Financial
Report 2020
For the year ended December 31, 2020
Management Discussion and Analysis
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Independent Auditor’s Report
1
16
21
67
Management Discussion and Analysis
Management Policies
beauty for oneself, and also for other people and for the natural world
around us. At Kao, kirei is the value we want to bring to everyday life
through our brands, products and services—now and in the future.
Basic Management Policies of the Kao Group
The Kao Group’s mission is to strive for the wholehearted
satisfaction and enrichment of the lives of people globally and
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.
Medium-to-long-term Management
Strategies of the Kao Group and
Management Metric Used as a Target
All members of the Kao Group share the Kao Way, which is
our corporate philosophy, and have been putting it into
Long-term Management Strategy
As its commitment to becoming the company it wants to be
practice every day as the foundation of our approaches and
by 2030, the Kao Group is taking a step forward from its
actions to respond to changing times during our more than
previous aim of “making Kao a company with a global
130 years of doing business, mainly in the domains of
presence” by realizing sustained profitable growth while
cleanliness, beauty and health. To continue our profitable
contributing to the sustainability of the world to aiming to
growth, in recent years we have created a post-deflation
“make Kao a company with a global presence, valuable to
growth model and have been implementing governance
society.” Through ESG initiatives, we will become a valuable
reforms aimed at achieving a compact, highly diverse Board of
presence for people, society and the planet.
Directors, among other measures, while also endeavoring to
For the environment (E), we aim for zero waste and carbon
contribute to consumers, customers and society by providing
zero. For society (S), we will promote one and only
products that facilitate clean, beautiful and healthy living, as
personalization that is closely attuned to people in the hope of
well as industrial-use products that contribute to the
ending wasteful consumption. Then, while ensuring effective
development of industry.
governance (G), we will proceed as one team with “Integrity 2”,
In 2009, we set forth our Environmental Statement to be a
joined by like-minded parties. Following a management
positive force for nature as well as for humankind, then went
guideline of “Maximum with minimum”—generating the
one step further with the aim of enriching lives in harmony
maximum value with the minimum resources—we will
with nature. In 2019, we announced our new ESG strategy,
continue our growth to help create a better tomorrow.
the “Kirei1 Lifestyle Plan (KLP),” and declared our commitment
to shifting to ESG-driven management.
Now, however, crises are impinging on human lives, which
are the cornerstone for realizing the “enrichment of the lives
of people” set forth in our mission. These threats are expected
to continue jeopardizing the foundations of everyday lives.
Under these circumstances, we will tackle this pressing
social issue with an approach unique to Kao. With a strong
determination to protect not only everyday lives and ecology,
but also human lives, the Kao Group will become a company
that saves future lives. Under our K25 basic principles toward
2030, “Kirei—Making Life Beautiful,” we will help to maintain
the planet as a sustainable and clean place to live, to achieve
a sustainable and prosperous society, and to protect people
from hazards so they can enjoy their everyday lives.
These efforts will lead to an ongoing cycle of positive financial
results and returns to stakeholders. The Kao Group will continue
working to enhance its corporate value at a higher level.
1. The Japanese word “kirei” describes something that is clean, well-
ordered and beautiful, all at the same time. For Kao, this concept of kirei
not only describes appearance, but also attitude—to seek to create
Targets for 2030
Make Kao a company with a global presence,
valuable to society
• Become an essential company in a sustainable world
• A highly profitable global company that also significantly
contributes to society
• Returns to stakeholders according to levels of growth
Financial targets (as a result)
- ¥2.5 trillion in net sales
- ¥400 billion in operating income
- 41 consecutive years of increases in cash dividends
2. Integrity is one of the values of the Kao Way, the corporate philosophy of
the Kao Group.
Mid-term Business Plan
The five years from 2021 to 2025 are an important period for the
Kao Group to establish the foundation for becoming the company
it wants to be by 2030. To that end, the Kao Group Mid-term Plan
2025 “K25” establishes a vision of “Sustainability as the only
1
Kao Corporation Financial Report 2020
path” and sets forth three objectives.
make high-level returns, according to the level of our growth,
To become an essential company in a sustainable world,
to our many stakeholders, including employees, consumers,
we must actively promote KLP, the new ESG strategy we
customers, business partners and shareholders.
announced in 2019, and take leadership in a self-sufficient,
While continuing to practice the “Integrity” set forth in the
sustainable society that curtails the generation of waste to
Kao Way, the Kao Group will achieve these objectives together
the greatest extent possible. Moreover, we will ensure that
with like-minded stakeholders, and in so doing create a better
our investments for KLP are reflected in future earnings.
tomorrow.
By transforming to build robust business through investment,
we will create “Another Kao.” For people facing compelling
problems, we will fully utilize the technologies and expertise
Kao Group Mid-term Plan 2025 “K25”
we have cultivated as well as our digital transformation (DX)
• Vision
to create new businesses that “save future lives.” At the
Sustainability as the only path
same time, we will further reinforce our current business,
which serves as the foundation of this new business,
revitalizing it as “Reborn Kao.”
Furthermore, to achieve these two objectives, the vitality
of our employees is indispensable. Therefore, for our third
• Concept
Kirei—Making Life Beautiful
• Policy (Objectives)
Objective (1) Become an essential company in a
objective—to maximize the power and potential of employees—
sustainable world
we will newly implement an Objectives and Key Results
Goal
(OKR) employee empowerment system in January 2021 so
that all employees can give their utmost to achieving the
substantial goals they set for themselves. We will also
proactively open positions to talent from outside the Kao
Group and promote external collaboration.
Take leadership in a self-sufficient, sustainable society
(ESG Investment = Reflection of future earnings)
Key Results
- Carbon recycling (Conversion of carbon dioxide into
raw materials)
- Positive recycling (Creation of new business through
Achieving these three objectives will enable us to achieve
re-use)
our targets for record-high sales and profits (¥1.8 trillion in net
- Stop pandemic (Eradicate the source of infectious
sales, ¥250 billion in operating income and the 36th consecutive
diseases)
fiscal year of increases in cash dividends in 2025), and to
Net Sales* / Operating Margin
ROE
(Billions of yen)
1,600
1,457.6
1,200
12.7
1,489.4
1,508.0
1,502.2
13.7
13.8
14.1
1,382.0
12.7
800
400
0
2016
2017
2018
2019
2020
(%)
20
15
10
5
0
(%)
25
20
15
10
5
0
Net Sales (Left)
Operating Margin (Right)
* 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. In fiscal 2020, the Kao Group changed its method of
recognizing sales for certain transactions from the gross amount to the net amount.
18.6
19.8
18.9
17.6
14.2
2016
2017
2018
2019
2020
Kao Corporation Financial Report 2020
2
Objective (2) Transform to build robust business
through investment
Goal
Create “Another Kao” and reinforce current Kao
(Expand global business by focusing on saving lives)
Key Results
- New business: Launch digital and precision healthcare
business (high-precision bioanalysis and homeostasis
enhancement solution)
- Current business: Invest in outstanding products and
expand business
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 Group’s business activities is to increase EVA while
expanding its business scale. The Kao Group uses this metric
to assess its businesses, to make evaluations on investment
in facilities, acquisitions and other items, and to develop
performance targets for each fiscal year and for its
- Cosmetics business and sanitary business: Pursue
compensation system.
next innovation
3. EVA is a registered trademark of Stern Stewart & Co.
Objective (3) Maximize the power and potential of
employees
Goal
Double the productivity of our business activities
(Make challenges visible and pursue open innovation)
Key Results
- Fair compensation according to challenge and
contribution (implementation of OKR globally)
Issues for Management
Infectious diseases are spreading widely around the world
and environmental issues in areas such as climate change,
water and forest resources are becoming more serious.
Moreover, the importance of efforts for human rights is
- Active promotion of talent from outside Kao and
growing, and market structure and consumer attitudes are
doubling the results of collaboration
- Reform to become “digital Kao” to be completed by
2023
Management Metric Used as a Target
As its principal management metric, the Kao Group uses
changing considerably together with growing social issues
such as Japan’s aging society. In this significantly changing
business environment, with doubts about the continuance of
the sustainable society itself, the Kao Group considers
sustainable corporate growth to be difficult using only its
current business model.
Reducing shortages as much as possible and avoiding lost
EVA3, which measures true profit by factoring in the cost of
opportunities during purchasing leads to stable business
invested capital. This essentially takes the perspective of
performance, but on the other hand, it is a cause of over-
Cash Dividends per Share
(Yen)
140
120
100
80
60
40
20
0
Increases in dividends for 31 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
140
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 2020
Note: Impact of share splits is reflected retroactively.
3
Kao Corporation Financial Report 2020
Management Discussion and Analysis
procurement and excess inventory. In addition, an excessive
leading company that contributes to the businesses of
focus on meeting customer needs for consumption makes a
numerous other companies.
company likely to opt for a wide-ranging lineup with short-term
Achieving this goal will require a unique co-creation platform
product revisions, discontinuances and other measures, causing
in addition to new businesses. To that end, we believe that the
some products to be discarded without ever being used. This
extensive fundamental research that has supported our product
outcome is a negative factor for environmental conservation.
development research will serve as an engine for the Kao
To lead to a resolution of this issue, we must urgently build
Group. In particular, fundamental research into matters such as
a consumption cycle model for achieving a sustainable society.
the properties, variations, transmission, elimination and
Through Yoki-Monozukuri 4 of products that can be regularly
prevention of things that are harmful to people and the
used as long as possible, we will establish a new business
environment will surely significantly benefit society in the
model that neither makes nor delivers useless items.
future. Now, as the world faces a crisis, we are determined to
Furthermore, we believe that we have not yet established
focus on helping to resolve compelling social issues.
the value of our existence for a sustainable society globally.
The Kao Group Mid-term Plan 2025 “K25” is crucial for
We must take on new challenges to realize the Kao Group’s
building the business foundation that will be essential for
Mission“ to strive for the wholehearted satisfaction and
resolving these issues to become the company we want to be
enrichment of the lives of people globally and to contribute to
by 2030. The Kao Group will continue to take on the challenge
the sustainability of the world.” We aim to lead the world in
of helping to resolve major issues such as these.
offering ESG-oriented products and services as we continue
4. The Kao Group defines Yoki-Monozukuri as a strong commitment by all
to grow centered on these offerings, while also becoming a
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.”
Costs, Expenses and Income as Percentages of Net Sales
Years ended December 31, 2020, 2019 and 2018
Cost of sales ............................................................................................................
Gross profit ..............................................................................................................
Selling, general and administrative expenses ..........................................................
Operating income ....................................................................................................
Income before income taxes ...................................................................................
Net income attributable to owners of the parent ....................................................
