a better kao
Kao Corporation
4452.JP

www.abetterkao.com

Important Disclaimer
Oasis Management Company Ltd. ("Oasis") is the investment manager to private funds (the “Oasis Funds”) that own shares in Kao Corporation(“Kao”). Oasis has created these materials for informational purposes to educate the public and shareholders of Kao. These materials werecreated solely for the purpose mentioned above. Oasis is not and should not be regarded or deemed in any way whatsoever to be (i) soliciting orrequesting other shareholders of Kao to exercise their shareholders’ rights (including, but not limited to, voting rights) jointly or together with
Oasis, (ii) making an offer, a solicitation of an offer, or any advice, invitation or inducement to enter into or conclude any transaction, or (iii) any
advice, invitation or inducement to take or refrain from taking any other course of action (whether on the terms shown therein or otherwise).
These materials exclusively represents the good faith opinions, interpretations, and estimates of Oasis in relation to Kao's business andgovernance structure. Oasis is expressing such opinions, etc. solely in its capacity as an investment adviser of the Oasis Funds.
The information contained herein is derived from publicly available information deemed by Oasis to be reliable. The information herein may
contain forward-looking statements which can be identified by the fact that they do not relate strictly to historical or current facts and include,
without limitation, words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,”“seeks,” “could” or the negative of such terms or other variations on such terms or comparable terminology. Similarly, statements that describe
Oasis’s objectives, plans or goals are forward-looking. Any forward-looking statements are based on Oasis’s current intent, belief,
expectations, estimates and projections. These statements are not guarantees of future performance and involve risks, uncertainties,
assumptions and other factors that are difficult to predict and that could cause actual results to differ materially. Accordingly, you should not
rely upon forward-looking statements as a prediction of actual results and actual results may vary materially from what is expressed in or
indicated by the forward-looking statements.
Although Oasis believes that reasonable efforts have been made to ensure the accuracy of the information contained in these materials, Oasis
makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of such information. Oasis expressly
disclaims any responsibility or liability for any loss howsoever arising from any use of or reliance on any of the information contained in thesematerials or any of their contents as a whole or in part by any person, or otherwise howsoever arising in connection with the same. Oasis is notunder any obligation to provide any updated or additional information or to correct any inaccuracies in the information contained herein.
1Oasis Management
22-year track record of supporting portfolio company transformation
Founded in 2002, Oasis invests globally across capital
structures with a focus on Asia. Our objective is to produce
consistent, superior risk-adjusted returns across all
market cycles for our investors.
Our 22-year track record includes several high-profile
public engagements in Japan where Oasis has promoted
stronger accountability through a focus on shareholder
value. Two such campaigns include Fujitec (beginning in2022), and Tokyo Dome (beginning in 2019).

Fujitec has been a star example of the benefitsof upturning the existing management.

Oasis’ Engagement with Kao Corp
Oasis has been privately meeting with Kao sinceJune 2021, escalating our engagement from
September 2023. Throughout all stages,
representatives of Kao Corp and executive
management have been obstinate in response.

… Tokyo Dome had been horribly slow tomodernise… many of the changes [Oasis] hadsuggested are now set to be implemented.
2

I.

Executive SummaryII.

Introduction to Kao

III.

Growth Allergy

IV.

V.

VI.
VII.

VIII.

•
•
•
•

Reluctant Global Expansion
Lackluster Marketing Strategy
Poor Distribution Channels
Bloated Brand Portfolio•••

Kao’s (Lack of) Strategic Vision“Global Sharp Top” Disappoints
Lacking Leadership and Oversight

•
•
•
•
•
•

Untapped Potential – Curél + freeplus
Untapped Potential – Bioré
Untapped Potential – Molton Brown
Untapped Potential – Sensai
Untapped Potential – Oribe
Untapped Potential – Kate Tokyo•A Success Story

•
•
•
•

Commit to Global Expansion
Refine Brand Portfolio
Embrace Marketing Strategy
Strengthen Oversight & Transparency

Global Sharp Top?

Growth is Everywhere

Beiersdorf
a better kao

Appendix

Executive Summary
Oasis believes it is time fora better Kao

Kao has the resources and the brands to grow. Oasis proposes brand focus, global expansion, andan embrace of marketing to ignite Kao’s potential and lead to long-term future growth.
Kao is a “Sleeping Giant”
with top decile brands

Current management havea growth allergy

Growth is everywhere forhigh potential brands

Kao owns many well-loved
brands like Curél, Bioré, andMolton Brown. Despite thestrong portfolio, Kao has
failed to take advantage,underperformed
operationally and has seen
its stock price lagcompetitors due to low
investor confidence.

Kao’s management appear
to lack the ambition andfocus to grow high-potential
brands globally and market
them effectively.

Kao has a foothold in growthareas like derma-cosmetics.
With focus and ambition,
Kao could stimulate global
growth well in excess ofcurrent forecasts.

4

I.

Executive SummaryII.

Introduction to Kao

III.

Growth Allergy

IV.

V.

VI.
VII.

VIII.

•
•
•
•

Reluctant Global Expansion
Lackluster Marketing Strategy
Poor Distribution Channels
Bloated Brand Portfolio•••

Kao’s (Lack of) Strategic Vision“Global Sharp Top” Disappoints
Lacking Leadership and Oversight

•
•
•
•
•
•

Untapped Potential – Curél + freeplus
Untapped Potential – Bioré
Untapped Potential – Molton Brown
Untapped Potential – Sensai
Untapped Potential – Oribe
Untapped Potential – Kate Tokyo•A Success Story

•
•
•
•

Commit to Global Expansion
Refine Brand Portfolio
Embrace Marketing Strategy
Strengthen Oversight & Transparency

Global Sharp Top?

Growth is Everywhere

Beiersdorf
a better kao

AppendixIntroduction
Top Decile Brands

Kao is a Sleeping Giant
Untapped International GrowthFounded in 1890 Kao Corp is Japan’s largest Fast
Moving Consumer Goods (“FMCG”) company witha diversified product portfolio spanning everythingfrom children’s diapers to luxury skincare.
In addition to its core consumer products
business, Kao retains a sizable chemicals
business focused primarily aroundoleochemicals.
Within its FMCG business lies considerable
growth potential. The Cosmetics and Health &Beauty divisions give exposure to international
growth runways that would allow Kao to competewith global leaders like L'Oréal and Beiersdorf.

Market Capitalization

Enterprise Value

2,660Bn Yen
17.6Bn USD

2,660Bn Yen
17.6Bn USD

Group Revenue (FY12/23)

Average Daily Volume

1,530Bn Yen
10.9Bn USD

70Mn USD

To date, this growth potential has not been
capitalized on.

Source: Bloomberg

7

Kao’s Four Key Segments
Hygiene & Living Care (“HLC”)

Cosmetics

Fabric Detergents & Cleaning Products,
and Diapers & Sanitary Towels

Prestige, Mass, and Derma Cosmetics• Cosmetics accounts for 15.6% of
FY12/23 Group revenue, and 4.6% ofCore operating profit.

• HLC accounts for 34.1% of FY12/23
Group revenue, and 36.5% of Core
operating profit. HLC has historicallyunderpinned Kao’s cash flow.
• Attack is Japan’s leading laundry
detergent.

Health & Beauty (“H&B”)

Chemicals

Mass-Market Skin Care, and Haircare
Products (Professional/Salon and Retail• Chemicals accounts for 23.9% of
FY12/23 Group revenue, and 21.6% ofCore operating profit.

• H&B accounts for 25.6% of FY12/23
Group revenue, and 37.3% of Core
operating profit.

Group Revenue(FY12/23)
1,530Bn Yen
10.9Bn USD

Source: Bloomberg, Company Filings• Chemicals is Kao’s business outside of
the FMCG sector. The businessdynamics are different, and it faces
different challenges to the FMCG
divisions.
8Kao has exciting brands
Derma-Cosmetics
Prestige Cosmetics

Mass Market Skincare

Derma-Cosmetics

Mass Market Skincare

Prestige Cosmetics

Professional Haircare

Prestige Cosmetics

Mass Market Cosmetics

9

… which are loved globally
4.2/5
4.5/5
4.6/5

"This s**t is magic (…) It's so healing,
nourishing, and moisturizing.”

USA

4.6/5
4.5/5

“This product is so innovative.”

Singapore

4.7/5
4.6/5
4.8/5
5/5

“Would eat it if I could. Gorgeous!
A lovely treat to use.”

UK

4.6/5
4.8/5
3.7/5

“I love this sunscreen! This is the firstsunscreen that I wear everyday.”

