Thank you for taking time out of your busy schedule today to attend our financial results meeting. Before I begin, I would like to express my deepest condolences to those who lost their lives in the recent Noto Peninsula earthquake. I would like to express my deepest sympathies to all those affected by the disaster. Lion has been providing the support, and we pray for the earliest possible recovery of their daily lives.
Today's explanation will consist of the three items you can see here. First, I would like to discuss the consolidated results for the fiscal year 2023. Here are the financial highlights of the fiscal year 2023. As we announced originally on January 31, both sales and profits did not reach the levels announced at the beginning of the year. This was mainly due to the two new products in the domestic fabric care business falling short of the plan. Net sales increased, and profits decreased compared to the previous year. The sales of the consumer products, due to inbound demand of the pharmaceuticals, increased, while in the fabric care field, where the new products were launched with the aim of the double-digit increase, but the sales increased only slightly.
Overseas, we were able to significantly increase the sales in each of our major countries. The core operating income decreased due to the high competition cost and one-time expenses incurred in connection with the relocation of the head office. The operating profit and the profit for the period that are attributable to the owners of the parent also include the absence of the gain of the transfer of the land in January 2022. I will now explain our consolidated financial results.
For our fiscal year 2023, we are aiming to increase the profit for the first time in three years through the further growth of the overseas business and expansion of the presence in the fabric care field. Unfortunately, results fell short of the original expectations. Net sales were JPY 402.7 billion, an increase of JPY 12.8 billion. The core operating income was JPY 20.1 billion, a decrease of JPY 3.4 billion. The deviation from the announcement and the beginning of the year is shown on the right-hand side of the table. Operating profit for the previous year include the gain on the transfer of the land owned by the subsidiary. EBITDA was at JPY 38 billion, a decrease of JPY 1.9 billion from the previous year, with EBITDA, a margin of 9.4%, ROIC of 4.7%, and ROE of 5.4%. Core operating income factor was JPY 5.4 billion in total.
The impact of the sales increase and decrease was a net increase of JPY 1.8 billion. A JPY 4.5 billion increase in gross profit due to the higher sales was offset by a JPY 2.7 billion decrease due to the higher depreciation and changes in segment composition. The total cost reduction was JPY 3.1 billion. The impact of the raw material price totaled JPY +0.5 billion. Lower income in Japan offset the high income overseas throughout the year. An increase in competition costs associated with the launch of the new products and the head office relocation costs contributed to the decrease of the total core operating income of JPY 3.4 billion from the previous year.
Here, we show the increase or decrease of the business profit relative to the assumption. As you can see, the large discrepancy in the changes in sales, product mix, and the others, mainly due to the Airis and the NANOX one not reaching the plan in the second half of the year. Airis deviated from the plan throughout the second half, and NANOX one deviated from the plan in the fourth quarter. Despite our efforts of the cover of this gap through the additional cost reduction and the cost containment, the result was a deviation of the lower JPY 5.0 billion from our forecast.
Achievement by segments. The upper row shows the net sales, and the lower row shows the external sales. As you can see, the overseas sales and the profit increased steadily. In the customer products business, external sales slightly declined from the previous year, where the segment income fell. In the industrial product business, external sales increased in the chemical sector due to the continued demand of the rubber anti-sticking agent of the tires and the carbon for rechargeable batteries, but the segment profit fell slightly.
Next, sales by the sector for the consumer products business. Sales of the pharmaceuticals increased due to the growth in cooling gel sheets and the acne relief products on the back of the recovery inbound demand. While the sales of the beauty care, where the hand soap market continued to fall short of the previous year's level, and the living care, where the household detergent struggled, fell below the previous year's level. In fabric care, as mentioned earlier, the new major products did not perform well. The overall sales in the segment increased only by 1.4% from the previous year.
