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 Nov 10, 2003 |
Corporate name: Kobayashi Pharmaceutical Co., Ltd.
Chief Executive: Kazumasa KOBAYASHI, President & CEO
(Code No. 4967 The First Section of TSE/OSE) |
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Consolidated Financial Results for the First Half of FY2004 |
Kobayashi Pharmaceutical Co., Ltd.
Listing: Tokyo Stock Exchange First Section, Osaka Securities Exchange First Section
Code Number: 4967(URL http://www.kobayashi.co.jp/)
Head Office: 3-6, Doshomachi 4 chome, Chuo-ku, Osaka, Japan
Representative: Kazumasa Kobayashi, President and Representative Director
Contact: Masaaki Tanaka, Director and Senior General Manager, Headquarters' Operations
TEL: 06-6222-0210
Date of Board Meeting for Consolidated Settlement of Interim Accounts: November 10, 2003
Application of US Financial Accounting Standards: None
| 1. |
Consolidated Results for the First Half of FY2004
(Apr. 1, 2003 - Sept. 30, 2003)
*Amounts under one million yen have been rounded down.
| (1) |
Business Results
| (Millions of yen, except for per share figures) |
| |
Net Sales |
Operating Income |
Ordinary Income |
| First Half of FY2004 |
108,386(+1.4%) |
7,838(-4.4%) |
7,011(+12.8%) |
| First Half of FY2003 |
106,895(+6.1%
) |
8,194(+18.3%) |
6,217(+2.4%) |
| FY2003 |
210,922(+3.1%) |
15,852(+16.3%) |
12,951(+7.1%) |
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Net Income |
Net Income per Share
(Yen) |
Fully Diluted
Net Income per Share
(Yen) |
| First Half of FY2004 |
3,357(-0.6%) |
79.51 |
- |
| First Half of FY2003 |
3,379(+23.2%) |
119.19 |
- |
| FY2003 |
6,605(+0.2%) |
231.92 |
- |
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| Notes: |
| 1) |
Gain from investment in subsidiaries and
affiliates accounted for by the equity method:
First half FY2004: ¥141 million
First half FY2003: ¥7 million
FY2003: ¥117 million |
| 2) |
Average number of shares outstanding (consolidated):
First half FY2004: 42,228,330
First half FY2003: 28,349,870
FY2003: 28,316,862 |
| 3) |
Changes in accounting method: Not applicable |
| 4) |
Numbers in parentheses alongside net sales,
operating income, ordinary income, and net income indicate
percentage increase/decrease from the same period of the
previous year. |
| 5) |
On November 20, 2003, the Company executed a 1.5-for-1 stock split. However, interim net income per share is calculated assuming that the stock split was executed at the beginning of the fiscal year. |
| 6) |
Interim net income per share for the first six-month period of the previous fiscal year would be ¥79.46 if calculated assuming that the stock split was executed in the previous fiscal year. |
| 7) |
Fully diluted interim net income per share is not indicated because no securities convertible into common stock with dilution impact exist. |
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| (2) |
Financial Position
| (Millions of yen, except for per share figures) |
| |
Total Assets |
Shareholders'
Equity |
Equity Ratio |
Shareholders'
Equity per Share |
| First Half of FY2004 |
134,407 |
52,367 |
39.0 |
1,240.10 |
| First Half of FY2003 |
131,322 |
47,099 |
35.9 |
1,661.37 |
| FY2003 |
125,679 |
49,267 |
39.2 |
1,748.66 |
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| Notes: |
| 1) |
Number of shares outstanding at term end (consolidated):
First half FY2004: 42,228,294
First half FY2002: 28,349,771
FY2003:28,152,274 |
| 2) |
On November 20, 2003, the Company executed a 1.5-for-1 stock split. However, shareholders' equity per share is calculated assuming that the stock split was executed at the beginning of the fiscal year. |
| 3) |
Shareholders' equity per share for the first six-month period of the previous fiscal year would be ¥1,107.58 if calculated assuming that the stock split was executed in the previous fiscal year. |
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| (3) |
Cash Flows
| (Millions of yen) |
| |
Cash Flows from
Operating
Activities |
Cash Flows from
Investing
Activities |
Cash Flows from
Financing
Activities |
Cash and Cash
Equivalents at
Term-End |
| First Half of FY2004 |
(718) |
1,201 |
(48) |
18,187 |
| First Half of FY2003 |
5,804 |
1,610 |
(198) |
15,917 |
| FY2003 |
12,046 |
(276) |
(2,605) |
17,752 |
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| (4) |
Number of Consolidated
Subsidiaries, and subsidiaries
and affiliates accounted for by
the equity method
Number of consolidated subsidiaries: 19
Number of unconsolidated subsidiaries
accounted for by the equity
method: None
Number of affiliates accounted for by the equity method: 2
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| (5) |
Changes in Consolidation and Scope
of Application for Equity Method
Newly consolidated subsidiaries: None (Excluded from consolidation:
None)
Newly included under equity method: None (Excluded under equity
method: None)
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| 2. |
Forecast for the full year business results (Apr. 1, 2003 - Mar. 31, 2004)
| (Millions of yen) |
| |
Net Sales |
Ordinary Income |
Net Income |
| FY2004 |
221,000 |
13,500 |
6,650 |
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Reference: Expected net income per share ¥156.56
| * |
The above forecast has been prepared based on data as of the announcement date. Actual results may differ from the forecasted figures due to various factors such as fluctuations in exchange. For more information regarding the forecasts, see page 10-12 of the accompanying reference. |
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1.Basic Management Policy
Kobayashi Group's management policy is to provide people and
society with wonderful "comfort" as a result of our
quest for the new through creativity and innovation. It is our
mission to provide all our stakeholders with a "healthy,"
"comfortable," and "convenient" experience,
that is, to "give a shape to desires."
