Kao Corporation (4452) Earnings Call Transcript & Summary

Thank you. I'm Yamauchi. I'm responsible for accounting and finance, I'd like to report to you about the consolidated financial results for fiscal 2021. Please refer to Page 3. In the middle, you will please try to see the figures. These are the figures for the first quarter [indiscernible]. So this is 98 in total in average, so situation here is rather difficult. But there have been some ups and downs for categories. But all in all, situation here was very difficult. And then in the cosmetics market for the January to December average was 98. And for the fourth quarter, the figure was 101, so it was a bit better than the overall situation. But still, all in all, the situation was tough for the cosmetics compared with the year 2019. This year's result was 76. So this was not very good. Page 4. This shows the situation in Asia and the U.S. and Europe and in China and Indonesia and Thailand. They are -- the figures are good in the recovery line. There has been some ups and downs in the countries. Thailand suffered a bit more than others. And in the United States and also Europe, the situation is better. In the Germany and the United Kingdom, that's good. Germany had some difficulties in some items, but still, all in all, it was all right. And then Page 5, the total figure was JPY 1,418.8 trillion. So this is net sales, and there has been the impact of effect of the currency translation, 2.3%. Also the like-for-like was the positive 0.3. And then there have been some handing down of the loss for the -- in chemicals. So there has been an impact for that. So operating income was the JPY 143.5 billion. So this is negative 18.3% and the operating margin was 10.1%. Income before tax -- income tax was JPY 150 billion. So as can be seen, you are able to see the result for this year. And then this is the overview of the consolidated result. And despite the severe impact on business performance from the absence of the special demand that arose in 2020, the COVID-19 pandemic and hikes in raw material prices, the Kao Group promoted digital transformation ODX unique to Kao and generated some results, including successful products and increased -- increases in market share, so that means that we have been decisive in making investment so that we are able to say that the very foundation for the future growth has been made. And the -- so the net sales was JPY 1,418.8 trillion, which is a positive 2.7% year-on-year and 0.3% on a like-for-like basis. And then for the territory, we have the impairment of JPY 4.5 billion. And also for the structural reform, there have been some depreciation for the inventory. So there have been the cost for the JPY 7.5 billion related to the structural reform. Moving on to Page 7. As you can see on the left-hand side, you have the hygiene and the living care, the negative 2.1% in the domestic market. Asia is about the same. So domestically, the home care products had a difficult year because of the rebound from last year for sanitary napkins and also softeners, there have been a problem. And then in Asia, the centering around Merries, there have been some difficult time. And then for health and beauty, same here in Japan and Asia, they have been a difficult time. So in Japan, hand soap and also disinfectant, they had suffered because of the reaction from last year. For UV care and the seasonal items, they have been the sluggish sales in the 2 consecutive years. Same holds true with Asian countries as well. And then in the Western countries, there have been a drop in the sales last year, but there has been a recovery for this year. So that means that there was a major impact for that, and the recovery has been [indiscernible] especially for Oribe, which had been acquired. It was doing quite well. So for the Europe and the Americas, the figure for last year was very good. And then Life Care, the figure seems to be large, and we acquired WSI. And so this is for the cleansing product. So that means that we were able to see the increase of the number of customers. The figure is low, but still we were able to see the increase of sales, and then in the cosmetics, domestically, the situation was not good. And I'm quite sure that you are all aware of this. Centering around China, Asian sales was 16.5, which is a major advancement. And then in Europe and Americas, especially in Europe, because of the Molton Brown and SENSAI did well so that we were able to see the increase of the figures. And for chemicals, we increased the price of the -- reflecting on the cost of the materials. So it was all right. Page 8. And then moving on to the Page 8, we have the quarter numbers on the right. If you look to the right, as you can see, hygiene and living care in Asia and health and beauty in Asia, we recorded positive compared to the previous year. And also for Merries in the fourth quarter, we see an improvement or recovery. So we're seeing some light at the end of the tunnel and on the other hand, when it comes to cosmetics, in the fourth quarter in Asia, we only improved by 2.1. This is because in the third quarter, W11, we had some shipments in advance in September. So if you level that out, I think we can say that we were able to grow substantially. So I don't think there's any problem here or concern here. And in first quarter or January, we expect to grow by 2 digits, so I don't think we see any concerns here as well. And then on Page 9. The left-hand side shows this net sales per segment. And the right-hand side shows the operating income. For Hygiene, Living Care, and health and beauty care, we see a large drop which is quite obvious. And the -- this is mainly due to the raw material cost increase. 70% of the [indiscernible] was seen in the hygiene and living care and the rest comes from the health and beauty care. And also in Hygiene, we had some impairment loss of JPY 4.5 billion of Merries and then also the sales was very tough. That is the reason for these figures. And with regard to the cosmetics, the profit was JPY 7.5 billion. Our goal was to reach more than JPY 10 billion. But in the fourth quarter, we had sluggish growth in Japan. We expected better growth, but it did not grow as much as we expected. Therefore, what we want to do is to catch up this year. And then on Page 11. So this is the analysis of change in consolidated operating income, so fluctuations in sales. But this is about JPY 12 billion impact on the profits. And then we also have the impact from the change in raw material prices of about JPY 16 billion on a net basis, and then JPY 14 billion in others. And the SG&A, JPY 4 billion because we increased the marketing cost by about JPY 7 billion, that's part of the reason. And then for the freight and logistic cost expenses, as we saw with the high raw material cost increase, this is getting a lot of attention and, this is about JPY 3 billion impact and the structural reforms, including Merries impairment loss of JPY 4.5 billion. And then the impact of currency translation, this is a positive of JPY 5 billion. And then we also have, because there is raw material cost increase, we are shifting to high value-added products, looking at the product mix and that resulted in the change in the product mix. And as a result of that, we came to 143.5. So that is the result of 2021. And you can see the forecast for 2022 on Page 12. In COVID-19, we expect things to improve gradually. And then for the raw material costs, we don't think this is going to settle or recover immediately. So what we can do is to raise our price of some of the products and to improve the efficiency of the promotion costs or conduct TCR activities so that we can absorb the cost increase. And when it comes to these sales JPY 1,490 trillion is expected sales. It's a 5.4% increase. So it's quite a high ambitious goal. And then we expect the impact from change in raw material costs, so expect about JPY 11 billion. This year, we incurred about JPY 16 billion. And then for the logistic cost, we expect about JPY 6 billion impact. And with regard to TCR activities, we expect about JPY 6 billion. And then the CapEx, JPY 90 billion, and then depreciation and amortization is JPY 73 billion. So these are the expectations or the forecast. And moving on to Page 13. JPY 160 billion is the operating profit, which is 11.5% increase. And also, the sales is 1,490 billion. And then on Page 14, if you look at the consolidated sales in the middle. So how we can reach the sales of 5.4% increase? Hygiene & Living Care is going to increase by 4.3%. Health and Beauty Care increased by 5.3%. We will focus on Asia, and of course, try to catch up in Japan so that we can recover the loss. And Life Care, we expect the increase of 5.8. And then for the cosmetics, 11.9%. Seems it is quite ambitious, but we haven't been able to recover the loss fully. So we will try what we can. With regard to chemicals, increase of 3.0% is being expected. So on the right-hand side, you can find the numbers per area, including chemicals. And as you can see, 10.2% increase, including Asia. And also in Japan, we expect an increase of 4.3%. This is quite high, but we try to achieve these goals as much as possible. That's all for me. Thank you.

