Financial Report 2019
For the year ended December 31, 2019
Management Discussion and Analysis
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Independent Auditor’s Report
1
16
21
66
Management Discussion and Analysis
Management Policies
create new businesses and expand business fields from an
ESG perspective.
Basic Management Policies of the Kao Group
Through activities under the slogan “Transforming
The Kao Group’s mission is to strive for the wholehearted
Ourselves to Drive Change,” rather than a continuation of
satisfaction and enrichment of the lives of people globally and
what it has been doing, the Kao Group aims to become a
to contribute to the sustainability of the world, with products
and brands of excellent value that are created from the
consumer’s and customer’s perspective.
All members of the Kao Group share the Kao Way, which is
our corporate philosophy, and have been putting it into practice
company with a global presence.
* The Kao Group defines Yoki-Monozukuri as a strong commitment by all
members to provide products and brands of excellent value for consumer
satisfaction. In Japanese, Yoki literally means “good/excellent,” and
Monozukuri means “development/manufacturing of products.”
every day as the foundation of our approaches and actions.
The Kao Group’s Vision by 2030
Moreover, to continue our profitable growth, in recent years
we have created a post-deflation growth model and have been
Make the Kao Group a company with a
global presence
implementing governance reforms aimed at achieving a
compact, highly diverse Board of Directors, among other
measures, and we have endeavored to contribute to
• A distinctive corporate image
• A high-profit global consumer goods company that
exceeds:
consumers, customers and society by providing products that
– ¥2.5 trillion yen in net sales (¥1.0 trillion outside Japan)
facilitate clean, beautiful and healthy living, as well as industrial-
– 17% operating margin
use products that contribute to the development of industry.
– 20% ROE
However, social conditions and the natural environment are
• A high level of returns to stakeholders
changing significantly and globally at a rapid pace, and
people’s values are diversifying accordingly. To deal with this
situation, we consider it important not only to respond
Mid-term Business Plan
promptly to change, but also to take initiatives that anticipate
Fiscal 2020 is the final year of the Kao Group Mid-term Plan
change. The key point is ESG. We have announced a major
2020 (K20), the four-year business plan from fiscal 2017. It is a
shift to ESG-driven management. By contributing to people,
crucial year that will be a linchpin for realizing the Kao Group’s
society and the planet while continuing our profitable growth,
vision for 2030. Among the three goals of K20, the Kao Group
we aim to enhance our corporate value at a higher level.
will steadily implement “fostering a distinctive corporate
Medium-to-long-term Management
Strategies of the Kao Group and
Management Metric Used as a Target
image” through innovation while linking the Kirei1 Lifestyle
Plan, the ESG strategy it announced in 2019, with its business
strategy. For the goal of “returns to stakeholders,” the Kao
Group will continue to provide a high level of returns to its
many stakeholders, including consumers, customers,
employees, business partners and shareholders. In the rapidly
Long-term Management Strategy
changing business environment, the Kao Group aims to
In December 2016, the Kao Group set forth “making Kao a
company with a global presence” as its vision to be achieved
achieve the goal of “profitable growth” by raising the level of
its Yoki-Monozukuri and fully communicating product value.
by 2030 by realizing sustained profitable growth while
Regarding its commitment to profitable growth, taking into
contributing to the sustainability of the world. To achieve this
account factors including the current status of the Chemical
vision, it will be important to reinforce existing businesses
based on Yoki-Monozukuri* from an ESG perspective and to
Business, the progress of businesses with issues, and the
possibility of a decrease in inbound demand, the Kao Group
1
Kao Corporation Financial Report 2019
has revised its target for net sales CAGR2 on a like-for-like3
Management Metric Used as a Target
basis to +3% from +5%. The Kao Group aims for an operating
As its principal management metric, the Kao Group uses EVA,
margin of 15%, as planned.
1. Kirei is a Japanese word that represents the concept of cleanliness,
beauty, health, purity, and fairness.
2. CAGR: Compound annual growth rate
3. Like-for-like: Excluding the effect of currency translation, change of sales
system, etc.
K20 Goals – Three Commitments
which measures true profit by factoring in the cost of invested
capital. This essentially takes the perspective of shareholders
and other asset owners to deploy capital efficiently and
generate profits. The Kao Group believes that continuously
increasing EVA will lead to increases in corporate value and
thus corresponds with long-term benefits, not only for
shareholders, but for all stakeholders. The target of the Kao
• Commitment to fostering a distinctive corporate image
Group’s business activities is to increase EVA while expanding
• Commitment to profitable growth
its business scale. The Kao Group uses this metric to assess
- Continue to set new record highs for profits
its businesses, to make evaluations on investment in facilities,
- Aim for like-for-like net sales CAGR of +3%, operating
acquisitions and other items, and to develop performance
targets for each fiscal year and for its compensation system.
margin of 15%
- Three ¥100 billion brands (Merries baby diapers, Attack
laundry detergents, Bioré skin care products)
• Commitment to returns to stakeholders
- Shareholders: Continuous cash dividend increases
(40% payout ratio target)
- Employees: Continuous improvement in
compensation, benefits and health support
- Customers: Maximization of win-win relationships
- Society: Advanced measures to address social issues
Net Sales / Operating Margin
ROE
(Billions of yen)
1,600
1,471.8
1,474.6
1,457.6 1,489.4*
1,508.0
1,502.2
1,200
800
400
0
11.2
11.3
12.7
13.7
13.8
14.1
2015
Japanese
GAAP
2015
2016
2017
2018
2019
IFRS
Net Sales (Left)
Operating Margin (Right)
(%)
20
15
10
5
0
(%)
25
20
15
10
5
0
* In fiscal 2017, the Kao Group adopted IFRS 15 early in tandem with a revision
of its sales system for the Consumer Products Business in Japan. As a result,
certain items formerly treated as SG&A expenses are accounted for as
reductions of net sales or cost of sales.
18.6
19.8
18.9
17.6
16.1
14.8
2015
Japanese
GAAP
2015
2016
2017
2018
2019
IFRS
Kao Corporation Financial Report 2019
2
Issues for Management
production, logistics, sales and marketing. To resolve
these issues, the Kao Group will proactively promote
With intensifying market competition, changing market
the enhancement of Essential Research4 and the use of
structure and volatility in raw material market conditions and
artificial intelligence, the Internet of Things, robotics and
currency exchange rates, the operating environment remains
other cutting-edge technologies.
uncertain. Changes in the attitudes of consumers regarding
(3) To promote an ESG strategy unique to Kao, the Kirei
the environment, health and other matters and associated
Lifestyle Plan, all members of the Kao Group must have
changes in their purchasing attitudes, as well as the aging
a proper understanding of its purpose and content, and
society, hygiene and other social issues, are growing in
fulfill their respective roles and responsibilities. To that
significance. Moreover, amid the global expansion of business
end, the Kao Group will step up its awareness-raising
and the progress of structural changes in various fields,
activities to implement the Kirei Lifestyle Plan at the
companies must deal with changes in the risks entailed in
global level. It will also be necessary to go through the
their businesses. The Kao Group will therefore address and
PDCA (plan, do, check, act) cycle under a sound
deal appropriately with the following issues.
governance system. In addition to creating standards
(1) To respond to changes in risks pertaining to its business,
and evaluation mechanisms for the smooth progress of
the Kao Group defines risks that have a particularly large
the Kirei Lifestyle Plan, the Kao Group will step up its
impact on management and for which it must augment
activities even further by making use of the Board of
its response as corporate risks, and will work to prevent
Directors and third-party checks and opinions from
damage to the corporate value of the Group as a whole
External ESG Advisory Board to make sure it does not
by further reinforcing its management system.
become complacent.
(2) Given the current rapid progress of factors such as the
4. Research that pursues the essence of things for both humans and
materials from a scientific standpoint
diversification of consumer values associated with
technology innovation and the accompanying changes in
purchasing behavior and the structure of retailing, our
business model targeting the mass market, which could
formerly be conducted efficiently, must be reviewed
from all aspects, including research and development,
Cash Dividends per Share
(Yen)
140
120
100
80
60
40
20
0
Increases in dividends for 30 consecutive periods
7.1 7.1 8.87 9.09 10.0 10.5 11.5 12.5 14
15
16
20
24
26
38
30
32
50
52
54
56
57
58
60
62
64
130
120
110
94
80
70
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Note: Impact of share splits is reflected retroactively.
3
Kao Corporation Financial Report 2019
Management Discussion and Analysis
Costs, Expenses and Income as Percentages of Net Sales
Years ended December 31, 2019, 2018 and 2017
Cost of sales ............................................................................................................
Gross profit ..............................................................................................................
Selling, general and administrative expenses ..........................................................
Operating income ....................................................................................................
Income before income taxes ...................................................................................
Net income attributable to owners of the parent ....................................................
2019
56.5%
43.5
29.5
14.1
14.0
9.9
IFRS
2018
56.6%
43.4
29.5
13.8
13.7
10.2
2017
56.0%
44.0
30.4
13.7
13.7
9.9
Basic Approach to Selection of
Accounting Standards
Overview of Consolidated Results
Amid substantial changes in the social conditions and natural
Having decided that unifying accounting standards within the
environment in which it operates, the Kao Group has declared
Kao Group will contribute to improving the quality of its
a major shift to ESG management to build a foundation that
business management, the Kao Group has voluntarily adopted
will enable sustainable growth. In April 2019, the Kao Group
International Financial Reporting Standards (IFRS) from fiscal
announced the Kirei Lifestyle Plan, its ESG strategy, and
2016. This will enable management based on standardized
activities kicked into gear.
procedures and information for each Group company and
Conditions in the global economy are unclear due to factors
business, and the Kao Group intends to reinforce its
including international trade issues, geopolitical risks in the
management foundation in order to enhance its corporate
Middle East and an uncertain economic outlook in Asian
value as a global company. The Kao Group also believes that
countries, and in Japan, economic recovery has been delayed
the application of IFRS will facilitate the international
following the increase in the consumption tax rate in October.
comparability of its financial statements in capital markets.
In 2019, the markets for household and personal care
products and cosmetics in Japan, which are key markets for
the Kao Group, were in solid condition throughout the year
according to retail sales and consumer purchasing survey
data, although there was substantial fluctuation due to factors
including last-minute demand ahead of the consumption tax
rate increase and the decline thereafter. In every product
category, the share of the e-commerce channel increased
further and average unit prices for household and personal
Payout Ratio
(%)
50
40
30
20
10
0
40.6
38.1
37.1
36.9
38.238.238.2
42.442.442.4
care products increased by 2 percentage points compared
with the previous fiscal year.
Under these circumstances, the Kao Group increased
operating income for the tenth consecutive fiscal year and
achieved record-high operating income for the seventh
consecutive fiscal year.
2015
Japanese
GAAP
2015
2016
2017
2018
2019
IFRS
Kao Corporation Financial Report 2019
4
Analysis of Income Statement
Information by Segment
Net sales decreased 0.4% compared with the previous fiscal
Consumer Products Business
year to ¥1,502.2 billion. On a like-for-like basis, net sales
Sales increased 2.0% compared with the previous fiscal year to
increased 0.7%. Operating income was ¥211.7 billion, an
¥1,257.0 billion. On a like-for-like basis, sales increased 2.9%.
increase of ¥4.0 billion compared with the previous fiscal year,
The Kao Group worked for more effective marketing and
the operating margin was 14.1% and income before income
sales activities, including launching new and improved products
taxes was ¥210.6 billion, an increase of ¥3.4 billion. Net
that address the diversification of consumer values and
income was ¥150.3 billion, a decrease of ¥5.0 billion.
strengthening activities in the e-commerce channel in line with
Basic earnings per share were ¥306.70, a decrease of
changes in purchasing behavior.
¥7.55, or 2.4%, from ¥314.25 in the previous fiscal year.
Sales in the Cosmetics Business continued to grow steadily,
Economic value added (EVA*), which the Kao Group uses
while growth in the Skin Care and Hair Care Business was
as a management indicator, decreased ¥6.1 billion compared
basically unchanged. The Human Health Care Business was
with the previous fiscal year to ¥87.4 billion due to a decrease
affected by a slowdown in the baby diaper business in the
in net operating profit after tax (NOPAT).
Chinese market. Sales increased in the Fabric and Home Care
* EVA is a registered trademark of Stern Stewart & Co.
Business, partly due to launches of new and improved
products.
To improve capital efficiency and further increase shareholder
In Japan, sales increased 1.8% to ¥899.6 billion due to
returns, Kao Corporation resolved at a meeting of its Board of
launches of new and improved products, the Kao Group’s
Directors held on April 24, 2019 to repurchase its own shares,
response to the consumption tax rate increase and other factors.
and repurchased shares totaling ¥50.0 billion. Kao Corporation
In Asia, sales grew steadily, increasing 3.8% to ¥206.3
retired 6.7 million treasury shares on July 12, 2019.
billion. On a like-for-like basis, sales increased 6.7%.
Basic Earnings per Share
Net Sales / Operating Margin
(Yen)
400
300
200
100
0
298.30
314.25
306.70
253.43
197.19
209.82
2015
Japanese
GAAP
2015
2016
2017
2018
2019
IFRS
5
Kao Corporation Financial Report 2019
Consumer Products Business
(Billions of yen)
1,500
1,222.8
1,225.6
1,219.8
1,216.0
1,232.9
1,257.0
1,000
500
0
11.0
11.2
12.7
14.2
14.3
14.3
2015
Japanese
GAAP
2015
2016
2017
2018
2019
IFRS
Net Sales (Left)
Operating Margin (Right)
(%)
25
20
15
10
5
0
Notes: In fiscal 2017, the Kao Group adopted IFRS 15 early in tandem with a
revision of its sales system for the Consumer Products Business in
Japan. In fiscal 2018, due to the reorganization of the sales organization
of the Consumer Products Business in Japan, operating income for
the previous fiscal year has been restated.
Management Discussion and Analysis
In the Americas, sales increased 4.5% to ¥88.8 billion. On a
Sales of hair care products were basically unchanged from
like-for-like basis, sales increased 6.6%. In Europe, sales
decreased 4.6% to ¥62.2 billion. However, on a like-for-like
the previous fiscal year. Sales were strong for hair color
products in Japan and for Oribe, a brand in the Americas for
basis, sales increased 0.9%.
high-end hair salons, and the Kao Group launched new and
Operating income increased ¥4.2 billion compared with the
improved premium-price shampoos, conditioners and other
previous fiscal year to ¥179.9 billion.
products in Japan and Europe. However, overall sales of hair
Note: The Kao Group’s Consumer Products Business consists of the Cosmetics
Business, the Skin Care and Hair Care Business, the Human Health
Care Business, and the Fabric and Home Care Business.
care products were affected by the shrinking mass market.
Operating income increased ¥0.7 billion compared with the
previous fiscal year to ¥49.5 billion.
Cosmetics Business
Sales increased 7.8% compared with the previous fiscal year
Human Health Care Business
to ¥301.5 billion. On a like-for-like basis, sales increased 9.0%.
Sales decreased 4.7% compared with the previous fiscal year
The growth strategy for the Cosmetics Business proceeded
smoothly. Sales remained strong in Asia, and were on a
to ¥255.2 billion. On a like-for-like basis, sales decreased 3.5%.
Sales of Merries baby diapers decreased. In Japan,
growth track in Japan. Sales grew strongly for the 11 brands
demand for the purpose of resale in the Chinese market fell
(“G11”) the Kao Group selected for its global strategy and the
substantially. Sales in the Chinese market, including cross-
eight regional brands (“R8”) it is nurturing, centered on Japan.
border e-commerce, were on a recovery track but decreased
Amid signs of a slowdown in inbound demand, G11 brands
Curél, a derma care brand, and freeplus, which is
hypoallergenic and contains Japanese and Chinese botanical
compared with the previous fiscal year. On the other hand,
locally manufactured products targeting the middle-class
consumer segment performed strongly in Indonesia. Merries
extracts, performed well in Japan and the Chinese market,
and sales of SUQQU and SOFINA iP grew steadily. To
strengthen its high-prestige range, the Kao Group made a
also gained broad acceptance among consumers in Russia
and neighboring countries.
For Laurier sanitary napkins, high-value-added products
strong start with the rebranding of the super-prestige brand
SENSAI in Europe in May. Sales began in Japan in September.
The Kao Group offered the est G.P. line of skin care cosmetics
performed strongly and increased market share in Japan, while
sales by Kao China grew as a result of an increase in new retail
outlets, enhanced activities in the e-commerce channel and
in November and products that apply Fine Fiber Technology for
other factors. Sales were also strong in Indonesia.
the formation of layered ultra-thin membranes in December.
For personal health products, sales increased with steady
The Kao Group also reinforced its activities in the growing
performance of oral care products and bath additives.
e-commerce and travel retail channels and promoted a shift to
Operating income decreased ¥10.7 billion compared with the
previous fiscal year to ¥17.2 billion due to the decrease in sales
of Merries, fluctuations in exchange rates and other factors.
digital marketing.
Operating income was ¥41.4 billion, an increase of ¥13.7
billion from the previous fiscal year, due to the effect of increased
sales of strongly performing brands, among other factors.
Skin Care and Hair Care Business
Sales decreased 0.2% compared with the previous fiscal year
to ¥340.8 billion. On a like-for-like basis, sales increased 1.1%.
Sales of skin care products increased. In Japan, new body
cleanser Bioré u The Body steadily increased sales and market
share, despite the impact of adverse weather conditions in the
first half of the fiscal year. Sales were firm in Asia, but decreased
in the Americas due to the impact of stiff competition.
Kao Corporation Financial Report 2019
6
Fabric and Home Care Business
Chemical Business
Sales increased 4.5% compared with the previous fiscal year
Sales decreased 8.6% compared with the previous fiscal year
to ¥359.5 billion. On a like-for-like basis, sales increased 4.6%.
to ¥285.9 billion. On a like-for-like basis, sales decreased 6.6%.
In Japan, sales increased due to the Kao Group’s response to
Sales of oleo chemicals decreased due to the substantial
last-minute demand ahead of the consumption tax rate
impact of selling price adjustments associated with a decline
increase in October, but fell short of its plan because market
in prices for natural fats and oils, in addition to a trend toward
growth was lower than expected.
declining demand for some products.
In fabric care products, sales of laundry detergents grew
due to the launch in Japan of Attack ZERO, an innovative new
Sales of performance chemicals and specialty chemicals
decreased due to the impact of sluggish demand associated
laundry detergent. Sales of fabric softeners were firm given
with slowing economic growth, especially outside Japan.
the severely competitive market environment. In addition,
Operating income increased ¥0.2 billion compared with the
U.S.-based Washing Systems, LLC, which Kao acquired in
previous fiscal year to ¥30.8 billion due to promotion of high-
August 2018, contributed to sales and income.
value-added products, including among oleo chemical products
In home care products, the Kao Group launched the
Quickle Joan series of antibacterial household cleaning
outside Japan.
products that are gentle on the skin. Dishwashing detergents
were impacted by stiff competition, but sales and market
share grew steadily as sales of CuCute remained strong,
Financial Position
among other factors.
Total assets increased ¥192.9 billion from December 31, 2018
Operating income increased ¥0.5 billion compared with the
to ¥1,653.9 billion. The principal increases in assets were a
previous fiscal year to ¥71.8 billion due to the effect of
¥164.8 billion increase in right-of-use assets due to the
increased sales, despite an increase in marketing expenses
application of IFRS 16, a ¥23.7 billion increase in cash and
for new product launches.
cash equivalents, and a ¥17.9 billion increase in property, plant
Net Sales / Operating Margin
Cosmetics
Business
Skin Care and
Hair Care Business
Human Health
Care Business
Fabric and
Home Care Business
Chemical
Business
(Billions of yen)
400
301.5
300
279.6
266.2
341.4
340.8
332.9
280.7 281.7
280.7
281.7 273.1
281.2
273.1 281.2
334.4 335.3 345.2
335.7 344.1
359.5
267.7255.2
267.7
255.2
20.7 19.7
22.6 22.7
20.7 20.0
13.7
14.8
14.3
14.5
9.9
4.9
12.7
11.8
12.3
10.4
9.5
6.7
200
100
0
288.5
288.5 288.5
288.5
273.8
273.8
310.3 312.8
285.9
10.4
9.9
10.8
9.8
9.8
10.8
(%)
40
30
20
10
0
2017
2018
2019
2017
2018
2019
2015
2015 2016 2017
2018 2019
2015
2015 2016 2017
2018 2019
2015
2015 2016 2017
2018 2019
IFRS
IFRS
Net Sales (Left)
Operating Margin (Right)
Japanese
GAAP
IFRS
Japanese
GAAP
IFRS
Japanese
GAAP
IFRS
Notes: In fiscal 2017, the Kao Group adopted IFRS 15 early in tandem with a revision of its sales system for the Consumer Products Business in Japan.
In fiscal 2018, due to the reorganization of the sales organization of the Consumer Products Business in Japan, operating income for the previous fiscal year has been
restated. The Beauty Care Business has been divided into the Cosmetics Business and the Skin Care and Hair Care Business, changing the four former reportable
segments into five. The Curél derma care brand, which formerly had been classified as skin care and hair care products, has been included in the Cosmetics Business,
and the Success men’s products brand, which formerly had been classified in the Human Health Care Business, has been included in the Skin Care and Hair Care
Business. Net sales and operating income for the previous fiscal year have been restated accordingly.
Figures for the Consumer Products Business present sales to external customers and figures for the Chemical Business include sales to the Consumer Products
Business in addition to external customers.
7
Kao Corporation Financial Report 2019
Management Discussion and Analysis
and equipment. The principal decrease in assets was a ¥14.3
Cash Flows from Financing Activities
billion decrease in trade and other receivables.
Net cash flows from financing activities totaled negative
Total liabilities increased ¥157.0 billion from December 31,
¥126.2 billion. The Company emphasizes steady and continuous
2018 to ¥782.5 billion. The principal increase in liabilities was a
dividends and flexibly repurchases and retires treasury shares to
¥161.1 billion increase in lease liabilities due to the application
improve capital efficiency from the perspective of EVA. During
of IFRS 16.
fiscal 2019, this primarily consisted of ¥61.8 billion for dividends
Total equity increased ¥35.9 billion from December 31,
paid to owners of the parent and non-controlling interests and
2018 to ¥871.4 billion. The principal increase in equity was net
¥50.0 billion for purchase of treasury shares.
income totaling ¥150.3 billion. The principal decreases in
equity were dividends totaling ¥61.7 billion and purchase of
treasury shares from the market totaling ¥50.0 billion. In
addition, the Company retired 6.7 million treasury shares on
July 12, 2019.
The ratio of equity attributable to owners of the parent to
total assets was 51.9% compared with 56.3% at December
Basic Policies regarding Distribution of
Profits and Dividends for the Fiscal Years
Ended December 31, 2019 and Ending
December 31, 2020
31, 2018. The Kao Group maintained return on equity at the
The Kao Group uses economic value added (EVA) as its
high level of 17.6%.
Cash Flows
principal management metric and clearly sets the uses of its
steadily generated cash flow as shown below from that
viewpoint. Shareholder returns are one such use, and they are
implemented after considering future demand for funds and
the situation in financial markets.
The balance of cash and cash equivalents at December 31, 2019
increased ¥23.7 billion compared with December 31, 2018 to
Use of cash flow:
¥289.7 billion, including the effect of exchange rate changes.
• Investment for future growth (capital expenditures,
M&A, etc.)
Cash Flows from Operating Activities
• Steady and continuous dividends (40% payout ratio target)
Net cash flows from operating activities totaled ¥244.5 billion.
• Share repurchases and early repayment of interest-
The principal increases in net cash were income before income
bearing debt including borrowings
taxes of ¥210.6 billion, depreciation and amortization of ¥83.4
billion and decrease in trade and other receivables of ¥12.9
In accordance with these policies, the Company plans to
billion. The principal decrease in net cash was income taxes paid
pay a year-end dividend for fiscal 2019 of ¥65 per share, an
of ¥56.7 billion.
increase of ¥5 per share compared with the previous fiscal
year. Consequently, annual cash dividends will increase ¥10
Cash Flows from Investing Activities
per share compared with the previous fiscal year, resulting in
Net cash flows from investing activities totaled negative ¥94.3
a total of ¥130 per share. The consolidated payout ratio will
billion. This primarily consisted of purchase of property, plant and
be 42.4%.
equipment of ¥84.0 billion for capacity expansion at production
bases in Japan and proactive capital investments in Asia, where
growth is notable.
Free cash flow, the sum of net cash flows from operating
activities and net cash flows from investing activities adjusted
for depreciation of right-of-use assets and other expenses, was
¥128.5 billion.
