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

Thank you, investors and analysts. Thank you very much for taking time out of your busy schedule today to participate in a dialogue event with Outside Director Hatanaka. And I would like to introduce today's attendees. This is Mr. Yoshihiko Hatanaka, Outside Director; and Chief Corporate Governance Officer, Ms. Yuko Kato. And myself, CFO and Chief DE&I Officer, Ayako Hirofuji. Thank you very much for your cooperation. Today's presentation will be given by Directors Kato and Hatanaka, followed by question-and-answer session. First, Ms. Kato, our Chief Corporate Governance Officer, will provide an explanation. Ms. Kato, please start.

As introduced, my name is Kato. I would like to, first of all, introduce Mr. Hatanaka, Outside Board member. Mr. Hatanaka is a former -- as you know, the former President and Representative Director at Astellas Pharma Inc. He joined Fujisawa Pharmaceutical Corporation Limited, one of the preceding companies of Astellas, and was in charge of corporate planning and the finance and represented a U.S. affiliate. He has led the company's management as President and Representative Director since 2011 and the Chairman and Representative Director since 2018. He has a board and a -- broad and diversified knowledge of global corporate management. He's currently an Outside Director of Sony Group Inc. and Sekisui Chemical Company. And he has been an Outside Director of Shiseido since March 2023 and Chairman of the Compensation Committee since March 2024. And Mr. Hatanaka, as an Outside Director with management experience as a listed company, he contributes greatly to the discussion and the supervision of the Board of Directors. Then first of all, I would like to begin a brief explanation on 2 points of our corporate governance, including the most recent system revisions. First of all, as our Ordinary General Meeting of Shareholders here in March of this year, we have changed from a company where the Board of Corporate Auditors to a company with a nominating committee. We have always positioned corporate governance is the foundation for achieving sustainable growth and increasing corporate value over the medium to long term. Considering the impact of the recent rapid changes in external environment on our business, we have spent much time discussing what roles and responsibility should be fulfilled by Board of Directors and Executive Committee based on our awareness of the needs of future -- further strengthen the management foundation to enable a flexible response to the rapidly changing market environment. As a result, the company decided to adopt the company with the nominating committee. The main objective is to clearly separate the functions of business execution and supervision and strengthen each of them so that the executive side can promote business with flexibility under a strong supervision, thereby enhancing the effectiveness of strategies even in an increasingly uncertain business environment. As a result, the Board members currently consists of 11 directors, 63.6% of them are independent outside directors, and more than 80% of whom are nonexecutive directors. All members of the Nomination Committee and the Compensation Committee are independent outside directors, and the Chairman and the majority of the members of the Audit Committee are independent outside directors. Shiseido has always been aspired for highly effective governance and reviewed how the Board meeting and the management execution should be. At this time, although it has been 3 months since we changed our system design, we reorganized the Board meeting agenda by way of transferring authority to the executives. We're also working on time allocation with matters to be discussed and further enhancement of accountability of the executives to the Board. Changing the way we run the Board meeting in itself is not our objective. We shall leverage new approaches to better establish our foundation for growth and increasing corporate value. We will therefore continue with this approach for the future. Second, I would like to talk about executive compensation. The company's executive compensation system consists of base compensation, which is fixed compensation and annual bonuses, and long-term incentive compensation, which are performance-linked compensation. The company is working on to enhance the disclosure of information on the composition of these types of compensation -- performance-linked compensation, evaluation indicators and their respective weights and status of achievement, performance evaluation indicators in the previous fiscal year and the annual securities report, business reports and other documents. LTI remuneration is a stock type remuneration, and we have certain valuation items and weight shown below as evaluation indicators. In addition to economic value indicators, social value indicators are also incorporated into the evaluation items, including indicators related to DE&I such as women's activities well as ESG evaluations and the evaluation scores of the ESG evaluation organization. The company previously referred to the evaluation score of DJSI as Shiseido evaluation for the organization. But from 2024, the score will be changed to that of the MSCI. The Corporate Compensation Committee has been discussed in the future of the executive compensation as of 1 of the main agendas. And we recognized that the issue will be discussed on an ongoing basis.

