Lion Corporation (4912) Earnings Call Transcript & Summary

This is Takemori, President, Lion Corporation. I'm quite grateful for this opportunity. I will cover these 3 points. I will particularly focus on the second stage of our medium-term management plan, which you have just mentioned. It will take about 35 minutes. I appreciate your kind patience in advance. First, allow me to explain the consolidated results for FY 2024. This shows the financial highlights. Sales of consumer products declined from the previous year, partly due to the impact of brand transfers and other factors. But without this impact, sales would have been almost the same level as the previous year. Sales increased in all major overseas countries, resulting in overall increase in consolidated sales. Profits achieved the figures announced at the beginning of the year for all profit items due to the promotion of profit structure reforms. This was the first time in 4 fiscal years that both sales and the profits increased. Net sales totaled JPY 412.9 billion, up 2.5% or JPY 10.1 billion year-on-year. Excluding the impact of foreign exchange fluctuations and the businesses and branch transferred from previous year to the first half of 2024, sales increased 1.5%. Core operating income was JPY 26.3 billion, an increase of JPY 6.1 billion or 30.8% from the previous year. EBITDA was JPY 45.1 billion, up JPY 7.1 billion year-on-year and EBITDA margin increased 1.5 percentage points to 10.9%. Each of the management indices also exceeded the previous year's levels. Here now, I'd like to explain the factors behind the increase in the core operating income year-on-year basis. The factors for the increase in profit shown in yellow totaled JPY 8 billion. Changes in sales and product mix and others amounted to JPY 3.9 billion, of which gross profit increase due to sales increase mainly overseas is positive JPY 2.5 billion and sales competition change and others is positive JPY 1.4 billion. This includes a JPY 4.2 billion effective price revision and JPY 2.6 billion decrease in gross profit due to the business and brand transfers. Total cost reducing was JPY 2.8 billion, mainly due to the raw materials and the impact of raw material prices was JPY 1.3 billion, with overseas operating being greater than expected factor in controlling costs. As a factor for the decrease in profit, there was a JPY 1.4 billion increase in competition-related expenses, which decreased in Japan due to efficiency improvements and other factors, but we were able to expand overseas sales as we had targeted. Other expenses increased only JPY 0.4 billion due to company-wide efforts to improve cost efficiency in response to higher personnel costs. Next, results by business segments. In the Consumer Products business, as I mentioned earlier, net sales decreased, but the business profit increased significantly, thanks to successful profit structure reforms and including a price optimization and streamlining of competitive costs. I will explain the sales by the sector later. Overseas business reported higher sales and profits due to the continued top line growth in major countries, while Industrial Products reported lower sales and the profits due to the market environment and other factors. This shows the breakdown of Consumer products. I will explain net sales by product category. Overall sales in the product category declined to 2.1% from the previous year. But as I may be repeating, excluding impact of the transfers, sales were down 0.4%, almost unchanged from the previous year. Oral Care and Beauty Care and Pharmaceuticals, which are the Personal Care business area of focus, all achieved year-on-year and the sales growth in real time, with a particular focus on Oral Care, which grew by 5.1%. In addition, sales of Fabric Care products decreased compared to the previous fiscal year and due to the backlash from the launch of new products in September 2023, but sales have increased in the most recent 4 months, October through December. Regarding Overseas businesses, and that drove increases in both sales and profit. Southeast and South Asian saw a real increase of 4%, excluding the impact of exchange rate and corporate income increased significantly by 22.3%. While Northeast Asia saw a real increase of 6% and core operating income increased by 13.4%. Profit margin increased in all regions, enabling us to achieve profitable growth. I have just explained about each region and the situation in the major countries in which we have presence is as shown here. All 4 major countries have seen a real external sales growth with China, in particular, increasing by 10.9% despite the rapidly changing economic environment. Overall, our overseas growth measures are making steady progress. Next, I would like to talk about the results of the measures we have been implementing since 2024. Reforming the profit structure of the Consumer Products business. First, regarding portfolio reform in the top half, we have made steady progress on all of the measures we set as the initial targets. As you know, we have made progress exceeding the targets we set at the beginning of the year in terms of increasing added value executing upward price revision, reducing the skills and streamlining competition-related expenses. In addition, with regard to business structure reform, we have made progress in consolidating production items and streamlining our production system as part of our profit structure reform in the domestic travel care field. Next, I would like to talk about our measures to strengthen growth measures for our Overseas business. In the countries and the regions where we already have presence, we have been working to accelerate the growth of our business in China and strengthen our position in the Personal Care field. As explained earlier, our Chinese business has maintained a double-digit growth and the proportion of the Personal Care products has expanded steadily contributing to our profit growth. In the bottom box, in the new countries and regions, particularly in the Bangladesh, we made a firm progress. From here on, I would like to explain about the Vision2030, the second stage. There are three points, I now like to expand on in this section. First, the performance levels and the management indicators we aim for. Secondly, our strategy to realize them. And finally, can we really achieve them, our group's capabilities for execution and realization. So allow me to expand on these perspectives. First, a review of the first stage. Sales were driven by Overseas sales throughout the 3 years, and we were able to