Brand review ratings sourced from: MakeupAlley, Artistrybys, Boots, Try&Review, Home Tester Club, Glossybox, Cult Beauty, Stylish London Living, Superdrug, Kokoro Japan

Japan

10

Performance has been poor…
Consumer Products Sales have failed to rebound since COVID
Kao’s Consumer Products sales have yet to return to pre-COVID levels. Peers have grown their consumer goods revenues byover 10% on a quarterly basis over the same period.
40%

Kao (Consumer Goods)
Unilever30%

Beiersdorf (Consumer Goods)
20%

Unicharm (Personal Care)

10%
0%
-10%
-20%
-30%
-40%

Q4
201 9

Source: Bloomberg

Q1
202 0

Q2
202 0

Q3
202 0

Q4
202 0

Q1
202 1

Q2
202 1

Q3
202 1

Q4
202 1

Q1
202 2

Q2
202 2

Q3
202 2

Q4
202 2

Q1
202 3

Q2
202 3

Q3 2023

Q4 202311

… in all Consumer Goods divisions
Operating Profit Margins by Consumer Products Segment
Health & Beauty

Consumer Products (Total)

30%
30%
25%

2020

20%

2023

15%

10%

10%

5%

5%

0%
Beiersd orf(Con su mer)

Unicharm

2023

20%

15%

Ka o
(Con su mer
Go ods)

2020

25%

Unile verL'O real

ColgatePa lmo live

P&G

Hygiene & Living Care

0%
I-NE
(Con so l)

Ka o
(H&B)

Beiersd orf(Con su mer)

Unile ver(Be auty &We llbeing)

L'O real(Con su mer &Pro fession al)

CO TA(Con so l)

P&G(Be auty)

Cosmetics
30%

25%

2020

20%

2023

25%

2020

20%

15%

2023

15%

10%

10%

5%

5%
0%

0%
EssityKa o(HLC)

Unile verKimberly Clark(Home Care)

Note: Fabric & Home; Baby, Feminine & Family

Source: Bloomberg

Unicharm(Con so l)

Reckitt
Benckiser

P&G(See Note)

Ka o(Cosmetics)

Estee Laud er

L'O ccita ne(Con so l)

Rohto Ph arma
(Con so l)

L'O real(Con so l)

Galde rma
(Con so l)

L'O real(Active
Cosm etics /Derma )

12

Kao’s shares have underperformed180
160+100.4%+44.9%+46.4%+27.7%+1.7%-22.9%

140
120
100
80

We sold our holding in Kao
as the company continues
to underperform its peers
2023

60
40
20
0
-20
-40
-60

2021

2022

Source: Bloomberg, return figures are for period Jan 1st 2021 – March 31st 2023

2023

2024
13

NOW is the time for Kao to focus on growth
Kao has been struggling to maintain a high ROE. In fact, it has been in decline since2017, and has recently accelerated below 5%. Kao’s own ‘restructuring’ plans area short-term fix that will not solve underlying growth issues.

14

NOW is the time for a better Kao
Japan is pushing its companies to focus on growth
Reforms in the Japanese market have called on companies
to improve their return on equity (ROE). This has triggered
wide behavioural changes from management to improve
capital efficiency, and investors have sought to holdmanagement teams and board directors accountable on
this basis.
As short-term solutions to the ROE problem expire, theissue that emerges for companies is how to sustain a highROE.
Put simply – Kao must start and continue to grow.
While we expect ROE to rebound in 2024 following somesmall scale-restructuring in 2023, we think without asustainable growth story Kao is unlikely to achieve highteen ROEs that are common in the global FMCG sector.

Kao Corp Return on Equity (ROE)1
25%

20%

15%

10%

5%

0%

Source: Bloomberg

In Japan, 5% is recognised as the minimum
threshold for ROE at large listed companies.
For 2023, Kao’s ROE fell below 5%.

2016

2017

2018

2019

2020

2021

2022

2023

15

I.

Executive SummaryII.

Introduction to Kao

III.

Growth Allergy

IV.

V.

VI.
VII.

VIII.

•
•
•
•

Reluctant Global Expansion
Lackluster Marketing Strategy
Poor Distribution Channels
Bloated Brand Portfolio•••

Kao’s (Lack of) Strategic Vision“Global Sharp Top” Disappoints
Lacking Leadership and Oversight

•
•
•
•
•
•

Untapped Potential – Curél + freeplus
Untapped Potential – Bioré
Untapped Potential – Molton Brown
Untapped Potential – Sensai
Untapped Potential – Oribe
Untapped Potential – Kate Tokyo•A Success Story

•
•
•
•

Commit to Global Expansion
Refine Brand Portfolio
Embrace Marketing Strategy
Strengthen Oversight & Transparency

Global Sharp Top?

Growth is Everywhere

Beiersdorf
a better kao

AppendixGrowth Allergy
Letting down all stakeholders

How did we get here?
Oasis identified four key factors contributing to Kao’s stagnation

1

Reluctant
GLOBALEXPANSION

Kao owns several brands with considerable and under-exploitedinternational growth runways. Curél, Freeplus, Bioré and Molton
Brown are just some of the brands with clear opportunities.

Slides19- 21

2

Lackluster
MARKETINGSTRATEGY

Kao’s marketing spend is much lower than global FMCG peers, andmarketing leadership is lacking. Failings are apparent in criticalchannels, resulting in market share being handed to competitors

Slides
22–27

3

Poor
DISTRIBUTIONCHANNELS

Kao has many brands with world-class potential, yet these are often
only sold in a handful of countries outside of Japan and even then,products are often sold out or not available in leading retail channels.

Slides28-29

4BloatedBRAND
PORTFOLIO

Kao’s brand portfolio is bloated, and the number of SKUs handled by
Kao has doubled in the last decade. This is uneconomical, anddistracting attention away from select brands with global potential.

Slides30-32

18

1. Reluctant Global Expansion
Kao is overly reliant on the domestic market

Revenue Exposure (Domestic vs International)
Domestic Exposure

International Exposure

Kao (Consumer Goods)

Sales of Kao’s Consumer Goods outside of Japan represent just
35.4% of the total for 2023. Despite Japan sales bottoming out in
2021, revenues have failed to recover post-pandemic:

Japan – 64.9%
Asia – 19.8%
Americas – 9.5%
Europe – 5.8%

Region2019 Revenue

2023 Revenue

ChangeUnicharmJapan

USD 6415.3 mn

USD 5574.5 mn-13.1%

Non-Japan

USD 2548.0 mn

USD 3056.5 mn+19.9%

Japan – 34.3%
Asia – 47.7%
Rest of World – 18.1%

Other global peers have considerably lower domestic exposure –Unilever’s revenue outside of Europe is 80.1%, and P&G records
52.8% of revenues outside of the US. More are shown on the right.
This 65/35 split is reflected in Cosmetics and suggests a large
runway for further overseas expansion. However, Kao is seeking anoverseas CAGR of just 3.5% (including Chemicals) between 202227, underscoring the lack of urgency management attaches togeographical diversification.
Source: Bloomberg, Japan and Non-Japan USD revenue numbers in table above converted using a constant FX rate of JPY140.2 to the Dollar

L'OréalEurope – 29.9%
Americas – 32.8%
North Asia – 29.6%
APAC + MEA – 7.7%

Beiersdorf
Europe – 44.3%
Rest of World – 31.5%
Americas – 24.2%

19

1. Reluctant Global Expansion
Self-Imposed Constraints – Derma Cosmetics
Kao only distributes its Curél and freeplus products toselect Asian countries; peers far exceed this total:
Brand

ParentRetail Jurisdictions

EucerinBeiersdorf

46+

La Roche-Posay

L’Oreal60+

Neutrogena

Kenvue70+

Cetaphil

Galderma

70+

Curél

Kao

12

freeplus

Kao

10

Kao cosmetics brands are also largely absent from two key
overseas retail channels: Sephora and Space NK.
Oasis believes this fact alone demonstrates the significant
limitations facing Kao brands to expand and diversify theirrevenue streams.

1)
2)

Oasis research indicates substantial
Curél demand potential in westernmarkets.

Countries where Curél andfreeplus are available for retail.
freeplus has a strong China
presence, but yet to be rolled
heavily outside Asia.

Countries where only freeplus
is available for retail. freeplus is
not (and will not be1) available
for retail outside of Asia.

Kao’s own conservative estimate forthe size of the global derma
cosmetics market by 2027 is
USD37.9bn. 2

During the Kao Group Cosmetics and Skin Protection Business Growth Strategy Briefing, management noted that freeplus will only be expanded to some parts of Asia.
Kao estimated dermo-cosmetic market size from Kao Group Cosmetics Business; Global Strategy briefing, September 2023

Powered by Bing
© GeoNames, Microsoft, Navinfo, OpenStreetMap, TomTom, Zenrin

201. Reluctant Global Expansion
Self-Imposed Constraints – Mass-Derma
There is a significant opportunity in Latin America(LatAm) for mass market skin, body and sun care (Kaobrands like Bioré and Jergens) that Kao Americas could
be doing more to pursue.
Beiersdorf has grown its LatAm sales in its
consumer division at 17.0% CAGR since2019 to USD 1315.1mn at end 2023.
L'Oréal's CEO Nicolas Heronimus
earmarked LatAm as one of the key growth
drivers in his 2023 presentation.

Kao Has it Wrong in LatAm
Within Kao’s Skin Protection Business Growth Strategy
from September 2023, the Company envisages that by
2027, the LatAm region will remain the region with thesmallest revenue contribution, only accounting for 3.4%of total sales in the skin protection area.

