Shiseido Company, Limited (4911) Earnings Call Transcript & Summary

Now I would like to present to you the Results for the Fourth Quarter of 2022. First, please refer to Page 3. This is the summary for Q4 2022. There are 5 key points to share with you today. The like-for-like net sales, which excludes the impact from FX and all business transfers, was an increase of 1% year-on-year. EMEA, Americas and Travel Retail recovered the continued uncertainty from COVID in China. Even though the China shipment sales trended low in Q4, impacted mainly from the market slowdown of Double 11, the market share experienced solid growth. In Japan, the recovery of mid-price range continued its recovery trend, yet the sluggish first half affected the full year results to keeping flat to last year. By brand, Clé de Peau Beauté and NARS as well as fragrance remained strong. E-commerce was impacted by the slowdown of the Double 11 market, yet the overall performance sustained its positive growth, primarily due to high prestige brands and product lines. E-commerce sales ratio continues to grow at 33%. Core operating profit was up by JPY 8.8 billion. For sustainable growth in the mid- to long-term, the company has executed additional strategic investments, already showing positive impacts in certain areas. Also, the continued company-wide agile cost management, reduction of fixed costs from structural reforms and FX impact from yen depreciation all contributed to the positive profit. In terms of transformation, the company is capturing steadfast progress. The business transfer of professional business has been completed, and the transfer of personal care manufacturing businesses in Kuki and Vietnam are also on track for closing in 2023. The net debt-to-equity ratio was a multiple of 0.05, keeping the sound financial position for growth. Next is Page 4, executive summary of P&L. The core operating profit was JPY 51.3 billion, up by JPY 8.8 billion. On the other hand, the operating profit was JPY 46.6 billion or minus JPY 54 billion versus last year. This is mainly due to the nonrecurring items, a minus JPY 62.8 billion versus previous year. Last year, there was profit of [ JPY 58 billion ] from transfer of personal care business. However, this year, impairment loss from transfer of the personal care manufacturing business is partially offset by the profit from professional business transfer, resulting the nonrecurring item to be minus JPY 4.8 billion. Profit before tax was JPY 50.4 billion from finance income and share of profit of investment accounted for using equity method. The profit attributable to owners of parent was JPY 34.2 billion, a minus JPY 12.7 billion versus last year. Also, the EBITDA was JPY 102.4 billion, an increase of JPY 7.9 billion versus last year. The EBITDA margin is about 10%. Next is Page 5, performance by brand. On an annual basis, many skin care brands struggled due to the China lockdowns, market slowdown impact and slow recovery of Japanese market. However, Clé de Peau Beauté, NARS and Fragrance captured strong growth. Clé de Peau Beauté captured stable sales within China's high prestige market by strengthening the appeal of product efficacy throughout the year. Even though the Double 11 in China had a slow trend in Q4, the brand continued to grow -- continued to the growth led by the holiday collection. New products from NARS and narciso rodriguez continued to perform well, driving the growth. ELIXIR continues to have strong growth with the new lotion and emulsion that was launched in September. However, the sluggish performance in Japan's mid-price range market and the tough market environment in China in the first half impacted the whole year to end in a minus. For the year, Drunk Elephant was a slight minus, but it had a significant shipment growth in Q4, shrinking its negative number. On consumer purchase basis, the brand continues to have a very strong growth momentum from Q3 that we predict the shipment to have stronger recovery in 2023. Next is Page 3 (sic) [ Page 6 ], the net sales year-on-year. The like-for-like for the year is an increase of 1%. In the 2 regions that have the high sales ratio, Japan was flat to last year, and China was a double-digit negative. The growth in other regions offset the overall sales to result in positive growth. As you can see on a quarterly basis, Q3 had positive growth driven by shipments from the renewed ELIXIR in Japan as well as EMEA and Travel Retail. However, the fourth quarter was highly affected by the slowdown of the China market and suspension of shipment to Russia in the EMEA region, resulting in minus 1%. Compared to 2019, the global performance for the year was minus 6%. Japan still has a big negative, but since the second half, the negative is improving. Asia Pacific turned into a positive in Q4 from the recovery in Taiwan. Also globally, Q4 turned into a positive, showing our solid recovery trend. Next is Page 7, about Japan business. Now please be noted that the underlying numbers are numbers for the full year, and numbers without an underlying are the 3 months of Q4. First, in Q4 for Japan, the low price range continued to grow, driving the overall growth. The mid-price range is sustaining modest recovery trend from Q3. In such environment, the high-priced prestige brands expanded its share contributed by Clé de Peau Beauté's 40th anniversary holiday collection, Shiseido's holiday collection and new product launch from Bio-Performance Series and Skin Filler with the state-of-the-art hyaluronic acid technology. For ELIXIR, the renewed products in September have been successful, bringing in new users from low price and high price range, capturing many new trial users, resulting in high single-digit growth. Brands such as PRIOR continued strong with new product launches, contributing to the overall recovery trend of the overall mid-price range. E-commerce sales was a mid-single-digit growth for the year. The member service app that launched in September, [ Beauty T ] has exceeded the number acquisition target and continuing to grow, already proving contribution to sales through app and CRM. We will continue to grow the number of app downloads, build loyalty user base and evolve to strengthen the OMO platform. Next is Page 8 on China. Despite lifting of the Zero-COVID policy in December, the market environment continued to be tough, including the subsequent confusion in the market. In addition to the impact from intermittent lockdowns in many cities and logistic confusion, the overall market slowed down more than expected in Double 11, the biggest selling season. Amid such business environment, our market share increased with continuous solid sales of high prestige category, including Clé de Peau Beauté aging care series and Shiseido Future Solution, but by additional strategic investment, among other factors. E-commerce sales were down in the fourth quarter due to slowdown in Double 11 market and also a shift of investment to normal times in order to enhance brand equity. However, on a full year basis, e-commerce sales recorded positive growth. We will continue to aim at increasing sales driven by brand values. Next, Page 9 on other regions. In the Americas, market expansion continued in all categories, and our sales also continued to be strong, driven particularly by NARS. In EMEA, market growth continued in all categories, and we maintained strong momentum centered on Fragrance. In Travel Retail, despite slight slowdown of Hainan Island, the recovery continued in the Americas, EMEA and in Japan, showing good signs backed by recovery in the number of travelers globally. In Asia Pacific, Taiwan continued to face difficulties amid COVID-19 until the third quarter, but turned to the recovery trend in the fourth quarter, contributing significantly to growth. Next, Page 10 on COGS ratio. The COGS ratio in fiscal year 2022 was 30.3%. But excluding impacts from MSA and impairment losses on business transfers, the like-for-like COGS ratio was 23.6%, a year-on-year improvement of 1.5 percentage points due to favorable product mix from business transfers as well as lower inventory write-offs from improved accuracy, inventory management despite increasing costs due to launch of Fukuoka Kurume Factory and higher raw materials and logistics costs. Next, Page 11 shows core operating profit by segment. Japan core operating profit declined mainly due to the impact of personal care business transfer. In China, despite agile cost control in response to the market trend, core operating profit decreased due to lower margins from declining sales. Americas and EMEA core operating profit increased, thanks to higher margins from sales growth and lower fixed costs due to structural reform. Travel Retail achieved core operating profit growth due to higher margins and increasing sales. Decrease of core operating profit in other is mainly attributable to decreased shipment from headquarters in line with lower sales in China as well as enhanced investment in new factories and DX. Finally, Page 12 on cash flow management. Free cash flow for the year was JPY 5.4 billion. Excluding the impact from the income tax paid in 2022 associated with the personal care business transfer in 2021, free cash flow would have been exceeded -- would have exceeded JPY 50 billion. We continued capital investment for future growth such as investment into Fukuoka Kurume Factory in Japan and investment into IT and DX while maintaining sound financial positions. DSI, one of our KPIs, decreased from 200 days in 2021 down to 150 days, which reflects the impact from product supply after business transfers and impairment. Excluding those impacts, on a like-for-like basis, DSI is around 210 days. We are making steady progress against the 200-day target. That's it for me.