I am Hasebe, President of the company. I'd like to explain to you the next strategic direction. I'd like to spend the next several minutes utilizing 10 pages. The first 3 pages to explain about the current awareness of Kao as we stand now. And also I will cover the history in the past. And then after that, I'd like to share with you 3 pages that shows our road map. So after the end of the 3 quarters and then for the fourth quarter, we aim at having the JPY 68 billion level of profit. And then the figure was JPY 34.5 billion. So I'd like to look into the situation where we were not able to reach the goal, and I like to ask for your understanding. The biggest impact was due to the delay in market recovery. Very unfortunately, starting October, we were thinking of seeing the sharp recovery of cosmetics, especially beauty care, but it didn't happen. And another issue is that there have been an intensifying competition in the H&PC business. So the market was shrinking, and at the same time, we were -- we had to see the intensifying approaches by our competitors. And also, at the same time, we have seen the price, which was much higher -- the continued hikes in raw materials prices compared with the prices. They saw that really was a very difficult situation. We had Molton Brown and SENSAI, and we had the Magiclean and Kate. So we were thinking of increased -- we -- we're making proposals for the Molton Brown and SENSAI and increased share for Magiclean and increased share for Kate. And these are the only thing for the question, Q4. For 2025, the K25, there have been the shackles we have to deal with. So we were committed to the realization of something quite new, something that we have to be very strong. So especially for the impairment loss of Merries baby diapers, we decided to have the impairment for the Japanese equipment. And for disinfectants and others, we decided to work on the loss on the liquidation of inventory. So starting 2022, we would like to make sure that things would work well so that we can do everything we want to do in the next year. So that's the reason why we had [indiscernible] JPY 34.5 billion. So this is the -- from the '21 to '22, so the situation shown here is based on EVA. So we are now looking at the situation based on EVA. The y-axis is NOPAT, and then this has been divided into the cost of capital and EVA. And as can be seen, in 2018, the figure of EVA was the highest and same holds true with the NOPAT, that was the highest. However, when compared with the current situation, the NOPAT -- well, actually, the EVA has decreased by JPY 48.4 billion. In the last 3 years, we had to lose this figure. So we are looking at the analysis for that. There could be many reasons for that, and we have to look at the situation where the disappearance of inbound sales and also the decrease of the demand because of the COVID-19. And there have been share up and share down factors. And so these are the things that we have to -- we look at, and these things resulted in the final figure, especially for the disappearance of inbound. The important point was the baby diapers. We have seen the sharp downturn for that in the 2018 -- up until 2018 in the beauty care, cosmetics were the leading part of sales, but they were heavily impacted by COVID-19, and we had to suffer a major setback. So this is a situation that we have at this moment. Then moving on. Are we happy with living in this current situation? No. We have to start with this as the original point so that we are able to move on to something much better. So please try to -- please look at the next page. COVID-19 hit us in the beginning of 2020, and we do believe that they will have an impact until the very end of this year. Also starting last year, there have been the hike in the material prices. And the -- so we will see the impact of that by the end of the first half of the year. So against this backdrop, what kind of things can we do? Well, we have to prepare ourselves for the recovery. So high profitability is something we have to aim for. And also, we have to come up with new businesses so that we are able to show our strength in various arena. And then this way, we are able to have a major shift in making money out of the new businesses. So that would be leading up to the new Kao. So in the center, it says 2020 and 2021, these are the preparation years. And so we have A, B and C. So this is a road map based on the figures. So we have Reborn Kao and also another Kao, we will make sure that they will have the major increase in their strengths. So certainly, we have to conduct a certain level of M&A in this regard, and it might lead to some large expenditures for M&A. But the most important is that we will enhance Reborn Kao power and Another Kao. So the business conduct, we will conduct M&A targeting companies with JPY 100 billion to JPY 200 billion in sales and an operating margin above 20%. So this is the new strength that we will acquire. In this way, we will reach K25, this is what we have as a goal. So the logistics saying, this is the kind of road map based on the EVA. Moving on to the next page. For the purpose, it is important to look into the core businesses. So we use the term Reborn Kao. So this is the approach to core business in K25. So it is important to have a drastic reform into a high-profit core businesses. So there are 3 main themes that we have to pursue within the company. Well, actually, we have been sharing this starting last year, and we have been sharing this information to you as well. The first point is the concentrated investment in high-profit core business. So we make decisive investment for the ones that would promise us with the high growth. We make sure that we have a huge investment. But if it is not promising, then we decisively stop making investment. And the second point is purpose-driven brand development. The purpose is about the very reason of the existence. So if we have many people who are willing to continue using a product purpose, so if we have a large number of them, then we are able to have an emphasis on loyalty. And then the third point is to pursue one over kind value. We have -- we are in the blue ocean, not the red ocean. So we try to put into this red in the blue ocean, the product and the value and others, and then this way and only this way, we are able to complete the reestablishment of the Reborn Kao. So these 3 pillars are all very important. And based on that, we have the 3 areas we have to allocate capital in 3 areas based on management strategy. I think it is the first time we came up with this decision. First is about the stable earnings. So we make investments appropriate for a high-profit core business and emphasize contribution to profit. There are 3 businesses areas. And then the second point is a growth driver. The achieve growth, we will achieve growth in sales and profit by investing in growth strategies. These are the 4 business areas. And the third point is the business transformation that require the transformation. So it is impossible to make a success with the one we have done in the past. There is no reason to continue this. So we have to effectively realize profit through carefully selected investments aimed at one-of-a-kind value. So these are these areas. So please refer to the next page. In these 3 areas, so we have the vertical line showing the sales. In summary, the left-hand side shows the stable earnings, stable earnings. So it's just not the size of the business, but we want to focus on the profitability. And the middle is the growth driver. Therefore, we will make aggressive investments to grow sales and expand profits. And the business transformation is the next one. There are 2 main things here: sanitary and hair salon products or hair salon. So we will look at the content of business and the structure and the product lineup. We will review them fundamentally so that we can increase the profitability. On the other hand, for the hair care, we do have and enjoy high profitability, but this is becoming a problem now. Here, we will not focus on the profit, but engaging structural reform so that we can have one of a kind value so that it will become the growth driver or the stable earnings in the future. In order to get -- remove the special reasons of the pandemic, we will look at 2019 as a base to envision K25. So we decided on the investment strategy. So we showed you what kind of brands are included here, stable earnings growth driver and business transformation. So we will allocate our investments into these areas. If you look at the products as a brand, so how this will be placed in categories or rounds, it really varies. As I said, we need to have a purpose-driven brand management at the same time. So we need to allocate our investment while trying to develop brand that will become #1. This is our direction that we need to head for. And any of the brands that will be out of the scope will be discontinued, which is shown on the bottom. By discontinuing these brands, we will use -- we will make sure we don't cause any inconvenience to our customers or distributors. So we are doing this in stages, but we already discontinued 15 brands out of 28. So we have 13 remaining. And so the cosmetics is one of the brands that has a clear direction, and we are making way towards increasing our profits and share. And then between 2020 to '25, there are some categories that we cannot lose, and the areas that we consider as being core. And there are 3 categories that we need to make sure we can recover which we call mainstream business of Reborn Kao, which is laundry detergent, fabric softener and hair care. All D3 enjoy very high profitability. But they are all faced with fierce competition, and they're starting to face very difficult accounts. But in 2020 -- in 2022, we want to make a lot of investments so that we can take on the new challenges. Between 2023 to 2024, we will come up the first in the world offering for the laundry detergent to surprise the world and the competitors. And for the fabric softener, we are making a shift towards distinctive fragrance offerings, but we would like to come up with sustainable offerings that is going to be quite innovative and novel in the fabric softener area. So we will bring together Kao technologies so that we can gain our position here. With regard to the hair care, we will maximize the use of DX. But ultimately, we need to have advanced integration of sophistication and functions so that we can come up with premium offerings. For these 3 categories, we will not draw back. By increasing these 3 categories, we want to strengthen our Reborn Kao strategy. Policies for the next stage of profitable development. Earlier, we call this profitable growth. But here, I want to use the word development. Become a life care company that saves future lives. In order to become that company we are in the midst of the structural reform. However, in 2021, we did deliver good results; under our strong management, we want to become #1 position in the category. Therefore, tech brand was able to become the -- it was able to gain high loyalty. And for bath Magiclean, we were able to see new product growth. And for great strides on men's Biore facial and body, we were able to gain #1 position here. And furthermore, with Kate, we were able to make great strides to become #1 makeup brand in Japan amid this situation. And with regard to business transformation, the baby diapers, we have new code name products, and they are being accepted by consumers in China. And this does show our direction, which is to create a sustainable diapers by making sure we can head toward the restructure of Reborn Kao, we are looking to another Kao as well. This year, in Healthcare, we will come up with anti-infectious disease business. In the future, there will be cases where many people will be bit by mosquitoes, and so new repellants where mosquitoes will not have these antibodies, we will come up with new products here. And then in the environment, we will conduct new things that we've never done in the Chemicals business, which is the recycling business, which is called upcycle. We call this positive cycle. We will use waste patch that is not usable to be used as durable asphalt so that we can change the world -- around the world. And then lastly, digital. Here, we are planning to release our plan on digital life platform business. This was in February. You know what we're going to do here, who are going to partner with and what is going to be the business here. We will be able to show you finally on this topic as well. So this new business area, Another Kao, we've never done this before, but we believe this is -- has a great growth potential. And by combining Reborn Kao and Another Kao, we will be able to become a life care company to compete in the global market. I will not repeat myself, but this is the management policy for fiscal year 2022. In a nutshell, we will change to Lean business structure independent of market conditions. As I said at the outset, we have been serving people for necessities, and we have been shifting our focus to the beauty products. But when market goes down, our business has been impacted heavily. Cosmetics is strong to the raw material costs, but when people start -- it does not move then, we can immediately lose the profit because of the structure of the business and also the diapers and detergents. When the raw material costs increase, our profits will be hit hard. Therefore, we need to strategically think about raising prices and also conduct TCR and take the leadership in the industry to promote these activities. And then high value-added and highly profitable products. So we want to come up with the products that people want to buy, including the prestige products and chemicals so that we can shift to a business model that does not rely on the market conditions, and then make strategic investments for competitive advantage. We want to expand in this area so that we can grow bigger. And then lastly, digital life platform business. This is going to be a future cash cow in the future. We believe that Reborn Kao is going to be strong in the future as well. So we shared with you our earnings results, but we will make sure that we can overcome this transition period so that we can become more resilient and stronger in the future. That is all for me. Thank you very much.

