Milbon Co., Ltd. (4919) Earnings Call Transcript & Summary

Allow me to start today's presentation covering the key points for fiscal year 2024, following the order shown in the presentation documents. In terms of the key points for fiscal year 2024, domestic hair care products in our business in South Korea continued to drive growth, resulting in increased sales and profits exceeding our plan. Looking at regional performance, hair care products, including Aujua have driven the growth of our domestic business in Japan. Both our product quality and educational activities provided for salons are highly evaluated by the market. Although our hair coloring products still face challenges, things are looking up as the number of salons introducing our products, particularly Villa Lodola color has increased. Overseas, a very strong performance in South Korea offset continued weak sales in China. Additionally, the weaker yen boosted sales growth, resulting in overall overseas business results aligning with our plan. In terms of profit, as announced in the third quarter, we recorded inventory write-downs primarily for our hair dryer product in the fourth quarter and fully utilized SG&A expenses as planned. However, despite this, full year operating income results exceeded our plan. Next is the consolidated statement of earnings. Consolidated net sales surpassed the JPY 50 billion mark for the first time in what we believe was a positive milestone for us. Both sales and profits exceeded the plan. The waterfall chart on Page 5 shows the factors behind the year-on-year change for consolidated operating income. The most salient item was an increase in gross profit due to higher sales. This was coupled with an increase in gross profit margin, although this was primarily an artifact of an inventory write-down in the previous year related to our hair dryer product. While we did indeed register an increase in various costs on a year-on-year basis, such as in personnel expenses, et cetera, we were more than able to offset these and grow operating income by over JPY 1.3 billion. Next are the differences compared to the plan. So going back to what I said earlier, we utilized the SG&A expenses that were unused in the third quarter, generally as planned and also recorded inventory write-downs. However, due to strong sales, operating income exceeded the plan. Next, for the financial results by region, divided between our operations in Japan and overseas. Milbon posted sales and profit over performance versus the plan for the domestic Japanese market. While the weaker yen boosted overseas sales results, even excluding foreign currency tailwinds, net sales still showed steady results and grew by 7.2% in this segment. That said, on the profit side, business in China was affected by deteriorating macroeconomic conditions. This, coupled with other factors, ultimately translated into a slight underperformance versus the fiscal year 2024 operating income plan for the overseas segment. Despite this, overall, we succeeded in growing sales and operating income. I would now like to go over the financial results by region, starting with Japan. As I said earlier, hair care products delivered strong results, driving higher sales and profits. Looking at the results for each product category, sales of hair care products were up 9.4% on a year-on-year basis. Hair coloring products continue facing a challenging market environment, although we are gradually starting to see green shoots, which we hope will blossom going forward in the form of a positive result performance. Third, the cosmetics category showed tremendous growth. Specifically, we registered very significant growth associated with new product lineups in the first half. Some challenges remain, but this was nevertheless a rather significant year-on-year increase in sales. Next, we registered a quarterly net sales performance in line with company estimates as shown in the vertical bar graph in the middle. Lastly, quarterly operating income also came in more or less in line with company estimates, which takes seasonality factors into account. Page 10 contains a summary of the progress made in terms of the execution of key strategies in Japan as of the end of fiscal year 2024. President Sakashita will be going over the progress made in depth in a moment, for now, allow me to direct your attention to the numbers for milbon:iD. The number of salons that have adopted the use of milbon:iD stands at 6,566, above the fiscal year 2024 plan of 6,500. EC sales too came in above the fiscal year 2024 plan. Another key strategy is the rollout of smart salons. We were initially aiming for a footprint of 100 salons by the end of fiscal year 2024, but our strategy here has undergone a bit of a shift as we now want to focus on replicating successful salons and have started making good progress toward this end. Lastly, our third key strategy pertains to the sales promotion of high value-added hair coloring products. Here, Villa Lodola color has done fairly well in terms of the number of salons carrying this product line, although we believe this will only start translating into sales going forward. Next are the financial results by region overseas, starting with South Korea. The performance of each product category was robust in South Korea, resulting in sales and profits exceeding the plan. As you can see from the product category table, hair care products delivered the best performance, posting