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Earth Corporation

Earth Corporation 4985

アース製薬
Earth Corporation
Recent Updates
2022-05-12
Q1 FY12/22 flash update
2022-04-28
Full-year FY12/21 report update
2022-04-04
Expansion of Business Development in the Philippines (progress of disclosure items)
Get in touch
2-12-1 Kanda-Tsukasamachi, Chiyoda-ku, Tokyo
https://corp.earth.jp/jp/index.html
03-5207-7451
Summary
Earth Corporation manufactures and sells household insecticides, oral hygiene products, and bath salts. It boasted the top share of the domestic markets for insecticides and bath salts.
Household Products
Key dates
2016-10-05
Coverage initiation
Full Report
2022-05-12
Q1 FY12/22 flash update
2022-05-12
FY FY12/21 flash update
2022-02-16
Q3 FY12/21 flash update
2021-11-08
1H FY12/21 flash update
2021-08-06
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Executive summary

Core businesses

Earth Corporation manufactures and sells household insecticides, oral hygiene products, and bath salts. It boasted the top share of the domestic markets for household insecticide products (55.8% in 2021; company estimates) and bath salts.

In the Household Products segment, household insecticides are the biggest earnings driver. Despite being a late entrant, Earth Corporation has emerged as the industry leader for the following two reasons. First, the company introduced original products such as Gokiburi Hoy Hoy (cockroach trap) and Earth No-Mat (liquid mosquito killer) that expanded the market previously comprised of anti-mosquito incense coils and aerosol sprays. Second, the company bet early on drugstore sales routes—an emerging industry at the time—and thus differentiating from major competitors who up until the 1980s had mainly used resellers that focused on mass retailers such as general merchandise stores. The company increased salespeople and strengthened direct tie-ups with sales outlets, thereby boosting product exposure.

The Japanese household insecticide market faces headwinds from a projected decline in the Japanese population and the number of households and adverse effects from unusual weather patterns including heavy rainfall and intense heat. However, there are also tailwinds such as the emergence of exotic pests amid globalization, the geographical spread of pests stemming from climate change, and creation of demand through introduction of new products.

The company aims to cultivate insecticide sales as a second earnings pillar, and to that end made Bathclin Corporation, Hakugen Earth Co., Ltd., and Earth Corporation Vietnam (formerly A My Gia Joint Stock Company) consolidated subsidiaries.

In the General Sanitary Management segment, the company provides quality control consulting services, such as contamination prevention at food production plants, thus establishing a business model that differs from the Household Products business.

In the medium-term business plan spanning the three years from FY12/21 to FY12/23, the company will work to expand its Asian earnings base, among other initiatives (see the latter part of this report). Moreover, as a long-term earnings pillar, the company will develop the MA-T System (Matching Transformation System)®*, an oxidation control technology and system for which it holds the technology license, manufacturing rights, and intellectual property rights. New solutions for the prevention of infectious diseases will be developed by 2030 by leveraging MA-T technology, which will be developed through open innovation. The project will entail the development of a procurement business for the United Nations and public institutions to control the spread of viruses, microorganisms, and multi-drug resistant bacteria not only in Japan but also in Southeast Asia, which is home to 220 million people in low- and middle-income countries such as Thailand, Vietnam, and Myanmar. The company aims for social implementation through the provision of inexpensive and simple solutions.

*MA-T System (Matching Transformation System)®: Oxidation control technology. By generating the necessary amount of aqueous radicals from chlorite ions when necessary, it enables the breaking down of viruses, including epidemic viruses, and the sterilization of various germs (bacteria). Furthermore, by controlling the degree of activity, it is possible to develop highly difficult chemical reactions, as well as a wide range of applications. This includes the functionalization of polymers, device applications, and applications in agricultural chemicals and pharmaceuticals.

Trends and outlook

In FY12/21, the company reported sales of JPY203.8bn (+3.9% YoY), operating profit of JPY10.7bn (-6.6% YoY), recurring profit of JPY11.4bn (-2.6% YoY), and net income attributable to owners of the parent of JPY7.1bn (+101.4% YoY).
Factors contributing to sales growth included sustained customer demand amid the spread of COVID-19 and introduction of new products in the Household Products business, and increase in the number of contracts in the General Sanitary Management business. Although gross profit was up YoY thanks to new products and sales growth, operating profit declined YoY due to an increase in household insecticide product returns and higher SG&A expenses due to aggressive spending on marketing and human resources and a rise in distribution costs.  

The company's FY12/22 forecast calls for sales of JPY155.0bn (no YoY comparison due to the adoption of the Accounting Standard for Revenue Recognition), operating profit of JPY10.8bn, recurring profit of JPY11.2bn, and net income attributable to owners of the parent of JPY7.3bn. The annual dividend is JPY118.00 (flat YoY). Excluding the adoption of the new standard, sales increased 3.5% YoY to JPY211.0bn.

The company forecast for FY12/22 calls for sales of JPY155.0bn (no YoY comparison due to adoption of Revenue Recognition Standard from FY12/22; same for profit at all levels), operating profit of JPY10.8bn, recurring profit of JPY11.2bn, and net income attributable to owners of the parent of JPY7.3bn. The annual dividend forecast is JPY118.0 (flat YoY).

The company forecasts sales of JPY137.8bn and operating profit of JPY9.3bn in FY12/22 in household product segment. The company projects sustained high levels of demand for its product lines amid lifestyle changes brought on by the pandemic. That being said, the company assumes that it may not fully absorb through management efforts the impact of rising raw material prices. It aims to secure reasonable profit by growing earnings in categories where sales are growing and its has large market share, optimizing the allocation of management resources, and improving cost efficiency.

The company forecasts sales of JPY27.7bn and operating profit of JPY1.4bn in FY12/22 in general sanitary management segment. Prevention of product contamination and food poisoning are essential in services for the food manufacturing sector. Consequently, there is a growing need for the quality sanitary management services that the Earth Group provides, underpinned by its specialist knowledge, technologies, and know-how. The company is progressing R&D and human resource training as well as providing services that harness IoT and a range of AI systems, expanding its food safety-related auditing business, and strengthening its life science business to increase the number of contracts per year and achieve stable earnings growth.

The company positions overseas expansion as its primary growth driver. It aims to improve profitability and build an earnings base by establishing subsidiaries in the main areas where it operates, such as ASEAN and China, and aggressively allocating management resources in these areas. The company aims to increase the earnings contribution of exports and cross-border e-commerce by developing and selling products that fulfill the needs of each country and focusing on profitable products.

The next three-year (FY12/21–FY12/23) medium-term business plan is as follows. Following FY12/20 sales of JPY196.0bn, operating profit of JPY11.4bn, recurring profit of JPY11.7bn, net income attributable to owners of the parent of JPY3.5bn, and ROE of 7.4%, the company is targeting FY12/23 sales of JPY213.0bn, operating profit of JPY14.0–16.0bn, net income attributable to owners of the parent of JPY10.0bn, and ROE of 13.0%.

Strategic plans call for 1) expanding its earnings base in Asia, including the use of M&A; 2) active promotion of ESG and open innovation initiatives, including measures aimed at reducing product returns and greater use of sustainable raw materials; and 3) generation of additional cost savings by rethinking its entire value chain.

Strengths and weaknesses

Strengths: innovative product ideas, a sales strategy of approaching retailers directly, and its long-term relationships with drugstore chains with strong sales capabilities. Weaknesses: high seasonality of mainstay household insecticide products, demand for which is affected by seasonal weather patterns; relatively low profitability of household products; and late and slow overseas expansion due to the legacy of a domestic focus.