Now we would like to present to you from Uotani-san on the midterm business plan.

Hello, everybody. I would like to take this time to reflect back on the past 2 years as we've pursued WIN 2023. I will begin with the achievements. For the company to thrive and to grow again amid the uncertain times, we have decided to execute selection and concentration in areas such as skin care in consideration of profitability and what our strengths are. To divest or let go off businesses that continue negative performances or that did not have very high priority resulted in a difficult structural reform, about JPY 200 billion in size, but we had -- what we had planned for 2020, we thoroughly executed. It resulted in big improvement in the long struggling EMEA and Americas business contributing to the consolidated results of the company. Also, the sales ratio of brands such as skincare brands exceeded 70%, strengthening the profit base for the future. And in the past, we have had inventory shortage. But in order to avoid the opportunity loss by inventory shortage again, we built 3 domestic factories and [ Kansai ] Logistics Center, even during COVID, which was a total of about JPY 150 billion in investment, which was completed on schedule. We actively improved the productivity with use of investment. We strengthened the financial base by repaying debt from cash generated by business transfers. On the other hand, what remains a challenge is the Japan business. There is still considerable delay in the growth recovery than initially planned. Of course, there are reasons that caused the hardship. COVID impact was more than 2 years longer in the Japan market compared to the EMEA or the Americas than what we predicted. And wearing masks have become a norm from the Japanese people, and inbound have significantly decreased. However, we are aware that this cannot be the excuse for the Japan business to continue negative performance for 3 years. Fortunately, we have been seeing light of recovery through some of the enhanced activities from last year, such as ELIXIR. But we will be looking into reviewing the main brands, other main brands and continuous market execution, channel strategy, a cost structure such as SG&A and thorough organization structure and culture and will do a fundamental reform so that we can generate profit, over JPY 50 billion in 2025 3 years from now and in order to realize a sound and healthy company foundation where the employees are motivated. As for China, as mentioned earlier, after China suddenly changed the policy, we hope to see the bringing back of the economic activities as much as the impacted numbers coming down and international travel making a full comeback. But we should know more in another month or 2 to see what this trend will look like. About a year ago, the war that started in Ukraine, the war still continues. And there continues to be significant uncertainties in the world. Unknown to all of us what kind of challenges it may bring to us. We have always targeted the core operating profit of 15%, which we thought was an important profitability benchmark to be a good leading global company. This number is something that we will continue to target as confirmed with the Board of Directors and for all of us to continue to aim for. However, we do have to face the reality in front of us that I have just mentioned. And once again, we will position the next few years for foundational business reform once again. We will look at the next 3 years to be -- build a concrete path by proactively investing competitively and having structural reforms. We will have details explained by Fujiwara-san after this. The big vision for the business strategy is to become a personal skin beauty and wellness company. So it will be a company that will provide a comprehensive Skin Beauty and Wellness. Of course, our strength is skin care. And this skin care, as you can see here, there's various segments, and it continues to evolve. And we want to touch upon all these segments when we say skin care. And furthermore, for sun care, we want to achieve #1 in the world. And for Makeup and skin care, will we ignore those segments? That's not -- we've had that discussion in the company, but that's not what we are thinking. Of course, all of the comprehensive skin beauty value will include makeup and fragrance as well. And furthermore, when we develop these, we will look into developing more of the inner beauty business, meaning the internal care, sleep and stress, which affects our skin and physical health, so that we can capture synergy with the existing businesses. To ensure this horizon expansion, we will build a digital platform in order to improve better consumer experience and more excitement. And we touched upon makeup as part of skin beauty. Well, there has been a very big hit product that leverage accumulated technology learned from skin beauty into a makeup product. That's the NARS light-reflecting foundation, which is in a global hit. And it has ranked #1 sales in the Americas prestige beauty category last year. So with this in mind, NARS as a brand exceeded USD 1.2 billion or about JPY 150 billion in sellout, significantly growing to a profitable global brand. From 2023, we will shift from defense to offense, making proactive investment for top line growth. We will make strategic investment in 3 focus areas, which are brands, innovations and people. As for brands, we will establish our portfolio. Shiseido, Clé de Peau Beauté, NARS, Drunk Elephant, these 4 brands, we make them global-focused brands in all regions. In Asia, ELIXIR and ANESSA, which is #1 in Japan, we will geographically expand those brands centered on those brands. The mega brands era is set to be over, but consumers are diversifying. And also, we are seeing localization among consumers. So paying attention to such aspects, BAUM from Japan, natural, sustainable -- sustainability-oriented brand, and Ulé from Europe have been developed locally and available on guest marketing basis. So we will enhance a development capability of original headquarters. Furthermore, we will target men's market in a multifaceted approach in anticipation of a huge potential growth and develop men's skin care and makeup markets. So to enhance equity of these brands and achieve organic growth, we will make additional marketing investment exceeding JPY 100 billion cumulatively over the next 3 years. In addition, in areas where we cannot fill with our own development or when we need speed, we will explore M&A opportunities selectively, like what we hit down with [indiscernible] last year based on the conditions that they fit with our strategy and return on investment can be expected. To fully leverage our development capabilities in the world, basic research is enhanced at Global Innovation Center of Japan headquarters. And at the same time, development centers of each regional headquarters will be expanded to further strengthen the R&D global network. For this purpose, we will continuously make investment into R&D at 3% of sales, which is roughly JPY 30 billion per annum. Another important thing, which is a high quality from Japan, we will further improve Japan's high quality and to enhance productivity and cost efficiency. We will increase utilization at 3 factories in Japan. With the use of IoT and robots in the state-of-the-art Kurume Factory is improving productivity of production lines by 300%. We will roll it out to other factories. As explained earlier, transfers of Kuki Factory and Vietnam Factory to CVC are on track. Next, on talent development. We will fully pursue people first management philosophy globally and further strengthen our efforts for a global competitive advantage. This global leadership team is our global management team, as you see on this slide. As you can see, we value diversity with female accounting for 43% and non-Japanese for 39%. We will further evolve and aim at being an enterprise that attracts global excellent talent regardless of gender, nationality and race. To accelerate our efforts as a project to commemorate the 150-year anniversary, innovation is underway to convert our headquarter building in Ginza into Shiseido Future University, a human resource development center. It's going to be a unique study where our people are able to learn about Shiseido heritage, beauty and art sciences and human capacity as leaders, among others. It's going to be a base to develop people who will reap the next 150 years. It's also intended for Japanese young talents to be inspired by having contact with a world view. I will also serve as president of the university, which is scheduled for opening in autumn this year. I will briefly touch on our mission, purpose and ESG initiatives. Based on our mission, building innovations for a better world. We will proactively engage in solving environmental and social issues through our main business. We are targeting to be recognized as the most trusted beauty company in the world by promoting activities on sustainability. We are making steady progress against the CO2 reduction and water consumption targets. And an important initiative, which is refill, which account for 60% or more for ELIXIR now. And plastic usage will be decreased by 85% and CO2 reduction of more than 80%. This is a very fantastic practice in Japan, which was introduced also in China 2 years ago, and we are now seeing 6% of refill penetration. We would like to expand such efforts globally. And we are announcing today to start demonstration tests in April for an extremely innovative circulation model of plastic packaging, BeauRing. From the beginning, we wanted other cosmetic companies to join this project because it aims at making contributions for the whole industry and the Japanese society. POLA ORBIS HOLDINGS agreed to support the model and agreement was signed to jointly promote this project. In addition to this project, we, together with POLA ORBIS will explore various collaborations in the area of sustainability. This demonstration test will be done in Yokohama. And after demonstration tests, we plan to open up the door for many other cosmetics companies to join us. Next, diversity, equity and inclusion. Pressing ahead with promoting diversity, equity and inclusion or more strongly is an extremely important challenge for the country as Japan brings this honorable 116th position in the world in the gender gap index. Creating a friendly workplace for women should be considered as having a good workplace for men and anyone. From a viewpoint of eliminating inequity, women at management level at Shiseido headquarters and in Japan account for 38% now, which we aim at improving up to 50% before 2030. I often talk to top management of different companies at various locations, and I get the impression that there is still lack of understanding why diversity is necessary. So I think that the companies need to know the value created by promoting diversity. So with that in mind, to do research and make presentations on the cause and effect relationship, Shiseido D&I Lab was established. As a Chair of 30% Club, we call for other Japanese companies to join. And now 33 companies have participated in the club to share best practices with active engagement of the top management. Among these companies, the ratio of women on the Board has improved up to 22% on average against 8% or 9% on average for other companies in Japan. And achieving 30% is in sight. And moreover, we -- now please take a look at the image video of Shiseido Future University touched upon earlier. That brings me to the end of the presentation. [Presentation]

