Shiseido Stock

Thank you very much. So this is Fujiwara, the CEO and President of the company. Now first, let me introduce the key points of Q1 2026 financial results. Page 3. In the first quarter, while challenges remain in terms of sales, profit growth exceeded expectations. Core operating profit was JPY 13 billion, an increase of JPY 4.8 billion year-over-year.

We believe this is a a result of the structural reforms implemented over the past few years, functioning effectively even during periods of declining revenue, improvements in fixed cost structure and discipline in the investment decisions have strengthened our so-called management strength or resilience to environmental changes.

On the other hand, net sales were JPY 232 billion, representing a real growth rate of minus 3%. This year's biggest theme is shifting to a new growth trajectory, and we take this figure very seriously. However, we have clearly indicated, identified the factors contributing to the declines in sales by brand and region, and we have already taken some actions, and I would like to cover that later.

Previously, optimism about the sales growth and delays in responding to market changes sometimes led to the adjustment the cost adjustment being delayed. Currently, we are shifting to a system that allows us to grasp the business situation in a timely manner and control effectively based on priorities.

This profit increase is not the result of the short-term reduction in marketing. We believe the essence of this increase lies in our organizational ability to distinguish between necessary investment and costs to be carved while maintaining investment in marketing and R&D as our focus area.

The business environment remains fluid and geopolitical risks are rising. Still, the overall impact of Japan-China tensions is manageable. We anticipate a prolonged slump in inbound demand in Japan, but we plan to compensate for this with accelerated growth in China and Travel Retail.

We have already seen an improvement in momentum, particularly in Hainan Island in Q1, and we will maximize this opportunity. On the other hand, the business risk due to heightened tensions in Middle East have increased significantly, and we recognize that this is where our fundamental management capabilities will be tested.

The key is how we can accelerate our transformation action in response to this uncertainty, and we implement that 3 points of the cost efficiency measures outlined in our midterm plan as early as possible. Our earnings forecast remain unchanged at this point. Among the Middle East impact, the company can absorb the increased cost for raw materials and logistics.

However, if the current situation prolongs and supply constraints, production cuts and stock-out risk materializes, we will assess the situation from Q2 onwards and update our earnings forecast as necessary.

This is CFO, Ayako Hirofuji. Please see Page 4, an overview of Q1. So the details for the Q1 results and the situation of each region.

While recorded net sales increased by JPY 3.7 billion. In reality, sales decreased by 3% after excluding FX impact and others. On the other hand, core operating profit increased by JPY 4.8 billion year-over-year to JPY 13 billion, clearly demonstrating the result of structural reforms and financial discipline.

We have achieved increased profits in all categories, operating pretax and quality profits. Next, on Page 5, details of core operating profit. COGS has improved due to improvements in the brand and product mix and a decrease in allocation of excess inventory write-offs.

SG&A appears to have increased due to the weak yen, but in reality, the amount has decreased and the ratio to sales has also declined. The marketing investment ratio has increased due to the strengthening of the brand's value of focus area and upfront investment for new products.

Meanwhile, both personnel and other expenses have decreased as a ratio to sales. Despite increased costs due to salary increase, personnel costs have decreased, thanks to the effects of structural reforms in Americas and the optimization of necessary human resources resulting from overall productivity improvement.

Other expenses have also decreased because of structural reforms and cost management.

Next, Page 6, net sales by region. Although the impact of Japan, China tensions remain within expectations, inventory adjustments and others affected, ending up with a lower-than-expected global figures.

While the Americas saw a 5% increase in sales, the impact of Japan-China tensions affected negatively on inbound business in Japan as well as China and Travel Retail and sales in EMEA decreased due to the impact of initial shipments of new products in the previous year.

Now details of each region.

First, Page 7, Japan business. Due to the slowdown of inbound caused by the sharp decline in Chinese tourists and the impact of shipment restrictions during the transition from old to new products and net sales started with the 4% decrease, but our local business continues to maintain its strength.

Local customer purchases of Shiseido, ELIXIR and ANESSA grew by double digits. ELIXIR in particular, in performing is performing exceptionally well with the new branding lotion and the margin exceeding 3 million units shipped in just 2 months since the launch.

Clé de Peau Beauté is down due to the backlash from the rush before the price increase last year. However, since late last -- late April, when the effects of the backlash subsided, we have seen a part partial recovery in momentum, and we would work towards recovery from Q2 onwards.

Core OPM is approximately 15%, maintaining profitability even amidst a significant decline in inbound tourism. Productivity improvement through operational efficiency and personnel optimization contributes to this.

Excluding temporary factors, our forecast brand performance in Japan is generally strong, and we have secured stable profitability even amidst headwinds. We will continue to maintain a strategic direction.

Next, please turn to Page 8, covering China and Travel Retail. Net sales declined 1% on a like-for-like basis, but exceeded our plan, reflecting strong growth in Hainan and the fact that the impact from Japan-China relations has remained smaller than expected, we have revised our full year outlook upward and now aim to achieve growth for the full year.

In China, we successfully maximized opportunities from key promotions such as International Women's Day and strategically focus on high functionality and high value-added products. As a result, Mainland China achieved positive growth this quarter.

Consumer purchases remained strong for Clé de Peau Beauté and NARS, while Shiseido also continued to grow. In Travel Retail, although sales declined due to retailer changes in Mainland China, Hainan and Hong Kong remained solid. We are successfully capturing demand through marketing activities aligned with shifts in travel destinations.

For ANESSA, we are currently in an adjustment phase aimed at inventory optimization and market normalization, resulting in a significant sales decline. Increased inflows from unauthorized channels have created price distortions, which we believe will require time and a gradual approach to correct. Rather than prioritizing short-term sales, we are prioritizing the restoration of pricing discipline and the protection of medium- to long-term brand value.

At the same time, we will steadily grow our other brands to secure overall business sales. Core operating profit increased despite lower sales, supported by cost management initiatives and other measures.

Market conditions are also becoming increasingly complex, while Mainland China continues to maintain moderate growth, Hong Kong remains structurally weak. In Travel Retail as well, momentum differences across regions have become increasingly pronounced. Hainan and Hong Kong have returned to strong growth, while Mainland China recorded a big decline due to the temporary impact of retailer changes.

Going forward, we will continue to identify growth areas and flexibly allocate resources accordingly.

Next, please take a look at Page 9, covering the Americas region. Net sales increased 5%, marking a return to growth after a prolonged period of decline and representing a steady first step toward achieving full year profitability. NARS and Shiseido were the key drivers of this growth.

On the other hand, consumer purchases remained down in the low single digits. However, the pace of decline has narrowed compared with last year, showing signs of improvement. For Drunk Elephant, shipments returned to growth, while consumer purchases continued to decline. That said, the rate of decline has moderated and branding campaigns are beginning to show encouraging signs.

Regarding core operating profit, the structural reforms completed last year are clearly contributing to improved profitability. While sales stabilization remains a work in progress, clear signs of improvement emerged in Q1 and profitability also returned to positive territory. Kentaro Fujiwara-san will later provide further details regarding our upcoming initiatives.

Next, please turn to Page 10. In Asia Pacific, Taiwan, where market contraction had continued, returned to positive growth and all countries and regions achieved positive growth. Against this backdrop, our consumer purchases grew in the high single digits, and we continue to expand market share.

By brand, ELIXIR and NARS, which continue to expand through new store openings, performed strongly. By channel, e-commerce also delivered robust growth. Core operating profit increased by JPY 600 million through disciplined cost management.

EMEA recorded declines in both sales and profit. In particular, fragrance saw a notable decline in shipments. This was mainly due to a strong initial shipments of major new products in the previous year as well as reduced shipments to certain Middle Eastern markets.

However, consumer purchases continue to maintain strong growth led by Zadig & Voltaire and Narciso Rodriguez. On the profit, first quarter profit declined due to planned upfront marketing investments aimed at future growth as well as a slower-than-expected launch of certain new products. We intend to steadily realize the returns from these investments mainly in the second half and aim to achieve full year profit growth.

Next, please have a look at Page 11 for an update on the progress of our global cost reduction and structural reform initiatives. Following the completion of the major actions implemented last year, benefits have already begun to materialize with JPY 7.5 billion in benefit for Q1.

While the business environment continues to become increasingly uncertain, we view this as an opportunity to build a stronger management foundation. By focusing on controllable areas that are less affected by external factors and by thoroughly enforcing cost discipline and advancing structural reforms, we will steadily strengthen our earning power toward achieving the goals of our medium to medium management plan.

And this will conclude my part.

From here, I will review the key initiatives undertaken in the first quarter. Please turn to Page 13. This slide breaks down the factors behind the recent sales decline by brand into onetime factors and structural challenges, clearly outlining our countermeasures for each item.

We have broadly organized this into 3 areas. First is the area that is delivering strong results like ELIXIR. We will concentrate investments in these areas and further accelerate growth. Second is the area affected by temporary factors such as timing difference and rebound from previous year's performance. We will steadily recover this area from Q2 and onwards.

Third is the area with structural challenges driven from pricing and distribution such as ANESSA. We will prioritize to rectify the structure rather than focusing on short-term sales. In an environment where market changes have become the norm, rather than treating all issues uniformly, we will clearly differentiate priorities between investment and corrective actions according to the nature of each challenge.

By concentrating resources on the area where we are succeeding and taking agile action in areas facing challenges, we will increase the overall certainty of growth. Through this approach, we will advance both recovery and structural reform simultaneously, enhancing both solid growth and capital efficiency from the second quarter onward.

Next, Americas operations. This Q1 marked a planned start towards our goal of achieving the full year profitability. The left shows a summary of the structural reforms implemented in July of last year.

As a result of the comprehensive review of the organization, cost and procurement, we achieved an annualized cost reduction of JPY 15 billion, significantly improving the profit and loss structure of our Americas operations. Given that basis, we are transitioning to a phase of balancing growth and profitability, focusing on selective investment in key areas and maximizing results.

Specifically, looking at combination of brands and channels, only a few combinations generate the most of the sales and profits. Hence, we focus on them. As part of our channel structural transformation, we are accelerating our shift towards e-commerce, primarily through the high-growth Amazon.

Going forward, we will concentrate resources on these winning areas to improve the precision and the speed of execution. We will extend the focus on winning area strategy, which demonstrated a successful turnaround from a loss-making structure in EMEA to the Americas. And while promoting cost synergies across EMEA and Americas, we will ensure full year profitability.

In addition, we are working to improve our organizational strength centered on the structural strengthening sales capabilities. With fixed costs now under control, sales expansion directly translates to improved profitability, making the strengthening sales capabilities the most important driver. Therefore, we intend to securely capture the growth by enhancing the organizational execution capabilities while simultaneously achieving continuous profit improvement.

The 2 brands, NARS and Shiseido, which accounts for approximately 60% of Americas sales, performed well in shipments during Q1, driving growth across the Americas. NARS achieved growth in the high teens. In addition to the strong performance of Ulta natural Matt longwear foundation, the major new product also contributed to improved sellout.

Shiseido grew across all product lines, achieving high single-digit revenue growth. The expansion of Vital Perfection at Ulta and new products in Vanipians contributed to this growth and the sun care segment, which showed weak momentum last year, has regained its strength. We will continue to use these 2 brands as pillars of growth, achieving both high-quality growth and improved profitability.

Regarding Drunk Elephant, we witnessed certain achievements throughout Q1, while also clarified the remaining challenges for renewed growth. Sales have turned positive on a shipment basis and leading indicators such as awareness and engagement of new communications are improving across the brands as a whole.

However, customer purchases remain negative and performance gap by channel became evident. Specifically, growth in accelerating on Amazon at Ulta and strong responses are being seen during promotion campaign, while some retailers are facing with the weak conversion rates.

Based on our analysis on what works and what doesn't, we are narrowing down the activities we will focus on from the second quarter onwards. First, in channels and that are performing well, we will aim to maximize sales by combining key annual promotions with product relaunches. We also plan to enhance that with the new products in Q2.

For retailers, where challenges remain, we will strengthen measures that directly lead to from the awareness to purchase such as improving the way products are displayed in stores and online, expanding word-of-mouth marketing and then making product description clearer and simpler in order to improve conversion rate.

Going forward, by increasing the precision and speed of execution, we will reliably restore customer purchases and return to a growth trajectory.

Next, on Page 17. As part of optimizing our global production structure, we have decided to close our Xinchu factory in Taiwan. Production will end in Q1 of 2027, and the factory is scheduled to close in second half of 2027.

In terms of financial impact, structural reform costs will amount to approximately JPY 3.5 billion for 2026 and 2027 combined, of which approximately JPY 2 billion will be recorded in 2026. By the majority of this will be noncash. Furthermore, we expect an annual reduction in fixed costs of about JPY 1 billion after the closure.

This decision aims to optimize our global production system in light of demand fluctuations and maximize capital efficiency. By consolidating production at domestic factory, we will strongly promote improvements of utilization rates and investment efficiency. We will pursue company-wide optimization while ensuring our ability to respond to demand fluctuation arising from market changes.

Lastly, I would like to explain the impact of geopolitical risks on our business performance as well as our full year outlook. Regarding the prolonged tensions in Japan-China relations, we believe the impact on our business remains within a controllable range at this point.

In the first quarter, we saw a clear impact on Japan inbound demand and Travel Retail Japan. However, overall performance remained within our expected range. What is important is that our business structure has evolved to become more resilient to changes in the external environment.

Through growth in China and Travel Retail as well as diversification of our business portfolio across regions, we have reduced our dependence on profits from any single market and are able to respond flexibly to shifts in demand. In addition, within our Japan business, structural reforms have lowered the breakeven point, enabling us to secure stable profitability without relying heavily on inbound demand.

As for our full year outlook, we have revised downward our assumptions for growth in Japan inbound demand. At the same time, we intend to secure our overall growth and profitability by steadily capturing growth opportunities in China, Travel Retail and other regions.

Lastly, I would like to explain our thinking regarding the full year targets in light of the current business environment. First, we expect a decline in Japan inbound sales to be offset by accelerated growth in businesses such as China and Travel Retail.

In addition, with regards to rising costs such as higher raw material and logistics expenses associated with heightened tensions in the Middle East, these factors have already been incorporated into our earnings forecast, and we intend to absorb them through disciplined cost management. Accordingly, we are maintaining our current full year outlook at this time.

On the other hand, if tensions in the Middle East become further prolonged, there is a possibility that shortages in raw material procurement could lead to reduced production and lower sales. We will continue to closely monitor the situation and provide updates from the second quarter onward as necessary.

While these additional risks are not currently reflected in our earnings forecast, we are already preparing for worst-case scenarios and are advancing operational optimizations across production, procurement and sales. At the same time, we are advancing pricing initiatives and company-wide cost management efforts and we'll make every effort to recover profitability toward achieving our full year core operating profit margin target of 7% -- what is important here is that we do not view the current changes in the business environment nearly as risks, but rather as an opportunity to transform into a stronger and more efficient business structure.

Taking this opportunity, we will further accelerate optimization of our supply structure, portfolio and investment allocation, ultimately evolving into a business with a stronger profitable structure.

While uncertainty in the market environment remains extremely high, the management reforms we have advanced over the past several years have steadily strengthened our resilience. The fact that we were able to respond swiftly and secure profits even amid sales declines in the first quarter is clear evidence of this progress.

We view this uncertainty as an opportunity to accelerate transformation and further enhance our competitiveness. As for our remaining key challenges of power to grow, our management is firmly committed to realizing both optimal resource allocation and accelerated growth.

Built on the foundation of profitability and discipline, we are determined to complete the transition back to a sustainable growth trajectory. That concludes my presentation. Thank you very much. Now move on to Q&A. Now floor is yours.

[Operator Instructions] Now I would like to start asking the Kuwahara-san of JPMorgan to raise questions. JPMorgan...

Kuwahara speaking, can you hear me?

Yes, I can hear you.

So you talked about the geopolitical risks and so forth, it was very clear. Based on that, in terms of the geopolitical risks, I would like to deep dive on that.

So in the short term, Japan, China relations, that was within your expectation. So within numbers impact, JPY 10 billion impact and for the full year and then the JPY 3 billion or core operating profit impact. So I believe that was an impact on the first quarter, right?