Kao Corporation Financial Report 2019
8
For fiscal 2020, the Company plans to pay total cash
Investing for Growth: During fiscal 2019, the Kao Group
dividends of ¥140 per share (41.8% payout ratio), an increase
invested aggressively for future growth, with capital
of ¥10 per share compared with the previous fiscal year. This
expenditures* totaling ¥90.2 billion. In the Consumer Products
plan is in accordance with the Company’s basic policies
Business, the Kao Group carried out activities including
regarding distribution of profits, and free cash flow and other
investment in facilities to manufacture new products and
factors have also been taken into consideration. As a result,
streamlining, maintenance and renewal of facilities, in addition
the Company is aiming for its 31st consecutive fiscal year of
to expanding production capacity in Japan and Asia, mainly in
increases in dividends.
the Human Health Care Business. In the Chemical Business,
The figures have been calculated based on operating
the Kao Group also invested aggressively in production
income of ¥230.0 billion as stated in the forecast of
facilities, including expansion of production capacity, inside
consolidated operating results for the fiscal year ending
and outside Japan. Research and development expenditures
December 31, 2020.
were ¥59.1 billion, which was the equivalent of 3.9% of net
sales, remaining at a high level relative to net sales.
* Excluding right-of-use assets
EVA and Related Activities
Increasing Profit: In the Consumer Products Business, the
EVA for fiscal 2019 was ¥87.4 billion, a decrease of ¥6.1 billion
Kao Group proactively launched new and improved products
compared with the previous fiscal year. Although operating
inside and outside Japan. The Kao Group increased operating
income increased, net operating profit after tax (NOPAT)
income by stepping up activities in the e-commerce channel
decreased, due in part to an increase in tax expenses, and
and promoting more efficient marketing and sales activities, in
EVA decreased in tandem with an increase in capital costs
addition to the strong performance by the Cosmetics
from the previous fiscal year.
Business. In the Chemical Business, the Kao Group achieved
The Kao Group conducted the following EVA-related
record-high operating income from promotion of high-value-
activities during the fiscal year.
added products such as oleo chemicals outside Japan.
Net Cash Flows from Operating Activities /
Capital Expenditures
Free Cash Flows*
(Billions of yen)
250
244.5
(Billions of yen)
150
200
150
100
50
0
180.9
181.7
184.3
185.8
195.6
83.4
82.8
89.9
79.4
89.1
90.2*
2015
Japanese
GAAP
2015
2016
2017
2018
2019
IFRS
Net Cash Flows from Operating Activities
Capital Expenditures
* Excluding right-of-use assets
9
Kao Corporation Financial Report 2019
100
50
0
106.8
107.5
95.7
89.7
128.5
37.7
2015
Japanese
GAAP
2015
2016
2017
2018
2019
IFRS
* Free cash flow is the sum of net cash flows from operating activities
and net cash flows from investing activities. For fiscal 2019, cash
flows from operating activities is adjusted for depreciation of
right-of-use assets.
Management Discussion and Analysis
Financial Improvement: For fiscal 2019, the Company paid
Business Risks and Other Risks
annual dividends per share of ¥130.00, a year-on-year increase
of ¥10.00, or 8%, as announced in its forecast at the
The Kao Group’s mission is to strive for the wholehearted
beginning of the fiscal year. As a result, the Company has
satisfaction and enrichment of the lives of people globally and
achieved 30 consecutive fiscal periods of dividend growth. In
to contribute to the sustainability of the world, with products
addition, the Kao Group repurchased ¥50.0 billion of its own
and brands of excellent value that are created from the
shares to improve capital efficiency.
consumer’s and customer’s perspective.
R&D Expenses
However, with intensifying market competition, a changing
(Billions of yen)
market structure and volatility in raw material market
Cosmetics Business ..........................................
Skin Care and Hair Care Business ...................
Human Health Care Business .........................
Fabric and Home Care Business .....................
Chemical Business ..........................................
2019
10.6
15.8
12.1
10.2
10.5
conditions and currency exchange rates, the Kao Group’s
operating environment remains uncertain. Changes in the
attitudes of consumers regarding the environment, health and
other matters and associated changes in their purchasing
attitudes, as well as the aging society, hygiene and other
social issues, are growing in significance. Moreover, amid the
global expansion of business and the progress of structural
changes in various fields, companies must respond promptly
and appropriately to changes in the risks pertaining to their
businesses. In this business environment, by placing ESG at
the core of its management, further deepening its Essential
Research and proactively proposing innovations on a level that
impacts society, the Kao Group aims for profitable growth
while contributing to people, society and the planet. It also
manages the following risks and crises.
Total Dividend Payment / Share Repurchases* /
Net Income Attributable to Owners of the Parent
Cost of Capital / EVA
(Billions of yen)
150
147.0
153.7
148.2
(Billions of yen)
150
90.4
93.593.593.5
87.487.487.4
100
98.9
105.2
126.6
50.050.050.0
50.050.050.0
50
0
50.0
46.8
40.2
40.2
54.3
58.5
62.6
2015
Japanese
GAAP
2015
2016
2017
2018
2019
IFRS
Total Dividend Payment
Share Repurchases
Net Income Attributable to Owners of the Parent
* Excludes repurchase of shares of less than one trading unit
100
50
0
70.6
58.6
73.4
55.1
54.8
56.4
59.1
62.7
63.8
2015
Japanese
GAAP
2015
2016
2017
2018
2019
IFRS
Cost of Capital
EVA
Kao Corporation Financial Report 2019
10
The Kao Group defines a potential negative impact on its
the main risks that have a negative impact on its sustained
management targets and business activities as a “risk” and
profitable growth and its contribution to the sustainability of
the manifestation of such risk as a “crisis.” The Risk and Crisis
the world through its business activities. Among these main
Management Committee has established a system and
risks, the Kao Group designates risks that would have a major
activity guideline for risk and crisis management based on
impact on management and require an enhanced response as
the Kao Risk and Crisis Management Policy. Divisions,
“corporate risks,” and once a year, based on internal and
subsidiaries and affiliates manage risks by identifying and
external risk surveys and interviews with management, the
assessing risks, and formulating and implementing
Management Committee reviews risk themes and the
countermeasures based on this activity guideline. In a crisis,
individuals (executive officers) in charge of handling each
the Kao Group works to minimize damage to people and
theme, while the Risk and Crisis Management Committee
property by establishing an Emergency Response Team
manages progress. (* Main corporate risk themes and
Organization that corresponds to the level of emergency and
countermeasures are presented in “Main Initiatives.”)
responding promptly and appropriately.
These are the main risks that might occur within five years
After deliberation by the Risk and Crisis Management
as recognized as of the fiscal year ended December 31, 2019.
Committee and the Management Committee, the Kao Group
In addition, there are risks other than the listed risks, which
has selected the following 13 particularly significant risks as
may affect investors’ decisions.
Details of Main Risks
Main Initiatives
Risks related to Response to Social Issues
The Kao Group’s Consumer Products Business and Chemical Business
are affected by economic cycles and changes in the needs of consumers
and customers.
The marine plastic waste problem, climate change, depletion of water
resources, and environmental and human rights issues in raw material
procurement, as well as growing social issues such as the aging
society and hygiene have increased consumer awareness about the
environment, health and other matters, leading to the trend of ethical
consumption and customers’ increasing needs for sustainability.
Under the “Kirei Lifestyle Plan” (KLP), an ESG strategy that integrates
an ESG perspective with business strategy, the Kao Group aims to
contribute to the sustainability of the world through innovation using
technology innovations at every stage from raw material procurement
to production, point of use and product disposal, and KLP promotion
activities to ensure all Kao Group members correctly understand the
purpose and content of KLP so they can fulfill their respective roles and
responsibilities. In addition, in order to demonstrate these results early,
the Kao Group is conducting steadfast initiatives and simultaneously
working proactively to disclose these initiatives to stakeholders.
Inability to provide appropriate products and services in response to
changes in consumer awareness and customer needs relating to these
social issues may reduce competitiveness, rendering targets for net
sales and market share unattainable. In addition, if efforts to address
social issues are deemed inadequate, corporate value could decline.
In the Consumer products business, the Kao Group clarifies social
issues to be addressed through its brand, which is a point of contact
with consumers, and considers social and environmental issues from
the product design stage. The Kao Group strives to achieve better
lives for consumers and to contribute to the sustainability of society
by maximizing the Group’s assets.
In the Chemical Business, the Kao Group helps to resolve social
issues through innovations in chemical technologies to respond to
changes in customer needs and advances in technology. By
strengthening the development of natural fat and oil derivatives and
other sustainable and distinctive products, the information materials
and performance materials businesses are developing innovative
products that offer greater customization, with the aim of further
reducing environmental impact.
11
Kao Corporation Financial Report 2019
Management Discussion and Analysis
Details of Main Risks
Main Initiatives
Risks related to Changes in the Retailing Environment
The retailing environment in which the Kao Group operates is changing
significantly. E-commerce is growing substantially worldwide, the
retail industry is becoming more oligopolistic due to mergers and
consolidations, and there is a trend toward greater differentiation of
store and product strategies. If appropriate sales activities cannot be
developed in response to these changes in the retailing environment
and their accelerating pace, targets for net sales, market share and
profits may be unattainable.
In addition, the number of truck deliveries and amount delivered are
increasing due to factors such as the increase in retail outlet sizes and
the growth of E-commerce. With the aging and growing shortage of
drivers, there are increasing risks that the working environment will
worsen and that products will not be delivered in a timely and
appropriate manner. If a sound supply chain cannot be established in
response to these changes in the retailing environment, net sales,
market share and profits may be unattainable.
Risks related to Business outside Japan
As one of its growth strategies, the Kao Group is rolling out its
businesses outside Japan, with a particular emphasis on
strengthening its operations in Asia and other regions where the
economic growth rate is high and market expansion is forecast.
However, if there is a substantial delay in business plans due to the
occurrence of factors in the course of business including a slowdown
in economic growth, political or social instability, problems at retail
outlets, agents or other business partners, changes in laws, regulations
or tax systems, a spate of counterfeit goods, or reputation risk,*
targets for net sales and profits may be unattainable.
* See “Risks related to Reputation”
Risks related to Business Investment
The Kao Group conducts proactive capital investment and M&A for
business growth based on investment decisions using EVA, which is
highly correlated with corporate value. The Kao Group will continue to
make these investments for growth while striving to enhance
corporate value through ongoing improvements in EVA. However, if
the market and business environments deteriorate at levels not
anticipated at the time investment decisions were made and the
expected cash flows cannot be generated due to a deviation from
business performance plans or other factors, impairment of property,
plant and equipment recorded due to capital expenditures or
impairment of goodwill and intangible assets recorded due to M&A
could have an impact on financial condition and business results.
The Kao Group is proactively addressing E-commerce by rolling out
products and services favored by E-commerce users and by promoting
the evolution of its digital marketing activities. In addition, the Kao
Group proposes campaigns and in-store activities customized to the
needs of each retailer while working to build a business model capable
of harnessing synergy between online and brick-and-mortar commerce.
For logistics issues, the Kao Group is working to realize “White
Logistics” in cooperation with various stakeholders throughout the
supply chain by improving delivery lead times and load factor per
vehicle, and other measures.
• Main Corporate Risk Themes and Countermeasures
Changes in the retailing environment: The Kao Group conducted
activities for collaboration with third-party digital platform providers
that are being rolled out globally.
The Kao Group routinely collects information on the laws and
regulations of each country relating to its business, in addition to the
economic, political and social conditions of the countries in which it
produces or sells products, and takes necessary measures in
response. The Kao Group pays particularly close attention to tightening
regulations in each country relating to the environment, product safety
and quality, and the impact of changes in import and export regulations
on the Group. With regard to intellectual property rights infringements
such as counterfeit products, the Kao Group is focusing on
countermeasures against counterfeit products, especially in the Asian
region in an effort to ensure that consumers and customers can use
its products with peace of mind.
• Main Corporate Risk Themes and Countermeasures
Risks relating to business in Asia: As a core theme, the Kao Group
strengthened its system for rapid response to tightening laws and
regulations in each country of Asia.
For major investments, the Kao Group checks performance at the
time quarterly results are calculated to ensure that there is no
significant deviation from the initial plan, and the results are reported
at the Management Committee meeting. As necessary, relevant
departments consider future direction and measures to improve
business performance.
Kao Corporation Financial Report 2019
12
Details of Main Risks
Risks related to Product Quality
Main Initiatives
The basis of the Kao Group’s product quality management activities is
Yoki-Monozukuri with a consumer/customer-oriented perspective, as
set forth in the Kao Way. At every stage from raw materials to
research and development, production, transportation and sales, the
Kao Group pursues a high level of product safety and strives to
constantly improve quality from a thoroughgoing consumer/customer
perspective. However, there are various risks relating to product
quality management due to changes in the external environment.
Among these risks are changes in laws and regulations in each
country; growing requirements to contribute to the resolution of safety
and environmental issues; increasing risk of product incidents due to
the aging of the population and the growing number of non-Japanese
visitors and residents in Japan; increasingly stringent requirements
regarding transparency in relation to product ingredients, safety and
other matters; and weakening of quality management activities and
reduced ability to respond to customers’ needs due to the diversification
of the supply chain resulting from globalization. The occurrence of
serious product incidents or concerns about product safety and
environmental issues could lead to a decline in credibility, not only
with regard to the problems with the brand concerned, but for the
entire Kao Group.
Risks related to Large-scale Earthquakes, Other Natural Disasters,
Accidents and Other Incidents
For companies with several large-scale plants, process safety needs
have increasingly heightened in the context of accidents at chemical
plants and the many natural disasters that have occurred recently.
A stoppage of operations and disruption of product supply to the market
due to factors including the occurrence of a major accident affecting
regions in the vicinities of the Kao Group’s plants, a large-scale
earthquake, a natural disaster caused by climate change or, the spread
of an infectious disease or, other incidents, could have a significant
impact on business results, with a resultant loss of social credibility.
The Kao Group designs and manufactures products in compliance with
product-related laws and regulations and in conformance with strict
standards it has set voluntarily. At the development stage prior to launch,
the Kao Group thoroughly carries out testing, studies and research to
confirm safety. After launch, the Kao Group strives to further improve
quality by collecting feedback, requests and other information regarding
products through the Consumer Communication Center.
In addition, to respond to changes in risks relating to product quality
management, the Kao Group is ensuring competitiveness by
developing alternative technologies that anticipate new requirements
in relation to laws and regulations in each country, and to safety and
environmental issues; enhancing product satisfaction by promoting
universal design and by providing multilingual information for non-
Japanese visitors and residents in Japan; strengthening the trust that
consumers, customers and society as a whole place in the Kao Group
by promoting visualization of product quality management activities
and by engaging in communication with all stakeholders; and is
intensifying quality management activities on a global scale.
• Main Corporate Risk Themes and Countermeasures
Response to product quality issues: The Kao Group is enhancing
awareness within the Group in order to prevent their occurrence and
to respond when serious product quality issues occur.
The Kao Group prevents fires, explosions and chemical spills while
maintaining safe and stable operations, and prepares for emergency
situations by conducting measures for facilities and periodic training
premised on a natural disaster. The Kao Group has built a framework
to keep track of accidents or disasters worldwide when they occur
through its emergency reporting network. In addition, the Kao Group
is strengthening its response to disasters so that it can execute a plan
for countermeasures that place top priority on the safeguarding of
human life and a business continuity plan (BCP). To achieve this, the
Group has established organizational units for disaster response in
both Eastern Japan and Western Japan premised on damage to the
Kao Head Office from an earthquake in the greater Tokyo metropolitan
area and is establishing an Emergency Response Team Headquarters
headed by the President.
• Main Corporate Risk Themes and Countermeasures
Large-scale earthquakes and other natural disasters: The Kao
Group has reinforced physical and administrative countermeasures
for large-scale typhoons, floods and other natural disasters brought
on by climate change. In addition, the Kao Group has strengthened
its disaster response capabilities by implementing emergency
response training and BCP training to address the possibility of
large-scale earthquakes.
Pandemics: To address the possible spread of infections such as a
new strain of influenza, the Kao Group has restructured its system to
enable a quick and global response and has formulated detailed
action plans that place top priority on human life, including dealing
appropriately with persons with symptoms, and has proceeded to
make preparations for possible pandemics.
13
Kao Corporation Financial Report 2019
Management Discussion and Analysis
Details of Main Risks
Main Initiatives
Risks related to Information Security
The Kao Group uses IT to promote efficient business and operations
and conducts business using data. The Kao Group possesses
confidential information (trade secrets) relating to research and
development, production, marketing, sales and other matters, and
retains the personal information of many customers and consumers
for sales promotion activities, member site management and
E-commerce. The Kao Group is working to strengthen information
security in order to protect information assets including trade secrets
and personal information, as well as IT hardware, software and many
kinds of data records, in accordance with Kao’s Information Security
Policy. However, a leak of confidential information or personal
information outside the Kao Group could occur due to an error or to
intentional actions including a cyberattack. In addition, the supply
chain and other business activities may be temporarily suspended as a
result of such actions. If such an incident occurs, credibility could
decline and targets for net sales and profits may be unattainable.
Risks related to Reputation
The rapid penetration of social networking services (SNS) on a global
scale has enabled a wide range of interactive communication among
consumers or between consumers and companies. The Kao Group
conducts marketing activities using SNS and other social media.
However, the rapid spread of information enabled by SNS makes it
difficult to control.
The spread through SNS of inappropriate expressions in the
advertisements or other publications of the Kao Group, or the spread
of negative evaluations or erroneous information about the Group’s
business activities or brand image could lower the Kao Group’s brand
value or credibility.
* Reputation risk: Risks that inflict loss on a company from decline in
corporate trust and brand value due to the spread of negative evaluation
and rumors against the company
Risks related to Raw Material Procurement
Market prices for natural fats and oils and petroleum products used as
raw materials for the Kao Group’s products are affected by factors
including global business conditions, geopolitical risks, the balance
between supply and demand, abnormal weather, and currency
exchange rate fluctuations. A sudden change in market prices could
render the Kao Group unable to attain its target for profits. In addition,
some of the raw materials used in the Kao Group’s products are rare,
thus entail risks relating to stable procurement. If the supply of
products to the market is disrupted due to a sudden change in
demand or difficulties at suppliers, the Kao Group may not only be
unable to attain its targets for net sales and profits, but its credibility
could also decline.
At the same time, the Kao Group is largely dependent on natural
capital such as palm oil, paper, and pulp for its raw materials, and it
must fulfill its corporate social responsibility by realizing sustainable
procurement with extensive environmental considerations including
resource conservation, global warming prevention and biodiversity
preservation, as well as social considerations including safety,
sanitation, labor conditions, and human rights. However, if the Kao
Group’s efforts for sustainable and responsible procurement are
deemed to be insufficient due to reasons in the supply chain, the
Group’s brand image and credibility could decline.
As personal and organizational measures for information security, the
Kao Group has established rules and systems globally and implemented
activities to protect trade secrets, personal information and information
security using the PDCA cycle (awareness-raising activities, self-checks,
and the setting of improvement targets). The Kao Group is also
strengthening its system for responding when an incident occurs. As
technical measures, the Information Security Committee has determined
a policy on security measures to be implemented, and has implemented
measures including the elimination of vulnerabilities by introducing
anti-virus software and updating software, the prevention of
unauthorized access, and the prevention of e-mail phishing.
• Main Corporate Risk Themes and Countermeasures
Personal information protection: The Kao Group has created
response procedures in the event that an incident occurs, and has
conducted relevant training. The Group is also reinforcing its global
information security and personal information protection systems.
From the perspective of ESG, the Kao Group is conducting internal
education on topics including the prevention of inappropriate expressions
in advertising and SNS messages. The Kao Group also globally monitors
external information, including information on SNS, and strives to
discover risks at an early stage. If an incident occurs that adversely
affects the Kao Group’s reputation, the Group responds promptly and
strives to maintain its reputation by publicly announcing appropriate
information, its corporate stance and other matters, as necessary.
• Main Corporate Risk Themes and Countermeasures
Reputation risk: The Kao Group has established a system for
monitoring external information and is strengthening its emergency
response system in the event reputation risk occurs.
Risks associated with the use of digital media: The Kao Group is
promoting the establishment of guidelines, internal education and
other matters for risks that could become reputation risks, such as
inappropriate expressions and stealth marketing in advertisements.
The Kao Group is working to reduce the impact of increases in raw
material prices by reducing costs and conducting measures to pass
increases on to selling prices. In addition, for risks relating to stable
procurement, the Kao Group is augmenting facilities at its main
suppliers and cultivating secondary suppliers to diversify risks. The
Kao Group also reviews contracts and proactively cooperates with
suppliers to reduce risks.
On the other hand, to address risks relating to sustainable and
responsible procurement, the Kao Group conducts human rights due
diligence based on the Kao Human Rights Policy and risk assessment
of suppliers based on the Guidelines for Supplier’s Assessment for
social issues. For environmental issues, the Kao Group promotes
sustainable procurement of palm oil, paper and pulp based on the
Guidelines for Sustainable Procurement of Raw Materials. Over the
medium to long term, the Kao Group is also working to thoroughly
reduce the amount of raw materials it uses and to switch to raw
materials from non-food biomass sources. The Kao Group is also
strengthening coordination with suppliers through initiatives such as
the use of Sedex for supplier monitoring and the CDP Supply Chain
Program. The Kao Group strives to disclose these initiatives to its
stakeholders proactively and transparently.
Kao Corporation Financial Report 2019
14
Details of Main Risks
Main Initiatives
Risks related to Currency Exchange Rate Fluctuations
The Kao Group conducts business activities outside Japan, and
currency exchange rate fluctuations affect foreign currency-denominated
sales and the cost of procuring raw materials. They also affect the
conversion into yen of the amounts on the financial statements of
consolidated subsidiaries outside Japan for the consolidated
settlement of accounts.
Larger-than-expected fluctuations in foreign currency exchange rates
against the yen, which is the Kao Group’s functional currency, could
have an impact on financial condition and business results.
Risks related to Compliance
In conducting its business activities, the Kao Group is subject to
various laws and regulations on matters including product quality and
safety, process safety, environmental protection, chemicals management,
accounting standards, taxation, labor, and transaction management.
As competition intensifies globally, there is concern of growing
temptation to commit improprieties due to factors including difficulties
in achieving product differentiation, meeting product launch schedules
and delivery timelines, and pressure to achieve performance targets.
The risk of harassment may increase due to the generational gap in
values and growing employee diversity.
A serious violation of compliance by the Kao Group, its subcontractors
or other related parties could have an impact on the Group’s credibility,
financial condition and business results.
Risks related to Securing Human Capital
The Kao Group strives to secure diverse and talented human capital in
order to achieve its business targets globally. Meanwhile, with the
advent of the digital revolution and low birthrates and aging
populations in some countries, employment conditions, expertise
requirements, and values with respect to working styles are changing
significantly amid the trend to promote ESG management.
An inability to systematically implement hiring, development and
assignment of human capital with the advanced expertise required in
each area, as well as leaders who anticipate major environmental
changes, could create a bottleneck in business activities or other
factors that have a negative impact on business results.
Risks related to Litigation
During the fiscal year ended December 31, 2019, no lawsuit or other
legal action was filed that had a material effect on the Kao Group.
However, the Kao Group conducts diverse businesses globally, and
various types of litigation or other action may be brought against it.
The result of such litigation or other legal action could have an impact
on the Kao Group’s financial condition and business results.
The Kao Group mitigates the impact of foreign-currency denominated
transactions on business results by hedging risk of currency exchange
rate fluctuations through measures including using foreign currency
accounts for transaction settlement and derivative transactions such
as forward exchange contracts and currency swaps. The Kao Group
does not engage in derivative transactions for the purpose of
speculation. In addition, the Kao Group monitors fluctuations in major
currencies and the impact of these fluctuations on its business, and
reports its findings to the Management Committee in a timely fashion.
Under the direction of management, relevant departments consider
measures to mitigate the impact on business as required.
• Main Corporate Risk Themes and Countermeasures
Currency exchange rate fluctuations: The Kao Group studied the
makeup of currency exchange rate fluctuation risk and the Group’s
response to confirm the direction of future countermeasures.
The Kao Group regards “Integrity” (behaving lawfully and ethically,
and conducting sound and honest business activities) as the starting
point of compliance, and promotes it as a foundation for earning the
respect and trust of all stakeholders. As such, the Kao Group
promotes activities such as ongoing education about the Kao Business
Conduct Guidelines, which are its code of conduct, and responding
appropriately to communications received via the compliance hotlines.
In addition, as activities focused on reducing serious compliance risks,
the Kao Group systematically promotes compliance with laws and
regulations that apply to its business, and the Compliance Committee
monitors the implementation status of particularly important laws and
regulations. Furthermore, the Kao Group is conducting activities
designed to create an open workplace that allows discovered
improprieties to be immediately reported to management and an
appropriate response to be taken.
