Kao Integrated Report 2 0 1 9 For the year ended December 31, 2018 14-10, Nihonbashi Kayabacho 1-chome, Chuo-ku, Tokyo 103-8210, Japan Corporate Business Planning and Coordination Corporate Strategy Published in May 2019 Chapter 1 About Kao 4 The Kao Way 6 The Development of Kao’s Yoki-Monozukuri 8 Essential Research e Japanese word “kirei” means beautiful or clean, not only on the outside 12 Kao’s Yoki-Monozukuri but also on the inside. For us at Kao, Kirei is the value we want to bring to 14 Monthly Topics in 2018 16 Non-financial and Financial Highlights everyday life with our brands, products and services. e little moments you enjoy, like the comfort of freshly washed sheets, Chapter 2 What Kao Aims for the happiness you share with a smiling baby, the condence you feel when 20 The Social Situation 22 CEO Message you look in the mirror and see not only healthy skin and hair, but also your 24 CEO Interview inner beauty shining through. e special pleasure that comes from using 28 ESG Strategy 36 Kao Group’s Management Vision products you know have been crafted with care both for you and for the 38 Financial and Capital Strategies environment. Chapter 3 Mid- to Long-term Strategies We believe these moments and the positive feelings 42 Human Capital Development Strategy you share with others have the power to shape 44 Compliance Strategy the future. We want minds, lives and society to be 46 Risk and Crisis Management Strategy 48 Overview of Kao’s Business Kirei—Making Life Beautiful. 50 Consumer Products Business 52 Cosmetics Business 53 Skin Care and Hair Care Business 54 Human Health Care Business 55 Fabric and Home Care Business 56 Sales Strategy 58 Chemical Business Kao’s ESG Activities 60 Special Feature: Cosmetics Business Strategy 62 Special Feature: Advanced Technology Strategy Kirei Action Chapter 4 Performance in FY2018 In the pursuit of creating a sustainable society and 66 Overview of Kao’s Business (FY2018) sustainable business growth, Kao positions ESG 68 Key Non-financial Data (Environmental, Social, and Governance) activities 70 Key Financial Data as an investment to the future. While placing even 77 Corporate Information more emphasis on these activities going forward, Kao will realize profitable growth. Over the course of 130 years, Kao has been striving Chapter 5 Corporate Governance for the wholehearted satisfaction and enrichment of 80 Messages from Outside Directors and the lives of people by forming deep connections an Outside Audit & Supervisory Board Member with them. To accomplish this task now and in the 82 Corporate Governance Initiatives future, we will promote Kirei Action. “Kirei” is a 88 Directors and Audit & Supervisory Board Members Japanese word that refers not only to beauty and 92 Executive Officers and Corporate cleanliness but also to people’s well-being and a Executive Fellows healthy global environment. Kirei Action represents our efforts to create products wholeheartedly and engage in activities that contribute to a better future 94 External Evaluation for people and the planet. 95 Editorial Policy 2 Kao Integrated Report 2019 Kao Integrated Report 2019 3 About Kao What Kao Aims for Mid- to Long-term Strategies Performance in FY2018 Corporate Governance The Kao Way Fundamentals That Support Kao’s Value Creation Our founder’s final words to his family were: “Good fortune is given to only those The Kao Way who work diligently and behave with integrity.” This saying reminds people of the importance of The source of Kao’s value creation is the pursuit of Innovation always acting ethically in accordance with the principle 1 of integrity, because by doing so you will earn and Yoki-Monozukuri * based on Integrity. the respect and trust of consumers. This attitude, embodied in the concept of Integrity, continues to underpin Kao’s corporate philosophy—the Kao Way— and serve as a guiding principle for Kao employees. The source of Kao’s value creation is the pursuit of Innovation and Yoki-Monozukuri based on Integrity. Taking this as the foundation for our operations, at An unchanging Kao, we constantly put ourselves in the position of the corporate philosophy The Kao Way comprises four elements, Mission, Vision, consumer and customer as we take on our mission to The Kao Way Values and Principles, which are defined below. strive for the wholehearted satisfaction and enrichment of people’s lives and to contribute to the sustainability of the world. The Kao Way is the systematic embodiment of the vision that we have maintained ever since the company was first established, and The Founder of Kao which is carried on by everyone working at Kao. Tomiro Nagase The Yoki-Monozukuri spirit that Kao has maintained over the years. What we exist for “We want to deliver quality products into the hands of as many consumers and customers as possible, to enrich people’s lives and culture.” The Yoki-Monozukuri spirit, which embodies Where we want to go the passionate commitment of Kao founder Tomiro Nagase, has been handed down within the company for over 130 years. Ever since the company was founded in What we believe in 1887, we have sought to contribute to the lives of consumers and customers, and to meet consumers’ and customers’ needs with integrity. Through Yoki- Monozukuri, we have continued to provide society How we behave with useful products. 