But I believe that the first quarter, you did not reach that level of the negative impact. So you were expecting some further growth. So normally, the inbound is the marginal profit ratio in the China Travel Retail is quite high, but -- so that is the kind of offsetting the negative impact of the tension. So can you clarify that?

And then the JPY 5 billion impact was covered in the media, but is it true? And for the regional impact, so can you please explain which region you're looking at?

So first of all, thank you for the question. In terms of Japan China impact, as was explained in the last earnings report, we talked about the first quarter impact was already embedded like JPY 10 billion for the revenue in the first quarter. And then that first quarter result was within this range. So that's the answer.

In Japan, inbound, sluggish inbound business was at originally 30% impact. But as you can see on the slide, 20% or the high 20% impact only. And then the Travel Retail impact also recognized in Japan business, but we try to capture the other regional inbound customers sales.

And Hainan and other region, some changes in the travelers, and there were some positive impact on the Travel Retail from other regions. So for the impact to the China -- Japan, it was within our expectations.

And so going forward, at least for the short period of time, we are not able to see a big recovery from the Chinese travelers. But on the other hand, in China Mainland as well as the Hainan regions, we may be able to be compensated in terms of the sales as well as the profit.

Given that background, overall sales outlook remains the same, unchanged. However, Japan sales goes down the low single-digit growth. And then China Travel Retail originally anticipate negative growth, but now improved to a low single-digit percentage growth, not negative.

Now impact on the Middle East, some coverage by media I would like to clarify that. At the end of our slide, there are a few topics. And on the left, you can see the middle business affected by the Middle East impact. And then there are some raw material impact as well as the net sales reduction of the Middle East.

And so overall, we will manage for that. And of course, the FX impact, it has to be taken care. And then we believe that the 7% is unchanged.

Well, thank you for that. So the number one and number two is that the reduction in the decline in sales in MEE, but the JPY 5 billion, is that the EMEA region or are there any impact in other regions as well?

So number 3 and 4, that risks are not reflected in full year forecast, number 3 and number 4. So what is the level of the probability that the risks will be materialized? So I just want to understand your assessment.

So your first question, so the net sales reduction in the Middle East region is limited to the Middle East, not, of course, centered around the EMEA region overall. However, in terms of the overall amount affecting that EMEA sales is minimal.

So this JPY 5 billion impact we said was coming from number 2, which is rising raw material costs. And so number three, that is risks not reflected in our full year forecast, which is the sales loss from the production cut in the factories due to material shortage, this is uncertain.

So it is rather difficult for us to assess the impact at the moment. That is the reason why we are not incorporating these risks in our full year guidance. And -- but of course, it is too late if that risks are materialized and to embed in our forecast.

Therefore, whenever we see some impact is more imminent, then we will take care and also reflect into our forecast going forward.

Now next CLA...

Congratulations. It's a very strong quarter. I had a high expectation, but you exceeded them. So well done. Could you tell us a little bit more about the potential bottlenecks of Middle East impact? Which are the areas which you are most concerned about?

I think -- thank you, Oliver. As shown in the last slide, the currently identifiable impact from the Middle East situation mainly relates to higher raw material costs and increased logistics expenses, which we have highlighted and quantified as JPY 5 billion at this stage.

We estimate this impact to be absorbed company-wide cost management. As you highlighted, I think we are more confident with our capability as a company to manage our bottom line and selective price increases in the future and agile resource allocations.

So we are not lowering our full year guidance at this point as a result, as mentioned in our earlier Q&A. However, it is clear that there are some increased cost pressures, which we intend to be with agility properly managing, and we remain committed to our future forecast.

So just maybe my question was more like how much visibility do you have? Like can you see out like 3 months or 6 months in terms of that final risk, you talked about if you were unable to produce products, then you couldn't sell them, right? So for that risk, what kind of time line visibility do you have?

To be honest, I think it is extremely at this point uncertain at this stage with regards to the #3 and #4 risks that we have highlighted in this stage. Therefore, we will continue to monitor the developments carefully.

We have, of course, internally quantified and provided internally some approximations and actions that we can do to mitigate those. But at this stage, it is fluctuating quite significantly, quite drastically and very frequently.

And hence, I think it is important that we monitor the developments carefully and take the necessary actions accordingly as listed in this last slide on the right-hand side in the top area.

So these actions is something that we need to be taking in advance to well manage our bottom line profitability toward the year-end. I hope this answers your questions.

Miyazaki-san from Goldman Sachs, please.

Miyazaki speaking from Goldman Sachs. So I want to talk about the China and Travel Retail business. So actually, the sales increase rate was minus 1.4%. So on the other hand, but the profit was up some FX impact, of course, but margin itself was growing. In other words, no actual amount of profit was increasing in my understanding. So -- but still the net sales momentum is still weak, but what caused the profitability improvement? So that is my question for China, Mainland China online or offline business or Travel Retail, can you answer to the question?

Thank you. First of all, profitability improvement by 2.2 points. That was the -- some rebound from the allowance -- temporary allowance. And so it's not 100% coming from the positive, but still, there are some brands, some growing and some are still challenging brands. There are some mixed results.

And for example, NARS went well dramatically. So that source of profit coming from NARS type of brands are very much contributing to the overall profits of the China business. And overall, agility was very much focused by the China regional management. And so that also yielded in the results.

Especially for Travel Retail, let me add a few things. So the Travel Retail, the sell-out negative impact was narrowing down. So the fourth quarter was 40% or so negative. But in the first quarter, this time, in the mid teens, it was improved. So negative impact was mid-teens. So quite a big improvement.

And the Travel Retail, not just the Travel Retail, but the China Mainland was still negative, quite large, but the Hainan Island was very positive, so it turned to positive. So that is another feature.

And non-traveler, and we are making the intentional control and Travel Retail overall, China, Travel Retail region overall demand from the individual customers are growing. In that case, Travel Retail, Hainan went well.

But the hypothesis is that the non-traveler is excluded. So you focus on the travelers. And then the actual performance in Hainan worked well. So if that understanding is correct, the Q2 onwards continue to see the quite high profitability compared to the previous year.

So can we expect the Q2 onwards? Well, we now shift our business focusing on the travelers. So in terms of our key initiatives, yes, your understanding is correct. So overall, our business is now becoming more healthy, but the regional profitability still not yet alleviated.

So that profitability itself is not translating into the future profit as it is. However, we are trying to secure the profits and try to make sure that we manage all the profits every quarter.

Next, Morgan Stanley Miyaki-san from Morgan Stanley.

This is Miyake from Morgan Stanley. I want to ask about Drunk Elephant. I want to hear and elaborate on Drunk Elephant. You mentioned about the structural item depending on the distribution channels, some is going well, some have challenges. So distribution channel like Amazon, that's going well. So when you do a promotion, you said the sales does boost up.

But looking at, for example, I'm a bit worried that would it turn into a situation like China in the past. So the reaction to promotion is -- it could be -- yes, it could be -- do you mean -- I wanted to check that, does that mean that Drunk Elephant is more attractive? Or is it promotion-led boost because then it will be promotion first.

So I wanted to think about what you think about this brand. And you've mentioned about the winning distribution round. distribution channel. How do you see this? And within this brand, what is the distribution channel split within this brand, if you can share with me?

For Drunk Elephant, first of all, as for brand campaigns, we have a new campaign to express the value of the brand so that we can heighten the awareness of the brand and to elevate the engagement of the consumers. And that -- at the timing of promotion, the conversion goes up, conversion rate goes up. So for the promotion itself, of course, there will be higher traffic due to the promotion. So in that sense, that those are the new consumers or consumers that we do want to capture.

But to know that there are consumers coming into it through these promotions, it means that we have a good relationship with the retailer as well. So it is a positive note. But at the same time, to your point, is it promotion driven? And are we going to resolve everything? That would not be the case.

We do want to -- we will need to continue to elevate the brand value of Drunk Elephant and continue to the communication. In the second half of the year, it's not written here, but it's in here. We have renewed the online page, the website page or we want to enhance on the buzz around new products and so that we can strengthen the brand equity going forward.

And where the distribution channel that is not working well, and as for the sales distribution or allocation of the channel, we do not disclose the detail of the numbers, but it is not small. So -- in other retailers, this conversion rate is good, but why in this retailer is the conversion rate not so high?

Just like it says on the second point, enhanced visual merchandising and also optimize assortment by channel. We maybe we need some kind of, for example, optimizing exclusive products or product lineup.

And these are things that we need to enhance so that we can contribute to the growth of the brand. That would be it for myself. So in Q1, the new promotion, the new communication, you've rolled out the new communication in Q1 and the sales in terms of the sellout momentum, you had -- what you had assumed at the end of last year. Are you achieving what you had assumed end of last year through this campaign in Q1?

to be honest, is not as high as what we had expected. And the reason why is because there is a distribution channel that is working really well, and there is a distribution channel that is not going great.

That's where we need to improve. But the positive note from this is that we have been very thorough and detailed about these initiatives and doing -- having to set a leading KPI that will lead to sales. We can clearly see what worked and what did not work. What works, we will enhance and what does not work, we can improve. So we have a good PDCA cycle that is working, and we feel that it's a great fruit out of this campaign.

Next, Bank of America.

This is Ashley from Bank of America. I just want to check that you can hear me because I had issues with my audio earlier.

Yes, we can hear you.

Okay. Perfect. I was just hoping that you could please quantify the impact of the shipment timing and inventory adjustments on Q1 revenue and therefore, help us understand what was underlying Q1 revenue growth, excluding these impacts? And do you already expect Q2 like-for-likes to turn positive?

So Q1 -- thank you, Ashley, for joining in. Q1, there are some onetime timing shifts and inventory adjustments. However, we are not providing clear sort of quantifications of how much that impact exactly is. There are some specific Q1 negativities, specifically ANESSA China inventory adjustments. In Japan, for example, Clé de Peau Beauté last year, we had some price increases. And hence, there are some rebound impact here and some impact and also even EMEA, where some new launches we had specifically last year. And this year, the impact is smaller. Hence, these are all sort of onetime negative impact. And hence, that is the reason that we feel that from Q2 onwards, we should be able to turn positive. And excluding these onetime impacts, we are at a fairly steady sales momentum in Q1.

From Daiwa Securities, Hirozumi-san.

This is Hirozumi from Daiwa. Can you hear me?

Yes, we can hear you.

Similar to the previous question, sell-in and sell-out. I've been focusing on sell-in and sellout, and so I want to ask about that. Q4, the consumer purchase, I think, was positive here and there. I think Americas was minus, but everywhere else, I felt like it was a positive for consumer sales.

But in Q1, the consumer sales, it seems like it's dropping here and there. So why? I want to know why it is dropping. So for example, looking at Page 7, looking at Japan consumer sales, it's minus right now, but China is a double-digit growth.

So what's -- some are growing, some are declining. And for Americas, too, sell-in is really good, but the consumer sales is a minus. So this consumer purchase, the sellout, I really put a lot of focus on this. So when this sellout, the consumer purchase goes negative, how do we interpret this?

I think it might be better to speak by market. So for Japan, in the Japan consumer purchase, the biggest minus impact was the inbound, the negative from the inbound decline. And that has pushed down the overall decline for Japan. So that will be the biggest point to mention.

On the other hand, for local, if you look at local, the local consumer purchase, it's actually a slight positive.

yes, you said here, was a growth. Okay. Understood. What about Americas?

you mentioned about shipment. So for example, for Drunk Elephant, as I have mentioned, the shipment is growing. There's advanced shipment, so the consumer purchase is still a negative. But this -- the range of the minus is narrowing by quarter. And as I have mentioned, there are areas that we're winning and that we're not doing well. Where it's winning, it's actually coming back to flat and where it's not, the consumer purchase is not coming back. So that is the current situation. It's a mixed situation in the Americas. The impact of Drunk Elephant has overall in the Americas pushed down the consumer purchase to a low single-digit minus. But the NARS and Shiseido brand, these 2 brands are not negative. So here, there is a difference by brand as well.

This is my last question. Consolidated basis, the sales, did you start a bit lower than expected? Would you say minus 3% was lower than expected start?

Yes.

And by region, what would be the biggest impact? Is it Japan that gave you the biggest impact?

I would say there are 2 areas or 2 things to mention. Japan and EMEA were the 2 big areas that pushed down the sales. For Japan, as I have mentioned, the inbound demand has gone down.

And on top of that, ELIXIR, we have some return shrinkage initiatives that we did, and there's a time lag for that. And Shiroji-wan has mentioned, the Clé de Peau Beauté did last year. Last year, we had the rush to buy before the price increase for Clé de Peau Beauté.

So as a result, overall, it was a negative. For EMEA, this is just the timing gap of the shipment that's impacting -- pushing down the numbers.

So in the last -- so I mentioned this in the last slide, but the Japan inbound will probably be a longer impact going forward. So that's what we foresee. And so for that, we want to -- we should be able to offset and cover in China.

For EMEA, it's due to the timing lag. So we should be able to recover from Q2 onwards. That will be the overall kind of the story. So that's why China, you have changed the number to upward revision.

Next, SMBC Nikko Yamanaka.

This is Yamanaka. So I would like to ask the nonrecurring items. So there was a depreciation cost and for the factory -- old factories, and there will be some potential cash in for the addressing the old factories.

Well, nonrecurring items, so Q1 result was shown the multiple initiatives. So our outlook was JPY 10 billion for the nonrecurring and part of that is coming from the closure of the Xinchu, Taiwan factory closure, and that will be the accelerated depreciation will be reflected in the P&L.

So not just this year, but next year, we will recognize some technly expenses. Majority will be the noncash basis. The rest of the factory-related initiatives, there is no further initiatives taken for the factory or production facilities.

And in terms of the nonrecurring for the Americas, impairment risks that I am a bit worried about. in terms of impairment testing, so for the midterm growth opportunities and also the discount rates, and can you please explain whether the risks in the Americas are increasing? Are there any possible the impairment?

Well, in terms of impairment in the Americas, there is nothing that we have in terms of the communication for the impairment of the Americas region. But as has been explained to you, there is no headroom in terms of the impairment test. So we need to make sure the monitoring in place. In the Q1 result, the Americas was quite good, but -- and there is a good sign of improvement in the profitability as well as earnings. But as was explained in the presentation, we need to monitor carefully about the sellout.

And so this Q1 profit improvement has to be realized throughout the year. So that means that we are not complacent. So we need to continue to manage well about the Americas business. So U.S. actual performance is still on track, but we need to uplift this result going forward and try to reduce the risks.

Next, Kono-san.

This is Kono. In your presentation, profit cash ROIC, you've been steering to focus on those items, and we're seeing the fruit of this. So I understood that well.

And it's not just a cost reduction, but SKU and narrowing down the regions, I'm seeing the impact of these initiatives. So the brand operation model itself I felt like it's really showing some detailed outcome.

And from the CFO, Ayako Hirofuji-san, has mentioned that you will be aiming even higher and Kentaro Fujiwara-san, the CEO, has mentioned that we will elevate the brand value. So from the management team, further higher or further elevation, what and what -- where are you aiming for? And the reason why I ask this is because you've had the structural reform and you were able to bring down the profit. But as a brand company, how do you grow? How do you -- I believe that bringing up profit is also a different challenge from bringing back the value of a brand company. And so for you, you're still considering the second half or it's -- I feel like it's all a bit mixed up right now. So the phase that you have or you're going in parallel simultaneously.

But from the external audience, how can we monitor that? And at the same time, you have advanced investment and some of the structural changes, how do you work on it and prioritize? So if there are any color that you can add to it, please elaborate.

Thank you for your question. For your structural reform, the structural reform that I was aiming for was to continue to grow the brand. So we wanted to bring a company structure where we can continue to grow the brand. The P&L structure was what we really focused on, and that was most of the targets around the structural reform. And of course, going forward, if the brand is strong, there is a sustainable growth and sustainable cash will be generated, and that has not changed.

