Lion Corporation (4912) Q2 2026 Earnings Call Transcript

Good afternoon, ladies and gentlemen. I am Takemori, President of LION Corporation. Thank you very much for your precious time to support your visit schedule. Before I begin, I would like to offer my deepest condolences to those who lost their lives in the recent 2026 Kumamoto earthquake and extend my heartfelt sympathies to everyone affected by the disaster. The LION Group has already begun providing relief, supplies, and other assistance to people in the affected areas. We sincerely hope for the earliest possible recovery and reconstruction. With that, now allow me to begin my presentation. In the second quarter for FY2026, December, despite increasing uncertainty in the business environment due to developments in the Middle East, both sales and profit exceeded the levels we had initially projected at the beginning of the year. Today, I would like to explain the factors behind this and how we intend to deliver growth in the second half and beyond. First, let me highlight the key points. In the first half of the year, we achieved the targets we had announced and confirmed the steady progress toward strengthening our earnings power, one of the key objectives of our second stage. In Japan, oral health care, our highest priority business, drove top-line growth. At the same time, our efforts to develop high-value-added products and our investments in strengthening our brands are also translating into tangible improvements in profitability overseas. In addition to the new consolidation effects from Bellab Lion in Vietnam and PNB in Australia, both of which operate in highly profitable businesses, there is another key point I would like to emphasize here. Our major markets are now on a recovery trend. As a result, corporate income margin increased by more than 20% year on year. We believe this demonstrates that our initiatives to transform our business portfolio, shift toward high-value-added products, and manage our overseas businesses with a greater focus on profitability are steadily delivering results. In the second half onwards, as you are well aware, various cost increases resulting from developments in the Middle East are becoming more pronounced than they were in the first half. We intend to offset these changes in the business environment through a combination of measures and will remain committed to achieving the full-year targets we announced at the beginning of the year. Today, I would like to cover these four key points. First, let me review our consolidated results. In the second quarter, net sales increased 8.7% year-on-year, while co-operating income increased 21.3%. Epid margin, one of our key KPIs, reached 11.8%, an improvement of 1.1 percentage points year-on-year, demonstrating steady progress in profitability as well. Next, allow me to explain the factors behind the $2.7 billion year-on-year increase in corporate operating income. There are two key messages I would like you to take away from this slide. First, the primary driver of profit growth overall was the increase in gross profit resulting from our progress in shifting toward high-value-added products. Second, underneath an H factor, we have shown in the parentheses the amount of change for the April through June period. As you can see, gross profit growth accelerated during April through June. In other words, our momentum is improving. At the same time, we incurred a $1 billion negative impact from the higher raw material costs in the first half due to the developments in the Middle East, but we're able to offset this impact. In terms of competitive spending, we are now continuing our investment in areas where we should go for further growth, particularly all healthcare in Japan and our overseas businesses. At the same time, these investments are generating solid returns in the form of higher gross profit. You will also notice that the $9.7 billion positive impact from higher sales on the far left and the $5.3 billion increase in other expenses on the far right are larger than in a typical year. Next, let me turn to performance by segment. Both consumer products and overseas businesses deliver higher sales and profit. Please look at the figures and highlight it in red. In consumer products, our focus on developing high-value-added products drove sales growth of 1.6%. In addition, measures to reform our earning structure contributed to a 0.4 percentage point improvement in the profit margin. overseas business, sales and the profit both increased significantly, reflecting not only the impact of newly consulted businesses, but also the recovery in our existing markets and our continued focus on profitability-oriented management. Next, allow me to break down the consumer product business. In oral healthcare, our corn toothpaste and toothbrush brands continue to grow. In addition, the premium priced system toothpaste line, which we renewed in April, has performed strongly. As a result, all health care maintained a strong growth of 9.6 percent. In beauty care, bodies of which struggled during the earlier part of the year are now benefiting from the effects of product renewals centered on high-value-added offerings. Home care, although the top-line sales were below the previous year, we have placed a greater emphasis on profitability while working to enhance the brand value. For categories such as fabric softeners, which have been affected by intensified competition, we are planning product initiatives in the second half. I will discuss this in greater detail later. While conditions vary by category overall, we are able to grow a solid 2.9%, excluding the impact of the transfer of the lead brand. Next, allow me to turn to overseas businesses. In the Southeast and South Asia and Oceania, performance was driven not only by the impact of newly consolidated businesses, but also by strong results in Malaysia, which contributed significantly to both sales and profit. In Northeast Asia, China has returned to a recovery trend. Combined with strong performance in South Korea. This resulted in underlying growth in both sales and profit. This slide shows the performance of four major overseas markets. Sales momentum has improved in all four countries. I would particularly like you to look at the underlying sales trends for January through March and April through June shown in the notes for each country. In Thailand, structure and challenge remain, including lower exports and weak domestic consumption. However, as part of our efforts to transform the business structure, we have been strengthening initiatives in oral health care. These efforts are beginning to produce results, and the overall rate of the sales decline in Thailand narrowed substantially during the April through June period. In Malaysia, in addition to strong top-line performance, our pricing strategy for lonely detergents has led to a significant improvement in profitability. As we explained during the first quarter, we had been working to normalize distribution inventories in China. That process has now been completed. Since April, China has returned to sales growth, improving from 21.6% decline in January through March to 14% growth in April