2020
57.3%
42.7
30.1
12.7
12.6
9.1
2019
56.5%
43.5
29.5
14.1
14.0
9.9
2018
56.6%
43.4
29.5
13.8
13.7
10.2
Payout Ratio
(%)
60
50
40
30
20
10
0
53.4
42.4
37.1
36.9
38.2
2016
2017
2018
2019
2020
Kao Corporation Financial Report 2020
4
Basic Approach to Selection of
Accounting Standards
Japan. On the other hand, sales and profits in the Cosmetics
Business decreased substantially in Japan as inbound demand
disappeared and the market contracted significantly, due in
Having decided that unifying accounting standards within the
part to the impact of people voluntarily refraining from going
Kao Group will contribute to improving the quality of its
outside. Outside Japan, the Kao Group was affected by
business management, the Kao Group has voluntarily adopted
mandated temporary store closures and restrictions on going
International Financial Reporting Standards (IFRS) from fiscal
outside all over the world except China, and also incurred
2016. This enables management based on standardized
extra expenses to respond to the pandemic, resulting in an
procedures and information for each Group company and
overall decrease in consolidated financial results compared
business, and the Kao Group intends to reinforce its
with the previous fiscal year.
management foundation in order to enhance its corporate
In the Kao Group’s key markets, according to retail sales
value as a global company. The Kao Group also believes that
and consumer purchasing survey data, the cosmetics market
the application of IFRS will facilitate the international
in Japan shrank significantly from the previous year due to a
comparability of its financial statements in capital markets.
substantial decline in inbound demand and people’s voluntary
Overview of Consolidated Results
restraint in going outside. On the other hand, the household
and personal care products market grew because of a
substantial increase in demand for hygiene-related products,
among other factors. In every product category, the share of
In fiscal 2020, the novel coronavirus (COVID-19) pandemic had
the e-commerce channel increased further and average unit
a major impact on people’s lives and corporate activities
prices for household and personal care products increased by
worldwide. The Kao Group has been rallying its comprehensive
5 points compared with the previous fiscal year.
strength in striving to provide products, services and
information to contribute to the daily lives and safety of
people around the world. Due to heightened awareness of
hygiene, demand rose for hand soaps, hand sanitizers and
home care products in general, resulting in growth in sales
and profits compared with the previous fiscal year, mainly in
Basic Earnings per Share
Net Sales* / Operating Margin
(Yen)
400
300
200
100
0
298.30
314.25
306.70
262.29
253.43
2016
2017
2018
2019
2020
5
Kao Corporation Financial Report 2020
Consumer Products Business
(Billions of yen)
1,500
1,219.8
1,216.0
1,232.9
1,257.0
14.2
14.3
14.3
12.7
1,151.3
12.8
1,000
500
0
(%)
25
20
15
10
5
0
2016
2017
2018
2019
2020
Net Sales (Left)
Operating Margin (Right)
* 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. In fiscal 2020, the Kao Group changed its method of recognizing
sales for certain transactions from the gross amount to the net amount.
Management Discussion and Analysis
Analysis of Income Statement
Cosmetics Business
Sales decreased 22.4% compared with the previous fiscal
Net sales decreased 8.0% compared with the previous fiscal
year to ¥234.1 billion. On a like-for-like basis, sales decreased
year to ¥1,382.0 billion. On a like-for-like basis, net sales
22.1%.
decreased 5.2%. Operating income was ¥175.6 billion, a
Cosmetics Business sales decreased substantially due to a
decrease of ¥36.2 billion compared with the previous fiscal
significant decline in inbound demand, as well as the impact of
year, the operating margin was 12.7% and income before
mandated temporary store closures and regulations and other
income taxes was ¥174.0 billion, a decrease of ¥36.7 billion.
restrictions on going outside enacted around the world. In
Net income was ¥128.1 billion, a decrease of ¥22.3 billion.
particular, sales of makeup products decreased, as wearing
Basic earnings per share were ¥262.29, a decrease of
masks became common practice.
¥44.41, or 14.5%, from ¥306.70 in the previous fiscal year.
In Japan, in addition to the decrease in inbound demand,
In addition, 2020 was the final year of the Kao Group Mid-
there was an impact from people voluntarily refraining from
term Plan “K20”, under which the Kao Group set and aimed to
going outside and voluntary temporary retail store closures.
achieve the following three goals. The Kao Group was able to
Furthermore, the number of newly infected people began to
achieve all of its targets other than “continue to set new
rise again even after the declaration of a state of emergency
record highs for profits” and “like-for-like net sales CAGR* of
in April, delaying market recovery. In Europe, mandated
+5% and operating margin of 15%” under “commitment to
temporary store closures had a negative impact. In Asia, on
profitable growth.”
the other hand, the Kao Group enhanced its e-commerce and
• Commitment to fostering a distinctive corporate image
other initiatives in China, where sales were steady for
• Commitment to profitable growth
• Commitment to returns to stakeholders
* CAGR: Compound annual growth rate
freeplus, which is hypoallergenic and contains Japanese and
Chinese botanical extracts, and Curél, a derma care brand.
Operating income was ¥2.6 billion, a decrease of ¥38.8
billion from the previous fiscal year.
Information by Segment
Skin Care and Hair Care Business
Sales decreased 9.3% compared with the previous fiscal year
Consumer Products Business
to ¥308.9 billion due to the change in the method of
Sales decreased 8.4% compared with the previous fiscal year
recognizing sales for certain transactions from the gross
to ¥1,151.3 billion. On a like-for-like basis, sales decreased 5.3%.
amount to the net amount, among other factors. On a like-for-
During fiscal 2020, business activities worldwide were
like basis, sales increased 1.4%.
substantially impacted by the COVID-19 pandemic.
In skin care products, sales of Bioré u hand soap, hand
In Japan, sales increased as demand for hygiene-related
sanitizer and other hygiene-related products increased due to the
products grew, but Cosmetics Business sales decreased
Kao Group’s efforts to concentrate all its capabilities on meeting
substantially. With additional factors including a change in the
increased demand in Japan resulting from the pandemic.
method of recognizing certain transactions from the gross
Sales of hair care products decreased as sales of hair coloring
amount to the net amount, sales decreased 9.9% to ¥811.0
products grew in Japan with increased opportunities for hair care
billion. On a like-for-like basis, sales decreased 6.3%.
at home as people voluntarily refrained from going outside, but
In Asia, sales decreased 2.9% to ¥200.3 billion. On a like-
sales of the business for hair salons in the Americas and Europe
for-like basis, sales decreased 0.7%. In the Americas, sales
decreased due to mandated temporary salon closures by
decreased 5.9% to ¥83.6 billion. On a like-for-like basis, sales
customers of the Kao Group, among other factors.
decreased 3.7%. In Europe, sales decreased 9.3% to ¥56.4
Operating income increased ¥1.3 billion compared with the
billion. On a like-for-like basis, sales decreased 8.8%.
previous fiscal year to ¥50.8 billion.
Operating income decreased ¥32.7 billion compared with
the previous fiscal year to ¥147.2 billion.
Human Health Care Business
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.
Sales decreased 8.3% compared with the previous fiscal year
to ¥234.0 billion. On a like-for-like basis, sales decreased 7.3%.
Kao Corporation Financial Report 2020
6
Sales of Laurier sanitary napkins in Japan remained
growing demand for hygiene-related products due to the
basically unchanged from the previous fiscal year in a
pandemic. Sales of hygiene-related products also grew in
fluctuating market, with special demand but also fewer
Asia. In addition, sales of commercial-use products grew as
occasions for use because people voluntarily refrained from
the Kao Group substantially ramped up its production capacity
going outside. In Asia, sales grew substantially due to smooth
for hand sanitizers to supply the food service industry
progress of e-commerce initiatives in China.
including restaurants, as well as lodging facilities, medical
Sales of Merries baby diapers grew steadily in Indonesia
institutions, nursing facilities and other locations where
but decreased in both Japan and China.
hygiene management is particularly necessary.
Sales of personal health products decreased. Bath
Operating income increased ¥9.1 billion compared with the
additives performed strongly due to demand from people
previous fiscal year to ¥80.9 billion.
spending more time at home, among other factors, but sales
of oral care products declined due to intense competition.
Chemical Business
Operating income decreased ¥4.3 billion compared with
Sales decreased 5.8% compared with the previous fiscal year
the previous fiscal year to ¥12.9 billion.
to ¥269.2 billion. On a like-for-like basis, sales decreased 4.7%.
Amid a decline in demand for oleo chemicals due to the
Fabric and Home Care Business
economic slowdown, sales of fat and oil derivative products
Sales increased 4.1% compared with the previous fiscal year
for disinfection and cleaning were firm. Sales of performance
to ¥374.4 billion. On a like-for-like basis, sales increased 4.5%.
chemicals decreased due to the ongoing impact of a decline
In fabric care products in Japan, competition remained
in demand in automobile-related and other fields. Specialty
fierce in the markets for both laundry detergents and fabric
chemicals were impacted by a slump in the market for toner
softeners. Under these conditions, sales and market share of
and toner binder.
fabric care products held firm as the Kao Group launched new
Operating income decreased ¥3.1 billion compared with
and improved laundry detergent products. Sales of home care
the previous fiscal year to ¥27.7 billion.
products increased substantially as a result of enhanced
promotion of antibacterial and anti-virus measures amid
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
300
200
100
0
332.9
341.4
340.8
308.9
14.8
14.3
14.5
16.5
301.5
279.6
266.2
234.1
13.7
9.9
4.9
1.1
273.1 281.2
267.7
255.2
234.0
12.3
10.4
9.5
6.7
5.5
345.2
335.7 344.1
374.4
359.5
22.6
22.7
20.7
20.0
21.6
310.3 312.8
273.8
273.8
285.9
269.2
10.8
9.8
9.8
10.8
10.3
(%)
40
30
20
10
0
2017
2018
2019
2020
2017
2018
2019
2020
2016 2017 2018 2019
2020
2016 2017 2018 2019
2020
2016 2017 2018 2019
2020
Net Sales (Left)
Operating Margin (Right)
* 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.
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. In fiscal 2020, the Kao Group changed its method of recognizing sales for certain transactions from the gross amount to
the net amount.
7
Kao Corporation Financial Report 2020
Management Discussion and Analysis
Financial Position
assets totaling ¥10.5 billion.
Adjusted free cash flow, the sum of net cash flows from
Total assets increased ¥11.7 billion from December 31, 2019
operating activities and net cash flows from investing
to ¥1,665.6 billion. The principal increase in assets was a
activities less depreciation of right-of-use assets and other
¥63.5 billion increase in cash and cash equivalents. The
expenses, was ¥131.2 billion.
principal decreases in assets were a ¥15.3 billion decrease in
right-of-use assets and an ¥8.8 billion decrease in trade and
Cash Flows from Financing Activities
other receivables.
Net cash flows from financing activities totaled negative ¥87.1
Total liabilities decreased ¥55.1 billion from December 31,
billion. The Company emphasizes steady and continuous
2019 to ¥727.4 billion. The principal decreases in liabilities
dividends and flexibly repurchases and retires treasury shares
were a ¥28.7 billion decrease in retirement benefit liabilities, a
to improve capital efficiency from the perspective of EVA.
¥14.6 billion increase in lease liabilities and an ¥8.1 billion
During fiscal 2020, this primarily consisted of ¥66.2 billion for
decrease in income tax payables.
dividends paid to owners of the parent and non-controlling
Total equity increased ¥66.8 billion from December 31,
interests and ¥20.9 billion in repayments of lease liabilities. To
2019 to ¥938.2 billion. The principal increases in equity were
maintain an appropriate cost of capital ratio and to reinforce
net income totaling ¥128.1 billion and remeasurements of
its financial base for growth investments, the Company issues
defined benefit plans totaling ¥16.4 billion. The principal
and redeems corporate bonds, which consisted of ¥24.9
decreases in equity were dividends totaling ¥66.2 billion and
billion in proceeds from issuance of bonds and ¥24.9 billion in
exchange differences on translation of foreign operations
redemption of bonds.
totaling ¥9.9 billion.
