbed into the hair surface, and typically hold their color for two to four weeks.

Temporary hair colorings fade after shampooing once. Ordinarily neither semi-permanent nor temporary hair coloring products

damage hair.

Most of the salons Milbon works with use oxidizing hair coloring products. Milbon’s hair coloring products come in lower cost

containers, meaning GPM is higher than its other hair cosmetics for salons.

milbon FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19(JPYmn) 12mo eqv. Est.Sales - - - - - 571 1,486 2,142 2,600

YoY - - - - - - 160.2% 44.1% 21.4%Number of domestic salons - - - - - 2,242 2,738 3,645 4,200YoY - - - - - - 22.1% 33.1% 15.2%Number of overseas salons - - - - - - 1,228 1,926 2,500YoY - - - - - - - 56.8% 29.8%

Villa Lodola FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19(JPYmn) 12mo eqv. Est.Sales - 32 99 115 489 795 966 1,113 1,270

YoY - - 209.4% 16.2% 325.2% 62.6% 21.5% 15.2% 14.1%Number of Villa Lodola salons - 412 1,191 1,626 4,014 5,632 6,895 8,085 10,000YoY - - 189.1% 36.5% 146.9% 40.3% 22.4% 17.3% 23.7%Sales per Villa Lodola salon - 0.08 0.08 0.07 0.12 0.14 0.14 0.14 0.13


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Types of hair coloring products

Source: Shared Research based on data from the Japan Hair Color Industry Association

Supply system

Milbon buys surfactants, oils and other raw materials from Japanese and overseas manufacturers and trading companies. It then

mixes the ingredients. Products differ based on the timing and order of mixing and the amount of heat added. These factors vary

by company. The company is working on developing new manufacturing technology to mass produce new products. Trial

products from its research laboratories (before mass production) are consistently reproduced to show the qualities requested by

hair stylists.

Milbon had been operating with three factories: Two, the Aoyama plant and the Yumegaoka plant, in Iga, Mie Prefecture, Japan,

and a third in Rayong Province, Thailand. However, with the aim of improving productivity, the company expanded the

Yumegaoka plant in 2016 and integrated the Aoyama plant functions there. The company closed the Aoyama plant in 2016 and is

currently operating with two factories.

The Yumegaoka plant, established in 2005, produces 500 colors of hair coloring products, plus other hair cosmetics. The

company augmented its production capacity to meet sales of JPY35.0bn targeted for FY12/19, the final year of its previous

five-year management plan announced in January 2015.

Milbon had provided products overseas by exporting them as needed from its plants in Japan. Since the 2013 establishment of its

new plant in Thailand, however, it has gradually shifted production to this factory. It still exports from Japan raw materials it

cannot get in Thailand. The company aimed to boost production capacity by increasing its Thailand procurement ratio and

expanding overseas.

Milbon’s product supply capacity in terms of sales value (previous medium-term management plan)

November 2015 End 2019

(JPYmn/year) Production

capacity Comp.

Production capacity

Comp.

Japan Aoyama plant (closed in 2016)

12,000 47% 0 0%

Yumegaoka plant 10,000 39% 35,000 91%

Subtotal 22,000 86% 35,000 91%

Thailand

3,500 14% 3,500 9%

Total

25,500 100% 38,500 100%


CosmeticsTemporary hair dye

Color stickHair color spray

Hair dye Hair dye remover

Powder bleachHair lightener

Hair manicure FARGLAN

Permanent hair dyeNon-oxidized hair dye

Alkaline oxidantGeneric name ORDEVE

Product name

Quasi-drugHair bleach

Oxidized hair dye Neutral oxidant（alkalescent, neutral/weak acidic）ORDEVE

Hair color, hair dye ORDEVE beaute(dye for grey hair, dye forblack hair, dye for stylish greyhair)

Semi-permanent hair dye

Hair decolorant (bleach)


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Market conditions

Average selling prices Hair salons, Milbon’s customers, are trending toward high quality, high priced hair cosmetics. Milbon, which offers products that

meet this demand, is seeing its average selling price increase, in line with the growing sales composition of high-priced products.

Sales of Aujua products, priced at double its other product prices, have risen to 19% of sales in FY12/18 (6% in FY12/11). The

prices of hair cosmetics sold to salons are stable, unlike products sold at retail stores. New products account for about 10% of

total sales, and the prices on these products are determined at launch. Prices generally stay constant, so product pricing only

changes when products are replaced. The company’s product cycle is one to two years for styling products, and five to six for

hair coloring.

Raw material prices As raw materials like surfactants and other petrochemicals account for only 20–30% of product costs, procurement prices do not

typically have a big impact on operating profit. Exchange rates impact operating profit only slightly, because the overseas sales

ratio is 16% (FY12/18: figure has been adjusted to correspond to the Accounting Standard for Revenue Recognition adopted by

the company at the beginning of FY12/19).

Cost structure

Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods.

CoGS Key items impacting CoGS: raw material costs (22.4% of product sales on a non-consolidated basis in FY12/18); and outsourced

processing costs (4.4%). The company engages in small-lot production of an array of products, and more than 2,000 products.

For raw material procurement costs, surfactants and oils comprise the biggest percentage of the total. It outsources processing to

companies that can manufacture products for less than it can, for a given quality.


Manufacturing cost breakdown (par.) FY12/08 FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18(JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par.Sales 18,322 18,946 19,447 20,218 21,404 23,181 24,197 25,935 27,558 30,851 33,021Manufacturing cost 7,180 7,154 7,005 7,243 7,511 8,102 8,283 8,818 9,316 10,249 11,055

Raw materials 4,239 4,330 4,401 4,499 4,692 5,057 5,631 5,654 6,075 6,718 7,411Outsourcing 1,205 1,040 1,081 1,241 1,260 1,466 1,350 1,491 1,437 1,443 1,463Labor 644 638 615 645 645 664 692 740 799 852 939Depreciation 592 674 510 457 419 381 361 390 461 623 630Supplies 69 72 60 50 61 62 60 63 97 89 84Other 431 401 337 351 434 473 188 479 446 525 528

Cost of goods manufactured 7,145 7,159 6,998 7,242 7,504 8,095 8,277 8,802 9,302 10,151 11,067% of sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Manufacturing cost 39.2% 37.8% 36.0% 35.8% 35.1% 34.9% 34.2% 34.0% 33.8% 33.2% 33.5%

Raw materials 23.1% 22.9% 22.6% 22.3% 21.9% 21.8% 23.3% 21.8% 22.0% 21.8% 22.4%Outsourcing 6.6% 5.5% 5.6% 6.1% 5.9% 6.3% 5.6% 5.8% 5.2% 4.7% 4.4%Labor 3.5% 3.4% 3.2% 3.2% 3.0% 2.9% 2.9% 2.9% 2.9% 2.8% 2.8%Depreciation 3.2% 3.6% 2.6% 2.3% 2.0% 1.6% 1.5% 1.5% 1.7% 2.0% 1.9%Supplies 0.4% 0.4% 0.3% 0.2% 0.3% 0.3% 0.2% 0.2% 0.4% 0.3% 0.3%Other 2.4% 2.1% 1.7% 1.7% 2.0% 2.0% 0.8% 1.8% 1.6% 1.7% 1.6%

Cost of goods manufactured 39.0% 37.8% 36.0% 35.8% 35.1% 34.9% 34.2% 33.9% 33.8% 32.9% 33.5%

SG&A expenses (consolidated) FY12/08 FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Total 8,482 8,937 9,424 9,828 10,847 11,872 12,830 13,954 14,987 17,452 18,101

Personnel expenses (excluding R&D) 2,718 2,830 2,986 3,116 3,581 3,902 4,053 4,401 4,584 5,365 5,509Transportation expenses 498 511 560 565 623 708 780 812 845 920 897Promotion, advertising and marketing 1,848 1,949 2,078 2,128 2,552 2,690 2,925 3,165 3,456 3,962 4,063R&D expenses 668 766 838 871 873 970 1,169 1,214 1,232 1,422 1,479Depreciation (excluding R&D) 371 349 390 461 441 423 448 443 436 468 572Other expenses 2,379 2,532 2,572 2,687 2,777 3,180 3,455 3,919 4,434 5,315 5,580

% of sales 45.4% 46.6% 47.7% 47.9% 49.6% 49.8% 50.9% 51.0% 51.4% 52.2% 51.4%Personnel expenses (excluding R&D) 14.5% 14.8% 15.1% 15.2% 16.4% 16.4% 16.1% 16.1% 15.7% 16.0% 15.7%Transportation expenses 2.7% 2.7% 2.8% 2.8% 2.8% 3.0% 3.1% 3.0% 2.9% 2.7% 2.5%Promotion, advertising and marketing 9.9% 10.2% 10.5% 10.4% 11.7% 11.3% 11.6% 11.6% 11.9% 11.8% 11.5%R&D expenses 3.6% 4.0% 4.2% 4.2% 4.0% 4.1% 4.6% 4.4% 4.2% 4.3% 4.2%Depreciation (excluding R&D) 2.0% 1.8% 2.0% 2.2% 2.0% 1.8% 1.8% 1.6% 1.5% 1.4% 1.6%Other expenses 12.7% 13.2% 13.0% 13.1% 12.7% 13.3% 13.7% 14.3% 15.2% 15.9% 15.9%


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SG&A expenses Excluding R&D, Milbon’s major SG&A expenses are personnel expenses (15.7% of sales in FY12/18) and sales promotion,

advertising, and market development expenses (together 11.5% of sales).

Personnel expenses

Personnel expenses are rising in tandem with more fieldpersons. However, their percentage when compared to sales was 15.7%

in FY12/18, down slightly from the period leading up to FY12/17, when it was rising little by little (personnel expenses were

14.5% of sales in FY12/08 and 16.0% of sales in FY12/17). FY12/18 was a period for training fieldpersons (upfront spending)

overseas as the company cultivated business with new salons and launched its cosmetic products business, but sales per

fieldperson rose for the year, thanks to an increase in productivity. Non-consolidated sales per fieldperson hovered around

JPY90mn for the past ten years or so at JPY93mn per fieldperson in FY12/08 and JPY92mn in JPY12/17; it jumped to JPY97mn in

FY12/18.

Sales promotion, advertising, and market development expenses

According to Milbon, sales promotion and market development account for the largest share of total sales promotion, advertising,

and market development expenses. Sales promotion expenses include the provision of services in response to unit sales, as well

as the payment of sales incentives to distributors. Market development costs include educational events for salons. Sales

promotion, advertising, and market development expenses comprised 9.9% of sales in FY12/08. By FY12/18, it was 11.5%.

Milbon stated that sales incentives are increasing. This is due to a higher percentage of distributors, where incentives account for

a big chunk of sales.


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Market and value chain

Japan’s hair cosmetics industry

According to the Ministry of Economy, Trade and Industry, sales by shipment value of hair cosmetics (sales to salons account for

one third of hair cosmetic shipments per Milbon) were JPY404.7bn in 2017, up 0.5% YoY, rising slightly after falling for two

consecutive years through 2016. These statistics indicate that unit sales in the year came to 293,875 metric tons (+1.3% YoY),

increasing after having dropped for two consecutive years through 2016.

Shipment-based sales of hair cosmetics have fallen 23% from the 1994 peak of JPY5.2bn. The number of target beauty customers

in Japan, i.e., women aged 15–64, has trended downward after peaking at 43.5mn in 1995. The decline in sales has continued to

track the decline in beauty customer numbers until the mid-2000s. Since then, it has been almost flat.

Shipment-based sales of hair cosmetics in Japan

Source: Shared Research based on Ministry of Economy, Trade and Industry Current Survey of Production manufactured chemical products data

Shipment-based sales of hair cosmetics and number of women aged 15–64 in Japan

Source: Shared Research based on Ministry of Economy, Trade and Industry Current Survey of Production manufactured chemical products data and Ministry of Internal Affairs and Communications population estimates

According to Dentsu Inc. (TSE1: 4324), the YoY growth rate of advertising expenses in the cosmetics and toiletries industry was

-5.4% in 2017, +1.5% in 2016, and -3.8% in 2015, compared to +5.6% in 2014 in the four main media categories of TV,

newspapers, magazines, and radio. (Note: Milbon targets salons, so it does not spend a lot on advertising.)

Trends by item and changing hair styles Among hair cosmetics, the main constituents are shampoo (27% of total domestic sales in 2017, +1.5% YoY), coloring products

(26%, +1.7% YoY) and treatments (18%, +3.5% YoY). All three main product items achieved year-on-year growth in 2016. Sales

of individual hair cosmetic categories fluctuate differently due to changes in hair style trends. Milbon aims to quickly track trends

by getting information through its Fieldperson system and TAC product development system, and provide hair cosmetic that

meet demand.

