During fiscal 2017 (January 1, 2017–December 31, 2017), the Japanese economy as a whole gradually recovered, backed by a recovery in personal consumption amid continued improvement in employment and corporate profits.

The market in the Lion Group’s main business domain, the domestic toiletries industry, was steady, as unit prices continued to rise and sales volumes decreased.

In overseas markets, the personal care market (combined oral care, beauty care, pharmaceuticals, and functional foods) continues to expand with the growing middle class in major Asian countries and greater demand for a higher quality of life among consumers.

The Lion Group advanced initiatives under its medium-term management plan, Vision 2020 Part-2 (V-2 Plan).” The V-2 Plan positions strengthening profitability as the Company’s highest priority goal and centers on four strategies: (1) Qualitative Growth of Domestic Businesses; (2) Quantitative Expansion of Overseas Businesses; (3) Development of New Business Value; and (4) Enhancement of Organizational Learning Capabilities.

In its domestic operations, Lion introduced such new high-value-added products as toothpastes, toothbrushes, mouthwashes, antiperspirants, and fabric softeners and worked to cultivate markets for these products through aggressive marketing. In its overseas operations, the Group sought to cultivate markets for its key brands as part of efforts to expand its business, focusing mainly on the personal care field, including oral care and beauty care products.

Consequently, consolidated results for the period under review are as follows:
Net sales amounted to ¥410,484 million, a year-on-year increase of 3.8% (or an increase of 2.5% in terms of real net sales, which exclude the influence of exchange rate conversions). The Company recorded operating income of ¥27,206 million, up 11.0% compared with the previous fiscal year, and ordinary income of ¥29,126 million, up 10.8% year on year. Profit attributable to owners of parent stood at ¥19,827 million, up 24.3% million compared with the previous fiscal year. As a result, Lion achieved record high levels of net sales and operating income for a fourth consecutive fiscal year, and ordinary income for a fifth consecutive fiscal year. Return on equity (ROE) was 12.2% (compared with 11.2% in the previous fiscal year), with earnings per share (EPS) of ¥68.23 (compared with ¥55.13). Both net sales and earnings reached the target levels for the V-2 Plan.

The Lion Group comprises the corporate headquarters, segments centered on the products and services that are the foundation for the Company, and regional segments. Its three reportable segments are Consumer Products Business, Industrial Products Business, and Overseas Business.

Profitability in Japan increased during 2017 as a result of higher unit sales prices from high-value-added items and improvement in the business mix. Overseas, Lion pursued measures for quantitative growth by introducing high-value-added products in the personal care field and strengthening sales through e-commerce channels.

Consumer Products Business

The Consumer Products Business segment is divided into the Oral Care Products, Beauty Care Products, Fabric Care Products, Living Care Products, Pharmaceutical Products, and Other Products businesses. Segment net sales increased 1.3% compared with the previous fiscal year. Segment income increased 19.7% due to an expansion in sales of high-value-added products despite rising raw material costs.

Net Sales and Segment Income

	Millions of yen
	2017	Ratio to net sales	2016	Ratio to net sales	Increase/ decrease	Change
Net sales	290,893		287,028		3,865	1.3%
Segment income	18,934	6.5%	15,817	5.5%	3,117	19.7%
Note: Net sales include internal net sales within and among segments, which amounted to ¥26,077 million in 2017 and ¥25,722 million in 2016.

Net Sales by Products Segment

	Millions of yen
	2017	2016	Increase/ decrease	Change
Oral Care Products	68,277	63,596	4,680	7.4%
Beauty Care Products	24,548	22,333	2,215	9.9%
Fabric Care Products	79,547	80,240	(692)	(0.9%)
Living Care Products	20,789	20,763	26	0.1%
Pharmaceutical Products	39,022	40,958	(1,936)	(4.7%)
Other Products	58,708	59,135	427	0.7%

Oral Care Products

Beauty Care Products

Fabric Care Products

Living Care Products

Pharmaceutical Products

Other Products

Industrial Products Business

The Industrial Products Business segment includes the Automotive, Electrical and Electronics, and Detergents for Institutional Use Products fields. These businesses handle products that include anti-sticking agents for tires, electro-conductive carbon for secondary batteries, and detergents for institutional and kitchen use.

Segment net sales increased 2.6% compared with the previous fiscal year. Segment income decreased 9.5%.

Net Sales and Segment Income

	Millions of yen
	2017	Ratio to net sales	2016	Ratio to net sales	Increase/ decrease	Change
Net sales	55,763		54,330		1,433	2.6%
Segment income	2,316	4.2%	2,560	4.7%	(243)	(9.5%)
Note: Net sales include internal net sales within and among segments, which amounted to ¥22,441 million in 2017 and ¥22,934 million in 2016.

Sales rose in the Automotive field on an increase in Japan for anti-sticking agents for tires due to the recovery in automobile production, and in the Electrical and Electronics field on an increase in electro-conductive compounds for semiconductor carrier materials on a positive performance in the electronic components industry. In the Detergents for Institutional Use Products field, sales rose overall on steady growth in hand soap for kitchens and alcohol sanitizers. Lion also launched sales of vegetable washing systems that use microbubble ozone technology, aimed at food processing plants.

