I will now explain our 2025 financial results. First, on page three, I will explain the key points of our 2025 financial results and 2026 outlooks throughout this past year. Our business has focused on improving both our revenue structure and capital discipline, establishing solid financial foundations capable of consistently generating profits. The numerous initiatives we have implemented are now yielding results. While we remain on an improvement trajectory, tangible changes in the quality of our business are evident. Crucially, these improvements extend beyond cost reductions and are beginning to enhance capital efficiency. We will continue our management efforts to achieve both sustainable growth and improved capital efficiency. For FY 2025, Core Operating Profit reached JPY 44.5 billion, with a core operating margin of 4.6%. Despite a revenue decline environment, the results exceeded the initial plan of JPY 36.5 billion due to the steady execution Structure Reform and cost management.
This marks the first time in our four years that we have met our initial plan. We recognize this as a step forward in terms of strengthening financial discipline and improving the stability of our performance. Free cash flow also improved significantly to JPY 66.5 billion, driven by improvements in working capital and a review of capital expenditures. Sales momentum recovered in the second half, and the full-year results were largely in line with expectations. Our focus brand led overall growth, with a +4% real growth rate in the second half. Market share expansion is progressing in Japan local, China, and Asia-Pacific. While the Americas business faced challenges in the fourth quarter, the China and travel retail businesses are showing steady recovery trends.
For FY 2026, we target a core operating margin of 7%, capital efficiency metrics ROIC 5%, ROE 7%, and free cash flow of JPY 50 billion. Amid ongoing business uncertainty, we will prioritize flexibility and speed, simultaneously driving sales and profit growth through innovation while improving financial metrics. This year, we will see clearer progress in capital efficiency improvement, marking a crucial year as we advance to the next growth phase. Based on this improvement of cash generation and the progress in financial discipline, we plan to increase the annual dividend for FY 2026 to JPY 60 per share. Page four outlines the full-year outlook for 2026. We anticipate significant year-on-year improvement across all metrics. We include an estimated JPY 10 billion in expense this year as we implement structure reforms, including optimizing production logistics systems and office operations. We will now explain the key points for each item.
Page five covers the core operating profit outlook. The business environment surrounding our company continues to be characterized by numerous volatile factors, including geopolitics, market trends, and exchange rates. Amid this, we will continue focused investments in key areas, firmly capture the improving momentum seen since the second half of this year, and achieve sales growth. Strategic price revision will continue in FY 2026. Regarding the effects of structure reforms, since actions were implemented in FY 2025, the realization of JPY 25 billion in effects is assured. In addition to these factors, we factor in wage increases, reflecting global inflation, and tariff costs, projecting core operating profit of JPY 69 billion, representing 7% operating margin. We anticipate FY 2026 will be a year of potentially shifting assumptions. We will heighten our sensitivity to the change, identify risk early, and adjust our approaches as circumstances require to achieve our targets.
While the extent of the impact of the deterioration in Japan-China relations remains uncertain, our plan incorporates this impact through the first quarter. Therefore, we plan for relative improvement in the second quarter and beyond compared to the first quarter. Next, on page six, I will talk about strengthening cash generation capability. Our 2030 mid-term management strategy established a robust cash generation capability and a clear cash allocation priority: growth investment, debt repayment, and dividends. Progress aligned with this policy is already evident in our results. Free cash flow, excluding acquisition-related expenditures, significantly improved from FY 2024 to 2025, reaching JPY 66.5 billion. This improvement was primarily driven by enhanced profitability, strict inventory management, and working capital optimization. We will continue to strengthen investment discipline in FY 2026 to maintain high cash generation capabilities.
The ratio of capital expenditures to sales decreased from 5.1% in FY 2024 to 4.5% in FY 2025 and 4.0% in FY 2026. IT investment has been completed, and we will discipline our allocation of resulting free cash flow to dividends and interest-bearing debt repayment, and thoroughly prioritizing and scrutinizing necessity based on the return. We will continue to achieve stable free cash flow growth going forward. Next, regarding dividends. Over the past four years, the execution of our action plan has yielded results exceeding our plans for both core operating profit and free cash flow. Alongside this performance improvement, our confidence in the financial outlook for the future has strengthened. This dividend increase is not based on the short-term performance and fluctuations. It stems from our judgment that stable shareholder returns over the medium to long term are achievable through the improvement of our business foundation.
Growth investment remains our top priority, and we have no intention of implementing shareholder returns in a way that compromises this capacity. We position this dividend increase as one of the decisions, demonstrating our transition to management that balances growth and returns. Next, regarding capital efficiency improvement. While both ROIC and ROE were significantly negative this period due to goodwill impairment in our Americas business, we anticipate substantial improvements in FY 2026 through profit recovery and enhanced asset efficiency. Beyond profit improvement, we have been working to enhance asset efficiency through rigorous investment discipline and reevaluating the utilization of held assets. Going forward, we will also focus on improving global operations. To ensure these initiatives are not temporary but become deeply ingrained throughout the organization, we are introducing ROIC as a key performance indicator for evaluation, starting with management. Next, page nine, we explain the actual results.