[Operator Instructions] Mr. Kuwahara from JPMorgan Securities.

I am Kuwahara from JPMorgan Securities. Can you hear me all right?

Yes.

I'd to ask you a question about the raising the cost -- raising the price and also this is strategic in nature and also please, the Page 12, it says the JPY 11.2 billion. This is a net impact for that. Could you tell us a bit about it? For the palm -- the oil prices, looking at the situation, we are seeing the rate of the raw materials and maybe, this could be even solved compared with this year. So maybe in the next year, this will be much higher, so could you tell us a bit about it? In what way are you looking at it? In what -- to what extent are you passing this -- the rise of the raw materials into the prices? So you are have been doing this. So we are pinning hopes on your raising the price starting 2022. So is this all right to understand it this way? Or do you think you need to have some more time before doing so?

For the second half of the question, allow me to answer. And then about the raw material cost and what may we do with this? This will be answered by Takeuchi. He will take that question. So simply put, we will do whatever measures possible to conduct the raising of the prices. So we are aiming for the realization of that in March. So starting March, we will move on to the raising of the prices. And then against this backdrop, we will look into the focus category. Fabric Care is one and baby diapers, these are the 2 major categories that we are looking at, so the raw materials have a huge impact on their profitability. So we try to do -- we try to implement measures in various ways to raise the prices. So we look into the future of the raw materials prices. In what way are we able to pass at level to the prices? So Takeuchi who is responsible for the sales marketing will answer this question. Taka-san?

Thank you very much for your continued support. I am responsible for the sales. My name is Takeuchi. As has been explained by the Hasebe, I'd like to explain to you the meaning of the strategic -- the price hike and then centering around the food industry. I'm sure there have been the increase of the prices, but in our category that we have, we have cosmetics and the toiletry items. And also, we have the paper products, the toiletry being H&PC. So it is not that we are not -- not that we are able to raise the prices across the board, but we try to be selective. For example, we could add some -- we could work on the downsizing, adding some values. And also for some other items, we could work on the -- raising the prices. And there have been some -- the changes of the prices, for example, other than cosmetics, baby diapers and also the detergents that we have the promotional prices on top of the regular prices. So we are able to have a major control for that. So that based on the major -- the crisis of each item, we are able to work on the price changes. As was mentioned by Hasebe, we have -- we will look into the fabric and baby diapers since the raw material prices have a major impact, and we are thinking of doing that in March. And also already, we have been working on the cost reduction centering around PCR activities. So we'd like to continue doing so. So all in all, in this year, we have JPY 11 billion for the raw materials and also JPY 6 billion for the distribution. So at this moment, the figure is JPY 17 billion. So for this -- for the raw materials, it is -- it's about 70% of this is covered for the logistics. We'd like to cover 100% of this by the TCR activities. That's how we are looking at it. That's all for me.