Based on the recognition that human capital is the Kao Group’s most
important asset, the Human Capital Development Committee, with
top executives as members, discusses and promotes the assignment
and development of the human capital and effective organizational
management that support sustainable growth.
In addition, in order to generate great vitality by drawing out the
unlimited potential of individual employees and to maximize that
vitality as an organization, the Kao Group employs measures such as
using its global human capital information system, improving
organizational capabilities through an employee opinion survey,
conducting human capital management through job rank, evaluation
and training systems and compensation policies that are shared
globally, and implementing a health promotion program.
The Kao Group complies with various laws and regulations relating to
its business, and strives to prevent disputes by providing safe and
reliable products, properly acquiring and using intellectual property
rights, clarifying contract conditions, negotiating with other parties,
and other methods. In addition, the Kao Group has created a global
mechanism for prompt and reliable reporting on the filing of important
lawsuits and their current status, and has established a system for
responding to litigation or other legal actions in cooperation with the
individuals in charge at related companies in each country, law firms
and other parties.
15
Kao Corporation Financial Report 2019
Consolidated Statement of Financial Position
Kao Corporation and Consolidated Subsidiaries
As of December 31, 2019
Assets
Current assets
Notes
2019
2018
(Millions of yen)
Cash and cash equivalents ............................................................................................
Trade and other receivables ..........................................................................................
Inventories .....................................................................................................................
Other financial assets ....................................................................................................
Income tax receivables ..................................................................................................
Other current assets .....................................................................................................
Total current assets ................................................................................................
Non-current assets
Property, plant and equipment ......................................................................................
Right-of-use assets ........................................................................................................
Goodwill ........................................................................................................................
Intangible assets ...........................................................................................................
Investments accounted for using the equity method ...................................................
Other financial assets ....................................................................................................
Deferred tax assets .......................................................................................................
Other non-current assets ..............................................................................................
Total non-current assets .........................................................................................
7, 33
8, 33
9
33
10
11
16
12
12
13
33
14
10, 18
289,681
208,839
199,672
13,788
2,440
22,606
737,026
436,831
164,822
179,707
47,770
8,287
26,104
47,876
5,496
916,893
265,978
223,102
197,571
15,146
2,066
22,449
726,312
418,935
—
180,286
46,549
7,931
23,540
49,158
8,275
734,674
Total assets ........................................................................................................
1,653,919
1,460,986
Liabilities and equity
Liabilities
Current liabilities
Notes
2019
2018
Trade and other payables ..............................................................................................
Bonds and borrowings ..................................................................................................
Lease liabilities .............................................................................................................. 15, 16, 31, 33
Other financial liabilities .................................................................................................
Income tax payables ......................................................................................................
Provisions ......................................................................................................................
Contract liabilities ..........................................................................................................
Other current liabilities ..................................................................................................
Total current liabilities ............................................................................................
17, 33
15, 33
16, 33
24
19
20
Non-current liabilities
Bonds and borrowings ..................................................................................................
Lease liabilities .............................................................................................................. 15, 16, 31, 33
Other financial liabilities .................................................................................................
Retirement benefit liabilities ..........................................................................................
Provisions ......................................................................................................................
Deferred tax liabilities ....................................................................................................
Other non-current liabilities ...........................................................................................
Total non-current liabilities .....................................................................................
15, 33
16, 33
18
19
14
222,314
25,505
19,653
6,766
36,208
2,054
20,616
99,411
432,527
101,636
141,438
7,527
80,579
10,122
3,747
4,922
349,971
225,560
40,488
—
6,880
34,198
2,873
18,387
102,452
430,838
80,339
—
9,506
84,552
12,175
2,864
5,203
194,639
Total liabilities .....................................................................................................
782,498
625,477
Equity
Share capital ..................................................................................................................
Capital surplus ...............................................................................................................
Treasury shares .............................................................................................................
Other components of equity .........................................................................................
Retained earnings ..........................................................................................................
Equity attributable to owners of the parent ...............................................................
Non-controlling interests ...............................................................................................
Total equity .........................................................................................................
21
21
21
21
21
85,424
108,715
(4,309)
(32,974)
700,839
857,695
13,726
871,421
85,424
108,245
(11,282)
(30,029)
670,002
822,360
13,149
835,509
Total liabilities and equity ....................................................................................
1,653,919
1,460,986
Kao Corporation Financial Report 2019
16
Consolidated Statement of Income
Kao Corporation and Consolidated Subsidiaries
Year ended December 31, 2019
Net sales ....................................................................................................................
Notes
6, 24
2019
1,502,241
Cost of sales .............................................................................................................. 9, 11, 12, 16, 18
(848,723)
Gross profit ................................................................................................................
653,518
(Millions of yen)
2018
1,508,007
(853,989)
654,018
Selling, general and administrative expenses ............................................................ 11, 12, 16, 18, 25
(442,912)
(444,845)
Other operating income .............................................................................................
24, 26
15,192
Other operating expenses ......................................................................................... 11, 12, 16, 18, 27
(14,075)
Operating income ......................................................................................................
6
211,723
Financial income ........................................................................................................
6, 18, 28
Financial expenses .....................................................................................................
6, 16, 18, 28
Share of profit in investments accounted for using the equity method .....................
6, 13
2,027
(5,231)
2,126
14,288
(15,758)
207,703
1,717
(4,251)
2,082
Income before income taxes .....................................................................................
Income taxes .............................................................................................................
Net income ................................................................................................................
Attributable to:
Owners of the parent .................................................................................................
Non-controlling interests ............................................................................................
Net income ................................................................................................................
Earnings per share
Basic (Yen) .................................................................................................................
Diluted (Yen) ..............................................................................................................
6
14
29
29
210,645
207,251
(60,296)
150,349
(51,920)
155,331
148,213
2,136
150,349
153,698
1,633
155,331
306.70
306.63
314.25
314.12
17
Kao Corporation Financial Report 2019
Consolidated Statement of Comprehensive Income
Kao Corporation and Consolidated Subsidiaries
Year ended December 31, 2019
Net income ..........................................................................................................................
Other comprehensive income
Items that will not be reclassified to profit or loss:
Notes
2019
150,349
(Millions of yen)
2018
155,331
Net gain (loss) on revaluation of financial assets measured
at fair value through other comprehensive income .....................................................
30, 33
Remeasurements of defined benefit plans ...................................................................
Share of other comprehensive income of investments
accounted for using the equity method .......................................................................
Total of items that will not be reclassified to profit or loss ...........................................
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations ...........................................
Share of other comprehensive income of investments
accounted for using the equity method .......................................................................
Total of items that may be reclassified subsequently to profit or loss ..........................
30
30
30
30
(6)
(1,180)
(17)
(1,203)
(2)
(15,524)
(345)
(15,871)
(2,489)
(16,140)
(36)
(2,525)
(73)
(16,213)
Other comprehensive income, net of taxes .....................................................................
Comprehensive income .....................................................................................................
(3,728)
146,621
(32,084)
123,247
Attributable to:
Owners of the parent ........................................................................................................
Non-controlling interests ...................................................................................................
Comprehensive income ....................................................................................................
144,508
2,113
146,621
122,324
923
123,247
Kao Corporation Financial Report 2019
18
Consolidated Statement of Changes in Equity
Kao Corporation and Consolidated Subsidiaries
Year ended December 31, 2019
Equity attributable to owners of the parent
Other components of equity
(Millions of yen)
(108) 57,006
(98)
(98)
(56,799)
1
Exchange
differences on
translation of
foreign
operations
Net gain (loss)
on derivatives
designated
as cash flow
hedges
Subscription
rights to
shares
Net gain (loss) on
revaluation of
financial assets
measured at fair
value through other
compre hensive
income
546
—
546
—
—
—
(37,032)
—
(37,032)
—
(2,598)
(2,598)
—
—
—
—
—
—
—
(39,630)
—
—
—
—
—
—
—
(37,032)
—
—
—
—
—
(98)
448
—
—
—
(18)
—
(185)
546
(1)
—
(1)
—
1
1
—
—
—
—
—
—
—
—
4
—
(5)
(5)
—
—
—
—
—
—
—
(1)
6,458
—
6,458
—
(23)
(23)
—
—
—
—
—
(227)
(227)
6,208
8,490
—
(338)
(338)
—
—
—
—
—
(1,694)
6,458
Remeasurements
of defined
benefit plans
Total
Retained
earnings
Total
Non-
controlling
interests
Total
equity
—
—
—
—
(30,029)
670,002
822,360
13,149
835,509
—
740
740
—
740
(30,029)
670,742
823,100
13,149
836,249
—
148,213
148,213
2,136
150,349
(1,085)
(1,085)
(3,705)
(3,705)
—
(3,705)
(23)
(3,728)
148,213
144,508
2,113
146,621
—
—
—
1
(50,033)
337
— (50,033)
—
337
(60,459)
(60,459)
(1,290)
(61,749)
—
241
(246)
(5)
—
858
(858)
—
—
760
(118,116)
(109,913)
(1,536)
(111,449)
—
(32,974)
700,839
857,695
13,726
871,421
—
—
(12,315)
634,885
806,381
12,983
819,364
—
153,698
153,698
1,633
155,331
(15,539)
(15,539)
(31,374)
—
(31,374)
(31,374)
153,698
122,324
(710)
923
(32,084)
123,247
—
—
—
118
(50,034)
364
—
—
(50,034)
364
(56,793)
(56,793)
(746)
(57,539)
—
—
—
—
—
1,085
1,085
—
—
—
—
—
—
—
—
—
—
—
(1,694)
15,539
13,827
(13,827)
—
—
—
—
—
—
(11)
—
(11)
15,539
13,660
(118,581)
(106,345)
(757)
(107,102)
—
(30,029)
670,002
822,360
13,149
835,509
(99) 48,345
(167)
(167)
(47,961)
118
January 1, 2019
(as previously reported)..
Changes in accounting policy1 ..
January 1, 2019
(after adjustment) .........
Net income ....................
Other comprehensive
income .........................
Comprehensive income ....
Disposal of treasury
shares ..........................
Purchase of treasury
shares ..........................
Share-based payment
transactions .................
Dividends ......................
Changes in the ownership
interest in subsidiaries .....
Transfer from other
components of equity
to retained earnings .....
Total transactions with
the owners ..................
Share
capital
Capital
surplus
Treasury
shares
Notes
85,424 108,245 (11,282)
—
—
—
85,424 108,245 (11,282)
21
21
32
23
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (50,033)
337
—
241
—
—
—
—
—
470
6,973
Net income ....................
Other comprehensive
income .........................
Comprehensive income ....
Disposal of treasury
shares ..........................
Purchase of treasury
shares ..........................
Share-based payment
transactions .................
Dividends ......................
Transfer from other
components of equity
to retained earnings .....
Other increase
(decrease) ....................
Total transactions with
the owners ..................
21
21
32
23
—
—
—
—
—
—
—
—
—
—
— (50,034)
364
—
—
—
—
—
—
—
265
(1,689)
December 31, 2018 .........
85,424 108,245
(11,282)
19
Kao Corporation Financial Report 2019
December 31, 2019 .........
85,424 108,715
(4,309)
Note: 1. It represents the financial effect from the adoption of IFRS 16 “Leases.”
January 1, 2018 ...............
85,424 107,980
(9,593)
731
(21,540)
—
—
—
—
—
—
—
—
—
—
(15,492)
(15,492)
Consolidated Statement of Cash Flows
Kao Corporation and Consolidated Subsidiaries
Year ended December 31, 2019
Notes
2019
2018
(Millions of yen)
Cash flows from operating activities
Income before income taxes ............................................................................................
Depreciation and amortization ..........................................................................................
Interest and dividend income ............................................................................................
Interest expense ...............................................................................................................
Share of profit in investments accounted for using the equity method ............................
(Gains) losses on sale and disposal of property, plant and
equipment, and intangible assets ..................................................................................
(Increase) decrease in trade and other receivables ...............................................................
(Increase) decrease in inventories ....................................................................................
Increase (decrease) in trade and other payables ...............................................................
Increase (decrease) in retirement benefit liabilities ..........................................................
Other .................................................................................................................................
Subtotal .........................................................................................................................
Interest received ...............................................................................................................
Dividends received ............................................................................................................
Interest paid ......................................................................................................................
Income taxes paid .............................................................................................................
Net cash flows from operating activities ...................................................................
Cash flows from investing activities
Payments into time deposits ............................................................................................
Proceeds from withdrawal of time deposits .....................................................................
Purchase of property, plant and equipment ......................................................................
Purchase of intangible assets ...........................................................................................
Payments for business combinations ...............................................................................
Other .................................................................................................................................
210,645
83,369
(1,885)
2,840
(2,126)
3,323
12,862
(2,848)
696
(3,788)
(2,936)
300,152
1,711
2,146
(2,806)
(56,680)
244,523
(35,188)
36,660
(83,959)
(9,819)
(195)
(1,765)
207,251
60,662
(1,578)
1,256
(2,082)
4,531
(12,591)
(15,677)
3,951
20,740
(21,437)
245,026
1,273
2,312
(1,293)
(51,708)
195,610
(26,768)
26,987
(80,295)
(7,703)
(73,915)
3,799
Net cash flows from investing activities ....................................................................
(94,266)
(157,895)
Cash flows from financing activities
Increase (decrease) in short-term borrowings ..................................................................
Proceeds from long-term borrowings ...............................................................................
Repayments of long-term borrowings ..............................................................................
Proceeds from issuance of bonds ....................................................................................
Redemption of bonds .......................................................................................................
Repayments of lease liabilities ..........................................................................................
31
Purchase of treasury shares .............................................................................................
Dividends paid to owners of the parent ............................................................................
Dividends paid to non-controlling interests .......................................................................
Other .................................................................................................................................
19
46,220
(40,054)
—
(12)
(20,565)
(50,033)
(60,512)
(1,287)
58
230
—
(67)
25,060
(24,939)
—
(50,035)
(56,838)
(745)
(1,245)
Net cash flows from financing activities ....................................................................
(126,166)
(108,579)
Net increase (decrease) in cash and cash equivalents ....................................................
Cash and cash equivalents at the beginning of the year ................................................
Effect of exchange rate changes on cash and cash equivalents ....................................
Cash and cash equivalents at the end of the year ...........................................................
7
7
24,091
265,978
(388)
289,681
(70,864)
343,076
(6,234)
265,978
Kao Corporation Financial Report 2019
20
Notes to Consolidated Financial Statements
Kao Corporation and Consolidated Subsidiaries
Year ended December 31, 2019
1
Reporting Entity
Kao Corporation (hereinafter the “Company”) is a corporation
established pursuant to the Companies Act of Japan (hereinafter the
“Companies Act”) with its headquarters located in Chuo-ku, Tokyo.
The consolidated financial statements of the Company and its
subsidiaries (hereinafter the “Group”) have a closing date of
December 31 and comprise the financial statements of the Group
and the interests in associates of the Company.
The Group manufactures consumer products including
cosmetics, skin care products, hair care products, sanitary
products, fabric care products, and chemical products including
fatty alcohols and surfactants. The Group delivers its products to
customers through its sales companies and distributors in Japan
and other countries. Details of these principal business activities
of the Group are presented in Note 6 “Segment Information.”
2
Basis of Preparation
(1) Compliance with International Financial Reporting
Standards (hereinafter “IFRS”)
The Group’s consolidated financial statements have been
prepared in accordance with IFRS issued by the International
Accounting Standards Board, as permitted by the provision of
Article 93 of the Ordinance on Terminology, Forms, and
Preparation Methods of Consolidated Financial Statements
(Ordinance of the Ministry of Finance of Japan No. 28 of 1976), as
they satisfy the requirements for an “IFRS Specified Company” in
Article 1-2 of the same ordinance.
(2) Basis of Measurement
The Group’s consolidated financial statements have been
prepared on the historical cost basis, except for certain assets and
liabilities including financial instruments measured at fair value as
presented in Note 3 “Significant Accounting Policies.”
(3) Functional Currency and Presentation Currency
The Group’s consolidated financial statements are presented in
Japanese yen, which is the Company’s functional currency. All
financial information presented in Japanese yen is rounded to the
nearest million yen.
3
Significant Accounting Policies
(1) Basis of Consolidation
1) Subsidiaries
Subsidiaries refer to all business entities controlled by the
Company. The Company controls an entity when it has
exposure, or rights, to variable returns from involvement with
an investee and has the ability to affect those returns through
its power over the investee.
The financial statements of subsidiaries are included in the
consolidated financial statements of the Group from the date
the Company gains control until the date it loses control of the
subsidiary.
All intergroup balances, transactions, income and expenses
and unrealized gains and losses arising from intergroup
transactions are eliminated in preparing the consolidated
financial statements.
A change in the Company’s ownership interest in a
subsidiary, without a loss of control, is accounted for as an
equity transaction. Any difference between the amount by
which the non-controlling interests are adjusted and the fair
value of the consideration paid or received is recognized
directly in equity attributable to the Group.
Non-controlling interests in subsidiaries are identified
separately from the Group’s equity therein. Comprehensive
income of subsidiaries is attributed to owners of the parent
and to the non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
All subsidiaries have the same closing date as the Company.
2) Associates
An associate is defined as an entity over which the
Company has significant influence on financial and operating
policy decisions but does not have control over the entity.
The Company is presumed to have significant influence over
another entity when it directly or indirectly holds at least
20%, but no more than 50% of the voting rights of that
entity. Entities over which the Company is able to exercise
significant influence on financial and operating policy
decisions are also included in associates, even if it holds
less than 20% of the voting rights.
Investments in associates are initially recognized at cost,
and are accounted for by the equity method from the date
the Company gains significant influence until the date it
loses that influence.
Goodwill recognized on acquisition of associates (less any
accumulated impairment losses) is included in investments
in associates.
The closing dates of some associates differ from that of
the Company. Associates with different closing dates
prepare additional financial closings as of the closing date of
the Company.
(2) Business Combinations
Business combinations are accounted for using the acquisition
method. The consideration of an acquisition is measured as the
aggregate of the acquisition-date fair value of the assets
transferred, liabilities assumed and equity securities issued by the
21
Kao Corporation Financial Report 2019
Company to the former owners of the acquiree in exchange for
control of the acquiree.
Identifiable assets and liabilities of the acquiree in business
combinations are measured at their acquisition-date fair value,
with the following exceptions:
• Deferred tax assets or liabilities and assets or liabilities related
to employee benefit arrangements are recognized and
measured in accordance with IAS 12 “Income Taxes” and IAS
19 “Employee Benefits,” respectively.
• Non-current assets and disposal groups that are classified as
held for sale in accordance with IFRS 5 “Non-current Assets
Held for Sale and Discontinued Operations” are measured in
accordance with that Standard.
• Liabilities or equity instruments related to share-based payment
transactions of the acquiree or share-based payment
transactions of the Company entered into to replace such
transactions of the acquiree are measured in accordance with
IFRS 2 “Share-based Payment.”
Any excess of the consideration over the net fair value of
identifiable assets acquired and liabilities assumed at the
acquisition date is recognized as goodwill in the consolidated
statement of financial position. Conversely, any deficit is
immediately recognized as income in the consolidated statement
of income.
Costs associated with business combinations, such as advisory
fees, attorney fees and due diligence costs, are expensed as incurred.
The additional acquisition of non-controlling interests is
accounted for as an equity transaction, and therefore no goodwill
is recognized with respect to such a transaction.
Business combinations under common control are business
combinations in which all of the combining entities or combining
businesses are ultimately controlled by the same party or parties
both before and after the business combination, and that control
is not transitory. These business combinations are accounted for
based on the carrying amounts.
items that are measured at fair value in foreign currencies
are translated into the functional currency using the
exchange rates at the date when the fair value was
measured. Exchange differences arising from such
translations and settlements are recognized in profit or loss.
However, exchange differences arising from equity
instruments measured at fair value through other
comprehensive income and cash flow hedges are
recognized in other comprehensive income.
3) Financial statements of foreign operations
Assets and liabilities of foreign operations are translated at
the rates at the end of each reporting period. Income and
expenses are translated at the average exchange rates for
the period, provided that there were no significant
fluctuations in the exchange rates during the period.
Exchange differences arising from translation of the financial
statements of foreign operations are recognized in other
comprehensive income. On the disposal of a foreign
operation, the cumulative amount of exchange differences
relating to that foreign operation is reclassified from equity to
profit or loss when the gain or loss on disposal is recognized.
(4) Financial Instruments
1) Financial assets
(i) Initial recognition and measurement
The Group initially recognizes trade and other receivables
at the date they are originated. Other financial assets are
initially recognized at the transaction date when the Group
becomes a party to the contractual provisions of the
financial instrument.
At initial recognition, all financial assets are measured at
fair value, but those that are not classified as financial
assets measured at fair value through profit or loss are
measured at fair value plus transaction costs directly
attributable to the acquisition of the financial asset.
Transaction costs of financial assets measured at fair value
through profit or loss are recognized in profit or loss.
(3) Foreign Currency Translation
1) Functional currency and presentation currency
(ii) Classification and subsequent measurement
The presentation currency used in the Group’s consolidated
financial statements is Japanese yen, which is the
Company’s functional currency. Subsidiaries and associates
in the Group determine their own functional currencies and
each entity’s transactions are measured in its functional
currency.
2) Foreign currency transactions
Foreign currency transactions are translated into the
functional currency at the spot exchange rate at the date of
the transaction, or an exchange rate that approximates the
spot rate.
At the end of each reporting period, foreign currency
monetary items are translated into the functional currency
using the rates at the end of each reporting period.
Non-monetary items that are measured in terms of
historical cost in foreign currencies are translated using the
exchange rates at the date of acquisition. Non-monetary
The Group classifies the financial assets it holds as (a)
financial assets measured at amortized cost; (b) debt
instruments measured at fair value through other
comprehensive income; (c) equity instruments measured
at fair value through other comprehensive income; or (d)
financial assets measured at fair value through profit or
loss. This classification is determined at initial recognition,
and measurement of financial assets after initial
recognition is performed according to the classification of
the financial asset as follows:
(a) Financial assets measured at amortized cost
Financial assets held by the Group are measured at
amortized cost if both of the following conditions are met:
• The financial asset is held in a business model
whose objective is to hold financial assets in order to
collect contractual cash flows; and
Kao Corporation Financial Report 2019
22
• The contractual terms of the financial asset give rise
on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
After initial recognition, the carrying amounts of
financial assets measured at amortized cost are
recognized using the effective interest method less
impairment loss, if any. Amortization using the effective
interest method and gains and losses on derecognition
are recognized in profit or loss for the period.
(b) Debt instruments measured at fair value through other
comprehensive income
Financial assets held by the Group are classified as
debt instruments measured at fair value through other
comprehensive income if both of the following
conditions are met:
• The financial asset is held within a business model
whose objective is achieved by both collecting
contractual cash flows and selling the financial asset;
and
• The contractual terms of the financial asset give rise
on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
(c) Equity instruments measured at fair value through
other comprehensive income
The Group has made an irrevocable election to present
subsequent changes in the fair value of certain equity
instruments in other comprehensive income, and
classifies them in equity instruments measured at fair
value through other comprehensive income.
These financial assets are measured at fair value
after initial recognition, and changes in the fair value
are included in other comprehensive income. If the
Group disposes of an investment, or if the fair value of
the investment declines significantly, the cumulative
gain or loss recognized in other comprehensive
income is reclassified from other components of
equity to retained earnings.
Dividends from equity instruments measured at fair
value through other comprehensive income are
recognized as financial income in profit or loss.
(d) Financial assets measured at fair value through profit
or loss
Financial assets that are not classified as financial
assets measured at amortized cost, debt instruments
measured at fair value through other comprehensive
income, or equity instruments measured at fair value
through other comprehensive income are classified as
financial assets measured at fair value through profit
or loss. The Group’s financial assets that are
measured at fair value through profit or loss include
certain short-term investments and derivative assets.
The Group has not irrevocably designated any financial
assets as measured at fair value through profit or loss.
These financial assets are measured at fair value
after initial recognition, and changes in their fair value
are recognized in profit or loss. Gains and losses on
financial assets measured at fair value through profit
or loss are recognized in profit or loss.
(iii) Impairment of financial assets
With respect to impairment of financial assets measured
at amortized cost, the Group recognizes a loss allowance
for expected credit losses on such financial assets.
At each reporting date, the Group assesses whether
the credit risks on the financial assets have increased
significantly since initial recognition.
