Lion Corporation (4912) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I'm Takemori, President of Lion Corporation. Thank you very much for your precious time despite your busy schedule. Before I begin, I would like to offer my deepest condolences to those who lost their lives in the recent 2026 Kumamoto earthquake and extend my heartfelt sympathies to everyone affected by the disaster. The Lion Group has already begun providing relief supplies and other assistance to people in the affected areas. We sincerely hope for the earliest possible recovery and reconstruction. With that, now allow me to begin my presentation. In the second quarter for FY 2026 December, despite increasing uncertainty in the business environment due to developments in the Middle East, both sales and profit exceeded the levels we had initially projected at the beginning of the year. Today, I would like to explain the factors behind this and how we intend to deliver growth in the second half and beyond. First, let me highlight the key points. In the first half of the year, we achieved the targets we had announced and confirmed the steady progress toward strengthening our earnings power, one of the key objectives of our second stage. In Japan, Oral Healthcare, our highest priority business, drove top line growth. At the same time, our efforts to develop high value-added products and our investments in strengthening our brands are also translating into tangible improvements in profitability overseas. In addition to the new consolidation effects from Merap Lion in Vietnam and PNB in Australia, both of which operate in highly profitable businesses, there is another key point I would like to emphasize here. Our major markets are now on a recovery trend. As a result, core operating income margin increased by more than 20% year-on-year. We believe this demonstrates that our initiatives to transform our business portfolio shift toward high value-added products and manage our overseas businesses with a greater focus on profitability are steadily delivering results. In the second half onwards, as you are well aware, various cost increases resulting from developments in the Middle East are becoming more pronounced than they were in the first half. We intend to offset these changes in the business environment through a combination of measures, and we remain committed to achieving the full year targets we announced at the beginning of the year. Today, I'd like to cover these 4 key points. First, let me review our consolidated results. In the second quarter, net sales increased 8.7% year-on-year, while core operating income increased 21.3%. EBITDA margin, one of our key KPIs reached 11.8%, an improvement of 1.1 percentage points year-on-year, demonstrating steady progress in profitability as well. Next, allow me to explain the factors behind the JPY 2.7 billion year-on-year increase in core operating income. There are 2 key messages I would like you to take away from this slide. First, the primary driver of profit growth overall was the increase in gross profit resulting from our progress in shifting toward high value-added products. Second, underneath each factor, we have shown in the parenthesis the amount of change for the April through June period. As you can see, gross profit growth accelerated during April through June. In other words, our momentum is improving. At the same time, we incurred a JPY 1 billion negative impact from the higher raw material costs in the first half due to the developments in the Middle East, but were able to offset this impact. In terms of competitive standing, we are now continuing our investment in areas where we should go for further growth, particularly Oral Healthcare in Japan and our overseas businesses. At the same time, these investments are generating solid returns in the form of higher gross profit. You will also notice that the JPY 9.7 billion positive impact from higher sales on the far left and the JPY 5.3 billion increase in other expenses on the far right are larger than in a typical year. Next, let me turn to performance by segment. Both Consumer Products and Overseas businesses delivered higher sales and profit. Please look at the figures highlighted in red. In Consumer Products, our focus on developing high value-added products drove sales growth of 1.6%. In addition, measures to reform our earnings structure contributed to a 0.4 percentage point improvement in the profit margin. Overseas business, sales and profit both increased significantly, reflecting not only the impact of newly consolidated businesses, but also recovery in our existing markets and our continued focus on profitability-oriented management. Next, allow me to break down the Consumer Product business. In Oral Healthcare, our core toothpaste and toothbrush brands continued to grow. In addition, the premium priced SYSTEMA toothpaste line, which we renewed in April, has performed strongly. As a result, Oral Healthcare maintained a strong growth of 9.6%. In Beauty Care, body soap, which struggled during the earlier part of the year are now benefiting from the effects of product renewals centered on high value-added offerings. Home Care, although the top line sales were below the previous year, we have placed a greater emphasis on profitability while working to enhance the brand value. For categories such as fabric softeners, which have been affected by intensified