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

Hello, everybody. Once again, thank you for participating in today's event. I'm the Chief Corporate Governance Officer, Kato. Now I would like to introduce to you the 2 external directors that are here with us today. First, we have Mr. Hatanaka, the External Director and Chair of Board of Directors. Mr. Hatanaka is a former Representative Director, President and CEO of Astellas Pharma. In Astellas, he has robust experience in corporate planning, financing as well as overseeing the international subsidiaries becoming to -- becoming a Representative Director and President and Chairman. He has led the company for many years with extensive knowledge in global corporate management. After retiring from top positions of the company, he's been active in leading companies as external director for multiple companies. He has been the External Director for Shiseido since March 2023. From 2024, he also serves as a member of Compensation and Nomination Committee as well as the Chair of the Compensation Committee. On top of those roles, he is now the Chair of the Board of Directors for our company since January of the year. Next, Ms. Yasuko Gotoh, the External Director and Chair of Audit Committee. Ms. Gotoh has held very senior positions in the Ministry of Transport, currently, the Ministry of Land, Infrastructure, Transport and Tourism as the first female career Officer. After leaving the Ministry, she served as Executive Director of Kyushu Railway Company, overseeing both the business and finance divisions as well as serving the role of Director and Audit Committee members. She has been External Audit and Supervisory Board member at Shiseido since 2019 and has joined us on the Board of Directors as External Director from 2024. Currently, she serves as the Chair of Audit Committee. She also serves as External Director of other public companies as well as audit member of Tokyo Metropolitan Government. Now I would like to quickly share with you some of the recent updates on corporate governance and especially around the Board of Directors. As of the resolution of Annual General Shareholders Meeting held in March of 2024, we have transitioned to a company with 3 statutory committees. We have clearly separated the functions of execution and supervision while strengthening both of these functions. The Board of Directors is now focused on discussing -- discussions related to the company's policies and strategies as well as overseeing the execution. On the other hand, the executive side is working on enhancing the agility of business operations. Furthermore, under the new policy of appointing an External Director as Chair of the Board starting this January, Mr. Hatanaka has assumed the role. We believe this has further improved the objectivity of discussions within the Board of Directors. I believe that we will be able to hear from the 2 external directors about how these initiatives are actually working in the presentation today. Currently, as you can see, the Board is constructed with more than 80% of nonexecutive directors. The Nominating and Compensation Committee are all comprised with independent external directors. And the Audit Committee is comprised of nonexecutive directors and external directors to strengthen cooperation with the audit department. And that is it for me. I would now like to hand it back to Ms. Oshima. Thank you.

Thank you very much, Ms. Kato. Now I would like to take this time to invite the directors, Mr. Hatanaka and Ms. Gotoh to speak. They will share their perspective as external directors on our corporate governance, focusing on these 3 major items shown on the screen. First, we would like each of them to reflect on their appointments as Chair of the Board. And we will begin with Mr. Hatanaka, who will look back on his first 6 months as Chair and share his views on the ideal state of the Board of Directors and the current challenges. Mr. Hatanaka, can you share with us?

As Kato-san has mentioned earlier, so in 2024, the company has transitioned to the 3 statutory companies. And after that, it has what's been introduced. As for the current status of the company, the environment -- the external environment is rapidly changing. And there's been many -- there's a need for speed and being agile to adapting to the environment changing around us to make sure to create the productivity and the profitability. And now the executive side, we have delegated a majority or a lot of the decision-making to the business operation executive side. And what we will do is we will have the oversight. And if we need, we will step into -- make things right. And we have been able to make this change very smoothly. And this -- from this January, I myself, as an independent external director, I have become the Chair of the Board of Directors and through that -- I am an external person, not an internal company person. So from an objective view, I am able to see what is needed as a company, and I try to interpret it from my own views to share with the Board. And as for that or through that, I believe that for me, the understanding of what needs to be understood through the Board has deepened, and I believe that our discussion has become more -- become deeper. And the items that are seen to be very important, we will -- depending on the necessity, we will actually have a meeting just with the external directors. And we will make sure to share that with the Board, the overall Board once we have an opinion as an external -- group of external directors. In order to be efficient and impactful, we are very careful of the next 3 items. One is in order to increase the corporate value that is a common objective between the Board of Directors and the company executive officers and also the executive officers and the Board of Directors, we will have a thorough communication and transparency. And the third is to make sure we have a very healthy discussion to build a trusting relationship. So these are the 3 items that we put our focus on. That is it for that.