Next will be a presentation from the COO, Fujiwara-san.

My name is Fujiwara, and I have been appointed COO from this January. Now I would like to present the midterm business plan. Our company runs a brand business, and in order to achieve sustainable growth in such uncertain market environment, I believe it's extremely important to establish a business model that can create an even higher added value through proactive and continuous investments in brand, innovation and people, just as Uotani-san has mentioned. With these as a driver, we will aim to achieve 15% in core operating profit in 2027. In order to reach this target in the next 3 years, we will grow the core business and realize a value-added base management model by 2025, so as to build a cost structure that generates investment fees and to achieve core operating profit ratio of 12%. This year, 2023, the first year of this 3-year plan, we will make it a year to build a firm base for growth momentum and to make investments for the midterm growth. We will target like-for-like sales of plus 11%, net sales of JPY 1 trillion and profit rate of 6%. By completely executing the plans in 2023, the profit generated from growth will directly contribute to the company profit in 2024. Therefore, we believe that the operating profit ratio of 9% can be realized. On the other hand, the investments and restructuring to evolve with the environmental changes have almost been completed in WIN 2023. As a result, along with the profit growth, we will continue to realize improvement in EBITDA margin, the power to generate cash. In order to pursue this target of continued stable growth and conversion into a high profit structure, the point of focus will be to recover the growth momentum in Japan, the most important market for the company, and to restructure the profit base. Next, to increase the share with the significant size market of the Chinese people to expand the business size. Furthermore, position Americas and EMEA, the world's #1 beauty markets as the next growth pillar and build the growth foundation. We will also proceed to develop new markets for the future to realize the growth of our global businesses. In terms of value-added base management model, we have intangible assets such as global brands, innovation and high-quality services. We aim to elevate these assets by further enhancing these values that is unique and cannot be found elsewhere and continue the uncompromised quality and safety, allowing us to realize high gross margin and premium pricing. In order to do this, we will innovate the value-creating organization and processes and structure a company-wide KPI setting and monitoring system, which will enable us to build a value-added base management model for the regional businesses and brand holders to perform together as one team. In detail, on top of the financial targets, we will set a common KPI for brand value for the brand holders and regional businesses. That will allow a definitive direction for the company in mid- to long term, enabling us to hold constructive discussions between brands and regions so that the company can continue to grow both sales and brand value. The most important market, Japan, cannot expect a big growth of the market size itself, but we are seeing positive tailwinds to further push the growth of the company this year. On top of the growth in share in our core competing target, the premium price range, the mid-price range has started to recover and inbound is starting to come back. Also, as the mask regulation will be relaxed in Japan soon, this should encourage consumers to actively go out and have more socializing occasions. We will make sure to capture these opportunities, strengthen our activities to support and encourage consumers for more happiness as a beauty company. Japan will shift to aggressive marketing. Proactive investment to skin beauty will be made, and we will especially strengthen the value of innovation to expand the loyal user base for expansion in sales and share. We will also continue to create new business opportunities and beauty propositions by capturing the new consumer needs and demands. In terms of profitability, we will watch the balance of growth and profitability, realizing the optimal brand and channel mix to maximize the gross profit margin. Also, along with these growth realizations, we will make continuous efforts to reduce costs to achieve a cost structure with low 60% in SG&A. We see the inbound market recovery to be additional profit contribution, and we will make sure to seize the opportunity when it comes. On the other hand, not just to pursue efficiency for growth, I believe it is necessary to fundamentally review the cost items for Japan business, which has been experiencing continued negative performance. In 2023, Japan will be proactive to market launches with various innovations for growth. For the mid-price range, the renewal of ELIXIR performed well, proving that if we can build value higher than the price, growth is possible. The power of R&D that enables products with higher value than the price matched up with optimized marketing power to communicate to the consumers, we were able to acquire new consumer base from the low price range, promoting an active trade-up. Therefore, this year, we will continuously launch innovation that exceeds the price expectations to drive growth. For prestige brands, along with innovation of the core skin care, we will enhance the makeup category to acquire new loyal users as we aim for the nonmask society ahead of us. Also, the brightening market in which we excel greatly in technology, we have plans to launch innovative products that uses the latest research results. So please look forward to the announcements. In the midterm, we will continue to research changes in consumer sentiments and behaviors and launch product innovations proactively in the core business. As the next growth category, we will make enhancements into [ pure ] and derma and new market creation through inner beauty. Through fulfilling the skin beauty portfolio, we will build a structure where the personal beauty partners can provide authentic wellness proposals to consumers. And to support, we will pursue building a digital platform to support their activities as well as to provide seamless beauty experience between online and offline. Along with this digital platform and the company's R&D technology, we can realize new beauty lifestyle proposals to be a new growth engine for the Japanese market. In terms of cost structural reform that generates investment funds on top of concentrating on skin beauty to maximize gross margin, we will reduce returns on excess inventory as well as lower inventory and warehouse fees by shortening manufacturing lead time. Also, we will review the logistic costs with items such as delivery efficiency improvements. And we will aim to contribute to sustainable society along with cost reduction. For maximizing human capital, we will reorganize the offices, implement focus, reform work style and process to promote efficiency. We will also continue selection and concentration to ensure profit improvement. As a result, we will target to build a cost structure with a low 60% in SG&A in 2025. The turnaround of Shiseido Japan's cost structure, I feel it to be one of the highest priorities for the growth and profitability of the future of Shiseido Group, along with Japan Business CEO, Tadakawa-san, I will learn about what is really happening and even consider a fundamental structural reform, if needed. Now in China. The market situation is not stable yet after the lifting of zero-COVID policy. But stable growth is expected over medium- to long-term perspective due