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

Good afternoon, everyone. My name is Shinichiro Hyogo, Executive Officer, in charge of Finance, Investor Relations and Corporate Communication at Milbon. Thank you for taking the time out of your busy schedules to attend today's financial results briefing, especially late in the afternoon, like is the case today. Given our limited time today, let's jump straight into the financials. I will now discuss the key highlights of the financial results for fiscal year 2025. On a year-on-year basis, net sales increased while profits declined. Regarding the initial plan, we had to revise the initial full year forecast downward in August 2025, primarily due to sluggish domestic sales and inventory losses. We sincerely apologize for the concern this caused our stakeholders. However, both net sales and operating income reached our revised targets. Specifically, against the revised plan, net sales were driven by steady performance in domestic hair care products, including the new brand Ow Bye Tori. Furthermore, overseas sales in the United States significantly exceeded the target Operating income decreased year-on-year. While domestic sales remained solid, the bottom line was impacted by lower gross margins caused by inventory losses recorded mainly in the first half and higher SG&A expenses. Looking at the revised plan, results were adversely affected by a weak Korean won and a strong Thai baht. However, we ultimately achieved the revised targets, thanks to higher-than-expected domestic and overseas sales and cost control. Lastly, while the price adjustments implemented in May 2025 led to an immediate initial sharp decline in sales volume, the negative impacts continue fading away gradually. Full year consolidated net sales rose 3% to JPY 52,863 million, driven by steady hair care product sales domestically and strong performance in our key U.S. market. Operating income, however, declined 17.4% to JPY 5,652 million. Ordinary income fell 21% to JPY 5,455 million, reflecting a JPY 223 million allowance for doubtful accounts. Net income totaled JPY 3,437 million, a 31.5% decrease. While we recorded a JPY 292 million gain on the sale of noncurrent assets, this was offset by an JPY 801 million valuation loss on investment securities. Notably, lower-than-anticipated corporate income taxes due to tax effect accounting served to buoy the final net income figure. Looking specifically at the fourth quarter, sales grew 5% to JPY 15,035 million, and operating income rose 8.9% to JPY 2,162 million, marking a successful turnaround to profit growth. Detailed quarterly trends, both against the prior fiscal year's baseline and the plan are available on Pages 34 and 35 for your later review. This slide illustrates the factors behind year-over-year changes in operating income. Higher sales volume contributed an additional JPY 383 million to gross profit, while higher selling prices resulting from price adjustments provided a significant JPY 595 million uplift. However, these gains were partially offset by a JPY 270 million inventory write-down, a JPY 250 million foreign exchange headwind and a JPY 400 million contraction in gross margins. Combined with rising labor costs and promotional spending for initiatives like the Expo 2025 Osaka, Kansai, operating income ultimately totaled JPY 5,652 million. Let's now compare the factors behind the difference between realized results and the targets within the scope of the revised plan. Our gross profit margin fell short of projections due to currency headwinds, specifically the weak yen and strong Thai baht, which negatively affected our cost of goods sold. Despite this, the upside in operating income was driven by an increased gross profit, thanks to strong domestic and overseas sales growth as well as inventory write-downs coming in approximately JPY 120 million lower than our estimates. Ultimately, we actually exceeded our operating income target by JPY 352 million compared to the revised plan. Allow me to provide a detailed explanation regarding the impact of our May 2025 price adjustment as this is a frequent topic of interest. Please refer to the charts on Page 7. The left side breaks down the gross profit impact from May to December into volume decline and selling price unit gains. Because of significant front-loaded demand in April ahead of the price increases, we saw a sharp volume contraction in May and June. Consequently, the aggregate benefits for the May-December period appears somewhat muted. However, as shown on the right, the impact of volume decline has been steadily moderating since the October-December quarter. Our flagship Elujuda line, which accounts for the largest share among items subject to the price adjustment has seen volume recover to near previous levels. In fact, items subject to price adjustment as a whole are now showing a net positive contribution. While the final benefit of the price hike was approximately JPY 100 million compared to our revised estimate of JPY 200 million, the data from the October-December period confirms that these revisions are now consistently driving profit growth. Turning to our results by region. The third column from the right shows the revised targets. Looking