MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 31 March, 2022

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MILBON CO., LTD (4919 JP)F Y21 E ARNINGS SU RPASSE D TH E PRE- COV ID LE VE L. ST ARTING A NEW ME DIUM-T E RM P LAN A F T ER THE 18-MONT H T RANSIT ION

FY21 EARNINGS RESULTS
Milbon Co., Ltd (4919 JP) reported FY21 (Dec year-end) earnings with
operating profit [OP] of ¥7,817mil (+22.3% YoY) on sales of ¥41,582mil(+16.4% YoY). Despite repeated State of Emergency closures, customer
traffic to beauty salons steadily recovered during the year and was least
affected by the closures. FY21 sales are 14.7% above pre-COVID FY19 sales
level of ¥36,266mil. Moreover, thanks to the steady increase in the sale ofhome-use haircare product at salons, overall domestic sales are up 12.6%
over the past year.
Milbon estimates that approx. 70% of its haircare products revenue comesfrom salon sales. Thanks to milbon:iD – the company’s e-commerce
platform that supports beauty salons in the sale of its salon haircare
products – haircare product revenues also saw higher sales from registeredsalons and users (customers to beauty salons). The number of registeredsalons signed up to milbon:iD reached 3,254, a sharp increase from the
2,000 registered in the 1H, and the number of milbon:iD users reachedapprox. 170,000, well above the firm’s target of 60,000 users.
In addition to a solid recovery in Domestic sales (+12.6% YoY), Overseas
sales saw a stronger-than-expected recovery (+35.8% YoY). In all threeoverseas markets – the US, China, and Korea – overseas sales and OP roseby 35.5% and 75.2% respectively compared to the pre-COVID FY19 results(OP of ¥574mil on sales of ¥5,857mil), which suggests that the FY21
Overseas performance was more than just a recovery from the weakness
seen in FY20.

EXECUTIVE SUMMARY

Milbon reported FY21 (Dec year-end)
results with OP of ¥7,817mil (+22.3%
YoY) on sales of ¥41,582mil (+16.4%
YoY). The firm saw FY21 sales growthof 14.7% compared to the pre-COVID
FY19 sales.

In addition to the solid 12.6% YoY
recovery in Domestic (Japan) sales,
Overseas sales were stronger-thanexpected, up 35.8% YoY. Together
with the performance from all of theoverseas businesses combined, OProse 75.2% YoY on a 35.5% YoY rise insales – well above pre-Covid levels.



Based on the new cost recognition
method, Milbon is guiding for FY22 OPof ¥7,550mil on sales of ¥43,900mil.
Excluding the impact of thosechanges, sales and OP would haverisen by 7.5% YoY and 6.6% YoY,
respectively.



Milbon announced a new mediumterm business strategy that covers five
years between FY22~FY26 with therelease of its FY21 results. The newplan primarily focuses on three areas:
1) The global market strategy,2) Beauty Platform Concept, and
3) Sustainability Commitment.



Milbon aims to achieve FY26 OP of¥10,800mil (5-yr CAGR of 8.8%) on
sales of ¥58,000mil (5-yr CAGR of
7.3%) and to generate total operating
cash flow of ¥44bil+ over the period.
The firm also reviewed its capital
allocation policy. Under the newpolicy, Milbon plans to pay out 50% of
net profit as dividends every year overthe five years, an improvement from
40% target of the previous plan.

Milbon (4919 JP): Earnings Summary (Cumulative)
FY20(¥mil)

FY21

FY

1H

FYCE
(New)

FY

Resultsvs CE (%)

YoY (%)

Sales

35,725

19,55840,600COGS

12,3396,650

41,582
14,083

2.4

16.4

GP

14.1

23,385

12,90727,49817.6

GPM (%)

65.5

66.0

66.1

+0.6ppSG&A

16,9909,248

19,681

15.8

SG&A / Sales (%)

47.6

47.3

47.3

-0.3pp

OP

6,394

3,659

7,800

7,817

0.2

22.3

OPM (%)

17.9

18.7

19.2

18.8

-0.4pp+0.9pp

RP

5,791

3,355

7,120

7,158

0.5

23.6

RPM (%)

