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MILBON CO., LTD (4919 JP)
CONTINUES THE REST OF THE 18-MONTH TRANSITION BEFORE LAUNCHING THE NEW MEDIUM -TERM BUSINESS STRATEGY IN FY22

FY20 EARNINGS RESULTS
Milbon Co., Ltd (4919 JP) reported FY20 earnings of operating profit[OP] of ¥6,394mil (-5.3% YoY) on sales of ¥35,725mil (-1.5% YoY). The
firm saw continuous sales growth every year until FY19 – when it alsoachieved record profits – as COVID disrupted its operating
environment. FY20 OP declined more than sales because Milbon did
not hold back on hiring additional Field Persons [FPs] despite theimpact from COVID as management views FPs as strategicallyimportant for the firm’s growth. Consequently, fixed costs increased.
In Q4 alone, sales were strong at ¥10,511mil (+9.3% YoY / +12.5%
QoQ). Moreover, even taking into account the easy YoY comparisonsfrom the weakness due to the consumption tax hike of FY19 Q4, theperformance was impressive. This was thanks to a better-thanexpected rise in December sales which saw customers rush back tosalons ahead of the second State of Emergency closures.

EXECUTIVE SUMMARY•

Milbon saw a YoY drop in FY20 OP
after hitting record earnings in FY19.
However, despite the impact fromCOVID, earnings overshot the firm’s
guidance.

•

A new medium-term business plan will
be announced with FY21 results.

•

While earnings in Japan contracted,
there was some resilience thanks tohigher product sales at salons and, inparticular, a rise in premium brandsales. The OPM fell due to FP-related
hiring costs.

•

Earnings in the US have been the mostaffected by COVID, but China andKorea are seeing a rapid recovery.

•

Milbon is guiding for FY21 OP of¥6,420mil (+0.4% YoY) on a 6.9% YoYrise in sales to ¥38,200mil – and should
be another record year of earnings.
However, the guidance is likely
conservative as the firm assumes theimpact from COVID will be prolonged.

•

The firm identifies 4 strategies and 25
missions to tackle during the review
period. That includes encouraging
salons to sell merchandise so that they
can increase a revenue stream as wellas advancing with digitalisation.

•

Milbon plans to spend CAPEX of ca,¥7,488mil. For the time being, the firm’s
focus in on growth hence an annual
cash dividend will stay at ¥56, the sameas last year.

•

Milbon sold some of its crossholdings
and realised a gain of ca.¥114mil, and itplans to gradually reduce its positions instrategically held shares. It also hastreasury shares of ca. ¥2,109mil.