through June. We are therefore beginning to see a clear double-digit recovery trend. South Korea also delivered sales growth, led primarily by our highly profitable businesses. Against this backdrop, let me now discuss our full-year consolidated earnings forecast. Let me start with the conclusion. We will not change the earnings forecast announced at the beginning of the year. We remain firmly committed to achieving it. In the second half, we expect the business environment to become even more challenging than in the first half, primarily due to developments in the Middle East. However, based on the solid progress we achieved during the first half and the benefits we expect from our key initiatives, I believe, as President, that we are fully capable of offsetting these headwings. At the same time, we will continue making steady progress toward strengthening our earnings power as set out in the second stage strategy. Our mission to maintain the forecast should not be viewed as simply leaving our guidance unchanged. It reflects our determination to achieve the targets we originally set. It shows our strong will. And this is not simply a matter of determination. As present, I believe we have now built sufficient underlying strength and resilience in order to deliver these targets. In regard to the shareholder returns, we will also continue to aim for our 11th consecutive year of dividend increase. This is one of the key slides regarding our responses to developments in the Middle East. We have revised our assumptions regarding the factors affecting co-operating income, including the impact of raw material price increases that are expected to become more significant going forward and the measures we intend to take to counter them. The table compares our initial assumption on the left, and the overall total remains unchanged. The largest change relates to raw materials prices. we have revised the expected impact from negative 1 billion initially to negative 7 billion yen, representing additional negative impact of 6 billion yen. Of this amount, 1 billion yen has already matured in the first half, with the remaining negative 5 billion expected to take place in the second half. To counter this, we intend to build additional gross profit through the further price increases and cost reductions while also improving the efficiency of SG&A expenses, including competitive spending. Our revised assumptions also incorporate the impact of foreign exchange movements. What I have just described will by no means be easy. However, it is precisely because of the progress we have made in reforming our earning structure that Lion has become a company capable of responding flexibly and swiftly to changes in the external environment. Next, I would like to provide some more details on the measures we will implement in the second half in order to counter the specific challenges. As I mentioned earlier, we expect the impact of higher raw materials prices in the second half to be approximately $5 billion in. Taking procurement lead time and other factors into account, we expect the impact on the results to peak in the third quarter as illustrated in the chart on the right. We will address this from both the gross profit and SE&A size. First, with regard to gross profit, we will implement appropriate price pass-through measures in Japan and overseas, while simultaneously pursuing a number of other initiatives, including the development of high-value-added products and improvements in the product mix. In Japan, we plan to revise prices across a broad range of products for shipments from October onward. Overseas, we are also implementing price increases progressively, primarily in categories where we have strong market position. In addition, through further cost reduction, we aim to offset approximately 80% of this $5 billion impact through improvements in gross profit. Naturally, we will proceed carefully while closely monitoring market conditions and the competitive environment. At the same time, we believe that achieving appropriate pricing that reflects the value of our brands will not only support earnings this year, but also to help strengthen our earnings foundation for next year and beyond. We'd like to further expand on our efforts in order to actually improve our profit margin, so we'd like to actually allocate our resources in a better way. I would like to emphasize that sustainable growth simply cannot be achieved through the cost reduction alone. This is the most fundamental point I would like to emphasize. We will continue making investments that will generate further earnings while rigorously improving efficiency where appropriate. By maintaining the right balance between investment and efficiency, we intend to offset the impact of developments in the Middle East.

From here, I'll talk about some key measures based on the policy we announced at the beginning of the year. First, let me review our first-half results. We are steadily advancing the transformation into a highly profitable business portfolio. For our top priority, oral health care, we have achieved group-wide growth of over 10%. Overseas, we are seeing a continued shift toward the personal care area. In addition, the consolidation of Vietnam and Australian business has made a major contribution to improving our gross margin and co-operating income ratio. We see these results as reflecting the effects of the management process transformation, moving to a business unit system that integrates the value chain, along with a greater delegation of authority, which has increased the speed of decision-making and execution. We hope to carry this momentum into the second half and translate it firmly into execution. Let me go into a bit more detail on the status of each business. First, oral health care in Japan. The biggest achievement of the first half was outgrowing. The market in the high-end two-space segment priced above 1,000 yen, which continues to grow. Please look at the graph on the left. The yellow line represents the overall high-end segment priced over 1,000 yen. This segment itself continues to grow strongly, but the green line, our own high-end products, has outpaced it, showing the major growth of 131% year-on-year in the first half. The high-end line of Sistema launched in April is also performing well, roughly 1.4 times year-on-year for April to June. In the second half, as shown on the right, we'll substantially upgrade the regular line of the Dent Health brand priced around 1,500 yen. At the same time, we'll continue to build up our highest price line launched in the second half of the last year. Periodontal disease prevention is a category we naturally expect to keep expanding. As a category leader, we will keep strengthening various actions to broaden our brand base and drive growth in the high-end segment. Through this, we aim to further expand the group's sales and profit. Overseas in oral healthcare, rather than applying uniform measures, we are, of course, pursuing strategies and tactics tailored to the characteristics of each country and region. On the left, in China, we are launching products in the growing high-end segment and strengthening our focus on