The ratio of equity attributable to owners of the parent to
total assets was 55.5% compared with 51.9% at December
31, 2019. The Kao Group maintained return on equity at the
high level of 14.2%.
Cash Flows
Basic Policies regarding Distribution of
Profits and Dividends for the Fiscal Years
Ended December 31, 2020 and Ending
December 31, 2021
The Kao Group uses economic value added (EVA) as its
principal management metric and clearly sets the uses of its
The balance of cash and cash equivalents at December 31, 2020
steadily generated cash flow as shown below from that
increased ¥63.5 billion compared with December 31, 2019 to
viewpoint. Shareholder returns are one such use, and they are
¥353.2 billion, including the effect of exchange rate changes.
implemented after considering future demand for funds and
the situation in financial markets.
Cash Flows from Operating Activities
Net cash flows from operating activities totaled ¥214.7 billion.
Use of cash flow:
The principal increases in net cash were income before
• Investment for future growth (capital expenditures, M&A,
income taxes of ¥174.0 billion and depreciation and
etc.)
amortization of ¥86.1 billion. The principal decreases in net
• Steady and continuous dividends (40% payout ratio
cash were income taxes paid of ¥53.9 billion and a decrease
target)
in retirement benefit liabilities of ¥28.8 billion.
• Share repurchases and early repayment of interest-
bearing debt including borrowings
Cash Flows from Investing Activities
Net cash flows from investing activities totaled negative ¥61.9
In accordance with these policies, the Company plans to
billion. This primarily consisted of purchase of property, plant
pay a year-end dividend for fiscal 2020 of ¥70.00 per share, an
and equipment of ¥59.4 billion for capacity expansion at
increase of ¥5 per share compared with the previous fiscal
production bases in Japan and proactive capital investments
year. Consequently, annual cash dividends will increase ¥10
in Asia, where growth is notable, and purchase of intangible
per share compared with the previous fiscal year, resulting in
Kao Corporation Financial Report 2020
8
a total of ¥140 per share. The consolidated payout ratio will be
streamlining, maintenance and renewal of facilities, and
53.4%.
upgrading of distribution bases, in addition to expanding
For fiscal 2021, the Company plans to pay total cash
production capacity, mainly in Japan and Asia. In the Chemical
dividends of ¥144 per share (53.9% payout ratio), an increase
Business, the Kao Group also invested aggressively in
of ¥4 per share compared with the previous fiscal year. This
facilities to expand production capacity for fat and oil
plan is in accordance with the Company’s basic policies
derivatives and other products, inside and outside Japan.
regarding distribution of profits, and free cash flow and other
Research and development expenditures were ¥58.5 billion,
factors have also been taken into consideration. As a result,
equivalent to 4.2% of net sales, remaining at a high level
the Company is aiming for its 32nd consecutive fiscal year of
relative to net sales.
increases in dividends.
* Excluding right-of-use assets
EVA and Related Activities
Increasing Profit: In the Consumer Products Business,
demand for hygiene-related products increased due to the
EVA for fiscal 2020 was ¥62.3 billion, a decrease of ¥25.1
COVID-19 pandemic, but operating income decreased due to
billion compared with the previous fiscal year, due to
factors including a slump in the Cosmetics Business in Japan.
decreases in operating income and net operating profit after
In the Chemical Business, sales were firm for fat and oil
tax (NOPAT) in addition to an increase in capital costs from
derivative products for disinfection and cleaning, but operating
the previous fiscal year.
income decreased due to a slump in imaging materials and
The Kao Group conducted the following EVA-related
other products.
activities during the fiscal year.
Investing for Growth: During fiscal 2020, the Kao Group’s
annual dividends per share of ¥140.00, a year-on-year increase
capital expenditures* totaled ¥69.7 billion, centered on
of ¥10.00, or 8%, as announced in its forecast at the
investments for future growth. In the Consumer Products
beginning of the fiscal year. As a result, the Company has
Business, the Kao Group carried out activities including
achieved 31 consecutive fiscal periods of dividend growth.
Financial Improvement: For fiscal 2020, the Company paid
investment in facilities to manufacture new products,
Net Cash Flows from Operating Activities /
Capital Expenditures*
(Billions of yen)
250
244.5
214.7
200
150
100
50
0
184.3
185.8
195.6
89.9
79.4
89.1
90.2
69.7
2016
2017
2018
2019
2020
Net Cash Flows from Operating Activities
Capital Expenditures
* Excluding right-of-use assets from fiscal 2019
9
Kao Corporation Financial Report 2020
Free Cash Flows
(Billions of yen)
150
100
95.7
89.7
50
0
128.5
131.2
37.7
2016
2017
2018
2019
2020
Note: Free cash flow is the sum of net cash flows from operating activities
and net cash flows from investing activities.
From fiscal 2019, cash flows from operating activities is adjusted
for depreciation of right-of-use assets.
Management Discussion and Analysis
R&D Expenses
Cosmetics Business ..........................................
Skin Care and Hair Care Business ...................
Human Health Care Business .........................
Fabric and Home Care Business .....................
Chemical Business ..........................................
(Billions of yen)
2020
10.5
15.7
11.9
10.2
10.4
Business Risks and Other Risks
pandemic has brought about changes in the attitudes of
consumers regarding the environment, health, hygiene and
other matters and associated changes in their purchasing
attitudes. 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 Earth. To do so, it manages the following risks
The Kao Group’s mission is to strive for the wholehearted
and crises.
satisfaction and enrichment of the lives of people globally and
The Kao Group defines a potential negative impact on its
to contribute to the sustainability of the world, with products
management targets and business activities as a “risk” and
and brands of excellent value that are created from the
the materialization of such risk as a “crisis.” The Risk and
consumer’s and customer’s perspective. In addition, the Group
Crisis Management Committee has established a system and
is conducting initiatives under the Kao Group Mid-term Plan
activity guideline for risk and crisis management based on
2025 “K25,” which establishes a Vision of “Sustainability as the
the Kao Risk and Crisis Management Policy. Divisions,
only path” and sets forth three objectives: (1) Become an
subsidiaries and affiliates manage risks by identifying and
essential company in a sustainable world; (2) Transform to build
assessing risks, and formulating and implementing
robust business through investment; and (3) Maximize the
countermeasures based on this activity guideline. In a crisis,
power and potential of employees.
the Kao Group works to minimize harm to people and property
However, with the global spread of COVID-19, intensifying
by establishing an Emergency Response Team Organization
market competition, a changing market structure and volatility
that corresponds to the level of emergency and responding
in raw material market conditions and exchange rates, the Kao
promptly and appropriately.
Group’s business environment remains uncertain. The COVID-19
Total Dividend Payment / Share Repurchases* /
Net Income Attributable to Owners of the Parent
(Billions of yen)
150
147.0
153.7
148.2
126.1
50.0
50.0
Cost of Capital / EVA
(Billions of yen)
150
73.4
100
90.4
93.5
87.4
62.3
54.3
58.5
62.6
67.4
50
56.4
59.1
62.7
63.8
66.5
126.6
50.0
46.8
100
50
0
2016
2017
2018
2019
2020
0
2016
2017
2018
2019
2020
Total Dividend Payment
Share Repurchases
Net Income Attributable to Owners of the Parent
* Excludes repurchase of shares of less than one trading unit
Cost of Capital
EVA
Kao Corporation Financial Report 2020
10
After deliberation by the Risk and Crisis Management
Management Committee selects risk themes and the
Committee and the Management Committee, the Kao Group
individuals (executive officers) in charge of handling each
has selected the following 14 particularly significant risks as
theme, while the Risk and Crisis Management Committee
the main risks that have a negative impact on its sustained
manages progress. (* Main corporate risk themes and
profitable growth and contribution to the sustainability of the
countermeasures are presented in “Main Initiatives.”)
world through its business activities. Among these main risks,
These are the main risks that might materialize within five
the Kao Group designates risks that would have a major
years as recognized as of the fiscal year ended December 31,
impact on management and require an enhanced response as
2020. In addition, there are risks other than the listed risks
“corporate risks,” and once a year, based on internal and
that may affect investors’ decisions.
external risk surveys and interviews with management, the
Details of Main Risks
Main Initiatives
Risks related to the Novel Coronavirus Pandemic
The global spread of COVID-19 is having a significant impact on the
global economy, including delays in raw material procurement,
manufacturing, distribution and other areas, immigration restrictions
imposed in each country and region, restrictions on going outside and
mandated temporary store closures. The COVID-19 pandemic has
been recurring, with second and third waves in many countries and
regions. The uncertain business environment is expected to continue,
with years required for the impact of COVID-19 to be reduced through
the introduction of vaccines and other measures, and for the global
economy to recover.
Under these circumstances, in Japan, which is the Kao Group's main
market, the cosmetics market shrank significantly from the previous
year due to the impact of factors including a substantial decline in
inbound demand and people’s voluntary restraint in going outside,
while the household and personal care products market has grown due
to increased demand for hygiene-related products. The COVID-19
pandemic has caused changes in people’s awareness of hygiene, and
changes in values regarding makeup and related products as people
have voluntarily refrained from going outside and wearing masks has
become common practice. It has caused changes in consumer
behavior including a rapid increase in the use of e-commerce.
Risks associated with the COVID-19 pandemic and related changes in
people’s behavior are as follows. Inability to take appropriate measures
could cause net sales and profits to deviate significantly from targets.
∙ Temporary suspension of operations or obstacles to providing
In response to COVID-19, the Kao Group held a meeting of the Emergency
Response Team Headquarters headed by the President and CEO to
decide on Group-wide policies regarding (1) ensuring the safety of
employees and their families, (2) continuity of business activities, and
(3) contributions to society, and took the following actions. In addition,
these actions have been reported to the Board of Directors.
(1) Ensuring the safety of employees and their families
∙ As crisis management measures, followed national and local government
policies, and implemented work systems and styles compatible with the status
of infection in each country and region (promotion of remote work/teleworking,
restrictions on business trips, restrictions on training/events/tours, etc.)
∙ Identified the status of infected employees and family members or those
who have been in close contact with infected persons, and implemented
care as applicable, and measures to prevent the occurrence of clusters
∙ Launched the Infectious Disease Risk Assessment Project to reinforce
infection prevention measures in the workplace and at home
(2) Continuity of business activities
∙ To maintain the supply chain, implemented higher-level infection control
measures at production sites and rolled them out to subcontractors
and other related parties, in addition to conducting relevant activities
for raw material procurement
∙ Enhanced information systems for remote work and promoted digitalization
of operations
∙ Reviewed Group systems for new work styles
∙ Formulated and implemented a business strategy for dealing with
products and services due to multiple infections (clusters) at the Kao
Group’s bases or in its supply chains
COVID-19 (main response initiatives related to the Cosmetics Business
are presented in “Risks related to Changes in the Retailing Environment”)
∙ Delays in product development and launch plans due to a resurgence
or prolongation of infections, because of work that cannot be
performed remotely
∙ Delays in the recovery of the Cosmetics Business or other
(3) Contributions to society
∙ Provided a continuous supply of hygiene-related products for cleanliness
and worry-free daily life
businesses due to a resurgence or prolongation of infections
∙ Increased production of alcohol disinfectants to 20 times the previous
∙ Inadequate response to changes in people’s awareness and values,
and changes in consumer behavior
level and supplied them on a priority basis to medical institutions,
nursing facilities and other locations with urgent needs
∙ Through its website, provided information on hygiene in daily life, based
on the knowledge of experts and its own know-how. Also, for hygiene
researchers, medical professionals, public health nurses working at
educational institutions and other professionals, provided a wide range
of information, including expert knowledge on measures for preventing
the spread of infection based on academic papers
∙ Contributed to the development of therapies and diagnostic tools for
COVID-19, including the discovery of VHH antibodies that can be
expected to inhibit infection
• Main Corporate Risk Themes and Countermeasures
Pandemics: The Kao Group implemented the above measures by
applying to COVID-19 the guidelines and action plans it had been
considering for responding to global pandemics of new strains of
influenza and other diseases.