For FY 2025, sales were JPY 970 billion, with a real growth rate of -2%. This was slightly below the sales outlook communicated in the third quarter, primarily due to changes in our Americas business. Core operating profit was JPY 44.5 billion. Growth in our key brands improved the product mix. While enhanced company-wide cost management and Structure Reform effects significantly contributed to an increase of JPY 8.2 billion. Non-recurring items included JPY 73.3 billion in expenses, with the fourth quarter containing costs related to the voluntary retirement program at the global headquarters. Free cash flow increased JPY 101.18 billion, driven by improved profitability, working capital optimization centered on enhanced inventory management, careful capital expenditure review, and the reaction to last year's acquisition-related expenditures. Next, on page 10, core operating profit. First, COGS was 23.3%, an improvement of 0.6 points from the last year.
Although the production cut back from Double 11 impacted costs, a large excessive inventory write-off allowance last year was reduced, and brand and SKU mix improved. The marketing investment ratio increased 0.7 percentage points to 29.3% as we continue to invest in key brands to strengthen our brand foundation and accelerate growth. Personnel expenses decreased by JPY 11 billion year-on-year, 0.6 percentage point improvement in composition. Following Q3, there was an increase in bonus provisions in Q4 compared to last year. However, this was outweighed by the effect of restructuring in Japan, China, and travel retail in the Americas, resulting in significant improvement in the personnel expenses ratio. Other SG&A decreased by JPY 8.5 billion, reflecting the positive impacts of Structure Reform in the Americas and company-wide cost management.
As a result, we have redirected the reduction in fixed costs, primarily personnel and other expenses, to marketing investments aimed at accelerating future growth, improving margins, and creating a P&L structure that is more resilient to profits. Next, page 11 shows sales trend by region. In Q4, sales increased by 1%. In Q3, there was a significant increase due to the impact of advanced shipment in China and travel retail and low hurdles in Europe. Smoothing these factors out, the sales increased by 2% in the second half, with our focus brand driving growth at +4%. The Americas continue to struggle in Q4, and we will quickly address this issue. However, overall, we believe momentum is steadily improving in the second half. Next, on page 12, explanation of each region. First, Japan.
While the number of Chinese tourists has declined since December, slowing the inbound market, local markets continue to experience moderate growth. Regarding the customer purchase, local key brands continue to grow and expanded our market share for three years in a row. E-commerce also grew steadily. New products from key brands continue to drive growth in Q4. The Shiseido brand, new Ultimune, which was relaunched in the first half of the year, continued to grow strongly. The Shiseido powder, launched in September, and the Elixir Wrinkle Cream, relaunched in September for the first time in two years, both performed well. While inbound sales remained challenging, Elixir and IHADA brands performed well thanks to the success of strengthening the digital advertising targeted travelers. We will continue to seek growth opportunities and allocate investment in line with the market environment. Core Operating Profit increased by JPY 13.1 billion.
Gross profit margin improved through brand and SKU selection and concentration. Structure Reform, such as reduced personal expenses and more efficient marketing investments, contributed to a 4-point year-on-year improvement in margin to 13%. Next, page 13, China travel retail. While price competition due to discounts remained intense during the Chinese Double 11, the overall market grew, led by prestige brands. Chinese consumer spending continued to grow at a low single-digit rate. Our growth outpaced the market during Double 11, primarily driven by e-commerce, and we also expanded our market share. Clé de Peau Beauté and NARS maintained strong momentum throughout the year. Shiseido, which turned positive in Q3, accelerated growth in Q4. Mainland China posted positive growth in Q4 and full year. While the travel retail market remains challenging, signs of recovery are emerging in Hainan Island. Our customer purchases fell in the mid-teens, but the decline narrowed.
Meanwhile, net sales remained positive for the two consecutive quarters. Healthy inventory levels are maintained, as we will continue to manage them appropriately. While net sales declined year-over-year, they exceeded our initial plan, and we expect a recovery trend in the second half. While the deterioration in Japan-China relations impacted some customer purchases in December, the impact on sales in this period was limited. While marketing expenses increased in Q4 in preparation for Double 11, we managed to limit the decline in profits throughout the year through Structure Reforms to reduce fixed costs and cost management. Core P was JPY 64.5 billion, and the profit margin was 18.7%, maintaining high profitability. Next, on page 14, the Americas. Customer purchases were down by a high single-digit percentage. In addition to negative impact from Drunk Elephant, which underwent inventory cleanup in preparation for its rebranding in 2026 .
Dr. Dennis Gross Skincare also saw a decline due to an increased competition from low-priced products in the core products. Meanwhile, Clé de Peau Beauté's base makeup continued to perform well. Core P was a loss of JPY 11.6 billion. The decline in profits due to lower sales, the impact of tariffs, and worsening costs resulting from sluggish Drunk Elephant sales was largely mitigated by Shiseido's Structure Reform and cost management, including personnel costs. Next is page 15, covers Asia-Pacific and Europe. First, Asia-Pacific region. While Taiwan, our largest business in size, continued to experience a decline in Q4, other Southeast Asian countries and regions recovered, resulting in overall growth. Customer purchases grew strongly thanks to the launch of major new products of Clé de Peau Beauté and NARS Elixir. Especially, Elixir has achieved rapid growth thanks to our successful and effective channel expansion strategy, which strengthens self-sales channel, including e-commerce.
