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“Becoming an advanced daily healthcare company” Itsuo Hama Representative Director, President Executive Officer

1 The V-2 Plan that concluded in fiscal 2017 (ended December 2017) yielded extremely positive results. What are the reasons for its success?

A Through the medium-term management plan, we enhanced both our “physical fitness” (earnings capacity) and “muscular strength” (organizational capabilities), to drive growth.

Stronger management foundations for earnings capacity and continued growth

Meeting the targets in the V-2 Plan was not accomplished only during this three-year period. It is the culmination of various reforms that began with the V-1 Plan in 2012. Over those six years, Lion made a concerted effort as a corporate group to enhance both its physical fitness and muscular strength. “Physical fitness” refers to our earnings capacity as a company. Lion changed its direction toward improving profitability, and focused on high-value-added products that reflect changing markets, while at the same time concentrating resources on the development of key brands. This process established a structure, both in Japan and overseas, that allows for the continual development of brands and products. We are now selling key brands and high-value-added products at stable price points. This has led to a virtuous cycle of more-efficient sales promotion expenditures, which, in turn, allows us to secure advertising funds to enhance brand and product strength over the longer term.

We also made efforts to strengthen management foundations for continued growth. In addition to strengthening our R&D function—the basis of a manufacturer—and expanding production capacity for major products, we consolidated the corporate group’s chemical businesses as Lion Specialty Chemicals Co., Ltd., putting in place a structure to support a challenge to be the leading company in the field. In the growing overseas business, Lion is strengthening its management structure to enhance market competitiveness, and has laid the groundwork for the functional foods business and new business creation.

Improved organizational capabilities brought by sales structure reforms

Improving “muscular strength” (enhancing our organizational capabilities) also supported the success of the V-2 Plan. The majority of reforms to sales and marketing were made during this period. Specifically, instead of just chasing the sales right in front of us, we worked with retailers to understand the issues they face and consider how to generate new demand through our brand development, acquiring the capability to propose innovative solutions. The varied and specific successes produced with this approach won Lion the trust of many retailers, and, in turn, raised employee motivation. We were able to transition to a sales and marketing structure that can both develop brands, and build partnerships with retailers. Further, the sales structure reform generates new types of collaboration between the marketing and research and development divisions, evolving into a structure able to pursue “customer-oriented manufacturing” from the product prototype stage.

Since assuming the position of president, each year I have visited around 15 business locations to exchange opinions with young employees and managers. These sessions have generated ideas on improving operational processes and a range of other proposals, and given me the chance to directly feel the positive change in employees and organizations. Summing up these six years, I would say that the efforts of all employees to strengthen our “physical fitness” and “muscular strength” are what have allowed us to achieve the V-2 Plan.

The V-2 Plan Quantitative Targets
(Unit: ¥ bn) 2014 Results 2017 Targets 2017 Results Change
(vs. FY2014)
Net sales 367.3 400.0 410.4 +11.7%
Operating income 12.4 20.0 27.2 +119.3%
Ordinary income 14.0 22.0 29.1 +107.2%
Profit attributable to
owners of parent
7.3 12.0 19.8 +169.1%
ROE 6.2% 10% or above 12.2% +6.0pt
BEP 93.3% 90% or less 87.8% -5.5pt

2 In February 2018, Lion announced its new Management Vision, “Becoming an advanced daily healthcare company.” What are the main aspects of this vision?

A We will realize “healthy minds and bodies for all,” through the “ReDesign” of the everyday rituals to become more natural, easy, and enjoyable. To this end, we will create “customer experience-based value” in the areas of health, comfort, and cleanliness.

Formulation of the new Management Vision

The business environment for Lion has changed considerably and with previously unimaginable speed due to the advance of the digital transformation*. In such an environment, even if we extend the measures of the V-2 Plan, we cannot hope for continued growth. Going forward, to be a company considered necessary by society and customers, and sustainably increase enterprise value, we need to clarify the path ahead, and accelerate our efforts toward reform. Since its founding, the Lion Group has pursued business under its motto of “Fulfilling a Spirit of Love” as fundamental to its management, and thus contributes to the enrichment of the happiness and lives of people. Amid the considerable changes over the years, we have redefined what Lion can do to help consumers live a happy life, and have now set a new vision for 2030. That is “Becoming an advanced daily healthcare company.”

* Digital transformation: The concept that widespread utilization of IT will change many aspects of people’s lives for the better. It is using advanced digital technologies such as IoT and AI to create new value not present in existing businesses.