11
Kao Corporation Financial Report 2020
Management Discussion and Analysis
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.
Moreover, the global spread of COVID-19 is further heightening these
trends. 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, making
targets for net sales and market share unattainable. In addition, if
efforts to address social issues are deemed inadequate, corporate
value could decline.
Risks related to Changes in the Retailing Environment
The retailing environment in which the Kao Group operates is changing
significantly. The growth of E-commerce is accelerating due to the
COVID-19 situation, and brick-and-mortar retailers are also responding
to this changing environment based on discrete strategies such as
combinations of offline and online retailing and mergers or integrations
across business formats. 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.
Changes in the market environment due to COVID-19 have also had a
significant impact on the retail industry. If response to the disappearance
of inbound demand and the shrinking cosmetics market is inadequate,
targets for net sales, market share and profits may be unattainable.
Risks related to Business outside Japan
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 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, while steadily conducting initiatives, the
Kao Group is working proactively to disclose these initiatives to
stakeholders in order to demonstrate their results at an early stage.
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 contribute to better
lives for consumers and 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.
The Kao Group is proactively addressing E-commerce by rolling out
products and services favored by E-commerce users and promoting
the evolution of its digital marketing activities. Going forward, the Kao
Group will further promote digital transformation (DX) and new
initiatives such as D2C.*
The Kao Group will also promote co-creation initiatives with retailers to
meet cosmetics needs through non-contact methods such as online
counseling and live commerce, and to respond to growing hygiene-
related demand.
* D2C (Direct to Consumer)
A business model for selling directly to consumers through a company’s
own E-commerce site
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, in each country
or region, in addition to the impact of COVID-19, in the course of
business there is the possibility of events arising including a slowdown
in economic growth, political or social instability, problems at retail
outlets, agents or other business partners, sudden changes in laws,
regulations or tax systems, a spate of counterfeit products, or
reputation risk.* If there is a substantial delay in the implementation of
business plans due to the impact of these events, targets for net sales
and profits may be unattainable.
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.
* See “Risks related to Reputation”
• Main Corporate Risk Themes and Countermeasures
Risks related to environmental laws and regulations outside Japan:
Among changes in laws and regulations outside Japan, the Kao Group
pays particular attention to the risk of inability to adapt to changes in
environmental laws and regulations that lead to the suspension of
business and operations. In this regard, the Kao Group strengthened
its monitoring and response system in China using an external
specialist organization to address the impact of a sudden change in
environmental laws and regulations on its local plants and major
suppliers.
Kao Corporation Financial Report 2020
12
Details of Main Risks
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.
Risks related to Product Quality
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, 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.
The proliferation of incorrect methods of use of hygiene-related
products during the COVID-19 pandemic and the risk of product
incidents involving the elderly are increasing. In addition, there are
changes in laws and regulations in each country as well as growing
requirements for contribution to the resolution of safety and
environmental issues and transparency in relation to product
ingredients, safety and other matters. Furthermore, product retailing at
an international level is increasing due to globalization, and product
quality management activities and response to consumers may
become inadequate.
Risks related to Large-scale Earthquakes, Other Natural Disasters
and Accidents
For companies with 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 major obstruction to the supply of products to the market due to
injury to employees or damage to facilities or supply chains resulting
from a large-scale earthquake or other natural disaster such as a
large-scale typhoon or flood brought on by climate change could have a
significant impact on business results. In addition, the occurrence of
substantial injury to employees or damage to the surrounding area due
to events such as a fire or explosion at a plant of the Kao Group could
have a significant impact on business results, with a resultant loss of
social credibility.
Main Initiatives
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.
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 Customer Communication Center.
In addition, to respond to changes in risks relating to product quality
management, the Kao Group is enhancing its communication of
information through product FAQs and other methods to disseminate
correct methods of use; improving product satisfaction for diverse
customers by promoting universal design and by providing multilingual
information; 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;
increasing reliability by promoting visualization of product quality
management activities and by engaging in communication with all
stakeholders; and building a system capable of promptly confirming
compliance with the laws and regulations of each country, introducing
a mechanism for centralized collection of consumer feedback across
countries and regions and implementing other measures to enhance
quality management activities on a global scale.
• Main Corporate Risk Themes and Countermeasures
Risk of occurrence of serious product quality issues: The Kao
Group is strengthening its Group-wide response in the event serious
damage occurs due to product quality issues and is enhancing
awareness within the Group to prevent the occurrence of such issues.
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 Organization headed
by the President and CEO.
• Main Corporate Risk Themes and Countermeasures
Large-scale earthquakes and other natural disasters: In response
to recent large-scale typhoons, floods and other natural disasters
brought on by climate change, the Kao Group conducted flood risk
surveys at each site, stepped up countermeasures in both physical
and intangible terms and carried out disaster prevention education for
employees regarding hazard maps and evacuation. 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.
13
Kao Corporation Financial Report 2020
Details of Main Risks
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. In addition, while
leading lives of voluntarily refraining from going outside due to the
COVID-19 pandemic, a wide range of people, regardless of age or
gender, have come to use SNS in search of extensive information and
connections.
However, SNS comments also include negative evaluations and comments
about companies, and there are concerns about an increase in
reputation risk through their dissemination that could inflict financial or
non-financial loss from a decline in brand value and corporate credibility.
The Kao Group expects to continue increasing communication of
various information and brand marketing activities using SNS.
However, the spread through SNS of inappropriate expressions in the
advertisements or other publications of the 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.
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 inadequate
due to reasons in the supply chain, the Group’s brand image and
credibility could decline.
Management Discussion and Analysis
Main Initiatives
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
Risks related to cyberattacks and 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 establishing a pre-check
system and conducting internal education as measures to prevent
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 a reputation
risk incident occurs that adversely affects business and brand activities,
the Kao Group responds promptly and strives to maintain its reputation
by publicly announcing information, its corporate stance and other
matters, as necessary, at the appropriate time.
• Main Corporate Risk Themes and Countermeasures
Reputation risk: The Kao Group has established a system for monitoring
SNS and other external information and is further strengthening its
emergency response system in the event a reputation risk incident occurs.
Risks associated with the use of digital media: The Kao Group
established a pre-check system, enhanced internal education and
conducted a review of guidelines and other matters for risks that
could become reputation risks, such as inappropriate expressions and
stealth marketing in advertisements, and promoted the establishment
of advertisement distribution tools for improving and maintaining
brand value.
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, establishment
of an auditing system to eliminate compliance violations by suppliers,
and the CDP Supply Chain Program.
In addition, with the aim of building a sustainable supply chain for palm
oil, in 2020 the Kao Group began a program in cooperation with local
partners to help oil palm smallholders in Indonesia improve yields and
acquire sustainable palm oil certification.
The Kao Group strives to disclose these initiatives to its stakeholders
proactively and transparently.
Kao Corporation Financial Report 2020
14
Details of Main Risks
Risks related to Compliance
Main Initiatives
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.
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 immediate reporting to management
and an appropriate response in the event that a serious violation of
compliance occurs.
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. In addition, COVID-19 is
having a significant impact in areas such as people’s values and
working styles.
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 Currency Exchange Rate Fluctuations
The Kao Group also 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 Litigation
During the fiscal year ended December 31, 2020, 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.
Based on the recognition that human capital is the Kao Group’s most
important asset, the Human Capital Development Committee, with top
management 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. To maximize the power and potential of
employees, the Kao Group will further develop its cultivation of a
corporate culture in which employees are willing to take on challenges,
and further promote diverse work styles.
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.
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 2020
Consolidated Statement of Financial Position
Kao Corporation and Consolidated Subsidiaries
As of December 31, 2020
Assets
Current assets
Notes
2020
2019
(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
353,176
200,087
197,641
7,257
2,085
18,150
778,396
430,914
149,543
177,031
48,256
8,657
23,608
42,274
6,937
887,220
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
Total assets ........................................................................................................
1,665,616
1,653,919
Liabilities and equity
Liabilities
Current liabilities
Notes
2020
2019
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 ............................................................................................
15, 33
16, 33
17, 33
24
20
19
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 .....................................................................................
16, 33
15, 33
18
19
14
215,842
30,465
19,787
6,571
28,109
1,811
23,098
99,721
425,404
97,229
126,725
7,862
51,858
9,175
4,584
4,585
302,018
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
Total liabilities .....................................................................................................
727,422
782,498
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
106,618
(3,865)
(43,376)
778,886
923,687
14,507
938,194
85,424
108,715
(4,309)
(32,974)
700,839
857,695
13,726
871,421
Total liabilities and equity ....................................................................................
1,665,616
1,653,919
Kao Corporation Financial Report 2020
16
Consolidated Statement of Income
Kao Corporation and Consolidated Subsidiaries
Year ended December 31, 2020
Net sales ....................................................................................................................
Notes
6, 24
2020
1,381,997
Cost of sales .............................................................................................................. 9, 11, 12, 16, 18
(791,304)
Gross profit ................................................................................................................
590,693
(Millions of yen)
2019
1,502,241
(848,723)
653,518
Selling, general and administrative expenses ............................................................ 11, 12, 16, 18, 25
(415,826)
(442,912)
Other operating income .............................................................................................
24, 26
Other operating expenses ......................................................................................... 11, 12, 16, 18, 27
Operating income ......................................................................................................
6
Financial income ........................................................................................................
6, 18, 28
Financial expenses .....................................................................................................
6, 16, 18, 28
Share of profit in investments accounted for using the equity method .....................
6, 13
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
15,801
(15,105)
175,563
1,711
(5,839)
2,536
15,192
(14,075)
211,723
2,027
(5,231)
2,126
173,971
210,645
(45,904)
128,067
(60,296)
150,349
126,142
1,925
128,067
148,213
2,136
150,349
262.29
262.25
306.70
306.63
17
Kao Corporation Financial Report 2020
Consolidated Statement of Comprehensive Income
Kao Corporation and Consolidated Subsidiaries
Year ended December 31, 2020
Net income ..........................................................................................................................
Other comprehensive income
Items that will not be reclassified to profit or loss:
Notes
2020
128,067
(Millions of yen)
2019
150,349
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
168
16,365
25
16,558
(6)
(1,180)
(17)
(1,203)
(9,942)
(2,489)
(167)
(10,109)
(36)
(2,525)
Other comprehensive income, net of taxes .....................................................................
Comprehensive income .....................................................................................................
6,449
134,516
(3,728)
146,621
Attributable to:
Owners of the parent ........................................................................................................
Non-controlling interests ...................................................................................................
Comprehensive income ....................................................................................................