So aiming for 2030, as Ayako Hirofuji-san has mentioned, to a higher elevated place is the cost structure, we will need to continue to improve, and we will keep on working on the initiatives to improve. And so therefore, for 2030, we will continue to have -- secure the cost to grow the brand, but also in other areas, we will be more efficient with the cost so that we can increase the profit. And that's what we will continue to aim for.

And as we do this, -- what do we see -- where should we lay the KPI for brands? Maybe that's part of what you mentioned. And one thing is on a monthly -- on a quarterly basis, what we do is the P&L structure to the sales, if you look at it to the sales on a quarterly basis that we announced, I think that gives you kind of a metric of how we approach the brands. Have I answered your question?

The brand strategy or what is a brand, it kind of leads to this question. It's -- it doesn't work. So kind of sparkly shiny Shiseido image that we have from the past? Or is Shiseido kind of changing to something else?

Because if you think about just the brand, brand is something that even if it's expensive, I want to buy or going -- moving -- evolving ahead, it's because it's expensive, it's great quality, and it gives me joy. I think when we think about brands, there's different stages. And so it's a bit abstract story I am talking about right now. But to elevate the brand value, how do you prioritize or what do you look for? So for a shareholder, I do understand there's the cost cutting and there will be investments.

But as you go into the next phase, what kind of money do you need? And what kind of investment will there be needed to bear the fruit? And if there's more details around that, that would be more appreciated.

As for brands, as for the brand, this is also my personal opinion or view -- but the brand is something that is irreplaceable, and that's where we can heighten the brand. And I believe that that's the real core value of a brand. It cannot be replaced.

So a brand, how unique does it look, meaning that it does not have to be in the math. It has its own original value and the consumers see it. And that's the real and true value of a brand is how I see it.

And so for the -- we do not disclose the detailed numbers of the brand, et cetera. But by brand, the number of loyal users for the brand increases and these loyal users continue to use the brand for a longer period of time.

And that's really the very important metric and core of a brand is how I see a brand.

We have only 1 minute, but we can take one last question, Mizuho Securities.

Can you hear me? Miyasako speaking.

Yes, I can hear you.

So I'm worried about the Japan market, especially local business. You explained that ELIXIR or the new products launched in the last minute Clé de Peau Beauté sales last year and rebound from that. There was -- the impact was quite large compared to our original expectation. And also the market is not growing these days, and there will be some uncertainty in the Middle East tensions and some noncore brand, you have to compete with the Korean brands as well or new brands. So you are losing some of the shares. I believe that the local business, you are not changing your outlook this time, but can you give us the color on that?

Well, local market, we do not anticipate or expect a high growth in the local markets. So -- but a slight increase -- slight increase, not the high increase. So -- and of course, the impact from the Middle East tensions, it is not embedded in our expectation, but still there should be some modest local growth.

And Japan has been making a lot of reforms and the strong brand grows every year as time goes by, especially ELIXIR because the brand value is fully communicated as time goes by and then the ELIXIR business is growing accordingly.

Another good news is that in the past 2 years, brand Shiseido has been recognizing double-digit growth in the past few years. So this is quite good news. In the past, Clé de Peau Beauté led the local market a lot. However, now we see a lot of expectation from ELIXIR and brand Shiseido, so Japan's local brands also growing.

So unlike other regions, Japan has various brands. So it depends on the market changes, we will change our portfolio and also the allocation of investment and all the various brands are supporting our business. And the first quarter result may concern you, but for the local business. But excluding inbound, I'm not really worried about the local business. In other words, we have established a quite solid foundation to generate profit in the local market.

Well, inbound on the full year, how much reduction have you implemented or expected?

Inbound in the first quarter, reduction was around high 20% reduction for the inbound. So this trend may continue in a full year basis or continues for some time, but we do not quantify such negative impact by market. And overall, Japan overall growth rate is low single digit. That is the answer.

Thank you very much. We would like to close the Q&A session. And with this, we will be closing the presentation for today. Thank you very much for your participation today.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

I will now explain our 2025 financial results. First, on Page 3, I will explain the key points of our 2025 financial results and 2026 outlook. Throughout this past year, our business is focused on improving both our revenue structure and capital discipline, establishing solid financial foundation capable of consistently generating profits. The numerous initiatives we have implemented are now yielding results. While we remain on an improvement trajectory, tangible changes in the quality of our business are evident. Crucially, these improvements extend beyond cost reductions and are beginning to enhance capital efficiency. We will continue our management efforts to achieve both sustainable growth and improve capital efficiency.

For FY 2025, core operating profit reached JPY 44.5 billion with a core operating margin of 4.6%. Despite the revenue decline environment, the results exceeded the initial plan of JPY 36.5 billion due to the steady execution structure reforms and cost management. This marks the first time in 4 years that we have met our initial plan. We recognize this as a step forward in terms of strengthening financial discipline and improving the stability of our performance. Free cash flow also improved significantly to JPY 66.5 billion, driven by the improvements in working capital and the review of capital expenditures. Sales momentum recovered in the second half, and the full year results were largely in line with expectations.

Our FOCUS brand led overall growth with plus 4% real growth rate in the second half. Market share expansion is progressing in Japan-local, China and Asia Pacific. While the Americas business faced challenges in the fourth quarter, the China and Travel Retail businesses are showing steady recovery trends. For FY 2026, we target a core operating margin of 7%, capital efficiency metrics of ROIC, 5%, ROE 7% and free cash flow of JPY 50 billion. Amid ongoing business uncertainty, we will prioritize flexibility and speed, simultaneously driving sales and profit growth through innovation while improving financial metrics. This year, we'll see clearer progress in capital efficiency improvement, marking a crucial year as we advance to the next growth phase. Based on this improvement of cash generation and the progress of financial discipline, we plan to increase the annual dividend for FY 2026 to JPY 60 per share.

Page 4 outlines the full year outlook for 2026. We anticipate significant year-on-year improvement across all metrics. We include an estimated JPY 10 billion in expense this year as we implement structural reforms, including optimizing production logistics systems and office operations. We will now explain the key points for each item.

Page 5 covers the core operating profit outlook. The business environment surrounding our company continues to be characterized by numerous volatile factors, including geopolitics, market trends and exchange rates. Amid this, we will continue focusing investments in key areas firmly capture the improving momentum seen since the second half of this year and achieved sales growth. Strategic price revision will continue in FY '26. Regarding effects of structural reforms, since actions were implemented in FY '25, the realization of JPY 25 billion in effects is assured. In addition to these factors, we factor-in wage increases reflecting global inflation and tariff costs, projecting core operating profit of JPY 69 billion, representing a 7% operating margin.

We anticipate FY 2026 will be a year of potentially shifting assumptions. We will heighten our sensitivity to the change, identify risk early and adjust our approaches as circumstances require to achieve our targets. While the extent of the impact of deteriorating Japan-China relation remains uncertain, our plan incorporates this impact through the first quarter. Therefore, we plan for relative improvement in the second quarter and beyond compared to the first quarter.

Next, on Page 6, I will talk about strengthening cash generation capability. Our 2030 midterm management strategy established a robust cash generation capability and a clear cash allocation priority, growth investment, debt repayment and dividends. Progress aligned with this policy is already evident in our results. Free cash flow excluding acquisition-related expenditures, significantly improved from FY 2024 to '25, reaching JPY 66.5 billion. This improvement was primarily driven by the enhanced profitability, strict inventory management and working capital optimization. We will continue to strengthen investment discipline in FY 2026 to maintain high cash generation capabilities. The ratio of capital expenditures to sales decreased from 5.1% in FY '24 to 4.5% in FY '25 and 4.0% in FY '26. IT investment has been completed, and we will discipline our allocation of resulting free cash flow to dividends and interest-bearing debt repayment and thoroughly prioritizing and scrutinizing necessity based on the return. We will continue to achieve stable free cash flow growth going forward.

Next, regarding dividends. Over the past year, the reliable -- the execution of our action plan has yielded results exceeding our plans for both core operating profit and free cash flow. Alongside this performance improvement, our confidence in the financial outlook for the future has strengthened. This dividend increase is not based on the short-term performance and fluctuations. It stems from our judgment that stable shareholder returns over the medium to long term are achievable through the improvement of our business foundation. Growth investment remains our top priority, and we have no intention of implementing shareholder returns in a way that compromises this capacity. We positioned this dividend increase as one of the decision, demonstrating our transition to management that balances growth and returns.

Next, regarding capital efficiency improvement. While both ROIC and ROE were significantly negative this period due to goodwill impairment in our Americas business. We anticipate substantial improvements in FY '26 through profit recovery and enhanced asset efficiency. Beyond profit improvement, we have been working to enhance asset efficiency through rigorous investment discipline and reevaluating the utilization of held assets. Going forward, we will also focus on improving global operations. To ensure these initiatives are not temporary, but become deeply ingrained throughout the organization, we are introducing ROIC as a key performance indicator for evaluation, starting with management.

Next, Page 9, we explain the actual results. For FY 2025, sales were JPY 970 billion with a real growth rate of minus 2%. This was slightly below sales outlook communicated in the third quarter, primarily because -- due to changes in our Americas business. Core operating profit was JPY 44.5 billion. Growth in our key brands improved product mix, while enhanced company-wide cost management and structural reforms effects significantly contributed to an increase of JPY 8.2 billion. Nonrecurring items included JPY 73.3 billion in expenses for the fourth quarter containing costs related to the voluntary retirement program at the global headquarters. Free cash flow increased JPY 101.8 billion, driven by improved profitability, working capital optimization centered on enhanced inventory management, careful capital expenditure review and the reaction to last year's acquisition-related expenditures.

Next, on Page 10, core operating profit. First, COGS was 23.3%, an improvement of 0.6 points from the last year. Although the production cutback from Drunk Elephant impacted cost, a large excessive inventory write-off allowance last year was reduced and brand and SKU mix improved. The marketing investment ratio increased 0.7 percentage points to 29.3% as we continue to invest in key brands to strengthen our brand foundation and accelerate growth. Personnel expenses decreased by JPY 11 billion year-on-year, 0.6 percentage point improvement in composition. Following Q3, there was an increase in bonus provisions in Q4 compared to last year.

However, this was outweighed by the effect of restructuring in Japan, China and Travel Retail and Americas, resulting in significant improvement in the personnel expenses ratio. Other SG&A decreased by JPY 8.5 billion, reflecting the positive impacts of structural reforms in the Americas and company-wide cost management. As a result, we have redirected the reduction in fixed costs, primarily personnel and other expenses to marketing investment aimed at accelerating future growth, improving margins and creating a P&L structure that is more resilient to profits.

Next is Page 11, shows sales trend by region. In Q4, sales increased by [ 1% ]. And in Q3, there was a significant increase due to the impact of advanced shipment in China and Travel Retail and low hurdles in Europe. Smoothing these factors out, the sales increased by 2% in the second half with our FOCUS brand driving growth at plus 4%. The Americas continued to struggle in Q4, and we will quickly address this issue. However, overall, we believe momentum is steadily improving in the second half.

Next, on Page 12, explanation of each region. First, Japan. While the number of Chinese tourists has declined since December, slowing the inbound market, local markets continue to experience a moderate growth. Regarding the customer purchase, local key brands continue to grow and expanded our market share for 3 years in a row. E-commerce also grew steadily. New products from key brands continued to drive growth in Q4. The Shiseido brand, new Ultimune which was relaunched in the first half of the year, continued to grow strongly. The Shiseido powder launched in September and the ELIXIR wrinkle cream relaunched in September for the first time in 2 years, both performed well. While inbound sales remained challenging, ELIXIR and IHADA brands performed well, thanks to the success of strengthened digital advertising targeted travelers.

We will continue to seek growth opportunities and allocate investment in line with the market environment. Core operating profit increased by JPY 13.1 billion. Gross profit margin improved through brand and SKU selection and concentration, structural reform, such as reduced personnel expenses and more efficient marketing investments contributed to a 4-point year-on-year improvement in margin to 13%.

Next, Page 13 China & Travel Retail. While price competition due to discounts remain intense during the Chinese Double 11, the overall market grew, led by Prestige brands. Chinese consumer spending continued to grow at a low single-digit rate. Our growth outpaced the market during Double 11, primarily driven by E-commerce, and we also expanded our market share. Cle de Peau Beaute and NARS maintained strong momentum throughout the year. Shiseido, which turned positive in Q3, accelerated growth in Q4. Mainland China posted positive growth in Q4 and full year. While the Travel Retail market remains challenging, signs of recovery are emerging in Hainan Island. Our customer purchases fell in the mid-teens but the decline narrowed.

Meanwhile, net sales remained positive for the 2 consecutive quarters. Healthy inventory levels are maintained as we will continue to manage them appropriately. While net sales declined year-over-year, they exceeded our initial plan, and we expect a recovery trend in the second half. While the deterioration in Japan-China relations impacted some customer purchase in December, the impact on sales in this period was limited. While marketing expenses increased in Q4 in preparation for Double 11, we managed to limit the decline in profits throughout the year through structural reforms to reduce fixed costs and cost management. Core OP was JPY 64.5 billion, and the profit margin was 18.7%, maintaining high profitability.

Next page on Page 14, the Americas. Customer purchases were down by a high single-digit percentage. In addition to negative impact from Drunk Elephant, which underwent inventory cleanup in preparation for its re-branding in 2026. Dr. Dennis Gross, the Skincare also saw a decline due to an increased competition from low-priced products in the core products. Meanwhile, Cle de Peau Beaute's base makeup continued to perform well. Core OP was a loss of JPY 11.6 billion. The decline in profits due to lower sales, the impact of tariff and worsening costs resulting from sluggish Drunk Elephant sales was largely mitigated by the benefit of structuring reforms and cost management, and including personnel costs.

Next Page 15 covers Asia Pacific and Europe. First, Asia Pacific region. While Taiwan, our largest business in size continued to experience a decline in Q4, other Southeast Asian countries and region recovered, resulting in overall growth. Customer purchase grew strongly, thanks to the launch of major new products of Cle de Peau Beaute and NARS ELIXIR, especially ELIXIR has achieved a rapid growth, thanks to our successful and effective channel expansion strategy, which strengthens self-sales channel, including e-commerce. The scale is still small, but we expect sales to grow going forward. Core operating profit also increased. In Europe, the growth was driven by Fragrance, particularly Zadig & Voltaire as well as NARS, new brand, the multiple. The core operating profit increased by JPY 1.3 billion.

Next, Page 16 shows the progress of global cost reduction and structural reforms. We achieved cost reductions of JPY 27 billion in 2025, exceeding the initial plan of JPY 25 billion. Furthermore, the structural reform we undertook in 2025 was expected to steadily contribute to our performance in 2026. However, to achieve our financial targets for 2030, it is essential that we promote cost efficiency more deeply and broadly. We will accelerate optimization with an eye on the entire value chain and build a stronger business structure. 2026 will be the very critical year for implementation. Thank you for listening. That is all from me.

Now Fujiwara will deliver the results of 2025 and plan for 2026.

For Shiseido 2025 was not merely a year of structural reform. It was the year we completed the most critical foundation for future growth. We implemented painful reforms and work to transform our organizational structure and corporate culture into a company that delivers results as one team, and the results are reflected in the numbers. Today, I will share 2 points. How the management reforms we've advanced over the past 2 years, have built a management foundation, equipped with profitability and structure and how we achieve strong growth in 2026 based on this foundation.

First, regarding the transformation of our business structure. Our excessive reliance on the Chinese market has been steadily and irreversibly corrected as intended. Despite challenging conditions, our China & Travel Retail business has steadily strengthened its profitability through cost structure reforms, maintaining high margins. We are now positioned to translate future market recovery into sustained profit growth. Furthermore, in Japan, Europe, Americas, Asia and at the global headquarters, we have significantly improved profitability through the correction of high fixed-cost structure and through cost efficiency. As a result, we are now transitioning to a more globally balanced structure in terms of both sales and profits.

In 2025, despite reduced profits in China & Travel Retail, we achieved robust profit growth for the entire group, driven by increased profits in other regions, particularly Japan. We view this as a clear evidence that our regional diversification has begun functioning not merely as a risk mitigation, but as a device for stable profit growth.

