main topics in 2012 - unicharm topics in 2012 5 the rate of market uptake for disposable baby...

Annual Report 2012 Year Ended March 31, 2012 ~ Strategy and Progress ~ Main Topics

Main Topics in 2012

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The rate of market uptake for disposable baby diapers is rising rapidly in the Asia region on the back of economic growth. Growth remains strong in our main markets of China, Thailand and Indonesia. In fiscal 2012, ended March 31, 2012, sales in Asia increased 22.6% year on year to ¥145.2 billion, supporting steady growth in profits. In our most important market of China, sales rose 25.9% year on year. This growth reflected our move into regional inland cities, where demand is expanding, as well as continued demand in coastal cities, which have been our main market driver until now. Sales in China have risen at an average rate of more than 30% in the last five years and the market now accounts for over 10% of Unicharm's consolidated net sales. In Indonesia, where we have built a dominant market share, sales increased by more than 40% year on year. In other markets in Asia, we are steadily laying the foundations to support future growth. In Vietnam, which continues to see strong economic expansion, we acquired a local company called Diana Joint Stock Company in September 2011. Diana has the second largest market shares for disposable baby diapers and feminine care products in Vietnam. In India, which has a population of more than 1.1 billion, our share of the disposable baby diaper market continues to grow steadily after we began full-scale sales in 2009.

Our main markets continue to grow at a rapid pace

Annual Report 2012 Year Ended March 31, 2012 ~ Strategy and Progress ~ Progress1

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Demand for disposable diapers has been growing rapidly in China due to rising income levels. As a result, Unicharm's sales in the Chinese market have expanded at an average rate of more than 30% over the last five years. In fiscal 2012, sales in China accounted for more than 10% of consolidated net sales and the Chinese business is now driving Unicharm's growth. In addition to coastal cities, our sales are now growing in regional inland cities after the launch of disposable diapers aimed at middle-class consumers in 2010. We plan to increase our overall share in the Chinese market by capturing more business in each city, extending our distribution network to large and small retailers and reinforcing our online sales channel.

Demand for disposable baby diapers has been increasing rapidly in Indonesia amid population growth and rising incomes. Sales have risen more than 40% over the last two years, making it our fastest-growing overseas market. In Indonesia, we launched Mamy Poko Pants Standar disposable baby diapers for middle-class consumers in 2007. These diapers have proved to be very popular and we have built dominant market shares in feminine care products and in disposable baby diapers.

First-mover advantage in disposable diapers for middle-class consumers has helped us build a dominant market share in Indonesia

Stepping up growth with new products for middle-class consumers in China


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To maintain Unicharm's strength in the Asia region, we are actively adding production capacity in areas where we expect demand to increase and closing aging factories to create an optimum manufacturing network. In China, currently our most important market, we started up a fourth factory in 2012 , allowing us to reliably and efficiently supply products to northern China. We are also pushing ahead with plans to open our first African factory in Egypt later in fiscal 2013 and start up our third factory in Indonesia in fiscal 2014. In Japan, we have decided to shut our Ozu factory in 2012 and shift production to other domestic sites. In Australia, we will close our aging disposable diaper manufacturing facilities in fiscal 2014 and switch to imports from neighboring countries to supply the market.

Opening new manufacturing sites and closing old ones


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The price of disposable diapers continues to decline in Japan. At the same time, consumers are calling for even higher levels of quality. We have been working to revitalize the disposable baby diaper market in Japan by leveraging the strengths of our two brands—Moony, which offers premium levels of quality, and Mamy Poko, which offers an excellent balance between quality and price. In 2010, we launched a new product in our Moony range that incorporates a new type of soft, stretchy nonwoven fabric to give babies and infants the feel of wearing soft underwear. We followed this up in 2012 with another new Moony product featuring an entirely new type of nonwoven fabric. This material is soft on the skin like silk but is also highly absorbent. We added pants-type disposable diapers specifically designed for babies at the crawling stage to our Mamy Poko lineup in 2011. We also pushed down the cost of our diapers further in response to falling prices in the domestic disposable diaper market. These initiatives led to an increase in the baby care business's overall market share of 1.6 percentage points year on year in fiscal 2012.


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In Japan, the target market for feminine care products continues to shrink, while diversifying lifestyles mean women are looking for increasingly diverse value and functions from sanitary napkin products. In an effort to boost profits, we have been rolling out new high value-added products centered on the growth trends of skin care, nighttime use and design. In the skin care category, we launched Sofy Hada Omoi sanitary napkins in 2007. These products incorporated a new type of surface material that is kind on the skin like nonwoven fabric but also has excellent absorbency like our existing mesh material. In 2011, we added a new product to our range called Sofy Hada Omoi Ultra Super Slim, which is fifty percent slimmer than existing products, followed by further products in 2012 specifically designed for lighter days. This has given us a wider range of products and helped revitalize the market. In the nighttime use category, we sell Sofy Super Sound Sleep Guard, which has proved very popular in the market. Responding to the needs of consumers, we have also added more sizes to our sanitary napkin range and launched a seasonal product called Sofy Super Sound Sleep Guard Suzuhada for hot summer weather. In the design-oriented segment, we have adopted stylish lace designs for the individual packaging and back sheets of our Center-in Compact Slim products, which are so small they do not look like conventional sanitary napkins. This range is aimed at the growing number of consumers who also focus on the design of the product, not just quality. Amid Japan's shrinking feminine care market, these initiatives supported an increase in the feminine care business's overall market share of 2.4 percentage points year on year in fiscal 2012.


