Today, I will first explain the key points of the results for 2024 and the outlook for 2025, and then CFO Hirofuji will explain the details of the results, and I will then explain the main issues to be addressed in 2025. First, page three. Key points of the financial results for 2024. Core operating profit for the full year was JPY 36.4 billion, compared to the revised forecast of JPY 35 billion announced in November last year. The fact that we were able to achieve the profit target announced in November, despite the difficult environment, is a result of the efforts of the entire company working together. What is particularly noteworthy is the performance in Japan, where we are promoting structural reforms with the aim of achieving over JPY 20 billion in 2024 and JPY 50 billion in 2025. The actual result for this period was JPY 28.1 billion, significantly exceeding the target. In Japan and Europe, the virtuous cycle of growth and improved profitability through selection and concentration is steadily proceeding, producing results. Going forward, we will expand the structural reform globally, working to improve the balance of profits in each region and establish a global earnings base. Regarding dividends, which we said in November last year that we would closely monitor and examine the situation after repeated discussion from the perspective of maximizing long-term total shareholder returns, we have decided to reduce the year-end dividend from the planned JPY 30 per share to JPY 10 per share. The details are explained in the slide later. Consolidated sales, excluding the impact of foreign exchange and business transfers in real terms, increased 4% year-on-year in the fourth quarter and decreased 1% year-on-year for the full year. In Japan and Europe, we continue to see strong growth centered on our core brands. In China and travel retail, consumer spending remained sluggish, but the revenue decline was in line with expectations. In the Americas, sales declined due to the delayed recovery of the Drunk Elephant. We secured a core operating profit of JPY 36.4 billion, but due to structural reform expenses and the provisions for financial expenses, net income attributable to owners of the parent company was a deficit of JPY 10.8 billion. I will explain this in more detail. Regarding non-recurring items, we recorded JPY 28.8 billion in expenses for structural reforms, which was largely in line with our plan. On the other hand, the provision for this item was not included in our forecast as of November. We transferred three brands, including bareMinerals , in 2021, and as a result of careful examination of the seller's note, which deferred a portion of the transfer price, we recorded a provision for this item, taking into account the possibility of recovery. This is a one-off factor and does not involve any actual cash. We will continue to focus on recovering the full amount. For details, please refer to Appendix 15 of this document. Next, I will explain the full-year forecast for 2025 on page four. Net sales are expected to be JPY 995 billion, and the real growth rate, excluding the impact of foreign exchange fluctuations, is expected to increase by 4%, which is unchanged from the assumptions in the action plan announced at the end of November. Core operating income is expected to be JPY 36.5 billion, based on the belief that a previous year's level must be achieved, but we will aim for further increase. In addition, because of the figure for 2024, including one of the positive factors, the increase in profit will actually exceed JPY 10 billion. Additional information is provided on page 14 of the supplementary material, so please refer to it. Regarding the first half and second half balance of sales, in the first half, we expect a low single-digit percentage decline in sales, mainly due to the high hurdle of the previous year in the travel retail. But in the second half, we plan to achieve high single-digit percentage growth, driven by growth in Japan and Europe and the recovery in the Americas. Core operating income is roughly half the plan. The impact of the revenue decline in the first half will be offset mainly by the effect of reducing personnel costs in Japan. Although we expect revenue increase in the second half, we also expect to see an increase in expenses, such as a reaction to one-time positive factors of the previous year and increased marketing investment. Therefore, as in the previous year, we expect there to be no significant difference in profit levels between the first and second halves. Regarding the outlook of regional profits, we are forecasting significant profit growth in Japan and Americas. In Japan, we are aiming for JPY 50 billion in profits, thanks to the launch of new product price increases and an improvement of product mix, which will lead to an expansion in gross profit, as well as the effect of personnel reduction. Through the early retirement support plan in Americas, we will make up for the profit decline from the previous year as much as possible, including by achieving a recovery in Drunk Elephant, driving growth in brand Shiseido and Dr. Dennis Gross Skincare, and optimizing costs. Regarding China and travel retail, as I explained at the end of November, we are anticipating real declines in revenue and profit. We are expecting a loss of JPY 23 billion from non-recurring items, mainly structural reform and related expenses, as set out in the action plan. We will mainly work on organizational reform, productivity improvement, and brand SKU selection and concentration, etc., and lay the foundation for achieving the core operating profit margin of 7% in 2026. Free cash flow is expected to turn positive due to a decrease in non-recurring items year-on-year and the fact that we do not have any major M&A plans for 2025. Next, on page five, I explain our dividend policy. In terms of business performance and cash-generating ability, both the 2024 results and the 2025 forecasts are not at the level we aimed as for a global beauty company over the long term, and we are in a situation where we should drive improvements through further action. In the two-year period of 2025 and 2026, we believe that the top priorities for cash allocation to improve corporate value should be: one, strategic investment in growth areas, and two, investment in structural reform. In order to respond to the uncertainty of the business environment, we believe that it is essential to secure financial flexibility and to prioritize the implementation of the key measures set out in the action plan in order to build a foundation for growth with the aim of maximizing long-term corporate value and total shareholder return. As a result of careful consideration of the current situation, we have decided to reduce the year-end dividend from JPY 30 per share to JPY 10 per share and will submit this proposal to the General Meeting of Shareholders in March. In addition, the annual dividend for 2024 will be JPY 40 per share, the same as in the previous year, and in line with our current dividend policy. The dividend level will be in line with the DOE target of 2.5% or more. We take very seriously the fact that this dividend cut will cause concern among our shareholders. We will take responsibility for doing what we need to do in this critical two-year period and for conducting business operations that live up to the trust of all our stakeholders. From now on, we will work to recover our business performance and improve capital efficiency by accelerating the completion of the structural reforms and strengthening our brand power. In line with the recovery of profits and cash flow, we will consider expanding shareholder returns, including an increase in dividends. From here, I will explain the details of the results. This is a summary of the P&L results for 2024. The contents have been explained by CEO Fujiwara earlier. Next, page seven shows the sales trends by region. Japan and Europe have grown steadily, and in particular, Japan has achieved 10% growth for two consecutive years, exceeding the high hurdle of the previous year as the recovery after the Corona has run its course. In China, sales have been low due to the impact of treated water in the previous year, but for the first time in five quarters, sales increased and decreased in travel retail sales, also narrowed to a single-digit range. Although we are still cautious about the outlook of 2025, we are positive about the fact that there is no further deterioration, and we are starting to see signs of bottoming out. The Americas continue to struggle. Although the overall result of the year was a negative 1%, excluding China and travel retail, we achieved strong growth of 6%, and we are continuing to shift to an appropriate regional portfolio.