If credit risk on a financial instrument has not increased
significantly since initial recognition, the loss allowance
for that financial instrument is measured at an amount
equal to the 12-month expected credit losses. If credit
risk on a financial instrument has increased significantly
since initial recognition, the loss allowance is measured in
an amount equal to the lifetime expected credit losses.
However, the loss allowance on trade receivables and
others is always measured in an amount equal to the
lifetime expected credit losses.
The expected credit losses of financial assets are
estimated in a way that reflects the following:
• An unbiased and probability-weighted amount
determined by evaluating a range of possible outcomes
• The time value of money
• Reasonable and supportable information about past
events, current conditions and forecasts of economic
conditions that is available without undue cost or effort
at the reporting date
The amounts of these measurements are recognized
in profit or loss.
If an event that reduces an impairment loss occurs
after the impairment loss has been recognized, the
impairment loss will be reversed to the extent of the
decrease and credited to profit or loss.
(iv) Derecognition of financial assets
The Group derecognizes financial assets only when the
contractual rights to the cash flows from the financial
assets expire, or when the Group transfers financial
assets and substantially all the risks and rewards of
ownership of the financial assets.
2) Financial liabilities
(i) Initial recognition and measurement
The Group initially recognizes bonds and borrowings at the
date they are issued, and other financial liabilities at the
transaction date.
Upon initial recognition, all financial liabilities are
measured at fair value. However, financial liabilities
measured at amortized cost are measured in the full
23
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
amount after deducting directly attributable transaction
costs from the fair value.
Transaction costs of financial liabilities measured at fair
value through profit or loss are recognized in profit or loss.
(ii) Classification and subsequent measurement
The Group classifies financial liabilities as either financial
liabilities measured at fair value through profit or loss, or
financial liabilities measured at amortized cost. This
classification is determined at initial recognition.
Measurement of financial liabilities after initial recognition
is performed as follows, according to the classification of
the financial liability.
The Group’s financial liabilities measured at fair value
through profit or loss are derivative liabilities. The Group
has not irrevocably designated any financial liabilities as
measured at fair value through profit or loss at initial
recognition. Financial liabilities measured at fair value
through profit or loss are measured at fair value after initial
recognition, and any changes in their fair value are
recognized in profit or loss for the period.
Financial liabilities measured at amortized cost are
subsequently measured at amortized cost using the
effective interest method. Amortization using the effective
interest method and gains and losses on derecognition are
recognized in profit or loss for the period.
(iii) Derecognition of financial liabilities
The Group derecognizes financial liabilities when they are
extinguished (i.e., when the obligation specified in the
contract is discharged or cancelled or expires).
3) Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net
amount is presented in the consolidated statement of
financial position only when the Group currently has a legally
enforceable right to set off the recognized amount and
intends either to settle on a net basis or realize the assets
and settle the liabilities simultaneously.
4) Fair value of financial instruments
The Group recognizes the fair value of financial instruments
using various valuation methodologies and inputs. The fair
values recognized based on the observability of inputs into
the valuation methodologies are grouped into the following
three levels:
Level 1: Fair value measured with quoted prices in active
markets for identical assets or liabilities
Level 2: Fair value measured with inputs other than quoted
prices categorized within Level 1 that are observable
for the asset or liability, either directly or indirectly
Level 3: Fair value measured with unobservable inputs for
the asset or liability
hedge interest rate risk. At the inception of a hedging
relationship, the Group formally designates and documents
the hedging relationship and the interest rate risk
management objective and strategy for undertaking the
hedge. The documentation includes identification of the
hedging instrument, the hedged item, the nature of the risk
being hedged, and the methods of assessing whether the
hedging relationship meets the hedge effectiveness
requirements. In addition, the Group assesses whether the
hedging relationship meets the hedge effectiveness
requirements, both at the inception and on an ongoing
basis. Ongoing assessments are conducted either at each
reporting date or upon a significant change in the
circumstances affecting the hedge effectiveness
requirements, whichever comes first.
The Group does not use cash flow hedges, fair value
hedges or net investment hedges in foreign operations.
(5) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand
deposits and short-term investments that are highly liquid and
readily convertible to known amounts of cash subject to an
insignificant risk of changes in value, and that mature or become
due within three months from the date of acquisition.
Cash equivalents include certificates of deposit, time deposits,
commercial paper, public and corporate bonds in investment
trusts, and money in trust.
(6) Inventories
Inventories are measured at the lower of cost and net realizable
value. Net realizable value is the estimated selling price in the
ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
The cost of inventories includes all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to
their present location and condition, and are determined
principally by the weighted average method.
(7) Property, Plant and Equipment
Property, plant and equipment are measured using the cost model
and carried at cost less any accumulated depreciation and any
accumulated impairment losses.
The cost of an item of property, plant and equipment comprises
any costs directly attributable to acquisition of the asset and the
initial estimate of the costs of dismantling and removing the item
and restoring the site on which it is located.
Depreciation of assets other than land and construction in
progress is calculated on a straight-line basis over the estimated
useful lives of the assets.
The estimated useful lives of major asset items are as follows:
• Buildings and structures: 10 to 35 years
• Machinery and vehicles: 7 to 14 years
• Tools, furniture and fixtures: 3 to 10 years
5) Hedge accounting
The Group uses interest rate swaps and other derivatives to
The estimated useful lives, residual values and depreciation
method are reviewed at each fiscal year end, and any revisions
are applied prospectively as changes in accounting estimates.
Kao Corporation Financial Report 2019
24
(8) Goodwill and Intangible Assets
1) Goodwill
Goodwill arising from a business combination is not
amortized, and is carried at cost, determined at the
acquisition date, less any accumulated impairment losses.
In addition, goodwill is allocated to the cash generating
unit or group of cash-generating units that is expected to
benefit from the synergies of the business combination, and
is tested for impairment at least once a year by each fiscal
year end or if there are indications of impairment.
Impairment loss on goodwill is recognized in profit or loss
and is not reversed in subsequent periods.
Goodwill measurements at initial recognition are
presented in Note 3 “Significant Accounting Policies (2)
Business Combinations.”
2) Intangible assets
Intangible assets are measured using the cost model and
carried at cost less any accumulated amortization and any
accumulated impairment losses.
The costs of separately acquired intangible assets comprise
any costs directly attributable to acquisition of the assets.
The costs of intangible assets acquired in business
combinations are measured at fair value at the acquisition date.
Expenditures related to internally generated intangible
assets are recognized as expenses when incurred, with the
exception of development expenses that meet the criteria
for capitalization. Software development expense only
meets the criteria for capitalization.
After initial recognition, with the exception of intangible assets
with indefinite useful lives, intangible assets are amortized on a
straight-line basis over their estimated useful lives.
The Group has no material intangible assets with
indefinite useful lives. The estimated useful lives of major
intangible assets are as follows:
• Trademarks: 20 years
• Customer relationships: 15 or 20 years
• Software: 5 years
The estimated useful lives, residual values and
amortization method are reviewed at each fiscal year end,
and any revisions are applied prospectively as changes in
accounting estimates.
3) Research and development expenses
Research expenditures are expensed as incurred.
Development expenditures are capitalized only if they can
be measured reliably, future economic benefits are
probable, and the Group intends to, and has sufficient
resources to, complete development and to use or sell the
asset. If research expenditures and development
expenditures cannot be clearly distinguished, they are
expensed as incurred as research expenditures.
is initially measured at the present value of the accrued lease
payments. Right-of-use assets are measured at the initial amount
of the lease liability adjusted for any initial direct costs and any
prepaid lease payments, plus any costs including restoration
obligations and other factors under the lease contracts.
Right-of-use assets are depreciated on a straight-line basis over
the shorter of their estimated useful lives and lease terms. Lease
payments are apportioned between the interest expenses and the
reduction of the outstanding liability using the interest method.
Interest expenses are presented on the consolidated statement of
income separately from depreciation expenses of right-of-use assets.
The Group does not recognize right-of-use assets and lease
liabilities for short-term leases with a lease term of 12 months or
less and leases for which the underlying asset is of low-value
assets. The Group recognizes the lease payments associated with
these leases as expenses on either a straight-line basis or another
systematic basis over the lease term.
The Group has no significant leases in which it acts as the lessor.
Fiscal year ended December 31, 2018
The Group classifies a lease that transfers substantially all the
risks and rewards incidental to ownership of an asset as a finance
lease and a lease other than a finance lease as an operating lease.
In finance lease transactions, leased assets and lease payables
are initially recognized at the lower of the fair value of leased
property and the present value of the minimum lease payments,
each determined at the inception of the lease.
Leased assets are depreciated on a straight-line basis over the
shorter of their estimated useful lives and lease terms. Lease
payments are apportioned between the finance charges and the
reduction of the outstanding liability using the interest method.
Lease payments under operating leases are recognized as an
expense on a straight-line basis over the lease term.
Determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement, in
accordance with IFRIC Interpretation 4 “Determining Whether an
Arrangement Contains a Lease.”
(10) Impairment of Non-financial Assets
Non-financial assets, excluding inventories, deferred tax assets,
non-current assets classified as held for sale and assets arising
from employee benefits, are assessed at the end of each reporting
period to determine whether there is any indication of impairment.
If there is an indication of impairment, the recoverable amount of
the asset is estimated. For goodwill, the recoverable amount is
estimated at least once a year by each fiscal year end, irrespective
of whether there is any indication of impairment.
The recoverable amount of an asset or a cash-generating unit is
the higher of its value in use and fair value less cost of disposal.
The discount rate used in calculating the asset’s value in use is a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the asset, for which the
future cash flow estimates have not been adjusted.
If it is not possible to estimate the recoverable amount of an
(9) Leases
Fiscal year ended December 31, 2019
For leases in which the Group acts as the lessee, the lease liability
individual asset, the recoverable amount of the cash-generating unit
to which the asset belongs is measured. Goodwill acquired in
business combinations is allocated to each of the cash-generating
25
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
units or groups of cash-generating units of the Group that is
expected to benefit from synergies of the business combinations
after the acquisition date, and is tested for impairment.
Because corporate assets do not generate separate cash inflows,
the recoverable amount of individual corporate assets cannot be
measured unless management has decided to dispose of the
asset. If there is an indication that a corporate asset may be
impaired, the recoverable amount of the cash-generating unit or
group of cash-generating units to which the asset belongs is
measured and compared with the carrying amount.
Impairment losses are recognized in profit or loss whenever the
recoverable amount is less than the carrying amount. Such
impairment losses of the cash-generating unit or group of cash-
generating units are recognized by first reducing the carrying
amount of any goodwill allocated to the cash-generating unit or
group of cash-generating units, and then allocating the rest of the
losses to other assets of the unit pro rata on the basis of the
carrying amount of each asset in the unit.
The Group reviews assets other than goodwill at each fiscal year
end to determine whether there is any indication that previously
recognized impairment losses may no longer exist or may have
decreased. If there are any such indications, the Group estimates
the recoverable amount of the asset.
Impairment losses on assets other than goodwill that were
recognized in prior fiscal years are reversed only when there have
been changes in the estimates used to determine the recoverable
amount of the asset since the last impairment loss was recognized.
In this case, the carrying amount of the asset is increased as a
reversal of impairment loss to the recoverable amount.
Impairment losses are reversed up to the carrying amount, net of
amortization or depreciation, that would have been determined had
no impairment loss for the asset been recognized in prior fiscal years.
(11) Employee Benefits
1) Post-employment benefits
The Group sponsors a defined benefit plan and a defined
contribution plan as post-employment benefit plans for
employees.
(i) Defined benefit plan
For the defined benefit plan, the projected unit credit
method is used to individually determine the present
value of defined benefit obligations, related current
service costs and past service costs of each plan.
The discount rate is determined by referring to market
yields at the end of the fiscal year on high quality
corporate bonds corresponding to the period until the
expected date of future benefit payment.
The net amount of the present value of defined benefit
obligations and the fair value of plan assets is accounted
for as a liability or asset. However, if the defined benefit
plan has surplus, the net defined benefit asset is limited
to the present value of any economic benefits available in
the form of refunds from the plan or reductions in the
future contributions to the plan. Net interest on the net
defined benefit liability (asset) is recognized in profit or
loss as financial expenses (income).
Remeasurements of the net defined benefit liability
(asset) are recognized in other comprehensive income
and immediately reclassified to retained earnings in the
period in which they occur.
Past service costs are recognized in profit or loss for
the period in which they are incurred.
(ii) Defined contribution plan
Payments to the defined contribution plan are recognized
as expenses when employees have rendered services
entitling them to the contributions.
2) Other employee benefits
Short-term employee benefit obligations are measured on
an undiscounted basis, and are recognized as an expense
when the related services are rendered.
For bonuses, when there is a present legal or constructive
obligation to make payments of bonuses, and a reliable
estimate of the obligation can be made, the estimated
amount to be paid is accounted for as a liability.
For the paid absence expenses, when there is a legal or
constructive obligation with respect to accumulating paid
absence systems and a reliable estimate of the obligation
can be made, the estimated amount to be paid based on
those systems is accounted for as a liability.
(12) Share-based Payments
1) Stock option plan
The Company has a stock option plan accounted for as an
equity-settled share-based payment plan. Due to the
introduction of a performance share plan, the stock option plan
has been abolished except for the options already granted.
2) Performance share plan
The Company introduced a performance share plan
accounted for as an equity-settled share-based payment plan.
The performance share plan measures services received at
the fair value of the Company’s shares on the date of grant,
recognizing them as an expense from the date of grant
through the vesting period and recognizing the same amount
as an increase in capital surplus. The fair value of the
Company’s shares on the date of grant is determined by
adjusting the market price of the shares taking expected
dividends into account.
(13) Provisions
Provisions are recognized when the Group has a present
obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.
The amounts recognized as provisions are the best estimates
of necessary expenditures to settle the present obligation at the
end of the reporting period, taking into account the risks and
uncertainties associated with the obligation. When the effect of
the time value of money is material, the amount of provision is
measured at the present value of the expenditures expected to be
required to settle the obligation.
Kao Corporation Financial Report 2019
26
(14) Revenue
The Group recognizes revenue based on the following five-step
model:
Step 1: Identify the contract with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance
obligations in the contract
Deferred tax assets and liabilities are not recognized for
the following temporary differences:
• Taxable temporary differences arising from initial
recognition of goodwill
• Temporary differences arising from initial recognition of
assets and liabilities from transactions that are not
business combinations and affect neither accounting
income nor taxable income
Step 5: Recognize revenue when the entity satisfies a
• Taxable temporary differences on investments in subsidiaries
performance obligation
The Group sells consumer products including cosmetics, skin
care products, hair care products, sanitary products and fabric
care products, as well as chemical products including fatty
alcohols and surfactants. For sales of such products, because the
customer obtains control over the products upon delivery, the
performance obligation is judged to have been satisfied and
revenue is therefore recognized upon delivery of the products.
Revenue is measured at the consideration promised in a contract
with a customer, less discounts, rebates, returned products and
other items.
(15) Income Taxes
Income taxes consist of current income taxes and deferred income
taxes. Income taxes are recognized as income or expenses and
included in profit or loss, except for taxes related to business
combinations and taxes related to items that are recognized directly
in equity or in other comprehensive income.
and associates, when the timing of the reversal of the
temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the
foreseeable future
• Deductible temporary differences on investments in
subsidiaries and associates, when it is probable that the
temporary differences will not reverse in the foreseeable future
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the period when the
assets are realized or the liabilities are settled, based on the
tax rates and tax laws enacted or substantively enacted by
the end of the reporting period.
Deferred tax assets and liabilities are offset if the Group
has a legally enforceable right to set off current tax assets
against current tax liabilities and income taxes are levied by
the same taxation authority on the same taxable entity.
The Company and some of its subsidiaries have adopted
the consolidated tax system.
1) Current income taxes
Current income taxes are recognized in the amount of the
expected taxes payable to or receivable from the taxation
authorities. Calculation of the amount of tax is based on the
tax rates and tax laws enacted or substantively enacted by
the end of the reporting period in countries where the Group
conducts business and earns taxable income.
2) Deferred income taxes
Deferred tax assets and liabilities are recognized for
temporary differences between the carrying amounts of
assets or liabilities at the end of the reporting period and its
tax base, and for tax loss carryforwards and tax credits.
Deferred tax assets are recognized for deductible
temporary differences, the carryforwards of unused tax
losses and the carryforwards of unused tax credits to the
extent that it is probable that future taxable income will be
available against such deferred tax assets. Deferred tax
liabilities are recognized, in principle, for all taxable
temporary differences.
The carrying amount of deferred tax assets is reviewed
each period and reduced to the extent that it is no longer
probable that sufficient future taxable income will be
available to realize benefits from all or part of the assets.
Unrecognized deferred tax assets are reassessed each
period and are recognized to the extent that it has become
probable that future taxable income will allow the deferred
tax assets to be recovered.
(16) Earnings per Share
Basic earnings per share are calculated by dividing net income
attributable to owners of the parent by the weighted average
number of ordinary shares outstanding during the period, adjusted
for treasury shares held. Diluted earnings per share are calculated
by adjusting the effects of all dilutive potential ordinary shares.
(17) Non-current Assets Held for Sale
A non-current asset or disposal group whose carrying amount is
expected to be recovered principally through a sale transaction
rather than through continuing use is classified as a non-current
asset or disposal group held for sale if it is highly probable that the
asset or disposal group will be sold within one year and is
available for immediate sale in its present condition, and the
Group’s management is committed to a plan to sell. Non-current
assets are not depreciated or amortized while they are classified
as held for sale or are part of a disposal group classified as held
for sale. Non-current assets or disposal groups classified as held
for sale are measured at the lower of the carrying amount and fair
value less costs to sell.
(18) Equity and Other Capital
1) Ordinary shares
Ordinary shares are recognized in share capital and capital
surplus at their issue price. Share issuance costs are
deducted from the issue price.
27
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
2) Treasury shares
Treasury shares are recognized at cost and deducted from
equity. No gain or loss is recognized on the purchase, sale
or retirement of the Company’s treasury shares. Any difference
between the carrying amount and consideration received on
the sale of treasury shares is recognized directly in equity.
(19) Dividends
Dividend distributions to shareholders of the Company are
recognized as liabilities in the period in which year-end dividends
are resolved upon by the General Meeting of Shareholders and
interim dividends are resolved upon by the Board of Directors.
(20) Changes in Significant Accounting Policies
(Leases)
The Group adopted IFRS 16 “Leases” (issued in January 2016;
hereafter, “IFRS 16”) from the fiscal year ended December 31,
2019. As a transitional measure upon the adoption of IFRS 16, the
Group applies this Standard retrospectively with the cumulative
effect of initially applying this Standard recognized at the date of
initial application.
In transitioning to IFRS 16, the Group has chosen the practical
expedient detailed in IFRS 16 paragraph C3 and grandfathered its
assessments of whether contracts contain leases based on IAS
17 “Leases” (hereafter, “IAS 17”) and IFRIC 4 “Determining
whether an Arrangement contains a Lease.” From the date of
application, this assessment is determined based on the
provisions of IFRS 16.
For leases that the Group as lessee previously classified as
operating leases applying IAS 17, right-of-use assets and lease
liabilities are recognized at the date of initial application. These
lease liabilities have been measured at the present value of the
remaining lease payments discounted using the lessee’s
incremental borrowing rate at the date of initial application. The
weighted average of the lessee’s incremental borrowing rates is
1.0%. Right-of-use assets are initially measured at the initial
measurement amount of the lease liability adjusted for the
prepaid lease payments and other factors.
For leases that the Group as lessee previously classified as
finance leases applying IAS 17, the carrying amounts of right-of-use
assets and lease liabilities at the date of initial application are the
carrying amounts of lease assets and lease liabilities, respectively,
immediately before that date measured applying IAS 17.
The following is a reconciliation of non-cancellable operating
lease contracts applying IAS 17 as of December 31, 2018 and
lease liabilities recognized in the consolidated statement of
financial position at the date of initial application.
Non-cancellable operating lease contracts as of December 31, 2018 ...................................................................................
Finance lease liabilities as of December 31, 2018 .............................................................................................................
Cancellable operating lease contracts, etc. .......................................................................................................................
Lease liabilities as of January 1, 2019 ...................................................................................................................................
(Millions of yen)
25,018
2,419
139,998
167,435
Right-of-use assets recognized at the date of initial application
in the consolidated statement of financial position were 171,890
million yen.
The following practical expedients are used in the application of
IFRS 16.
• As an alternative to performing an impairment review, the
Group relies on its assessment of whether leases are onerous
applying IAS 37 “Provisions, Contingent Liabilities and
Contingent Assets” immediately before the date of initial
application.
• A single discount rate is applied to portfolios of leases with
reasonably similar characteristics.
• Initial direct costs are excluded from the measurement of
right-of-use assets at the date of initial application.
4
Significant Accounting Estimates and Judgments
The Group’s consolidated financial statements include estimates
and assumptions made by management regarding income and
expenses, measurement of the carrying amounts of assets and
liabilities, and disclosure of contingencies and others at the end of
the reporting period. These estimates and assumptions are based
on management’s best judgment at the end of the reporting
period, and take into account historical experience and various
other factors that can be considered as reasonable. However, due
to their nature, actual results may differ from these estimates and
assumptions.
The estimates and their underlying assumptions are reviewed
by management on an ongoing basis. The effects of revisions to
accounting estimates and assumptions are recognized in the
period when the estimates are revised and in future periods.
Estimates and assumptions that significantly affect the
amounts recognized in the Group’s consolidated financial
statements are as follows:
(1) Impairment of Property, Plant and Equipment, Right-of-use
assets, Goodwill and Intangible Assets
The Group conducts impairment tests for property, plant and
equipment, right-of-use assets, goodwill and intangible assets
when there is an indication that the recoverable amount of the
asset or cash-generating unit is less than the carrying amount.
Triggering events for impairment testing include, for example,
significant changes with adverse effects on past or projected
business performance, significant changes in the use of acquired
assets, or changes in overall business strategy.
Kao Corporation Financial Report 2019
28
Furthermore, goodwill is tested for impairment at least once a
year by each fiscal year end, irrespective of indication of impairment,
to verify that the recoverable amount of the cash-generating unit
to which goodwill is allocated exceeds the carrying amount.
Impairment tests are performed by comparing the carrying
amount and the recoverable amount of the asset or cash-
generating unit. If the recoverable amount is less than the carrying
amount, the carrying amount is reduced to the recoverable amount
and the reduction is recognized as an impairment loss. The
recoverable amount is the higher of the value in use and the fair
value less cost of disposal of the asset or cash-generating unit.
In calculating the value in use, the Group makes certain
assumptions about the remaining useful life and future cash flows
of the asset, discount rate, growth rate and other factors. These
assumptions are based on management’s best estimates and
judgments, but may be affected by changes in future business
plans, economic conditions or other factors. If revisions to the
assumptions become necessary, such revisions could have a
material effect on the amounts recognized in the consolidated
financial statements in future periods.
Note 12 “Goodwill and Intangible Assets” presents the method
for measuring the recoverable amount and sensitivity associated
with goodwill.
(2) Lease Term of Right-of-use Assets
The Group determines the lease term as the non-cancellable
period of the lease, together with any periods when it is
reasonably certain such lease will be extended or will not be
terminated. Specifically, the lease term is estimated in
consideration of factors including variation in rent due to
extension or termination of the lease, whether there is a penalty
for termination, and the period for recovery of investment in
improvements of important leaseholds.
Note 3 “Significant Accounting Policies (9) Leases” presents
details related to lease terms. Note 33 “Financial Instruments”
presents amounts.
(3) Post-employment Benefits
The Group provides a variety of post-retirement benefit plans that
include a defined benefit plan. The present value of defined
benefit obligations and related service costs are determined
based on actuarial assumptions.
Actuarial assumptions are based on management’s best
estimates and judgments, but may be affected by the revision of
inputs including the discount rate and mortality rate due to
changes in economic conditions. If revisions to the assumptions
become necessary, such revisions could have a material effect on
the amounts recognized in the consolidated financial statements
in future periods.
Note 18 “Employee Benefits” presents actuarial assumptions
and related sensitivity.
(4) Provisions
The Group has recognized a provision for loss related to cosmetics,
a provision for asset retirement obligations and other provisions in
the consolidated statement of financial position.
The amounts recognized are the best estimates of the
expenditures required to settle the present obligations, taking into
account historical experience and other factors at the end of the
reporting period.
The provision for loss related to cosmetics may be affected by
changes in compensation-related and other expenses.
The provision for asset retirement obligations and other
provisions may be affected by factors such as changes in future
business plans.
If the actual amounts paid differ from the estimates, such
differences could have a material effect on the amounts recognized
in the consolidated financial statements in future periods.
Note 19 “Provisions” presents the nature and amounts of these
provisions.
