Financial Overview for the 2nd Quarter of Fiscal Year ... · Financial Overview for the 2nd Quarter...

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Financial Overview for the 2nd Quarter of Fiscal Year Ending March 31, 2013

Yutaka KobayashiPresident & Chief Operating OfficerKobayashi Pharmaceutical Co., Ltd.

November 6, 2012

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Today's Topics

1. Financial Results for the 2nd Quarter of Fiscal Year Ending March 31, 2013 and Financial Forecasts for Fiscal Year Ending March 31, 2013

2. Kobayashi Pharmaceutical Group’s CSR Activities

3. Efforts to Promote the Health Care Business

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Financial Results for the 2nd Quarter of Fiscal Year Ending March 31, 2013 and

Financial Forecasts for Fiscal Year Ending March 31, 2013

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Highlights of Consolidated Financial Results for the First Six Months of Fiscal Year Ending March 31, 2013

Q2 of FY ended March 2012

Q2 of FY ending March 2013

Increase (Decrease)

Amount Margin Amount Margin Amount Percentage

Net sales Million yen

64,023%

－

Million yen

58,253％

－

Million yen

(5,770)％

(9.0)

Gross profit 37,956 59.3 34,699 59.6 (3,257) (8.6)

Operating income 10,710 16.7 8,237 14.1 (2,473) (23.1)

Ordinary income 10,961 17.1 8,830 15.2 (2,130) (19.4)Net income 6,150 9.6 7,120 12.2 969 15.8EPS (yen) 150.19 － 173.88 － 23.69 15.8

Dividend per share (yen) 35 － 39 － 4 11.4

Net sales decreased due to the transfer of shares in Kobayashi Medical and poor sales of summer-season products. Operating income declined due to an increase in investments in marketing, such as fostering businesses with growth potential and brands. Interim dividend per share grew by 4.0 yen.

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Changes in Consolidated Results

582640

0

200

400

600

800

Q2 of FYended March

2009

Q2 of FYended March

2010

Q2 of FYended March

2011

Q2 of FYended March

2012

Q2 of FYending March

2013

107

82

16.7

14.1

0

30

60

90

120

150

Q2 of FY endedMarch 2009




Q2 of FY endingMarch 2013

0

3

6

9

12

15

18Operating incomeOperating margin

Net sales decreased by 9% due to the transfer of shares in Kobayashi Medical and poor sales of products for easing the heat.

Net sales Operating income(100 million yen) (100 million yen) （％）

Down 9.0%

Down 23.1%

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Changes in Consolidated Results(Excluding the effects of the transfer of shares in Kobayashi Medical)

582

609

0

200

400

600

800

Q2 of FYended March

2009

Q2 of FYended March

2010

Q2 of FYended March

2011

Q2 of FYended March

2012


2013

105 82

16.7

14.1

0

30

60

90

120

150






0

3

6

9

12

15

18Operating income

Operating margin

* Kobayashi Medical's net sales and operating income for the period June to September 2011 in Q2 of FY ended March 2012 are excluded.


Down 4.4%

Down 21.6%

* 3,100 million yen

* 200 million yen

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82

2.55.52

107

220 7.5

0.5

0

20

40

60

80

100

120

Factors for a decrease in operating income

Factors for an increase in operating income

Effects of the transfer of shares in Kobayashi

Medical

ＧＰ SG&A expenses

Analysis on Increase (Decrease) in Operating Income

(100 million yen)

Operating income

for Q2 of FY ended

March 2012

Decline in sales and change in

product mix

Cost reduction

efforts

Rise in raw material prices

Loss on disposal of inventories

etc.

Sales promotion & advertising expenses

Other sales promotion expenses

Operating income

for Q2 of FY ending

March 2013

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Consumer Products Business

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Changes in Net Sales and Operating Income

523548

0

200

400

600

Q2 of FYended March

2009

Q2 of FYended March

2010

Q2 of FYended March

2011

Q2 of FYended March

2012


2013

105

80

19.2

15.4

0

30

60

90

120

150






0

5

10

15

20Operating incomeOperating margin


Net sales and operating income decreased due to poor sales of products for easing the heat and an increase in investment such as adverting expenses. Sales of new products released in autumn 2012 and overseas business grew steadily.