Next is the performance of our overseas business by region. In fiscal 2023, the net sales and the core operating income increased in both Southeast Asia and the Northeast Asia, due to the sales growth in each country. As a result, the ratio of the overseas operation account for 33.3% of the consolidated sales. In the Southeast Asia as a whole, the sales in both Thailand and Malaysia were strong, increasing 11.4%, excluding the effect of the exchange rate. The sales increased 3.8%, and a significant 115.4% increase in the segment income. Next, for the Northeast Asia as a whole, the sales increased 19.7%, driven mainly by China. The sales increased 15.2% in real term. Therefore, the segment core operating income also increased 26.6%.
An overview of the four major overseas countries is provided on the next pages. This page shows the change in sales, excluding the exchange rates and the status of the business in the major overseas countries. Overall, the growth is accelerating faster than expected, and the personal care products, which is the focus of the efforts to transform our business portfolio, are also growing in each country.
In Thailand and Malaysia, the sales of the laundry detergent grew amid a more competitive environment. In China, both online and offline channels grew, resulting in the significant income in sales. In particular, White & White toothpaste, locally manufactured products performed well in the offline channel, driving sales. In South Korea, the sales of the liquid laundry detergents and the capsule detergent increased. Next, I discuss the consolidated business forecast for the fiscal year 2024, and the future policies for the next medium-term management plan.
Main takeaway is the fiscal year 2023 as our baseline that will fortify our foundation in order for the entire group to get back on the track to robust growth. The first here is the consolidated forecast for the fiscal year 2024. On the year-on-year basis, net sales are unchanged while the core operating income is expected to increase by 14%. The right column shows the comparison with the 2024 target presented in the midterm management plan. Since both sales and profits have not reached the initial targets, that will place a top priority on improving the profitability, aiming for the first time in four terms.
I will explain the direction of the strategy for the next midterm management plan based on the progress of the first stage. This is the step that we initially envisioned for the realization of the Vision 2030 when we announced the financial result in 2021. Starting with the first stage that we plan to roll out the three-year medium-term management Plan three times, aiming to realize the Vision 2030. This is also the steps leading us to the Vision 2030 sales target. Through growth centered on overseas operations that we aim to increase the revenue by JPY 240 billion compared to 2021. This is a review of the growth image at the time the Vision 2030 was formulated.
Two years has passed since we started the first stage, and as I have explained, due to the effect of the soaring raw material prices and the sluggish performance of new products, profits, in particular, have deviated from the initial plan. Our group continues to pursue the performance targets of the Vision 2030. There is no change to it, and we recognize the need to tune up our medium to long-term strategy to return to the trajectory that we initially aimed for. The direction is shown at the bottom of the page.
For the second stage, in addition to the original theme of the transformation, accelerating the speed of the growth, the company has changed the theme to the strengthening the profitability and focusing on profitability. In addition, 2024, the final year of the first stage, is positioned as the year of rebuilding the earning base toward the second stage. In turning our strategy, the page shows the performance trend and the future direction of each business segment. The graph has a core operating income rate in vertical axis, and the total sales horizontally, with the circles indicating the sizes of the profit.
In the consumer products, the impact of the raw materials and the poor performance of the new products have led to the decline in profit margin, and we recognize that we must work to improve the profitability and push the pie chart back up and to the upper right corner. Overseas, on the other hand, the sales growth has been realized steadily, and the profits are back on the track to increase in 2023, despite a temporary decline in profitability, as the growth engine of our group will continue to strengthen our growth measures.
In light of the situation, we have identified issues to be addressed in our consumer products and overseas business towards 2027. In the consumer products business, we are focusing on portfolio and business structure reforms. In the overseas business, we are focusing on accelerating growth in existing countries and regions, and strengthening and expanding new countries and regions. In the following pages, I would like to discuss specific measures to address these issues.
From this page onward, I will show you some quantitative figures with KPIs. They are not vague. We have tried to go into detail when setting them. First, as a challenge we acknowledge, which is key measures in the consumer products business to reform the earning structure, we will mainly focus on two areas, portfolio reform, and business structure reform. At the top, regarding portfolio reform, we will continue to focus on growth in priority areas, reorganize non-priority businesses, and clearly differentiate business fields, shift to high value-added products and price revisions worth JPY 15 billion, while focusing on specific efficiency measures, such as reducing the number of SKUs by 30% and reducing the competition-related expenses ratio by 2 percentage points through streamlining.