Sales by products
While total Haircare product sales fell 0.9% YoY, Premium brands salesrose 5.8% YoY as customers in Japan spent more on salon-bought highend products such as Aujua, for use at home.
Hair colour sales saw the most negative impact from the pandemic dueto the fall in customer traffic and shorter operating hours of hair salons.
Net sales fell 3.1% YoY to ¥12,594mil, but sales of fashion hair colour
improved 3.0%. Since wearing a mask has become the norm and half of
one’s face is hidden, customers are choosing to add hair colour as partof their fashion repertoire.
Sales of Imprea, a cosmetics brand sold through hair salons only inJapan, were ¥360mil. The sales were short of the firm’s target due torestrictions on marketing due to COVID (the target figure was notdisclosed). However, the number of salons selling Imprea more thandoubled YoY to 645, surpassing the FY20 target to have the product in
500 salons nationwide.
Sales by country
1. Japan
Milbon earns ca. 84% of its consolidated sales in Japan. FY20 Japan
OP fell 3.0% YoY to ¥5,989mil on sales of ¥29,880mil (-1.7% YoY).
Beauty salons stayed open during the pandemic, although there
were some changes in customers’ behaviour – e.g., a shorter stay atsalons, lower frequency of visits and staying away from urban
locations on the back of remote working and closures of stores in
the urban areas. Milbon had been aware of those changes prior to
the pandemic, however, the COVID-restrictions further
accelerated those changes.
To support salon sales, Milbon offered salons access to its official ecommerce site – milbon:iD. For customers to access the site, theymust obtain a QR code from their salon. Given Covid has led to
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customers not frequenting salons as much due to restrictions, it has become vital that hairdressers encouragesales of salon-bought haircare products in an effort to maintain their business. As a result, the number of salonsthat registered with milbon:ID reached 1,300 vs. 1,000 expected for FY20. Thanks to an increase in product sales
at salons, Premium brands sales grew 5.8% YoY. In particular, Aujua – one of Milbon’s premium brands – saw salerise 5.9% YoY to ¥7,960mil.
OP growth fell more than sales in Japan because of higher fixed costs on the back of the increase in FPs. The
number of active FPs rose from 279 in FY19 to 297 in FY20 in Japan. In addition, the firm took on 50 new hires
who underwent training but are yet to start contributing to revenue, which also added to the increase in fixed
costs.
2. US
The COVID impact was the most apparent in Milbon’s US operations. Despite the fact that economic activity had
slowly started to pick up at the end of June, another lockdown commenced during Q4 (Oct~Dec). Consequently,
Milbon USA made an operating loss of ¥302mil. Global Milbon – the firm’s key product in the US – is also sold atsalons for customers’ home use. In FY20, 83% of Global Milbon brand sales came from product sales vs. 17% soldto salons for be used at salons. This compares to 73% from product sales and 27% for salon use in FY19. Milbon
launched 301 online training sessions to hairdressers in the US in FY20 to reinforce corporate communicationand to raise customer loyalty.
3. China
Sales in China saw the deepest YoY decline in February 2020 but started recovering sharply after the first wave of
pandemic. As a result, FY20 sales reached ¥1,528mil (+2.7% YoY on a yen-denominated base / +5.2% in local
currency). However, OP fell 14.6% YoY to ¥292mil, as the 2H recovery could not be offset by the 51.8% YoY
slump in 1H OP from salon closures nationwide.
4. Korea
Milbon Korea is the largest part of Milbon’s overseas operation, generating ca. 7.1% of total consolidated sales.
The subsidiary earned FY20 OP of ¥645mil (-4.9% YoY) on sales of ¥2,543mil (+9.0% YoY on a yen-denominatedbase / +13.2% YoY in local currency). 70% of sales in Korea is earned from hair colour products, which rose
13.7% YoY (local currency).
Sales and OP Breakdown by Country (Cumulative: JPY basis)
FY18(¥mil)

Japan

Overseas

Total

FY19

FY20

FY

1H

FY

1H

FY CE

FY Actualvs. CE

YoY (%)

Sales

28,56914,38330,40913,37329,60029,880

0.9

-1.7

OP

5,642

2,723

6,177

2,360

n/a

5,989

n/a

-3.0

OPM(%)

19.7

18.9

20.3

17.7

n/a

20.0

n/a

-0.3pp

Sales

5,312

2,859

5,857

2,495

5,300

5,844

10.3

-0.2

OP

617

365

574

27

n/a

405

n/a

-29.4

OPM(%)

11.6

12.8

9.8

1.1

n/a

6.9

n/a

-2.9ppSales

33,882

17,24236,266

15,86934,90035,725

2.4

-1.5

OP

6,260

3,089

6,751

2,388

5,930

6,394

7.8

-5.3

OPM(%)

18.5

17.9

18.6

15.1

17.0

17.9

+0.9pp-0.7ppSource: Milbon's FY19 and FY20 earnings results materials

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Overseas Sales and OP Breakdown by Country(¥mil)

US

China

Korea

Others

Total

Sales / OP / OPM (%)

FY19

FY20

YoY (%) LCY
based

YoY (%) ¥based

Sales

657

464

-29.3

-27.8

OP

-252

-302

n/a

n/a

OPM (%)

n/a

n/a

n/a

n/a

Sales

1,488

1,528

2.7

5.2

OP

343

292

-14.6

n/a

OPM (%)

23.0

19.2

-3.8pp

n/a

Sales

2,334

2,543

9.0

13.2

OP

678

645

-4.9

n/a

OPM (%)

29.1

25.4

-3.7pp

n/a

Sales

1,377

1,307

-5.1

-4.7

OP

-195

-230

n/a

n/a

OPM (%)

n/a

n/a

n/a

n/a

Sales

5,857

5,844

-0.2

2.4

OP

574

405

-29.4

n/a

OPM (%)