(5) Income Taxes
The Group recognizes and measures income tax payables and
income taxes based on reasonable estimates of the amounts to
be paid to the taxation authorities in each country. Such estimates
are made using the tax rates and tax laws enacted or
substantively enacted by the end of the reporting period.
Calculating income tax payables and income taxes requires
estimates and judgments of various factors, including
interpretations of tax regulations by the Group and the taxation
authorities and the experience of past tax audits.
Therefore, if the final tax outcome is different from the amount
initially recognized, the difference is recognized in the period
when the tax outcome is finalized.
Deferred tax assets are recognized for deductible temporary
differences, the carryforwards of unused tax losses and the
carryforwards of unused tax credits to the extent that it is
probable that future taxable income will be available. The
realizability of deferred tax assets is assessed using the tax rates
that are expected to apply to the period when the asset is
realized, based on tax rates and tax laws enacted or substantively
enacted by the end of the reporting period.
Recognition and measurement of deferred tax assets are based
on management’s best estimates and judgments, but may be
affected by future changes in business plans or other conditions,
or by the amendment or promulgation of related laws. Any
revisions that become necessary could have a material effect on
the amounts recognized in the consolidated financial statements
in future periods.
Note 14 “Income Taxes” presents income taxes and amounts.
(6) Fair Value
The Group uses various inputs, including unobservable inputs, and
valuation methodologies to estimate the fair value of specific
assets and liabilities. When measuring fair value, the Group
maximizes the use of relevant observable inputs and minimizes
the use of unobservable inputs, and management’s best
estimates and judgments are required in that process.
The fair value of these assets and liabilities is based on
management’s best estimates and judgments, but could be
affected by factors including changes in inputs due to changes in
economic conditions. Any revisions that become necessary could
29
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
have a material effect on the amounts recognized in the
consolidated financial statements in future periods.
Note 33 “Financial Instruments” presents fair value
measurement methods and amounts for major financial assets
and liabilities measured at fair value.
(7) Contingencies
Contingencies are disclosed when there are items that could have
a material effect on future business after considering the
probability of occurrence and the amount of financial impact,
taking into account all available evidence at the end of the
reporting period.
5
New Standards and Interpretations Not Yet Adopted
New or revised major Standards and Interpretations that were
issued by the date of approval presented in Note 38 “Approval of
the Consolidated Financial Statements,” but were not yet early
adopted by the Group as of December 31, 2019 are not presented
because the impacts are immaterial.
6
Segment Information
(1) Summary of Reportable Segments
The Group’s reportable segments are the components of the
Group for which discrete financial information is available and
which are regularly reviewed by the Board of Directors in deciding
how to allocate resources and in assessing their performance. Net
sales and operating income are the key measures used by the
Board of Directors to evaluate the performance of each segment.
The Group is organized on the basis of five businesses: the four
business areas that constitute the Consumer Products Business
(the Cosmetics Business, the Skin Care and Hair Care Business,
the Human Health Care Business, and the Fabric and Home Care
Business) and the Chemical Business. In each business, the
Group plans comprehensive business strategies and carries out
business activities on a global basis.
Accordingly, the Group has five reportable segments: the
Cosmetics Business, the Skin Care and Hair Care Business, the
Human Health Care Business, the Fabric and Home Care
Business and the Chemical Business.
Information about major customers has been omitted as the
revenue from each customer is less than 10% of the Group’s net
sales.
Reportable segments
Major products
Consumer
Products
Business
Cosmetics
Business
Skin Care and
Hair Care Business
Human Health Care
Business
Fabric and Home Care
Business
Cosmetics
Counseling cosmetics, self-selection cosmetics
Skin care products
Soaps, facial cleansers, body cleansers
Hair care products
Shampoos, conditioners, hair styling agents, hair coloring agents,
men’s products
Sanitary products
Sanitary napkins, baby diapers
Personal health products
Bath additives, oral care products, thermo products
Beverage products
Beverages
Fabric care products
Laundry detergents, fabric treatments
Home care products
Kitchen cleaning products, house cleaning products, paper cleaning
products, commercial-use products
Oleo chemicals
Fatty alcohols, fatty amines, fatty acids, glycerin, commercial-use
edible fats and oils
Chemical Business
Performance chemicals
Surfactants, plastics additives, superplasticizers for concrete
admixtures
Specialty chemicals
Toner and toner binder for copiers and printers, ink and colorants
for inkjet printers, fragrances and aroma chemicals
Kao Corporation Financial Report 2019
30
(2) Sales and Results of Reportable Segments
Fiscal year ended December 31, 2019
(Millions of yen)
Reportable segments
Consumer Products Business
Cosmetics
Business
Skin Care
and Hair Care
Business
Human
Health Care
Business
Fabric and
Home Care
Business
Subtotal
Chemical
Business
Total
Reconciliation1 Consolidated
Net sales
Sales to customers ............... 301,547
340,757
255,224
359,507
1,257,035 245,206
1,502,241
— 1,502,241
Intersegment sales and
transfers2 .............................
—
—
—
—
— 40,729
40,729
(40,729)
—
340,757
49,524
255,224
17,166
359,507
71,774
1,257,035 285,935
30,839
179,862
1,542,970
210,701
(40,729)
1,022
Total net sales .......................... 301,547
Operating income .....................
41,398
Financial income ...................
Financial expenses ................
Share of profit in investments
accounted for using the
equity method ......................
Income before income taxes .....
1,502,241
211,723
2,027
(5,231)
2,126
210,645
Other items
Depreciation and
amortization3 ......................
Capital expenditures4 ............
14,865
17,962
13,814
18,389
21,627
27,314
17,899
22,139
68,205
14,205
82,410
85,804
24,189
109,993
959
3,394
83,369
113,387
Notes: 1. The operating income reconciliation of 1,022 million yen includes corporate expenses not allocated to reportable segments, as well as elimination of
intersegment inventory transactions.
2. Intersegment sales and transfers are mainly calculated based on market price and manufacturing cost.
3. Note 11 “Property, Plant and Equipment,” Note 12 “Goodwill and Intangible Assets” and Note 16 “Leases” present the details of depreciation and amortization.
4. Capital expenditures include investments in property, plant and equipment, right-of-use assets and intangible assets.
Fiscal year ended December 31, 2018
(Millions of yen)
Reportable segments
Consumer Products Business
Cosmetics
Business
Skin Care
and Hair Care
Business
Human
Health Care
Business
Fabric and
Home Care
Business
Subtotal
Chemical
Business
Total
Reconciliation1 Consolidated
Net sales
Sales to customers ............... 279,635
341,419
267,702
344,105 1,232,861 275,146
1,508,007
—
1,508,007
Intersegment sales and
transfers2 .............................
—
—
—
—
— 37,661
37,661
(37,661)
—
341,419
48,827
267,702
27,907
Total net sales ........................... 279,635
Operating income .....................
27,710
Financial income ...................
Financial expenses ................
Share of profit in investments
accounted for using the
equity method ......................
Income before income taxes .....
344,105 1,232,861 312,807
30,631
175,693
71,249
1,545,668
206,324
(37,661)
1,379
1,508,007
207,703
1,717
(4,251)
2,082
207,251
Other items
Depreciation and
amortization3 ......................
Capital expenditures4 ............
10,908
11,597
9,593
17,021
17,602
19,259
10,299
18,107
48,402
12,000
65,984
23,032
60,402
89,016
260
81
60,662
89,097
Notes: 1. The operating income reconciliation of 1,379 million yen includes corporate expenses not allocated to reportable segments, as well as elimination of
intersegment inventory transactions.
2. Intersegment sales and transfers are mainly calculated based on market price and manufacturing cost.
3. Note 11 “Property, Plant and Equipment” and Note 12 “Goodwill and Intangible Assets” present the details of depreciation and amortization.
4. Capital expenditures include investments in property, plant and equipment and intangible assets.
31
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
(3) Geographical Information
Sales to customers and non-current assets (excluding financial assets, deferred tax assets and retirement benefit assets) by region
consist of the following:
Sales to Customers
Japan .........................................................................................................................................................
Asia ...........................................................................................................................................................
Americas ....................................................................................................................................................
Europe .......................................................................................................................................................
Total ...................................................................................................................................................
Note: Sales are classified by country or region based on the location of customers.
2019
947,096
293,388
137,819
123,938
1,502,241
(Millions of yen)
2018
939,463
295,714
140,637
132,193
1,508,007
Non-current Assets (excluding Financial Assets, Deferred Tax Assets and Retirement Benefit Assets)
(Millions of yen)
Japan .........................................................................................................................................................
Asia ............................................................................................................................................................
Americas ....................................................................................................................................................
Europe .......................................................................................................................................................
Total ...................................................................................................................................................
2019
597,950
104,643
98,730
39,444
840,767
2018
448,357
88,843
96,426
27,184
660,810
7
Cash and Cash Equivalents
Cash and cash equivalents consist of the following:
Cash and deposits .....................................................................................................................................
Short-term investments .............................................................................................................................
Total ...................................................................................................................................................
2019
239,781
49,900
289,681
(Millions of yen)
2018
206,078
59,900
265,978
The balance of cash and cash equivalents presented in the consolidated statement of financial position is equal to the balance of cash
and cash equivalents presented in the consolidated statement of cash flows.
8
Trade and Other Receivables
Trade and other receivables consist of the following:
Trade receivables .......................................................................................................................................
Other receivables ......................................................................................................................................
Allowance for doubtful receivables ...........................................................................................................
Total ...................................................................................................................................................
2019
204,322
6,179
(1,662)
208,839
(Millions of yen)
2018
217,594
7,073
(1,565)
223,102
Trade receivables are recognized when the Group’s products
are delivered because the Group’s right to consideration is
unconditional except for the passage of time from that point.
Moreover, the Group receives payment within a short period of
time after satisfying its performance obligation under separately
determined payment terms. Because the period from satisfaction
of the performance obligation to receipt of consideration is usually
within one year or less, as a practical expedient, the Group does
not adjust the promised amount of consideration for the effects of
a significant financing component for such receivables.
Kao Corporation Financial Report 2019
32
9
Inventories
Inventories consist of the following:
Merchandise and finished goods ...............................................................................................................
Work in progress .......................................................................................................................................
Materials and supplies ...............................................................................................................................
Total ...................................................................................................................................................
2019
155,611
12,893
31,168
199,672
(Millions of yen)
2018
146,684
14,875
36,012
197,571
The amount of inventories recognized as expenses and included in cost of sales for the fiscal years ended December 31, 2019 and 2018
were 729,425 million yen and 733,108 million yen, respectively.
Write-downs of inventories recognized as expenses for the fiscal years ended December 31, 2019 and 2018 were 6,065 million yen and
5,044 million yen, respectively.
10 Other Assets
Other assets consist of the following:
Other current assets
(Millions of yen)
2019
2018
Insurance receivable ..............................................................................................................................
Prepaid expenses ..................................................................................................................................
Other ......................................................................................................................................................
Total ...................................................................................................................................................
Other non-current assets
Insurance receivable ..............................................................................................................................
Long-term prepaid lease payments .......................................................................................................
Long-term prepaid expenses .................................................................................................................
Retirement benefit assets .....................................................................................................................
Other ......................................................................................................................................................
Total ...................................................................................................................................................
521
8,587
13,498
22,606
2,263
—
472
2,146
615
5,496
2,886
9,538
10,025
22,449
2,109
4,060
435
1,166
505
8,275
33
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
11
Property, Plant and Equipment
(1) Changes in Property, Plant and Equipment
The following tables present changes in acquisition costs, accumulated depreciation and accumulated impairment losses, and carrying
amounts of property, plant and equipment.
Acquisition Cost
Buildings
and
structures
Machinery
and
vehicles
Tools,
furniture and
fixtures
January 1, 2018 ...........................................................
426,125
729,935
119,344
Additions ..................................................................
Acquisitions through business combinations ..........
Sales and disposals ..................................................
Reclassification ........................................................
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
327
46
(6,808)
20,519
(4,207)
(231)
331
1,649
(26,497)
41,311
(8,474)
162
1,433
181
(8,457)
10,773
(1,389)
(334)
Land
73,315
2,749
—
(226)
34
(189)
0
December 31, 2018 .....................................................
435,771
738,417
121,551
75,683
(Millions of yen)
Construction
in
progress
29,896
76,545
129
—
(72,637)
Total
1,378,615
81,385
2,005
(41,988)
—
(538)
(14,797)
1,148
34,543
745
1,405,965
Changes in accounting policy1 .................................
(11,853)
(47)
(10)
(24)
—
(11,934)
January 1, 2019 (after adjustment) ..............................
423,918
738,370
121,541
75,659
Additions ..................................................................
Acquisitions through business combinations ..........
Sales and disposals ..................................................
Reclassification ........................................................
162
15
(3,878)
14,151
493
—
(18,094)
40,741
Exchange differences on translation of
foreign operations ..................................................
(751)
(509)
Other ........................................................................
December 31, 2019 .....................................................
169
433,786
310
761,311
1,084
1
(8,952)
12,285
(37)
(513)
125,409
Note: 1. It represents the financial effect from the adoption of IFRS 16 “Leases.”
Accumulated Depreciation and Accumulated Impairment Losses
Buildings
and
structures
Machinery
and
vehicles
Tools,
furniture and
fixtures
January 1, 2018 ...........................................................
295,321
585,497
Depreciation1 ............................................................
Sales and disposals ..................................................
13,739
(6,315)
28,209
(25,663)
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
(2,199)
(113)
(5,737)
132
December 31, 2018 .....................................................
300,433
582,438
Changes in accounting policy2 .................................
(9,434)
January 1, 2019 (after adjustment) ..............................
290,999
Depreciation1 ............................................................
Sales and disposals ..................................................
13,453
(3,324)
(27)
582,411
32,031
(17,265)
Exchange differences on translation of
foreign operations ..................................................
(510)
(444)
Other ........................................................................
December 31, 2019 .....................................................
135
300,753
316
597,049
91,677
11,683
(8,270)
(1,042)
(209)
93,839
(9)
93,830
12,012
(8,684)
0
(339)
96,819
—
—
(373)
4,116
109
—
79,511
Land
10,320
—
—
—
—
10,320
—
10,320
—
—
—
—
10,320
34,543
78,671
—
—
(71,293)
(159)
(7)
41,755
1,394,031
80,410
16
(31,297)
—
(1,347)
(41)
1,441,772
Construction
in
progress
—
—
—
—
—
—
—
—
—
—
—
—
—
(Millions of yen)
Total
982,815
53,631
(40,248)
(8,978)
(190)
987,030
(9,470)
977,560
57,496
(29,273)
(954)
112
1,004,941
Notes: 1. Depreciation of property, plant and equipment is included in cost of sales, selling, general and administrative expenses and other operating expenses
in the consolidated statement of income.
2. It represents the financial effect from the adoption of IFRS 16 “Leases.”
Kao Corporation Financial Report 2019
34
Carrying Amount
Buildings
and
structures
Machinery
and
vehicles
Tools,
furniture and
fixtures
January 1, 2018 ...........................................................
130,804
December 31, 2018 .....................................................
135,338
December 31, 2019 .....................................................
133,033
144,438
155,979
164,262
27,667
27,712
28,590
(Millions of yen)
Construction
in
progress
29,896
34,543
41,755
Total
395,800
418,935
436,831
Land
62,995
65,363
69,191
(2) Leased Assets
The carrying amount of leased assets from finance leases included in property, plant and equipment for the fiscal year ended December
31, 2018 is as follows:
January 1, 2018 ...........................................................
Buildings
and
structures
3,195
December 31, 2018 .....................................................
2,419
(3) Impairment Losses
The Group allocates property, plant and equipment into cash-
generating units based on the smallest identifiable group of
assets that generates cash inflows that are largely independent.
For idle assets, the Group evaluates whether to recognize
impairment losses for individual properties based on impairment
tests performed.
(Millions of yen)
Other
58
45
Total
3,253
2,464
(4) Commitments
Note 36 “Commitments” presents information on commitments
to acquire property, plant and equipment.
12 Goodwill and Intangible Assets
(1) Changes in Goodwill and Intangible Assets
The following tables present changes in acquisition costs, accumulated amortization and accumulated impairment losses, and carrying
amounts of goodwill and intangible assets.
Acquisition Cost
(Millions of yen)
Goodwill
Software
Trademarks
Intangible assets
Customer
relationships
January 1, 2018 ...........................................................
138,735
27,196
Additions ..................................................................
—
Acquisitions through business combinations ..........
42,866
Sales and disposals ..................................................
Reclassification ........................................................
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
—
—
(1,315)
—
110
5
(5,640)
7,495
(127)
281
—
—
777
—
14,778
13,115
—
—
(68)
—
—
—
(153)
—
December 31, 2018 .....................................................
180,286
29,320
14,710
13,739
Additions ..................................................................
Acquisitions through business combinations ..........
Sales and disposals ..................................................
Reclassification ........................................................
—
—
—
—
Exchange differences on translation of
foreign operations ..................................................
(579)
Other ........................................................................
December 31, 2019 .....................................................
—
179,707
76
1
(5,048)
6,990
(50)
(3)
31,286
—
—
—
—
—
—
(294)
—
(210)
—
14,500
(211)
—
13,234
Note: 1. Software in progress is included in other in intangible assets.
Other1
5,343
7,602
1,525
(143)
(7,495)
(72)
(25)
6,735
9,702
—
(1,789)
(6,990)
(34)
(75)
7,549
Total
33,316
7,712
29,423
(5,783)
—
(420)
256
64,504
9,778
1
(7,131)
—
(505)
(78)
66,569
35
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
Accumulated Amortization and Accumulated Impairment Losses
(Millions of yen)
Goodwill
Software
Trademarks
Intangible assets
Customer
relationships
January 1, 2018 ...........................................................
Amortization1 ............................................................
Sales and disposals ..................................................
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
December 31, 2018 .....................................................
Amortization1 ............................................................
Sales and disposals ..................................................
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
December 31, 2019 .....................................................
—
—
—
—
—
—
—
—
—
—
—
14,375
5,397
(5,500)
(105)
228
14,395
5,938
(5,027)
(46)
6
15,266
—
737
—
(1)
—
736
765
—
(12)
—
1,489
58
619
—
(11)
—
666
898
(294)
(14)
—
1,256
Other
2,054
278
(135)
(52)
13
2,158
430
(1,787)
(13)
—
788
Total
16,487
7,031
(5,635)
(169)
241
17,955
8,031
(7,108)
(85)
6
18,799
Note: 1. Amortization of intangible assets is included in cost of sales, selling, general and administrative expenses and other operating expenses in the
consolidated statement of income.
Carrying Amount
Goodwill
Software
Trademarks
Intangible assets
Customer
relationships
January 1, 2018 ...........................................................
138,735
December 31, 2018 .....................................................
180,286
December 31, 2019 .....................................................
179,707
12,821
14,925
16,020
—
13,974
13,011
719
13,073
11,978
(Millions of yen)
Other
3,289
4,577
6,761
Total
16,829
46,549
47,770
(2) Goodwill
The following table presents the carrying amount of goodwill
recognized in the Group’s consolidated statement of financial
position. Goodwill arising from business combinations is allocated
at the acquisition date to cash-generating units benefiting from
the business combination, and the goodwill belongs to the
Cosmetics Business, the Skin Care and Hair Care Business, the
Fabric and Home Care Business and the Chemical Business. The
goodwill primarily relates to the acquisition of the Kanebo
Cosmetics Group.
Cosmetics Business ..................................................................................................................................
Kanebo Cosmetics Group ......................................................................................................................
Molton Brown Group .............................................................................................................................
Skin Care and Hair Care Business .............................................................................................................
Oribe Hair Care and other ......................................................................................................................
Other ......................................................................................................................................................
Fabric and Home Care Business ...............................................................................................................
Chemical Business ....................................................................................................................................
Total ...................................................................................................................................................
2019
130,605
119,400
11,205
28,412
24,545
3,867
18,160
2,530
179,707
(Millions of yen)
2018
130,455
119,400
11,055
28,831
24,908
3,923
18,423
2,577
180,286
(3) Impairment Test for Goodwill
The Group tests goodwill for impairment at least once a year by
each fiscal year end or if there are indications of impairment.
The recoverable amount on the impairment test is measured
based on value in use. The majority of goodwill recognized at the
Group relates to the Kanebo Cosmetics Group.
For the goodwill associated with the Kanebo Cosmetics Group,
cash flow projections that are the basis for the value in use are
estimated using medium-term plans that reflect past year’s
performance. The key assumptions used in formulating these
estimates include sales growth rates and discount rates and the
sales growth rates are consistent with the growth rate projections
of the markets in which the cash-generating units operate.
Estimated cash flows in years beyond the medium-term plans
approved by management were calculated using an annual growth
rate of 0% and were discounted to present value using a
weighted average cost of capital (WACC) of 6.8 % for the fiscal
year ended December 31, 2019 and 8.2% for the fiscal year
Kao Corporation Financial Report 2019
36
ended December 31, 2018. For the fiscal year ended December
31, 2019 and 2018, management determined that there was a
low probability that the recoverable amounts of relevant cash-
generating units would be less than their carrying amounts even
in cases where key assumptions used in the impairment test
changed within a reasonably possible range.
(4) Intangible Assets with Indefinite Useful Lives
The intangible assets above include no material intangible assets
with indefinite useful lives.
(5) Commitments
Note 36 “Commitments” presents information on commitments
associated with the acquisition of intangible assets.
13
Investments Accounted for Using the Equity Method
Investments in associates are accounted for using the equity method in the Group’s consolidated financial statements. The carrying
amount of investments in associates that are not individually material is as follows:
Investments accounted for using the equity method ................................................................................
2019
8,287
(Millions of yen)
2018
7,931
Changes in the Group’s share of net income and other comprehensive income of associates that are not individually material are as
follows:
The Group’s share of net income ..............................................................................................................
The Group’s share of other comprehensive income .................................................................................
The Group’s share of comprehensive income ...........................................................................................
2019
2,126
(53)
2,073
(Millions of yen)
2018
2,082
(418)
1,664
14
Income Taxes
(1) Deferred Tax Assets and Liabilities
Details of major causes of occurrence and changes in deferred tax assets and liabilities consist of the following:
Fiscal year ended December 31, 2019
(Millions of yen)
January 1,
2019 (as
previously
reported)
Changes in
accounting
policy1
January 1,
2019 (after
adjustment)
Recognized in
profit or loss
Recognized
in other
comprehensive
income
Other
December 31,
2019
Deferred tax assets
Property, plant and equipment and
intangible assets ..............................
19,217
—
Lease liabilities ...................................
—
46,887
Retirement benefit liabilities ..............
Accrued expenses .............................
Unused tax losses .............................
Other ..................................................
Total deferred tax assets .......................
24,093
10,446
1,400
15,866
71,022
—
—
—
—
46,887
Deferred tax liabilities
Property, plant and equipment and
intangible assets ..............................
10,188
—
Right-of-use assets ............................
—
46,887
Financial assets ..................................
Undistributed foreign earnings ..........
Other ..................................................
Total deferred tax liabilities ....................
Deferred tax assets, net ........................
2,635
11,161
744
24,728
46,294
—
—
—
46,887
—
19,217
46,887
24,093
10,446
1,400
15,866
117,909
10,188
46,887
2,635
11,161
744
71,615
46,294
Note: 1. It represents the financial effect from the adoption of IFRS 16 “Leases.”
37
Kao Corporation Financial Report 2019
1,519
(1,137)
(2,177)
(184)
(551)
521
(2,009)
424
(1,202)
—
372
153
(253)
(1,756)
—
—
(480)
—
—
—
(480)
—
—
(18)
—
—
(18)
(462)
(21)
276
(17)
(22)
(462)
(382)
(628)
(664)
241
(101)
—
(157)
(681)
53
20,715
46,026
21,419
10,240
387
16,005
114,792
9,948
45,926
2,516
11,533
740
70,663
44,129
Notes to Consolidated Financial Statements
Fiscal year ended December 31, 2018
(Millions of yen)
January 1,
2018
Recognized in
profit or loss
Recognized
in other
comprehensive
income
Other
December 31,
2018
Deferred tax assets
Property, plant and equipment and
intangible assets ................................................
Retirement benefit liabilities ................................
Accrued expenses ...............................................
Unused tax losses ...............................................
Other ....................................................................
Total deferred tax assets .........................................
Deferred tax liabilities
Property, plant and equipment and
intangible assets ................................................
Financial assets ....................................................
Undistributed foreign earnings ............................
Other ....................................................................
Total deferred tax liabilities ......................................
Deferred tax assets, net ..........................................