competition, we are planning product initiatives in the second half. I will discuss this in greater detail later. While conditions vary by category, overall, we are able to grow a solid 2.9%, excluding the impact of the transfer of the REED brand. Next, allow me to turn to Overseas businesses. In the Southeast and South Asia and Oceania, performance was driven not only by the impact of newly consolidated businesses, but also by strong results in Malaysia, which contributed significantly to both sales and profit. In Northeast Asia, China has returned to a recovery trend, combined with a strong performance in South Korea. This resulted in underlying growth in both sales and profit. This slide shows the performance of our 4 major overseas markets. Sales momentum has improved in all 4 countries. I would particularly like to look at the underlying sales trends for January through March and April through June shown in the notes for each country. In Thailand, structural challenges remain, including lower exports and weak domestic consumption. However, as part of our efforts to transform the business structure, we have been strengthening initiatives in Oral Healthcare. These efforts are beginning to produce results and the overall rate of sales decline in Thailand narrowed substantially during the April through June period. In Malaysia, in addition to strong top-line performance, our pricing strategy for laundry detergents has led to a significant improvement in profitability. As we explained during the first quarter, we have been working to normalize distribution inventories in China. That process has now been completed. Since April, China has returned to sales growth, improving from 21.6% decline in January through March to 14% growth in April through June. We are therefore beginning to see a clear double-digit recovery trend. South Korea also delivered sales growth, led primarily by our highly profitable businesses. Against this backdrop, let me now discuss our full year consolidated earnings forecast. Let me start with the conclusion. We will not change the earnings forecast announced at the beginning of the year. We remain firmly committed to achieving it. In the second half, we expect the business environment to become even more challenging than in the first half, primarily due to developments in the Middle East. However, based on the solid progress we achieved during the first half and the benefits we expect from our key initiatives, I believe as President that we are fully capable of offsetting these headwinds. At the same time, we will continue making steady progress towards strengthening our earnings power as set out in the second stage strategy. Our vision to maintain the forecast should not be viewed as simply leaving our guidance unchanged. It reflects our determination to achieve the targets we originally set. It shows our strong will, and this is not simply a matter of determination. As President, I believe we have now built sufficient underlying strength and resilience in order to deliver these targets. In regard to the shareholder returns, we will also continue to aim for our 11th consecutive year of dividend increase. This is one of the key slides regarding our responses to developments in the Middle East. We have revised our assumptions regarding the factors affecting core operating income, including the impact of raw material price increases that are expected to become more significant going forward and the measures we intend to take to counter them. The table compares our initial assumption on the left and the overall total remains unchanged. The largest change relates to raw materials prices, we have revised the expected impact from negative JPY 1 billion initially to negative JPY 7 billion, representing additional negative impact of JPY 6 billion. Of this amount, JPY 1 billion has already materialized in the first half, with the remaining negative JPY 5 billion expected to take place in the second half. To counter this, we intend to build additional gross profit through the further price increases and cost reductions while also improving the efficiency of SG&A expenses, including competitive spending. Our revised assumptions also incorporate the impact of foreign exchange movements. What I have just described will by no means be easy. However, it is precisely because of the progress we have made in reforming our earnings structure that Lion has become a company capable of responding flexibly and swiftly to changes in the external environment. Next, I would like to provide some more details on the measures we will implement in the second half in order to counter the specific challenges. As I mentioned earlier, we expect the impact of higher raw materials prices in the second half to be approximately JPY 5 billion. Taking procurement lead time and other factors into account, we expect the impact on the results to peak in the third quarter as illustrated in the chart on the right. We will address this from both the gross profit and SG&A sides. First, with regard to gross profit, we will implement appropriate price pass-through measures in Japan and overseas, while simultaneously pursuing a number of other initiatives, including the development of high value-added products and improvements in the product mix. In Japan, we plan to revise prices across a broad range of products for shipments from October onward. Overseas, we