Lion Corporation (4912) Earnings Call Transcript & Summary

Thank you very much for your consistent support for the company. I'm Fukuda of Lion Corporation. And today, despite the late time, I appreciate that so many participants joined us. I'd like to present the financial results for the third quarter FY 2024. Highlights of the presentation are shown here. Net sales and profits in the third quarter continued to increase year-on-year following the Q1 and Q2. Net sales were almost in line with the full year forecast. And as shown in the bar chart in the middle, which shows the progress against the initial forecast. Core operating income in Q3 was higher than the expectation because of profit structure reform following the strong Q2 results. And as we disclosed today, with the ongoing streamlining of domestic home care production facilities, we posted impairment loss of approximately JPY 6.2 billion for the facilities to be removed in Q4 and considering the probability of recovery in the future. Forecast of consolidated results for FY 2024 remains unchanged as of today despite the core operating income exceeding the plan as we plan to have additional sales of assets for further streamlining in Q4. Let me start with the consolidated financial results. I will explain Q3 performance overview. As mentioned before, net sales and profit increased year-on-year, and operating profit and profit for the period attributable to owners of the parent for the 9 months continued to increase year-on-year with gain on business transfer in Q1 and Q2 despite the impairment loss incurred. I will elaborate on them in detail later. This is P&L. Net sales were JPY 301.1 billion, up 1.7% or JPY 5 billion year-on-year. As foreign exchange impact was plus 2.3 percentage points, excluding that impact, it is minus 0.6%. As explained before, the impact of business transfer was minus 0.9%. And after its adjustment, it was plus 0.5% in real terms, and we effectively secured a slight sales increase. Core operating income was JPY 18.6 billion, up JPY 6 billion year-on-year with substantial growth. Operating profit and profit for the period attributable to owners of the parent include impairment loss of JPY 6.2 billion with structural reform and gain on brand transfer in Q1 and Q2. EBITDA was JPY 32.5 billion, up JPY 6.4 billion year-on-year and the EBITDA margin increased 2 percentage points to 10.8%. Breakdown of year-on-year changes in core operating income. Changes in sales, product mix and others were plus JPY 2.3 billion, shown at the top. Gross profit increased with sales growth was JPY 2 billion, and changes in product mix and others was JPY 0.3 billion. This plus JPY 0.3 billion includes the domestic price revision of plus JPY 2.8 billion and the gross profit decrease due to the business and the brand transfers, minus JPY 1.8 billion. And as a result, in total, the impact was plus JPY 2.3 billion in profit. Total cost reduction was JPY 2.2 billion centering on raw materials cost. And impact of raw material prices was plus JPY 1.5 billion, serving as a positive factor due to the price decline overseas. Regarding the negative factor, the increase in competition related expenses was minus JPY 0.7 billion. As for the mix, domestic was plus JPY 3.8 billion as the competition-related expenses were controlled and overseas was minus JPY 4.5 billion with proactive spending of competition-related cost with the expansion of business along with the sales increase. Results by business segment. In this table, net sales are shown in the upper lines and sales to external customers are shown in lower lines as usual. I'll explain domestic and overseas business later. Consumer product sales in Japan to external customers were minus 4.3%, compared to minus 3.1% up to Q2. Sales decline accelerated due to the reactionary downturn from the new product launch in the Q3 of the previous year but core operating income continued to increase. Overseas, in the third line, shows sustained double-digit growth of sales though the growth is slightly moderating and the profit growth trend is sustained. I'll elaborate on each business in detail. Domestic consumer product business net sales by product category. Sales in oral care and beauty care increased, and decreased in other product categories. Sales in pharmaceuticals were affected by brand transfers. And considering this, actual change was an increase of 3.8% as shown with the star mark. In Other, transfer of functional food business was completed in November last year. And considering this, it was minus 3.3%. Though it was a decrease in sales, the sales decline was more moderate. In Fabric Care, sales decrease is substantial. And compared to January to June, in July to September, sales decrease expanded by about JPY 3 billion. It is because of the launch of NANOX one in September last year and the reactionary decline affected sales. Major domestic consumer product brands and items and the market data. Regarding oral care on the left, for major brands, both volume and price have been steady. And in the case of low-end products, for example, White&White at the bottom, with the adjusted price, we sustained the volume in line with the market growth and value improved. Then on the right side, Beauty Care shows hand soaps. It shows that in overall, we are lagging in growth behind the market. But the brand is raising the price of low-profit liquid hand soap. And furthermore, the content in the bottom dotted line actually is showing the composition of the value-added