priority channels that continue to grow. In the middle, Thailand, even though overall domestic consumption remains weak, the toothpaste market continues to grow steadily. We are expanding our customer base by revamping our brand image, and having re-examined the target for each brand, we are expanding distribution in our stronghold areas. On the right, in Malaysia, unit prices, including the general purpose price range, continue to rise. Amid this, we added value in mainstay brands. Across Asia as a whole, the overall healthcare market is growing, and unit prices in particular continue to rise. We keep strengthening our efforts to continue outpacing market growth. From the next page, let me give a supplementary explanation on China and Thailand. First, China. In Q1, sales declined due to optimization of distribution inventory, but in Q2, the launch of new highest-priced products under our mainstream brand and cross-brand marketing initiatives resulted in a double-digit recovery of plus 15% in sales, and we were also able to improve profitability. Building on this momentum in the second half, we aim to raise a presence in high-variated products and will further strengthen momentum by strengthening our engagement with the emerging e-commerce platforms that performed well in the first half and doubling the number of key managed retailers carrying our products compared with the end of the previous fiscal year. While the macro environment remains challenging, we keep working to build mid-to-long-term brand value so that we can sustain profitable growth. In Thailand, there are structural macro-environment challenges. That said, the effects of initiatives we have pursued since last year, such as results rebranding and expansion of Systema's distribution, are starting to show up in sales. Sales growth has increased from plus 4% in January to March to plus 10% for April to June. System sales shown in the graph at the bottom left are also rising month by month. As with China, we will build on the first half results and in the second half further advance key measures that we need to promote expanding brand penetration among young customers and expanding distribution. Next challenge for growth, the beauty care and pharmaceutical products business in Vietnam and Australia initiatives to realize post-consolidation synergies are taking concrete shape in each case. In Vietnam, in addition to stable growth in the pharmaceuticals business, we are also expanding our personal care business by leveraging various capabilities across the group's sales network. The Sukin business in Australia is progressing steadily. Going forward, we focus on expansion into Asia, including Japan. The recently announced establishment of Sukin Japan marks the first step in this effort. Leveraging our strong brand value, we push forward by developing their business while firmly securing profitability. Next, home care. In Japan, we are steadily executing product initiatives in line with our business portfolio strategy. We are working to build up high-value-added products. As customer needs diversify, rather than competing on price and capital strengths for the mass market, We continue product initiatives that create distinctive value using test marketing to create new needs and propose new habits that meet them. As shown on the left, the Nanox washing tab anti-mode wall launched through test marketing in the first half showed approximately three times of the planned sales. In the second half, we will also strengthen our lineup of distinctive value fabric softeners and dishwasher detergent. By continuing these initiatives, we aim to improve profitability even with increased raw material cost. Finally, let me talk about the progress on the second stage growth strategies. Over the medium to long term, we aim to create value continuously, focusing on health care needs mainly in oral health care. To achieve this, as I have discussed, Second Sage has clearly set strengthening profitability as a core theme. What matters here is not chasing short-term results alone, but shifting our focus toward growth accompanied by profitability and capital efficiency. Situations like this may occur again, but we are working to transform into a company that can generate profit even as environmental changes in various ways, and I feel real traction in our business portfolio transformation. First, on the left, accelerating growth in oral health care. In Japan, we are achieving high growth accompanied by profitability. In Thailand and Malaysia, through a review of management resource allocation, we are rebuilding our business foundation in market with substantial room for growth. This is progressing well. As mentioned earlier, results delivered. In China, on the other hand, external environmental changes have caused a divergence from our original plan. I see this not as a temporary issue, but as a phase where we need to reallocate management resources toward areas where we can win. Now and going forward, we'll sharpen our strategy and tactics further by clearly identifying the subcategories where our strengths can be leveraged in each country and region, For example, periodontal, disease, and aesthetics. At the same time, by creating a virtual cycle between self-care products and services, we will expand profit opportunities beyond simply selling products. Next on the right, overseas growth. Overseas, we are advancing initiatives to create synergies. In major countries, due to geopolitical effects, we have seen some challenges on the top line relative to our original plan, But as I mentioned earlier, we are currently on a recovery momentum. In addition, I am personally glad to feel that we are able to manage swiftly and flexibly with an emphasis on profitability. We continue to promote proactively our shift toward profitability-focused growth and optimization of our regional portfolio. Also, starting this year, we have newly established a department to explore new exporter destinations. By pursuing new market development in countries where we have not entered, we expand future growth options while accelerating our overseas growth initiatives. To summarize today's content, The first half was a period in which grossing our high-profit business centered on our healthcare drove steady progress in transforming our profit structure. Overseas in particular, the momentum of sales growth has recovered. For the second half, we continued to expand an uncertain environment, including the situation in the Middle East. That said, we do not see this as a phase of defense. Rather, we see it as an opportunity to accelerate value-added growth, improve profitability in our overseas businesses, and develop new growth businesses, building a profit base that is resilient to external conditions. As one group, we will further strengthen structural reform, aim to achieve the target announced at the start of the year, and continue moving forward while sharpening our focus toward the final year of the second stage. We continue to meet your expectations by sustainably building a profitable growth. We appreciate your continued understanding. That concludes my presentation. Thank you very much for your attention.