a year-on-year sales growth of 17.6%. Hair coloring faced some headwinds, but sales from this product category have since then recovered somewhat, and we expect further growth. We continue seeing a strong quarterly net sales trend. And although we recorded a large operating income drop in the fourth quarter, this was in line with company expectations. Specifically, this was the result of an increase in hiring and the execution of multiple events. So there is no cause for concern whatsoever on this front. Next is a status update for our operations in China. The Chinese economy itself is undergoing a period of macroeconomic headwinds. So while we do expect these challenging conditions to persist, we continue the steady execution of initiatives targeting each individual salon, and this approach is gradually bearing fruit. Looking at the results by product category, hair care performed well, delivering 3.6% year-on-year sales growth despite a challenging business climate in the country. Hair coloring products saw a large sales slump, but starting in the third and fourth quarters, this product category is now on a gradual recovery trend. Because of this recovery trend, we are hopeful in terms of results going forward. The quarterly net sales and operating income trends are as shown in the vertical bar graphs. Last in the overseas segment are the results in the U.S. end market. This market has posted very strong results with a very strong sales performance. Looking at the various product categories, hair care products delivered a very strong 13.8% increase in sales as did sales of hair coloring products, which were up 10.4%. We were unable to follow through with our plans in terms of sales activities, but we nevertheless registered strong growth. Looking at the quarterly net sales trend, one might get the impression that we recorded a significant year-on-year increase in the fourth quarter versus the same period during the previous fiscal year. However, as you can see in the slide notes here, sales for the fourth quarter of fiscal year 2023 were lower due to the temporary suspension of shipments caused by the changeover of distributors. This made for an easier year-on-year comparison in fiscal year 2024. So this is something to take into account. Lastly, operations in this region are yet to reach operating profitability. We have plans to continue growing our employee headcount in fiscal year 2025, but we expect to continue incurring a number of expenses. That said, we view these as upfront investments eventually leading to market share growth for us and to profits. So we don't view these operating losses as being at all concerning. This concludes my presentation. Thank you for your time.

Good morning, everyone. My name is Hidenori Sakashita, President and CEO of Milbon Company Limited. Thank you for taking the time off your busy schedules to view today's financial results presentation. Last year marks my first year at the helm of Milbon. There was a lot for me to learn in this first year, and it was with this spirit that I engaged with stakeholders in the financial results presentations for the full 2023 fiscal year, for the first half of fiscal year 2024 and over the course of one-on-one meetings with investors and analysts. Allow me to use this opportunity to thank stakeholders, investors and analysts for their time during these various events and meetings. Perhaps there were things I could have done better, but I incorporated and digested questions, feedback and advice from stakeholders as well as their vote of confidence in the process of revising a management policy for Milbon. As President and CEO, I had the opportunity to visit approximately 300 salons in Japan and overseas and learned firsthand the challenges they face. Within this scope, I thought long and hard about a growth and management strategy capable of bringing higher sales and profits to salons and about Milbon's overall role. I would like to use the next 25 or so minutes to expand upon these strategies and our role and share my vision with you. In terms of agenda items, I will be discussing initiatives in Japan and overseas in 2025, the medium-term management plan running through 2026 and lastly, our long-term vision beyond 2026. As Managing Executive Director, Murai mentioned earlier, we delivered a sales and profit overperformance in 2024, which was a year of steady growth for Milbon. Allow me to start with a review of fiscal year 2024. A key point in our domestic operations in Japan was the segment of hair care products which drove strong growth as a key element in our growth strategy. Our new product line for Aujua, which was released last year and new product items within the Elujuda brand, both exceeded company expectations and drove overall sales for the hair care category. Additionally, the market scale for hair coloring solutions is significantly correlated with population trends. Results for Milbon's hair coloring products have contracted slightly in fiscal year 2023 in Japan, but ended up growing on a year-on-year basis in fiscal year 2024. Admittedly, this was a small increase, but this underscores how high value-added hair coloring care products, primarily Villa Lodola has been well received by the market even amidst challenging business decisions. In cosmetics, we have developed what we call the [ Kami Mayu ] concept, which is a portmanteau of the Japanese words for hair and eyebrow. The idea here is to offer eyebrow