18,735
16,737
11,431
2,099
13,318
62,320
7,103
3,270
10,735
729
21,837
40,483
559
589
(998)
(1,065)
2,593
1,678
776
—
426
52
1,254
424
—
7,011
—
—
—
7,011
—
121
—
—
121
6,890
(77)
(244)
13
366
(45)
13
2,309
(756)
—
(37)
1,516
(1,503)
19,217
24,093
10,446
1,400
15,866
71,022
10,188
2,635
11,161
744
24,728
46,294
Deferred tax assets and liabilities recognized in the consolidated statement of financial position are as follows:
Deferred tax assets ...................................................................................................................................
Deferred tax liabilities ................................................................................................................................
Deferred tax assets, net ............................................................................................................................
2019
47,876
3,747
44,129
Deductible temporary differences and unused tax losses for which no deferred tax asset is recognized are as follows:
Unused tax losses .......................................................................................................................................
Deductible temporary differences ...............................................................................................................
Total .........................................................................................................................................................
2019
2,687
11,879
14,566
(Millions of yen)
2018
49,158
2,864
46,294
(Millions of yen)
2018
2,664
11,981
14,645
Unused tax losses for which no deferred tax asset is recognized will expire as follows:
(Millions of yen)
2019
2018
Not later than 1 year ....................................................................................................................................
Later than 1 year and not later than 2 years ................................................................................................
Later than 2 years and not later than 3 years ..............................................................................................
Later than 3 years and not later than 4 years ..............................................................................................
Later than 4 years ........................................................................................................................................
Total .........................................................................................................................................................
343
458
288
493
1,105
2,687
210
353
472
297
1,332
2,664
The aggregate amounts of taxable temporary differences
associated with investments in subsidiaries and associates for
which deferred tax liabilities were not recognized at December
31, 2019 and 2018 were 13,648 million yen and 11,512 million
yen, respectively. The Group did not recognize deferred tax
liabilities for these temporary differences because it was able to
control the timing of the reversal of these temporary differences,
and it was probable that the temporary difference will not reverse
in the foreseeable future.
Kao Corporation Financial Report 2019
38
(2) Income Taxes
Income taxes consist of the following:
Current taxes .............................................................................................................................................
Deferred taxes1 ..........................................................................................................................................
Total .......................................................................................................................................................
2019
58,540
1,756
60,296
(Millions of yen)
2018
52,344
(424)
51,920
Note: 1. Deferred taxes include 79 million yen and 385 million yen for the fiscal years ended December 31, 2019 and 2018, respectively, due to tax rate changes.
(3) Reconciliation of Effective Tax Rate
The details of difference between the effective statutory tax rate and the Group’s average actual tax rate consist of the following:
Effective statutory tax rate ........................................................................................................................
Tax credit for experimental research costs and other ...........................................................................
Different tax rates applied to subsidiaries .............................................................................................
Reassessment of recoverability of unused tax losses and deferred tax assets ....................................
Change in tax rates ................................................................................................................................
Other ......................................................................................................................................................
Average actual tax rate ..............................................................................................................................
2019
30.62
(1.90)
(1.42)
0.69
0.04
0.59
28.62
(%)
2018
30.86
(3.80)
(1.64)
(0.30)
0.19
(0.26)
25.05
Note: The “Act for Partial Revision of the Income Tax Act, etc.” (Act No. 15 of 2016) and the “Act for Partial Revision of the Local Tax Act, etc.” (Act No. 13 of
2016) enacted in Japan on March 29, 2016 reduced the income tax rate for fiscal years beginning on or after April 1, 2016, in stages. Accordingly, the
effective statutory tax rate has changed from 30.86% to 30.62%.
15
Bonds and Borrowings and Other
Bonds and borrowings and lease liabilities consist of the following:
Short-term borrowings .......................................................................
Current portion of long-term borrowings ............................................
Long-term borrowings ........................................................................
Current portion of bonds2 ...................................................................
Bonds2 ................................................................................................
Lease liabilities (Current) ....................................................................
Lease liabilities (Non-current) .............................................................
Total ........................................................................................
Current liabilities
Bonds and borrowings ....................................................................
Lease liabilities ................................................................................
Subtotal .......................................................................................
Non-current liabilities
Bonds and borrowings ....................................................................
Lease liabilities ................................................................................
Subtotal .......................................................................................
Total ........................................................................................
2019
450
48
76,582
25,007
25,054
19,653
141,438
288,232
25,505
19,653
45,158
101,636
141,438
243,074
288,232
2018
430
40,046
30,299
12
50,040
—
—
120,827
40,488
—
40,488
80,339
—
80,339
120,827
Notes: 1. The average interest rate is the weighted average interest rate on the balance as of December 31, 2019.
2. Details of bonds issued are as follows:
(Millions of yen)
Average interest
rate1 (%)
Maturity
1.26
1.12
0.64
—
—
0.55
1.02
—
—
2021-2029
—
—
2021-2066
Issuer
Bond name
Issue date
The Company
4th unsecured bonds
June 14, 2013
The Company
5th unsecured bonds
June 19, 2018
Subsidiaries
Total ................................................................................
Other bonds
—
2019
24,995
24,958
108
50,061
2018
Interest rate (%) Collateral Maturity date
(Millions of yen)
24,985
24,947
120
50,052
0.62
0.08
—
None
None
—
June 19, 2020
June 20, 2023
—
39
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
16
Leases
Fiscal year ended December 31, 2019
As a lessee, the Group leases assets including buildings etc. Some lease contracts include extension options and termination options. The
Group has no restrictions or covenants imposed by leases.
Income and expenses relating to leases consist of the following:
Depreciation charge for right-of-use assets1
Buildings and structures ....................................................................................................................................................
Other ..................................................................................................................................................................................
Total ...............................................................................................................................................................................
Interest expense on lease liabilities2 ......................................................................................................................................
Expenses relating to short-term leases3 ................................................................................................................................
Other .....................................................................................................................................................................................
Total ................................................................................................................................................................................
(Millions of yen)
2019
16,171
1,671
17,842
1,676
1,562
907
4,145
Notes: 1. Depreciation of right-of-use assets is included in cost of sales, selling, general and administrative expenses and other operating expenses in the
consolidated statement of income.
2. Interest expense on lease liabilities is included in financial expenses in the consolidated statement of income.
3. Expenses relating to short-term leases are included in cost of sales, selling, general and administrative expenses and other operating expenses in the
consolidated statement of income.
The total cash outflow for leases for the fiscal year ended December 31, 2019 was 24,722 million yen.
Carrying amount of right-of-use assets consists of the following:
January 1, 2019
December 31, 2019
(Millions of yen)
Right-of-use assets
Buildings and structures ..........................................................................................
Other ........................................................................................................................
Total .....................................................................................................................
162,222
9,668
171,890
156,965
7,857
164,822
Note 31 “Cash Flow Information” presents additions to right-of-use assets.
Note 33 “Financial Instruments” presents lease liabilities by maturity date.
Fiscal year ended December 31, 2018
(1) Finance Lease Payables
The total of future minimum lease payments and the present value under finance lease contracts consist of the following:
Not later than 1 year ....................................................................................................
Later than 1 year and not later than 5 years ................................................................
Later than 5 years ........................................................................................................
Total .........................................................................................................................
Financial charges .........................................................................................................
Present value of minimum lease payments ............................................................
Minimum lease payments
(Millions of yen)
Present value of minimum
lease payments
2018
689
1,769
25
2,483
(64)
2,419
2018
663
1,731
25
2,419
—
2,419
(2) Non-cancellable Operating Leases
The total of future minimum lease payments under non-cancellable operating lease contracts consists of the following:
Not later than 1 year ..............................................................................................................................................................
Later than 1 year and not later than 5 years ..........................................................................................................................
Later than 5 years ..................................................................................................................................................................
Total ...................................................................................................................................................................................
(Millions of yen)
2018
8,622
15,539
6,381
30,542
Kao Corporation Financial Report 2019
40
The total of minimum lease payments under operating lease contracts recognized as expenses is as follows:
Total of minimum lease payments ........................................................................................................................................
(Millions of yen)
2018
9,829
17
Trade and Other Payables
Trade and other payables consist of the following:
Trade payables ...........................................................................................................................................
Non-trade payables ....................................................................................................................................
Total ......................................................................................................................................................
2019
144,864
77,450
222,314
(Millions of yen)
2018
145,603
79,957
225,560
18
Employee Benefits
(1) Post-employment Benefits
The Company and most of its domestic subsidiaries have a cash
balance plan as a defined benefit plan and a defined contribution
plan as post-employment benefits (The cash balance plan is linked
to market interest rates).The defined benefit obligations held in
Japan account for a large proportion of the Group’s defined
benefit obligations.
Cash balance plan benefits are determined using points
acquired during the enrollment period and a multiplier based on
the enrollment period. The Group may also pay an early
retirement bonus allowance to employees who retire earlier than
the retirement age.
In accordance with laws and regulations, the defined benefit
plan is operated as a pension fund that is legally separated from
the Group. The pension fund is managed by a Board of
Representatives composed of representatives elected by the
participating companies and the representatives of participating
employees. Pension fund management institutions manage the
pension fund’s assets in accordance with management policies
specified by the Board of Representatives. The Board of
Representatives and the pension fund management institutions
are legally required to act in the best interests of plan participants
in executing their responsibilities for managing the plan assets.
Certain foreign subsidiaries have defined benefit plans and/or
defined contribution plans as post-employment benefits.
The defined benefit plan is exposed to actuarial risk and to the
risk of fluctuation in the fair value of plan assets. Actuarial risk
primarily involves interest rate risk. Interest rate risk involves the
potential for an increase in defined benefit plan obligations if the
discount rate used to determine their present value decreases,
because this discount rate is based on market yields on
instruments including high-quality corporate bonds. The risk of
fluctuation in the fair value of plan assets involves underfunding if
actual interest rates are lower than the interest rate criteria for
managing the performance of the plan assets.
1) Defined benefit liabilities recognized in the consolidated statement of financial position
Net defined benefit liabilities and assets recognized in the consolidated statement of financial position, defined benefit obligations
and plan assets are as follows:
Present value of defined benefit obligations .............................................................................................
Fair value of plan assets ............................................................................................................................
Net defined benefit liabilities .............................................................................................................
Amounts recognized in consolidated statement of fi nancial position
Retirement benefit liabilities ..................................................................................................................
Retirement benefit assets .....................................................................................................................
Net defined benefit liabilities .............................................................................................................
2019
362,080
(283,647)
78,433
80,579
(2,146)
78,433
(Millions of yen)
2018
342,130
(258,744)
83,386
84,552
(1,166)
83,386
41
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
2) Defined benefit obligations
Changes in the present value of defined benefit obligations are as follows:
The present value of the defi ned benefi t obligations at beginning of year ................................................
Current service cost1 ..............................................................................................................................
Interest expense2 ..................................................................................................................................
Remeasurements
Actuarial (gains) losses arising from changes in demographic assumptions .....................................
Actuarial (gains) losses arising from changes in financial assumptions .............................................
Actuarial (gains) losses arising from experience adjustments ...........................................................
Past service cost and (gains) losses arising from settlements3 .............................................................
Benefits paid4 .........................................................................................................................................
Exchange differences on translation of foreign operations and other ...................................................
The present value of the defi ned benefi t obligations at end of year .........................................................
2019
342,130
9,804
2,710
2,389
17,402
365
35
(12,381)
(374)
362,080
(Millions of yen)
2018
333,614
9,376
2,569
6,755
1,376
1,748
107
(11,865)
(1,550)
342,130
Notes: 1. Current service cost is recognized in profit or loss and included in
cost of sales, selling, general and administrative expenses and other
operating expenses in the consolidated statement of income.
2. Interest expense or interest income associated with the net of the
present value of the defined benefit obligations and the fair value of
plan assets is recognized in profit or loss and included in financial
expenses or financial income in the consolidated statement of income.
3. Past service cost and (gains) losses arising from settlements are
recognized in profit or loss and included in cost of sales and general
and administrative expenses in the consolidated statement of income.
4. The weighted average duration of the defined benefit obligations in
Japan was mainly 18.0 years at December 31, 2019 and 17.4 years
at December 31, 2018.
3) Plan assets
Changes in the fair value of plan assets are as follows:
The fair value of plan assets at beginning of year .....................................................................................
Interest income ......................................................................................................................................
Remeasurements
Return on plan assets (excluding amounts included in interest income) ...........................................
Contributions to the plan by the employer1 ...........................................................................................
Payments from the plan ........................................................................................................................
Exchange differences on translation of foreign operations and other ...................................................
The fair value of plan assets at end of year ...............................................................................................
2019
258,744
1,911
19,456
14,870
(11,242)
(92)
283,647
(Millions of yen)
2018
270,144
1,927
(12,656)
10,292
(10,249)
(714)
258,744
Note: 1. Pursuant to laws and regulations, the Group and the pension fund review the financial condition of the pension plan regularly and recalculate
contributions for allocating future benefits and maintaining the balance of pension financing when the plan is underfunded. The Group plans to
contribute 15,760 million yen to the defined benefit plan for the fiscal year ending December 31, 2020.
Plan assets consist of the following:
2019
2018
Market price in an active market
Market price in an active market
(Millions of yen)
Equity securities .........................
Japan ......................................
Overseas .................................
Debt securities ...........................
Japan ......................................
Overseas .................................
Other ..........................................
Total ....................................
Quoted
11,623
—
11,623
7,863
—
7,863
334
19,820
Unquoted
57,118
28,412
28,706
195,263
130,418
64,845
11,446
263,827
Total
68,741
28,412
40,329
203,126
130,418
72,708
11,780
283,647
Quoted
8,830
—
8,830
6,640
—
6,640
352
15,822
Unquoted
43,962
21,502
22,460
188,425
126,940
61,485
10,535
242,922
Total
52,792
21,502
31,290
195,065
126,940
68,125
10,887
258,744
Note: Plan assets invested in pooled funds of trust banks are classified without quoted market prices in active markets.
Pension assets in Japan account for a large proportion of the
Group’s plan assets. The objective in managing the plan assets
is to raise total returns to the greatest extent possible in order
to ensure stable benefits and lump-sum payments for plan
participants in the future and beneficiaries with a long-term
view under acceptable risks. Specifically, the Group considers
factors including expected rate of return on investments in
appropriate assets, risks of each asset, and asset
combinations to set an asset mix policy for an appropriate
basic portfolio in future years as the basis for maintaining asset
allocation. The Group reviews the basic portfolio annually and
realigns it as necessary if the asset allocation conditions have
changed since the asset mix was set.
Kao Corporation Financial Report 2019
42
4) Significant actuarial assumptions and related sensitivity analysis
Significant actuarial assumptions are as follows:
Discount rate ............................................................................................................................................
Mainly 0.6%
Mainly 0.8%
2019
2018
Note: The above table presents the discount rate used by the Company and major domestic subsidiaries.
Sensitivity analysis of the effect of changes in the present value of the defined benefit obligations of the Company and major
domestic subsidiaries given changes in the discount rate used as a significant actuarial assumption is as follows:
(Millions of yen)
2019
2018
The impact on defined benefit obligations
0.5% increase in discount rate ...........................................................................................................
0.5% decrease in discount rate ..........................................................................................................
(27,430)
28,821
(25,292)
26,314
Note: This sensitivity analysis estimates the effect on the defined benefit obligations at the end of each reporting period from changes in the discount rate while
all of the other assumptions remain constant.
5) Defined contribution plans
Expenses related to the defined contribution plan recognized
in profit or loss were 3,820 million yen and 4,176 million yen
for the fiscal years ended December 31, 2019 and 2018,
respectively and included in cost of sales, selling, general
and administrative expenses and other operating expenses
in the consolidated statement of income.
(2) Other Employee Benefit Expenses
Other employee benefit expenses recognized in cost of sales,
selling, general and administrative expenses, and other operating
expenses in the consolidated statement of income for the fiscal
years ended December 31, 2019 and 2018 were 274,937 million
yen and 272,234 million yen, respectively.
19
Provisions
Components of and changes in provisions consist of the following:
Provision for
loss related
to cosmetics
Provision for
asset retirement
obligations
Other
provisions
January 1, 2019 ....................................................................................
8,168
4,414
Increase ............................................................................................
Interest expense on discounted provision ........................................
—
8
Decrease (provision used) ................................................................
(2,217)
Decrease (provision reversed) ..........................................................
Exchange differences on translation of
foreign operations ...........................................................................
—
—
December 31, 2019 ..............................................................................
5,959
53
57
(7)
—
(11)
4,506
2,466
755
—
(1,470)
(4)
(36)
1,711
(Millions of yen)
Total
15,048
808
65
(3,694)
(4)
(47)
12,176
(1) Provision for Loss Related to Cosmetics
The Group has recognized estimated compensation and other
expenses related to cosmetics for brightening products of Kanebo
Cosmetics containing the ingredient Rhododenol, for which a
voluntary recall was announced on July 4, 2013. The Group
expects its insurance policy to cover 1,468 million yen of the
estimated expenses.
using historical experience and other factors when the Group has a
legal or contractual obligation associated with the retirement of
property, plant and equipment and right-of-use assets held for use.
These expenditures are generally expected to take place after a
year or more, but are affected by factors including future business
plans.
(2) Provision for Asset Retirement Obligations
The Group recognizes asset retirement obligations principally
based on or pursuant to reasonably estimated future expenditures
(3) Other Provisions
Other provisions consist of estimated expenses for business
transformation at subsidiaries in Europe and the Americas and
other expenses.
43
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
20 Other Current Liabilities
Other current liabilities consist of the following:
Accrued expenses .....................................................................................................................................
Consumption tax payables ........................................................................................................................
Obligation for unused paid absences ........................................................................................................
Other .........................................................................................................................................................
Total .......................................................................................................................................................
21
Equity and Other Equity Items
(1) Share Capital
The numbers of shares authorized and issued are as follows:
2019
72,551
10,663
7,948
8,249
99,411
(Millions of yen)
2018
77,530
8,808
7,865
8,249
102,452
2019
2018
(Shares)
Authorized .................................................................................................................................................
1,000,000,000
1,000,000,000
Issued1
Beginning balance ..................................................................................................................................
488,700,000
495,000,000
Change during the year2 .........................................................................................................................
(6,700,000)
(6,300,000)
Ending balance .......................................................................................................................................
482,000,000
488,700,000
Notes: 1. All of the issued shares of the Company are ordinary shares that have no par value and no limitations on rights. Issued shares are fully paid.
2. The number of issued shares during the fiscal year ended December 31, 2019 and 2018 decreased by 6,700,000 shares and 6,300,000 shares
respectively due to the retirement of treasury shares pursuant to the resolution of the Board of Directors.
(2) Capital Surplus
Capital surplus consists of capital reserve and other capital surplus.
The Companies Act stipulates that over half of the capital contributed from the issue of shares must be included in share capital and
that the remainder must be included in capital reserve. Moreover, capital reserve may be included in share capital by resolution of the
General Meeting of Shareholders.
(3) Treasury Shares
The changes in treasury shares are as follows:
Beginning balance1 ....................................................................................................................................
Increase2 ................................................................................................................................................
2019
2,043,272
5,786,409
(Shares)
2018
2,225,561
6,237,461
Decrease3 ...............................................................................................................................................
(6,746,215)
(6,419,750)
Ending balance4 .........................................................................................................................................
1,083,466
2,043,272
Notes: 1. 556,492 shares of treasury shares held by associates were included at December 31, 2019 and 2018.
In addition, 242,675 shares and 257,300 shares held by the Board Incentive Plan Trust (hereinafter “BIP Trust”) were included at December 31,
2019 and 2018, respectively.
2. The increase of 5,786,409 shares of treasury shares during the fiscal year ended December 31, 2019 resulted from the acquisition of 5,782,400
shares by resolution of the Board of Directors and the purchase of 4,009 fractional shares.
The increase of 6,237,461 shares of treasury shares during the fiscal year ended December 31, 2018 resulted from the acquisition of 6,233,200
shares by resolution of the Board of Directors and the purchase of 4,261 fractional shares.
3. The decrease of 6,746,215 shares of treasury shares during the fiscal year ended December 31, 2019 resulted from the retirement of 6,700,000
shares by resolution of the Board of Directors, a decrease of 30,000 shares due to the exercise of stock options, a decrease of 16,125 shares due to
the grant to the Board of Directors by the BIP trust and the sale of 90 fractional shares.
The decrease of 6,419,750 shares of treasury shares during the fiscal year ended December 31, 2018 resulted from the retirement of 6,300,000
shares by resolution of the Board of Directors, a decrease of 105,000 shares due to the exercise of stock options, a decrease of 14,625 shares due to
the grant to the Board of Directors by the BIP trust and the sale of 125 fractional shares.
4. 556,492 shares of treasury shares held by associates were included at December 31, 2019 and 2018.
In addition, 226,550 shares and 242,675 shares held by the BIP Trust were included at December 31, 2019 and 2018, respectively.
Kao Corporation Financial Report 2019
44
(4) Other Components of Equity
1) Subscription rights to shares
The Company employs a stock option system and issues
subscription rights to shares in accordance with the
Companies Act; however, due to the introduction of a
performance share plan, the stock option plan has been
abolished except for the options already granted.
Note 32 “Share-based Payments” presents information
including terms and conditions and amounts.
2) Exchange differences on translation of foreign
operations
Foreign currency translation differences arise from the
translation of financial statements of foreign operations
prepared in foreign currencies.
3) Net gain (loss) on derivatives designated as cash flow
hedges
Associates hedge their exposure to the risk of variability in
future cash flows. Net gain (loss) on derivatives designated
as cash flow hedges is the portion of the change in the fair
value of the hedging instrument that meets the hedge
effectiveness requirements under hedge accounting.
4) Net gain (loss) on revaluation of financial assets measured
at fair value through other comprehensive income
This is the accumulated amount of changes in the fair value
of financial assets measured at fair value through other
comprehensive income. The Group reclassifies net gain (loss)
on revaluation of financial assets from other components of
equity to retained earnings when it disposes of an investment
or when fair value declines significantly.
5) Remeasurements of defined benefit plans
Remeasurements of defined benefit plans include the effect
of any variances between actuarial assumptions at the
beginning of the year and actual results, the effects of
changes in actuarial assumptions, actual return on plan assets
and interest income on plan assets (excluding amounts
included in net interest on the net defined benefit liability
(asset)), and any change in the effect of the asset ceiling
(excluding amounts included in net interest on the net
defined benefit liability (asset)). Remeasurements of defined
benefit plans are recognized in other comprehensive income
and immediately reclassified from other components of
equity to retained earnings in the period when they occur.
(5) Retained Earnings
Retained earnings consist of legal reserve and other retained
earnings.
The Companies Act requires that an amount equal to one-tenth
of dividends must be appropriated as capital reserve or as legal
reserve until the total of the aggregate amount of capital reserve
and legal reserve equals a quarter of share capital. Legal reserve
may be appropriated to reduce a deficit, and also may be reversed
by resolution of the General Meeting of Shareholders.
22
Basic Strategy for Capital Policy
The Group’s capital policy follows a basic strategy of securing a
sound financial structure to make investments for sustainable
growth and tolerate the related risks, and to make stable,
continuous returns to shareholders. To realize this policy, the
Group uses Economic Value Added (hereinafter “EVA®1”), a
management indicator that takes capital cost into account, as its
main indicator and works to enhance its corporate value by
improving EVA. Guided by EVA management, which places
importance on both continuous enhancements in corporate value
and long-term profits for all stakeholders, the Group develops its
business strategy and business plan.
The Group manages all equity and interest-bearing liabilities as
capital cost and intends to optimize capital cost from the
viewpoint of safety and capital efficiency. For equity, the Group
aims for a streamlined and sound structure from a medium- to
long-term perspective with efficiency in mind and, while
maintaining interest-bearing liabilities at a moderate level, aims to
maintain high credit ratings which will allow it to procure capital
for large-scale investments. The Group is not subject to significant
capital regulations except for general requirements under the
Companies Act and others.
Although the Group emphasizes shareholder returns, it realizes
that investments for growth will meet the expectations of its
stakeholders, and therefore prioritizes such investments. In
addition to providing stable dividends, the Group aims to
continuously increase dividends to reflect improvements in
business results. The Group also uses surplus funds to flexibly
conduct share repurchases.
In addition to making returns to shareholders, the Group retains
the capital necessary to conduct investments for growth in a
timely fashion and to ensure the appropriate resources to deal
with situations that exceed assumptions while improving EVA.
For the fiscal year ended December 31, 2019, EVA decreased
6.1 billion yen compared with the previous fiscal year to 87.4
billion yen due to a decrease in net operating profit after tax
(hereinafter “NOPAT”).
Note: 1. EVA is a monetary metric defined as NOPAT less capital cost. EVA is a registered trademark of Stern Stewart & Co.
