Kao Corporation (4452) Earnings Call Transcript & Summary

[Interpreted] Hello, everyone. I am Yoshihiro Hasebe, President and CEO of Kao. Thank you very much for taking the time out of your busy schedule to join us today. First of all, I'd like to apologize to you. We planned to have prerecorded presentation because it involves various companies. So for the purpose of the information security, we planned to record this presentation. But I wanted to talk to you live. So all of a sudden, we decided to do this live. So I would like to make a presentation. And then if you have some questions, we would entertain them during the Q&A. Thank you very much for your cooperation. So first of all, let me start with how we think about this Precision Life Care. Starting with the definition. Aiming for Precision Life Care that proposes optimized solution for unresolved issues. This is a definition for Precision Life Care. The domain of Life Care encompasses life, everyday lives and ecology. Those are exactly the same as our business domains. So this is the diagram showing the definition. On the left, we have the monitoring or diagnosis, precision monitoring. On the right, we have products or precision solutions. Until now, we have been developing the products in the area of the health and the beauty as well as household personal care and industrial domains to meet the needs of the customers. But as for the relationship building with the customers, there are many things that we can improve. So under the monitoring, there are human body, activities and environment. In those 3 areas, we want to identify the cause precisely. And based on that understanding, we want to propose products, which match the needs and to solve the cause appropriately. This is something that we have been pursuing at Kao. So let me talk about the human body first, as an example. In the world, we have many types and large quantities of products. Companies spend a lot for advertising so that they can make their products look appealing. Sometimes, the supply exceeds the demand. This leads to the large amount of inventory and product waste. This is an inefficient business. And this would lead to the deterioration of the quality of products and brands that only guarantee the low price. So this cycle itself is our dilemma. What we'd like to move toward is on the right-hand side. So precisely selected products or solutions will be clarified. And based on the trusted information, there is a competition where products get chosen because they match each user, so that the users will continue to use the products for long term. As a result, this would lead to the significant reduction of the product waste, and we can evolve products and brands that truly matches people's pace and individuality. So this is the future of Kao, which is shown on the right-hand side. We are not saying that the left-hand side will be gone, but rather, we would like to gradually grow into the right-hand side. We believe this is a path for Kao. So today, we're talking about the Precision Life Care. I'd like to talk about our initiatives with 3 business partners to share with you how we plan to proceed with this business. Let me start with istyle. This is the #1 beauty platform in Japan with the site @cosme, encountering with cosmetics that suit your own skin. For the users, this is the desire and what they want to achieve. But now at @cosme, they have 16.3 million monthly unique users. And they have beauty media and they have a number of products, and they provide recommendations to their customers. And this will not stop. But in addition, what we think we need is the evidence-based website for the customers to find out their own type, so that they can identify their own skin type and find their own group in the beauty. And evolving the recommendation model is something that we need to do. So let me talk a little bit about the genes. These days, in relation to COVID-19 vaccine, the term messenger RNA has become a common term. But DNA and RNA are totally different from each other. DNA is a design diagram specific to the person. So it never changes. But as for RNA, it changes due to the environmental factors, including diet, exercise, stress or ultraviolet rays or with the use of various products that RNA could change. And so we are focused upon RNA. So this slide shows what I used in the past. This is a coincidental discovery. With only one oil-blotting face paper, you can find abundant amount of RNA on this paper. Actually, this is considered to be a big surprise for many researchers in the world. So RNA can be collected very easily with a facial paper. And now we are entering into the stage where we can actually utilize this. Now this is the initiatives with istyle. There are so many products in the world, but it's so difficult to find or encounter the suitable products. So we want to develop skin-RNA-type matching system. So we can prevent the encounter with unsuitable products to avoid products being discarded. But you can encounter the suitable products, so you can enjoy using them for a long time. So this is a skin-RNA-type matching system. Now this is an evidence-based matching system. As I said, the RNA monitoring. With that, now we know that we can group the different consumers into the different skin types. So type A, B and C, for example. So they are like blood types. And in fact, the products are very closely related to different types. So when a product matches the skin type, the level of satisfaction gets very high. In other words, inefficient encounter with unsatisfied products would lead to less satisfaction. Those people who are already using the product which suit their skin type, they are fine. But when you're trying to find the suitable product among so many information, it is difficult to do so. If you choose something which does not match your skin type, it is not good for your skin. It is dissatisfactory. So listening to the voice of the person with the same skin type is important to choose products. So I'd like to show you how it looks like. Right now, @cosme has this existing user interface. Various products are scored and chosen. So this product is good. Another product is not very good. So you see the scores. But if you are choosing from the products with high