Thank you very much. Now Ms. Gotoh, can you share with us some of the changes that have been made or that you can observe through of the Board of Directors under Mr. Hatanaka's leadership.

As Mr. Hatanaka has just mentioned, since Mr. Hatanaka became the Chair of the Board of Directors, I feel that the discussions have become clearer. The Chair is very clear on his thinking. So for example, focusing on agility, the speed and the execution, the implementation and oversight. We separate that clearly to make sure we have clarity on what we need to really focus on. And that allows us to have a very meaningful discussion, and he has led us very well in that kind of discussion. The Board of Directors, including external directors, I believe we have a great members that we can have very meaningful directions with transparency. But under Mr. Hatanaka, I believe that discussion has accelerated and has deepened even more.

Thank you very much. Now moving on to the second item. We would like to hear your perspectives as external directors regarding the Board's awareness of key issues and its actions. The first is about the improvement on the profitability of the business and overcoming the current situation and overcoming some of the challenges. Ms. Gotoh?

Currently, Shiseido in terms of improving profitability, that has become a big theme for the company. And based on that, the company is working -- needs to work on and implement these changes, these initiatives to make this change happen for improving the profitability. Now I would like to maybe -- and I believe that we need to look at it by country. So maybe I will look at Japan, which is an important market, then China and the Americas. So very simply, but if I can touch on each of the regions separately. As for the Japan market, there is a structural reform that is ongoing. And to that, we are starting to see some of the fruit of -- through structural reforms. And through that, I believe that we are able to create a more healthy financial structure. And some of the points to mention, looking at Japan's structural reform, there's an early retirement plan, which was the first time in Shiseido to do this. But with a strong commitment, we started that. And as a Board discussion, we've had various discussions. But the executive team that had committed to doing this as a Board of Directors, we wanted to support that as much as possible and that had been the position. We were aligned together and we supported as much as possible. And, of course, there were concerns of the employees, and we were worried about the lowering motivation of the employees. But to that, we had thorough communication with the employees. And then what kind of communication do we take to the employees. We had a very meaningful discussion within the Board of Directors, too. And even in the audit meetings -- audit committee meetings, we've had that discussion as well. And we said, well, maybe we should do a little bit more of that. We will feed it back to the executive team. And we have kept on giving feedback and inputs and revisions to implement this initiative. So we have been sharing a lot of the feedback and inputs together, and that's one of the key points to mention. And now going forward, Shiseido Japan, Mr. Nakata is newly appointed as the Japan's CEO. But with the structural reform that will ongo, we'll keep on going with the new CEO. I believe so we will continue to do the communication, for example, how do we approach the younger segment and also the active senior. And there's also the expanding men's market and all that we are approaching it comprehensively with a lot of motivation. So for that, that is something that we want -- we as a Board to want to continue to support. With respect to China market, the company has been relying on the Chinese market a lot. So there were some points raised, and then we have some concerns over that. And in Chinese market, there are some deteriorations of the brand equity. So we have that as the key risks. And we have been discussing as the Board how to tackle that. And the lessons learned is that because amid the environmental changes, the brand equity is deteriorated and the consumers' behavior has been changing and some initiatives taken to address that was slightly delayed. So that was the kind of discussions we had a lot thoroughly at the BOD, and we need to look at the current latest market conditions and then demands of the consumers, and we need to listen to the voice of such consumers. And with that, we need to create the market where Shiseido can grow. And the Chinese market continues to be the very important market for the company and both executive officers as well as the BOD have that in mind, same understanding. But of course, we need to have a good performance, and we need to have actual results that we are playing in that. And in terms of the U.S. market, structure reform and the profitability basis has been dramatically changing. And I believe the U.S. Head, [ Alberto Noé, ] now newly appointed. So under the Alberto-san's strong leadership, we are seeing some signs of changes, and we are monitoring -- overseeing their initiatives as the BOD. It is somewhat on track, but there are some sensitive topics as well. So some elements that we are not able to provide some information to the market. But of course, BOD would like to oversee and give some support the initiatives in U.S. in the Drunk Elephant and other U.S. brands or business has been still difficult. But originally, that issue was triggered by the short of stock. But beyond that, we believe that there is an issue that the brand positioning has been changing. So we would like to share our thinking and also a viewpoint to the executive officers. And as a BOD, we would like to give some support. Thank you.