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Next on page eight is the net sales by brand. From this time, we have separately broken down the Core Three and Next Five brands, which we will focus on in the action plan for 2025 to 2026. Brands with a significant sales contribution from China and travel retail were affected by the overall market challenges. However, even within this, Clé de Peau Beauté accelerated growth in both Japan and China, continuing to perform steadily. NARS recovered in the Americas in Q4 and turned to revenue growth for the year. Elixir maintained high growth, mainly in Japan, while Narciso Rodriguez and Issey Miyake maintained strong growth, particularly in EMEA, due to success in active investment. On the other hand, Shiseido and Drunk Elephant experienced a decline in sales throughout the year. Next is page nine on the Japan business. In Q4, the local market growth experienced a slight slowdown in pace of growth due to the high performance level over the previous year. As for inbound demand, the number of tours to Japan hit a record high in October and December, yet the cosmetic purchases only showed moderate growth. Despite this, our business in Japan maintained strong growth in the low teens for core brands, expanding market share. New product launches, such as Elixir's loose serum and Shiseido's foundation serum, showcased our strength in advanced technology, driving sales through a new value creation marketing that strategically targeted new markets. Clé de Peau Beauté also continued to see a steady increase in loyal customers, even after the price increase in April. One of the brands we focus on in Japan, d program, further clarified its marketing strategy and achieved high growth with strong returns. We call it communication innovation, and the success of Shiseido Men, who are changing the way we communicate about existing products led to sales growth, became a model that was applied to other brands. Additionally, we advanced our touchpoint strategy and continued the win-at-places-for-people-gather approach, with growth in key channels driving target achievement, even after significant personnel reductions at the end of September. E-commerce sales achieved growth in the high 20% range due to brand expansion and increased digital advertising investments. Regarding inbound demand, with the increase in the number of visitors to Japan, we are steadily expanding. Moving forward, we will implement measures that align with the purchasing trends of tourists. Next is page ten, China and travel retail. The China market continues to face sluggish consumption, and with rising price sensitivity, event-based consumption, such as Double 11, accelerated. Despite these challenging market conditions, we have focused on balancing growth and profitability while enhancing brand value. As a result, sales turned positive in Q4. Offline sales faced a tough environment throughout the year, but Clé de Peau Beauté achieved positive growth in Q4, and including e-commerce sales, we recorded high growth in the low 20% range. E-commerce also showed a steady recovery in Q4, with significant growth on major platforms during Double 11, especially rebounding from the treated water impact, marking solid growth into the high teens percentage. Both Shiseido and NARS turned into growth, with NARS particularly showing year-round growth, continuing to expand its sales scale in China. As a result, despite the continuous difficult environment, our strategy to quickly respond to consumer changes successfully led to market share gains over the year, which we consider a major achievement. Next is travel retail. The decline in consumption by Chinese tourists has continued, creating a tough business environment, as expected. We will continue our efforts in strict inventory management and sound business health in the mid to long term. Despite these challenges, travel retail in Japan continues to perform well, with a recovery in the number of store visitors. Next is page 11, Americas. The supply shortages up until the first half of the year led to consumer attrition. In the second half, we focused on strengthening marketing investments for key brands to drive recovery. However, Drunk Elephant's consumer purchase recovery was slower than expected, resulting in a revenue decline below projections. We attribute this to factors such as intensified competition in the market surrounding Drunk Elephant and a lack of targeted promotions. In 2025, we will focus on strengthening Drunk Elephant's brand marketing and clarifying its target customer base in order to turn things around. On the other hand, production in the Americas has stabilized, and NARS steadily recovered. Fragrances also performed well, benefiting from favorable market conditions. All other major brands returned to growth in Q4. Additionally, Dr. Dennis Gross Skincare, acquired in February, is progressing as initially planned. Next is page 12 on EMEA and Asia-Pacific. EMEA market continued to grow in all categories. In Q4, the shipment adjustments for the holiday season contributed positively, with the strong performance of new product launches allowing the company to reach the sales as planned. Selection and concentration in focus brands, markets, and channels demonstrated results, capturing strong growth for the full year as well. Asia-Pacific continued to perform well with Anessa, Clé de Peau Beauté, but the slowdown in Taiwan and South Korean markets impacted the sales, leading to a sales decline in Q4. Next is page 13, the core operating profit by region. In Japan, in addition to increased sales, significant profit growth was achieved, contributed by gross margin ratio improvement from mix improvement as a result of selection and concentration and price increase, as well as the impact from structural reform. Inbound sales are still about half of the peak level in 2019, but profitability in the local business has improved, achieving core OP margin of approximately 10%. The business turned from a loss in 2022 to a profit in 2023, and by 2024, grown to realize double-digit margin. This growth has led to confidence for the overall company and a result that can be expanded horizontally to other regions. In China, despite a negative real growth rate of minus 5%, marketing investments were maintained, and structural reforms, such as the closure of unprofitable stores and workforce reductions, led to increased profits. Despite the continued uncertain market environment, efforts are underway to build a revenue base that is less affected by external factors. In EMEA, while expenses were kept under control, marketing investments aimed at enhancing brand value were continued, leading to increased sales. Travel retail saw a