at realized results in Japan, net sales rose 1.3% to JPY 39,206 million, though operating income declined 17.9% to JPY 4,757 million. Overseas, sales grew 8.1% year-over-year to JPY 13,657 million, representing a 10% increase on a local currency basis. On the other hand, operating income there finished at JPY 895 million, down 14.2% due to ForEx headwinds and higher expenses. Notably, the EU, a key focus within our other region showed strong momentum. Net sales reached JPY 525 million, representing 58% growth in local currency terms. Even looking at fourth quarter results in isolation, growth remained at a strong 23.5%. Given the strategic importance, we are considering disclosing the EU as a stand-alone segment starting in the first quarter. Allow me to provide more color on the regional operating income figures. I want to clarify that the operating income here is after shared corporate and overseas costs. So it's not purely a reflection of regional performance. Moving to the domestic market. Hair care performance was bolstered by our Ow Bye Tori brand of styling products, which exceeded our initial projections as noted in the third quarter. Additionally, Aujua saw consistent momentum through the end of the year, bolstered by various promotional campaigns. On the hair coloring front, despite a decrease in overall sales, our great coverage products, particularly the Villa Lodola color brand remained robust. As a result, net sales exceeded our revised targets. This top line growth, combined with disciplined cost management allowed operating income to also finish ahead of our revised plan. In the Cosmetics segment, while sales are up, we see no fundamental shifts in the performance of Imprea or IM. To provide specific figures, Ow Bye Tori significantly outperformed its JPY 120 million target, ultimately finishing at JPY 282 million. Moving on to South Korea. Performance remained robust through the third quarter, driven by the distribution of government-issued consumption coupons starting in July. However, as anticipated, we saw a pullback in the fourth quarter following the end of these government measures. On a local currency basis, net sales grew by 2.5%, representing a deceleration compared to the momentum we saw in previous quarters. specifically higher than 0.8% growth in the first quarter, but lower than the 10% growth in the second quarter and the 19.5% surge in the third quarter. Operating income declined and fell short of company expectations, primarily due to significant foreign exchange headwinds and increased event-related expenses. However, from a management perspective, we maintained a high operating margin of 19.5%, while absorbing strategic upfront investments. We believe our business is growing stably, and we are making steady progress toward achieving market leadership in South Korea. Let's now turn to China, where the market environment has remained rather challenging. That said, despite these headwinds, our salon support activities continue earning Milbon a strong reputation and positive brand equity, resulting in steady growth on both the net sales and operating income front. Looking at the category breakdown, we saw robust growth across hair care and hair coloring. Lastly, in terms of operating income, while we saw an increase in sales promotion expenses in the fourth quarter, which was aligned with our plan, we ultimately finished the full year with both net sales and operating income exceeding our initial guidance. Next, let's look at the United States, Driven by strong product reception and a deeper collaboration with distributors, we are seeing healthy robust sales growth across all categories, both on a local currency and Japanese yen basis. The fourth quarter was poised to be a challenging quarter due to a high comparison baseline following a distributor change last year and large initial stocking orders associated with this transition. However, despite this high bar, we nevertheless delivered strong growth in both hair care and hair coloring. From a management perspective, we believe the U.S. business continues to be on a very strong trajectory. I would now like to cover the full year financial targets for fiscal year 2026. We are guiding for JPY 54,800 million in net sales, a 3.7% increase, JPY 6,300 million in operating income, up 11.4% JPY 6,180 million in ordinary income, up 13.3%. Last, we are targeting JPY 4,500 million in profit attributable to owners of parent, an increase of 25.1%. Please refer to Page 37 for the net sales forecast by region. In Japan, we project a 1.7% increase in net sales. Specifically, we anticipate that accelerating top line growth in hair care and hair coloring will allow us to grow the bottom line as well, driven in part by new product launches. We also expect sales and profit growth across all overseas regions on a local currency basis. In terms of ROE, we expect an improvement of 1.6 percentage points year-over-year, reaching 8.6%. Regarding the midterm plan targets for 2026, we announced back in February of last year. As you may recall, we aimed for JPY 58,000 million in sales, split between JPY 43,700 million in the domestic market in Japan and JPY 14,300 million overseas, coupled with JPY 8,400 million in operating