45
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
23 Dividends
Dividends paid are as follows:
Fiscal year ended December 31, 2019
Date of resolution
113th Annual General Meeting
of Shareholders held on
March 26, 2019
Board of Directors meeting held
on July 31, 2019
Total dividends¹
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
29,199
31,259
60
65
December 31, 2018
March 27, 2019
June 30, 2019
September 2, 2019
Note: 1. Total dividends are reduced by dividends on treasury shares held by associates accounted for using the equity method and dividends on shares of the
Company held by the BIP Trust.
The dividend resolved at the 113th Annual General Meeting of Shareholders held on March 26, 2019 was 29,247 million yen before the deduction.
The dividend resolved at the meeting of the Board of Directors held on July 31, 2019 was 31,310 million yen before the deduction.
Fiscal year ended December 31, 2018
Date of resolution
112th Annual General Meeting
of Shareholders held on
March 23, 2018
Board of Directors meeting held on
July 26, 2018
Total dividends¹
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
27,595
29,197
56
60
December 31, 2017
March 26, 2018
June 30, 2018
September 3, 2018
Note: 1. Total dividends are reduced by dividends on treasury shares held by associates accounted for using the equity method and dividends on shares of the
Company held by the BIP Trust.
The dividend resolved at the 112th Annual General Meeting of Shareholders held on March 23, 2018 was 27,641 million yen before the deduction.
The dividend resolved at the meeting of the Board of Directors held on July 26, 2018 was 29,245 million yen before the deduction.
Dividends with an effective date after the fiscal year end are as follows:
Fiscal year ended December 31, 2019
Date of Resolution
114th Annual General Meeting
of Shareholders held on
March 25, 2020
Fiscal year ended December 31, 2018
Date of Resolution
113th Annual General Meeting
of Shareholders held on
March 26, 2019
Total dividends
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
31,310
65
December 31, 2019
March 26, 2020
Total dividends
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
29,247
60
December 31, 2018
March 27, 2019
24
Revenue
(1) Disaggregation of Revenue
The Group is organized on the basis of five businesses: the four
business areas that constitute the Consumer Products Business
(the Cosmetics Business, the Skin Care and Hair Care Business,
the Human Health Care Business, and the Fabric and Home Care
Business), and the Chemical Business. Revenues of these five
businesses are presented as net sales. The Board of Directors of
the Company reviews them regularly to determine allocation of
resources and to assess their performance. Revenue of logistics
services to third parties is included in other operating income
because it is not a part of the abovementioned five main businesses.
The Group disaggregates revenue from contracts with customers
by separating the Consumer Products Business into the Cosmetics
Business and non-Cosmetics Businesses based on contracts with
customers, with the Chemical Business as a separate division.
Revenue by geographic region is disaggregated based on the
location of revenue recognized. The relationship between
disaggregated revenue and net sales by segment is as follows:
Kao Corporation Financial Report 2019
46
Fiscal year ended December 31, 2019
Cosmetics Business
Skin Care and Hair Care Business
Human Health Care Business
Fabric and Home Care Business
Consumer Products Business
Chemical Business
Elimination of intersegment transactions
Consolidated
Revenue of logistics services to third parties
included in other operating income
Japan
232,132
199,541
160,312
307,658
899,643
123,422
(35,911)
987,154
Asia
42,725
28,485
94,793
40,347
206,350
57,349
(2,851)
260,848
Americas
6,047
71,430
113
11,245
88,835
46,076
(60)
Europe
20,643
41,301
6
257
62,207
59,088
(1,907)
(Millions of yen)
Total
301,547
340,757
255,224
359,507
1,257,035
285,935
(40,729)
134,851
119,388
1,502,241
8,973
—
—
—
8,973
Total revenue from contracts with customers
996,127
260,848
134,851
119,388
1,511,214
Note: Figures for the Consumer Products Business present sales to external customers and figures for the Chemical Business include sales to the Consumer
Products Business in addition to external customers.
Fiscal year ended December 31, 2018
Cosmetics Business
Skin Care and Hair Care Business
Human Health Care Business
Fabric and Home Care Business
Consumer Products Business
Chemical Business
Elimination of intersegment transactions
Consolidated
Revenue of logistics services to third parties
included in other operating income
Japan
217,726
195,821
171,633
298,712
883,892
126,550
(32,864)
977,578
Asia
34,667
28,513
95,971
39,558
198,709
67,480
(3,088)
263,101
Americas
6,397
72,804
98
5,723
85,022
51,846
(87)
Europe
20,845
44,281
—
112
65,238
66,931
(1,622)
(Millions of yen)
Total
279,635
341,419
267,702
344,105
1,232,861
312,807
(37,661)
136,781
130,547
1,508,007
8,548
—
—
—
8,548
Total revenue from contracts with customers
986,126
263,101
136,781
130,547
1,516,555
Note: Figures for the Consumer Products Business present sales to external customers and figures for the Chemical Business include sales to the Consumer
Products Business in addition to external customers.
1) Consumer Products Business
The Consumer Products Business sells consumer products
including cosmetics, skin care products, hair care products,
sanitary products and fabric care products. Its customers are
mainly retailers in Japan and retailers and wholesalers outside
Japan. Revenue from such sales is recognized when control
of a product is transferred to a customer, i.e., at the point in
time a product is delivered and handed over at the place
designated by a customer because legal title to the product,
physical possession and the significant risks and rewards of
ownership of the product are transferred to the customer and
the customer has the right to decide the method of sale and
selling price of the product.
In the Consumer Products Business, products may be sold
with a rebate conditional upon achievement of certain targets
such as the quantity or amount of sales (hereinafter
“Achievement Rebate”) or other payments. In such cases,
the transaction price is determined in an amount deducting
the estimated amount of the Achievement Rebate or other
payments from the consideration promised in the contract
with the customer. Estimates of Achievement Rebate or
other payment amounts use the most likely outcome method
based on historical experience and other factors, and revenue
is recognized only to the extent that it is highly probable that
a significant reversal will not occur.
In addition, in the event that the Group makes payments to
customers such as funding for sales promotions, if the
consideration paid to customers is payment for separate
goods or services from the customer and fair value cannot be
reasonably estimated, revenue is measured by deducting the
consideration from the transaction price.
Among the products in the Consumer Products Business,
cosmetics are composed of counseling cosmetics and self-
selection cosmetics. The Group may provide support to
customers when they sell counseling cosmetics through
counseling to final consumers.
In addition, when selling cosmetics, a certain level of
product returns from customers associated with the
termination of products is expected to occur. Because the
Group has an obligation to refund the consideration for a
47
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
product if a customer returns it, the Group recognizes a
liability for sales returns as a deduction from revenue for
projected refunds to customers. To estimate liabilities related
to such sales returns, the Group uses the most likely
outcome method based on historical experience and other
factors, and revenue is recognized only to the extent that it is
highly probable that a significant reversal will not occur. When
customers return products, the Group has the right to collect
the products from the customers, but because returned
goods are primarily the result of a product termination, the
products returned have no asset value and therefore such
assets are not recognized.
2) Chemical Business
The Chemical Business sells chemical products such as fatty
alcohols and surfactants. Its customers are mainly the users
and distributors of the products. Revenue from such sales is
recognized when control of a product is transferred to a
customer, i.e., at the point in time a product is delivered and
handed over at the place designated by a customer because
legal title to the product, physical possession and the
significant risks and rewards of ownership of the product are
transferred to the customer and the customer has the right to
decide the method of sale and selling price of the product.
Revenue from sales of products in the Chemical Business is
measured at transaction prices for contracts with customers.
(2) Liabilities from Contracts with Customers
Liabilities from contracts with customers are as follows:
Fiscal year ended December 31, 2019
Contract liabilities
January 1, 2019
December 31, 2019
(Millions of yen)
Advances ...........................................................................................................................
Refund liabilities .................................................................................................................
Total ...............................................................................................................................
181
18,206
18,387
384
20,232
20,616
Fiscal year ended December 31, 2018
Contract liabilities
January 1, 2018
December 31, 2018
(Millions of yen)
Advances ...........................................................................................................................
Refund liabilities .................................................................................................................
Total ...............................................................................................................................
392
16,904
17,296
181
18,206
18,387
Among liabilities from contracts with customers, estimates of
Achievement Rebates or other payment amounts expected to be
paid to customers related to sales by the end of the reporting period
and liabilities for returned products are recognized as refund liabilities.
The balances of advances as of January 1, 2019 and 2018 were
recognized as revenue during the fiscal years ended December 31,
2019 and 2018, respectively. The amount of revenue recognized
during the fiscal year ended December 31, 2019 from performance
obligations satisfied in previous periods was not material.
(4) Assets Recognized from the Costs of Obtaining or Fulfilling
Contracts with Customers
The amount of assets recognized from the costs of obtaining or
fulfilling contracts with customers during the fiscal year ended
December 31, 2019 was not material. In addition, if the
amortization period of the assets that the Group otherwise would
have recognized is one year or less, the Group uses the practical
expedient of recognizing the incremental costs of obtaining the
contract as an expense when incurred.
(3) Transaction Price Allocated to the Remaining Performance
Obligations
The Group uses the practical expedient of omitting the disclosure
of information on the remaining performance obligations because it
has no significant transactions with individual expected contractual
terms exceeding one year. In addition, there are no significant
amounts in consideration from contracts with customers that are
not included in transaction prices.
Kao Corporation Financial Report 2019
48
25
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the following:
Advertising .................................................................................................................................................
Sales promotion .........................................................................................................................................
2019
77,545
56,943
(Millions of yen)
2018
80,274
55,308
Employee benefi ts .....................................................................................................................................
148,431
148,220
Depreciation ..............................................................................................................................................
Amortization ..............................................................................................................................................
Research and development .......................................................................................................................
Other .........................................................................................................................................................
18,775
7,950
59,143
74,125
9,186
6,860
57,673
87,324
Total .......................................................................................................................................................
442,912
444,845
As a transitional measure upon the adoption of IFRS 16, the Group applies this Standard retrospectively with the cumulative effect of initially
applying this Standard recognized at the date of initial application and thus has not restated the amounts for the comparative period. As a
result, the expenses of 9,581 million yen previously included in other are accounted for as depreciation.
26 Other Operating Income
Other operating income consists of the following:
Revenue of logistics services to third parties ............................................................................................
Royalty income ..........................................................................................................................................
Other .........................................................................................................................................................
2019
8,973
1,244
4,975
Total .......................................................................................................................................................
15,192
(Millions of yen)
2018
8,548
1,039
4,701
14,288
27 Other Operating Expenses
Other operating expenses consist of the following:
Expenses of logistics services to third parties ..........................................................................................
Losses on sale and disposal of property, plant and equipment .................................................................
Expenses for business transformation at subsidiaries in Europe and the Americas .................................
Other .........................................................................................................................................................
2019
8,293
3,600
752
1,430
(Millions of yen)
2018
7,667
4,769
1,516
1,806
Total .......................................................................................................................................................
14,075
15,758
49
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
28
Financial Income and Financial Expenses
Financial income consists of the following:
(Millions of yen)
2019
2018
Interest income
Financial assets measured at amortized cost ........................................................................................
Retirement benefi t assets .....................................................................................................................
1,707
28
1,320
30
Dividend income
Financial assets measured at fair value through other comprehensive income
Financial assets derecognized during the year ..................................................................................
Financial assets held at year end .......................................................................................................
Financial assets measured at fair value through profi t or loss ...............................................................
Other .........................................................................................................................................................
8
162
7
115
78
171
8
110
Total ...............................................................................................................................................
2,027
1,717
Financial expenses consist of the following:
Foreign exchange loss1 ..............................................................................................................................
Interest expenses2
Financial liabilities measured at amortized cost .....................................................................................
Lease liabilities .......................................................................................................................................
Retirement benefi t liabilities ..................................................................................................................
Other .........................................................................................................................................................
Total ...............................................................................................................................................
2019
1,521
1,164
1,676
827
43
5,231
(Millions of yen)
2018
2,304
1,256
—
672
19
4,251
Notes: 1. Valuation gains or losses on currency derivatives that are not designated as hedges are included in foreign exchange loss.
2. Valuation gains or losses on interest rate derivatives that are not designated as hedges are included in interest expenses.
29
Earnings per Share
(1) The Basis for Calculating Basic Earnings per Share
Net income attributable to owners of the parent ......................................................................................
148,213
Amounts not attributable to ordinary shareholders of the parent ..............................................................
—
2019
2018
153,698
—
Net income used to calculate basic earnings per share ............................................................................
148,213
153,698
(Millions of yen, unless otherwise noted)
Weighted average number of ordinary shares (Thousands of shares) ......................................................
483,252
489,089
Basic earnings per share (Yen) ..................................................................................................................
306.70
314.25
Kao Corporation Financial Report 2019
50
(2) The Basis for Calculating Diluted Earnings per Share
Net income used to calculate basic earnings per share ............................................................................
148,213
Adjustments to net income .......................................................................................................................
—
2019
2018
153,698
—
Net income used to calculate diluted earnings per share ..........................................................................
148,213
153,698
(Millions of yen, unless otherwise noted)
Weighted average number of ordinary shares (Thousands of shares) ......................................................
483,252
489,089
Increase in ordinary shares
Subscription rights to shares (Thousands of shares) .............................................................................
104
Weighted average number of ordinary shares after dilution (Thousands of shares) .................................
483,356
199
489,289
Diluted earnings per share (Yen) ...............................................................................................................
306.63
314.12
Summary of potential ordinary shares not included in the calculation of diluted earnings per share
because they have no dilutive effect .....................................................................................................
—
—
30 Other Comprehensive Income
Amount arising during the fiscal year, reclassification adjustments to profit or loss and tax effects for each component of other
comprehensive income are as follows:
Fiscal year ended December 31, 2019
Gains (losses)
arising for the year
Reclassification
adjustments
Before tax
effect
Tax effect
(Millions of yen)
After tax
effect
Items that will not be reclassifi ed to profi t or loss
Net gain (loss) on revaluation of fi nancial assets measured
at fair value through other comprehensive income .........
Remeasurements of defi ned benefi t plans .......................
Share of other comprehensive income of investments
accounted for using the equity method ...........................
Total of items that will not be reclassifi ed to profi t or loss ..
(24)
(700)
(24)
(748)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations ...
(2,723)
Share of other comprehensive income of investments
accounted for using the equity method ...........................
Total of items that may be reclassifi ed subsequently
to profi t or loss .............................................................
(36)
(2,759)
—
—
—
—
234
—
234
(24)
(700)
(24)
(748)
(2,489)
(36)
(2,525)
18
(480)
7
(455)
—
(0)
(0)
(6)
(1,180)
(17)
(1,203)
(2,489)
(36)
(2,525)
Total ...........................................................................
(3,507)
234
(3,273)
(455)
(3,728)
51
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
Fiscal year ended December 31, 2018
Gains (losses)
arising for the year
Reclassification
adjustments
Before tax
effect
Tax effect
(Millions of yen)
After tax
effect
Items that will not be reclassifi ed to profi t or loss
Net gain (loss) on revaluation of fi nancial assets measured
at fair value through other comprehensive income .........
119
Remeasurements of defi ned benefi t plans .......................
(22,535)
Share of other comprehensive income of investments
accounted for using the equity method ...........................
(497)
Total of items that will not be reclassifi ed to profi t or loss ..
(22,913)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations ...
(16,140)
Share of other comprehensive income of investments
accounted for using the equity method ...........................
Total of items that may be reclassifi ed subsequently
to profi t or loss .............................................................
(75)
(16,215)
Total ...........................................................................
(39,128)
—
—
—
—
—
—
—
—
119
(22,535)
(497)
(22,913)
(16,140)
(75)
(16,215)
(121)
7,011
152
7,042
—
2
2
(2)
(15,524)
(345)
(15,871)
(16,140)
(73)
(16,213)
(39,128)
7,044
(32,084)
31
Cash Flow Information
(1) Changes in Liabilities Arising from Financing Activities
The following table presents the major changes in liabilities arising from financing activities for lease liabilities.
Fiscal year ended December 31, 2019
January 1,
2019 (as
previously
reported)
Changes in
accounting
policy1
January 1,
2019 (after
adjustment)
Changes
from
financing
cash flows
New leases
Other
December
31, 2019
Non-cash changes
(Millions of yen)
Lease liabilities ......................................
—
167,435
167,435
(20,565)
22,804
(8,583)
161,091
Note: 1. It represents the financial effect from the adoption of IFRS 16 “Leases.”
Except for lease liabilities, the major changes in liabilities arising from financing activities were changes from financing cash flows and
there were no significant non-cash changes for the fiscal year ended December 31, 2019.
The major changes in liabilities arising from financing activities were changes from financing cash flows and there are no significant
non-cash changes for the fiscal year ended December 31, 2018.
(2) Non-cash Transactions
The major non-cash transactions comprised the acquisition of right-of-use assets resulted from leases of 23,199 million yen for the fiscal
year ended December 31, 2019.
Kao Corporation Financial Report 2019
52
32
Share-based Payments
(1) Stock Options
1) Outline of stock options
The Company issued the following type of stock option to
directors and executive officers of the Company. Due to the
introduction of a performance share plan, the stock option plan
has been abolished except for the options already granted.
Stock options for share-based payment
Stock options for share-based payment were granted as
compensation for directors and executive officers who do
not concurrently serve as directors. These stock options
2) Number of stock options and weighted average exercise price
were intended to motivate and inspire recipients to enhance
the Company’s results and value of shares and to further
enhance corporate value by aligning the interests of
recipients with those of shareholders by further increasing
the linkage among the compensation of recipients, the
Company’s results and value of shares.
• Vesting conditions: Set on date of grant
• Settlement: Shares settled
• Exercise period: Five years from July 1 of two years
after the date the stock options were granted
2019
2018
Number of
shares
Weighted average
exercise price
Number of
shares
Weighted average
exercise price
Beginning balance of outstanding .................................
Granted ......................................................................
(Shares)
125,000
—
Exercised ...................................................................
(30,000)
Expired at maturity .....................................................
Ending balance of outstanding ......................................
Ending balance of exercisable .......................................
—
95,000
95,000
(Yen)
1
—
1
—
1
1
(Shares)
313,000
—
(105,000)
(83,000)
125,000
125,000
(Yen)
973
—
1,117
2,254
1
1
Notes: 1. The weighted average share price on the date of exercise for the fiscal years ended December 31, 2019 and 2018 was 8,118 yen and 7,877
yen, respectively.
2. The exercise price and the weighted average remaining contractual life for stock options outstanding at the end of the period are as follows:
Exercise price
(Yen)
1
2019
Number of
shares
(Shares)
95,000
Weighted average
remaining contractual life
Exercise price
(Years)
2.2
(Yen)
1
2018
Number of
shares
(Shares)
125,000
Weighted average
remaining contractual life
(Years)
2.8
(2) Performance Share Plan
1) Outline of performance share plan
The Company introduced a performance share plan
(hereinafter the “Plan”) for the members of the Board of
Directors (excluding Outside Directors) and Executive
Officers (collectively, “Directors, etc.”) as a highly
transparent and objective compensation system that is
closely linked to company performance. The purpose of the
Plan is to improve the Company’s mid- and long-term
performance as well as increase the awareness of
contributions to increasing corporate value.
The Company has introduced the Plan using a structure
called a BIP Trust. A BIP Trust is designed as an executive
incentive plan based on the performance share plans and
restricted stock plans in the U.S. wherein the Company’s
shares that are acquired through the BIP Trust and the
amount equivalent to the converted value of such shares will
be vested or paid to Directors, etc. depending on their
executive positions and level of achievement of performance
targets in the mid-term plan and other factors. The shares
held by the BIP Trust are accounted for as treasury shares.
The Plan grants specified points (1 point = 1 share) to
Directors, etc. each year depending on their executive
positions and other factors on the condition that the
requirements of a designated beneficiary, such as holding
the office of Director, etc. on the last day of each fiscal year
during the eligibility period, have been satisfied. The
Company’s shares and cash in the amount of the converted
value of such Company’s shares equivalent to the number of
such points may be granted or paid following completion of
settlement procedures by the designated beneficiary, after
the end of the eligibility period in the case of performance-
linked points, or for a specified period each year during the
eligibility period in the case of fixed points.
The Plan is accounted for as an equity-settled share-based
payment transaction.
53
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
2) Number of points granted during the period and weighted average fair value of points
The fair value of the points on the date of grant is determined by adjusting the market price of the Company’s shares taking expected
dividends into account.
The number of points granted during the period and the weighted average fair value of the points are as follows:
Number of points granted during the period ..............
Weighted average fair value (Yen) ..............................
35,000
6,821
2019
Achievement-linked
points
Fixed points
15,000
6,551
2018
Achievement-linked
points
37,625
6,821
Fixed points
16,125
6,659
(3) Share-based Payment Expenses
Share-based payment expenses recognized in the consolidated statement of income for the fiscal years ended December 31, 2019 and
2018 were 337 million yen and 364 million yen, respectively.
33
Financial Instruments
(1) Classification of Financial Instruments
The amounts of each classification of financial assets are as follows:
Financial assets measured at amortized cost
Financial assets
(Millions of yen)
2019
2018
Cash and cash equivalents (Note 7) .......................................................................................................
Trade and other receivables (Note 8) .....................................................................................................
Other ......................................................................................................................................................
Financial assets measured at fair value through profit or loss
Cash and cash equivalents (Note 7) .......................................................................................................
Derivatives .............................................................................................................................................
Other ......................................................................................................................................................
Financial assets measured at fair value through other comprehensive income
Equity securities ....................................................................................................................................
Total ...............................................................................................................................................
Current assets
Cash and cash equivalents ....................................................................................................................
Trade and other receivables ...................................................................................................................
Other fi nancial assets ............................................................................................................................
Subtotal ..............................................................................................................................................
Non-current assets
Other fi nancial assets ............................................................................................................................
Total ...............................................................................................................................................
269,781
208,839
25,893
19,900
214
3,063
10,722
538,412
289,681
208,839
13,788
512,308
26,104
538,412
236,078
223,102
23,495
29,900
1,068
2,983
11,140
527,766
265,978
223,102
15,146
504,226
23,540
527,766
Kao Corporation Financial Report 2019
54
Equity securities held by the Group are mainly issued by the entities that maintain business relationships with the Group and held for
the long-term without speculative purposes. The Group has designated such equity securities as financial assets measured at fair value
through other comprehensive income. Names of major equity securities and their fair values are as follows:
As of December 31, 2019
Company name
(Millions of yen)
Fair value
Seven & i Holdings Co., Ltd. .....................................................................................................................
Saiwai Trading Co., Ltd. ............................................................................................................................
Livedo Corporation ...................................................................................................................................
Aeon Co., Ltd. ...........................................................................................................................................
Tokio Marine Holdings, Inc. ......................................................................................................................
Japan Alcohol Trading Co., Ltd. ................................................................................................................
Keytrading Co., Ltd. ..................................................................................................................................
Izumi Co., Ltd. ..........................................................................................................................................
Kawaken Fine Chemicals Co., Ltd. ...........................................................................................................
Kyoto Seisakusho Co., Ltd. .......................................................................................................................
2,360
1,308
1,201
952
910
700
414
394
245
205
As of December 31, 2018
Company name
(Millions of yen)
Fair value
Seven & i Holdings Co., Ltd. .....................................................................................................................
Saiwai Trading Co., Ltd. ............................................................................................................................
Livedo Corporation ....................................................................................................................................
Aeon Co., Ltd. ...........................................................................................................................................
Tokio Marine Holdings, Inc. ......................................................................................................................
Japan Alcohol Trading Co., Ltd. ................................................................................................................
Izumi Co., Ltd. ..........................................................................................................................................
Keytrading Co., Ltd. ..................................................................................................................................
The Yamagata Bank, Ltd. ..........................................................................................................................
Inageya Co., Ltd. .......................................................................................................................................
3,076
1,191
1,122
905
889
622
511
389
237
225
The Group derecognizes some financial assets measured at fair value through other comprehensive income by sale for reasons
including asset efficiency and changes in business relationships. The total amounts of the fair values of such financial assets at the time
of sale and the cumulative gains or losses on sales are as follows:
Fair value ...................................................................................................................................................
Cumulative gains (losses) ..........................................................................................................................
2019
400
328
(Millions of yen)
2018
3,077
2,451
The Group transfers to retained earnings the cumulative gains or losses arising from changes in the fair value of financial assets
measured at fair value through other comprehensive income recognized as other components of equity when it disposes of an
investment or when fair value declines significantly. Cumulative gains or losses of other comprehensive income, net of taxes, that were
transferred to retained earnings for the fiscal years ended December 31, 2019 and 2018, were 227 million yen and 1,694 million yen,
respectively.