9.8

6.9-2.9ppn/aSource: Nippon-IBR based on Milbon's FY20 earnings results material

FY21 OUTLOOKMilbon is guiding for FY21 OP of ¥6,420mil (+0.4% YoY) on sales of ¥38,200mil (+6.9% YoY). The guidance is likely
conservative as it is based on the assumption that the impact of COVID will be prolonged. Furthermore, Milbon plans
to strategically invest for the future growth which will be explained later in this report.
Japan
Milbon is guiding for FY21 sales in Japan of ¥31,318mil (4.8% YoY), renewing the record level of revenues of¥30,409mil achieved in FY19.
The firm was running a 5-year medium-term business strategy which started in FY19. However, management decided
to scrap the plan at the release of FY20 results due to the disruption from COVID. Instead, Milbon has initiated an
18-month review period (Change the Stage 18-month Missions) that will last until the end of this fiscal year.
Management has identified four stages and 25 missions to work on during that period, based on the ultimate question:
How can Milbon support the beauty industry’s survival post COVID.
The environment surrounding the Japan’s beauty industry had entered a period of transition before the pandemic.
COVID has accelerated the transition. Changes include the following factors:
1. Peak out of Japan’s population – population is shrinking by 1,400 people per month on average.
2. Change in the demography – more than 35% of the population will be over 65 years old in 2040, increase from
28.9% as of 2020.
3. Change in the labour market – 71% of working age women work outside the household.
4. Rapid shift to digitalisation, which will likely change the competition environment.
Milbon recognises that the aforementioned changes in the market are having an impact on the operations of beautysalons. Covid has also dramatically changed the customers’ behaviour. Findings from a survey conducted by Milbon on
2 October 2020, showed 65% of the sample population (2,031 females in their 20s~60s) said that the frequency of
their visits to the salon would not change under COVID, with the remaining 35% answering that they went to thebeauty salon less because of COVID. However, 63.1% of those 35% who went to the beauty salon less also answeredthat they would postpone their next salon visit by more than one month. Customers delaying their visit to the salonhas, therefore, had an impact on salon’s sales.
Since before the pandemic, it had been said that 1) increase in the elderly population, and 2) increase in working
women will impact the consumption behaviour. For example, older people tend to complete their daily tasks withinclose proximity to their home rather than going to a major fashion district. Working women who are always pressed
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for time tend to visit salons nearby their home instead of visiting ones in the urban areas. These change in
consumption behaviours became more apparent under COVID. For example, the number of visitors to the Ginza
district, a premium high street in Tokyo, were down 15~20% YoY during Oct~Dec 20, while number of visitors in
Kichijoji, a West Tokyo residential area, saw a recovery back to normal levels in the same quarter.
Equally, shopping behaviours appeared to have changed. Another survey that Milbon conducted with 1,794 females intheir 20s~60s answered that they prefer completing their shopping in one go; they are spending less time shopping
and prefer to shop one place rather than hopping around various stores.
Based on these findings, Milbon came up with strategies on how it can help beauty salons adapt to these changes andwhich transforms the existing eco-system of professional hair care market.
1. Offering more digital platforms to support hair salons’ revenue and education.
By having haircare products to sell also supports the revenue stream of the salons, even if customers are to thesalon less frequently. Hairdressers are, in general, not trained to sell merchandise. Even prior to COVID, Milbon
was supporting hairdressers to become multi-skilled, selling not just their hairdressing skills to customers but also
product knowledge and information. The launch of milbon:iD, an e-commerce platform for Milbon’s home-use
products, gave salons opportunities to further boost revenues and also to keep customers coming back. In FY21,
Milbon hopes to get 3,000 salons registered with milbon:iD – more than double the 1,300 salons signed up in FY20.
In addition, the firm is encouraging salons to sell Imprea, a cosmetic brand co-developed with Kose (4922 JP) but
sold solely at hair salons. In FY20, 654 salons were selling Imprea; Milbon aims to increase this number to 1,800
salons in FY21.
At the same time, Milbon plans to launch a digital education platform, education:iD, to support hairdressers gain
multiple skills. The platform was introduced to enhance Milbon’s education system for hairdressers in a digitalformat with structured certification programmes. They will be able to gain certification in four different categories
such as Haircare, Cosmetics, Hair Colour and Design Logic. Ultimately, high achievers will be granted Milbon
Beauty Sommelier Certificate by obtaining 3 certificates of the 4, mastered Milbon Counselling Method and revenue
track record such as customer repeat ratio and knowledge-based sales.
2. Offering a digital platform to exhibit creativity.
