Earnings Call: Q2 2025

Aug 7, 2025

Summary

Revenue and profitability improved year-on-year, driven by structural reforms, high value-added products, and cost efficiencies. Overseas growth remains a key focus, with premium brands performing well in China and Southeast Asia, while risks from China’s slowdown are considered manageable.

This is Takemori, President and CEO of the company. Thank you for your precious time today. Now let us begin. Today, I would like to walk you through these topics. You may have your perception about our company that we are prioritizing profit over growth and focusing on cost cutting. Can the company truly achieve sustainable and personal growth? I believe you would like to confirm these points. Today, I would like to address those concerns as I go through my presentation today. Let me begin with our consolidated results for the first half of the fiscal year. To summarize in our performance, we achieved year-on-year revenue growth while also improving profitability. In particular, our profit significantly exceeded our initial forecast, driven by the steady progress in our structural reform initiatives that have strengthened our earnings base. I want to emphasize that this improvement is not merely a result of cost reductions. Rather, it reflects our deliberate focus on driving high value-added initiatives alongside the strategic and policy-based investment in competitive capabilities. As noted at the bottom of the slide, we have not revised our full year forecast we announced in the beginning of the fiscal year. By executing the initiatives outlined for the second half, we believe both revenue and profit targets remain well within our reach. Let me now walk you through our key financial indicators. Net sales, JPY 199.4 billion, up JPY 0.82 billion or 0.4% year-on-year. Excluding exchange rate fluctuation impact, it would become a 0.3% increase. Excluding impact of the transfer of the certain pharmaceutical brands that took place last year, revenue rose in substance by 1.1%. Next, core operating income came to JPY 12.6 billion, a significant year-on-year increase of JPY 3.08 billion, reflecting progress in strengthening our earnings structure. As for profit attributable to owners of the parent, we recorded a decrease of JPY 0.32 billion compared to the same period last year. This decline is mainly due to the absence of one-time gain from the brand transfer booked last year, and we believe it is a temporary factor. EBITDA was at JPY 21.4 billion, up JPY 2.7 billion year-on-year. EBITDA margin, one of our most important indicators for demonstrating earnings power and the profit growth, rose by 1.3 percentage points to 10.7%. Now I will explain the factors behind the changes in core operating income. I will explain those two points respectively. Blue arrows left, gross profit factors, and orange arrows right, SG&A respectively. Allow me to start with the gross profit side on the left side. Overall, gross profit contributed a JPY 0.2 billion increase. The first factor on the far left is our continued focus on high value-added process and appropriate pricing, including price increase. This contributed positive JPY 1.3 billion. Next, volume and product mix effects yielded a JPY 0.4 billion gain in sales. However, these were offset by negative impacts such as the brand transfer and the changes in the segment commission resulted in a net negative impact of JPY 1.2 billion. Raw material costs had a negative JPY 0.8 billion impact, but were largely absorbed by JPY 0.9 billion in cost reduction, bringing the gross profit total to net positive impact of JPY 0.2 billion. Now turning to the right, SG&A. SG&A resulted in JPY 2.8 billion profit increase. Let me emphasize again, this is not merely the result of cost-cutting efforts. Competitive spending was strategically and efficiently allocated both in Japan and overseas, contributing an improvement of JPY 2.5 billion. Sales promotion costs were controlled to avoid excessive competition, and we are advancing a digital shift in advertising from a traditional mass media. Additionally, as part of our structural reforms, we streamlined SKUs and reduced inventory, which enabled us to cut logistic costs by approximately JPY 0.6 billion. This is a clear sign that our efforts to reform the profit structure are bearing fruit. As a result, consolidated profit increased significantly from JPY 9.5 billion last year, far left, to JPY 12.6 billion this year, far right, an increase of approximately JPY 3 billion. Now I would like to briefly touch upon the changes in the profit structure between the first quarter, January through March, and the second quarter, April through June, as a follow-up to the previous slide on the first half profit factors. This slide is one of the key slides that illustrates our performance during the first half. The main key takeaway message I want to convey is this: our profit-generating ability steadily improved over time from January through March to April through June. Let me particularly expand on the blue bar representing the gross profit factors. In the first quarter, gross profit had a negative impact of JPY 0.2 billion, but in the second quarter, this will reverse to a positive impact of JPY 0.4 billion. This is a JPY 0.6 billion improvement quarter-over-quarter. This improvement was driven by the launch of new high value-added products and expansion of high profit business areas, which collectively led to an increase in the gross margin. Furthermore, the effects of value-added pricing strategies are