INITIATION REPORTMILBON. (4919 JP)
CREATING A UNIQUE ECOSYSTEM OF PROFESSIONAL HAIR PRODUCTS

30 SEPTEMBER 2020
NIPPON INVESTMENT BESPOKE RESEARCH UK LTD
London, UK

30 SEPTEMBER 2020
NIPPON INVESTMENT BESPOKE RESEARCH UK LTD
London, UK

Contents

Page | 1

Executive Summary .................................................................................................................................................................................... 2
Historical Background – making of a market only dominated by Japanese makers ................................................................... 3
Market Trends in Japan ............................................................................................................................................................................. 4
Business Model and Differentiation........................................................................................................................................................ 6
Field Persons (FPs) – Milbon’s “Treasured” Children ......................................................................................................................................... 6
TAC (Target Authority Customer) Product Development System – Another Wheel of Business Model............................................. 7
Expanding overseas – Overseas Subsidiaries ....................................................................................................................................... 8
Financial Results .......................................................................................................................................................................................... 9
FY20 1H Results ........................................................................................................................................................................................................... 9
FY20 Guidance ............................................................................................................................................................................................................ 11
Medium-term Management Plan ...........................................................................................................................................................11
Shareholder return policy and corporate governance ....................................................................................................................13
Key Financial Data ....................................................................................................................................................................................14
General disclaimer and copyright .........................................................................................................................................................15

MILBON. (4919 JP)

30 SEPTEMBER 2020

Executive Summary

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Milbon is in a unique position in Japan’s substantial Cosmetics and Toiletry industry as it solely focuses on thedevelopment, manufacture and supply of hair care and treatment products specifically aimed at the professional
market. The company boasts top market share of 16.9% in Japan’s professional hair product market (CY19) which isestimated to be worth ¥178bil on a shipment basis within the total domestic haircare product market of ca. ¥563bil,
according to a field research conducted by Fuji Keizai.
Until the late 1980s, the professional hair product market in Japan was dominated by overseas brands. Milbon firstentered the market in the 1960s. It took ca. 20 years for the firm to position itself as the top supplier in its homemarket where it spent time building its current business model which is supported by the following two pillars which
we discuss in more detail on pg. 5~6:
1. Field Person System (FPs): FPs are Milbon’s highly regarded staff members who are trained in-house and thenassigned to the firm’s top tier customers to promote products, train hairdressers in the specific use of its products
and to provide consultation in salon management. The FPs primarily market Milbon’s premium brands which are
only available at selected salons. FPs are also trained in various hair care techniques as it enables them to better
demonstrate to hairdressers the use of the products to suit a myriad of styles.
2. TAC Product Development System: Milbon identifies its top hair designers – i.e. stylists – who haveoutstanding technique and a loyal client list. Milbon’s “star” designers are respected and looked up to by manyother hairdressers in the industry who are keen to learn from their expertise. Milbon forms a product project
team with a “star designer”; together they work on solving issues / problems experienced by him/her with theexisting products, as well as the development of new products to specifically address those issues. The FPs
promote both the products and the technical expertise of the star hair designers in styling and how best to use
the products for each type of style.
This business model was not built overnight. Unlike consumer brands, the professional market does not respond toadvertisements and TV commercials. Milbon’s success in Japan started by identifying that its hands-on approach
worked well, and that has helped build out trust and loyalty toward its products among the hairdressing community
over time. However, given the scale of this niche market, such an approach is costly and time-consuming. This factor
is one of the main barriers to entry, especially for the larger cosmetic / toiletry makers as the economics provide
little return. The Milbon strategy is built on taking the time to develop a strong relationship with its clients; the faceto-face time with the FP’s, whose dedicated role is to ensure their clients have access to the best products and are up
to date on the latest styles thanks to an opportunity to access to various training and seminars, not only fosters
strong customer loyalty, it supports the eco-system Milbon has built out for this niche market. Milbon’s challenge inoverseas markets is to establish a similar system as in Japan. For a market like Korea, it was relatively easy to copy
the domestic model. However, it is proving more difficult in a country like in the US.
FY20 (Dec year-end) has been a tough year for Milbon, without exception. Although Japan’s hair salons were notsubject to closures due to the State of Emergency due to Covid-19, customer traffic was affected partly because 1)
many salons, especially in the urban areas, voluntarily closed and 2) customers consciously refrained from visiting
salons for fear of infection. As a result, Milbon’s sales in April and May were also affected (-39.6% YoY and -24.0%
YoY, respectively). Sales in Korea and China fell 1Q fell -7.9% YoY and -31.5% YoY, respectively, but then reboundedin 2Q alone, Korea +11.7% YoY / +22.3% QoQ and China +5.1% YoY / +20.6% QoQ, as the pandemic became undercontrol. However, sales in the other overseas markets have not yet shown a recovery. US 1Q sales -39.9% YoY / 2Q
-58.2% YoY and -32.7% QoQ; Others 1Q -6.8% YoY / 2Q -38.7% YoY and -38.1% QoQ).
FY20 is the second year of the 5-year management plan. The plan was announced in Feb 2019 with FY23 OP guided
to reach ¥8,800mil (5-year CAGR of 7.0%) on sales of ¥48,500mil (5-year CAGR of 7.4%). However, due to Covid19, management has decided to review the earnings trend and business outlook over FY20 2H and FY21 and the plan
will be revised after that review period.
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30 SEPTEMBER 2020

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Milbon’s shareholder return policy, in principle, is to pay out 40% but the firm also pays out a stable cash dividend.
There are currently two external independent directors and two external independent auditors on Milbon’s Board.
However, the number of the independent directors is still below the one third level guided by the Corporate
Governance Code. Moreover, although the main target of its products are women visiting beauty salons, it is yet toappoint a female director.