Source: Bloomberg, Company Presentation Materials

Brazil is the world’s fourth largest cosmetics
market and due to its population mix has someof the greatest diversity in skin and hair types of
any nation globally making it potentially a very
interesting market for mass market sun care.
21

2. Lackluster Marketing Strategy
Why is Kao Failing to Achieve its Potential?
President Yoshihiro Hasebe, 2023 AGM

The Market Begs to Differ
2021 Total Worldwide Ad Spend (USDBn)

The company with the highest profits and themost repeat customers actually has high loyalty
and uses almost no marketing fees in theirbusiness.
This may be a bit idealistic, but if you have an
intensively researched product that for example
that once it’s out there can be used for a longtime due to high loyalty, the marketing fees youneed will actually be only very small.
On the other hand, if you have a product thatyou can switch to another product immediately,
then you need a lot of marketing fees.
Source: Ad Age Data News.

$7.9

$11.1

$8.0

$8.6

$14.2
$10.1

$12.5

$8.1

$16.9
$5.5
22

2. Lackluster Marketing Strategy
Marketing has been underinvested
Oasis believes Kao’s marketing budget is being spent
ineffectively and in an uncoordinated manner acrossbrands.
Kao also substantially under-invests in marketing both inabsolute terms, and relative to revenue and instead overinvests in R&D. This has led to reduced brand visibility andawareness, and decreased market share andcompetitiveness.
.

Competitors haven’t
succeeded because they
make better products
Competitors haven’t succeeded because they make better
products than Kao. They have succeeded because they are
better at understanding the needs and aspirations of theircustomers, then selling and marketing those needs andaspirations to their customers through their products.

Source: Bloomberg, Company Filings

Marketing & Advertising Spend (% of Revenue)(Kao Consumer Goods Business Only)

Given its product mix, Oasis believes Kao should over time be spending closer to
15-20% of Consumer Goods revenue on marketing depending on the ultimate
product mix.
This could be funded by better consumer goods gross margins, tighter R&D spend
and better focus on Kao’s cash conversion cycle.
40%

30%

20%

10%

11.0%

10.5%

0%
2018
Kao

2019
L'Oreal2020
Unilever2021
Beiersdorf

2022

2023

Rohto Pharmaceut ical

23

2. Lackluster Marketing Strategy
Digital - Inconsistency across Kao Brands
Kate Tokyo has a strong online presence through YouTube (localised
channels across ASEAN), LINE, X and Instagram. Each drives monetization
by linking to their e-commerce site.

Source: YouTube, Instagram, Line

However, Curél does not. While Curél has social
media pages, it does not even have a dedicatedwebsite in its home market.

24

2. Lackluster Marketing Strategy
Lack of Digital Channel Integration
Bioré’s UK website has no link through toretailers or even details on what brick andmortar retailers to purchase from....

However, the UK product page of Nivea, aBeiersdorf brand, links through to major EC
sites.

Digital Marketing
Expertise
From research and interviews
with former employees, Kaodoes not appear to do specialist
recruiting for digital marketing.
Competitors such as Kobayashi
Pharma and Shiseido are hiring
aggressively for entry and midcareer digital and e-commercemarketing talent.
While Kao has a digital team,
the focus appears to be on data
analytics – a clearly importantfunction – but not on content
and marketing for digital andsocial media channels to drive
engagement.

Source: Nivea UK website, Biore UK website

25

2. Lackluster Marketing Strategy
Digital – Underwhelming versus peers
Curél’s LINE account has one post and features a broken YouTube
link. Fast-growing foreign rival Cetaphil has a fully engaged LINE
account flagging all its other social media channels and links throughto three local Japan EC sites to drive monetization…

Content creation is a strategy used to considerable effectby L'Oréal and Galderma to inform, educate andentertain consumers and ultimately drive new revenue
growth for the fast-growing derma cosmetics space.

Oasis believes that Kao brands’ overall lack of blogs,
podcasts, testimonials, YouTube infomercials etc.
does little to drive consumer interest in its brand,
particularly overseas where they are less well known.

Source: Line, YouTube, Apple Podcasts

26

2. Lackluster Marketing Strategy
Store Displays and Presentation

Rohto’s Mentholatum, Shiseido’s Senka and Kenvue’s Neutrogena allusing in-store display, POP marketing to drive sales.

Source: Oasis Research, Vietnam Consumer Goods Survey

Images taken in
Vietnam

Kao’s Curél and Freeplus brands
displayed with poor shelf space and no
signage27

3. Poor Distribution Channels
Kao’s brands have poor distribution
I recommend it for sensitive skin

The product is great

Reviewed in Italy on 14 December 2019

Reviewed in Germany on 14 January 2022

I have sensitive skin and I was on acne
treatment, so I was looking for a mild
cleanser for my fragile skin.
This cleanser does not dry out the skin anddoes not do that effect of tight skin. I highly
recommend it!
The product comes directly from Japan(a confirmation for the authenticity of the
product), which is why it takes a long time
to ship and the seller is unfortunately notable to give tracking number but it's very
helpful.

Only 3 stars, because: In order to receive
the package from DHL, you have to pay
about €10 customs and expenses.
However, this can be reclaimed from
Amazon (it will be refunded without any
problems).

Source: Amazon Italy, Amazon Germany28

3. Poor Distribution Channel
Kao’s brands lack the global reach of their competitors
Derma-Cosmetics
Global Distribution

Mass Cosmetics
Global Distribution(No. of Countries)(No. of Countries)

200

Mass Personal & Body Care
Global Distribution(No. of Countries)

70
120

60

120

70
12

10

10

Source: Countries sold in are based on Oasis estimates using Company Filings and IR, Brand websites and disclosure

~60
25

29

4. Bloated Consumer Brand Portfolio
Kao has too many subscale, domestically focused brands

Trailing 12-Month Revenue (USDm)

90,000

It is true that we havetoo many businesses

75,000President Yoshihiro Hasebe, February 2023

P&G has less brands than Kao
but almost 10x the revenue

60,000line
Trend

Beiersdorf Consumer Products business isaround the same size as Kao by revenue
but with just 13 brands

45,00030,000

Kao needs to shrink the number ofbrands and focus on aggressively
growing the revenue of what remains

15,000

0

0

10

20

Source: Company Websites, IR and Oasis calculations

30

40

50

60

70
80
Number of Brands
30

4. Bloated Brand Portfolio
Cosmetics Core Portfolio has 19 brands
Kao’s core portfolio of cosmetics brands is split between “Global
11” (“G11”)1, and “Regional 8 (“R8”)1. G11 are globally strategic
brands and R8 are those brands with a Japan market focus.

Cosmetics Brand Category Sales Contribution
Japan2
Even in Japan, global
G11 brands dominate
sales activity.

Others15.7%

Only G11 brand revenue has grown from 2019 to 2023:
Region2019 Revenue

2023 Revenue

ChangeG11

USD 1,160.3 mn

USD 1,190.2 mn

2.6%

R8

USD 559.1 mn

USD 374.4 mn-33.0%Other

USD 430.0 mn

USD 136.2 mn-68.3%

30.6%

R8

G11

GlobalOthers8.0%

Within the G11 category are “1st Runner” brands – SENSAI, Molton
Brown, and Curél – as well as “Strategic Investment” brands –Kanebo and Kate Tokyo.
Kao’s core portfolio is composed of 19 brands (and at least afurther additional five non-core brands in Others). To compare,
Unilever has a similar sized premium cosmetics business focusing
on less than ten brands.

54.3%

22.0%

Oasis research indicatesthat as few as 6 brands
account for the majorityof sales of G11.

1) G11: Sensai, Molton Brown, Curél , Kanebo, Kate Tokyo, freeplus, RMK, SUGGU, athletia, est, and ALLIE / R8: ALBLANC, TWANY, LISSAGE, Milano Collection, Primavista, DEW, Sofina iP, and media
2) Source: Kao Annual Report 2022
3) USD figures above converted from JPY figures using constant FX rate of JPY140.2 to the Dollar

R8

G11
70.0%

31

4. Bloated Brand Portfolio
Product Strategy is Fundamentally Flawed
Swelling of SKU Numbers
SKUs have doubled overthe past 10 years. The reason
was to increase sales
September 1, 2023

From 2012 to 2022, the CAGR of stock-keeping units (SKUs)
is 7.2%, whereas the CAGR of revenues from Consumer
Goods Segments has been only 1.7%. Therefore, most
SKUs, if not all, failed to add to sales growth.
Oasis interactions with Kao and competitors suggest the
doubling of SKUs across the Group over the past decadeand poor focus on inventory velocity may have driven~200-300bps of consolidated gross margin erosion alone,and diluted marketing budgets across brands.