achieve steady growth. However, profits fell as far short of expectations until 2023, due in part to the impact of rising raw material prices and deviations from plans for new domestic products. In response to this, from 2024, the final year of the first stage, we shifted cost to reforming our earnings structure, particularly domestically. And as shown in the graph on the right, our EBITDA margin recovered from 9.4% to 10.9%, excluding the level of 2022, the first year of the first stage. While we consider the continued growth in overseas markets that drove our overall performance and the growth in our main Oral Care business to the positive results. We also see major challenges in accelerating the improvement of profitability and reassessing our business portfolio to once again shift to the business that emphasizes effectiveness and efficiency. As already announced, after reviewing the first stage in the second stage, we will work to improve our corporate value with the theme of strengthening profitability. To achieve our Vision for 2030, we will increase profitability aim for management that emphasize efficiency and solidify the foundation for accelerating growth in the third stage. This is a vision for expanding our corporate value towards 2030. We aim to create a social and economic value by helping consumers develop positive, better habits to stay healthy with the aim of further improving our corporate value, we have now revised our performance image for economic value, as shown in the bottom right. In order to achieve sustainable profitability and improvement, we will focus particularly on EBITDA margin as an indicator of the cash-based earning power of our core business. As for ROIC, we will continue to work to steadily improve it while always ensuring that it exceeds our cost of capital. In addition, we will focus on continuing to grow our overseas business, aiming for 50% sales ratio. We will increase the proportion of Personal Care products in our overall sales and further promote the profitable growth, I mentioned earlier. In order to rank alongside the global computers, we will set these indicators as our targets for improving profitability and in particular, aim to achieve an EBITDA margin of over 16%. We are very committed to this mindset of exceed or exceeding. I would like to add that we are already considering concrete scenarios for further increasing margins that are not incorporated into the current plan. From now on, I would like to talk about the details of our specific process and strategies up to 2027, based on what I have just mentioned. This page is one of the key slides today. Our 3 basic process are strengthening our business portfolio management, strengthening the margin base and generating dynamism by simply implementing the measures based on this, we aim to achieve the key indicators shown on the right-hand side. The message we would like to convey on this page is that as milestones for 2030, we have set targets for 2027 of EBITDA margin of over 30% and ROIC of 8% to 9%. We are committed to achieving 13% and will exceeded in addition to focus on the growth and net profit, we will also aim for an average growth rate of earnings per share of more than 11%. In order to achieve this, we are placing particular emphasis on gross profit margins, and we will accelerate the promotion of measures that will lead to their improvement. Now I would like to explain our first basic policy, strengthening business portfolio management in detailing the role of each business and our management approach. As you can see, we have categorized our businesses into 4 and assigned goals to each. Note that the businesses listed include both domestic and overseas businesses. As I will explain later, we have positioned the Oral Health Care business as the group's most important business and will increase the allocation of management resources to it. Regarding structural reform business, we will proceed with transforming them into a business that generates stable cash flow by 2027 during the second stage. By promoting management based on the role of each business, we will strive to increase the capital return overall while also leveraging the synergies between the businesses to achieve sustainable growth. I will talk about the 3 specific points now: Oral Health Care, Overseas growth and profit structure reform for consumer products. First, regarding accelerating the growth in Oral Health Care, we'll work on these 2 themes, both domestically and overseas in order to drive the group's growth aiming for an average annual growth rate of 8%. The expansion of the target market that I will talk about next. For example, dental-related and health care-related services, new products are not included in this 8%. The 8% average growth is estimated by expanding our existing self-care products and increasing their competition. In reality, the new expansion will have an effect from the latter half of the second stage to the third stage onwards. Therefore, I would like you to think of this as an added plus alpha to our current plan. Now allow me to explain the direction we are aiming for. We will expand the scope of value we provide from the current oral hygiene, such as tooth decay and periodontal disease to oral function. That is the ability to chew, swallow and enjoy conversation. We will also expand our target market from self-care products to peripheral areas, including services and for products. We will develop new products and tools that are in line with the new era, evolving into an Oral Health Care company. Our strategic intent is to transform from Lion in Oral Care in Japan to Lion in Oral Health Care in Asia and to enhance and solidify our competitive advantage. We will become a distinctive company by promoting comprehensive Oral Care business, including services in addition to self-care products such as toothpaste and toothbrushes. To give a concrete idea of what the expansion of the target market means, I would like to use Japan as an example. Even with the decline in population, our sales of our self-care products have increased by 65% over the past 10 years by adding value and cultivating habits, and this has contributed to a 30% expansion of the overall market size. During the first stage, we leveraged our strength to expand our target market and launch multiple small service businesses. Please look at the right-hand side. On the bottom, you can see the dental care in the service for patients to develop good oral health and habits. We will start this April. As part of health care and education, we provide Oral Health Care