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Since moving into the disposable adult diaper market in 1987, Unicharm has built dominant shares in both the moderate and light adult incontinence markets and led the industry in promoting wider use of adult incontinence products for nursing care. In 1988, we launched Lifree Incontinence Pads, the world's first product in the moderate adult incontinence category with interchangeable absorbent pads. This product ensured comfort and hygiene for those being cared, but also made diaper changing easier for carers and substantially reduced diaper costs. As a result, Lifree Incontinence Pads went on to become the de facto standard for incontinence care in Japan. In 1995, we introduced the concept of rehabilitation to the incontinence care field with the launch of Lifree Rehabili-Pants, which played an important role in encouraging care for the elderly that does not restrict them to bed. We were also quick to identify needs in the light incontinence care market, launching our first product in 1994. This market mainly comprises elderly people and women that have had children who find it hard to talk about their condition with others. The health care business continues to report strong sales growth in line with Japan's aging society. We expect the target market for our products to continue expanding. In fiscal 2013, we plan to boost capacity at our three domestic factories, strengthen our sales network and launch high value-added products to reinforce our already dominant position in the market.

Our health care business continues to grow strongly


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In recent years, there has been an increase in the number of elderly leading active social lives through travel, shopping and other pastimes. To encourage wider use of our disposable adult diapers among this group, we realized we had to develop diapers that were less bulky and more like normal underwear. In September 2010, we launched Lifree Thin Type Pleasant Pants, which are around 50% thinner than our previous products and offer the same level of comfort as underwear. These diapers are proving popular with customers. We also expanded our adult incontinence care range in January 2012 with the launch of three new Lifree products aimed at people in nursing homes. These products, Lifree Protective Anshin Girdles, Lifree Anshin Fit Shorts and Lifree Anshin Fit Pads, which are designed to aid rehabilitation and give more control over incontinence , are now being sold to hospitals and nursing care facilities throughout Japan.

Japan has a higher proportion of elderly people than elsewhere, but many countries around the world are also expected to see a rapid increase in the number of elderly. The Asia region is currently aging at a faster rate than Japan and the region's elderly population is projected to more than double over the next two decades. Against this backdrop, we plan to leverage our strengths in the Japanese market to establish our Lifree brand and develop our Japanese care model across Asia.

Transferring our Japanese care model to other Asian markets

Expanding our product lineup to encourage wider use


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The pet care market continues to expand worldwide. We estimate it will grow to be worth around ¥14 trillion in sales by 2020, comparable in size to the personal care market (retail sales basis). We forecast growth in advanced economies such as Japan, the U.S. and Europe, but also in emerging markets in Asia, particularly China, and in South America, where rising incomes and aging societies are likely to drive market expansion.

The pet care market is growing worldwide


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In Japan, Unicharm has focused resources on four main trends in the Japanese pet market—caring for pets indoors, small-sized dogs, aging pets, and overweight pets. This has helped us secure the top domestic market shares in both the pet toiletry and pet food categories. With pets now living longer, there has been a rising number of cases of pet obesity and pet disorders such as diseases of the lower urinary tract. In response, we have enhanced our lineup of high value-added pet products to target a fifth trend—emphasis on pet health. We believe these products will also help us reinforce our leading position in the domestic market. In pet food products, we have enhanced our lineup with products tailored to different pet ages. These aged-based products contain the right balance of nutritional ingredients and calories for the changing bodies and appetites of aging dogs and cats. In pet toiletry products, we have continued to develop products using the technologies cultivated in our personal care business, resulting in a new market category of pet toilet products for small dogs. In February 2012, we acquired shares in Peparlet Co., Ltd., a leading manufacturer and distributor of paper cat litter. This share purchase will see Peparlet become part of the Unicharm Group, allowing us to reinforce our lineup of pet toiletry products and secure more reliable supplies of paper cat litter by transferring our expertise in manufacturing to this company.

Demand for pet food is growing in China, mainly among wealthy consumers in coastal cities. We began selling dried pet food for cats and dogs in Shanghai in 2010. As of the end of December 2011, we had secured roughly 14% of the dried dog food market and 25% of the dried cat food market in Shanghai. With pet ownership in China expected to rise, we forecast new demand of around ¥100 billion will emerge in the pet care market by 2020. We plan to use our sales network for disposable baby diapers and feminine care products to extend our sales reach to Beijing, Guangzhou and other major Chinese cities.

Japan: Building on our already dominant market share by focusing resources on five main trends

China: Extending our sales reach from coastal cities


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In the U.S. pet care market, which accounts for roughly 40% of the global market, we acquired 51% of shares in The Hartz Mountain Corporation in December 2011. Hartz is the leading U.S. pet care brand in eight product categories. The U.S. pet care market is the world's largest, estimated to be worth around $30 billion. We forecast continued strong growth in the market of around 4–5% annually.

United States: Targeting significant expansion through synergies with Hartz

Pet ownership in the country is seeing similar trends to those we have identified in Japan, such as rising ownership of small-sized dogs and caring for pets indoors. Demand for premium pet food and indoor pet toiletry products is also growing. We see prospects for rapid expansion in our U.S. pet care business by combining Unicharm's technological and product development capabilities in pet toiletry products and pet food products, which have already proved popular with Japanese consumers, with Hartz's brand power and marketing expertise.


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