No Talk of Premiumization
Premiumization has been a major trend in FMCG globally
helping improve margins and offset commodity inflation.
Yet this topic does not even register a mention in Kao’s
2022 annual report.
This is indicative of a lack of attention towards pricing andhas contributed towards declining profitability in consumer
goods and low gross margins over the past few years.
Premiumization in Haircare - Kao has been caught offguard at home by premiumization in hair care, resulting
in a sharp contraction in domestic Health & Beauty
revenue since 2020. I-NE, a start-up with little R&D
expertise, but highly focused on marketing, has nearly
doubled revenue in the past four years by creating a
new “masstige” market.

32

I.

Executive SummaryII.

Introduction to Kao

III.

Growth Allergy

IV.

V.

VI.
VII.

VIII.

•
•
•
•

Reluctant Global Expansion
Lackluster Marketing Strategy
Poor Distribution Channels
Bloated Brand Portfolio•••

Kao’s (Lack of) Strategic Vision“Global Sharp Top” Disappoints
Lacking Leadership and Oversight

•
•
•
•
•
•

Untapped Potential – Curél + freeplus
Untapped Potential – Bioré
Untapped Potential – Molton Brown
Untapped Potential – Sensai
Untapped Potential – Oribe
Untapped Potential – Kate Tokyo•A Success Story

•
•
•
•

Commit to Global Expansion
Refine Brand Portfolio
Embrace Marketing Strategy
Strengthen Oversight & Transparency

Global Sharp Top?

Growth is Everywhere

Beiersdorf
a better kao

AppendixGlobal Sharp Top?
Lack of Ambition, Lack of Focus

Kao management have an allergy to growth
The K27 medium-term plan fails to address the growth potential available to Kao
through its Health & Beauty and Cosmetics brands. The lack of ambition makes it
look like Kao’s management have an allergy to growth.

35

1. Kao’s (Lack of) Strategic Vision
Kao lacks a growth mindset
Kao’s current medium-term plan, K27, was announced inAugust 2023, two years after K25 was issued. Both plans,presented during the tenure of the incumbent CEO, Yoshihiro
Hasebe, received muted market reactions.
K25 was widely criticized for lacking numerical targets, and,while K27 was more transparent on that front, disappointment
was reserved for Kao’s allergy to growth which management
exhibited within initiatives and targets (despite the ambition tosustain “Global Sharp Top”1).
For many years, Kao management has demonstrated:
Lack of Ambition to invest and expand key brands
Lack of Focus on areas with a strategic foothold

Analyst Comments to the Strategic Positioning of Kao

Killer Strengths,
Just Needs a Killer
Growth Strategy
October 3, 2023

Profits bottomedout, but still not muchconfidence in full-fledged
growth turnaroundFebruary 8, 2024

Kao has great technology andmany interesting products, but
management has yet to translate
this expertise into strong
revenue-generating products
February 20, 2024

1) Global Sharp Top is defined by Kao to mean “Contribute as global No.1 with leading-edge brands and solutions that address the critical needs of customers”.

36

1. Kao’s (Lack of) Strategic Vision
Fundamental lack of ambition
Lack of Ambition
Kao management is aware that it has potential blockbuster brands and knows what needs to be done, yet, they havedecided not to do so. Kao’s brands will fall further behind if management does not quickly change its attitude and begin tounleash the potential of its brands and will damage Kao’s future corporate value and all of its stakeholders.
Kao’s management are simply not even trying.

If we roll out in more countries andregions through various sales channels, it is possible to aim for sales of
100 billion yen, but we will strive to be the Global Sharp Top without
taking such an approach
Kao Group Cosmetics and Skin Protection Business Growth Strategy Briefing37

1. Kao’s (Lack of) Strategic Vision
Fundamental lack of focus
Lack of Focus
Although Kao has excellent brands with strong growth potential, yet Kao’s management team seems
disinterested and have repeatedly indicated that their focus is not on growth opportunities in FMCG.
Kao’s strengths are in its core businesses, world class consumer goods brands, NOT in enzyme batteries ormedical treatments.
Kao conducts world-class enzyme research… I think
enzyme-driven batteries will be useful in unexpected
placesPresident Yoshihiro Hasebe, December 2021 1“We need a new engine for the future.” With this in mind,
we aim to enter the medical (treatment/diagnosis) field…
Nikkei Business interview with President Yoshihiro Hasebe, March 2022

1)

Tokyo University of Science Interview, December 2021 (https://www.tus.ac.jp/today/archive/2021/20211119_6715.pdf)

38

1. Kao’s (Lack of) Strategic VisionMarket communication has eroded confidence
Lack of Numerical Targets
Under K27, Kao eliminated the group sales target as set in K25.
When asked, management’s rationale was that “our activities
will become a pursuit of scale if we set sales as a key
performance indicator”1.
Three key business lines: Cosmetics, Chemicals and Skin
Protection, all issued detailed sales and operating profits
targets a few months apart, but the Group is unable to issue asales target of its own.
A Company Presentation published in December 2020, also
noted a doubling of productivity – a still undefined measure:

Corporate Jargon“At Kao, we conduct Life Value Solution marketing aimed atproviding benefit for consumers’ Life Value”“We are also considering a system, ‘One Team and My
Dream’”“as I explained using the key words, Next Innovation… we will
drastically shift the values of sanitary products through Next
Innovation in the future.”“Reborn Kao is Kao's core business… we are taking a chanceon Another Kao... Another Kao values delivering products andservices only to those to whom products and services should bedelivered sincerely. “
Global Sharp Top: Contribute as global No.1 with leading-edgebrands and solutions that address the critical needs ofcustomers.

1) Kao Group First Half of Fiscal 2023 Conference Q&A Session Summary, August 2023

39

We had heard of a flat-earth, but“Global Sharp Top” was new for us all40

2. “Global Sharp Top” Disappoints
Kao plans to prioritize three brands, but forecasts are underwhelming••

Kao’s “big idea” is to open
one flagship store in China
before potentially opening
another one in Hunan andthen possibly others
Hard to see how thisstrategy will lead to growing
sales 3x by 2030••

Kao’s “big idea” is to growsales by 50% by 2030 – a
5.2% CAGR
Far from being a “Growth”
strategy, this is slowing
down after a decade of
growth in which Molton
Brown sales grew at a 6.2%
CAGR

•
•

•

Kao’s “big idea” is to growsales by 50% by 2030 – a 5.2%
CAGR
This is below Kao’s
estimated market growth for
Derma-cosmetics of 12.4%
In contrast, L'Oréal's CeraVemanaged to grow global
revenue 39% in 2023 alone41

2. “Global Sharp Top” Disappoints
The numbers Kao does offer don’t add up• Kao plans to triple its global market share by 2027 from 1.9% to 6.4% but
it only estimates that its sales will increase by 70%• Kao estimates that it will triple its Australian market share by 2027 from
6.8% to 21% but only estimates that its sales will increase by 40%• Kao estimates that it will triple its European market share by 2027 from
1.7% to 5.2% but only estimates that its sales will increase by 50%

2027 Total Global Sales

43.0

Bn
Yen

74.0

Bn
Yen

UV Care: 48.0 Bn yen
Self-tanning: 26.0 Bn yen(Excludes Environmental Skin Protection)
Source: Company Presentation, September 2023.

42

Top decile brands, bottom decile management
Kao’s management is aware that it has brands and the products to competeinternationally, and knows what needs to be done, yet, they have decided not to doso. Management is lacking the ambition and strategic vision to achieve its true
potential. Kao has top decile brands, but bottom decile management.

Kao has top decile brands, butbottom decile management433. Lacking Leadership and OversightSenior Executive Team Illustrates Shortcomings
Inside Director Backgrounds

Chief Marketing Officer (“CMO”)

Name

Role1

BackgroundExperience
Outside Kao

Hasebe“CEO”

Research & Development

No

Negoro“CFO”

ChemicalsNo

Nishiguchi

Exec

Trade Marketing & Sales

No

Muenz

Exec

Research & Development

No

Management lack expertise in specialized skill areas,such as consumer marketing, and Digital.
Critically, management have no experience in FMCG
outside of Kao. This may be a strong attribute in goodtimes; however, these are not.

In contrast to most global FMCG peers, Kao has no formal CMO tasked with
exclusively handling consumer marketing strategy. CMO’s at major global
peers are marketing specialists, often bring experience from elsewhere, andcontribute to diversity that represents the customers:

Company

CMO

Gender

Career History

Kao

No

-

-

P&G

Yes

M

Various international branding and marketing roles at
P&G since 1988

UnileverYes

F

Formerly P&G Cosmetics marketing
Ex-President of Coty Consumer Beauty

Reckitt

Yes

M

Various international marketing roles at Reckitt since
1999

L'OréalYes

F

Formerly at Mindshare, McCann and Dentsu

At Kao, the executive considered to be a proxy is doubted:
Kao's CMO is effectively Nishiguchi… [he] is more of a sales
guy and does not have the experience or ability to manage
brands… Kao really should bring in a CMO from outside 3
Kao Former, Corporate Strategy Division, Oasis Interview 2023

1)
2)
3)

Roles are simplified for understanding
Source: Company websites
Oasis Research interviews44

3. Lacking Leadership and Oversight
Board Diversity is not reflective of Kao Customers
Kao’s Board

Nationality
Only one director is non-Japanese, David Muenz. All other directors are
Japanese despite 35% of Kao’s business being international, and global
expansion representing a key growth pillar in the sector.