At the same time, we will aggressively pursue fundamental changes in our business by reducing inventories, improving productivity, and making indirect costs efficient. By engaging in reforms on both fronts, we will promote business operations with a strong mindset towards ROIC. In the following slides, I will discuss specific acceleration measures for this year, 2024, based on the direction towards 2027. Regarding the clear differentiation of business fields towards portfolio reform, in 2024 in the consumer products business, we will focus on the introduction and growth of new products to strengthen oral care and high price range eye drops in the pharmaceuticals field.
In oral care, we will strengthen conventional appeal by symptoms and also make efforts to engage about 25% of customers who do not have a specific brand loyalty and who we were not able to reach before by focusing more on lifestyles and values by proposing new and positive toothbrushing habits. Through these efforts, we will strive to solidify our position as the number one manufacturer. For eye drops, we aim to revitalize the premium market by introducing new products in the highest price range and accelerate the value-added business.
In addition, while strengthening priority fields, the company will proceed with the transfer or downsizing of businesses in non-focus fields. Following the partial transfer of functional food businesses last year, as announced today, we have decided to transfer some health tonic drink brands and one anti-inflammatory analgesic brand in the pharmaceutical field. We will continue to sort out the positioning of our brands in the portfolio in each field and accelerate portfolio transformation by allocating resources to growth fields.
Next is the implementation of price hikes, mainly in Japan. From 2022- 2023, we have raised prices mainly in response to rising raw material prices. Although raw material prices have settled down after a period of staying high, we will continue to raise prices, mainly to improve the profitability of the consumer products business. From 2024, we will expand categories that are subject to price increases from toothbrushes, fabric softeners, and household detergents, and the impact of the price revisions are expected to exceed JPY 4 billion. We will continue to consider the target SKUs for price hikes, taking into account market trends, product attributes, and the competitive environment.
I would now like to talk about our priority measures towards the second stage of our overseas business. While our overseas business has been growing steadily, in order to further accelerate growth, we will aggressively promote the acceleration of growth in existing countries and strengthen and expand new countries. To accelerate growth in existing countries, we will first aim to accelerate growth in China, which we have positioned as a top priority country. Although we are steadily expanding our business in China already, mainly through the mainstay oral care business, our presence in this major market is still low. We believe there is ample room for growth.
Regarding measures to expand our business in China, we will strengthen our offline sales organization and expand our sales area from not only in the coastal area, but to inland cities, thereby reaching out to more consumers. For products, we will also aim to expand our presence by developing products that meet local needs, by driving local R&D capabilities through the new research center in Shanghai. For medium-term growth, we will expand into new business fields, including a new entry into the field of detergents for institutional use in China.
Next is about expanding the personal care business. We classify oral care, beauty care, and pharmaceuticals together as personal care. These products have relatively high gross profit margins and are less affected by raw material prices compared to detergents and other home care products. So we regard them as stable profit generators. In the overseas business, personal care accounts for 42% of net sales, which we would like to increase to about half or 50% by 2030, so that we can achieve growth in terms of both quantity and quality. Specifically, in oral care, we will aggressively market thin-head toothbrushes in respective countries, which we have made a de facto standard in Japan. In the beauty care field, we will leverage the high brand power of our body soap, Shokubutsu Monogatari, and focus on strengthening the high added value segment in order to build a solid foundation.
In Bangladesh and Vietnam, countries we entered during the first stage in order to achieve medium-term growth, we will aim to develop business foundations and quickly launch full-scale operations. First, regarding Bangladesh, in addition to sales of laundry detergents, which began last year, this year we will expand our product lineup to include kitchen detergents and toothbrushes. In addition, we will begin construction of a new factory, which we decided to build last year. We will continue to expand our business fields and improve our supply system, aiming for sales of around JPY 20 billion by 2030.
Next is Vietnam. Unlike other countries, Vietnam is unique in that we are developing our business in the healthcare field due to recommendations from experts. Currently, we provide marketing support for nasal drops and other products of our partner company's brands. From 2024, we plan to introduce a skincare brand for sensitive skin, which we are already selling in Singapore. As the next step, we will expand our business portfolio by entering the premium price range in oral care, where we have an advantage, and aim for sales contribution worth JPY 10 billion by 2030.