132,941
1,575
134,516
144,508
2,113
146,621
Kao Corporation Financial Report 2020
18
Consolidated Statement of Changes in Equity
Kao Corporation and Consolidated Subsidiaries
Year ended December 31, 2020
Equity attributable to owners of the parent
Other components of equity
(Millions of yen)
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
Share
capital
Capital
surplus
Treasury
shares
Notes
Remeasurements
of defined
benefit plans
Total
Retained
earnings
Total
Non-
controlling
interests
Total
equity
—
—
(32,974)
700,839
857,695
13,726
871,421
—
126,142
126,142
1,925
128,067
16,353
16,353
6,799
6,799
—
6,799
(350)
6,449
126,142
132,941
1,575
134,516
—
—
—
—
—
(177)
(194)
2
(27)
(394)
—
—
—
2
(27)
(394)
—
—
(64,925)
(64,925)
(1,269)
(66,194)
—
(1,605)
475
(1,130)
—
—
—
—
(668)
(16,353)
(17,024)
17,024
—
—
—
(16,353)
(17,201)
(48,095)
(66,949)
(794)
(67,743)
—
(43,376)
778,886
923,687
14,507
938,194
—
—
—
—
(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
—
—
—
—
—
1,085
1,085
—
—
—
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
6,208
—
184
184
—
—
—
—
—
(668)
5,724
6,458
—
6,458
—
(23)
(23)
—
—
—
—
—
(227)
(227)
6,208
—
—
(0)
(0)
—
—
—
—
—
—
—
(0)
(1)
—
(1)
—
1
1
—
—
—
—
—
—
—
—
January 1, 2020
85,424 108,715
(4,309)
448
(39,630)
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 ..................
—
—
—
—
—
—
—
21
21
32
23
—
—
—
—
—
—
—
—
—
—
(9,738)
(9,738)
(98)
471
(177)
—
(27)
—
—
—
—
—
—
—
(49,368)
—
—
—
—
(3)
(180)
268
(394)
—
— (1,605)
—
—
—
—
—
—
— (2,097)
444
December 31, 2020 .........
85,424 106,618
(3,865)
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 ..................
21
21
32
23
—
—
—
—
—
—
—
—
—
—
85,424 108,245
(11,282)
—
—
—
546
—
(37,032)
—
85,424 108,245
(11,282)
546
(37,032)
—
—
—
—
—
—
—
—
—
—
(2,598)
(2,598)
— (50,033)
337
—
241
—
—
—
—
—
470
6,973
—
—
—
—
—
(98)
448
—
—
—
—
—
—
—
(39,630)
December 31, 2019 .........
85,424 108,715
(4,309)
Note: 1. It represents the financial effect from the adoption of IFRS 16 “Leases.”
19
Kao Corporation Financial Report 2020
(108)
57,006
(98)
(98)
(56,799)
1
Consolidated Statement of Cash Flows
Kao Corporation and Consolidated Subsidiaries
Year ended December 31, 2020
Notes
2020
2019
(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 ...........................................................................................
Other .................................................................................................................................
Net cash flows from investing activities ....................................................................
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 .................................................................................................................................
173,971
86,080
(1,571)
2,533
(2,536)
3,301
6,443
646
(4,227)
(28,818)
31,852
267,674
1,516
2,060
(2,650)
(53,882)
214,718
(14,053)
19,661
(59,396)
(10,454)
2,301
(61,941)
(41)
1,080
(48)
24,939
(24,942)
(20,912)
(28)
(64,987)
(1,235)
(891)
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)
(1,960)
(94,266)
19
46,220
(40,054)
—
(12)
(20,565)
(50,033)
(60,512)
(1,287)
58
Net cash flows from financing activities ....................................................................
(87,065)
(126,166)
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
65,712
289,681
(2,217)
353,176
24,091
265,978
(388)
289,681
Kao Corporation Financial Report 2020
20
Notes to Consolidated Financial Statements
Kao Corporation and Consolidated Subsidiaries
Year ended December 31, 2020
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
(4) Early Adoption of New or Revised Standards and
Standards (hereinafter “IFRS”)
Interpretations
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.
The Group has early adopted amendment to IFRS 16 “Leases,”
“Covid-19-Related Rent Concessions” (issued in May 2020 in
preparing its consolidated financial statements).
(5) Changes in Presentation
(Consolidated Statement of Cash Flows)
“Payments for business combinations,” which was separately
presented as an item within “Investing activities” for the fiscal
year ended December 31, 2019, is included in “Other” for the
fiscal year ended December 31, 2020 due to its immateriality. The
consolidated financial statements for the fiscal year ended
December 31, 2019 have been reclassified to reflect these
changes in presentation.
Consequently, “Payments for business combinations,” which
was presented as a cash outflow of 195 million yen within
“Investing activities” of the consolidated statement of cash flows
for the fiscal year ended December 31, 2019, is reclassified to
“Other.”
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
21
Kao Corporation Financial Report 2020
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 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.
(3) Foreign Currency Translation
1) Functional currency and presentation currency
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 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.
Kao Corporation Financial Report 2020
22
(ii) Classification and subsequent measurement
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
• 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
23
Kao Corporation Financial Report 2020
Notes to Consolidated Financial Statements
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
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
5) Hedge accounting
The Group uses interest rate swaps and other derivatives to
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.
Kao Corporation Financial Report 2020
24
(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
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.
(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.
(9) Leases
For leases in which the Group acts as the lessee, the lease liability
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.
With the application of a practical expedient, rent concessions
that are a direct consequence of the COVID-19 pandemic and
meet specified conditions are accounted for as variable lease
payments rather than being treated as lease modifications.
The Group has no significant leases in which it acts as the lessor.
(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
25
Kao Corporation Financial Report 2020
Notes to Consolidated Financial Statements
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
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
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.
Kao Corporation Financial Report 2020
26
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.
(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
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.
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
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.
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
subsidiaries 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.
(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.
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.
(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
27
Kao Corporation Financial Report 2020
Notes to Consolidated Financial Statements
for sale are measured at the lower of the carrying amount and fair
value less costs to sell.
are resolved upon by the General Meeting of Shareholders and
interim dividends are resolved upon by the Board of Directors.
(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.
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
(20) Changes in Significant Accounting Policies
(Leases)
From the fiscal year ended December 31, 2020, the Group early
adopted Amendment to IFRS 16 “Leases,” “Covid-19-Related
Rent Concessions” (issued in May 2020).
With the application of a practical expedient, rent concessions
for leases of lessees that are a direct consequence of the COVID-
19 pandemic and meet specified conditions are accounted for as
variable lease payments rather than being treated as lease
modifications.
Variable lease payments are included in selling, general and
administrative expenses in the consolidated statement of income
for the year ended December 31, 2020, but their impact is
immaterial.
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.
Significant accounting estimates and judgments have been
made in consideration of the impact of the COVID-19 pandemic.
A consensus opinion on when the COVID-19 pandemic will
subside has not been made public, and its impact may continue
beyond the current fiscal year, but a gradual recovery in the future
is assumed.
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.
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
Kao Corporation Financial Report 2020
28
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
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
The impacts of 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,
2020 are immaterial.
29
Kao Corporation Financial Report 2020
Notes to Consolidated Financial Statements
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
Specialty chemicals
Surfactants, plastics additives, superplasticizers for concrete
admixtures, asphalt additives
Toner and toner binder for copiers and printers, ink and water-
based pigment inkjet ink, fragrances and aroma chemicals
Kao Corporation Financial Report 2020
30
(2) Sales and Results of Reportable Segments
Fiscal year ended December 31, 2020
(Millions of yen)
Reportable segments
Consumer Products Business
Cosmetics
Business
Skin Care
and Hair Care
Business5
Human
Health Care
Business
Fabric and
Home Care
Business
Subtotal
Chemical
Business
Total
Reconciliation1 Consolidated
Net sales
Sales to customers ............... 234,068
308,897
233,971
374,367
1,151,303 230,694
1,381,997
—
1,381,997
Intersegment sales and
transfers2 .............................
—
—
—
—
— 38,517
38,517
(38,517)
—
308,897
50,823
233,971
12,850
374,367
80,908
1,151,303 269,211
27,692
147,165
1,420,514
174,857
(38,517)
706
Total net sales .......................... 234,068
Operating income .....................
2,584
Financial income ...................
Financial expenses ................
Share of profit in investments
accounted for using the
equity method ......................
Income before income taxes .....
1,381,997
175,563
1,711
(5,839)
2,536
173,971
Other items
Depreciation and
amortization3 ......................
Capital expenditures4 ............
14,644
13,366
14,795
16,284
22,214
16,487
18,638
23,831
70,291
14,733
69,968
14,619
85,024
84,587
1,056
1,562
86,080
86,149
Notes: 1. The operating income reconciliation of 706 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.
5. The Group changed its method of recognizing sales for certain transactions from the gross amount to the net amount.
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.
31
Kao Corporation Financial Report 2020
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.
2020
853,628
284,114
128,721
115,534
1,381,997
(Millions of yen)
2019
947,096
293,388
137,819
123,938
1,502,241
Non-current Assets (excluding Financial Assets, Deferred Tax Assets and Retirement Benefit Assets)
(Millions of yen)
Japan .........................................................................................................................................................
Asia ............................................................................................................................................................
Americas ....................................................................................................................................................
Europe .......................................................................................................................................................
Total ...................................................................................................................................................
2020
588,781
100,138
92,282
37,119
818,320
2019
597,950
104,643
98,730
39,444
840,767
7
Cash and Cash Equivalents
Cash and cash equivalents consist of the following:
Cash and deposits .....................................................................................................................................
Short-term investments .............................................................................................................................
Total ...................................................................................................................................................
2020
328,376
24,800
353,176
(Millions of yen)
2019
239,781
49,900
289,681
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 ...................................................................................................................................................
2020
195,483
6,647
(2,043)
200,087
(Millions of yen)
2019
204,322
6,179
(1,662)
208,839
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 2020
32
9
Inventories
Inventories consist of the following:
Merchandise and finished goods ...............................................................................................................
Work in progress .......................................................................................................................................
Materials and supplies ...............................................................................................................................
Total ...................................................................................................................................................
2020
149,471
12,847
35,323
197,641
(Millions of yen)
2019
155,611
12,893
31,168
199,672
The amount of inventories recognized as expenses and included in cost of sales for the fiscal years ended December 31, 2020 and 2019
were 668,508 million yen and 729,425 million yen, respectively.
Write-downs of inventories recognized as expenses for the fiscal years ended December 31, 2020 and 2019 were 7,457 million yen and
6,065 million yen, respectively.
10 Other Assets
Other assets consist of the following:
Other current assets
(Millions of yen)
2020
2019
Insurance receivable ..............................................................................................................................
Prepaid expenses ..................................................................................................................................
Other ......................................................................................................................................................
Total ...................................................................................................................................................
Other non-current assets
Insurance receivable ..............................................................................................................................
Long-term prepaid expenses .................................................................................................................
Retirement benefit assets .....................................................................................................................
Other ......................................................................................................................................................
Total ...................................................................................................................................................
376
7,892
9,882
18,150
1,721
1,522
3,018
676
6,937
521
8,587
13,498
22,606
2,263
472
2,146
615
5,496
33
Kao Corporation Financial Report 2020
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
January 1, 2019 ...........................................................
435,771
738,417
121,551
Changes in accounting policy1 .................................