Male
60+

Male
60+

Male
60+

Female Male
60+
60+

Male
60+

Male
60+

Male
60+

Age
The average age of directors on the Board is 63.3, however, no directors areunder the age of 60.

Kao’s Target Customer

GenderOnly one member of the Board is female; none of the sitting management
directors are female. This contrasts significantly with the anticipatedconsumer base of Kao products.

••

Oasis & BDTI Announce Successful Results of “Director
Training Scholarships for Women” Initiative

68 Professional Women to Receive Funding From Oasis For Director Training Programs
Offered by BDTIBDTI to almost double female participants in its programs compared to 2021
45

3. Lacking Leadership and Oversight
No board member with international marketing experience
Industry and Sector Expertise
On the full board, there are no international marketing nor digital experts; only one outside director is from a consumer goods
background.

0# of External
Board Members
withIntl. Consumer
Goods Marketing& Branding
Expertise# of Board Members

Source: Company Websites

2

2

3

Tamara Ingram

Prof. Youngme Moon

Christopher Kempczinski

Jean Paul Agon

• Former Chair ofWunderman Thompson• Former senior
management at WPP• Former CEO of McCann
Worldgroup and Saatchi& Saatchi• Harvard Business School
Professor – branding andconsumer goods• Ex-P&G brand management• Ex-Pepsi Co, ex-Kraft• President and CEO of
McDonald’s Corp

• L'Oréal sales and marketingbackground

Andrea Jung

• Former head of Global
Marketing Avon

Chris Sinclair• Degree in Marketing fromthe University of Kansas• Former Chair and CEO
of Mattel• Former Chair and CEOof Pepsi-Cola Co.

8

3

15

• Digital Marketing• Ex-Google Analytics• Ex Colgate-Palmolive, J&J• Former President ofCoca-Cola Germany• Currently at Nestle

Terry J. Lundgren

Fabienne Dulac

Amy Chang• Consumer merchandising,marketing• Former Chairman and CEO
of Macy’s

12

Béatrice GuillaumeGrabisch14• Former Head of Comms& Marketing VTCOM• Ex-marketing and CEO
Orange France

16
46

I.

Executive SummaryII.

Introduction to Kao

III.

Growth Allergy

IV.

V.

VI.
VII.

VIII.

•
•
•
•

Reluctant Global Expansion
Lackluster Marketing Strategy
Poor Distribution Channels
Bloated Brand Portfolio•••

Kao’s (Lack of) Strategic Vision“Global Sharp Top” Disappoints
Lacking Leadership and Oversight

•
•
•
•
•
•

Untapped Potential – Curél + freeplus
Untapped Potential – Bioré
Untapped Potential – Molton Brown
Untapped Potential – Sensai
Untapped Potential – Oribe
Untapped Potential – Kate Tokyo•A Success Story

•
•
•
•

Commit to Global Expansion
Refine Brand Portfolio
Embrace Marketing Strategy
Strengthen Oversight & Transparency

Global Sharp Top?

Growth is Everywhere

Beiersdorf
a better kao

AppendixGrowth is Everywhere
Kao has clear runways for growthBest prospects lie in overseas cosmetics
Many growth opportunities are available in the space, however, Kao’s best prospects for revenue andprofit growth lie in the overseas opportunity set for its derma-skincare, select mass & prestige
cosmetic brands; and its largest mass market skin & personal-care names.

Kao’s best prospects lie inoverseas derma-skincare49

1. Untapped Potential – Curél + freeplus
Derma-Cosmetics Market Growth – Resilient and Efficient
Derma is a great place to be in

Kao’s Sleeping Giants
Many of Kao’s international peers compete in the dermacosmetics space. L'Oréal leads the market with the CeraVeand La Roche-Posay brands, and Kao has an establishedpresence through Curél and freeplus.
Derma-cosmetics is widely recognised as a high-growtharea with a large total addressable market (see Appendix).
2019-2022 CAGR1… generally, you are going to be pricing higher than mass cosmetics so themargins are better, but very often you will be going through the same retailchannels as mass so there a distribution overlaps if you are already playing
in mass.
Because it tends to occupy a middle ground between prestige and masscosmetics it’s also one of those items that tends to be less susceptible tobudget cutting in a recession as well versus prestige cosmetics”
Former Unilever Prestige Cosmetics Division Brand Director, Oasis interview November 2023

Kao Brands

Company

Derma-Cosmetics

Group

L'Oréal

24.4%

8.6%

Beiersdorf

17.8%

4.8%

Company annual reports, Bloomberg

Kao anticipates a CAGR of 12.4% in Derma-Cosmetics
between 2022 and 20272. Oasis views Curél and freeplus
to be Kao’s “sleeping giants”.
1) L'Oréal figures include acquisitions in both; Beiersdorf “Group” figures are for consumer segment only
2) According to Kao’s Group Cosmetics Business Global Strategy, September 2023. Galderma, owner of Cetaphil, estimated derma-skincare as a category would grow at 10% CAGR between 2020-25 in its 2021 Annual Report.

50

1. Untapped Potential – Curél + freeplus
Favorable Market Outlook

Ebitda Margin30%

L'Oreal Group
L'Oreal Derma

The Derma-Cosmetics market offers:(1) Higher Margins
Higher margins are available in derma-cosmetics versus
the overall margins of diversified FMCG.
(2) Premium Valuation
Historically, skincare and cosmetic names have alsotended to trade at a premium – about 2.5 points higher onan EV/EBITDA basis - to pure-play peers in the consumer
goods space due to higher gross margins/superior pricing
power and a better global growth outlook for the segment.

29.6%
28.2%

26.8%

25%
25.3%

20%

24.3%

23.3%

23.4%

2020

2021

27.8%

24.0%

22.0%
2018

2019

2022

27.4%

23.0%
2023

PER vs GROWTH

Research also shows that cosmetics businesses withstrong revenue growth are rewarded with higher valuations.
For example, European derma company Galderma
recently IPO’d in Switzerland 21% above its offer price,and trades at 19x Ebitda.
Source: Morgan Stanley
Source: Bloomberg

51

1. Untapped Potential – Curél + freeplus
Brand Focus: Curél“Masstige” Derma Skincare

Curél is a mass market prestige (“masstige”) derma
skincare brand focused on dry and sensitive skin. Products
are globally regarded but have limited retail access.
Curél’s products were re-engineered for the Japanesemarket and subsequently rolled out in Asia ex-Japan andthe UK, and “relaunched” back into the US market.
RetailAccess“I used a bunch of products like Hada Labo premium, Eucerinand La Roche Posay. Nothing helped until I decided to try out
this one.” (Amazon)

No
RetailAccess“This lotion is a saviour to all dry skin beauties… None of the
Indian creams have worked for me, Nivea, Dove etc.”(Amazon)No
RetailAccess“This product is really hydrating… Also really good as a nighttime mask” (Lazada)

Oasis estimates revenue from Curél to be around USD 285– 430 mn, mostly concentrated in Japan and Asia withminimal presence in Europe, and the Americas.

Source: Amazon, Amazon India, Lazada Philippines52

1. Untapped Potential – Curél + freeplus
Brand Focus: freeplus
Curél's Skincare Sibling“Masstige” Derma Skincare

freeplus focuses on hypoallergenic sensitive skincare
using Chinese and Japanese botanical ingredients. Like
Curél, it is highly regarded even though it only has limited
global availability.
RetailAccess“I use freeplus and really like it - it is not sticky. Suitable forthe hot weather in Thailand. Apply it alone for people withoily-skin.” (Lazada)No
RetailAccess“I have sensitive skin… This cleanser doesn't dry out myskin… I highly recommend it! The product comes directly fromJapan… it takes a long time to ship.” (Amazon)

No
RetailAccess“Very good cleansing gel… Only it delivers from Japan, took awhole month.” (Amazon)

Oasis estimates freeplus revenue for 2023 was less than
USD 150 million, however, the estimated global retail valueof its product peers1, Kenvue’s Neutrogena (USD 2.9billion) and L'Oréal's Garnier (USD 6.4 billion), demonstrate
the potential growth opportunity for freeplus.

1) Global retail value estimated by Euromonitor in 2022.