income. However, due to a significant shortfall in domestic sales and lower-than-anticipated gross profit margin results and despite our efforts to offset this through SG&A reductions, we have thus revised our targets for the final year of the plan. This waterfall chart illustrates the factors behind year-over-year changes in our plan for the ongoing fiscal year. We anticipate an increase in gross profit in fiscal year 2026, driven by improved gross margins specifically resulting from higher sales, a reduction in inventory write-downs and benefits from price adjustments. Conversely, our forecast incorporates rising costs. Specifically, we are factoring in higher personnel expenses, including base pay increases, inflationary pressures from things like logistics expenses, higher R&D spend and higher sales promotion expenses, excluding costs related to the Expo 2025 Osaka, Kansai. I would now like to address our financial strategy and long-term capital allocation policy. There are no changes to the capital allocation framework outlined during our first half results with one exception. The expansion of the Yumegaoka factory previously planned for 2026 has been temporarily suspended and is currently under reconsideration in light of domestic sales trends. We intend to reevaluate this investment within the scope of the next midterm plan, specifically in the context of optimizing our global production structure. Details of the capital allocation policy for 2027 and beyond will be announced together with the next midterm plan. In terms of shareholder returns, we are targeting a dividend payout ratio of 50%, coupled with progressive dividends. That said, absolute profit levels remain depressed relative to historical standards. So, under the current formula, raising the dividend remains difficult even with sequential year-over-year growth. While no final decisions have been made, we are actively discussing the possible adoption of new metrics such as dividend on equity, DOE, to put in place a shareholder return policy that allows investors to truly track and understand our corporate growth. Turning to the final page. I would like to outline our shareholder return policy for the ongoing fiscal year. In accordance with our shareholder returns policy, we plan to maintain a dividend of JPY 88 for fiscal year 2026. Our initiatives to improve capital efficiency also remain unchanged. Naturally, we will work to drive profitability. And beyond that, we are also actively considering flexible share repurchases based on share price trends and cash needs. Our top priority for this year, just as it was for the second half of fiscal year 2025, is to hit our disclosed targets with precision that is without any surprises. We believe that this type of reliable execution is exactly what you expect from us, and we intend to deliver on that front. We also remain committed to reducing our cost of capital. Thank you for your attention. This concludes my presentation.

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. Allow me to use this opportunity to discuss the Milbon Group's initiatives in fiscal year 2026. I have three key messages to share with you today. First, I would like to discuss growth opportunities in the domestic hair salon market. Here, we believe there is a clear winning formula for salons that successfully adapt to diversifying consumer needs. In line with this, we intend to support salon productivity by aligning our professional products, service menus and take-home product lineup with this winning formula. Second, in the hair coloring category, while price competition remains fierce and a growth strategy is difficult to formulate, we are launching a new generation brand designed to deliver an unparalleled customer experience. Our goal is to revitalize this market. Third, we posted a strong performance overseas. Building on our stable growth foundation in Asia, we see significant upside in the U.S. and European markets, where expansion is currently outpacing our expectations. Before detailing our initiatives for 2026, I would like to briefly review our performance in 2025. Focusing first on the domestic market, the first half of last year presented an extremely challenging environment. Rapidly rising inflation and higher prices for daily necessities, epitomized by last year's rice shortages led to a trend of constrained beauty spending among consumers. These headwinds weighed on Milbon's results performance, ultimately forcing us to announce a downward revision in August following the close of the first half. However, a closer look at our portfolio in Japan reveals a more encouraging picture. Looking at the hair care category, we maintained a solid performance, supported by a robust lineup that includes our Aujua flagship as well as Elujuda and new products like Ow Bye Tori. Conversely, the hair coloring category faced difficulties. While Villa Lodola color performed well due to its unique value proposition, overall sales declined due to intense price competition. Lastly, in cosmetics, we faced a challenging year-over-year comparison. Following the exceptional commercial success of our makeup category in 2024, while we did carry out a launch in 2025, this wasn't a comparable success, resulting