solutions to hair coloring product customers to match their hair color. These eyebrow products have been well received and posted strong results, making a contribution towards overall sales targets. I would now like to discuss overseas markets, starting with South Korea. Market expansion has been progressing at a fast clip in South Korea as Milbon worked together with up-and-coming salons operated by young stylists. These collaborations translated into growth in terms of our presence and brand awareness in the country. Milbon now holds large-scale events geared towards young stylists, and these have translated into greater retention coming our way into heightened market expectations. Conversely, market growth has stagnated in China due to declining consumer sentiment in the country. Despite these headwinds, we performed relatively well. Specifically, sales were down slightly for the full fiscal year, but it should be noted that we actually grew slightly in the second half. The situation remains difficult, but we believe this is the right time to lay out a framework adapted to changes in the market. Our operations in the U.S.A. have now entered a growth trajectory. Here, we focused on the West Coast, which is a trend-setting area and especially in Los Angeles. Thanks to these efforts, Milbon now has the #1 position in terms of in-store share for the distributor in the state of California. Our strategy in the U.S. is to give exclusive rights to one company per region for the sale and distribution of our products. We currently have contract agreements with 9 companies in North America, all of which have exclusive distribution rights for their respective region. Most of these are distributors run by the company owner, and there is considerable overlap in terms of the business set and model and the manufacturers they have relationships with. Naturally, L.A. is a special market within the United States. So having been able to capture the #1 spot in terms of share with this L.A. distributor allows us to catalyze the other 8 distributors. We are, therefore, looking in anticipation of further positive developments in this business. I would now like to go over the initiatives for fiscal year 2025. The first topic of discussion is issues in hair salon management in Japan and Milbon's role. Many industries and companies in Japan face a declining customer base resulting from the country's declining population numbers. Another headwind has been inflationary pressures. In light of these issues, we believe that a management strategy capable of overcoming these challenges and delivering growth needs to have strong value-added and pricing propositions. We believe this could be the case for Milbon as well as for salons. What areas then can salons leverage in terms of pricing proposition? The answer can be found on the left-hand side of the table on Page 17 under the title of Salon service menus. Please refer to, for example, hair coloring and in-salon treatment services. Menus offer different price points, offering different levels of attention and service. So the idea here is to develop menus with multiple value add propositions. Naturally, these menus depend on the stylists technique and degree of expertise. So a key issue here is devising ways to enhance training and education options for stylists. Against this backdrop, Milbon's role is to formulate high value-added hair coloring menus and in-salon treatment menus and to create products that make these possible. Another important role is helping stylists when it comes to training and education. That said, the overall customer pool is expected to continue dwindling over time. So I don't really view salon service menu as constituting a growth strategy per se. Rather, the core of our growth strategy starts with superior customer experiences, leveraging the high value-add proposition by the salon service menu items shown on the left and ultimately culminates with take-home products as shown here on the right. The ability to leverage menus to incentivize the purchase of take-home products is, therefore, key to the growth strategy. Naturally, hair salons sell hair care products and cosmetics. However, they are some challenges that need to be addressed? The challenge is in selling these products and creating an environment conducive to customer purchases. I believe there are plenty of lost opportunity when it comes to product sales at hair salons to which only around 15% of people who visit salons make product purchases. This percentage has stagnated at around 15%. So I believe a challenge here is putting in place the infrastructure to incentivize purchases. As such, Milbon's role is to facilitate the creation of infrastructure leading to product sales and consumer purchases. It goes without saying that Milbon's core business is the sale and development of products that are attractive and useful to customers. But in today's day and age, this alone is no longer enough, and there is a need for us to help put in place this infrastructure. Specifically, this infrastructure refers to an environment and framework, making it easier for sellers to share product information with customers to environments and frameworks, making it easier for customers to seek out and obtain information themselves. It is also an environment and framework making it easier for consumers to purchase products. The answer to the infrastructure problem is milbon:iD, which is the key to Milbon's