53

1. Untapped Potential – Curél + freeplus
Curél is in high demand in Europe

Curél remains unavailable for retail in most of Europe outside of the UK,
despite strong consumer reviews among European consumers who havepurchased Curél (usually directly from Japan).
Recent feedback from the UK illustrates the promise:This is one of my favourite because it is so mild that it won’t make your face dry after washing. Japanesebrand are so much better in compare to some European brands. If you have dry, sensitive skin, this is avery good choice…

freeplus is not even slated for full expansion outside of China“We rebranded freeplus this year as a brand mainly for China. Within the next two to three years, we will expand it(freeplus) within the market in China and then plan to expand from China to ASEAN. We will only expand in someparts of Asia”
Kao Group Cosmetics and Skin Protection Business Growth Strategy Briefing, September 2023

Japanese skincare is very hot right now
Japanese skincare is very hot right now. There is a lot of demand in the UK market forthese products – the perception is Japanese products are highly innovative with very
good technology.
Former Unilever Prestige Cosmetics Division Brand Director, Oasis interview November 2023

Source: Amazon UK, Oasis Research interview

In 2019, Unilever acquired Tatcha, apremium “Japanese-inspired” botanicals
brand, for a reported USD 500 million,
specifically to cater to Western consumer
interest in Asian skincare and cosmetics.
54

1. Untapped Potential – Curél + freeplus
Curél and freeplus CAGR lag the market
Kao Consigns Brands to Mediocrity

210

Kao anticipates Curél can achieve a CAGR of 5.3% till 2030
under its Global Sharp Top strategy, while entirely ignoring
the potential of freeplus. Kao’s own presentation has a
12.4% CAGR for the derma-cosmetics segment globally.

190

L'Oréal grew CeraVe revenue in 2023 by almost as much as
Kao expects to grow Curél’s revenue over eight years.

150

Curél Revenue Forecast (JPY billion) 2022-27

170

Seizing the opportunity - as Beiersdorf, Galderma
and L'Oréal have done would create substantial
upside.

130

Given the quality of the product and low starting base,Oasis sees no reason why Curél and freeplus should not
grow at above industry CAGRs.

Growth is everywhere…
As for CeraVe, it recorded a 39% growth, becoming number one incleansing and body in the dermocosmetics market. Growth iseverywhere at 25% in the US and 61% internationally.
Myriam Cohen-Welgryn, President, Dermatological Beauty Division, L'Oréal
Q4 2023 Earnings Conference Call February 9, 2024

110
90

Just growing in line with the market would mean
revenues in 2027 would be JPY 30 billion and EBITDA
nearly JPY 7 billion larger than under Kao’s targets

70
50

2022

2023
Competitor Rates

Source: L’Oreal FY2023 Earnings Call, Oasis calculations based on sell-side analyst estimates for Curel revenue and Kao September 2023 Presentation Material

2024

2025

Market Growth Rate

2026

2027

Kao Revenue F orecast
55

1. Untapped Potential – Curél + freeplus
Kao’s Derma-Cosmetics Potential$1,088$456$228$1,051$2,988$2,488Curél andfreeplus

both havesignificant runway
for growth

Revenue 2022 (USDm)
Source: Oasis calculations based on sell-side analyst estimates for Curel and freeplus revenue, Cetaphil data from Galderma AG IPO prospectus (figures are for Dermatological Skincare segment of which Cetaphil is the majority ofrevenue), Eucerin and Aquaphor data from Beiersdorf disclosure. Cerave and Neutrogena figures from Euromonitor data. Euromonitor and Company data may be not fully comparable due to differences in sell-in and sell-out figures56

2. Untapped Potential - Bioré
Leader in Japan’s Mass-Market
Underutilized Utility Product
Bioré is an internally developed mass-market multicategory (body, skin, and sun care) brand. We believe it
generates over USD 700 million (converted from JPY1) inrevenue, making it one of Kao’s largest brands.
Leveraging Kao’s technological expertise, Bioré has astrong track record of product innovation (nose strips,
charcoal face cleansers) and has grown its footprint in thesun care category using ultra-light formulations.
Bioré competes against brands like Beiersdorf’s Nivea andUnilever’s Dove. The market potential for Bioré is huge;
Nivea achieved USD 5.5 bn in revenue last year, however…
Bioré is primarily focused on Japan, with just asmall footprint in Asia ex-Japan and even more
limited exposure to EMEA and the Americas.

1) 2023 average exchange rate used to convert JPY to USD: USD 1 = JPY 140.5226

57

2. Untapped Potential - Bioré
Kao’s Mass Personal Care Opportunity• Dominant local body and skincare
brand; highly regarded in UV protection• Decent ASEAN footprint, untapped int’l
growth runway based on our research• Well regarded US moisture lotion andskincare brand• Key South American markets (Brazil,etc.) are under-penetrated

Mass-Market Personal Care

has a long way to catch-up, and grow
$524

$915

$6,377$4,891$2,988
Revenue 2022 (USDm)

Source: Oasis calculations based on sell-side analyst estimates for Biore revenue, Jergens, Nivea, Neutrogena and Garnier figures based on Euromonitor figures58

3. Untapped Potential – Molton Brown
Luxury Toiletries
British Understatement
Molton Brown is a premium British toiletries manufacturer
and UK Royal Warrant Holder. We estimate that Molton
Brown generated USD 140 million of revenue in 2023.
Molton Brown has excellent brand equity and there is huge
scope for margin improvement by expanding into lessseasonal categories and reviewing its manufacturing andpricing architecture. However…
In the decade to 2022, global revenue CAGR was 6.2%,
and Kao has set Molton Brown a target CAGR to 2030 of
5.2%2 - a slowdown compared to the past decade.
Jo Malone, an Estee Lauder brand, grew revenues in the
UK & Ireland at a CAGR of 11.9%1. Jo Malone UK revenues
are now equivalent to those of Molton Brown globally.
1) Data sourced from Companies House.
2) The target set at the Kao Group Cosmetics and Skin Protection Business Growth Strategy Briefing was to increase “global sales” by 50% by 2030.

59

3. Untapped Potential – Molton Brown
Prestige Cosmetics - High Margin and high growth
vs.
Jo Malone UK vs. Molton Brown
Global Sales
Jo Malone (UK and Ireland only)

Molton Brown (Global)

Jo Malone UK vs. Molton Brown Global 2022 Operating
Profit (GBP Mn)
Jo Malone UK & Ireland

120

35

100

30

Molton Brown Global

28.97

25

80

20
60
15
40

8.23

10
20
0

5
2012

2013

2014

Source: UK Companies House

2015

2016

2017

2018

2019

2020

2021

2022

0

2022
60

3. Untapped Potential – Molton Brown
Kao’s Prestige Cosmetics Opportunity

Molton Brown has plenty ofroom to grow

• Luxury toiletries• Huge international growth andmargin expansion potential$125• Attracted unsolicited private equity
interest in the past$993

$7,335$564
Revenue 2022 (USDm)
Source: Molton Brown revenue based on data from UK Companies House, Aesop figures from Natura & Co disclosure, Jo Malone and Lancome figures based on Euromonitor data61

4. Untapped Potential – Sensai
Kao’s Prestige Skincare Opportunity• Luxury skincare brand• Luxury skincare is the fastest growing
subsegment of skincare – the largest category
in beauty

Sensai is tiny compared to peers,
it has room to grow$79

• Huge scope to leverage Kao’s R&D to drive
efficacy based-marketing, co-branded resort
spas, pop-ups etc.

$688

$1,598

Revenue 2022 (USDm)
Source: Oasis calculations based on sell-side analyst estimates for Sensai revenue, La Prairie data from Beiersdorf disclosure, La Mer figures based on Euromonitor data62

5. Untapped Potential – Oribe
Salon-Premium Haircare
Cult Following Hair ProductsOribe is a US-based luxury salon haircare brand. Oasis
understands that the brand has grown at around 10% peryear since being acquired in 2017 - mainly driven by wordof mouth - indicating revenue to be ~ USD 160 million.
Oribe appears to have a large cult following among
consumers despite the ultra-premium price points, andthere is substantial opportunity to grow the brand.
For reference, stand-alone premium salon and hair carebrands like Olaplex Holdings and Japan’s Milbon bothgenerate around USD 400-500 million in revenue.
Oasis believes that by implementing a marketing campaign
and looking to expand well beyond its traditional salonchannel, Oribe should reach similar revenue levels.

63

5. Untapped Potential – Oribe
Kao’s Prestige Haircare Opportunity

ORIBE has great runaway for
growth• Growing, high-margin U.S. hair salon products
range• Huge international potential to grow with
better marketing and expansion of current
global presence

$160

$344

$1,000

Revenue 2022 (USDm)
Source: Oasis calculations for Oribe revenue based on interview with Kao former executives, and Company disclosure. Milbon data from Bloomberg and Kerastase figures from Euromonitor data.

64

6. Untapped Potential – Kate Tokyo
Mass Market Cosmetics
Tokyo by Name, Tokyo by Sales
Kate Tokyo, a mass-market cosmetic brand targetingthe younger female demographic, maintains only alimited presence in ASEAN.
Analysts estimate that Kate generated revenue ofaround USD 185.0 million in 2023, just a fraction ofmarket leader Maybelline New York’s 2022 revenue of
USD 4.3 billion at retail level from over 120 countries,
as per Euromonitor.
Kate has failed to successfully grow outside of Japan.
Given the interest in Japanese beauty brands among
foreign consumers and acquisitions of Japanese
cosmetics brands by Western rivals (L'Oréal's 2021
purchase of Takami, Unilever’s 2019 purchase ofJapan-influenced Tatcha), we believe Kate has anopportunity to establish a global presence.
65

6. Untapped Potential – Kate Tokyo
Kao’s Mass-Market Cosmetics Opportunity

KATE has a long way to catch-up,
and grow• Mass market Japanese cosmetics
brand• Innovative products and marketing
but has not been rolled out
internationally to any significant
degree$190$4,277
Revenue 2022 (USDm)

Source: Oasis calculations based on sell-side analyst estimates for Kate Tokyo revenue; Maybelline New York figures from Euromonitor data.