are also implementing price increases progressively, primarily in categories where we have strong market position. In addition, through further cost reduction, we aim to offset approximately 80% of this JPY 5 billion impact through improvements in gross profit. Naturally, we will proceed carefully while closely monitoring market conditions and the competitive environment. At the same time, we believe that achieving appropriate pricing that reflects the value of our brands will not only support earnings this year, but also to help strengthen our earnings foundation for next year and beyond. We'd like to actually further expand on the actual efforts in order to actually improve our profit margin. So we'd like to actually allocate our resources in a better way. I would like to emphasize that sustainable growth simply cannot be achieved through the cost reduction alone. This is the most fundamental point I would like to emphasize. We will continue making investments that will generate further earnings while rigorously improving efficiency where appropriate. By maintaining the right balance between the investment and efficiency, we intend to offset the impact of developments in the Middle East. From here, I will talk about some key measures based on the policy we announced at the beginning of the year. First, let me review our first half results. We are steadily advancing the transformation into a highly profitable business portfolio. For our top priority Oral Healthcare, we have achieved group-wide growth of over 10%. Overseas, we are seeing a continued shift toward the personal care area. In addition, the consolidation of Vietnam and Australian business has made a major contribution to improving our gross margin and core operating income ratio. We see these results as reflecting the effects of the management process transformation, moving to a business unit system that integrates the value chain along with a greater delegation of authority, which has increased the speed of decision-making and execution. We hope to carry this momentum into the second half and translate it firmly into execution. Let me go into a bit more detail on the status of each business. First, Oral Healthcare in Japan. The biggest achievement of the first half was outgrowing the market in the high-end toothpaste segment priced above JPY 1,000, which continues to grow. Please look at the graph on the left. The yellow line represents the overall high-end segment priced over JPY 1,000. This segment itself continues to grow strongly, but the green line, our own high-end products, has outpaced it, showing the major growth of 131% year-on-year in the first half. The high-end line of SYSTEMA launched in April is also performing well, up roughly 1.4x year-on-year for April to June. In the second half, as shown on the right, we will substantially upgrade the regular line of the Dent Health brand priced around JPY 1,500. At the same time, we will continue to build up our highest-price line launched in the second half of the last year. Periodontal disease prevention is a category we naturally expect to keep expanding. As a category leader, we will keep strengthening various actions to broaden our brand base and drive growth in the high-end segment. Through this, we aim to further expand the group's sales and profit. Overseas, in Oral Healthcare, rather than applying uniform measures, we are, of course, pursuing strategies and tactics tailored to the characteristics of each country and region. On the left, in China, we are launching products in the growing high-end segment and strengthening our focus on priority channels that continue to grow. In the middle, Thailand, even though overall domestic consumption remains weak, the toothpaste market continues to grow steadily. We are expanding our customer base by revamping our brand image and having reexamined the target for each brand, we are expanding distribution in our stronghold areas. On the right, in Malaysia, unit prices, including the general-purpose price range continued to rise. Amid this, we added value in mainstay brands. Across Asia as a whole, the oral health care market is growing and unit prices, in particular, continue to rise. We'll keep strengthening our efforts to continue outpacing market growth. From the next page, let me give a supplementary explanation on China and Thailand. First, China. In Q1, sales declined due to optimization of distribution inventory. But in Q2, the launch of new highest-priced products under our mainstay brand and cross-brand marketing initiatives resulted in a double-digit recovery of plus 15% in sales, and we were also able to improve profitability. Building on this momentum in the second half, we aim to raise the presence in high value-added products, and we will further strengthen momentum by strengthening our engagement with emerging e-commerce platforms that performed well in the first half and doubling the number of key managed retailers carrying our products compared with the end of the previous fiscal year. While the macro environment remains challenging, we'll keep working to build mid- to long-term brand value so that we can sustain profitable growth. In Thailand, there are structural macro environment challenges. That said, the effects of initiatives we have pursued since last year, such as SALZ rebranding and expansion of SYSTEMA distribution, are starting to show up in sales. Sales