programs tailored to the development children. As part of health management, we also provide well-being support services for corporations. We have already provided these services to 100 companies nationwide. Going forward, we will continue to refine the activities I have just mentioned, while working to expand our target markets in other Asian countries. This is also one of the key slides. It is a compass for penetration in Asian countries. We captured 3 types of market expansion opportunities depending on macro environment in development areas and dividing them in 2 areas for quantity increase with a spread of better habits and areas for unit price increase with added value. We will develop the corresponding marketing and the solution proposals, respectively. In Bangladesh and Vietnam countries with population bonus shown on the left, we'll spread the general purpose products and awareness marketing. In Japan, other areas of China and South Korea countries with deep population and super aging, we will offer disease and aesthetic solutions and personalized proposals working with dentists. Can Lion really achieve these? These strengths, our knowledge and expertise as the #1 Oral Health Care company in Japan, relationship with dentists and related organizations and academia. And last but not least, system to promote Oral Health Care across the group, which launched in January. By leveraging these strengths, we expand Oral Health Care, as mentioned. Second, we are strengthening overseas growth initiatives. We aim to strengthen strategies for profit growth in addition to sustaining top line growth and strive to achieve around CAGR 10% of sales growth and improved EBITDA margin by 2 points. In the first stage, we achieved growth -- exceeding market growth in major 4 countries, except Thailand and in China, we achieved double-digit growth. On the bottom left, the sales breakdown of consolidated overseas business in 2024 is shown. And 4 major countries account for almost 90% in our portfolio. We make varied top line investment and earnings reforms in these 4 countries with the strategic intent, respectively, and we achieved growth with profit in total. This slide is also one of today's key slides. I'll talk about the approach to achieving sales CAGR 10% and increased EBITDA margin by 2 points by country. First, as shown on the left, in Thailand and Malaysia, we have a strength of solid distribution capabilities of JV partners, which is not available to the competitors. Key point in the second stage is how we can change our business mix from Detergent to Oral Health Care, leveraging this strength. Positioning of Thailand is a growth driver of core operating income. Our Oral Health Care has a certain market position, including the #2 position of toothbrush, but still, it has a good growth potential. Therefore, our approval to expand Oral Health Care is to combine our global brand system and local brand to make price hierarchy and promote the shift to high value-added product. Positioning of Malaysia is a growth driver of sales and core operating income. Our approach there is the same as in Thailand. Our relative market position is not strong yet. So we will strongly leverage the distribution network, our JV partner further and expand our target. Next on the right, let me focus on China here. The key point is how we can promote shift to high-value added products in Oral Health Care and expand user base in the sluggish economy. The positioning of China is also a growth driver of sales and core operating income. Our approach is to accelerate the local production of value-added products, which were developed in research labs in Shanghai in a short period of time to improve gross margin, and we will effectively spend cost to expand into the untapped user base of 1.1 billion people, which is tenfold of Japanese population. This is a strategy to increase volume while sustaining the core operating income ratio. To be specific, we launched high function and high-end brand dent for dentists and high-end channels this year. I will skip the explanation of strategic points of each country today, though they are listed in the presentation. Let me touch on Vietnam. We invested in Merap Lion in 2023, and we began discussion with the consent of shareholders regarding the acquisition of all remaining shares to make it a wholly owned subsidiary. Our strength is the sales of high-profit health care product through doctor recommended models. By expanding this model into Oral Health Care and Skin Care, we will accelerate the expansion of the Personal Care field, and it will be a hub in South and Southeast Asia to expand business. Negotiation is progressing smoothly, and we expect to realize the acquisition and consolidation by the end of this fiscal year in a RE scenario. Next, reform profit structure in Consumer Products. We started initiatives in the previous year, and they have been delivering results steadily. But we added initiatives further by working on the 3 points. We accelerate the improvement of profitability and aim to improve the EBITDA margin by 3 to 5 points. This is also one of the key slides today. Those in blue started in 2024 and those in green were added in the second stage to increase EBITDA margin. In strengthening brand management through marketing reform, we will promote the product development, which will enhance the added value and productivity concurrently by brand and support market launch. I'll talk about the approach in detail on the next slide. In SKU reduction and related streamlining of supply chain, we reduced approximately 50 SKUs this year to optimize inventories, noncurrent assets and indirect cost. We also optimize procurement through global purchasing. The third one is our highest priority initiatives in the profit structure reform. In optimizing pricing and competition-related expenses, we expand the scope to mid-range priced toothpaste in 2025 and raise price by about JPY 3.5 billion in Consumer Products in total. And we also optimized competition-related expenses through a new trading system to improve sales of low-profit items. Through these initiatives, we will improve the EBITDA margin as shown on the right. Let me add a comment on the marketing reform that I mentioned before. We learned from the sluggish sales of new products in the first stage. And we will go back to our strengths of creating habits from the viewpoints of customers and promote evolution. We capture social trend in advance using various big data and AI technology and deploy development approaches to propose new habits. Furthermore, we will