16.2

17.2

17.5

17.2

-0.3pp+1.0ppNP for the parent's
s/holders

4,204

2,413

5,100

5,109

0.2

21.5

Source: Nippon-IBR based on Milbon's earnings presentation materials (FY19, FY20 & FY21)

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MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 31 March, 2022

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Sales by Country
1. Japan
Milbon reported FY21 Japan OP of ¥6,811mil (+13.7% YoY) on sales of ¥33,643mil (+12.6% YoY), which produced an
OPM of 20.2%, slightly up from FY20’s 20.0% and just shy of FY19’s pre-Covid OPM of 20.3%. There was a bit of acushion on the cost side as the firm did not use its planned SG&A budget due restrictions on business activities under
COVID. Even though overall SG&A costs rose 15.8% YoY due to an increase in personnel costs, such as hiring new Field
Persons [FPs] and logistics, it was more than offset by the improvement in sales, thanks to Milbon’s efforts to support
beauty salons to overcome pandemic-related obstacles. Given COVID restrictions led to customers not frequenting
salons as regularly as they used to, especially in the urban areas, it has become vital that hairdressers encourage salesof salon-bought haircare products in an effort to maintain their business. The benefits of the firm’s efforts can be seenin the number of salons that registered with milbon:iD, its unique e-commerce platform, which hit 3,254 as of the endof Dec 2021, a rapid increase from 1H’s 2,000. Milbon also saw an rise in the e-commerce sales ratio of premium brands
sold via milbon:iD rising to 5.8% in FY21 from 1.5% as of the end of FY20. The number of users (salon customers)
registered with milbon:iD also rose to approx. 170,000 users, a substantial jump from 70,000 as of the end of FY21 1Hand exceeding management’s original FY21 forecast for 60,000 users.
2. US
By teaming up with local distributors to cultivate new salons, FY21 US sales surged 89.3% YoY to ¥905mil. Although thehigh YoY growth reflects a recovery from the weak sales in FY20 under the pandemic, US sales were up 36.7% (LCY
basis) compared to FY19 levels thanks to strong sales of Global Milbon, a premium haircare range. Hair colour product
Sophistone is also proving popular and has helped cultivate new customers. The firm plans a full-scale rollout of
Sophistone’s permanent color this FY. However, the US business remained loss making in FY21.
3. China
FY21 China OP rose 53.6% YoY to ¥449mil on sales of ¥2,148mil (+40.5% YoY / +26.9% YoY in local currency [LCY]) andwas 31.1% above the FY19 pre-COVID FY19 level. Marketing activities were restricted due to repeated restrictions which
affected customer traffic to beauty salons. However, the number of salons that use Milbon products steadily increasedon the back of the firm’s successful education support for hairdressers. Over the past year, Milbon has expanded its
regional coverage by expanding the number of distributors.
4. Korea
Milbon Korea – the largest part (8.2% of total consolidated net sales) of the firm’s overseas operations – generated
FY21 OP of ¥1,138mil (+76.4% YoY) on sales of ¥3,396mil (+33.5% YoY / LCY +25.1% YoY). Close to 80% of sales in Korea
is derived from hair colour products. Sales of premium brands, such as Global Milbon and Aujua, trended favourably as
more salons had the products in stock.
Sales by Product
FY21 Haircare product sales rose 15.8% YoY to ¥24,466mil. Premium brands sales improved 25.6% YoY as customers inJapan spent more on salon-bought high-end products such as Aujua (sales +21.9% YoY), for use at home. Global Milbon,
another premium haircare brand, continues to grow in China, US, and Korea. Sales of haircare premium brand products
now comprises more than half of Milbon’s total haircare products sales. Hair colour product sales were particularly hit
from the pandemic during FY20, but recovered 17.6% YoY to ¥14,813mil in FY21. Since wearing a mask has become thenorm and with half of one’s face hidden, customers are now choosing to add hair colour as part of their fashion
repertoire. The sale of colour products such as Ordeve Addicthy that offer a wider variety of colours rose +34.2% YoY.
Sales of Imprea (only in Japan), a cosmetics series sold through hair salons, surged 60.6% YoY to ¥579mil in FY21. The
number of salons selling Imprea reached 1,104 (+459 salons YoY). Although several new products in the Imprea range,such as a new eyebrow mascara, an eyebrow pencil that customers can choose to match their hair colour, and a skinwhitening care serum, also contributed to the growth in sales, annual revenues fell short of the firm’s target of ¥640mil
because of restrictions on demonstrating skin care products by touching a customer’s face.
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MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 31 March, 2022