Historical Background – Making of a Market Dominated by Only Japanese Makers
Milbon is not a household name. It is unique in that it specialises in supplying professional hair products only used
and/or sold at beauty salons. Its global peers include Wella Inc. (currently a part of Coty Inc (COTY: NYQ),
Kérastese (part of professional products division of L’Oréal (OR: PAR)) and Schwarzkopf (a part of Henkel AG(HEN3:GER)). What makes Milbon unique compared to its global peers is that Milbon products are not available atretail outlets at all, you can only purchase them from a salon.
According to research by Fuji Research Institute, Milbon had ca. 16.9% market share in Japan as of CY2019 and thefirm continues to maintain its position as the top professional hair products supplier. The domestic professional hairproducts market is highly fragmented and dominated with local makers, with Milbon at No.1, followed by Napla(unlisted) at No.2 with a much lower share of 8%. The rest of the market comprises multiple other Japanese makers
with ca. 3~6% market share each. However, Japan’s professional hair products market was not always made up solely
with domestic players. Prior to the foundation of Milbon in 1965, the Japanese professional hair care market was
dominated by many of the aforementioned non-Japanese brands.
The founder and the fourth president of Milbon, Ichiro Konoike, worked as a sales rep for a distributor of
professional hair products to salons. On his many visits to hairdressing salons, Konoike also realised that productdevelopment was important. He noticed that the majority of hairdressers suffered with rough hands – a reaction
from the harsh chemicals in professional hair care products – and that the major complaint was how harmful
products, particularly those used for permanent solutions, were to their skin. Konoike responded by establishing aprofessional hair care products distributor, and he partnered up with a chemical manufacturer and a wholesaler
specialised in beauty products to form Milbon in 1965.
Since many of the stylists he met during his working day were women, Konoike envisioned an opportunity to set up abusiness that targeted these women – by providing the stylists with products that are effective and enhance theirstyling skills yet are less harmful for them to use. He then realised that hairdressers not only were keen to discuss
products, but there was also a lot of exchange on new styles, techniques and even operational issues. From this, thebasis for the current Field Person (FP) System, which started in 1984, was born. In addition, the shift in Japan whereby
more women were entering the workforce, which resulted in them becoming more financially independent so moreable to spend their income on premium haircare products, was a revelation and a game changer for Konoike’s vision.
Until the 1990s, foreign hair care brands were still mainstay in hair salons in Japan and most of the fashion magazines
were full of Western models – even the advertisements for hair products used non-Japanese models. Milbon decided
to break from this norm by hiring Japanese models to pose for its advertisements, emphasising that its hair products
are specifically created for Japanese women. By 2000, Japanese professional hair products manufacturers dominatedthe market.

MILBON. (4919 JP)

30 SEPTEMBER 2020

Market Trends in Japan

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In Japan, both hairdressers and salons must register with the Ministry of Health, Labour & Welfare (MHLW).
According to the MHLW, as of CY2018, there were 251,140 salons in Japan in 2018 (+1.4% YoY), and the number of
hairdressers registered with the MHLW was 533,814 (+2.0% YoY). However, the data can be misleading as those
who have retired or dormant businesses that have closed often do not report the change to the ministry, so theyremain on the MHLW registry.
Milbon reckons that the more realistic market figure for the hair salon industry is shipments by haircare productmakers. The shipment data between CY2016 and CY19 by Fuji Keizai indicates that the 3-year CAGR during theperiod was 3.4%. On the other hand, the data by Statistics Bureau of Japan suggests that number of beauty customers– females between 15~64 years old – are also beginning to wane. In CY2014, the population of females between
15~64 years old was ca. 38.7mil. The number declined to ca. 36.1mil in CY2019. This puts pressure on salon
operators to shift their business model from having its sole source of revenue from just technical fees (e.g. a haircut),to establishing another source of income such as selling salon hair care products to its customers.
Hair salons’ revenue is mainly generated from 1) a technical fee – the fee paid for hairdressers’ skills, and 2)
merchandise revenue – sales from products sold at salons e.g. hair care and styling products. While the technical fees
income is under pressure given the population of beauty customers is steadily declining, merchandise sales have been
gradually growing.
Although still small in scale, there is a growing trend whereby salon customers are purchasing professional hair careproducts at salons to use at home. According to a Fuji Keizai Research report on Japan’s professional cosmetics andtoiletry market (2019), 18.1% of the people surveyed purchase their hair care products at beauty salons rather thanbuying similar salon-quality products from retailers. Milbon believes this trend is largely due to the fact that there
more women successfully seeking work, which gives them the income to spend on what they want. With the social
status that comes from being gainfully employed, these women also want to show who they are, so a fashionable /smart hairstyle is one of the most effective tools to boost their appearance. Buying premium hair care products at thesalon to use at home, so as to maintain their hairstyle, is a luxury that they can now well afford.
Milbon also offers a wide product range for each stage of a customer’s life. For example, one of Milbon’s premium
brands Aujua – specifically designed for characteristics of Japanese women’s hair – started gaining popularity amongfemale salon customers, taking the recommendation of their stylist to buy and use at home. In FY20 1H, Milbon’s haircare product sales were ¥9,391mil (-5.1% YoY) of which premium brand products sales fell 1.6% YoY to ¥5,403mil.
However, sales of 1H the Aujua product range rose 1.2% YoY to ¥3,330mil.
While its competitors are competing over price, Milbon offers specific products with properties based onrequirements requested by hairdressers. The added value the FPs brings to the relationship with each salon, by
providing management consulting, training and innovation updates, is that they are aware of all aspects of their clients’needs, so are in a better position to improve on what they can offer. This level of support garners huge customer
loyalty and management believes is the reason why Milbon has managed to maintain the top market share without
having to stoop to price wars. This suggests that market for salon hair care products is not very price sensitive.