growth strategy for the hair care category and smart salon initiatives beyond that. I would now like to go over the various initiatives as it pertains to salon service menus and the sale of take-home products. First, our salon service menus. Milbon offers a variety of proposals to customers covering the gamut of its hair coloring product brands. Here, we will continue offering safe and secure high value-added menus through our Villa Lodola brand of organic hair coloring products and offer menus and operating beauty trends from South Korea. We want to help salons further develop their pricing options and power from securing brand recognition to creating menus specifically requested by consumers. Another important aspect is support to stylists through technical training. The hair salon industry has embraced varied and diverse work and lifestyles in recent years, making it more difficult to offer technical training outside of regular work hours. Additionally, there has been a large increase in stylists working while also raising children. I believe these are very positive developments and very forward-looking. These open the door for in-salon training sessions by Milbon field persons during regular work hours as a way for us to help salons further improve their value-added proposition and consequently, their pricing power as well. We believe these in-salon training sessions are a good example of Milbon's unique positioning and our focus on training. Milbon has over 120 educators. In fact, if we include our sales field persons, we have 300 people. In other words, only Milbon has the ample resources needed to carry out these training activities, which we view as being both a very important and effective strategy. The core component of our stylist training efforts is Milbon's sommelier training system, which we will be further developing and expanding. For the sake of brevity, I won't be going into details, but in broad strokes, this sommelier training system is as described on the left-hand side of the slide. Stylists who pass Milbon's training program are certified as Beauty Sommelier. To give you an idea of the difference in the performance as shown here in the table on the bottom right-hand corner, salons employing sommelier have a higher percentage of customers who choose in-salon treatment menu options and better sales results. Next, our initiatives in terms of the sale of hair care products. We continue executing our strategy of offering high value-added hair care products with Aujua as our flagship brand and released our new Alterior line in February of this year. This is a hair care product line for damage caused by multiple concurrent factors like aging, hair coloring and bleaching. These products benefit salons through improved pricing power for in-salon treatment and growth in take-home product sales. Our Aujua line isn't restricted to product sales since this brand also includes professional products for salon application. In other words, our Alterior line covers both salon service menus and the sale of take-home products as has always been the case with the Aujua brand. It is conducive to more pricing power for in-salon treatment offerings and to take-home product sales following memorable customer experiences. This is the standard Milbon playbook. Moving on to cosmetics. The proposal of eyebrow and [ makeup ] products in conjunction with hair coloring was met with great success last year, and we have plans to launch additional products in this area. We will also be launching new versions of our skin lotion offering that we believe will create a loyal customer base who keep using this product, promoting higher sales through the sale of cosmetics. It is the infrastructure I mentioned earlier that underpins the sale of multiple products. First is milbon:iD. We were targeting 1 million registered users by 2026, but things have been going so well that we now anticipate reaching this target 1 year ahead of schedule during 2025. The target for 2025 is 1.07 million registered users. By enhancing purchasing convenience of the milbon:iD platform, while keeping an eye on the ratio of active purchasers and the number of purchases as KPIs, we seek to help achieve growth in the hair care category according to the formula shown here. Next is our Smart Salon initiative, which we launched in earnest last year. As of the end of 2024, we had already launched 62 Smart salons in 50 cities. Multiple salons have enjoyed an increase in the product purchase ratio. Earlier, I mentioned 15% as the average purchase ratio. But here, we have the example of a purchase ratio of 17% prior to the transition to Smart Salon after which the ratio shot up to 25%. This is one of several examples. The salon in the case study I just cited seeks to double the initial take-home product purchase ratio to 35%. In fact, some salons are even targeting ratios of 40%. We also have data on amounts purchase of Milbon products at Smart salons. On average, purchases of Milbon products in the first year as a Smart salon increased by 18.6% compared to the pre-Smart Salon period. We have been carrying out serious marketing initiatives involving smart salons for 2 years now. On average, purchases of Milbon products increased by 21% compared to the first year. In other words, on average, we saw increases of around 20% each year. We don't have enough case studies. And since this is a nascent initiative, this is still all very preliminary, but