progressing steadily toward our full year target of JPY 3.5 billion. We targeted JPY 1 billion, but we exceeded to JPY 1.4 billion in the first half. Next, the orange bar, SG&A factors. In the second quarter, competitive spending continued to contribute to JPY 0.5 billion increase in the profit. At the same time, we internally invested in key strategic areas such as oral healthcare. As a result, this reduced the profit contribution by JPY 1.5 billion, reflecting increased competitive investment in the second quarter, April through June. I hope this clearly demonstrates that we are not simply chasing short-term profit, but rather making strategic investment to enable sustainable long-term growth. In summary, over the course of the first half, we believe we have significantly strengthened our fundamental ability to generate profit. As a result of those efforts, the segment performance for the second quarter is shown here. In the Consumer Products business, revenue declined slightly by 0.4% year-on-year. However, as I mentioned this point earlier, excluding the impact of the brand transfer, the actual increase was positive, 0.8%, in line with our expectations. Thanks to the structural reforms we are making, core operating income increased significantly to JPY 3.14 billion, representing a growth of more than 52%. Overseas business external sales exceeded the previous year's level, and core operating income reached JPY 0.2 billion, with profit margins also improving. As for the Industrial Products business, revenue increased due to solid performance in rubber additives, among others. However, due to the changes in product mix, profit declined. That said, the margin improved compared to the first quarter, January through March. This slide shows the sales breakdown by category within the Consumer Products business. As I have been already emphasizing this, I will say again, although the total revenue declined by 0.4% year-on-year, excluding the impact of the brand transfer, actual sales rose by 0.8%, as shown in the lower right corner. Oral healthcare category, which we position as the most important segment in our second stage strategy, grew by 2.7%. We are seeing solid growth in categories we aim to expand, such as CLINICA PRO, our premium toothpaste line, as well as our products sold through dental clinics. Looking ahead to the second half and toward 2026 and 2027, we plan to implement product initiatives leveraging our unique technologies. On the other hand, fabric care and living care recorded either a decline or only a modest growth in sales. However, initiatives to improve profitability are steadily progressing. Core operating income margins and EBITDA margins have improved. Earlier, I mentioned that business profit in the Consumer Products segment increased significantly to over JPY 3.1 billion. The category that contributed most to this growth was actually fabric care. As I have stated before, we are focusing our structural reform efforts with the home care business during the second stage. I would like to emphasize that this strategic direction is sound, and we are making steady progress so far. This slide provides a qualitative summary of each business segment, including points I have just mentioned. I will not go into all the details, but let me highlight a few key takeaways. At the top, oral healthcare. You may notice that growth slowed from Q1 to Q2. However, we view this as a temporary option. Products with high added value, such as CLINICA PRO toothpaste, are continuing to perform well. In the beauty care segment, we saw significant growth in high value-added products, especially the KireiKirei medicated hand conditioning soap, which nearly doubled in sales compared to the same period last year. The fabric care segment remains a negative category, but the decline is narrowing. Although we face challenges in fabric softeners, the liquid detergent NANOX one is performing strongly. Most importantly, through the efficient use of promotional and competitive spending, profitability has improved significantly. Next, let me turn to our overseas business, beginning with Southeast and South Asia. Both Thailand and Malaysia recorded sales and profit growth. Net sales increased by 5.4% year-on-year and 1.4% excluding the effects of exchange rate fluctuations. Core operating income reached approximately JPY 560 million, representing a significant 26.1% increase. Profitable growth is continuing in the Southeast and the South Asian markets. In contrast, Northeast Asia faced some challenges. In particular, South Korea recorded a sharp decline compared to the same period last year. Overall sales in the region have decreased by 8.4% or 3.5% excluding the effects of exchange rate fluctuations, and core operating income also declined. Looking at overseas business as a whole, net sales fell 0.6%, but external sales rose by 1.5%. Core operating income increased by JPY 200 million or up 6.9% year-on-year. We believe we are successfully achieving both growth and profitability. This slide outlines the performance of our four major overseas markets. In Thailand, body soaps and liquid detergents continued to perform well, resulting in sales growth. In Malaysia, toothpaste and liquid detergents, supported by overall market growth, also saw solid gains. In China, despite a variety of challenging economic conditions, high value-added products achieved significant sales growth. Specifically, although volume growth has slowed for mass-market products like White & White toothpaste, mainly due to our strategic addition