Lastly, I would like to talk about today's press release of our plan to construct a new plant to increase production of electroconductive carbon black. The electroconductive carbon black business is handled by our consolidated subsidiary, Lion Specialty Chemicals, and is mainly used as electroconductive agents and antistatic agents for lithium-ion secondary batteries in electric vehicles. Our products have superior conductivity compared to the competition, and we believe that they can contribute to the global reduction of CO2 with increased penetration of electric vehicles. We consider this to be a priority area where we can realize a trade-on between economic value and social value.
We have been considering ways to strengthen our supply and have recently concluded an MoU with IRPC of Thailand and have begun considering the construction of a new plant to increase production. We will start considering the details and plan to make a final investment decision by around January 2025.
Lastly, I'd like to talk about shareholder returns. This is a review of our shareholder return policy and progress during the two years of the first stage in the Vision 2030 medium-term management plan. Our basic policy is to continuously increase corporate value through business growth, strengthening profitability, improving the efficiency of capital, enhancing shareholder returns, et cetera. During the first stage, we will increase dividends every year over the three years and flexibly conduct share buybacks and cancel treasury stocks. We plan to do more than a total of JPY 30 billion worth of shareholder return over the three years.
As for progress toward these goals, up until 2023, dividends increased by JPY 1 in each of the two years. In February 2022, we've also conducted a JPY 10 billion share buyback, bringing total shareholder return to approximately JPY 24 billion. Based on this basic policy, here are the shareholder return measures for the final year of the first stage. We have passed a resolution to repurchase and retire up to JPY 10 billion of our own shares in 2024, the final year of the first stage, as we did in 2022. Furthermore, in order to further enhance shareholder returns and to pay stable dividends over the long term, the company has decided to change its dividend policy and introduce a progressive dividend system.
Going forward, we will aim for a consolidated dividend payout ratio of 30% based off the progressive dividend policy and increase profits through earnings growth. Regarding dividends, in 2024, we also plan to increase dividends by JPY 1 from the previous year for the ninth consecutive year to an annual dividend of JPY 27 per share. The consolidated dividend payout ratio will be 40.4%, and the total return ratio, including dividends and share buybacks, will exceed 90%.
Reflecting the results of shareholder returns up until 2023 and the plan for 2024, the cash allocation for the first stage will look like this diagram. Although operating cash flow is lower than the original plan due to higher raw material prices and the difficult performance of new products and fabric care products, we are making strategic investments as planned for entries into new countries and regions and increasing capital expenditures to achieve growth.
As for shareholder returns, as I mentioned earlier, as we acquired JPY 10 billion of treasury stock in 2022 and 2024 is planned respectively, shareholder returns are likely to be more than originally planned. We will enhance profitability through strategic allocation of management resources and improve ROIC through balance sheet management in order to increase corporate value.
This is the last page. As we released today, we partially revised the shareholder benefit plan. We have been sending a set of our company's products to all shareholders who hold 100 or more shares of our company's stock as a shareholder special benefit. However, in order to encourage shareholders to continue to own our company's stock over the medium- to long-term, we have decided to change the conditions of the special benefit program from record date December 31, 2025. We added a condition that shareholders must have owned the company's shares for at least one year for eligibility. For details, please refer to the announcement released today.
As we've been saying, we view our performance in 2023 as the bottom, but we believe this is a level is one from where we can catch up to the targets raised for 2030. To this end, we will further strengthen our earnings resilience towards the second stage, which will begin in 2025. We have explained the specific targets, and I have also talked about our expectations for 2024. Furthermore, I hope to announce the details of the second stage, which will begin in 2025, at the end of this year. This is all I have to say. Thank you for your kind attention.
Now we would like to move on to the Q&A session. Hirozumi, you go first.