we are optimistic it will lead to improvements in salon sales. As we advance our Smart salon initiative, it is becoming clear that there are patterns associated with success. Specifically, salons that make this transition and start delivering results more or less right off the gate are salons that already made use of milbon:iD and our Sommelier training system. We will, therefore, be approaching salons with these characteristics as these tend to be indicators of rapid success potential. Mid-April marks the beginning of the long anticipated Expo 2025 called in Osaka, Kansai. Milbon will showcase its vision of the future hair salon at our booth at the Osaka Healthcare Pavilion hosted by Osaka Prefecture and Osaka City. Here, we will offer a simulated experience associated with our smart salons and our vision for the future of hair salons on an even longer time line. Within the scope of this and the vision, Milbon will also offer technology for the acquisition of the anonymized personal health records of at least, and this is a rather conservative figure, 100,000 people who will be visiting the Osaka Healthcare pavilion. Going forward, we aim to use this data to strengthen basic research we can potentially, at some point, apply in the development of future products. I would now like to comment on our overseas operations. We place South Korea, the U.S.A. and the EU as our key overseas regions going forward. Expanding our market share in South Korea boosts our competitive advantage in other Asian markets. Additionally, the U.S.A. and the EU boast a substantial market size. In particular, we are currently investing in the U.S.A. with the objective of accelerating sales growth. Allow me to say a few words about our operations in the U.S.A. Circling back to what I said earlier, our recent growth in the U.S.A. has been in part due to our presence in L.A. Within this scope, we have entered an ambassador contract with Anh Co Tran, an influential celebrity hair stylist in L.A., shown here on Page 25. He became the face of Milbon's product branding and training activities, allowing us to successfully grow sales of Milbon hair care products. In 2025 will mark the worldwide release of the styling brand developed together between Milbon and Mr. Anh Co Tran. Additionally, in order to deliver growth over the medium to long term, it is vital that we deliver growth in hair coloring products. As such, we will be working to sign an ambassador contract with a colorist with expertise and influence in the area of hair coloring offerings. Concurrently, there is also a need for us to enhance our sales structure to help going forward and seek to grow the number of Milbon field persons and distributor sales reps, and we position these 2 metrics as KPIs to track. I would now like to go over our measures to enhance profitability. First, allow me to state that a high value-added strategy has always been the basic premise underpinning Milbon's activities over the years. We will continue executing a high value-added strategy going forward while simultaneously working to improve profitability. First, let us start by analyzing what enables us to implement a high value-added strategy in the first place. We believe this to be a key point. So allow me to use this opportunity to convey the stakeholders Milbon's business model and the premises underlying our strategy. Allow me to direct your attention to the diagram on the left. As you are aware, Milbon employs a business model focusing on hair salons. Specifically, stylists offer in-person beauty counseling to consumers in a way that allows for personalized proposals and advise. Next, on the right, we have the reasons hair salons choose Milbon. The first reason is product education activity. In other words, we offer consultations with a heavy focus on training to individual salons in an effort to help them with any challenges they might have. The second reason is hair stylist career training. We focus more on helping stylists achieve professional development than on products and beauty techniques. The third reason is our strategic management proposal. Here, we announce policies every year outlining team management strategies as that year's next vision, and we share these with stylists. Within these 3 factors, we offer policy and content ideas, and our efforts have been well received as salons continue to choose our company and our products continue to sell. This is, therefore, a business model prioritizing value add. The graph on the right shows the value-based pricing paradigm within hair care products, which has continued over the years. As a result of this strategy, manufacturing costs for hair care products underwent a steady decline with the cost of goods sold becoming less and less impactful over time. In 2024, the manufacturing cost percentage of high value-added hair care products finally dropped below that for hair coloring products. We believe this focus on high value add to be the single most important strategy allowing us to secure profitability. Moving on to the left. In addition to value-based pricing for new products, we will also carry out price revisions in mid-2025, covering existing products. Furthermore, by lowering manufacturing costs as a percentage of sales of hair care products, we will also work to improve our facility. We carry out price revisions overseas whenever necessary, taking into account the value offering of the products, the rate of inflation and