to maintain pricing, premium brands such as CLINICA and Systema achieved double-digit growth, significantly exceeding the previous year's performance. I will provide more details on this later, but we believe these results are very much in line with our strategic intentions. Let me now move on to our full year consolidated earnings focus for the current fiscal year. As previously mentioned, there are no changes. As for our full year earnings focus, announced at the beginning of the year. As we have communicated before, the impact of the full acquisition of Merap Lion in Vietnam has already been factored into the initial forecast. Shareholder returns. As you see here, there are no changes as for our shareholder return policy from what we announced at the beginning of the year. This slide shows the updated breakdown of factors affecting full year business profit, taking into account the first half results, as well as reflecting adjustments to the second half outlook. Compared to our initial assumptions, the negative impact from raw material costs is expected to ease somewhat in the second half. At the same time, we plan to increase investment in HCMA by 2 billion JPY, with a focus on competitive spending to drive growth. Following the review of the first half, I would like to explain key measures for the second half and the probability to achieve the guidance. Looking back the first half, we made steady progress toward the business structure with higher profitability. In Japan, we made progress in profit structure reforms and overseas personal care field, including oral healthcare, expanded. On the other hand, return to top-line growth continues to be our challenge. In the second half, keeping tight rein on structure reform, we aim to return to top-line growth trajectory through product actions in focus areas and focus brands, as well as strategically skewed allocation of marketing resources. Let me explain how we will do this. In domestic oral healthcare category, the response to growing high-end products in toothpaste market has been our challenge. For this, we launched the top-class new products in Dent Health's brand in September and strive to grow it. We like to demonstrate our strengths in gum disease category, which accounts for 70% of high-end product market. For further steps, we leverage new technology that we have been developing over years. We launch a new product that uses new technology of microbiome control through dental clinics in the second half of the year. Oral microbiome control may remind you of intestinal flora. As we increase intestinal good bacteria, we propose to do the similar things orally. Next year onward, we consider delivering the high-end oral healthcare products, taking advantage of this technology on commercial retail routes as well. We continue to grow in 2026 and 2027 using them. In toothpaste category, imminent challenge is the response to declining purchases. To stage consumer campaigns to promote regular replacement, we will spend additional competition-related expenses in the second half as mentioned earlier. In Consumer Products, fabric softeners struggled in fabric care, while liquid type concentrated detergent, NANOX one, grew as mentioned earlier. In the second half, high added value NANOX one will be enhanced, and we revamp fabric softener, which slowed before, with Aroma Rich. In living care, antibacterial deodorizing fogger for toilet, with a proposal of new habit, has been performed well in the first half. In the second half, we will concentrate management resources on top priority brands and launch new products to expand no scrub category in LOOK Plus. We will steadily grow highly profitable new products and achieve steady progress. Overseas, in Southeast and South Asia, securing profitability in major laundry detergent will strengthen oral healthcare products and these marketing actions in the second half. In Thailand, we will make focused investment into Systema and Zact. In Malaysia, we will continue to work on growing strong local brand, Fresh & White. In Vietnam, we introduce new skincare products to enter the beauty care category. In Northeast Asia, there was a challenge in the growth of entire top line, despite the strong growth in area where growth was expected. In China, we accelerate growing high added value products. In offline channel or for physical stores, we expand the distribution with a focus on key management chains. I assume one of your key concerns is the growth in China. Amidst sluggish economy, market is polarized in our segment. We focus management resources on high added value products for high income customers with strong consumption appetite. For low-tier product, we prioritize maintaining brand value and securing profit. High-end products, CLINICA and Systema, achieved much higher growth than the previous year, as mentioned earlier. We expand them in offline distribution as well to achieve profitable growth. We expand the new brand, Dent, our brand for dental clinics that was launched in Q2, expanding them in e-commerce or for hypermarket. Enhancing relationship with dentists will increase distribution to offline channels. We have increased the distribution to offline channel to 900 stores that understand our price policy by the end of the first half in just 4 months, starting from scratch, and we reached 900 stores in 4 months. By the end of this fiscal year, we aim to achieve 3,000 stores. With this, we will build the base for high-end products of CLINICA, Systema, and Dent, and we will be able to permanently