to policies aimed at achieving an economic recovery driven by consumption. The competition in the cosmetics market continues to be intense. And also market continues to undergo dramatic changes such as diversification and consumer needs. And digital platforms, along with price competitions and rise of local brands. Although China is a market which is difficult to predict without being dependent on changes in the market, we remain committed in implementing marketing reform that I will explain using the following slide to realize growth in China and strive to grow and improve profitability by cross-border marketing across regions, including China, Japan and Travel Retail. The key element of marketing reform is brand building. To be honest, we have been short-sighted. And based on a short-term ROI, we had concentrated our investment on driving traffic and doing marketing centered on top products and driving sales growth in large-scale promotions. From the second half of 2022, we started to change our marketing activities with an eye on increasing loyal users for our brands and generate returns on a medium-term perspective. Some of the examples include strengthening brand experience, developing the second and third star and hero items under the same brand, developing a product exclusively for China and implementing CRM, utilizing company's own consumer data pool. As a result, our market share increased in Q4 following Q3. By controlling excessive investment in large-scale promotions, our sales decreased year-on-year in Double 11. However, we achieved the overall market share gains due to driving growth through activities at normal times. We will keep pushing ahead on marketing reforms in an effort to build a foundation for sustainable growth. As enhancement of brand equity in China will lead to overall growth and profitability improvement across regions, we will continue to make proactive investment, but we will also work on reducing the COGS ratio by strengthening high-priced skin care products and expand refills while benefiting from economies of scale. We will push ahead with utilization to improve profitability. We will utilize -- and we will improve marketing ROI by using data such as consumer and skin data. We will also lower cost by improvement of inventory management capabilities focus that went live as of January this year. We will also optimize off-line bases in stores and improve beauty consultant productivity by utilization. By further consolidating distribution centers and centrally doing indirect material procurement, we will improve profitability and in 2025, compared against 2022, achieved a 5-point improvement in the core operating profit margin like-for-like, excluding the impacts from transfer pricing and others. With respect to brand portfolio, we have introduced these brands from 2021 in response to diversifying consumer needs. To further solidify the skin beauty area, we will work on capturing new domains over a medium term, like medical beauty, sensitive skin and inner beauty, while at the same time, nurturing a new brand that were launched. From here, I will walk you through our strategy for other regions. Starting with Asia Pacific, we will build a business foundation in Asia Pacific as promising market. In this market, economy is growing centered on Southeast Asia, India has experienced growth with a huge population, and e-commerce channel is expanding. We will work on establishing a business foundation for the future in this promising market by strengthening our prestige brand portfolio, developing business in response to regional needs in diverse multicultural markets. We have also decided to roll out NARS in India from the second half this year. Travel Retail business is expected to grow in stepwise recovery in travelers. In particular, since Hainan Island has become established as a shopping destination with expectations for further development, we will strengthen efforts to appeal Travel Retail as touch points for brand experience and aim at achieving business expansion by simulating consumers -- consumption of travelers with limited edition and differentiated products, meeting the needs of travelers. In the Americas, the world's biggest beauty market, structural reforms were completed, and going forward, we will move ahead with building a foundation for future growth for America to be the next growth pillar. The market has recovered from COVID-19 and achieved double-digit growth in all categories, including skin care, makeup and fragrance in 2022. Although there is a risk of recession, we anticipate prestige market, in which we do our business, will be resilient. Together with brand Shiseido, NARS and Drunk Elephant, whose home market is United States, those brands are positioned as core brands, and we will focus on further developing those brands and promote local innovations. Moreover, using cutting-edge digital environment, we will evolve consumer engagement led by the Americas. EMEA also achieved substantial profitability improvement with the completion of structural reforms. We predict that the market will be solid. And as interest in sustainability is high in EMEA, we believe efforts in response to such interest will create growth opportunities. We will drive growth by continuously positioning brand Shiseido and NARS as core brands and by strengthening Drunk Elephant and Clé de Peau Beauté to enrich our skin care portfolio while pressing ahead with expanding sales and profit contribution of the fragrance business, including brands like narciso rodriguez. New brands, Ulé and Gallinée, which were developed in response to growing interest in sustainability, are still small in business size. But in anticipation of potential growth in the future, we will invest in those brands to cultivate our new skin care domains and aim at developing them to become global brands in the future. We will continue to accelerate DX globally. By leveraging digital and innovating beauty tech experiences, we will provide optimal beauty experiences for each individual consumer. In 2025, we target to achieve 40% of sales generated from e-commerce globally. We anticipate upside potential in regions, including China, Japan and Asia Pacific. Digital ratio in the media spend will be kept at 90% with a focus in Japan and EMEA. We will put efforts in enhancing digital literacy of our people globally by encouraging them to take part in Digital Academy, particularly targeting people at headquarters in Japan. We have been steadily accumulating consumer data, and by utilizing them, we will realize more personalized CRM. For instance, we will build a beauty wellness platform to support not only AI-driven skin diagnosis and skin care, but also support inner beauty. Through DX, we will work on expanding business opportunities. This features introduction of the global unified ERP system, a project started from 2019. FOCUS had already been introduced in the Americas, Asia and China. FOCUS introduction is slated for completion in all regions by the first half of 2024. And with that, data process and system standardization will be completed globally. Furthermore, in FOCUS 2.0, we will proceed with introduction of FOCUS at old factories and R&D facilities by the end of 2025 in order to globally integrate the value chain. In areas where focus is introduced, we expect to see a wide ranging effect such as inventory optimization, reduction of inventory write-offs due to improved accuracy in demand supply planning, in finance, supply chain and marketing cost reductions due to streamlined operations through globally standardized processes, better data visibility and enhancement, marketing ROI. Now we will have a presentation from Yokota-san.