Hirozumi of Daiwa Securities, can you hear me? I'm looking at the waterfall chart on page 49. I have one question to pose to you. Could you elaborate how this chart is constructed? It explains here that the competition cost will increase by JPY 1.5 billion, but during the term which has ended, the same category ended up with a JPY 4.5 billion increase. Do you think that the JPY 1.5 billion increase is reasonable, even if you include the benefit of the efficiency?
On the other hand, the raw material cost is flat. I thought that you said that you calculate the benefit of JPY 500 million at the end of the term. I thought that the new fiscal year will bring more benefit, but you are assuming none. You mentioned here that the sales competition restructuring will earn past JPY 3 billion, but at the end of the previous year, the sales increased by JPY 4.5 billion and - 40 by mix. Was that it? I am not sure. Could you explain in more detail how this waterfall chart was constructed?
I am going to give you the outline first, and then Mr. Fukuda will give you more specific explanation. I believe you posed three questions. First, change in composition of the sales. Secondly, increase, decrease in the raw material cost, namely why the plus and minus offset each other. And the third, increase in the competition cost is down by JPY 1.5 billion. I would like to answer one by one.
First, increase in competition cost mainly caused by aggressive investment initiatives in overseas. Domestically, we will focus more on profitability increase in the consumption products, as I have mentioned. Investment in overseas for strengthening our competitive position contributed mainly to the increase in cost.
Next, impact of the increase in the raw material cost. Please go up to the chart by two notches. There is delay of about half a year between the increase in raw materials, and the impact is reflected on our financial performance. Though JPY +500 million appears in our book in the first half, many developments are anticipated in the following six months, including the spot oil purchase in Dubai, naphtha, palm oil, and Forex. If this increase continues to the current term, second half, it will be safer for us to be conservative. So we assume that the second half will offset the first half.
As for the JPY +3 billion gain for the sales restructuring, we expect this increase from the sales growth in the overseas market and the success in oral care products, as well as the JPY 4 billion contributed by the price increase. However, the price increase will probably decrease the sales volume, and therefore, we cannot expect the JPY 4 billion to be translated automatically into the gross margin. Fukuda is here to respond to your question, sir.
As Takemori already mentioned, the JPY 3 billion increase in the sales turnover are mainly calculated from the price increase in domestic market, as well as a part of portfolio reshuffling and reduction of the SKU. We take a bird's-eye view in order to assess our operation. We will curtail the part of our schedule so we may suffer the temporary setback in profit.
As for the raw materials, as our CEO already told you that there is a slight delay or the timeline until we feel the impact. In other words, that we may enjoy some slight benefit during the first half. So far, however, we have to continue bracing ourself against the yen's depreciation. In the second half, we probably will end up the level of the second half of the last year, namely flat through the entire year.
Has he answered your question?
I think I have asked you the meaning of the JPY 1.5 billion competition cost. I wonder if this cost is sufficient.
Very well, sir. In the domestic market, we can reduce the sales promotion expenses earmarked for the newly launched product this year than the previous year. In the overseas market, the sales promotion cost will increase, we believe. JPY 1.5 billion increase is reasonable to us.
Thank you. That's all from me.
Kuwahara, your question, please.
Thank you. My name is Kuwahara from JP Morgan. Can you hear me? My only question is somewhat related with Hirozumi's question. I'm looking at page 48 sales forecast by overseas segments. It is quite understandable that you would like to consolidate your product lineup. Consumer products are not performing well, despite that you added some oral care products. Year-on-year profit will probably decrease this year. It says that the decrease is especially conspicuous in the first half, but will recover to a certain degree in the second half. Could you elaborate more on this? You have been explaining that you will divest non-core businesses. How much does divestiture contribute to the bottom line?
In addition, how much growth do you expect for each category, including oral products, pharmaceuticals and fabric care, beauty care, healthcare and living care products? What is your future vision for the consumer goods? What will be the ideal business mix to you? How much do you think that the newly launched strategic products, or the mix thereof, can contribute to the entire company?