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FY22 OUTLOOKMilbon is guiding for FY22 OP of ¥7,550mil on sales of ¥43,900mil. However, due to a change in how sales discounts
are treated – formerly reflected as a non-operating cost to now directly discounting from the sales figure – the guidancecannot be compared to FY21 figures on a like-for-like basis. Excluding the new cost recognition method, sales and OP
YoY growth would be 7.5% YoY and 6.6% YoY, respectively. In this section, unless otherwise stated, the past numbers
will be readjusted to the new recognition method of sales discount. Milbon had already introduced the new cost
recognition method as of FY19 (except for the treatment of sales discount).
Japan
Milbon is guiding for FY22 Japan OP of ¥6,706 (+9.8% YoY) on sales of ¥35,150mil (+6.7% YoY), renewing the record
level of revenue achieved in FY19. The firm reckons that FY22 growth will mainly come from by hair care and hair colour
products.
The company completed an 18-month review period (Change the Stage 18-month Missions) which was introduced at
the release of FY20 1H results and lasted until the end of this fiscal year. Management has identified four stages and25 missions to work on during that period, based on the key question: How can Milbon support the beauty industry’s
survival post COVID? For the details of Change the Stage 18-Month Mission, please check our previous report on Milbon(https://www.milbon.co.jp/english/ir/upload_file/m000-/20210331_SponsoredResearchReport.pdf).
The environment surrounding the Japan’s beauty industry had entered a period of transition even before the pandemic
hit. COVID, however, has accelerated the transition. For example, with the mandatory wear of face masks, consumers’interest in beauty has changed from not just make-up but to include haircare. With reduced customer traffic to salons,
the importance of selling haircare products and establishing an online shopping infrastructure such as milbon:iD has
become key to boosting salon revenues and to retain customers, both now and in the future.
Overseas
FY22 Overseas sales guidance is for OP of ¥843mil (-13.8% YoY) on sales of ¥8,750mil (+10.6% YoY), and assumes thatthe economic activity will remain at current level despite the impact of COVID. Overseas sales are also likely to renew
record sales. Although each overseas operation will see sales growth, due to planned investment in a new factory and
R&D, along with depreciation costs in China, the China business will likely see FY22 OP fall by more than half, to ¥206mil.
Sales by Product
FY22 hair care products sales are forecast to rise 6.4% YoY to ¥25,570mil thanks to a steady increase in sales at salonsand home-use haircare products. The company guiding for sales of ¥15,570mil (+7.0% YoY). Milbon has high hopes for
its new hair colour product launched in the US, Sophistone, which offers vivid colours and less odour, and hopes for it
to become a salon favourite and to encourage other salons to stock the product.
CAPEX
With FY22 being the first year of the new medium-term management plan, Milbon has several investment plans inJapan and overseas, including those related to digital shift (DX). The firm is guiding for FY22 CAPEX of ¥5,080mil, up
from FY21’s ¥4,644mil. This year’s CAPEX projects include the purchase of land for a new training centre in Japan, anda production facility in Thailand. There will also be investments on DX which we discuss further below.
Revision on Dividend Payment
In FY22, Milbon aims to pay out 50% of net profit and aims for a cash dividend of ¥80/share, up from FY21’s ¥68/share.