Key financial data

Income statementFY12/12FY12/13FY12/14FY12/15FY12/16FY12/17FY12/18FY12/19FY12/20FY12/21FY12/22
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Est.
Sales125,499135,737145,858159,739168,505179,738181,104189,527196,045203,785155,000
YoY13.1%8.2%7.5%9.5%5.5%6.7%0.8%4.7%3.4%3.9%-
Gross profit46,73150,75854,70758,49863,63468,10267,37670,41878,95182,334
Gross profit margin37.2%37.4%37.5%36.6%37.8%37.9%37.2%37.2%40.3%40.4%-
SG&A expenses42,60545,31149,86454,48158,08563,64566,34066,50167,53571,666
YoY17.8%6.4%10.0%9.3%6.6%9.6%4.2%0.2%1.6%6.1%
SG&A ratio33.9%33.4%34.2%34.1%34.5%35.4%36.6%35.1%34.4%35.2%
R&D expenses1,8472,0372,2272,3282,6822,6952,9002,6632,6733,172
YoY19.9%10.3%9.3%4.5%15.2%0.5%7.6%-8.2%0.4%18.7%
R&D ratio1.5%1.5%1.5%1.5%1.6%1.5%1.6%1.4%1.4%1.6%
Operating profit4,1255,4464,8434,0165,5494,4561,0363,91611,41610,66710,750
YoY-32.5%32.0%-11.1%-17.1%38.2%-19.7%-76.8%278.0%191.5%-6.6%-
Operating profit margin3.3%4.0%3.3%2.5%3.3%2.5%0.6%2.1%5.8%5.2%6.9%
Recurring profit4,6896,4696,0204,2605,9914,9871,3824,32611,66111,36211,150
YoY-29.4%38.0%-6.9%-29.2%40.6%-16.8%-72.3%213.0%169.6%-2.6%-
Recurring profit margin3.7%4.8%4.1%2.7%3.6%2.8%0.8%2.3%5.9%5.6%7.2%
Net income attributable to owners of the parent1,7212,9861,7051,1653,3642,205-1421,2503,5477,1427,280
YoY-48.2%73.5%-42.9%-31.7%188.8%-34.5%--183.8%101.4%-
Net margin1.4%2.2%1.2%0.7%2.0%1.2%-0.1%0.7%1.8%3.5%4.7%
Per-share data (adjusted for splits; JPY)
Shares issued (year-end; '000)20,20020,20020,20020,20020,20020,20020,22020,23822,05822,078
EPS (JPY)85.22147.8684.4757.69166.60109.20-7.0661.80170.65323.76330.30
EPS (fully diluted; JPY)----------
Dividend per share (JPY)95.00105.00110.00110.00115.00115.00115.00100.00115.00118.00118.00
Book value per share (JPY)2,048.282,151.522,192.882,151.822,154.952,225.301,989.931,978.862,507.622,720.37
Balance sheet (JPYmn)
Current assets48,26849,43156,25555,70157,88457,12354,46054,71070,74774,018
Cash and cash equivalents12,12313,12712,62611,39111,97910,4536,0447,31223,71621,027
Trade receivables14,80115,81717,24217,40019,42920,66121,96922,61021,23621,210
Inventories18,20816,86322,22723,21523,15822,62823,78222,50622,17827,501
Other current assets3,1363,6244,1603,6953,3183,3812,6652,2823,6174,280
Fixed assets, deferred assets36,79636,36545,34348,74749,48261,04454,11952,71549,12246,696
Tangible fixed assets16,75417,72723,87926,76128,43129,64329,21528,22028,03027,551
Intangible assets16,18214,59614,45012,70312,13219,25616,18013,1436,2684,276
Other assets3,8604,0427,0149,2838,91912,1448,72311,35114,82314,868
Total assets85,06485,796101,598104,448107,366118,167108,579107,425119,869120,714
Current liabilities31,79132,27041,30943,74947,16553,02455,06156,99754,88452,300
Trade payables19,16118,66124,39424,64025,92527,96027,68426,77822,49822,617
Short-term debt3,2712,7384,4467,1177,66411,90015,95417,1663,0702,497
Other current liabilities9,35910,87112,46911,99213,57613,16411,42313,05329,31627,186
Fixed liabilities7,2305,11910,70811,70711,00814,6149,1466,1055,1613,818
Long-term debt4,1672,8267,0068,0307,83810,3546,8093,5502,2181,200
Other3,0632,2933,7023,6773,1704,2602,3372,5552,9432,618
Net assets46,04348,40649,58048,99149,19250,52944,37244,32259,82364,596
Capital stock3,3773,3773,3773,3773,3773,3773,4323,4789,8299,895
Capital surplus3,1683,1683,1683,1683,1682,9233,4633,5099,8599,928
Retained earnings34,72435,79235,37734,44135,56635,44932,98431,79833,32237,929
Treasury stock-10-11-11-12-13-14-15-16-17-215
Accumulated other comprehensive income1061,1242,3742,4821,4203,2043611,2672,3042,421
Share subscription rights----------
Non-controlling interests4,6754,9545,2935,5335,6725,5884,1454,2854,5244,638
Total liabilities and equity85,06485,795101,598104,448107,366118,167108,580107,425119,870120,715
Cash flow statement (JPYmn)
Cash flows from operating activities3,3177,0266,3803,7918,0899,17536910,02224,5904,814
Cash flows from investing activities-15,677-1,419-10,422-5,969-5,501-13,995-1,515-3,990-3,168-3,220
Cash flows from financing activities2,0394,0583,4891,180-2,2163,262-3,203-4,768-4,938-4,610
Financial ratios
Interest-bearing debt7,4385,56411,45215,14715,50222,25422,76320,7165,2883,697
Net cash4,6857,5631,174-3,756-3,523-11,801-16,719-13,40418,42817,330
ROA (RP-based)6.0%7.6%6.4%4.1%5.7%4.4%1.2%4.0%10.3%9.4%
ROE4.2%7.0%3.9%2.7%7.7%5.0%-0.3%3.1%7.4%12.4%
Current ratio152%153%136%127%123%108%99%96%129%142%
Fixed ratio80%75%91%100%101%121%122%119%82%72%
Equity ratio48.6%50.6%43.6%41.6%40.5%38.0%37.0%37.3%46.1%49.7%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.
Note: Accounts receivable are adjusted for deduction of allowance for doubtful accounts.
Note: No YoY comparisons are stated, because the company adopted the new Revenue Recognition Standard from FY12/22.
Performance by segmentFY12/12FY12/13FY12/14FY12/15FY12/16FY12/17FY12/18FY12/19FY12/20FY12/21
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
Sales125,499135,737145,858159,739168,505179,738181,104189,527196,045203,785
Household Products Business111,098122,582133,125145,010154,404164,616165,572173,022179,374188,493
Household Insecticide Products45,89949,85753,17452,67354,85059,58856,71959,39465,99069,000
Oral Care, Bath Powder and Other Household Products59,07565,25172,22584,01090,64796,771100,922105,369104,164110,154
Pet-related Products and Others6,1237,4737,7268,3268,9058,2567,9308,2589,2209,338
General Sanitary Management17,86218,33819,12920,91421,93523,51924,42125,57126,42027,234
Sum of reportable segments128,960140,920152,254165,924176,339188,135189,994198,593205,794215,727
Adjustments-3,461-5,183-6,396-6,184-7,834-8,398-8,890-9,066-9,749-11,942
YoY13.1%8.2%7.5%9.5%5.5%6.7%0.8%4.7%3.4%3.9%
Household Products Business13.6%10.3%8.6%8.9%6.5%6.6%0.6%4.5%3.7%5.1%
Household Insecticide Products-1.4%8.6%6.7%-0.9%4.1%8.6%-4.8%4.7%11.1%4.6%
Oral Care, Bath Powder and Other Household Products29.6%10.5%10.7%16.3%7.9%6.8%4.3%4.4%-1.1%5.8%
Pet-related Products and Others8.4%22.0%3.4%7.8%7.0%-7.3%-3.9%4.1%11.6%1.3%
General Sanitary Management2.7%2.7%4.3%9.3%4.9%7.2%3.8%4.7%3.3%3.1%
% of sales100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0%
Household Products Business86.1%87.0%87.4%87.4%87.6%87.5%87.1%87.1%87.2%87.4%
Household Insecticide Products35.6%35.4%34.9%31.7%31.1%31.7%29.9%29.9%32.1%32.0%
Oral Care, Bath Powder and Other Household Products45.8%46.3%47.4%50.6%51.4%51.4%53.1%53.1%50.6%51.1%
Pet-related Products and Others4.7%5.3%5.1%5.0%5.0%4.4%4.2%4.2%4.5%4.3%
General Sanitary Management13.9%13.0%12.6%12.6%12.4%12.5%12.9%12.9%12.8%12.6%
Operating profit4,1255,4464,8434,0165,5494,4551,0363,91611,41610,667
Household Products Business2,4553,9373,8412,1734,0583,291-5072,3739,9809,944
General Sanitary Management1,4541,4751,5291,5471,2751,3491,3741,3661,4191,114
Sum of reportable segments3,9095,4125,3703,7205,3334,6418663,73911,39911,058
Adjustments21533-527295216-18517017516-391
YoY-32.5%32.0%-11.1%-17.1%38.2%-19.7%-76.7%278.0%191.5%-6.6%
Household Products Business-48.5%60.4%-2.4%-43.4%86.7%-18.9%--320.6%-0.4%
General Sanitary Management1.5%1.4%3.7%1.2%-17.6%5.8%1.9%-0.6%3.9%-21.5%
OPM (unadjusted)3.3%4.0%3.3%2.5%3.3%2.5%0.6%2.1%5.8%5.2%
Household Products Business2.2%3.2%2.9%1.5%2.6%2.0%-0.3%1.4%5.6%5.3%
General Sanitary Management8.1%8.0%8.0%7.4%5.8%5.7%5.6%5.3%5.4%4.1%
% of operating profit (unadjusted)100.0%100.0%100.0%100.0%100.0%100.0%100.1%100.0%100.0%100.0%
Household Products Business62.8%72.7%71.5%58.4%76.1%70.9%-58.5%63.5%87.6%89.9%
General Sanitary Management37.2%27.3%28.5%41.6%23.9%29.1%158.7%36.5%12.4%10.1%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.

Recent updates

Expansion of Business Development in the Philippines (progress of disclosure items)

2022-04-04

Earth Corporation has announced that on April 1, 2022, it completed its acquisition of shares in Earth Homecare Products (Philippines), Inc. in accordance with the share transfer agreement and accompanying agreements. Through a previous release entitled "Notice regarding the Expansion of Business Development in the Philippines" (dated September 7, 2021), the company had announced its decision to acquire 66.7% of shares in Earth Homecare Products (Philippines), Inc. (established on October 7, 2021), which had inherited the business of selling items such as insect care products, household products, and pet care products from Neumann & Mueller Philippines, Inc. (NMPI) with the aim of accelerating business development in the Philippines.

The sales business acquired from NMPI has been performing well during the COVID-19 pandemic. Moving forward, the company aims to increase earnings generated through this business by introducing daily necessities such as insect care products, as well as other additional products, in the Philippines.

Earth Corporation projects that this acquisition's impact on results in FY12/22 will be negligible.

Number of shares acquired, acquisition price, and shares held before and after acquisition

  • Number of shares held before the acquisition: none
  • Number of shares acquired: 1,077,205 shares (number of voting rights: 1,077,205 [66.7% of total voting rights])
  • Acquisition price: Undisclosed in accordance with agreements between involved parties
  • Parties from which shares were acquired: Six individuals whose names have not been disclosed in accordance with nondisclosure agreements

Disposal of treasury stock as restricted stock compensation

2022-03-25

Earth Corporation announced the disposal of treasury stock as restricted stock compensation.

At a meeting held on March 25, 2022, the company’s Board of Directors resolved to dispose of treasury stock as restricted stock compensation.