We'll now move on to the Q&A session. This is Hiroshima from Dallas Curtis. Can you hear me? Mr. Hiroshima, yes, we can hear you. Good afternoon. I'd like to revisit page 14, which you described as a Q-slide, and better understand how the numbers are structured. I think this is a very interesting table. Compared with your initial assumptions, the negative impact from the raw material cost has increased by $6 billion. However, you are essentially saying that you will fully offset that through the two items in the top, quantitative effects and product mix, as well as a shift in high-value-added products and upward price revision. At the same time, you are also increasing S&E and the expenses. Actually, the number there is 7 billion yen, higher than your initial assumption. Could you talk about your level of confidence in achieving these numbers? What are the specific initiatives you have in mind? Thank you for your question. This table shows our full-year outlook, so if it's all right with you and Mr. Hiroshima, I'd like to explain it in the context of what we expect in the second half. First, regarding the $5 billion negative impact in the second half, roughly speaking, we expect about $3 billion in the third quarter and $2 billion in the fourth quarter. So the question is how we could offset the $5 billion yen. Let me explain our thinking. We intend to offset approximately 80% or roughly $4 billion yen through the gross profit improvement. Of this, we expected roughly $1 billion yen from the shift toward high-value added products and cost reductions, including overseas. We then expect about 3 billion from the domestic price increase that we have announced. And also, as you pointed out, Mr. Orizumi, this is not just about this year. In particular, the 3 billion benefit from the price increases will carry over and fall into the first half of next year. As for the shift toward high-value added products, as we have discussed previously, we are shifting toward businesses and products that generate higher margins. Therefore, the 3 billion yen from price pass flow and the 1 billion yen from high-value-added products should continue to contribute in the first half of next year and beyond. That gives me greater confidence in our outlook. You've just given us a fairly detailed buildup of the numbers 4 billion and 1 billion, for example. Since these are based on the specific initiatives, would it be fair for me to say that you have high confidence? of course we do not assume that every single initiative will deliver 100 of the expected benefits exactly as planned we are living in the business world but again i happen to have a strong confidence one last question is the confidence partly based on the fact that you have already demonstrated your ability to execute these programs actually starting from october now we're going to start working on actually in a price and pass through the most important point is whether the price changes actually materialize at the retail level. Ultimately, this comes down to execution across the distribution channel. As you are well aware, Mr. Resuming, October is generally when the retailers revise sell prices. We therefore timed our price increases to coincide with those changes in October. It is not simply a matter of announcing a price increase. What matters is ensuring that retail prices actually change at the point of sales and that the plan is reliably realized with the october implementation approach we have been coordinating with a range of measures and with many people concerned understood i look forward to seeing these measures deliver the expected results thank you thank you next i would like to have a question from ms miyosako this is miyosako from the miso securities thank you yes i'm hearing your voice Thank you. I would like to ask about the strong performance of the domestic oral care business. Looking just at the three months of the second quarter, how much did toothbrushes and toothpaste and the NandoClinics channel grow? Also, domestic oral care achieved quite strong growth in the first half. I believe you have new products planned for the second half as well. Although I don't think you have disclosed an overall growth forecast for the second half, What level of growth are you expecting? And finally, would you please share your thoughts? Of course, you are able to enjoy good growth in the oral care. And what's going to happen moving into the second half from the viewpoints of growth factors? Thank you. Could you share the page 18? We have a number of categories, including toothpaste and toothbrushes, mouthwash, and dental floss. Broadly speaking, the growth across these categories has been around 9.5% level, as shown here. As for the Lion Dental products, our B2B business, serving dental professionals, it recorded roughly double-digit growth in the first half. Overall, we saw the world-balanced growth across the various categories during the first half. Turning to the second half, there are a couple of factors we need to take into account. First, we expect some decline in the volume associated with the price increases that will take effect from October. In addition, the 2000 Dent Health product shown on the right-hand side of this page will begin to lap its launch from the prior year. So we are not assuming that the 9% or so growth rate will simply continue unchanged. This is one of the important points. And also, as for the corporate income margin, progress has been in line with or better than our plan. We therefore not see the corporate income margin as having improved compared with the previous year. I see. I believe the sales were ahead of the plan. Am I correct in understanding that the corporate income was broadly in line with the plan? I'll ask Takeo, who is responsible for the finance accounting, to provide some additional detail on the figures. Thank you. This is Takeo. Thank you for your question, Ms. Misako. Regarding the core and operating income margin for oral care, strong sales of high-value-added products throughout the first half without a significant year-on-year improvement. Corporating income for the consumer products business also increased year-on-year, and I think it would be fair to understand that increase in the absolute amount of the corporate income from oral care was