recover sales in China. Finally, let me touch upon progress of the second stage growth strategies briefly. This is how we will accelerate growth in oral healthcare, as shown before. We have already taken initiatives to expand the scope of provided value to expand target markets and to permeate more areas. Although it is just 6 months since the second stage started, specific initiatives in line with the strategy in each country and area have already started, as shown on this slide. It may take some more time to blossom, but the entire group will continue to work to strengthen and accelerate investment for our focus, the growth of our oral healthcare business. This is a financial forecast for the fiscal year, and it remains unchanged from the initial announcement. This slide shows risks in achieving the full-year target of FY 2025. Continued economic slowdown in China is one of the anticipated risks. Let me touch on its impact on the consolidated results of Lion Group. In February this year, we expected 10% top-line growth in China business. The results in the first half were a growth of close to 5%. It was due to intentional control, including the exploration of new channels as mentioned, rather than the economic condition. If this growth of around 5% continues in the second half, the impact of this downside risk on consolidated sales is less than 1%. Therefore, we believe that the possible business risk in China can be fully absorbed and addressed in the entire group. Of course, we will manage to avoid such cases, but even if it happens, its impact on consolidated results will be minor. This is the final slide. To summarize the first half as president. Structure reform steadily progressed, and the foundation for profitable growth was established in this first half. To be more specific, there are two factors. Against a committed target of key indicator, EBITDA margin, to increase 3%-5% in 2027 in Consumer Products. Already it increased by 2.3%. Looking at the key drivers, upward price revisions impact was JPY 1.3 billion against the first half target of JPY 1 billion. More efficient supply chain impact was JPY 7.6 billion, and gross margin improved by 0.7 points. They are only parts of the effects, and the effects will be fully materialized in FY 2026 and 2027. This is the first point. Second, in overseas business, profitable growth is steadily progressing, but still we are at midway. In this first half, we prioritize laying the ground in expanding oral healthcare in countries where we already have presence and growing business in Vietnam with consolidated subsidiary. From the second half this year to FY 2026, we materialize their effect. On the other hand, in the first half, I am aware and regrettable that we could not win the prominent victory in the area where we should grow. In the second half, we build on this foundation and develop it into a lean company by increasing investment in high added value fields and aim to achieve profitable top-line growth. In the next year onward, centering on oral healthcare, we will continue to focus on growth initiatives and aim to achieve the second stage management KPIs. With this, I conclude my presentation. Thank you for your attention. We will now move on to the Q&A session. This is Akiko from J.P. Morgan Securities. Thank you for the presentation. It was very compelling and left a strong impression. Thank you. That said, though, I hope you won't mind if I ask a follow-up question. Could you once again summarize the main factors behind the upward revision of your core operating income in the first half? You mentioned that an additional JPY 300 million came from higher value-added offerings, which I understand. However, I suspect that additional expense were lower than originally planned, perhaps due to some time differences. That, to me, implies that those expenses will be incurred in the second half. I would appreciate if you could clarify that this is not simply a matter of delayed spending. Also, regarding the JPY 300 million from value-added products, can you specify where that came from? Which category or region contributed to that? Despite this, value-added impact seems to be downgraded for the second half. Could you explain why? Thank you, Ms. Akiko. I believe your question refers to page 6 of the presentation materials, covering the first half of the fiscal year. You're asking for a more detailed breakdown of the structure, especially from a numerical perspective. We'll first have Mr. Takeo, our head of finance, explain the figures, and then I will provide a summary. This is Takeo from the finance department. Thank you indeed for your question, Ms. Akiko. Regarding the profit increase in the first half, as you noted, higher value-added offerings have played a key role. On the left side of the graph, you can see that pricing from value-added initiatives contributed to a total of JPY 1.3 billion, which is JPY 300 million above our initial forecast of JPY 1 billion. This upset came primarily in the second quarter, driven by new high-value added products launched in the beauty care and the living care segments. Did I answer your question so far? Yes. Thank you. But the total upset was around JPY 1.6 billion, wasn't it? So I assume there must be other contributing factors beyond value-added pricing. Yes. In addition to that, improvements in product mix due to an increased inbound demand for pharmaceutical products also contributed to gross profit. So these two main factors are there are value-added pricing and mix improvement in pharmaceuticals. Thank