Next, we will have Saji-san from Mizuho Securities.

So I have 1 question. Finally, Digital Life platform will be released this month. And the President Hasebe talked about this, and he said it's going to be a revenue stream. And to the extent you can please share with us, so you did explain a lot of things in the midterm plan announcement, but we would like to know how this is going to be a cash cow going forward? Can you elaborate on this? So this is my question.

Thank you for your question. So what I can tell you now is we will conduct a briefing session so that we can tell you the size of the business, who we partner with and where the revenue is going to come from. And this scheme or structure is going to be very innovative and novel in the world. So we have a partner to work with and then there's a partner beyond the partners. So we need to be cautious in making announcements so that we don't cause inconvenience to partners. But to give you some details to the extent I can, what we are trying to do is to use the data and monitor that data. And we can see that the products that will be chosen will change. So we're using the purchase data and expect that people would like these products and make recommendations. And I think this is contributing to the expansion of the digital, but there are also things that people do not notice like there are potential disease or there are skin conditions that they may not notice or maybe the body structure, maybe they don't know all these things themselves. And this is -- so this is the only part of the phenomenon. And by looking at the bottom of this whole iceberg, then you'll be able to know more about yourself and be convinced by looking at this small amount of data. Facebook and Google is trying to expand in this area. But what we're trying to do is to not just focus on the surface of this big iceberg, but we want to compete at the bottom of this iceberg. So using the data that people do not know, and work with partners that are manufacturers, because that is going to become a recommendation that we can make. Not used just for our own products, but for other products, and we will be able to combine these things to make further offerings and proposals. And if we can do that, we will be able to come up with unique propositions to compete against other platforms. And we can probably attract customers who would like this idea. So that's all I can say.

One question. I want to know when this will start to contribute to your financials or earnings. So can you tell us the time line as to when this will start to contribute to your earnings?

We expect that it will start to contribute in 2023. But in the initial stage, the system will start to run. And we are currently conducting the simulation. So once we finalize the simulation, we will be able to share with you the figures that we expect to achieve.

Next question Mr. Hirozumi-san from Daiwa Securities.

Hirozumi from Daiwa Securities. Can you hear me?

Yes.

One question. For the entire year, you had JPY 160 billion as a goal. So could you tell us a bit about the ups and downs for that? The JPY 11 billion for the price and the [ JPY 6 billion ]. And then -- the logistics [indiscernible] will be absorbed by the cost reduction. So try to please tell us about the ups and downs for the -- each segment. And also the one-off, the expenditures can be eliminated. So could you tell us a bit about the kind of things you do for JPY 160 billion. So in what way are you able to achieve that goal?

I think Yamauchi, who is responsible for the accounting and finance will be able to answer.

Thank you. Yamauchi speaking. About the expenditures, marketing investment is going to be made, which should be about -- with the increase by about JPY 10 billion. And also for DX, JPY 5 billion, it will be used. So there will be the increase compared with the last year. So that will be the increase of the expenditures. And so that would absorb the increase of the sales. And then the material prices would be JPY 11 billion. So last year, there have been the expenditure of the structural reform of JPY 7 billion. So this will not be expanded. So if you add all these, you are able to achieve that goal.

Mr. Yamauchi, you said that you have the very high -- the goal for the sales. Is this your understanding?

So it is not that percentage is the 5%, this is not low. That's what I meant. So compared with the rest of the member community in this industry, well, I'm not sure of this. But still, in this industry, the 5% level is rather high with this level of net sales. So this is quite a challenge as a goal.

Allow me to persist. So can you say that the net sales probability is high enough?

Yes. We are trying to regain our strengths in this area. And if we continue to see the impact of COVID-19, it may be a difficult situation, especially for the cosmetics. So we try to regain our goal in 2022. That's how we are looking at it. Thank you.

[Operator Instructions] From Sato-san from Mitsubishi UFJ Morgan Stanley Securities.

This is Sato. Can you hear me?

Yes.

In the past few years, your earnings has been sluggish and in Page 17, you explained that part using NOPAT. And you said that there's a lot of external reasons, and you said that the market share is still increasing as it seems. But on Page 23, you came up with the measures to solve this problem. But you said that you'll come up with new products. And I think you said that when you launch attack 0 and you are always coming with the APAC making product. But your gross margin has been worsening. Even with -- since when we shifted to IFRS, it has been going down regardless of the raw material costs. You said that cosmetics market condition is the reason, but the profitability of cosmetics. In the past, OP was JPY 160 billion or JPY 130 billion, it has been improving. So I don't think it's because of the environment. So I think maybe you're not right in pointing out the cause of this issue, and I really feel this because you changed the Board of -- you did not make a big change in the Board of Directors. It seems like nothing is strong. So we have new external director and person in charge of the ESG. But we feel that there is something wrong, but maybe there is a gap between how we feel and how Kao feels as management. So no matter -- even if you come up with the innovative products, the profitability is going down, and that is probably the problem. So we want to know how you feel about the situation.

Thank you very much for your question. So first of all, you said that we are blaming the market conditions. But we're not saying that, we didn't mean that. The reason the NOPAT went down is because even if we did not spend a lot of marketing costs, the baby diapers is booming, and we call this a special demand, and that was the main reason. And then the consumer product have not been able to establish unique product with high profitability, and that is probably the biggest reason, as we understand. And maybe that was not shown in the indicators, but when the raw material costs went up, our business was not ready to deal with this situation. And I think that is the current situation. So it's not that we did not identify the issue. I want to make this clear. And you talked about the launch of the new products, and you're right. Coming with the new good functional product, we offer this to the market. But if it does not reach or appeal to the customers, it doesn't make sense. So what we find as an issue is really about how do you create linkages with the customers and the products, and this part is really weak. So we are determined to change the situation. That is our policy. So traditionally, we have been thinking that if we can come up with good products, we'll be able to improve the business situation, but we will need to depart from this idea. So we mentioned 3 things to focus on. And it's not just about those functions. There are things that we need to learn from other companies, competitors so that we can learn and change ourselves. And you also talked about the organization, so let me touch upon that. If we cannot deliver results, we will take responsibility. But at this point, we cannot really say we are able to deliver the results. Therefore, we should not make a big change at this moment. The external directors are pointing out very important and strict points to us, and we're not just doing things as is, and this is where we want you to have a lot of expectations on us. I hope I answered your question.