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Premium Brand Products Sales Trend (Gross Sales basis) 1
FY2019(¥mil)

Aujua

Global Milbon

1H

FY

1H

YoY (%)

Gross Sales

3,290

7,485

3,330

1.2

No. of salons

3,698

3,698

3,897

5.4

Gross Sales

1,235

2,551

1,188

3.6

No. of salons (Japan)

Premium Brand Sales

4,370

No. of salons (Overseas)
No. of salons (Total)

Villa Lodola

FY20

3,304
7,674

7,674

8,892

15.9

Gross Sales

563

1,187

500

-2.5

No. of salons

9,015

9,015

9,351

3.7

Gross Sales

5,088

11,223

5,018

-1.4

Source: Milbon's FY19 and FY20 1H presentation materials

Milbon’s Hair Care Brand Positioning Map

Source: Milbon’s FY19 presentation material

1

Sales by the different brands illustrated are on a gross basis while total consolidated sales are on a net basis.

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30 SEPTEMBER 2020

Business Model and Differentiation

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At ¥180bil, Japan’s professional hair product market is not that big. This provides some barrier to entry for the larger
players as there is not enough scale for the larger cosmetics, toiletry companies to allocate resources and get a
return. In addition, the market requires the ability to launch multiple brands, tailored to the demands of the stylists.
Furthermore, the sales promotion and marketing of professional products are different from that of consumer
products. TV marketing, which is a common method in consumer products, usually has no impact on sales ofprofessional products as the professional market uses a more hands-on approach – showcasing products in store orat industry conventions, providing product seminars etc.
Milbon’s business model comprises two systems: 1) Field Persons System and 2) TAC (Target Authority Customer)
Product Development System. These two components are intertwined and coexist with one another.

Field Persons (FPs) – Milbon’s “Treasured” Children
Milbon sells its products through distribution partners, hence the relationship with major distributors is important.
For example, ca. 30% of FY19 consolidated sales were from three main distributors. However, the strategicallyimportant salons are covered by FPs.
Milbon first introduced the Field Person system in 1984 – a time when hair products from non-Japanese makers were
dominating the professional hair products market in Japan. Milbon successfully drove out these players to take the top
market share in the industry thanks to its FPs.
The FPs have the following roles:
1) Promoting products based on their unique properties: While Milbon sells its products through distribution
partners, they cannot fully rely on distributors because some of the larger distributors also handle various brands
by other makers. FPs, separately or jointly, promote Milbon’s brands based on product properties that meet therequirements and demand from hairdressers who understand the specific hair care need of their clients.
2) Educating hairdressers with technical demonstrations: The FPs educate the hairdressers on the properties
and use of each of Milbon’s products so they can maximise the benefits. Milbon takes the education of its FPs
seriously and each FP is trained to demonstrate the top-notch beauty techniques on how to best use its products.
Having such expertise to hand fosters greater traction with the hairdressers than just sampling a few freemarketing products. As described in the TAC section below, Milbon develops products under projects with star
hairdressers / hair designers who have technical expertise that other hairdressers desire to know. The FPs thenprovide product education to hairdressers by demonstrating the techniques learnt directly from the star hair
designers.
3) Customer relations: FPs are very aware of their clients’ (salon owners’) concerns and issues regarding therunning of a beauty salon. They provide support in salon management, planning and creating treatment menus – so,
not just haircuts but also offering additional high margin services colouring and conditioning treatments – which
can lead to commercial growth of the salon.
With 279 FPs in Japan, Milbon reckons that its FP system is the key differentiating factor compared to the mainstay
salon-use product suppliers. Having FPs raises the barrier to entry given the investment needed is high for such asmall market. Specifically, hiring new graduates and training them until they can start demonstrating beauty techniques
and their product knowledge, as well as giving them time to build solid relationships with their customers is costly as
it requires much time and dedication. Milbon’s policy is to hire 40~50 new graduates every year as trainee FPs.
As testament to Milbon’s successful use of FPs, it holds the No.1 share in Japan’s professional hair products market of
16.9%, nearly threefold more than the next three companies that have 8.0%, 6.3% and 5.2%, respectively, which is
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then followed by a further six companies with 3~4% each. The rest of the market (40~45%) of the market is highly
fragmented and made up of multiple small players.
Milbon’s FPs offer a package of solutions, such as training programme for new hairdressers, creating salon’s menu andmiscellaneous support for the operational problems, and products. Napla, the No.2 player, has similar products to
Milbon but competes on price alone as it does not have the expertise of an FP to offer a holistic suite of products andservices. Milbon reckons that it is not easy for others to achieve the same crafted approach in gaining trust andloyalty from hairdressers – and they are the ones in a position to decide which products to use and what torecommend to their valued customers at the end of the day.
Milbon continues to hire new graduates as FP trainees. Although its nationwide market share is 16.9%, some regions
have higher market share than the others. There is a tendency whereby regions with more FPs, for example Osakaand Tokyo, have a higher market share. The firm has 30% market share in Osaka and more than 25~26% in Tokyo.
Milbon reviews the list of salons that it allocates FPs to every year. In the past, each professional hair products brandhas their own affiliated salons Milbon has now moved to a system under which the firm chooses ca. 10,000 growing
salons for its list of strategic customers of which 7,000~8,000 use Milbon’s premium brands – Global Milbon, Aujua
and Villa Lodola – and are followed up by FPs. The remaining salons on the list are mainly covered by distributers anduse Milbon’s products in its Professional Brands range such as Jemile Fran, Cronna, Plarmia and Elujuda.
Trend in number of Field Persons (FPs)(people)(¥mil)
Japan
US
China
Korea
Other areas