The scale is still small, but we expect sales to grow going forward. Core operating profit also increased. In Europe, the growth was driven by fragrance, particularly Zadig& Voltaire, as well as NARS' new brand, The Multiple. The core operating profit increased by JPY 1.3 billion. Next, page 16 shows the progress of global cost reduction and structure reforms. We achieved cost reductions of JPY 27 billion in 2025, exceeding the initial plan of JPY 25 billion. Furthermore, the structure reform we undertook in 2025 was expected to steadily contribute to our performance in 2026. However, to achieve our financial targets for 2030, it is essential that we promote cost efficiency more deeply and broadly. We will accelerate optimization with an eye on the entire value chain and build a stronger business structure. 2026 will be the very critical year for implementation. Thank you for listening.
That is all from me. Now, Fujiwara will deliver the result of 2025 and plan for 2026.
For Shiseido, 2025 was not merely a year of Structure Reform. It was the year we completed the most critical foundation for future growth. We implemented painful reforms and worked to transform our organizational structure and corporate culture into a company that delivers results as one team. The results are reflected in the numbers. Today, I will share two points: how the management reforms we've advanced over the past two years have built a management foundation equipped with profitability and structure, and how we achieve strong growth in 2026 based on this foundation. First, regarding the transformation of our business structure, our excessive reliance on the Chinese market has been steadily and irreversibly corrected, as intended.
Despite challenging conditions, our China travel retail business has steadily strengthened its profitability through cost structure reforms, maintaining high margins. We are now positioned to translate future market recovery into sustained profit growth. Furthermore, in Japan, Europe, Americas, Asia, and at the global headquarters, we have significantly improved profitability through the correction of high fixed cost structure and through cost efficiency. As a result, we are now transitioning to a more globally balanced structure in terms of both sales and profits. In 2025, despite reduced profits in China and travel retail, we achieved robust profit growth for the entire group, driven by increased profits in other regions, particularly Japan. We view this as clear evidence that original diversification has begun functioning not merely as a risk mitigation, but as a device for stable profit growth. Next, the brand portfolio.
Under a policy concentrating management resources on key brands, the sales contribution of core and next brands expanded from over 60% in 2021 to over 70% in 2025. Crucially, many of these brands significantly outperformed the group average in profitability. We are now entering a growth phase where sales scale, expansion, and profitability improvement will be achieved simultaneously. Next, regarding productivity. Through optimizations implemented in Japan, China, and the Americas and global headquarters, we have significantly reduced headcount while maintaining sales scale at approximately JPY 1 trillion. As a result, sales per employee have greatly improved. This is not a temporary cost reduction, but a transformation into a lean and mean organization that supports growth over the medium and to long term. We have been reborn as a lighter, stronger, and faster organization. Asset-light is progressing as well.
Domestic real estate holdings were reduced approximately 10% compared to 2021 through sales and consolidation both domestically and internationally. Furthermore, beyond Japan, we have implemented measures overseas, including the consolidation and the closure of innovation centers in China and Asia, as well as reduction and relocation of office space in the Americas and Europe. These initiatives are critically important for transforming a mindset toward capital efficiency and embedding this culture throughout the organization. We believe we will continue to deliver sustainable impact. 2026 is not a year of reform, but a year to reliably deliver growth. The robust brand portfolio enabling this growth has been built through our past reforms and investments. We are ready. This year, we plan to launch 20% more new products into the market than last year, with an expected increase in sales volume of 20%.
This represents not merely a numerical increase, but a domestic expansion and a total value we deliver. First, our core brands serve as the global engine. We will continuously refresh our globally recognized hero products to earn strong loyalty, making customers think this brand is the only choice. We will also maximize brand communication power, starting with our global ambassadors to gain recognition and support from the next generation of customers, and then the next brands to accelerate growth. We will intensify investment in these brands to seize overwhelming winning opportunities in specific categories. Armed with each brand's unrivaled confident science, we will deliver value that exceeds customer expectations and reshape the market landscape. For Drunk Elephant, we will ensure a complete turnaround through rebranding initiatives. I will now explain the strategic direction for each brand.
For Shiseido, in 2025 in Japan, we will achieve robust double-digit growth exceeding the market, with approximately 20% growth in the second half. China and travel retail also turned positive in the second half, while Europe and the Americas remained flat compared to the previous year in the second half. By 2026, Shiseido will reaccelerate its growth as the brand that most embodies the common engine for winning globally. First, we will continuously strengthen our hero products and lines. We will continue to introduce innovative products across three lines: Ultimune, Vital Perfection, and Future Solution to elevate them into globally recognized brands purchased by name. Next, we will maximize brand communication power, starting with our global ambassadors. The appointment of our new ambassador, Lisa, announced yesterday, will dramatically expand our touchpoints and engagement with next-generation customers, positioning us as a global leader in the slow-aging category.
The appointment of our new ambassador. Furthermore, we will rigorously pursue a strategy to precisely capture regional growth and opportunities in Japan and Asia. We will further expand market share by leveraging our strengthened makeup category, including the popular foundation serum. In Europe and Americas, we will continue growth by capitalizing on the high recognition and trust in sun care products. In China and travel retail, we will leverage the effects of Structure Reform to reliably capture the recovery phase starting in the second half. That's Clé de Peau Beauté. Last year, driven in part by the renewal of our skincare line, Key Radiance Care, we achieved double-digit growth in the second half in China travel retail, Asia-Pacific, and Europe. In Japan, despite headwinds from the inbound tourism, we maintained steady growth locally and strengthened our loyal customer base, demonstrating remarkable resilience amid intense market shifts.