scores, it's very difficult to make a choice. So with the skin-RNA-type matching, you will be able to hear the review or voice of other person with the same skin type, and this could be a strong weapon together with the recommendation because it shows the reviews of the products of interest by RNA type. You can -- based on that, you can quickly find the products which match your skin type. We are starting to build this database from this year. We will take samples with test kits for up to 10,000 people to identify their skin types. This information will help us build the database as well as identify which of our products are right for which customers based on the information obtained. This will further strengthen our relationship with istyle. Ultimately, we intend to make this service openly available, not only our company, but also other companies will choose this, and products will be selected using this service. Furthermore, we are now collecting RNA by wiping, but we are also working on using the camera function to instantaneously diagnose RNA skin type. I believe that this will completely change the general beauty website into a new recommendation system. Next, I would like to explain our initiatives with Milbon. Milbon is a company that supplies products for hair salons and is by far the largest such business in Japan. We want to do health care using beauty salons as a platform. This desire of ours matched those of Mr. Sato, the President of Milbon. There are 170,000 beauty salons in Japan. The frequency of regular visits and the percentage of people who always visit the same salon are very high. What's more, what goes on in these beauty salons is not just beauty treatments, but also frequent communication with the stylists. Both companies thought, would it be possible to divert such precious time to other areas to health care? So for this, we are thinking of using genetic-level information and also information obtained from customers to enhance Milbon's ability to make proposals. So the idea is to offer the most suitable products to hair care, beauty care and hair salons. In the future, we believe that this will become a new field for us, even for very serious conditions around allergies and aging. This is the relationship between Kao and Milbon. As indicated by the triangle, Kao and Milbon have a technical alliance and will share information. The field is the actual salons and the customers who visit the salons. Within this triangle, we and Milbon will offer technology and propose products in the same way. Let me give you an example. Hair coloring. Hair color still has allergy potential. This applies to all people. If the allergy level and affinity are identified at an early stage, the hair color and related products offered by Milbon will change drastically. We have extremely low allergic technology, which is the nonoxidizing hair color. We will provide such technology to Milbon, and they will recommend it as a premium brand to customers who understand the potential of the technology. Salons will provide safe and secure hair coloring and make it a very enjoyable experience for the customer. More data will be collected through this process. That is the circular model we have in mind. That sounds like a dream. Can you realize such a thing, you might ask? Well, we are confident that we can. This is the high-precision analysis technology for diagnosing infant atopic dermatitis that we explained previously. With the RNA I mentioned earlier, we have already almost identified the first genes that are the target of early-stage atopic dermatitis. The reason why identifying such genes is significant is that there are triggers and flip the situation like an Othello game. And that will lead to the expansion of atopic dermatitis. This has been identified. And through machine learning, we have been able to successfully distinguish between healthy individuals and those with early and intermediate stages of atopic dermatitis. Moreover, the accuracy is very high. Early identification of allergic potential will overwhelmingly change the intervention for these individuals. We believe that we cannot just offer products, but change people's way of life. We are working with Milbon to deploy this kind of technology, and we have the idea of utilizing hair salons as the field. Starting with RNA monitoring. We are now working with Milbon to speed up our efforts in the skin, hair and health stages starting this year. The hair salon is the field where we actually collect data and where we actually feedback. From the initial stages of monitoring, this will be a viable business. Our plan is to make it more premium and make this field stronger and stronger. The third thing I would like to talk about is our relationship with NTT DOCOMO. As you all know, NTT DOCOMO is the #1 telecommunications carrier in Japan. Last month, we had the opportunity to talk about this amongst us. This is the general purpose virtual human body generative model and the precision monitoring, which is more precise. The 2 topics I discussed in the first part, RNA monitoring, would fall on the right-hand side. It's a model that accurately identifies a person's individual state and reveals the cause and effect relationship with what's happening to that person. However, if you only do the right side, you will end up with services and solutions that are focused on particular targets. In this sense, it's very important to have a general-purpose model that allows various people to intervene, that is to estimate a wide variety of items comprehensively and to look at correlations. I'm sure you have experienced where A brings about B, but you don't know the chain of events leading from A to B. Identifying what is returned when a certain key is hit is the important point of the virtual human body generative model. The important thing is to connect everything broadly and shallowly, and once you have an understanding, to connect deeply. I will show you a video now. In it, you will hear the term API, which is application programming interface, which expresses what is returned against a request. It is a generic term for a model that contributes to people with an output against an input. So with that in mind, I would like you to watch a video for about 2 minutes. [Presentation]