products such as conditioning types and automatic dispensers, they're actually increasing. In addition, for conditioning types, although not in the current third quarter, we added a new product variant in October and we are now evaluating it. Next, on the left side, we have Home Care, Fabric Care and Living Care. First, in laundry detergent, we are working to grow NANOX one and we can see that we are steadily increasing our market share. As for fabric softeners in the next row, Airis has not performed well and we are currently lagging behind the market. As for the pharmaceuticals category on the right, our mainstay antipyretic analgesics are almost on par with the market. As for eye drops, for which we added a new high-priced product in the spring, both unit price and value are outperforming the market. Following the domestic situations, now allow me to explain the situations overseas. Looking at the results by region. In both Southeast and South Asia and Northeast Asia, growth has slowed down compared to the first half of the year. But we have secured growth both in sales and profits and the profit margin has increased by 0.5 points in total. I would like to explain the contents in parenthesis in more details on the next slide. In Thailand, our major country in Southeast Asia, in addition to our mainstay laundry detergents, we are focusing on growing body soaps. And as a result, although there is an impact from exchange rates, we are seeing an increase in real revenue. As for Malaysia, raw material prices have been softening to some extent, leading to intensifying competition. So we are actively promoting particularly laundry detergents. As a result, excluding the impact of exchange rates, we had a double-digit increase in sales. Meanwhile, in Northern Asia, the Chinese economy is showing signs of slowing, but we are expanding our distribution networks since there is still a large white space for us. And in terms of products, we are actually working to grow [indiscernible] toothbrushes. And as a result, we are continuing to achieve double-digit growth in real terms. As for South Korea, we are promoting the sales of encapsuled type laundry detergent, which we are told that this is doing extremely well and has been well received. Overall, overseas business and growth initiatives are working well at the moment. Next, I would like to explain the progress of the profit structure and reform of domestic consumer products, which are currently promoting in preparation for the next medium-term plan. First, in regard to the portfolio reforms, we have set policy KPIs up until 2027. Regarding the execution of an upward price revision, the actual figures for January to September were JPY 2.8 billion, and this will be further increased in the fourth quarter, bringing the target to JPY 4 billion this year, which we expect to achieve. We are also planning to reduce SKUs by 30% to about 270 SKUs by 2027 and we are currently expecting a reduction of 50 SKUs this year. Finally, regarding our streamlined competition-related expenses, we're aiming to reduce them by the 2 points by 2027. But in the January-September period, we progressed soundly, down by 1.4 points. As I explained earlier, we have disclosed separately today, we have been considering ways to improve future profitability in the domestic Fabric Care category. As a result, we have consolidated our production lines and recorded an impairment loss on equipment that is scheduled to be removed by the end of this year. Furthermore, in light of the current state of the business, we have considered the possibility of future recovery. And as a result, we have recorded an impairment loss on production equipment, resulting in a total loss of JPY 6.2 billion. This is a temporary loss, but it will help us to boost profits from the next fiscal year onwards. So we'd like to complete the structural reforms this year and move on to achieve growth and recovery in profit next year. As for the future direction for the domestic Fabric Category category, in addition to taking advantage of the effect of the reducing fixed cost, we would like to concentrate resources on competitive areas and brands and proceed with rebuilding them into profitable businesses. Finally, I would like to explain our full year financial forecast. There are no changes as to the full year financial forecast. Although we recorded an impairment loss in the third quarter, our business profit has been on the upswing so far. And we are considering asset sales in the fourth quarter. So we would like to achieve our targets for operating profit and other items below it, including structural reform in the fourth quarter. Regarding shareholder returns, there have been no changes since the beginning of the year. This year, it is set at JPY 27 per share, which, together with the share buybacks will result in a total return ratio of 91.9%. This is the last slide. As you know, in October, we announced a partnership agreement with Japan Activation Capital, Inc. or JAC. We are currently discussing the main agenda for the second stage of our next medium-term management plan, which is scheduled to be announced in February next year as written here. JAC is an investor that supports our company's management policy strategy and helps us with the speed and the feasibility of its execution. So we are preparing to create a medium-term plan that will be firmly supported by the capital market with such a strong partner. That's all from me. I do appreciate your kind attention.