in a year-over-year revenue decline. That said, lotions, which drive recurring purchases remained solid. Let's now look at the overseas side, starting with South Korea. The first quarter got off to an unstable start due to political instability and an economic contraction. While Milbon Korea did face significant headwinds initially, momentum subsequently recovered, allowing us to meet our full year sales and profit targets on a local currency basis. Next is China. As many of you are aware, consumption among the urban affluent segment remains more or less stagnant. Despite the wider macroeconomic backdrop, we achieved growth by providing salons with management strategies specifically designed to adapt to these shifting consumer trends. In the United States, we have deepened our collaboration with distributors nationwide. Hair care products are performing outstandingly and hair coloring, our growth engine going forward, is also expanding. We also saw robust growth in the EU, and we continue liking our prospects here. For the Milbon Group overall, while we fell short of the initial targets set at the start of the year, we successfully achieved the revised targets for the metrics of sales and operating income announced in August. Last, I would like to highlight a significant milestone for our company shown here at the bottom of the page. In August, we initiated our first-ever share buyback program with an upper limit of JPY 2,000 million, the shares which were subsequently canceled in December. Looking ahead, we remain committed to a management approach that prioritizes capital efficiency and the company's stock price. Now I would like to outline our initiatives for 2026. As shown on this slide, which many of you will recognize, I want to reexamine the core structure that drives growth for both our salon partners and for Milbon itself. Our revenue consists of two primary streams: one, the sale of professional brands to salons, which become part of service menus such as hair coloring and in-salon treatments performed by stylists; and two, take-home products, which include hair care products and cosmetics sold directly to customers through salons. As the domestic market faces demographic headwinds with a shrinking population and declining customer counts, a salons' growth strategy must rely on the two pillars of salon services with a strong value proposition and priced adequately and the pillar of take-home products. Both are absolutely indispensable. Milbon is committed to providing robust product and educational support within our salon service menus to facilitate an exceptional customer experience. Our strategy focuses on connecting the dots between the service level engagement and excellence and take-home product sales. While maintaining a high value-added product lineup is fundamental for all manufacturers, Milbon's distinct advantage lies in our deep understanding of consumer behaviors and psychology. By focusing on infrastructure, specifically enhancing trial and purchase environments for hair care products, both inside and outside the salon, we aim to maximize salon revenues. To reiterate, we drive value through salon service menus and then seamlessly transition those exceptional customer experiences into an increase in take-home product sales, advancing a sustainable and growing sales and profit model for our partners. I would now like to walk you through the evolving consumer landscape, the corresponding salon responses and Milbon's specific initiatives. Beginning with the consumer data on the left, as noted earlier, inflation and rising costs have led to a tightening in discretionary beauty spending. The line graph shows the beauty spending coefficient over time, which is defined as the ratio of combined household spending on hair dressing services and products. While we saw a dip from the 2.9% range to around 2.7% in the first quarter of last year, a recovery is now underway. Naturally, a recovery trend is positive, but perhaps more important is understanding that the very nature of consumer purchasing behavior is changing. Specifically, driven by inflation and negative real wage growth, consumers increasingly have a desire to limit their per visit spending. A client accustomed to a JPY 20,000 service, including cut, coloring and in-salon treatment may now opt for a lower-priced treatment menu item or defer purchases of take-home hair care products to manage their total checkout cost. This psychological holding back is the primary headwind salons are facing. However, something interesting happens. We see the same consumer who hesitates at the salon counter then going and spending JPY 20,000 for a three-item regimen consisting of shampoo, treatment and leave-in treatment products via our Milbon ID e-commerce platform. The demand is there because these are necessary items, but the timing has shifted. Consumers are cautious, yet they remain willing to invest in essentials, even spending significant amounts if they can control the timing of the expenditure. To address this, we must provide a broader range of price points for ins salon services like hair coloring and treatment solutions and varied value propositions, giving the customer some flexibility regarding how much they are