[Interpreted] A virtual human body-generative model is a statistical model that estimates a comprehensive range of data about a person's body, lifestyle, personality tendencies, preferences and so on. Here are the items that populate this statistical model, from age, gender, to items of interest in daily life, such as sleep, stress, body odor, personality traits, diet, menstruation, et cetera, to cognitive function and immune indices. It is possible to estimate a wide range of items. Preferred networks possessing cutting-edge computational science technology and Kao, which has long studied the human body, psychology and daily life, have teamed up to conduct the modeling. When data is entered into this model, other items can be estimated. The 3 key points are as follows. No input of personally identifiable information is required. Through the API, estimated values are returned against input values. We do not collect information entered through the API. A feature of this model is that all attributes can be both inputs and outputs. You can freely combine what to input and what to estimate. For example, if we input the results of a health check, the output will be a comprehensive set of other estimates provided by the model. Not only the physical condition but also habits, personality traits and preferences can be presented simultaneously. If the input is changed to personality tendencies, it can estimate various items comprehensively in the same way. This virtual human body generative model will be provided to various businesses through an API. By making this model available to various businesses, we hope to contribute to a number of innovations in the area of Precision Life Care. Well, this video has already been previously shared, and I'd like to provide some additional clarification on the key points. The first important point is that we do not collect personal information with this. Going forward, handling of personal information will become very strict, starting with GDPR. What will happen then is that it will be harder for data to be connected to each other. You will have to narrow down the output based on data exchange in a very narrow universe. However, with this approach, since personal information will not be used, it will be possible to collect information about a person, like one's twin, and to gather various types of information within there. The impact is that we can connect with any customer and create a foundation for making proposals to any customer. In developing this technology, I spoke with Mr. Ii, the President of NTT DOCOMO. President Ii also has a science background, so he saw the potential for this innovation early on. When we enter the health care field, NTT DOCOMO's d healthcare is very attractive. And the situation they're in now is that customers do not know which one is the right one for them because there are so many applications. There are so many applications that are being used and then disposed of. And because companies try to enclose their customers with IDs, as I mentioned earlier, there is this issue where only one solution can be returned per single request. Our approach this time is to derive what people want from many angles and related elements. By putting this onto the smartphone, consumers can continue on with their daily lives and various companies can make use of this model. How do we respond to the requests we receive from customers? This lies in the smartphone. However, if the content of the smartphone are tied to ID, each of them becomes individual. It is important to connect all of this data. And by compiling all of the mind and body lifestyle data, we can return a more accurate estimation model and connect each of the applications. When this becomes possible, consumers can find the right solution for them. By acquiring the data I have described here, by using the model and by improving the accuracy of the model, we will be able to return the right match for customers. And talking about NTT DOCOMO, this app boasts 10 million download and counts as one of the most downloaded applications in Japan. And DOCOMO has more than 80 million customers. As d healthcare grows, customers will individually try to find their own information using applications in d healthcare. This is where our virtual human body generative model will play the most important role. As we connect more points and create links to return information to customers, we will be able to create not just a better app, but we will be able to return much higher level of the estimated model. By joining with NTT DOCOMO in this manner, we want this virtual human body generative model to be used by everyone. And we also want to be a company that will be provided with good products with this model. Now I just shared with you the Precision Life Care to be used by persons. However, our business scope is much broader, which goes around the industrial domain. We believe that Precision Life Care can be a guiding light for us in the industrial domain as well. It is about accurately identifying the cause of a problem in an environmental domain and then providing a precise solution to that cause. Let me give you 3 examples: pavements, agriculture and infections. In the area of roads or pavement, last year, we started a project to build high-durability pavements for asphalt by utilizing recycled PET, mainly in our chemicals business. We expect this project to blossom this year. And one of the most important aspects of this project is the condition of the pavements. Does it really make sense to apply this to pavements in good condition? But if we can identify pavements in poor condition and repair using this technology, we believe that we can build more and more pavements that will look totally different without damages. Another one is agriculture. We have agrochemicals technology that solves the problems of pests and insects, while using reduced pesticides. This is the area of adjuvants, which are not very useful even if they are applied onto healthy farmland. If we can identify areas with potential pests at an early stage and use our technology to identify those areas, we can contribute to the production of high-quality food without damaging the farmland. And then there is infection. We have a variety of hygiene products. And we believe that if we can further target certain areas in this domain, we will be able to control pandemics even more effectively. This is the overall profit structure that I am sharing with you for the first time today. We hope to have this structure in place by K25 to compete in the market. You can find how DOCOMO, istyle and Milbon, which I shared with you today, are positioned. In our existing businesses, we are currently working on structural reforms, including concentrated investment in high-profit core business and emphasis on royalty under Reborn Kao. And there is another Reborn Kao to further our strategy based on this basic growth in existing business. This is the very entity that will utilize precision. And there is a new business model that will have -- that we have not done before, which we call Another Kao. And we hope to work together with many players to create this new business model. With istyle, we will use the skin attribute-estimating model, and there is a model where we sell products and make available to wide-ranging customers with open model. Furthermore, we will use a general-use estimating model that recommends not just our daily use products, but also products from other companies. And our vision extends to pavements and agriculture, we believe that this is the path we should take. The right side is expected to be particularly profitable. This is because it is more like a business model of providing information to customers rather than manufacturing products. However, we believe that the model on the right side, Another Kao, will be a model in which we manufacture and propose unique products that fit into this information model. The 2 items on the left-hand side positioned as Reborn Kao, without Another Kao is the picture I explained in the last financial results. Precision will help us increase profitability and serve as the fundamental element for the growth of our business. This is because in this model, we eliminate unnecessary things. And we believe that not producing unnecessary products is a very important point for achieving a highly profitable structure. And this is the road map towards the achievement of K25, which I presented at the time of the earnings presentation this year. I believe we will still be affected by COVID-19 this year. In addition, we are facing various headwinds such as rising raw material prices and political instability. However, we will continue to make progress with our Precision business. We will collect data, while executing the implementation model starting this year. And in 2023, we aim to substantially increase our earnings capabilities through this model. As I showed you earlier, this will include M&A. We believe that this will change the very structure of how we compete in the business. This diagram represents the Reborn Kao and Another Kao that I shared with you combined with the initiatives that I shared this time. Since our core business is manufacturing, we will continue to focus on creating #1 brand products, but the products themselves will transform into products with more edge that will reach customers in a more precise way. This is what we call a precision solution. And what supports this most is the precision monitoring. It is a way to accurately and precisely identify customers and provide them with the right solution. I believe that this model will be extremely important. I also talked about our collaboration with DOCOMO. We will collect data not just through our daily commodity products, but also by connecting with partners from various perspectives, turn it into something meaningful and return it to our customers. I think the virtual human body generative model will be very useful in this regard. This virtual human body generative model and precision, I mentioned the terms general purpose and precision, it's about having a general-purpose view on the big picture or entirety. And when necessary, we will clarify the causal relationship, not correlations and propose solutions to our customers. I believe this is the very path we should take. The combination of these 2 elements is what we call digital life platform. And this is, in fact, what I was talking about a year ago when I said that we will strengthen this area. Today, I'm happy to be able to share with you the first set of players we will collaborate and its structure. I am convinced that this will be realized not just by ourselves, but in collaboration with many partners and preferred networks in particular. Finally, I would like to talk about why Kao is choosing the precision path. As you may be aware, Kao has a policy of integrity as the only choice under this policy and in order to help people find what's best for them. We believe truth has to be shared, and at the same time, we have to -- we have a responsibility to be authentic ourselves and to offer what is authentic in a world full of authentic products and services. This is what we mean by the world of precision. To do this, we need to create an unquestionably fair yardstick that will be beneficial to society. This should never be something that we use only for ourselves. I believe that it is extremely important to create products that are beneficial to society and provide the best solutions without waste and to create such relations. Kao is currently in a very difficult phase in its business. It is not easy to create new things while implementing structural reforms. However, we are now working together as one team to implement our structural reforms and to demonstrate our new direction, while simultaneously implementing both. All of us will do our best to realize our aim and to show you how our business have changed drastically and move forward in the near future. Thank you for giving me the opportunity to share with you in detail about our concept of Precision Life Care. Thank you very much.