Thank you very much for the question. - 1.6% compared to the previous year is our prediction of the consumer products, as is explained on this page. As I have mentioned, excluding the functional food part of the pharmaceutical products, we think that we can just slightly increase the sales in the first half. Digging deeper into each segment, oral will hover over 105%- 106% according to our plan. Fabric care, beauty care and the living care products will generally stay at 100%, excluding some pharmaceuticals. Transferred pharmaceuticals accounts for about 10% of the total sales of the products of this segment, which would not incur any major loss for us. This is a breakdown of the consumer products in 2024.
Next, you are interested in our future portfolio. Our most important principle is to deliver the positive lifestyle habits to our customers. This is our major strategy we pursue. In this sense, as I have mentioned at the outset, we will continue investing positively into the oral care products. Growth in the segment will contribute to enhancing our profitability and efficiency, I believe.
Thank you. I am relieved to hear your positive attitude toward the oral products. You say your fabric care products, beauty care products or living care products are expected to perform at the level of the 100% this year. Can you achieve this? Do you have any strategies to face such challenges? You may try to raise the prices of the products, but the market does not look very bullish to me.
I have three stories to share with you. The market conditions of the fabric care products are staying at the same level as before, but we also see some light at the end of the tunnel. Consumers' purchasing pattern will change, and they will be more selective. The conventional business model of targeting the mass market by big sales promotion programs and the incentives would not work too well from now. We have to improve the profitability by laser-focusing on the target customers. This will be the winning formula for our domestic fabric care products.
Beauty products, including the Kirei Kirei and the kitchen detergents, we had to face the uphill battle because of the impact of the fabric care products. We concentrated on this segment in order to control the damage, that we had to put the investment into the beauty and the living products on the back burner last year. Considering this, 100% for this year is not too high a hurdle for us.
Understood. Thank you.
Next in line is Miyasako.
My name is Miyasako from Mizuho Securities. Can you hear me?
Yes, very clearly.
Where do you think that you made mistake over the new fabric care products such as Airis and the NANOX one? How are you going to recover from these failures this year? You mentioned that you are going to shift your focus more on profitability as a key strategy in order to revitalize the sales of the fabric care products, but how specifically are you going to change your direction? Can you hear me?
Okay. Let me take some time to discuss the fabric care products. Allow me to repeat what I have already mentioned to you. Strategic plan for the introducing Airis and the NANOX one failed to hit our original target for this, that we have to do a lot of soul-searching. Given this, however, that from the perspective of the competitive advantage and the contribution to the stakeholders, it was a meaningful challenge we took. We set our goalpost too high because we had high expectation of the new products, therefore, we fell short of the plan and the negative impact was directly felt on the domestic performance of the consumer products. We have to humbly learn from our miscalculating the inventory and the market prices.
Was it a futile attempt? Of course not. We do not have to be that humble. Let me talk about the sales data. Annual sales of the detergent consistently underperformed that of the preceding year for a long time. But launching NANOX one, however, the Q4 sales turnover was 106%, attesting to the positive development. As for softening agents, year-round sales of all the companies last year was 99%, falling short of 100%, which was a historic event. Lion was the only one which outperformed the last year. We have to improve our accuracy for market prediction, but we have moved a step forward.
As I have mentioned, we cannot stick to our business as usual policy of mass marketing, mass sales promotion, heavy investment in competitive advantage in mass market at the sacrifice of profitability. Therefore, we have to focus more on our stronger segments and thereby improve the business profitability.
Are you saying that you will not invest so extensively into the fabric care products this year, but switch to more low-keyed measures to nurture them?
Let me say that we stay at par with the previous year. Last year that we invested heavily in order to jump-start in a big way, but we will not be so daring this year. You said low-keyed, but please understand that we are not turning away from this area of business.
Does that mean that the positive habits strategy you mentioned before will remain more or less the same? I thought that you are more committed to steering the company in a more dynamic manner.
Delivering the positive habits to the world, this major policy stays intact. Our current environment does not compel us to change it either. As you know, however, changing one's habit takes a long time and is not easy to do. We learned from our experience of the public care products, reflecting our learned lessons to the next round of introducing the oral products. Lion Group continues to work hard to create, prevail, and add value-added on the positive habits, and thereby contribute to the society.
This will be my last question. Consumer products market, except the oral and the pharmaceutical products appear to be weak and sluggish to me. Do you not have any concerns over your possible mismanagement?