Clé de Peau Beauté will continue evolving this year into a brand consistently chosen in the luxury markets by launching new products featuring cutting-edge technology. Deepening the brand's worldview centered around the global ambassador is the key. Nicole Kidman's brand expression captures the hearts of luxury customers further elevating the brand's iconic status. Next is NARS. Last year, NARS achieved double-digit growth in the second half in China travel retail and Europe. It also achieved 3% growth globally, driving company-wide growth. At the November briefing, I stated that we plan to launch the largest-scale new products in the brand's history in 2026. On the right center right picture shows the very new product, Natural Matte Longwear Foundation. In the makeup category, foundation has a market size far surpassing that of the lipsticks and blush.
With these major new products, we aim to strengthen our global leadership in this category and leverage the halo effect to reinforce our core areas. Furthermore, by appointing a new global ambassador, we will work to expand our target audience and increase engagement. Let me explain about next brands. Elixir continued to grow strongly in Japan last year, renewing its number one ranking in skincare sales for the 19th consecutive year. In addition, growth in Asia-Pacific and Asia is accelerating, with growth exceeding 30% in Asia-Pacific and double-digit growth in China and travel retail. This year, we will continue to enhance the brand's core technology, collagen science, and aim for further growth by relaunching our flagship brightening lotion and emulsion products and expanding our open sales channel overseas. Next, I will talk about ANESSA.
ANESSA will evolve further as a brand best positioned to transform market structure changes in the UV rays domain into opportunities. Our smash hit Brush- On Powder was originally a limited edition, but due to overwhelming demand, we've decided to launch it nationwide starting February 1, 2021. This year, we will also be launching a daily series perfect for everyday use, a mass-priced mini size in our first ANESSA Men, aiming to expand target audience. Next is an exciting category of fragrance. Last year, new products from Zadig& Voltaire contributed significantly to growth, driving overall fragrance growth of 6% in the second half. As China and travel retail bottomed out, we achieved a strong 12% growth. This year, each brand is preparing powerful new products, and Max Mara will finally launch a product in the second half this year. So Dr.
Dennis Gross Skincare faced a challenging environment last year, particularly due to increased competition in the hero, peel, and LED mask categories. However, this year, we aim to steadily return to growth by focusing resources on carefully selected product launches and partnering with retailers. Next, Drunk Elephant. As previously explained, in preparation for this year's rebranding, we prioritized inventory optimization and cost reduction last year, and both efforts were progressing smoothly. Starting in January, we launched a new campaign aimed at our core target demographic, further deepening trust with existing customers and expanding our reach to new customers, strengthening the presence of our core products and accelerating growth. Please check out our Instagram and others. While leveraging the strengths of our existing products, we have completely rebounded our marketing strategy.
We are creating a new worldview by shifting our brand communication to focus more efficacy and value, enhancing our brand value through multifaceted activities, including strengthening our social media and online presence, revamping our in-store visuals, implementing media and creative initiatives. We have already received significant media exposure and positive feedback from retailers and feel confident our new strategy is working. We will continue to work rebuilding our brand so that we can have more concrete results in an upcoming financial briefing. Next, let me talk about innovation. Our mid-term management strategy stated the rapid transformation of our in-house technology into value with scale as core of our growth. Between 2026 and 2028, we will incorporate more than eight, 10 cutting-edge technologies into our core brands and across the brands to establish a growth model that leverages economies of scale, and it should not be just a temporary hit.
Last year, we incorporated seven core technologies into new products, winning numbers of awards and contributing to sales growth of each brand. The key reason for our confidence in our growth for FY 2026 onwards is that our proprietary technologies will not be limited to a single hit, but will maximize the scale within the entire group and establish a winning formula that will generate sustainable, not temporary growth. Serum First Technology is a symbolic example. This is an innovative technology platform that overturns the conventional concepts of makeup by enveloping foundation ingredients in serum and continuously permeating the skin contacting surface with serum. In 2023, we simultaneously adopted this technology to MAQuillAGE and Shiseido brands with different customer bases to benefit from economies of scale that allow us to dominate the market. Growth continued in FY 2024 onwards.
Through consistent technology-based communication, we have maintained high sales even in the second year since the launch. Last year, we rolled this technology into new products as well, elevating it into a brand asset. In the next midterm management strategy commencing 2026, we will use the success story into the model and the powerful technologies into the market. So in FY 2026, we have completed preparations for cross-border deployment of 5 robust cutting-edge technologies, which we call second and third Serum First Technologies. Make sure to have the highest probability to capture a great hit, fully utilize the knowledge we gained in the past successes, which technology went and to which brand to optimally adopt. By deploying technology across our company-wide portfolio rather than relying on specific brands, we will implement total more than 10 cutting-edge technologies between 2026-2028.