Next, the brand portfolio. Under a policy concentrating management resources on key brands, the sales contribution of core and next brands expanded from over 60% in 2021 to over 70% in 2025. Crucially, many of these brands significantly outperformed the group average in profitability. We are now entering a growth phase where sales scale expansion and profitability improvement will be achieved simultaneously.

Next, regarding productivity. Through optimizations implemented in Japan, China and the Americas and global headquarters, we have significantly reduced headcount while maintaining sales scale at approximately JPY 1 trillion. As a result, sales per employee have greatly improved. This is not a temporary cost reduction, but the transformation into a lean and mean organization that supports growth over the medium to long term. We have been reborn as a lighter, stronger and faster organization. Asset-light is progressing as well. Domestic real estate holdings were reduced approximately 10% compared to 2021 through sales and consolidation both domestically and internationally.

Furthermore, beyond Japan, we have implemented measures overseas, including the consolidation and the closure of innovation centers in China and Asia as well as reduction and relocation of office space in Americas and Europe. These initiatives are critically important for transforming our mindset toward capital efficiency and embedding this culture throughout the organization. We believe we will continue to deliver sustainable impact. 2026 is not a year of reform, but a year to reliably deliver growth. The robust brand portfolio enabling this growth has been built through our past reforms and investments. We are ready. This year, we plan to launch 20% more new products into the market than last year with an expected increase in sales volume of 20%. This represents not merely a numerical increase, but a domestic expansion and the total value we deliver.

First, our core brands serve as the global engine. We will continuously refresh our globally recognized hero products to earn strong loyalty, making customers think this brand is the only choice. We will also maximize brand communication power, starting with our global ambassadors to gain recognition and support from the next generation of customers and then the next brand to accelerate growth. We will intensify investment in these brands to seize overwhelming winning opportunities in specific categories, armed with each brand's unrivaled confident signs, we will deliver value that exceeds customer expectations and reshape the market landscape. For Drunk Elephant, we will ensure a complete turnaround through re-branding initiatives.

I will now explain the strategic direction for each brand. For Shiseido, in 2025 in Japan, we will achieve robust double-digit growth exceeding the market with approximately 20% growth in the second half. China & Travel Retail also turned positive in the second half, while Europe and the Americas remained flat compared to the previous year in the second half. By 2026, Shiseido will reaccelerate its growth as a brand that most embodies the common engine for winning globally. First, we will continuously strengthen our hero products and lines. We will continue to introduce innovative products across 3 lines: Ultimune, Vital Perfection and Future Solution to elevate them into globally recognized brands, purchased by name.

Next, I will -- we will maximize brand communication power, starting with our global ambassadors. The appointment of a new ambassador, Lisa, announced yesterday will dramatically expand our touch points and engagement with next-generation customers, positioning us as a global leader in the slow-aging category. The appointment of our new ambassador, furthermore, we will rigorously pursue a strategy to precisely capture regional growth and opportunities. In Japan and Asia, we will further expand market share by leveraging our strength in makeup category, including the popular foundation serum. In Europe and Americas, we will continue growth by capitalizing the high recognition and trust in the Suncare products. In China & Travel Retail, we will leverage the effects of structural reforms to reliably capture the recovery phase starting in the second half. As Cle de Peau Beaute, last year, driven by -- in part by the renewal of our Skincare line, Key Radiance Care as we achieved double-digit growth in the second half in China & Travel Retail, Asia Pacific and Europe.

In Japan, despite headwinds from the inbound tourism, we maintained steady growth locally and strengthened our loyal customer base, demonstrating remarkable resilience amid intense market shift, Cle de Peau Beaute will continue evolving this year into a brand consistently chosen in the luxury markets by launching new products featuring cutting-edge technology. Depending on deepening their brand's world view centered around the global ambassador is the key. Nicole Kidman's brand expression captures the heart of luxury customers further elevating the brand's iconic status.

Next is NARS. Last year, NARS achieved double-digit growth in the second half in China & Travel Retail in Europe. It also achieved 3% growth globally, driving company-wide growth. At the November briefing, I stated that we plan to launch the largest scale new products in the brand's history in 2026. On the center right picture shows the very new product, Natural Matte Longwear Foundation. In the Makeup category, foundation has a market size far surpassing that of the lipsticks and blush. With this major new products, we aim to strengthen our global leadership in this category and leverage the halo effect to reinforce our core areas.

Furthermore, by appointing a new global ambassador, we will work to expand our target audience and increase engagement. Let me explain about Next brands. ELIXIR continued to grow strongly in Japan last year, renewing its #1 ranking in skin care sales for the 19th consecutive year. In addition, growth in Asia Pacific -- Asia is accelerating with growth exceeding 30% in Asia Pacific and double-digit growth in China & Travel Retail. This year, we will continue to enhance the brand's core technology, collagen science and aim for further growth by revamping our flagship brightening lotion and emulsion products and expanding our open sales channel overseas.

Next, I will talk about ANESSA. ANESSA will evolve further as a brand best positioned to transform market structure changes in the UV-rays domain into opportunities. Our smash hit Brush-on Powder was originally a limited edition, but due to overwhelming demand, we've decided to launch it nationwide starting February 21. This year, we will also be launching a daily series perfect for everyday use and must-price mini size in first ANESSA Men aiming to expand target audience. And next is an exciting category of fragrance. Last year, we new products from Zadig & Voltaire contributed significantly to growth, driving overall Fragrance growth of 6%. And in the second half, as China & Travel Retail bottomed out, we achieved a strong 12% growth.

This year, each brand is preparing powerful new products and Max Mara will finally launch a product in the second half this year. So Dr. Dennis Gross skincare faced a challenging environment last year, particularly due to increased competition in the hero peel and LED mask categories. However, this year, we aim to steadily return to growth by focusing resources on carefully selected product launches and partnering with retailers.

Next Drunk Elephant. As previously explained, in preparation for this year's re-branding, we prioritized inventory optimization and cost reduction last year, and both efforts were progressing smoothly. Starting in January, we launched a new campaign aimed at our core target demographic, further deepening trust with existing customers and expanding our reach to new customers, strengthening the presence of our core products and accelerating growth. Please check out our Instagram and others. While leveraging the strength of our existing products, we have completely revamped our marketing strategy.

We are creating a new world view by shifting our brand communication to focus more efficacy and value, enhancing our brand value through multifaceted activities, including strengthening our social media and online presence, revamping our in-store visuals, implementing media and creative initiatives. We have already received significant media exposure and positive feedback from retailers and feel confident. Our new strategy is working. We will continue to work rebuilding our brand so that we can have more concrete results in an upcoming financial briefing.

Next, let me talk about innovation. Our midterm management strategy stated the rapid transformation of our in-house technology into value with scale as core of our growth. Between 2026 and 2028, we will incorporate more than 10 cutting-edge technologies into our core brands and across the brands to establish a growth model that leverages economies of scale which should not be just a temporary hit. Last year, we incorporated 7 core technologies into new products winning number of awards and contributed to sales growth of each brand. The key reason for our confidence on our growth for FY 2026 onwards is that our proprietary technologies will not be limited to a single kit, but will maximize the scale within the entire group and establish winning formula that will generate sustainable, not temporary growth.

Serum-first technology is a symbolic example. This is an innovative technology platform that overturns the conventional concept of makeup by enveloping foundational ingredients in serum and continuously permeating the skin-contacting surface with serum. In 2023, we simultaneously adopted this technology to MAQuillAGE and Shiseido brands with different customer base to benefit from economies of scale that allows us to dominate the market. Growth continued in FY 2024 onwards through a consistent technology-based communication, we have maintained high sales even in the second year since the launch. Last year, we rolled this technology into new products as well, elevating into brand asset. In next midterm management strategy commencing 2026, we will use the success story into the model and the powerful technologies into the market.

So in FY 2026, we have completed preparations for cross-border deployment of 5 robust cutting edge technologies, which we call second and third Serum First Technologies, make sure to have the highest probability to capture a great hit, fully utilize the knowledge we gained in the past successes, which technology went when and to which brand to optimally adopt. By deploying technology across our company-wide portfolio rather than relying on specific brands, we will implement a total of more than 10 cutting-edge technologies between 2026 to 2028. We accelerate their cycle efficiently and convert R&D investment into profits. Rather than simply launching new products, the core of our growth scenario of 2026 onwards is expanding our proven success model. Technology strengthens brands and brands scale technology. We will achieve sustainable growth in corporate value by continuing this cycle.

Our approach of deploying strong technologies across brand and directly linking them to sales and profits has already yielded. So you can see the best cosmetics awards in this, is the proof of this. So while we -- our wins in the past were unstable, the tides have completely changed since we changed our strategy in 2023, dominating #1 for 3 consecutive years. We have solidified our market dominance, achieving the triple crown for 3 consecutive years. Our technology is no longer a temporary fad, it has now become a market standard. Our innovative technology leads to authoritative recognition, which in turn directly leads to consumer trust and purchases. This revenue acceleration cycle is a mechanism that maximizes efficiency in turning our innovations into profits. So we will further upgrade this unbeatable approach. And we are confident that 5 cutting-edge technologies to be introduced, will once again dominate the market appreciation and lay a solid foundation towards 2028.

Next, our progress in creating sustainable social value. The ratio of women manager, an important KPI for people strategy is steadily progressing towards 2030 target of 50%. Towards achieving our midterm management strategy, we have recently formulated The Shiseido Way as a guide for each employee to behave, including the values and mindset, we cherish. By sharing and instilling The Shiseido Way, united as a group to create a new value and realize our 2030 vision even amidst significant market changes. For the society part, advancing gender equality and fostering a sense of self-efficacy through our business activities, thereby enhancing our brand value and creating social value. For environment part, progress made to reduce environmental impact by achieving a AA rating from CDP, accelerating efforts on the sustainable packaging and containers and strengthening raw material traceability.

Next, our Board of Directors structure. We have selected 3 external directors candidates. Of course, that will be discussed at the next month's AGM, Mr. House and Mr. Nakata and Ms. Kaneko. And by further enhancing the diversity of our Board, including CEO experience in B2B business and global companies and M&A experience, expertise, we will improve the effectiveness of Board and enhance our corporate value.

2026 marks the first year of 2030 midterm management strategy. Despite the uncertain external environment, our reforms have made our regional and brand portfolio stronger and more balanced and our management foundation more efficient and flexible. Based on our enhanced financial discipline, agility and accountability, we will solidly achieve our FY 2026 performance targets and move forward toward 2030 goals. Please look forward to Shiseido's sustainable growth in the future. Thank you for listening.

Now we would like to go into question-and-answer session.

Thank you very much for your briefing. My name is Kuwahara from JPMorgan Securities, and thank you very much for explanation including cash flow. My question, I'm looking at Page 5, and I would like to understand better about the 2026 outlook. And first of all, as Mr. Fujiwara also said, there will be extensive innovation in place. But unfortunately, only 3% is expected for growth. What does it mean? So at the time of midterm business plan, there was a talk that the plan will be outperformed by 2%. And maybe there's a China-related matters or the first quarter impact. So I would like to ask you about the background?

And also, in the Page 2, if there's the increase of JPY 20 billion in the revenue, then the margin of profit should also increase a bit further. So is it offset by inflation? So I find it rather disappointing because you are increasing the revenue so much and yet the profit is not growing as much. So what is the structural background of this?

First then, I would like to explain about how to look at the market. And about the numbers and the structure, Mr. Hirofuji will explain after me. So in regards to this year, there will be a lot of new launches, and we have high expectation of them. On the other hand, based on the reflection of our past, there's uncertainty in the market, and we have to take it objectively.

In regards to Travel Retail, we will continue to try to attain the quality growth. We will try to reduce the inventory. And for China, we will control the unofficial or irregular sales, so we have to do more for that. And so in other areas, we will, on one hand, aim for high growth, and there is an offset. And about 3% growth seems to be the solid achievable target, that's how we think. And for Japan as well, there is the deceleration of the inbound customers, and we have to take that into consideration. So 2026 is not everything really. And in order to secure the growth towards 2030 in our midterm pathway, we will increase the sales and also instead of jumping on to the short benefit, we will look at the long term in the future.

How the profit is structured, certainly there's an impact of the inflation due to the salary increase and the cost increase. And there are the salary increase, which was not done in 2025, will be done in 2026. Therefore, this actually offsets the growth factor. Yes, certainly, you can say that unmistakably. And on the other hand, the marginal profit increase with the price increase, we will leverage on the price increase and the impact will be, roughly speaking, JPY 10 billion. And on the other hand, there will be impact of the volume, the limitation. So this JPY 10 billion doesn't work directly onto the profitability straightforward.

So then in Page 5, there's the JPY 10 billion impact or effect of the price increase is included in the marginal price -- margin and price increases. And so this means that there will be some decreasing items. So that means that the cost structure and also the fixed cost impact will be present, therefore, or surfaced. That's why the margin is affected. So the JPY 10 billion is not directly described here and the net-to-net comparison, the contribution margin price increases box is structured. So basically, it is the box below this JPY 10 billion then.

I would like to confirm one more thing. Out of the inflation impact, the cost management from 2025, there may be a repercussion from the cost management from 2025 into 2026. So are you going to spend JPY 10 billion for cost structural reform? I suppose you cannot mention the actual numbers, but what about the -- out of the 3% improvement, to what extent can you improve? So the inflation impact, I don't think it's going to go into 2026, '27, '28. So can you dive into that point?

So quantitatively, I cannot deliver the exact numbers. But out of the inflation impact, the bonus impact, I would say half of it, is from the bonus. And therefore, it is not directly translates. But yes, half of it, you can think of the impact of the bonus.

Goldman Sachs, Miyazaki speaking. Thank you very much for your explanation. So from the China business, I have a question about China business. So the first quarter, you've already anticipated Japan-China tensions. So the Chinese government is also sending the message not to visit to Japan, right, for their Chinese citizens. So FY 2025 ending, to what extent you had an impact like online or offline or Travel Retail or inbound sales in Japan. What was the implication? And you were watching the trend until January this year and how you decide to incorporate that impact into the first quarter of FY 2026?

So impact was begun in December last year for Mainland China, Double 11 just ended. So in terms of the last year's result, a little impact on December because -- November -- December normally it's rather small. So not really a significant impact on the FY 2025 earnings. But in January, Travel Retail, naturally, the inbound tourists are declining. So the Travel Retail Japan impact is imminent. But however, if we take a look at the details, the reduction of the tourists is equal to the negative result in the sales or rather the investment is now shifted from -- or in other words, some travelers from other region, other than China, those purchases are quite bigger and some of the Chinese travelers are visiting Hainan Island. So Hainan Island's sales is growing. So depends on where the travelers are, and we need to capture the opportunity. In that case, we will be able to mitigate the impact to some extent.

So the next Mainland China. So because of the overall directive from the government, so like a KOL, promotions are slightly canceled. And at the end of last year, we were planning for the January, new product launch to be ready in February, but it was canceled. So it was a little postponed for such campaign in February. So that is visible in terms of the negative impact. But how long does it take? It is difficult to foresee. As I mentioned, same as the Travel Retail initiatives. Somewhere, if there is any kind of dips, we can find some other opportunities. So we need to offset such negative impact in some Mainland China business.

So in terms of the -- our impact, so China Travel Retail inbound reduction, net sales, JPY 10 billion and then roughly OP, JPY 3 billion or so negative impact is already embedded in the first quarter. And that OP reductions, we need to take some countermeasures such as this brand has to be accelerated or some promotion initiatives will be compensated in others. So such all kinds of efforts are already embedded in our guidance in the first quarter on a quantitative basis.

Well, thank you for the clarity. So you are saying that the Japanese inbound business is not so huge impact or still it is included in the net sales, JPY 10 billion. And also counter actions are taken in JPY 3 billion profit reduction. So this Japan-China tensions are not realized, then maybe you could reach more than 7% OP -- core OP margin. So is that the message if there is no issue between Japan and China?

Well, net sales and profit, OP, there are some other implications. So we cannot tell you the exact impact, but the China & Travel Retail has a larger net sales impact. So the profit, OP, we are watching China & Travel Retail, Japan inbound, the same level of the implications for this Japan-China tension.