Thank you for waiting. Now we would like to have Mr. Hatanaka, External Director of the company, to talk about topics around Shiseido's governance and some recognized challenges from an external director's perspective. Mr. Hatanaka, please.

Hello, everybody. My name is Hatanaka, the external director of Shiseido. I'm very happy that we have an opportunity like this for me to speak to all of you today. So from these perspectives, shown on this slide, I would like to talk about my views, the evaluation of Shiseido's current governance. So the first topic. From my perspective, along with the constructive discussions for enhancement of corporate value, we are monitoring with high awareness the validity of robustness of business execution structure for potential operational risk. As Kato-san has mentioned earlier, from April of this year, we have changed the governance structure to a company with 3 statutory committees. Currently, the company is shifting to a better balanced growth away from high dependency on China business, which is recognized as Shiseido's challenge, as well as execution of structural innovation to drastically improve the profitability of the Japan business. And as a result of the change, we feel that the effective execution of the business side is promoted and the prospective oversight has become clarified in Board meetings that the agility and flexibility in business management is improving. There is no absolute solution to governance. Therefore, we will continue to pursue enhancing corporate governance most appropriate for Shiseido in order to continue delivering the company value based on Shiseido's purpose and vision. So these are my thoughts. For the second point here, this is for the evaluation of profitability challenge, recognition and execution. The change in business environment is shared amongst the business management team and the Board that we are able to hold effective discussions and Board meetings based on appropriate initiatives and proposals of the business side. Specifically, as the China market environment is drastically changing, the growth of Japan, U.S., EMEA and Asia Pacific markets, enhancing the strength of Shiseido Science, R&D and expansion of profit in new areas, including effective use of M&A., these are some of the recognized important challenges for the company. Therefore, we are increasing the opportunity to oversee the progress and situation of these initiatives. Furthermore, as the environment continues to change drastically, as you are all aware of, the accurate and flexible adaptability in business execution, following the basic principles and policy is essential. On the other hand, in order to actually execute these initiatives and to build the future, we have confirmed in board meetings of thoughts around human capital management based on people first mindset. For example, the early retirement that was executed as part of the Japan structural reform. We have had serious discussions for the messages we deliver, as well as what we expect with employees that apply as well as those that continue -- decide to continue to stay with Shiseido. We highly evaluate that these ongoing initiatives are in solid progress to achieve the vision that has been shared in Shift 2025 and beyond. And the first quarter earnings call, we saw the growth of Japan's business and the profit improvement in China and growth in U.S. and EMEA. We can see that through the business results, as you have heard in the Q1 business call. The third point, the role and responsibility assumed by myself as an external director. So in terms of the role that is expected for myself, I believe that our role is to understand the vision of Shiseido there in the company's value of realizing sustainable society for people's happiness, beauty innovation for a better world and provide oversight and support to ensure the management team is most effectively driving the business to realize such vision with the best practice as well as earning the trust of its stakeholders. So this is what I believe is my role as an external director. And in order to do so, we work to understand. We need to know, is there a structure that can have transparency? And can we -- and if there is any difference to what we expect to the reality, can the company move with agility? And do we have the best talent allocation for the best performance? So there are various things that we must look at for maximizing the business. And in order to do so, we work to understand each of the stakeholders' expectations to Shiseido through various opportunities. We also continue to increase constructive and transparent discussion and dialogues with the business management and Board members, even outside of the Board meetings and the committee meetings. For myself, that is it for now. Thank you.

Thank you very much, Mr. Hatanaka and Ms. Kato. The first question is, what are the changes resulting from the transition to a company with the nominating committee?

Thank you very much for your question. As I -- as Ms. Kato also explained earlier, Shiseido since before has been sorting out the supervision and the execution, and we are strengthening our monitoring in our governance. At the same time, the shift to this new system is going quite well and quite seriously. That's my understanding. And our Nominating Committee and also the Compensation Committee are comprising only of the independent directors, and discussions are very transparent. And also, the transfer of the authority to the executives have been completed. And this brought the less items for approval in the meeting, and the meeting can be spent in larger proportion for the practical discussion for growth and business expansion. And also, the Board of Directors roles and responsibilities are much clearer now. And our discussions are more effective than before.