Overview of disposal
  • Disposal date: April 22, 2022
  • Class and number of shares to be disposed of: 41,200 common shares of the company
  • Disposal price: JPY5,440 per share
  • Total value of shares to be disposed of: JPY224,128,000
  • Planned allottees: 17,500 shares to six directors (excluding outside directors), 6,100 shares to 22 executive officers who are not directors, and 17,600 shares to 14 directors of its subsidiaries

Trends and outlook

Quarterly trends and results

CumulativeFY12/20FY12/21FY12/22FY12/22
(JPYmn)Q1Q1-Q2Q1-Q3Q1-Q4Q1Q1-Q2Q1-Q3Q1-Q4Q1% of Est.1H Est.
Sales45,441110,634158,247196,04549,278115,821165,167203,78538,60342.2%91,500
YoY4.3%6.3%3.6%3.4%8.4%4.7%4.4%3.9%--
Gross profit19,19447,77765,88678,95121,78051,60370,63182,33417,367
Gross profit margin42.2%43.2%41.6%40.3%44.2%44.6%42.8%40.4%45.0%
SG&A expenses14,03431,75347,92967,53513,72933,03650,27871,66612,043
YoY-10.4%-7.1%-3.7%1.6%-2.2%4.0%4.9%6.1%-
SG&A ratio30.9%28.7%30.3%34.4%27.9%28.5%30.4%35.2%31.2%
Operating profit5,15916,02417,95711,4168,05018,56620,35310,6675,32340.0%13,300
YoY246.0%116.5%103.3%191.5%56.0%15.9%13.3%-6.6%--
Operating profit margin11.4%14.5%11.3%5.8%16.3%16.0%12.3%5.2%13.8%14.5%
Recurring profit5,14316,13818,09311,6618,20618,90720,81511,3625,64842.1%13,400
YoY225.9%114.1%100.2%169.6%59.6%17.2%15.0%-2.6%--
Recurring profit margin11.3%14.6%11.4%5.9%16.7%16.3%12.6%5.6%14.6%14.6%
Net income attributable to owners of the parent3,38710,94911,9773,5475,57512,75913,8387,1423,76640.6%9,280
YoY337.6%135.5%119.0%183.8%64.6%16.5%15.5%101.4%-32.4%-
Net margin7.5%9.9%7.6%1.8%11.3%11.0%8.4%3.5%9.8%10.1%
QuarterlyFY12/20FY12/21FY12/22FY12/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1% of Est.FY Est.
Sales45,44165,19347,61337,79849,27866,54349,34638,61838,60324.9%155,000
YoY4.3%7.8%-2.4%2.9%8.4%2.1%3.6%2.2%--
Gross profit19,19428,58318,10913,06521,78029,82319,02811,70317,367
Gross profit margin42.2%43.8%38.0%34.6%44.2%44.8%38.6%30.3%45.0%
SG&A expenses14,03417,71916,17619,60613,72919,30717,24221,38812,043
YoY-10.4%-4.3%3.9%17.1%-2.2%9.0%6.6%9.1%-
SG&A ratio30.9%27.2%34.0%51.9%27.9%29.0%34.9%55.4%31.2%
Operating profit5,15910,8651,933-6,5418,05010,5161,787-9,6865,32349.5%10,750
YoY246.0%83.8%35.0%-56.0%-3.2%-7.6%---
Operating profit margin11.4%16.7%4.1%-16.3%15.8%3.6%-13.8%6.9%
Recurring profit5,14310,9951,955-6,4328,20610,7011,908-9,4535,64850.7%11,150
YoY225.9%84.5%30.4%-59.6%-2.7%-2.4%---
Recurring profit margin11.3%16.9%4.1%-16.7%16.1%3.9%-14.6%7.2%
Net income attributable to owners of the parent3,3877,5621,028-8,4305,5757,1841,079-6,6963,76651.7%7,280
YoY337.6%95.1%25.7%-64.6%-5.0%5.0%---
Net margin7.5%11.6%2.2%-11.3%10.8%2.2%-9.8%4.7%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.
Note: No YoY or QoQ comparisons are stated, because the company adopted the new Revenue Recognition Standard from FY12/22.
By segment
By segment (cumulative)FY12/20FY12/21FY12/22FY12/22
(JPYmn)Q1Q1-Q2Q1-Q3Q1-Q4Q1Q1-Q2Q1-Q3Q1-Q4Q1% of Est.FY Est.
Sales45,441110,634158,247196,04549,278115,821165,167203,78538,60324.9%155,000
Household Products Business41,476102,668145,785179,37446,354109,224153,816188,49335,669
Household Insecticide Products16,31548,93763,80865,99019,11451,56967,07269,00017,684
Oral Care, Bath Powder and Other Household Products23,10049,00274,920104,16424,92152,58779,368110,15415,834
Pet-related Products and Others2,0614,7297,0559,2202,3185,0677,3759,3382,150
General Sanitary Management6,25013,07519,87726,4206,33413,54620,65027,2346,414
Sum of reportable segments47,726115,743165,662205,79452,688122,770174,466215,72742,083--
Adjustments-2,285-5,109-7,415-9,749-3,410-6,949-9,299-11,942-3,480--
YoY4.3%6.3%3.6%3.4%8.4%4.7%4.4%3.9%--
Household Products Business2.9%5.9%3.5%3.7%11.8%6.4%5.5%5.1%-
Household Insecticide Products3.6%11.4%10.1%11.1%17.2%5.4%5.1%4.6%-
Oral Care, Bath Powder and Other Household Products1.4%0.8%-1.9%-1.1%7.9%7.3%5.9%5.8%-
Pet-related Products and Others14.9%8.1%8.9%11.6%12.5%7.1%4.5%1.3%-
General Sanitary Management4.5%4.3%3.4%3.3%1.3%3.6%3.9%3.1%-
Operating profit5,15916,02417,95711,4168,05018,56620,35310,6675,32349.5%10,750
Household Products Business4,77315,14416,5749,9807,96817,87019,1519,9444,960
General Sanitary Management3878441,2891,4193328981,2371,114299
Sum of reportable segments5,16015,98817,86311,4008,30018,76820,38811,0595,259--
Adjustments-1369416-250-202-35-39164--
YoY246.0%116.5%103.3%191.5%56.0%15.9%13.3%-6.6%---
Household Products Business271.7%127.0%121.5%320.6%66.9%18.0%15.5%-0.4%-
General Sanitary Management20.9%21.1%14.8%3.9%-14.2%6.4%-4.0%-21.5%-
OPM (unadjusted)11.4%14.5%11.3%5.8%16.3%16.0%12.3%5.2%13.8%-
Household Products Business11.5%14.8%11.4%5.6%17.2%16.4%12.5%5.3%13.9%
General Sanitary Management6.2%6.5%6.5%5.4%5.2%6.6%6.0%4.1%4.7%
By segmentFY12/20FY12/21FY12/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1
Sales45,44165,19347,61337,79849,27866,54349,34638,61838,603
Household Products Business41,47661,19243,11733,58946,35462,87044,59234,67735,669
Household Insecticide Products16,31532,62214,8712,18219,11432,45515,5031,92817,684
Oral Care, Bath Powder and Other Household Products23,10025,90225,91829,24424,92127,66626,78130,78615,834
Pet-related Products and Others2,0612,6682,3262,1652,3182,7492,3081,9632,150
General Sanitary Management6,2506,8256,8026,5436,3347,2127,1046,5846,414
Sum of reportable segments47,72668,01749,91940,13252,68870,08251,69641,26142,083
Adjustments-2,285-2,824-2,306-2,334-3,410-3,539-2,350-2,643-3,480
YoY4.3%7.8%-2.4%2.9%8.4%2.1%3.6%2.2%-
Household Products Business2.9%8.1%-1.8%4.4%11.8%2.7%3.4%3.2%-
Household Insecticide Products3.6%15.7%6.1%51.5%17.2%-0.5%4.2%-11.6%-
Oral Care, Bath Powder and Other Household Products1.4%0.3%-6.8%1.0%7.9%6.8%3.3%5.3%-
Pet-related Products and Others14.9%3.3%10.7%21.6%12.5%3.0%-0.8%-9.3%-
General Sanitary Management4.5%4.2%1.5%3.2%1.3%5.7%4.4%0.6%-
Operating profit5,15910,8651,933-6,5418,05010,5161,787-9,6865,323
Household Products Business4,77310,3711,430-6,5947,9689,9021,281-9,2074,960
General Sanitary Management387457445130332566339-123299
Sum of reportable segments5,16010,8281,875-6,4638,30010,4681,620-9,3295,259
Adjustments-13758-78-25048167-35664
YoY246.0%83.8%35.0%-56.0%-3.2%-7.6%--
Household Products Business271.7%92.5%76.5%-66.9%-4.5%-10.4%--
General Sanitary Management20.9%21.2%4.5%-46.5%-14.2%23.9%-23.8%--
OPM (unadjusted)11.4%16.7%4.1%-17.3%16.3%15.8%3.6%-25.1%13.8%
Household Products Business11.5%16.9%3.3%-19.6%17.2%15.7%2.9%-26.6%13.9%
General Sanitary Management6.2%6.7%6.5%2.0%5.2%7.8%4.8%-1.9%4.7%
Oral Care, Bath Powder and Other Household ProductsFY12/20FY12/21FY12/22FY12/22
(JPYmn)Q1Q1-Q2Q1-Q3Q1-Q4Q1Q1-Q2Q1-Q3Q1-Q4Q1% of Est.FY Est.
Sales23,09849,00274,920104,16424,92152,58779,368110,15415,834
Oral Care Products10,25520,85232,26445,22210,14221,54933,58746,9351,769
Bath Powder4,83810,30516,51726,3346,82413,12419,68629,9156,201
Other Household Products8,00517,84426,13832,6067,95317,91326,09433,3037,863
YoY1.4%0.8%-1.9%-1.1%7.9%7.3%5.9%5.8%-36.5%
Oral Care Products8.9%2.6%-0.9%1.9%-1.1%3.3%4.1%3.8%-
Bath Powder2.0%8.9%7.9%9.3%41.1%27.4%19.2%13.6%-
Other Household Products-7.0%-5.2%-8.5%-11.7%-0.6%0.4%-0.2%2.1%-
Oral Care, Bath Powder, and Other Household ProductsFY12/20FY12/21FY12/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1
Sales23,09825,90425,91829,24424,92127,66626,78130,78615,834
Oral Care Products10,25510,59711,41212,95810,14211,40712,03813,3481,769
Bath Powder4,8385,4676,2129,8176,8246,3006,56210,2296,201
Other Household Products8,0059,8398,2946,4687,9539,9608,1817,2097,863
YoY1.4%0.3%-6.8%1.0%7.9%6.8%3.3%5.3%-36.5%
Oral Care Products8.9%-2.9%-6.6%9.6%-1.1%7.6%5.5%3.0%-
Bath Powder2.0%15.9%6.4%11.7%41.1%15.2%5.6%4.2%-
Other Household Products-7.0%-3.6%-14.9%-22.5%-0.6%1.2%-1.4%11.5%-
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.
Note: No YoY or QoQ comparisons are stated, because the company adopted the new Revenue Recognition Standard from FY12/22.