So then if there is no implications of the Japan-China tensions, are you able to generate more than 7% core OP margin?

Well, when we developed these numbers, so we made a commitment of OP 7%. So it has to be achieved as a commitment. So that's the kind of back-casting from that. And even without this now, the China-Japan tensions, we still target OP 7%, right. And then this tension is now coming to the fore and how we should interpret that? And what is the implications? And we are still discussing internally. So of course, given the past management reform outcome, even some Travel Retail, China & Travel Retail is declining, we are able to generate profit. So that means we are managing in a more stable and balanced manner. So if there is any opportunities, of course, we want to seek more than 7% of OP if there is any opportunity. But we need to watch carefully about the multiple risks as well.

Miyake from Morgan Stanley Securities, MUFG Securities. I would like to know about the analysis of the Japanese market and the fact that Shiseido outlook is exceeding that. In the briefing in November, all the competitors have the similar price increase trend. So basically, your price increase may not actually impact your performance so much. So I have a question about your outlook on the growth. And so it could be that the price situation worsened a few years ago. And therefore, it may appear to be improving. Maybe that's that. But -- so I would like you to explain about the pricing?

And however, having the growth outlook is in itself is a good thing. And so the Shiseido brand before the COVID crisis, you are performing very well with the very high level of domestic demand and Cle de Peau Beaute is continuing to perform all the way and ELIXIR, maybe it's on its recovery trajectory. ANESSA, I wonder about that. So in regards to the pricing and also the sales channels, what are the differentiating actions you're taking, what are working and what are not working? Those are the things I would like to know.

So then I would like to explain about how we look at the market. And the market is rather soft, and we do not tangibly feel that it is growing solidly. The skincare products are leading the market and the makeup products are chasing that or following that. And when we break down the skincare, the low-price range of skincare is beginning to decelerate. On the other hand, the medium-priced skincare products is beginning to show some signs of recovery.

In that circumstance, in the market, we feel that there's a promising growth in the strong brand portfolio, which is now being established. And a couple of years ago, we have started to focus on the core brands such as Cle de Peau Beaute, Brand Shiseido. And thanks to that, these brands are beginning to generate solid profit. In fact, the last year, because of the inbound situation, Cle de Peau Beaute suffered. But other brands, unlike the domestically driven brands, they have a wide portfolio. And there's IHADA and also AQUA LABEL, basically accumulated the negative of the experience in the Cle de Peau Beaute and presented even more growth. So it is a good news that these brands are doing quite well.

And under the circumstance as a pillar of growth out of the core brands, ELIXIR has long been in -- while the low price -- low price range skincare products were growing, there were questions about the ELIXIR's capability to grow, but it has been in the #1 position many years in a row. So this is all thanks -- partially thanks to the marketing strategy. And so the 5 products will be the hero products from different categories and each from different categories. And we are also striving to grow ELIXIR brands in the drugstore and there's the skin diagnostics system made available at the drugstore. And this is working towards positive. And we are seeing that sustainable as well as a robust growth in ELIXIR.

Another thing, something that we're excited about is now that we are doing a much better job of brand management, branding management, there are some -- the softness in the growth in the Japanese market. Just about last year, Brush-On Powder from ANESSA, so it's this product. So we worked on this product for 5 years and made a big hit. And also there's the face wash gummy. And this is a very avant-garde type of products, but it is very popular. And so Japanese market is becoming stronger so that it can appreciate these interesting products. And we would like to create the market and drive our own growth. And with the Japanese market getting stronger, we can do it.

And another supplementary information. So the -- by the different price ranges, the local growth is actually driven by the prestige brand is, the premium price brand in the -- even under the inflation background or backdrop, this premium, highly priced range products are driving the growth.

Another point I would like to confirm. So one day, there will be a time that we will begin to see the turnaround in the background economy. And so from the viewpoint of the profitability, you're focusing on the technical capability and the brand and the makeup products. I wonder if Shiseido can begin to enjoy the market expansion or the economic turnaround?

In Japan, we have NARS for the high-price range and the middle price range we have MAQuillAGE and MAJORCA, which belongs to the lower price range. And these 3 brands have the portfolio to cover, the makeup products as well. As I explained a little bit earlier, the serum foundation were launched simultaneously in the MAQuillAGE and brand Shiseido. And using this core technology, we launched powder and that became very, very popular. It made a great hit. In another form, we will launch another product.

And among the makeup products, in particular, the foundation-based products, this is a global trend, skinification and means that healthier to the skin, in the makeup, that's a general global trend. So this is a trend where Shiseido's strength will fully leveraged and appreciated. So makeup is not something of lower priority for us at all. And there will be, for wherever, we can find potential for the customer and also market recognition, we will launch our products.

Now we have 10 more minutes. We would like to take questions from the online audience.

So Jefferies Securities, Kawamoto speaking. So I want to ask you about the core OP, the target, JPY 8 billion. So why it is incremental in the Q4? Because inbound was quite a large impact in my view. So we were a bit worried about the mix. So you talked about in Page 16, there were some uplift of JPY 1.6 billion. So what was the reason behind for the better-than-expected result? And additional JPY 6 billion, where does it come from? And also in the next fiscal quarter, can we expect the same -- replicate the same uplift or whether that was coming from internal or external factors? Can you please elaborate?

Okay. So by region, China & Travel Retail and headquarters cost management, cost reduction were the main reasons for the uplift. However, for internal reasons are also significant like a structural reform. We had a lot of discipline in the cost and operations. So including the CapEx, we were very much selective in investment. Therefore, for such an effort, the cost reduction or cash spending reduction and also some overall expense reduction, and that's the result of the uplift in 2025.

So for the continuity or sustainability of this impact, JPY 44.5 billion core OP -- sorry, the OP, this was the -- this is the continuous business basis, excluding the exiting business. So that was the best ever since 2020. So JPY 44.5 billion was the best ever since 2020 in terms of the ongoing business. So this is quite positive. It is not just coming from the favorable win from the market, but our own effort. And there were some negative impact, for example, like de-leveraging due to the sell-off of some of the business and also the Travel Retail, there were some negative impact in 2025. So given such a negative impact, we were able to secure this OP of JPY 44.5 billion.

So in terms of the profit and loss structure itself is improved dramatically. So there were a few questions raised, but still uncertainty continues. So the profitability structure, 2030 initiatives, still we are in the middle of achieving that target. So we are not complacent for this improvement and continue to make the effort for the structural reform and continue to improve the ratio as well. This is a kind of a testing to us as well. And then before the 2030, so that means the 2026 target has to be achieved.

So JPY 25 billion, that is on top, incremental JPY 25 billion? 2026. This can be slightly more because the 2020 -- so you believe that there is a 3 percentage point increase of the OP margin. Do you have a more probability to achieve that?

Well, this JPY 25 billion COGS impact overall and personnel costs and so forth, we already started to implement it. So this 2026, JPY 25 billion is more secured. So this impact on the structural reform is more secured.

Kono from Marathon Asset Management. So the way from the result briefing, the current -- the management, CEO, CFO structure, I suppose is the system not to sever the management and execution. So I think this is quite a brave way to establish the organization.

Now for the question of where the operation goes, so as described in your briefing, the 30% increase in productivity and also the brand portfolio. And then what does CEO do? So I suppose they're working on each region, taking responsibility. And so in order to maintain the recovery momentum, I suppose that your current management organization is workable, but I do feel that there's a lot of burden on the shoulders of 2 of you, Ms. Hirofuji and the CEO Mr. Fujiwara.

So do you envisage that you may make the management a little bit more passive and focus or put more focus on operation? Are there any things that you can do? Are you going to create the COO position as well? Maybe not so considering your historic background. So maybe this is just a quiz or fruitful thought. So do you have any ideas how to incorporate operation into your management structure?

Well, in order for us to achieve 2030 goal, the first thing that came to my mind was that to what extent we need to be independent and drive the growth. And by way of structuring the management in such a manner to assist that. And for that matter, we need to develop the management leaders who are not afraid of changing the corporate culture. And not just myself or Ms. Hirofuji, we have other management team under new structure and/or membership. And so what I expect out of those leaders, so this is my expectation for the management team, and I have listed about 100 things in bullet points and to communicate to the management members. This is how we're going to drive the reform, and we will work as a team, a solid team. I think that is the most important thing in the world that is full of uncertainty.

The other day, we had a kickoff, and now instead of a structural reform going forward, we need to increase the efficiency of our management to achieve the 3% growth. And this will be driven by the cross-functional team. And in order to do so, we will revisit the value chain to improve efficiency. And at the same time, the management team will become one to drive the structural reform and by way of executing our ideas. And through this exercise, we will be able to build a very strong management team. I would like to drive that. And in terms of the function, I will delegate more. On the other hand, we would like to have the members in the management with a good point of view. And so outside of our titles, such as CEO, CFO, COO, developing the members for the sound management is important.

In addition to that, for the financial point of view, the ROIC, the ROIC management is something that we would like to permeate thoroughly. And so this is incorporated into KPIs, all kinds of KPIs. And so it is -- in some case, it is driving the activity. Sometimes it is hindering the activity. So we will be able to kind of clean up what we do. And in order to drive our ROIC-based management, all the management members have to have a clear mindset on that. And the reporting line, the consolidation is one of the activities. So it is not possible to identify each and every minute problems from our organization and the execution. But as a team, we would like to drive the improvement of what we do through the strong membership.

So we would like to take one last question from online. So SMBC Nikko Yamanaka-san.

SMBC Nikko, Yamanaka speaking. So I have one question. So for the Americas, the growth commitment or 2025 actual performance of the brand. So you do have a quite rich technology, but this Americas growth is rather small. And I know that there are some initiatives like acquired brand, you told me, but Shiseido and premium skincare's average, the growth rate was still weak and also your plan is so past weak. But the other day, Amore has a very big jump in the Europe or EMEA, Europe or Americas. So given such a great technology of Japan, you are not able to sell well in such region. What -- of course, there are some limitations in the regulatory framework, but I just want to understand why it is not really successful in Americas?

Well, for the U.S. market, especially Brand Shiseido, one example, as an example. So first is the channel. And also the priority among the Brand Shiseido, we would like to change our approach going forward. First of all, the sales channel because Brand Shiseido has been selling mainly at the department store. So what leads the market is online sales as well as Sephora or Ulta. So those channels that we are not able to have a good presence, that is something that we have our lessons learned.

So what is leading? Alberto, he is leading the Americas. He has been having a negotiation with the EMEA region. So Alberto will reach out to Americas' Sephora directly, and he signed a lot of -- I mean, he had a good discussions with them. So it could be reflected in this year's action. So we would like to expect some of the speedy turnaround. But the Americas market, our technology-wise, the sun care is well received. So the U.S. customers are very fond of our sun care technology of Shiseido, but it should be more replicated in the anti-aging category, but we were not able to reach out to the American customers for the anti-aging because we were focusing on the products that we were selling well.

Therefore, going forward, we want to shift our gears to the anti-aging category. And Blackpink Lisa is the key influencer for us in terms of the leading the new brand, but the anti-aging and also another celeb which also become the ambassador to the -- Anne Hathaway is also leading this anti-aging category. So we believe that we can have the good presence there, capture the good momentum there. And in terms of the Cle de Peau Beaute, the net sales is rather small, but the growth rate is amazing. So what we need to change in the Cle de Peau Beaute, majority of the sales is coming from the Saks Fifth Avenue because you know the Saks Fifth Avenue is now having a big trouble. So we have to recognize some negative result.

But the customers who are buying Cle de Peau Beaute at Saks Fifth Avenue, we would like to offer some other solutions and try to make them -- nurture them as the loyal customer. So Cle de Peau Beaute, there are a few still struggling in terms of the sales channel. But still, Cle de Peau Beaute is the luxury brand and global brand. So we shouldn't rush to launch in Sephora or some other different channels. Rather, we would like to create -- develop a brand steadily, as a high prestige.

One last question. Shiseido and Sephora -- Shiseido brand has been selling at Sephora. But Alberto connection, are you -- is he going to expand the shelves? Or can we expect that -- not just the sun care, but the others?

Yes, Vital Perfection, VPN, that sales expansion is also one thing. And we were not able to have a good relations built or collaboration with such a retailer, including Sephora. So there are a lot of promotion, but the Brand Shiseido were not able to be participating. So that was what I discussed with Alberto. So we need to reinforce such retailer relations. And Sephora's shelf space now and also the initiatives thinking together with the retailer, that will be the ones that we want to focus going forward.

Thank you very much. Now we would like to end today's Q&A session. Now we want to end overall our briefing session and submit the questionnaire. Thank you very much for your attendance despite your busy schedule.

you mean this one

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you very much. So today, it will be a long session. Thank you very much for your kind understanding. So first of all, I will explain Shiseido's current and future prospects. So first of all, our current position regarding the sales momentum, which is the most important factor for our company, I believe we have emerged from the tunnel.

For a long period of time, our growth rate fluctuated significantly from quarter-to-quarter amid a worsening macroeconomic environment in China, shrinking travel retail market and a sharp decline in Drunk elephant sales. After a prolonged reset, we finally achieved a positive return in Q3.

I believe we have established a foundation for Shiseido to return to a growth trajectory. We have prioritized speed in our structural reforms and have been implementing them with determination as reforms to shape Shiseido's future. With implementation of voluntary retirement program at our global headquarters announced at 3:30 p.m. today, the major initiatives planned by the Global Transformation Committee have been completed.

As planned, all actions will be completed by the end of 2025, and we are on track to realize JPY 25 billion in benefits in 2026. Regarding profitability, thanks to the benefit of structural reforms and strengthened financial discipline, cumulative core operating profit for the third quarter exceeded JPY 30 billion, bringing us closer to achieve our initial target of JPY 36.5 billion.

Furthermore, strengthened investment discipline also contributed and free cash flow is expected to exceed our initial forecast. We have recorded a noncash goodwill impairment loss for our Americas business. Hence, we make a downturn revision of our operating profit and net profit forecast for 2025. We take seriously the harsh reality of net loss.

And for this reason, we will vigorously promote growth and improve profitability in the Americas region going forward. The difficult restructuring period up to now has been a process of building a foundation for a new growth trajectory. We will now once again set course for robust growth.

As you can see, momentum for Focus brand improved significantly in Q3. In the first half, we are significantly impacted by the significant decline in Drunnk Elephant revenue and the shrink in travel retail market. However, these factors generally subsided in Q3 and strong innovation and new product performance also contributed finally turn around as a company-wide positive result.

Starting here, we will drive growth. Next, action plans. The goal is to become a company that can continue to invest in people, brands and innovation. To achieve this, we first need to build a solid foundation that can generate the necessary capital for reinvestment. Hence, we have promoted structural reform in each region, starting with our Japan business last year. We have also decided to implement a voluntary early retirement program, the next career support plan as a global headquarters. This will affect approximately 200 people, and we plan to record a structural reform cost of approximately JPY 3 billion in the first fourth quarter.

We will also reorganize our group companies and R&D organization. By optimizing the group as a whole, we will focus resources on maximizing brand value and accelerating sales. Our Americas business will steadily advance our growth and profitability improvement. Thanks to the structural reform and fixed cost reduction implemented this year, we are on track to achieve profitability in 2026.

Furthermore, Alberto Noe, who has led our Americas business as Interim CEO since April this year, will officially assume the role of CEO from the Americas in -- for the Americas in January 2026. Having led fundamental cost improvements while building a strong transformation-minded team, Alberto will continue to demonstrate leadership across Europe and U.S.

We have attractive brand portfolio in the Americas. [indiscernible] will be in the next page. NAS is our largest brand in the Americas. In 2026, we plan to launch the brand's largest new product lineup to accelerate growth. Fragrances also have big potential. The introduction of Max Mara has received extremely positive feedback from retailers and other fragrance brands primarily offered in Europe will also drive growth in the U.S. Dr. Denis Growth has successfully completed its PMI, and we will leverage its strong partnership with Sephora, the largest retailer to achieve robust growth.