We'll move to Q&A session. Ms. Kuwahara of JPMorgan Securities.

I am Kuwahara of JPMorgan Securities. Do you hear me?

Yes.

Two questions per person, so let me ask them one by one. You said core operating income exceeded the plan, with upside in Q3 following the Q2. Did you have the upside in July-September quarter? Where did you see the upside? Let me know by category, was the upside in Japan? Compared to the full year-on-year change you presented in the Q2 results, I saw that the positive factor in raw material prices might have been effective. But if you say that it is not the case, but profit structure reform effect was bigger, I would like to know about it, too? This is the first question.

Impact of raw material prices is plus JPY 1.5 billion. Raw material prices in Japan are still increasing year-on-year. And the price increase is about JPY 0.3 billion and overseas raw material impact was plus JPY 1.8 billion, and it was the upside factor in year-on-year changes. And another factor is business structure reform. Domestic sales people are working hard to revise prices, including price pass-through. And as mentioned before, we were able to revise prices sustaining volume for major brands. And this is also the upside factor. I explained the progress on the first slide. And the increase seems substantial there. Due to the massive commercials corresponding to the large shipment upon the launch of NANOX one in the Q3 of the previous year, we had expected a strong profit growth in this Q3. But the actual increase was higher than our expectation, though I cannot specify the amount. And we think that condition is sustainable in Q4.

Then -- can I take that you had the upside both in domestic consumer product and overseas business?

Yes, profit exceeded the plan in both and profit improvement in domestic consumer product was more prominent. And industrial products were slightly weaker than our expectations.

I see. Second, you started to work on manufacturing facilities in Fabric Care business in structural reform and posted impairment loss. Toward the next fiscal year, how do you plan to see the effect of this impairment and consolidation? I think Oral Care and OTC are high-margin businesses. And presumably, Fabric Care and living care have been draggers since last year. But by the action this time, can you expect to see the margin improvement of Fabric Care business to mid-single-digit or high single digit? I would appreciate it if you can comment on this.

Regarding Fabric Care business, to be frank with you, partly because of CapEx and the promotion cost spent last year, it has been in the red. I'm convinced to return to profitability with the structural reform this time. We consolidate the facilities, and we will spend slight expenses for the facility removal in Q4. For the impairment of JPY 6.2 billion, with the depreciation over 6 or 7 years, value will be reduced every year, which will reduce the depreciation cost.

I see. So though my calculation may not be precise from JPY 6 billion, there will be an improvement of JPY 1 billion or close to JPY 1 billion a year, right?

Yes, improvement by close to JPY 1 billion.

I see.

I think that how we can change the content of the business, keeping the utilization of the remaining facility is a challenge in the next year.

Understood. I'm looking forward to seeing the results.

Next, Ms. Yamanaka, over to you.