significant decline in profits. Furthermore, the decrease in travel retail sales also had a substantial impact on the other segments, with dropping gross profit driven by internal sales decline. Regarding adjustments, change in elimination of unrealized gains contributed to decrease in profits. Last year, primarily in anticipation of the deterioration of the Chinese and travel retail markets, inventory reduction was implemented, which positively impacted elimination of unrealized gains. This year, the reversal of that effect has occurred, becoming a factor that pushed profits down. That concludes the performance report. One point of progress to report: we have received numerous requests regarding the difficulty in comparing the core operating profit by segment over the years due to the annual changes in internal transaction prices related to transfer pricing adjustments. To clearly compare the actual profit margins and their improvement progress across segments year over year, we are in the process of revising the definitions. Starting with the Q1 results to be announced in May, we plan to disclose the results under the new definitions. Please look out for further updates on this. That is it for myself. Thank you.
First, then please turn to page 15. This is the content we explained when we announced the action plan at the end of November. Over the next two years, we will work to strengthen the foundations of our core brands while also establishing a highly profitable structure to support future growth.
Once again, we see 2025 as the year of competition. Our theme for this year is to do everything we need to do. We are already in the second month of 2025, and we will move forward with our measures with a sense of urgency. Next, please turn to page 16. Over the next two years, we will continue to implement structural reforms, but we will also accelerate the growth of our core brands through focused investment based on growth potential, profitability, and competitive advantage. In 2025, we will increase marketing investment by JPY 10 billion year on year, and we will invest all of this in the Core Three and Next Five, and we will aim to steadily expand the market share by building the value of our core brands, which have high profitability and growth potential, and strengthen our base of loyal customers. As a result, we will turn around a negative 1% real sales growth rate in 2024 to a positive 4% in 2025. Next, from page 17, I will explain our brand strategy, focusing on the three core brands that will be the pillars of our future growth. First, let's look at the growth strategy for brand Shiseido in 2024. Shiseido experienced a slowdown in China and travel retail, which together accounted for around half of its sales, and achieved strong growth in Japan, which sells in the high 20% range, and in Europe, which sells in a high 10% range. Vital Perfection has secured a position in the market as an expanding mainstay line of anti-aging products. In the top four markets in Europe, Vital Perfection has achieved first in the Skincare product ranking by line. The strategic allocation of the investments through selection and concentration is paying off. Thanks to the efforts of our global ambassador, Anne Hathaway, Vital Perfection is also performing well in the Americas. In addition, the Synchro Skin Glow Foundation, which was a big hit last year, established a new market for foundation serums. In Japan, it not only achieved the number one share of the department store foundation sales, but also gained many new younger users. In 2025, we will introduce a new Ultimune, which will be launched in March as a major growth driver on a global scale. This product will be launched almost simultaneously around the world, and we are working to maximize sales with a sense of unity as a company-wide initiative. In terms of regions, we expect to see continued steady growth in Japan, as well as accelerated growth in the Americas, Europe, and Asia-Pacific. In addition, we will be strengthening the Future Solution LX line, our top-of-the-line series in China, and we plan to launch new sun care products equipped with the latest technology in the Americas. In this way, by implementing unified global measures and developing products that match regional characteristics, we will be able to achieve more substantial growth for the brand as a whole. Next, please turn to page 18. As CFO Hirofuji explained earlier, the growth of Clé de Peau Beauté is being driven by Japan, where growth in the high teens has been achieved. As we have also reported, the brand has also achieved positive growth in the challenging Chinese market, thanks to its strong brand value as a high-end brand. Base makeup, which has an overwhelming strength in acquiring new customers, is performing well, contributing to the expansion of the brand's loyal customer base. In addition, La Crème, which was relaunched in September last year, has received high praise, including being ranked first at the best cosmetics product in major beauty magazines in Japan, and the number of Skincare users has also increased. This year, we plan to launch the product in China as well, and we will strengthen strategic marketing for core Skincare line, Key Radiance Care, etc. We will strengthen our position as a luxury brand by further enhancing our premium luxury experience values, such as base makeup, which is our strength, and our holiday collections and treatment services, which are promoting at events and special exhibitions in countries around the world. Next, please turn to page 19. NARS has strong equity and has been able to achieve steady growth even in a challenging market environment in China, but in 2024, there were some shortages due to temporary production cuts, and it was not possible to achieve major publicity and dramatic growth. In 2025, we will ensure growth by positioning base makeup, the foundation of the brand, as a hero product, which also is increasing in the brand's topicality by boldly investing in a new innovation campaign to meet the growing global demand for blush. We will turn further speed and amplify this through digital media with the aim of increasing our share of the makeup category. Next, page 20, we have received feedback that the company has a strong R&D capability and technological strength, including basic research, and has a good lineup of brands, but unfortunately, this is not translating into profitability. We will firmly provide our customers with our technological strength and added value in the form of products, and we will also achieve a speedy innovation pipeline that will lead to sales and profits. This slide shows the sum of the new products that will be the key to our success in 2025. This is a group of products