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MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 31 March, 2022

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Milbon (4919 JP): Earnings Results and Guidance
FY21(¥mil)

Results

YoY (%)

Sales

41,582

DM

33,643

Overseas

7,983

GP

FY22
Adjusted1

CE (adjusted)

YoY (%)

16.4

40,84943,9007.5

12.6

32,93835,150

6.7

35.8

7,910

8,750

10.6

27,49817.6

26,76529,1408.9

GPM (%)

66.1+0.6pp65.5

66.4+0.9ppSG&A

19,681

15.8

19,681

21,590

9.7

SG&A / Sales (%)

47.3-0.3pp48.2

49.2+1.0pp

OP

7,817

22.3

7,084

7,550

6.6

OPM (%)

18.8+0.9pp17.3

17.2-0.1pp

RP

7,158

23.6

7,158

7,410

3.5

RPM (%)

17.2+1.0pp17.5

16.9-0.6ppNP for the parent's s/holders

5,109

21.5

5,109

5,230

2.4

Source: Nippon-IBR based on Milbon's earnings presentation materials FY21

Sales and OP Breakdown by Country - Results and Guidance(¥mil)Japan

US

Sales / OP / OPM (%)

FY20

FY21

YoY (%) ¥based

FY22CESales

29,88032,93810.2

35,150

OP

5,989

6,106

2.0

6,706

9.8

OPM (%)

20.0

18.5

-1.5pp19.1+0.6pp

Sales

464

905

95.0

1,052

16.2

OP

-302

-561

n/a

-260

n/a

OPM (%)

n/a

n/a

n/a

n/a

n/a

1,528

2,148

40.6

2,487

15.8

Sales
China

Korea

OthersOverseas Total

YoY (%) ¥based
6.7

OP

292

449

53.8

206

-54.2

OPM (%)

19.2

20.9

+1.7pp8.3-12.6pp

Sales

2,543

3,368

32.4

3,604

7.0

OP

645

1,109

71.9

1,055

-4.8
-3.2pp

OPM (%)

25.4

32.9

+7.5pp

29.3

Sales

1,307

1,487

13.8

1,607

8.0

OP

-230

-20

n/a

-158

n/a

OPM (%)

n/a

n/a

n/a

n/a

n/a

Sales

5,844

7,910

35.4

8,750

10.6

OP

405

977

141.2

843

-13.8

OPM (%)

6.9

12.4+5.5pp9.6-2.8ppSource: Nippon-IBR based on Milbon's FY21 earnings results material

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

1H

FY20
FY

1H

FY21
FY

1H

FY

FY22CE
Results
vs. CE(%)

YoY
(%)

FYCE

YoY
(%)

Hair care products

9,897

21,328

9,391

21,135

11,28824,4662.8

15.8

25,570

4.5

Hair colouring products

6,423

12,994

5,594

12,594

7,124

14,813

2.9

17.6

15,570

5.1

Permanent wave products

770

1,515

660

1,372

740

1,449

-2.4

5.6

1,510

4.2

Cosmetic products

47

165

136

360

293

579

-9.5

60.6

900

55.4

Others

103

263

85

262

111

273

-1.4

4.3

350

28.2

Total

17,24236,266

15,86935,725

19,55841,582

2.4

16.4

43,900

5.6

Source: Nippon-IBR based on Milbon's earnings presentation materials (FY19, FY20 & FY21)
1 Milbon changes the cost recognition method for discounts which used to be a non-operating expense. From FY22, discounts will be directly deducted from sales.

Therefore, FY21 results figures are adjusted to the new method here.

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MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 31 March, 2022