Thank you so much. Now I will ask Mr. Hatanaka about the action plan. So structural reform now will be implemented so that we'll be able to get out of the very critical situation. And then we would like to solidify our sustainable growth. And since November of last year, we tried to rebuild our basis for the future growth. And this action plan 2025 to 2026, how would you evaluate from the standpoint of oversight?

Yes. Thank you. So personal wellness beauty company, that is what we envision, and we are trying to offer some value to the consumers from the beauty perspective. This has not been changed. And then this is a key point, and we are taking the action plan. And of course, amid the changing market conditions, still the company needs to play the very resilient of the business. And to build such a very solid foundation, this is very essential for the future growth of the company. And this action plan is now implementing under the implementation in coming 2 years. And then the target of 2026 is already disclosed. The ROIC target still is lower than WACC and the profit level is completely very much not satisfying level, meaning that the KPIs offered by the executives has to be broken down into the individual employees and then it's implementation of such actions, and we need to give some oversight and properly and then try to move and get out of this critical situation. So we are supervising very tenaciously. And beyond that, for the future growth and then future opportunities. And we -- the company will begin the midterm plan starting next year. And that in a plan -- midterm plan will be disclosed within this year. Thank you.

The third question is about the remuneration system. And so we had implemented the relative TSR and ROIC will be introduced as the remuneration scheme in the LTI. And can you please elaborate on the background why the company adopted the remuneration system and also the expected returns? Hatanaka-san, can you please as you are the Chair of the remuneration committee?

Thank you. So the traditional -- the and LTI remuneration was the range increase has been focused on the core operating margin. But this core operating margin was the basis as of that time. However, for the annual incentives and annual -- the rate increase will be the focus. And then for all the invested capitals for the business -- core business, how the -- we were mindful about the improvement of the company growth as well as the corporate value improvement. So that is something -- a strong link between the incentive plan and the outcomes. And as I mentioned, the action plans 2025 to 2026 has to be implemented properly and then the shareholder value is also to be improved eventually. That is the intention behind for this change. And also, the changes in the composition of the total remuneration for CEO, and this is the design in a way that long-term incentive would be more focused. And so that the CEO is more incentivized to address the matter properly in the long run. And then there are some voices raised for this design. And continuously, we need to monitor the overall remuneration for the basic -- the weighting as well as the long-term incentives and also -- the annual pay rate. So we would like to make the further research on this.

Thank you so much. Now we would like to enter into the Q&A session. So I would like to explain how to proceed this. So we have some questions raised in advance. So the MC will read out for those previously raised questions. And then later, we would like to take some questions on verbal as well as chat. Now I would like to start reading the previously raised questions. The first topic is about the skill sets of the BOD. Toward the shareholders' meeting in March 2026, what kind of new skill sets is necessary for BOD? Hatanaka-san, can you please answer?

