Top Message

Itsuo Hama, Representative Director and President

1. Fiscal 2015 was the first year of Lion’s V-2 Plan medium-term plan (Vision 2020, Part-2) and performance was favorable. Do you sense that you made progress toward your objectives?

During the fiscal year under review, there were short-term instabilities related to the slowdown in the Chinese economy, unstable conditions in Europe, prospects for an increase in interest rates in the United States and other factors, but markets where Lion has a presence held firm in Japan and overseas. In fact, at the end of the day, we revised our performance forecasts upward twice during the year. This and other factors led me to conclude that Lion’s progress in the first year of the V-2 Plan toward attaining the highest priority goal of increasing profitability was fully satisfactory.

Factors driving this performance included the increase in sales of high-value-added products in Japan and a rise in the percentage of overseas sales accounted for by the personal care field. Both of these favorable developments moved us toward a higher margin product mix. During the fiscal year under review, to achieve qualitative growth in our domestic business operations, we are working to allocate promotional expenditures more efficiently, while, at the same time, increasing our advertising expenses in Japan and overseas, and making marketing investments to enhance brand value of Lion’s products. Raw material costs decreased more than expected during the fiscal year, and, while that was an external factor, it also contributed to profitability.

In addition, through structural reforms and progress in enhancing our marketing activities, we are making headway toward improving profitability by creating an earnings structure that will not be influenced by trends in the external environment. I visit about 20 office locations each year to verify whether our strategies are being implemented, and my feeling is that the morale of our personnel at the working level is becoming more and more favorable.

Net Sales: 2011-2015
Operating Income: 2011-2015
Net Income: 2011-2015
2. Regarding Lion’s four basic strategies, what were your specific accomplishments in the first year and what issues are left to be addressed?

Domestically, in Lion’s Consumer Products Business, as unit prices were on a rising trend, in the oral care, OTC pharmaceutical, detergents for dishwashing, and other fields, performance of high-value-added products was favorable. Especially in the oral care field, sales of high-priced toothpaste and toothbrushes expanded, and Lion was able to secure growth in sales in this business higher than the expansion in the market as a whole. Additionally, mainly in the pharmaceutical business, Lion was successful in capturing demand generated by tourists visiting Japan from overseas. As a result of growth in high-value-added products, the sales mix changed, and profit margins rose. In the Direct-to-Consumer Business, beginning at the end of June 2015, Lion launched an improved version of Nice rim essence Lactoferrin, which is now classified as a Food with Function Claims. Under this new labeling system, it is possible to prepare more easily understandable labels and product information that are based on scientific and other evidence to emphasize the appealing points of functional products. Thereafter, from July onward, sales expanded at double-digit rates over the previous year. Going forward, Lion will pursue the further development of this business by addressing the issue of expanding its share in priority markets.

In the Industrial Products Business, which includes the Chemical Products Business and the Detergent for Institutional Use Business, Lion realigned and integrated its three Group companies in the Chemical Products Business into a single, newly established company. As a result of this integration, management functions are becoming stronger and efficiency is improving. Moreover, Lion refocused the business of the new company on the automotive, electrical and electronics, environmental and infrastructure, and lifestyle-related industries. At the same time, Lion is working to strengthen its operating and marketing systems by concentrating attention on priority customers in Japan and overseas. In the detergent for institutional use business, in addition to the previous approach of focusing on selling detergent products, Lion has positioned the sanitary and hygiene management field as a new growth business, and, by introducing highly advanced and differentiated products, it is endeavoring to expand into this business domain. In the Industrial Products Business, especially accompanying structural reforms in the Chemical Products Business, Lion has identified the stabilization of this business at an early date and is proceeding with the implementation of growth strategies as important issues. Accordingly, Lion is accelerating activities to consolidate a firm business base.

In Overseas Business, Lion has been able to show growth in its principal markets of Thailand, South Korea, and China at higher rates than that of GDP in these countries. In Asia, which is the focus of Lion’s overseas business activities, the health care market is expanding against a background of growth in demand among the middle-income classes and the demographic aging of the population. Within this operating environment, Lion has been able to satisfy the steady need for high-value-added products and personal care. In major countries, Lion is implementing measures suited to individual markets. This approach has resulted in growth in oral care in Thailand, growth in beauty care in South Korea, expansion in e-commerce in China, and a resulting improvement in profitability. In addition, Lion has engaged in aggressive structural reform initiatives, including launching a new subsidiary in Taiwan to expand marketing capabilities and, in Malaysia, has repositioned an affiliated company, formerly accounted for by the equity method, as a consolidated subsidiary. Looking ahead, as Lion works to achieve growth accompanied by profitability, it will take initiatives to address the issues of raising Lion’s market position and expanding its presence in overseas markets.

3. What is your outlook for the second year of the V-2 Plan that will end in December 2016? What will be your priority measures during this year?

For the current fiscal year, ending in December 2016, we have set the highest targets in Lion’s history: ¥390 billion in consolidated net sales (a year-on-year increase of ¥11.3 billion) and ¥18.0 billion in operating income (representing a return on sales ratio of 4.6%). However, we have not positioned these targets as final goals. We want to set even higher goals for fiscal 2017 and thereafter in our medium-term plan and, accordingly, have positioned this year as a time for implementing measures for further expansion.

Next fiscal year, with the aim of ultimately reaching objectives in fiscal 2017 and later years, Lion will focus on oral care and laundry detergents, its principal markets and areas of competition, and concentrate its efforts on expanding its market share and promoting the enlargement of the overall market. Moreover, in the Direct-to-Consumer Business, Lion has launched its Wellness Direct Division and, to achieve additional growth, will focus on expanding sales of products classified as Foods with Function Claims and broaden its lineup of new items.

In Overseas Business, Lion will make aggressive marketing investments in Northeast Asia to increase its brand power. In the rapidly growing Chinese market, Lion will aim for further expansion of e-commerce sales. In Southeast Asia, Lion will work to expand sales of its KODOMO brand lineup of products for children into additional countries and geographical areas to expand its presence in the personal care market. Lion will also take the formation of the ASEAN Economic Community (AEC), which was established at the end of fiscal 2015, as a good opportunity to implement other measures and increase exports to neighboring countries in the region.

4. What risks do you think you will encounter in implementing your priority measures?

One factor I can cite is the risk presented by trends in overseas economies. This is because we procure raw materials from overseas sources and we are placing emphasis on developing our overseas business activities. Many uncertainties still remain, including, especially, the impact of trends in the Chinese economy on related markets, the effects of increases in U.S. interest rates, the depreciation of major currencies, and the impact of macroeconomic trends. All of these factors may influence Lion’s performance.

Although these external factors exist, Lion is moving ahead with its activities to increase its profitability and strengthen its business and financial positions. These measures have the objective of creating an earnings structure that will not be influenced by these individual external trends.

5. What will be your policy for providing a return to shareholders, and what will be your initiatives in this area?

Providing continuing stable dividends is the basis for our policy of providing a return to shareholders, and this will not change. With that as a basis, we are considering enhancing the return to shareholders, while giving due regard to the need for retaining earnings and progress toward our goal of raising profitability. In fiscal 2016 we are scheduled to increase our annual dividend per share by ¥1, bringing the annual dividend to ¥11 per share.

March 2016

Itsuo Hama
Representative Director and President