Lion Corporation (4912) Earnings Call Transcript & Summary

[Interpreted] Good afternoon. I understand that you have had a series of meetings today and must be quite busy and tired. Thank you indeed for your precious time to join us. I am Takemori, President and CEO. It is a pleasure to be with you. Today, now I would like to speak along these 4 points shown here. First, the highlights. Let me begin with a summary of FY 2025 results. By [indiscernible] and executing our second stage strategy, we achieved growth both in revenue and profit and improved margin, marking the second consecutive year of meeting our guidance. In our Consumer Products Business, in addition to improving profitability, we reinvested in the profit generated into nurturing high value-added products. As a result, we believe we have created sustainable growth momentum. In our overseas business, despite increasingly and challenging country conditions and the business environment, we shifted our management focus toward profitability. As a result, we secured both revenue and profit growth. FY 2026 this year will be a decisive year as we work toward achieving the targets of second stage. To enhance both the effectiveness and the speed of sales execution, we have reformed our management processes and shifted to a business unit structure centered on domestic and overseas operations, including the major portfolio actions announced today. I would like to walk you through these points step by step. First, let me present the consolidated results for FY 2025. As mentioned earlier, net sales were JPY 422 billion, exceeding our guidance by JPY 2 billion. In terms of profit as well, we exceeded guidance in all items. We believe we have made a solid start toward strengthening profitability under the second stage theme. Core operating income reached JPY 30.7 billion, up JPY 4.4 billion year-on-year. The breakdown reflects results in line with our targets. I will elaborate shortly. Please also note that the increase in operating profit includes a gain on step acquisition associated with the consolidation of Vietnam's Merap Lion. This slide shows one of the key charts for FY 2025 performance. The breakdown of the business profit changes. The plus and minus figures represent full year result. While the figures in brackets below, each box indicates the comparison between October through December periods. There are 2 key messages I would like to convey with this slide. First, one year ago at this meeting, we stated that we will aim to generate JPY 5.2 billion in gross profit for FY 2025. The result was largely in line with what we committed. Second, we said that in the second half, particularly from October through December, we would focus on expanding key brands and priority areas. As a result, we made concentrated investments in competitive expenses, mainly in domestic oral health care and new products gross profit shown in the blue brackets increased by JPY 3.5 billion, more than offsetting those investments and achieved healthy growth. While there were various fluctuations during the year, we believe that on a full year basis, profitability strengthened steadily in the direction we had targeted. Next, by segment. In Consumer Products, focused investments in high value-added products led to 1.6% increase in sales. Business profit margin improved by 1.4%, as shown on the far right of the table, driven by the efforts of structural profitability reforms. We believe that now sales and profit has been well balanced. In the overseas business, the effects of key initiatives in major countries materialized. In addition, with the consolidation of Merap Lion from July, both revenue and profitability improved. The specific numbers are indicated on the far right of the table. Here is the breakdown of the Consumer Goods business. In Oral Healthcare, our top priority category, growth and premium toothpaste drove a 4.7% increase. While Public and Living Care recorded revenue declines, the arrows on the right side of the page indicate the trend in profitability. Profitability has improved. This slide shows the changes for the most recent October through December period. Again, please focus on the arrows. Overall, we have been able to generate a momentum in sales growth. Living Care was affected by SKU reductions, but the product mix itself improved through the introduction of high value-added new products. Next, overseas. As mentioned repeatedly, we achieved both revenue and profit growth. There are two tables here. Please look at the top one first. Malaysia, shown by the arrow in the lower table, continues to perform strongly in Southeast Asia. In addition to Malaysia, the consolidation of the high-profit Vietnam business from July also contributed result in revenue and profit growth. The margin in Southeast Asia also improved by 1.5 percentage points. As shown in the percentage of the far right of the upper table, the margin improvement from 2023 to 2024 was 0.5 points. Therefore, since entering the second stage, margin have been improved steadily. One of the key drivers behind this has been the growth of Personal Care. Although the figures are not shown here, allow me to explain this probably. Thailand Personal Care and sales grew 106% year-on-year. In Malaysia, they rose to 109%. We are clearly seeing and achieving profitable growth. In Northeast Asia, China recorded revenue growth, while South Korea declined year-on-year, resulting in lower revenue and profit. For overseas operations as a whole, as shown in the total row of the upper table, net sales increased by 