growth has increased from plus 4% in January to March to plus 10% for April to June. SYSTEMA sales shown in the graph at the bottom left are also rising month by month. As with China, we will build on the first half results and in the second half, further advance key measures that we need to promote expanding brand penetration among young customers and expanding distribution. Next challenge for growth, the Beauty Care and Pharmaceutical Products business. In Vietnam and Australia, initiatives to realize post-consolidation synergies are taking concrete shape in each case. In Vietnam, in addition to stable growth in the pharmaceuticals business, we are also expanding our Personal Care business by leveraging various capabilities across the group's sales network. The Sukin business in Australia is progressing steadily. Going forward, we focus on expansion into Asia, including Japan. The recently announced establishment of Sukin Japan marks the first step in this effort. Leveraging our strong brand value, we push forward by developing their business while firmly securing profitability. Next, Home Care. In Japan, we are steadily executing product initiatives in line with our business portfolio strategy. We are working to build up high value-added products. As customer needs diversify, rather than competing on price and capital strength for the mass market, we continue product initiatives that create distinctive value using test marketing to create new needs and propose new habits that meet them. As shown on the left, the NANOX washing tub antimold ball launched through test marketing in the first half showed approximately 3x of the planned sales. In the second half, we will also strengthen our lineup of distinctive value fabric softeners and dishwasher detergent. By continuing these initiatives, we aim to improve profitability even with increased raw material cost. Finally, let me talk about the progress on the second stage growth strategies. Over the medium to long term, we aim to create value continuously, focusing on health care needs, mainly in Oral Healthcare. To achieve this, as I have discussed, second stage has clearly set strengthening profitability as a core theme. What matters here is not chasing short-term results alone, but shifting our focus towards growth accompanied by profitability and capital efficiency. Situations like this may occur again. But we are working to transform into a company that can generate profit even as the environment changes in various ways. And I feel real traction in our business portfolio transformation. First, on the left, accelerating growth in Oral Healthcare. In Japan, we are achieving high growth accompanied by profitability. In Thailand and Malaysia, through a review of management resource allocation, we are rebuilding our business foundation in markets with substantial room for growth. This is progressing well. As mentioned earlier, results delivered. In China, on the other hand, external environmental changes have caused a divergence from our original plan. I see this not as a temporary issue, but as a phase where we need to reallocate management resources towards areas where we can win. Now and going forward, we will sharpen our strategy and tactics further by clearly identifying the subcategories where our strengths can be leveraged in each country and region, for example, periodontal disease and aesthetics. At the same time, by creating a virtuous cycle between self-care products and services, we will expand profit opportunities beyond simply selling products. Next on the right, overseas growth. Overseas, we are advancing initiatives to create synergies. In major countries, due to geopolitical effects, we have seen some challenges on the top line relative to our original plan. But as I mentioned earlier, we are currently on a recovery momentum. In addition, I'm personally glad to feel that we are able to manage swiftly and flexibly with an emphasis on profitability. We continue to promote proactively our shift toward profitability-focused growth and optimization of our regional portfolio. Also starting this year, we have newly established a department to explore new export destinations. By pursuing new market development in countries where we have not entered, we expand future growth options while accelerating our overseas growth initiatives. To summarize today's content, the first half was a period in which growth in our high-profit business centered on Oral Healthcare drove steady progress in transforming our profit structure. Overseas, in particular, the momentum of sales growth has recovered. For the second half, we continue to expand in an uncertain environment, including the situation in the Middle East. That said, we do not see this as a phase of defense. Rather, we see it as an opportunity to accelerate value-added growth, improve profitability in our overseas businesses and develop new growth businesses, building a profit base that is resilient to external conditions. As one group, we will further strengthen structural reform aimed to achieve the target announced at the start of the year and continue moving forward while sharpening our focus toward the final year of the second stage. We continue to meet your expectation by sustainably building a profitable growth. We appreciate your continued understanding. That concludes my presentation. Thank you very much for your attention.