66

… Oasis believes Kao can become a competitive global player andemulate the success of companies such as Beiersdorf and L'Oréal…
Through a committed focus on personal care and cosmetics, Oasis believes Kao can become acompetitive global player and emulate the success of companies such as Beiersdorf and L’Oreal.
Kao needs a leadership that can articulate an ambitious growth strategy built on a cohesive overseas
growth plan focused on a core set of brands and backed by a credible marketing, branding and distribution
strategy.

67

I.

Executive SummaryII.

Introduction to Kao

III.

Growth Allergy

IV.

V.

VI.
VII.

VIII.

•
•
•
•

Reluctant Global Expansion
Lackluster Marketing Strategy
Poor Distribution Channels
Bloated Brand Portfolio•••

Kao’s (Lack of) Strategic Vision“Global Sharp Top” Disappoints
Lacking Leadership and Oversight

•
•
•
•
•
•

Untapped Potential – Curél + freeplus
Untapped Potential – Bioré
Untapped Potential – Molton Brown
Untapped Potential – Sensai
Untapped Potential – Oribe
Untapped Potential – Kate Tokyo•A Success Story

•
•
•
•

Commit to Global Expansion
Refine Brand Portfolio
Embrace Marketing Strategy
Strengthen Oversight & Transparency

Global Sharp Top?

Growth is Everywhere

Beiersdorf
a better kao

AppendixBeiersdorf
A Success Story

Kao’s issues are not new
Confidence is Key
Kao shares many of the attributes found in Beiersdorf back inearly 2021, after a sharp pandemic-driven contraction inrevenues in 2020:
1. Underperformance versus peers,
2. Poor allocation of marketing spend
3. Lagging in product premiumization with particularly
the mainstay Nivea brand anchored at entry pricepoints
4. Infrequent but questionable M&A
5. Depleted investor confidence in management
HOWEVER, similar to Kao, Beiersdorf has unique IP, strong
brands in skin and suncare, and untapped overseas growth
runways.

Beiersdorf made the decision to replace existing management who were failing to deliver.
70

Turnaround is Possible
Sustainable Value Growth
Vincent Warnery
CEO, Beiersdorf
In May 2021, a new CEO at Beiersdorf, Vincent Warnery,refocused its portfolio around a handful of strong brands– particularly in derma - marketing itself as a specialist “We are skin care” and “Skin care is everything to us”.
Beiersdorf under CEO Vincent Warnery shifted to a:
1. Refocus on gross margin expansion via
premiumization
2. Reinvestment in brand building - in particular, on
the digital side – to drive margin expansion

Performance since May 2021
Beiersdorf’s shares have outperformed the rest of Europe’s consumer
goods sector, even besting the performance of L'Oréal.
50

45.6

40
30

Beiersdorf
Henkel AG
Reckitt

20

L'OrealUnileverEssity25.8

100

3. Overhaul of the corporate culture to embrace
agility and decisiveness-10

4. International growth strategy, notably in theAmericas with a heavy focus on high margin, growing
product categories in areas like derma and suncare-20-30
Source: Bloomberg
71

I.

Executive SummaryII.

Introduction to Kao

III.

Growth Allergy

IV.

V.

VI.
VII.

VIII.

•
•
•
•

Reluctant Global Expansion
Lackluster Marketing Strategy
Poor Distribution Channels
Bloated Brand Portfolio•••

Kao’s (Lack of) Strategic Vision“Global Sharp Top” Disappoints
Lacking Leadership and Oversight

•
•
•
•
•
•

Untapped Potential – Curél + freeplus
Untapped Potential – Bioré
Untapped Potential – Molton Brown
Untapped Potential – Sensai
Untapped Potential – Oribe
Untapped Potential – Kate Tokyo•A Success Story

•
•
•
•

Commit to Global Expansion
Refine Brand Portfolio
Embrace Marketing Strategy
Strengthen Oversight & Transparency

Global Sharp Top?

Growth is Everywhere

Beiersdorf
a better kao

Appendix

Image produced by Oasis Management

a better kao
Initiatives to Consider

Upside to KaoManagement focus on growth will lead to long-term value
Increase

Based on DCF2
Valuation

10000

774

370

9,919

2,783

JPY per share

85-97%

Total

12000

76%
Based on
SOTP1
Valuation

Decrease

8000
2,554

6000

4000

5,676

3,438

2000

0
Health & Beauty

Cosmetics

Hygiene & Living+ Life Care

Chemicals

Net Debt

1) Sum-of-the-Parts methodology; valuation of the company’s consumer goods operations and its chemicals division for FY26
2) Discounted Cash Flow methodology assuming a 1% long-term growth rate and a terminal 1-year forward EV/EBITDA multiple of 16.6x based on the blended multiple of its competitors

Equity Value

Current Share
Price

74

Path to a Better Kao
Initiatives for turning Kao into a world-class market leader

1

Commit to
GLOBALEXPANSION

Kao must recognize that more growth is available in new markets.
Through a strategy that is committed to expansion, greater levels canbe achieved compared to current forecasts.

Slide
76

2

RefineBRAND
PORTFOLIO

Kao must take steps to allow focus on the brands with the highest
growth potential – cosmetics and skincare brands - ensuring an
underlying business mix which supports sustainable growth.

Slide
77

3

Embrace
MARKETINGSTRATEGY

Kao must hire a leading CMO or equivalent with global experience
immediately to transform the approach to marketing and embracechannels like digital which more easily enable expansion.

Slides78-87

4Strengthen
OVERSIGHT &TRANSPARENCY

Appoint outside board members with branding and marketing
experience while enhancing transparency and disclosure.

Slides88-90

75

1. Commit to Global Expansion
Expand into new geographies where demand already exists

76

2. Redefine Brand Portfolio
Review segments to develop a brand mix to enable sustainable growth1

Portfolio
Concentration
Prioritize brands withstrong growth potential
and high margins.
Focus investment onbrands that dominate
their categories.

2

Product
Premiumization

3

Brand and SKU
Rationalization

4

Targeted Divisions for
Immediate Action

Upgrade product line-up
to enhance perceived
value.

Streamline productportfolio by reducing
brands and stockkeeping units (SKUs).

Cosmetics and Health &Beauty segments
identified for urgent
application.

Aim for gross margin
expansion throughpremium offerings.

Reallocate marketingbudget towards highpotential, fast-growing
markets.

Both divisions showhigh growth potential
but currently suffer fromexcessive brand andSKU proliferation.

Benchmarking Success•
P&G’s brand rationalization and pricing/productivity focus led to 111.8% share growth since 2018, outperforming the S&P
500 Consumer Staples sector (+65.9% over the period).
•
Beiersdorf's skincare revamp and Unilever’s premiumization and reorganization (exiting lower margin domains – particularly
in food) echo our proposed initiatives.
773. Embrace Marketing
Install marketing leadership to reform Kao’s approach to consumer marketing
Hire a Leading CMOIMMEDIATE FOCUS AREAS:
1.
2.
3.

4.
Strategically Increase Marketing Budget
Budget increases can be funded through enhanced Cosmetic and Health& Beauty gross margins, reallocated funds from discontinued
brands/SKUs, better R&D cost control and improvements in the cash
conversion cycle.

5.

Released cash flow should initially be used for digital marketing tomaximize return on advertising spend and fuel sales growth.
Subsequently, reinvestment would target further strengthening brandequity of key growth brands, fostering a self-reinforcing cycle of success.

7.
8.

6.

Standardize a minimum digital footprint of all Kao brands todrive online monetization
Create social media specific and localized content forbrands - blogs, podcasts, short-form video etc.
Invest more in influencer-based digital marketing strategies
via testimonials, promotions and collaborations to increase
brand awareness
Review of pricing architecture to drive premiumization andgross margin improvement
Pro-active recruitment of digital marketing talent at both
entry and mid-career level
Sign event sponsorship and brand ambassador deals for key
brands – particularly overseas where brand awareness is lower
but has been earmarked for strategic growth
Brand collaborations & partnerships to generate media buzz
Unify corporate and brand-level messaging to focus on
cruelty-free, vegan and ethical product categories
783. Embrace
MarketingCurrent
All-white packaging with no distinct branding means
the products disappear on a retail shelf, or even in asponsored social media post.
The website user experience is fragmented, andconfusing.
Products are categorized by popularity, rather thanskin type. And, educational materials feel
disjointed from the products they are meant topromote.
79

Image produced by Oasis Management

3. Embrace
Marketing
The Refresh
Update packaging to something that’s more
recognizable, ownable, and—mostimportantly—sharable

our science
your skin

Something that stands out on a retail and abathroom shelf, but still conveys a productthat’s good for your skin.
Redesign the website to celebrate thescience along with the products, with a new
invigorating design that aligns with the impactof the colorful packaging.
80

3. Embrace
MarketingCurrent
The brand’s presence on social media iswildly inconsistent, with covert branding
on YouTube, zero presence on TikTok, anda popular hashtag on Instagram withhardly any connection to the brand itself.