-6%-4%-2%0%2%4%6%8%10%

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Shipment value of hair cosmetic products YoY（％）(JPYbn)

36.037.038.039.040.041.042.043.044.0

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Shipment value of hair cosmetic products Women aged 15-64 (right axis)(JPYbn) (mn)


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Shipment-based sales of hair cosmetics in Japan

Source: Shared Research based on Ministry of Economy, Trade and Industry Current Survey of Production manufactured chemical products data

Changing hair styles and Milbon’s proposals


Hair cosmetics for salons market

Japan According to Milbon, the Japanese market for hair cosmetics for salons typically posts sales of circa JPY150.0bn. This is around one

third the size of the overall market for hair cosmetics (JPY402.8bn in 2016), including such products as shampoo sold via general

retailers. Although no data on the salon market is publicly available, Milbon thinks this market has been flat for the past five years.

The number of target beauty customers (women aged 15–64), though, has been falling. In 2017, total target beauty customers

for this segment numbered 36.8mn, down 15.3% from 1995. The core target segment of women aged 25–49 fell to 19.8mn,

down 12.7% from its 1981 peak of 22.7mn.

0

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Shampoo

Conditioner

Hair treatment

Hair coloringprep

(JPYbn)

Time period Trending styles Milbon's proposal system Main product category

1960's Using hair irons and hairspray to style hair becomespopular

Mop-top in style

First hair coloring boom

1970's

1980'sSauvage hair in style

One length cut in styleInroduction of Fieldperson system

1990's Proposals focused on diversity of hairstyling menu2nd-generation baby boomers hit their 20sSecond hair coloring boom Proposals focused on the appeal of new salonsDyeing hair brown becomes fashionable

Shift from foreign models to Japanese models Proposals focused on selling styles to increase customersProposals focused on Japanese customers' black hair

Charismatic hairstylist boom

2000's Broadcasting of Beautiful Life, starring Takuya KimuraSales of hairdye to complement Japanese women launched

Innovation in techniques to suit Japanese womenHairstyles that take into account structure and texture ofJapanese-type hair

Proposals focused on shared values between mothers and daughters

Proposals focused on bright, clearly defined colors

2010's Launch of Aujua

Establishment of predecessor, Yutaka Beauty Chemicals Co., Ltd.

Vidal Sassoon visits Japan, influences hairstyling withtechniques brought from England

Hairstyles for women around 40 who have grey hair due toaging

Age Beauty Innovation: hair designers make proposals promoting idea ofpositive aging

Perm

prod

ucts

Hair

color

ing p

rodu

cts

Hair

care

prod

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Number of customers in Japan

Source: Shared Research based on Ministry of Internal Affairs and Communications population estimates

Shared Research has made estimates of the salon market, Milbon’s user base. We used data on the number of households from

the Ministry of Health, Labour and Welfare, and data on household income and expenditure from the Ministry of Internal Affairs

and Communications. Per our estimate, the salon market (hair styling, including cuts, perms and hair coloring and other

products) in 2017 was JPY1.5tn, ahead of its former peak of JPY1,317.1bn in 2004, and up 0.6% YoY. In particular, the market in

the other categories, including key products for Milbon such as hair coloring products, rose in 2017 to JPY973.1bn, up 132%

from 2004. This point may also explain why Milbon’s sales have continued to rise for 22 consecutive years post IPO.

Salon market

Source: Shared Research based on data from the Ministry of Internal Affairs and Communications and the Ministry of Health, Labour and Welfare Note: As data from family income and expenditure surveys through 1999 is not available for all households, data for households with two or more has been substituted.

Within the salon market, rising sales of hair coloring products are one reason for the expansion in the other categories. According

to Milbon, demand for hair coloring products to dye gray hair has increased as the age of second-generation baby boomers has

breached 40. Unit sales have also been increasing for shampoos, hair care treatments and other aging care products that include

CMADK—Milbon’s original hair repair ingredient.

The Japanese market, Milbon’s mainstay market, is seeing falling birthrates and an aging population. Demand for aging care

products from second-generation baby boomers (born 1971–74 during the second baby boom) is contributing to the rise in

Milbon’s sales. However, the National Population Institute estimates that this generation will exceed the first-generation baby

boomers (born 1946–49) in number and comprise the highest percent of the Japanese population in 2025. It also estimates that

after hitting age 50–54 in 2025, the number of second-generation baby boomers will begin to decline. Considering these market

trends, the company aims to grow in the domestic market by expanding domestic market share, and by increasing the number of

salon users through proposal-based sales to salons.

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18.018.519.019.520.020.521.021.522.022.523.0

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0

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Japanese population aged 50–54

Source: Shared Research based on data from the National Institute of Population and Social Security Research

Japanese population forecast (‘000 women)

Source: Shared Research based on data from the National Institute of Population and Social Security Research Note: Figures use average birth and death rates in Japan

Overseas A Kline & Company survey indicates that the global hair cosmetics for salons market saw sales of USD12.4bn in 2013, up 2.1%

YoY. Kline & Company comments that these figures reflect growing markets in developing countries plus firm demand in big

developed countries. Excluding Europe, the overall market is expanding. The growth rate is pronounced in South America

followed by the expanding Asian market.

Global hair cosmetics for salons market

Source: Shared Research based on data from Kline & Company

Kline & Company forecasts that the market for global hair cosmetics for salons will grow at an average annual rate of 2.5%

through 2018, by which time it will have a value of USD14.0bn. The company expects growth rates to be highest in South

America, followed by Asia and North America. In Europe, Kline & Company expects the professional hair cosmetics market to

continue declining in Spain and Italy, where growth is expected to be lowest due to sluggish economic conditions. Kline &

3,853 3,982 4,286 4,745

4,025 3,523

0

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2010 2015 2020 2025 2030 2035

（'000） Second-generationbaby boomers reaching the age 50-54

Age 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 0～ 4 2,592 2,430 2,128 1,931 1,839 1,758 1,659 1,537 1,401 1,280 1,193 5～ 9 2,731 2,570 2,413 2,113 1,918 1,827 1,747 1,648 1,527 1,392 1,272 10～14 2,895 2,719 2,560 2,404 2,106 1,912 1,821 1,741 1,643 1,522 1,388 15～19 2,966 2,897 2,724 2,567 2,411 2,113 1,918 1,827 1,747 1,648 1,527 20～24 3,197 2,981 2,942 2,772 2,617 2,459 2,155 1,957 1,863 1,782 1,682 25～29 3,636 3,199 3,015 2,977 2,808 2,653 2,494 2,185 1,984 1,890 1,807 30～34 4,148 3,620 3,200 3,017 2,980 2,812 2,657 2,497 2,189 1,987 1,893 35～39 4,862 4,118 3,600 3,184 3,003 2,967 2,799 2,645 2,486 2,179 1,979 40～44 4,363 4,826 4,092 3,579 3,166 2,986 2,951 2,785 2,632 2,474 2,168 45～49 4,024 4,328 4,790 4,063 3,554 3,145 2,968 2,932 2,768 2,616 2,459 50～54 3,853 3,982 4,286 4,745 4,025 3,523 3,118 2,943 2,909 2,746 2,596 55～59 4,398 3,802 3,933 4,235 4,690 3,980 3,485 3,085 2,913 2,880 2,719 60～64 5,147 4,324 3,742 3,873 4,173 4,624 3,926 3,439 3,046 2,877 2,845 65～69 4,318 5,031 4,231 3,665 3,797 4,095 4,540 3,857 3,381 2,996 2,831 70～74 3,769 4,161 4,864 4,094 3,553 3,687 3,981 4,418 3,756 3,295 2,922 75～79 3,391 3,530 3,915 4,600 3,876 3,375 3,512 3,801 4,222 3,594 3,159 80～84 2,671 3,003 3,155 3,522 4,175 3,525 3,088 3,227 3,507 3,903 3,330 85～89 1,704 2,104 2,413 2,570 2,903 3,499 2,965 2,625 2,767 3,030 3,383 90～94 785 1,071 1,368 1,614 1,758 2,024 2,512 2,140 1,931 2,069 2,295 95～99 242 338 488 650 798 898 1,061 1,376 1,182 1,100 1,208 100+ 38 63 97 150 214 281 337 414 565 533 514

Total 65,730 65,098 63,954 62,322 60,364 58,144 55,693 53,079 50,419 47,794 45,171

Baby boomers (born 1947–1949)Second-generation baby boomers (born 1971–1974)

11.6 11.9 12.2 12.4 14.0

0

5

10

15

20

2010 2011 2012 2013 2014 2015 2016 2017 2018

（USDbn）


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Company expects growth to be particularly high for shampoos and treatments, due to new product introductions, followed by

hair coloring products. The company expects the growing popularity of low-ammonia hair coloring products to support

expansion in this category.

Competitive situation

According to 2017 data from Milbon and Kline & Company, Milbon was ranked seventh worldwide in terms of sales share (2.5%)

in the global professional-use hair cosmetics market. According to the company, it had the top sales ranking in both Japan (20%

share) and Asia (11% share) in FY12/18. The company aims to be in the top five companies worldwide by FY12/23 (increasing its

share to 4%), the last year of its medium-term plan. It is also looking to maintain its top sales positions in Japan and Asia, and to

expand its sales shares for both (to 25% and 14%, respectively).

Leading Japan from 1999 According to Milbon, it holds the highest domestic market share (by sales) for hair cosmetics (16.4% share of the domestic

market in 2017, as per Fuji Keizai Marketing Research & Consulting Group research). Its market share has risen steadily following

the introduction of the Fieldperson system in 1984 and the TAC product development system in 1988. According to the

company, from the mid-1990s, it began suggesting that salons use Japanese models in catalogues and posters instead of foreign

models, and thus contributed to the switch from foreign trends to Japanese styles. In 1999 Milbon took the top market share from

Wella (presently under Coty Inc.).

Competition worldwide Research by Kline & Company indicates that in 2017, the top five global companies accounted for an approximately 50% share of

the professional-use hair cosmetics market, with L’Oréal leading the pack. Milbon ranked seventh worldwide, with a 2.5% share.

It said that overseas sales accounted for only 15.7% of its total sales (FY12/18: figure adjusted to correspond to the Accounting

Standard for Revenue Recognition adopted by the company at the beginning of FY12/19), but its presence in the global market is

rising as overseas sales expand. In its new medium-term management plan, the company aims to raise its overseas sales ratio to

17.5% in FY12/23. According to the company’s estimates, if it reaches a global market share of about 4%, it can achieve its goal

of entering the top five companies worldwide.

Competition in Japan Domestic competition includes Shiseido Co., Ltd. (TSE1: 4911), Nicca Chemica Co., Ltd. (brand name: Demi Cosmetics; TSE1:

4463), Cota Co., Ltd. (TSE1: 4923), and Adjuvant Cosme Japan Co., Ltd. (TSE1: 4929). Milbon says Shiseido’s business model is

different from its own, as sales of salon-use products is Shiseido’s core business. Below, we describe listed companies that are

comparable due to their specialization in professional hair cosmetics.

Nicca Chemical Co., Ltd (Brand name: Demi Cosmetics; TSE1: 4463)

Nicca Chemical is a chemical manufacturer whose main products are surfactants for textile processing. Sales of hair cosmetics for

salons account for 27.8% of total sales (FY12/18).

Cota Co., Ltd. (TSE1: 4923)

Cota is a manufacturer specializing in professional hair cosmetics for salons. The company has its own Junpoten System

concentrating on sales strategies including salon management. Its sales approach is to sell through distributors and directly to

salons. The company derives approximately 65% of sales from products that consumers buy at salons to use at home.

Adjuvant Cosme Japan Co., Ltd. (TSE1: 4929)

This company plans, develops and sells over-the-counter products for salons. Sales of hair cosmetics accounted for 45.9% of total

sales in FY03/18. The issues related to contract cancellations are largely over.


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Key management indicators for manufacturers of hair cosmetics for salons

Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods. Note: Nicca Chemical’s FY12/13 performance reflects only nine months due to a change in reporting period.

Comparison of key financial indicators(JPYmn)Milbon (4919) FY12/10 Cons. FY12/11 Cons. FY12/12 Cons. FY12/13 Cons. FY12/14 Cons. FY12/15 Cons. FY12/16 Cons. FY12/17 Cons. FY12/18 Cons.