you. Understood. Thank you. I would like to have Mr. Fukuda now to actually share follow-up comments. This is Fukuda. Thank you indeed, Akiko-san. I would say that the overall upset in the first half came not only from the sales and the gross profit factors that Takeo mentioned, but also from a greater-than-expected reduction in competitive spending. While some advertising expenses are planned to increase in the second half, in the first half, we were able to reduce promotional and advertising costs without significantly affecting our sales. This cost efficiency, particularly within our home care business, was a key initial step in our value-added strategy and worked quite well in our view. So these are points I just wanted to share with you. I hope you're with me. We were able to actually enjoy good progress in terms of efficiencies and effectiveness, so in terms of actually, you know, A, and also the advertising cost. Thank you. One follow-up question, if I may. In the second half, why is the projected impact from the value-add initiatives lower despite their success in the first half? As for the second half of the fiscal year, we plan to continue making competitive investments to nurture certain areas selectively. While we aim to pursue some increase in sales, we are also mindful that if profit margins were to return to previous level, it will defeat the purpose. Therefore, our approach is to maintain overall value add and profitability, while partially targeting sales growth. This is why we are revisiting how we structure things. I hope you are with me in these regards. Thank you indeed. Thank you. Thank you. Next, I would like to have Mr. Hirosumi. Please go ahead. This is Hirosumi from Daiwa Securities. Thank you. Can you hear me? Yes. No problem. Thank you. Yes, I have just one question. I would like to confirm the situation in the overseas segment for the second quarter. Since your company changed the segmentation a bit earlier this year, it has been a bit difficult to read. My understanding is that the profit fell quite a bit over the 3 months of the second quarter, around 5% or so. Earlier, you mentioned Korea and China, but frankly, the results were disappointing to me. How should we view overseas sales going forward? Also, could you comment on how core operating income is expected to trend in the overseas segment? Thank you, Hirosumi-san. Your question is about how we view the top line and the profit in the overseas segments based on the first half results and looking into the second half and beyond, right? Yes. I would like to have Mr. Suzuki, Executive Vice President, to respond to your question. Thank you. This is Suzuki. Thank you again for your question, Hirosumi-san. One of our marketing and product strategies this year has been to sharpen our targeting. As mentioned earlier, we have been tailoring our approaches depending on the market situation. For example, in China, we focus on high value-added products like CLINICA and Systema. In Malaysia, we have concentrated on Fresh & White, targeting the Malay demographic. This kind of strategy, identifying the right growth segments and target customers, is what drove our growth in the first half. That success has validated our approach, so we intend to expand and strengthen this targeted strategy in the second half as well. In China, especially, as you know, the economy is not in a good shape, and there is a trend of downward consumption. As Mr. Takemori mentioned earlier, our White & White brand, which sits in the low to mid-price range, will not be a growth driver in the second half, as it was not in the first half either. Letting that brand slip into a negative spiral would be risky, as it would put us in direct competition with countless local brands. These local competitors have also improved their quality considerably, so the Japanese product advantage we once had is now harder to leverage. Furthermore, where the prices are falling rapidly, it is going to be quite difficult for us to secure profit on our side. Based on such analysis, we have chosen to focus our strategy on where we can differentiate and maintain profitability. That is the direction we would like to go for in the second half. Let me clarify, and please correct me if I am misunderstanding, but in the past, I believe you mentioned that China was the standout market where you were aiming for significant sales growth. Has your strategy shifted toward prioritizing profitability, not only in China but also in Japan and other Asian markets? Before COVID, we were exploring major growth potential in China, driven by an expanding middle class and rising incomes. However, given the many changes since then and our current focus on profitable growth, we believe it is going to be necessary to shift to higher value-added products. Yes, this is going to be a strategic pivot. I do not need a detailed breakdown, but just one more thing. How do you see the sales in Northeast Asia, particularly in Korea, going forward, please? In Korea, one of the main reasons for the downturn in the first half was a decline in exports. Looking ahead to the second half, we are working on securing those exports again, including development of third-country export destinations and new markets. We have made significant progress and have a clear direction. We plan to build on that going forward. As for the domestic market in Korea, we are aiming for increased sales of hand soap and capsule detergents, which we are currently focusing upon. We look forward to a rebound in the third quarter. That