During 2018, in the Automotive and Electrical and Electronics fields, Lion Specialty Chemicals will work to build collaborative frameworks with external companies, expand and advance its businesses, and improve profitability. We will also develop global niche leading products and businesses, and establish a business foundation for the future. In the Detergents for Institutional Use Products field, Lion Hygiene will develop new business models for foods factories aimed at establishing the industry default standard.

Overseas Business

The Overseas Business segment comprises business operations located in Southeast Asia, including Thailand and Malaysia, and Northeast Asia, including South Korea and China. Segment net sales increased 8.3% year on year (or in terms of real net sales, which exclude the influence of exchange rate conversions, increased 3.4%).

Segment income decreased 3.3% year on year, due in part to rising raw material costs and an increase in competition-related expenses aimed at improving market position.

Net Sales and Segment Income

	Millions of yen
	2017	Ratio to net sales	2016	Ratio to net sales	Increase/ decrease	Change
Net sales	120,091		110,933		9,157	8.3%
Segment income	4,413	3.7%	4,566	4.1%	(152)	(3.3%)
Note: Net sales include internal net sales within and among segments, which amounted to ¥11,842 million in 2017 and ¥11,648 million in 2016.

Major Countries

*Sales growth rate is compared with the previous year on a local currency basis.

(Thailand) Sales Growth Rate: 105%

(Malaysia) Sales Growth Rate: 108%

(South Korea) Sales Growth Rate: 108%

(China) Sales Growth Rate: 109%

Counties and Regions excluding Major Countries

(Taiwan)

(Hong Kong)

(Singapore)

(Indonesia)

Other

Net Sales and Segment Income

	Millions of yen
	2017	Ratio to net sales	2016	Ratio to net sales	Increase/ decrease	Change
Net sales	30,565		26,867		3,698	13.8%
Segment income	1,336	4.4%	915	3.4%	421	46.1%
Note: Net sales include internal net sales within and among segments, which amounted to ¥26,469 million in 2017 and ¥23,247 million in 2016.

Total assets rose ¥33,241 million compared with the previous consolidated fiscal year-end, to ¥331,751 million.

Total liabilities increased ¥4,105 million, to ¥144,736 million, mainly due to increases in provision for sales promotion expenses and deferred tax liabilities, offsetting decreases in short-term loans payable and net defined benefit liability. Current liabilities increased ¥3,785 million, to ¥127,225 million, with the liquidity rate at 159.9%.

Total consolidated shareholders’ equity rose ¥15,461 million, to ¥162,104 million, due mainly to an increase in retained earnings. Shareholders’ equity to total assets stood at 53.2%.

Cash Flows

Consolidated Cash Flows

	Millions of yen
	2017	2016	Increase/ decrease
Net cash provided by (used in) operating activities	28,562	32,269	(3,707)
Net cash provided by (used in) investment activities	(8,750)	(7,845)	(904)
Net cash provided by (used in) financing activities	(6,754)	(7,437)	682
Effect of exchange rate change on cash and cash equivalents	603	(526)	1,130
Net increase (decrease) in cash and cash equivalents	13,661	16,461	(2,799)
Cash and cash equivalents at end of period	91,401	77,739	13,661

Net cash provided by operating activities totaled ¥28,562 million, due mainly to income before income taxes.

Net cash used in investment activities totaled ¥8,750 million, due in part to the purchase of property, plant and equipment.

Net cash used in financing activities totaled ¥6,754 million. Major components of this outflow included cash dividends paid.

As a result of the above, cash and cash equivalents as of December 31, 2017 increased ¥13,661 million compared with the consolidated fiscal year ended December 31, 2016, to ¥91,401 million.

From the first quarter of fiscal 2018, Lion will begin applying the International Financial Reporting Standards (IFRS). Therefore, changes between values for fiscal 2017 and fiscal 2018 are calculated using estimates of the fiscal 2017 results recalculated according to IFRS.

During fiscal 2018 (the year ending December 31, 2018), although gradual continued recovery is forecast for the Japanese economy, the outlook going forward is expected to remain unclear, reflecting shifts in raw material prices and currency exchange rates, geopolitical risks, and other factors.

In the domestic toiletries industry, the Lion Group’s main business domain, despite anticipated expansion in the market for high-value-added products, competition is expected to remain fierce. And although the market is expected to expand in Asia, where the Group is currently expanding its businesses, Lion forecasts an increasingly harsh environment.

Amid these circumstances, the Lion Group will continue to aim to improve corporate value as it steadily implements strategies outlined in the three-year LIVE Plan starting from 2018 under the new vision of “Becoming an advanced daily healthcare company.”

In the Consumer Products Business segment, the Lion Group will cultivate markets for high-value-added products in its mainstay businesses, working to improve its market position and strengthen profitability while planning to enter growing categories, such as products for dentures. The Group will also work to expand production capacity, especially for the oral care field, and make its production system more efficient.