Now I would like to talk about the financial strategy. First is the summary of financial targets. The overall direction will be to improve profitability and power to generate cash through sales expansion by strategic growth investments and cost reduction. Net sales will be based on the 2022 sales of existing businesses, excluding the business transfers at JPY 0.9 trillion as a starting point. The 3 years to 2025 will aim for a CAGR of 8%, and 2 years after that, will aim for 6% in growth. By 2025, we assume that the market growth will be normalized after high growth rate post COVID recovery in Japan and China. The company will aim to acquire market share above market growth in the next 5 years. With the strong sales growth, along with the cost reduction initiatives explained by Fujiwara-san earlier, the core operating profit ratio targets 12% in 2025, 15% in 2027, and for EBITDA margin, 18% and 20%, respectively. The core operating profit ratio of 15% from WIN 2023 will continue to be our target. Now on to the financial target in improving the capital efficiency. We have reduced interest-bearing debt with cash generated by the large-scale structural reform and built a sound financial base for regrowth. And now is the time to utilize the strong financial foundation to drive further growth. Based on that thinking, the 2025 targets are as follows: the most prioritized KPI for capital efficiency in our company is the ROIC, and we will aim for 12% in ROIC by profitability improvement. We will target 14% in ROE. Free cash flow is JPY 100 billion after a cycle of big investments for structural reform and manufacturing factories. In terms of sound financial position, we target approximately 0.2% for net debt equity and 0.5% for net debt EBITDA. We do not change the policy to keep A rating in order to procure financing for necessary growth investments at a low cost and in a timely manner. We will carefully watch over capital efficiency and manage the optimal leverage level. Next is cash allocation. With profitability improvement through growth investments to our value creation drivers, namely brand, innovation and human capital, we target a total of JPY 400 billion cash inflow in 3 years. Cash generated will be used for CapEx for FOCUS, IT, DX and energy-saving equipment in factories as well as M&A and new business areas. We will also build a positive cycle to further accelerate the profitability improvements. Based on the principle of stable cash dividend for shareholder returns, we will continue enhancement of returns along with profit improvement. In parallel, we will take appropriate measures for optimal financial leverage. Page 47 (sic) [ Page 45 ] shows the sales growth contribution by region. The CAGR to 2025 is 8%, driven by Japan, China and Travel Retail. On top of this, the business scale expansion in EMEA, Americas and Asia will generate additional sales. The market assumptions for the sales targets are as follows: Japan will grow through recovery post COVID in both local and inbound. China will transform into stable growth from the rapid growth it had in the past, but China being a huge scale market with growth stays unchanged. In the short term, we assume the COVID recovery to happen from Q2 of 2023. Other regions assume a stable market trend. Next, on the cost structure. In 2025, by lowering the COGS at 21% and SG&A at 67%, we will achieve the core operating profit margin of 12%. The COGS ratio will come down to 21%, 2.6 points improvement from 23.6% in 2022. By improved accuracy of inventory management through the introduction of FOCUS, we will reduce returns and inventory write-offs and further improvement in product mix, productivity improvement with cutting-edge facilities, reduction in outsourcing ratio, reorganization of supply networks are major drivers. SG&A remains flat from 2022 at 67%. The marketing investment ratio will be increased by additional investment exceeding JPY 100 billion cumulatively over a 3-year period from 2023 to 2025 to enhance brand equity. On the other hand, we will strive to reduce personnel expenses and other SG&A through productivity and efficiency improvements with FOCUS and reduction and optimization of fixed costs. Finally, I will go over the outlook for 2023. We are forecasting net sales to be JPY 1 trillion, up 11% like-for-like. By enhancing marketing investment in each region, we plan to expand our market share and outperform the market growth. Core operating profit, which is the most important profitability KPI for us, is forecast to be JPY 60 billion, up JPY 8.7 billion year-on-year. In 2023, to ensure the growth momentum, we will enhance marketing investment. And for medium- to long-term growth, investment is also made for FOCUS and other areas, with a view to building a foundation for bigger profit growth in 2024 and beyond. Profit attributable to owners of parent is forecast to decrease by JPY 6.2 billion year-on-year due to a plan to record nonrecurring losses of JPY 16 billion associated with the transfer of personal care products and business. EBITDA is forecast to be JPY 120 billion. We plan to increase ordinary dividend by JPY 10 year-on-year up to JPY 60 per share, which is at the same level as pre-COVID 2019. Allow me to provide supplementary explanation to the core operating profit. The year-on-year increase is JPY 8.7 billion. However, excluding the impact from losses related to brand transfers, the like-for-like profit growth is around JPY 20 billion. There are special product profit decreasing factors from 2022 to 2023. First, sales of brands to be transferred were JPY 180 billion in 2022, will decrease down to JPY 20 billion level in 2023. As a result, we will incur an impact as cost for resources, which was allocated to those brands in the past, to be reallocated to continuing operations. Secondly, the cost increase due to IT investment hitting peak in line with FOCUS introduction and increasing salary along with record high inflation. Our plan is to realize around JPY 20 billion profit growth from continuing operations by offsetting these negative factors by higher gross profit from increased sales. 2024 and 2025 due to the absence of such major cost increase factors, profit growth is expected to be higher. 2023 is a year of shift, changing gear from the structure reform mode to growth. Capacity of our people and resource, which have been allocated to push ahead structural reforms and realize smooth business transfers, will now be allocated to solidify -- to solidly achieve increase in sales, to establish a growth momentum for 2023 to 2025 while realizing reduction in SG&A ratio. Furthermore, we will reduce costs by more than JPY 10 billion over the next 3 years and work towards achieving the core operating profit margin of 12% in 2025 and 15% down the road. That's it for me. Thank you.