[Interpreted] Now we would like to take questions. Now we have Mr. Saji of Mizuho Securities.

[Interpreted] I have questions on pages -- on Page 27. You explained that the operating margin is high. This is a very interesting initiatives. But for example, what would be the weight or the percentage of the information and selling products in terms of monetization? How you -- do you intend to monetize? Could you give us some more information on that?

[Interpreted] Yes. Thank you for your question. I would like to answer that question. Now the content of this business, so for example, let's say that you are using an app. You are charged, for example, JPY 1 per one access. So throughout the year, say, that there are 500 accesses, so one person would spend JPY 500. So in the case of istyle, as I mentioned, they have 16 million customers. So by accessing only, that would amount to about JPY 800 million. So this is a B2B business and also B2C business. We actually did the research on the value of the downloading of the applications of other companies. And this is the kind of a range of the price that we can get the return. So by accessing to the information, the information becomes a value, and there is a return for that. Another is the products which are related to it. Selected products based on the evidence will be linked to the customers, so we can minimize the trials and errors and increase the loyalty. So without spending much marketing cost, the more edgy and more attractive products will be chosen. So compared to the model on the left, this would have much higher operating margin. As for the percentage or the weight, it is difficult for me to say precisely. But as an image, it's about 50-50. That's just a rough image because it's not just our products. This model can be applied to food industry or other industries. And that would lead to more input of the data, and that will lead to the return. So in comparison to the model on the left, the operating margin will be high. Based on the general input and output that we see and also the weight of the communication and others, we have calculated all of those factors to come up with this. I hope that answers your question.

[Interpreted] Just one point of clarification on Page 30. So the companies who have a direct access to the consumers or the companies at the forefront or can make the recommendations or the companies with the sales capability and others, so there will be a potential alliance in the different fields and sectors?

[Interpreted] Yes, that's exactly right. On the 28th of February, we talked about this, and we received many more requests and inquiries than what we expected, including from overseas. So right now, we are currently sorting and prioritizing them. So this model can grow through the connection with different sectors and others. So it's -- does not apply only to the cosmetics or health care.

[Interpreted] Mr. Saji, thank you for your question. Next question comes from Ms. Kuwahara of JPMorgan.

[Interpreted] This is Kuwahara speaking. I hope you can hear me.

[Interpreted] Yes.

[Interpreted] I also have a question. It's kind of like a follow-up question on Page 27. Earlier, you mentioned that just accessing will generate some cash, and it works for other sectors as well. But this core system itself, when there is an access, say that there is a food company, do you still get some cash from that access? Is that the kind of system that you're talking about? On Page 27, in applying precision to new business domains, your -- one of your core business, Hygiene and Living Care, is not included. So I wonder why? Could you explain that to me?

[Interpreted] Thank you for your questions. Yes, I would like to answer to your questions. First of all, as for Hygiene and Living Care, which is not included here because this business is not something that we expect to be included into Another Kao. This is in Reborn business. So it's one of the core businesses that we are working on for the structural reform. We are doing everything we can. So Life Care, Cosmetics, Health, Beauty care, there are possibilities that we start the new business aside from just our products. So we are not saying to apply this for all the business. We have selected the businesses which are more suitable for this concept. Now as for the billing system or charging system, what we expect is as follows. We are not charging customers directly. So what customers pay will probably not become our profit. But what we create, the engine, the main engine that is the Precision Life Care and the virtual human body generative model, those are not applications. They are the main model. So when the customers use application, then it goes through the heart or the model that we have. And as soon as that happens, there is a JPY 1 per access charge. So would this be paid from the application company to us? Or would DOCOMO, which is the total coordinator, pay to us? We don't know that yet. But when we were talking about this, this JPY 1 per access, this is quite reasonable. In using applications -- by accessing the application, you can access the important information. So JPY 1 per access is not so expensive. And when the frequency increases, this will lead to our loyalty business, and we are controlling this loyalty business. So the profit would be returned to the entity, which manages the total business. I hope that answers your question.