is all from me. Thank you. Hirama, I will have Kudou provide some supplemental explanation. This is Kudou. Horizumi-san, regarding China, at the time of the first quarter earnings announcement, I had stated that we would return to growth in the second quarter. Yes, I remember that. But as it turns out, that did not happen. What we are seeing is a sharper-than-expected polarization of consumption in China. Our mid-range product, White & White, which had been a core product, found itself caught in the middle and lost in the position in the market. Prices have begun to decline. If we try to grow sales with that, we would end up sacrificing profitability. So we shifted our brand-building efforts to higher-priced segments. That is why the growth we had projected as double digits for the first half ultimately came in at 4.4%. I need to apologize for that. I had not been accurately grasping the situation on the ground in real-time. That is the background, if I may say so. That was very clear. May I add something else here, Horizumi-san? This was a deliberate and strategic decision. In China, the sales breakdown is roughly 30% for high-priced CLINICA, 30% for Systema, and 30% for mid-priced White & White. We determined that continuing to push White & White for the long term, say two or three more years, would not lead us to sustainable growth. What we want is profitable, healthy growth. So we decided to prioritize expanding CLINICA, which is growing 130%, and Systema growing nearly 110%, along with Dent.Health. These are the products that consumers in China appreciate, and the ones through which we can also secure solid profitability, ultimately delivering value to all of you as well. I hope you understand that you are making such an adjustment. Thank you for your understanding. Now I would like to move on to Yamanaka-san, please. Yes, this is Yamanaka from SMBC Nikko Securities. Apologies for some technical question, but could you provide details on non-operating income in the second half items outside of the business profit? I understand there will be a gain from the sale of the REED business as well as step-up gain from the Merap acquisition. Your guidance shows a JPY 5 billion gap between operating profit and the core operating income, which I assume is mostly the Merap gain. Would the gain from the REED sale be added on top of that? Thank you, Yamanaka-san. I will have Mr. Takeo from acquisition explain this matter. This is Mr. Takeo. Thank you for your question, Yamanaka-san. As you noted, we had factored in a positive contribution to operating profit versus core operating income from the start of the year, and most of that is to come from the Merap acquisition gain. As for the sale of the REED business, as indicated in our press release, the impact on earnings will be minor. Of course, we will recognize a gain on sale, but the effect will be limited. I hope that clarifies these matters. Did I answer your question? Thank you. Will both of these be recorded in the third quarter? The Merap gain is expected to be recognized in the third quarter. For REED, it depends on the closing timing, and at this point, we expect it to be in the fourth quarter. Understand. Then I will look forward to the JPY 5 billion plus a little extra. Thank you. Thank you. Next, I would like to have Ohana-san. Would you please go ahead? Thank you. This is Ohana from Nomura Securities. I would like to ask about your view on overseas business and the consolidated revenue overall. Based on your guidance, it seems overseas sales are projected to grow by around 9% in the second half. However, I got impression from everyone's comments that you are no longer aiming for sales growth per se, but rather focusing on delivering a solid profit and asking us to be satisfied with that kind of explanation. If that is the case, I am wondering whether expectations for overseas revenue previously seen as the main driver for overall growth should now be revised downward. I wonder if you could share your thoughts in this regards. Thank you, Ohana-san. I will have Mr. Takeo explain the numbers and details, but first, allow me to address the bigger picture. Let me be clear here. We have absolutely no intention of sacrificing overseas growth in order to instead focus solely on to profit. Overseas growth remains the key growth driver for the Lion Group. This has not changed. That said, depending on the situation in each country and the strategies that we pursue, the timing of growth may shift, but our commitment to growth itself is unwavering. This is a very important point I need to emphasize. If we subtract the first half results from the full year plan, there is going to be a remaining portion that needs to be achieved in the second half. That is going to be about 109% overseas. Again, I would like to have Mr. Takeo explain this matter. As you pointed out, when we subtract the actual first half results from the full year overseas segment forecast published in the beginning of the year, the second half comes out to 109% year on year. One contributing factor is the consolidation of Merap Lion. While we have to refrain from disclosing specific numbers, we consider the size of Merap Lion sufficient to ensure we hit our originally forecasted full year overseas external revenue. If you look only at the existing countries, achieving 109% growth might seem to be quite difficult, but we do believe that this is going to be good enough for us to go for the target we would like to achieve. Thank you. Of course, you knew that Merap will be consolidated. Weaker