The nation's biggest manufacturer of personal care, cleansing and sanitary products, is regarded as one Japanese corporations successfully riding out the nation's long and deep economic recession.

Kao president Takuya Goto told Reuters in a recent interview his company would likely achieve its earlier forecast of posting record profits on both a consolidated and non-consolidated basis this business year ending March 31.

Unlike cars and electronics, goods whose sales have been badly hit by the slump, Kao's mainstay toiletry and cosmetics products, which accounted for more than 85 per cent of its sales, were little affected, Goto said.

A series of hit products also helped Kao offset any damage from the economic downturn and intense competition, he said.

``Our business is proceeding at the right pace. We have not seen any factors that would force us to change this target,'' Goto said

But he added the company would not sit on its laurels.

``I'm not fully satisfied with our profit growth,'' Goto said, adding that the expected profit growth for 1998-99 was made possible partly through lower costs for depreciation, expected to total 50 billion yen in 1998-99, down from 54.2 billion in 1997-98.

``We cannot feel safe. We need to keep a sense of crisis,'' Goto said. ``The biggest risk is competition -- whether we can win or lose the battle on products and cost performance.''

While many Japanese firms were hit by painful profit falls or even losses in the first half of 1998-99, Kao said in October that it had enjoyed a comfortable 22 per cent year-on-year rise in its interim group net profit and predicted a nearly 35 per cent jump in its full-year profit to a record 33 billion yen.

On a non-consolidated basis, Kao predicted an 8.6 per cent rise in current profits to 73 billion yen for 1998-99, its 18th consecutive year of record annual profits.

The recent strength of the yen, which will hit many Japanese manufacturers relying on exports, would hardly affect Kao, although it has expanded its overseas output, Goto said, because only two to three per cent of Kao's parent sales come from exports.

Analysts said Kao's strength lay with a series of hit products such as ``Attack'' laundry detergent, a ``Quickie Wiper'' house cleaning kit, and ``Biore Pore Pack,'' an innovative peel-off facial treatment mask designed for the nose.

Shares in Kao, which analysts see as a typical defensive issue, shot up last week to a record high of 2,610 yen before profit-taking took the price down to 2,310 by Thursday midday.

The next business year, but that he did not expect rapid sales growth ahead. He added that he hoped to see modest growth in sales and profits on both a parent and group basis for the year.

As part of its drive to improve its financial strength, Kao plans to adopt the economic value added (EVA) evaluation system to gauge its business strength from April. EVA is a company's after-tax operating profit, minus its cost of capital for one year.

``We would initially set EVA for the company's overall performance and later for each division,'' Goto said. He said EVA would help Kao change its way making it more aware of business profitability and the cost of capital.

``We must strengthen our business base to a level equal to our rivals like P&G (Procter & Gamble Co), and Unilever,'' Goto said. Kao's return on equity ratio stood at around seven per cent, still relatively high among Japanese firms but only one-fourth that of P&G.

As part of its drive to improve profitability, Kao has almost completed a withdrawal from its loss-making information business, which has incurred losses of up to 50 billion yen since the last business year.

Goto said any additional loss from the withdrawal would not be large enough to change Kao's 1998-99 earnings estimates.

Kao is also eyeing new business tie-ups with other firms such as the one it has formed with Swiss drug company Novartis AG on consumer health care. Goto said it was also seeking further business expansion into potentially lucrative markets in Asia.