[Interpreted] Thank you for your question. Next, Hirozumi-san of Daiwa Securities.

[Interpreted] This is Hirozumi of Daiwa Securities. I hope you can hear me. I also have a question on Page 27 and 30. I have a question on the column in the middle, the same as Kuwahara-san's question. So today's discussion, I think, was on customization. So what about the products or the business that you cannot customize, for example, detergent in Hygiene and Living and also the sanitary? So I understand about the Cosmetics, Life Care, Health Care, but what about the others? On Page 30, the vertical column, Hygiene and Living Care and Chemical, I do not understand the relationship with them. So precision solution and monitoring, are they different from this? What about the mass product? How do you plan to foster them and develop them?

[Interpreted] Thank you for your questions. Now what I need to say at the beginning is that on the left and the right, in terms of the business management, we are using the same names. The business division that manages those businesses are actually the same business entities. So for example, how does precision apply to the Hygiene and Living Care was the question. In the area of the Hygiene and Living Care, there are different targets in the -- inside the house, for example, that you want to clean: toilets, kitchen and bath and so forth. So can you tell that you have removed all the bacteria or virus or stain or dirt from those areas? To what extent do you understand that? So with the Precision, you can clarify that. And that would lead to clarification of all the shortcomings of the products. And based on that, we can propose different solutions. So this, I think, becomes most clear in the area of the Hygiene and Living Care. So this is really in the middle of our products, and the solution comes from our products. So Health Care and Beauty Care, we have several low-allergy products. And I think that the people vaguely understand and other people say it's a good product, so maybe many people are using it. But if we can clarify the allergy potential, then the products to be chosen would change. So that's what we are talking about on the left-hand side. That is the existing business. And on the right-hand side, we are talking about connecting with the different customers and widen the scope. So working with the customers that we have not worked on, that is Another Kao. So in the middle, this is the area that we are trying to apply the solutions for their targets or challenges. I hope that answers your question.

[Interpreted] So for example, in Hygiene and precision care, if you apply the precision -- well, you are going to do that, but you did not comment on it.

[Interpreted] Well, strategically, this is one of the core businesses, and there are competitors to consider. So through the clarification, as I mentioned at the outset, it's not making proposals, just making them look appealing or attractive. But rather, we want to share the truth with the consumers so that our products will be chosen.

[Interpreted] Thank you very much for your questions. Next from Nomura Securities, we have Mr. Narikiyo.

[Interpreted] I am Narikiyo of Nomura Securities. I would love to ask about the precision. But on Page 27, there is a basic growth in the existing business on the left-hand side. I'd like to ask a question on that. So for example, the invasion of Ukraine is going on. This is something that we did not expect at the beginning of the year. So on Page 28, you mentioned business transformation, mainly the sanitary and hair care. It is possible that the timing of achieving those targets might be delayed. And earlier, you talked or you mentioned the structural reform. Could you give me specific examples of what you are doing? And when do you think that you can expect the effect from this? Could you review that once again?

[Interpreted] Thank you for your question. Your question was a bit different from the theme of today's presentation, but we appreciate you asking, and so we will respond to it. Murakami will answer the Cosmetics part, and I will take the other parts. First, the growth driver areas in the Cosmetics business. In other words, what are we going to change in response to the current situation, Murakami will answer.

[Interpreted] I am Murakami, in charge of Cosmetics. I would like to talk a little bit about the growth strategy for Cosmetics in line with the precision approach. Today, we gave you a presentation in the context of what we will do with our precision partners. Here, I would like to explain the positioning of precision in the business context. We have positioned Cosmetics as a growth driver. I think there are 2 major pillars of that growth toward K25. One is to accelerate DX. We have talked about this many times, but UX, user experience, is not just about making things. It is about how to maximize the user experience using digital technology. As Hasebe mentioned earlier today, one of the key points is how to create a UX that is connected to the product rather than just releasing various monitoring technologies as stand-alone products. I think KATE is a great success story, a system like the makeup lab or diagnosis of skin darkening and how to attach it to the product to accelerate it, that kind of DX. The other one is precision skin care, the business using RNA skin types, I'm strongly convinced will be 1 of the 2 wheels. Earlier, there was mentioning of Another Kao and Reborn Kao. Let me explain what happens when this is applied to Cosmetics a little more concretely. As I mentioned earlier, the matching that we do together with istyle is extremely important. Beyond that, we naturally think about how to connect that to product development on our side. First, we match the customer and the product. If we can't match, that is if there is no product for that person, creating that product will be a main pillar of this initiative. In that sense, this would be categorized in the cosmetics part of Reborn Kao. Since we are creating products using the power of RNA and monitoring within the existing business stream, I think this would fall under Reborn Kao. Initiatives on the right side, Another Kao, is something I'd like to talk in more detail in a little while, but we are thinking of a very new business model that is subscription-based. Kao will provide services that are truly tailored to each customer. For example, as Hasebe mentioned, skin types change. That's why we measure and diagnose customers' RNA 4 times a year. This allows us to constantly check the condition of the person's skin so that the customer can use the most suitable cosmetics. If they would enter a contract for several hundred thousand yen a year, we can provide skin-type monitoring and personalized counseling 365 days a year. By providing such personal service, we can help them achieve beautiful skin. This is truly a new business model, and I think it would absolutely fit within the Another Kao. So that's the image we have for Cosmetics toward K25. There's, of course, strengthening China and Europe. But in terms of higher-level concepts, DX and the precision business using the RNA skin type, these will be the 2 pillars to grow the business. If I may add one more thing, this RNA-based business will not be limited to Japan, but we will deploy it in various countries in the future. I think this is a business model that can be used in all countries, where Kao has already developed its business and where we will newly develop in the future. So we'd like to ensure solid growth with DX and RNA precision as pillars. That's all. Thank you.