As has been introduced and looking at the Japanese cosmetic market, it is shrinking. And looking at the China market, it is transitioning to a more mature market, so lower growth or stagnating growth. So that's the kind of external environment. And so outside -- when we look at the growth outside of Japan and China, that's a very important or a much needed priority for us to take in the market share of the other regions. So growth in the international market is inevitable, and that is something that the executive team as well as the Board is aware of. And so for example, looking at the global companies and how they manage their business and/or the marketing experience. And also what can the Board of Directors do to give impactful oversight that is meaningful for the CEO and the executive officers. That is something that we look for and want to provide and support to make sure we continue to enhance on the growth. Now for the executive officers, looking at the international marketing capabilities and the competitiveness, we need to strengthen the people and the growth of people as well. And that's something that has been requested. We need to bring in international people or educate the people and to enhance the capability, and that is something that the Board and the executive are seeking so that we, too, can elevate ourselves.

Thank you very much. Now the second question. We understand that the -- we understand that promoting structural reform requires simultaneous transformation of the organization's culture, which is time-consuming process. What initiatives has the company taken to ensure that all employees can embrace this cultural transformation? And additionally, how does the Board of Directors monitor the progress of the organization culture transformation across Shiseido as a whole? How does the BOD oversee the progress of the organization culture transformation across Shiseido as a whole? Can we maybe start with Ms. Gotoh?

So as we promote the structural reform, of course, simultaneously, we do need the organizational change. And -- but when we say that the organizational culture transformation, I believe that there are 2 points to this. One is through structural reform. When we say structural reform, people become more conservative or it's more about the shrinking and it may demotivate the employees. But within that kind of environment, how do we promote the motivation of the employees so that the organization can continue to perform? That's the first point. Secondly, I think it's an extension of that. But how do we continue to make sure we have profit and also growth. How do we nurture that kind of mindset that's still under the structural reform, we continue to grow and grow the profit. So when we did the structural reform, I believe that it was the same when we did the Japan structural reform. But why are we doing this? Why is the company trying to do a structural reform? We needed to clarify the objective and make sure we share that objective with the employees. In order to do so, we have had repetitive communication with the employees so that we have a thorough message as to why we need to do a structural reform. We are doing this in order for us to overcome the critical situation, but furthermore, for us to grow in the future, for Shiseido to grow in the future. And we need to make sure everybody is convinced and understands why we're doing, and that is a very critical point for us to pursue the structural reform. And as for that, the BOD as well as executive leaders, we have had many, many discussions for these kind of communications. And I have mentioned a little bit earlier, but in the Audit Committee as well. We will look and give input. Maybe you're short of communication in this area, maybe it is better to do this kind of communication. If we need to, we will give input to the executive officers and request for an improvement. And so that to make sure that the employees have high motivation and can keep some motivation so that all the employees are aligned together in the objective to pursue what the company wants to pursue. And currently, as we pursue the current structural reforms, that too, the leader of the executive officers or the leaders will go to each of the regions, have town hall meetings, and we'll continue to have the dialogue and communications with the employees and moreover, a big-sized town hall meeting to a smaller sized meetings as well when and where needed to make sure there is a dialogue with the employees. What is Shiseido aiming to be? What does Shiseido want to be? And that's what I hear that the executive officers are doing. And starting with Mr. Fujiwara, the CEO of Shiseido. I believe that it's very agile. Even on an e-mail basis, we have very quick updates and quick communication so that the Board of Directors are fully aware of the current situation and progress as well and for us to be able to have the proper oversight. That is it from myself.

Thank you very much. Mr. Hatanaka, from you?

As a Board of Directors, looking at the overall Shiseido corporate culture, how do we oversee the Shiseido corporate culture? In general, what corporations would do is look at the engagement survey of the employees and look at the changes or we will have like an internal team competition, for example, to see how much or how many unique proposals will come internally. And we would do that to look at what kind of change and transition has happened in the company. However, for me, what I prioritize or what I focus most is the management team, starting with the CEO, Mr. Fujiwara, the management team, their decision-making and the speed of execution and the agility, the speed. And to that, how focused are they on the return of investment. And those are the elements I focus on when I look at it from a Board perspective. From the BOD, we will -- from a Board meeting, we will have a discussion with the Board and the Executive Directors, and we make sure that we have a full the communication and that is shared amongst -- across the company. And so that each of the individuals have accountability or responsibility, a sense of responsibility to make sure that they are part of the team. And so therefore, BOD and as for myself, as part of the Board member, how is the management changing? That is another -- so that's what I focus on as well.