that will give you the sense of the technological advancement we are proud of. Please look forward to core three and next five, the new products that will lead our growth. Next, please turn to page 21. At the action plan briefing at the end of November, we introduced the evolution of the global operation structure and building a global one team that leads substantial sustainable brand development. The Global Brand Strategy Department, which was newly established in January this year, and the Chief Marketing and Innovation Officer, Mr. Okabe, as well as the Brand Committee, which brings together the top brand managers of the core three and next five brands, as shown in the photo, will introduce monitoring and brand strength using common brand indicators, quickly identify growth opportunities and risks across brands, and build a system that can take quick action in response to market changes, while also promoting the resolution of common issues across the brands and strengthening functions and allocating investment. This system will serve as a platform for the entire company to expand its brand portfolio and develop new brands in the future. Next, let's move on to page 22, which is about regions. First, in Japan, we steadily implement Mirai Shift NIPPON and significantly improve profitability from the previous year. In Europe, we also achieved steady growth by implementing measures that clearly set up core brands, channels, and markets. This has led to improved profitability. In China, despite the challenging market environment, structural reforms implemented since 2023 have resulted in a reduction of fixed costs, including a decrease in headcount and the closure of unprofitable stores. In Asia-Pacific, growth and profitability improvements have been achieved despite the slowdown in major markets such as Taiwan and South Korea. Dr. Dennis Gross Skincare, which we acquired at the end of 2023, has achieved strong results above expectations, and PMI is progressing smoothly. On the other hand, the recovery of profitability and growth in the Americas remains an issue, and we will make this our top priority in 2025. We will also work to build a new growth platform that anticipates changes in China and travel retail.
Next, please look at page 23. In 2024, Americas experienced minus 7% in real growth rate and a significant decline in profit as well. The business performance is falling far below expectations, and we do feel a strong sense of urgency. In the Americas, the rapid diversification of values is accelerating market changes, with the rise of emerging brands further driving these shifts. We will achieve growth in the dynamically changing Americas market by strategically allocating resources across a diverse brand portfolio in response to these changes. Building on the sustained growth of the strong brand equity of NARS, this year, we aim for significant growth for the brand Shiseido through product innovation and expansion of open sale channels. Additionally, we will capture the expanding trend of scientifically backed high performance and multifunctional products in the American Skincare category through the enhanced investment in Dr. Dennis Gross Skincare. As for Drunk Elephant, despite fierce competition from other brands, we will work on rebuilding consumer brand engagement for future growth. By combining the brand's philosophy and product efficacy communications with product innovation, we will focus on acquiring new customers and expanding our loyal customer base. We will also accelerate our response to channel changes more swiftly and seize growth opportunities. Also, we will take early actions for cost optimization as well as fixed cost reductions. Please have a look at page 24. Both EMEA and Asia-Pacific businesses will focus on strengthening their already performing core brands. On top of that, in EMEA, we continue each year to concentrate our investment on a key product in the fragrance category. This year, we plan to launch an innovative new product from Zadig et Voltaire globally next month. In Asia, we will leverage the brand power and technological superiority of our number one sun care brand in Asia, Anessa, to drive growth, while also strengthening fragrances as a new growth opportunity. Also, as a foundation for future growth, we will focus on strengthening the Skincare category in the Middle East. NARS, which we began selling in India, started selling online last month through Nykaa, a premium beauty and wellness retailer in India. We will also expand offline sales and aim to be among the top five prestige makeup brands in India. Next, please have a look at page 25. For China and travel retail businesses, we have developed a growth strategy based on the assumption of a difficult environment. The key point of growth is strengthening organizational capabilities to quickly respond to changes in consumer trends and realize growth opportunities. We will advance the development of original contents locally through newly established brand holder satellite offices and enhance our social marketing and commerce operational capabilities through collaboration with external partners, increasing the impact of communication and investment effectiveness of core brands. To stabilize the market, we will accelerate the integrated operation of the China and travel retail businesses. For brand Shiseido, which faced growth challenges, we will restructure the product portfolio to respond to the polarization of consumption and work on stabilizing the business foundation while enhancing the prestige image. In China and travel retail, we are not setting overly ambitious growth targets, but rather prioritizing on strengthening the brands and concentrating our efforts on these activities. Next is page 26. For the Japan business in 2025, there will be no significant changes to the strategy, similar to 2024. With the execution of Mirai Shift NIPPON 2025, the sales ratio of the core seven brands has increased to the 60% range, and hero products are achieving very high growth, resulting in improvements in the product mix. As a result, the strategy is evolving as planned. From a profitability perspective, in 2024, we achieved JPY 28.1 billion in core operating profit with a core operating profit ratio of 10% level. In addition, the organizational culture of our Japan business is showing signs of change. We are committed to continuous self-innovation, questioning the status quo, and driving transformation. I am confident that instilling this momentum will lay the foundation for the future growth of our Japan business, building on the foundation established in 2024. In 2025, our entire organization will come together to take a further step in transformation, aiming to create a core