also implement efficient marketing leveraging advanced data. So far, I've been talking about the strength in business portfolio management. Next, I'll explain the second basic policy strengthening management base with 3 points as shown here. First, strengthening group R&D structures. Until now, product and the technology development were focused on Japan. But going forward, Japan and China, we will advance and innovate core technologies to brush up the technological source of the group. And every work site will lead product development to meet the consumer news in depth, which is beyond the task of global company. By identifying each role, we accelerate the creation of technological innovation and product development concurrently. A road map of core technology up to 2050 is already set in place. In Oral Health Care category, to promote healthy tooth development in childhood and maintain chewing function in old age, we will increase number of oral function researchers by 30%. And group researchers engaged and development for overseas will be over 40% of total. By enhancing human resources and leveraging external resources actively, we ensure the global research level improvement. Next, to further support the strengthening of profitability, we will devote DX initiatives. We have already identified the 13 top priority initiatives and started to work on them. They will directly affect the growth of Oral Health Care business and profit structure reform of consumer products. The financial initiative in strengthening management base is strengthening corporate governance. As press release today, along with the structure change to enhance flexibility of management and execution, we decided to appoint an external director as a Chairman of the Board of Directors to enhance the oversight function. We also revised the performance indicators in performance-linked stock-based compensation system for the closer link between KPIs and incentives. The final one of the 3 basic policy is generating dynamism. I talk about the 2 points listed here. First, brand asset utilization. We increased the value of the corporate brand, Lion, especially overseas and demonstrate presence throughout Asia. In product brands, we will invest in global brands, including SYSTEMA, KireiKirei, KODOMO for their further development to enhance the intangible assets of brand equity. Next, initiatives for human capital and organization. We enhance human capital value by encouraging individuals to enhance their expertise and through optimized human resources allocation and developmental leaders, we will create overall dynamism. I have been talking about management KPIs, strategy and its capability. This slide shows the performance target in the second stage. By executing the initiatives based on the 3 basics, we aim to achieve the performance targets shown here. Impact of consolidation in Vietnam, which we started discussion is incorporated as closing by the end of this year is assumed. With the progress of the initiatives that I mentioned today, we regard the strong EBITDA margin as a must-hit target. And by adding more initiatives, we will strive to exceed 13%. This is sales to external customers by segment. Overseas business segment will be a growth driver with a CAGR of 7.2%. And for the consolidated total, we aim to achieve 3% growth per year. Factors affecting EBITDA margin. One of our management KPI up to 2027. We expect to increase profitability with strong business growth by JPY 14 billion and the profit structure reform by JPY 12 billion, and we aim to achieve EBITDA margin of 11.7% in 2025 and over 13% in 2027. As mentioned, to improve profit structure, we will improve the gross margin under the policy to strengthen business portfolio management. At the same time, we optimize inventory, strengthened shareholder return, to strengthen balance sheet management with an aim to improve capital efficiency. In the second stage, shareholder returns policy. Basic dividend policy is to pay a progressive dividend that was adopted last year. And we aim to increase dividend every year during the mid-term plan. And we acquire and cancel treasury stock in a flexible manner, monitoring the progress of investment. This is also one of the key slides, cash allocation. Cash in will be higher than the first stage with operating cash flow generation of about JPY 150 billion after gross investment of more than JPY 90 billion and to prioritize dividend payment. After monitoring the progress, we will consider the acquisition of treasury stock. Growth investment include those for Oral Health Care and Overseas CapEx and M&A, including Merap. Besides this, for the future growth opportunity, we make additional investment for growth in Oral Health Care business. Furthermore, we are considering multiple cases of expanding into new countries and have already dispatched our employees last year. One of those targets is India. If we find an investment opportunity, we'll add investment. We have not decided go, no go. But in the case of go, it is not included in the plan. So it will be an addition. At the end of the presentation, consolidated results forecast for fiscal 2025. We expect sales and profit to increase for the full year of this fiscal year. Core operating income is JPY 30 billion, up JPY 3.6 billion or 13.9% year-on-year, and the margin will improve as well. We aim to achieve an EBITDA margin of 13% or higher in 2027, and it will increase to 11.7% this fiscal year. This is a must-hit target. And by prompt execution of the initiatives mentioned today and adding further initiatives, we would like to achieve higher results. In external sales forecast by segment, Overseas business will continue to drive sales growth and Consumer Products and Industrial Products will almost remain unchanged year-on-year. This is factors affecting core operating income, positive and negative factors are listed in the gross profit factors and SG&A factors, added value and upward price revisions are plus JPY 3.5 billion. Quantity effects are plus JPY 2.2 billion and the impact of raw material prices of minus JPY 2.5 billion and cost reductions of plus JPY 2 billion and the combined gross profit factors of plus JPY 5.2 billion, efficient SG&A JPY 1.5 billion, and we aim core operating income of JPY 30 billion. Finally, this is a shareholder return of this fiscal year. We plan to increase annual dividend by JPY 3 to JPY 30 per share, and the payout ratio will be 33%, and we plan for partial cancellation of treasury stock by the end of this year. This concludes my presentation. Thank you for your attention.

