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Kao looks to clean up with spray-on skin

Japanese cosmetics company hopes to boost 2019 sales with blemish-hiding Fine Fiber

When sprayed on the skin, Kao's Fine Fiber forms a membrane that creates a smooth surface for applying cosmetics.

TOKYO -- Cosmetics maker Kao has a new way to hide blemishes that could also give next year's sales a major boost -- spray-on skin.

Dubbed Fine Fiber, the material provides a smoother surface for applying makeup and can also be used for covering skin blemishes and wrinkles.

Kao debuted the technology on Nov. 27, helping lift the company's share price 5% the next day.

According to Kao, the fibers form a membrane that attaches to uneven skin to create a smoother surface for applying cosmetics. It says the membrane has greater breathability and durability than similar technologies.

The company, which makes a wide variety of home products, plans to commercially introduce the technology as part of its cosmetics lineup next year. It said it is also looking into future uses in medical applications.

The launch of the technology comes as the company braces for a slump in overall sales due to Japan's consumption tax hike to 10% from 8%, which begins on Oct. 1. Kao is hoping that Fine Fiber products will help reduce this loss.

Ritsuko Tsunoda, senior analyst at JPMorgan Securities Japan, expects Fine Fiber will add about 8 billion yen ($71.3 million) to Kao's revenue for the year ending December 2019.

Next year's tax hike contains exemptions for some goods and services, but not home products, which means there is likely to be a sales spike for such items as consumers stock up before the hike.

A similar spike occurred the last time the consumption tax was raised. Companies selling home products saw sales grow 40% to 60% year on year in the month before the April 1, 2014 hike. In the month following the hike, sales fell 20%. For Kao, the three months before the hike saw operating profit grow 120% to 39.6 billion yen, and drop 61% in the three months after. It continued to be below year-on-year levels for the subsequent July-September period.

Kao's research and development spending averaged 3.7% of its sales over the five years to the period ended December 2017. This ratio is higher than its global rivals such as Procter & Gamble and L'Oreal.

"Half our research and development spending is on basic research, which isn't common," Kao President and CEO Michitaka Sawada said.

"After the tax hike, consumer spending will plunge, but consumers will buy products that excite them," such as those featuring new technologies, added Sawada.

Kao expects to post an all-time-high consolidated sales and net profit in the year ending this month, and plans to increase its dividend for the 29th consecutive year -- the longest run for a Japanese company.

Some analysts predict that Kao will be able to increase both sales and profit next year as well, with a little help from some spray-on fibers.

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