price competitiveness. Conversely, this is our first time raising prices for existing products in the domestic market in Japan. And to be frank with you, it's difficult to estimate ahead of time the impact to these price raises will have. That said, we formulated this year's plan on the assumption that a 10% increase in prices likely translates into a 5% decrease in shipment volumes. I would now like to move on to the earnings guidance for fiscal year 2025 to be achieved through the execution of the measures we've just discussed as well as the revision of 2026 earnings, which is the final fiscal year of the medium-term management plan. The area shaded violet on the left shows the management targets for 2025. We expect JPY 54.25 billion in consolidated net sales and JPY 7 billion in consolidated operating income. Additionally, we are targeting an ROE of 10.4%. I would now like to direct your attention to the table on the right, which contains the medium-term management plan targets for fiscal year 2026. The consolidated net sales forecast remains unchanged at JPY 58 billion. However, and while we are currently working to navigate the sudden and drastic changes in the cost structure following the end of COVID-19, we have lowered the operating income forecast to JPY 8.4 billion. Next is a waterfall chart illustrating expected operating income changes over the next 2 years from a fiscal year 2024 baseline. Starting on the left, between 2024 and 2025, we expect the key change factors here to be higher sales and an increase in gross profit thanks to price revisions. Conversely, we will be participating in Expo 2025, but we expect to incur costs from this together with costs associated with our booth at the expo. We expect these factors to lead to an increase in SG&A expenses, and we also expect an increase in R&D expenses related to Milbon's innovation project, among other factors. Taking all of this into account, we expect to deliver JPY 7 billion in operating income for fiscal year 2025. As it pertains to 2026, we expect higher sales and an increase in gross profit, reflecting the full fiscal year effect of price revisions targeting existing products. Expenses associated with Expo 2025 will not recur in 2026, meaning lower expenses and an expected operating income target of JPY 8.4 billion. In terms of financial strategy, out of JPY 7.3 billion in operating cash flow, we expect to allocate JPY 2.611 billion to investments for growth and CapEx and [ JPY 2.867 billion ] through shareholder returns. Regarding growth investment, we are in the process of relocating and expanding our training center from Osaka to a new location in Odawara under the new name of Human Resource Development Center. We expect the new center to become operational this fall. We will also continue investment to build up infrastructure like milbon:iD and Smart Salons. Lastly, we are committed to a dividend payout ratio of around 50% without cutting dividends. Within this scope, we expect to distribute JPY 88 per share in dividends for the full fiscal year, which corresponds to a dividend payout ratio of 57.5%. Last is agenda Item #4, which corresponds to Milbon's long-term vision. This diagram illustrates Milbon's long-term vision for fiscal year 2026 and beyond. While we surpassed JPY 50 billion in consolidated net sales in fiscal year 2024, we believe this is merely a stepping stone toward much higher milestones. In fact, the next milestone is JPY 100 billion in consolidated net sales, which we will position as our next target. Going forward, we will work to achieve stable growth in Japan, accelerate overseas growth and enhance capital efficiency while simultaneously improving profitability, allowing us to deliver an ROE of more than 13%. Within the scope of achieving stable growth in Japan, we will focus on enhancing sales per salon, thus achieving growth in the metric of sales per field person. To this end, we will be enhancing growth infrastructure in the form of milbon:iD and executing our Smart salon strategy and through these efforts, raise the take-home products purchase rate from its current level of 15%. Additionally, we will work to carve out share in the cosmetics market through the execution of initiatives related to cosmetics at salons. Through this, we seek to deliver stable growth in Japan and an increase in sales per field person. Next are our efforts to accelerate overseas growth, which consists of 2 key points. First, we seek to solidify our position as #1 in the Asian market, excluding Japan, and we'll work to achieve this by first becoming leaders in the South Korean market. Incidentally, the reason we exclude Japan for this purpose is that the Japanese market is very large, meaning it would distort the results for Asia as a whole. As such, becoming leaders in Asia ex Japan would really underscore our position as #1 in this market. To reiterate, we seek to achieve the position of #1 manufacturer in the Japanese and South Korean markets, further raising our competitive advantage in Asian markets to become the undisputed leaders in the Asian market. Additionally, as you are aware, South Korea tends to set beauty trends in Asia. I have had the opportunity to visit and talk to stylists in several countries. One thing I always make sure to ask younger stylists is who they follow on social media. This has garnered me some interesting insights, which I would like to share with you here today. First, viewed content