[Operator Instructions] I would like to ask Mr. Hirozumi to start.

This is Hirozumi from Daiwa Securities. Can you hear me?

Yes.

I am also excited and struggling to decide which question I should ask because we are allowed only one question. Please be a little more specific about the change in the [ gold policy ] in this time. The image of 2030. If I'm not wrong, it is now different from the previous one. Previously, the sales number was JPY 600 billion, and I think the operating profit was JPY 50 billion. I think the EBITDA margin was set to be 10% to 14%. Previously, it is correct. That time, the EBITDA margin has changed to 16%. So does that mean that there are no major targets for sales or corporate income or operating profit? Please tell us your thoughts on this.

Thank you for your question, Hirozumi-san. Initially, the goals we set during the first stage were indeed JPY 600 billion in sales and JPY 50 billion in the core operating income. This does not mean that we have lowered the flux, so to speak. But please understand that we are not aiming to reach that target by 2030. If we are too obsessed with this, the value of the company will be damaged and will not be able to achieve sustainable growth. In order to avoid this and above all, in order to achieve continuous growth in the capital market, please think of this goal as a number that we have as a visionary. So we are not setting a specific time line. The EBITDA margin and ROIC and the sales competition ratio listed here are all expressed as a percentage. This is above all for the capital market and for continuous improvement, and we aim to strengthen profitability. This is our will.

I see. That being, I think the amount, the yen value is very important. I understand that if you set sales figures, you will end up spending money if you push for sales. But I think it will be nice for us to get a specific amount of profit. Is there any profit number that you could disclose? I will ask Director Fukuda to answer this question.

Yes, this is Fukuda. We have decided not to disclose the numerical targets for 2030 to the public. We intend to continue quantitative expansion as an extension of 2027 target. But we do not believe that the business profit margin of the previously mentioned JPY 600 billion in sales and JPY 50 billion in business profit is sufficient, and we do not believe that JPY 600 billion of growth is necessary exactly by 2030. So we have decided not to disclose that information to the public.

That's all for now. But it's a little unfair. However, if you multiply that by 16% or more for EBITDA, I think it will probably actually exceed JPY 50 billion. Is that the correct way to look at it?

Well, that's definitely the kind of profitability that we're aiming at.

Next, I'd like to have Kuwahara-san, please.

This is Kuwahara from JPMorgan Securities. Can you hear me?

Yes.

Your explanation was very encouraging. And I would like to ask a little about so-called profitable growth. Since 2020, your company has been making considerable investments into growth. And as a result, even if sales increased, the portion did not easily trickle down to gross profit. However, looking at the factors behind an increase or decrease in core operating income for FY '25, the volume effect is listed as a plus of JPY 2.2 billion. If we subtract the value-added price increase portion from JPY 7.05 billion increase in sales effect on the previous page, the calculation shows that the volume effect will generate a margin of about 65%. Is it correct for me to understand that such investments and expenses have already been covered? And that the sales will now be able to contribute to profits properly. That's what I'd like to know. This is what you are going to do in the second stage. And I'm looking at performance targets. The increase in EBITDA calculated from the EBITDA margin and increase and decrease in core operating income and an increase in profits are quite similar. So now I'd like to confirm whether my understanding here is right. Even if the fixed costs have increased slightly, sales are properly reflected in profits. That's the way I have understood, please.