Thank you very much. Now we've had many other advanced pre-asked questions. However, we do want to have a Q&A session from the people participating today. So as for the pre-asked question, we would like to close now. Thank you very much for your pre-asked questions. We would like to take a question from the floor or from the participants [Operator Instructions].

This is Kuwahara-san of JPMorgan. Can you hear me?

Yes.

Thank you for the session today. Hatanaka-san, I met you one year ago at similar meetings, so talking about the good balance between the growth and the risks. So today, I would like to ask you how you managed to improve the risk management? And how you -- what kind of communications have you had in the past year, especially for the second quarter of last year, in the U.S., there was a system -- IT system trouble, and that caused the delay of delivery to the customer. So I think it was a very critical issue occurred because of that. And so the system upgrade has now been halted because of such difficulties. And in the manufacturing side, I hear that. So do you have any kind of risk management? And what kind of communications you've had for this kind of risks? And in terms of the -- there are some tariffs changing these days. So are there any geopolitical risks are also rising? So can you please elaborate on that?

Yes. Thank you. So first of all, in terms of the IT system trouble caused last year, yes, we recognize that as the big deterioration in terms of brand equity. So we take it very seriously. And the BOD as a communication to the executive officers was not just reported only the things happened, but how -- what kind of measures they took against such failure or some system troubles and what will be the next step to address such situation. So we do not undermine the speed of the execution, but still the executives need to manage multiple risks with a great speed. So that's the kind of communications that we had to the executive officers. And in terms of the approaches, plan B or plan c has to be always prepared. And since the BOD communicate that way, I believe the executive officers have the more focus on the -- these kind of risks and also the emerging situations. And your second question, geopolitical risks and the tariff negotiations. I believe that everybody in the world is now focusing on this topic and then very much take it as a big risk. And from Shiseido perspective, what is the big risk on that? We ask the executive officers to clarify what's the challenges that we face and ask them up to date on that topic. And as was explained -- shared earlier, since the situation was changing day by day, as we learned from yesterday's news. So things cannot be determined and then it's done. It's not the case. So we have to be more agile in the situations that might change every day. So that is the kind of situations or communications I always have.

And in the previous case, like the second quarter last year of the issue, and you mentioned that the plan B and the response, very agile response for such risks emerging one by one. And I believe these initiatives the company took in the past year, do you believe that the company's initiatives are quite advanced or accelerated?

Yes. I believe that there are more of a sensitivity against the risks and also the response towards such issues. And also the challenges of the profitability from the multifaceted perspective, executive officers took the very speedy initiatives. And I believe they had a big improvement in the past year.

Next is [ Osada Keizo ] from JPMorgan Asset Management.

My name is Osada. Can you hear me? Just one question, I believe. So let me see. The Board of Directors, the financial capability -- for the future, can you share me -- for the future, can you share with me some of the items from the past? So for example, Personal Care business has been sold and U.S. Prestige makeup the sales of the U.S. Prestige cosmetic business. Now after the deal has been closed, the impression on the investor -- from the investors is that after the deal has been done or finished, there's something that's beneficial to the company. So whether it's the Personal Care business or the factory being sold or the U.S. prestige brand that got sold, it was on the seller note, and that was not disclosed at the timing of the deal being done or the deal closing, but there was a seller note. So there's all these options and the kind of financial complexity that happens when the deal is done. Is the Board of Directors really understanding? Is the Board really understanding the details of the deal? And were they aware? And now look going forward, what are you thinking of it? And if there was a deterioration or if there was a problem with the impact to the profitability, then what happens? Is there any actions to that? So I just want to make sure, I believe when the deals were done, Mr. Hatanaka, you were not on the board. But from the learning from the past, what have you seen, observed and what will you be doing for the future so that these kind of items will not happen? And I have...