The second question is about the compensation design. Shiseido's compensation level seems low on a global scale. Are there plans to review KPIs for incentives among executives and senior management to enhance company performance? Could the proportion of stock-based compensation be increased further? So this was the question.

Thank you very much. As you are aware of, Shiseido's compensation level on a global scale. In order, there are 6 items that we look at to make sure we can secure the right talent globally. And the design is -- it is designed based on these 6 items. Depending on the role and the job size, we do look at the global competitors and design based on the global peers. However, that said, the level of the compensation level and the performance-based compensation and the KPI setting of the compensation -- performance-based compensation -- there are areas that we do need to continue considering, and I myself feel that it does need to be continued to be seen and over -- to be monitored. So within our compensation committee, we do share these challenges or topics so that we have the right measures to have the most appropriate design of compensation. And for the execution team, the linkage with the employees' compensation, we make sure that the management team continues to look at the right level of compensation for the employees as well.

Now we would like to invite questions from those who are joining us on live. And from JPMorgan Securities, Kuwahara-san, please ask your question.

Thank you. My name is Kuwahara from JPMorgan. Hatanaka-san, thank you very much for your precious explanation and opportunity. Now I have a burning question. As Hatanaka-san said earlier, about the system to manage the risk you are having discussion. At the same time, there's a major change in China, but not limited to China, there are a lot of rapid changes globally happening in the various markets. And so in regards to the system to manage risks, what are the more concrete discussions I would like to know in -- as concretely as possible? And at the same time, there's -- when we look at the integrated report, the growth beyond the structure reform is something that you need to pay full attention to. So this is -- I think it's about accelerating. So the system to manage the risk and also the accelerating for the future growth beyond the structure reform. In this, about these 2 points, what are the discussions that are held in the Board meeting? Please share that with us -- with me as much as possible.

[Interpreted] Thank you for your question. As you pointed out, changes are quite rapid and how to manage the risk in that backdrop is your question. First of all, Shiseido is a company of skin care and cosmetics. And for instance, there's the quality issues and also the compliance related efforts. And so the basic risks, how to manage the basic risks and the systems to manage and also prevent the risks from materialize is something that we, first of all, need to think about. And based on that, overall, business also has a set of risks for the business operation, including geopolitical risks. And we have thorough discussion within the Board member. We compile them into materiality so that which affiliate all departments will take charge in taking care of those risks. And as far as I'm concerned, these are the risks on 1 hand, but on the other, these are the opportunities for Shiseido to grow. And that's what I'm paying attention to the most. And naturally, in addition to addressing the risks, we shall derive the elements for growth or future by way of overcoming the identified risks. And that is the gist of discussions that the Board is having with the executive members of the company. So we always question them on this point. That's all.

[Interpreted] If possible, quite briefly, are there any examples of the measures to -- that you changed from the risk to the basis for growth?

[Interpreted] So the specifics will be explained by Hirofuji-san and other executive members. I think that will be better. Having said that, geopolitical risks are also included in our view. And there are risks associated not only for the business operation, but also in relation to information made available to us. So how effectively for Shiseido to manage is very important. If we only follow suit what other companies do, then we will lag behind, and that means losing the market share and losing the customers. So we always pay attention to this point in addressing the risks.

[Interpreted] Thank you very much. From Mitsubishi UFJ Trust, Yoko-san.

[Interpreted] This is Yoko from Mitsubishi UFJ Trust Bank. Hatanaka-san, long time, no see. I apologize, I'm outside right now, but apologies for any noise. As I look at Shiseido, verifying the return on investment has not been fully executed is how I feel. Looking at the business performance, it's not going up. And I believe that that's part of the reason why the business isn't necessarily going up. And from that perspective, the operational excellency, you have done operational excellency back in your previous company at Astellas. Do you, from your perspective, see that Shiseido does the full verification of return on investment? What is your view on that? It does overlap with the previous question, but you have had experience in pharma, and you are known to be very strict and harsh in your return initiative back in your pharma base. So with that included, if you can answer or give perspective, that would be great.