[Interpreted] Let me show you the area graphs that I used earlier. As Murakami just explained, with the current COVID pandemic and the war in Ukraine, I am sure that you are all concerned about Kao's business. However, actually, I am not too worried about the growth driver in the middle. In the Cosmetics business, led by Murakami, we have prepared very unique and good products. And we can clearly see the direction in which these products are directed toward our target customers. I am not worried at all about this. Rather, I have high expectations. And I can already see the chemical business growing even more. Responding to your concern about rising cost of raw materials, I think you are worried about raw materials that are used in masse for such things as fabric care, home care and disposable diapers. As you have seen, we have announced strategic price increases, and we have conducted simulations to identify categories in which the profit margin would actually increase with a price increase even if the sales and profit would drop a little. It is not the case that sales and profits always fall when prices are raised. There is an inversion point. We are actually working strategically with various locations, chains and other parties to achieve this goal ourselves. There's no doubt that the situation is difficult. But conversely, the situation is the same for our competitors. If the situation of our rivals is also unfavorable, we can work to outperform within the peer group, and that is what we are doing, to make this situation a tailwind and step forward. Does that answer the question?

[Interpreted] Thank you for the question. The scheduled time to end has come, but there are still people wanting to ask questions. So we'd like to continue this meeting. Next, Ms. Sato from Mitsubishi UFJ Morgan Stanley Securities.

[Interpreted] This is Sato. Thank you for the explanation. I also wanted to ask the question that Saji-san asked at first, but that has been addressed. So I understand that this core system is not paid for by the consumer, but by the application or by DOCOMO or someone else. But if it is not clear to the consumer that it is connected to your core system behind the scenes, I fear it would not increase your brand power. Is that not a problem? Providing your technology and atopic care products to Milbon and providing precision health care could have been done separately. I understand that this would lead to product supply. But from the consumers' point of view, the products are sold by Milbon and consumers cannot know that you are providing good products behind the scenes, can they? Therefore, it is not clear to me that this system will lead to consumer loyalty to the Kao brand. I understand that you can make money from the number of accesses, but what happens if the product recommendation process actually leads to consumers deciding that another company's product is better? You said earlier that in the case of A, there were 2 or 3 stars. But in the end, even if it is shown that Kao's product is a good match, the consumer may look at the second choice and say, "Shiseido's product looks more glamorous," and end up buying that. So I'm not sure if this leads to your products being selected and volumes increasing. So on these 2 points, I'd like to get additional explanation.

[Interpreted] Yes. Understood. Murakami, in charge of the Cosmetics business, will respond about the initiative with istyle, and then I would like to explain about the other parts.

[Interpreted] Thank you for your question, Ms. Sato. You are right. I think this is a model that you cannot execute if you didn't have real confidence. First of all, istyle will compile the comments of various people. Then the skin type is determined based on the customer's RNA. The customer's evaluation becomes open as it is. So you are right on that point. If Shiseido's products are highly rated, that will happen, and it will lead to that product being sold. The flip side of this is that we are doing this because we have confidence in our own products. The next step, of course, is to create products from this process, which is what we should be doing. I'm not sure what the ratings will be, but I believe that the next step is to link this to products. That will be all for myself.