CY2016

CY2017

CY2018CY2019CY2020

No of FP

249

258

269

279

297

Sales per FP

102

105

111

108

TBC

No of FP

9

12

13

13

17

Sales per FP

63

48

48

50

TBC

No of FP

18

19

22

21

30

Sales per FP

40

50

62

70

TBC

No of FP

20

23

25

30

32

Sales per FP

80

84

82

77

TBC

No of FP

25

33

33

35

38

Sales per FP

37

31

37

39

TBC

Source: Milbon's FY19 & FY20 1H earnings presentations

TAC (Target Authority Customer) Product Development System – Another Wheel of Business Model
In addition to the aforementioned FP system, Milbon operates a unique system in its product development. Under the
TAC Product Development System, the firm initiates product development projects jointly with star hairdressers
who are considered as “authority” in the hair salon industry.
TAC Product Development System (TAC System in short) was based on an inspiration from Asics’s founder
Kihachiro Onitsuka. One of Milbon’s founders, Ichiro Konoike was deeply impressed by Onitsuka’s productdevelopment philosophy that Asics works solely with top athletes to develop shoes rather than using market
research. Following this line of thought, Milbon aims to develop hair products based on what the top ranked hair
designers need to enhance their technique. So, similar to novel runners wanting to buy shoes designed for the gold
medallists, hairdressers are also keen to learn techniques from highly skilled stylists and follow their lead by also using
the products they use.
The product development journey starts with Milbon identifying a “star” hair designer – they may have been featured
in a magazine / feedback from celebrities / the FPs are hearing that a specific stylist is getting rave reviews from
customers etc – many of whom are often not fully satisfied with the existing products they use and are looking for
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30 SEPTEMBER 2020

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new ones that can both compliment and improve their technique. Milbon, sets up a contract to form a teampartnership with the stylist to develop a hair product. The star hairdressers – who are brands themselves – seem toprefer working with Milbon over major cosmetics and toiletry brands because they know that Milbon only supplies
the professional markets – so its products are seen as a cut above the others. Moreover, working with makers who
mainly supply the general consumer markets can possibly dilute the added value of the professional market.
After the product development, the FPs visit the target list of salons to train the hairdressers in the techniques theyacquired from the star designers using Milbon’s products – the hairdressers are not just interested in the products
developed by the star hair designer, but the techniques developed and taught by the designers themselves. In addition
to the FPs’ demonstration at the salon, Milbon also holds seminars at Milbon Studios by inviting star hair designers to
showcase new techniques while using the Milbon product range.

Expanding Overseas – Overseas Subsidiaries
It is estimated that the size of the global professional hair products market is ca. ¥1trn, in which L’Oréal, through its
professional products brands, has ca. 20% market share. Milbon first ventured into the overseas business in New
York in 2004. Currently, the firm operates in 13 countries. Milbon’s overseas business model is principally the sameas in Japan, although it needs to apply flexibility to meet requirements in each country. Currently, R&D activities aresolely conducted in Japan with research branches to be opened in China and US.
In FY20 1H, overseas revenues were 15.7% of total sales. There are three notable overseas subsidiaries: US, China,
Korea, and the rest is consolidated as Others and includes Thailand, Vietnam, Malaysia, Taiwan, Hong Kong, Turkey,
Indonesia, Philippines, Singapore and Germany. In the Asia, Milbon has the top market share in the professional hairproduct market.
•

Milbon Korea
The largest overseas base is Korea, where Milbon Korea generated ca. 7.3% of FY20 1H consolidated sales. The
subsidiary reported FY20 1H OP of ¥275mil (-21.3% YoY) on sales of ¥1,165mil (+1.9% YoY). The market in
Korea is somewhat similar to that of Japan, hence the strategy to expand the business using the FP system(currently there are 30 FPs in Korea) in collaboration with local distributors. Data from 2017 shows that Milbon
had ca. 5.6% market share in Korea’s professional hair product market. However, the data is outdated, and thefirm reckons that its current market share is higher as its sales in Korea has steadily been growing since FY17:
sales by Milbon Korea was KW20,357mil in FY17, KW20,630mil in FY18 and KW24,927mil in FY19 (Milbon
Korea’s 3-year sales CAGR of 7% vs the industry growth of ca. 3%, according to data from Statistia.com). The top
player in the professional hair product in Korea is Amorepacific (090430 KS) with a 22.7% share, followed by
L’Oréal at 12.0% (both are the figures in CY17). The market share difference between the top maker and thesecond is wide and Milbon has its sights on taking over L’Oréal’s No.2 slot in the near future.