[Interpreted] Thank you, Mr. Yoko. So the question is the verification of -- verifying the return on investment in business. In Shiseido, for investment, there has been much stricter benchmarks for making investments. And I'm not sure if it's appropriate to be comparing to pharmaceutical industry. But the investment and the timing of return, the time -- there is a difference in timing, time lag. So at what point do we measure the return, that could differ as well. So it is very difficult to say -- it's hard for me to compare apples-to-apples, that kind of return on investment from my past experience to what the company Shiseido is doing. But if I may repeat myself, in terms of the investment and return on investment, the company Shiseido is very strict. And for any of the investment that has been done to the businesses, every Board meeting, we will review -- every executive business management meeting, we will review what is going on with this investment. And from there on, is there a potential to expand the opportunity. And so these continuous discussions have been done and they're being monitored. So I would not say that Shiseido does not verify the return on investment enough. I do not feel that they do an insufficient job. They do monitor very closely.

[Interpreted] Thank you very much. So from that point, it's checked and verified the investments that are made? Is that correct?

[Interpreted] Yes, at least for -- from my own experience at Shiseido, I see the company managing very tightly and strictly the ROI as well as to discuss for further opportunities in the future to expand the business.

[Interpreted] Sorry, just 1 more simple question from your experience. In general, what do you think is the appropriate number of years as a CEO? I believe Uotani-san has been CEO for about 10 years now. But from your perspective, what do you think is the appropriate duration as a CEO?

[Interpreted] Thank you for your question. So what is the appropriate years -- number of years to serve as CEO. In order to perform as a CEO, there will need -- there is a need for a certain set of years. So the CEO will need a few years to perform. But to -- for the CEO to stay too long, that could also be a challenge as the company tries to change and evolve. So it's all about the balance of the short and long. And that's something that I have been thinking in a general broad term. So I do believe that each of the company will have a different perspective. And I also do believe that industry basis, I think the appropriate years as the CEO may differ as well. And furthermore, the market situation or the challenge that the company is facing at that specific time could also change the number of ideal years for a CEO. So I do not think that there is 1 answer to that question. For Shiseido, the succession plan is ongoing. But succeeding the CEO, when the next CEO is officially decided, then at that timing, the succession plan will already start to begin and think about the next CEO because that is the way it should be done for a healthy company in terms of succession planning.

[Interpreted] Thank you very much. Mr. Hatanaka, you have not been an external Director of Shiseido for so long, but we are very appreciative that you are here to speak to us. The operational excellency that you have done in the previous job, we do look forward to you flourishing that skill set that you have and bring it to Shiseido for us.

[Interpreted] From Daiwa Securities, Hirozumi-san.

[Interpreted] Hirozumi from Daiwa Securities. And I'm on the sell side. So I'm very appreciative for this type of opportunities. My question is that -- not -- I don't think everything can be visualized, but the roles of the outside directors and also the monitoring board type governance, how is it working? And how much is it working? If that can be quantified, that would be appreciated. And monitoring board type of the system and how much the scaling was actually achieved and also the -- how much scrutiny of the operation is in it? And operation and also in comparison to the companies that you have served as an outside director such as Sekisui and Sony? What are the differences? How much is it working?

[Interpreted] Thank you for your question. The monitoring board and its effect in terms of the speed and the quality, if that can be quantified, that would be appreciated. I think that was the gist of your question. To be realistic, quantifying the effect is extremely difficult. And the eventual financial results, that is the outcome of such efforts and also this -- the -- and also our -- the plan at 2030 and beyond. And so we would sort of a measure against this yard sticks and it had the easiest way for you to try to quantify it. So if I do mention any numbers, I don't think it's going to be useful as a referring point. So making your own judgment would be necessary. So in relation whether the relation between the Board side and executive side are actually working and also what type of -- what speed and actions in place when things are stagnant, and so I would like you to evaluate by yourself with this yard stick of our plan.

[Interpreted] Two questions, I have. I'm sure you've mentioned that before. But for instance, if Shiseido goes to an unfavorable direction, so the Board -- are there any examples that the Board managed to redirect the business to the right direction?