81

Image produced by Oasis Management

3. Embrace
Marketing

Images produced by Oasis Management

The Refresh
What if we capitalize on the viral success of
the Lip Monster product with a custom
carrying case for the lipstick in the shape ofmonster lips?
On social media, what if we create
communities around which Lip Monster color
our fans wear—and let them engage andcompete with one another to build excitement
around the brand and its products?
Image produced by Oasis Management

Image produced by Oasis Management82Current
Uninspired marketing activations
don’t do justice to what is otherwise anelevated and luxury brand experience.

3. Embrace
Marketing

The Refresh
What if, instead of appealing to salons andhotels to feature ORIBE products, we open ourown experiential venues?
ORIBE Salon & Dry Bar
ORIBE Hotel & Spa
Image produced by Oasis Management
83Current
In markets like Japan, products are only
available at salons—where there is no brandpresence. Instead of ordering online,
consumers have to travel several miles to
get the product.

3. Better
Distribution

The Refresh
Design a global online store to help
consumers develop a better understandingof which product(s) are right for them, andinspire them to “style” their shower shelf thatoffers a more luxury experience. By
categorizing products visually, we can inspire
customers to buy multiple products andincrease their lifetime spend.

Image produced by Oasis Management843. Embrace
Marketing
The Refresh

Images produced by Oasis Management

Through a website redesign, we cancelebrate the Japanese traditions ofskincare and the brand’s commitment
to both sense and science throughvisual storytelling and elegant layouts.
Take the beautiful motion and still
imagery the brand is creating for social
media and use it as hero content on thewebsite to create a luxury experiencethat also educates.

Image produced by Oasis Management

85Current
For a brand with such incredible quality
products and content, the retailexperience often seems to fall short ofwhat consumers have come to expectfrom SENSAI.

BetterDistribution

The Refresh
What if we create an immersive pop-up
experience that showcases the brand’s
connection to Japanese skincare andculture?
SENSAI Tea House: Airport Pop-up
SENSAI Tea House: Public Park Pop-up
Image produced by Oasis Management

86Image produced by Oasis Management

3. Embrace
Marketing
The Refresh
Molton Brown positions itself as the embodiment of
inclusive luxury, combining British sophistication with
global appeal. To attract a worldwide audience, thebrand should emphasize universal desires forindulgence and quality.
Molton Brown offers an accessible taste of royalty anda celebration of the human touch in self-care. Byhighlighting its commitment to both excellence andinclusivity, Molton Brown could invite everyone toexperience everyday opulence.

87

4. Strengthen Oversight & Transparency
Management & Board Diversity is not reflective of Kao Customers
Strategic Board Reinforcement for Kao's Growth
Expand Diversity & Expertise: From the decline to a single female board member in FY24, it's clear Kao must diversify,
bringing in more voices that mirror Kao’s consumer base and can channel their insights into future business strategy.
Add Specialized Acumen: Current Board's R&D and Chemicals expertise is not mirrored with consumer goods,
marketing, or data analytics expertise. This misalignment has left a knowledge and experience gap in harnessing thefull potential of Kao’s Home and Personal Care and Cosmetics brands.
Add Multifaceted Oversight: The bloated Audit & Supervisory Committee, are skilled in finance and law, but do notprovide additional relevant expertise to encompass the breadth of growth opportunities within consumer markets.

We advocate for a strengthened senior management and Board composition that is both attuned
to the demands of the consumer goods industry and equipped to steer Kao to fully capitalize on its
market opportunities and lead in the consumer goods sector.

88

4. Strengthen Oversight & Transparency
Kao’s board lacks diversity and relevant industry expertise

Total Board
Members

8

15

12

15

16

External Board
Members

4

12

10

14

13

Female Members

1

6

5

7

7

ConsumerMarketing

0

4

3

3

2

Digital(Data Analytics, ECommerce etc)

0

1

0

2

0

International
Consumer Retail

0

7

5

4

3

Supply Chain
Management/
Logistics

0

1

2

3

1

Source: Company Websites and based on Oasis assessment of director biographies

89

I.

Executive SummaryII.

Introduction to Kao

III.

Growth Allergy

IV.

V.

VI.
VII.

VIII.

•
•
•
•

Reluctant Global Expansion
Lackluster Marketing Strategy
Poor Distribution Channels
Bloated Brand Portfolio•••

Kao’s (Lack of) Strategic Vision“Global Sharp Top” Disappoints
Lacking Leadership and Oversight

•
•
•
•
•
•

Untapped Potential – Curél + freeplus
Untapped Potential – Bioré
Untapped Potential – Molton Brown
Untapped Potential – Sensai
Untapped Potential – Oribe
Untapped Potential – Kate Tokyo•A Success Story

•
•
•
•

Commit to Global Expansion
Refine Brand Portfolio
Embrace Marketing Strategy
Strengthen Oversight & Transparency

Global Sharp Top?

Growth is Everywhere

Beiersdorf
a better kao

AppendixAppendix

Kao’s FMCG Portfolio
Highly diversified with promising growth engines
Low Margin
High Growth

Overseas
Diapers /Feminine
Care

Domestic
Cosmetics
Oral
Healthcare

Low Margin
Low Growth

DermaCosmetics(Ex-Japan)

Hair Salon
Products(Europe)

Mass +
Prestige
Cosmetics

Mass
Skincare
Domestic
FabricProducts

Domestic
Haircare

Domestic
Diapers

High Margin
High GrowthHousehold
Cleaning

High Margin
Low Growth

Bath Salts

Domestic
Bleach92

Cosmetics M&A Valuations
Well-run and/or fast-growing stand-alone businesses with strong
brands have all attracted significant valuation premiums
TargetBuyer

Sales Multiple

EBITDA Multiple

Transaction Date ê

Naturium

elf

4.0 x

21.0 xAug-2023

Creed

Kering14.0 x

Aesop

L'Oréal

4.7 x

Chantecaille

Beiersdorf

6.5 x

Dec-2021

Paula's Choice

Unilever6.5 x

Jun-2021

DECIEM

Estee Lauder

4.6 xMay-2021

Drunk Elephant

Shiseido

8.5 x30.0 xOct-2019

Filorga

Colgate

6.7 x25.0 xJul-2019

TatchaUnilever7.1 xElemisL'Occitane

6.9 x

26.6 xJan-2019

Dr. Ci:Labo

J&J

5.2 x

25.6 xOct-2018

Jun-2023
24.0 xApr-2023

Jun-2019

Source: Morgan Stanley, Oasis Research93Important Disclaimer
Oasis Management Company Ltd. ("Oasis") is the investment manager to private funds (the “Oasis Funds”) that own shares in Kao Corporation(“Kao”). Oasis has created these materials for informational purposes to educate the public and shareholders of Kao. These materials werecreated solely for the purpose mentioned above. Oasis is not and should not be regarded or deemed in any way whatsoever to be (i) soliciting orrequesting other shareholders of Kao to exercise their shareholders’ rights (including, but not limited to, voting rights) jointly or together with
Oasis, (ii) making an offer, a solicitation of an offer, or any advice, invitation or inducement to enter into or conclude any transaction, or (iii) any
advice, invitation or inducement to take or refrain from taking any other course of action (whether on the terms shown therein or otherwise).
These materials exclusively represents the good faith opinions, interpretations, and estimates of Oasis in relation to Kao's business andgovernance structure. Oasis is expressing such opinions, etc. solely in its capacity as an investment adviser of the Oasis Funds.
The information contained herein is derived from publicly available information deemed by Oasis to be reliable. The information herein may
contain forward-looking statements which can be identified by the fact that they do not relate strictly to historical or current facts and include,
without limitation, words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,”“seeks,” “could” or the negative of such terms or other variations on such terms or comparable terminology. Similarly, statements that describe
Oasis’s objectives, plans or goals are forward-looking. Any forward-looking statements are based on Oasis’s current intent, belief,
expectations, estimates and projections. These statements are not guarantees of future performance and involve risks, uncertainties,
assumptions and other factors that are difficult to predict and that could cause actual results to differ materially. Accordingly, you should not
rely upon forward-looking statements as a prediction of actual results and actual results may vary materially from what is expressed in or
indicated by the forward-looking statements.
Although Oasis believes that reasonable efforts have been made to ensure the accuracy of the information contained in these materials, Oasis
makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of such information. Oasis expressly
disclaims any responsibility or liability for any loss howsoever arising from any use of or reliance on any of the information contained in thesematerials or any of their contents as a whole or in part by any person, or otherwise howsoever arising in connection with the same. Oasis is notunder any obligation to provide any updated or additional information or to correct any inaccuracies in the information contained herein.
95