Kao's ¥6bn profit decline driven by cosmetics recall

By Chris BARKER

- Last updated on GMT

Related tags: Generally accepted accounting principles

Kao's ¥6bn profit decline driven by cosmetics recall
Asian conglomerate Kao Group has predicted a ¥6bn drop in operating profit this fiscal year due to the skin lightener product recall by its subsidiary Kanebo.

Kanebo was forced to recall millions of items from 54 cosmetic brands sold in Asian markets after thousands of consumers developed patches of white, de-pigmented skin after use.  

All of the withdrawn products were skin whiteners containing the ingredient 4HPB, an artificial compound developed by Kanebo. Around 250,000 Japanese consumers are believed to have used products containing the ingredient.

Kao president Michitaka Sawada attributed the decline in profits to the recall’s effect on the company’s reputation.

Sales of whitening products crash

At a press conference on July 29, Sawada said:“the sale of our whitening products will fall in the second half. Our reputation was hurt.​”

He also said that Kao planned to compensate customers who suffer medical problems from the contaminated products, although they have not yet decided by how much.

Kanebo has set up a special toll-free number to deal with those affected by the crisis, and have so far received around 200,000 enquiries and over 7,000 complaints about their skin whiteners.

The financial damage

With the damage from the recall, Kao’s net income forecast is predicted to be ¥67bn, for an overall growth of 6.5 percent year-on-year and an 8.2 percent decline from anticipated results.

The company also predicted a ¥10bn decrease in sales on top of their loss of operating profits.

Despite the recall, the company as a whole still posted operating income growth of 23.2 percent for the first six months of 2013. Like-to-like sales of beauty products also grew by 1.6 percent in Asia.   

A sweeping recall

A total of 4.36 million products have so far been recalled and over 4,000 house visits have been made to customers by representatives from the company.

The company has also pledged to pay for the medical treatment of all those affected by the dangerous skin whiteners.

It was earlier reported that the recall could take as much as ¥5 billion in direct costs.

Related topics: Business & Financial

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