Q1 FY12/22 results (out May 11, 2022)

Overview

Q1 FY12/22 results: Sales were JPY38.6bn (+4.5% YoY excluding the impact of a change in accounting method), operating profit was JPY5.3bn (-10.6% YoY), recurring profit was JPY5.6bn (-8.4% YoY), and net income before income taxes was JPY5.6bn (-8.7% YoY).

Attainment rates

Q1 attainment rates versus the 1H FY12/22 forecast were 42.2% for sales, 40.0% for operating profit, 42.1% for recurring profit, and 40.6% for net income attributable to owners of the parent. Q1 attainment rates versus the full-year FY12/22 forecast were 24.9% for sales, 49.5% for operating profit, 50.7% for recurring profit, and 51.7% for net income attributable to owners of the parent.

Sales

Sales were JPY38.6bn (+4.5% YoY excluding the impact of a change in accounting method). By segment, Household Products recorded sales of JPY35.7bn (+4.8% YoY), while General Sanitary Management saw sales of JPY6.4bn (+0.8% YoY). Sales growth reflected ongoing customer demand in Household Products associated with lifestyle changes during the COVID-19 pandemic, and expansion in the General Sanitary Management business.

Operating profit

Operating profit was JPY5.3bn (-10.6% YoY excluding the impact of a change in accounting method). By segment, Household Products posted operating profit of JPY5.0bn (-14.0% YoY), and General Sanitary Management JPY299mn (-15.9% YoY). 

Household Products segment

Sales were JPY35.7bn (+4.8% YoY excluding the impact of a change in accounting method), and segment profit (operating profit) was JPY5.0bn (-14.0% YoY). 

Although early sales of insecticides were lackluster owing to temperatures that were lower than the previous year and intermittently inclement weather, there were contributions to segment sales from bath salts, which experienced market expansion following the launch of new products with high value-added and aided also by changes in consumer demand triggered by resurgence in COVID-19 infections. At the profit level, an altered sales mix and change in the CoGS ratio stemming from the effect of a weaker yen on overseas procurement combined with stronger controls to ensure that sales promotion spending was more in tune with actual sales. 

Household Insecticide Products

Sales were JPY17.7bn (no YoY comparison owing to adoption of the new Revenue Recognition Standard from FY12/22). In Japan, the household insecticide market was sluggish in Q1 owing to temperatures that were lower than the previous year and intermittently inclement weather, but there were contributions to sales from the launch of new products with high value-added, such as Mamo Room and Iyana Mushi Zero de Knight. On overseas markets, sales were upbeat in Vietnam and Thailand, amid signs of some recovery in economic activity. 

Oral Care, Bath Powder and Other Household Products

Sales were JPY15.8bn (no YoY comparison owing to adoption of the new Revenue Recognition Standard from FY12/22).

Bath salt sales were JPY6.2bn (no YoY comparison owing to adoption of the new Revenue Recognition Standard from FY12/22). Sales of the tablet type Onpo and individual packet-type Nihon no Meito and Iiyu Tabidachi bath salts remained strong, as the market expanded on the back of pandemic-induced changes in customer needs.

Oral hygiene product sales were JPY1.8bn (no YoY comparison owing to adoption of the new Revenue Recognition Standard from FY12/22). Although sales of the all-in-one mouthwash Mondahmin Premium Care Sensitive remained brisk, sales of Mondahmin NEXT Gum Care were weak.  

Sales of other household products were JPY7.9bn (no YoY comparison owing to adoption of the new Revenue Recognition Standard from FY12/22). Owing to a reduction in the stay-at-home demand observed in FY12/21, sales were downbeat for the Aller Block Germ & Virus Removal Room Spray. There were contributions, though, from new offerings in the Sukki-ri! family of deodorizers, including Sukki-ri! CORK+STICK Puriture and Kuruma no Sukki-ri!.

Pet-related Products and Others

Sales were JPY2.2bn (no YoY comparison owing to adoption of the new Revenue Recognition Standard from FY12/22). An increase in customers acquiring new pets and those developing a closer relationship with their pets because of spending more time at home during the pandemic resulted in sales growth in pet-related products such as towels, and cleaning products. 

General Sanitary Management segment

In the General Sanitary Management segment, sales were JPY6.4bn (+0.8% YoY excluding the impact of a change in accounting method) and segment profit (operating profit) was JPY299mn (-15.9% YoY). Amid a trend toward international harmonization in safety standards for food, pharmaceuticals, and medical care, and revisions to domestic laws, companies increasingly are bringing hygiene management in-house. As a result, the company is seeing greater demand for its high-quality hygiene management services, drawing on its specialized knowledge, technology, and know-how, from the food-related, pharmaceutical-related, and packaging-related plants that are its main customers.

Faced with this operating environment, the company actively made investments with an aim to developing an internal system that can quickly respond to customer needs, including recruitment and development of human resources and development of software to improve operational efficiency. The company also maintained and expanded its contracts through the provision of differentiated quality assurance services. In particular, the company enhanced initiatives targeting pharmaceutical and regenerative medicine industries and its food safety management inspection and consulting business. 

Company forecast for FY12/22

EarningsFY12/20FY12/21FY12/22
(JPYmn)1H Act.2H Act.FY Act.1H Act.2H Act.FY Act.1H Est.2H Est.FY Est.
Sales110,63485,411196,045115,82187,964203,78591,50063,500155,000
YoY6.3%-0.1%3.4%4.7%3.0%3.9%---
Operating profit16,024-4,60811,41618,566-7,89910,66713,300-2,55010,750
YoY116.5%-191.5%15.9%--6.6%---
Operating profit margin14.5%-5.8%16.0%-5.2%14.5%-6.9%
Recurring profit16,138-4,47711,66118,907-7,54511,36213,400-2,25011,150
YoY114.1%-169.6%17.2%--2.6%---
Recurring profit margin14.6%-5.9%16.3%-5.6%14.6%-7.2%
Net income attributable to owners of the parent10,949-7,4023,54712,759-5,6177,1429,280-2,0007,280
YoY135.4%-183.8%16.4%-101.4%---
Net margin9.9%-1.8%11.0%-3.5%10.1%-4.7%
By segmentFY12/20FY12/21FY12/22
(JPYmn)1H Act.2H Act.FY Act.1H Act.2H Act.FY Act.1H Est.2H Est.FY Est.
Sales110,63485,411196,045115,82187,964203,78591,50063,500155,000
Household Products Business102,66876,706179,374109,22479,269188,493137,763
Household Insecticide Products48,93717,05365,99051,56917,43169,00061,431
Oral Care, Bath Powder and Other Household Products49,00255,162104,16452,58757,567110,15466,489
Pet-related Products and Others4,7294,4919,2205,0674,2719,3389,842
General Sanitary Management13,07513,34526,42013,54613,68827,23427,700
Sum of reportable segments115,74390,051205,794122,77092,957215,727165,463
Adjustments-5,109-4,640-9,749-6,949-4,993-11,942-10,463
YoY6.3%-0.1%3.4%4.7%3.0%3.9%-
Household Products Business5.9%0.8%3.7%6.4%3.3%5%-
Household Insecticide Products11.4%10.4%11.1%5.4%2.2%5%-
Oral Care, Bath Powder and Other Household Products0.8%-2.8%-1.1%7.3%4.4%6%-
Pet-related Products and Others8.1%15.7%11.6%7.1%-4.9%1%-
General Sanitary Management4.3%2.3%3.3%3.6%2.6%3.1%-
Operating profit16,024-4,60811,41618,566-7,89910,66713,300-2,55010,750
Household Products Business15,144-5,1649,98017,870-7,9269,9449,320
General Sanitary Management8445751,4198982161,1141,430
Sum of reportable segments15,988-4,58811,40018,768-7,70911,05910,750
Adjustments36-2016-202-189-391-
YoY116.5%-191.5%15.9%71.4%-6.6%-28.4%--
Household Products Business127.0%-320.6%18.0%53.5%-0.4%-
General Sanitary Management21.1%-3.9%6.4%-62%-21%-
OPM (unadjusted)14.5%-5.8%16.0%-9.0%5.2%14.5%-6.9%
Household Products Business14.8%-5.6%16.4%-10.0%5.3%6.8%
General Sanitary Management6.5%-5.4%6.6%1.6%4.1%5.2%
Oral Care, Bath Powder, and Other Household ProductsFY12/20FY12/21FY12/22
(JPYmn)1H Act.2H Act.FY Act.1H Act.2H Act.FY Act.1H Est.2H Est.FY Est.
Sales49,00255,162104,16452,58757,567110,15466,489
Oral Care Products20,85224,37045,22221,54925,38646,9358,280
Bath Powder10,30516,02926,33413,12416,79129,91527,219
Other Household Products17,84414,76232,60617,91315,39033,30330,989
YoY0.8%-2.8%-1.1%7.3%4.4%5.8%-
Oral Care Products2.6%5.2%4.0%3.3%4.2%3.8%-
Bath Powder8.9%10.1%9.6%27.4%4.8%13.6%-
Other Household Products-5.2%-18.7%-11.8%0.4%4.3%2.1%-
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.
Note: From FY12/17, the company changed part of its sales classifications of the Household Products segment. Figures for FY12/16 onward reflect the new classifications.
Note: No YoY comparisons are stated due to the adoption of the new Revenue Recognition Standard from FY12/22.
Company forecast for FY12/22

The company forecast for FY12/22 calls for sales of JPY155.0bn (no YoY comparison due to the adoption of the Revenue Recognition Standard from FY12/22; same for profit at all levels; excluding the new standard, sales are expected to increase 3.5% to JPY211.0bn), Operating profit was JPY10.8bn, recurring profit JPY11.2bn, and net income attributable to owners of the parent JPY7.3bn. The annual dividend forecast is JPY118.0 (flat YoY). Although the company will be affected by soaring raw material prices and will appropriately invest necessary expenses for growth, including R&D and core system upgrades, it aims to achieve operating profit in excess of JPY10.0bn and a record high in net income attributable to owners of the parent.