We'll now move on to the Q&A session.

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

Mr. Hirozumi, yes, we can hear you.

I'd like to revisit Page 14, which you described as a key slide and better understand how the numbers are structured. I think this is a very interesting table. Compared with your initial assumptions, the negative impact from the raw material cost has increased by JPY 6 billion. However, you are essentially saying that you will fully offset that through the 2 items in the top, quantitative effects and product mix as well as a shift in high value-added products and upward price revision. At the same time, you are also increasing SG&A expenses. Actually, the number there is JPY 7 billion higher than your initial assumption. Could you talk about your level of confidence in achieving these numbers? What are the specifics you have in mind?

Thank you for your question. This table shows our full year outlook. So if it's all right with you, Mr. Hirozumi, I'd like to explain it in the context of what we expect in the second half. First, regarding the JPY 5 billion negative impact in the second half, roughly speaking, we expect about JPY 3 billion in the third quarter and JPY 2 billion in the fourth quarter. So the question is how we could offset the JPY 5 billion. Let me explain our thinking. We intend to offset approximately 80% or roughly JPY 4 billion through the gross profit improvement. Of this, we expect roughly JPY 1 billion from the shift towards high value-added products and cost reductions, including overseas. We then expect about JPY 3 billion from the domestic price increase that we have announced. And also the -- and as you pointed out, Mr. Hirozumi, this is not just about this year. In particular, the JPY 3 billion benefit from the price increases will carry over in full into the first half of next year. As for the shift toward high value-added products, as we have discussed previously, we are shifting toward businesses and products that generate higher margins. Therefore, the JPY 3 billion from the price pass-through and the JPY 1 billion from high value-added products should continue to contribute in the first half of next year and beyond.

That gives me greater confidence in our outlook. You've just given us a fairly detailed buildup of the numbers, JPY 4 billion and JPY 1 billion, for example. Since these are based on the specific initiatives, would it be fair for me to say that you have high confidence?

Of course, we do not assume that every single initiative will deliver 100% of the expected benefits exactly as planned. We are living in the business world. But again, I happen to have strong confidence.

One last question. Is the confidence partly based on the fact that you have already demonstrated your ability to execute these programs?

Actually, starting from October, we are going to start working on actually the price pass-through. The most important point is whether the price changes actually materialize at the retail level. Ultimately, this comes down to execution across the distribution channel. As you are well aware, Mr. Hirozumi, October is generally when the retailers revise shelf prices. We, therefore, timed our price increases to coincide with those changes in October. It is not simply a matter of announcing a price increase. What matters is ensuring that retail prices actually change at the point of sales and that the plan is reliably realized. With the October implementation approaching, we have been coordinating with a range of measures and with many people concerned.

Understood. I look forward to seeing these measures to deliver the expected results.

Next, I would like to have a question from Mitsuko Miyasako.

This is Miyasako from Mizuho Securities.

Yes, I'm hearing your voice.

I would like to ask about the strong performance of the domestic oral care business. Looking just at the 3 months of the second quarter, how much did toothbrushes and toothpaste and the dental clinics channel grow? Also, domestic oral care achieved quite strong growth in the first half. I believe you have new products planned for the second half as well. Although I don't think you have disclosed an overall growth forecast for the second half, what level of growth are you expecting? And finally, would you please share your thoughts? Of course, you are able to enjoy good growth in oral care. And what's going to happen moving into the second half from the viewpoint of growth factors?