operating profit of JPY 50 billion. This year, we have made significant organizational changes. With a focus on accelerating responsibility and authority delegation for rapid execution, we have established 19 Strategic Execution Units to operate in parallel. The organization has been streamlined from a multi-layered structure to a leaner and flatter one. Each leader now has a greater decision-making authority for resource allocation and is entrusted with clearer profit responsibilities, while also being given more authority at the operational level. Also, the design of our performance evaluation system has been adjusted to better reflect contribution to profit through individual evaluations and compensations. Furthermore, Executive Vice President Nakata, who brings extensive business experience both in Japan and overseas, has joined us, and together, we will lead a strong organization that delivers new value originating from Japan. Next is page 27. Regarding global cost reduction, we achieved the planned JPY 20 billion effect in 2024, and for 2025, we are confident in achieving the same target of JPY 20 billion due to the significant contribution of already implemented actions. Starting this year, CFO Ms. Hirofuji will directly oversee the initiative, and with an organizational structure focused on global cost reduction, we will begin new cost reduction efforts aiming for a steady achievement. Actions for realizing the JPY 25 billion effect in 2026 are currently underway, with completion targeted within 2025. We will announce the specifics when they are finalized and ready to be shared. As for each initiative, the scope, which was previously focused on Japan and China, has now expanded globally. In 2026, the Americas and global headquarters will make up a significant portion of the efforts. Additionally, our goal is to establish a strong top-down approach benchmarked against global competitors, aiming for profitability level at a level where all regions can compete with global companies. The initiatives that have been developed are progressing at a pace that will allow us to realize the effects of all measures by the second quarter of 2026 at the latest. Next is page 28. We are currently promoting the development of a competitive company-wide optimized production system and the optimization of the value chain at our factories. We are reviewing real estate, office spaces, and leases globally, whether owned or rented, and promoting efficient utilization. We have already implemented real estate rationalization, and we plan to take additional measures in the future. We will announce the specifics of each initiative as they are finalized. Next, please have a look at page 29. We have been working on evolving governance as a foundation to support the long-term enhancement of corporate value, starting with changes in organizational design. This year, we will continue to drive further evolution. Mr. Hatanaka, who has experience and a proven track record as a top executive of a publicly listed global company, has been appointed Chairman of the Board of Directors. We will further strengthen the separation of execution and oversight, aiming to enhance the effectiveness of the Board of Directors. Also, we will formally propose at next month's general meeting the appointment of Mr. Nakajima as a candidate for a new external director. As a certified public accountant with high expertise in the financial field, Mr. Nakajima's addition is expected to strengthen our oversight and advisory functions in the formulation and execution of our financial targets. In addition, we will also make changes to the executive compensation. By aligning execution compensation more closely with shareholder interests, we will promote the steady execution of our action plans and management focused on shareholder value. As an entire executive team, we are committed to delivering results that meet the expectations of our shareholders and other key stakeholders. Finally, at the briefing at the end of November, I declared that over the next two years, we will build an organization that steadily generates profits and drives growth despite the uncertain business environment, and that we will achieve a 7% core operating profit margin by 2026. As I explained earlier, this year's growth plan focuses on our key brands, allowing us to concentrate investment in the areas of growth. Additionally, the preparation for the launch of new products featuring our innovating technologies, which are one of our strengths, is complete, and we are confident in strengthening our brands. Over the two years of structural reforms, we will continue to invest in the core three and next five brands, strengthening the foundation for growth and ensuring growth is achieved. At the same time, by reviewing our brand portfolio, we aim to shift towards significant growth starting in 2027, with the goal of achieving even stronger growth. Regarding structural reforms, looking at the results, we have made significant progress by fully implementing the structural reforms in Japan and China, which has definitely improved the structure for generating profits in each region. In 2025, we will expand our focus globally and make tough decisions necessary to enhance our medium and long-term corporate value. We promise to fully implement a structure that ensures growth leads to profitability. In this uncertain environment, we will prioritize swift action, advancing with an act-and-deliver approach. United as a company, we will take on challenges and build a new growth framework for Shiseido. That is it with my presentation.
Thank you very much. Now, we would like to move on to question and answer session. Now, we would like to begin to take questions. Please raise your hand. Kuwahara from JPMorgan Securities.
Thank you for your explanation. Within 2025, you will execute everything that you need to execute, and that was a very powerful word. What is incorporating that, and how far are you prepared to do? Was it the JPY 3 billion? This is a recurring item that is also incorporated. In page 28, in relation to page 28, are there any items that we should be particularly paying attention to? Also in regards to the real estate as well, where does this JPY 3 billion come from? Is it also associated with cash? When we look at the structure, if you were to complete this by 2025, then 2026 and onwards, the lower part, then the core operating profit, will there be any significant negatives? Meaning that even into 2026, the SG&A percentage is calculated at 78%, 71%, and it looks to me a bit higher than the global. 2026 into 2027, am I correct to understand that the sales will expand? Also in order to make it happen, the cost, SG&A cost, will also be added or increased?