Planned dividend per share for FY12/22: JPY118.0 (dividend on equity (DOE) ratio of 4–5%; DOE of 4.2%, expected consolidated payout ratio of 35.8%). The company targets an equity ratio of 50% (49.7% in FY12/21), ROE in the 12% range (12.4% in FY12/21), and a cash to total assets ratio of around 15% (17.4% in FY12/21).

Quarterly operating profit company forecast
  • Q1: JPY5.2bn (no YoY comparison due to the adoption of the Accounting Standard for Revenue Recognition)
  • Q2: JPY8.1bn
  • Q3: JPY7mn
  • Q4: -JPY3.3bn
Impact of Accounting Standard for Revenue Recognition

The company estimates that the adoption of the Accounting Standard for Revenue Recognition will reduce sales by JPY56.0bn compared to the previous standard. The reason for this change is that the portion of sales that corresponds to intermediary transactions (purchases and sales) is recorded net of cost of sales, and sales promotion expenses, which were previously recorded in SG&A expenses, are deducted directly from sales after the adoption of the new accounting standard. The company estimates that the impact of these expenses will be JPY37.8bn for purchases and sales, and JPY18.2bn in sales promotion expenses deducted from sales. The impact on operating profit and other profit levels and on the balance sheet will be negligible.

Premise of company forecast

Sales

  • Market trends: The company assumes that the market for household insecticide products will remain essentially the same as in 2021 (flat YoY; down 5.4% YoY in 2020) and that the market for bath salts will continue to grow (up about 3% YoY; repeat use is well-established and this is not a one-time boost).
  • Return rate: 6.0% (-0.5pp YoY). Thee company's efforts to reduce returns while balancing opportunity losses are ongoing.
  • Introduce new products: Respond promptly to changing consumer needs associated with changes in lifestyle.

Expenses

  • Cost of sales: The company expects a total impact of JPY1.3bn from soaring prices of raw materials such as product and packaging materials, but will also promote measures including cost efficiency improvement.
  • Personnel expenses: JPY20.9bn (+0.1% YoY); the company will continue to invest in human resources.
  • Logistics expenses: JPY4.4bn for transportation (+4.0% YoY) and JPY25.1bn for storage (+5.5% YoY). The company expects to be affected by rising logistics costs, but will promote inventory control and logistics efficiency.
  • Advertising: JPY8.1bn (-3.2% YoY); invested in line with actual results.
  • R&D expenses: JPY3.4bn (+6.6 YoY); aggressive investment in human resources to bring open innovation to fruition.
  • Amortization of goodwill: JPY450mn (-JPY1.4bn or 75.4% YoY). Amortization of goodwill of subsidiary Bathclin will be completed in Q1 FY12/22.
  • Advisory fees: Budgeted consulting fees for core system renewal, M&A exploration, etc.
  • New business-related expenses: Continue to explore and be proactive, keeping in mind the cost and return on investment capital.

Breakdown of company forecast by segment

Household Products segment

The company forecasts sales of JPY137.8bn and operating profit of JPY9.3bn in FY12/22.

The company projects sustained high levels of demand for its product lines amid lifestyle changes brought on by the pandemic. That being said, the company assumes that it may not fully absorb through management efforts the impact of rising raw material prices. It aims to secure reasonable profit by growing earnings in categories where sales are growing and its has large market share, optimizing the allocation of management resources, and improving cost efficiency.

General Sanitary Management segment

The company forecasts sales of JPY27.7bn and operating profit of JPY1.4bn in FY12/22.

Prevention of product contamination and food poisoning are essential in services for the food manufacturing sector. Consequently, there is a growing need for the quality sanitary management services that the Earth Group provides, underpinned by its specialist knowledge, technologies, and know-how. The company is progressing R&D and human resource training as well as providing services that harness IoT and a range of AI systems, expanding its food safety-related auditing business, and strengthening its life science business to increase the number of contracts per year and achieve stable earnings growth.

Overseas expansion

The company positions overseas expansion as its primary growth driver. It aims to improve profitability and build an earnings base by establishing subsidiaries in the main areas where it operates, such as ASEAN and China, and aggressively allocating management resources in these areas. The company aims to increase the earnings contribution of exports and cross-border e-commerce by developing and selling products that fulfill the needs of each country and focusing on profitable products.

Management strategies

Medium-term business plan

Earth Group philosophy

Vision: Make the Earth a pleasant home.
Business philosophy: Act to live in harmony with the Earth.

Value provided by Household Products: Educate about infectious diseases and risk reduction, promote maintenance of physical and mental health, create a comfortable living environment

Value provided by General Sanitary Management: Provide original and innovative general environmental and hygiene services and safe, secure products by leveraging our expertise

Enhancement of corporate value

Corporate value from Earth's perspective

The company believes that its corporate value is the sum of the book value of its shareholders' equity (including capital increases), increases in total assets including the expansion of retained earnings due to profit generation, and the added value that the company has created to date. This value includes that generated by intangible assets such as human capital, business know-how, R&D capabilities, brand strength, customer base, and ESG.

Key elements of corporate value

The company regards non-financial capital*, including human resources, as the foundation of business growth and an important element in increasing corporate value.

*Non-financial capital: the credit account equivalent of assets that are not normally recorded on the balance sheet, such as human capital, business know-how, R&D capabilities, brand strength, customer base, and ESG initiatives. Self-created goodwill is not permitted to be recognized on the balance sheet.

SDG initiatives
Basic sustainability policy

The company's basic sustainability policy is as described below.

Based on its management policy, “We act to live in harmony with the Earth,” Earth Corporation will work with its stakeholders to address issues surrounding sustainability and contribute to the sustainable enhancement of corporate value and the building of a sustainable society.

Five materiality issues
  • Realization of a workplace that supports the success of diverse human resources
  • Provision of products and services that contribute to a safe, comfortable lifestyle
  • Response to climate change
  • Promotion of sustainable procurement
  • Consideration for global environmental issues

The company views sustainability as a key element of management. The bottom-up approach is adopted because it is important for each employee to be proactively involved and, as a result, to align their ideas with those of management. The company has established working groups and conducted group studies. It believes that incorporating sustainability into its basic policies and ensuring that all employees are aware of the importance of sustainability will further strengthen the company's management and lead to future value creation.

FY12/22 initiatives
  • Design of nonfinancial KPIs: Design and operate KPIs in line with the five identified materiality issues, aiming to set KPIs during 1H FY12/22
  • Disclosure based on TCFD framework: The Sustainability Promotion Committee is taking the lead in discussing disclosure items and required data, etc. Scheduled to take place by March 2023.

Medium-term business plan: Act for SMILE- COMPASS 2023 (revised February 2021)

Overview

COVID-19Earth Corporation had established the next three-year (FY12/21–FY12/23) medium-term business plan, called "Act For SMILE-COMPASS 2023." The company upwardly revised its management targets of the plan in February 2021. Following FY12/20 sales of JPY196.0bn, operating profit of JPY11.4bn, recurring profit of JPY11.7bn, net income attributable to owners of the parent of JPY3.5bn, and ROE of 7.4%, the company targets FY12/23 sales of JPY213.0bn, operating profit of JPY14.0–16.0bn, net income attributable to owners of the parent of JPY10.0bn, ROE of 13.0% or above, and DOE of 4.0% or above. The final year targets were upwardly revised from the previous targets calling for sales of JPY200.0bn, operating profit of JPY7.5bn, net income attributable to owners of the parent of JPY5.0bn, and ROE of 11.0%.
The company sees changes in the external environment, such as the lifestyle changes associated with the impact of COVID-19, as opportunities for growth.

Progress
Sales

The company's FY12/2022 sales forecast (announced on February 14, 2022) is JPY155.0bn due to the adoption of The Accounting Standards for Revenue Recognition (no YoY comparison due to the adoption of the Accounting Standard for Revenue Recognition from the beginning of FY12/22). However, excluding the adoption of the new standard, the figure would be JPY211.0bn (+3.5% YoY).

Operating profit

The company's operating profit forecast for FY12/22 (announced on February 14, 2022) is JPY10.8bn (no YoY comparison due to the adoption of the Accounting Standard for Revenue Recognition from the beginning of FY12/22). The company has assumed a cost increase of JPY1.3bn resulting from soaring raw material prices. This will be an element that was not included when Act For SMILE-COMPASS 2023 was formulated. Excluding this factor, the company believes that FY12/22 profits will be in line with plans.

The company's assumptions (as of February 14, 2022) for achieving its operating profit target of JPY14.0-16.0bn for FY12/23 are as follows. To achieve the operating profit target of the medium-term business plan, the company will need to increase the profit factor by more than JPY3.3bn compared to its forecast for FY12/22.

  • The impact of raw material price hikes (assumed to be JPY1.3bn) will be covered by cost efficiencies and price pass-through.
  • Reduction of goodwill amortization burden: JPY400mn
  • Increase in sales due to market expansion and share increase in domestic market, overseas growth, etc.: JPY1.6bn
  • Upside of expected market scale due to weather and other factors: +

Outline of Medium-term business plan

Under the medium-term plan (2021–2023), the company aims to promote standards and infrastructure reforms as part of its structural reform with strategies focused on 1) expanding its earnings base in Asia, 2) promoting ESG and open innovation, and 3) creating cost synergies.

1) Expand earnings base in Asia: Gain market share and support in countries of operation and develop new business areas.

2) Promote ESG and open innovation: Take on the challenge of solving issues that contribute to the achievement of SDGs. Achieve open innovation through collaboration with external organizations.

3) Create cost synergies: Rationalize and increase efficiency of operations through joint implementation of multiple measures. Realize synergies and value-added throughout the value chain.

Profitability and capital efficiency KPIs

Marginal operating profit: Evaluate earnings from sales activities based on marginal operating profit (gross profit – [sales promotion expenses + logistics expenses]).

Contribution margin: Evaluate the profitability of businesses and categories by measuring contribution margin (operating profit + indirect costs).

Cost of capital: Use cost of capital as an indicator for investment decisions.

Earth Corporation seeks to use operating profit as the company's most important management indicator while aiming to manage the cost of capital. It promotes platforms of Redefining Revenue Management Standards, Systemic Reform, and ICT Infrastructure Reform and Digital Transformation (DX).