Mr. Hatanaka is to respond, but I myself was a part of the Board. So I would like to respond. Two items that you have brought up. One is on beneficial conditions in terms of the deal. As for that kind of deal that was done as a Board, we had -- I would like to say that we were aware and have that kind of discussion. But with that in mind, it was during the structural reform done during the COVID times. But as we promote and continue the structural reform, we have to do this. We have to do it now, and we should do this now even with this kind of conditions. And that as a result, comprehensively, we had the discussion and decided to make that deal at the time. So the Board was aware. Second, it was an external member that was part of a [ fund ] that made this beneficial contract happen to the Shiseido [ side ]. We made sure that there is a discrepancy -- if there's a firewall with the information. So that the materials are not shared and this person will not participate in the discussions. Of course, we do have a legal team, the lawyers join us so that there is no breach and leak of information. And as a Board, we have had that confirmation is what I remember. We were thorough that, that kind of information leak or breach of information had not happened. Now for myself, I would like to say some point. But as mentioned, of course, this is -- managing a business continues as of what needs to be done at the moment. So the management and the Board made the decision that was best at the time, understanding there may be risks, but that was the best option, the best decision at the time and have decided to do that. So I believe that, that's what happened in the past. The current -- that company's current situation, looking at the changes in the competitors, looking at the changes in the clients and the market, now looking at some changes in the market and using that for governance, I think -- so I believe that whatever happens in the past, we just use it as a learning.

Maybe if I can add on to that. Thank you very much. Going forward, for the future, this is kind of like a request from the investor side. So in the past, when this deal was announced -- in the material when this deal was announced, they had nothing about the optioned of the deal content. So from the investor's side, we have to make decisions as an investor on the superficial side. And even after the deal was done, we look at some of the securities report and as for that seller note that was mentioned. Even in the contract or in the securities report, it wasn't mentioned. And then for the Personal Care business, too, in 2024. As for the summer exit, when they were preparing to do the IPO and when the sales of the factory was to happen, it was not mentioned in the explanation at the time. And so as an investor, we read what's on the superficial material that is given to us but later on hear the bad news, the negative news is what -- how we perceive it. So just going forward, we would like to have this information shared. I do understand that maybe you couldn't due to disclosure issues of the deal. However, if there is a demeriting option when the deal is done, at the right timing, whether it's through IR material, through the securities report, if you can give us a report, that would be meaningful. So that's just my honest opinion as an investor. If you can maybe share with us your opinion around that.

Thank you very much for your valuable input. And now going forward, the input you have given us, the disclosure or the contents that we disclosed, we -- it has to be fair, it should be fair and to all of the investors, we need to make sure that it is appropriate -- the information is appropriately disclosed to the investors to help with your investment judgments, and we will do our best to do so.

Thank you very much for that. I'll move on to the next question. [ Mitsui ] Sumitomo Trust Asset Management. Koguchi-san, floor is yours.

This is Koguchi of Mitsui Sumitomo Trust Asset Management. Can you hear me?

Yes.

So my question is that amid difficult business performance, so we may have to accept, but I would like to raise a question about your share price. Earlier, you said that the remuneration structure, you wanted to take in the shareholders' viewpoint. So I think you might have the view as the challenging situation of the share price. And still, your share price is hovering at the low level. And what kind of discussions does the BOD have? And what advises the directors communicate to the executive officers? So those are my questions.

Thank you for your question. Yes, we also consider this as the concern and we always considering the share price and the IR division as well as the executive officers are now gathering some market view and the investors' voices. And almost all every BOD, we are checking the market reactions and the Shiseido company -- at Shiseido, what was missing? What is lacking? And certain topics that we've already addressed properly. And those are the things that we are always discussing and sharing the situations. And in terms of the share price, the BOD are always mindful about the creation or improvement of the shareholder value. And as we talked about the remuneration system design, and you talked about that earlier in your question. But the -- as the corporate organization, why Shiseido is put in the current difficult situation, we need to communicate to overall company and each individual employee may not understand about their daily activities to the end -- the share price, it might be rather difficult to understand that. But we try to ask the executive officer to communicate that into the day-to-day business of each employee department level and organization level and the ROIC and all the other indicators have to be always mindful. So we ask executive officers to communicate, cascade it down to each individual.