The key word is “ReDesign”

The new Management Vision focuses on “advanced” daily healthcare. Daily healthcare is contributing to the mental and physical health of consumers through their everyday lifestyle habits, the area for providing value that Lion has considered vital since its founding. The addition of “advanced” indicates Lion’s resolve to further expand and enhance the value it provides. Taking oral care as an example, up to now Lion has highlighted the functional aspects of its products, sending the message that using highly functional toothpaste and toothbrushes can help prevent tooth decay and periodontal disease. Going forward, in addition to the functional aspects, we will appeal to consumer emotions with solutions that offer a new type of customer experience-based value, such as producing a sympathetic or emotional response when consumers discover and use a product.

In terms of products and services, we aim to expand and enhance value beyond existing value domains. Specifically, we are shifting from the previous focus of “oral care for a healthy mouth” to “oral care for a healthy body,” as well as pursuing business endeavors that offer noel solutions combining IoT and other new technologies and services. We aim to “ReDesign” everyday lifestyle rituals to become more natural, easy, and enjoyable. To achieve this, Lion’s businesses and employees need to be even more creative. We are seeking for “ReDesign” that includes Lion’s business activities, and the ways in which employees think and work.

3 Please explain the main points of the LIVE Plan, the medium-term management plan to realize the new Management Vision.

A We have established a four-part strategic framework comprising 1) Expand and Evolve Our Business Domains through New Value Creation; 2) Accelerate Growth in Overseas Businesses through Glocalization; 3) Reinforce Our Management Base through Business Structure Reform; and 4) Create Dynamism to Foster Innovative Change.

Four-part strategic framework

The medium-term management plan begun in 2018 is called the LION Value Evolution (LIVE) Plan. For the Japan business, the main point is the extent to which we can expand and enhance existing business domains. Outside Japan, we will develop those areas we were unable to reach during the V-2 Plan, and steadily expand categories in existing areas. Allow me to explain the four aspects of the strategic framework.

1) Expand and Evolve Our Business Domains through New Value Creation

Creating new combinations of various technologies and services, we will create new business value that realizes “healthy minds and bodies for all.” We are focusing on three specific key words.

1. Oral-to-Body Solution
We will strengthen existing oral care areas, expand to peripheral fields, and broaden our lineup of oral care for each life stage. Further, through combinations with new businesses such as saliva test systems and preventive dentistry support services, we aim for expansion and evolution that will create an “oral health care business” in which oral care contributes to whole-body health care.
2. Daily Self-Care Enhancement
We are looking beyond the conventional health care field to homecare, evolving into a business contributing to “healthy minds and bodies for all” that will enhance quality of life.
3. Infotech Health Support
We will actively utilize new technologies such as IoT and AI to enhance added value in existing businesses, and create new health care business models.
2) Accelerate Growth in Overseas Businesses through Glocalization

Lion uses the term “glocalization” (globalization + localization) to better clarify its strategic approach. By integrating common global platforms with local adaptations, we will create unique competitive advantages, and expand our business scale and the areas in which we operate.

1. We will evolve Group management by reinforcing regional management.
Up to now, Lion has gained the support of consumers through tightly focused, country-specific marketing. Going forward, we will focus on regional units with common market elements, actively utilizing organic links between countries and head office management resources to maximize Group synergies. This will enhance efficiency in the overseas business, and expedite decision making.
2. We will aim for business area expansion based on e-commerce channels and M&A.
Lion will make proactive efforts to expand into new business areas it was unable to reach during the V-2 Plan. In addition to M&A and operational alliances, we plan to use e-commerce channels as a gateway to business area expansion.
3) Reinforce Our Management Base through Business Structure Reform

Lion is pursuing four main measures to bolster its management base, including improvements to management infrastructure and business portfolio revisions to stay ahead of changes in the business environment.

1. We will reinforce investment in the flexible, efficient manufacturing infrastructure that will drive business growth.
Focusing on oral care, Lion will increase investment in production infrastructure and reinforce its manufacturing base in order to adapt flexibly to fluctuations in demand, and address the increasingly serious labor shortage issue.
2. We will build more-advanced and sustainable supply chains.
Lion will pursue advanced and sustainable supply chain management (SCM) to respond to the logistics crisis stemming from labor shortages (which is becoming a social problem in Japan), and to further enhance its environmental measures.
3. We will reinforce information system foundations to promote more-sophisticated Group management.
We will increase investment in IT systems to strengthen Group management globally, support more-advanced SCM, and enhance digital marketing.
4. We will advance revisions of business fields and the Group structure to improve the efficiency of management resources and business activities.
Lion made revisions to its management resource allocation and business portfolio under the V-2 Plan as well, but, under the LIVE Plan, we will put in place a business structure with an applicable focus on management efficiency.
4) Create Dynamism to Foster Innovative Change

Lion is promoting diversity and openness for more-dynamic human resources, organizations, and corporate culture, in order to foster a corporate strength able to prevail over global competition. Specifically, we are creating three types of dynamism.