[Interpreted] Your question certainly touches on the most critical part. As Murakami often says, being effective and having meaning are 2 important aspects of the Cosmetics business. Having meaning is about the attractiveness of the concept, brand or design. You want it because it is meaningful to own it. But it is important not only to have meaning, but also to have effectiveness. We do not believe that we can cover everything with just one direction. So we will create products that are meaningful, that have value as a brand. I mean Shiseido or KOSÉ, they have very good products, but we want to create products that have different reasons to be chosen. This may fall under the Reborn Kao on the left in the previous picture. The other thing is that it will become more important to be able to encounter something that has meaning and also is suitable to you. Fake news and comments made by influencers are now widely questioned as to whether they are always correct or not. This model is a head-on challenge to that. Because we know this platform, we are able to offer a product lineup that has a wide variety of products that we can offer in a series to our customers that is most relevant to our target. We can do that because we control this. This is an important point. If you understand the entry point well first, you can be the first to offer the lineup. And I think you also touched upon our relationship with Milbon. You said that we should offer products to Milbon. Actually, that is not the case. We already have a relationship with Milbon as a supplier. And our technology is not necessarily used only in our branded products. Our raw materials and key chemicals are used by Unilever and L’Oréal and other companies. So we take what we are already doing in the chemicals business. And based on evidence, we apply it to precision. That is the idea. Therefore, I do not think that the model of doing something in order to increase our brand power is necessarily the answer. It is important that our products sell the most, but the key is how our systems and technologies are utilized to contribute to the end customer. And it is not that it has to always be tied to our brand. However, we will make sure that it is clear to everyone that we are making this platform and that we are making great efforts to win the trust of our customers. If we don't make this a model that various parties can join and grow, it will become a model only for Kao. Therefore, if the Kao brand is too much attached to this platform, it will have a negative effect. I hope you will consider that. I think there was another part to your question?

[Interpreted] Well, the way I see it, generally, the profit margin of products is higher than that of chemicals and materials. In order for your company to increase the profit level, I mean, of course, partnering with other companies can help expand your business compared to just selling on your own. But if it will not lead to an increase in your company's sales, I'm very concerned about whether that will be a good idea. I think your company has been selling good products, but the biggest problem is that they haven't been perceived as good products by consumers. I wonder if this will really make up for that. Each time they access your core system, you may get paid JPY 1. The President said that it could be done. But since that part was not explained today, I'm still concerned.

[Interpreted] Is your concern that you can't see the connection to our products, for example?

[Interpreted] I think your products are of a quality, that it just sells better, but I don't think it's fully understood by the consumers. I think the most important thing is for this system to make consumers more aware of the excellence of your company. What do you think?

[Interpreted] Well, thank you for your additional question. I think I presented the very first picture talking about Kao's dilemma. Well, is this it? Well, we are proud of ourselves in a way, but we cannot control whether or not our customers recognize our products. In a world full of information, we have to create a point of contact between our customers and our products. Can we really communicate this to our customers by simply saying good things that are superior to our competition, by developing a business that is superior to the competition and by putting our products onto our shelves? I don't think so. So I think it is important for me to discover ways in which our products we -- which we put our efforts into developing will definitely benefit our customers. That is what's missing now. Therefore, no matter how good a product we come up with, if nobody sees it, it only ends up as being complacent. I believe that creating a more powerful new bond with our customers will change the way we compete and do business. And although I mentioned that we can enjoy higher margin by selling products, unless customers find value in it that they will be willing to pay, they will not use the products. For this reason, I believe that fair exchange of information with customers is a must.

[Interpreted] Earlier, you said the number of apps need to expand rapidly. But how many companies do you expect to join by 2024? Would you share the figure, simply?

[Interpreted] Well, if I may give you the target, of course. Well, if that is the case, we need more than 100 companies. It is important to have more than 100 companies. It's not like really like 100 giant manufacturers, but rather, we hope to have a variety of companies, including application, food, and hopefully, pharmaceutical industry, hospitals and local governments to have that level of accuracy and the breadth of the data that we collect. Well, apologies for taking a long time.

[Interpreted] Thank you very much for your question. The time is almost up. [Operator Instructions] Now Mr. Hyogo from Mitsubishi UFJ Trust and Banking Corporation.

[Interpreted] My name is Hyogo from Mitsubishi UFJ Trust Bank. My question may somewhat overlap with Ms. Sato's question. But what I want to ask is, how do you plan to communicate with the cattle market investors regarding Another Kao and Reborn Kao that you just presented? I understood the conceptual side of it, but how can we measure the progress in the financials going forward? We probably need to look at things like the number of companies joining the application, as you said earlier, but could you tell us what sort of information would be disclosed with regards to the progress? That's my first question. And my second question, I understand that you had the plan for a certain extent since you became the President and you presented to us today what you -- what took some shape. But is what you shared with us is like the complete form of it? And can you give us the background as to why you were unable to share this earlier? I mean what took so long to do so?

[Interpreted] Well, thank you for the question. First of all, I would like to explain why we could not disclose earlier. The reason is that, well, it took time for us to build relationships and determine partners who would be willing to collaborate with us. It also took some time to prepare the model to make it cheaper and more accessible to customers, so to speak, and to make it low cost, accessible to everyone and highly accurate. The fact that I was able to share with you today means that we have found the path to a model that is less expensive and more universally available to everyone. That's why we are able to give this presentation today. As for the question of at which stage we will disclose the progress, well, as I showed on Page 28, what we wish to do is to show the rate of contribution using this pie chart. We can't give you an exact weight one by one, but we should be able to share growth in the rate of contribution. I think we can show that the number is increasing and that the rate of contribution is becoming more certain and solid and how many companies joined to support us. I believe that we need to align with everyone to ensure we are heading in the right direction. Therefore, I hope to share with you how we are progressing, though it may be on an individual basis. For example, the hair salon business on the far right, which is in the area business transformation, has already exceeded a 10% profit margin. This is because our structural reform, including digital reform, are progressing well. Some of them are ahead of schedule, while others are not. I would like to promise that we will be able to disclose in a timely manner which businesses are progressing and at what stage, including financial targets.