•

Milbon Shanghai
The market in China is completely different due to the size of the country and the differences in thesocioeconomic background from region to region. There are many beauty salons in China, however, the market
that Milbon would target, i.e. the premium market, is not so large. Milbon reckons it can target 30% of the beautysalons in China. In value terms, the size of the premium market is currently smaller than that of Japan but will
likely grow larger going forward. Moreover, given China’s size, it is impossible and inefficient to place FPs tocover the entire country. Therefore, Milbon has allocated FPs in Beijing, Shanghai, and Chengdu, while the otherregions are covered by a sole distributor for each province. Milbon Shanghai’s FY20 1H OP slumped 51.8% YoY
to ¥95mil on sales of ¥642mil (-10.7% YoY on a local currency basis / -15.5% YoY in Japanese yen) as the Chinese
government instructed 90% of the nation’s hair salons to close from February. Milbon Shanghai saw ca. 80% YoY
drop in February sales. However, in 2Q alone, sales grew by 10.6% YoY on in a local currency terms.

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Milbon US
In the US, Milbon rapidly shifted to a distributor-based approach during FY19. Currently, it works with seven
distributors and its FPs are mainly in Manhattan where Milbon opened a studio. Here, Milbon solely sells Global
Milbon, one of the three premium product ranges that has reinvigorated the market. In addition, the firm
launched Sophistone, a hair colour series specifically developed for US and European customers, in June 2020.
Having highly sought-after hair colouring products is one of the main ways to cultivate new customers. Moreover,once the product is in-store, those customers usually are loathe to change to a new product – there is a lot of
training involved on how to use the product as well as costs associated with inventory control – so a product like
Sophistone is expected to help boost sales. Milbon US made an operating loss of ¥164mil (-13.3% YoY in Japaneseyen) on sales of ¥189mil (-39.9% YoY on the Japanese yen converted basis) in FY20 1H.
Sales and OP Breakdown by Country (Cumulative: JPY basis)
FY18(¥mil)

Japan

Overseas

Total

FY19

FY20

FY

1Q

1H

FY

1Q

1H

YoY (%)FY CE

YoY (%)

Sales

28,5696,428

14,38330,4096,590

13,373-7.0

29,600

-2.7

OP

5,642

1,073

2,723

6,177

1,061

2,360

-13.3

n/a

n/a

OPM(%)

19.7

16.7

18.9

20.3

16.1

17.7

-2.2pp

n/a

n/a

Sales

5,312

1,458

2,859

5,857

1,235

2,495

-12.7

5,300

-9.5

OP

617

191

365

574

-30

27

-92.5

n/a

n/a

OPM(%)

11.6

13.1

12.8

9.8

n/a

1.1

-11.7pp

n/a

n/a

Sales

33,882

7,886

17,24236,266

7,825

15,869-8.0

34,900

-3.8

OP

6,260

1,265

3,089

6,715

1,031

2,388

-22.7

5,930

-12.2

OPM(%)

18.5

16.0

17.9

18.6

13.2

15.1

-2.8pp17.0-1.6ppSource: Milbon's FY19 and FY20 1H presentation materials

Financial Results
FY20 1H Results

Milbon reported FY20 1H OP of ¥2,388mil (-22.7% YoY) on sales of ¥15,869mil (-8.0% YoY). Despite hair salonsbeing allowed to operate during the State of Emergency in April and May, domestic sales were affected by reduced
operations and voluntary closures of hair salons and led to FY20 1H OP of ¥2,360mil (-13.3% YoY) on sales of¥13,373mil (-7.0% YoY). In April and May, sales in Japan fell 40% YoY and 25% YoY, respectively. In June, as
customers rapidly went back salons to have their hair treated, monthly sales rose by 18% YoY and uptrend, althoughsmaller, continued in July.
Milbon also reported overseas FY20 1H OP of ¥27mil (-92.5% YoY – in Japanese yen) on sales of ¥2,495mil (-8.2%
YoY). After a dip in 1Q earnings, Milbon Korea and Milbon Shanghai were back on a recovery track in 2Q. However,while Milbon US has started to show a recovery trend since May on a YoY basis, the situation remains unstablebecause of the widespread impact from COVID-19.
Monthly Sales Trend (YoY change)(%)