We will move on to the Q&A session [Operator Instructions] Once we are done with the first round, we go to the second round. We also received questions online in the text format. Please use the Q&A button and the moderator will read out questions. And we will prioritize taking questions from the floor. Please understand. [Operator Instructions].

This is Hirozumi from Daiwa Securities. One thing, I just want to confirm some numbers. And maybe you could share with us in the midterm plan. Page 27. In 2024, you're aiming for 9% of OP margin. In 2025 is 12% and CGR was 8%. And if we calculate this -- I calculated starting at JPY 900 billion, but 20%, 25%. I think we're looking at JPY 136 billion in profit. If in 2024, CAGR is 8%, I think it's about JPY 95 billion. So I think this year, the plan is about JPY 60 billion. But in the next fiscal year, JPY 95 billion. And in the following year, JPY 136 billion. Is this the right assumption?

I won't go into the detailed numbers necessarily, but as the sales grow as planned, the like-for-like sales continues to grow, the 12% will happen in 2025. But the normal -- if we -- this is a number that we cannot capture with the normal growth in sales and profit. So that's why we need to have a cost reduction about JPY 10 billion in order to achieve this 12% CAGR -- or 12% margin.

The risk factor. Of course, I want you to achieve this number, but what will be the risk factors that could avoid you from reaching this target?

With management, of course, we have discussed various risk scenarios. For example, if there is a huge recession in the Americas, kind of like the financial crisis, the Lehman shock, if that happens, of course, that could change something. We don't have that into our assumption. The assumption we have in place is if there is a small-scale recession, as Fujiwara-san has explained earlier, if it is a short-term recession, the beauty market could stay resilient. And looking at last year's December or January, the beauty market has been quite resilient. So in that sense, if it's a short term, we don't see a big impact. However, if there is a big -- so we have not incorporated a big geopolitical factor. So if any of these happen, that could be the big risk factor.

I know I'm not supposed to ask too much, but -- so the numbers you have presented here, you're quite confident that it is achievable?

Yes, yes.

Yes, that's -- I wanted to hear the confidence level.

Well, this is the number we have to achieve.

Okay. So you're determined. Anything from the CEO or COO in terms of the target that you have on the midterm plan, if you can...

Well, no, we have these numbers to commit to it. The management commits to this. It is true that if you calculate like you have done, yes, we do understand that, and we have assumed that. So it's 15%. We wanted to aim that for 2023, but we've had to push that back a little bit. But we will continue to target this 15%. And if we look at the target, that can allow us to go to 15%. We have come up with these numbers, looking at the reality now. External factors and risks, that's something that we cannot control, and we don't know what could happen. Like COVID, nobody had expected that. But an external factor, aside from that, I think it's all about innovation, and we're trying to do a lot of investments -- proactive investments. But how much can we do that and execute that for growth? Japan, which is -- seemed to be a difficult market, we are growing in certain brands. And that's something that all the brands and companies are experiencing. So we want to make sure to compete and focus on to make sure we can grow in this market.

This is Kuwahara from JPMorgan. Looking at your cost structure, without the recovery in Japan, there won't be sustainable growth for Shiseido. Based on that, I would like to -- I have a question regarding the speed of reform. We do math and calculation based on numbers. The sales of JPY 240 billion, the loss is JPY 13 billion. It can be possible in the cosmetic business. To the JPY 50 billion, how much losses do you expect to reduce in Japan? Do you expect to achieve breakeven? And with the sales scale and losses, I think that you can't wait to reduce fixed costs. By the end of this year, can we expect to see progress in fixed cost reductions? So those are my 2 questions.

The reform of Japan, as you pointed out, of course, we can't wait. Looking at numbers with the level of sales and you might question why the profit is so small. But as for last year, there were some factors, including personal care, business transfer, et cetera. So you can interpret the last year's number as our real capability. But looking at last year's numbers, bit by bit, the efficiency is improving. SG&A, for instance, has improved by 2 or 3 points. So internally, we have done whatever we could. But without growth, we can't see acceleration. So this year, as explained earlier, we'd like to put business on a growth momentum and eventually achieve profitability improvement. Having said that, that's not enough. So we will review all cost items to find optimization and efficiency improvement. And we will work on them immediately. So this year, we would like to make sure to achieve profitability in Japan.

So a question again. So JPY 10 billion or more improvement can be expected in this year?

The answer -- yes, we target to exceed JPY 10 billion or higher.

Question again. As you explained, we can't expect much of the market growth in Japan. Then creating markets or creating new category, I think, is necessary. So looking at your investment in the past and investment going forward in Japan, what changes do you expect to see in terms of how do you intend to create new categories? Do you have any clues?

Thank you for your question. Well, creating market is something that we need to work on, is the job we need to tackle. But looking at the growth short term, as explained earlier, ELIXIR is a good example. Mid-price segment -- there was a question mark regarding the growth of the mid-price segment. But from last year, by delivering value in this price segment, we have seen the shift from -- 40% of the customer shift from lower-price segment to the mid-price segment. And we learned lessons that we are able to create markets. And last year, even though it's not a new product, new retinol -- with --new retinol through new communication, we were able to achieve growth. So we learned that with new communication, we are able to drive growth. So in the mid-price segment and also in prestige, we will work on innovation and also in [indiscernible]. So we will make sure to communicate values to consumers. And over a short period of time, we expect to drive sales. And in terms of creating markets, that's something that I'd like to work on. Although the relaxation of restrictions of wearing masks and what that means for consumers, we will consider -- we will get insights to be -- so that we are able to propose new beauty habits. And under -- based on skin beauty, not only skin care, but inner beauty, and new beauty solutions will be combined to be a personal beauty company to continue evolving.

Next question, in the middle towards the back. The gentleman in the back.