1. We will create human dynamism by utilizing diverse human resources.
We will utilize globally minded personnel, especially women, and actively recruit external talent, in order to gain diverse perspectives and knowledge to foster the creation of new value.
2. We will create organizational dynamism that fosters ambition and creatively through open innovation.
We believe that the current organization is inimical to the generation of new ideas. We will invigorate the organization by establishing a new “Innovation Lab” within the R&D Division, and strengthening ties with external resources, including partnering with start-up companies.
3. We will create management dynamism through environmental, social, and governance (ESG) initiatives and the reinforcement of health and productivity management.
Lion is taking proactive measures for Creating Shared Value (CSV) that allow us to simultaneously realize management with an emphasis on ESG initiatives, a sustainable society, and growth for Lion’s businesses. We are striving to build and implement a uniquely Lion-style health management model appropriate for an “advanced daily healthcare company.”

4 What are the earnings targets and financial strategies in the medium-term management plan?

A We will make ¥100 billion in growth investments over three years, and accelerate business expansion to be an advanced healthcare company. We will also continually increase earnings to enhance shareholder returns.

Proactive investments for growth

Lion has decided to voluntarily apply International Financial Reporting Standards (IFRS) from fiscal 2018. The medium-term management plan’s consolidated earnings targets (IFRS standard) for 2020 are net sales of ¥400 billion, with operating income of ¥40 billion for an operating margin of 10%, and ROE of 12%. Under Japanese accounting standards, this would be equivalent to around ¥470 billion in sales with an 8.6% operating margin. Lion’s ROE is already beyond the target level, so even considering the future growth rates of domestic and overseas businesses, we feel that this is not an unattainable level.

In terms of financial strategy, the two main points are growth investments and shareholder returns. We plan to invest around ¥100 billion over three years to gain growth opportunities, and strengthen our management base. The range of investment targets includes production infrastructure in Japan and overseas, strengthening of R&D foundations, IT system investments, and M&A. The M&A plan will focus on acquiring external resources necessary to realize advanced healthcare, as well as expansion of our business area. At this point, we are considering all options, and, going forward, we will prioritize investments according to Lion’s strategies, and make investments that include an assessment of their potential.

Sustained increases in dividends
Dividends per Share

Lion’s basic policy for shareholder returns is to maintain a continual and stable dividend, with a consolidated payout ratio of around 30%. We will continue to enhance returns while maintaining a balance with growth investments. We plan to increase dividends in fiscal 2018 for a third consecutive term, and will continue to work to create a robust earnings structure to support continued dividend growth.

5 As the head of Lion, what is your Management Philosophy? Also, what do you consider to be management risks?

A To be a company that retains a presence in all times, we need to be constantly changing, and continually create new value through ambition and creativity.

A company that is constantly changing

This is repeating part of what I mentioned previously, but I think the three most-important things for an entrepreneur are to 1) Clearly indicate the direction the company should head; 2) Cultivate a connected organizational structure in which all employees have the same vision; and 3) Achieve sustainable growth as a company that is constantly changing.

Rather than a top-down approach, I want Lion to be a company where all employees share the direction of the Company, and work together to achieve it. I also want all employees to have flexible and creative ideas, and achieve their targets. That’s fundamentally the sort of company I want to create. I want Lion to be a company trusted by society and consumers in any time, and maintain a unique presence that they find interesting. To accomplish this, we need to respect the “Spirit of Tenacity and Creativity” that is at the heart of Lion’s DNA, and continually generate new value. Building social credibility from an ESG standpoint is also essential.

Change in the business environment is a risk factor. I can even imagine destructive change to the business structure in which previous business models no longer apply. However, by anticipating change, and shifting our thoughts, actions, and the way we interact with society to a more-active posture, we can change risks to incredible opportunities. Ultimately, that’s what it all comes down to. Lion is a company that values its employees. I think it’s important to create a new “Lion Way” in which all employees change their thinking and actions with a short- to medium-term perspective, and achieve continual business growth.

6 Finally, what message do you have for shareholders and investors?

A Lion is at a stage of accelerating growth, with continual reform of the Company and employees. We will continue to be a company with consistent growth.

Accelerating growth with a sense of urgency

Lion as a company and its employees have changed considerably in the six years since the start of the V-1 Plan. I think we have now reached the stage for accelerating reform and growth under the new Management Vision and medium-term management plan.

The business environment is likely to change greatly going forward, but consumer needs regarding health will continue to rise. The role of Lion, which is intimately connected with the everyday lives of consumers, will become ever larger. Amid these changes, so long as we continue to adapt, and maintain a spirt of contributing to the everyday lives of consumers, I believe we can achieve sustainable growth.

Expect great things for the future of Lion.

May 2018

Itsuo Hama
Representative Director,
President Executive Officer