willing to pay on a per visit basis. Concurrently, we also need to ensure the existence of a seamless e-commerce environment where purchases can be made post visit. Furthermore, in a tight economy, consumers are increasingly risk-averse. They are no longer willing to purchase products without first try. The traditional buy-to-experience model has been replaced by a more defensive trial-first mentality, making sampling and trial environments a strategic necessity. In essence, consumers are seeking to eliminate the risk of an unsatisfactory purchase, a tendency that intensifies as the price point rises. To meet this demand, we are positioning product trials as our utmost strategic priority. Basically, a critical factor for our growth is how effectively we can establish the infrastructure for these trial experiences. By deeply understanding these psychological shifts, we need to refine our service menus, optimize our pricing tiers and structure the entire product purchase environment to align with the new consumer journey paradigm. Against this backdrop, I would like to discuss the initiatives taken by high-growth salons. The determining factor is their ability to strategically capture the small mass market, which is originally a marketing term introduced by Kao Corporation. This concept differs from the traditional mass market in that it refers to segments where specialized expertise is used to address specific customer needs, thereby driving high satisfaction. Naturally, this concept is applicable far beyond the beauty industry. For us, the central question is how the salon business model and the profession of the salon stylist can effectively capture these specialized small mass segments. Consumers today are constantly engaged with and rely on social media and beauty-related information is a particularly good fit for this medium with a constant stream of information and content being produced and disseminated on these platforms on a daily basis. We have entered an era where social media facilitates a matching process between stylists who showcase their specific expertise and consumers who want to find a hair professional. For salons and stylists, specializing in a distinct niche and broadcasting that expertise is now essential. This includes high-demand areas such as hair texture refinement, high lift blonding and the use of vivid colors, South Korean inspired aesthetics, layered cuts and gray blending as well as brand-specific certifications like our Aujua Sommelier. By utilizing keywords that resonate with consumer interests, stylists can attract their ideal clientele. However, this online matching process is only the beginning because in order to ensure customer satisfaction upon arrival, we are committed to strengthening our in-person technical and hospitality training to ensure that a stylist's real-world skill matches their social media presence. Within this framework, it is also critical that we foster an environment conducive to accelerated professional development. Our plan is to effectively capture this information ecosystem, allowing Milbon to launch new products and assist stylists. I would now like to discuss specific initiatives and our road map for fiscal year 2026. To capture the small mass market, which offers high growth potential to salons, we aim to support stylists information dissemination and to help salons through clearly targeted professional and take-home products. In the hair coloring category, we are launching PRETOWA, which we position as a next-generation brand that represents a paradigm shift in hair coloring. Additionally, within our hair care portfolio, we are pushing into new frontiers with a new Aujua product line designed to manage the actual silhouette and structure of the hair style through care alone. We're also preparing a suite of new take-home offerings in the hair care and styling markets. These products are tailored to highly segmented needs, including specific trend-driven styles, specific use cases and the men's market. Turning to the hair color market. As we've discussed over the years, this market is seeing increasing commoditization, making product differentiation more challenging. On the left-hand side, you see the pressure from low-cost brands, which make up a sizable portion of the market. While on the right, we have high value-added brands like Milbon's organic brand, Villa Lodola color. These products avoid price competition, allowing salons to command a premium of between JPY 1,000 and JPY 2,000 per service, thereby protecting and raising their margins. As we've discussed on previous occasions, our core fashion color brand, Addicthy has been squeezed in the middle, making growth difficult. To address this, we are launching PRETOWA, a next-generation hair coloring offering into the high value-added segment on the right. Let me explain what makes this product so unique. PRETOWA transcends the traditional boundaries of traditional hair coloring products. The initial impact is immediate. Clients are struck by the vibrancy of the shade and the premium quality of our product with a resulting visible shift in hair quality. What's more, beyond the initial result, the longevity is exceptional. Perhaps even more important is how PRETOWA offers