Down 4.6%

Down 23.4%

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Sales by Product Category

35

39

22

157

72

80

116

39

46

23

162

79

79

118

0 20 40 60 80 100 120 140 160 180

Body warmers

Food products

Household sundries

Deodorizing airfresheners

Sanitary products

Oral hygiene products

Pharmaceutical products

Q2 of FY ended March2012Q2 of FY ending March2013

Up 1.3%

Down 6.2%

Down 3.1%

(100 million yen)

Sales of sanitary products declined due to poor sales of products for easing the heat. Recent data showed sales of deodorizing air fresheners at the store front were on a rising trend.

Down 1.7%

Down 8.9%

Down 14.9%

Down 8.7%

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0

200

400

600

800

1,000

1,200

1,400

April May June July August September 0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Sales in 2011 Sales in 2012

Average temperature in 2011

Average temperature in 2012

<Change in sales of products for easing the effects of heat>

Source: Shipments of products for easing the effects of heat including Netsusama Series, Shirt Cool, Necchu Taisaku Series

Sales of reusable products, such as Gel Mat, were sluggish, because temperature did not increase greatly in June and July, a business opportunity for summer-season goods.

（℃）(Million yen)

Poor Sales of Products for Easing the Effects of Heat

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Shoshugen Kaoru Stick (new items released in April and September 2012):The Company achieved product sales totaling 550 million yen.

Remake in autumn 2011 Released in April 2012 Released in September 2012

Color Select Hibiya Kadan series Fruit Select

Collaborated with Hibiya Kadan Added products with citrus scent Added products with Colored oil and stylish containers

The product gained favorable reception from customers because of its high quality oil and stylish container design.

The Company conducted a sales campaign in collaboration with Hibiya Kadan to boost store front sales.

Update on Sales of New Products and Main Brands

<Conducted a store front sales campaign>

・ August 29, 2012 to October 31, 2012

・ The Company collaborated with Hibiya Kadanand presented specially-prepared flowers to customers

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Expanding production capacity and formulating new sales strategycentering on body warmers

The U.S.

China

Topics on Overseas Business

■ The Company announced the construction of its second plant in Hefei, Anhui Province.Enhancing local production capacity (scheduled to be completed in September 2013)

■ The Company started marketing affordable body warmers.Expanding sales at urban districts on the outskirts of large cities in inland areas (Products were shipped from August 8, 2012)

■ The Company acquired Grabber, Inc., a body warmer manufacturer, in January 2012. Aiming to generate synergy effects through cross-licensing with HeatMax, Inc.

■ HeatMax, Inc. constructed a new plant.Becoming a production base to promote the North American business (completed in August 2012)

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Focusing on Lowering Returns Rate and Loss on Disposal

11

18

2.5

2.5

0

10

20

30

40

50

FY ended March2007

FY ended March2008

FY ended March2009

FY ended March2010

FY ended March2011

FY ended March2012

Q2 of FY endingMarch 2013Q

0

1

2

3

4

5Loss on disposalReturns rate

（％）(100 million yen)

The Company will continue to strictly control returns, inventories and disposal of goods.

9

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Mail Order Business

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Changes in Net Sales and Operating Income (Loss)

49 49

0

20

40

60

Q2 of FYended March

2009

Q2 of FYended March

2010

Q2 of FYended March

2011

Q2 of FYended March

2012


2013

-1.2-0.5

1.5

-5

0

5




Net sales Operating income (100 million yen) (100 million yen)

To acquire new customers, the Company will further enhance advertising through the Internet.Although sales of skin care products grew steadily, the Company struggled to increase sales of nutritional supplements. The Company will focus on development of nutritional supplements.

Down 0.8%

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Medical Devices Business

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Changes in Net Sales and Operating Income (Loss)

18

53

0

10

20

30

40

50

60

70

Q2 of FYended March

2009

Q2 of FYended March

2010

Q2 of FYended March

2011

Q2 of FYended March

2012


2013

-0.4

0.2

-4

-2

0

2

Q2 of FYended March

2009

Q2 of FYended March

2010

Q2 of FYended March

2011

Q2 of FYended March

2012


2013

Net sales Operating income(100 million yen) (100 million yen)

Down 65.9%

Kobayashi Medical Co., Ltd. was changed to an equity method affiliate from June 2012 after the Company transferred its shares in Kobayashi Medical Co., Ltd.