We accelerate the cycle of efficiently converting R&D investment into profits. Rather than simply launching new products, the core of our growth scenario of 2026 onwards is expanding our proven success model. Technology strengthens brands, and brands scale technology. We will achieve sustainable growth in corporate value by continuing this cycle. Our approach of deploying strong technologies across brands and directly linking them to sales and profits has already yielded. So you can see the best cosmetics awards. In this is the proof of this. While our wins in the past were unstable, the tides have completely changed since we changed our strategy in 2023. Dominating number one for three consecutive years, we have solidified our market dominance, achieving the triple crown for three consecutive years. Our technology is no longer a temporary fad. It has now become a market standard.
Our innovative technology leads to authoritative recognition, which in turn directly leads to consumer trust and purchases. This revenue acceleration cycle is a mechanism that maximizes the efficiency in turning our innovations into profits. We will further upgrade this unbeatable approach. We are confident that five cutting-edge technologies to be introduced will once again dominate the market appreciation and lay a solid foundation toward 2028. Next, our progress in creating sustainable social value, the ratio of women managers, an important KPI for people's strategy, is steadily progressing toward the 2030 target of 50%. Toward achieving our midterm management strategy, we have recently formulated the Shiseido Way as a guide for each employee to behave, including the values and mindset we cherish. By sharing and instilling this Shiseido Way, united as a group to create a new value and realize our 2030 vision, even amidst significant market changes.
For the society part, advancing gender equality and fostering a sense of self-efficacy through our business activities, thereby enhancing our brand value and creating social value. For the environment part, progress made to reduce environmental impact by achieving a double A rating from CDP, accelerating efforts on the sustainable packaging and containers, and strengthening raw material traceability. Next, our board of directors structure. We have selected three external directors candidates. Of course, that will be discussed at the next month's AGM, Mr. House and Mr. Nakata and Ms. Kaneko. By further enhancing the diversity of our board, including CEO experience in B2B business and global companies and M&A experience expertise, we will improve the effectiveness of the board and enhance our corporate value. 2026 marks the first year of the 2030 midterm management strategy.
Despite the uncertain external environment, our reforms have made our regional and brand portfolio stronger and more balanced, and our management foundation more efficient and flexible. Based on our enhanced financial discipline, agility, and accountability, we will solidly achieve our FY 2026 performance targets and move forward toward 2030 goals. Please look forward to Shiseido's sustainable growth in the future. Thank you for listening.
Thank you very much. Now, we would like to go into a question-and-answer session.
Thank you very much for your briefing. My name is Kuwahara from JP Morgan Securities, and thank you very much for your explanation, including cash flow. I appreciate very much my question. I'm looking at page five and would like to understand better about the 2026 outlook. First of all, as Mr. Fujiwara also said, there will be extensive innovation in place, but unfortunately, only 3% is expected for growth. What does it mean?
At the time of the midterm business plan, there was a talk that the plan will be outperformed by 2%. Maybe there's China-related matters or the first quarter impact. I would like to ask you about the background. Also, on page two, if there's the increase of JPY 20 billion in the revenue, then the margin of profit should also increase a bit further. Is it offset by inflation? I find it rather disappointing because you are increasing the revenue so much, and yet the profit is not growing as much. What is the structural background of this?
First, I would like to explain about how to look at the market and about the numbers and the structure. Ms. Hirofuji will explain after me.
So in regards to this year, there will be a lot of new launches, and we have high expectations of them. On the other hand, based on a reflection of our past, there's uncertainty in the market, and we have to take it objectively. In regards to the travel retail, we will continue to try to attain the quality growth. We will try to reduce the inventory. And for China, we will control the unofficial or irregular sales. And so we have to do more for that. And so in other areas, we will, on one hand, aim for high growth, and there's an offset. And about 3% growth seems to be the solid achievable target. That's how we think. And for Japan as well, there's the deceleration of the inbound customers, and we have to take that into consideration. So 2026 is not everything, really.
In order to secure the growth towards 2030 in our midterm pathway, we will increase the sales. Instead of jumping onto the short benefit, we will look at the long term in the future.
How the profit is structured, certainly there's an impact of the inflation due to the salary increase and the cost increase. There are the salary increase, which was not done in 2025, will be done in 2026. Therefore, this actually offsets the growth factor. Yes, certainly, you can say that unmistakably. On the other hand, the marginal profit increase, with the price increase, we will leverage on the price increase, and the impact will be, roughly speaking, JPY 10 billion. On the other hand, there will be an impact of either volume or the limitations. This JPY 10 billion doesn't work directly onto the profitability straightforward.
So then on page five, there's the JPY 10 billion impact or effect of the price increase. It's included in the marginal margin and price increases. And so this means that there will be some decreasing items. So that means that the cost structure and also the fixed cost impact will be present, therefore, or surfaced. That's why the margin is affected. So the JPY 10 billion is not directly described here. And the net-to-net comparison, the contribution margin price increases box is structured. Okay, so basically, it is the box below this JPY 10 billion then.
Okay, thank you. I would like to confirm one more thing out of the inflation impact, the cost management from 2025. There may be a repercussion from the cost management from 2025 into 2026. So are you going to spend JPY 10 million for cost structural reform? And so I suppose you cannot mention the actual numbers, but what about out of the 3% improvement, to what extent can you improve? So the inflation impact, I don't think it's going to go into 2026, 2027, 2028. So can you dive into that point?