Jan-20Feb-20Mar-20

Apr-20May-20Jun-20Consolidated

0.4

0.2

-2.4

-36.5

-23.1

15.9

Japan

-0.3

5.4

2.4

-39.7

-24.0

18.0

Korea

5.5

3.9

-9.5

4.6

14.9

39.7

China

-1.3

-83.9

-44.2

0.4

4.7

29.9

USA

38.4

13.9

-49.1

-83.3

-67.7

-33.4

Source: FY20 1H results presentation

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In the Hair Care division, premium brand sales have been relatively resilient thanks to many users willing to continue
using the products. One in particular, Aujua, enjoyed an increase in both the numbers of accounts (i.e. the number ofsalons using the brand) by +5.4% to 3,897 salons in FY20 1H, and saw sales increase 1.2% YoY to ¥3,330mil despite
the effects of Covid-19. Another premium brand, Global Milbon, enjoyed a 15.9% rise in the number of accounts to
8,892mil, however, sales fell 3.8% YoY to ¥1,188mil due to weak overseas sales, in especially in the US, under
lockdown. Meanwhile, Professional Brands sales were down -9.3% YoY (on a gross sales basis) due to salon closures.
New products launched in early April also struggled due to a lack of marketing under the State of Emergency
measures. 1H Hair Care division sales fell 5.1% YoY to ¥9,391mil.
The Hair Colour Products segment was the worst hit by the fall in customer traffic under temporary closures and theshorter operating hours of hair salons. Although hair salons were not requested to close in Japan, many voluntarilyclosed. Moreover, customers refrained from going to the salons that remained open due to the fear of contracting
the virus. Those that did visit the salons had their hair cut but did not stay for additional services, such as hair colour
and treatments, as they require more time.1H sales of Hair Colour Products dropped 12.9% YoY to ¥5,594mil.
Despite total sales falling 8.0% YoY, gross profit margin (GPM) was only marginally affected, down 0.3ppt YoY. On
the other hand, OP margin (OPM) worsened by 2.8ppt YoY as the firm has a high proportion of fixed costs in SG&A
such as personnel cost. Milbon hired 40 new graduate FPs in April as planned. Usually, new FPs are placed undertraining for the first six months then they are allocated to work with senior FPs. However, due to COVID
restrictions, most of the training was conducted remotely in April and May, focusing mainly on knowledge, while
technical training could not be given as it is difficult to do virtually. Training period has been extended by one month.
The second round of FPs (usually around 10) due to come onboard in October, has been cancelled.
Milbon (4919 JP): Earnings Summary (Quarterly Cumulative)
FY18(¥mil)

FY19

FY

1H

FY

Sales

33,882

17,24236,266

YoY
(%)
7.0

15,869

YoY
(%)
-8.0

COGS

11,693

5,746

12,554

GP

22,18911,49623,711

7.4

5,329

-7.3

6.9

10,540-8.3

GPM (%)

65.5

66.7

65.4

-0.1pp66.4-0.3pp

SG&A

1H

FY20
Previous
New
FYCE
FYCE
39,00034,900

Chg
(%)
-10.5

YoY
(%)
-3.8

15,928

8,406

16,959

6.5

8,151

-3.0

SG&A / Sales (%)

47.0

48.8

46.8

-0.2pp51.4+2.6pp

OP

6,260

3,089

6,751

7.8

2,388

-22.7

7,300

5,930

-18.8

-12.2

OPM (%)

18.5

17.9

18.6

+0.1pp15.1-2.8pp18.7

17.0-1.7pp-1.6pp

RP

5,811

2,824

6,231

7.2

2,102

-25.6

6,670

5,280

-20.8

-15.3

RPM (%)

17.2

16.4

17.2

0.0pp

13.3

-3.1pp17.1

15.1-2.0pp-2.2ppNP for the parent's s/holders

4,495

1,999

4,517

0.5

1,451

-27.4

4,730

3,840

-18.8

-15.0

Source: Milbon's FY19 and FY20 1H presentation materials

Sales Breakdown by Products (Cumulative)
FY18
FY
Hair care products
20,222
Hair colouring products
11,857
Permanent wave products
1,544
Cosmetic products
0
Others257
Source: Milbon's FY19 and FY20 1Q, & 1H presentation materials(¥mil)MILBON. (4919 JP)

