Kao reports solid sales but predicts a difficult 2009

By Katie Bird

- Last updated on GMT

Related tags Raw material costs North america Generally accepted accounting principles

Rising raw material costs and a decline in operating profit has led
Japanese personal care firm Kao to forecast low sales growth
for the coming year.

Results for the year ending March 31 2008 were affected by an economic slowdown both in domestic and international markets and rising raw material costs, according to the company.

Although net sales and gross profit increased on the previous year's figures, the operating margin dropped leading the company to anticipate a difficult year ahead.

Net sales rose by 7 per cent (5.4 percent if the positive currency translation effect is excluded) to reach ¥1318.5bn reflecting the good performance of all business sectors.

However, the cost of sales also increased from ¥503.2bn to ¥554.1bn which, according to the company, reflects price rises for raw materials such as natural oils, fats and petrochemicals.

Increased raw material costs along with rising fuel costs for transport and increased investment in marketing led to a drop in operating income for the year of 3.8 per cent.

The year end figure came in at ¥116.2bn compared to the ¥120.8bn of 2007.

Looking to 2008, concerns over a possible slowdown of the Japanese economy and the uncertainty of the European and North American market have led to a projection of 0.9 percent year-on-year net sales increase, and an operating income increase of 0.6 percent.

Beauty sector sales increase Sales from the beauty sector increased by 7.5 per cent reaching ¥627.9bn, accounting for just under half of the company's total sales for the year.

Sales figures for Japan were particularly good reaching ¥448.6bn, an increase of 7.8 per cent on last year.

Successful launches of prestige products such as Dew Superior and Sofina Beauté, and good performance from the company's department store and premium brands accounted for the positive results, according to Kao.

Sales in Asia were also strong due to business expansion in the region but sales in Europe and North America remained the same as the previous year.

The John Frieda brand launched some new and improved products in Europe however response was less positive in the US due to intensifying competition.

Operating income for the beauty sector also suffered, decreasing by 2.5 percent to ¥27.2bn and the company cited strategic investments for future growth as one of the reasons behind the decline.

Looking to the future of the sector, the company is planning to promote the creation of strong brands in its domestic market while improving product distribution efficiency.

In Asia, Kao will continue to push the Asience hair care brand that has recently been introduced into Shanghai, China and Bangkok, Thailand.

In North America and Europe the group will focus on enhancing product development and marketing in an attempt to weather the economic slowdown.

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