originating from South Korea make their way into Greater China, perhaps because these all share similar Eastern Asian cultures and backgrounds. This content makes its way to China, where it is translated into Chinese. It is at this point that this content in Chinese makes it to Chinese-speaking communities in Southeast Asia. In other words, there are propagation factors associated with trends. It is apparently clear that trends flow downstream from the South Korean market, meaning that securing the top market share in South Korea will allow us to really solidify our position as #1 in the whole of the Asian market. Second, we will execute ambitious endeavors in the U.S.A. and European markets. So coming back to what I said earlier, we will be putting in place a robust framework, allowing us to carry out training and nurture brands in order to accelerate growth in terms of our presence in the hair coloring market in the U.S.A. We don't expect to achieve operating profitability here right away. Rather, we expect results to end in the black around fiscal years 2028 and 2029. The timing of operating profitability in the U.S.A. market is obviously an important factor in consideration. But on the other hand, I believe stakeholders are aware of Milbon's strong sales growth in the U.S.A. market recently. We shifted from a direct sales structure to a distributor route, allowing us to obtain information from all over the United States. Furthermore, we have now learned the requisites and methods for growth, although naturally, these learnings came with a monetary cost as we figure things out. This shift to the distributor route naturally meant significant changes to our profit structure, and we are somewhat behind schedule in achieving operating profitability in this business. That said, the U.S. is an absolutely vital market without which there's little chance of us being able to achieve our longer-term net sales target of JPY 100 billion. We are, therefore, committed to accelerating sales growth in this market, thus securing profits and ultimately growing to become Milbon's key operating segment within our company's global strategy. Milbon is also working to grow in the EU, where we intend to build up a distributor network like we did in the U.S.A. according to a similar business model. That said, recently, we have started direct sales in Germany and neighboring areas through commission sales agreements and sales contracts. The EU is a large area. So in other countries, we will pursue distributor contracts and build sales channels. As it stands, we have already signed contract agreements with distributors in Greece, in the Mediterranean region and Norway in Northern Europe and have already started business operations in these countries. Additionally, we have already received inquiries from other countries. We will learn and analyze success patterns allowing us to build up our business model in the EU, finding the right distributor partner for each country. Through the execution of these various efforts, the overseas sales ratio is expected to account for 35% or more of total sales. Next is the topic of profit structure reform. One of Milbon's strengths is its ability to offer high value-added proposals achieved through a high-margin business model in the category of hair care products. We will continue applying this business model. Second, our price revisions for existing products; and third is enhancing supply chain management, allowing us to be discerning in terms of raw materials and other materials. Fourth, carry out a review at the logistics service level, keeping variable expenses strictly under control and raising profitability. Additionally, we will also work to enhance capital efficiency by: one, carrying out share buybacks; and two, exploring the utilization of interest-bearing debt for potential large-scale investments. Next is Milbon's long-term capital allocation policy. Within this scope, we will be prioritizing investment for the growth of existing businesses and investment for new business and overseas growth. The next priority below that is proactive returns to shareholders as we are committed to a dividend payout ratio of around 50%, the payment of progressive dividends and the use of surplus funds for the execution of share buybacks thus raising the total payout ratio. We invite you to consult this table for more details. We reached a new personal milestone of JPY 50 billion in fiscal year 2024. This was a very positive development, but JPY 50 billion is merely a stepping stone to other more ambitious targets. We are committed to building a strong and stable business growth foundation underpinning our operations in Japan. Salons choose Milbon for the 3 reasons I went over earlier, and there actually are gradations or steps for each of these 3 reasons. The first step is product technical training offered on an individual salon basis. And second step is the training of stylists. And step #3 is the proposal of management strategies and policies. Milbon is at different stages in different countries and regions, but the path forward is clear across the board. By working to achieve the #1 position across different markets, we will be able to progress along this ladder, achieving and going beyond our next milestone of JPY 100 billion in sales, eventually becoming the world's #1 manufacturer of professional products. Thank you for taking the time off your busy schedules to today's presentation.