1.5% on a real basis. Previously, as we had shifted our focus toward growth, it has been rather difficult to improve margins as much as we would have liked. However, by firmly pursuing profitable growth, margins improved by 0.8 percentage points. Even under various challenging circumstances, we believe we were able to achieve both growth and profitability. Similar to the domestic business, this slide shows the changes for the most recent October-December period across the 4 key countries. Please focus on the arrows. In Thailand, product performance declined due to the continued decrease in export business caused by geopolitical issues. However, we strengthened personal care, particularly oral health care. As a result, domestic demand in Thailand grew steadily. In Malaysia, growth continued centered on renewed liquid detergent product. In addition, as in Thailand, Personal Care expanded significantly. In China, amid an increasing polarization of consumption, we set our brand strategy, at the same time, by strengthening channel management. Offline brick-and-mortar sales grew, enabling us to secure growth both in revenue and profit. Although South Korea was affected by the decline in exports to neighboring countries, the impact of recovery measures helped narrow the decreases in revenue in the October to December period. Next, I would like to discuss the results of the first year of our medium-term management plan. Before that, however, allow me here to briefly revisit our basic policy. Based on our core policy of strengthening profitability, we are implementing measures at achieving the management indicators shown on the right. In particular, I will now elaborate on the result of our key initiatives to enhance business portfolio management, the very first point. Accelerating growth in oral health care. Let me begin with conclusion. We are gaining solid traction. We have been focusing on priority development, both domestically and overseas, and the results are already visible in various countries. On the left in Japan, we successfully nurtured new products in the premium toothpaste segment, result in increased market share and total sales growth of 105% year-on-year. In China, we strengthened high value-added brands and implemented focused offline channel initiatives, as mentioned earlier. These efforts are steadily the bearing fruit with sales reaching 103% year-on-year. Moving on to the right-hand side. In Thailand, where we fundamentally reviewed our brand and channel strategies last year. Close collaboration with the local partners drove strong growth in October through December, resulting in full year sales growth of 114%, achieving double-digit expansion. In Malaysia, growth has continued to recover strongly, reaching 120%, driven mainly by the local brand, Fresh & White. Even in the markets where the global brand, Colgate is indeed present, we have demonstrated solid growth in both countries. We believe this momentum will continue into FY 2026. As mentioned at the beginning of the slide, group-wide oral healthcare growth came in at 5.2% compared with our initial assumption of 5% to 6%, which we view as a reasonably solid result. Reform of the profit structure in the Consumer Goods business. The initiative is also progressing steadily. We have achieved the KPIs for our key measures. This was not simply about cutting costs. It was the combination of upward price revision, a shift toward higher value-added products, and the focused strategic investments and competitive expenses that contributed to the result. The impact of these measures is also reflected in the improvements in the top line performance in the second half, as explained earlier. Summary of first year results and the key themes for this year. In overseas markets, the environment has been changing rapidly since the launch of midterm plan. In FY 2025 last year, we're able to respond to those changes and secure profit growth. However, we expect the challenging conditions to persist in FY 2026. Therefore, across the entire group, we will once again focus on nurturing high profit businesses and achieving growth accompanied by the improved profitability. I will outline the specific initiatives shortly. Moving on to this year's initiatives. First, as I mentioned [ premise ], the markets in which we operate are showing a clear trend toward polarization and consumption. In particular, high functionality, high-end products continue to grow. Across many categories, growth in high-end segment is exceeding overall market growth as evidenced by the data. The key question is how we adjust to this trend? In line with the portfolio strategy set out in our current medium-term plan, we will further strengthen our focus on high value-added products and increase investment in branding development. At the same time, we will enhance capital efficiency. Through these efforts, we will further advance the core theme of our second stage, strengthening profitability. As President, I am committed to driving profitable growth. This slide illustrates our ideal approach to portfolio management. In the current medium-term plan, we have clarified the role of each business, and we are implementing strategies aligned with those roles. In the upper right is Oral Healthcare, our highest priority business, both domestically and overseas. It will continue to serve as the main driver of revenue and profit growth, and we will pursue further expansion. To the left is our challenge business. With the acquisition of PNB in Australia announced in January, we have secured a new business