Thank you for your question. I would like to answer to you about the specific details about the non-recurring items. To be specific, this is related to structural organizational reform and also the selection and concentration of SKUs and brands. Reorganizing the brands is also part of it. Also the removal of some of the real estate assets is also part of it. We will use the external help to perform the structural reform. This outsourcing cost is also included. In 2025, the non-recurring cost will not be zero necessarily, but we would like to decrease it from the current level. The cash, other than the P&L, there's a JPY 23 billion additional. This is a little bit less than JPY 20 billion. As pointed out, as you said, the SG&A cost ratio this year, we would like to address it so that we will drive it down in the future. Also in 2026, 7% the margin to be achieved by expanding on the profit by growth. From there that point, we would like to drive more growth so that in future, the growth will also expand on the profitability. Our business is a high-margin business, so we would like to certainly drive further into growth.
Just for confirmation, going forward in regards to the real estate, the sales, is the number going to improve or however, are you going to work on the fixed asset more by looking into the factory assets and so forth? I just wanted to confirm your intentions on the real estate asset.
Yes, as a baseline, we are going to complete the structural reform deeply and thoroughly. Basically there will be improvement in both sides, meaning the cost and the profit. Thank you very much.
Thank you very much.
I'll do the next question.
This is Sato from Morgan Stanley. Thank you for your presentation. About the seller note, and that reminded me of something. About the final, the profit in the Americas, Drunk Elephant was surprisingly very bad. Is it just a delay in the performance, or what's the actual behind this bad performance? The goodwill of Drunk Elephant and the trademark, I think that's quite a big amount. I think it would be more than JPY 90 billion. But did that go into any of the, I'm sure there was some kind of production trouble as well, and therefore there's some impairment. Next year onwards, it might come back a bit, but to what level will it get stuck? Will it hit the impairment test? Now, maybe not to the cash risk to that level, but is there an area where we should be a little bit conscious of the ROIC that you look at? Do you look at the final profit in terms of ROIC, in terms of this whole story? Including this element, I would like to know about the North America situation.
We'll talk about the impairment in North America. As for the units of impairment, we look at it by region. We change the CGU unit by region. Drunk Elephant, in terms of Drunk Elephant, will there be impairment risk? No, not at the moment. But that said, the sales for Drunk Elephant or the decline in the sales of Drunk Elephant, we do see a sense of urgency. Regardless of impairment risk or not, we do need to recover Drunk Elephant. That's a given. That's something that we do need to focus on, and it's a very important part of our business management, especially in the Americas and the growth for the Americas as well as India. We need to recover for growth. For the business in the Americas, the North America, looking at slide page 23, slide 23. As for the Americas business, the market is really accelerating in diversification. That is how we see the market. The consumers, the customers are diversifying, but not only that, there's a lot of emerging brands, and that's stimulating further diversification, making it even more competitive. That's how we see the Americas market. As for Drunk Elephant, last year we did have a dip due to the production challenge, but not only that. In the second half, we did see a big recovery. However, we weren't able to capture or realize all the growth. The challenge here is the even more fierce competitive market, but not only that, we're not seeing enough of the impact from our investments. For this year too, last year there were many things that happened, so the hurdle has gone down for this year. But to that, we're not that optimistic, or we don't see this brand that optimistically. As for Drunk Elephant, as you see on this slide, the brand engagement, we want to build a brand engagement and the brand philosophy. What is this brand about? What does it do for me? That's something that we need to recommunicate with our consumers. Otherwise, recovery will not be easy. We see that as a challenge. With that in mind, the hero product or entry product innovation, we want to put a lot of efforts into this brand to rebuild and to recover. As shown here for brand Shiseido, we see a lot of growth opportunities. Myself going to travel to the Americas and seeing for myself that there's a lot of opportunities. Department store used to be the core channel, but finally we're seeing more things like channels like Sephora and Ulta, and we are finally ready to go into these categories such as Sephora and Ulta. We're not just going to go across all the categories, but we will look at more of the products that are focused on technology. For example, the sun care category with innovation or Benefiance. These kind of open sell channel we are ready to go into now. Any category that we can see that would sell in the American market, we would like to push forward. In this channel, what tends to be high in share is the Dr. Dennis Gross Skincare. Looking at the market this time around as well, it's more of the beauty medical care. There's a lot of elements that's growing in this category, and Dr. Dennis Gross Skincare is really in the center of this growing category. In the past, there was more of the peeling or the beauty devices that tend to be leading, but finally we're seeing more of a shift into the serious Skincare, which we can also invest more on. Yes, the market continues to change and is changing, but the portfolio we have here, how can we continue to shift quickly and make our investments so that we can look for growth? Portfolio management will be the driver for the American market. We want to ensure our growth in Americas market with these kind of strategies that we have mentioned.
Thank you. Next, the person to the right, please. Miyazaki from Mizuho Securities.
I would like to ask a question about Japan. I believe that there's been a great profitability improvement. What was the missing part? I believe there's a JPY 20 billion operating income, but there was an exceedance of JPY 8 billion, although the revenue was lower. The cost structure reform in 2024, it was added by JPY 5 billion to the original JPY 20 billion. What has increased so much? Can you explain? Also, the JPY 50 billion is a target for this year. What are the upsides? Where is it coming from?