Brand Shiseido is the second largest brand in Europe's major skin care market with vital perfection boosting a strong presence in the anti-aging category. Going forward, we will maximize our knowledge gained in Europe to further leverage our growth in the U.S. Drunk Elephant is scheduled to have a full-scale brand repositioning next year. This year, we have been steadily reducing channel inventory and optimizing costs.

Inventory levels still vary by region and by retailer, and we are in the process of optimizing overall inventory. We will continue to closely monitor the situation in the fourth quarter, which is also marks the holiday season. The 4 pillars listed here will be our future strategy. We are already discussed -- in discussions with major retailers regarding our brand reset campaign with a very positive response.

Our project team jointly formed by our global headquarters and Americas will closely monitor the situation and ensure solid results. Next, I will explain our outlook and Q3 financial results. First, forecast. Following the recording of the impairment losses in our Americas business, we make a downward revision of operating profit, profit before taxes and net profit.

Regarding net sales, we are also revising our underlying growth to minus 1%, reflecting the downward risk we announced in August. Meanwhile, we will maintain our core operating profit target of JPY 36.5 billion through our risk-adjusted cost management and company-wide cost review. We also continue to strengthen our investment discipline, improving our working capital and carefully reviewing capital expenditure.

As a result, we expect free cash flow to reach JPY 35 billion, JPY 20 billion higher than the initial expectation. We will maintain the annual dividend at JPY 40 per share. Due to the impairment loss recorded in the Americas, we plan to record appraisal loss on shares on the U.S. subsidiary on a consolidated financial statement for Q4. However, that will not affect the consolidated earnings.

Next on Page 9 is a summary for Q3. Cumulative net sales for the first 9 months of fiscal year 2025 was JPY 693.8 billion, a decline of 3% like-for-like. This was mainly due to lower sales in China and Travel Retail and Drunk Elephant.

Core operating profit was JPY 30.1 billion, an increase of JPY 2.7 billion, primarily driven by stronger company-wide cost management and the positive effects of structural reforms. Nonrecurring items totaled to JPY 63.4 billion, mainly due to goodwill impairment losses in the Americas business and structural reform expenses. As a result, the company posted a net loss of JPY 44 billion for the quarter, while free cash flow was JPY 31.6 billion.

Next, on Page 10, I will explain the details of core operating profit. The COGS ratio was 23.2%, roughly in line with the previous year. While the improvement in brand and SKU mix continued, the lower production volume of Drunk Elephant led to a slight increase in the COGS ratio in the third quarter compared to the first half. The marketing investment ratio rose by 0.9 percentage points to 28.4%, reflecting our continued investment in priority brands under our selection and concentration strategy.

Personnel expenses decreased by JPY 13.2 billion year-on-year, improving the ratio by 0.9 points. This was driven by cost reductions in Japan and China Travel Retail as well as the impact of the structural reforms implemented in the Americas in July. In addition, since last year's bonus assumptions were set at a lower level due to weak performance, personnel expenses would have decreased by over JPY 20 billion on a comparable bonus basis.

Other expenses declined by JPY 8.7 billion, reflecting the positive effects of structural reforms in the Americas and company-wide cost management initiatives. As a result, while maintaining marketing investments at the same level as before, the company achieved -- improved profitability despite lower sales, steadily progressing toward a healthier and more balanced P&L structure.

Next on Page 11 is the trend of the net sales by region. After recording negative growth through the second quarter, sales turned positive in the third quarter, showing a 4% increase. China and Travel Retail grew by 8%, partly supported by advanced shipments ahead of the Double 11 shopping event. EMEA also showed strong performance, rising 22% year-on-year. While this includes the impact of a low comparison base in the third quarter of last year due to the Focus system implementation, even excluding this effect, the region achieved double-digit growth.

Next, on Page 12, I will explain the performance by region. In Japan, although inbound demand, particularly in the department store channel remained challenging, innovation drove growth and local core brands continue to perform steadily. To highlight here is the success of new products from our focus brands. The renewed Shiseido Altimmune launched in the first half continued to perform strongly, while the newly launched Clé de Peau Beauté care lotions and emulgence in July. And ELIXIR lotions and emulsions in August, both had very strong starts.

Another to highlight is the growth in e-commerce sales, which rose by mid-20% in the third quarter, accelerating further from the first half. This growth was driven by increased purchases from loyal users on our direct online platform as well as the success of strategic investments into the EC exclusive channels. As a result, core operating profit increased by JPY 11.7 billion. Despite differences in bonus assumptions from the previous year, cost reductions through early retirement programs and greater marketing efficiency from structural reforms contributed to maintaining a healthy profit margin in the low teens.

Next, on Page 13, I will explain the China and Travel Retail businesses. In the China Prestige market, e-commerce continued to perform strongly, while offline channels also showed signs of recovery, indicating an improvement trend overall. For the consumer purchase in China, sales grew in the low single digit in the third quarter. However, looking only at the Mainland China, growth was in the high single digits, driven particularly by strong and sustained momentum in Clé de Peau Beauté and NARS, both continuing their robust performance from the first half. ELIXIR and IPSA both recovered to growth, contributing to the overall sales. Also on shipment basis, Q3 realized a strong double-digit growth in Mainland China.

In the travel retail market, the environment remains challenging, affected by weaker spending among Chinese travelers and intensified price competition from discount promotions. Our consumer purchases decreased by high teens percentage. Net sales turned positive, partly due to the low comparison base from last year's sharp decline. We continue to carefully monitor and manage inventory levels to prevent excessive stock buildup at retailers.

Meanwhile, the share of travelers in overall sales is steadily increasing, and we will continue to shift toward a traveler-focused business model. Despite lower sales and less favorable business mix in the first 9 months, core operating profit reached JPY 46.7 billion with an operating margin of 19.3%, maintaining a high level of profitability through fixed cost reductions and cost management resulting from structural reforms.

Next, on Page 14, I will explain the Americas business. Consumer purchases, excluding Drunk Elephant, turned positive. Strong sales of new products such as the renewed Shiseido Altimmune, along with significant growth of Clé de Peau Beauté, particularly in the base makeup category, contributed to this recovery.

On the cost side, the structural reforms implemented in July have started to deliver tangible results. Core operating profit decreased by JPY 4 billion on a cumulative basis. While the effects of structural reforms contributed positively, profitability was impacted by lower sales, tariff-related costs and a higher COGS due to increased inventory write-downs associated with Drunk Elephant's weak performance.

Next, on Page 15, I will explain the Asia Pacific and EMEA business. Starting with Asia Pacific, although the overall market, particularly in Taiwan, showed signs of contraction, we continue to expand our market share across the region. Major new product launches such as Clé de Peau Beauté key Radiant care lotions and emulsions and NARS Multiple made strong contributions to growth.

Turning to EMEA. Sales increased significantly. Fragrance drove the expansion with SAI and Voltair up over 70% in Q3 and both narciso rodriguez and ISSEY MIYAKE maintained their double-digit growth. Core operating profit increased by JPY 200 million as higher sales were offset by increased marketing investment. While the first half recorded a loss due to upfront investment in priority brands, the business returned to profitability in the third quarter.

Next, on Page 16, the progress on the global cost structure transformation. Cumulative cost reduction for Q3 2025 totaled JPY 21 billion as planned. While we are achieving approximately JPY 7 billion in cost reductions every quarter, the benefit of reduced labor cost due to early retirement program in Japan will end in Q4. So we are expecting a full year reduction of over JPY 25 billion.

Furthermore, as CEO, Fujiwara mentioned earlier, the implementation of the voluntary retirement program at our global headquarters will mark the completion of key actions toward achieving the JPY 25 billion cost saving for 2026.

From here, I would like to explain the new midterm strategy. After the large-scale structural reforms under our action plans, we will now set our course for a new growth trajectory by maximizing brand value. We have heard many people point out that Shiseido has a strong brand and technological capabilities, yet is in content with the low growth and low profitability.

Our goal is in this midterm strategy is to change these situations and demonstrate that true -- that our true strength lie beyond this. especially now in a rapidly changing world, consumers face a variety of changes in today's rapidly changing society amid an unstable world, extended human lifespan and accelerating pace of digitization, feeling of vision and isolation are also increasing. That is why we believe Shiseido has a significant role to play.

We see current era as a great opportunity to create essential new value in beauty and contribute to society as a company that is close to consumers. That is why we set our vision for 2030 as by connecting with people, we pursue, create and share new beauty, enriching everyone's lives.

Now more than ever, we want to be a company that explores, discovers and delivers new beauty in moving forms of people -- forms for people without being influenced by the times. That is our unique strength and our path to a social growth. We believe that this path will lead to the realization of our mission, beauty innovation for a better world. We are once again adopting in every moment, in every life beauty as our slogan once again to embody this vision. This -- phrase were launched in 2005.

They express our hope that the people Shiseido interacts with that we ourselves will be beautiful every moment and every life. In today's society, these words resonate with even deeper meaning. We hope that each and every person will find beauty in every moment in their lifetime, and we work to achieve that goal. We believe that this slogan, especially relevant today's time. And to realize this vision, our originality and changing strength has to be refined, which is expressed in this page. I want all employees to be the people who care about others, challenge the real things and pursue beauty.

In terms of both beauty value creation and communication capabilities, our company has unique strength. We approach human throughout their lifespan and conduct research targeting the entire skin, body and mine, and we propose a new culture that appeals to the senses and deliver it to our customers with the spirit of hospitality. No other beauty company does this. We will revisit these strengths to enhance our brand and maximize our corporate value.

In order to integrate financial and nonfinancials, we have also reviewed our materiality from a business perspective. Please see the appendix for details. Based on these strategic pillars, accelerate growth with brand power, evolve global operations and drive sustainable value creation, we will accelerate the creation of corporate and social value built on our strengths.

Our ultimate goals are to achieve above-market growth, sustainable profitability improvement and double-digit core OP margin through our efforts and despite an uncertain market environment. And first 2026, adhere to the 7% profit margin target set out in our action plan.

Furthermore, optimize our cost structure to add 3 percentage points to our margin, achieving 10% margin. Profit generated through efficiency improvement will be reinvested in our brands leading to high-quality growth. We expect growth to be between 2% and 5% and achieving target of 2023 as the 10% or more OP margin.

From here, I will go through each of the strategic pillars in detail. First, let me begin with accelerated growth of brand power. Going forward, we will concentrate our resources on categories where our R&D strength and competitive advantages can be maximized and which also offer attractive market size and growth potential. At the core of this focus will be skin care and sun care, followed by makeup, fragrance, medical beauty and derma and lifestyle. In addition, we will explore new value creation opportunities in areas such as elderly and beauty checkup businesses.

For other categories, we will adopt a more efficiency-driven approach tailored to the characteristics of each market. We will not pursue M&A or diversification merely for the sake of expanding scale. We are defining category-specific strategies grounded in market dynamics and our competitive advantages. Skin care, our largest and core category, will continue to deliver stable growth and strong profitability with strategic deployment of cutting-edge technologies. Preparations are complete to launch high-impact new products that will drive future growth.

In Sun Care, we will aim for higher growth, leveraging both the market environment and the advantages of our proprietary technologies. We will actively pursue expansion into new markets. In makeup, we will challenge ourselves to create new categories exemplified by innovations such as serum foundations. In fragrance, we will strengthen the brand portfolio while accelerating global expansion. In Medical and derma, we will reinforce existing brands and create new growth opportunities in medical areas where our technological leadership can be fully leveraged.

In lifestyle, we will sharpen brand concepts, enhance product offerings and nurture growth. We will allocate brands aiming to position as category champions to each growth area to ensure solid growth. We will continue the thinking of the core brands, those exceeding in JPY 100 billion in sales as well as next brands, which target to be the next JPY 100 billion brand.

At the same time, we are reassessing the positioning of each brand based on their cultural current situations. Shiseido will leverage its established scientific strength to explore expansion into the medical and derma area. ANESA will capitalize on a strong foothold in Asia to pursue global expansion. Fragrance, which was traditionally EMEA-centric, will now aim for accelerated growth across all regions.

Additionally, in high-growth areas such as medical and derma lifestyle, eProgram and BOM will be strategic investment targets and nurtured for growth. Brands with unique value propositions such as Drunk Elephant and IPSA will have their growth and profit models reassessed, guiding future investment decisions.

Breaking down growth by brand through 2030, the core brands will aim to expand profits with their high profitability and stable growth, leveraging their scale.

Next brands will focus on accelerated growth with fragrance and ANESA contributing through expanded regional presence as well. Across all focus brands, we will ensure growth that consistently outpaces the market. This slide illustrates how we will achieve the growth. Instead of relying on favorable market conditions, our growth strategy is fundamentally about creating growth with our own hands built on the strength of our technology and research and development capabilities.

About 70% of the growth through 2030 will come from further development of new and [ hero ] products through innovation. In addition, we will supplement growth through geographic expansion and ventures into new categories and areas. We will also continue brand and SKU optimization to maximize profitability from growth.

Going forward, our growth will be driven by overwhelming innovation. We will lead the market with our innovation. Our proprietary research and technology strength will deliver greater and more impactful value to consumers quickly through 2 approaches.

First, leveraging technology at the core specific brands. For example, ELIXIR represents collagen science. We will deploy distinctive technologies in our focus brands to sharpen brand value.

Secondly, corporate-wide application of technology. The strongest technologies will be applied across multiple brands and products, generating scale and making the technology itself a source of competitive advantage. We have already identified more than 10 technologies to be deployed company-wide by 2028 with a concrete new product pipeline in place. Even in an uncertain market environment, we are confident that by realizing market creation through this lineup of compelling new products, we will be able to emerge as a winner. We will also accelerate growth by expanding global reach. In fragrance, we will capture growth opportunities in Americas and Asia Pacific, strengthening our global presence.

In sun care, we will pursue expansion into the EMEA and Americas. Clé de Peau Beauté will leverage its differentiated brand value as a luxury brand to deliver unparalleled brand experiences to affluent consumers worldwide.

So the next is to expand into new categories. Nes in the derma and medical markets are becoming more fragmented and diverse. We intend to further strengthen our approach towards aesthetic medicine and believe we can expand our business to over JPY 100 billion in the future. Lifestyle is an exciting area for Shiseido, which has led the way in creating a new cosmetic culture with BAM and IPSA. We aim to establish a brand structure that satisfies not only the skin, but also the body and mind.

We will expand into a new domain by using our proprietary assets, one of which is to provide value tailored to each life stage. By 2030, 1 in 3 people in Japan will be over 65 years old. This generation has high disposable income and desire to spend enjoying active lifestyles. If we can encourage this generation to enjoy beauty more, a new and big market can be built. As a leader in anti-aging care in Japan, we are determined to establish overwhelming presence here.

Furthermore, we will promote further beauty checkups as our competitive advantage based on accumulative knowledge. 33 million women undergo health checkups in Japan. So of which, assuming that 10% of them will regard beauty and wellness holistically and spend our beauty checkup service, it is possible to create a market worth tens of billions of yen, and we will aim to increase sales of ancillary products by endorsing behavioral change triggered by beauty checkups.

Next, we will promote strongly a new business and value creation model, leveraging our assets. In order to capture latest diversifying needs and rapid environmental change, a new value creation mechanism will be introduced, which is not driven by brands. This approach is driven by technologies, social media trends and co-creation with other industries and will quickly commercialize and launch products while monitoring consumer reactions to expand our business. This team will directly report to CEO, pursuing business opportunities and models that differ from existing businesses with speed.

Customer touch point with brands will evolve from a just product sales to a deeper brand experience. Maintaining and expanding a strong brand loyalty base is essential to the sustainable growth of our business through experience. Here again, we will leverage Shiseido's strength to create deeper connections between each consumer and the brand, achieving high-quality growth and improved marketing efficiency through a multifaceted approach.

We will manage our portfolio with discipline and strategy, streamlining non-focus brands to ensure overall efficiency and further strengthening core brands, while maintaining appropriate financial discipline, boldly take on new challenges in order to respond quickly to market trends. The second strategic pillar is evolve global operations. We will pursue overall optimization through the value chain from 2 perspectives.

First, global optimization; and two, lead time reduction by clearly defining the categories and brands to reinforce. We will clarify priorities across the company and achieve overall optimization. To achieve this, cross-functional teams across regions and functions will be organized, aiming to maximize speed and effectiveness of problem solving.