platform. I will further expand on details later. In the lower left is the structural reform business. Today, we announced the transfer of shares in two chemical business subsidiaries. In the home care field, we have steadily advanced profitability and improvement measures and have already achieved a certain level of success in building a stable earnings structure. Accordingly, the arrows are now pointing upward. Today's presentation will proceed in line with this portfolio framework. Let me start with our top priority business, Oral Healthcare. In Japan, the periodontal care market is expected to continue expanding in line with rising health care consciousness as shown on the left. The key message of this slide is shown on the right. As a leading company in oral health care, we will promote these measures. We will strengthen functionality of mainstay brands, utilize new technologies in products for the dental clinic route, and penetrate services for professional and self-care to create a positive loop between them. We will advance our 3-pronged strategy and drive market expansion. In the case when capabilities to accelerate these activities exist outside our organization, we will actively engage with companies, governments and academia, or pursue partnerships and acquisitions to materialize the plan. This slide shows our measures to strengthen overseas business. As mentioned earlier, in Thailand and Malaysia, the toothpaste market is growing and our shipment also performing well. In China, the market is shrinking, and there is a risk that we might be absorbed in the trend, but we are still holding firm. The key message here is that there is still good room for us to grow. And with that in mind, what will we do this year? In China, while market risks continue to be expected, we will not pursue excessive quantitative growth. Instead, we will continue and strengthen our high value-added strategies. We will focus on profitability in channel development in offline channels. We'll strengthen initiatives with priority retail outlet. And in online channels, we efficiently leverage emerging platforms in Thailand and Malaysia. We delivered results last year. Collaborative brand and channel strategies proved to be successful. We accelerate profitable growth through this work with JV partners. Next, regarding our challenge for growth businesses, which include Beauty Care and Pharmaceutical products businesses. In this midterm plan, we aim to create new business opportunities and contribute to improve company-wide margin. Of course, Oral Healthcare remains our top priority business. But in our challenge for growth business, we have been exploring new business opportunities, primarily overseas while narrowing down investment target. In Vietnam, where the company became a wholly-owned subsidiary, we launched Oral Healthcare business, leveraging our channel network, key source of high profitability. In countries where we hold the #1 market share brand, we will pursue stable profitable growth. In this way, the challenge for growth business plays a key role in strengthening profitability. However, we believe that we need to shift into a higher gear to capture further growth opportunities. We decided to acquire 100% of shares of PNB in Australia. We received many questions, why Australia? Why Beauty Care and what are the synergies? This explanation will be a bit lengthy, but I'd like to provide a thorough response. Strategic aims are to establish and expand a new highly profitable business. We believe the Sukin business aligns with our strategy as it not only captures domestic demand in Australia, but also offers potential synergies with our operations in other countries, particularly in Southeast Asia. First, regarding domestic demand, Australia's GDP growth remains stable. and market expansion is expected going forward. Australia is also geographically close to Asia and so many Asian immigrants reside there. For our company, which focuses its business development on Asia, Australia is a highly attractive and compatible country. Why Sukin? What synergies exist? The Sukin brand has established a solid position as a natural beauty care brand in Australia and the company boasts high profitability. By extensively expanding the Sukin brand across the group, primarily in Southeast Asia and South Asia, we believe we can significantly grow our highly profitable personal care business. Actually, Singapore, one of our business area is included in the export destinations, and they already hold a certain market share there. We have high expectations of accelerating expansion in Asia. In Australia, we believe we can expand business in research, production and sales by teaming up with the local management and integrating our capabilities with PNB's business foundation. Going forward, of course, the expansion of Oral Health Care is also within our scope. Reflecting on the past M&A transactions where we failed to fully leverage acquired brand value, this time, we emphasize the following 3 points. First, clarifying growth scenarios and synergies. Second, establishing an operational framework that respect brand uniqueness. And third, strengthening the execution structure and governance in post integration. We believe the acquisition of Sukin brand will serve as a major starting point for creating mid- to long-term value with challenge for growth business in the group. Next, regarding the structural reform business aimed at achieving stable profitability. As announced today, we decided to transfer shares of two chemical product subsidiaries. We