So quantitatively, I cannot deliver the exact numbers, but out of the inflation impact, the bonus impact, I would say half of it is from the bonus. And therefore, it is not directly translated, but yes, half of it, you can think of the impact of the bonus. Thank you.
A man in front?
Goldman Sachs, Miyazaki speaking. Thank you very much for your explanation. So from the China business, I have a question about China business. So the first quarter, you've already anticipated Japan-China tensions. So the Chinese government is also sending the message not to visit Japan, right, for their Chinese citizens. So FY 2025 ending, to what extent you had an impact, like online, offline, or travel retail, or inbound sales in Japan, what was the implication? And you were watching the trend until January this year. And how you decided to incorporate that impact into the first quarter of FY 2026?
So impact was begun in December last year for mainland China. Double 11 just ended. So in terms of the last year's result, a little impact on December because December normally is rather small, so not really a significant impact on the FY 2025 earnings. But in January, travel retail, naturally, the inbound tourists are declining. So the travel retail Japan impact is imminent. But however, if we take a look at the details, the reduction of the tourists is equal to the negative result in the sales.
Or rather, the investment is now shifted from, or in other words, some travelers from other regions, other than China, those purchases are quite vigorous. And some of the Chinese travelers are visiting Hainan Island. So Hainan Island's sales are growing. So it depends on where the travelers are, and we need to capture the opportunity. In that case, we will be able to mitigate the impact to some extent. So the next, Mainland China. So because of the overall directive from the government, so like a KOL, promotions are slightly canceled. And at the end of last year, we were planning for the January new products launch to be ready in February, but it was canceled. So it was a little postponed for such a campaign in February. So that is visible in terms of the negative impact. But how long does it take?
It is difficult to foresee, as I mentioned, same as these travel retail initiatives. Somewhere, if there is any kind of dips, we can find some other opportunities. We need to offset such negative impact in some mainland China business.
In terms of our impact, China travel retail inbound reduction, net sales, JPY 10 billion. And then the roughly OP, JPY 3 billion or so, negative impact is already embedded in the first quarter. And that OP reductions, we need to take some countermeasures, such as this brand has to be accelerated or some promotion initiatives will be compensated in others. Such all kinds of efforts are already embedded in our guidance in the first quarter on a quantitative basis.
Well, thank you for the clarity. So, you are saying that the Japanese inbound business is not so huge impact, or still it is included in the net sales, JPY 10 billion. And also, counteractions are taken and JPY 3 billion profit reduction. So, these Japan-China tensions are not realized, then maybe you could reach more than 7% OP margin. So, is that the message if there is no issue between Japan and China?
Well, net sales and profit, OP, there are some other implications. So, I cannot tell you the exact impact. But the China travel retail has a larger net sales impact. So, the profit, OP, we are watching China travel retail, Japan inbound, the same level of the implications for this Japan-China tension.
So, then if there are no implications of the Japan-China tensions, are you able to generate more than 7% core OP margin?
Well, when we developed these numbers, so we made a commitment of OP 7%. So it has to be achieved as a commitment. So that's the kind of backcasting from that. And even without this, the China-Japan tensions, we still target OP 7%, right? And then this tension is now coming to the fore. And how we should interpret that and what are the implications? And we are still discussing internally. So of course, given the past management reform outcome, even some China travel retail is declining, we are able to generate profits. So that means we are managing in a more stable and balanced manner. So if there are any opportunities, of course, we want to seek more than 7% of OP if there is any opportunity. But we need to watch carefully about the multiple risks as well.
Next, please. Close to the entrance.
Thank you very much. Miyake from Morgan Stanley MUFG Securities. I would like to know about the analysis of the Japanese market and the fact that, as you say, the outlook is exceeding that. In the briefing in November, all the competitors have the similar price increase trends. Basically, your price increase may not actually impact your performance so much. I have a question about your outlook on the growth. It could be that the price situation worsened a few years ago, and therefore, it may appear to be improving. Maybe that's that. I would like you to explain about the pricing. However, having the other growth outlook in itself is a good thing.
As you say, the brand before the COVID crisis, you were performing very well with a very high level of domestic demand and Clé de Peau Beauté is continuing to perform all the way. Elixir, maybe it's not on its recovery trajectory. ANESSA, I wonder about that. In regards to their pricing and also the sales channels, what are the differentiating actions you're taking? What are working and what are not working? Those are the things I would like to know.
I would like to explain about how we look at the market. The market is rather soft. We do not tangibly feel that it is growing solidly. The skincare products are leading the market, and the other makeup products are chasing that or following that. When we break down the skincare, the low-price range skincare is beginning to decelerate.
On the other hand, the other medium-priced skincare products are beginning to show some signs of recovery. In that circumstance, in the market, we feel that there's a promising growth in the strong brand portfolio, which is now being established. A couple of years ago, we have started to focus on the core brands, such as Clé de Peau Beauté, brand Shiseido. Thanks to that, these brands are beginning to generate solid profit. In fact, last year, because of the inbound situation, Clé de Peau Beauté suffered. But other brands, unlike the domestically driven brands, they have a wide portfolio. There's IHADA and also AQUA LABEL, basically accumulated the negative of the experience in the Clé de Peau Beauté and presented even more growth. So it is good news that these brands are doing quite well.