Thank you, Kuwahara-san. I would like to talk about the 2025 first term and 2027 second term separately in two parts. Is that okay? First, for 2025, the waterfall chart that I mentioned earlier, if you could show it, please. I think the foundation is in place. This added value and the price increase of JPY 3.5 billion is mainly for the domestic market. As I mentioned earlier, in order to gain domestic profit and earn profits, we are promoting a profit structure reform and we will increase this by raising various pricing such as the middle range toothpaste. We are not seeing a good results in '24. So we would like to accelerate these kind of efforts going forward. The main volume effect comes from the overseas. However, we will also aim for profitable growth overseas. Specifically, as I have already mentioned, we will shift the formulation of heavy detergents, especially in Southeast and Southern Asia, by changing from powder to liquid, we will increase profits. In addition, by increasing the proportion of Personal Care products overall, would like to increase the volume effects while also improving quality. We have established this foundation, and we'd like to achieve this in 2025, then carry it over to '27. This is a story of 2025. Now the story for 2027. As I have said before, for example, we have said that we will increase the EBITDA margin of consumer products by 3% to 5%. In this plan for 2027, we have incorporated up to this 3%. The difference of 5% from that plus 2% is currently 5% difference from the plan, and we are promoting profit structure reform in order to increase the EBITDA margin, which is not included in the plan. So we'd like to continue accelerating this while advancing the 3 themes written here. Kuwahara-San are you satisfied with this response?

Well, let me confirm one point. This improvement in the EBITDA margin for Consumer Products is based on a slightly different base. But in previous talks, I think you said that you want to quickly return to 10% business profit margin of 2020. By improving the EBITDA margin by the 3 percentage points, would you be able to return to the previous level of profitability that you are aiming for? Is it that you will go beyond the so-called the plus 5%? Or do you think that you will not be able to return to that level and unless you reach plus 5%. I would like to ask how far you can stabilize Japan's domestic base in the next 3 years to go overseas.

Thank you very much. I will have Director Fukuda, again, to answer your question.

This is Fukuda again. Kuwahara-san, I think what you said is right in terms of the profit margin, we have been aiming for. Yes, that was a kind of the story we aimed at. However, I think that the contents will be quite different from this year to next year and the year after. This year, we still expect that the raw materials will be a major factor in pushing down negative profits. And for the domestic Fabric Care business, we are currently working on improving the way we sell but the products themselves have not changed. So from now on, we will have to create a product lineup with added value. Our idea is to increase EBITDA margins by balancing these pricing measures with growth investments. So these are the major thoughts we are having. So we find ourselves in such -- on the background. So I would like to actually continue to make further efforts. Did I answer your question?

Yes, understood. So although various this change will change, we'll be able to achieve the profit margin, we're aiming for these 3 years?

That's right. In particular, we believe that an EBITDA margin is an appropriate indicator for expressing the corporate value to the public. And so we are placing emphasis on this -- this time with the aim of increasing our profit margins.

Next, I'd like to have Kawamoto-san for your questions, please.

This is Kawamoto from Jefferies Securities. Can you hear me?

Yes, no problem.

I would like to confirm what happened in the fourth quarter. I am looking at Page 17 of the presentation materials. In the third quarter, sales of Fabric Care were reduced by 20%, and the profit actually doubled. In fourth quarter, the Fabric Care grew by 12%, and the overall growth in Japan was 5%, but profits also grew significantly. So now I'd like to inquire here the background to this. Also, I'd like to ask you to not expand on your thoughts on sustainability. Also in this year, is it Airis fabric softener? I have heard that it will be discontinued. How is the impact of this being factored into your current plan, please?

Thank you very much for your question, Kawamoto-san. Again, I would like to have a Director Fukuda to respond to your question.

This is Fukuda again. Regarding the increase in the sales in the fourth quarter from October to December. This is due to the large fluctuations in sales quarter-to-quarter in 2023. May I remind you of that. First of all, we launched Airis in April, and then will ship all of the NANOX 1 in September. So sales in the third quarter in 2023 was very large. As a result, the fourth quarter of 2023 was not very strong, but sales have leveled out in 2024. So these are the points I'd like to ask you to keep in mind. Overall, both sales and profits exceeded the plan because for one thing the effects of price improvements and other measures were fully felt in October through December, and each field turned out to be -- increasing -- increased sales. This is not just due to the consumption tax but also not to increase the sales of industrial products in October to December. So we believe this contributed to this increase. I hope I answered your question.

How has the discontinuation of Airis being factored into your financial results?

We already decided to discontinue the product in the third quarter last year and recorded impairment losses for the disposal of inventory and the consolidation and the removal of the production facilities. So it has already been factored in.

And because of that, how much of a cost reduction effect do you expect this will have this year?

It's rather difficult for me to talk about the cost reduction effect by focusing on one specific product. But on the other hand, we still need to ensure that the remaining facilities continue to operate. So please understand that we are controlling costs within a certain framework.

Next, I'd like to have Ms. Miyasako, please.

I'm Miyasako from Mizuho Securities. I think the accelerated growth of Oral Care is very interesting. I think it's something that's been done for a long time. But this time, it was all talked about together. What's new what kind of execution of power you may have as a new factor? What's different from the past from Japanese on a global perspective? I think you mentioned something about the promotion system a little earlier, but could you elaborate a little more on that? What department is active and other types of information? So please tell me about that.