resolved to transfer shares of Lion Specialty Chemicals Company Limited, the core of our group's Chemical business and its subsidiary, IPPOSHA, Indonesia to AP88 supported by a fund serviced by Advantage Partners. Regarding our Chemical business, we continued operations while implementing measures to enhance business efficiency, including reorganizing group companies and improving profitability. However, amid the rapidly changing environment in recent years, we carefully reviewed the direction of this business, and that led to this conclusion. Home Care business also belongs to structural reform business. Focusing on improving profitability, we have shifted it into a stable profit business. It achieved a certain level of success primarily in Japan, but the current level of profitability is still not satisfactory. We will continue to implement the measures shown here, both in Japan and overseas, striving for stable growth and further profitability improvement. As mentioned earlier, the profit structure reform in consumer products is progressing steadily and the measures implemented in 2025 will show results in '26. This fiscal year, we continue to shift to high value-added products and supply chain optimization as well as delivering the effect of new measures to further strengthen profitability. Efforts to advance supply chain are progressing toward concrete materialization in particular, and we expect them to significantly contribute to EBITDA and ROIC as shown in our KPIs. Forecast of consolidated results and capital policy. Financial forecast for this fiscal year is as follows. Sales and profit will increase with core operating income reaching JPY 35 billion. We are steadily advancing toward our second stage target and are largely on track for our FY 2027 target. Note that the difference between core operating income and operating profit, JPY 5 billion includes gains from the sale of share in chemical product subsidiaries. External sales forecast by business segment. We expect continued growth contribution from overseas business bolstered by contributions from our newly launched business in Vietnam and Australia. The decline in industrial product is as explained. Year-on-year changes in core operating income. While business actions will bring changes, we expect an increase of JPY 9.8 billion in gross profit, driven by quantitative effects from overseas sales growth. Shift to higher added value products and upward price revisions mainly in Japan and cost reductions. On the other hand, an increase of SG&A, including competition-related expenses will result in a JPY 5.5 billion decrease, leading to a net growth of JPY 4.3 billion. Second stage, capital allocation. Centered on operating cash flow, we expect cash inflows of around JPY 150 billion over 3 years. Furthermore, the sale of chemical subsidiaries generated cash rooms and it leads to secure more capital than initially planned. How should we spend this? The top priority is growth investment. As shown on the right, from '26 to '27, we will prioritize growth investment in oral healthcare business, aiming to implement disciplined investment. As we will announce later, we plan to arrange an opportunity to discuss our strategy for profitable overseas growth and expansion of oral healthcare business on a later day. We'll further strengthen shareholder returns by flexible acquisition of treasury stock while considering growth investment based on annually increased dividend. Regarding shareholder return measures, we plan to pay dividend of JPY 30 per share annually for 2025 as initially planned. And for '26, we plan to increase the dividend JPY 4 from the previous year to JPY 34 per share. This will make the 11th consecutive year of dividend increase. Payout ratio will be 37.6%. Furthermore, as mentioned earlier, we consider acquisition of treasury stock and cancellation flexibly. We continue to steadily enhance shareholder returns while balancing growth investment with financial soundness. Finally, let me review the progress of Vision2030, second stage. Second stage progress in key KPIs. Margin improvement is progressing extremely smoothly. Profit structure reform shift to high value-added products and cost reforms are all delivering tangible results. Regarding overseas sales growth, given rapid changes in environment, we are implementing measures focused on Personal Care segment to achieve profitable growth, as mentioned. Regarding sales growth, we are flexibly redesigning strategies to offset that deviation from the [ inter ] plan, particularly in China by the contribution of other countries and regions. Accordingly, we continue to aim to achieve our target for 2027. To accelerate the group decision-making and the strategy execution to achieve the goal, as announced, we transitioned to a new organizational structure in January this year. Under this organizational structure, we will make a steady headway in measures that I described today. Today's summary. In Consumer Product operations, profit structure improved by strengthening profit foundation. However, overseas, we are clearly aware of the need to further enhance our ability to handle environmental changes. Therefore, in 2025, we will leverage the speed, agility and execution power gained from the organizational transformation, and ensure to achieve profitable growth by steadily executing each business strategy. Furthermore, we will advance growth investment in priority areas while further enhancing corporate value of Lion Group. This concludes my presentation. Thank you for your attention.