Under the circumstance, as a pillar of growth, out of the core brands, Elixir has long been in while the low-price range skincare products were growing, there were questions about Elixir's capability to grow. But it has been in a number one position many years in a row. So this is all partially thanks to the marketing strategy. So the five products will be the hero products from different categories, each from different categories. We are also striving to grow Elixir brands in the drugstore. There's the skin diagnostics system made available at the drugstore. This is working towards positive. We are seeing that sustainable as well as robust growth in Elixir.
Another thing, something that we're excited about is now that we are doing a much better job of brand management, branding management, there are some softness in the growth in the Japanese market. Just about last year, Brush-On powder from ANESSA, so it's this product. So we worked on this product for five years and made a big hit. Also there's the face wash gummy. And this is a very avant-garde type of products, but it is very popular. So the Japanese market is becoming stronger so that it can appreciate these interesting products. And we would like to create the market and drive our own growth. And with the Japanese market getting stronger, we can do it.
Another supplementary information, so by the different price ranges, the local growth is actually driven by the prestige brand, the premium price brand. Even under the inflation background or backdrop, this premium, highly priced price range products are driving the growth.
Another point I would like to confirm. So one day, there will be a time that we will begin to see the turnaround in the background economy. And so from the viewpoint of the profitability, you're focusing on the technical capability and the brand and the makeup products. I wonder if Shiseido can begin to enjoy the market expansion or the economic turnaround.
In Japan, we have NARS for the high-price range. And the middle-price range, we have MAQuillAGE and MAJORCA, which belongs to the lower-price range. And these three brands have the portfolio to cover the other makeup products as well. As I explained a little bit earlier, the serum foundation were launched simultaneously in the MAQuillAGE and the brand Shiseido. And using this core technology, we launched a powder.
And that became very, very popular. It made a great hit. In another form, we will launch another product. And among the makeup products, in particular, the foundation-based products, this is a global trend, a skinification. And it means that it's healthier to the skin. In makeup, that's a general global trend. And so this is a trend where Shiseido's strength will be fully leveraged and appreciated. So makeup is not something of lower priority for us at all. And there will be, wherever we can find a potential for the customer and also market recognition, we will launch our products.
Now, we have 10 more minutes. We would like to take questions from the online audience.
So Jefferies, Kawamoto speaking. So I want to ask you about the core OP, the target, JPY 8 billion. So why it is incremental in the Q4? Because the inbound was quite a large impact in my view. So we were a bit worried about the mix. So you talked about in page 16, there was some uplift of JPY 1.6 billion. So what was the reason behind for the better-than-expected result and the additional JPY 6 billion? Where does it come from? And also in the next fiscal quarter, can we expect the same, replicate the same uplift? Or whether that was coming from internal or external factors, can you please elaborate?
Okay. So by region, China travel retail and headquarters cost management, cost reduction were the main reasons for the uplift. However, for internal reasons also significant, like a Structure Reform, we had a lot of discipline in the cost and operations. So including the CapEx, we were very much selective in investment.
Therefore, for such an effort, the cost reduction or cash spending reduction and also some overall expense reduction, and that's the result of the uplift in 2025. So for the continuity or sustainability of this impact, JPY 44.5 billion core OP. Sorry, the OP. So this is the continuous business basis excluding the exiting business. So that was the best ever since 2020. So JPY 44.5 billion was the best ever since 2020 in terms of the ongoing business. So this is quite positive. It is not just coming from the favorable wind from the market, but our own effort. And there were some negative impacts. For example, like due to the sell-off of some of the business and also the travel retail, there were some negative impacts in 2025. So given such a negative impact, we were able to secure this OP of JPY 44.5 billion.
So in terms of the profit and loss structure itself is improved dramatically. So there were a few questions raised, but still, uncertainty continues. So the profitability structure, 2030 initiatives, still, we are in the middle of achieving that target. So we are not complacent for this improvement and continue to make the effort for the structural reform and continue to improve the ratio as well. This is a kind of testing to us as well. And then before the 2030, so that means the 2026 target has to be achieved.
Thank you. So JPY 25 billion, that is on top, incremental JPY 25 billion, 2026. This can be slightly more because the 2020 so you believe that there is a 3 percentage point increase of the OP margin. Do you have the more probability to achieve that?
Well, this JPY 25 billion COGS impact overall and personal costs and so forth, we already started to implement it. So this 2026, JPY 25 billion is more secured. So this impact on the structural reform is more secured.
And the person in the background please.
Kono from Marathon Asset Management. So away from the result briefing, the management CEO, CFO structure, I suppose it's the system not to sever the management and execution. So I think this is quite a brave way to establish the organization. Now, for the question of where the operation goes, so as described in your briefing, the 30% increase in productivity and also the brand portfolio. And then what does the CEO do? So I suppose they're working on each region, taking responsibility. And so in order to maintain the recovery momentum, I suppose that your current management organization is workable. But I do feel that there's a lot of burden on the shoulders of two of you, Ms. Hirofuji and the CEO, Mr. Fujiwara.