My name is [indiscernible] from the Mitsubishi UFJ Trust. One thing, I want to ask about the ROIC. In the midterm plan, as I look at your midterm strategy, the marketing costs grow the top line, reduce the cost and improve the OP margin is how I read it. So efficiency, and as an important KPI, you've mentioned ROIC. But your investment -- return on investment, looking back in the past 2, is really efficient. That's something that I'm personally skeptical about. So including the management of the returns, how are you going to improve the efficiency of the investment? And in order to achieve the ROIC target, by area, I'm sure there are areas that would not meet the ROIC target. But for those areas, would you consider taking further measures? And is that your view to managing ROIC? So I just want to hear more about how you manage and how you assess your ROIC?

The target for ROIC by region, we do not give each region a ROIC target. So we have the ROIC tree and each have their levers. So for example, the supply chain will be trying to reduce the inventory, et cetera. There's key KPIs within the ROIC, within each division, and they will target that. And then what about fixed asset? What about investments? If it's from a certain price point and above, it will be raised to myself or Fujiwara-san or Uotani-san. They will look at the business case and see if it makes sense. What's the payback? Within how many years is the payback? Is there enough returns? And that's how we will assess if it turns into a certain level and above. For marketing ROI, from what we see from the head office to the marketing investment, how much sales were we able to generate? That will be the granularity of what we see at the head office. But by brand and by country or region, by doing that such an activity, how much marketing KPI could increase or improve? And would it lead to the actual purchases? Each of the regions and divisions will do that, but we don't manage to that level of detail at the head office. But that is what we do within the whole company to look at the ROI.

Uotani-san, can I get a comment from you in terms of how you see the marketing efficiency. Maybe looking at -- reflecting back on the last 3 years, you've done a lot of different investments, and you've changed the way of investments, including in China. So how do you feel the result or the impact of these investments?

I think there's 2 things. One is the direct, what we need to see in a quantitative manner. For example, what's the -- so we increased the marketing advertisement fee by this and then awareness grew up by this, the trial grew by that and the sales grew, and they continue to be users. That we can see, for example. So we can see it from that fiscal year, for example. But as you know, marketing, when we invest in marketing for the consumers, you can't just see it for that fiscal year. It's an accumulation of it. It's an impact that continues on. And some of the impact carries over to the next year. So it's hard to say. If we cut investment costs this year, it will impact us next year onwards, for example. So in the short term, just like Yokota-san has mentioned, if we do something in certain region, each of the P&L is managed by each of the regions. So by this brand, your region has this profit. And that's something that we always, of course, track. So if we can increase something in investment, then we will see if something grew, the gross margin grows, the bottom grows, et cetera. If there's a certain reason and if it makes sense, we can push through and execute even if the bottom line turns negative. But anyways, we will try to balance. But it is true that the impact of the overall return on investment cannot be seen in the short term. And so it has to be planned. It takes a few years to see the actual results of something that we invest in, and that's something that we continue to track.

Just as an opinion, since you are raising the 2020 -- since you are looking at these numbers, if you can see more details of the ROIC and if the company can continue to look more in detail of the ROI so that we can have a clearer view of the return on investments.

Very true. You have a point there. But unlike the mass business, this business, especially in the prestige area, it's a very high-margin business. So that's why we have organized the brand portfolio, and that's why we focus on brushing up on the brand portfolio. For example, in order to get 100 million sales, what is that? And then the gross margin will be 800 million, for example. And some are within 60%, et cetera. And in order to raise the top line, what kind of impact does that come? What does that impact the margin? And that is the important activity that each of the region is responsible for.

I understood your thinking. I look forward to further communication.

This is Kawamoto from UBS. I have questions regarding Japan and the recovery of the mid-price segment. October to December, I'm sure that you have seen the full contribution from the renewal of ELIXIR, which is in the premium segment. On a full year basis, it was on par with the previous year. In Q3, it was also flat year-on-year. So it looks that Q4 was also flat. So other products in the mid-price segment, I think we're not growing outside of ELIXIR, right? And I think that ELIXIR attains high margin. So in Q4 -- I expected margin to improve in Q4, but the profit was negative JPY 6.1 billion. And how should we look at this number? And you plan to increase 16% in Japan year-on-year this year. Could you share with us your assumptions?

Other than ELIXIR, other premium brands, your question was regarding other brands in premium segment, right? Other brands in the medium-price segment outside of ELIXIR, to be honest, yes, we are struggling a bit. For instance, Revital and BENEFIQUE, in Q4, they struggled. But ELIXIR and MAQuillAGE makeup brand have trended steadily. And this category has high penetration in the market. So brand margin is high.

So as I explained, putting these brands on a growth trajectory will contribute to profitability. ELIXIR is a big brand. For lotion and milk renewal was quite successful. And other areas, other brands are seeing some negative trends. So they are offsetting each other, but we will take measures this year. For 2 to 3 -- we need to spend 2 to 3 years to develop and nurture brand. So we can judge the overall trend just by looking at the last year's number.

China was negative, and that represents the overall figure for global. But ELIXIR in China where I used to base -- China saw negative growth slightly because Tier 3, Tier 4 recovery was lagging behind. So it's true that we have struggled a little.

But based on a quantitative survey, ELIXIR mid-price segment at around JPY 3,000. What we focus most is that the leveraging collagen technologies, et cetera, in promoting ELIXIR. At 3 months since the relaunch, based on value, the prices are attractive against value because much of technologies are incorporated in the product. So customers really understand that aspect. So for other products and brands, we will renew this year or next year to nurture our brands over the next 2-year period.

Question again, in Q4, what's the reason for profit decline against the sales growth? What's your assumptions? And what's your assumption for inbound for the new year in Japan business?

As for inbound, as you may know, from October 1 last 2022, travel restrictions were lifted, and we started to see inbound tourists in Japan. And the inbound sales has been growing low-teens percent in Q4. Chinese travelers have not entered Japan yet. So we expect to see continuous trend of inbound sales going forward. As for Chinese tourists, we expect them to start coming back from the second quarter to gradually make sales contributions. So that's our assumption -- those are our assumptions.

Question again. What percentage point of improvement do you expect to see from inbound tourists? The sales growth, I mean.

Answer is that in total, we are forecasting 16% sales growth. As for local consumer growth, we are forecasting high single-digit percent. And inbound, we are forecasting 70% growth year-on-year.

We would like to go on to the next question. The gentleman in the front row.