I'm Yamanaka of SMBC Nikko Securities. I'd like to ask about the profit change in overseas business again. The profit increase in Southeast Asia was JPY 0.3 billion, and I think it was partly benefited by lower raw material cost. If the raw material cost decreased in the 3 months was about JPY 0.6 billion. I think in real terms, results were, sales increased and profit decreased. In the next year onward, how will you approach? Do you accept slim profit growth if you see the top line growth? Or do you pursue growth with profit as we pronounced before? Then will you change how you spend next year onwards? Would you comment on this point?

Talking only about July to September period, as Ms. Yamanaka mentioned, since competition is intensifying mainly in Malaysia, the increase in competition-related expenses was larger than the raw material cost decrease. However, for the full year, we'd like to secure growth with profit. That policy remains unchanged. So please take this change as one for the short term.

I see. Do you spend the competition-related expenses mainly for powder detergent?

Powder and the mix of liquid type in Malaysia is also high. So for both.

I see. Then in the medium term, this investment will be effective for the profit mix change through the shift to liquid type, right?

Exactly.

This is a follow-up question to Ms. Kuwahara's question. This time, you posted an impairment loss of JPY 6.2 billion. And on the side of net income, you plan to sell assets. Basically, it is not likely that your sales will be behind the plan regarding domestic business in the next fiscal year. Technically speaking, right?

Asset sales include the transfer of brands. And the reduction of SKUs will continue in the next fiscal year onward. So they will not simply lead to the recovery in sales growth. But we'll selectively weaken the low profitability businesses and grow the profitable businesses. Next, Ms. Kawamoto, please.

Do you hear me? I'm Kawamoto of Jefferies Securities.

Yes.

I see Page 26 for July-September data. Core operating income was JPY 4.73 billion and 7.6%, doubling the figure year-on-year. Could you tell me the content and, the sustainability? Was it due to the gross profit, SG&A, or was it a onetime spike? Or is it sustainable? But on the next slide, fabric sales are down by 20%. In which category was the profit generated?

The biggest reason for the substantial growth in profit in July to September is a rebound from the promotion cost of NANOX one in the previous year. With the new launch, we enhanced the promotion. So when we compare the 3 months year-on-year, it seems profit is substantially up. But following January-June period, overall profit improvement initiatives continue to be effective.

I see. Profit increased by about JPY 2.4 billion. Is it because of the growth in Oral Care or was gross profit mix contributing? Is it sustainable?

Yes, I think profit increase was caused by a combination of short-term factor of the absence of promotional cost in Fabric Care and the gross profit increase as a whole.

How large was the absence of promotional cost of Fabric Care, short-term factor in terms of hundreds millions of yen?

We do not disclose specifically but you can refer to the profit growth in the January-June period, assuming the growth pace is sustained. Growth of the profit over that is due to the competition related expenses.

Second, I'd like to ask about the price revisions. Your annual plan is JPY 4 billion, and the price revision in Q4 is also expected. Do you plan to have a similar price revision of JPY 4 billion in the next fiscal year or more? And tell me in which category you see the room for price revision?

Price revision includes various forms, simple price hike, reduction of sales promotion cost, special discount and price revision along with the product improvement. And we'd like to sustain the price revision pace. They will generate a cumulative impact. And next year, we'd like to have price revision equivalent to JPY 4 billion of this year to boost profit. Next, Ms. Miyasako, over to you.

I'm Miyasako of Mizuho Securities. First, let me ask about consumer products. I think you explained that the higher core operating income was caused by the effect of structural reform. And Mr. Fukuda talked about the price revision. But the price revision was in line with the plan. So please tell me what part of the structural reform delivered results, such high profit compared to the plan?

For the effect of the price revision, we need to consider the probability part and we did not anticipate that entire JPY 4 billion would be the straight contribution for the profit increase. But against the plan, more-than-expected portion delivered results. And we were able to grow volume in the areas where we thought we should grow and they contributed to the profit growth.

I assume that other total cost reduction, competition related costs and other costs have been saved?

Compared to the initial forecast of changes, the results were above. So that impacted the profit change in domestic business.

Was it a part of a structural reform effect or you just saved cost?