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MEDIUM-TERM MANAGEMENT PLAN FY22~FY26
Milbon announced the new medium-term business strategy that covers five years between FY22~FY26. The firm
terminated the previous medium-term management plan that commenced in FY19 early amid a need to adapt tochanges that surfaced during the pandemic, such as adaptation to change in lifestyle and value, and digitaltransformation at beauty salons whose services can only be provided physically, not virtually. After the termination of
the plan, the firm placed an 18-month transformation period to prepare for the new medium-term plan that was
launched together with the FY21 results and covers five years starting from FY22.
Under the new plan, Milbon’s focus will be on the follow three areas:
1) Global Market Strategy
Milbon aims to hold its top position in Asia and to be one of the top five companies globally in the professional use
beauty market. The firm identified seven regions in the global beauty market: Japan, Korea, Chinese-speaking (China,
Hong Kong, and Taiwan), ASEAN, North America, EU, and Middle East (Turkey) where it plans to offer region-specificproducts. Milbon will likely establish R&D and production bases in these locations.
2) Beauty Platform Concept
The concept is explained by two strategies:
1. Smart Salon Strategy, which transforms the beauty salon to a place where a combined digital and real customer
experience is offered. Milbon will offers various DX opportunities to beauty salons. One example is milbon:iD. During
the 18-month transformation period, Milbon successfully launched milbon:iD and achieved a greater number ofusers than expected. During the new medium-term plan, the firm aims to achieve 1mil users of milbon:iD. Other
examples include Education:iD, which offers education programmes to hairdressers, and Digital Arena, which offers
digital hair styling demonstration by famous hairdressers who are involved in the hosting of the largest competition
for hairdressers in the Asian region.
2. Beauty Life Care Strategy that supports beauty salons to provide beauty platform to their customers.
3) Sustainability Commitments
Milbon reckons that it can realise a sustainable society through creating a beauty industry that contributes to people’s
beauty and wealth of mind. It identified five key sustainability achievement targets:
1.
2.
3.
4.
5.

The realisation of the wealth of mind through beauty,
Recyclable production and consumption activities,
Human-friendly procurement activities through a fair supply chain,
Fair and flexible management,
Encouraging a flexible work environment by offering personnel system such as offering variety of workstyles.

Numerical Targets
Milbon is targeting FY26 OP of ¥10,800mil (5-yr CAGR of 8.8%) on sales of ¥58,000mil (5-yr CAGR of 7.3%) and aims togenerate total operating cash flow of ¥44bil+ over the five years. The firm also reviewed its capital allocation policy.
Under the new policy, Milbon plans to pay out 50% of net profit as a dividend every year during the five years, animprovement from 40% target of the previous plan.
Milbon (4919 JP): CAPEX Plan (FY22~26 total / ¥bil)(¥bil)
Marketing / Studio

FY22~FY26
1.9

Production System

9.8

Training Centre

4.8

Digital

1.7

Others

4.8

Total

23.0

Source: Milbon Co., Ltd. New Medium-term Business Plan FY22~26

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MILBON CO., LTD. (4919 JP) RESEARCH UPDATE – 31 March, 2022

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Milbon (4919 JP): Capital Allocation Policy(¥bil)

Previous Plan (FY19~23)

FY19~21 incl. 18-mo transition

New Plan FY22~26 (5 years)

Operating Cash Flow
CAPEX

26.0

17.7

44.0

12.0

8.2

23.0

Shareholder Return Target

10.0

5.9

16.0

Shareholder Return Target (Dividend P/O ratio)

40%

40.6% in FY19
43.3% in FY20

50.0%

43.3% in FY21
Financial Base Maintenance

4.0

Cash Position

3.6

5.0

13.3

18.3

13.1% in FY19
ROE (%)

11.6% in FY20

13.9%

13.4% in FY21
ROIC (%)

12.9%

13.6%

Source: Milbon Co., Ltd. New Medium-term Business Plan FY22~26

UPDATE ON CROSS-HELD SHARESOn 11 March 2022, Milbon announced the offering of 934,400 shares (2.82% of total outstanding) which were held by
Sumitomo Mitsui Trust Bank (8309 JP). In the past, when Milbon’s cross shareholding counter parties have sold theirstake in the firm, block trades are made directly between the sellers and the buyers outside the market via ToSTNeT(Tokyo Stock Exchange Trading Network System).
Milbon also bought back some shares. However, given the limited opportunity to improve the number of liquid sharesas approx. 20% is owned by founding family members, family office and employees, Milbon agreed that the 2.82% stakeowned by Sumitomo Mitsui Trust would be sold as an offering via an underwriter (Daiwa Securities). This offering has
not caused any dilution to existing shareholders. The only other holding Milbon currently has is a 4.0% stake in Kose
(4922 JP) which is recorded in the investment security line on the BS. Milbon works in alliance with Kose over its skincare business.

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