Thank you for your question. First of all, about the top line. Inbound sales from our initial assumption did not recover so much, and the local sales has achieved our internal targets, but that part was the missing part. However, internal management has much evolved, and when we cannot expect the growth, we try to focus more on the profitability on a monthly basis. We do the cap closing. We operate in that way, and that style has taken root in our operation. When we look at the second half, if we don't do anything, then inbound will not reach our expectation. Therefore, we are trying to generate the profit even though the top line may not reach our assumption or target. That type of operation is now proving to be successful. Last year, the profit was JPY 28 billion, and the biggest part comes from the growth in the core brands. In addition, the hero SKUs had a lot of concentration in the top line, meaning that the profit generated by the trade increased. Also cost reduction is as expected. In the fourth quarter and onwards, we incurred the cost for the early retirement that is only effective on the fourth quarter. Also there's IT investment and also the sales promotion goods returns. All of these efforts have resulted in the profit of JPY 28 billion. For the next year, one thing it is clearly visible at this point is the 1,500 people, the early retirement is going to work for the annual, the numbers. This is going to be significant. Also in regards to the inbound sales, we will make the gross plan according to the realistic situation so that more profit will be generated. Also, as described here, other than that, the sales promotional goods are to be reduced, and this is going to show its effect next year. This will combine with other actions. JPY 50 billion, I think we should be able to achieve it with a high probability. There was a mention of the upside. Always we will look at the top line situation. If the top line seems to be tough, then we will then shift our action so that we will secure the JPY 50 billion level of target. There's no numbers I can share at this point, but by the accumulation of these profit-oriented exercises, we should be able to achieve the target.
Let me add to that. JPY 28 billion this time, I think it's a great result. Based on the performance of the entire company, there's the adjustment of the bonus, which is JPY 5 billion. There will be another one-off impact. Without that, it's going to be JPY 23 billion. That's one thing I would like to add. Having said that, we will work on the core, concentrate on the core, and select and concentrate the SKUs. We have increased the margin by 1% and the gross margin by 1%. Certainly we are on a growth track.
Thank you.
Moving on to the next question, the person to the right.
Could you tell us more about Japan price increases and the e-commerce plan for this year? Thank you.
In case of the price increase, we also have a brand in these years as the same as the last two years. We already announced for the market. We increased the price in April, and mainly for the brand Shiseido or the Clé de Peau Beauté , those brands. Secondly is e-commerce. E-commerce is made for the great growth around for the more than 20% of growth last years. E-commerce mix is also increased around for the 15.5%, maybe 2 point better than for the previous years. We really see to which brand is having more opportunity to grow, but some of the brand, it's very difficult to do that. According to our research, like a brand Shiseido can achieve around for the 30% or more than 30%. But in case of the Elixir, it's such a more drugstore brand, it's very difficult to achieve to the 30%. We are really thinking about that to the how increase of the OMO, not just for the e-commerce ratio. That's a current strategy of the Japan market. Just to add on with regards to the price increase impact for 2025, we are seeing globally assuming around JPY 10 billion, out of which less than half of it would be coming from Japan. We have built confidence from last year's price increase achievements. This is contributing, continues to drive consumer, new consumer acquisition, and hence we are confident that this will also be contributing to the profit increases in Japan as well.
Next person to the right.
Thank you for your briefing. Kamoto from Jefferies Securities. I have a question about the fourth quarter in China. You made a 5% growth, and you explained about your strategy on the Double 11. In 2025, in page 25, the product portfolio was also mentioned, and I believe that you would start from brand Shiseido first and for Chinese market, AUPRES and RIFRI and other global markets. How are you going to work on the mass market going forward? That's my question.
About the mass market in China, AUPRES is still high in price in comparison to the mass market pricing, and a Chinese local brand is in competition. Price-wise, we don't have a brand to be able to compete with the China local brands, and we would like to strengthen our brands where we can compete. With that backdrop, we're going to break down the Skincare and looking into the subcategories and the lotions. Now the price is going down, but the cream, essence, and eye care, there's a trading up, and also the prestige brands are growing. These categories, as far as China is concerned, we will look further into more detailed specific segments of the product. The fourth quarter, you turned to growth, meaning that to be more conservative, do you still have some uncertainty? Even in the global comparison, I think your performance was doing well. As far as the fourth quarter is concerned, one thing we need to consider is that a year ago there was an impact of the treated water, and the actual hurdle was lower. That's one thing we have to bear in mind. On the other hand, when we look at the overall market, the fourth quarter, I believe that we are showing the number one growth in the segment, and rather than the market, we are moving in a better form than the market itself. We have a tangible feel that our business is improving. But as far as this year's is concerned, for the first half, there is an impact of the hurdle from the previous year, and also the first and second quarters, we are looking at Chinese market rather conservatively. Thank you.
We have two questions from online participants. Daiwa Securities, Hirozumi-san.
Hi, this is Hirozumi from Daiwa. Can you hear me? Yes. Thank you. One question. EMEA and Americas, the structure reform. What kind of things do you have in mind for the reform of the Americas and EMEA? The Trump, President Trump, I don't think that's much impact, but NARS, is that Americas? I'm a bit concerned about Americas and EMEA. How do you, what are you planning to do to recover for this year? What's about NARS? And fixed cost.