Basically, we changed policy, especially in Fabric Care business.

From pursuing volume, spending competition-related cost to the efficient business management, which changed the course and that transition is gradually delivering results. On the other hand, some consumer products seem to have difficulties in year-on-year comparison in Living Care and fabric softeners as well. It seems that spending less money, sales seem to be falling. How do you assess this?

When we switch tactics from the head-on competition, we must accept certain negative impact on sales. Since we promote structural reform, we do not want to back down. Next year, we'd like to be profit cautious. And when we reduce SKUs, we need to accept sales or share declines.

The second question is about the partnership with JAC. It says that you leveraged JAC's resources, expertise and network. But would you be more specific about the benefit of this partnership for your company? And you presented numbers, the magnitude of profit improvement before. But do you think you can achieve more than that? And whether you can bring forward this timing? Tell me how I should see those numbers?

We are now having a top management discussion. JAC commented that we lack speed in terms of the business target that we have already disclosed. So responding to this, we'll accelerate the speed. Concerning the promotion of the midterm plan, we will promote further with external suggestions and enhance the effectiveness. Though previously, it was difficult to achieve them only within the company. We are now discussing collaborations, cooperation over these points.

Do you mean that we can expect the achieving a quantitative target may happen earlier?

Whether we achieve target and announce in February next year, I cannot commit here as we are now discussing them. But at least, I understand JAC aims for it. Next, Hirozumi San, please.

And this is Hirozumi from Daiwa Securities. Can you hear me?

Yes. Please go ahead.

I have two questions. The first is that I would like to know the growth rate in local currency terms for overseas markets over the past 3 months. On Page 13 of the document, you showed the figures for January through September. Could you please tell me the figures for Thailand, Malaysia, China and South Korea for July through September?

Yes. Excluding the impact of exchange rates from July through September, Thailand grew 1.1%; Malaysia 8.2%; China 9.2%; and South Korea 5.2%.

As for China, you mentioned the white space earlier. And the [indiscernible], the other day said that the Oral Care number for China had decreased. Please tell me how your Oral Care business is doing in China?

Yes, it seems that sales are slowing down on the existing store basis. However, we are growing by expanding our own distributors network in the new areas where we did not have business before. So -- and by launching new products, by adding products, I think we are getting these benefits. So we are observing those effects.

Your outlook for Oral Care in China was originally very aggressive. And I would like to know your outlook now.

In the mid- to long-term basis, we are now discussing internally that it will be necessary for us to present the risks in our aggressive plan.

I see. Though it is growing, but there are also risk factors, right?

Yes, that's right.

Will we now fill that gap with new measures? Or will we fill it up with in other categories or in some other places?

At any rate, we need to secure growth in our total overseas business.

I see. So you don't want to damage profits by focusing too much on growth in China. That's what I meant to say. So please keep us updated. That was my first point. And I'm not sure how to ask the second question. I was surprised at the Japan's profitability. Just like everyone else, originally, major consumer products had a very high profit level, but it has been sluggish for the past few years. If you could achieve JPY 10 billion this year, is it okay for me to assume that Japan's profit level and the profit margin of general consumer products in Japan will rise up steadily from the next year onwards as in the past?

Well, I have to say, it all depends on what we are looking at. But when -- if you compare it to the past -- well, in the past, it was JPY 19 billion or JPY 20 billion, wasn't it? I think the level of raw materials and cost was quite different.

Yes.

So taking that into account, I think that the profitability will be at least the same or higher as before. However, the level of raw materials is still very high compared to around, say, 2019 and 2020. So I think that it will not return to the previous level. It's not that we think it is going to be okay not to return. That's not, I'm telling you. But rather than that, we want to make up for that by upward price revision or by selecting wisely the category portfolio for us to have.

I don't think I can get to the core of this point. But considering that the structural reforms are going well, are you confident that your company will be able to improve the profit margin of the consumer goods business in the next 3-year midterm plan? How confident are you compared to 3 months earlier or the 6 months earlier? 3 months in earlier, your project actually sounded very strong and aggressive. So 3 months have passed and how -- what kind of comment do you have?