[Interpreted] I really hope to see an update of the chart on Page 28, at least once a year, so that we can see whether things are going well or not and expect the company to run a PDCA cycle as well. As for Page 27, we would very much appreciate it if you could break down the profit targets as much as possible. Well, since I believe you are very confident in giving us this presentation, I hope to see this being delivered. At the same time, if something goes wrong in the external environment, I expect that the company will be able to make modifications. That's all for me.

[Interpreted] Thank you. Some few words from me in the end. We all know that we are in an ever-changing external environment. And what we want to do is to be fair and open in sharing with you things such as how quickly and well we are doing, and if not, what is the obstacle and how things have failed. As we've mentioned you in -- it was mentioned in your question, the high price of energy, especially crude oil, has a direct impact on a company like ours since we sell mass products. However, we cannot avoid the situation if we continue as is. Also, the cosmetics and beauty markets, which are not so much affected by raw materials, but are greatly affected by market trends, are now facing increasing headwinds. However, we believe it's also the timing to make decision and also to take the plunge. In fact, although it may appear as we are faced with the headwind, we believe -- at the same time, we recognize that we are able to take major steps forward precisely because of the situation we are in. We hope to clearly demonstrate our progress to you going forward. Thank you very much. We can take 1 or 2 more questions, if there's any.

[Interpreted] Okay. One more question. Mr. Miura of Citigroup Securities.

Hello. Can you hear me? My name is Miura from Citigroup Securities. My question is, I think that your company's initiative is really about an ultimate form of personalization. And I think that this will probably lead the industry as a whole in the direction that is more and more innovative, edgy and something more original. Given this backdrop, do you think development capabilities would be the factor that determines success or failure of the company? And do you think that there will be more variety of products in the market with more SKUs resulting in more underselling or selling [ a lot of ]? Or rather, will companies come up with more unique, original products, resulting in fewer SKUs as a whole in the industry, and less bargain selling or selling at discount? What kind of direction do you envision?

[Interpreted] Thank you very much. Well Miura-san, I hope you got a little excited as I gave you my presentation. Now let me answer your question. Regarding this point, I think there are -- there is a bipolarization. On one hand, there are those who are not looking for this complicated precision, but look for individuality, like design, image and sense of style. This will never stop us from wanting things. However, in terms of effectiveness, the opposite is true. Yes, there are many companies making products in this regard. It's not a question whether they are good at what they do or not, but there are companies that are making very sharp and edgy products for their customers. For example, as we search with RNA skin type, we have found out that there are products that are not ours that are very good. The reason is that the products we manufacture are made from our own perspective. Products made from a different perspective have their own characteristics. But I don't think it is necessary for us to increase the number of SKUs to the point where we have to make more and more products. There are a wide variety of products to suit people's needs. Those can be covered by our products and those that can be used together with our products. In this way, we will be able to sort of form a more focused allied force to offer solutions. I believe that the way this allied force compete will require less unnecessary things. In that case, I believe that we will see a world in which instead of an ever-increasing number of SKUs, only those products that can play a distinctive role with a narrow set of SKUs will remain, and they will be linked together to form an allied force to serve customers. I'm convinced that this will be the case in environmental issues as well as in beauty and pharmaceutical domains. So I would like you to imagine these 2 sides. Someone said to me before that this is rather boring, but what I believe is that it's not just going to be products made by mechanically looking at genetic level, but there will be products that are more very beautiful and sensitive, and the other one is around efficacy to [ exert ] one's ability. I believe that these 2 sides will always go hand in hand. I hope I have answered your question.

[Interpreted] Yes. I am very excited. At the end of the day, Japanese market when compared to overseas market is really discounted with a large number of SKUs, and that's why unit price is going down. However, there are companies working hard to improve profitability. And I understand that you believe that Japanese market will improve through such efforts as yours. And you see a significant -- and see a significant improvement in the profitability of the Japanese industry as a result by sharing, this should be stated.

[Interpreted] Yes. Thank you very much. That's correct. For example, I think there's a possibility that we could come together as all a Japan team to demonstrate a direction to compete on a global scale. A single company alone may not be strong enough. But if we can collaborate to come together strongly, we can be successful because I believe we have many distinctive, unique products. And I believe this is the system to connect those pieces.

[Interpreted] Thank you very much for your many questions. That concludes the Q&A session. I would like to conclude today's presentation with a few words from Mr. Hasebe. Mr. Hasebe, please?

[Interpreted] Thank you very much for taking time out of your busy schedule to join us today. Well, a year ago, I talked about the distribution of this digital platform, the Curél platform. Well, it took a year since I shared with you the idea of the new business to come to this stage. I apologize for this. However, I believe that the path our company should take is centered on good manufacturing in plan and action. By good, we don't mean to be good from our own perspective, but rather something that customers believe in and choose. I feel like it made me once again realize our roots that this is what good manufacturing is all about. I believe that there is no other way for us. This concept of precision itself has been the path Kao has followed so far. What I want to do is to reinforce this idea to reinvigorate our company. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]