So I know that before your performance is returned, it's rather difficult. But you may need to do -- and also, if your communication is better to the market, then you -- the market -- the reaction would be improved. So please do so.

Now [indiscernible].

[indiscernible] from Independent Franchise Partners. Thank you very much for sharing your views with shareholders. We really appreciate it. So management is making really good progress towards that 7% operating margin target. And you acknowledged as well that the 5% return on invested capital is currently below Shiseido's cost of capital. Could you share with us how the Board thinks about the time line for returning Shiseido's return on capital to at least its cost of capital, please?

Thank you very much for your question. And I may be repeating myself, but for 2026, the OPM and the ROIC -- for 2026, that's something that we -- that's the first milestone that we need to achieve in 2026, and that's something that we will try to do. So the plan moving forward, 2027 and onwards, that is not disclosed. So to your question, in detail, what kind of time line, what kind of speed, how do we see it, what's the time line, we cannot disclose the detailed time line. However, as a global beauty company, Shiseido aspires to be that we benchmark these global competitors, and they have this double-digit OP margin. And the big -- the higher OP margin companies are very steadily achieving these double digits. And of course, there are different differences in the situation. But looking at the global competitors, we, as a BOD, want to improve and try to grow to the level of the global competitors. And that's something that we are requesting. And we want to support the executive officers in achieving that going forward.

Takashi Miyazaki.

Yes, this is Takashi Miyazaki of Goldman Sachs. Today's explanation, you explained that the company Shiseido established a good framework. And for the external directors and the BOD is working quite well. And the way the executive officers work is also improving. And so I learned that today, and there is the sign of improvement. So thank you for that. But to be honest, in terms of the business performance, there is no big improvement yet. So what is the difficulties behind? And what kind of the understanding of the BOD have for that? What is the root cause of why your business performance is not improving yet? In terms of the brand and maybe your Shiseido brand or some other brands have been difficult or some strategy is not working well or the macro economy is affecting your business, so what is your viewpoint? And when you make the judgment, do you find all the necessary information are available to make your judgment? And -- or do you find that some missing information or how you would you evaluate on that? Or if you can share your thinking, can you please -- that will be great.

Thank you for your question. Where these current difficult situation comes from? So I think that is your question. So first, I can say before COVID-19 pandemic, the company grew significantly globally, especially the Chinese consumer market, not just the China market, travel retail market and Japanese inbound business grew significantly, and we were able to capture the demand of such consumers. And that there was a rally from such big jump after the COVID-19 pandemic. That is my -- our understanding. And earlier, Gotoh-san explained partially that the China business, we are undertaking the structural reform on China business and also Japanese structural reform as well and also the U.S. structural reform is moving as planned. That means that the growth we enjoy before COVID, and there were some infrastructure supported that growth has to be reshaped suitable for the current market demand or conditions. That is one thing that we need to address. And as you mentioned, that the key brands, core brands, their brand equity has to be communicated well to the consumers. We have not well conveyed the good value of the key brands. So that is another thing that we need to improve in terms of the communication. And so that means that the structural reform to operate or to manage the company and also core brands that will lead our growth, we need to improve the communications and our activities to improve their brand equity. So those 2 are our key focus. And that is already reflected in our action plans and also the upcoming midterm plan to be released by the end of this year. In that midterm plan, we would like to expect those 2 key things.

So the midterm plan to be released. So the starting year is next year or 2 years from now? I forgot.

Well, the current midterm plan shift and beyond that is ongoing, that is the plan until the end of 2025. So that means that upcoming midterm plans will start in 2026. So that is what we are discussing with the Executive Officers.

Oliver Matthew?