In the Industrial Products Business segment, Lion will focus management resources on key areas, such as automotive and electrical/electronic products, to reinforce its business foundation. Furthermore, Lion will continue efforts to acquire new customers, particularly to cultivate new customers in its vegetable washing system business.

With regard to the Overseas Business segment, the Lion Group will continue its aggressive marketing activities, primarily in the area of personal care, seeking to expand its business and strengthen its e-commerce business. In addition, the Group will establish a new venture in the plant-derived surfactant business in Malaysia as it works to expand its business globally.

As a result of the above, consolidated results forecasts for fiscal 2018 are as follows: net sales of ¥355,000 million (up 3.6% year on year), core operating income of ¥29,000 million (up 0.7% year on year), operating income of ¥33,000 million (up 8.3% year on year), and profit attributable to owners of parent of ¥25,000 million (up 19.7% year on year).

(Preconditions for the Estimated Figures in Outlook for Fiscal 2018)

Lion adopted the following foreign exchange rates in the calculation of the aforementioned estimated figures:
¥112 = US$1.00
¥3.5 = 1.00 baht

The forecast of fiscal 2017 consolidated cash flows is as follows:

In cash flows from operating activities, Lion projects income before income taxes of approximately ¥35,000 million. Depreciation is estimated to total about ¥9,000 million.

In cash flows from investment activities, Lion plans to undertake capital expenditures of around ¥19,000 million during fiscal 2018.

The cash flows from financing activities are expected to yield an outflow of about ¥6,000 million, mainly due to cash dividends paid and the repayment of loans payable.

Based on these projections, Lion estimates that cash and cash equivalents at the end of fiscal 2018 will be up approximately ¥19,000 million year on year.

Lion considers returning profits to shareholders on a continuous and stable basis by increasing its consolidated earnings capacity to be one of its most-important management issues. To this end, the Company strives to ensure the payment of continuous and stable cash dividends, aiming for a consolidated payout ratio of 30%, and bases the acquisition of treasury stock on comprehensive reviews to ensure that it maintains levels of internal reserves required to secure medium- and long-term growth. Lion allocates internal reserves to research and development, capital investment in production facilities, and the acquisition of external resources, aiming to reinforce the Company’s growth potential and to develop a sustainable business foundation.

Taking into consideration the Company’s cash dividend payment record, as well as its dividend payout ratio target, Lion’s Board of Directors resolved to pay an interim dividend of ¥7 per share and a year-end dividend of ¥10 per share for fiscal 2017.

With regard to dividends to be paid in fiscal 2018, in accordance with its basic policy on the distribution of earnings and cash dividends, Lion plans to pay an interim dividend of ¥10 per share and a year-end dividend of ¥10 per share, for a total annual dividend of ¥20 per share.

The Lion Group’s management performance and financial status may be adversely affected by various risks as business activities are pursued in the future. Of these risks, the following items, in particular, may have a material impact on the decisions of investors.

Note that forward-looking statements are based on decisions made at the time of the issuance of this report, and that business risks may not be limited to the items listed below.

(1) Product quality and value

The Lion Group plans, develops, produces, and sells products under management based on international quality standards while strictly following related laws and regulations, such as the Pharmaceutical and Medical Device Act, to provide worry-free, safe, convenient, and environmentally conscious products to consumers. In addition, we use consumers’ opinions received through our Consumer Service Office to improve our products and packaging as well as respective displays and text.

In the event of an unforeseen and serious problem with product quality, however, the affected product and all products made by the Lion Group may lose their perceived value. This may adversely affect the Lion Group’s management performance and financial status.

(2) Changes in raw material prices

The Lion Group’s products use petrochemical and vegetable oils and fats as basic materials. Since these materials are easily affected by international market prices, we have measures in place to reduce costs and diversify the range of materials used. However, an increase in raw material prices may adversely affect the Lion Group’s management performance and financial status.

(3) Exchange rate fluctuations

The Lion Group translates into yen the financial statements of overseas subsidiaries when preparing consolidated financial statements. For items denominated in foreign currency, their yen values may be affected by prevailing foreign exchange rates when translated into yen. The Lion Group has taken steps to minimize the risk of an increase in raw material costs by hedging against exchange rate fluctuations. However, short-, medium-, and long-term changes in foreign exchange rates may adversely affect the Lion Group’s management performance and financial status.

(4) Major lawsuits

As of December 31, 2017, Lion is not involved in any lawsuits that may have significant impact on its business. However, if the Lion Group were to be sued and found liable for significant damages, these could adversely affect the Lion Group’s management performance and financial status.

(5) Earthquakes and other natural disasters

In the product manufacturing process, the Lion Group has put in place safety measures against earthquakes and other natural disasters. In the event of a major disaster, however, our production equipment may be damaged, or a suspension of raw materials procurement or distribution activities may cause business activities to cease, adversely affecting the Lion Group’s management performance and financial status.