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Highlight of Forecast of Consolidated Financial Results

Q2 of FY ended March 2012

Q2 of FY ending March 2013

Increase (Decrease)

Amount Margin Amount Margin Amount Percentage

Net sales Million yen

131,166%

－

Million yen

132,000％

－

Million yen

833％

0.6Gross profit 76,531 58.3 78,100 59.2 1,568 2.0

Operating income 19,298 14.7 20,000 15.2 701 3.6Ordinary income 20,092 15.3 20,900 15.8 807 4.0

Net income 11,726 78.9 12,500 9.5 773 6.6EPS (yen) 286.36 － 305.26 － 18.90 6.6

Dividend per share (yen) 78 － 78 － 0 0.0

In the second half of FY ending March 2013, the Company will focus on expanding sales of new products released in autumn 2012 and deodorizing air fresheners and promoting overseas business including the U.S. The Company will have a lineup of many promising new products to be released in spring 2013.

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Kobayashi Pharmaceutical Group's CSR Activities

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・ Donate funds collected through the store front campaign to 12 elementary schools in Japan

・ Renovate the floor of toilets, donate Western-style toilets and offer education on defecation

・ Plan to donate toilets to 100 schools by 2019, the 100th anniversary of the Company’s foundation

“Toilet Pikapika keikaku” Sales Promotion Campaign

Reconstruction Assistance Activities

Details of CSR Activities in Current Fiscal Year

■ Loans to Support Small and Medium Enterprises (application period: October 1, 2012 to March 29, 2013)・ Offer special loans to small and medium enterprises in the disaster-stricken areas in cooperation with

Ishinomaki Credit Association with the purpose of supporting achievement of economic self-sufficiency in the disaster-stricken areas

・ A single company could receive an interest-free and unsecured loan of up to 10 million yen for up to 10 years

■ Offer Earthquake Special Scholarships・ Offer "Earthquake Special Scholarships" to support high school students who have financial difficulty

in going to university due to the Great East Japan Earthquake・ A student could receive a scholarship of up to 5 million yen (annual tuition fee of 1.2 million yen for up

to 4 years)

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Efforts to Promote the Health Care Business

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52 53

55 54 54 53 51 51 48 47

494947464645

0

50

100

FY endedMarch 2005

FY endedMarch 2006

FY endedMarch 2007

FY endedMarch 2008

FY endedMarch 2009

FY endedMarch 2010

FY endedMarch 2011

FY endedMarch 2012

（％）

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Deodorizing air fresheners

Sanitary products

Household sundries

Daily necessities

Pharmaceutical products

Oral hygiene products

Food products

Health care products

■ Changes in Share of Health Care Products and Daily Necessities

The share of health care products has increased gradually, because the Company aims to strengthen the health care business.

Mail order

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Change from symptomatic therapy to causal therapy

Tailor-made medicine involves diagnosis and treatment best suited to individual patients with different disease backgrounds, such as environment and genetic constitution.

Headache

Hypertension

Stiff shoulders

Eyestrain

Menopausal disorder

Menoxenia

Stiff shoulders

Hot flash

Mental depression

Easing headache symptoms doesn’t cure a disease, unless the cause of the

disease is treated. Diagnose and treat various symptoms as “menopausal

disorder”

■ Rising Attention to Tailor-made Medicine

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Aging society

Kobayashi Pharmaceutical will contribute to the improvement of people's QOL in the "primary care domain."

Provide advice on new healthcare in the daily life

Healthy lifeDisease prevention

Treatment at a hospital

<Social background>

<Domains to which Kobayashi Pharmaceutical Can Contribute>

An increase in the number of people who have concerns about health

Expansion of the ethical drug market Swelling medical expenses

Rising attention to Tailor-made Medicine

Prevention of disease progress

Improvement of worsening situation

■ Domains to which Kobayashi Pharmaceutical Can Contribute

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Something New (creation of new demands)[Naicitol 85] [Eyebon] [Shoyou] [Inochi no Haha A] [Chikunain] [Attonon]

Something Different (differentiation)

[Naicitol G]

[W Vitamin] [Medical]

[Firming gums] [Hemodia] [White] [Chikunain tablet]

The existing market is getting smaller. Kobayashi Pharmaceutical creates new markets and differentiates from copycat products by offering new benefits.

■ Kobayashi Pharmaceutical's Principle of New Product Development

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■ Health Care Division's Policy

1. Upgrade existing products: releasing new products under the same brand name・ Thoroughly pursue "Something Different" to strengthen existing

brands・ Aim to ensure stable procurement of crude drug materials to expand

the sales of Kampo herbal medicine2. Step up new product development efforts: completely

new products・ Focus on coming up with innovative ideas to raise the new product

contribution rate・ Pursue "Something New" to create new markets

3. Upgrade quality・ Thoroughly seek to create "quality products that continue to be

chosen" so that customers can use them with a sense of security and reliability

・ Accumulate evidence to improve quality

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Differentiated from competitors’ products by releasing an “advanced” eye wash solution containing 9 kinds of active ingredients

Improve visibility at the store front by unifying the product’s logo and characteristic letters pattern

<Renewing the package>

Before renewal

<Releasing "advanced" eye wash solution>

■ Eyebon

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Among the “Inochi no Haha” series products that sold well, the Company renewed “Inochi no Haha White” that might obtain more customers as a “drug to improve various symptoms of menoxenia.” After the renewal, sales of “Inochi no HahaWhite” grew steadily.