Sales 19,750 20,527 21,887 23,830 25,227 27,377 29,135 31,708 35,185YoY 3% 4% 7% 9% 6% 9% 6% 9% 11%

Operating profit 3,579 3,792 3,986 4,303 4,451 4,728 5,113 5,313 6,261OPM 18% 18% 18% 18% 18% 17% 18% 17% 18%

R&D 838 870 873 970 1,169 1,214 1,232 1,422 1,479% of sales 4.2% 4.2% 4.0% 4.1% 4.6% 4.4% 4.2% 4.5% 4.2%

Number of employees 491 502 528 591 649 704 775 805 856Sales per employee 40 41 41 40 39 39 38 39 41

NICCA CHEMICAL (4463) Demi Cosmetics FY03/11 Cons. FY03/12 Cons. FY03/13 Cons. FY12/13 Cons.** FY12/14 Cons. FY12/15 Cons. FY12/16 Cons. FY12/17 Cons. FY12/18 Cons.Sales 5,682 6,522 7,525 6,282 8,015 10,644 12,654 12,493 13,977

YoY -4% 15% 15% - 28% 33% 19% -1% 12%Operating profit 1,047 1,393 1,898 1,628 1,826 1,813 2,354 2,064 2,285

OPM 18% 21% 25% 26% 23% 17% 19% 17% 16%R&D 203 206 254 206 257 210 233 251

% of sales 3.6% 3.2% 3.4% 3.3% 3.2% 2.0% 1.8% 2.0% Number of employees 185 203 216 224 236 279 297 312

Sales per employee 31 32 35 - 34 38 43 40 Cota (4923) FY03/11 Par. FY03/12 Par. FY03/13 Par. FY03/14 Par. FY03/15 Par. FY03/16 Par. FY03/17 Par. FY03/18 Par. FY03/19 Par.

Sales 5,075 5,315 5,545 5,878 6,186 6,528 6,552 6,733 YoY 4% 5% 4% 6% 5% 6% 0% 3%

Operating profit 962 1,002 870 915 982 1,129 1,230 1,315 OPM 19% 19% 16% 16% 16% 17% 19% 20%

R&D 228 226 228 230 264 262 286 318 % of sales 4.5% 4.3% 4.1% 3.9% 4.3% 4.0% 4.4% 4.7%

Number of employees 239 255 258 284 286 274 293 289 Sales per employee 21 21 21 21 22 24 22 23

Adjuvant Cosme Japan (4929) FY03/11 Cons. FY03/12 Cons. FY03/13 Cons. FY03/14 Cons. FY03/15 Cons. FY03/16 Cons. FY03/17 Cons. FY03/18 Cons. FY03/19 Cons.Sales 4,064 4,145 4,469 4,571 4,504 4,401 4,771 5,098

YoY 6% 2% 8% 2% -1% -2% 8% 7% Operating profit 980 939 989 1,002 734 647 519 500

OPM 24% 23% 22% 22% 16% 15% 11% 10% R&D 37 41 37 44 55 110 142 156

% of sales 0.9% 1.0% 0.8% 1.0% 1.2% 2.5% 3.0% 3.1% Number of employees 111 112 110 114 124 133 181 192

Sales per employee 37 37 41 40 36 33 26 27


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Strengths and weaknesses

Strengths

Original proposal-based sales approach boosting market share Milbon’s Fieldperson system embodies a proposal-based sales approach. Rather than the conventional method of simply offering

products for sale, this system aims to introduce beauty products and techniques that help salons boost sales and profits. Milbon

considers issues faced by beauty salons—its customers—and proposes ways to address them. By comparison, other manufacturers

of hair cosmetics that handle products for both professional and retail use, mainly sell via distributors. The Fieldperson system, in

which Milbon works with its distributors to approach salons directly, differentiates the company on the sales front. Milbon’s data

show that in 2017 its technical unit price was JPY7,181 and product unit price was JPY573 at Target Salons, up 7% and 50%,

respectively, in the past 10 years. This proposal-based sales approach has created a win-win relationship between Milbon and

salons, earning the company the top share of the domestic market for professional hair cosmetics.

Original R&D system Milbon has an R&D system called the TAC product development system. Trends in the professional-use hair cosmetics market are

shifting, due to changing lifestyles, hair styles and beauty techniques—prompting changes in top-selling products. The company

finds hair stylists who enjoy strong popularity with salon customers, and the TAC system allows development of products using

these stylists’ original techniques. Per Milbon, these hair stylists do not like to sell their ideas to be commoditized. As such, rivals

that also sell hair cosmetics on the retail market may find it hard to emulate the company’s development system.

Only targeting the salon market, where sales have room to grow According to Ministry of Economy, Trade and Industry, the shipment value on sales of hair cosmetics sold at retail stores (such as

shampoos) has been flat at around JPY400bn over the five-year period through 2017. In contrast, the salon market grew by an

annual average rate of 3.5% over the same period. (For comparison, Shared Research estimates the salon market using the

number of households provided by the MHLW and family income and expenditure survey data from the Ministry of Internal

Affairs and Communications). The robustness of the salon market stems from the fact that second-generation baby boomers aged

over 40 are boosting salon demand for aging care items, such as hair coloring and hair care treatment products. Shared Research

believes this market will continue to expand until 2025, when second-generation baby boomers reach 50–54 years of age. As the

salon market still has room to grow, we see Milbon’s targeting this market as strength.

Weaknesses

Earnings dependent on the domestic market, where the number of customers is expected to decline According to data from the Ministry of Internal Affairs and Communications, the number of Japanese women aged 15–64 has

declined from its 1995 peak of 43.5mn to 36.8mn in 2017. Despite this situation, Milbon has continued to increase its domestic

sales by increasing its share of the market through its proposal-based sales approach and product development system. However,

Shared Research believes that growth will level off after 2025, when the number of women aged 50–54, who are leading

customers for aging-care products, starts to decline. Being dependent on Japan, which faces such structural issues, for nearly 90%

of sales seems a weakness for Milbon. By contrast, L’Oreal has been cultivating global demand. By region, in FY12/17 L’Oreal

generated 31.2% of cosmetics sales from Western Europe, 28.2% from North America, and 40.6% from other regions.

Low recognition overseas hampers expansion Milbon has solid name recognition among salons in Japan, where it has the biggest market share. Yet the low overseas

recognition is an issue, given that overseas expansion is vital. In FY12/18, Milbon’s overseas sales comprised only 15.7% of total

sales. We believe that in order to build its corporate brand and service overseas salons, the company will need to cultivate

personnel with global perspectives.


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Difference in scale compared with top global players L’Oreal’s FY12/17sales hit EUR26.0bn, around JPY3.25tn (JPY125/EUR). These sales are approximately 100x Milbon’s. Milbon’s

long-term vision is to become the world’s top manufacturer by sales of professional-use hair cosmetics for salons. In building its

brand image in the face of such global players, small scale is a weakness.


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Historical Performance

Income statement


Sales Milbon’s sales grew at an annual rate of between 2% and 4% per year between FY12/07 and FY12/11, and at an average annual

rate of 8.1% between FY12/13 and FY12/18. The pace of sales growth is picking up, due in part to accelerating overseas

expansion.

Sales composition The percentage of sales derived from hair care products is increasing as middle-aged baby boomers account for a larger

percentage of the population (in 2017, women aged between 40 and 44 accounted for 7% of all women in Japan). The sales

composition of hair care products increased from 48% in FY12/08 to 60% in FY12/18.

Operating profit In FY12/09, operating profit fell by 12.5% YoY due to overseas investments, such as the establishment of Milbon Korea Co., Ltd,

and the launch of Milbon Trading (Shanghai) Co., LTD. Yet operating profit has risen since FY12/10.

Non-operating income (expenses) One characteristic of Milbon’s accounting is posting sales discounts under non-operating income (expenses). Sales discounts are

product discounts for agents who make cash payments on receivables quickly.

Income statement FY12/08 FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/17 FY12/18 FY12/18(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. 12mo eqv. Cons. Cons. (new st'd)*

Sales 18,692 19,189 19,750 20,527 21,887 23,830 25,227 27,377 29,135 33,456 31,708 35,185 33,882YoY 3.6% 2.7% 2.9% 3.9% 6.6% 8.9% 5.9% 8.5% 6.4% 14.8% 8.8% 11.0% -

CoGS 6,465 6,975 6,747 6,907 7,054 7,655 7,945 8,695 9,034 10,659 10,047 10,824 11,693CoGS ratio 34.6% 36.3% 34.2% 33.6% 32.2% 32.1% 31.5% 31.8% 31.0% 31.9% 31.7% 30.8% 34.5%

Gross profit 12,227 12,215 13,003 13,620 14,834 16,175 17,281 18,682 20,100 22,797 21,661 24,361 22,189GPM 65.4% 63.7% 65.8% 66.4% 67.8% 67.9% 68.5% 68.2% 69.0% 68.1% 68.3% 69.2% 65.5%

SG&A expenses 8,482 8,937 9,424 9,828 10,847 11,872 12,830 13,954 14,987 17,452 16,347 18,101 15,928YoY 4.1% 5.4% 5.4% 4.3% 10.4% 9.4% 8.1% 8.8% 7.4% 16.4% 9.1% 10.7% -SG&A-to-sales ratio 45.4% 46.6% 47.7% 47.9% 49.6% 49.8% 50.9% 51.0% 51.4% 52.2% 51.6% 51.4% 47.0%R&D expenses 668 766 838 871 873 970 1,169 1,214 1,232 1,422 1,422 1,479 1,479YoY 16.5% 14.8% 9.3% 3.9% 0.3% 11.0% 20.5% 3.9% 1.5% 15.4% 15.4% 4.0% -

Operating profit 3,745 3,278 3,579 3,792 3,986 4,303 4,451 4,728 5,113 5,345 5,313 6,261 6,261YoY 4.8% -12.5% 9.2% 6.0% 5.1% 7.9% 3.4% 6.2% 8.2% 4.5% 3.9% 17.8% -OPM 20.0% 17.1% 18.1% 18.5% 18.2% 18.1% 17.6% 17.3% 17.6% 16.0% 16.8% 17.8% 18.5%

Non-operating income (expenses) -232 -174 -252 -246 -251 -243 -232 -300 -380 -347 -333 -449 -450Net financial income 35 25 33 35 38 52 53 57 59 74 Sales discounts 311 318 332 343 371 402 413 448 472 512 Gains on foreign exchange -56 - - - 12 43 14 -36 -59 -10 Other 100 119 46 61 71 64 113 127 93 100

Recurring profit 3,514 3,104 3,327 3,546 3,735 4,060 4,219 4,428 4,734 4,998 4,980 5,811 5,811YoY 7.1% -11.7% 7.2% 6.6% 5.3% 8.7% 3.9% 4.9% 6.9% 5.6% 5.2% 16.7% -RPM 18.8% 16.2% 16.8% 17.3% 17.1% 17.0% 16.7% 16.2% 16.2% 14.9% 15.7% 16.5% 17.2%

Extraordinary gains (losses) -97 -119 -118 402 -151 -11 -26 -12 -308 220 Income taxes 1,389 1,199 1,377 1,642 1,456 1,533 1,572 1,465 1,357 1,400

Implied tax rate 40.7% 40.2% 42.9% 41.6% 40.6% 37.9% 37.5% 33.2% 30.7% 26.8% Minority interests - - - - - - - - - - Net income 2,028 1,785 1,832 2,305 2,128 2,516 2,621 2,950 3,069 3,817 3,785 4,495 4,495

YoY 31.5% -11.9% 2.6% 25.8% -7.7% 18.2% 4.2% 12.6% 4.0% 24.4% 23.3% 18.8% -Net margin 10.8% 9.3% 9.3% 11.2% 9.7% 10.6% 10.4% 10.8% 10.5% 11.4% 11.9% 12.8% 13.3%

Sales by item FY12/08 FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/17 FY12/18 FY12/18(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. 12mo eqv. Cons. Cons. (new st'd)*

Sales 18,692 19,189 19,750 20,527 21,887 23,830 25,227 27,377 29,134 33,456 31,708 35,185 33,882Hair care products 9,032 9,864 10,135 10,398 11,069 12,616 14,597 16,195 17,711 19,511 18,688 21,125 20,222Hair coloring products 7,173 6,969 7,278 7,987 8,820 9,288 8,817 9,506 9,892 12,096 11,264 12,203 11,857Perm products 2,111 2,025 1,998 1,816 1,678 1,623 1,520 1,410 1,260 1,570 1,482 1,590 1,544Others 376 331 339 326 320 303 291 264 270 280 273 267 257

% of sales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%Hair care products 48% 51% 51% 51% 51% 53% 58% 59% 61% 58% 59% 60.0% 59.7%Hair coloring products 38% 36% 37% 39% 40% 39% 35% 35% 34% 36% 36% 34.7% 35.0%Perm products 11% 11% 10% 9% 8% 7% 6% 5% 4% 5% 5% 4.5% 4.6%Others 2% 2% 2% 2% 1% 1% 1% 1% 1% 1% 1% 0.8% 0.8%


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Q3 FY12/18 results (out October 26, 2018)

▷ Sales JPY25.3bn (+10.6% YoY*)

▷ Operating profit JPY4.7bn (+20.4% YoY)

▷ Recurring profit JPY4.4bn (+19.8% YoY)

▷ Net income JPY3.3bn (+6.0% YoY) (Net income refers to net income attributable to parent company shareholders.)