even stronger than that of the consumer products business. Thank you. I believe your full year growth assumption for oral care this year is around 45%. Given the performance so far, it is fair to assume that you now expect to comfortably exceed that level. And looking ahead to next year, given the significant acceleration you have achieved this year, should we expect growth next year to be higher? Yes, we have gained considerable momentum in the first half. So, as present, I would like to see us outperform the full year growth assumption. Looking ahead to next year, we are also learning the groundwork for the range of high-value added products and initiatives. Of course, we will need to take changes in the market environment and other factors into consideration. Did I answer your question? Thank you indeed. Thank you very much. Next, I will take a question from Ms. Kouahara. This is Kouahara from the J.P. Morgan Executives, and thank you for the presentation. Can you hear me? Yes, no problem. I would also like to come back to page 14 and following up on Mr. Horizumis' earlier question to confirm your strategy. If I calculate the figures for the second half alone, the contribution from quantitative effects and the product mix appears to be approximately negative 200 million yen. Is that mainly the volume impact from the price increases you mentioned earlier, or does it also include an impact from the divestiture of this specialty chemicals business? Could you walk us through these components? My second question is about the contribution from high-value added products and upward price revision, 1 billion yen. and actually 4 billion gross profit offset you mentioned earlier are reflected regarding 3 billion yen contribution from domestic price increase. Am I correct in assuming that you're expected to realize the full 3 billion yen through October, November, and December? If that's the case, you need to have the contribution of as much as 1 billion yen. Is this coming from the oral care heavier weight or the home care? Maybe you would like to actually improve the operation performance, so non-overall care ARs would enable you to actually go for 1 billion yen. Is this the right interpretation? I wonder if you could help me in this regard. Thank you. I believe there are two questions. First, on volume in fact, our revised full year estimate is 9.5 billion yen. As I mentioned earlier, the first half was 9.7 billion. So as you correctly pointed out, that implies a negative 0.2 billion yen in the second half. As for the components of that negative 0.2 billion yen, there are now positive contributions from Australia and the foreign exchange, among other factors. On the other hand, we have negative gross profit impacts from the division of the chemicals business and from LEED. We are also factoring in some volume decline resulting from the price increases. So, this is a response to your first question. In regard to the question on the high-value-added products and upward price region, we expect 3 billion yen from the price increase to break down roughly into 0.5 billion yen in the third quarter and 2.5 billion yen in the fourth quarter for a total of 3 billion yen. As you pointed out, we are also expecting a little over 1 billion yen of additional profit contribution from high-value-added products. All health care will be the main driver, but it will not be the only one. We also expect contributions from the new fabric softener line, we can expect to have a benefit. In deal to this $1 billion, again, could you expand on that in the domestic market and overseas markets? I think in the overseas market, you are increasing the personal health care. So I wonder if you could expand on the major drivers behind it. or you believe that as far as this year is concerned, it is going to be the Japanese market as the major driving factor. Yes, and actually we have included competition coming from overseas. So in the domestic business, we will actually go for the higher value realizations and out of the high value added products. Thank you. Thank you. next I will take a question from mr. Miyazaki this is Miyazaki from Goldman Sachs and thank you indeed yes I'm hearing your voice thank you I also have a question related to page 14 specifically regarding the price increases first just to confirm the numbers you mentioned that you know fourth quarter contribution from the price increases will be 2.5 billion yen on a On a simple annualized basis, it would add up to approximately 10 billion yen. This is what you have announced the other day. You, of course, have good selling SKUs, and I believe you keep an eye on other companies' SKUs. Could you explain again the background to the price increase announced in July, the strategy behind them, and how we should think about their impact heading into next fiscal year? So I appreciate if you can actually go through these points, including the strategy, please. Certainly, as we explained in our press release, the range of price increases varies somewhat by category. The degree of cost pressure from rising raw materials and prices naturally differs by category. For example, the cost headwind is relatively significant in detergents, whereas it is comparatively smaller in oil care. We have determined that magnitude of the price increase based primarily on the three factors, the negative impact of raw materials cost, our computer positioning in each market, and how receptive each category is to price increases. So, of course, we need to keep on the possible impact on the volume. So, they are the important ingredients. And as you mentioned, actually, 2.5 billion yen in the fourth quarter, again, a simple calculation times four, is going to be 10 billion yen. Allow me to explain in regard to the next year. Actually, we have the experience in actually 5 billion yen increase in the raw materials in the price. And this impact is going to continue. And how we can actually deal with this 5 billion yen. Actually, 2.5 billion yen on the quarterly basis. So now two quarters make it 5 billion. So, we need to be able to address this 5 billion yen while keeping an eye on the sustainable business growth moving forward. Did I answer your question? Thank you. If that is the case, it looks as though there could potentially be some upside