[Interpreted] We'll now move on to the Q&A session. Mr. Hirozumi, please go ahead.

[Interpreted] Yes. This is Hirozumi from Daiwa Securities. Can you hear me?

[Interpreted] Yes, Mr. Hirozumi. We can hear you clearly.

[Interpreted] First of all, I felt quite energized by your passionate remarks, Mr. President. I would like to ask about strategy, but inevitably, the numbers draw my attention. With the addition of new businesses and the exclusion of others this time, I'd like to understand how we should think about the overall impact? For example, regarding chemicals, that's the sales plan declining from roughly JPY 39.3 billion to JPY 25 billion. That's quite a reduction in revenue. And the core operating income was around 5%. I'm trying to understand how much this divestion affects net income? On the other hand, with PNB and consolidated, even if its revenue is not very large, I assume it contributes to profit. So when we consider both PNB coming in and chemicals going out, how should we think about what is entering and what is leaving the portfolio?

[Interpreted] Thank you for your question. Allow me to respond to your question at a high level. Focusing on the formulation of the FY 2026 plan. As you pointed out, both the acquisition and the [ divestment ] are reflected in the plan. Starting with the sales. Very roughly speaking, the combined impact of Chemicals Australia and Vietnam results in a net negative effect of approximately JPY 2 billion year-on-year. However, this JPY 2 billion represents less than 1% of the consolidated revenue. So we believe it can be fully absorbed through our existing businesses. To be more specific, the divesture of the Chemicals business results in approximately negative JPY 14 billion impact on revenue. When combined with the contribution from Vietnam and Australia, the net income -- net impact comes to around JPY 12 billion. As for the business profit, at the operating profit level, the divestiture of chemicals actually has a positive impact. So Australia and Vietnam are making contributions to the profit. OTC and profitability, Australia on the full year basis, actually, the Skin Care and Beauty, actually, its margin is quite good at the general perception of the profitability. So this is the point I'd like to ask you to keep in mind.

[Interpreted] My last question, on Page [ 23 ], the dilution impact starts to be reflected from the second half, correct? PNB is the one that start beginning to contribute. Will these effects carry over into next year as well?

[Interpreted] This has become somewhat technical, and I'd like to ask Takeo to respond.

[Interpreted] Thank you for the question, Hirozumi. This is Takeo. PNB was consolidated on January 20. So its results are included in our consolidated figures from that date onward. Regarding Vietnam, it has been consolidated since July last year. Therefore, when comparing FY 2025 and FY 2026, FY '26 reflects a full year contribution, whereas FY 2025 included only the half year effect given such a positive impact. As a result, the negative impact on LSN is almost fully offset at the core operating income level.

[Interpreted] Next, I'd like to have Mr. Ohana, please.

[Interpreted] This is Ohana from Nomura Securities. I'd like to ask about the transfer of the 2 chemical subsidiaries. Well, to be honest, I may not fully understand the business scope, whether LSN was focused on detergents, specialty chemicals and graphite electrodes, or other products. I wonder if you could, kind of, explain what advantage or disadvantages this divesture has for your consumer products business?

[Interpreted] Thank you for your question, Mr. Ohana. Let me state that conclusion first. The stock transfer of these 2 chemical subsidiaries will have no material impact on our domestic consumer products business. Please rest assured on that point.

[Interpreted] So there's no significant impact on overseas operations either?

[Interpreted] That is correct.

[Interpreted] Were these subsidiaries mainly producing detergent-related chemicals?

[Interpreted] Broadly speaking, the business consists of two areas. Internal supply and external sales. On the external sales side, products include anti-sticking agents for automobiles and the materials used in the components for EV batteries. Regarding your question, one of the key products is the raw material used in the fabric softeners.

[Interpreted] Next, I would like to have Ms. Kuwahara, please.

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

[Interpreted] Yes, we can hear you.

[Interpreted] I would like to ask about your view for FY '26 from the perspective of the DHP ratio. In other words, the core operating income margin, as well as the level of business profit and also about the progress toward achieving the medium-term management plan? First, for FY 2026, the core operating income margin appears to be approximately 8.1%, which represents a 9% year-on-year increase. You have explained the profit drivers. But looking at it by segment, should we understand that both domestic and overseas businesses will be driving this improvement? Or is it mainly domestic? And as for the domestic side, what are the main drivers? For example, will oral care further improve its DPF? Or will home care, which had been identified as a reform area? Finally move out of losses and begin raising its profit margin? I would appreciate some clarification on these points. Secondly, regarding progress toward FY 2027 under the medium-term plan, if we look simply at the profit level, for example, JPY 35 billion and then another JPY 5 billion. It would appear that reaching JPY 40 billion is quite achievable. Is this progress in line with your original assumptions? Or are you somewhat ahead of the plan? From our perspective, considering that the full year contribution from PNB and will be included next year, progress appears somewhat favorable. How does management view this? I would appreciate your comments in these regards.

[Interpreted] Thank you, Ms.Kuwahara. Let me share the slide here. Can you see the screen now?

[Interpreted] Yes, I can see it.

[Interpreted] First, regarding whether there is any upside potential to the FY '27 profit level, to set the conclusion first, we are not necessarily optimistic. That said, there are no specific negative factors either. However, as we have mentioned, economic conditions in China and Asia are changing so rapidly and the visibility even 1 or 2 years ahead remains quite limited. Therefore, the current business profit level we have set should be understood as a minimum target. We aim to achieve this level without fail as we work toward FY '27. There are no negative factors embedded, but we have set this level after carefully considering the various international uncertainties. As for FY '26 this year and when we expect margin expansion? As shown on this slide, we anticipate a volume effect of JPY 5.5 billion and JPY 3 billion from higher value-added initiatives. In conclusion, we intend to raise the business core operating income in both domestic and overseas markets. Referring to the waterfall chart for domestic operations, the second number from the left, plus JPY 3 billion, represents the higher value-added products and price revisions, which will primarily drive profitability improvements. Meanwhile, the volume effect, JPY 5.5 billion largely reflects overseas growth, including contributions from Vietnam in the first half and PNB, among others. So the volume growth and mix improvements are mainly overseas driven, while higher value-added initiatives and pricing are primarily domestic driven. Did I answer your question?