This is a page that is currently being shown. Until now, attempts to develop not only Oral Health Care products that address all the functions, but also the services have been made on a small scale for the Japanese market. We have finally reached the first stage where we can scale up from that small scale. However, until now, we have only been thinking about the Japanese market. Rather, the Lion Group will expand its business in Asia. I mentioned earlier that we are the Lion of Oral Health Care in Asia. In order to achieve that, we will expand what we are doing in Japan to our bases in Asia. Other countries, especially in the 3 shown here. This is the first strategic plan we have in mind. And now in the organization that Ms. Miyasako-san asked about, there are various scattered organizations within the group. We will consolidate them into one place and effectively advance the Oral Health Care business within the Lion Group. This is what is going to make us different from the past. In addition, as I mentioned earlier, the element of R&D will be very important in order to achieve this. Therefore, the research in personnel related to Oral Health Care, written here in the middle of Asia will increase the number of the researchers on Oral functions, allocate them and clarify the roles in Japan and each country to increase the probability of the realization.

What is different from past? Sounds quite difficult. For example, when you go overseas, in Japan, you can here in Japan get actually a good enrollment from Japanese patients and doctors. But that will not be necessarily the case, if I'm not wrong. So what is going to make different this time? What makes you believe that you can make it this time?

I understood your question. I'm a little unsure what kind of word I should be using. For example, in the Southeast and South Asia, as you know, business has been centered around Fabric Care up until now. In that context, the focus on Oral Health Care was somewhat weak, but that has been changed dramatically since last year. And therefore, as I mentioned earlier, the Southeast Asia and South Asia is a strength, not only in the distribution control that our JV partners have, but also in the strong pipeline of connections with the government and academia in each country. Up until now, we have not been able to utilize this but we have not paid much attention to that. Now we have the foundation to do so, and our joint venture partners are in agreement with that. This is a completely different situation. Of course, regulations and so on differ from country to country, but would like to pursue realism while starting these issues flexibly.

Finally, would you share with us the sales or profit targets, especially for the global Oral Care business, if you have them, please?

Mr. Suzuki, who is in charge of Overseas business will answer this question.

Thank you. In major 4 countries, as Takemori mentioned before, in Thailand, we have a certain presence. We have a third share in toothpaste there; and second, in toothbrush. We have been trying to grow toothpaste based on the position in toothbrush. Our target is to be #1 in toothbrush in Thailand in 2030. And the gap between us and the #1 is not so wide. In Malaysia, we are strengthening SYSTEMA, but local product needs continue to be strong among Malay people. So by capturing these niche, we'd like to achieve #2 or #3 position in toothpaste and toothbrush.

Next, Ms. Sato over to you.

This is Sato of Morgan Stanley. My question may be similar to that of Miyasako-san. First, I think the major change from the previous mid-term plan is that you put prominent focus on Oral Health Care business this time? Previously, you had 4 business portfolio, including infection control and the smart house work. But now you are focusing on Oral Health Care business, which was 1 of the 4 before, as top priority. Previously, you said that you also focused on pharmaceutical products, but now it is put in the challenge for growth business category, along with Beauty Care business, which includes hand soap. Are you going to say that you're focused much more on the Oral Health Care business with 80% of investment there rather than on hand soap or pharmaceutical product business where I thought you might have acquisition. Is my observation correct? And how about the investment? I'd like to have your comment on these.

I do not mean to be a company only with Oral Health Care business. But as Ms. Sato mentioned, we put top priority on Oral Health Care business and aim to grow it into the business player by growing its sales and profit. As I said, on the first stage, there were 4 areas. But they were not even -- in terms of capability, with strong contribution by some and not so by others. For example, in the smart house due to Kao and P&G, it was tough business. So I take the convergence as positive one because officially Oral Health Care had a strong growth potential in 4 areas in the first stage, and we will be able to materialize capabilities. Next, challenge for growth increase Beauty Care business and Pharmaceutic products business. And as shown on the right, we will limit investments to specific areas and categories, meaning Overseas will be major growth areas, including Merap Lion and also Personal Care, including hand soap and body soap overseas are included in the growth areas as well. I also think with JPY 30 billion or JPY 40 billion of operating profit, it is right to focus on one thing, if you are able to compete globally.

Going forward, I expect you to disclose Oral Health Care ratio rather than the Personal Care ratio. You said before that we aim to be #1 in Thailand, the Oral Health Care in 2030. And I think you have specific targets in each area. And I'd like to know the growth of Oral Health Care ratio in steadily growing Personal Care. As for investment, how is it going to be skewed in the growth investment of JPY 90 billion? In the case of Vietnam, is it going to be a wholly owned subsidiary because it is an Oral Care business?

May I? For overseas business, first, Mr. Suzuki will answer your question.