Redefining standards
  • Lower hurdles to investment, business appraisal, and launching products
  • Organize non-core, unprofitable businesses, and assets including factories and restructured businesses
  • Set targets for non-financial indicators from an ESG perspective
Systemic reform
  • Improve labor productivity by promoting work style reform
  • Review management of factors like costs and foreign exchange, as well as comply with the accounting standard for revenue recognition
ICT infrastructure reform and digital transformation (DX)
  • Reform of communication infrastructure as well as core systems such as supply chain management and accounting
  • Promote integration of the Group's ICT infrastructure
  • Standardize business processes, aggressively promote digital transformation  

Expand earnings base in Asia

The company's key areas are ASEAN and China. The company plans to boost market share in each country by developing and introducing products that meet local needs. It will further improve its earnings structure by positioning overseas expansion as one of the drivers of profit growth. Additionally, the company will consider M&A opportunities to expand its business. As for ASEAN, the company was unable to expand as expected in FY12/21 due to the impact of COVID-19, but the potential for growth remains the same, and the company will promote growth, especially in Thailand and Vietnam. Furthermore, Earth Home Products (Malaysia) Sdn. Bhd. and Earth Homecare Products (Philippines), Ltd. in Malaysia and the Philippines, which will be consolidated in FY12/22, will grow as an ASEAN base following Thailand and Vietnam (including these two companies, the number of overseas consolidated subsidiaries will total seven).

  • Existing areas of operation: Thailand, Vietnam, China, Saudi Arabia
  • New areas for development: Malaysia, Philippines, CLM (Cambodia, Laos, Myanmar)
Overseas strategies in ASEAN countries

Thailand: The company will steer again from the earnings structure improvement phase to the business expansion phase (profits increased in FY12/21 due to cost control). It will endeavor to expand its presence in the Thai domestic market, increasing its market share (3rd place with around 13%, according to the company). Since the suburbs are not well developed, the company will steadily develop traditional trade (TT) through the Depot business by establishing a large number of small distributors and other mobile small-scale offices in rural areas, as it believes there is considerable room for growth. The strategy is to develop suburban areas while introducing the Depot business in urban areas to capture market share through meticulous sales activities. The reason for focusing on the suburbs first is that the company has already done a certain amount of work in developing modern trade in urban areas. Focus categories include household insecticides, air fresheners, and mouthwash products. It aims to achieve sales of JPY4.9bn in FY12/23, compared to sales of JPY4.1bn in FY12/20.

  • Earth (Thailand) Co., Ltd. sales: JPY4.9bn in FY12/19, JPY5.0bn in FY12/20 (+0.8% YoY), JPY5.2bn in FY12/21 (+4.0% YoY), JPY4.9bn in FY12/22 (forecast; no YoY comparison due to the adoption of the Accounting Standard for Revenue Recognition), JPY5.1bn in FY12/23 (+4.7% YoY)
  • Interest rate: 3.1% in FY12/19, 5.8% in FY12/20, 10.4% in FY12/21, 8.7% in FY12/22, 8.8% in FY12/23

Vietnam: Although the company was affected by the COVID-19 lockdown in FY12/21, it aims to sustain stable management from FY12/22 onward. The focus channels are MT and e-commerce. It will fortify sales on the southern region, centered on Ho Chi Minh City, increase the number of deliveries, build an OEM production system that leverages geographical advantages. In the future, the company plans to establish a production base and supply products and materials to Japan. Profit contributions are expected from drastic reductions in manufacturing costs. The focus categories are household insecticide products, mouthwash, and disinfectant-related products, and the company's aim is to develop the top products in Vietnam's domestic market. It aims to achieve sales of around JPY4.3bn in FY12/23, compared to JPY2.8bn in FY12/20.

  • Initiatives for FY12/22 and beyond: Improve profitability (raise product prices, review promotional measures), expand presence of household insecticide products (increase sales composition within local subsidiaries to 50%, aim for 10% market share)
  • Earth Corporation Vietnam sales: JPY2.7bn in FY12/19, JPY3.0bn in FY12/20 (+12.1% YoY), JPY2.9bn in FY12/21 (-2.7% YoY), JPY3.9bn in FY12/22 (forecast; no YoY comparison due to the adoption of the Accounting Standard for Revenue Recognition), JPY4.8bn in FY12/23 (+23.0% YoY)
  • Interest rate: 9.9% in FY12/18, 8.9% in FY12/19, 11.0% in FY12/20, 7.2% in FY12/21, 7.7% in FY12/22 (forecast), 10.3% in FY12/23
China and exports/cross-border e-commerce

China: The company aims to achieve both sales scale growth and steady profit contribution, primarily in household insecticide products. It will leverage its strengths as a limited liability investment company, centralize management of production and sales, facilitate access to financing within China, invest management resources in developing e-commerce channels, and carry out sales promotions using carefully selected products. It aims to achieve sales of JPY3.2bn in FY12/23, compared to sales of JPY2.6bn in FY12/20. The Chinese sales company turned profitable in FY12/21, and aims to gradually build up profits from FY12/22 onward.

  • Key channel: E-commerce
  • Focus categories: Household insecticides (cockroach control: according to the company, it is already number one in e-commerce) (mites, insect repellents, fly control products), household products (mouthwash, dehumidifiers)
  • Initiatives for FY12/22 and beyond: Specialize in e-commerce channel (increase e-commerce sales ratio to 75% or more), contribute to profits as a sales base (reduce impact of raw material price hikes by developing new suppliers, reducing manufacturing costs, etc.)
  • Earth Chemical (Shanghai) Management Co., Ltd. sales: JPY2.7bn in FY12/19, JPY2.8bn in 12/20 (+3.3% YoY), JPY3.2bn in FY12/21 (+14.4 YoY), JPY2.6bn in FY/22 (no YoY comparison due to the adoption of the Accounting Standard for Revenue Recognition), JPY2.8bn in FY12/23 (+8.6% YoY)
  • OPM: -3.5% in FY12/19, -1.3% in FY12/20, 0.0% in FY12/21, 0.4% in FY12/22 (forecast), 1.0% in FY12/23

Today

Earth Chemical (Shanghai) Management Co., Ltd.

Exports and cross-border e-commerce: The company will strengthen sales mainly in Saudi Arabia and Taiwan, while launching products tailored to each country's needs. For cross-border e-commerce, the company will focus on Black Cap and mothball products. It aims to achieve sales of JPY4.0bn in FY12/23, compared to sales of JPY3.0bn in FY12/20.

Areas of new development

Malaysia: Earth Home Products (Malaysia) Sdn. Bhd.; Established a local subsidiary in 2019, but full-scale expansion was delayed by the pandemic; aims to achieve full profitability within three years from FY12/22 onward

  • Key channels: General trade (GT), regional modern trade (MT), e-commerce
  • Key categories: Household insecticide products, OASIS-brand air fresheners, fabric sprays
  • Initiatives for FY12/22 and beyond: Full-scale launch of household insecticide products and expansion of OASIS brand (achieve target of launching and distributing seven SKUs by end-2022), consideration of OEM production to reduce manufacturing costs

Philippines: Earth Homecare Products (Philippines), Ltd.; M&A of a local company to make it a subsidiary in FY12/21, and start new business development from FY12/22; construct business foundation

  • Key channels: Modern trade (MT), e-commerce
  • Key categories: Household insecticide products, air fresheners
  • Initiatives for FY12/22 and beyond: Build a foundation for starting the business (promptly acquire various licenses, transfer assets, and acquire shares) 

Promote ESG and open innovation

The company will take on the challenge of solving issues that contribute to the achievement of SDGs. It will also achieve open innovation through collaboration with external organizations.

  1. Environment: The company will reduce losses related to returns and disposals, and explore the use of sustainable materials.
  2. Social: The company participated in WELCO Lab*. It will promote work style reforms and aim to be recognized as an outstanding company in health and productivity management.
  3. Governance: The company will promote diversity and build a group governance system that creates synergies. 

*WELCO Lab: An initiative by Japanese companies aiming to solve problems in the field of global health. It was established in October 2020 with the support of the Bill & Melinda Gates Foundation.

MA-T System

Promoting and enhancing the value of MA-T System

The Japan MA-T Industrial Association was established to promote and enhance the value of MA-T (Matching Transformation System) System, an innovative oxidation control technology developed in Japan, as well as to promote open innovation. This includes potentially promoting open innovation in collaboration with the creative strategy council by the government and academic societies.

The MA-T System is the world's first system to use oxidation control technology to control the strength of molecular activity, and can be applied in a wide range of fields. When molecular activity is weakened, disinfectants, deodorants, and agricultural chemicals can be produced. When molecular activity is strengthened, oxidation reactions (small molecules) and surface oxidation (macromolecules) can be carried out. See below for details (the lower in the order, the stronger the activation):

  • Disinfection and deodorization: On-demand chlorite ion solution
  • Agriculture (ex. pesticides): Sterilization of spore fungi, seed disinfection
  • Food additives: Food and tableware disinfection, food factory sanitation
  • Pharmaceuticals: Antiseptics, anti-cancer agents, infectious dermatitis treatments
  • Surface oxidation: Improvement of polymer surfaces and adhesives
  • Oxidation reactions: Highly difficult oxidation reactions such as methanol production (small molecules)

The company plans to develop new solutions for the prevention of infectious diseases by 2030 through applying MA-T technology created via open innovation. This will involve setting up a procurement business for the United Nations and public organizations to help contain the spread of viruses, microorganisms, multi-drug resistant bacteria, etc. Beyond Japan, the project will target the Southeast Asian region with its population of 220 million people in low- and middle-income countries such as Thailand, Vietnam, and Myanmar. The goal is to provide inexpensive, simple, and practical solutions.

MA-T System

The MA-T System is an oxidation control technology that controls the intensity of activation, developed jointly by dotAqua, Inc. and ACENET Inc., who discovered an on-demand chlorite ion aqueous solution. The system was analyzed and proven effective by Osaka University. A basic patent application was filed in 2015 (international patent publication number: WO/2018/230743 A1). The company holds the technology license as well as manufacturing and intellectual property rights.