55
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
The amounts of each classification of financial liabilities are as follows:
Financial liabilities measured at amortized cost
Financial liabilities
(Millions of yen)
2019
2018
Trade and other payables (Note 17) .......................................................................................................
Bonds and borrowings (Note 15) ...........................................................................................................
Lease liabilities (Note 16) .......................................................................................................................
Other ......................................................................................................................................................
222,314
127,141
161,091
13,898
Financial liabilities measured at fair value through profi t or loss
Derivatives .............................................................................................................................................
395
Total ...............................................................................................................................................
524,839
Current liabilities
Trade and other payables .......................................................................................................................
222,314
Bonds and borrowings ...........................................................................................................................
Lease liabilities .......................................................................................................................................
Other fi nancial liabilities .........................................................................................................................
25,505
19,653
6,766
225,560
120,827
—
16,178
208
362,773
225,560
40,488
—
6,880
Subtotal ..............................................................................................................................................
274,238
272,928
Non-current liabilities
Bonds and borrowings ...........................................................................................................................
Lease liabilities .......................................................................................................................................
Other fi nancial liabilities .........................................................................................................................
Subtotal ..............................................................................................................................................
Total ...............................................................................................................................................
101,636
141,438
7,527
250,601
524,839
80,339
—
9,506
89,845
362,773
There are no significant assets pledged for the above financial liabilities. The Group held deposits received, which are interest-bearing
liabilities in other financial liabilities, at December 31, 2019 and 2018 totaling 12,790 million yen and 12,380 million yen, respectively.
The average interest rate on deposits received as of December 31, 2019 was 0.13 %.
(2) Risk Management on Financial Instruments
The Group manages financial instrument risk based on the
following policies to avoid and mitigate market risk, credit risk and
liquidity risk.
1) Market risk management
The Group is exposed to the risk of market variability such
as fluctuations in exchange rates, interest rates and share
prices. The Group appropriately manages market risk to
mitigate risk. In addition, the Group uses derivatives mainly
consisting of foreign exchange forward contracts, currency
swaps and interest rate swaps with the objective of
appropriately managing market risk. The Group executes
and manages derivatives in accordance with the internal
policies that define the objectives, position limit, scope,
organizational structure and others. The Group limits the use
of derivatives to actual risk mitigation needs, and does not
use derivatives for trading or speculative purposes.
Therefore, as a rule, changes in the fair value of derivative
instruments that the Group holds effectively offset changes
in the fair value or cash flows.
(i) Exchange rate risk
The Group also operates outside Japan, and therefore is
exposed to the risks of exchange rate fluctuations
associated with transactions conducted in foreign
currencies and with net investments in foreign
operations. The Group minimizes the effect of exchange
rate fluctuations on operating results by settling
transactions denominated in foreign currencies through
foreign currency accounts, and by hedging the risk of
exchange rate fluctuations using derivative instruments
such as foreign exchange forward and currency swaps.
Details of foreign exchange forward contracts and
currency swaps between the Japanese yen, which is the
Group’s functional currency, and its main foreign
currencies including the U.S. dollar, the euro and the
Chinese yuan are as follows:
The Group did not apply hedge accounting for these
derivative transactions, but determined that these
transactions effectively offset the impact of fluctuations
in exchange rates.
Kao Corporation Financial Report 2019
56
Derivatives transactions
Foreign exchange forward contracts:
Selling
2019
Contract
amount over
1 year
Carrying
amount
(fair value)¹
Contract
amount
U.S. dollar .........................................................
Euro ..................................................................
21,052
19
Buying
Euro ..................................................................
Chinese yuan ...................................................
Currency swaps:
Receiving Japanese yen, paying U.S. dollar ........
105
458
—
—
—
—
—
—
4
0
(1)
(9)
—
(Millions of yen)
2018
Contract
amount over
1 year
Carrying
amount
(fair value)1
Contract
amount
14,583
—
—
212
—
—
—
—
116
—
—
(1)
(15)
7,343
7,343
Note: 1. Note 33 “Financial Instruments (3) Fair Value of Financial Instruments” presents the method of measuring the fair value of the above derivatives.
The above assets or liabilities related to derivative transactions are included in other financial assets or other financial
liabilities in the consolidated statement of financial position.
Net exposure to exchange rate risk consists of the following. Amounts hedged against exchange rate fluctuation risk with
derivatives are excluded.
As of December 31, 2019
Net exposure ..................................................................................................................
23,641
U.S. dollar
As of December 31, 2018
Net exposure ..................................................................................................................
U.S. dollar
2,801
Euro
1,725
Euro
1,930
(Millions of yen)
Chinese yuan
11,630
(Millions of yen)
Chinese yuan
10,766
The following table illustrates the impact on income before income taxes in the consolidated statement of income from
foreign currency-denominated financial instruments held by the Group at the end of each fiscal year if the Japanese yen
appreciated by 10% against the U.S. dollar, the euro and the Chinese yuan.
The effects of translating financial instruments denominated in the Group’s functional currency, and the assets, liabilities,
income and expenses of foreign operations are not included in the analysis. The analysis also assumes that currencies other
than those used in the calculation remain constant.
U.S. dollar ..................................................................................................................................................
Euro ...........................................................................................................................................................
Chinese yuan .............................................................................................................................................
2019
(2,364)
(173)
(1,163)
(Millions of yen)
2018
(280)
(193)
(1,077)
(ii) Interest rate fluctuation risk
(iii) Share price fluctuation risk
The Group obtains finances through long-term borrowings
and bonds for maintaining an appropriate cost of capital
and strengthening its financial base for investment for
growth. The Group considers interest rate market
movements and the balance between floating and fixed
interest rates in making decisions about long-term funding.
The Group’s short-term borrowings generally have floating
interest rates. The Group hedges interest rate risk as
necessary using derivative instruments such as interest
rate swaps, and therefore estimates that its exposure to
interest rate fluctuation risk is limited.
The Group held marketable equity securities, primarily
those of companies with which the Group has business
relationships, totaling 5,830 million yen and 6,640 million
yen at December 31, 2019 and 2018, respectively. These
equity securities are exposed to share price fluctuation
risk. However, the Group annually evaluates the rationale
and reviews ongoing advisability and position size of
these holdings. Fluctuations in their prices do not affect
net profit or loss because all of these equity securities are
designated as financial assets measured at fair value
through other comprehensive income.
57
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
The carrying amount after impairment of financial assets
in the consolidated statement of financial position
represents the Group’s maximum exposure to the credit risk
of financial assets. The Group is not exposed to excessive
credit risk associated with a particular customer that
requires exceptional management.
The Group recognizes an allowance for doubtful
receivables for trade receivables and other financial assets
measured at amortized cost by estimating future credit
losses in consideration of recoverability and significant
increases in credit risk. The Group determines if credit risk
has increased significantly by evaluating changes in default
risk with reference to factors including downgrading of
internal credit ratings, the decline of counterparty results,
and delinquency information.
Trade receivables are particularly important financial
assets for the Group. The Group collectively measures
expected credit losses of the financial assets for the entire
period to recognize the allowance for doubtful receivables.
In the following situations that would adversely affect future
cash flows, however, the Group measures expected credit
losses individually by treating each receivable as a credit-
impaired financial asset:
• Where the customer has serious financial difficulties
• Where the customer defaults or becomes delinquent in
accounts receivable payments despite repeated demands
for payment
• Where it is more likely that the customer will go into
bankruptcy or face a situation that forces it to reconstruct
its business
The Group directly writes down the carrying amount if it
does not reasonably expect to recover all or part of the trade
receivables, following an internal process of investigation
and approval.
The Group held security deposits for credit enhancement
totaling 6,829 million yen and 6,782 million yen at December
31, 2019 and 2018, respectively.
2) Credit risk management
The Group is exposed to credit risk such as a counterparty’s
default on contractual obligations resulting in financial losses
to the Group.
(i) Trade and other receivables
Notes and accounts receivable are trade receivables that
expose the Group to customer credit risk. The Group
manages that risk with an internal process for
investigating and approving customer credit on initial
transactions, and by obtaining deposits, collateral or other
guaranties as necessary. The Group also manages due
dates and outstanding balances by customer, and
periodically reconfirms the creditworthiness of major
customers. Non-trade receivables expose the Group to
business partner credit risk, but these receivables are
almost entirely settled in the short term.
(ii) Short-term investments
Short-term investments are recognized in cash and cash
equivalents and other financial assets. They are highly
safe and liquid financial instruments that include
commercial paper issued by entities with high bond
ratings, bond investment trusts, and money held in trust.
(iii) Loan receivables
Loan receivables expose the Group to borrower credit
risk. The Group manages this risk with an internal
process for investigating and approving borrower credit
on initial lending transactions, and by obtaining deposits,
collateral or other guaranties as necessary. The Group
also periodically reconfirms the creditworthiness of
borrowers.
(iv) Derivatives
The Group executes and manages derivatives in
accordance with the internal policies that define the
objectives, position limit, scope and organizational
structure. The Group limits the use of derivatives to
actual risk mitigation needs, and does not use
derivatives for trading or speculative purposes, and
reduces credit risk by limiting transactions to highly
creditworthy financial institutions.
Kao Corporation Financial Report 2019
58
The carrying amount of trade receivables and changes in the related allowance for doubtful receivables are as follows:
Fiscal year ended December 31, 2019
(Millions of yen)
Trade receivables
Financial assets for which
loss allowances are always
measured at an amount
equal to expected credit
losses for the entire period
Credit-impaired
financial assets
January 1, 2019 .....................................................................
217,018
Change during the year
(Recognition and derecognition) ......................................
Transfer to credit-impaired fi nancial assets .......................
Other changes ...................................................................
(12,408)
(100)
(820)
December 31, 2019 ...............................................................
203,690
576
(31)
100
(13)
632
Financial assets for which
loss allowances are always
measured at an amount
equal to expected credit
losses for the entire period
Credit-impaired
financial assets
Allowance for doubtful receivables
January 1, 2019 .....................................................................
Increase during the year ....................................................
Decrease during the year (charge-offs) ..............................
Decrease during the year (other) .......................................
Transfer to credit-impaired fi nancial assets .......................
Other changes ...................................................................
957
323
(104)
(73)
11
(0)
December 31, 2019 ...............................................................
1,114
491
100
(12)
(34)
(11)
(14)
520
Total
217,594
(12,439)
—
(833)
204,322
(Millions of yen)
Total
1,448
423
(116)
(107)
—
(14)
1,634
Fiscal year ended December 31, 2018
(Millions of yen)
Trade receivables
Financial assets for which
loss allowances are always
measured at an amount
equal to expected credit
losses for the entire period
Credit-impaired
financial assets
January 1, 2018 .....................................................................
211,441
Change during the year
(Recognition and derecognition) ......................................
Transfer to credit-impaired fi nancial assets .......................
Other changes ...................................................................
December 31, 2018 ...............................................................
10,605
(84)
(4,944)
217,018
549
(16)
84
(41)
576
Allowance for doubtful receivables
January 1, 2018 .....................................................................
Increase during the year ....................................................
Decrease during the year (charge-offs) ..............................
Decrease during the year (other) .......................................
Transfer to credit-impaired fi nancial assets .......................
Other changes ...................................................................
December 31, 2018 ...............................................................
Financial assets for which
loss allowances are always
measured at an amount
equal to expected credit
losses for the entire period
Credit-impaired
financial assets
915
238
(78)
(86)
(4)
(28)
957
459
98
(19)
(0)
4
(51)
491
Total
211,990
10,589
—
(4,985)
217,594
(Millions of yen)
Total
1,374
336
(97)
(86)
—
(79)
1,448
59
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
The following tables present an analysis of the carrying amount of trade receivables and the allowance for doubtful receivables
by days past due.
As of December 31, 2019
Trade receivables .......................................................
Allowance for doubtful receivables ...........................
Expected credit loss (%) ............................................
As of December 31, 2018
Trade receivables .......................................................
Allowance for doubtful receivables ...........................
Expected credit loss (%) ............................................
(Millions of yen, unless otherwise noted)
Days past due
Not due
188,864
187
0.1
Less than 30
days
Over 30
days
6,461
107
1.7
3,087
117
3.8
Over 60
days
1,728
69
4.0
Over 90
days
4,182
1,154
27.6
Total
204,322
1,634
0.8
(Millions of yen, unless otherwise noted)
Days past due
Not due
204,308
164
0.1
Less than 30
days
Over 30
days
7,453
129
1.7
2,021
37
1.8
Over 60
days
1,197
53
4.4
Over 90
days
2,615
1,065
40.7
Total
217,594
1,448
0.7
3) Liquidity risk management
Liquidity risk is the risk that the Group may not be able to
fulfill its obligation to pay financial liabilities that come due.
The Group uses methods such as scheduled medium- and
long-term financing plans to understand its liquidity and
consistently ensure the availability of sufficient funding.
The Group has also implemented the Global Cash
Management System to reduce liquidity risk through the
focused and efficient management of the Group’s capital in
Japan and overseas.
Financial liabilities including derivative instruments by maturity date consist of the following:
As of December 31, 2019
(Millions of yen)
Carrying
amount
Contract
amount
Not later
than 1 year
Later than
1 year but
not later than
2 years
Later than
2 years but
not later than
3 years
Later than
3 years but
not later than
4 years
Later than
4 years but
not later than
5 years
Later than
5 years
Non-derivative financial liabilities
Trade and other payables .............
222,314
222,314
222,314
Bonds and borrowings .................
127,141
127,187
Lease liabilities .............................
161,091
174,820
Long-term deposits payable ........
6,829
6,829
25,510
21,245
—
Derivative financial liabilities
Currency related ..........................
Interest rate related .....................
320
75
320
75
248
—
—
30,253
17,382
—
6,279
14,388
—
65,031
11,411
—
25
10,598
—
—
—
—
72
19
—
—
—
—
—
56
—
89
99,796
6,829
—
—
Total .........................................
517,770
531,545
269,317
47,635
20,758
76,442
10,679
106,714
Lease liabilities by maturity date consist of the following:
As of December 31, 2019
(Millions of yen)
Carrying
amount
Contract
amount
Not later
than 1 year
Later than
1 year but
not later than
5 years
Later than
5 years but
not later than
10 years
Later than
10 years but
not later than
15 years
Later than
15 years but
not later than
20 years
Later than
20 years
Lease liabilities ................................
161,091
174,820
21,245
53,779
40,588
24,192
19,691
15,325
Kao Corporation Financial Report 2019
60
As of December 31, 2018
(Millions of yen)
Carrying
amount
Contract
amount
Not later
than 1 year
Later than
1 year but
not later than
2 years
Later than
2 years but
not later than
3 years
Later than
3 years but
not later than
4 years
Later than
4 years but
not later than
5 years
Later than
5 years
Non-derivative financial liabilities
Trade and other payables .............
225,560
225,560
225,560
—
—
Bonds and borrowings .................
120,827
120,895
40,488
25,050
30,247
Lease obligations .........................
Long-term deposits payable ........
2,419
6,782
2,483
6,782
Derivative financial liabilities
Currency related ..........................
208
208
689
—
50
666
—
54
494
—
—
Total .........................................
355,796
355,928
266,787
25,770
30,741
—
32
485
—
104
621
—
25,018
124
—
—
25,142
—
60
25
6,782
—
6,867
(3) Fair Value of Financial Instruments
1) Fair value hierarchy levels
For financial instruments measured at fair value, the fair
values developed based on the observability of inputs into
the valuation techniques used in measurement are
categorized within the following three levels:
Level 1: Fair value measured with quoted prices in active
markets for identical assets or liabilities
Level 2: Fair value measured with inputs other than quoted
(ii) Derivative assets and derivative liabilities
Derivative assets and derivative liabilities are included in
other financial assets and other financial liabilities, and
are designated as financial assets and financial liabilities
measured at fair value through profit or loss. Consisting
of instruments including foreign exchange forward
contracts, currency swaps and interest rate swaps,
derivative assets and derivative liabilities are primarily
measured with a financial model using observable inputs
such as exchange rates and interest rates.
prices categorized within Level 1 that are observable
for the asset or liability, either directly or indirectly
(iii) Equity securities
Level 3: Fair value measured with inputs not based on
observable market data for the asset or liability
2) Financial instruments measured at fair value
The measurement methods for the main financial
instruments measured at fair value are as follows:
(i) Short-term investments (excluding short-term investments
measured at amortized cost)
Short-term investments are included in cash and cash
equivalents, and are designated as financial assets
measured at fair value through profit or loss. Short-term
investments primarily consist of bond investment trusts
and money held in trust, and are measured with a financial
model using observable inputs such as interest rates.
Equity securities are included in other financial assets, and
are designated as financial assets measured at fair value
through other comprehensive income. Equity securities
that are categorized within Level 1 are publicly listed and
traded in active markets, and are measured using market
prices on exchanges. Equity securities that are
categorized within Level 3 are unlisted, and are primarily
measured using a net asset valuation model, which
measures corporate value based on the net asset of the
issuing company with adjustments based on fair value.
61
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
The fair value hierarchy of financial instruments measured at fair value is shown below.
The Group recognizes transfers of financial instruments between levels of the fair value hierarchy at the end of each fiscal year.
No financial instruments were transferred between levels of the fair value hierarchy for the fiscal years ended December 31, 2019
or 2018.
As of December 31, 2019
Financial assets
Level 1
Level 2
Level 3
Total
(Millions of yen)
Financial assets measured at fair value through profi t or loss
Short-term investments ............................................................
Derivative assets .......................................................................
Other .........................................................................................
Financial assets measured at fair value through other
comprehensive income
Equity securities ........................................................................
Total ......................................................................................
Financial liabilities
Financial liabilities measured at fair value through profi t or loss
Derivative liabilities ...................................................................
Total ......................................................................................
—
—
—
5,830
5,830
—
—
19,900
214
3,063
—
23,177
395
395
—
—
—
4,892
4,892
—
—
19,900
214
3,063
10,722
33,899
395
395
As of December 31, 2018
Financial assets
Level 1
Level 2
Level 3
Total
(Millions of yen)
Financial assets measured at fair value through profi t or loss
Short-term investments ............................................................
Derivative assets .......................................................................
Other .........................................................................................
Financial assets measured at fair value through other
comprehensive income
Equity securities ........................................................................
Total ......................................................................................
Financial liabilities
Financial liabilities measured at fair value through profi t or loss
Derivative liabilities ...................................................................
Total ......................................................................................
—
—
—
6,640
6,640
—
—
29,900
1,068
2,983
—
33,951
208
208
—
—
—
4,500
4,500
—
—
29,900
1,068
2,983
11,140
45,091
208
208
Kao Corporation Financial Report 2019
62
Changes in financial instruments categorized within Level 3 are as follows:
Beginning balance .....................................................................................................................................
Gains (losses)¹ .......................................................................................................................................
Sales ......................................................................................................................................................
Other changes .......................................................................................................................................
2019
4,500
391
(0)
1
(Millions of yen)
2018
3,927
574
(0)
(1)
Ending balance ..........................................................................................................................................
4,892
4,500
Note: 1. All gains and losses are associated with financial assets measured at fair value through other comprehensive income at the end of each reporting
period. These gains and losses are recognized in net gain (loss) on revaluation of financial assets measured at fair value through other
comprehensive income in the consolidated statement of comprehensive income.
Financial instruments categorized within Level 3 are primarily unlisted equity securities. Each responsible department of the Group
refers to the Group accounting policies in measuring the fair value of unlisted equity securities each quarter using recently available
data, and reports any changes in fair value and the reasons to the department manager, and to senior management as necessary.
3) Financial instruments measured at amortized cost
(i) Cash and cash equivalents (excluding short-term
The following tables present the measurement techniques
for measuring the fair value of major financial instruments
measured at amortized cost. Financial instruments for which
carrying amounts are a reasonable approximation of fair
value or financial instruments that are not material are not
included in the tables.
investments measured at fair value), trade and other
receivables, and trade and other payables
Carrying amounts approximate fair value because these
are settled in the short term.
(ii) Bonds and borrowings
The fair value of bonds is based on market prices. The
fair value of borrowings is the present value of remaining
principal and interest discounted using a deemed interest
rate on equivalent new borrowings.
The carrying amount and fair value hierarchy of financial instruments measured at amortized cost are as follows:
As of December 31, 2019
Carrying amount
Level 1
Level 2
Level 3
Total
Fair value
(Millions of yen)
Financial liabilities
Financial liabilities measured at amortized cost
Bonds ............................................................
Borrowings ....................................................
50,061
77,080
—
—
50,129
77,571
—
—
50,129
77,571
As of December 31, 2018
Carrying amount
Level 1
Level 2
Level 3
Total
Fair value
(Millions of yen)
Financial liabilities
Financial liabilities measured at amortized cost
Bonds ............................................................
Borrowings ....................................................
50,052
70,775
—
—
50,338
70,985
—
—
50,338
70,985
63
Kao Corporation Financial Report 2019
Notes to Consolidated Financial Statements
34
Principal Subsidiaries
Principal subsidiaries consist of the following. Voting rights at December 31, 2019 did not significantly change from a year earlier.
Company name
Principal businesses
Kao Group Customer Marketing Co., Ltd.
Control of sales companies and other subsidiaries in Japan
Cosmetics
Skin Care and Hair Care
Human Health Care
Fabric and Home Care
Kanebo Cosmetics Inc.
Cosmetics
Kao Transport & Logistics Co., Ltd.
Logistics and related services in Japan
Kao (China) Holding Co., Ltd.
Kao Corporation Shanghai
Kao (Hefei) Co., Ltd.
Kao Commercial (Shanghai) Co., Ltd.
Control of subsidiaries in China
Cosmetics
Cosmetics
Skin Care and Hair Care
Human Health Care
Fabric and Home Care
Human Health Care
Cosmetics
Skin Care and Hair Care
Human Health Care
Fabric and Home Care
Kanebo Cosmetics (China) Co., Ltd.
Kao (Shanghai) Chemical Industries Co., Ltd.
Cosmetics
Chemical
Kao (Taiwan) Corporation
Pilipinas Kao, Inc.
Kao Industrial (Thailand) Co., Ltd.
Kao Commercial (Thailand) Co., Ltd.
Cosmetics
Skin Care and Hair Care
Human Health Care
Fabric and Home Care
Chemical
Chemical
Skin Care and Hair Care
Human Health Care
Fabric and Home Care
Chemical
Cosmetics
Skin Care and Hair Care
Human Health Care
Fabric and Home Care
Fatty Chemical (Malaysia) Sdn. Bhd.
Chemical
PT Kao Indonesia
Kao USA Inc.
Oribe Hair Care, LLC
Washing Systems, LLC
Kao America Inc.
Kao Specialties Americas LLC
Kao Germany GmbH
Kao Manufacturing Germany GmbH
Kao Chemicals GmbH
Molton Brown Limited
Kao Chemicals Europe, S.L.
Kao Corporation, S.A.
Skin Care and Hair Care
Human Health Care
Fabric and Home Care
Cosmetics
Skin Care and Hair Care
Skin Care and Hair Care
Fabric and Home Care
Corporate service to subsidiaries in the U.S.
Holding company for Chemical Business in the U.S.
Chemical
Cosmetics
Skin Care and Hair Care
Skin Care and Hair Care
Chemical
Cosmetics
Control of subsidiaries in Chemical Business in Europe, etc.
Chemical
Voting rights (%)
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
92.2
100.0
100.0
100.0
70.0
72.2
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Kao Corporation Financial Report 2019
64
Notes to Consolidated Financial Statements
35
Related Parties
(1) Transactions with Related Parties
Disclosure is omitted because there are no material related party transactions.
(2) Primary Executive Management Compensation
Primary executive management compensation consists of the following. The Group’s primary executive management includes members
of the Board of Directors and executive officers of the Company for each fiscal year.
Short-term benefi ts ...................................................................................................................................
Post-retirement benefi ts ............................................................................................................................
Share-based payments ..............................................................................................................................
Total .......................................................................................................................................................
2019
1,069
33
337
1,439
(Millions of yen)
2018
1,161
28
364
1,553
36
Commitments
Commitments to acquire property, plant and equipment and intangible assets after the end of each reporting period are as follows:
Acquisition of property, plant and equipment ............................................................................................
Acquisition of intangible assets .................................................................................................................
Total .......................................................................................................................................................
2019
25,041
3,735
28,776
(Millions of yen)
2018
30,751
1,188
31,939
37
Significant Subsequent Events
There were no significant subsequent events to present.
38 Approval of the Consolidated Financial Statements
The Consolidated Financial Statements were approved by Michitaka Sawada, President and Chief Executive Officer, and by Kenichi
Yamauchi, Executive Officer, Senior Vice President, Accounting and Finance, on March 23, 2020.
65
Kao Corporation Financial Report 2019
Independent Auditor’s Report
Kao Corporation Financial Report 2019
66
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