than expected performance in China and South Korea will be offset by Merap, Thailand, and Malaysia. Is that your image? As this is related to strategy, Vice President Suzuki will take your question. Is it okay? Yes, please. Thank you for your question. One of the growth drivers in the second half and the next year is the growth in Vietnam. In the next year onward, also in China, we'd like to pursue double-digit growth. With the major brands of CLINICA, Systema, and Dent, as shown here, centering on oral health care, we'd like to strengthen business. As for South Korea, as mentioned earlier, one of the bottlenecks is export, which is to recover from the second half, and in its domestic market with some growth drivers, we like to grow. Not only by Merap, but including China as well, and putting focus on oral health care, we'd like to expand growth in the next year onward. I see. Thank you. This is Takemori. I'd like to add a comment. On this slide, I said earlier that we would expand distribution to stores who understand our policy. It is same in Thailand and Malaysia. We continue to work with JV partners, but in this first half, we learned in our work to lay ground that in Thailand there were serious channels with which we didn't have access yet. If we expand there, we have opportunities to compete against the global giant, Colgate. In China, Thailand, and Malaysia, where we already have presence, we begin to see new winning propositions through new channels for distribution. We will act in the second half and the next year. By doing this, we'll be able to realize the profitable growth in our health care business. Understood. Thank you. Next, Ms. Miyasako, over to you. This is Miyasako of Mizuho Securities. I have a question about oral health care in Japan. Q1 sales were not so strong, and the Q2 might have been in line with the impact of OCH-TUNE. Is my observation correct? Referring to challenges on page 19, it says strengths in high-end lineup. Does it mean that you lost share and the products were in short supply? It says that the declining purchases due to growing consumer lifestyle maintenance concerns. I feel that if people have lifestyle maintenance concerns, selling high-end products will be increasingly difficult. Is the situation for toothpaste and the toothbrush different? I found that the domestic oral health care seemed to be slightly weak, so please explain this situation. I see. Thank you for your question. For domestic business, Kawanishi, who is in charge of domestic business, will take your question first. Thank you for your question. First, about the weakening trend of oral health care in Japan from Q1 to Q2. The biggest factor is, as you said, the reactive downturn due to OCH-TUNE, launched in the previous year. For other value-added products such as CLINICA PRO, sales grew from Q1 to Q2. In the second half, in high-end category, we counter with new products of Dent Health Medicated Toothpaste DX at the price point of JPY 2,000, as we allowed competitors like Daiichi Sankyo and Haleon to grow earlier. In the first half, toothbrush sales were slightly lower than our plan. In addition to the market condition, we did not offer many new or modified products. Let me add a follow-up comment from Takemori, Ms. Miyasako. As I mentioned earlier, we have been behind competitors in high-end toothpaste and the toothbrush for some time. It is not the first time this year, and it has been our challenge in the last few years, and it is Lion's mission to find a breakthrough. To that end, Dent Health will be launched in the consumer market, and the new toothpaste with unique technologies will be launched in dental clinic market. Launch in dental clinic markets will enable us to let dentists and the dental hygienists appeal the effects of new products. Going forward, we are considering launching a new product in some areas of our health care category with our new technology. I should not talk too much about the new product as they may be showing cards, so I will stop here. As a leading company, Lion would like to differentiate to boost growth. This is same for toothbrush. We input various technology into new products, so you can count on us with that big picture. In the first place, why have you been behind competitors in high-end product? Amid concerns about maintaining lifestyle, can you sell high-end products in this environment? I talked about polarization in China, and it is same in Japan. Amid increasing concerns about maintaining a lifestyle and increasing polarization, if you ask whether we can sell high-end products, my answer is yes. Because even the current environment, growth driver in the toothpaste and the toothbrush market is high-end products. I think that is driven by people's desire to live a healthy life. So despite economic environment, the proportion of high-end products will continue to rise further, and we increase measures to meet the demand. Then you wonder why Lion has been behind there. It is because we have been doing boring business in the mid-price boring zone of CLINICA and Systema in our historical background. But we will increase a mix of high-end product. As president, I am convinced that this will contribute to market and to society. In growing the high-end product, what do you think is our biggest hurdle? Time. Users of high-end toothpaste tend to pick familiar, reliable brands with renowned functionality. As Kawanishi mentioned, some competitors mega brands before. To shift those customers to us, it will take some time. It will be an obstacle. We