I believe that the present technology is probably more confident.

Why is that?

Well, we are already getting to see some results. And with the help of JAC, I'm holding on to the idea of taking it even further. So that's where it's coming from. I think it will be fine.

I'm looking forward to really good numbers in next February. Thank you.

Thank you very much. Sorry to have kept you waiting. Ms. Sato, please.

This is Sato from Morgan Stanley. Can you hear me?

Yes, please, go ahead.

I would also now like to ask about the operating profits of major consumer products in Japan. On Page 27, in the breakdown by product category, it shows that Fabric Care was actually in the red last year according to the explanation. Among them, I understand that oral care and pharmaceuticals have high profit margin. But I wonder if there are other categories where profits can further increase significantly if the policy is changed a little bit. I'm wondering if you could tell us something in this area? I don't think you will tell us all the profit margins, but I appreciate if you could expand on the priorities? Or are there any changes that you have in mind?

Well, as we are not telling at this point for some time, pharmaceuticals and oral care have high profits. But the reason for this is that, for example, eye care and toothpaste, as you know, the categories where and the price range is gradually shifting upwards -- having high profit margins. For example, for fabric and living care, we are also aiming that direction. And rather than focusing on volume, we are not thinking about replacing the products that are a little more niche, but have a higher price range and are profitable. Although's this will take some time. However, I think that the key to improve profitability is to shift from low enterprise to high enterprise, where we have successfully created a price hierarchy.

Do you feel that fabric and living care can do a little more?

That's right. For Living Care, we think that we need to revise the profit structure for products like kitchen detergents, which are subject to the fierce price competition.

Understood. Allow me to ask my second question. For both [indiscernible] and your company, the effect of the structural reform is probably working well because the daily necessities market is much higher than expected, even when looking at SRI. I don't know if the prices are rising because your company is taking this action or is this because the market is becoming good. Besides the actions of you and other manufacturers are taken. How should I put it? Do you feel that there are no big changes on the side of retailers or the consumer side? Is it mainly the efforts of your company? Or how do you think about the improvements in this market? I would like to know how you view this an improved market. And also, things are getting better for you. And last year, you are right about actually foreign companies coming into this oral care product segmentation. That risk has gone. I'd like to ask you to expand on these aspects.

Yes. I think that trend was uplift in prices. This action was initiated by [indiscernible] and also by us, Lion. But for the retailers and shop side, rather than selling at a low profit margin and in large quantities, it is better for them to make a proper gross margin and maintain a reasonable price as this allows them to avoid having to worry about the price competition with surrounding stores. So I think that things are changing in this direction. And furthermore, as for consumers, food prices were the first to rise. So I think there are now kind of tolerance about the price hike among the consumers. However, as for the entry barriers, vis-a-vis an oral care products by foreign manufacturers going up or down. I don't believe that they are affecting us much.

I see. Well, probably you are right there in terms of our strategies. But you don't feel that those risks are going up when Japan is becoming profitable?

Yes. But of course, we need to be well prepared all the time though. Yes, thank you. Now everyone who raised hands at the beginning has asked questions, but I see hands again from the same people. Yamanaka San here, do you have questions, please?

I just want to confirm something again about the domestic consumer products. The effect of reducing domestic marketing expenses in the first half was JPY 1.9 billion. So it was JPY 1.9 billion in 3 months. So when you look at this year-on-year, I thought that the increase in profit was quite large due to the marketing reduction. If there is a substantial technical factor in marketing of NANOX one, should we think that you did not necessarily address dramatic increase your profit in the third quarter? Or rather is it that JPY 1.9 billion on the marketing reduction effect in the third quarter alone in close factors that have nothing to do with NANOX one, making you more capable to make money? I appreciate if you could further expand on those points.