One of the main investments that Milbon plans to make in FY21 is in Milbon Digital Arena. Every year, the firmholds Asia’s largest Design Abilities (DA) event where hairdressers compete over their skills, learn from moreexperienced hairdressers and exchange information on skills. The event attracts ca. 10,000 audience every year.
Under COVID restrictions, such an event might not take place any time soon, therefore, Milbon plans to launch adigital version of the event – creating a virtual space where training sessions, exhibitions, shows, photo galleries
etc can be held – with a chat system, so participants can freely exchange their ideas, views, and ask any questions
they might have. Details of Milbon Digital Arena are yet to be disclosed.
3. Offering a digital marketing support by utilising dynamic data in addition to static data
One of the important functions of the FPs is to consult on the day-to-day management issues for the salons.
Under the existing support system, marketing data – such as the residential population of an area, commuter
populations etc – was based on often outdated data from publicly available sources. However, with the use of a
new digitalised marketing tool, anonymised dynamic data can be captured from a smartphones’ GPS – albeit only
from consumers who have agreed to data sharing with their mobile phone carriers. This data enables the FPs tobetter assess strategies for a salon’s operations – opening hours / staffing / promotions – thanks to the more live
information regarding the foot flow of customers in the area – where they are and at what times they are in thevicinity etc.
4. Direct approach to users via digital advertisement
With the launch of milbon:iD, customers can now buy haircare products from their salons online, without having
to physically go to the salon, which boosts product sales at salons. Milbon plans to launch a campaign to boost theawareness of milbon:iD and the products that can be bought via the platform by launching advertisements on SNS,
YouTube and other media. At the same time, the firm plans to launch Milbon Brand Movie to encourage viewers
to go to hair salons.
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Towards the end of the 18-month transition period, Milbon has several investment plans in Japan and overseas. The
firm is guiding for CAPEX of ¥7,488mil, a big jump from FY20’s ¥1,917mil. Ca. ¥5,300mil will be spent on land for the
R&D Innovation Centre in Japan (ca. ¥3,000mil), and factory premises in China (¥1,800mil), and an expansion of
production facilities in Thailand (¥500mil). Furthermore, ca. ¥240mil will be spent on a new Studio in Aoyama.
Overseas
Milbon is guiding for FY21 overseas sales of ¥6,882mil (17.8% YoY). Overseas sales are also likely to renew record
sales, exceeding the current record, FY19 sales of ¥5,857mil. FY21 growth will focus on the following areas:
1. Increase sales reps at distribution partners
The overseas business model is principally the same as in Japan, where FPs and sales reps of distributors work
closely together, In the US and China, roles played by FPs are carried out by trusted distributors. While thenumber of sales reps at Milbon’s distribution partners fell from 754 in FY19 to 700 in FY20, the firm is guiding fora sharp rise to 840 in FY21. Thanks to an increase in distribution partners in the US, Milbon will reduce thephysical distribution centres in US from two to one. At the same time, in Europe, the firm plans to have alogistics base in Holland that can cover the entire EU region. Together with two additional studios, one in Korea
and another in Vietnam, the firm’s overseas marketing bases will increase to 20.
2. Global diversification of R&D and production
Milbon’s main R&D Centre is in Japan, which develops scientifically based new products with star hairdressers.
The company is planning to open an R&D branch in the US (April 21), followed by branches in China and Thailand,next to each factory to be completed in 2022. These overseas R&D branches will help the firm develop brands
for the local markets. Expansion of the existing capacity in the factory in Thailand will be completed in Dec 21
and a second overseas factory in China will likely be completed in Nov 21.
Milbon is guiding for FY21 total consolidated OP of ¥6,420mil (+0.4% YoY). Despite forecasting sales growth of 6.9%
YoY, the smaller rise in OP is due to costs associated with the aforementioned growth investment plans. In addition
to the ¥300mil budgeted for the firm’s digitalisation investment at the Japan HQ, there will likely be a ¥200mil rise inoverseas costs, which includes ¥100mil for the China factory and ¥100mil in R&D in the US.
SHAREHOLDER RETURN AND OTHER USAGE OF CASH
Milbon plans to pay an annual cash dividend of ¥56/share in FY21, generating a pay-out ratio of 45%. Although thefirm budgets ¥7,488mil for CAPEX this year, it can be reviewed depending on how the COVID situation develops
ahead. The firm had cash / cash equivalents of ¥12,345mil on the BS (as of FY20) and free cash flow of ¥6,387mil in
FY20, which will likely sufficiently finance the future investment. Also, there are investment securities worth¥2,935mil (as of FY20) on the BS. Milbon sold some of its crossholdings and realised a gain of ca.¥114mil, and it plansto gradually reduce its positions in strategically held shares. It also has treasury shares of ca. ¥2,109mil. In the past,
the firm used some of the treasury shares as a reward to directors and executives with a form of shares withrestriction on transfer.