have countermeasures, but spending not half a year or one year, but two or three years might be obstacle, and at the same time, it may be a shortcut. So my answer to your question is time. Thank you. Thank you. Next, Ms. Seto, over to you. This is Seto of Morgan Stanley. I'd like to ask in order, starting from page 7. Changes in core operating income are clearly shown from Q1 to Q2. Big improvements are in quantitative effect, product mix, et cetera, and the changes in other expenses. As operating profit in overseas business declined from Q1 to Q2, can I say that this improvement happened in Japan, simply put? Can I go one by one? Your question is about page 7, and are you asking that comparing Q1 and Q2 if they happened in Japan? Yes, my question is about the major improvement, quantitative effect, and other expenses. Did they happen in Japan? Mr. Takeo will take your question. Thank you for your question. In overseas business in Northeast Asia, for example, volume slowed down from Q1 to Q2. As you indicated, in domestic Consumer Products market, we talked about high-end new products. With market improvement in Japan in Q2, quantitative effect was prominent in Japan. Changes in other expenses. As described in the comments on the right, profit structure reforms led to improved logistic efficiency. Inventory reduction has been gradually progressing from the second half of the previous year, and after some time lag, storage costs have been declining. Its impact materialized more clearly in Q2. With increased direct delivery, logistics efficiency was more prominent. This improvement also happened in Japan. I wanted to ask whether that happened in Japan. In Japan, I see. Moving to page 10, this slide shows Consumer Products change from Q1 to Q2, and volume improved prominently in beauty care and pharmaceutical. So volume improvement from Q1 to Q2 was prominent in beauty care and pharmaceutical. Is my observation correct? In beauty care, hand soap grew. In pharmaceuticals, inbound sales grew. Their strong sales was surprise for me. According to SRI, your sales in pharmaceuticals have increased so much. In general, inbound sales have been slowing down since May. But why could you accelerate your inbound sales? In beauty care, could hand soap alone make such a big change as +7.2? This is a big change. Or was initial shipment of new haircare brand, MEGAMIS, substantial? So two clarification points, please. Thank you. Put simply, both contributed. MEGAMIS net add and high added value hand soap performed well. Inbound sales are trending up in our estimate. Is it sales of the cooling sheet for legs are popular among Korean people? Yes, this is a main product among others. When we watched the series of stores with more inbound sales, we found the increasing trend in our case. Drastic improvement in momentum was a surprise. Is MEGAMIS impact one-off, with due respect? As this is the limited test sales, so it is one-off, but the scale is small. We sell only at the limited stores. I see. Pharmaceutical continues to be robust even now, though the overall trend of inbound sales is weakening. Is that right? I would say steady now. Quarter on quarter, momentum is not weakening. I see. Thank you. We are running out of time, so I'd like to take the last question. Thank you. I'm Kawamoto of Jefferies. I may have missed it, but at the beginning on page 6, logistics optimization are shown as +0.6 billion JPY. I see this for the first time. Fabric products are heavy products, and I thought that if we shift to lighter, compact, and a high GPM product, logistics optimization might progress. Will the effect be sustainable in the second half and the next year? Thank you, Kawamoto-san. The question was why logistics optimization was possible and its sustainability going forward. Mr. Takeo will take the question. This is Mr. Takeo. Thank you for your question, Kawamoto-san. In logistic optimization, inventory optimization is one thing, as described here. Through inventory optimization, we reduced the storage cost. With a declined inventory, the number of the process reduced in delivery, and that led to decreased transportation cost. Besides this, the proportion of direct delivery from factories has been increasing, whose effects are increasingly materialized. As for the sustainability in future, in terms of inventory optimization, we aim to reduce inventory days by 30% by 2027. We are still the midway, but we will continue to strive. Did that answer your question? Let me add a few comments. In logistics optimization, by using digital transformation mechanism, DX, from factory to the point of shipment, we can observe the excess inventory very closely. That led to reduction of average inventory through combination of awareness and IT systems. Impact was JPY 0.6 billion in the first half. How will it be in the full year and the next year? Would you give us numbers? This is Mr. Takeo. Inventory optimization has been progressing since June last year with the gradual effects materialized. In terms of year-on-year comparison, in the second half, as several hundreds of million JPY optimization impact was already realized in the previous year-on-year progress may seem to be smaller. But as we are still midway, the equivalent level of effect is expected. I see. Thank you. Thank you. As the scheduled time is already passed, I'd like to close the Q&A session here. Thank you very much for your many questions. With this, I'd like to close the financial results meeting of Lion Corporation. Thank you for your participation today.