We are not overly pessimistic over the consumer products market. Considering that Japan's annual domestic GDP growth rate is barely 1%, our plan of adding on 100% or aiming at a nearly 1% increase is not deviating significantly from the social trend to a negative side. Having said this, as you have mentioned, customers' behavior patterns have been changing and will continue to change. We have to be sensitive to such changes by carefully gleaning the market information. We have to catch up and adjust to the needs of our customers. Our market business policies should be flexible, be deployed to accommodate customers' requests.
Thank you very much.
The next person is Ms. Sato. Please go ahead.
Thank you very much. I am Sato from Morgan Stanley. Can you hear me?
Yes, we can.
I have a simple question. On page 48, you show sales by segment. What is your outlook on the respective business profits?
This is Fukuda speaking. I will answer your question. Regarding the forecast for 2024, we are focusing on ensuring an increase in profit. So by segment, we are expecting the consumer product segment to go back to a profit increase. Although sales are projected to go down, we would like to ensure that profits increase. We are also looking to increase profits in industrial products and overseas in line with the increase in sales. Does that answer your question?
Yes, it does. In terms of balance, is the contribution to the JPY 3 billion profit increase greater in Japan or overseas?
In terms of balance, I would say it is even. It's about half and half.
I see. Because the businesses you withdrew from or sold were loss-making, does that have a considerable positive impact?
Although we are selling the brands, we are not restructuring fixed costs. The loss of marginal profit will temporarily weigh on profits. However, we will conduct a review on the allocation of management resources, including human resources.
I understand. There is no special cost for this, but it will be managed within SG&A expenses and cost of goods sold?
Yes, that is correct.
I understand. Thank you very much.
Thank you very much. The next person is Ms. Yamanaka.
Hello, this is Yamanaka of SMBC Nikko Securities. Thank you for taking my question.
Please go ahead.
First, I would like to ask a follow-up question about the price revisions on page 22. About last fiscal year ended December 2023, the changes in segmentation, et cetera, had an impact of JPY -2.7 billion. If you break down the domestic and overseas impact of the price revisions, can you share with us how this look like?
You are talking about the balance between the overseas and domestic pricing impact in fiscal 2023, right?
Yes. I would like to know the breakdown for 2024.
First, let me go back to 2022 to explain. Going back to 2022, overseas had a greater impact on price revisions. Roughly speaking, overseas contributed by JPY 4 billion, in Japan JPY 2 billion. That was 2022. In 2023, last fiscal year, because what we did in 2022 ran its course, Japan contributed more in 2023. Roughly that was about JPY 3 billion from Japan and JPY 500 million- JPY 600 million from overseas, amounting to a total of about JPY 3.5 billion- JPY 3.6 billion. Regarding what we will do this year, I do not think the balance between domestic and overseas will change significantly. However, as I mentioned earlier, improving profitability of domestic consumer products is an urgent issue. We would like to expand the scope of domestic price hikes, and we will strive to reach about JPY 4 billion this year.
Thank you very much. Looking back at last fiscal year and the past two years for your domestic business, I remember that you explained before that it was difficult to implement a drastic price hike in the B2C area, such as oral care, because the products are not directly affected by the surge in raw material prices. So you were mainly raising prices of your B2B products. Are you saying that this time around, the plan has changed, and you are striving to benefit directly from pricing in the B2C area?
Yes, you can take it that way. I hope you can see the PowerPoint that I am sharing right now.
Yes.
As you can see on the right, for this year, 2024, we would like to attempt to raise prices appropriately for products such as fabric softeners, toothbrushes, and kitchen cleaners that were difficult to do in the past due to market competition.
Well, thank you for that. I would like to learn more about that comment. You were saying that you were going to actively pursue price increases for products like fabric softeners, kitchen cleaners, and mold removers, where competition is quite fierce. When you listen to the communication from large companies, it appears that they are rather passive for 2024 and are not likely to raise prices significantly. What is the backdrop to why you are engaging in price hikes? What is the winning strategy? Have you negotiated with the wholesalers and retailers already and have received a good response? Do you feel that you can be successful by changing your consumer communication strategy?