So do you envisage that you make the management a little bit more passive and put more focus on operation? Are there anything that you can do? Are you going to create the COO position as well? Maybe not so, considering your historic background. So maybe this is just a quiz or food for thought. So do you have any ideas how to incorporate operation into your management structure?
Well, in order for us to achieve the 2030 goal, the first thing that came to my mind was that to what extent we need to be independent and drive the growth. And by way of structuring the management in such a manner to assist that.
For that matter, we need to develop the management leaders who are not afraid of changing the corporate culture. Not just myself or Ms. Hirofuji. We have other management teams under new structure or membership. So what I expect out of those leaders so this is my expectation for the management team. I have listed about 100 things in bullet points and to communicate to the management members. This is how we're going to drive the reform. We will work as a team, a solid team. I think that is the most important thing in the world that is full of uncertainty. The other day, we had a kickoff. Now, instead of just Structure Reform going forward, we need to increase the efficiency of our management to achieve the 3% growth. This will be driven by the cross-functional team.
And in order to do so, we will revisit the value chain to improve efficiency. And at the same time, the management team will become one to drive the structural reform and by way of executing our ideas. And through this exercise, we will be able to build a very strong management team. I would like to drive that. And in terms of the other function, I will delegate more. On the other hand, we would like to have the members in the management with the good points of view. And so outside of our title, such as CEO, CFO, COO, developing the members for the sound management is important.
In addition to that, for the financial point of view, the ROIC, the ROIC management, is something that we would like to permeate thoroughly. And so this is incorporated into KPIs, all kinds of KPIs. And so in some cases, it is driving the activity. Sometimes, it is hindering the activity. So we will be able to kind of clean up what we do. And in order to drive our ROIC-based management, all the management members have to have a [Foreign language] clear mindset on that. And the reporting line, the consolidation is one of the activities. So it is not possible to identify each and every minute problem from our organization and the execution. But as a team, we would like to drive the improvement of what we do through the strong membership.
Okay. So we would like to take one last question from online. SMBC Nikko Yamanaka-san?
Hello. SMBC Nikko Yamanaka speaking. So I have one question. So for the Americas, the growth commitment or 2025 actual performance of the brand. So you do have quite rich technology, but this Americas growth is rather small. And I know that there are some initiatives like acquired brand, you told me. But Shiseido's and premium skincare's average, the growth rate was still weak. And also your plan is so past weak. But the other day, Amorepacific has a very big jump in Europe or EMEA, Europe or Americas. So given such a great technology of Japan, you are not able to sell well in such a region. Of course, there are some limitations in the regulatory framework. But I just want to understand why it is not really successful in Americas?
Well, for the U.S. market, especially brand Shiseido, one example, as an example. So first is the channel and also the priority among the brand Shiseido. We would like to change our approach going forward.
First of all, the sales channel, because brand Shiseido has been selling mainly at the department store. So what leads the market is online sales as well as Sephora or Ulta. So those channels that we are not able to have a good presence, that is something that we have lessons learned. So what is leading? Alberto, he is leading the Americas. He has been having the negotiation with the EMEA region. So Alberto will reach out to America's Sephora directly. And he signed a lot of, I mean, he had good discussions with them. So it could be reflected in this year's actions. So we would like to expect some of the speedy turnaround. But the Americas market, our technology-wise, the sun care is well received. So the U.S. customers are very fond of our sun care technology of Shiseido.
But it should be more replicated in the anti-aging category. But we were not able to reach out to the American customers for the anti-aging because we were focusing on the products that we were selling well. Therefore, going forward, we want to shift our gears to the anti-aging category. And BLACKPINK, Lisa, is the key influencer for us in terms of leading the new brand. But the anti-aging and also another celebrity also became the ambassador to the and Anne Hathaway is also leading this anti-aging category. So we believe that we can have the good presence there, capture the good momentum there. And in terms of the Clé de Peau Beauté, the net sales is rather small, but the growth rate is amazing.
So what we need to change in the Clé de Peau Beauté, majority of the sales is coming from the Saks Fifth Avenue because you know the Saks Fifth Avenue is now having big trouble. So we have to recognize some negative result. But the customers who are buying Clé de Peau Beauté at Saks Fifth Avenue, we would like to offer some other solutions and try to nurture them as the loyal customer. So Clé de Peau Beauté, there are a few still struggling in terms of the sales channel. But still, Clé de Peau Beauté is the luxury brand and global brand. So we shouldn't rush to launch in Sephora or some other different channels. Rather, we would like to create the developer brand steadily as a high prestige.
One last question. Shiseido and Sephora, Shiseido brand has been selling at the Sephora. But Alberto connection, is he going to expand the shelves? Or can we expect that not just the sun care, but the others?
Yes, Vital Perfection line, that sales expansion is also one thing. And we were not able to have good relations built or collaboration with such a retailer, including Sephora. So there are a lot of promotion, but the brand Shiseido were not able to be participating. So that was what I discussed with Alberto. So we need to reinforce such retailer relations. And Sephora's shelf space now and also the initiatives thinking together with the retailer, that will be the ones that we want to focus going forward. Thank you.
Thank you very much. Now, we would like to end today's Q&A session. Now, we want to end overall a briefing session. Submit the questionnaire. Thank you very much for your attendance by your business schedule.