The use of digitization and AI technologies are essential to achieving overall optimization, so first, a unified global IT systems and advanced business management will be built through the stable operations of focus. This will improve plan and planning and demand forecasting accuracy and reduce uneven inventory distribution.

We will also carefully select and optimize IT investment, such as reducing outsourcing costs and eliminating legacy systems. Further strengthening the AI investments to enhance our technological assets and value development capabilities, advance and automate back-office operations and improve customer experience and loyalty. Our global organizational operations will be changed into a structure to reinforce our functionality and overall optimization and evolve into a highly agile global organization.

To date, regional headquarters have operated their business independently. But going forward, we will strengthen collaboration between region and functional departments of global headquarters. This change will make the global headquarter structure more compact and focused in leading company-wide strategies. The new executive structure announced today will further deepen global unity.

The third pillar -- strategic pillar is drive sustainable value creation. employees' growth is the most important focus in our talent strategy. By expanding opportunities to take on new challenges, we will develop global leaders and define and instill Shiseido's value, fostering a sense of unity within the organization and a passion for value creation. By implementing these measures based on the organizational evolution described earlier, we will strongly advance our talent development.

Over the next 5 years, we will invest 3x the level of 2025 in developing leadership, including global mobility. Creating value through DE&I directly improves our business activities. Therefore, we promote gender equality and respect on human rights as well as empowering people through the power of beauty. Goals for each activities are set and promote across the company. Each activity contributes to involve improving brand equity and strengthening our operational efficiency and enhancing risk management, directly enhancing the corporate value.

With respect to environment, the Shiseido circular model will be built to enhance sustainability for both people and the planet and contribute to realization of rich natural environment. We will promote environmentally conscious manufacturing, sustainable product development and sustainable and responsible sourcing. KPIs are shown. We embody the model of our company name. How wonderful it is the virtue of the earth. Everything comes from here.

From here, I would like to explain about our financial strategy. Our target for 2030 are core operating margin above 10% ROIC above 10% ROE above 12% and free cash flow exceeding JPY 100 billion. A major theme of this midterm strategy is to transform the company into one that can consistently generate ROIC above its cost of capital.

The current action plan focuses on strengthening financial discipline and fostering an organizational culture that aggressively pursues returns. Based on past trends, we believe we have clearly shifted course and are steadily on an improvement trajectory. We have described fiscal year 2025 to be a critical year, and it indeed proved to be just that.

While the path was far from easy, we are confident that the structural reforms implemented to date were necessary and correct steps to build Shiseido's future. Over the course of this midterm plan, we will take further steps to lift core operating profit margin, ROIC and ROE into double-digit levels while continuing efforts to reduce the cost of capital and maximize corporate value. Even in the 2026 plan, which already incorporates the effects of structural reforms, the SG&A ratio remains above 70%, reflecting a high fixed cost burden and a structure we recognize as vulnerable to external environmental changes.

Looking toward 2030, we will maintain the current levels of marketing investment ratio and R&D and brand development ratio while reducing the COGS ratio, personnel expenses and other operating expenses. Strategic investment to maximize brand value and accelerate sales will continue. Part of the cash generated from past structural reforms and cost efficiency initiatives will be redirected to proactive investments in marketing and human capital.

The R&D ratio will remain around 3% of sales, but with a focus on further improving returns. Investment allocation will be more targeted and prioritized in line with category strategies and brand portfolio strategies. The cost optimization measures listed on the right are additional to the current action plan and are scheduled to be implemented from 2026 onward with effects expected mainly from 2027 onwards. Key initiatives include optimization of the value chain and brand portfolio, cost efficiency through standardization and centralization following an organizational and reporting line restructuring. This is not merely cost cutting, rather through disciplined return-focused investments, we will enhance brand value and strongly support the transition to a new growth trajectory.

Next, I will explain our regional strategy. For sales, our goal is to achieve growth above the market in all regions. On the profit side, we are targeting double-digit margins in every region. We also aim to correct the profit structure skewed toward Japan and China and Travel Retail and establish a more balanced and resilient earnings structure.

In Japan, we have moved away from a former loss-making structure and currently achieve margins in the low teens. However, fluctuations in inbound demand remain significant, making it essential to strengthen the profitability of local business. We will continue initiatives such as improving workforce productivity and enhancing marketing efficiency through higher e-commerce penetration.

In China and Travel Retail, margins already exceed 20%, but we aim to further increase profitability. The key is improving marketing efficiency. The brand value reconstruction, initiatives implemented to date will now enter a phase of tangible results. Off-line stores will be optimized selectively to provide differentiated brand experiences.

Additionally, we will maximize growth and cost synergies through integrated management of China and Travel Retail. In EMEA, Americas and Asia, our market share remains in the single digit, so presence is still limited. However, we are confident that our strong brands and technologies provide significant growth potential. By maximizing growth opportunities in priority areas and optimizing costs, we will drive profit improvement.

We are often asked, Shiseido is strong in Asia, but can it really win in Europe and the U.S. With this midterm plan, we intend to address and overcome that doubt.

Next, I will explain our cash allocation strategy. Operating cash flow will be primarily driven by improved profitability and inventory turnover, combined with cash inflows from asset-light initiatives, targeting JPY 500 billion to JPY 600 billion in cash generation over 5 years. This cash will be allocated with a clear priority order, capital expenditures, debt repayment and dividends. CapEx has historically been 5% to 6% of sales. But with the completion of IT investment cycles and strengthened investment discipline, we expect this to decline to around 4% next year and approximately 3% by 2030 with a focus on within depreciation investments going forward.

For interest-bearing debt, we will maintain a target credit rating of A and manage net debt over EBITDA around a multiple of 0.5. Regarding dividends, we plan a total of JPY 130 billion over 5 years, averaging JPY 26 billion per year, up from the current JPY 16 billion, aiming for stable and sustainable dividend growth in line with business recovery.

In the second half of the midterm plan, we plan to have enough cash reserves to remain after dividends, enabling flexible share buybacks and strategic M&A under disciplined financial management. Strengthening financial discipline is central to enhancing Shiseido's corporate value. We have structured the M&A framework, integrating the Americas team into the global headquarters and establish an investment and divestment committee to clarify criteria and screening rules for investment and exit decisions. This will enable the company to execute disciplined and agile decision-making.

Finally, I will discuss the establishment of ROIC-driven management. Strengthening financial discipline and embedding a ROIC-focused management approach cannot be achieved overnight. However, introducing ROIC as a long-term incentive KPI represents a significant step forward. And starting in 2026, we will ask -- we will also link operational KPIs tied to ROIC improvement to the annual bonuses of all executives. This will be steadily implemented as a power tool to foster a high-performance culture across the company.

Lastly, from myself, I strongly recognize that transforming our organization culture is essential to executing our midterm strategy going forward. After a few years of rigorous structural reforms, opportunities to pursue new value creation and the enrichment of beauty culture have been lost and the essence of Shiseido's unique organizational culture has diminished, which is a significant challenge for me personally.

In our newly announced midterm plan, while achieving the financial targets as a given, we have also committed to fostering a culture that encourage challenges toward new value creation and an unrelenting focus on delivering results in order to continuously enhance Shiseido's unique corporate value. Now is the time to face people and society sincerely to keep questioning the meaning of beauty and even in time of difficulty to share genuine value with the world.

We aim to nurture more Shiseido people who embody the spirit and to transform our corporate culture accordingly. Through these efforts, we promise to continue achieving essential and sustainable growth, remaining a company that shares new value with consumers around the world. In every moment, in every life, beauty, our history stands as proof that we have always faced people with sincerity, discovered new value and continue to pursue innovative creation. We believe this is our true strength, the source of our uniqueness that cannot be imitated. Together as one team, we will continue to engage deeply with beauty and share a culture of beauty that enriches people's lives. Thank you very much for your attention.

[Operator Instructions]. Now please open the floor for questions. So okay. So the ones who are wearing on the scarf. JPMorgan Kuwahara speaking.

JPMorgan Kuwahara speaking. Structurally reform has -- must have been really tough, but you accomplished that. So very encouraging news. But this time, in the midterm strategy, you explained Page 24, and I would like to have different angles to ask. So average the CAGR was average sales growth is 2% to 5%. It's very varied, right? So what is the situation with the 10% growth only, but what makes you achieve 5%? So is that because of the market growth opportunity? Or what is that positioning? What is the assumption differences. And also the cost optimization, 3 percentage points, you said that the expense management or resource -- human resource management and also the role cost as well. But the 3 percentage point increasing, that means JPY 30 billion must be done -- must be saved, right? So this is my rough estimate. So in that case, SG&A is less than 70% or so. Is that what you're thinking or like extraordinary losses type of line item, even without such kind of extraordinary items. But still, do you think it is possible to reduce this level?

Okay. Thank you for your question. I would like to answer for the growth assumptions. So when we crafted this midterm strategy, so the growth in the market, how should we assess the market opportunity for growth? And as we target, we should be not influenced by the market growth. So that is what we would like to aim as a resilient position. But still, we have to admit that there are certain elements that might be affected. So even the market growth is flattening, but still we will grow like between 2% to 5%. But if the market growth is 3%, then we will achieve 5%. So that is our assumption here.

So with respect to your second question about the cost optimization, in the presentation, Fujiwara-san explained that -- so far, the cost reduction, we were touching for the -- addressing the problem area. But this time, we want to have a more cross-functional and more opportunity to reduce costs. And by so doing such a thorough evaluation, we will see the cost of optimization. So that means 7% to 10%, whatever the market conditions would be, at least double-digit, the profitability should be ensured through this initiative.

That is the financial target in the core in our midterm strategy. So at that point in time, what kind of primary cost that we should secure we -- at this point in time, we do not have any answers and do not want to disclose. However, for the temporarily -- already, not the primary, but the temporarily or extraordinary costs, we do not anticipate at this point in time. But whatever happens, we will disclose at the right timing. Let me double check. So the extraordinary cost or temporary costs you just referred to in the cash flow management and asset-light management that you referred to earlier in the profit and loss, whether that will be reflected. But in order to while you are promoting the asset-light and there are certain losses that could be more mitigated because of the asset-light operations, then that could secure the dividend and so forth. Is that correct understanding? Yes, that is right.

With the base jacket. We go on to the next question.

My name is Miyasako from Mizuho. So sales, 2 to 5 is what I want to ask. And you've talked about it from the brand axis, but you haven't mentioned it from a regional axis. So could we have some kind of a metric for regional basis as well for the sales?

Regional base. growth. We did not disclose today. But as Hirofuji-san mentioned earlier, Japan, China and TR, we do not foresee a high growth in these regions. And of course, in these regions, we will continue to aim for growth with capturing new markets as well. However, we want to look at the areas where we can grow more for profitability as well. Now on the other hand, for EMEA and Americas, the Shiseido share is still small.

And for EMEA, the brand EMEA and Americas, the Shiseido brand has a high brand position. However, there's a lot more potential for us to grow in skin care and fragrance, and we already see that opportunity for growth. And for Asia, similarly, the brand Shiseido is strong, but for example, Clé de Peau Beautééopobotte compared to the competitor still is a bit weak.

And to say furthermore, it will be for the market going forward. Of the fragrance that we carry, we see that as a great opportunity in regions like Asia. For Americas, the biggest market globally in the U.S., brand portfolio, how do we maximize our presence into the U.S. market? So there's the brand Shiseido, NARS, Dr. Dennis -- gross and fragrance. And each of these brands, we do have a great opportunity for growth. So we believe that the growth speed will be faster in the EMEA and Americas.

How would you be growing the Shiseido in Americas? Can you elaborate on that?

This year, too, in the Americas, so yes, we do have struggle with Drunk Elephant, for example. However, brand Shiseido has been having solid growth. So with that in mind, one is we will look at product allocation that matches the Americas market.

Secondly, what we have announced today, Alberto Noe no will be official CEO for the Americas region. He has pushed Shiseido to be #2 in Europe in this very competitive market of EMEA. So with him taking over in the Americas market, we believe that he can push the Shiseido's presence in the Americas. And for channels, for EC, brand Shiseido still has a lot more room for growth. So there are already growth opportunities that we have already set and visualized.

Miyazaki from Goldman Sachs. So again, regarding the growth of the sales. So as you talk about the channel, I would like to ask a follow-up question. So between the CAGR of 2% to 5%, what is the ratio or composition of the e-commerce?

And also in Japan e-commerce in the third quarter, you had quite a good result in Japan e-commerce. So -- and owned channel as well. But on top of that, you did some initiatives. So are there any opportunities that you are thinking? And what is the composition overall?

So in terms of the detailed composition of the e-commerce, we do not disclose. But something happening in China that is very much accelerating that can be observed in Asia, Europe or U.S. So we believe that is the trend, especially for EMEA, it's not just the owned, but the retail dot-com or pure player also grow their results. So for those, we are investing ourselves.

How can we make the operations or manage that?

Well, we will begin from China, especially for internalized such operations going forward. internalize means that we ourselves will look at the e-commerce data and do not rely on the third-party data. We will create our own content and manage the data. So those are operated by internal team. So that will be leading to the next AI, the operations. So we believe this is very essential. So when we does that, if we can do that, we will be able to replicate that know-how into U.S. or other regions.

And the owned e-commerce is quite good. So in Japan, this is very good because we will be able to approach to consumers directly as owned. So this is good. And also, we can expand to pure players as well.

So that means we can collaborate with the pure players well, and we will be able to have more resources and grow together. So this is a good cycle. And roughly 20% or a little less than 20% of the composition, but we would like to grow this e-commerce channel, especially in Japan, we have a beauty equipment. So e-commerce and off-line, we will have a good beauty staffers as well.

We'll go to the next question in the front row.

My name is Hirozumi from Daiwa Securities. I want to talk a little bit about 2026. A year ago, what you had shown us the core OP of 7%, it's great that you were able to keep that. But can you -- I want -- I would like you to clarify this.

So this fiscal year, as you have mentioned, global cost reduction, so JPY 1 trillion in sales and 7% of that, so it's JPY 70 billion. So if you achieve JPY 35 billion, how do you foresee the JPY 70 billion? So to the JPY 70 billion, how visible -- how do you see that to be a reachable goal? And at the same time, there's the non-ordinary income and nonrecurring. So what do you see? So the core OP ratio of 7% and -- but you have the JPY 70 billion that you're looking for. So how do you see in the nonrecurring item? How do you see that going forward?

That's the detailed construction of next year's -- the numbers for fiscal years, we do not disclose the details of how the numbers are created. But to your comment, GTC is something that we are pushing solidly. And the things that we should see as tangible results for next year, it's already executed. So on top, we see that as an add-on to the GTC actions.

So with that in mind, there is -- as for the sales growth, we are not disclosing the details, but some of the marginal profits that are achieved from what we have, yes, we want to put that on to the add-on. So JPY 25 billion you said is for sure.

So you mentioned JPY 25 billion to JPY 36.5 billion. So that would be JPY 61.5 billion. Is that for sure?

That said, there's inflation, there's a tariff and other and some of the costs to achieve the sales. So there will be potential cost increases that may arise. So yes, there is a potential cost increase that will come.

So how can we offset that with the marginal profit that we achieve. So for the nonrecurring items, how do we see that for 2026 and onwards?

At the moment, we do not disclose the details at the moment for that as well. Maybe if you can cooperate with me.

So what is this year's nonrecurring items?

What we have shown in the forecast, it's JPY 78.5 billion in nonrecurring items. So due to the Americas depreciation that we have seen a big loss. But the JPY 78.5 billion, majority of it, about JPY 15 billion is noncash. So I would like to add on to that, that part is noncash. So to that, it's not something that would impact the dividend payout. And in this year's P&L, in terms of cash creation power, we actually were able to improve on that and improve on the profitability, if you look at from the cash basis. So the free cash flow was actually a big improvement from what we was initially forecasted. So there is the impact from all the structural reforms that we have been doing, and we are seeing tangible results from it in our numbers.

So any other investors?

Congratulations for very strong cash flow generation this year. Could you tell us for next year, 7% operating margin compared to when you set that target, how confident do you feel you can achieve this number?