[Interpreted] Just one follow-up regarding your domestic business. For the high value-added initiatives, is this simply due to steady expansion in oral care? Or as Mr. Takemori mentioned at this same meeting last year, are you also seeing benefits from production and process integration, particularly in home care, where categories such as detergents, which had previously been loss-making were brought back to the breakeven and are now positioned for growth? In other words, when we talk about influence from higher value-added initiatives, which factor is more significant? To what extent will Home Care stop weighing on overall profitability? How do you see Home Care's impact on overall margins in FY 2026?

[Interpreted] Yes. Overall, in terms of the impact, the improvement in the core operating profit margin of oral health care has the largest effect. That said, as Mr. Kuwahara pointed out, Home Care has also made significant progress. In FY 2025, we succeeded in substantially improving its profitability in real terms. Therefore, in FY '26 as well, although we will refrain from disclosing specific percentage, we believe there is still more room for further improvement. This growth will not come solely from the efficiency measures and the cost reductions we have implemented so far. As mentioned earlier today, we are also introducing new initiatives such as new detergents designed to promote water-saving [ laundry ] habits. By combining these efforts with improvements in sales quality, we aim to achieve further growth with enhanced profitability.

[Interpreted] Next, I would like to have Mr. Kawamoto, please.

[Interpreted] I would like to look at what occurred in the fourth quarter on a 3-month basis? I am actually looking at Page 6. There are 3 items shown. And under the profit impact, there is positive JPY 2 billion. Last year, this was negative. But from the third quarter to the fourth quarter, it is plus JPY 2.1 billion. This may include Vietnam, but could you break this down between domestic and overseas? Also regarding the JPY 1.3 billion price effect you explained, again, how would you break that down between domestic and overseas? For this year's outlook, you are guiding for JPY 5.5 billion volume effect. How would that split between domestic and overseas? Given that the industry environment appears to be quite competitive in terms of volume, I would appreciate if you could share what kind of structure or initiatives enable your company to set such ambitious volume target?

[Interpreted] Thank you Mr. Kawamoto. Let me explain using the waterfall charts for FY 2025 and FY 2026, respectively. First, regarding FY 2025 and the yellow section of the chart, I will ask our Accounting Officer, Mr. Takeo to explain the domestic and overseas breakdown.

[Interpreted] Thank you for your question, Kawamoto-san. Just to confirm, you are asking about the breakdown between domestic and overseas for the profit increase and decrease factors in the fourth quarter, October to December, am I right?

[Interpreted] Yes.

[Interpreted] First, regarding the positive JPY 2.1 billion volume effect. In regard to this volume, positive JPY 2.1 billion, most of them are coming from overseas. We have benefited out of the consolidation effect of Vietnam. On the domestic side, however, as shown in the text in the above box, the impact of the brand transfer completed at the end of October result in a decline in gross profit. This negative effect is included in this figure. So while overseas contributed positively to volume growth, domestic consumer goods were negatively affected by the brand transfer. This is the breakdown of the JPY 2.1 billion. Next, regarding the JPY 1.3 billion from higher value-add initiatives and price revisions in the fourth quarter, out of the full year JPY 3.6 billion, JPY 1.3 billion was recorded in the fourth quarter, broadly in line with our initial annual forecast of JPY 3.5 billion. This was almost entirely domestic, including effective price increases such as reductions in product volume accompanying product actions. Now please look at the FY 2026 waterfall chart. I will here focus upon the two items on the left. First, the positive JPY 3 billion from higher value-added products and price revisions. This is primarily from domestic side. Next, the volume effects on the left-hand side. This is mainly overseas. To give the rough figures, Sukin and the Vietnam together contribute up JPY 8.5 billion and existing overseas markets contributed about up JPY 2 billion, totaling roughly up JPY 10 billion. From this, the exit of the industrial business results in a negative impact of around JPY 4 billion, leading to a net positive approximately up JPY 6 billion. EBIT margin actually getting improved through the domestic [ BT ] initiatives, which was mentioned earlier. By adding these measures within this year, we aim to generate incremental upside in domestic operations beyond what is currently reflected in this plan. Ms. Kawamoto, does this answer your question?