I understand that there has been a major change in the executive officers, so we have a lot of great expectations. But I do not really understand the management changes. But when it comes to the management measures, I think this is an area we have a sense of urgency, but you're saying that you are making a fundamental change here?

Yes. This time around, Matsuda-san has been promoted to the senior executive. If we cannot make a major transformation, we will not be able to continue our efforts. That's why we decided to promote him to this position. He himself did not -- was hesitant to be promoted. But because we were determined to make this change, we decided to be on the same page and make headway into this direction. And if we did not make any change, please point that to us, and we will be -- we think we will be able to commit to this. Thank you.

Next is Narikiyo-san from Nomura Securities.

Narikiyo from Nomura Securities. Allow me to be persistent. I'd like to ask you for your supplementary remarks about the raw materials, the prices, about the price hike, the feasibility. So looking back, allow me to confirm the -- on Page 12, you talk about the negative JPY 11 billion for the -- because of the raw material -- the material cost hike. So is it impacted by the -- does it reflect the potential hike? The price hike? So sometimes you are not -- even if you try, it is impossible to raise the prices because of the negative negotiation with the customers. So could you tell us a bit about how it was reflected?

Yamauchi will answer this question later on, but allow me to answer right away. In these months, we see the tires of the automobiles and the food, which are experiencing increase of the prices. Nissin decided to raise the price for the cup noodles. And then they make people ask whether -- why it is not the case in the territories and the PNG and Kimberly has been raising their prices for their H&PC. So the major reason here is that there is the business custom to do so. But in Japan, the transaction here is not like that. So that means we have been doing a business with a very small level of profitability. And then in this situation, I think one of the companies would have to do something drastic which has not been existing in the industry. We have to -- we should not do any bid rigging or anything, but the one company would have to start working on the price hike. So we should not live with the situation where there is no possibility of the raising of the prices. So the profitability is much higher, much better in the rest of the world. So we have to be the same. So we decided to be courageous in becoming the #1 in the introducing the price hikes. There could be many ways to do so. So about the detailed way of doing the price hikes, Yamauchi will give you some more explanation.

Thank you. Yamauchi again. The JPY 160 billion for this term, the projection. So the -- we will recover the JPY 11 billion with this. So this has been already reflected. So even if we raise prices, it does not lead to the improvement of the situation. So we might wonder why it is so. When we formulated the budget, we will not be putting this into account. So in the second half, we expected that the material prices would go down. But in recent months, looking at the situation, we sometimes have to admit that the raw material prices would go up even further. So that's the reason why we have to be agile in dealing with the situation. Sometimes we have to deal with this with the price setting or sometimes we have to work on the higher prices. And then if we are not able to do so, then in a situation, we have to expand the sales. But again, including all these, we would like to attain the goal of JPY 160 billion.

One more thing about the fourth quarter that just ended. There have been the shortage of the operating profit. Could you tell us the reason for that? Was it because of the difficulty of passing down the changes of the raw material prices into the prices? Could you tell us the reason why you had to be short?

So the only area in which we are able to pass the cost increase into the prices was the chemicals, but in the domestic -- the product items, we went to do so, but we are no longer able to continue seeing the same thing. So last year, there have been an increase. So there has been the material cost. And this impact, this was an impact for the negative figures for the performance. Thank you very much.

Next, Yamaguchi-san from Goldman Sachs Securities.

I'm Yamaguchi from Goldman. I would like to follow up on the previous question. As Yama-san said, we're not really sure if we can make JPY 160 billion. In the consumer products, the net and gross, the figures is basically same as being communicated and JPY 160 billion should be both net and gross. And what you just mentioned is that 110 will not be enough or JPY 11 billion not be enough. So you said that you are having a strategy to increase the price. Is that correct? If that is the case, when it comes to food products, it takes like 3 to 4 months to raise prices because they have relationship with the retailers. So in your case, if you want to raise prices, does it take time to actually do so? Or can you elaborate on how you're going to proceed with this plan?

With regard to your latter part of the question, Takeuchi-san is going to answer later. So a potential of going above JPY 11 billion, that is the hypothesis. This might be this much or it could worsen. But in that case, we will come over the countermeasures, additional measures to implement. So that is for me. And with regard to the timing, Takeuchi-san is going to answer.

There are different ways that we can take with regard to downsizing. With regard to the products, this spring, we are planning to do so for the renewed products. And when it comes to price hike, we need to negotiate with retailers. So with regard to the timing, we want to start from March in stages onwards. And on the other hand, as I said earlier, we are continuing our revisit and review of the sales promotion cost, and we are combining with the price hike. So we're doing whatever we can and we will downsize this as planned. And then when it comes to price hike, we need to work with retailers, and we are planning to start from March and onwards. I hope I answered your question.

For fabric care and baby diapers, these have a very big impact, so you're planning to raise price for these 2 for fabric?

I think there are different ways we can downsize. So we will determine which approach to take by brand. When it comes to paper diapers, when you say price hike, one way is to just raise price, but another way is to raise the sales promotion cost. There's a mix of different approaches that we can take.

I see. So simply raising price is not that easy, therefore, you're trying to combine different approaches? That's what you said.

Yes. We will combine different approaches, but to virtually increase or raise the price of our products. That's what we want to do. Thank you.

And the cosmetics was the main driver for the growth in profit. But Hygiene & Living worsened in fourth quarter. Health and beauty care worsened in fourth quarter. Do you think you will be able to increase the profits on a full year basis?

Let me answer that question. When it comes to the forecast for the fourth quarter for last year, that was the year-over-year. So last year, the sanitary product was booming, and we sold the products. We were able to grow ourselves and the market share increased. But this year, things has gone down. Usage rate has gone down. And what happens next year? In this hygiene market, I think we are gaining our presence as a market player. And we are starting to see the disappearance of new players nowadays. And in order to defend our market, we will product -- couple with the new products, new offerings so that we can further increase our market share. And Hygiene and Living will be at the center of this, and there are some categories within the health and beauty that we can do this. I said earlier that we will try to aim for #1. And we were not able to capture #1 for the men's cleaning products and also hand soaps and hand sanitizers and it's very important for us to get #1 share. And in the second half, there will be a consolidation in the market with less players. Therefore, we need to defend this market and our position, and we expect the profit of JPY 160 billion, including all these factors.

Next, Ohana-san from Okasan Securities.

Ohana from Okasan Securities. From me, there was a question about your overseas business. You talked about Reborn Kao. And as can be seen on '22, you mentioned some of the brands that you've focused or some brands that you withdraw from. So you -- I think you were mainly talking about your domestic market. But also the country, the -- in the framework of Reborn Kao, how would you review or revisit the portfolio for Reborn Kao? Could you tell us about your geographic differences? Sometimes you have different items deployed in different markets. I understand that. But all in all, I think you are serving as the major toilet company or H&PC company. So outside of the country, outside of the Japan, in what way are you planning to increase your net sales and operating income?