1890 Kao founder Tomiro Nagase launched Kao Sekken, an affordable In the future, we will continue to take account of Japanese-made soap with the quality to compete with imported changing times and changing lifestyles, while always products. maintaining a close relationship with our customers, and, through Yoki-Monozukuri that comes from the *1 We define Yoki-Monozukuri as a “strong commitment by all members of the Kao Group to provide products and brands of excellent value for customer satisfaction.” heart, implementing measures aimed at helping to *2 Genba literally means “actual spot.” At Kao, Genba-ism defines the importance of observing things “on-site,” in the actual location and environment, both internally and externally, in order to maximize our understanding the business and optimize our performance. keep both people and the planet clean and beautiful. 4 Kao Integrated Report 2019 Kao Integrated Report 2019 5 About Kao What Kao Aims for Mid- to Long-term Strategies Performance in FY2018 Corporate Governance The Development of Kao’s Yoki-Monozukuri Over the past 130 years, Kao has worked to enrich people’s lives and help consumers have fulfilling lifestyles. 1930s– 1950s– 1960s– 1980s– Everything starts with consumer Expanding business fields to Together with customers around Maintaining our lifestyle into feedback cleanliness, beauty, and health the world the future Kao has taken a consumer-driven approach since Kao’s business activities now range broadly across beauty Kao expanded brands that originated in Japan to other Kao continues striving to reduce negative environmental its founding by listening to consumer feedback and and health, and generate a series of long-selling brands. parts of Asia. In the Americas and Europe, premium impacts so that we can all enjoy enriched lives now and in maximizing ways to use it. beauty care brands joined the Kao Group. the future. 1934 Housework Science Laboratory established 1950s–60s Extending “washing” to hair, 1960s Expansion into Asia 1987 Concentrated Reduced box size by 80% The laboratory conducted scientific research on practical housework clothing, and the home Product development to fit local lifestyles laundry detergent Reduced weight by 62% and offered new lifestyle suggestions. Kao developed new technologies mainly using natural The Consumer Products Business started by exporting products to Kao launched Attack, fatty alcohols, which led to the creation of products that Thailand. Kao Industrial (Thailand) Co., Ltd. and Taiwan-Kao Co., Ltd. a concentrated laundry clean away various oils, dirt, and stains found in hair, on are established in 1964. detergent that offers a clothing, and around the home. powerful cleaning action Kao engages in product development with just a small amount of to fit local lifestyles. product. This reduced the amount of paper used in 1960 packaging and the energy Mypet used during transportation. household detergent The Science of Housework workshop 1991 Developing and Housework magazine 1951 1955 promoting refill packs Wonderful powder laundry Kao Feather Shampoo 2014 Attack Jaz1 Kao developed refill packs and 1971 Kao Life Science detergent laundry detergent (Indonesia) refillable products to reduce Laboratory established plastic consumption. The laboratory supported 1970s–80s Expansion into the beauty and health fields consumer consultations and education as well as research based on research related to people 1980s Expansion into the Americas and Europe into housework, with the goal By focusing on basic research related to people, including skin and Premium beauty care brands join the Kao Group of improving customer support hair, Kao made great strides in beauty and health and diversified its Kao’s technologies are used to pursue productive partnerships while Consumer Consultation Information and responsiveness. business. building on the strengths and worldviews of the various brands. 2009 Reducing laundry-related System 1983 Merries baby water consumption with one 1978 Consumer diapers rinse cycle Consultation Information Kao launched Attack Neo, an ultra- System introduced concentrated liquid laundry detergent This system compiled consumer that allows consumers to