Thank you for your question. The reform of the earnings structure to increase earnings power is progressing steadily. So I would like you to think that situation in January through June is still continuing and that there was also the backlog from NANOX one as a short-term factor. The reduction in competitive assets is partly due to efficiency and partly due to the fact that last year's NANOX one strategy has been eliminated, which has led to a reduction in advertising expenses. But what I think is particularly significant is the increase in the sales at the top, which is the gross operating profit and the change in the competition of this which has resulted in an increase of JPY 300 million. If the upward price revision has not been effective, with the oversales becoming quite large, the gross and profit decreased due to the mix would have been quite significant. If we subtract that, the decrease in gross profit due to the segment competition would be JPY 700 million -- negative JPY 700 million. So if we had not had have the JPY 2.8 billion, I think that amount would have been taken up by the change in the segment competition. So I think it's good that we are seeing positive results.

In your explanation, the domestic sales are up 0.5% in substance. Is it correct for me to understand that this figure excludes the rebound increase from the inability to ship Oral care and products last year due to the valuation of GMP by raw material supplier?

Sorry, I do not take that into account. It's several hundred millions of yen in terms of the impact. I see only JPY 700 millions. Now I see 2 hands up. So I will go one by one. And this round concludes the Q&A session.

[indiscernible], please. Sorry, this is my second round. I would like to better understand how we should think about the next year as for raw materials. Raw materials are not cheaper than expected? I think the trends of each company will differ depending on the competition of the contents. As for the drivers for the next fiscal year, we heard earlier that the reduction in fixed costs will be just under JPY 2 billion and that there will be a price increase of JPY 4 billion. But could you tell us your thoughts on raw materials for the next fiscal year?

Unfortunately, we are not saying that this is going to remain at a high level. It is difficult to say what the future holds for crude oil prices and others as they are affected by the U.S. presidential election and others. But palm-related prices are currently very high. So overall, I think it will break even now.

So that staying high mean that it will not worsen compared to this fiscal year?

Yes. It will be roughly the same as this year. Yes. Overall, I think it will be the same as this year level.

One more thing about China. You mentioned 9% growth in the third quarter, but I think it has grown by double digits in the past. How should we think about the China's growth next year? And is this growth pace is strategically acceptable to protect the profits?

Well, I think we'll have to slow down a little bit. But even so, we don't want to damage profits.

Is the slowdown due to the scale of being high and expanding? Are there any other local competition going on?

Yes, the economic downturn is having an impact on existing stores. If we expand our distribution network, well, how should I put it? Distribution efficiency will also decrease. So we need to keep an eye on that aspect and will not take double-digit growth as granted. As a result, we think we'll be able to maintain a slightly higher growth rate. Finally, Ms. Sato again, please.

If I may, I think you will talk about this in the future, but you have acquired a company in Bangladesh. And now that JAC has joined, have you suggested that your company's approach to M&A will change drastically in the future? Is there anything that you think will change?

Yes, we have started discussions and JAC is currently examining our company's approach and situations. And from now on, this partnership agreement with JAC is basically to focus on promoting our companies and policies. So I don't think there will be any major changes, but I hope that more specific capabilities will be evaluated going forward.

Considering that Lion focuses on Oral Care and pharmaceuticals, I think that there is a lack of content, so to speak, especially in the pharmaceutical field. For example, you can sell [indiscernible] only here in Japan. So I've always thought that the only way to address these points is going to be through M&A. What do you think about it?

I see. That's right. We have invested in a pharmaceutical manufacturing in Vietnam called Mirap, although it is a minority investment. So we are thinking about how to develop this company and how to incorporate it into the group activities I say. Thank you. I'd like to thank you for your questions. We are now past the scheduled time, so I would like to end the Q&A session here. Thank you indeed for your many questions. This concludes Lion Corporation's financial results briefing. Thank you indeed for your kind attention and participation. Thank you indeed. [Statements in English on this transcript were spoken by an interpreter present on the live call.]