(11,853)
(47)
(10)
Buildings
and
structures
Machinery
and
vehicles
Tools,
furniture and
fixtures
(Millions of yen)
Construction
in
progress
Total
34,543
1,405,965
—
(11,934)
Land
75,683
(24)
34,543
78,671
—
—
(71,293)
(159)
(7)
41,755
58,059
(5)
January 1, 2019 (after adjustment) ..............................
423,918
738,370
121,541
75,659
Additions ..................................................................
Acquisitions through business combinations ..........
Sales and disposals ..................................................
Reclassification ........................................................
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
162
15
(3,878)
14,151
(751)
169
493
—
(18,094)
40,741
(509)
310
1,084
1
(8,952)
12,285
(37)
(513)
—
—
(373)
4,116
109
—
December 31, 2019 .....................................................
433,786
761,311
125,409
79,511
Additions ..................................................................
Sales and disposals ..................................................
Reclassification ........................................................
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
December 31, 2020 .....................................................
356
(2,034)
19,967
(1,170)
(159)
450,746
240
(14,680)
31,120
(5,054)
388
773,325
Note: 1. It represents the financial effect from the adoption of IFRS 16 “Leases.”
508
(8,968)
10,902
20
—
3,210
(65,199)
(343)
(473)
(456)
127,052
—
82,268
(543)
247
34,314
Accumulated Depreciation and Accumulated Impairment Losses
Buildings
and
structures
Machinery
and
vehicles
Tools,
furniture and
fixtures
January 1, 2019............................................................
300,433
582,438
93,839
Changes in accounting policy1 .................................
(9,434)
(27)
January 1, 2019 (after adjustment) ..............................
290,999
582,411
Depreciation2 ............................................................
Sales and disposals ..................................................
13,453
(3,324)
32,031
(17,265)
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
(510)
135
December 31, 2019 .....................................................
300,753
Depreciation2 ............................................................
Sales and disposals ..................................................
13,760
(1,818)
(444)
316
597,049
33,583
(13,891)
Exchange differences on translation of
foreign operations ..................................................
(395)
(3,181)
Other ........................................................................
December 31, 2020 .....................................................
159
312,459
498
614,058
(9)
93,830
12,012
(8,684)
0
(339)
96,819
12,344
(8,650)
(287)
(272)
99,954
Land
10,320
—
10,320
—
—
—
—
10,320
—
—
—
—
10,320
Construction
in
progress
—
—
—
—
—
—
—
—
—
—
—
—
—
1,394,031
80,410
16
(31,297)
—
(1,347)
(41)
1,441,772
59,183
(25,687)
—
(7,583)
20
1,467,705
(Millions of yen)
Total
987,030
(9,470)
977,560
57,496
(29,273)
(954)
112
1,004,941
59,687
(24,359)
(3,863)
385
1,036,791
Notes: 1. It represents the financial effect from the adoption of IFRS 16 “Leases.”
2. 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.
Kao Corporation Financial Report 2020
34
Carrying Amount
Buildings
and
structures
Machinery
and
vehicles
Tools,
furniture and
fixtures
January 1, 2019 ...........................................................
135,338
December 31, 2019 .....................................................
133,033
December 31, 2020 .....................................................
138,287
155,979
164,262
159,267
27,712
28,590
27,098
(Millions of yen)
Construction
in
progress
34,543
41,755
34,314
Total
418,935
436,831
430,914
Land
65,363
69,191
71,948
(2) 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.
(3) 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, 2019 ...........................................................
180,286
29,320
14,710
13,739
Additions ..................................................................
Acquisitions through business combinations ..........
Sales and disposals ..................................................
Reclassification ........................................................
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
—
—
—
—
(579)
—
76
1
(5,048)
6,990
(50)
(3)
—
—
—
—
(210)
—
—
—
(294)
—
(211)
—
December 31, 2019 .....................................................
179,707
31,286
14,500
13,234
Additions ..................................................................
Sales and disposals ..................................................
Reclassification ........................................................
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
December 31, 2020 .....................................................
—
—
—
(2,676)
—
177,031
102
(5,786)
7,788
43
26
33,459
—
—
—
—
—
—
(751)
—
13,749
(621)
—
12,613
Note: 1. Software in progress is included in other in intangible assets.
Other1
6,735
9,702
—
(1,789)
(6,990)
(34)
(75)
7,549
10,368
(16)
(7,788)
(84)
(71)
9,958
Total
64,504
9,778
1
(7,131)
—
(505)
(78)
66,569
10,470
(5,802)
—
(1,413)
(45)
69,779
35
Kao Corporation Financial Report 2020
Notes to Consolidated Financial Statements
Accumulated Amortization and Accumulated Impairment Losses
(Millions of yen)
Goodwill
Software
Trademarks
Intangible assets
Customer
relationships
January 1, 2019 ...........................................................
Amortization1 ............................................................
Sales and disposals ..................................................
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
December 31, 2019 .....................................................
Amortization1 ............................................................
Sales and disposals ..................................................
Exchange differences on translation of
foreign operations ..................................................
Other ........................................................................
December 31, 2020 .....................................................
—
—
—
—
—
—
—
—
—
—
—
14,395
5,938
(5,027)
(46)
6
15,266
6,896
(5,783)
43
10
16,432
736
765
—
(12)
—
666
898
(294)
(14)
—
1,489
1,256
750
—
(103)
—
2,136
737
—
(67)
—
1,926
Other
2,158
430
(1,787)
(13)
—
788
307
(16)
(46)
(4)
1,029
Total
17,955
8,031
(7,108)
(85)
6
18,799
8,690
(5,799)
(173)
6
21,523
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, 2019 ...........................................................
180,286
December 31, 2019 .....................................................
179,707
December 31, 2020 .....................................................
177,031
14,925
16,020
17,027
13,974
13,011
11,613
13,073
11,978
10,687
(Millions of yen)
Other
4,577
6,761
8,929
Total
46,549
47,770
48,256
(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 ...................................................................................................................................................
2020
130,398
119,400
10,998
26,968
23,303
3,665
17,219
2,446
177,031
(Millions of yen)
2019
130,605
119,400
11,205
28,412
24,545
3,867
18,160
2,530
179,707
(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 for the Cosmetics Business
that reflect past performance and forecasts. These medium-term
plans include information on sales by region and brand. 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)
Kao Corporation Financial Report 2020
36
of 7.3% for the fiscal year ended December 31, 2020 and 6.8%
for the fiscal year ended December 31, 2019. For the fiscal year
ended December 31, 2020 and 2019, 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 ................................................................................
2020
8,657
(Millions of yen)
2019
8,287
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 ...........................................................................................
2020
2,536
(142)
2,394
(Millions of yen)
2019
2,126
(53)
2,073
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, 2020
(Millions of yen)
January 1,
2020
Recognized in
profit or loss
Recognized
in other
comprehensive
income
Other
December 31,
2020
Deferred tax assets
Property, plant and equipment and
intangible assets ................................................
Lease liabilities .....................................................
Retirement benefit liabilities ................................
Accrued expenses ...............................................
Unused tax losses ...............................................
Other ....................................................................
Total deferred tax liabilities ......................................
Deferred tax liabilities
Property, plant and equipment and
intangible assets ................................................
Right-of-use assets ..............................................
Financial assets ....................................................
Undistributed foreign earnings ............................
Other ....................................................................
Total deferred tax liabilities ......................................
Deferred tax assets, net ..........................................
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
37
Kao Corporation Financial Report 2020
1,220
(2,917)
(1,395)
800
804
(983)
—
—
(6,888)
—
—
—
(76)
(730)
52
(4)
(1)
80
21,859
42,379
13,188
11,036
1,190
15,102
(2,471)
(6,888)
(679)
104,754
462
(3,324)
—
(474)
609
(2,727)
256
—
—
97
—
133
230
(7,118)
(262)
(638)
(294)
—
92
(1,102)
423
10,148
41,964
2,319
11,059
1,574
67,064
37,690
Notes to Consolidated Financial Statements
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
19,217
46,887
24,093
10,446
1,400
—
—
—
—
46,887
15,866
117,909
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
—
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.”
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
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 ............................................................................................................................
2020
42,274
4,584
37,690
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 .........................................................................................................................................................
2020
2,434
12,037
14,471
(Millions of yen)
2019
47,876
3,747
44,129
(Millions of yen)
2019
2,687
11,879
14,566
Unused tax losses for which no deferred tax asset is recognized will expire as follows:
(Millions of yen)
2020
2019
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 .........................................................................................................................................................
465
291
520
388
770
2,434
343
458
288
493
1,105
2,687
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, 2020 and 2019 were 15,353 million yen and 13,648 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 2020
38
(2) Income Taxes
Income taxes consist of the following:
Current taxes .............................................................................................................................................
Deferred taxes1 ..........................................................................................................................................
Total .......................................................................................................................................................
2020
46,160
(256)
45,904
(Millions of yen)
2019
58,540
1,756
60,296
Note: 1. Deferred taxes include 145 million yen and 79 million yen for the fiscal years ended December 31, 2020 and 2019, 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:
2020
30.62
(2.24)
(1.81)
0.15
0.08
(0.41)
26.39
(%)
2019
30.62
(1.90)
(1.42)
0.69
0.04
0.59
28.62
(Millions of yen)
Average interest
rate1 (%)
Maturity
1.19
0.11
0.75
—
—
0.54
0.93
—
—
2022-2029
—
—
—
2022-2066
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 ..............................................................................................................................
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 ........................................................................................
2020
408
30,045
47,232
12
49,997
19,787
126,725
274,206
30,465
19,787
50,252
97,229
126,725
223,954
274,206
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
Notes: 1. The average interest rate is the weighted average interest rate on the balance as of December 31, 2020.
2. Details of bonds issued are as follows:
Issuer
Bond name
Issue date
2020
2019
Interest rate (%) Collateral
Maturity date
(Millions of yen)
The Company
4th unsecured bonds
June 14, 2013
—
The Company
5th unsecured bonds
June 19, 2018
24,971
The Company
6th unsecured bonds
September 18, 2020
24,942
Subsidiaries
Total ................................................................................
Other bonds
—
96
50,009
24,995
24,958
—
108
50,061
0.62
0.08
0.13
—
None
None
None
—
June 19, 2020
June 20, 2023
September 19, 2025
—
39
Kao Corporation Financial Report 2020
Notes to Consolidated Financial Statements
16
Leases
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)
2020
2019
16,249
1,454
17,703
1,490
1,686
669
3,845
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 years ended December 31, 2020 and 2019 were 24,777 million yen and 24,722 million
yen, respectively.
Carrying amount of right-of-use assets consists of the following:
(Millions of yen)
2020
2019
Right-of-use assets
Buildings and structures ........................................................................................................................
Other ......................................................................................................................................................
Total ...................................................................................................................................................
141,728
7,815
149,543
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.
Kao Corporation Financial Report 2020
40
17
Trade and Other Payables
Trade and other payables consist of the following:
Trade payables ...........................................................................................................................................
Non-trade payables ....................................................................................................................................
Total ......................................................................................................................................................
2020
137,680
78,162
215,842
(Millions of yen)
2019
144,864
77,450
222,314
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 .............................................................................................................
2020
351,077
(302,237)
48,840
51,858
(3,018)
48,840
(Millions of yen)
2019
362,080
(283,647)
78,433
80,579
(2,146)
78,433
41
Kao Corporation Financial Report 2020
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 defined benefit 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 ...........................................................