*Due to a change in the accounting period initiated in FY12/17, YoY comparisons for cumulative Q3 FY12/18 (January 1 to

September 30, 2018) are with the nine months of December 21, 2016 to September 20, 2017 for non-consolidated financial

statements and with the nine months of October 1, 2016 to June 30, 2017 for financial statements of subsidiaries.

*Change in accounting year: Until FY12/17, the company used an accounting year running from December 21 to December 20 the following year.



Aujua products completed an update which began in November 2017 in 1H FY12/18. The updated products have enjoyed a

positive reception in the market. Activities related to this switch to the new version have led to a reconfirmation of product

knowledge and a review of the menu lineup, resulting in a vitalized market and stable repeat business. Sales for the premium

brand milbon have grown in the global market as the company has continued to expand sales outlets both in Japan and overseas.

Efforts to cultivate sales outlets by distributors have been particularly successful in Japan. Fashion hair coloring product Ordeve

Addicthy, which was launched in February 2017, also grew significantly.

Results versus plan Looking at results against the FY12/18 company forecasts, cumulative Q3 sales finished 72.8% versus plan (68.3% versus FY12/17

forecasts in cumulative Q3 FY12/17), operating profit 76.1% (72.9%), recurring profit 77.9% (73.3%), and net income 78.1%

(82.2%). The company characterized overall results as being closely in line with plan, with solid growth continuing in Q3 and no

real change in the trends that prevailed during the first half of the year (see overview of 1H FY12/18 results for details). Although

earnings would appear to be slightly ahead of where they were at Q3 FY12/17, the company noted that there is some spending

in its budget that it has left for Q4 and that it still expects full-year results to finish in line with its current forecast (which was

raised at the time of its 1H results announcement).

Performance versus the previous year Sales

In cumulative Q3 FY12/18, sales were JPY25.3bn (+10.6% YoY). By product area, sales of hair care products were JPY14.8bn

(+12.0% YoY), hair coloring products were JPY9.1bn (+8.6% YoY), perm products were JPY1.2bn (+10.2% YoY) and other

products were JPY167mn (+0.3% YoY). Sales rose across all segments.

In addition to robust domestic sales, overseas results in local currency base were also solid, including in countries such as China

and the US.

Profit

Operating profit was JPY4.7bn (+20.4% YoY). OPM improved 1.5pp YoY to 18.6%. Lower-than-expected return volume for old

versions of Aujua products and improved CoGS (-2.0pp YoY) due to improved productivity contributed to OP and OPM growth.

SG&A to sales ratio increased 0.5pp owing to higher personnel expenses from increased hires in the cosmetics business and

higher depreciation expenses and rents related to establishing new locations, including the headquarters. Net income

attributable to parent company shareholders was JPY3.3bn (+13.2% YoY) due to the booking of JPY310mn for gains on the sale of

investment securities (extraordinary profit).


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Sales of hair care products was JPY14.8bn (+12.0% YoY). In hair care products, sales of the premium brand Aujua were JPY4.4bn

(+20.9% YoY). The version upgrade of the product which spanned from November 2017 until 1H has received positive reviews

from customers. The number of salons selling Aujua at end-Q3 FY12/18 was 3,644 (+478 salons compared with end-FY12/17).

Sales of the premium brand milbon were JPY1.5bn (+55.8% YoY) and 5,366 salons were selling the product at end-Q3 FY12/18

(+1,400salons compared with end-FY12/17), showing the same solid growth as Aujua. The company also saw

better-than-expected results from its move to use distributors to spearhead a new sales initiative (started at the beginning of this

year) aimed at getting more salons to carry its premium milbon brand.


Sales of hair coloring products were JPY9.1bn (+8.6% YoY). Ordeve Addicthy, a new hair coloring product that allows users to

easily change their hair color to suit their individual tastes and experiment with different hair colors found outside Japan by

removing both redness and yellowness, was very popular, primarily among young people. The top-line gains were driven by a

combination of additions to the number of salons carrying newly added colors and repeat sales of existing colors. Fashion hair

coloring product Addicthy was the main growth driver; sales of gray coloring products were basically flat, but the company

noted that it had initially planned to launch a new gray coloring line in October 2018 but had subsequently decided to push out

the new product launch into next year. Sales of the organic brand Villa Lodola Color were JPY787mn (+13.2% YoY) as the brand

sold well. The number of salons selling Villa Lodola was 7,809 at end-Q3 FY12/18 (+914 salons compared with end-FY12/17).

Results by region By region, the company booked JPY21.3bn in sales in Japan (+8.9% YoY) and JPY3.9bn overseas (+20.7% YoY). 15.6% of overall

sales were made overseas (+1.3pp YoY). Overseas, sales in Korea were JPY1.5bn, JPY1.1bn in China, JPY470mn in the US, JPY87mn

in Thailand, and JPY795mn in other regions, including Taiwan. East Asia, including China and Korea, continued to perform well.

YoY comparisons for overseas sales are not meaningful due to a change in the accounting period (see note below). In cumulative

Q3, the foreign currency exchange rate was JPY0.9978/KRW in Korea (JPY0.0969/KRW in Q3 FY12/17), JPY16.86/CNY in China

(JPY16.26/CNY in Q3 FY12/17), JPY109.61/USD in the US (JPY111.42/USD in Q3 FY12/17), and JPY3.42/THB in Thailand

(JPY3.18/THB Q3 FY12/17).

*Change in accounting year: Until FY12/17, the company used an accounting year running from December 21 to December 20 the following year.



Japan

Domestic sales continued to serve as the main growth driver, rising 8.9% in cumulative Q3 FY12/18. In addition to the update of

Aujua haircare products at the end of 2017, the spring 2018 upgrade of scalp care products and new proposals were well

received by customers. FY12/18 is the eighth year since Aujua’s launch, and this product renewal has given salons a new

opportunity to recommend the product lineup to their customers, which is spurring growth. Using the Addicthy hair color range

to introduce milbon haircare products is driving a virtuous cycle.

China (Milbon Shanghai)

In cumulative Q3 FY12/18, sales in China rose 30.8% YoY on a local currency basis, with direct sales up more than 20% and sales

through distributors up more than 30%. The high YoY growth in sales through distributors was in line with what the company

had targeted. While the majority of sales in China's urban areas come from direct sales, the company must use distributors to

reach the rest of the country and so it is very important to have a high growth rate for sales through distributors. At the individual

product level, the company saw strong sales of fashion coloring product Ordeve thanks to the many color specialist seminars it

held in each region. On the hair care product front, the company's efforts to increase the number salons carrying its Global

Milbon product line has also started to bear fruit.


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South Korea (Milbon Korea)

In cumulative Q3 FY12/18, sales in South Korea declined 1.3% YoY on a local currency basis, or slightly below plan. The company

said that while sales in South Korea are still running fairly close to plan, distributors of its premium milbon brand line came under

pressure from the launch of low-price hair coloring products by competitors but are now starting to recover some of the lost

ground as customers are coming to recognize the superiority of milbon in terms quality and consumer guidance. The company

also noted that it is expecting to see a boost to sales in South Korea from the launch of Ordeve Addicthy in October 2018, which

is popular in Japan. Sales of Neo Liscio (for straight perms), have also gotten off to a strong start following its launch in August

2018, winning praise from the market for its soft finish.

Thailand (Milbon Thailand)

In cumulative Q3 FY12/18, sales in Thailand declined 12.7% YoY on a local currency basis. The decline reflects the company's

decision to cut the number of its distributors in Thailand from three to one to better focus its marketing activity on the country's

top salons. At the individual product level, the company focused most of its marketing efforts on its Global Milbon line and saw

solid growth in this area as a result, but this was not enough to offset the drop in sales of other hair care products.

US (Milbon USA)

In cumulative Q3 FY12/18, sales in the US rose 10.5% YoY on a local currency basis. Direct sales continued to show solid gains

thanks to the success of the company's strategic push to get its products into high-end salons in the Manhattan district of New

York City and similarly posh salons in the city of Chicago. Sales through distributors got a boost from the startup of dealings with

a new distributor in the state of California in August, and saw continued steady growth in sales through existing distributors. At

the individual product level, the company saw strong sales of Global Milbon following its move to narrow the focus of its sales

activities and gear its sales proposals to the changing seasons.

Capex, R&D In cumulative Q3 FY12/18, capital expenditures were JPY962mn (reaching 57.7% of FY12/18 company forecast). The main items

in the capital expenditure plan for FY12/18 are factory mixing equipment (four-ton vacuum tank), expenditures related to the

transfer and expansion of the Fukuoka branch office and Okayama sales office, and the renovation of the Central Research

Institute.

Depreciation costs were JPY1.0bn (reaching 74.0% of the company forecast). R&D expenses were JPY1.1bn (reaching 73.9% of

company forecast; 4.2% of sales).

Outlook for FY12/19 With sales and earnings firmly on track to meet the company's upwardly revised forecast for FY12/18, prospects are looking good

for FY12/19, when its cosmetics business will get up and running and it will launch the new gray coloring products that was

previously scheduled for release in FY12/18. Although some of the shine may come off Aujua sales now that its renewal has run its

course, the company has a new brand line it plans to roll out at the beginning of FY12/19 and has also scheduled a number of

new product launches. In North America, the company will also be starting sales of a new hair coloring product line aimed at

people of European decent and will continue working to build up its distributor network.

Cosmetics business

On October 1, 2018, the company announced that it had officially transferred 21 selected individuals* to its new field cosmetics

educator (FCE) team. Going forward, the company plans to set up a three-pronged fieldpersons (FPs) structure comprised of

field cosmetics educators (FCEs), field educators (FEs), and field salespersons (FSs).

* For further details, see "Progress in cosmetics business" section under the overview of 1H FY12/18 results.


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1H FY12/18 results (out July 25, 2018)


▷ Operating profit JPY3.0bn (+27.5%)

▷ Recurring profit JPY2.8bn (+27.9%)

▷ Net income JPY2.1bn (+41.7%) (Net income refers to net income attributable to parent company shareholders.)

In 1H FY12/18, both sales and profits were above company forecasts. Aujua products, which received an update in November

2017, have enjoyed a positive reception in the market. Premium brand milbon has performed well in the global market as the

company has continued to open new customer support centers. Fashion hair coloring product Ordeve Addicthy, which was

launched in February 2017, also grew significantly. In the overseas markets, China and East Asia have performed particularly well.

*Due to a change in the accounting period initiated in FY12/17, YoY comparisons for 1H FY12/18 (January 1 to June 30, 2018) are

with the six months of December 21, 2016 to June 20, 2017 for non-consolidated financial statements and with the six months of

October 1, 2016 to March 31, 2017 for financial statements of subsidiaries.

*Change in accounting year: Until FY12,17, the company used an accounting year running from December 21 to December 20 the following year.



Upward revisions to FY12/18 company forecasts

The company revised up the full-year forecasts as follows at the time of the 1H earnings results announcement due to strong 1H

results and expected stable growth in 2H.

▷ Sales JPY34.7bn (JPY34.0bn in previous forecast)

▷ Operating profit JPY6.2bn (JPY5.7bn)

▷ Recurring profit JPY5.6bn (JPY5.3bn)

▷ Net income JPY4.2bn (JPY4.0bn) (Net income refers to net income attributable to parent company shareholders.)

Looking at progresses against the FY12/18 revised company forecasts (announced July 25, 2018), 1H sales finished 48.4% versus

plan (44.7% versus FY12/17 forecasts in 1H FY12/17), operating profit 48.3% (43.6%), recurring profit 48.7% (43.0%), and net

income 50.4% (39.5%).


In 1H FY12/18, sales were JPY16.8bn (+12.3% YoY). By product area, sales of hair care products were JPY10.0bn (+15.1%), hair

coloring products were JPY5.9bn (+7.8%), perm products were JPY819mn (+15.5%) and other products were JPY101mn (-2.9%).

Excluding the small YoY drop in sales in the other products area, sales rose across all segments.


Sales of hair care products was JPY10.0bn (+15.1% YoY). Sales of premium brands Aujua and milbon were solid. In hair care

products, sales of the premium brand Aujua were JPY2.9bn (+25.5%). The November 2017 version upgrade of the product has

received positive reviews from customers. The launch of a scalp care series in May 2018 marked the completion of updates across

the full lineup. This drove increasing promotion activity toward customer salons and strengthened the company’s scalp care

offering, which had been an issue, underpinning 15.1% YoY sales growth.