Allow me to explain. Please refer to Page 22. Maybe the way the this was expressed might not have been good, but all of them are controlled in the global arena. For example, we have the stable earnings and the growth driver. This is very difficult, if not impossible outside of the country. But on the right-hand side, we have Guhl and Oribe, the other Goldwell and Oribe, these are the names of the brands. And then for the growth driver, you have Jergens of the skin care. This is the #1 body lotion in certain category in the United States. So this is very important. We center around Jergens and try to come up with the growth strategy, especially in skin care. This is not the skin care that we are accustomed to. So I said that we will project to people's lives. It is not some -- the skin care that is okay to have, but further Jergens is considered to be a must item -- and the growth rate for this year is expected to be very high. The logistics in the other countries are -- have been the problem, but now the sales is getting into the digital area, and Molton Brown and Oribe are the driving force here. And for these, we have people who are savvy, digital savvy. So the Goldwell and the Jergens are now enjoying the benefit of that, so that we have many strong competitors overseas. So digitalization of our business is very important, especially important for the growth in the United States and Europe is that for this, we have to see the Reborn brands such as these. Sometimes, we need to have M&A for the business reorganization of business reform, as we mentioned. We have no intention to compete with only 1 good products, but we will make sure that we have good messages to secure people's satisfaction and also we have good communication so that we make sure that all these brands will be very meaningful brands. Now allow me to give you the weighting for that for the stable earnings brands. It is about 40% of the entire picture, this globally. And then in the middle, the growth driver is 50%. And then business transformation, 10% profit margin. And in the center is a growth driver. So it is important to make a huge growth here. But on the right-hand side, for business transformation on the right-hand side, we see the change of the way things will be done. So the almost instantaneously, we can shift it into the growth driver box. It is not that we are only talking about domestic market by product, but further here, we have the niche segment brands, the overseas. So for example, we could be #1 in color and also premium salon #1. So we could be the #1 or a one of a kind of brand -- we should create one-of-a-kind brands in these categories. Does it answer your question? Thank you very much.

For example, in each geography, you could become the #1 in niche areas. And then even in that situation, the volume of sales would not be that large, but still you spend a large amount of money. So you have resources projected into this. Does it make sense? Or do you think it is better to focus more on the cosmetics in Asian region? And then in certain areas, you could withdraw from certain categories. So maybe this would make more sense. So I'm not quite sure. So that's the kind of things I was thinking. So the current situation, in what way would you allocate your resources? So globally, you are trying to do everything globally? And do you think you are able to do so?

Thank you for your question. 5 years ago, 10 years ago, maybe you could have said yes. So when I say we try to be very savvy in digital technologies, so in a certain area, we could have the success case. And then this could have the instantaneous deployment for other areas as well. I'm sure you are aware of this, the JPY 1 billion, the company would become a JPY 20 billion company and a JPY 30 billion company, and they would become the single operation company to 50 operating companies. So it is not that we have to wait for a certain deployment for a while. So we should have the #1 in the certain areas. So we have to have a major brand for that. So that's something we want to work on. So it is not that it would not be the company which would not show any presence. So in certain presence, certain category brands, we make sure that we'll be #1. And then that will be the starting point for the major deployment for the entire world. How does it sound to you?

I think I understand what you have in mind.

Next question, Miyasako-san from Jefferies Securities.

This is Miyasako from Jefferies Securities. I want to ask you about the cosmetics. In the fourth quarter in Japan, you lost revenue by about 8%, and you're quite behind compared to the market. So I want to know the reason and you expect to increase 13% in Japan. And I want to understand what measures you're going to take, and I want to understand your assumptions for the Japanese market this year. And Yamauchi mentioned this earlier, but Murakami-san, who is in charge of the cosmetic business will give you the detail.

I'm in charge of the cosmetics, Murakami. Thank you very much for your question. In the fourth quarter of last year in Japan, looking at the top line or your earnings in Japan for the fourth quarter last year. Honestly speaking, when the state of emergency was lifted, we expected that the market will recover and open up. And we made a lot of investments and launched 2 products, but unfortunately, we were not able to boost the top line as expected, because the market was very tough. And on a full year basis, JPY 10 billion or 5% is something that we mentioned. But as a result, we faced very tough conditions in Japan because mainly due to the market situation. And then this year, globally, 12% and in Japan, 13% is the number and seems quite ambitious. But as you said, as to the assumptions for the market, so looking comprehensively, we expect the market is going to recover 11%, but it seems quite high. But if you compare against '19, it's only 84% against the base line with 2019. So it's not that ambitious. And then how are we going to grow our business in this situation? So if you break them down, break this down, skin care and makeup, the makeup in the past 2 years has really shrunk, and we expect this to grow. But if you break this down, you can see that we expect a lot of recovery in the makeup market. And we have a lot of mix of the makeup, which has been quite difficult for us, but this is going to be a good tailwind for us going forward. And then it's -- the situation is going to continue, but I think people will go out more and people will have more meetings. And with that, we believe that the sales of the makeup is going to go up. So we will try to couple of new products and make a lot of promotions to capture this tailwind. And when it comes to China, things are very good. So we think this situation can continue. Therefore, we want to achieve 12% for the full year. I hope I answered your question.

So in the fourth quarter, you said the market has grown by 1% according to your data. And you just said that the market was the reason, but it seems like you're quite behind.

The market data is the sell-out data to be sold to the customers. But in our case, we are looking at sell-in. We have been talking about this throughout this year. What we are trying to do is to reduce the waste as much as possible. So we want to reduce the returns and waste as much as possible so that -- and for example, in the case of December, for example, Milano collection, we are trying to reduce the sell-in volume as much as possible so that we will be able to conduct appropriate business. Thank you.

And you think that is the main reason for why you're behind the market?

Yes. From January, the things are getting better.

So you don't think something special happened in the fourth quarter? You said that things are looking good in Japan as well.

Yes. And in China and Europe and from January, but we hope that things will continue in the first quarter.

Next, Kawamoto-san from UBS Securities.

I'd like to go back to the previous question on Page 22. You talked about the 13 brands. So you are thinking of discontinuing some of the brands. And then when you say the 15 have already been discontinued for the cosmetics, so there has been the impact for the last years result to what extent in percent-wise? And then also the about -- could you tell us a bit about the disposal schedule for the brands? So could -- for the 2022, what is the number for the disposal? And then in what way are you able to see the impact for the sales and also the recovery of the losses? This is about 2022.

Shall we start with the cosmetics? About the cosmetics and also other products, Murakami and Matsuda maybe good to be able to answer your question.