By generating the necessary amount of aqueous radicals from chlorite ions when necessary, it enables the breaking down of viruses, including epidemic viruses, and sterilization of various bacteria (germs). Furthermore, by controlling the degree of activity (generating activated radicals), it is possible to pioneer highly difficult chemical reactions and develop a wide range of applications. These include the functionalization of polymers, device applications, and applications in agrochemicals and pharmaceuticals. Products employing the MA-T System are used in many public transportation systems and their restrooms, as well as hospitals and hotels.

According to Earth Corporation, the aqueous solution used for the MA-T System produces the active constituent of aqueous radicals in water only in the presence of bacteria or viruses, and only in the amount needed to break them down. Since it is more than 99.9% water, it is safer than standard chlorine-based and concentrated alcohol products, and can be safely used for tableware, cooking utensils, and items that come in contact with the mouth. It's not flammable, so it can be used safely in the kitchen while cooking, and will not corrode metal, discolor plastics, or irritate the hands.

Business model

Organizations must be part of the Japan MA-T Industrial Association to utilize the MA-T System, and Earth Corporation is the sole supplier. According to the company, the system was slow to catch on despite its benefits, but they recognized it's potential and became a partner in its promotion. More than 70 companies have joined the Japan MA-T Industrial Association since its launch. The company is collaborating with organizations participating in the association to conduct research on new ways of applying the MA-T System. The Japan MA-T Industrial Association was established, and 80 companies, mainly top firms in the industry, have joined (as of December 31, 2021). The company's profits will grow as the system is utilized in various fields and its value becomes more widely known.

Contribution to SDGs

Organic compounds composed of covalent carbon-carbon and carbon-hydrogen bonds, such as household insecticide products, detergents, and synthetic resins (plastics), have the advantage of being flexible and stable, but also have the disadvantage of being difficult to decompose. They must be combusted, which generates CO2. The MA-T System enables decomposition without combustion. Combustion is required, for instance, to convert methane gas from livestock manure into methanol, but with the MA-T System, it can be converted into methanol at room temperature and pressure without combustion, using high temperature and energy at 1,200°C. The company and the Japan MA-T Industrial Association believe that it can resolve issues such as CO2 emissions and thermal efficiency.

Utilization for recycling-oriented dairy farming: Osaka University's Institute for Open and Transdisciplinary Research Initiatives succeeded for the first time in the world in producing methanol and formic acid from air and methane gas at room temperature and pressure, and announced the achievement in February 2018. The Institute and the town of Kobe, Hokkaido, signed a collaboration agreement in June 2019 and achieved a world's first by producing methanol and formic acid from biogas derived from livestock manure at room temperature and pressure. The methanol produced is liquid at room temperature and pressure, and can be used as fuel for methanol fuel cells both permanently and in emergencies (as a low-carbon fuel source derived from biomass). Furthermore, formic acid, which is produced at the same time, is characterized as a hydrogen carrier and is also liquid at room temperature and pressure, enabling the factoring of hydrogen into city planning. Formic acid is also self-sufficient because it is always used as an additive in livestock feed.

Responding to infectious disease and climate change risks

According to the 2021 edition of the Global Risks Report published by the World Economic Forum, infectious diseases such as COVID-19 rank first among the top 10* most imminent global risks over the next decade. The company will contribute to addressing risks such as infectious diseases and climate change through its MA-T System, household insecticide products, household products, and General Sanitary Management business, thereby enhancing the company's corporate value.

*Top 10 global risks with the greatest impact over the next 10 years according to the 2021 edition of the Global Risks Report published by the World Economic Forum: 1) infectious disease, 2) climate change failure, 3) weapons of mass destruction, 4) biodiversity loss and ecosystem collapse, 5) natural resource crisis, 6) human environmental damage, 7) livelihood crises, 8) extreme weather, 9) debt crises, and 10) IT infrastructure breakdown

Growth investment

The company will make free cash flow-conscious investments and achieve returns that exceed cost of capital over a three year investment period.

Use of funds

Investment to expand earnings base in Asia: The company plans to invest JPY7.0bn, mainly for product development and marketing. This also includes funds reserved for future M&A.

ESG and open innovation investment: The company plans to invest JPY6.0bn, mainly for MA-T related investments.

Investment in ICT infrastructure and digital transformation (DX): The company plans to invest JPY4.0bn, primarily to renew core systems. It also plans to promote digital asset management.

New capital investment (excluding maintenance capex): The company plans to invest JPY3.0bn to expand facilities in core categories.

Overseas expansion

Earth Corporation’s top long-term goal is expanding overseas.

Overseas sales and overseas sales ratio
Overseas salesFY12/12FY12/13FY12/14FY12/15FY12/16FY12/17FY12/18FY12/19FY12/20FY12/21
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
Sales3,4304,7105,2905,7806,7209,1909,98011,86012,73013,970
Thailand and neighboring countries2,1902,7103,2803,0703,5104,2403,5803,7804,1104,060
China4706808709701,5202,0302,1802,7402,8303,280
Vietnam-----1,2502,6502,9302,8403,450
Other7801,3301,1501,7501,7001,6801,5802,4202,9603,190
YoY27.5%37.3%12.3%9.3%16.3%36.8%8.6%18.8%7.3%9.7%
Thailand and neighboring countries42.2%23.7%21.0%-6.4%14.3%20.8%-15.6%5.6%8.7%-1.2%
China51.6%44.7%27.9%11.5%56.7%33.6%7.4%25.7%3.3%15.9%
Vietnam------112.0%10.6%-3.1%21.5%
Other-8.2%70.5%-13.5%52.2%-2.9%-1.2%-6.0%53.2%22.3%7.8%
% of sales100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0%
Thailand and neighboring countries63.8%57.5%62.0%53.1%52.2%46.1%35.9%31.9%32.3%29.1%
China13.7%14.4%16.4%16.8%22.6%22.1%21.8%23.1%22.2%23.5%
Vietnam-----13.6%26.6%24.7%22.3%24.7%
Other22.7%28.2%21.7%30.3%25.3%18.3%15.8%20.4%23.3%22.8%
Overseas sales ratio2.7%3.5%3.6%3.6%4.0%5.1%5.5%6.3%6.5%6.9%
Source: Shared Research based on company data
Note: Rounded down to the nearest multiple of JPY10mn.
Core overseas markets: Thailand, Vietnam, China

Earth Corporation plans to expand into Asia, particularly Thailand, Vietnam, and China—where it has production bases. In May 2017, the company acquired Earth Corporation Vietnam (formerly A My Gia Joint Stock Company). Of the JPY14.0bn in overseas sales in FY12/21 (6.9% of overall sales), Thailand and neighboring countries accounted for 29.1%, Vietnam 24.7%, China 23.5%, and other countries 22.8%.

Thailand

The group holds only about 10% share of the Thai household insecticide market (according to the company’s survey). Major overseas companies dominate the market with the primary products being cost-competitive anti-mosquito incense coils and aerosols. As a follow-up to mosquito coils and aerosols, the company aims to develop locally competitive and marketable non-insecticide products such as oral care products and air fresheners. The shakeup of the company’s distributor network in 2019 worked to good effect, strengthening its distribution capabilities within the country and providing a significant boost to sales.

Vietnam

In May 2017, the company acquired all outstanding shares of Vietnam-based Earth Corporation Vietnam (ECV), making it a wholly owned subsidiary. Founded in 2003, ECV manufactures and markets various household-use products in Vietnam. Most of its sales come from household detergents, but ECV also manufactures and sells deodorizing air fresheners and household insecticides. Its popular “Gift” brand household detergent and “Ami” brand air fresheners have carved out prominent positions in the Vietnamese market. With the acquisition of ECV, Earth Corporation is looking to take advantage of the brand strength and marketing capabilities that ECV has built up over the years, fine-tune its marketing approach, and establish a larger market presence.

China

The company’s subsidiaries in China play an important role as manufacturing hubs for goods that are sold in Japan, and also sell some of these same products in China, especially Gokiburi Hoy Hoy cockroach traps and Earth Red no-flame fumigators. The business was expanded in 2014 to include the Hakugen Earth mask and dehumidifier. The e-commerce channel is expanding sharply in China and the company aims to tailor sales promotion and product development to this sales channel.

M&A strategy

Maximizing group synergies with Bathclin and Hakugen Earth

Earth Corporation acquired and consolidated Bathclin and Hakugen Earth, and these two subsidiaries have been cooperating to make material procurement more efficient, optimize production, share expertise, and streamline distribution.

Performance of Bathclin and Hakugen Earth
FY12/13FY12/14FY12/15FY12/16FY12/17FY12/18FY12/19FY12/20FY12/21
Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
Bathclin
Sales13,36614,00513,59413,61013,92614,22214,24115,17417,105
Operating profit1,2021,4199961,0031,1078889249451,227
Operating profit margin9.0%10.1%7.3%7.4%7.9%6.2%6.5%6.2%7.2%
Hakugen Earth
Sales3,21114,43015,67215,93915,79516,59018,61019,025
Operating profit-1,593-1,04383217263283797882
Operating profit margin-49.6%-7.2%0.5%1.4%1.7%1.7%4.3%4.6%
Goodwill amortization1,7071,7651,9081,9081,9081,9081,9081,9081,908
Source: Shared Research based on company data
Bathclin: History and overview

October 2006: Household business of Tsumura & Co. (TSE PRM: 4540) spun off into Tsumura Lifescience Co., Ltd.

August 2008: With support from Wise Partners, Inc., became independent from the Tsumura Group.

February 2012: Earth Corporation acquired 100% of the company’s shares for JPY19.2bn. Goodwill totaled JPY16.9bn (10-year amortization; completed in Q1 FY12/22).

Bathclin’s main brands are Bathclin and Kikiyu (bath salts).

Hakugen Earth: History and overview

May 2014: Hakugen Co., Ltd., applied for civil rehabilitation. Total liabilities were around JPY25.5bn.

July 2014: Through a sponsor tender offer, Earth Corporation concluded a business transfer agreement with Hakugen.

August 2014: Earth Corporation established Hakugen Earth Co., Ltd. as a wholly owned subsidiary.

September 2014: Hakugen Earth acquired businesses from Hakugen for JPY7.7bn. Goodwill totaled JPY1.5bn (amortization was completed in August 2021).