Could you share the Page 18? Yes. We have a number of categories, including toothpaste and toothbrushes, mouthwash and dental floss. Broadly speaking, the growth across these categories has been around 9.5% level as shown here. As for Lion Dental Products, our B2B business, serving dental professionals, it recorded roughly double-digit growth in the first half. Overall, we saw well-balanced growth across the various categories during the first half. Turning to the second half. There are a couple of factors we need to take into account. First, we expect some decline in the volume associated with the price increases that will take effect from October. In addition, the JPY 2,000 Dent Health product shown on the right-hand side of this page will begin to lap its launch from the prior year. So we are not assuming that the 9% or so growth rate will simply continue unchanged. This is one of the important points. And also as for the core operating income margin, progress has been in line with or better than our plan. We therefore see the core operating income margin as having improved compared with the previous year.

I see. I believe the sales were ahead of the plan. Am I correct understanding that the core operating income was broadly in line with the plan?

I'll ask Takeo, who is responsible for the finance accounting, to provide some additional detail on the figures.

Thank you. This is Takeo. Thank you for your question, Ms. Miyasako. Regarding the core operating income margin for Oral Care, strong sales of high value-added products throughout the first half resulted in a significant year-on-year improvement. Core operating income for the consumer products business also increased year-on-year. And I think it will be fair to understand that increase in the absolute amount of the core operating income from Oral Care was even stronger than that of the Consumer Products business.

I believe your full year growth assumption for Oral Care this year is around 4% to 5%. Given the performance so far, it is fair to assume that you now expect to comfortably exceed that level? And looking ahead to next year, given the significant acceleration you have achieved this year, should we expect growth next year to be higher?

Yes, we have gained considerable momentum in the first half. So as present, I would like to see us outperform the full year growth assumption. Looking ahead to next year, we are also laying the groundwork for the range of high value-added products and initiatives. Of course, we will need to take changes in the market environment and other factors into consideration. Did I answer your question?

Indeed.

Thank you very much. Next, I will take a question from Mr. Kuwahara.

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

Yes, no problem.

I would also like to come back to Page 14 and following up on Mr. Hirozumi's earlier question to confirm your strategy. If I calculate the figures for the second half alone, the contribution from quantitative effects and the product mix appears to be approximately negative JPY 200 million. Is that mainly the volume impact from the price increases you mentioned earlier? Or does it also include an impact from the divestiture of this Specialty Chemicals business? Could you walk us through the components? My second question is about the contribution from high value-added products and upward price revision, JPY 1 billion, and actually, JPY 4 billion gross profit offset you mentioned earlier are reflected. Regarding JPY 3 billion contribution from domestic price increase, am I correct in assuming that you expect to realize the full JPY 3 billion through October, November and December? If that's the case, you need to have the contribution of as much as JPY 1 billion. Is this coming from the Oral Care with heavier weight or the Home Care, maybe you would like to actually improve in operation performance. So non-oral care will enable you to actually go for JPY 1 billion. Is this the right interpretation? I wonder if you could help me in this regard.

I believe there are 2 questions. First, on volume impact. Our revised full year estimate is JPY 9.5 billion. As I mentioned earlier, the first half was JPY 9.7 billion. So as you correctly pointed out, that implies a negative JPY 0.2 billion in the second half. As for the components of that negative JPY 0.2 billion, there are positive contributions from Australia and the foreign exchange, among other factors. On the other hand, we have negative gross profit impact from the divestiture of the chemicals business and from REED. We are also factoring in some volume decline resulting from the price increases. So this is the response to your first question. In regard to the question on the high value-added products and upward price revision, we expect JPY 3 billion from the price increase to break down roughly into JPY 0.5 billion in the third quarter and JPY 2.5 billion in the fourth quarter for a total of JPY 3 billion. As you pointed out, we are also expecting a little over JPY 1 billion of additional profit contribution from high value-added products. Oral Healthcare will be the main driver, but it will not the only one. We also expect contributions from the new fabric softener line we can expect to have a benefit.