a cumulative benefit that is the more a client colors their hair, the more the structural quality of the hair improves. For salons, this is a powerful driver for higher hair coloring ticket premiums and higher repeat rates. We will work on promoting our new PRETOWA brand. To reiterate, this product offers a unique cumulative benefit with the quality of the hair improving with continued use. This innovative proprietary technology features a cross-linking active agent that received the top award at a prestigious global scientific congress. This allows us to bind proteins during the dyeing process, fundamentally enhancing the hair's texture. We have also successfully resolved long-standing industry challenges, namely damage, longevity and unpleasant chemical odors, resulting in a revolutionary leap in core performance. This means the very baseline of care has also gone up, coupled with a number of other more advanced functional improvements. This product is truly free from any unpleasant chemical odors. Conventional hair coloring products almost inevitably carry a sharp pungent chemical scent. I have personally sensory tested PRETOWA and confirm can there is zero detectable odor. By targeting beige colors, the main market for hair color, this is the highest peak of hair coloring. In short, our PRETOWA hair color is the hair coloring product for the new era. We are proposing this as a concrete tool for stylist client matching and have set an annual sales target of JPY 1,000 million. In 2026 spearheaded by this powerful new launch, we intend to restore growth in the hair color category. As we've discussed on previous occasions, our growth strategy for the hair color market rests on three pillars: starting with innovation in the form of a highly differentiated new product. PRETOWA is a category-defining color product that allows us to bind proteins during the dying process, fundamentally enhancing the hair texture. This cumulative benefit ensures that hair integrity improves with every application, providing salons with a concrete mechanism to justify premium ticket pricing and drive repeat salon visits. Additionally, we continue to leverage Villa Lodola color, our organic brand to offer safety and peace of mind. By providing a diverse portfolio, we empower salons to implement tiered pricing strategies that cater to each individual client's hair coloring needs. One thing to note is that hair coloring products are dependent on stylists skill and execution level, which makes technical training vital. Milbon has the best technical training and education capabilities, which we intend to use to assist our salon partners. The third pillar is the enhancement of consumer awareness. Within the scope, we intend to elevate PRETOWA's brand visibility across social media and booking platforms. In 2025, our domestic hair coloring product sales saw a decline of 3.9%. That said, the foundations for our hair coloring market growth strategy are now fully in place for 2026. We are committed to halting this downward trend and reversing the trajectory of our performance. So allow me to use this opportunity here today to ask for your continued confidence as we execute this strategy in 2026. We will continue our efforts to establish cosmetics as a pillar of new revenue for salons. As noted earlier, our overall cosmetics revenue saw a significant decline in 2025 following tough year-over-year comparisons following the 2024 success of our eyebrow products. However, sales of facial lotions, which offer high repeat purchase potential have remained strong. To build on this momentum, we are launching Crystal Tuner, a next-generation upgrade of our original 2019 lotion offering. By combining this with two other lotion products launched last year, we are creating a new lineup focused on recurring revenue from loyal customers. Moving on to our overseas markets. I am pleased to share some positive developments. We are raising our 2026 overseas sales forecast from the JPY 14,300 million previously announced in February last year to JPY 14,920 million. Specifically, stronger-than-expected sales performance in the U.S. and the EU is driving results. Particularly noteworthy is the shift in our market composition. The U.S. share shown here in red, has grown from 16.4% to 19.1%, while the EU's share shown in pink, has increased from 3.4% to 4.5%. As a Japanese company, Milbon is fundamentally an Asian brand. For such a brand to achieve significant growth in Western markets represents a major breakthrough, particularly as beauty trends and products have historically flowed from the West to the East as we see so clearly in the fashion and apparel industries. Why has Milbon succeeded? It comes down to our rigorous R&D and the uncompromising quality and value proposition of our products. In Japan, we have always prioritized the quality of the hair itself. Our singular focus has been on protecting and enhancing the hair through specialized hair care, and it is this care and dedication that are the bedrock of our product performance. Furthermore, our business model centers on on-site professional education to stylists. Although on a smaller scale, our teams in the U.S. and the EU operate under the same philosophy we established in