In an era of accelerating change and intensifying competition,
the driving force for our growth is our unceasing pursuit of "Something
New, Something Different," and our development of new products
and services that satisfy customer needs. By doing so, we intend
to increase the enterprise value so as to deliver greater satisfaction
to all our stakeholders.
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2.Basic Policy on Profit Distribution
The Company's basic policy on profit distribution is to ensure adequate internal reserves for high-growth-oriented business development and for strengthening the corporate structure, while at the same time maintaining stable dividend payment.
Internal reserves will be utilized for M&A to grow the consumer
products and the medical devices operations and for vigorous investment
in expansion overseas.
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3.Policy on Reduction in the Minimum Trading Unit
We recognize that increasing the liquidity of shares, broadening the investor base and increasing the number of shareholders are critical issues for the Company. To this end, the Company reduced the number of shares in a minimum trading unit from 1,000 to 100 shares in July 2000. Additionally, the Company executed a stock split at the rate of 1.5 for 1 on September 30, 2003, the record date.
We will continue to consider measures to increase shareholder value, broaden the investor base and vitalize liquidity of shares.
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4.Targeted Management Indices
Kobayashi Pharmaceutical aims to achieve a return on equity of 15% or higher every fiscal year and increase the equity ratio to 40% or higher as soon as possible.
The growth strategy for the Consumer Products Operation is based
on vigorous development of new products. Our target is for sales
of products commercialized in the last four year. R&D is designed
to ensure that new products released in any given fiscal year
account for at least 10% of total sales during that fiscal year.
Moreover, with the aim of maximizing shareholder value, we have introduced a new management index, KOVA, that takes the efficiency of capital employed into account, starting this fiscal year ending March 31, 2003 and strive to increase KOVA over the long term.
Note) KOVA is a management index unique to Kobayashi Pharmaceutical and is calculated by subtracting capital costs from operating income after taxes.
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5.Medium- to Long-term Management Strategy
For Kobayashi Pharmaceutical to achieve sustainable growth, we
need to address two tasks: strengthening of the product line-up of each operation to satisfy customer needs and expansion of geographical coverage. Namely, for the Consumer Products Operation and the Medical Devices Operation, we intend to strengthen the product line-up through vigorous development of new products, M&A and alliances and expand geographical coverage by entering new markets overseas. We have charted a new course for the Wholesale Operation in order to achieve continuing growth, in view of the increasingly drastic restructuring of the industry. Specifically, for the Wholesale Operation, we intend to pursue alliances with other wholesalers and M&A for the purpose of expanding the business in terms of both the range of products handled and geographical coverage. We aim to achieve annual sales of at least 300 billion yen as soon as possible.
Also, in line with our focus on the cost of capital, we will review businesses that yield low return and vigorously invest in growth businesses offering high returns so as to realize continuous increase of KOVA.
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6.Issues to Be Addressed
Adhering to our management policy of "Creativity and Innovation,"
it is our mission to constantly innovate so as to maintain high
growth and to establish a robust foundation for the business.
To this end, it is crucial for us to bring our new product development
capability, which is our core competence, into full play, vigorously
promote alliances and mergers that will strengthen the competitiveness
of our operations and enhance profitability, and achieve an efficient
and robust financial position. Moreover, we intend to develop
our business overseas vigorously, reaching out from the domestic
market.