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The number of salons selling Aujua at end-1H FY12/18 was 3,513 (+347 salons compared with end-FY12/17), above the

end-FY12/18 target of 3,400. According to the company, it is not capping the number of salons, but there is scope to increase

per-salon volume. It aims to increase turnover per salon rather than the number of salons per se. Sales of the premium brand

milbon were JPY948mn (+59.5%) and 4,996 salons were selling the product at end-1H FY12/18 (+1,030 salons compared with

end-FY12/17), showing the same solid growth as Aujua. Company operations have spread to 11 countries as it made progress in

cultivating sales outlets. More than 1,000 salons overseas carry milbon products, primarily in the US. There is a clear

differentiation between which salons handle Aujua and milbon, and the impact of targeting which salons will promote which

brand is appearing.


Sales of hair coloring products were JPY5.9bn (+7.8% YoY). Ordeve Addicthy, a new hair coloring product that allows users to


removing both redness and yellowness, was very popular as salons could propose a wider range of color options. Additional

colors were introduced in salons which handle Ordeve Addicthy, leading to a higher rate of repeat customers for existing colors

and driving sales growth. Sales of the organic brand Villa Lodola Color were JPY5.1mn (+14.7%) as the brand sold well. The

number of salons selling Villa Lodola was 7,507 at end-1H FY12/18 (+612 salons compared with end-FY12/17).

The number of salons operated by young management that handle Addicthy is steadily growing, and looks likely to continue.

Hair coloring requires manufacturer’s support. Milbon said that it has deepened its relationships with the salons through such

support and is having some success using Addicthy as an opportunity to introduce its milbon haircare products.

New gray coloring products had been an issue. The company originally planned to launch them in October 2018, but postponed

this to FY12/19. Launching a new product that requires attention while Addicthy is selling well would diverge management

resources. Milbon said that it would focus on activities to promote Addicthy in the short term.

Results by region By region, the company booked JPY14.2bn in sales in Japan (+10.4% YoY) and JPY2.6bn overseas (+23.9%). 15.6% of overall sales

were made overseas (+1.5pp YoY). Overseas, sales in Korea were JPY981mn (no YoY comparison), JPY706mn in China, JPY305mn

in the US, JPY55mn in Thailand, and JPY565mn in other regions, including Taiwan (+22.7% YoY). Southeast Asia continued to

perform well. In 1H, the foreign currency exchange rate was JPY0.0999/KRW in Korea (JPY0.0959/KRW in 1H FY12/17),

JPY17.09/CNY in China (JPY16.27/CNY), JPY108.67/USD in the US (JPY111.59/USD), and JPY3.44/THB in Thailand (JPY3.14/THB).

Japan

In 1H FY12/18, domestic sales were up10.4% YoY. In addition to the update of Aujua haircare products at the end of 2017, the

spring 2018 upgrade of scalp care products and new proposals were well received by customers. It is the eighth year since

Aujua’s launch, and this offers a new opportunity for salons to recommend the lineup to their customers, which is spurring

growth. Using the Addicthy hair color range to introduce milbon haircare products is driving a virtuous cycle.

China (Milbon Shanghai)

In 1H, sales were +34.7% YoY in local currency terms. Sales in regions where the company sells directly and those where it sells

via distributors each grew by over 30% YoY. Fashion coloring product Ordeve sold well owing to color specialist seminars in

regional areas. In haircare, educational activities focusing on 40 salons for Global Milbon and the launch of a styling product,

Creative Style, was starting to lead to solid repeat business.

There are major improvements in attitudes toward service and how to deal with customers at leading salons and quality salons

operated by young management that are aware of the latest trends. Previously there was little notion of personnel training in the

Chinese beauty market, but awareness of personnel training has heightened recently. We understand that salons in many regions

are showing changed attitudes after personnel have visited Japan to study. Partnerships between such salons and the company

underpin good relationships and have mutual benefits for both parties. The company has strengths in providing support for

service, dealing with customers, and personnel training, so it sees promising prospects in the Chinese market.


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Korea (Milbon Korea)

In 1H, sales slowed (-0.8% YoY) in local currency terms. Hair coloring accounts for around 70% of Korean sales, and the company

struggled from the end of FY12/17 through early FY12/18 due to the proliferation of lower-priced similar products. However,

Milbon said that salons were coming back to its products as they could sense a difference in quality and the other products

lacked support. The company thus feels that sales will recover in 2H.

The haircare series updates were completed in April 2018 with the latest version of Aujua, and the launch of a scalp care series is

slated for September 2018. The Nigelle styling gel series, launched in May 2018, is steadily building its reputation in the market,

according to the company. Milbon planned to launch its NeoLiscio perm product, which has a strong reputation in Japan, in

August 2018, and has high hopes for it.

Thailand (Milbon Thailand)

In 1H, sales were down13.6% YoY in local currency terms. In Q1 FY12/18, sales fell sharply YoY following large orders at the end

of FY12/17 due to focusing on a single distributor. Milbon said sales started recovering steadily in Q2 due to the launch of a new

lineup from Global Milbon and ongoing perm workshops. The company also said that holding training for distributors’ educators

in Japan and other measures to strengthen cooperation meant that the distributors can conduct training sessions on Milbon

products with confidence.

In Southeast Asia, the company plans to turn its Malaysian and Vietnamese operations into local subsidiaries in 2018 and 2019. In

March 2018, it set up a Singapore representative office.

US (Milbon USA)

In 1H, sales were up 7.3% YoY in local currency terms. In North America all of the hair care products are being switched to the

milbon brand. Although this has entailed a great deal of effort, the company said that the response was positive following its

recent introduction in high-end Manhattan salons. Sales growth accelerated from the previous pace of around 2% YoY to 7–8%.

North America is one of the keys to the company’s global ambitions but it has not yet launched hair coloring products there. In

light of differences in hair characteristics, as well as techniques and ways of thinking about hair coloring, the company is

developing hair coloring products tailored for Europe and the US. It said it would be able to launch hair colors especially for these

markets in FY12/19. Ahead of this launch, in 2H FY12/18 it plans to unveil products for people of Asian ethnicity in North America:

fashion coloring product Ordeve Addicthy and gray coloring product Ordeve Beauté, which are highly rated in Japan. Once its

local employees are familiar with the company’s hair coloring products, Milbon expects that to lead to good start of sales of

specialist European/US coloring scheduled to launch in FY12/19. The company thinks adding hair coloring to the haircare

products it currently supplies will help it establish a significant platform for future growth in the US market.

Capex, R&D In 1H FY12/18, capital expenditures were JPY670mn (reaching 40.2% of FY12/18 company forecast). The main items in the capital

expenditure plan for FY12/18 are factory mixing equipment (four-ton vacuum tank), expenditures related to the transfer and

expansion of the Fukuoka branch office and Okayama sales office, and the renovation of the Central Research Institute.

Depreciation costs were JPY666mn (reaching 48.4% of the company forecast). R&D expenses were JPY712mn (reaching 49.2% of


Progress in cosmetics business The company is developing a cosmetics business in collaboration with KOSÉ (TSE1: 4922). KOSÉ is spearheading product

development, and Milbon is looking into sales strategy and education strategy. The company plans for advance sales in spring

2019. It said it would be able to disclose plans in greater detail when FY12/18 results are announced in February 2019.

Milbon said that what salons are looking forward to most in the cosmetics business is education. Over 20 manufacturers supply

cosmetics for salons, but these are almost exclusively product sales alone. The company said that because these are beauty salons,


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it wanted to put in place system to educate staff about how to sell products. Educational support is not only a benefit for the

salons, but a chance to introduce cosmetics for the company.

The company has set up a field cosmetics educator (FCE) team, and selected 21 individuals to serve as FCEs. The plan is for three

FCEs to form one unit, with seven units specialized in educational activities to be placed in branches. Ahead of FY12/19, the

company plans to set up a three-pronged structure involving field cosmetics educators (FCEs,) field sales (FSs), field educators

(FEs), and fieldpersons (FPs). Milbon parent company FPs will be responsible for sales, with FCEs handling cosmetics education.

The company’s FCEs are different from ordinary beauty division personnel (salon staff) and will be responsible for educating and

supporting such staff.

The FCEs will undertake six months of training from October 2018 to acquire the techniques and knowledge necessary for salon

education. The FSs and FEs will also undergo cosmetics training ahead of FY12/19 so that they are able to propose cosmetics as a

new line of merchandise.

Q1 FY12/18 results (out April 27, 2018)





*Due to a change in the accounting period initiated in FY12/17, YoY comparisons for Q1 FY12/18 (January 1 to March 30, 2018)

are with the three months of December 21, 2016 to March 20, 2017 for non-consolidated financial statements and with the three

months of October 1 to December 31, 2016 for financial statements of subsidiaries.




Aujua products, which received an update in November 2017, have enjoyed a positive reception in the market and contributed

to higher YoY sales. According to the company, now that all Aujua products have been upgraded, company fieldpersons once

again conducted promotional activities at the around 3,200 salons which handle Aujua products. As a result, the company was

able to reinvigorate sales to salon for various products, not only Aujua. The volume of returns on the older version of Aujua

products, which ended at end-Q1 FY12/18, was significantly lower than company expectations, positively impacting profits.

Specifically, actual returns of older versions were worth JPY65mn, significantly lower than the JPY275mn the company had

forecasted. Removing the JPY22mn in returned products which were disposed, the remaining JPY253mn was a positive factor

against forecasts.

Premium brand milbon has performed well in the global market as the company has continued to open new customer support

centers. In the overseas market, the East Asia region continues to show solid growth. Sales in China (Shanghai) especially showed

growth (+35.5% YoY on local currency basis).

Results versus plan Looking at results against the FY12/18 company forecasts, Q1 sales finished 22.9% versus plan (20.6% versus FY12/17 forecasts in

Q1 FY12/17), operating profit 24.2% (14.7%), recurring profit 22.9% (14.4%), and net income 26.9% (14.1%). Overall results

were strong. In addition to higher sales, profits were driven up by returns of Aujua products being significantly lower than

forecasts (see above) and JPY198mn which had been budgeted for SG&A expenses being unused due to these expenses being

pushed back.


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By segment, sales of hair care products reached 22.1% versus plan (20.1%) and hair coloring products 24.2% (22.0%). Domestic

sales finished 22.6% versus plan (20.9%) and overseas sales 24.3% (19.0%).


In Q1 FY12/18, sales were JPY7.8bn (+12.9% YoY*). By product area, sales of hair care products were JPY4.5bn (+14.4%), hair

coloring products were JPY2.9bn (+8.9%), perm products were JPY348mn (+33.8%) and other products were JPY45mn (-2.2%).

Excluding the small YoY drop in sales in the other products area, sales rose across all segments.

In addition to robust domestic sales, results benefited from exchange rate effects (see below) as overseas results in local currency

base were also solid.

Profit

Operating profit was JPY1.4bn (+76.7% YoY*). OPM improved 6.4pp YoY to 17.8%. As the return volume for old versions of

Aujua products was lower than company forecasts, CoGS ratio declined 5.4pp YoY and SG&A to sales ratio declined 1.1pp due to

unused SG&A expenses, leading to strong profits. Net income attributable to parent company shareholders was JPY1.1bn

(+99.7%) due to the booking of JPY306mn for gains on the sale of investment securities (extraordinary profit).


Sales of hair care products was JPY4.5bn (+14.4% YoY*). In hair care products, sales of the premium brand Aujua were JPY1.3bn

(+20.4%). The November 2017 version upgrade of the product has received positive reviews from customers. The number of

salons selling Aujua at end-Q1 FY12/18 was 3,406 (+240 salons compared with end-FY12/17). Sales of the premium brand milbon

were JPY434mn (+70.2%) and 4,304 salons were selling the product at end-Q1 FY12/18 (+338 salons compared with

end-FY12/17), showing the same solid growth as Aujua.

In professional brands, Elujuda, which has enjoyed popularity since its release, continued to see growth as the product has built a

solid position within the leave-in hair care product field. However, aging care series PLARMIA and a product targeting working

20-somethings jemile fran, were unable to secure sales in line with company forecasts, despite launching new products.

According to a company analysis, cannibalization at salons has prevented salons from properly expressing the value and charm of

these products to users. Professional brands are sold through distributors. As such, the company thinks that it is necessary to

review concept, sales, and products themselves. The company expects for the solid premium brands to cover the weak results of

the struggling professional brands in FY12/18.