next year, perhaps another 2.5 billion yen. Although I appreciate there will be various other factors, should we interpret the fact that you have adopted this pricing strategy and you are now in a position to be able to implement it as given you on the visibility of exceeding 40 billion in business profit next year. I wonder if you could expand on those aspects. Are you really optimistic? I will say that as president, I'm not that optimistic. If I mean, next year will be an important final year of the second stage of our plan. So I would like to take this opportunity to briefly explain explain as for these matters. Please. Taking a broader perspective as present, I am managing the company with a very strong focus on our earnings targets for 2027 and ultimately for 2030, the final year of our median term plan. Achieving those targets is important evidence that Lyon is capable of delivering sustainable growth. I may be repeating the same point. The impact from the Middle East is going to be $5 billion moving into the full year, with that impact carrying over in fall into the first half of the next year. Against that backdrop, we are targeting an increase in core operating income from $35 billion this year to $40 billion next year. gap of 5 billion yen combined with the 5 billion cost and headwind i just mentioned we need to be able to work on the following initiatives i'm going to explain the first the price increases the 2.5 billion quarterly in our benefit that begins to materialize in the fourth quarter of this year and i should generate approximately 5 billion yen of profit growth then a second we will improve our product mix through the high value added products while also increasing the volumes. We are building in a range of assumptions for both Japan and overseas. Four to five billion yen of improvement from the more profitable product mix. That should enable us to bridge the five billion yen gap. However, it's easier said than done. So we need to be able to tighten our management and mindset. So we like to work on five billion actually. We like to work on another five, a total of 10 billion yen. Yes, as present, we need to be able to manage these activities as surely as possible. Thank you. Sorry to get into some of the details, but I'm still slightly confused about the price increase. If you have a 2.5 billion benefit in the fourth quarter of this year, and then 5 billion yen of benefit in the first half of next year, it seems as though there should be another 2.5 billion not covered. No, that is not the case. We'll have 2.5 billion yen in the fourth quarter, this year's second half. Running through three quarters to last, we will not have 2.5 billion yen remaining. You may be thinking of the 2.5 billion yen as related to the July through September third quarter, but we will in fact realize some of the offset in the third quarter. In addition, from a management perspective, we need to maintain some additional buffer rather than assuming that every benefit will follow exactly as I have explained. Thank you very much. Next, I would like to have a question from Ms. Yamanaka. Thank you, indeed. This is Yamanaka speaking. I'd like to come back to the impact of the price increases and confirm your level of confidence in actually realizing the plan. Even if you pass through the increase in cost to prices, I would think it is difficult to know exactly how demand will respond until the new prices are actually implemented. In the second half, in particular, you will also have a number of product initiatives in areas such as fabric care. Other companies have already begun raising prices since July, so I assume you have been monitoring the subsequent volume of trends. I wonder if you could share your insights in this area. Thank you for your question. Yamanaka-san, yes, I'm hearing your voice. Good afternoon. Yes, actually, I am gaining a more stronger confidence. As I have mentioned, we do expect some volume decline as a result of the price increases, and we are factoring the resulting gross profit impact into our assumptions. Actually, we believe that impact is going to be 3-10% in detergents and around 6-8% in rural care. The figures I discussed earlier have been constructed after taking those expected volumes declines into account. As I mentioned earlier, the key to successfully implementing the price increases is whether retail shelf prices actually change. That is precisely why we strategically chose October as the timing for the price increases. Let me emphasize this point again. October is a time when many retailers in Japan reset their in-store merchandising. We chose October specifically so that our price changes would coincide with that timing. We have been working very closely with the wholesalers, distributors, and retailers in preparation for the October implementation. If I did not believe we had an operational capability to execute this successfully, I will not be telling you that I am confident. We have worked through the details very carefully in preparation for October, with many stakeholders concerned. Thank you indeed for your explanation. From a consumer's perspective, I sometimes get the impression that the detergent section in stores is being moved around, becoming somewhat smaller, or that the shelves for some major products are looking a little less full than they used to. You may say that, well, the consumers are moving into the e-commerce. However, I wonder how you feel about the observation I'm making here. There could be certain risk factors. I don't think you need to be overly concerned about that. We do not expect any major or drastic reduction in retail shelf space. Of course, some consumers will shift their purchase to e-commerce, but my sense is that this will not represent a particularly large proportion of customers. we believe that the majority will continue to make their purchases in physical stores so actually of course and I would like to actually in a share our recommended and ideas to the retailers but again actual implementer is going to be those retailers and distributors but I don't believe that I am receiving the negative response and from those some people I thank you indeed for the information I appreciate it thank you very much next I I would like to receive a question from Ms. Kawamoto.