[Interpreted] Thank you for your clarification. You said that volume increase in existing market is plus JPY 2 billion. In the previous year, China was strong. And will China continue to serve as a driver this year? I had a concern over Japan-China relationship. And in the Q4 of the previous year, China grew 16%. So would you comment on the content of this JPY 2 billion, please?

[Interpreted] I'd like to talk about this in detail in future. But let me give you the overview. We'll stop aiming to achieve double-digit growth in China. Based on the last year and the latest results, we'll strive to achieve the steady target of 102% to 105% of the previous year this year and the next. We will offset this with personal care centered on oral health care in Thailand and Malaysia, as mentioned earlier. We expect to see the growth of approximately 105% in 4 priority countries. Thailand, Malaysia and South Korea, excluding China. With this, we'd like to achieve that target mentioned earlier. Did I answer your question?

[Interpreted] Next, Mr. Ogaki, over to you.

[Interpreted] I'm Ogaki of Okasan Securities. I'd like to confirm the upward price revision in Japan. Last year, you said that the price increase for middle range price toothpaste was delayed in Q3. Were you able to raise price? I'd like to confirm this as sales grew due to the shift to value-added products. And in this year, in which category do you expect to increase prices?

[Interpreted] Thank you, Mr. Ogaki. I'd like to talk about last year. Honestly, in mid-range price, toothbrush and toothpaste, we were able to raise price, but margin improvement was lower than our expectation. There were two backgrounds. For one, as mentioned earlier, consumption trend showed prioritization. High-end products are growing, but mid-range and low-end products are struggling. So although we raised price, but margin did not follow. Second, this is only about the toothbrushes. Toward the end of last year, we had more campaigns for toothbrush than usual. As a result, campaign price products mix increased and the results for mid-range price products were not in line with the plan. Going forward, the price increase of mid-range product and the low-end toothbrushes will be more difficult. Next, second half of your question, what shall we do this year and onward? We'd like to focus on SYSTEMA, Haguki Plus, Kyusoku Jikan and the new line of hadakara with focus on our strong high-priced product, upper side of polarization and optimize pricing. Looking at the progress of price increase impact, it was about 52% against the plan last year. This year, against the plan of JPY 3 billion, progress will be about 72%. If we achieve this, we'll be able to hit the initially announced target. Did this answer your question?

[Interpreted] Next is Miyasako, over to you.

[Interpreted] I'm Miyasako of Mizuho Securities. I have a question about the company in Australia. You spent much time in your presentation for its explanation. And you said that you expand it to oral healthcare in future. Would you tell me about its time frame?

[Interpreted] Time frame to expand to oral healthcare business, expansion this year is not likely. In the next year and onward, we will head for the third stage, and that will be the timing. In challenge for growth business, first priority is to establish the profitable business quickly. We will leverage the domestic demand in Australia and the launch of these products in Southeast and South Asia shown here, I'd like to make it happen in 2026.

[Interpreted] I think you don't have experience like this before. Do you let them manage the company independently? How are you going to manage this company?

[Interpreted] That's an important point. If we approach as we did with partner companies in Southeast and South Asia, it will not succeed. We may succeed the way of local management, but have a firm grip, and ensure governance as a group with sound autonomy to establish a down towards profitable business in Australia.

[Interpreted] I think you could concentrate more on oral healthcare business. Is this expansion really necessary?

[Interpreted] Yes. To deepen your understanding of the context, let me talk a bit. In this type of transaction, we need to be mindful of the counterpart and the timing of negotiation. This time, this transaction came first by chance. Oral healthcare remains a top priority. That's unchanged. We are exploring multiple oral healthcare business opportunities all the time. It's not that we quit Oral Healthcare and [ took this ]. We continue to explore oral healthcare opportunities, but this transaction happened to come first. That said, this is a challenge for growth business. As Lion Group, establishing a highly profitable business is our mission, and this transaction met the requirement.

[Interpreted] I see. In Oral Care, if you do M&A, of course, I understand you cannot be specific. But would you give me any clue? For example, in China and Southeast Asia, what type of acquisition would be useful for you?

[Interpreted] I hope you understand that I cannot disclose everything. I talked about how we will expand oral healthcare business through dental clinic route and professional and self-care will be connected seamlessly as shown on the right of this slide. We'd like to fill the missing piece in this diagram. We are not thinking only about a simple toothpaste or toothbrush brand, but we would like to enhance the capability to realize this diagram.