[Interpreted] Well, I would like to refrain from mentioning any particular examples. But for instance, last year, there was a major change. There was a major change, and we discussed how to reflect that in our overall plan in our Board meeting, and we had many hours of discussions over the frequent occasions. And as I mentioned earlier, in January, between January and March this year, in the first quarter, once we had -- we saw that there may be the similar tendency happening.

[Interpreted] Another question. So you used to work for Astellas Pharma and also Sony and Sekisui Chemical. And in comparison to these companies you have experience with, what are the other characteristics of Shiseido?

[Interpreted] So at least in comparison to companies that I have experiences with -- well, in fact, all of these companies have the wide range of membership and Board members, there's a high level of transparency and also the information from the executive side, management side also quite transparent. And so Shiseido also has sufficiently the similar tendency. And also, I myself -- this from the Board meeting to the management executives, we transferred the authority, and we are monitoring how high the quality of the management will be by the executives. We will monitor the quality in management to keep the right input.

[Interpreted] So, thank you very much. So we also would like to make some inputs. So if you could continue with this type of dialogue, that will be very much appreciated.

[Interpreted] Next is Mitsui Sumitomo Trust Asset Management, Koguchi-san. Koguchi-san please.

[Interpreted] Mitsuru from Sumitomo Mitsui Trust Asset Management, Koguchi. Long time no see. I would have never imagined to be able to see you at the Shiseido meeting. I'm very happy to see you today. So for myself, the corporate culture. I have a question regarding corporate culture. In the recent integrated report, Mr. Hatanaka, you have mentioned in the interview that the company needs to be a more positive energy that the employees should be more positive and with more energy is the comment you have said. From myself, when I see the Shiseido people that we speak to regularly, I feel they are very positive and very energetic. But for you to mention that in that interview and integrated report, what are the points or where did that comment come from? Did you feel differently? I thought it was a very unique perspective, specifically from external directors. So I wanted your views and comment to that comment that you made on the interview.

[Interpreted] Thank you very much for asking about the corporate culture, and thank you for bringing up my comment from the integrated report. So how do I feel about this? As for myself, it's been a little over 1 year as an external director of the company. And outside of the Board meetings and some of the committee meetings, I do have opportunities to visit the company and speak to the key management of the executives. So I have had various opportunities to speak to various members of Shiseido. This past year has been a very -- has been, I would say, a difficult year for Shiseido, and a difficult year has continued. So the challenges that the people face, how do -- how does the company overcome that? That's where a lot of the discussions that I participate tend to focus on. And to that -- and so yes, it is true, but I've said it previously, but when -- there is -- it is -- it might be a struggle now, but there is a struggle to overcome to grow for the future. And so I feel that there is a lack of awareness to what awaits ahead of the struggle, and that's what I would mean about positive -- because of the challenges may be difficult, but ahead of it are positive news and expansion. However, what people face on a day-to-day basis could be a struggle and a challenge. And that is something that we have been seeing in the past year. And I personally felt that, that's what the people were very much focused on, and that's how I felt. But what -- myself making that comment, it's not making any negative comment, but it is just a comment and the impression that I have gotten upon this past year.

[Interpreted] So the business performance struggle may have given you that kind of impression. Is that correct?

[Interpreted] Yes. And also -- and it's not like I am in the day-to-day executives meetings, but what the top management thinks where I feel as an executive and top management, I feel that they should be more free to speak up what's on their mind. And so I personally, as an external director, I want to increase the dialogue. So I can see more of the open comments of the employees.

[Interpreted] So you mentioned about the employees, but also Uotani-san or Fujiwara-san, from your perspective, how do you see the executive management layer?

[Interpreted] They're very quick, agile and do their best to be effective. And so from my perspective, looking at these executive top management numbers, they are very high-performing management members. And right now, it is -- CEO is Uotani-san and Uotani-san has created a great team. And they're trying to evolve that. And that, I can see that they're trying to really improve and evolve the management team and the company from Uotani-san and Fujiwara-san. And I think that is the reason why I am here with this kind of opportunity in front of all of you.

[Interpreted] From CLSA Securities, Mr. Oliver Matthew.