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7.Basic Stance on Corporate Governance and Implementation of Measures
Kobayashi Pharmaceutical places enhancement of shareholder value
at the heart of its efforts to maximize enterprise value, which
is a key objective of management. Accordingly, management is endeavoring
to swiftly disclose accurate information and achieve transparency.
The reshaping of management organizations, implemented upon resolution
of the general meeting of shareholders held in June 2000, included
optimization of the number of directors (seven as of June 2000,
six at present), and introduction of the executive officer system
(13 officers of whom seven were also directors as of June 2000,
eight officers of whom five are also directors at present) and
the in-house company system. The aim is to vitalize the board
of directors and put systems and procedures into place that can
realize swift decision making and strengthened functions for execution
of operations. The board of directors meets monthly and also holds
extraordinary meetings as necessary, in order to make decisions
on issues stipulated by laws and regulations and critical management
issues and supervise the execution of operations sequentially.
In accordance with the above-mentioned reshaping, the Company
implemented a growth strategy, including spinning off of the wholesale
operation into a separate company in April 2001, acquisition of
Kiribai Chemical Co., Ltd. in June 2001, and acquisition of goodwill
for the medical equipment business from Chugai Pharmaceutical
Co., Ltd. in October 2001 and for the health food business from
Hitachi Zosen Corp. in December 2002, and also withdrew from unprofitable
businesses and promoted restructuring.
At present, the Company has no non-executive directors because people who have an excellent understanding of the Company's management philosophy and are able to put it into practice are making decisions from their vantage point at the forefront of the business.Meanwhile, the Company is enhancing the auditor system. Of the four auditors, two are external auditors with whom the Company has neither capital nor business relationships.
The Company is requesting Shin Nihon & Co., the accountant auditor, to provide proposals in the course of its auditing that will lead to improvement in operations. Regarding management and business practices, the Company receives advice from legal counsel and other specialists from time to time that is reflected in the decision-making process.
As a recent development, the Compliance Committee was set up in April 2003 with the aim of thoroughly implementing and reinforcing the principle of legal compliance in the Company's activities. The Company has set up taskforces for the Pharmaceuticals Affairs Law and the Product Liability Law and they are working to prepare guidelines and manuals on compliance systems. |
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| Operating Results and Financial Position |
| 1. |
Operating Results
| (1) | Overview of the results for the first six months of the current fiscal year
During the first six-month period of the current fiscal year,
the SARS outbreak, the Iraq war, and terrorist incidents made prospects
for the Japanese economy increasingly unclear. The severe economic situation
continued, exacerbated by bad weather, notably the long rainy season
and cool summer, in addition to uncertainty regarding employment and
weak personal consumption.
In this adverse environment, Kobayashi Pharmaceutical Group brought
the spirit expressed by its management policy of "Creativity and
Innovation" into full play. We cultivated potential customer needs
by providing products and services to create new markets and vitalized
existing markets by offering ones enriched with new added value. At
the same time, we vigorously promoted overseas development. As a result,
net sales were ¥108,386 million, an increase of ¥1,491 million or 1.4%
compared with the same period of the previous year.
In regard to profits, the Company reduced costs by thorough reduction
of manufacturing costs. However, because sales of pharmaceutical products,
whose profit margins are high, were sluggish, affected by the cool summer,
operating income decreased by ¥356 million or 4.4% compared with the
same period of the previous year to ¥7,838 million. On the other hand,
ordinary income increased by ¥793 million or 12.8% compared with the
same period of the previous year to ¥7,011 million because of lower
inventory write-down and disposal loss and lower foreign currency exchange
loss. Despite recording of extraordinary income, notably gains from
assignment of goodwill resulting from withdrawal from a joint venture,
net income was ¥3,357 million, a decrease of ¥22 million or 0.6% compared
with the same period of the previous year due to recording of extraordinary
losses including allowances for doubtful accounts in line with the filing
of a petition for protection under the Civil Rehabilitation Law of a
supplier of a subsidiary of the Company and a loss on liquidation of
an affiliate in line with preparation for closure of Chiba Kobayashi
Inc.
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| (2) | Breakdown of results by segment
 Consumer Products Operation
Consumption remained lackluster in Japan despite a halt in the
decline in unit prices of products. In these circumstances, we
introduced seven new products in spring 2003 with the aim of creating
new markets and expanding existing ones. In particular, Bran Cologne
deodorizing air fresheners that can be hung anywhere and are space-saving
and Breathcare Film breath fresheners that eliminate strong breath
odor after consumption of garlic and alcoholic drinks contributed
to the increase in sales. In terms of sales and marketing, we
strengthened follow-up marketing for individual outlets, covering
8,300 stores accounting for the majority of our sales nationwide,
and focused on sales promotion at stores. Sales of supplement
food products that are distributed through two channels, mail
order and at drugstores, continued to expand thanks to further
enrichment of the product line. As a result, sales of the Consumer
Products Operation were ¥43,111 million, an increase of ¥745 million
or 1.8% compared with the same period of the previous year.