Hakugen Earth’s main brands are the insect repellant Mrs. Lloyd and Kaiteki Guard Pro, a face mask for household use.

Financial strategy

Company issues No. 2 Series warrants

On July 28, 2020, the company issued No. 2 Series moving strike warrants via a private placement. 

The warrants are exercisable between July 29, 2020 and July 28, 2023. 

 The company issued a total of 18,000 warrants at a price of JPY3,700 per warrant, bringing the proceeds from the warrant issue to JPY66,600,000. 

 With each warrant giving the holder the right to buy 100 common shares of Earth Corporation at the specified strike price, the warrant issue if fully exercised would mean the issuance of 1,800,000 new shares (representing potential dilution of 8.89%, as of July 7, 2020).

The warrants have a so-called moving strike price, with no upper limit but a fixed minimum strike price of JPY5,649 per share. Even if all of the warrants were exercised at the minimum strike price, the total number of common shares issued upon exercise of the warrants would be 1,800,000. 

Assuming all of the warrants are exercised at the initial strike price of JPY8,070, total proceeds from the issuance will be JPY14,582,600,000 (net of expenses).

On and after July 29, 2020, the exercise price shall be set at a price equal to 92% of the closing price of common stock on the trading day immediately prior to the day on which the notification requesting the exercise of warrants is received. In cases where the adjusted exercise price calculated in this manner is lower than the minimum exercise price, the adjusted exercise price shall be set at the minimum exercise price of JPY5,649 per share.

Earth Corporation may, at its own discretion, place limits on the number of warrants that may be exercised during a specified period of time and may also, at its own discretion, specify periods during which the warrants cannot be exercised.

Background to financing through warrant issue

The company’s decision to raise new equity capital via a warrant issue was motivated by its desire to maintain the liquidity to fund growth initiatives at a time when the economic outlook has been clouded by the COVID-19 pandemic. 

Under the terms of the new warrant issue, the maximum number of new common shares issued as a result of exercise of the current warrant issue is capped at 1,800,000 shares.

Possible dilution notwithstanding, the company has kept its target for ROE in FY12/20 at 6.4%.

Impact on company’s financial position

As of the end-December 2020, the company had total borrowings of JPY26.0bn for a debt-to-equity ratio of over 2.0x. 

Under its medium-term business plan, the company is looking to bring its debt-to-equity ratio down to 1.0x.

Planned use of proceeds
(The company plans to use the roughly JPY14.5bn in proceeds for capital investments and repayment of outstanding debt during the timeframe running from August 2020 to July 2023)

Some JPY5.5bn for product development and marketing to help expand the company’s earnings base in Asia

JPY3.0bn for ESG/innovation investments to support its expansion into new business areas (including infection prevention products/services)

JPY1.5bn for investments in ICT infrastructure

JPY4.5bn for repayment of outstanding debt and further improvement of the company’s financial position

Business

Description

Earth Corporation’s core business is the manufacture and sale of household insecticide products, oral hygiene products, bath salts, deodorizing air fresheners, home garden supplies, and pet-related products. The Household Products segment accounted for 87.4% of sales in FY12/21. The company boasts the top share of the Japanese market for household insecticide products (55.8% share in 2021 by company estimates) and bath salts. Within the Household Products segment, household insecticide products are the biggest contributor to earnings.

The General Sanitary Management segment accounted for 12.6% of sales in FY12/21. Most of segment sales come from its Total Health Care business, which offers consulting services to food production plants on preventing foreign substances and other contaminants. This segment also includes a Pest Control business and Building Maintenance business.


FY12/21 Consolidated sales composition
Source: Shared Research based on company data
FY12/21 Consolidated operating profit composition
Source: Shared Research based on company data

Expanding through M&A

Earth Corporation is a long-established company with now more than 125 years having passed since its founding in 1892. It found itself in deep trouble in the late-1960s but was able to make it through this crisis thanks to financial backing of Otsuka Pharmaceutical and the rest of the Otsuka Group, who came to the rescue with new capital.

Earth Corporation has stepped up M&A. In 2001 it took over the Vapona*1 brand of pest control products from Shell Chemical (now Shell Chemicals Japan Ltd.) and now sells products utilizing this brand.

*1 Vapona is one of the brands of household insecticide products sold by Earth Corporation. Earth Corporation acquired the Vapona brand from Shell Chemical (now Shell Chemicals Japan) when it agreed to take over Shell Chemical’s entire Japanese pest control business. Vapona is an insecticide strip that is coated with dichlorvos, a widely used insecticide that gradually permeates the surrounding air and drives out and keeps out not only flies but also mosquitoes and cockroaches. Shell Chemical sold its pesticide business owing to concerns about the sales of products containing organic phosphate.

Earth Corporation has also undertaken a number of mergers and acquisitions during the past ten years, including the February 2012 acquisition of Bathclin Corporation, a former competitor in the market for bath additives. 

In November 2012, consolidated subsidiary Earth Biochemical Co., Ltd. acquired Nikke Pet Care Co., Ltd.*2 (formerly The Japan Wool Textile Co., Ltd.), a subsidiary of Nikke Group (TSE PRM: 3201). 

In November 2012, through its consolidated subsidiary Earth Biochemicals Co., Ltd. the company acquired through M&A Nikke Pet Care Co., Ltd., which was a subsidiary of Nikke (formerly The Japan Wool Textile Co., Ltd.; TSE PRM: 3201) *2 (now Earth Pet Co., Ltd.).

In 2014, the company established Hakugen Earth Co., Ltd. to take over some of the businesses run by Hakugen Co., Ltd. In July 2016, Earth Corporation entered into a capital and business alliance agreement with Taiko Pharmaceutical Co., Ltd. (TSE PRM: 4574)*3. 

In November 2016, Earth Corporation acquired Johnson Trading Co., Ltd.*4, which has a pet-related products business, making it a subsidiary that has since become part of Earth Pet. 

In March 2017, Earth Corporation entered into a capital and business alliance with Protoleaf, Inc., acquiring a 34.1% stake in the company, and formed a business alliance with Hyponex Japan Co., Ltd., both for the purpose of creating a new market in home gardening products.

*2 Nikke Pet Care Co., Ltd. M&A: In October 2014, Earth Biochemical merged with Nikke Pet Care and then dissolved it. After running the pet food business it had acquired, Earth Biochemical then merged with Johnson Trading to form Earth Pet.
*3 Business and capital alliance with Taiko Pharmaceutical Co., Ltd.: Earth Corporation acquired a stake in Taiko Pharmaceutical through a private placement of newly issued shares, acquiring 5.8% stake in Taiko Pharmaceutical (5.66% as of the end of FY03/17). Taiko Pharmaceutical is a pharmaceutical manufacturer known especially for its two main product lines, Seirogan and Seirogan TOI A digestive aids and Cleverin anti-viral and anti-bacterial hand gels (main active ingredient chlorine dioxide).
*4 Merger with Johnson Trading Co., Ltd., making it a subsidiary: In July 2017, Earth Biochemical spun off its environmental business, health & beauty business, and all other businesses except for its pet business as well as its Tokushima manufacturing plant to newly established Earth Pharmaceuticals. Earth Biochemical then merged with Johnson Trading. As this left Earth Biochemical with only its pet business, it changed its company name to Earth Pet. 

In September 2017, Earth Pet Co., Ltd. established Pet Food Kitchen Co., Ltd., and took over the pet food business from Dog Food Kitchen Co., Ltd. the following month (making it a consolidated subsidiary from FY12/19).

Earth Corporation engaged in M&A of a non-Japanese company. In May 2017, the company acquired all outstanding shares of Vietnam-based Earth Corporation Vietnam (ECV)*5, a manufacturer and seller of household products in Vietnam, making it a wholly owned subsidiary.

*5 Founded in 2003, ECV manufactures and markets various household-use products in Vietnam. Most of its sales come from household detergents, but ECV also manufactures and sells deodorizing air fresheners and insecticides. Its popular “Gift” brand household detergent and “Ami” brand air fresheners have carved out prominent positions in the Vietnamese market.

M&A policy

When accessing potential M&A targets, Earth Corporation looks for companies that will help increase the group’s enterprise value by merging the target company’s good practices that will open up new sales channels.

Long-term earnings trends

In FY12/21, consolidated sales grew to JPY203.8bn on increased market share and acquisitions. The consolidated recurring profit margin, however, after reaching a peak at 6.4% in FY12/07, fell to 0.8% in FY12/18 and has only improved since then to 5.6% in FY12/21. This was due to goodwill amortization from acquisitions, a shift in the product mix stemming from the rise in the proportion of company-wide sales accounted for by Oral Care, Bath Powder and Other Household Products, intensifying competition, and an increase in the sales promotion expense ratio due to product development. The goodwill amortization burden ended in August 2021 for Hakugen Earth and in Q1 FY12/22 for Bathclin (goodwill amortization expense for FY12/21 will be reduced to JPY1.8bn vs. JPY2.6bn for FY12/19). Additionally, amid these changes, the company strives to improve profitability by reforming its cost structure.

Consolidated sales
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.
Recurring profit before goodwill amortization
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.

Strategies

Earth Corporation has two main strategies:

Creating new markets with innovative product ideas

Tailoring sales promotions to meet local markets at the individual store level

Earth Corporation was a late entrant to household insecticide products, now the biggest contributor to earnings. Even so, the strategies above have enabled it to win the top share of the domestic insecticide market (55.8% in 2021 by company estimates).

Creating new markets with innovative product ideas

The company’s motto is to “create things the world has never seen before.” In 1970, when Earth Corporation’s share of the household insecticide product market was only 2%, capital participation by Otsuka Pharmaceutical and a directive from that company’s president, Masatomi Otsuka, led to Earth Corporation’s first success: Gokiburi Hoy Hoy, a cockroach trap. Since that time, Earth Corporation has created new markets with a variety of proprietary products generated from technological innovation and numerous original ideas aimed at expanding applications based on a customer’s perspective, such as Earth Red (no-flame fumigator), Earth No-Mat (liquid mosquito killer), and Mondahmin (mouthwash).

The company has developed a number of products based on innovative ideas: 


Unique product idea (Launch Year)