About the new midterm plan, more of a comment, but now you have put in place a new remuneration system for management and staff linked to the share price. I think the amount is still too small given the huge changes that need to be made. So would the Compensation Committee consider a much larger share price-linked package? I think you disclosed recently JPY 1 billion, but this seems to be missing maybe by a factor of 10 or 20 to try to get the kind of teamwork needed across the company. So I hope you can consider now you're in the right direction on remuneration, a much larger, more significant package that would connect shareholders to management incentives.

Thank you very much for your comment. Incentive to the management, to that comment. So to provide an impactful compensation to the CEO is very important. And also to the management team, what do they look for? What do they seek for? It becomes a very important message. But the reality is, as mentioned before, the current ROIC is below the WACC, the current WACC. And so therefore, we do need to keep in mind for the progress of the company's performance. But with that in mind, we do want to consider to think in the direction of a remuneration package that will grow the business. And then also though and to what size or what -- how much are we going to scale up the share price linked compensation package. And as the last, whether it's not what the BOD or the Remuneration Committee will think about. But we wanted to be competitive to the management team, too, so that we can provide to an appealing and competitive package to the employees, too. So of course, as a Board, we will advise on that accordingly.

Yamanaka-san, the floor is yours.

SMBC Nikko, Yamanaka speaking. And most recently, what kind of agenda that the BOD had or spending a lot of hours or minutes on the first particular topic. If you don't mind, can you please share such agenda because this is a link from the previous question, which is a linkage between the LTI. So are there any mindset change in the executive officers? I think the company is now moving towards a global perspective or still the structural reform is a more focus point. So how the management is viewing these situations, can you please share with us?

Thank you so much for your question. So I personally believe that the key topic that the BOD had, that is, I believe, the first question. So at the BOD, we focused on the mid- to long-term growth scenario and also the action plan, the progress to date and the brand equity, rebuilding brand equity and the geopolitical risks. And those are the biggest topics or agendas that we spend a lot of time. And earlier, the remuneration system changed that we implemented and what -- because of that change, our viewpoint or management viewpoint changed and first of all, CEO, Fujiwara-san's message is that to accomplish this action plan properly to the end. So that will lead to the future growth. And this linkage between the action plan to the future growth. So he mentioned that clearly. So as the BOD, of course, we view that the prior growth was very important and significant, but the current difficult situation for low growth and low profitability, we need to exit from the current situations. And then we need to rebuild ourselves into the infrastructure or the format where we can have the more resilient growth. And as we explained in the action plans, we spend additional marketing -- the spending. So that means that we do not forget about the growth investment. But those kind of a strong message was already communicated from the CEO himself. So it's whether -- there were any kind of changes because of this incentive plan. But rather, I think the action plans and the long-term growth is fully understood and penetrated among all the employees.

Thank you very much. We have 2 more minutes remaining. Maybe we will take one last question. And I would like to pick that last question up from the chat. [ Manabe-san ]. So ROIC is below the WACC level, and so profitability improvement is a critical and urgent issue. However, I do not see a change in the cost structure as a fundamental improvement. So what is the reason do you think that there is no fundamental structural reform to resolve the situation?

Thank you very much for this question. And as we have been mentioning, the current profitability, we too feel a big deal of concern and feel a very big sense of urgency and the structural reform and all the structural reforms that are continuing to work on their reforms in other regions. So what is happening in the manufacturing side, what is each of the regions experiencing. So when we say structural reform, we are trying to do that in all aspects of the business. Now with a company that has become so global to do a structural reform of such a global company, it does take some time. To that, the investors and the market -- the constituents in the market, they feel that the speed of things are not quick, and we do hear that as a feedback that we're not moving quick enough. However, looking at the action plan for 2025 to 2026, the items that we had shared with you on that, if we can achieve what's on the action plan '25 to '26, then that is something that will give us the leverage to grow faster for the future. So please give us some time and give us a good evaluation on what we actually achieved through the action plan that is in front of us right now.

Thank you very much. Now we would like to close the Q&A session. And with that, we would like to close today's session. Thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]