Despite the reduction in costs by thorough reduction of manufacturing
costs, operating income decreased by ¥538 million or 7.2% compared
with the same period of the previous year to ¥6,971 million because
sales of high-margin pharmaceutical products were sluggish due
to the cool summer.
Wholesale Operation
Despite the severe business environment characterized by weak personal consumption and a continuing fall in unit prices of products coupled with the cool summer, sales of the Wholesale Operation increased by ¥600 million or 0.9% compared with the same period of the previous year to ¥66,168 million, because Kensho Co., Ltd., which operates in the Chugoku region, acquired the goodwill of a drug wholesaler in the second half of the previous fiscal year.
Although costs were reduced, including delivery costs and picking costs, sluggish sales of seasonal merchandise during the cool summer and increased center fees (fees on the use of drugstore chains' distribution centers) levied by drugstore operators resulted in a ¥21 million decrease in operating income to ¥179 million.
Medical Devices Operation
In Japan, we strove to enrich the line-up of products we offer in specialized fields such as orthopedics, surgery, cranial nerve surgery, and otorhinolaryngology. In April 2003 the Orthopedics Department was established to focus on sales in the rapidly growing market for orthopedic products and it executed highly specialized marketing.
Overseas, sales of the three Shield Healthcare Centers increased
to US$2,827 thousand thanks to an increase in the number of customers
achieved through the purchase of customer lists. However, sales
in yen decreased compared with the same period of the previous year
due to the appreciation of the yen.
As a result, sales of the Medical Devices Operation were ¥8,111
million, an increase of ¥192 million or 2.4% compared with the same
period of the previous year, and operating income rose to ¥444 million,
having increased by ¥142 million or 47.0% compared with the same
period of the previous year.
Medicon Inc. is an affiliated company to which the equity method
is applied. The equity in earnings of Medicon was ¥50 million, ¥5
million less than in the same period of the previous year.
Other Operations
Other operations are conducted by Kobayashi Pharmaceutical's subsidiaries
and affiliates with the objective of supporting the Company's three
principal businesses and contributing to the profits of these businesses.
The Group reviewed the transfer values of the materials and services
these subsidiaries provide.
Sales of other operations were ¥6,206 million, an increase of ¥176
million or 2.9% compared with the same period of the previous year,
but operating income was ¥182 million, a decrease of ¥5 million
compared with the same period of the previous year. Sales included
intersegment sales and transfers. Intersegment sales and transfers
amounted to ¥4,656 million for the first six-month period of the
previous year and ¥4,486 million for the first six-month period
of the current fiscal year.
As more than 90% of aggregate sales of all segments are recorded
in Japan, breakdown of results by geographic segments is omitted.
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| (3) | Outlook for the fiscal year ending March 31, 2004
Although stock prices and companies' financial results indicate some signs of recovery of the Japanese economy, the overall condition
is expected to remain tough because a decisive recovery of personal consumption
is not in prospect, considering the severe employment situation.
In these circumstances, for each operation of Kobayashi Pharmaceutical
to strengthen its competitiveness so as to become the leading contender
in its field, it is necessary to implement both a strategy for reinforcing
the existing businesses and brands that constitute the foundation of the
Company, and, at the same time, a strategy to expand the scope of the
business and secure growth.
Net sales for the fiscal year ending March 31, 2004, are forecasted to
be ¥221,000 million, an increase of ¥10,078 million or 4.8% year on year.
Operating income is expected to be ¥16,200 million, an increase of ¥348
million or 2.2%, thanks to the thorough reduction in costs. Ordinary income
is expected to be ¥13,500 million, an increase of ¥549 million or 4.2%
year on year. Net income is expected to be ¥6,650 million, an increase
of ¥45 million or 0.7% year on year.
Our basic policy is to continue stable dividend payments and we intend
to pay out a common dividend of ¥21.00 per share.
Forecasts for each segment are as follows.
Consumer Products Operation
It is likely that the severe business environment will persist.