Benefits paid3 .........................................................................................................................................
Exchange differences on translation of foreign operations and other ...................................................
The present value of the defi ned benefi t obligations at end of year .........................................................
2020
362,080
10,639
2,209
(337)
(8,622)
399
(14,120)
(1,171)
351,077
(Millions of yen)
2019
342,130
9,804
2,710
2,389
17,402
365
(12,381)
(339)
362,080
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. The weighted average duration of the defined benefit obligations in
Japan was mainly 17.2 years at December 31, 2020 and 18.0 years at
December 31, 2019.
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 ...............................................................................................
2020
283,647
1,675
14,826
15,714
(12,880)
(745)
302,237
(Millions of yen)
2019
258,744
1,911
19,456
14,870
(11,242)
(92)
283,647
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 17,236 million yen to the defined benefit plan for the fiscal year ending December 31, 2021.
Plan assets consist of the following:
2020
2019
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
11,651
—
11,651
7,248
—
7,248
462
19,361
Unquoted
62,649
30,996
31,653
208,061
138,520
69,541
12,166
282,876
Total
74,300
30,996
43,304
215,309
138,520
76,789
12,628
302,237
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
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 2020
42
4) Significant actuarial assumptions and related sensitivity analysis
Significant actuarial assumptions are as follows:
Discount rate ............................................................................................................................................
Mainly 0.8%
Mainly 0.6%
2020
2019
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)
2020
2019
The impact on defined benefit obligations
0.5% increase in discount rate ...........................................................................................................
0.5% decrease in discount rate ..........................................................................................................
(25,482)
26,815
(27,430)
28,821
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 3,488 million yen and 3,820 million yen
for the fiscal years ended December 31, 2020 and 2019,
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, 2020 and 2019 were 277,244 million
yen and 274,937 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, 2020 ....................................................................................
5,959
Increase ............................................................................................
Interest expense on discounted provision ........................................
—
11
Decrease (provision used) ................................................................
(844)
Decrease (provision reversed) ..........................................................
Exchange differences on translation of
foreign operations ...........................................................................
—
—
December 31, 2020 ..............................................................................
5,126
4,506
231
55
(108)
—
11
4,695
1,711
555
—
(1,042)
(38)
(21)
1,165
(Millions of yen)
Total
12,176
786
66
(1,994)
(38)
(10)
10,986
(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 1,128 million yen of the
estimated expenses.
(2) Provision for Asset Retirement Obligations
The Group recognizes asset retirement obligations principally
based on or pursuant to reasonably estimated future expenditures
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.
43
Kao Corporation Financial Report 2020
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 .........................................................................................................................................................
2020
72,701
10,508
8,201
8,311
Total .......................................................................................................................................................
99,721
(Millions of yen)
2019
72,551
10,663
7,948
8,249
99,411
21
Equity and Other Equity Items
(1) Share Capital
The numbers of shares authorized and issued are as follows:
2020
2019
(Shares)
Authorized .................................................................................................................................................
1,000,000,000 1,000,000,000
Issued1
Beginning balance ..................................................................................................................................
482,000,000
488,700,000
Change during the year2 .........................................................................................................................
—
(6,700,000)
Ending balance .......................................................................................................................................
482,000,000
482,000,000
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 decreased by 6,700,000 shares 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:
2020
2019
(Shares)
Beginning balance1 ....................................................................................................................................
1,083,466
Increase2 ................................................................................................................................................
Decrease3 ...............................................................................................................................................
28,823
(58,270)
Ending balance4 .........................................................................................................................................
1,054,019
2,043,272
5,786,409
(6,746,215)
1,083,466
Notes: 1. 556,492 shares of treasury shares held by associates were included at December 31, 2020 and 2019.
In addition, 226,550 shares and 242,675 shares held by the Board Incentive Plan Trust (hereinafter “BIP Trust”) were included at December 31,
2020 and 2019, respectively.
2. The increase of 28,823 shares of treasury shares during the fiscal year ended December 31, 2020 resulted from an increase of 25,605 shares due to
changes in treasury shares held by associates accounted for by the equity method and the purchase of 3,218 fractional shares.
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.
3. The decrease of 58,270 shares of treasury shares during the fiscal year ended December 31, 2020 resulted from a decrease of 43,000 shares due to
the exercise of stock options, a decrease of 15,000 shares due to the grant to the Board of Directors by the BIP trust and the sale of 270 fractional
shares.
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.
4. 582,097 shares and 556,492 shares of treasury shares held by associates were included at December 31, 2020 and 2019, respectively.
In addition, 211,550 shares and 226,550 shares held by the BIP Trust were included at December 31, 2020 and 2019, respectively.
Kao Corporation Financial Report 2020
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 uses surplus
funds to flexibly conduct share repurchases, aiming to
continuously increase dividends to reflect improvements in
business results.
While making returns to shareholders and improving EVA, the
Group retains the capital necessary to make timely investments
for growth and to ensure the appropriate resources to deal with
unexpected situations.
For the fiscal year ended December 31, 2020, EVA decreased
25.1 billion yen compared with the previous fiscal year to 62.3
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 2020
Notes to Consolidated Financial Statements
23 Dividends
Dividends paid are as follows:
Fiscal year ended December 31, 2020
Date of resolution
114th Annual General Meeting
of Shareholders held on
March 25, 2020
Board of Directors meeting held
on July 29, 2020
Total dividends¹
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
31,260
33,666
65
70
December 31, 2019
March 26, 2020
June 30, 2020
September 1, 2020
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 114th Annual General Meeting of Shareholders held on March 25, 2020 was 31,310 million yen before the deduction.
The dividend resolved at the meeting of the Board of Directors held on July 29, 2020 was 33,721 million yen before the deduction.
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.
Dividends with an effective date after the fiscal year end are as follows:
Fiscal year ended December 31, 2020
Date of Resolution
115th Annual General Meeting
of Shareholders held on
March 26, 2021
Fiscal year ended December 31, 2019
Date of Resolution
114th Annual General Meeting
of Shareholders held on
March 25, 2020
Total dividends
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
33,722
70
December 31, 2020
March 29, 2021
Total dividends
(Millions of yen)
Dividends per share
(Yen)
Record date
Effective date
31,310
65
December 31, 2019
March 26, 2020
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 2020
46
Fiscal year ended December 31, 2020
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
164,165
177,720
144,867
324,250
811,002
111,084
(34,029)
888,057
Asia
45,354
25,332
88,942
40,643
200,271
56,472
(2,626)
254,117
Americas
5,539
68,619
119
9,338
83,615
42,773
(72)
Europe
19,010
37,226
43
136
56,415
58,882
(1,790)
(Millions of yen)
Total
234,068
308,897
233,971
374,367
1,151,303
269,211
(38,517)
126,316
113,507
1,381,997
10,203
—
—
—
10,203
Total revenue from contracts with customers
898,260
254,117
126,316
113,507
1,392,200
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. The Group has changed its method of recognizing sales for certain transactions for the Skin Care and
Hair Care Business in Japan from the gross amount to the net amount.
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.
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
47
Kao Corporation Financial Report 2020
Notes to Consolidated Financial Statements
termination of products is expected to occur. Because the
Group has an obligation to refund the consideration for a
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, 2020
Contract liabilities
January 1, 2020
December 31, 2020
(Millions of yen)
Advances ...........................................................................................................................
Refund liabilities .................................................................................................................
Total ...............................................................................................................................
384
20,232
20,616
298
22,800
23,098
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
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, 2020 and 2019 were
recognized as revenue during the fiscal years ended December 31,
2020 and 2019, respectively. The amount of revenue recognized
during the fiscal year ended December 31, 2020 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, 2020 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 2020
48
25
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the following:
Advertising .................................................................................................................................................
Sales promotion .........................................................................................................................................
2020
71,984
45,543
(Millions of yen)
2019
77,545
56,943
Employee benefi ts .....................................................................................................................................
148,281
148,431
Depreciation ..............................................................................................................................................
Amortization ..............................................................................................................................................
Research and development .......................................................................................................................
Other .........................................................................................................................................................
18,586
8,632
58,509
64,291
18,775
7,950
59,143
74,125
Total .......................................................................................................................................................
415,826
442,912
26 Other Operating Income
Other operating income consists of the following:
Revenue of logistics services to third parties ............................................................................................
Royalty income ..........................................................................................................................................
Other .........................................................................................................................................................
2020
10,203
1,002
4,596
(Millions of yen)
2019
8,973
1,244
4,975
Total .......................................................................................................................................................
15,801
15,192
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 .................................................................
Other .........................................................................................................................................................
2020
9,311
3,347
2,447
(Millions of yen)
2019
8,293
3,600
2,182
Total .......................................................................................................................................................
15,105
14,075
49
Kao Corporation Financial Report 2020
Notes to Consolidated Financial Statements
28
Financial Income and Financial Expenses
Financial income consists of the following:
(Millions of yen)
2020
2019
Interest income
Financial assets measured at amortized cost ........................................................................................
Retirement benefi t assets .....................................................................................................................
1,415
23
1,707
28
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 .........................................................................................................................................................
16
135
4
118
8
162
7
115
Total ...............................................................................................................................................
1,711
2,027
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 ...............................................................................................................................................
2020
2,624
1,043
1,490
557
125
5,839
(Millions of yen)
2019
1,521
1,164
1,676
827
43
5,231
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 ......................................................................................
126,142
Amounts not attributable to ordinary shareholders of the parent ..............................................................
—
2020
2019
148,213
—
Net income used to calculate basic earnings per share ............................................................................
126,142
148,213
(Millions of yen, unless otherwise noted)
Weighted average number of ordinary shares (Thousands of shares) ......................................................
480,929
483,252
Basic earnings per share (Yen) ..................................................................................................................
262.29
306.70
Kao Corporation Financial Report 2020
50
(2) The Basis for Calculating Diluted Earnings per Share
Net income used to calculate basic earnings per share ............................................................................
126,142
Adjustments to net income .......................................................................................................................
—
2020
2019
148,213
—
Net income used to calculate diluted earnings per share ..........................................................................
126,142
148,213
(Millions of yen, unless otherwise noted)
Weighted average number of ordinary shares (Thousands of shares) ......................................................
480,929
483,252
Increase in ordinary shares
Subscription rights to shares (Thousands of shares) .............................................................................
68
Weighted average number of ordinary shares after dilution (Thousands of shares) .................................
480,998
104
483,356
Diluted earnings per share (Yen) ...............................................................................................................
262.25
306.63
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, 2020
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 .........
265
Remeasurements of defi ned benefi t plans .......................
23,386
Share of other comprehensive income of investments
accounted for using the equity method ...........................
36
Total of items that will not be reclassifi ed to profi t or loss ..
23,687
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations ...
(9,936)
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 .............................................................
(167)
(10,103)
Total ...........................................................................
13,584
—
—
—
—
(6)
—
(6)
(6)
265
23,386
36
23,687
(9,942)
(167)
(10,109)
(97)
(7,021)
(11)
(7,129)
—
0
0
168
16,365
25
16,558
(9,942)
(167)
(10,109)
13,578
(7,129)
6,449
51
Kao Corporation Financial Report 2020
Notes to Consolidated Financial Statements
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)
31
Cash Flow Information
(1) Changes in Liabilities Arising from Financing Activities
Fiscal year ended December 31, 2020
The following table presents the changes in liabilities arising from financing activities for lease liabilities.