<Raised awareness of symptoms through TV commercials> <"Inochi no Haha" made pouches

available for trial use> <Held seminars>

・ To obtain new customers, the Company ran TV commercials while making "Inochi no Haha" pouches available for trial use.

・ The Company stepped up PR activities to raise awareness of premenstrual syndrome (PMS).

＋

Sales increased.

■ Inochi no Haha

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Aim to achieve own procurement of Kampo herbal extracts

■ Establishment of Kampo Technology Development Department

[Founding] April 2012

[Objectives] Seek independent procurement of crude drug materials

[Update on the progress of efforts]

・ Conducting a survey to ensure stable supply

・ Establishing technology to derive good quality herbal extracts

・ Preparing facilities to test manufacture products

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■ Changes in new product contribution rate

Due to efforts to strengthen development in both quantity and quality of ideas, the number of new items increased. Consequently, the new product contribution rate of health care products rose to 6.7% in FY ended

March 2012, while the new product contribution rate of the entire company remained at 5.1%.

0

5

10

15

20

25

30

35

FY ended March 2007 FY ended March 2008 FY ended March 2009 FY ended March 2010 FY ended March 2011 FY ended March 2012

(Items)

0

5

10

15

20

25

30

35

(%)Number of items (entire company) Number of items (health care products)Contribution rate in the f irst year (entire company) Contribution rate in the f irst year (health care products)Contribution rate in the f irst 4 years (entire company) Contribution rate in the f irst 4 years (health care products)

Entire company: Contribution rate in the first 4 years 15.3%Health care products: Contribution rate in the first 4 years 15.4%

Step Up New Product Development Efforts

Entire company: Contribution rate in the first year 5.1%Health care products: Contribution rate in the first year 6.7%

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薬粧品事業部

Organize an expert team dedicated to development and improve development skills

→ Aim to stably increase the new product contribution rate

内用剤・食品Ｇ

Oral Care Group

外用剤Ｇ

Health Care Division

■ Establishment of New Product Development Group

[Founding] April 2010

[Objectives]・ Promote new product development

to cope with diversified needs・ Develop new products beyond

existing categories・ Create new development themes

Marketing Department

Internal Preparation/Food Product Group

External Preparation Group

New Product Development Group

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Gather information on trends through academic meetings and medical settings

New Product Development

Group

Conduct survey on the lifestyle of consumers by setting particular themes Research on efficacy and effects of prescribed medications

Existing Groups

Internal Preparation/Food

Product GroupExternal Preparation

GroupOral Care Group

Conduct regional trial sales jointly with New Product Development Group

Examine renewal of existing brands and addition of product lineups

Draw out advertisement and sales strategies

Bring up new products through regional trial sales in cooperation with each group

<Regional trial sales> <Market products nationwide>

■ Roles of New Product Development Group

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Specification quality: Offer reliable performance in basic design

Perceptual quality: Offer quality that can be felt when used by customers

Competitive quality: Offer performance that is far superior to competing products

Thoroughly seek to create quality products that continue to be used by customers with a sense of security and reliability and which outperform competitors’ products in the market

<Place emphasis on visual evidence>

Accumulate “visual evidence,” such as presentations at academic meetings, (Seeing is believing) to improve performance and quality of products

Upgrade Quality

■ Three Qualities

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Quality is the life of a companyUnder the credo that quality is the life of a company, all employees devote themselves to improve the quality of products and services and provide people and society with comfort.

1. Quality from a customer-centered standpoint

2. Pursue quality that gives customers a real feeling of satisfaction

3. Offer safe and secure products and information

4. Corporate activities that respond to customers’ trust

The entire Kobayashi Group is striving to enhance quality of products and services.

■ The Company's Overall Efforts to Improve Quality of Products and Services

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The Base of Our Development

“You Make a Wish and We Make it Happen”

We continue to provide advice on new healthcare while thinking about customers’ health and beauty and

“Wishes” in everyday life.

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