Mitsui Sumitomo Asset Trust Management, Koguchi. For myself, I'm going to step aside from this performance and maybe ask more about the new structure of the CEO, COO in the press conference that was -- that had announced of this new -- the management structure, I want to hear -- I would like to hear once again from the CEO and COO structure. In the website, in order to change to the offense, the 2 of you will work hand-in-hand with partnership to lead the company for further growth. So I would like to hear from Uotani-san directly what you have in mind. I'm sure there are things you will do together. There are things that you -- each of you will do separately and excel in separate ways. And so I would like to hear that from Uotani-san. And for Fujiwara-san, you have been selected to take over -- to be the COO and President. What would you like to continue doing? What would you like to further develop? And with yourself, with your new leadership, what would you like to achieve?

Thank you for your question. As have been expressed, I said it's -- this structure will be the next 2 years. This is year 1. So this year and next year, I'm sure how we get involved may change. And I want to make sure that after the 2 years, I can completely hand over to Fujiwara-san, so that he can plan things in the next few years. But for this year, for year 1, he was overlooking just Japan -- sorry, just China region. So he's not had much involvement in the Japan business, in Americas, Travel Retail. And those businesses used to report to me, myself directly. So to learn about the global business or the reality of the global business currently is something that Fujiwara-san needs to focus on and to learn from. And of course, we have them -- and for myself, I don't need to attend these monthly meetings with the regions. And of course, there's a big reason. And a big problem, of course, I would need to be involved. But if there's a really good news, of course, I want to hear immediately. But even with the Japan region, Fujiwara-san is talking with Tadakawa-san directly to figure out the real challenges and what kind of problems they have. And I want him to really run this feet and learn about what is happening in reality of the global business. And so for myself, I look at more of the longer term. For example, skin beauty in the longer term was mentioned in the presentation, but the segments that will come in when we sit -- talk about skin beauty, are we going to develop? Is there going to be further R&D? And what kind of investments? What kind of M&As can we look at? So I want to look more from the longer perspective in terms of business planning for the company. And I mentioned a little bit about sustainability, and that is something that is common between myself and Fujiwara-san. And it's not an activity that only myself is doing because I'm thinking about it, but of course, we need to actually implement it into the company. So that's something we work together. Corporate governance and Board of Directors meetings and related corporate governance, Fujiwara-san has not had much experience in that. So that's something he will continue to learn from myself. And so in that sense, I will continue to lead the corporate governance structure and gradually build the experience and expertise and knowledge. And so that next year, I can hand over many of the things I work on in terms of corporate governance to Fujiwara-san as well.

And for myself as the new COO, the global company that represents Japan or to be a global company, I believe, can be one of the companies that represents Japan. And I, myself, have been very touched by those phrases. And that's what I have been focusing on while I was the Head of the China business. I believe this company has the ability to be a leading company that represents Japan in the world. And I think this beauty company that has that ambition and that has that vision is a very aspiring thing. And we -- and I'm sure that with that great vision, we can bring in great talent, too. And that -- those words are also very -- those words are very touching to the overseas regional heads, too. And they believe that we, as a company, can be even a bigger company on a global stage. So that's something that we will continue and I personally will continue to pursue. And one thing that I will want to make sure that -- what I would like to make sure to be focused on is what is the challenge now? What could be a problem in the future? I don't want to leave the issues and challenges and problems to the next generation as much as possible. And that's something -- and that's a key phrase that we talk about, not just myself, but within the management team, the executive team right now. Any of the challenges that we have, we want to try to resolve it so that what we hand over to the next generation, we are able to hand over a great company and quality of a company.

It's very difficult to hand over such a big role. And a lot of companies struggle to hand over to the next generation. So I look forward to a great handover.

And Fujiwara-san and I are the same generation. So I look forward to a lot of activities. Well, myself and Fujiwara-san were really next door in the office. And we feel that communication is very important. We can knock on the door and we go to lunch together. And I know a lot of different companies and company leaders, too. But it's very different when you work by yourself and you carry the information by yourself. It's often easier to share the information. And as the company members would know, I love seeing people in my e-mail so that we all know what is happening. I think it is important for one person not to hog all the information, but that all this information is shared upon each other.

It is almost time, so -- we would like to move on to the last question.

This is Miyasako from Jefferies. Medium-term management plan, you presented today. Sales and profit by region. I can't really see sales and profit by region. China, you are only expecting 5 percentage points improvement. What kind of profit improvement and growth you're forecasting? And at the time of normalization in 2025 or 2027, how do you view your business and growth?

Well, as for China, in 2022, against last year, more than 5 percentage points improvement is forecasted by 2025. To realize that, we will -- we need to generate marketing fund to -- and we will improve efficiency, SG&A to fund for marketing investment to drive top line growth. So that's the basic thinking. That goes for all the regions, basically. Growth is a key. And to fund marketing investment, we need to cut costs in other areas and improve -- and enhance marketing investment to drive top line growth. So similar thinking compared against Vision 2020. As we explained earlier, and as Uotani-san explained, JPY 50 billion in Japan or more, we will generate by 2025 in Japan. And by 2025, [indiscernible] just by cutting costs, we can't achieve a 12% margin. So we will be saving costs by more than JPY 10 billion globally. There are many reasons to believe like Global One IT and IT cost reductions. And the biggest factor, that project, FOCUS. Finally, in Q4 2023 or first half of 2024, FOCUS will be introduced in all regions, linking all the regions and data visibility. And integrated planning will become possible. And the processes will be changed to be more efficient, to reduce cost. We need to work on that. Otherwise, it's going to be difficult to achieve 12%. Once we work on those, in 2027, assuming the beauty market to grow 5% globally, by taking market share, we achieve 6%. Men, naturally, we can expect to see 15% margin. So those are the assumptions for our medium-term management plan.

It's not 5 percentage point by segment. We expect to achieve high profitability also in China.

How do you view your top line growth over a long term in each region?

Well, basically, the basic thinking is that in each region, against the market growth, we will outstrip by 1 or 2 percentage points against the market so that we enjoy and achieve the market share gains.

By 2025, in principle, we will focus on core brands and core businesses, and we will outperform the market growth. In terms of size, as you can see, Japan, China, Travel Retail, represent bigger share incrementally. And in our medium-term management plan, creating new markets, we'd like to take on new challenges. For those initiatives, over the next 3-year period, we will explore where opportunities lie. And if possible, we will do incubation so that they start to blossom after 2025. And we will invest some to those new areas to ensure profitability after 2025.

So with that, I would like to conclude the Q&A session. We will be closing today's earnings announcement. After this, IR team will be sending a questionnaire. Please fill in the questionnaire so that we can improve our IR activities. ESG, HR and people are very important factors for Japanese companies to compete globally, and we really appreciate feedback on those points as well. Thank you very much.

Thank you very much for your participation today. Please take care, and we hope to see you again. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]