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Milbon (4919 JP): Earnings Summary (Cumulative)
FY18(¥mil)

FY19

FY20

FY21

FY

1H

FY

YoY
(%)

1H

New
FYCE

FY

vs. CE
(%)

YoY
(%)

FYCE

YoY
(%)

Sales

33,882

17,24236,266

7.0

15,86934,90035,7252.4-1.5

38,2006.9

COGS

11,693

5,746

12,554

7.4

5,329

11,94012,3393.3-1.7

12,8904.5

GP22,18911,49623,711

6.9

10,54022,96023,3851.9-1.4

25,3108.2

GPM (%)

65.5

66.7

65.4

-0.1pp

66.4

65.8

65.5

-0.3pp+0.1pp66.3+0.8ppSG&A

15,928

8,406

16,9596.5

8,151

17,03016,990-0.2

0.2

18,890

11.2

SG&A / Sales (%)

47.0

48.8

46.8

-0.2pp

51.4

48.8

47.6

-1.2pp+0.8pp49.5+1.9pp

OP

6,260

3,089

6,751

7.8

2,388

5,930

6,394

7.8

-5.3

6,420

0.4

OPM (%)

18.5

17.9

18.6

+0.1pp

15.1

17.0

17.9

+0.9pp-0.7pp16.8-1.1pp

RP

5,811

2,824

6,231

7.2

2,102

5,280

5,791

9.7

-7.1

5,710

-1.4

RPM (%)

17.2

16.4

17.2

0.0pp

13.3

15.1

16.2

-1.1pp-1.0pp14.9-1.3ppNP for the parent's s/holders

4,495

1,999

4,517

0.5

1,451

3,840

4,204

9.5

-6.9

4,050

-3.7

Source: Milbon's FY19 and FY20 presentation materials

Net Sales Breakdown by Products (Cumulative)
FY18(¥mil)FY19

FY20

FY21CE

FY

1H

FY

1H

FY

YoY (%)

FYCE

YoY
(%)

Hair care products

20,222

9,897

21,328

9,391

21,135-0.9

22,768

7.7

Hair colouring products

11,857

6,423

12,994

5,594

12,594-3.1

13,112

4.1

Permanent wave products

1,544

770

1,515

660

1,372

-9.4

1,416

3.2

0

47

165

136

360

118.2

640

77.8

257

103

263

85

262

-0.4

264

0.7

Cosmetic products
Others
Source: Milbon's earnings results materials

Trend in number of Field Persons (FPs)

Japan
US
China
Korea
Other areas(people)(¥mil)
No of FPCY2016

CY2017

CY2018CY2019CY2020

249

258

269

279

297

Sales per FP
No of FP
Sales per FP
No of FP
Sales per FP
No of FP
Sales per FP
No of FP

102
9
63
18
40
20
80
25

105
12
48
19
50
23
84
33

111
13
48
22
62
25
82
33

108
13
50
21
70
30
77
35

100
17
27
30
50
32
79
38

Sales per FP

37

31

37

39

34

Source: Milbon's FY19 & FY20 earnings results materials

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