Thank you for taking the time. I have a question on the compensation committee. How radical do you think the changes need to be for you to attract the right people to deliver this huge increase in operating profit margins? I think the opportunity is there, but it requires some changes. And to do that, you will need to bring in world-class talent globally. With a very weak yen, it does seem some -- very significant changes need to be made to achieve these goals. So please could you explain how radical you think changes are needed on compensation? Thank you.

[Interpreted] Thank you for your question. So your question was about our compensation and how we will change that to achieve our objectives. Thank you for your question. As I mentioned earlier, the -- we are designing in our compensation with a view of the global talent market. But however, in comparison to the world standard, the compensation is standard and also the performance-based remuneration percentage. And also the KPI setting, in relation to the performance-based compensation, I still feel that there is some room for change and consideration to what extent we will change. We are now in discussion within the Compensation Committee. And the Japanese companies in recent years or days, they are now beginning to look at the compensation from an entirely different viewpoint. It is not that Shiseido shall or should follow sort of other companies. However, whether Shiseido is chosen by the best talent across the world, will the best talent wish to work for Shiseido. So in the past, it did not used to be just a compensation that would drive attractiveness, but then composition certainly will be an important part of the attractiveness of the company workplace for the global talents. At this point, I will refrain from mentioning any specifics. Thank you for your question.

Thank you very much. You have a great opportunity. So I hope you will make a radical positive change.

[Interpreted] Actually, we have some questions on the chat. So let me move over to the chat. Let me read you some of the questions. From JPMorgan Asset Management, from Osaka-san. By changing the governance structure, we did hear that there is a quantitative quality side of being more agile and flexible. But can you share with us as much as you can disclose with detailed examples of what has improved as a new governance structure in terms of the agility and flexibility?

[Interpreted] Thank you very much. So as a change of governance structure, the agility and flexibility has improved and that's something that I have mentioned and what is behind it. So in reality, what is happening is the executive side are more free in coming up with our initiatives. And the timing to actually execute these initiatives have become quicker. On the other hand, of course, there is the accountability. So with the Board members, there needs to be a report to the Board members, whether it's e-mail based. We -- it has become more flexible to even report to the Board members of these initiatives, which has given us the company agility. So companies -- to add the capability of the company, M&A is something to be considered in the future as the company expects to grow. But when there are other competitors and the M&A -- the company that they're looking at. The quickness, the agility and flexibility is very important for a successful M&A. Otherwise, there will not be the trust from the company and therefore, not giving Shiseido, the right results, the good outcome that Shiseido is wanting. So in detail, which -- in which case of this, what happened, which I would like to refrain from mentioning the detailed examples. But for sure, I would like to say the flexibility has definitely heightened, and therefore, allowing Shiseido's competitiveness to improve significantly.

[Interpreted] From Sumitomo Life Insurance, Mr. Hirohashi-san. Please ask a question.

[Interpreted] Hirohashi from Sumitomo Life. Very brief question also this time. So Shiseido has now shifted to the company with a nominating committees and other 11 outside directors which I think is excellent. And so the next step is to how to drive the improvement of the executive size capability to execute the business. When we look at the integrity report and the function of the nominating committee is always valued as the -- it is almost satisfactory. But based on that, what are the sense of the challenge? And what are the points for improvement for the future? If you could share that with us.

[Interpreted] Thank you for your question. So about the Board meeting, the effectiveness is your question, as I understand. The fundamental approach is that the Board meeting discussion, including Q&A, have now become clearer that is a major improvement. In the past, the things that the Board could leave to the executive discretion, used to be discussed in the Board. And there were so many opinions were gathered for the Board discussion, and we had to deal with the time restriction. Now that we've shifted to the company with the compensation -- excuse me, the nominating committee, we have more time for more thorough and full-fledged discussion, and we can also follow-up on the pathways and the process of discussions. And so certainly, the effectiveness evaluation comes out to be some sort of conventional expressions such as the almost satisfactory. We are aware of that. But myself in March this year, I know before and after the shift of the other governance structure and selection of the agenda for the Board meeting now very much more focused. And I see a significant improvement on that point alone. So in next year's effectiveness evaluation, I am sure that our effectiveness will be even more highly evaluated.