In autumn 2003 we introduced eight new products, which satisfy
previously unmet consumer needs, including Shoshu Ranger highly
concentrated oil-based deodorizing air fresheners that are small
and cute yet powerful, Tochugen S specified health food for
people with relatively high blood pressure and Senjo Cube orange
oil-based cleanser for gas ranges. Also, in order to deal with
the drop in sales of existing brands, which has been a concern,
a brand development plan drawn up by the Brand Marketing Office
established in spring 2003 will be implemented at 8,300 priority
stores. As a result, sales of the Consumer Products Operation
are expected to be ¥89,200 million, an increase of ¥3,641 million
or 4.3% year on year. With respect to profits, reduction of
costs and more effective spending on advertising and sales promotion
are expected to result in operating income of ¥14,800 million,
an increase of ¥362 million or 2.5% year on year.
Wholesale Operation
The Wholesale Operation intends to expand its geographical
coverage in line with the expanding geographical coverage of
drugstore chains, the main customers of this operation, and
strengthen the lines of health-food products and contact lens
care products whose markets are growing rapidly. Sales are expected
to amount to ¥132,000 million, an increase of ¥6,142 million
or 4.9% year on year. Operating income is expected to be ¥300
million, an increase of ¥45 million or 17.6% from the previous
year.
Medical Devices Operation
Sales and profits of the three Shield Healthcare Centers in the
United States are expected to decline due to changes in insurance
schemes in California and other states. Kobayashi Medical Division
will further enrich the line-up of products in the orthopedics
and other fields through procurement from foreign manufacturers.
As a result, sales are expected to be ¥16,300 million, an increase
of ¥187 million or 1.2% year on year, and operating income is
expected to increase to ¥830 million, an increase of ¥2 million
or 0.2% year on year.
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| 2. |
Financial Position
| (1) | Cash flows for the first six months of the current fiscal year
Cash flow from operating activities
Net cash provided by operating activities decreased by ¥718 million
compared with the same period of the previous year, to ¥6,522 million.
The main factors were a ¥468 million decrease in income before income
taxes and a ¥5,567 million increase in trade notes and accounts
receivable and a ¥2,522 million decrease in income taxes paid, which
amounted to ¥1,430 million for the first half of the current year.
Cash flow from investing activities
Net cash provided by investing activities amounted to ¥1,201 million,
having decreased by ¥409 million compared with the same period of
the previous year. Proceeds from the sale of property, plant and
equipment amounted to ¥1,500 million. The figure for the first half
of the previous year included ¥3,480 million in proceeds from sale
of investments in an affiliate.
Cash flow from financing activities
Net cash used in financing activities amounted to ¥41 million,
having decreased ¥157 million compared with the same period of the
previous year. Although dividends paid increased by ¥69 million
due to resumption of cash dividend payment, short-term borrowings
by subsidiaries were ¥282 million higher.
As a result, cash and cash equivalents at the end of the first
six-month period amounted to ¥18,187 million, ¥2,270 million higher
than the figure at the end of the first six-month period of the
previous fiscal year.
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| (2) | Outlook for
the fiscal year ending March 31, 2004
In the tough business environment, we will step up efforts to reduce
inventories and accounts receivable so as to improve our KOVA (Kobayashi
Value Added) management index, which takes the efficiency of capital
employed into account.
Although capital investment in connection with product development,
which accrues constantly, is expected to be about the same as the
figure for the previous year, the funds to be used for capital investment
are expected to decrease, because the Company has no other major
investment projects.
Regarding financing activities, we intend to repay a part of bank
borrowings.
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| (3) | Cash Flow Indicator Trends
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FY2001 |
FY2002 |
FY2003 |
First Half
of FY2004 |
| Equity ratio(%) |
36.1 |
36.8 |
39.2 |
39.0 |
| Equity ratio at market value(%) |
133.2 |
99.7 |
82.9 |
82.3 |
| Debt repayment period(years) |
0.9 |
2.3 |
0.7 |
- |
| Interest coverage ratio(times) |
36.0 |
20.0 |
87.9 |
- |
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Equity ratio: Shareholders' equity / Total assets
Equity ratio at market value: Market capitalization / Total assets
Debt repayment period: Interest-bearing debt / Cash flow from operating
activities
Interest coverage ratio: Cash flow from operating activities / Interest
expense
| * |
The consolidated financial figures constitute
the basis for calculating these indicators. |
| * |
Market capitalization is calculated by multiplying
the closing stock price at year-end by the number of shares
outstanding at year-end. |
| * |
The basis for calculating cash flow from operating
activities is net cash provided by operating activities in
the consolidated statements of cash flows. Interest-bearing
debt includes all debts recorded on the consolidated balance
sheet on which interest is paid. The basis for interest expense
is the amount of interest paid recorded in the consolidated
statements of cash flows. |
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