Sales of hair coloring products were JPY2.9bn (+8.9% YoY*). Ordeve Addicthy, a new hair coloring product that allows users to


removing both redness and yellowness, was very popular, primarily among young people. Sales of the organic brand Villa Lodola

Color were JPY176mn (+23.2%) as the brand sold well. The number of salons selling Villa Lodola was 7,160 at end-Q1 FY12/18

(+265 salons compared with end-FY12/17).

Sales for additional colors of Ordeve Addicthy exceeded the company forecasts. However, the company thinks it need to address

sluggish sales of gray coloring products.

Results by region By region, the company booked JPY6.5bn in sales in Japan (+10.6% YoY*) and JPY1.3bn overseas (+25.8%). 16.8% of overall sales

were made overseas (+1.7pp YoY). Overseas, sales in Korea were JPY485mn (no YoY comparison*), JPY373mn in China, JPY131mn

in the US, JPY17mn in Thailand, and JPY301mn in other regions, including Taiwan (+10.2% YoY). Southeast Asia, including China

and Korea, continued to perform well.


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Q1 sales on local currency basis were CNY21.8mn (+35.5% YoY) in China (milbon Trading (Shanghai) Co., Ltd.), USD1.2mn

(+5.6%) in the US (Milbon USA Inc.), KRW4.8bn (+2.0%) in Korea (Milbon Korea Co., Ltd.), and THB5.1mn (-46.1%) in Thailand

(Milbon Thailand Co., Ltd.). In Q1, the foreign currency exchange rate was JPY0.1017/KRW in Korea (JPY0.0939/KRW in Q1

FY12/17), JPY17.15/CNY in China (JPY16.17/CNY), JPY108.23/USD in the US (JPY109.56/USD), and JPY3.45/THB in Thailand

(JPY3.29/THB).

The following are overviews of the overseas subsidiaries.

US (Milbon USA Inc.)

In direct sales, performance was solid as its sales strategy targeting 25 luxury salons in Manhattan proved to be successful and the

number of salons in the Chicago area increased. The results of distributor-based business were relatively weak as changes in

distributor sales in the south intensified. Regarding new products, the company said the Global Milbon Repair series, which were

launched in February 2018, are received well and that salons essentially always choose to sell the products following training

sessions conducted at the salons.

China (Milbon Trading [Shanghai] Co., Ltd.)

Sales to distributors have been solid, with significant growth in Fujian and Zhejiang provinces. By product, hair coloring products

have sold well as use by coloring specialists and information about trends have spread. Regarding hair care products, the Global

Milbon series clearly began to see a rise in repeat customers as a result of its educational activities focusing on 40 salons.

Korea (Milbon Korea Co., Ltd.)

One of the most important distributors for the company which makes up about 30% of its overall sales in Korea began to move

away from some milbon products as a result of beginning to sell low price hair dyes from other companies which emerged due to

a loosening of regulations for Korea’s law regarding cosmetic products. This impact started appear from Q4 FY12/17 and has

increased in Q1 FY12/18. However, the company expects to absorb this impact and recover its market share by enhancing

educational activities, which have enjoyed a good reputation, and making additional proposals for hair coloring products as

salons which have switched to other products begin to reconfirm the quality of milbon products. The Korean market expansion

continues.

Thailand (Milbon Thailand Co., Ltd.)

Order trends have changed significantly because the company strategically narrowed down distributors from three to only one in

FY12/18 (in FY12/17, the company started to narrow down to one distributor, but it continued to accept orders from the other

two). In Q1 FY12/18, sales fell 46.1% YoY, however, the company said this was a reactionary drop-off from accepting a large

number of orders at end-FY12/17 as the company headed toward full-fledged implement of the one distributor system.

According to the company, the cases of products sale out at distributors have steadily increased and the change in distributor

numbers was also a temporary factor. In addition to strong sales for Ordeve Addicthy, which was launched at end-2017, the

number of salons selling Atenje (for straight perms) rose steadily because of activities such as distributor sales and studio training

sessions.

Capex, R&D In Q1 FY12/18, capital expenditures were JPY369mn (reaching 22.1% of FY12/18 company forecast). The main items in the

capital expenditure plan for FY12/18 are factory mixing equipment (four-ton vacuum tank), expenditures related to the transfer

and expansion of the Fukuoka branch office and Okayama sales office, and the renovation of the Central Research Institute.

Depreciation costs were JPY326mn (reaching 23.7% of the company forecast). R&D expenses were JPY332mn (reaching 22.9% of


FY12/18 Company Forecast There have been no changes to the FY12/18 company forecast.


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Progress of cosmetics business

In the skin care and cosmetics business for salons launched by the company and KOSÉ Corporation (TSE1: 4922), the companies

will select around 20 FCE (Field Cosmetics Educators) by the end-FY12/18, begin training from this autumn, and are planning and

preparing to begin sales from spring in 2019. According to the company, this project is progressing according to the plan and

sales in this business will begin on schedule.

Full-year FY12/17 results (out February 14, 2018)

▷ Sales JPY33.5bn (no YoY comparison)

▷ Operating profit JPY5.3bn (no YoY comparison)

▷ Recurring profit JPY5.0bn (no YoY comparison)

▷ Net income* JPY3.8bn (no YoY comparison) (*Net income refers to net income attributable to parent company shareholders.)

Due to a change in the accounting period initiated in FY12/17, FY12/17 is an irregular accounting period consisting of 12 months

and 11 days.



running from January 1 to December 31. (The change was announced February 24, 2017.) The change was aimed at promoting more integrated

business operations, a streamlined budgeting process and performance management system for all group companies, and timely and accurate

management information disclosure. As a result of the change FY12/17 is 12 months and 11 days long, running from December 21, 2016 to December

31, 2017. For consolidated results, overseas subsidiaries used a 15-month accounting period running from October 1, 2016 through December 31,

2018. Thus the number of days in FY12/17 differs from previous fiscal years.

For the purpose of comparing FY12/17 results with the previous year, separate from its official earnings report (kessan tanshin)

Milbon calculated FY12/17 results on a 12-month basis, as shown below:

FY12/16 (Actual) FY12/17 (Adjusted) YoY change

Sales JPY29.1bn JPY31.7bn +8.8%

Gross profit JPY20.1bn JPY21.7bn +7.8%

SG&A expenses JPY15.0bn JPY16.3bn +9.1%

Operating profit JPY5.1bn JPY5.3bn +3.9%

Recurring profit JPY4.7bn JPY5.0bn +5.2%

Net income* JPY3.1bn JPY3.8bn +23.3% *Net income attributable to parent company shareholders

On the sales front, the company got a major boost from the launch of Ordeve Addicthy in February 2017. A new hair coloring

product that would allow users to easily change their hair color to suit their individual tastes and experiment with different hair

colors found outside Japan, Ordeve Addicthy quickly gained a large following. The company's hair care products segment also

got a boost from the launch of a new version of the highly popular Aujua. The company saw continued steady growth in sales in

East Asia, especially in China and South Korea. Operating profit finished the year up as higher sales absorbed the temporary rise

in production costs stemming from the increase in depreciation that accompanied the startup of the new production lines at the

Yumegaoka plant, increase in personnel expenses, and higher sales promotion expenses for preparing promotional tools.

Results versus plan Looking at results against the company's forecasts (revised on February 24 to reflect the accounting period change), full-year

sales finished 102.3% versus plan, operating profit 96.3%, recurring profit 98.0%, and net income106.6%.

Sales of hair care products reached 100.8% versus plan and hair coloring products 103.5%. Domestic sales finished 102.2%

versus plan and overseas sales 102.8%.


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According to the company, sales exceeded its forecast, although there were some minor differences in specific categories, and

profits were in line with forecast. Domestic sales were particularly robust, although overseas sales also increased. Sales of the new

hair color product Ordeve Addicthy reached JPY2.01bn (12-month basis; actual FY12/17 sales of JPY2.07bn) versus the target

JPY755mn.


Consolidated sales were JPY33.5bn in FY12/17 (no YoY comparison). By product area, sales of hair care products came to

JPY19.5bn, hair coloring products JPY12.1bn, perm products JPY1.6bn, and other products JPY280mn. Consolidated sales on a

12-month basis were JPY31.7bn (+8.8% YoY), Sales rose across all product areas on a 12-month basis. Sales of hair care products

were JPY18.7bn (+5.5% YoY), hair coloring products JPY11.3bn (+13.9%), perm products JPY1.5bn (+17.7%), and other products

JPY273mn (+1.0%).

Profits

Operating profit was JPY5.3bn (no YoY comparison). The sales growth effect absorbed the rise in CoGS due to expansion of the

Yumegaoka plant and higher personnel expenses and sales promotion costs associated with production of promotional tools.

The company booked some unexpected expenses such as an increase in bonus provision as a result of the change in bonus

assessment rules due to the accounting period change (+JPY350mn cost increase) and cost of transferring personnel associated

with its headquarters relocation such as relocation allowances. Net income attributable to parent company shareholders was

JPY3.8bn (no YoY comparison), including gains on the sale of investment securities (extraordinary profit) of JPY789mn and loss

from disposal of brands (extraordinary loss) of JPY521mn. On a 12-month basis, operating profit was JPY5.3bn (+3.9% YoY),

recurring profit was JPY5.0bn (+5.2%), and net income attributable to parent company shareholders was JPY3.8bn (+23.3%).

Sales by product Hair care products

Sales of hair care products were JPY19.5bn (no YoY comparison) in FY12/17 and JPY18.7bn (+5.5% YoY) on a 12-month basis.

Sales of premium brand Aujua were JPY5.4bn (+5.9% YoY) on a 12-month basis and JPY5.5bn on an irregular accounting period

basis due to increased demand for aging care products. The number of salons selling Aujua was 3,166 at end-FY12/17. Premium

brand milbon also performed well, with sales of JPY1.8bn and 3,966 salons selling milbon at end-FY12/17.

The company noted that Aujua was proving more popular than expected and milbon was also well received, especially overseas.

However, some cannibalization has been taking place between Aujua (which includes aging care products) and PLARMIA, a

professional brand dedicated to aging care, resulting in weak sales of PLARMIA. The company plans to clarify the differences

between the two brands to restructure them and revise its sales strategy.


Hair coloring product sales were JPY12.1bn (no YoY comparison) and JPY11.3bn (+13.9% YoY) on a 12-month basis. Sales of

Ordeve Addicthy, a new brand that allows users to experiment with a diverse range of colors (similar to European and North

American hair colors) by eliminating red hues, were strong mainly among younger consumers. The brand recorded sales of

JPY2.1bn (JPY2.0bn on a 12-month basis), which was 266.6% greater than the target of JPY755mn. The organic brand Villa Lodola

Color also recorded brisk sales of JPY704mn (JPY679mn on a 12-month basis, +31.0% YoY).

Sales by region Sales in Japan were JPY28.0bn and overseas sales were JPY5.5bn (no YoY comparisons). The overseas sales breakdown was as

follows: South Korea JPY2.4bn, China JPY1.2bn, US JPY735mn, Thailand JPY154mn, and Taiwan and other regions JPY943mn (no

YoY comparisons). Sales remained upbeat in China, South Korea, and Southeast Asia. The company considers China especially

promising because of its large market size and expects sales to continue growing. Sales are also beginning to expand in Malaysia


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and Thailand, which the company sees as a positive sign for future growth. The overseas sales ratio was 14.3% (+1.1pp) in

FY12/17 (12-month basis).

On a 12-month basis, sales in Japan were JPY27.2bn (+7.5% YoY) and overseas sales were JPY4.5bn (+17.9%). The overseas sales

breakdown was as follows: South Korea JPY1.9bn (+21.1% YoY), China JPY959mn (+30.0%), US JPY579mn (+1.5%), Thailand

JPY119mn (+37.1%), and Taiwan and other regions JPY935mn (+10.4%).

Capex, R&D Capex was JPY1.6bn in FY12/17, down 63% (simple YoY comparison not reflecting accounting period change) from JPY4.3bn in

FY12/16, when the company built the Yumegaoka plant. The main expenditures were for building a sales management system,

adding a new business base in Japan (Shizuoka sales office), and interiors and facilities associated with domestic business base

relocation. Spending on a new branch in Fukuoka and sales office in Okayama has been postponed until FY12/18 or later, because

the company has not found suitable premises. Progress toward the five-year capex plan of JPY10bn under the medium-term

management plan (FY12/15–FY12/19) has been steady at JPY8.6bn in three years (FY12/15–FY12/17).

Depreciation was JPY1.3bn, up 18.1% from the previous year (simple YoY comparison not reflecting accounting period change).

R&D expenses totaled JPY1.4bn (4.3% of sales) versus JPY1.2bn (4.2%) in FY12/16.