This is Kawamoto from Jefferies Securities. I also would like to ask about page 14. But before that, I'd like to confirm the first half change factors. Shall we start on page 14? Before that, I'd like to turn to the results. Quantitative effects in small orange print. It describes the newly consolidated subsidiaries, how much of that came from Vietnam, and based on that, in this second half, the contribution of Vietnam in the previous year will run the course. I also recall that a new product, DentHealth, was added last year, so with those comparison-based changes, you expect a further increase in gross profit. So, first, for the orange figure in the first half actual results, could you tell us how much of it was the Vietnam portion? Understood since this concerns figures, so let me have Takeo respond. This is Takeo Kaumoto-san. Thank you very much for your question. I understand you're asking how much of this plus 9.7 billion quantitative effects and mixed change on the far left of the first half profit change factors is attributable to Vietnam. Roughly half of that is the increase in gross profit from the newly consolidated Vietnam and Australian subsidiaries. In addition, that quantitative effects on the product mix and others also includes the plus 3.6 billion yen foreign exchange impact shown in the arrow. So, please note that as well. Yes, based on that on page 14, I have the same question as others. I think which is about the feasibility of the price increases. Looking back in 2023 and 2024, the company achieved roughly 3 to 4 billion yen in annual price increase benefit. And this year, you expect to achieve additional 3 billion yen from October, which looks like a fairly high number. Could you give us a bit more detail? I'm looking at the release now. On the oral health care breakdown, specifically, where do you plan to increase prices by item and by how much, and whether there are any concrete examples, if you give us some colors quantitatively, I think that will make it more credible. Thank you. That's a detailed point and an important one. Let me have Fukuda respond. Kaumoto-san, this is Fukuda. Thank you. On your question, the price increases we have achieved in past years have mainly been effective in-store price increases achieved by revising promotional cost, increasing the ratio of regular priced sales, and reducing the share of special sales. This time, additional price increase, however, involves raising shipment prices across an entire category all at once, with external announcement, and actual raising shipment prices. Because of this, as other people also asked, there is a higher risk than before that competitive dynamics could reduce volume. but we believe that if we prepare properly and execute carefully, the benefit of the price increases will materialize with certainty. I see. Then, on changes in competition-related expenses, is there anything in particular we should be concerned about this? On competitive-related expenses and SG&A cost, we do expect an increase, though we have reduced the magnitude of increase from the initial plan due to the impact from the Middle East situation. For the increase in competitive related and other expenses, part of the increase reflects our foreign exchange impact, which is why the negative, the profit reduction effect appear larger here. So please understand this in this context. Thank you. Thank you very much. Next, Mr. Ohana, over to you. Thank you. This is Ohana from Nomura Securities. I'd like to ask about your thinking on the first half progress in the next year. It seems that from around March, you already knew raw material cost would be rising, and the first half core operating income was above the company's plan. Given the raw material cost increase impact expected in the second half, Do you feel the first half result was good enough? Or did you expect higher number to have some buffer? I'd like to understand your thinking there. Also, the increase in core operating income from the newly consolidated subsidiaries is approximately 1.2 or 1.3 billion yen, I guess. If possible, could you break that down between MailUp Lion and PNB? My understanding was that PNB wasn't expected to contribute much to the profit this fiscal year. Has that view changed? And earlier, there was discussion about the next year's roughly 10 billion yen profit increase. I had the impression PNB would contribute meaningfully next year, and that with the price increase effect and so on, that number looked achievable. Is my observation correct? Sorry for asking several things at once. Thank you. Thank you. I believe there are three questions. First, looking at the slide now, with the second half in mind, the first half could have gone a bit further and how I feel about that as present. That's the first question. Second, how much PNB or Australia and Vietnam is contributing to profit this year? Takeo will answer that. And third, since PNB-Australian impact will carry into next year, whether that makes next year's target more achievable? How do we view that? Let me have Takeo answer the figures first, and I'll give an overall summary afterward. On the first question, whether the first half could have been better, as I mentioned earlier, considering the situation in China in the first quarter and the tough fundamentals in Thailand, my assessment is that we executed fully. As shown here, our progress on the sales and cooperating income compares well against the past four years. For example, our sales progress rate this time is 50.4% versus 48% for the last four years, and our cooperating income progress 43% versus 37% for the past four years. This reflects a very strong effect, and I feel confident about it. I don't feel at all that we should have pushed four. I'm satisfied with that, and combined with the change in the quality of our earnings I mentioned earlier, we are becoming a company that can generate profit regardless of the circumstances. So this is the answer to your first question. On the second, share of PNB Australia's impact this year and their impact on the next year. Let me have Takeo answer for the figures first. This is Takeo. Ohana-san, thank you for your question. on the impacts through the six months to June. You mentioned the figure you have estimated yourself. In terms of the actual profit and loss related to Vietnam and Australia this year, while the two companies' results are positive, there is also a one-time acquisition-related expense recorded, including that the contribution to first half January to June core operating income is fairly limited compared with the figure you mentioned. Specifically, it is less than 1 billion yen. I refrain from breaking that down between Australia and Vietnam, but the combined figure for the two companies for the first half is as I have just described. Looking ahead to next year, the one-time acquisition-related expenses, of course, only for this year. So, we would expect an increase from the two companies' profit contribution next year with the absence of one-time expenses of this year. That said, as Takemori mentioned before, our current plan for the next year does not yet reflect that to that extent. And at the same time, there is also the factor that two chemical product subsidiaries will be deconsolidated. So we assume those two effects broadly offset each other. That's about a figure. Thank you. Was the one-time cost for Australia already incurred? Or will it come in the second half? The one-time cost has already been incurred through the second quota. Thank you. Finally, let me sum up the strategic point as a present. To repeat what I have said before, next