[Interpreted] Will you do this in Asia as well?

[Interpreted] Yes.

[Interpreted] I think the first round of question is now over. Do you have any more question? Mr. Yamanaka, over to you.

[Interpreted] I'm Yamanaka of SMBC Nikko Securities. I'd like to ask a follow-up question about the price increase in Japan. You said earlier that the effect of price increase was less than your expectation. In Q4, you spent JPY 1.5 billion for marketing and the sales growth in Oral Healthcare was strong overseas. But the growth is slowing down a bit from the third to fourth quarter. Does it mean that the business in Japan is slightly behind against the midterm plan? Or have you already put measures in place? You have a briefing later, but please let us know more.

[Interpreted] Thank you, Yamanaka-san. To be frank, I think that there is nothing to worry about. Top line growth in Japan is 4.7% in Oral Healthcare as shown here, and the profitability is improving as shown on the right. Only a part of this price increase in mid-range price product was behind the plan. But [ dent health ] and other high-end products are growing steadily. Top line growth and profitability in Oral Healthcare in Japan have nothing to worry. So you can rest assured.

[Interpreted] You mean that including mix, nothing to worry. Is that right?

[Interpreted] Exactly.

[Interpreted] We still have a little more time. Hirozumi-san over to you.

[Interpreted] I'm Hirozumi. I have a question on Page 11 related to Kawamoto-san's question. As far as I recall, in July to September quarter, Thailand declined by about 10% and China dipped likewise. South Korea declined also 5% or so. And in October, December quarter, Thailand continued to be weak, but China recovered. When you answered to Kawamoto-san's question, you said that China will be up 2% to 5% in Thailand, Malaysia and South Korea will be up 5%, showing the improvement in all areas. Would you tell me about your confidence or probability of this change?

[Interpreted] Let me start with Thailand. As you know, issues with Cambodia have wiped out about 7% to 10% of GDP of Thailand, and that was reflected in the first half results. But much of that, about 60% of cross-border trade across Cambodia's border was related to body of Shokubutsu Monogatari. And we found a way of hedge by exporting them via Malaysia as a group, and we will continue to do this. Additionally, we have confidence about the domestic demand in Thailand as initiatives for oral healthcare worked well. With their expansion supported by domestic demand, we believe we'll be able to reach 105%. Another key point is in China. Let me share a slide. As shown here, during January to September, there was a recovery from the period October to December. This might look like an optimistic trend, but let me talk about the reality. Due to efforts in Q4 last year and during the Chinese New Year this year, products were put in place in distribution tunnels. After that, due to a slowdown in Chinese economy, certain level of distributors' inventory exists in China. But this is not a structural issue, and we expect that to clear in Q1 from January to March quarter. And the business in China will recover in Q2. But based on the level of the previous year, we thought that our forecast should be more or less conservative as a business. That is what is indicated here. Is that clear to you?

[Interpreted] Is the indication for 5% for Malaysia and South Korea, likewise the same?

[Interpreted] In Malaysia, partly due to government policy, the consumption was robust last year and that will continue this year. Additionally, as described here, our liquid detergent and local brand, Fresh & White grew more than market. We are confident that they will continue to serve as drivers and that will sustain the growth in Malaysia. In South Korea, we listed as 105%, but there are may be some risks. But with our strong high-margin products of capsule-type detergent and hand soap, we'd like to moderate the decline in South Korea.

[Interpreted] As it's almost time, we'd like to close the Q&A session. Thank you for your many questions.

[Interpreted] Thank you for your participation. Please bear with me a few more minutes. Amid many earnings calls, thank you very much for joining us. As we received some questions in advance, let me add comments about overseas business. We have clarified, identified the role of each country. With profitable growth, we will pursue volume growth of high-margin product. This is our primary mission. With this in mind, we divided the market into 3 categories. By sustaining percentage of margin, we increase profit in Bangladesh, Vietnam and Malaysia, as mentioned. We will increase percentage of margin by change of sales mix in Thailand and China. We will implement a variety of initiatives monitoring the situation, sustaining percentage margin in South Korea. Depending on the economic and competitive environment, we identified the different role of each country, where to grow, where to sustain and where to secure profitability. Naturally, in doing business, we will face many ups and downs, but we will keep our target of 10% growth of overseas business for 2027. And we'll continue to have engagement with you to share the progress in due course. This is my final message today.

[Interpreted] Thank you very much again for participating despite your busy schedule. [Statements in English on this transcript were spoken by an interpreter present on the live call]