Progress of new five-year medium-term plan Milbon sees targets of its five-year medium-term plan as achievable despite an increase in SG&A expenses from upfront spending

it had not factored in when the plan was formulated*. The company’s FY12/18 sales forecast is JPY34.0bn (see below), which is

not far off the medium-term plan target of JPY35.0bn in FY12/19. However, the company sees the FY12/19 OPM target of 17.1%

to be a tough challenge. It plans to aim for the FY12/19 operating profit target of JPY6.0bn by attaining its sales target, even if it

misses the OPM target.

* Expenses for additional hiring and training/education to bolster the cosmetics business, accelerating corporate branding, global business expansion

(including Europe), and relocating its Tokyo headquarters earlier than planned.

FY12/17 results and comparison with new five-year medium-term plan: earnings summary

FY12/17 company

forecast FY12/17 result

(12-month basis) Attainment rate

FY12/19 target

(JPYmn) Value % of sales

Value % of sales Value % of sales

Sales 31,000 100.0% 31,708 100.0% 102.3％ 35,000 100.0%

Domestic 26,560 85.7％ 27,173 85.7％ 102.3％ 28,500 81.4%

Overseas 4,440 14.3％ 4,535 14.3％ 102.2％ 6,500 18.6%

Gross profit 21,040 67.9％ 21,661 68.3％ 103.0％ 24,500 70.0%

SG&A expenses

15,740 50.8％ 16,347 51.6％ 103.9％ 18,500 50.0%

Operating profit

5,300 17.1％ 5,313 16.8％ 100.3％ 6,000 17.1%

Recurring profit

4,890 15.8％ 4,980 15.7％ 101.9％ 5,600 16.0%

Net income 3,450 11.1％ 3,785 11.9％ 109.7％ 3,850 11.0% Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods.

FY12/17 results and comparison with new five-year medium-term plan: sales breakdown by country

(JPYmn)

FY12/17 company sales

forecast

FY12/17 sales (12-month

basis)

Attainment rate

FY12/19 target

Forex rate

FY12/17 actual FY12/19 forecast

Japan 26,560 27,173 102.3% 28,500 - -

US 590 579 98.1% 840 JPY111.31/USD 105.00


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China 881 959 108.9％ 1,350 JPY16.37/CNY 17.00

South Korea 1,811 1,941 107.2％ 2,500 JPY0.0972/KRW 0.1000

Thailand 105 119 113.4％ 250 JPY3.21/THB 3.20

Other regions* 1,052 935 88.9％ 1,560 - -

<Reference>

East Asia** 3,314 3,473 104.8％ 4,490 - -

Southeast Asia*** 478 471 98.6％ 1,020 - -

Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods. *Taiwan, Hong Kong, Vietnam, Malaysia, Turkey, Indonesia, other **China, South Korea, Taiwan, Hong Kong ***Thailand, Vietnam, Malaysia, Indonesia, other

FY12/16 results (out January 25, 2017)

▷ Sales JPY29.1bn (+6.4% YoY)




YoY In FY12/16, consolidated sales were JPY29.1bn, up 6.4% YoY due to higher sales volume of hair care products (sales of JPY17.7bn,

+9.4% YoY) and hair coloring products (JPY9.9bn, +4.1%).

Gross profit was JPY20.1bn (+7.6% YoY), up by JPY1.4bn YoY, due to the rise in sales volume of hair care products and hair

coloring products. GPM was up 0.8pp YoY to 69.0%, a result of the temporary deterioration of GPM caused by the moving up of

inventory disposals in Q4 FY12/15, and a rise in the utilization rate at the Thai plant. The rise in the utilization rate at the Thai

plant was due to an increase in production brought about by the increase in global sales volume.

Operating profit was up JPY386mn YoY to JPY5.1bn (+8.2% YoY). SG&A expenses increased JPY1.0bn YoY but the increase in

gross profit exceeded that amount. SG&A expenses increased due to higher personnel expenses (up JPY183mn YoY) stemming

from an increase in fieldpersons (who conduct proposal-based sales) and a rise in wages. Promotion expenses rose due to the

company’s branding strategy as did rents for new sales base.

Net income increased by 4% YoY to JPY3.1bn. The slower growth compared to that for operating profit was mainly due to the

booking of an impairment loss of JPY241mn associated with the closure of the Aoyama factory.

Results by segment Sales of hair care products (JPY17.7bn, +9.4% YoY)

In hair care products, sales of premium brand Aujua grew and new after-bath treatment products under the professional brand

also performed strongly. Boosted by the successful introduction of a new line of anti-aging care products, sales (on a global

shipment basis) of Aujua brand goods rose 13.5% YoY to JPY5.0bn. As of December 2016, the company had 2,779 Aujua salons

(+15.8% versus end-FY12/15). Sales (on a global shipment basis) of after-bath treatment including Aujua also increased 24.5%

YoY to JPY4.5bn.

The company started sales of premium brand milbon, in Japan, the US, Hong Kong, and Malaysia in June 2016. Further, the

company began selling the products in Vietnam in August 2016, and Taiwan in September 2016, bringing the total number of


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salons to 2,242, of which around 1,450 are in Japan and around 800 are overseas (as of December 2016). In FY12/16, milbon

brand sales (on a global shipments basis) reached JPY571mn.

Sales of hair coloring products (JPY9.9bn, +4.1% YoY)

In the hair coloring products segment, proposal-based sales of additional colors and the launch of a new gray coloring line of

products boosted sales. In particular, two gray coloring products contributed to the sales growth: Ordeve Crystal, launched in

2015, which can uniformly dye long hair a lighter color, and Villa Lodola Color, which received the world’s first approval from an

organic certification institute in Europe.

FY12/16 sales (parent) of Ordeve gray coloring products including Ordeve Crystal increased 6.1% YoY to JPY4.0bn. Sales (parent)

of Villa Lodola Color products reached JPY518mn (+98.5% YoY), achieving 164.6% of the full-year FY12/16 sales target of

JPY315mn. The company commented Villa Lodola Color received favorable reputation from customers for its decreased pungent

odor as 92% of ingredients are naturally derived.

Overseas sales (JPY3.8bn, +10.0% YoY)

Sales in Japan were JPY25.3bn (+5.9% YoY), and overseas sales were JPY3.8bn (+10.0%). Each of the following countries

contributed to the increase in overseas sales. Korea: JPY1.6bn (+12.5% YoY); China: JPY737mn (+10.8%); and other regions

(including Taiwan): JPY847mn (+26.1%). Korea and China, in particular, experienced high sales growth on a local currency basis,

which excludes forex effects, with Korea up 25.0% and China up 26.1%. US sales decreased to JPY571mn (-11.0% YoY), as the

launch of milbon brand products resulted in customers switching from existing company products.

FY12/15 results

▷ Sales JPY27.4bn (+8.5% YoY)




In FY12/15, consolidated sales increased 8.5% YoY to JPY27.4bn, up for the 19th consecutive year. Higher volume of hair care

products and hair coloring products, as well as a rise in sales overseas, pushed up total sales.

Operating profit increased JPY277mn to JPY4.7bn (+6.2%, up for the sixth consecutive year). While SG&A expenses increased

JPY1.1bn YoY, overall profits were up due to higher gross profit (up JPY1.4bn YoY) on the back of higher volume increase of hair

care products and hair coloring products. Personnel expenses increased JPY348mn, while sales promotion, advertising, and

market development expenses together increased JPY240mn.

In the three-month period of Q4 FY12/15, operating profit decreased 23.9% to JPY940mn. The main reason was expenses rising more than initially expected due to cumulative Q3 FY12/15 performance outperforming plans. According to the company, this pushed down operating profit by JPY500mn versus initial plan for FY12/15. Milbon booked factory overhead in FY12/15, initially slated for FY12/16. Moreover, it booked larger-than-expected remunerations and promotion expenses given the improved business performance.


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Historical company forecasts and results


Results vs. Initial Est. FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.

Sales (Initial Est.) 19,860 20,500 21,470 23,100 25,200 26,900 28,950 31,000 34,000Sales (Results) 19,750 20,527 21,887 23,830 25,227 27,377 29,135 33,456 35,185

Results vs. Initial Est. -1% 0% 2% 3% 0% 2% 1% 8% 3%Operating profit (Initial Est.) 3,620 3,780 3,880 4,250 4,500 4,661 5,000 5,300 5,740Operating profit (Results) 3,579 3,792 3,986 4,303 4,451 4,728 5,113 5,345 6,261

Results vs. Initial Est. -1% 0% 3% 1% -1% 1% 2% 1% 9%Recurring profit (Initial Est.) 3,370 3,510 3,610 3,960 4,215 4,369 4,700 4,890 5,270Recurring profit (Results) 3,327 3,546 3,735 4,060 4,219 4,428 4,734 4,998 5,811

Results vs. Initial Est. -1% 1% 3% 3% 0% 1% 1% 2% 10%Net income (Initial Est.) 1,910 2,060 2,050 2,440 2,600 2,630 3,100 3,450 3,990Net income (Results) 1,832 2,305 2,128 2,516 2,621 2,950 3,069 3,817 4,495

Results vs. Initial Est. -4% 12% 4% 3% 1% 12% -1% 11% 13%


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Balance sheet


Cash and equivalents

Cash and equivalents increased from JPY937mn in FY12/07 to JPY7.4bn in FY12/15 owing to a rise in internal reserves. This is

mainly because Milbon remains true to the determination of its late Chairman Konoike to maintain strong management footing.

In FY12/16, cash and equivalents were down to JPY5.0bn (-32.2% YoY) due to the expansion of the Yumegaoka plant, but later

began to rise again, reaching JPY9.8bn in FY12/18.

Working capital

Working capital has tended to rise in line with higher sales.

Net assets

From FY12/06 Milbon has maintained a dividend payout ratio of 30-50%, with remaining profits increasing internal reserves.

Balance sheet FY12/08 FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Current assets 6,476 6,988 8,036 10,617 11,600 12,938 14,308 14,625 13,411 16,107 19,304

Cash and cash equivalents 1,063 1,666 2,673 5,080 6,066 6,846 7,387 7,412 5,023 6,165 9,778Accounts receivable 2,769 2,796 2,847 3,020 2,924 3,055 3,383 3,425 3,806 5,077 3,876Inventories 2,339 2,164 2,222 2,222 2,316 2,617 3,077 3,295 3,894 4,075 4,823Other 305 362 293 295 293 421 461 493 688 790 827

Fixed assets 13,138 13,366 12,808 11,976 12,063 13,384 13,831 16,174 19,033 21,536 20,490Tangible fixed assets 10,487 10,640 10,301 9,753 9,529 10,416 10,531 12,281 14,681 14,627 14,341Intangible fixed assets 261 319 452 512 526 482 449 398 790 944 988Investments and other assets 2,391 2,407 2,054 1,711 2,007 2,486 2,852 3,494 3,562 5,966 5,161

Total assets 19,614 20,354 20,844 22,593 23,662 26,322 28,139 30,799 32,444 37,643 39,794Current liabilities 3,294 3,247 2,725 3,328 3,098 3,971 3,870 4,357 4,591 5,995 6,345

Accounts payable 1,078 953 467 420 482 501 503 685 687 1,146 866Short-term debt 23 - - - - - - - - - -Other 2,192 2,293 2,258 2,908 2,616 3,469 3,366 3,672 3,904 4,849 5,480

Fixed liabilities 652 454 419 205 197 202 165 230 147 544 297Long-term debt - - - - - - - - - - -Other 652 454 419 205 197 202 165 230 147 544 297

Total liabilities 3,946 3,700 3,144 3,533 3,295 4,172 4,035 4,587 4,738 6,539 6,642Net assets 15,668 16,654 17,699 19,060 20,367 22,149 24,104 26,213 27,706 31,103 33,152

Capital stock 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000Capital surplus 199 199 199 199 199 199 200 200 200 200 201Retained earnings 13,565 14,638 15,780 17,257 18,476 20,069 21,656 23,440 25,249 27,756 30,615Valuation differences -96 -184 -280 -397 -308 -119 249 573 258 1,147 336Share subscription rights - - - - - - - - - - -Minority interests - - - - - - - - - - -

Total capital and liabilities 19,614 20,354 20,844 22,593 23,662 26,322 28,139 30,799 32,444 37,643 39,794Working capital 4,029 4,006 4,602 4,822 4,758 5,170 5,957 6,035 7,012 8,006 7,833Total interest-bearing debt 23 - - - - - - - - - -Net cash 1,040 1,666 2,673 5,080 6,066 6,846 7,387 7,412 5,023 6,165 9,778Accounts receivable days 52 53 52 52 50 46 47 45 45 48 46Days in inventory 116 118 119 117 117 118 131 134 145 136 150Accounts payable days 54 53 38 23 23 23 23 25 28 31 34Working capital efficiency 114 118 132 146 144 140 154 154 163 154 163Current ratio 197% 215% 295% 319% 374% 326% 370% 336% 292% 269% 304%Fixed ratio 83.9% 80.3% 72.4% 62.8% 59.2% 60.4% 57.4% 61.7% 68.7% 69.2% 61.8%Equity ratio 79.9% 81.8% 84.9% 84.4% 86.1% 84.1% 85.7% 85.1% 85.4% 82.6% 83.3%


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Cash flow statement


Cash flows from operating activities Milbon’s earnings have been stable, and cash flow from operating activities has generally been in line with net income. Cash flow

from operating activities increased JPY2.1bn from inflows of JPY4.3bn in FY12/17 to inflows of JPY6.5bn in FY12/18. This was due

to increases in net income before income taxes and depreciation expenses and a decrease in accounts receivable.