year is not just another year. It is the final year of the second stage, whether we set out to strengthen our profitability. I see it as a year in which everyone will be watching us to see whether that quality has improved. And I am confident with that. And on the substance growth in oral health care and overseas business growth with margins, they may vary by business, but whether we can achieve group-wide strengthening of profitability is something I feel confident about. I'd be grateful if you could judge for yourself whether we have succeeded. Thank you. Thank you for the question. We are running short of time, but we'd like to take questions from two more people who have raised their hands for a while. Ms. Miyake, over to you. Thank you very much. This is Miyake from Morgan Stanley. I also would like to ask a bit about overseas. I also would like to ask about the profit. I believe North Sea Stagers' margin improved in Q1 and Q2 and progressing well. But the Southeast and the South Asia looks roughly flat year-on-year in Q2, which doesn't seem to align with the improvement in sales. Could you explain what affected this? I think there is a potential for the margin to improve in the second half. Is that observation correct? I'd like to have your thought on this. Thank you. Let me switch to another slide. In my earlier explanation, I mentioned that sales momentum overseas recovered, improving from January to March to April to June. Let me walk you through some of the underlying figures verbally, since not all of them are on the slide. On the real sales growth in the middle, excluding foreign exchange effect, Southeast and South Asia grew 11.9% in April to June. In January to March, it was 7.9%. So, Southeast and South Asia Oceania improved overall from 7.9% to 11.9% growth. For Northeast Asia, growth was 11.5% in April to June. In January to March, due to partly reduced production in China, it was minus 7.4%. So, Northeast Asia recovered from minus 7% in January to March to double digit growth. In total, the growth was 2% in January to March and 16.1% in April to June. So momentum has clearly increased by region and on a growth basis, which is the big positive. Now, the key question is whether co-operating income is following that. Let me touch on that. Please look at the right-hand column in parentheses. The overall co-operating income ratio rose by 1.1 percentage point in April to June, In January to March, it was up 2.0 percentage points, so numbers it looks like is decelerating, but this reflects a deliberate forward-looking bet. To be specific, for Southeast and South Asia Oceania, the corporate income ratio was down 0.1 points in April to June versus up 1.9 points in January to March. That may look like a decline, but it reflects the upfront investment in oral health care in Thailand. In the first quarter, we deliberately kept Thailand's co-operating income ratio flat, so please understand this as a heresy state. Next, Northeast Asia co-operating income ratio was up 2.9 points in April to June, versus up 0.4 points in January to March. This reflects China's contribution and shows a healthy improvement in cooperating income ratio. So looking at both North East Asia and South East Asia, and country by country, we are deliberately growing where we have decided to grow and bet with the second half and the next year in mind. As a result, as President, I see the way we are growing profit and the way we are growing the top line as progressing in a healthy way. That was a long answer. Thank you. To achieve strategic expense recovery and improve margins, the top line should also need to improve accordingly. Is it fair to expect the effect to show from the second half and for margin improvement to be expected for the free year in Southeast and South Asia as well? Of course, there are various factors around foreign exchanges and raw materials, but yes, that is what we are aiming for, In particular, regarding the oral health care in Thailand, even though we made an upfront investment, Thailand's first half January to June core operating income ratio was unchanged from the previous year. We are investing firmly without damaging profitability. As a result, as I mentioned, Thailand's oral health care top line has grown significantly. We see this as evidence that the upfront investment is paying off. So I don't see this as limited to the second half alone. I believe it will carry through into the next year, 27. Does that answer your question? It was very clear. Thank you. We'll take the final question. Mr. Ogaki, thank you very much for waiting. Over to you. Thank you. This is Ogaki from Okasan Securities. I'd like to go back to the change factors on page 14 again. First, on the impact of raw material cost, is 6 billion yen for the second half essentially a fixed, confirmed number, or could it still move significantly from there? And what is the assumed Dubai crude oil price behind that figure? Also, I think that you said the price increases were mainly in Japan. For the impact of the Middle East situation overseas, how do you plan to recover that? Thank you. There will naturally be some variation from the minus 5 billion yen of raw material cost in the second half, but given the lead time lag in the procurement pricing, we don't expect a major swing. We feel we have reasonably good visibility on this. That's the first answer. Thank you. On the second point, overseas. The situation overseas differs from Japan by country. In some countries, regulations and rules make it easier to pass-through cost-through price in some countries, while in others it's harder. So, there are countries where we can talk about the price pass-through, as in Japan, and countries where we pursue an effective price increase through means such as reducing the frequency of special sales, adding value, and cutting cost. In any case, since conditions vary by country overseas, we intend to counter the raw material cost impact using the approach best suited to each country, in particular, as you know, in Southeast and South Asia, Thailand and Malaysia, for example, While detergent mix is high, how we strengthen our business there is a major theme. To do that, beyond the price increases already mentioned, we are also working on raw material cost reductions, changing formulations, and improving the profit. In Malaysia, we are shifting product mix from powder detergent to liquid detergent to help offset the raw material cost headwind. And taking these various actions, we intend and believe we can address the rising raw material cost overseas through an approach that differs from Japan. Thank you. And the Dubai crude oil assumption, could you comment on that, please? On the Dubai crude assumption, we have a page for that. Let me have Fukuda respond to you. This is Fukuda. As shown here, we are assuming $85 per barrel for the full year. The first half was $91, so for the second half, we are assuming around $80. Slight decline. That said, raw material cost increase and the Dubai crude price do not necessarily move in parallel. So, we do not expect the cost increase impact to change materially from what I have described earlier. But if there is a significant change in the Middle East situation going forward, that could be a different scenario, and we intend to respond flexibly. Understood. Thank you. That's all from me. Thank you very much. As we are already considerably behind the time, so we close the Q&A session here. Our apologies to everyone who still has a hand raised. With that, we will now close the LION Corporation's financial results briefing. Thank you very much for joining us today.