Thank you for your question. About the cosmetics, global 11R8, we work on the concentration of these areas starting 2018. And for the Global 11R8 the focus here, back then, there have been the others, which was the JPY 90 billion. So this is the top line. And the profitability was low, and we were -- we had difficulty deploying that in the globe -- global markets. So we decided to reduce it down to 19 brands with the future perspective. So it is not that we are able to answer right away with the actual figures. But until 2024, we will reduce this JPY 90 billion. So this will be gone from the top front, but the profitability wise, this is not very good. So this will have an impact for that. So we are in the process of reducing it down to zero. So it is not that we are able to disclose the actual contribution figure to you today, but please understand it this way. In the last several years, we have been working on it. For other brands, gradually but steadily, we have been reducing the top line for that. So please understand it this way. That's the extent I can share with you today. So I'm not able to share with you the figures.

All right. I understand. Then the -- about the sales growth of the cosmetics this year, what has been the impact? What is it -- the percentage volume, does it had an impact?

Well, the impact is not large for this year. Maybe -- it is not that this will reach 5% to 6%. So at this point, looking at the actual -- the net sales, that will be about 1%, maybe less. So that's the rule of thumb. So as I just said, we are seeing the reduction of the sales for that. So that's the figure. Thank you.

Matsuda from Consumer Products. I'd like to speak about the toiletry plant, the brand reduction or discontinuation. The plan here is that the -- in 2022, we would like to complete the process by the end of 2022, and this has been communicated to consumers and also the partners. So we have -- we will implement this steadily, and the Kao has not been doing this in the past, but would like to continue doing this in the years to come. So the meaningful -- the concentration of the brand or discontinuation of the nonessential brands is something we'd like to continue doing starting in 2023 and onwards. For [indiscernible], the items, the impact for that is that the -- we have not been using the advertising costs for that. For example,[indiscernible] , the promotional costs have been expanded in order to have the sales amount. So we will not have to use that amount of money for the advertisement so that will be impactful. So other than that, the Kao has drastically changed the brand management strategies in the 3 areas, as was mentioned by Hasebe, the stable earnings brand, the growth driver brands and business transformation brands. So clearly, we were able to see the classification of brands with certain roles. In this way, we will have a major drive for the market acceptance. So that's how we are looking at it. Thank you for -- you will complete everything. The most important things by the year 2022, that means that the total -- the growth of 5% will be realized with the enhancement of the remaining brands. The impact of the sales was not too large for these 14 items which are -- which we withdraw from. So we look at the kind of brands with emphasis. So there is no major impact for the kind of the brands, which we focus on with the emphasis. What is the level of the net sales with these 14 products? Well, I'm not able to share with you the figures, but it is not impactful.

Next, we will have Hyogo-san from Mitsubishi UFJ Trust Bank.

I'm Hyogo from UFJ Mitsubishi Trust Bank. My question is you talked about the external environment and raising prices, there are a lot of uncertainties. But if those things do not go well, do you think there's further room for structural reform. You talked about some of the consolidation of the brands and the P&HC, and I think there's some room for structural reform. So can you touch upon this point?

So I just want to confirm your question to be accurate. With regard to structural reform, are you talking about the business? Or are you talking about the system to deliver our products? Which are you referring to?

I'm talking more about the business content, the business itself. I think you have been incurring some opportunity or how are you going to preserve your main profitability? And you talked about loss of Merries. So I wanted to understand how this is -- the things that will have an impact on the P&L.

Okay. Thank you. I will answer your question. When you go to the business, it's not that we have conducted everything and completed the whole process. When it comes to brand categories that I have positioned as part of the business reform, sanitary, baby diapers and the sanitary products and diapers for adults, so these categories have a big profit, and it will be impacted by the raw material costs. And if we're going to grow these categories, we believe that the investment efficiency is not that good. And the ones with high returns with -- and good efficient investment and like shampoo or the medical detergents, we need to actually move to shift through those kind of things. So we need to really change our ways of thinking when it comes to this kind of major equipment business. And when it comes to disposable products like paper products, with regard to the future of these products, we have a great responsibility to the society by disposing our mass. This is causing a lot of problem, and it is going across different countries. And if we just keep on the current model, it's not going to work out, so we cannot continue the situation. Therefore, we are trying to come up with measures to deal with this issue. And I will not be able to elaborate on this detail, but we need to couple with the mechanism that will not place a great burden on the global environment. And in that sense, this business reform is going to be very important. And the way we sell our products and we repurchase products has to be also considered as we try to proceed with the business reform. And the sanitary business is over JPY 100 billion. And by going through this business reform or transformation, we will pursue to establish a new growth driver. But to repeat myself, it's not that we will continue to just make straight-line investment as we have been doing in the past, because we fully understood that this does not match with us. So we want to compete in a different style going forward. Thank you very much.

So this is my request, on Page 17 and Page 18, you mentioned EVA and shared with us the financials. And on Page 21, you have margin and your revenue growth image. Thank you for that as well. So it will be great if you can update these things on the Internet as part of your communication instead of just withdrawing these pages if the market changes. For example, on Page 18, you have ABC, how this is going to change on Page 21. You have the size of the circle and the size of the margin, how this is going to evolve. And you also have the breakdown of the NOPAT. By continuing on with this analysis, we will be able to understand how you think about this and have a better discussion to understand the gap. So this is a request from us. Well, I know even if you come up with ambitious goals, I think one of the challenges you face is, the implementation part. So I think this is going to be very important.

Many of the analysts, including yourself, have been pointing out that we have not been able to send clear messages, including the analysis and figures. So we will look at this as a starting point to really analyze what went well, what did not go well, and what was the reason for that. And we want to have a clear communication on these things. Now is the time for transformation, so I think communication is going to be very important. Thank you very much.

Thank you very much. It's already past the scheduled closing time, but we still have some people with questions. So we'd like to continue the meeting. If it is not convenient, you please feel free to leave the meeting at any time. Mr. Miura-san of Citigroup Securities.

I am Miura of Citi Securities. Can you hear me?

Yes.

I'd like to ask you a question about the management, especially about the price hike. Half a year ago, you said that you are not thinking of raising your prices. But now, you are saying something else. So you are in the process of working on the price hike, so this is a major shift. So could you tell us a bit more about the background with which you made a shift? Frankly speaking, in the past, the NOPAT have been declining. And maybe that was due to the delayed decision-making in the management policies. So -- and also about the price hike, the price hike is a keyword. So with this is one of the key words, could you tell us a bit about the changes that you are having in your management style.