Japan, combining human connection with technical excellence to deliver a very satisfying customer experience. This is a relationship-driven model that is remarkably difficult for competitors to replicate, at least not over the short term, and it is the foundation of our sustainable growth. Let's look at the breakdown by region, starting with the U.S. We currently have nine distributor contracts, right regional partners across the U.S. and one in Canada. Last year, we achieved a significant milestone as Milbon achieved the top annual in-store share within our primary West Coast distributor based in Los Angeles, which is the heart of the U.S. beauty industry. Our presence in Los Angeles is growing undeniably stronger, and we intend to use this momentum as a blueprint to drive growth across other regions, leveraging both hair care and hair coloring products as our dual engines for expansion. Turning to the EU. Our commission-based sales model in Germany, our regional hub is performing well. As you can see from the pink and purple bars on the chart, while hair care remains our core strength, our coloring to care sales ratio in the EU is notably higher than in the U.S. Hair color is a category deeply rooted in regional culture and developing a nuanced understanding of these local markets typically requires a significant time investment before these efforts end up materializing in the company's financial performance. However, in Germany and the wider EU, we have successfully accelerated this time line by onboarding commission-based sales professionals with proven track records at our competitors, meaning we have already begun to see early growth in the hair coloring category. Looking ahead, we intend to further expand our footprint across the EU by exploring collaborations with distributors in each country. Turning to South Korea. Building on our strong support from younger stylists, we will remain relentless in our pursuit of share expansion in the hair coloring market, which we position as a core pillar of our business. Another growth lever is hair care. Given that hair types and beauty sensibilities in South Korea closely mirror those in Japan, we will deploy a comprehensive targeted and network-wide strategy featuring our flagship brands, Aujua and Global Milbon, thus gaining market share. 2026 will, therefore, be dedicated to preparing for our goal of becoming the #1 player in the South Korean market as we set our sight on the next medium-term management plan. Moving on to China. The market continues to face headwinds due to the prolonged real estate downturn and the abrupt end to an era of, for the lack of a better word, consumer speculation on bulk memberships. Consumer sentiment remains weak, particularly among high net worth individuals in major hubs like Shanghai and Beijing. However, our business operates within the salon industry, a sector deeply integrated into everyday life. And depending on individual salon strategies, we believe there are still significant opportunities for growth. As many of you know, the Chinese salon market has historically relied on a prepayment model involving bulk vouchers and memberships. However, this speculative style of consumption is no longer the norm in China as the market is shifting rapidly toward the standard and more common paper service model. Furthermore, foot traffic is now flowing to salons and stylists who provide genuine value through professional education. In other words, we have moved into an era where customers only spend on what they truly value, which is obviously how a healthy market should function. We anticipated this trend early on. Since the pandemic, we have been working closely with individual salons to guide their management strategies through this transition. As a result, salons following our lead are seeing a turnaround and tailwinds, delivering a growth of 6.6% last year. If you look at the blue bars on the chart, representing our hair coloring products, you will see that after bottoming out in 2024, this category returned to growth in 2025. Naturally, hair care products continue on a steady upward trend. Our goal is to become the leading foreign player in the Chinese market as we will continue carrying out disciplined and consistent initiatives with an eye toward the next medium-term management plan. Domestically, we will continue targeting the small mass market driven by our new flagship hair color line, PRETOWA, while also driving growth in the hair care market. Overseas, we are focused on converting our opportunities in the U.S. and Europe into tangible results. In Asia, we are pushing forward to become the #1 player in South Korea, while leveraging beauty trends originating in this country to gain a competitive edge across the broader region, including Japan. In China, we have successfully built the capacity for self-sustaining growth. Regarding our fiscal year 2026 targets, we are fully committed to delivering JPY 54,800 million in net sales and an operating income of JPY 6,300 million. As we move forward, we will remain highly attentive to capital efficiency and our stock price, striving for continuous improvement in ROE. We invite you to have high expectations for Milbon in 2026. Thank you for your time today.