Hello. I am Hamada from Research and Development. Today I will explain where Kao's R&D is heading and how it will enhance corporate value. The key phrase is "Management of technology to establish an unrivaled position." By "unrivaled," I do not mean defeating competitors or being stronger than anyone else. I mean becoming essential to consumers and society. We do not simply refine our technologies. We implement them in markets with strong social demand, where the technologies create the most value. Today I will present this approach and some examples. This is today's agenda. I will start with the alignment of corporate and R&D strategies, and then cover Kao's management of technology, the evolution of our value creation process, and the direction of our R&D. Finally, I will summarize how R&D investment helps drive corporate value. This is an overview of K27, Kao's Mid-term Plan.
The strategic framework has four pillars: building global sharp-top businesses, human capital and organizational management, improving capital efficiency and profitability, and building businesses through co-creation with partners. All four are crucial to how we operate R&D, but we play an especially important role in building global sharp-top businesses. I will explain how these are aligned on the next page. Global Sharp Top businesses are those that achieve a high sales ratio outside Japan, a high operating margin, and a high market share, all at the same time. Our strategy is to build a portfolio of such businesses. In the context of R&D, the Global Sharp Top Strategy translates into implementing social significance in global markets through Kao's exclusive uniqueness. This means contributing to our key KPIs: the sales ratio outside Japan, margin, and market share.
Important premises for achieving this also include highly efficient operations with a focus on DX and ROIC, and environmentally conscious design that takes ESG into account. In other words, we minimize the competitive costs and our environmental impact while maximizing economic and social value. This is the basic principle behind the Global Sharp Top Strategy in the context of R&D. I will now delve a little deeper into the Sharp Top Strategy. In R&D, we would like to focus on becoming one and only rather than gaining comparative advantage. That is, we aim not only to outperform competitors in the market, but also to build unique value that keeps us out of competition altogether. This is what we mean by aiming to become unrivaled. To that end, it is important to combine Kao's exclusive uniqueness with the social significance that consumers and customers seek, achieving both at a high level.
To realize this, we place emphasis on balancing technology out and precision market in. While evolving the core technologies that are Kao's strength, we also aim to capture potential needs and social issues precisely and translate them into value in the real world. This is Kao's success model. These are examples of technology out and precision market in. For example, the exclusive uniqueness of high water content lamellar and stratum corneum intercellular lipid ceramides creates consumer value: high moisture and low irritancy for dry, sensitive skin. We have implemented this in the real world as Curél, our dermacosmetic brand. Agar hydrogel capsule technology provides the value of thorough UV protection with a comfortable application, implemented in the real world as Bioré UV, our sunscreen brand.
I believe these examples show that we have balanced technology out and precision market in, that is, achieved both exclusive uniqueness and social significance at a high level. Next, I will talk about Kao's management of technology. The key to understanding Kao's management of technology is its precision interface control technology. This planet consists of five types of interfaces. So what is an interface, anyway? An interface is the boundary where two things meet without mixing with each other: gas and solid, liquid and solid and solid, gas and liquid, and liquid and liquid. No other interfaces exist. In fact, the areas where things do not mix are crucial because they determine product performance. By controlling these interfaces with extreme precision, Kao has created unique value. In other words, by controlling microinterfaces, Kao has helped solve macrosocial issues and worked to grow its businesses.
I will explain this in a little more detail on the next slide. The value of precision interface control does not lie simply in observing things at a small scale. We develop technologies that control interfaces at different scales, from nanometers to millimeters, including water molecules, surfactants, micelles, vesicles, polymers, and more. We translate them into high social value such as skin moisture, cleansing, antibacterial performance, UV protection, anti-aging, reduced housework time, water saving, high durability, and recycling. For example, SOFINA BASIC+, our skincare brand, uses technology that works at the interface between skin and air. It nurtures a skin surface that absorbs and locks in water molecules, which makes it a skin moisturization technology. The value created by precision interface control technology extends not only to our B2C businesses in cleanliness, health, and beauty, but also to our B2B businesses in living and social infrastructure.
Through this, we work to solve Kao's material issues, environmental constraints, diversification and personalization, new hygiene needs, and an aging population, and contribute to sustainable wellbeing. In Kao's fundamental technology research, we place our Precision Interface Control technology at the center with five other core technologies around it: precision conversion of fats and oils, essential analysis, polymer function control, bio-functional control, and meta-processing. We combine and evolve these five technologies to produce a wide range of elemental technologies. In product development research, we then translate those technologies into new value, shape them into products, and implement them in the real world. By going back and forth between fundamental technology research and product development research, we refine technologies, develop new ones, and create new consumer and social value. This is the organizational structure for operating it.