1Q
4,323
3,175
337
0
50

FY19
1H
9,897
6,423
770
47
103

FY
21,32812,994
1,515
165
263

1Q
4,424
2,995
291
71
42

FY20
1H
9,391
5,594
660
136
85

YoY (%)
-5.1
-12.9
-14.3
186.1
-17.6

30 SEPTEMBER 2020

FY20 Guidance

Page | 11

Milbon is guiding for FY20 OP of ¥5,930mil (-12.2% YoY) on sales of ¥34,900mil (-3.8% YoY) based on assumptions
that the pandemic situation remains under control and economic activity gradually return to normal. Milbon expects
2H earnings will likely be flat YoY if the sales recovery trend continues with slight YoY growth as seen in July. FY20
domestic sales is guided to dip 2.7% YoY to ¥29,600mil, while overseas sales forecast to fall 9.5% YoY to ¥5,300mil.
While the restrictions and rapid changes experienced under Covid-19 had a negative influence on the business andthe hair salon industry overall, opportunities for Milbon also emerged. One of the examples is the earlier than
expected test phase of milbon:iD – the firm’s first e-commerce channel.
Milbon’s premium hair care products can only be bought when customers visit a salon, so in order to enhance salon
revenue opportunities, Milbon launched its own e-commerce site milbon:iD on 1 June, through which customers canbuy Milbon products only if they receive a QR code from their salon. Sales made on the site will then be booked
directly to the salon. However, because of the temporary closure and customers unwillingness to go out due to
Covid-19, Milbon offered to ship the products directly to the salons’ customers in response to requests from salonsfrom late April, rather than customers having to go back to the store to them pick up – usually on their next
appointment. Such a prompt response resulted in an increase in the number of salons registering with milbon:iD. The
firm was hoping for 1,000 salons to register with milbon:iD by December, however, as at the end of July, 900 salons
had already registered. Although Milbon does not expect milbon:iD to be fully operational until the end of FY20 –contracts with the salon signed / credit checks made etc – and, therefore, will have little impact to earnings this year,
it has made a clear step towards a BtoBtoC model.
Milbon also quickly responded to the physical restrictions on its seminars and training sessions – held at its training
centres – by swiftly switching to online streaming. Seminars to hairdressers are important as it supports productpromotion and provides technical support to hairdressers. Milbon has a higher than average market share in big cities,
such as Tokyo and Osaka, where the impact from Covid-19 on hair salons was more damaging than in suburban areas.
Online seminars are also more convenient to those salon workers who may not readily be able to get to Milbon
Studio and are a perfect solution during closures. Although online training is not the best alternative to physical faceto-face training, Milbon has made the decision to support the use of online seminars and has allocated a part of its
CAPEX budget to facilitate a streaming capability at training centres from FY21 onwards.
Of the ¥1,958mil planned for FY20 CAPEX, ca. ¥ 1,700mil, though CAPEX for facilities needed for the online remoteseminars is not yet known. Some of the less urgent items, such as the Aoyama Studio whose original opening was theAutumn 2020 and the new FP training centre, will be postponed to FY21 and the Milbon’s existing facilities will be
used until then.

Medium-term Management Plan
In Feb 2019, Milbon announced its 5-year management plan that covers FY19 until FY23. The firm’s hopes to become
the global top professional hair products producer by committing to develop the global beauty industry through field
activities such as education and training professional hairdressers. As a steppingstone to this ultimate vision, Milbon
aims to become one of the 5 best global makers during the current medium-term plan, one step forward from its
current position as a top professional hair products maker in Asia.
While Covid-19 has interrupted the progress of the plan this year, the second year of the 5-year plan, Milbon has
initiated an 18-month review period (Change the Stage 18-month Missions) starting from FY20 3Q until the end of
FY21. Management has identified four stages and 25 missions to work on during the 18 months, based on an ultimate
question: How can Milbon support the beauty industry’s survival during the post-COVID transition?
So far, the firm has not announced any change in its medium-term management plan although the review will likely benecessary once the 18-month review is completed.

MILBON. (4919 JP)

30 SEPTEMBER 2020

Page | 12
Medium-term management plan (FY19~23)(¥mil)

FY18

FY23

5-yr CAGR (%)

Sales
Japan
OV
OP
OPM (%)
NP attributed to the parent
NPM (%)

33,882
28,570
5,312
6,260
18.5
4,495
13.3

48,50040,000
8,500
8,800
18.1
5,960
12.2

7.4
7
9.9
7
5.8

Source: FY19~23 New medium-term plan press release

The original medium-term growth strategies in each of domestic and overseas markets are as follows:❖ Domestic market
Milbon is targeting a market share of 25% in Japan, with sales of ¥40,000mil (5-year CAGR 7.0%). In addition tothe organic growth of professional hair products through the FP system, the firm is looking for growth potential
in the following two areas:
1. Building out its cosmetics (skin care) brand, Imprea – co-developed with Kose (4922 JP)
Of the 7,000~8,000 salons that use Milbon’s premium hair care brands, 200 salons primarily sell the Aujua or
Global Milbon brand at their salons as well as Imprea brand cosmetics. Skin care and make-up products soldthrough hair salon channels was ¥13,250mil (-4.0% YoY) in CY19. It is still a tiny fraction of the total
domestic skin care market of ca. ¥1.7trn (+1.0% YoY – this figure includes purchase by inbound tourists),
according to Yano Research Institute.
The Cosmetic Business dates back to June 2017 when the firm and Kose (4922 JP) formed a joint venturenamed Kose Milbon Cosmetics. Kose’s role is to provide R&D and manufacturing capabilities as well as
training FPs with skin care technique. In FY20, Milbon prepared 28 FPs specifically to promote the Imprea
brand by instructing skin care expertise to 128 Imprea ambassadors at its distributors.
With the addition of a skin care product line-up, it also gives salons the potential for:
I.
II.
III.
IV.

Hairdressers to increase merchandise sales on top of their technical fee and hair care sales,
Salons to offer a more holistic approach to customers’ beauty demand by offering skin care products
as well as hair care,
Skin care products sales leading to greater customer retention – in general, brand switching is notcommon in skin care.
And finally, while customers can only buy those products by coming to salon, moving to an online
option as milbon:iD is rolled out will likely be the next step.