January 1, 2020
Changes from
financing cash
flows
New leases
Other
December 31, 2020
Non-cash changes
(Millions of yen)
Lease liabilities ......................................
161,091
(20,912)
16,358
(10,025)
146,512
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, 2020.
Fiscal year ended December 31, 2019
The following table presents the changes in liabilities arising from financing activities for lease liabilities.
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.
(2) Non-cash Transactions
For the fiscal year ended December 31, 2020 and 2019, the non-cash transactions comprised the acquisition of right-of-use assets
resulted from leases of 16,496 million yen and 23,199 million yen, respectively.
Kao Corporation Financial Report 2020
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
Beginning balance of outstanding .................................
Granted ......................................................................
Exercised ...................................................................
Expired at maturity .....................................................
Ending balance of outstanding ......................................
Ending balance of exercisable .......................................
2020
2019
Number of
shares
Weighted average
exercise price
(Shares)
95,000
—
(43,000)
(1,000)
51,000
51,000
(Yen)
1
—
1
1
1
1
Number of
shares
(Shares)
125,000
—
(30,000)
—
95,000
95,000
Weighted average
exercise price
(Yen)
1
—
1
—
1
1
Notes: 1. The weighted average share price on the date of exercise for the fiscal years ended December 31, 2020 and 2019 was 8,400 yen and 8,118
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
2020
Number of
shares
(Shares)
51,000
Weighted average
remaining contractual life
Exercise price
(Years)
1.7
(Yen)
1
2019
Number of
shares
(Shares)
95,000
Weighted average
remaining contractual life
(Years)
2.2
(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 2020
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) ..............................
34,125
6,821
2020
Achievement-linked
points
Fixed points
14,625
6,443
2019
Achievement-linked
points
35,000
6,821
Fixed points
15,000
6,551
(3) Share-based Payment Expenses
The amount of share-based payment expenses recognized in the consolidated statement of income for the fiscal year ended December 31,
2020 and 2019 were 394 million yen of reversal of expenses and 337 million yen of expenses, 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)
2020
2019
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 ...............................................................................................................................................
338,276
200,087
17,907
14,900
81
3,034
9,843
584,128
353,176
200,087
7,257
560,520
23,608
584,128
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
Kao Corporation Financial Report 2020
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, 2020
Company name
(Millions of yen)
Fair value
Aeon Co., Ltd. ...........................................................................................................................................
Seven & i Holdings Co., Ltd. .....................................................................................................................
Saiwai Trading Co., Ltd. ............................................................................................................................
Livedo Corporation ...................................................................................................................................
Japan Alcohol Trading Co., Ltd. ..................................................................................................................
Tokio Marine Holdings, Inc. ......................................................................................................................
Keytrading Co., Ltd. ...................................................................................................................................
Izumi Co., Ltd. ..........................................................................................................................................
Kawaken Fine Chemicals Co., Ltd. ...........................................................................................................
Kyoto Seisakusho Co., Ltd. .......................................................................................................................
1,433
1,375
1,308
1,286
739
677
431
374
272
194
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
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) ..........................................................................................................................
2020
1,224
968
(Millions of yen)
2019
400
328
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, 2020 and 2019, were 668 million yen and 227 million yen,
respectively.
55
Kao Corporation Financial Report 2020
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)
2020
2019
Trade and other payables (Note 17) .......................................................................................................
Bonds and borrowings (Note 15) ...........................................................................................................
Lease liabilities (Note 16) .......................................................................................................................
Other ......................................................................................................................................................
215,842
127,694
146,512
14,065
Financial liabilities measured at fair value through profi t or loss
Derivatives .............................................................................................................................................
368
Total ...............................................................................................................................................
504,481
222,314
127,141
161,091
13,898
395
524,839
Current liabilities
Trade and other payables .......................................................................................................................
215,842
222,314
Bonds and borrowings ...........................................................................................................................
Lease liabilities .......................................................................................................................................
Other fi nancial liabilities .........................................................................................................................
30,465
19,787
6,571
25,505
19,653
6,766
Subtotal ..............................................................................................................................................
272,665
274,238
Non-current liabilities
Bonds and borrowings ...........................................................................................................................
Lease liabilities .......................................................................................................................................
Other fi nancial liabilities .........................................................................................................................
Subtotal ..............................................................................................................................................
Total ...............................................................................................................................................
97,229
126,725
7,862
231,816
504,481
101,636
141,438
7,527
250,601
524,839
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, 2020 and 2019 totaling 12,789 million yen and 12,790 million yen, respectively.
The average interest rate on deposits received as of December 31, 2020 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 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 2020
56
Derivatives transactions
Foreign exchange forward contracts:
Selling
2020
Contract
amount over
1 year
Carrying
amount
(fair value)¹
Contract
amount
U.S. dollar .........................................................
Euro ..................................................................
10,776
80
Buying
Euro ..................................................................
Chinese yuan ...................................................
31
111
—
—
—
—
(0)
2
(0)
(0)
(Millions of yen)
2019
Contract
amount over
1 year
Carrying
amount
(fair value)1
—
—
—
—
4
0
(1)
(9)
Contract
amount
21,052
19
105
458
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, 2020
Net exposure ..................................................................................................................
23,198
U.S. dollar
As of December 31, 2019
Net exposure ..................................................................................................................
U.S. dollar
23,641
Euro
2,201
Euro
1,725
(Millions of yen)
Chinese yuan
11,074
(Millions of yen)
Chinese yuan
11,630
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 .............................................................................................................................................
2020
(2,320)
(220)
(1,107)
(Millions of yen)
2019
(2,364)
(173)
(1,163)
(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 4,699 million yen and 5,830 million
yen at December 31, 2020 and 2019, 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 2020
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 7,001 million yen and 6,829 million yen at December
31, 2020 and 2019, 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 2020
58
The carrying amount of trade receivables and changes in the related allowance for doubtful receivables are as follows:
Fiscal year ended December 31, 2020
(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, 2020 .....................................................................
203,690
Change during the year
(Recognition and derecognition) ......................................
Transfer to credit-impaired fi nancial assets .......................
Other changes ...................................................................
(7,907)
(59)
(919)
December 31, 2020 ...............................................................
194,805
632
(30)
59
17
678
Allowance for doubtful receivables
January 1, 2020 .....................................................................
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, 2020 ...............................................................
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
1,114
565
(157)
(95)
57
6
1,490
520
82
(1)
(16)
(57)
15
543
Total
204,322
(7,937)
—
(902)
195,483
(Millions of yen)
Total
1,634
647
(158)
(111)
—
21
2,033
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
59
Kao Corporation Financial Report 2020
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
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, 2020
Trade receivables .......................................................
Allowance for doubtful receivables ...........................
Expected credit loss (%) ............................................
As of December 31, 2019
Trade receivables .......................................................
Allowance for doubtful receivables ...........................
Expected credit loss (%) ............................................
(Millions of yen, unless otherwise noted)
Days past due
Not due
183,636
265
0.1
Less than 30
days
Over 30
days
Over 60
days
Over 90
days
6,066
57
0.9
1,685
134
8.0
1,150
199
17.3
2,946
1,378
46.8
Total
195,483
2,033
1.0
(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
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, 2020
(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 .............
215,842
215,842
215,842
Bonds and borrowings .................
127,694
127,781
Lease liabilities1 ............................
146,512
157,905
Long-term deposits payable ........
7,001
7,001
30,465
21,088
—
Derivative financial liabilities
Currency related ..........................
Interest rate related .....................
222
146
222
146
164
—
—
5,879
16,985
—
66,126
12,495
—
48
44
—
10
—
—
22
10,403
—
—
102
—
25,022
9,634
—
—
—
—
267
87,300
7,001
—
—
Total .........................................
497,417
508,897
267,559
22,956
78,631
10,527
34,656
94,568
Note: 1. Lease liabilities by maturity date consist of the following:
As of December 31, 2020
(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 ........................
146,512
157,905
21,088
49,517
33,987
22,787
18,588
11,938
Kao Corporation Financial Report 2020
60
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 liabilities1 ............................
161,091
174,820
Long-term deposits payable ........
6,829
6,829
Derivative financial liabilities
Currency related ..........................
Interest rate related .....................
320
75
320
75
25,510
21,245
—
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
Note: 1. 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
(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 2020
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, 2020
or 2019.
As of December 31, 2020
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 ......................................................................................
—
—
—
4,699
4,699
—
—
14,900
81
3,034
—
18,015
368
368
—
—
—
5,144
5,144
—
—
14,900
81
3,034
9,843
27,858
368
368
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
Kao Corporation Financial Report 2020
62
Changes in financial instruments categorized within Level 3 are as follows:
Beginning balance .....................................................................................................................................
Gains (losses)¹ .......................................................................................................................................
Purchases ..............................................................................................................................................
Sales ......................................................................................................................................................
Other changes .......................................................................................................................................
2020
4,892
203
50
(0)
(1)
(Millions of yen)
2019
4,500
391
—
(0)
1
Ending balance ..........................................................................................................................................
5,144
4,892
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.
63
Kao Corporation Financial Report 2020
Notes to Consolidated Financial Statements
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, 2020
Carrying amount
Level 1
Level 2
Level 3
Total
Fair value
(Millions of yen)
Financial liabilities
Financial liabilities measured at amortized cost
Bonds ............................................................
Borrowings ....................................................
50,009
77,685
—
—
50,094
78,164
—
—
50,094
78,164
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
Kao Corporation Financial Report 2020
64
34
Principal Subsidiaries
Principal subsidiaries consist of the following. Voting rights at December 31, 2020 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.
Cosmetics
Skin Care and Hair Care
Human Health Care
Fabric and Home Care
Chemical
Chemical
Cosmetics
Skin Care and Hair Care
Human Health Care
Fabric and Home Care
Chemical
Fatty Chemical (Malaysia) Sdn. Bhd.
Chemical
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
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.
65
Kao Corporation Financial Report 2020
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
70.0
66.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
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 .......................................................................................................................................................
2020
1,213
32
(394)
851
(Millions of yen)
2019
1,069
33
337
1,439
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 .......................................................................................................................................................
2020
22,611
1,883
24,494
(Millions of yen)
2019
25,041
3,735
28,776
37
Significant Subsequent Events
At a meeting held on February 3, 2021, the Board of Directors resolved to purchase up to a maximum of 7 thousand shares or 50,000
million yen of the Company’s common stock from February 4 to April 30, 2021, in accordance with Article 156 of the Companies Act
applicable pursuant to Article 165, paragraph 3 of the said Act.
38 Approval of the Consolidated Financial Statements
The Consolidated Financial Statements were approved by Yoshihiro Hasebe, President and Chief Executive Officer, and by Kenichi
Yamauchi, Executive Officer, Senior Vice President, Accounting and Finance, on March 18, 2021.
Kao Corporation Financial Report 2020
66
Independent Auditor’s Report
67
Kao Corporation Financial Report 2020
Kao Corporation Financial Report 2020
68
69
Kao Corporation Financial Report 2020
Independent Auditor’s Report
Kao Corporation Financial Report 2020
70
14-10, Nihonbashi Kayabacho 1-chome
Chuo-ku, Tokyo 103-8210, Japan
www.kao.com/global/en/
Investor Relations
E-mail: ir@kao.co.jp
Website: www.kao.com/global/en/investor-relations/