I think we would like to be firmly committed to achieve that 7%. Of course, there are various factors that we cannot foresee. Tariffs is one of them. Of course, inflation is also an issue. However, we are confident that our cost initiatives will bear results for next year, and we have a much better P&L structure than compared to before. And this gives us a good position to realize the growth into firm improvements of our profitabilities. So we would like to continue to be firmly committed to this target.

In addition, so the so we can be is to the culture in the company. So in this year, we're also having some extraordinary negative impact -- but however, the team is always seeking to the additional or the new opportunity in order to achieve our commitment. So this is also one of the very strong good point to achieve for the next year target.

Now we'd like to receive some questions from the online participants from Jefferies, Kawamoto-san.

I'm Kawamoto from Jefferies. Prestige skin care, looking at the future and how -- I want to ask a little bit about how you look at the focused items. The skin care mass items are growing in popularity. So -- but within that, the prestige, do you think the demand will come back even with this inflation environment?

And ELIXIR, you will be start to sell self sales in the Southeast Asia. In the midterm plan, within the 2030 sales, prestige and NARS, how do you allocate the sales? Or how do you foresee the sales allocation of prestige versus mass?

Thank you very much for your question. First of all, for skincare, Prestige, it is true the mid-price range is contracting or shrinking a bit. And so the consumers are moving more to prestige or to the mass. Especially looking for -- looking at the prestige market, they're looking for more high functionality, new technology. And the category that captures that is growing, specifically cream and Essences. And anti-aging, which we are strong at, we're seeing a high-end upgrade into high price points. So for this prestige area, we do believe not just for Japan, but globally looking, there is room for growth. There's opportunity for growth.

For ELIXIR, fortunately, in Japan, the second half as well, we've been able to capture high growth. At the same time, in Asia, as you have briefly mentioned, self. We are planning to sell ELIXIR from a self sales channel. And we have built confidence as we have captured very high sales. And it's not for us to just expand on the number of stores, but the self-sales stores.

What we have succeeded in Japan, we want to deploy that into Asian countries, Asian areas. And the agents that come to Japan, they're coming into Japan to purchase the hero products. So the success cases that we have had in Japan and the hero products that we have captured great success in Japan, we want to expand that into Asian and Southeast Asian countries, especially in self channels like drugstore channels that will -- without the cost, then we believe that, that will give great contribution to the sales.

And in China, temporarily, we did have a big dip. However, we do want to challenge ELIXIR in China again. and Clé de Peau Beauté, Brand Shisedo and ELIXIR are the 3 pillars of the skin care business. On Page 58, I noticed that Japan Prestige Skin care, so for example, EMEA, some of it's growing double digit. But from the treated water issues, there were some issues in sales, but that's recovered.

And would you say that globally looking, Prestige skin care from Japan, you would say that they have -- you have solid grounds to them, and there is sustainability going forward? Yes. In terms of some of the reputation damages that we've had, we believe that, that has been recovered. And to be honest, K-Beauty is progressing globally. And with that, J-Beauty is something that Shiseido, we need to expand and we need to push forward as well. We feel that as a mission as a company from Japan that we expand on the J-Beauty. So we want to continue to provide the value from Japan to the world.

Next, Ohana-san from Nomura Securities.

So you have the provision for that was the nonrecurring items, of JPY 55 billion additional, and you made the revision. So the JPY 47 billion is about Americas, impairment loss. So there will be a little less than JPY 8 billion. So what -- where does this number come from?

In Page 5, there is the global headquarters, early retirement program. But -- so JPY 25 billion next year, so cost efficiency, that's is already embedded in that JPY 25 billion. So it's not new. Is that correct to understand?

For nonrecurring items, as you say, at this point in time, cumulative JPY 63.4 billion. So the fourth quarter, JPY 15 billion, that is the plan for the fourth quarter, JPY 15 billion.

So ERP-related cost is JPY 3 billion, of which JPY 15 billion. So the rest is that office rationalization or structural reform-related costs and other -- some other initiatives going on through the global team. So those structural reform-related costs are the ones that I described earlier. So those temporary costs will lead to the fixed cost reduction in the future, and we are implementing such measures.

In terms of the ERP, JPY 3 billion is the temporary cost impact, but the cost reduction impact overall. So through this ERP program, it's not just only that, but the natural attrition and also the carving some of the hiring numbers and through such a -- some reduction in the hiring, JPY 5 billion or so per annum impact is also included, not just ERP, but such natural attrition and so forth.

So ERP is happening realized in the Q1 in next fiscal year. So that means a little less than JPY 5 billion of the cost impact will be expected for FY 2026.

Let me double check. JPY 47 billion, ERP, JPY 3 billion and office optimization, JPY 5 billion. Is that correct? So to come up with the JPY 55.5 billion.

Right. ERP, JPY 3 billion and the rest are which includes the temporary cost impact for the office and so forth.

Okay. Then the headquarters, global headquarters, rationalization or ERP, that's already embedded.

Yes, you're right. That was already embedded.

So that means that JPY 25 billion is already secured because you've already planned this ERP and so forth and then have a more solid forecast. So it's not just add-on.

That's correct. It's not the incremental.

One more from online participant. SMBC Nikko, Yamanaka.

This is Yamanaka from SMBC Nikko Securities. What I would like to ask growth by brand, a page with the growth by brand. Page 29. Yes, thank you. Page 29. I want to understand this a little bit more, and I want to deepen my understanding on this page, Page 29. So looking at this Page 29, core profit expansion, Shiseido, Clé de Peau Beauté the gross growth is high. From your explanation, there's China, then other big markets. Well, of course, you'll continue to aim for growth. But there's also -- you want to grow the hero SKUs in other areas, as you show in the other page in the next page, Page 30. So with all that together, you're looking at the low single digit of CAGR. Can you share with us the decomposition of this?

The numbers by brand, the details and the composition of the numbers by brand, we do not disclose. But expanding profit and accelerating growth. So for the growth rate, next brands, of course, will be higher in terms of the growth rate. For the core, the size, the scale is big. So incrementally, it will look like this chart. But if you were to compare the next brands, the growth rate ratio will be higher.

So in the brands under NEXT, the fragrance, I want to ask about fragrance. So on Page 28, you have the brands listed. Max Mara Parfume, so that's a big launch that's got high expectations. Is that correct to see? And/or each of the brands have a high growth rate? Can you elaborate a little bit on the fragrance?

First of all, for the brands, Max Mara will be starting from next year, and that, yes, will be a big incremental add-on. And the growth of the existing brands, the fragrance grew primarily in Europe. But now that Alberto Noe will be looking at EMEA and Americas, we can see an acceleration of growth in the existing brands.

In Americas, even for fragrance, it is a huge fragrance market, the Americas, but we did not capture full investment nor did we try to challenge growth in Americas through fragrance. That's something that we see as a big opportunity. And so that's -- those will be the big drivers for the big growth in terms of global expansion as well. Any other questions from the floor?

Any other questions from the floor? [indiscernible] from UBS.

Yes, total of 3 questions. So first, China and TR. So you made the revision, but you did not change your outlook for those 2, and it is improving compared to your original expectation. So can you describe further what is driving why the result was better than you expected and also the market outlook? That is my first question.

For China and travel retail market, especially for China market, -- so there were some huge volatile market. ups and downs are quite radical, but that situation is now stabilizing. And for Q3, overall market has now turned to positive. And especially in channel, online channel is driving the growth. Therefore, for the third quarter, our business grew, and we are taking some market share. So we are confident in that.

And in fourth quarter, this trend will continue according to our assessment, especially Double 11 will already begun and it's almost ending, but that result looks like quite good and promising. So China, for sure, is recovering in terms of the market strength. But the next fiscal year onwards, so of course, we cannot be complacent. And especially for offline, since the online is so good, we have to watch carefully about offline. And Brand Shiseido has been struggling this year, and we expect that difficulty will be settled. So that means that we would like to expect some solid growth in next year.

So my second question is that -- Page 41. So this is the matrix organization and that you are going to advance that. So I'm sorry, I don't understand personally. So Hirofuji-san as your capacity as CFO, can you please describe in your finance division, how it will look like going forward?

Okay. Then for CFO, so region headquarters system was adopted. For example, in finance, so region CFO was reporting region CEO only. Therefore, no report line to me in the past. Therefore, as a result of such structure, region or each region had adopted the decision on the optimized within the region only. That is a reflection. So we created the region CFO report line to headquarter CFO.

So we can preside over the regional financial situations and also the risk can be identified at the earlier stage and take some actions. So we would like to have a good result coming from this structure reform. But of course, reporting line creation is just one of the first steps, right? So all those difficulties in the past cannot be resolved only with this structure change. So the first next year, we will adopt this new organization change.

But definitely, we need to uplift the skill sets locally. So at the same time, -- and of course, that has to be continuous initiatives. So this is a long journey. As I speak to our team, financial governance and discipline has to be adopted going forward. Therefore, we need to pursue the overall optimization as we select as a big theme.

The third question. So you've announced your midterm plan today. The employees, how are your employees and your business partners? I think you're going to go into a phase where you have to change the mindset of your employees as well as your business partners. You were able to share with us. But as a CEO, what kind of messaging do you give to your employees?

And in order to thoroughly implement this midterm plan, what kind of management layer changes? Or how will the management layer take different action going forward?

So yes, to your point, when we make a plan, that's not the end. We have to penetrate this throughout the system. One thing is to mention is it's not just messaging from myself, but with this midterm plan, each of the executive officers, we have shared this content before this official announcement. And also in order to really realize this, what do we need in each of the areas? Furthermore, what do we stop doing in areas? So we've had the officers -- executive officers start considering this already.

And what I talked about was more of the overall company globally. But from here on, we will start launching cascading the message down throughout the organization. And for this, too, this is really the start for us. And now going forward, looking for next year, I would like to speak directly with the employees and travel overseas as well to speak to the employees in our overseas offices as well.

So I want to continue to thoroughly penetrate and execute the midterm plan and if needed, adjust it or make adjustments if needed, but thoroughly make sure to cascade this throughout the organization globally. We have 10 more minutes. We would like to take as many questions as possible.

We have 10 more minutes. We would like to take as many questions as possible.

If I may select one question to you, Hirofuji-san. As CFO, you explained your strategy toward 2030. I fully understand. But as the Representative Executive Officer and very relatively young representative Executive Officer, beyond 2030 or even 2040, how would you like to see Shiseido eventually very long term? What is your perspective?

Well, very unexpected question. Thank you. So 2040, we still were not able to consider something. However, personally, as we want to achieve the global beauty company, definitely, we would like to achieve that, and we have a strong mind. And to this end, we undertook the structural reform in a series, and we have a growth plan and also the more selective and try to drive growth. That is our approach to craft this midterm strategy together with Fujiwara-san.

So of course, the small-sized global brands can grow and shine eventually in 2030. So that kind of bright future can be achieved. If that happens, the true global company can be embodied. I wish you could talk about more beauty about beauty. So maybe I will turn to Fujiwara-san. It's a follow-up question. Okay.

Like every moment, every minute, beauty. So this slogan was selected. Can you please describe once again, imprecisely because you have a strong determination to select this, right?

In every moment and every life beauty. So when we craft that, it is very difficult for us to foresee the market future. And in our way, our unique way and try to grow the company, that means we should not be controlled by the market growth. So what -- how can we ensure that? That's the kind of discussion we had. And to do that, we need to leverage our core value. What does it mean that? So our new cosmetics culture will be built through our core value. So that is our strength as well as our pride. So that's back to basics. It's been the whole time.

Shiseido has been not looking at the market, if I may say, we were looking at the people. We were looking at the consumers and always focusing on people. And as we continue to do so, what can we do? We can be close to people or customers. And also, we want to deliver beauty on their daily lives. And we will have this slogan is the most suitable from that perspective.

And this could be a more trend or sometimes people may have more dispersion or division and isolation, maybe such a slogan, such a word will be more relevant than the past. So of course, this slogan, once again, to reaffirm that, that is, of course, has a big commitment and also needs some confidence, but we believe that this slogan is more relevant to us right now. I love this slogan.

Are there any other questions? We would like to prioritize the first question.

My name is Miyake from Morgan Stanley. I apologize for my raspy voice. I have a cold. Because we're talking about long-term strategy, I feel bad that I have to rewind back. But -- so for this 2030 plan, core operating profit and operating profit is -- you said that there -- you don't want to have such a big gap between the OP and the core OP. But 5 years still is a longer period. So the sales and core operating profit and net profit each of the trajectory image, can you share with us the image for your trajectory?

The reason why I ask is if the sales is the sales -- there could be a scenario where the sales is flat as globally, it's an uncertain world. I believe that there is such a potential for next year. So for the sales, the second half, maybe are you looking at it weakly or looking at it from the rebound, are you looking for more acceleration in terms of the sales? And as you add up the profit, you'll have the cost reduction impact. And if that's going to happen in the back end, then what's the cost impact? I think that's going to -- there's going to be a time lag for that. So the sales and cost, what kind of trajectory is there because there will be some time gaps or time differences in when you will see some results.

I apologize that we can't disclose everything to you in detail. However, we don't plan to have such a volatile forecast. And for sales too, for now, we do have a quite linear target or forecast. Of course, there are different reforms and initiatives that we are doing and that we should continue doing. And so as for that, that's something that we will continuously do in terms of structural reform. And to do so, we have the 2030 double digit. That's what we want to achieve in 2030 to double digit. And that in itself, we will start doing what we can from -- we will start with what we can in the moment with agile movement. So at this point, do we see any kind of expense costs that we're going to add up at this point? No.

So looking at the overall optimization or global optimization value chain overall. So this too, as I have been doing the structural reform for the past 2 years, this is something that I've been feeling. So when you see the big chunk of the reforms, it's easier to just go ahead and execute. But while we're executing, looking at the overall value chain, we can see like, oh, if we do that, there could be more impact.

Well, this is a challenge in supply chain, but if the brand holder and the R&D work together, then the impact will be much bigger. So there are many items and challenges that we saw as we were working on this like that. And as we worked on the global organization, if the corporate functions were more cross-functional, -- and the reason why we're doing trying to do more cross-functional is because what we see in front of us to what we see in each of the region, it's not a partial optimization. What is optimized as a whole, there's more fruit or benefit from that. So of course, yes, there could be the time gap of when the impacts are actually achieved. However, the faster we start, of course, the impact will be quicker to be achieved.

So those are the things that we will continue to do, aiming for 2030, we set the agenda, and we will like to promote this with a cross-functional team. And to that, there will be the market growth and there is sales from our value creation that is an add-on of organic growth. But looking at the market, yes, as the market may fluctuate or may be volatile, we want to continue to have a certain level of flexibility as we manage our company. So if we set one specific number, the focus is too much on that number. And of course, we will always have an aspirational target number, but we don't want to push ourselves in the wrong way so that we would end up increasing a negative debt for the future. So that's why we wanted to have a little bit of flexibility going forward, and that's what you see in the 2030 target.

If I could just have a follow-up question. 3 points cost down -- the cost down by 3 points.

Yes. There's operational aspects as well as there are some of the fixed cost reduction. But as an image, fixed cost versus some of the variable costs, what do you see an image of what the allocation will look like?

As for the details to that, we do not disclose nor announce in this session. But as you see on Page 48, the cost of optimization menu, these are the items that we will continue to work on.

So the detailed numbers will be cascaded down to the organization. Is that what you just said?

Yes. To a certain level, yes, we do have the menu lineup already, and we are at a level where we are ready to cascade it down to execution point. But moreover, we need to change the culture to really follow the profitability to really go after the profitability. So the cultural change is something that we are changing so that the company to 2030 will definitely have a ROIC that is exceeding the WACC level. We want to make sure we have a ROIC that exceeds the WACC, and that's a very strong commitment that we have in our minds. Thank you very much.

Now we covered all the questions because of the time arrives. So we would like to end today's session. So thank you very much for your attendance. So we would like to end today's earnings presentation. So thank you very much for your attendance for a long period of time.

Thank you so much.

[Statements in English on this transcript were

Spoken by an interpreter present on the live call.]