In regard to this JPY 1 billion, again, could you expand on that in the domestic market and overseas market? I think in the overseas market, you are increasing the personal health care. So I wonder if you could expand on the major drivers behind it. Well you believe that as far as this year is concerned, it is going to be the Japanese market as the major driving factor.

Yes. Actually, we have included contribution coming from the overseas. So the domestic -- actually, in the domestic business, we will actually go for the higher value realizations out of the high value-added products. Thank you. Next, we'll take a question from Mr. Miyazaki.

This is Miyazaki from Goldman Sachs.

Yes, I'm hearing your voice.

I also have a question related to Page 14, specifically regarding the price increases. First, just to confirm the numbers, you mentioned that the fourth quarter contribution from the price increases will be JPY 2.5 billion. On a simple annualized basis, it would add up to approximately JPY 10 billion. This is what you have announced the other day. You, of course, have good selling SKUs, and I believe you keep an eye on other companies' SKUs. Could you explain again the background to the price increase announced in July, the strategy behind them and how we should think about the impact heading into next fiscal year? So I appreciate if you could actually go through these points, including the strategy, please.

Certainly. As we explained in our press release, the range of the price increases varies somewhat by category. The degree of cost pressure from rising raw materials and prices naturally differs by category. For example, the cost headwind is a relatively significant in detergents, whereas it is comparatively smaller in oral care. We have determined that the magnitude of the price increase is based primarily on 3 factors: the negative impact of raw materials cost, our competitive position in each market and how receptive each category is to price increases. So of course, we need to keep an eye on the possible impact on the volume. So they are the important ingredients. And as you mentioned, actually, JPY 2.5 billion in the fourth quarter, again, a simple calculation x4 is going to be JPY 10 billion. Allow me to explain in regard to the next year. Actually, we have experienced actually JPY 5 billion increase in the raw materials and the price, and this impact is going to continue and how we can actually deal with this JPY 5 billion. Actually, JPY 2.5 billion on the quarterly basis. So 2 quarters make it JPY 5 billion. So we need to be able to address this JPY 5 billion while keeping an eye on the sustainable business growth moving forward. Did I answer your question?

If that is the case, it looks as though there could potentially be some upside next year, perhaps another JPY 2.5 billion. Although I appreciate there will be various other factors, should we interpret the fact that you have adopted this pricing strategy and you are now in a position to be able to implement it given you have the visibility of exceeding JPY 40 billion in business profit next year? I wonder if you could expand on those aspects. Are you optimistic?

I will say that at present, I'm not that optimistic. If I may, the next 1.5 years will be an important final year of the second stage of our plan. So I would like to take this opportunity to briefly explain as for these matters. Please -- taking a broader perspective as present, I am managing the company with a very strong focus on our earnings targets for 2027 and ultimately for 2030, the final year of our medium-term plan. Achieving those targets is important evidence that Lion is capable of delivering sustainable growth. I may be repeating the same point. The impact from the Middle East is going to be JPY 5 billion moving into the full year. With that impact carrying over in full into the first half of next year. Against that backdrop, we are targeting an increase in the core operating income from JPY 35 billion this year to JPY 40 billion next year, a gap of JPY 5 billion. Combined with the JPY 5 billion cost headwind I just mentioned, we need to be able to work on the following initiatives. I'm going to explain. The first, the price increases, the JPY 2.5 billion quarterly benefit that begins to materialize in the fourth quarter of this year and should generate approximately JPY 5 billion of profit growth. Then second, we will improve our product mix through the high value-added products while also increasing the volumes. We are building in a range of assumptions for both Japan and overseas, JPY 4 billion to JPY 5 billion of improvement from a more profitable product mix. That should enable us to bridge the JPY 5 billion gap. However, it's easier said than done. So we need to be able to tighten our management and mindset.