As for growth in Americas and EMEA, brand portfolio. We will manage the brand portfolio to make sure that we can capture growth. As for NARS, there was a minus last year, but this year we don't see a negative from the production. Last year in Q4, from Q4 of last year, we are seeing a solid recovery in terms of the brand NARS. As NARS is shown here, we do assume that we can capture the growth with profitability. For the structural reform of Americas, we will reduce the fixed cost. That's something that we will do to. There's SG&A, there's the personnel cost. Within the growth that we have, we want to make sure to reduce the fixed cost so that the Americas business can be a more profitable structure. That would be the key component of this. As for the tariffs. As for the tariffs, yes, we do see some impact of the tariffs to the finished products, but we do feel that it's very minimal. It's not big. As for the tariffs, we have done multi-sourcing, but to multi-sourcing, we will look at more of the local sourcing. We have done that in the past to shift to local sourcing in the U.S. I think we can minimize the risk of the tariffs, but we will watch and monitor closely of the situation. Americas forecast for this year, I think it was in the lower second to double digits. Americas increase in profit. This is also looking at last year's situation. We had a unique situation last year. First of all, for Drunk Elephant, for the first half, there had been an out-of-stock situation. At the same time, NARS too had been hit by the decrease in production. The hurdle for this year is lower. But as mentioned earlier, as for Drunk Elephant, just because the production is back, we're not going to immediately grow the sales. We need to rebuild the brand itself. For the first half of the year, we will solidify the brand Drunk Elephant, and we will make our efforts around that.
Thank you very much.
We have five more minutes, and there are two people raising hand who are joining us online. Miyazaki-san from Goldman Sachs.
Miyazaki from Goldman Sachs, thank you for your explanation. My question is about China and travel retail. Last year, the pricing tended to move more towards the lowest pricing. This year, when you look at Chinese travel retail, there's an assumption of the top line and the profit. Are there any homework remaining in terms of the pricing, and is it still remaining as a prolonged effect, or so that's why you are showing this number or the assumption for 2025? Am I correct to understand in that way? You also explained about the brands.
Between online and offline, which is going to be more of a focus in terms of marketing cost or marketing investment. The channel-wide strategy is something I would like to know about. First, thank you for your question. First of all, about the pricing. We, as part of a promotion with some rules, carrying on with some promotion. In regards to the travel retail, there was the thing called Daigou. As shown here, the travel retail, we would like to capture the sales by the travelers. But Daigou sales will be controlled. That will be carried on into this year as well. We made a plan with some rules in our mind so that we can make the healthy growth for the future into 2025 and 2026. Also the market situation, the market itself overall is much sluggish. In the market itself, I wouldn't call it a shrinking, but it is becoming slightly smaller. That's our assumption. But with that as a backdrop, it is not about the entire prestige segment. There is still room for growth, but market in itself, we are not looking at it in an optimistic way. Lastly, about the channels on and off, to be honest, with the offline, there will still be some adjustment to be underway. When we think about the number of the stores, the department stores, the number is still high. We will look at closely into the top line profitability growth and to refresh and revisit the offline outlets. Also how to localize the communication is another key using the social network so that we will build the capability to communicate and reach to the consumers. We're not simply thinking about e-commerce, but we will look at the social commerce so that we will create the content that is suitable to the market to reach to the targeted customers. That capability is increasing, so we would like to further enhance that capability because we think that will be the growth driver for the future.
Thank you very much.
We will take one last question. From online, Hyogo-san.
From Mitsubishi UFJ Trust Bank, my name is Hyogo. Thank you for your presentation today. I have one question. On page 29, what you think of for the compensation for the remuneration? Maybe I'm just lacking the knowledge. The reason why you're focused so much on the relative TSR and ROIC as a metric, I think you've had that in the past with the investment efficiency. I do understand the ROIC as being part of the metric, I understand. But in terms of the sales, if we think that the sales will be taken away as part of the metrics, why would that be? How was sales, I suppose, seen in the past?
This relative TSR is more for the shares. Some parts of it, I think, is uncontrollable. However, you put a lot of weight in this relative TSR, and I wonder why. It might be just lack of my knowledge, but if you can teach me what this is about, that would be very helpful. As for the remuneration of the directors and corporate executive officers, this is about the LTI, the long-term incentive type remuneration. As for that, we have brought in new metrics of the relative TSR and the ROIC. At the same time, or on the other hand, our bonus, annual bonus payments, that will be captured as an economical metric. We didn't want not to overlap the bonus to what is considered in this LTI. That's how we've set the KPI. For the TSR, for relative TSR, if you can see, the weight is 50%. Yes, the TSR, rather than the results TSR, you might think that it's ideal that the ROIC weight should be heavier or bigger. However, looking at the past two years, the ROIC target, unfortunately, has been lower than the WACC level. It's been lower, the standard of ROIC has been lower than the WACC level. That's due to the share performance not being so great. Also, in order to drive the share price, we have put a lot more weight on this, which seemed to make more sense in order to drive the share price as well. But to your point, we understand that point as well, and that's very clear. I think that is something, to your point, that's something that we will continue to consider.
Understood. Thank you. I hope it all becomes 100% so that everybody gets paid out 100%. Thank you.
Thank you.
This concludes the Q&A session with this. We would like to conclude the debriefing.