Our research organization creates value where two axes intersect: fundamental technology research that cuts across divisions and product development research dedicated to each business. In other words, the fundamental technology research team evolves and deepens core technologies to create exclusive uniqueness. It is responsible for technology out. The product development research team applies it to create SHIN, new, and true value. That is, the team handles precision market in. It is crucial that fundamental technology research and product development research integrate without losing their independence. With fundamental technology research alone, implementing technology in the real world would take time. With product development research alone, it would be difficult to accumulate exclusive uniqueness. This makes core technology management important. It involves appropriately combining the two types of research while balancing the evolution of core technologies with the creation of SHIN value.
The key to core technology management is the collaboration and circulation between technology out and precision market in. Our carbonation research is the clearest example of this circulation. It began with the Bub carbonated bath additive in the 1980s. In fundamental technology research, we worked on higher carbonation concentrations, foaming and aerosolization, and research on fragrance and biological action. On the other hand, in product development research, we expanded the application from bath additives to hair tonic, skincare, haircare, and adhesive carbonated sheets. We refine one core technology over the long- term and continue expanding its value across domains. A virtuous cycle of technology and products, this is the core technology management in which Kao excels. What is important here is that we are not preserving a single product. We are growing carbonation as a technological asset and redeploying it to different markets and different consumer problems.
Another example is nonwoven sheets. In the late 1970s, Kao launched diapers and feminine care products made with nonwoven sheets. Since then, we have evolved our sheet processing technology and integrated it with our cleansing technology, and we continue to expand these technologies across various products, including the Quickle wiper floor cleaning tool, makeup removers, MegRhythm steam heat sheets, and wipe sheets. One characteristic of Kao's management of technology is that we make technologies outlive the products they are built into. Naturally-derived agar hydro capsules were developed 25 years ago. They started out as millimeter-scale agar capsules, but through repeated exchange with product development research, they became smaller and more functional, finding their way into skincare, toothpaste, and now Bioré UV. This technology was not complete from the beginning.
In this case, the interplay between fundamental technology research and product development research created a technological virtuous cycle, thereby establishing the exclusive uniqueness to Kao. Kao has a history of growing its businesses by continuing core technology management without interruption. Since Kao first began making and selling soap, the Precision Interface Control technology honed through our work on cleansing has become a pillar of Kao. Material development based on precision conversion of fats and oils and polymer function control expanded into the chemical business, biological control and essential analysis support cosmetics and skincare, and meta-processing has become the core technology that underpins healthcare and sanitary. We accumulate the insights gained from each product as functional technologies and feed them back into our businesses. This circulation is not a short-term trend, it is the essence of Kao's management of technology.
So far, I have focused on the history of Kao's management of technology. Next, I will talk about how we will evolve it. First, I will discuss improving our value creation process. We do not live in an era where everything is treated equally, and R&D is no exception. We visualize more than 1,000 research themes using Power BI and have implemented portfolio management. We regularly review each theme for technological advantage, business impact, novelty, and timeline, and dynamically sustain or increase investments, review strategies and business feasibility, and make decisions on continuity. The purpose is to balance both social implementation for tomorrow and technology accumulation for the future. Going one step further, we will also advance intellectual asset portfolio management. As with the portfolio management for research themes I explained earlier, we begin forming our portfolio in three categories: sustain, redeploy, and create.
By sustaining, we protect our current competitive advantages. By creating, we create them for the future. This is what is called ambidextrous management. By adding redeploy, we balance these two. By redeploying, we transfer technology, intellectual property, human capital, and data to optimal places. The purpose of this framework is not to manage research themes, but to strategically shift where our intellectual assets are placed. Let me explain the principle behind our intellectual asset redeployment model. At the center are our intellectual assets. Tier one is the types of intellectual assets, the four elements of technology, intellectual property, human capital, and data. Tier one is where that value is deployed. There are six routes: joint development, licenses, establishing joint ventures, technology carve-out, reallocating human capital, and transferring businesses. We preserve technology, carry forward what we have learned, redeploy talent, and transfer value.