Well, regarding wholesalers and retailers, details are yet to be decided respectively, to be honest. However, as I mentioned earlier, in order to increase the profitability of consumer products, we are thinking about making changes to determine where we are going to grow and where we are going to change and secure profitability. Therefore, oral care is the field we will strive to grow both qualitatively and quantitatively. Other than oral care in the fields and products listed here, we would like to ensure that price increases will be carried out by gaining the understanding of wholesalers and retailers.
Thank you very much.
Thank you very much. The next person is Mr. Ohana. Please go ahead.
Thank you very much. I am Ohana from Nomura Securities. Thank you for taking my question. I have a question about pages 17 and 19 regarding structural reform in the domestic business. You were saying that you will engage in efforts toward 2027. Regarding the brand transfers that you have announced, how much progress are you expecting to make in 2024 if you were to benchmark against 2027 as 100%? Also, regarding 2025, you said you will be working on profitability reform. Should we expect sales for domestic consumer products to be fairly weak?
I will answer your question. For consumer products, whether it be 2025 or 2024, but for 2024, as I mentioned before, we will be raising prices and reducing SKUs, et cetera, in order to raise profitability, which is reflected in the vertical line, going from 2023- 2024. For 2025, we are not saying that we are not going to grow. Rather, we are striving to ensure steady, firm growth. We have not given up on sales growth at this point, but are aiming for a steady top-line growth while changing the portfolio structure and increasing profitability and business profit margin. This is the overall way we would like to proceed.
How about the progress you are planning on making in 2024 against 2027?
This is Fukuda. The bubble chart shows the pathway we have in mind. For example, in terms of the sales of brands other than Lactoferrin, which we sold last year, and the pharmaceutical brands that we announced today, we have not yet decided on anything else. We are considering continuing to review our portfolio. There may be some other things that come up within this year, or there may be also some small businesses that we will end. By repeating this kind of exercise, we hope to raise the profit margin by about 2 percentage points in 2024 year-over-year. Then we hope to increase the profit margin back to the original level of close to 10% in the subsequent three years.
Thank you very much. Let me just confirm two things. First, regarding the businesses you decided to sell, like Lactoferrin and the tonic drinks, how much of a negative impact on sales will they have this fiscal year? Also, considering the operating profits, I am sure it will be positive, and I presume there will be a gain from the sale. How much is that likely to be? Secondly, regarding consumer products in 2024, you are saying that you would like to raise profitability by 2 points. In 2023, business profits were about JPY 4.8 billion, so 2 points means it is likely to double, although I am doing simple calculation. Then I presume that JPY 23 billion can be achieved just with the domestic consumer products alone. Can you share your view with us on this?
First, the impact of the business transfers on sales is several billions of yen. When you account for the increase in revenue of oral care, we have the segment plan on net basis. As for the gain on the transfer, the amount is not disclosed due to the agreement we have between the two companies. You can get an estimate by referring to the increase in business profits and operating profits. The business profit margin for consumer products in 2023 is 2.1% or JPY 4.8 billion. If the business profit margin increases by 2 points in 2024, even though there may be a slight decrease in sales, I think that that alone will double the business profit.
The projected JPY 23 billion in business profit for 2024 looks like it could be achieved just through consumer products when you do the math. I would like to know your view on that.
I think you are trying to say that we have been a little conservative in estimating the increase in profit for consumer products. It is because we have accounted for the domestic cost environment, the competitive environment, and the deviation from last year's plan for Airis that caused inventory inefficiencies and is still slightly lingering in its impact. That is one aspect. For industrial products, we will be starting considerations regarding KETJENBLACK with IRPC, so major projects will start, such as factory design. As one-time expenses are expected to be incurred, the magnitude of the profit increase is as stated.
I understand. It is not just consumer products, but the business other than consumer products that may weigh on profits. That is why you have this forecast.
Yes, that is the case for domestic business.
I understand. Thank you very much.
Thank you very much. This concludes Lion Corporation's financial results briefing. Thank you very much for your participation today.