Cash flows from investing activities From FY12/07 to FY12/15, cash outflow from investing activities was within the scope of cash inflow from operating activities. This

is mainly because of efforts to maintain strong management footing, remaining true to the determination of its late Chairman

Konoike. Cash outflow from investing activities in FY12/16 was JPY4.4bn, which was higher than cash inflow from operating

activities of JPY3.4bn owing to the expansion of the Yumegaoka plant. In FY12/17, cash inflow from operating activities was

JPY4.3bn and cash outflow from investing activities was JPY1.9bn, resuming the previous trend.

Cash flows from financing activities The company’s cash used in financing activities is mainly accounted for by dividend payments. In FY12/18, net cash used in

financing activities amounted to JPY1.6bn, of which cash dividends paid accounted for JPY1.6bn.

Cash flow statement FY12/08 FY12/09 FY12/10 FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Cash flows from operating activities 2,304 3,079 2,434 3,158 2,977 3,511 2,767 3,896 3,355 4,347 6,487Cash flows from investing activities -1,399 -1,680 -728 101 -1,507 -1,199 -1,236 -2,834 -4,367 -1,920 -1,202

Free cash flow 906 1,399 1,706 3,259 1,471 2,313 1,530 1,061 -1,012 2,427 5,285Cash flows from financing activities -922 -725 -688 -837 -911 -1,388 -1,052 -1,135 -1,262 -1,318 -1,639Net income 2,028 1,785 1,832 2,305 2,128 2,516 2,621 2,950 3,069 3,817 4,495Depreciation 1,021 1,117 1,010 1,015 952 883 1,009 1,039 1,083 1,279 1,493Amortization of goodwill - - - - - - - - - - -Purchase of tangible fixed assets -1,099 -1,473 -614 -305 -688 -1,320 -1,060 -2,517 -3,748 -1,151 -423Purchase of intangible fixed assets -74 -159 -262 -214 -176 -154 -136 -96 -520 -387 -771Change in working capital 527 -23 596 220 -64 412 786 78 978 994 7,833

Free cash flow 1,349 1,294 1,370 2,581 2,280 1,514 1,648 1,298 -1,094 2,564 -3,038Cash and cash equivalents (year-end) 1,063 1,666 2,673 5,080 6,066 6,846 7,387 7,412 5,023 6,165 9,778


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Other Information

History

Date Event

Jul. 1960 Yutaka Beauty Chemicals Co., Ltd. established in Higashi Yodogawa-ku, Osaka, to manufacture and sell cosmetics (cold perming

chemicals, shampoos, etc.); factory also established at the same site

Jan. 1965 Trade name changed to Milbon Co., Ltd. Head office relocated to Asahi-ku, Osaka, the following month

Mar. 1983 Training center opened in Miyakojima-ku, Osaka

Apr. 1984 Start of fieldperson strategy (inaugural class enters)

Mar. 1988 Start of Milbon's TAC product development system

Oct. 1992 Aoyama plant newly established in Aoyama-cho, Naga-gun, Mie Prefecture (currently Iga, Mie Prefecture)

Jun. 1996 Company stock registered with the Japan Securities Dealers Association for over-the-counter trading

Apr. 1997 Head office relocated to Miyakojima-ku, Osaka; former head office renovated and Central Research Institute established

Mar. 2004 MILBON USA, Inc. (now a consolidated subsidiary) established in New York, US

Jul. 2005 Yumegaoka plant opened in Iga, Mie Prefecture

Nov. 2007 Milbon Trading (Shanghai) Co., Ltd. (now a consolidated subsidiary) established in China

Jul. 2009 Production Technology Development Center established at Yumegaoka plant in Iga, Mie Prefecture

Jul. 2009 Milbon Korea Co., Ltd. (now a consolidated subsidiary) established in South Korea

May 2012 MILBON (THAILAND) CO., LTD. in Thailand

Dec 2013 MILBON (THAILAND) CO., LTD. built a new plant in Thailand

January 2014 Central Research Institute expanded

September 2016

Aoyama plant in Iga, Mie Prefecture closed

November 2016

Adjacent land used to expand the Yumegaoka plant in Iga, Mie Prefecture

July 2017 KOSÉ Milbon Cosmetics, a joint venture with the KOSÉ Corporation, established (currently an equity-method affiliate)

November 2017

Head Office relocated to Chuo-ku, Tokyo

History Foundation: 1960–1984

According to Milbon, when established in 1960 it was one of 241 manufacturers of hair cosmetics in Japan. Japanese beauty

techniques were mostly imported, and the company estimates that in 1960 foreign companies accounted for more than 70% of

the hair cosmetic market for salons. The market expanded in line with rapid economic growth, and between the late 1970s and

1980 overseas manufacturers gained further market share.

Establishment: 1984–2000

Given the strength of overseas manufacturers, former company president Konoike suggested that the company change its

marketing from product sales to salons via distributors, to a new proposal-based sales approach. This spawned the Fieldperson

system in 1984. Its salesforce numbered about 30 people, but around half left amid the new sales policy. By 1988 the new system

began contributing to sales growth. That year also marked the start of Milbon’s TAC product development system.

Growth: 2000 onward

Development was based on the proposal-based sales system and the TAC product development system through 2000. Thereafter,

the company set its sights on the overseas market. In 2004, it established a subsidiary in New York, followed by subsidiaries in

China (2007), Korea (2009) and Thailand (2012).


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News and topics

December 2018 On December 14, 2018, the company announced a new medium-term management plan (2019–2023).

The company decided to shift to a new five-year medium-term management plan from FY12/19, terminating the previous

five-year management plan (2015–2019), whose last year was originally planned as FY12/19, on December 31, 2018. Under the

current plan, the company targeted sales of JPY35bn and operating profit of JPY6bn (announced January 21, 2015, operating

profit target revised on June 28, 2017) for FY12/19. However, according to the revised earnings forecast announced on July 25,

2018, each initiative is progressing faster than initial expectations and results are at a high level. Based on these circumstances,

the company decided to shift to a new five-year management plan from FY12/19. The company plans to announce the specific

details of the new medium-term management plan at the FY12/18 earnings announcement scheduled for February 13, 2019.

On the same day, the company announced the establishment of overseas subsidiaries.

The company established overseas subsidiaries in Malaysia and Vietnam for the purpose of strengthening its sales activities and

salon support capabilities.

Overview of subsidiaries

MILBON MALAYSIA SDN. BHD.

Business: Sales of hair cosmetic products

Capital: MYR1,500,000 (JPY41mn)

Establishment date: September 20, 2018

Fiscal period: December 31

Investment ratio: 100% owned by the company

Date of start of operations: October 1, 2019 (planned)

MILBON VIETNAME CO., LTD

Businesses: Sales of and hair cosmetic products

Capital: VND22,594,000,000 (JPY113mn)

Establishment date: October 15, 2018

Fiscal period: December 31

Investment ratio: 100% owned by the company

Date of start of operations: January 1, 2019 (planned)

Corporate governance and top management

Corporate governance (as of December 17, 2018) Capital structure

Controlling interests N

Foreign shareholding Over 20% under 30％

Organization, directors, Audit & Supervisory Board members

Organization Company with Audit & Supervisory Board

Number of directors (per Articles of Incorporation) 15

Number of directors 10

Directors' term of office (per Articles of Incorporation) (years) 2

Chairman of the board of directors President

Outside directors 2

Independent outside directors 2


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Nominating committee or compensation committee Y

No. of Audit & Supervisory Board members (per Articles of Incorporation)

4

Number of Audit & Supervisory Board members 3

Outside members of Audit & Supervisory Board 2

Independent outside members of Audit & Supervisory Board 2

Other

Implementation of measures regarding director incentives Linked to corporate operating performance

Eligible for stock option N

Disclosure of individual directors' compensation N

Policy to determine amount and calculation method of remuneration Y

Corporate takeover defenses N Source: Shared Research based on company data

President and CEO: Ryuji Sato (born October 18, 1959)

After graduating from the National Institute of Technology, Sasebo College, Sato joined a pharmaceuticals company. He joined

Milbon in April 1981. He became head of product production in December 1999, and head of marketing in December 2000.

While remaining head of this department, he became a director in March 2002 and managing director in December 2003. In

March 2008, aged 48, he became president.

Dividend policy

Milbon views returning profits to shareholders as a priority. the company plans to pay steady dividends, maintaining a 40%-plus

dividend payout ratio.

Major shareholders (as of December 31, 2018)


Major group companies (as of December 2018)

Subsidiary Location Stake Business

MILBON USA, INC. New York, US 100% Sales of hair cosmetics in US

Milbon Trading (Shanghai) Co., Ltd. Shanghai, China 100% Sales of hair cosmetics in China

Milbon Korea Co., Ltd. Seoul, South Korea 100% Sales of hair cosmetics in Korea

MILBON (THAILAND) CO., LTD. Rayong, Thailand 100% Manufacture and sales of hair

cosmetics in Thailand

MILBON MALAYSIA SDN. BHD. Malaysia 100% Sales of hair cosmetics in Malaysia

MILBON VIETNAM CO., LTD. Vietnam 100% Sales of hair cosmetics in Vietnam Source: Shared Research based on company data

Top shareholders Shares held Shareholdingratio

Konoike Asset Management Company 1,920,000 5.86%The Master Trust Bank of Japan, Ltd. (Trust Account) 1,694,100 5.17%Keiko Murai 1,483,624 4.53%Maiko Kitajima 1,482,424 4.53%SMBC Trust Bank Ltd. Designated Securities Trust 1,328,000 4.06%

1,246,025 3.81%Milbon Cooperating Companies Shareholding Association 956,656 2.92%Sumitomo Mitsui Trust Bank, Limited. 934,400 2.85%Kazunobu Kounoike 859,628 2.63%Japan Trustee Services Bank, Ltd. (Trust account) 839,100 2.56%Shares outstanding (excluding treasury shares) 32,739,774 100.00%

SSBTC CLIENT OMNIBUS ACCOUNT


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Employees

Source: Shared Research based on company data Note: Fieldperson figures are for the parent until FY2010, and consolidated figures from FY2011 on.

By the way

Logo

Created by a UK designer, Milbon’s logo was introduced in 1996 to coincide with the IPO. It is said to evoke the image of a

Japanese comb, symbolizing the provision of Japanese products to the world.

Company name The company’s name was created with several objectives: a name that is unique throughout the world, easy to read, and with

four or fewer Japanese characters, as well as a name with a certain ring that conveys an image of cosmetics. The name also

connotes the ability (“bone”) to produce many (a “million”) products. When established in 1960, there were already 240

companies in Japan’s beauty industry, characterized by the emulation of beauty techniques from Europe and the US.

New brand statement and slogan With a five-year plan announced in January 2015, the company also released a new brand statement and slogan. Through this

new brand image it plans to shift from the current B2B business model (Milbon to salons) to a B2B2C business model (i.e.,

approaching consumers more proactively).

Brand statement

“We believe that beautiful hair brings out an individual’s true beauty.

This is something that is felt from the inside and radiates outward.

Milbon works closely with salon professionals to together deliver beautiful hair,

Inspire grace and confidence in the world.”

Slogan

“Find your beauty.”

No. of employees FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec

Fieldpersons 172 180 197 202 206 224 240 265 280 307 321 345 362Other 217 231 245 264 285 278 288 326 369 397 454 460 494Total 389 411 442 466 491 502 528 591 649 704 775 805 856


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Profile

Company Head office

Milbon Co., Ltd. Kyobashi Edogrand, 2-2-1 Kyobashi,

Chuo-ku, Tokyo 104-0031

Phone Listed on

+81-6-6928-2331 Tokyo Stock Exchange 1st Section

Established Exchange listing

July 2, 1960 June 7, 1996

Website Fiscal year-end

http://www.milbon.com/en/ December

IR web IR Phone

http://www.milbon.co.jp/english/ir/index.html -

http://www.milbon.com/en/

http://www.milbon.co.jp/english/ir/index.html

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