As for Vietnam, present business in Vietnam is mainly OTC and pharmaceuticals. But as you said, we'd like to put the Oral Care business on the business model track. Because previously in other countries, we had a tough time as global companies had already established position and massive investment was required. But in this business model, patients buy the product recommended by doctors at drug stores. So brand value is enhanced, and we don't have to spend the competition cost at point of sales. Thus, we were interested in that new business model and decided to invest in the company. So this endorsement supported by doctor's recommendation is often seen in other countries as well. Rather than competing in FMCG market, though we also need to sell at the supermarket to take the mass market share. We can establish foundation and are not only in Vietnam, but in other countries by deploying this business model. I see I have high expectations.

So if you let me know the annual growth of Oral Health Care business globally and in Japan, it will be easier to understand your business?

Thank you. In considering future KPIs for disclosure, we'll try to deepen your understanding and share the progress going forward with you. I see 2 people waiting for the question. So I'd like to take their questions before closing. Ms. Yamanaka, over to you.

I'm Yamanaka of Nikko Securities. I'd like to ask a follow-up question. You said that you aim to achieve a CAGR of 8% in Oral Health Care business. Results in FY 2024, let me confirm. Sales in Japan, JPY 76.6 billion. And you said that Oral Health Care in China is about 80% of total sales. So when I add them up, it would be about JPY 108 billion in my calculation. And do you plan to grow at 8% CAGR? Is my baseline correct?

Thank you. For numbers Executive Officer, Mr. Takeo, will answer your question.

I'm Takeo in charge of accounting. Thank you for your question. Currently, we disposed a number of Oral Care as a part of Domestic Consumer Products. But we do not disclose the Oral Health Care sales, including overseas sales at present. So sorry, I cannot disclose the results of Oral Health Care in FY 2024 here. But as we show the CAGR target, we'd like to consider disclosing numbers, including overseas going forward. Is it okay, Ms. Yamanaka?

Then can you show how Japan and overseas play out in this 8% then?

Mr. Fukuda will answer your question.

We assume high growth Oral Health Care in each country. In Japan, it is rather high about 5% of growth. And China's growth is double digit. In Southeast Asia, we aim for the growth of Oral Health Care to be higher than the overall growth in the country. And that do lead to 8% CAGR.

You said that Merap number is already incorporated. Can you tell us the scale of their sales?

Consolidation impact of Merap Lion is included in the forecast for this fiscal year, but not included in the Oral Healthcare business sales growth projection. So it will be an additional plus factor. Let me add a comment. It may partly overlap with a comment of Mr. Fukuda. But in China market, more than 85% of the business is related to Oral Health Care business. As mentioned before, there still is an untapped market of 1.1 billion people. So Chinese contribution will be large. And by shifting to the value-added product, in addition to the increased CAGR in top line, we'd like to increase core operating income as well. Is that okay?

Finally, Mr. Ohana, over to you.

I'm Ohana of Nomura Securities. I'd like to know the view of sales and profit of consumer product in 2027. You said that the EBITDA margin will be up by 3 points. And if the core operating income margin will also be up by 3 points, core operating income will increase by JPY 7 billion or so in my calculation. But net sales over 3 years will be almost flat in your plan. So do you include the impact of business divestment as it was in 2024? Then with the improvement of profitability, how will the business portfolio in Japan change?

Thank you, Mr. Ohana. For your question, whether business divestment or business transfer is included in the second stage up to 2027 or not was your question. No, they are not included. We are considering various things, but they are not included in the plan. This is the answer to your first question. For the second question about the business portfolio in consumer products, Mr. Fukuda will answer your question.

When Takemori said that the divestment is not included, he meant that gains on sales are not included in the target. We expect the sales increase in consumer products to be moderate. As a proportion of structural reform business in Japan is large in the process of business portfolio reform. So our forecast of growth is based on the assumption that low profit brands will continue to shrink or may be divested going forward.

I see. Then I think that I don't have to worry about sales as business divestment is not yet decided?

Yes, our forecast of sales is slightly conservative. On the profit side, we increased the EBITDA margin by 3 points. Overseas, in China, we develop high-end products. And in Southeast Asia, the proportion of Personal care Oral Health Care will be up, and the margin will be up by 2 points. So in Japan, profitability improvement ratio will be slightly higher than that.

Understood. One confirmation, please, is my assumption of improvement of core operating income in Consumer Products in 2027 by 3 points equals to JPY 7 billion, correct? Or since it is different from EBITDA margin, my assumption is wrong? How shall I see it?

One factor is new pharmaceutical plant will start to operate from the fourth quarter this year. So its fixed cost impact is slightly affecting. But excluding this, your assumption is mostly correct. Thank you very much. As we have run out of time, we'll close the Q&A session. Thank you for many questions, everyone. With this, I will close the financial results meeting of Lion Corporation. Thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]