2. Shifting from BtoB to BtoBtoC
Milbon has been expanding sales of products from professional salon-use only to salon and customers’ homeuse. In June 2020, Milbon opened its official e-commerce site, milbon:iD. The site can be accessed to shoppers
only if they have QR codes issued by their salon. By having the convenience of online shopping, customers
can repeat buying the products which will likely lead to brand loyalty.
There are two main reasons why Milbon does not have a more open e-commerce site – i.e. without the needof a QR code. 1) With salons issuing QR codes, sales can be directly booked to the salon not Milbon. Most
importantly, Milbon wishes to avoid any conflict of interest by selling directly to users instead of going
through salons. 2) With e-commerce sites, there is always the risk of resale, thus potentially damage thebrand.
MILBON. (4919 JP)

30 SEPTEMBER 2020

Page | 13

❖ Overseas market
Milbon aims to earn ¥8,500mil (5-year CAGR 9.9%) in overseas sales. The estimated total market size in the
Asian region is $3,200mil in CY17. Strategies to achieve this goal are as follows:a. Increase sales reps at distribution partners
The number of sales reps at distributors increased to 754 (+54.2% YoY) in FY19 thanks to successfully adding
distribution partners in the US. The overseas business model is principally the same as in Japan, where FPs
and distributors work closely together. In countries like China and US, the role played by FPs in Japan and
Korea is carried out by trusted distributors. The firm aims to increase sales reps to 1,000 by FY23 (5-year
CAGR 15.4%).
b. Localised management
In a rapidly changing professional hair products market, accurate communication with styling experts in eachregion is paramount, each of which also has their own “jargon”. Having localised management (i.e. a native of
the region – usually a stylist with a developed client list or someone with industry experience) will likely avoid
losing business opportunities due to miscommunication. Milbon also aims to set up a factory in China in
addition to a capacity expansion plan in Thailand.

Shareholder return policy and corporate governance

Milbon’s shareholder return, in principle, is to pay out 40%. A share buyback is least likely because of the share’s
liquidity (below US$3mil/day on 52-week average).
There are currently two external independent directors and two external independent auditors on Milbon’s Board.
The management is currently seeking one more independent board member to meet the Corporate Governance
Code guidelines to have 1/3 of the board with independent members. Since Milbon serves to women’s beauty
products, the management wishes to have a female member on the Board going forward.
In the current medium-term plan, Milbon also committed itself to SDGs and signed the UN Global Compact. The
firm plans to announce the SDGs matrix and publish the first Integrated Report at the end of August.

MILBON. (4919 JP)

30 SEPTEMBER 2020

Page | 14

Key Financial Data
Milbon. (4919 JP): Key Financial Numbers(¥mil/ Dec year-end)

FY15

FY16

FY17

FY18

FY19

FY20CESales

27,377

29,13433,45633,88236,26634,900Operating Profit

4,727

5,113

5,345

6,260

6,751

5,930

Recurring Profit

4,427

4,733

4,997

5,811

6,231

5,280

Net Profit

2,950

3,069

3,817

4,495

4,517

3,840

EPS (JPY)

180.20187.47-137.31137.99117.95

-

-

-

-

-

-

Cash flow from operation (CFO)

3,895

3,355

4,346

6,487

4,486

-

Cash flow from investment (CFI)-2,834-4,366-1,919-1,202-2,777-

Cash flow from finance (CFF)-1,135-1,262-1,317-1,639-1,869-Cash and cash equivalent

7,086

4,737

5,928

9,541

9,376

-

Free cash flow (FCF)

1,061-1,011

2,427

5,285

1,709

-

CFO per share (JPY)

237.89204.92262.46198.14137.02-

FCF per share (JPY)

64.80-61.75146.57161.42

52.20-

Total asset

30,79932,44437,642

39,634

41,912-

Liabilities

4,586

4,737

6,539

6,483

6,029

-

Net asset

26,212

27,706

31,10333,15135,882-

Capital

2,000

2,000

2,000

2,000

2,000

-

Shareholders' equity

26,212

27,706

31,10333,15135,882-

BPS (JPY)

1,601.02

1,692.33-

1,012.58

1,096.02-

OPM (%)

17.27

17.55

15.98

18.48

18.62

17.0

ROE (%)

11.73

11.38

12.98

13.99

13.09

-

ROA (%)

14.71

14.86

14.00

14.80

15.18

-

Shareholder equity ratio (%)

85.11

85.40

82.63

83.64

85.61

-

D/E ratio (%)

17.50

17.10

21.02

19.56

16.80

-

Total asset turnover (X)

0.93

0.92

0.95

0.88

0.89

-

Interest coverage (x)

10.59

10.84

10.45

10.31

10.52

-

Current ratio (%)

335.72292.12268.66296.78375.99

-

0

0

0

0

0

-

EBIT

4,874

5,205

5,509

6,419

6,874

-

EBIT Margin (%)

17.80

17.87

16.47

18.95

18.95

-

EBITDA

5,912

6,288

6,787

7,799

8,367

-

EBITDA margin (%)

21.59

21.58

20.29

23.02

23.07

-

Dividend (JPY)

74.00

78.00

92.00

54.00

56.00

56.00

Dividend pay-out ratio (%)

41.10

41.60

39.50

39.30

40.60

47.40

DOE (%)

4.80

4.70

5.10

5.50

5.30

-

16,558,617

16,558,617

16,558,617

33,117,234

33,117,234

33,117,234

186,242

186,816

188,286

377,460

378,250

614,657

Adjusted EPS (JPY)Interest-bearing debt

Shares outstanding (shares)
Treasury (shares)
Source: Nikkei Value Search

MILBON. (4919 JP)

30 SEPTEMBER 2020

General disclaimer and copyright

Page | 15

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MILBON. (4919 JP)

30 SEPTEMBER 2020