About this, allow me to answer. Half a year ago, looking back, we talked about the price hike, the range in the category and also the growth rate. Frankly speaking, it was outside the scope of we had -- that we had. We are dealing with the raw materials, and we were not -- we are now seeing the serious nature of the situation that we are faced with. Six months ago, we were not able to have this kind of understanding. So we said to ourselves and said to you that we were able to deal with that did what we had back then. But now things have changed drastically, and we are no longer able to say that. It is not that the Kao is the only one, but rather, this is a kind of the price hike that should an impact for the next generation in the years to come. So in what way are we able to do that? As was mentioned, Kao is a leading company, and we are proud of that. We are the one who should do something drastic in the industry and people would be -- other than the Kao would hesitate doing this for the first time. So it is -- however, the -- it is not that Kao should suffer and others would survive. And then do we have eat and survive. And then if we are not able to be accepted, then in that situation, we will have to look back into our -- the future perspective, and then we try to change our goals. But please note that there are many ways to do and to work on the price hike Takeuchi had already talked about. And also delay in the indecisiveness of the decision-making in the management. I understand what you say. I'm sorry, but I have to say that we are slow in making decisions. So we were not agile enough, and we have been receiving this kind of criticisms and we know that. And in what way are we able to deal with that? We decided to change the structure to the SCRUM kind. So we had the bucket relay kind of the structures, decision-making. And then now we have the different way of doing this. So the managers and also people in the field are now working on the SCRUM kind of the decision-making. So we get around and try to deal with the situation in the group. So this slow decision-making would have a major impact for the entire picture. We understand that this would have a negative impact for everything. So we make sure that we will be agile enough so that we will never hear this kind of criticism in the future. So we try to be decisive and should be one of the fastest companies to be -- to make decisions. Did you understand my explanation?

I was very much impressed. So you said that the price hike could be done in 2 categories. But for other categories, I think there are many other areas in which you could be able to make decision making. So I understand that you will be speedy, you will be agile. And then do you think you will be able to lead the way in the raising the prices in certain other categories?

So we are very much impacted by raw materials, and we have many more material items, which are impacted by the raw materials. So very fortunately, we have #1 share in certain categories. So we should be courageous and then make sure that we will work on the price hikes, even though we did that, we will be able to maintain our relationship with the logistics companies and our partners. And then if we are confident and then if we are ready to do that, we'd like to come back to you and say that we have done certain things, so we will do certain things. Thank you very much.

Sato-san from SMBC Nikko Securities.

Sato from SMBC Nikko Securities. Can you hear me?

Yes, we can.

With regard to the Hygiene, Living Care business, I want to ask a question about how you forecast your profitability. In the fourth quarter, your profitability or the margin has gone down substantially because of the raw material cost. But you said that you're trying to raise price this year. And of course, there's a lot of moving parts. But -- and you're going to make a lot of investments. But the Fabric and Home Care had about 20% OP margin in a stable manner. And seems like the margin has gone down after it has been reclassified as Hygiene and Living Care. When do you think you'll be able to achieve the margin of 15% to 20%?

Your question was around the overall Hygiene and Living? Or is it more about the business within the Hygiene and Living?

I think you only disclosed the margin for Hygiene and Living overall. But if you can, it will be great if you can disclose per category and the directions for each of them.

Let me answer your question on a high level. Within Hygiene and Living Care, we have fabric and home care or Fabric Care and Home Care, and sanitary is represented by L'Oreal. And then we also have Merries in total. And fabric and care and home care is the rock bed, and we have not been really hurt in this area. Some of them progressed. Some of them drew back, but we can still say that this is the rock bed of the business. But the area where we face fierce competition and affected by the raw material costs, sanitary products. Sanitary products has been affected by the market conditions. It could be affected both in Japan and overseas, and because it requires a lot of manufacturing facilities, you have to go over a marginal profit in order to really make profits. And the reason why you see a lot of negative parts for the Hygiene Living is because of the domestic sanitary business. So we are going to go through the business transformation or reform, including this part. So there are areas that we will manage more closely and there are areas that we will grow as a category. And I think we have broken down, to some extent, but I'm sorry if I give you the wrong idea was if it was misleading.

So in that case, Fabric Care and Home Care, you're saying that the margin has not really been lost from about 20% level?

Yes, that's correct. But as I said, this is something that we need to defend. This is a source of our profit. Therefore, we are making decisive investment into this area. So we need money and products and the strategy or the game plan to make sure that this is going to be a stable business or else we will not be able to move on to the next business. So by making some of the marketing costs, we -- it seems like that the profit is going down, but the loyalty is actually going up steadily. So once we reach a certain size, because the loyalty is very high, we will be able to bring out more trials, and we will be able to grow business here further.

So we'd like to take the last question. Sato-san from Mitsubishi UFJ Morgan Stanley Securities.

Going back to Page 18, I'd like to ask you a simple question. I think you talked about the M&A. Could you tell us a bit more about it? What area, what industry? So maybe there could be another [indiscernible] related item. I was not able to catch that in your presentation. To the extent you're able to share with us, could you tell us a bit about the direction of your M&A? What kind of areas do you want to supplement? So when you say JPY 100 billion to the JPY 200 billion, are you talking about the total figure? So could you tell us a bit about the -- a bit more about it.

I'm sorry, I did not explain that to the full. On Page 18 we have A and B. So in A, we have M&A, this is the entrenchment of Reborn Kao. And then the next is the Reborn Kao, the extension. So this is the phase 2 of the strategies for return to growth. So this is to conduct M&A for growth in existing areas. This is to conduct M&A targeting with JPY 100 billion to JPY 200 billion in sales. However, it might not be the case from the beginning, so that means that the cash out would be larger. So what we have in mind is to secure the operating margin of about 20%. In terms of volume, what we have in mind at this moment and the heavy discussion is related to JPY 100 billion to JPY 200 billion. And then the Another Kao part is explained larger part compared with the rest in this JPY 100 billion to JPY 200 billion and the action is being conducted at this moment. So if we are successful in these endeavors, and then we were able to start with yet another strength in the Another Kao. And then the we will supplement with -- we will have supplementary activities for the Reborn Kao for the M&A, so that means that we have about JPY 100 billion to JPY 200 billion. So based on that, we are able to make a calculation.

For Reborn Kao, you talked about the third category, which is the -- so again, this is related to how you deal with that? This is about the business transformation?

This is not only for business transformation, but also for the growth driver. So especially for the global business, in order to have the growth, we make sure that we acquire the certain businesses in a drastic manner. So we have the counterparty. So it is not that we are able to do that or it is -- we do have a direction, and we are showing that. But again, this should be based on the A&D. So it is not that we are able to have a clear road map for the certain figures for certain years for the A and B. Thank you for your many questions. We would like to now close the earnings conference. One thing before we close Watanabe-san. So today, we conducted this conference remotely, and I need to apologize because we are not able to meet in person. And we were not able to meet the target that we promised. And I deeply feel responsibility about this, and we're not going to blame the market for this situation. We will use this situation as a learning and then we will make sure this is going to be a springboard for the next growth. This is something that all the members in this room feels, and we will try to communicate with you so that we do not -- we can meet your expectations, and thank you very much for your time today.