[Interpreted] From Jefferies, Kawamoto-san.

[Interpreted] Thank you very much for such a precious opportunity today. From today, the social value aspect, ESG, the valuation is 20% on Page 6. So how do you align the society value, the economic value and social value? So first off, this 20% of the social value, environment, society, ESG, how is the 20% allocated? And furthermore, by setting this as a performance indicator, what kind of changes in the company are happening? And environment, that CO2 emission reduction target seems a bit far away. So I believe it might be hard to evaluate on an annual basis, yearly basis. So -- and outside of CO2 emission, from 2026, there will be some restrictions in France for organic [indiscernible]. So how do you see the overall thinking around this?

[Interpreted] In detail, so the ratio of this 20% in the social value. As for the breakdown of this, we do not disclose. So apologies, but we cannot -- I cannot answer that. In terms of ESG, how we assess or evaluate ESG, and how is the social value reflected on to the corporate value? We do have a monthly discussion in regards to that topic. Shiseido, the thinking around Shiseido, whether it's social or support to the people, we do need to make continuous efforts to make positive impact on this. So that's the kind of discussion we have continuously. So in terms of the people, human capital. We will continue to invest in human capital or people. GE&I -- in Shiseido, GE&I is quite aggressive. So how do we prove that? Or how do we promote that? And as a result of promoting it, how is the value -- how does the value increase? How can we verify that? And that's something that we need to do with the human capital team, the HR division. And these are the things we talk about from the Board in the Board meeting. I believe that each of the companies are thinking into how and struggling, I think all the companies are struggling in how to link ESG to the corporate value. But as mentioned earlier, in the Board meetings of Shiseido, we have high interest and high awareness of this area. And thus to the executive team, the business team, we are requesting the business team and the executive team to do further verification of the linkage there.

[Interpreted] Thank you very much. Here is the CO2 emission reduction target in environment. Is there any other areas in regards to environment, if there's any?

[Interpreted] There's a plastic, and there's anti -- in the plastic containers, and as Shiseido, there is a mission to contribute to people's health as well. So we are aware of that as a Board. So therefore, I think that would give burden to the environment, we will be cautious of and try to reduce and to try to add value. And that's the things we need to consider, and that is a continuous discussion we have as a Board member in regards to the environment.

[Interpreted] From Goldman Sachs Securities, Miyazaki-san.

[Interpreted] Miyazaki from Goldman Sachs. Thank you very much for this opportunity today. One question from me. So in the first part of the -- if there was the mention of the acquisition of Dr. Dennis Gross -- Gross Dennis. And so I believe that there's been a verification of the acquisition already been done. But before the -- so before and after the acquisition, have there been any changes in the conditions? And also in order to ensure the return on this investment, what were the discussion held in the Board members? And were there anything in particular that you paid attention to in this acquisition case?

[Interpreted] Thank you for your question. And so it's about acquisition of Dr. Dennis Gross and what were the discussions associated with this case. So we have the nondisclosure agreement on the specific details, I will not be able to share with you. But then the basis is that for China and Travel Retail and Japan centric portfolio. We would like to begin to grow in other regions, such as the North America and Europe. And in order to attain the growth, some growth will be attained organically, leveraging on our R&D. And at the same time, we will also execute the necessary M&A. And so such was the discussion that was held in the meeting, and we had a discussion between the persons in charge of the North American market. And -- so we had quite an extensive discussion in the Board meeting, and that led to the successful acquisition of Dr. Dennis Gross. And it is not that we took a chance over something opportunistic. And eventually, we looked into the potential for this acquisition to enhance the portfolio and the future growth and also how to add this to our operation. How to expand it to our other regions is something that we've thoroughly discussed. And I myself was -- I'm confident that this will bring -- this is an acquisition that will bring us success. So in the discussion for the decision, you discussed the potential and also what are the focuses after the acquisition. So even in the Board meetings after acquisition, there is a continuous discussion underway.

[Interpreted] Yes, you're correct. Thank you very much for your explanation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]