This is how we translate our intellectual assets into higher ROIC. Across Kao, we are driving evolution and greater efficiency by adopting AI and implementing DX. One thing we are pursuing in R&D is AI and laboratory automation. Using machine learning, data-driven experimental design, and automated formulation, we achieve high throughput. That is, we rapidly repeat a vast number of experiments, conduct exhaustive research across areas our researchers alone cannot reach, and achieve the optimal compositions faster. Put simply, AI and robots handle the work that our researchers are too busy to do. The purpose of AI and laboratory automation is not to replace researchers. As the example of threefold productivity shows, AI solves known issues at maximum speed, and our researchers explore the unknown. This is DX that shifts people's roles toward more creative areas. The next topic is the acceleration of globalization.
This is where global precision market in matters. Global does not simply mean geographic expansion. It means capturing issues shared around the world, then implementing value in the form best suited to each region. Our headquarter laboratories and regional research laboratories incorporate the voices of markets and consumers, improve our research strategy, and feed the results back into technology out. We run this circulation globally. In the United States, for example, we took the agar hydrogel technology behind Bioré UV, adapted it to what local consumers value, and launched it as Jergens Lotion Bursts, a solid lotion. In China, we address concerns specific to the local market, sensitive skin with a weakened barrier and redness, drawing on local evidence and working closely with dermatology experts. In other words, we do not simply export technology out technologies or Japanese products as they are.
Rather, we start from local issues and translate our technologies into optimal value. Now, I will explain where we will concentrate our capital as the direction of our R&D. The ultimate purpose of Kao's R&D is to contribute to wellbeing around the world. Kao operates consumer businesses in cleanliness, health, and beauty, as well as the chemical business, which supports both the living environment and social infrastructure. Through these businesses, we aim to contribute to wellbeing. As you can see, we span many areas, but we will not pursue them all with the same intensity. We will concentrate resources where social significance and Kao's exclusive uniqueness intersect and will accelerate growth. Leading examples of these priority areas are our B2C dermacosmetics and B2B semiconductor-related businesses. These are the four conditions we value when choosing focus areas. First, social significance. Second, Kao's exclusive uniqueness.
Third, market growth opportunities with a CAGR of 5% or more. Fourth, the possibility of implementing value in the short- term. The leading examples of our current priority areas selected based on these four conditions are dermacosmetics and semiconductor chemicals. We concentrate investment in these markets not because they are large, but because we have a formula for winning there. First, let me talk about dermacosmetics. Let me now explain Kao's approach to skincare. The conventional technical approach in dermacosmetics starts from ingredients and matches each one to a specific symptom such as age spots, wrinkles, and inflammation. Kao does not start there, but from human skin itself and how it works. We control the skin interface precisely, condition the skin's internal environment and structure, and bring out its biological origin functions. This is a fundamental and comprehensive approach.
With this approach, Kao aims to combine precision biological origin science and precision skin interface control technology. That is, using high-sensitivity RNA analysis and other methods, we capture what is really happening inside living skin at the genetic and cellular levels. At the same time, we control interfaces precisely and bring out those biological origin functions. When an irresistible perceived quality is added on top of this, the technology becomes something people can truly feel. This is not achieved with a single technology. The combination of technologies is the SHIN, skin homeostasis care that Kao wants to propose going forward. Here you will see the actual latest technology. This technology was used in est Genoluxe Cream launched in September. Now please watch a video for an overview of this technology.
I hope you will get an intuitive sense of how Kao's dermacosmetic products are built on a precise understanding of what is happening inside the skin and how we turn that understanding into benefits consumers can actually feel.
The key to fundamentally changing skincare at the molecular level is the technology at the core of our exclusive uniqueness, precision interface control technology. Kao has developed a unique coating film technology, Fine Fiber. The coating process used to require a dedicated device. With the evolution of Fine Fiber, you can spread a protective network on your skin simply by applying a cream. Acting as an artificial stratum corneum, this network locks in active ingredients and prevents moisture loss. Through the innovative mechanism of this new technology, moisture is stored inside the skin, and the cellular functions of the entire skin are normalized. This brings about homeostasis, activating high-quality RNA. In fact, we have confirmed that over 150 types of RNA are activated. This process unlocks the skin's innate power, allowing you to feel changes from within sooner.
Here is the bottom- line on our dermacosmetic technology. The conventional approach partially addresses visible symptoms using specific ingredients. Kao, by contrast, understands the skin's biological origin functions and the mechanisms that disrupt them and translates this understanding into products that consumers can continue using comfortably. Kao's competitive advantage lies in perceived quality built on precision biological origin science and precision interface control. Not ingredients, but mechanisms. This is the next-generation dermacosmetics solution that Kao proposes. In the cosmetics business plan we announced last year, we set targets of achieving JPY 400 billion in sales and a 15% operating margin as early as possible from 2028 onward. I view the dermacosmetic solutions introduced today as the growth driver for reaching those targets. The market is currently forecast to grow at a CAGR of 8%.
In this area, Kao aims to grow at a CAGR of over 10%, and we plan to increase the share of dermacosmetics in our total as well. Next, let me talk about semiconductors, our other priority area. Semiconductors are a foundational market that underpins the growth of AI and data centers. Kao does not make semiconductors themselves. We are broadly involved in process chemicals for front-end and back-end processes, and we target areas such as polishing, cleansing, and stripping, which become increasingly important as manufacturing processes become more complex. In a nutshell, Kao's technology in semiconductors is about protecting what is needed and removing what is not at the micro interface. With precision cleansing technology at the core, we combine dissolution, detachment, penetration, and protection. These technologies act uniformly even in the fine details of complex structures and enhance device performance and yield without damaging structures or substrates.
This selective cleansing technology is how Kao's precision interface control contributes to the semiconductor manufacturing process. Now, let's look inside the invisible world of semiconductors. Semiconductors are becoming finer, deeper, and more complex. Please watch the video to see what Kao's precision interface control does in that world.
What makes it possible to radically improve the quality of semiconductor manufacturing at the molecular level? It's the technology at the core of our exclusive uniqueness, precision interface control technology. The smart society continues to evolve with the spread of AI, and the semiconductors are the foundation of this growth. The semiconductor manufacturing process starts with a front-end stage where microscopic circuits and components are built onto silicon wafers. It's followed by a back-end stage where the wafers are diced into chips and mounted onto IC package substrates. With over 500 manufacturing steps, Kao's technologies and products are used at various stages. Now, let's take a look at the microscopic world where this technology works. Semiconductors are evolving into finer and more complex structures, and this goes beyond the world of viruses. The precision of their structure becomes finer and deeper at the molecular level.
Kao's precision interface control technology enables cleaning at the molecular level, and it supports the evolution of semiconductors with outstanding quality. The IC package substrates, which enable higher chip performance, are also evolving toward finer and more complex structures. Kao's cleaning technology reaches deep into these structures, removing only contaminants with exceptional precision while protecting essential materials.
Here is the summary of Kao's business opportunity in the semiconductor market. The finer and more complex semiconductors become, the more difficult cleansing becomes. This is precisely where Kao's value grows. In addition to our range of precision interface control technologies that make fine-tuning possible, we established cleansing centers to reproduce customer processes and quickly verify optimal conditions. We also participate in JOINT3, a consortium for co-creation with equipment and material manufacturers. This increases opportunities for technical fine-tuning while enhancing its quality. I believe our more than 40 years of accumulated technology and fine-tuning capabilities serve as a barrier to entry. This is our business plan for enhancing corporate value through R&D. In addition to existing markets, we will expand into advanced DRAM, advanced NAND, and advanced logic with the aim of significantly increasing semiconductor-related sales.
Our business targets are a CAGR of 30% or more and an operating margin of 40% or more. In other words, we intend to turn the precision interface control we cultivated in R&D into a highly profitable business in a growth market. Finally, let me summarize what value R&D ultimately creates. We do not refine our technologies for the sake of the technologies themselves. Cleanliness, health, beauty, and a sustainable society. Our purpose is to support people throughout their lives, contribute to areas such as an information-driven society and environmental conservation, and promote wellbeing around the world. Today I talked about dermacosmetics and semiconductors. Beyond them, we will also build up capabilities in areas such as longevity and hygiene wellness. We will continue to translate R&D accomplishments into consumer and social value in the real world.
Finally, let me summarize today's presentation in one phrase: converting R&D investments into corporate value. First, we accumulate and deepen unique technology through technology-out. Second, we selectively focus capital through portfolio management and DX. Third, we deploy it into growth markets through precision market-in. As a result, exclusive unique technology becomes an intellectual asset, raises ROIC, generates sales and profit in growth markets, and enhances corporate value. Kao will master precision interface control and leverage technology to become essential to consumers and society. This is what I mean by management of technology to establish an unrivaled position. Thank you very much for your time today.